<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 SEPTEMBER 30, 1998
[_] 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 0-23223
CURAGEN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1331400
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
555 LONG WHARF DRIVE, 11TH FLOOR, NEW HAVEN, CONNECTICUT 06511
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 401-3330
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [_]
The number of shares outstanding of the Registrant's Common Stock as of
October 28, 1998 was 13,303,007.
<PAGE>
CURAGEN CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets,
September 30, 1998 (unaudited) and December 31, 1997 3
Condensed Statements of Operations,
for the Three and Nine Months Ended September 30, 1998 and 1997 (unaudited) 4
Condensed Statements of Cash Flows,
for the Nine Months Ended September 30, 1998 and 1997 (unaudited) 5
Notes to Condensed Financial Statements (unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
</TABLE>
<PAGE>
CURAGEN CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $48,905,392 $17,417,161
Grants receivable 455,564 421,564
Accounts receivable 0 166,750
Prepaid expenses 667,966 157,480
Stock issuance costs 0 1,083,251
Other current assets 1,650 13,883
----------- -----------
Total current assets 50,030,572 19,260,089
----------- -----------
Property and equipment, net 13,252,274 6,920,196
Other assets 576,722 338,744
----------- -----------
Total assets $63,859,568 $26,519,029
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,687,989 $ 1,106,134
Accrued payroll - related party 0 308,125
Accrued expenses 644,648 1,345,262
Deferred revenue 1,625,000 375,000
Current portion of obligations under capital leases 1,953,673 1,386,896
----------- -----------
Total current liabilities 5,911,310 4,521,417
----------- -----------
Long-term liabilities:
Deferred rent 325,751 227,972
Interest payable 21,000 21,000
Obligations under capital leases, net of current portion 7,280,960 4,126,153
----------- -----------
Total long-term liabilities 7,627,711 4,375,125
----------- -----------
Commitments and contingencies
Redeemable Common Stock 0 3,940,312
----------- -----------
Stockholders' equity:
Preferred Stock 0 1,459,196
Common Stock 132,986 85,801
Additional paid-in capital 71,738,003 23,861,665
Accumulated deficit (20,689,239) (10,511,023)
Unamortized stock based compensation (861,203) (1,213,464)
----------- -----------
Total stockholders' equity 50,320,547 13,682,175
----------- -----------
Total liabilities and stockholders' equity $63,859,568 $26,519,029
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
CURAGEN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Grant revenue $ 483,015 $ 667,118 $ 2,563,213 $ 2,558,167
Collaboration revenue 1,825,000 625,000 4,450,000 1,613,583
------------- ------------- ------------- -------------
Total revenue 2,308,015 1,292,118 7,013,213 4,171,750
------------- ------------- ------------- -------------
Operating expenses:
Grant research 362,856 1,600,406 1,470,555 4,067,967
Collaborative research and development 4,822,701 1,083,395 11,618,778 2,363,172
General and administrative 2,144,338 1,090,944 5,219,955 2,071,435
------------- ------------- ------------- -------------
Total operating expenses 7,329,895 3,774,745 18,309,288 8,502,574
------------- ------------- ------------- -------------
Loss from operations (5,021,880) (2,482,627) (11,296,075) (4,330,824)
Interest income (expense), net 510,195 129,469 1,117,860 (18,904)
------------- ------------- ------------- -------------
Net loss (4,511,685) (2,353,158) (10,178,215) (4,349,728)
Preferred dividends 0 (17,106) (508,435) (51,318)
------------- ------------- ------------- -------------
Net loss attributable to common stockholders ($ 4,511,685) ($ 2,370,264) ($10,686,650) ($ 4,401,046)
------------- ------------- ------------- -------------
Basic and diluted net loss per share attributable
to common stockholders ($0.34) ($0.27) ($0.90) ($0.53)
------------- ------------- ------------- -------------
Weighted average number of shares used in
computing basic and diluted net loss per
share attributable to common stockholders 13,203,058 8,871,987 11,831,393 8,358,307
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
CURAGEN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($10,178,215) ($ 4,349,728)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,906,912 822,692
Non-monetary compensation 402,261 616,374
Changes in assets and liabilities:
Grants receivable (34,000) (78,389)
Accounts receivable 166,750 200,000
Other current assets 12,233 9,231
Prepaid expenses (510,486) (70,324)
Other assets (170,739) (178,898)
Accounts payable 581,855 426,665
Accrued expenses (1,008,739) (114,462)
Deferred revenue 1,250,000 670,000
Deferred rent 97,779 173,869
Interest payable 0 259,316
------------- -------------
Net cash used in operating activities (7,484,389) (1,613,654)
============= =============
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (8,169,706) (1,415,390)
Loans to related parties (135,000) (100,000)
------------- -------------
Net cash used in investing activities (8,304,706) (1,515,390)
============= =============
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (1,341,957) (535,760)
Proceeds from issuance of Preferred Stock 0 20,387,203
Proceeds from issuance of Common Stock 48,662,480 0
Proceeds from exercise of employee stock options 350,950 0
Proceeds from sale-leaseback of equipment 4,999,845 981,207
Redemption of Series B Preferred Stock (1,967,631) 0
Payments of stock issuance costs (3,426,361) (221,133)
------------- -------------
Net cash provided by financing activities 47,277,326 20,611,517
------------- -------------
Net increase in cash and cash equivalents 31,488,231 17,482,473
Cash and cash equivalents, beginning of period 17,417,161 3,298,642
------------- -------------
Cash and cash equivalents, end of period $48,905,392 $20,781,115
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,378,947 $ 284,609
============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING TRANSACTIONS:
Reduction of note and related interest payable upon exercise
of common stock warrants $ 0 $ 1,485,644
============= =============
Reduction of accrued expenses upon issuance of Common Stock $ 0 $ 162,958
============= =============
Obligations under capital leases $ 5,051,378 $ 3,767,003
============= =============
Adjustment of Redeemable Common Stock $ 0 $ 3,940,312
============= =============
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
CURAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of the Company's management,
the accompanying unaudited condensed financial statements include all
adjustments, consisting of only normal recurring accruals, necessary to
present fairly the financial position, results of operations and cash flows
of the Company. Interim results are not necessarily indicative of the
results that may be expected for the entire year.
The accompanying condensed financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 1997 contained in the Company's Registration Statement on Form
S-1 (File No. 333-38051) filed with the Securities and Exchange Commission
and declared effective on March 17, 1998.
2. INITIAL PUBLIC OFFERING AND CONCURRENT PRIVATE PLACEMENTS
On March 23, 1998, the Company completed its initial public offering of
3,000,000 shares of Common Stock at $11.50 per share. In addition, Biogen,
Inc. and Genentech, Inc., two of the Company's collaborative partners and
existing stockholders, and the University of Florida Research Foundation,
Inc. purchased an aggregate of $11,000,000 of the Company's Common Stock in
private placements concurrent with the initial public offering, at a price
of $11.50 per share. On April 21, 1998, the Company sold an additional
275,000 shares of Common Stock to the underwriters, at $11.50 per share, in
connection with the underwriters' exercise of their over-allotment option.
Additional net proceeds of approximately $2,900,000 were raised through the
exercise of the over-allotment option.
3. LEASES
Capital Leases
In June 1998, the Company signed an additional $5.0 million lease-financing
commitment to purchase various laboratory, office and computer equipment and
to make tenant improvements. The lease commitment provides for payment terms
of 60 months per individual lease schedule, with interest rates of
approximately 9.75%. At the end of the respective lease terms, the Company
has the right to either return the equipment to the lessor or purchase the
equipment at fair market value, deemed to be 11% of the equipment cost. As
of September 30, 1998, the entire net proceeds of $5,000,000 had been
received under this lease financing commitment.
6
<PAGE>
CURAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
Operating Leases
In August 1998, the Company entered into a new lease relating to its
laboratory and offices in New Haven, Connecticut. Under the new lease, the
Company increased its leased space to 36,000 square feet. The Company may
renew the lease for three additional terms of two years each.
The future minimum annual rental payments for the operating lease as of
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998 $ 165,651
1999 736,729
2000 736,729
2001 736,729
2002 772,667
----------
Total $3,148,505
==========
</TABLE>
4. RECENTLY ENACTED PRONOUNCEMENTS
On March 4, 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Planned for Internal
Use". This SOP provides guidance on accounting for the costs of computer
software developed or obtained for internal use. This SOP requires that the
following costs be capitalized: 1) external direct costs of materials and
services incurred in developing or obtaining internal-use computer software;
2) payroll and payroll-related costs for employees who are directly
associated with and devote time to the internal-use software project (to the
extent of time spent directly on the project); and 3) interest costs.
Computer software costs that are research and development should be expensed
as incurred. In addition, training costs should be expensed as incurred.
This statement is effective for financial statements for fiscal years
beginning after December 15, 1998, however, earlier application is
encouraged. The Company will adopt this pronouncement in 1999 and has
determined that SOP 98-1 will have no material effect on its financial
statements.
7
<PAGE>
CURAGEN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations as of September 30, 1998 and for the three and nine month periods
ended September 30, 1998 and 1997 should be read in conjunction with the
sections of the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission and declared effective on March 17, 1998,
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OVERVIEW
CuraGen Corporation (the "Company" or "CuraGen") is a biotechnology company
focusing on the application of genomics to the systematic discovery of genes,
biological pathways and drug candidates in order to accelerate the discovery and
development of the next generation of therapeutic, agricultural and diagnostic
products. The Company was incorporated in November 1991 and, until March 1993,
was engaged primarily in organizational activities, research and development of
the Company's technology, grant preparation and obtaining financing. The
Company has incurred losses since inception, principally as a result of research
and development and general and administrative expenses in support of its
operations. As of September 30, 1998, the Company had an accumulated deficit of
$20,689,239. The Company anticipates incurring additional losses over at least
the next several years as it expands its internal and collaborative gene
discovery efforts, continues development of its technology and expands its
operations. The Company expects that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial.
In March 1998, the Company completed an initial public offering of 3,000,000
shares of its Common Stock and received net proceeds of $30.2 million.
Concurrently with completion of the initial public offering, the Company
privately placed an aggregate of 956,520 shares of Common Stock and received net
proceeds of $5.0 million each from Biogen, Inc. ("Biogen") and Genentech, Inc.
("Genentech"), two of the Company's collaborative partners and existing
stockholders, and $1.0 million from the University of Florida Research
Foundation, Inc. Accordingly, the combined net proceeds raised by the Company
from the offering and the concurrent private placements were $41.2 million. In
addition, in April 1998, the Company's underwriters exercised their option to
purchase an additional 275,000 shares of Common Stock at a price of $11.50 per
share to cover over-allotments, providing CuraGen with additional net proceeds
of $2.9 million.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1998 and 1997
Revenue. Revenue for the three and nine months ended September 30, 1998 was
$2,308,015 and $7,013,213, respectively, an increase of $1,015,897 and
$2,841,463, or 79% and 68%, respectively, as compared to $1,292,118 and
$4,171,750 for the corresponding periods in 1997. The increases during both
periods were largely due to additional collaboration revenue recorded during the
year, under the Company's arrangements with Pioneer Hi-Bred International, Inc.
("Pioneer"), Biogen and DuPont Agricultural Enterprise.
Operating Expenses. Grant research expenses for the three and nine months
ended September 30, 1998 of $362,856 and $1,470,555 represented a decrease of
$1,237,550 and $2,597,412, or 77% and 64%, respectively, compared to $1,600,406
and $4,067,967 for the three and nine months ended September 30, 1997. The
decreases in grant research expenses were primarily attributable to the
completion of two federal grants during the first quarter of 1998, thereby
decreasing the costs incurred by the Company in support of these grants. As a
result of the completion of the two federal grants, the Company foresees a
continued decline in grant research expenses during the remainder of 1998,
unless additional grant awards are received.
8
<PAGE>
Collaborative research and development expenses for the three and nine months
ended September 30, 1998 were $4,822,701 and $11,618,778, respectively, compared
to $1,083,395 and $2,363,172 for the three and nine months ended September 30,
1997. The increases of $3,739,306 and $9,255,606, or 345% and 392%, for the
three and nine months ended September 30, 1998, respectively, were primarily
attributable to increased expenses as the Company hired additional research and
development personnel, increased purchases of laboratory supplies, increased
equipment depreciation and increased facilities expenses in connection with the
expansion of the Company's internal and collaborative research efforts. Future
collaborative research and development expenses are expected to increase as
additional personnel are hired and research and development facilities are
expanded to accommodate the Company's collaborations and internal research.
General and administrative expenses for the three months ended September 30,
1998 increased 97% to $2,144,338 as compared to $1,090,944 for the three months
ended September 30, 1997. For the nine months ended September 30, 1998 and
1997, general and administrative expenses were $5,219,955 and $2,071,435,
respectively, an increase of $3,148,520 or 152%. These increases were primarily
attributable to the expansion of administration facilities, the incurrence of
related depreciation expense, payment of legal fees, amortization of stock-based
compensation and hiring of additional personnel to support the future growth of
the Company. Over the next several years, the Company anticipates that
percentage increases in general and administrative expenses will become more
proportionate to percentage increases in revenue and collaborative research and
development expenses.
Interest Income (Expense), Net. Net interest income for the three months ended
September 30, 1998 of $510,195 increased $380,726, or 294%, compared to $129,469
for the first three months of 1997. For the nine months ended September 30,
1998, net interest income of $1,117,860 increased $1,136,764, or 601% as
compared to net interest expense of $18,904 for the corresponding period in
1997. These increases were primarily due to gross interest received on larger
cash and cash equivalent balances held by the Company as a result of the
Company's receipt of proceeds from its initial public offering and concurrent
private placements of securities.
Net Loss Attributable to Common Stockholders. For the three months ended
September 30, 1998, the Company reported a net loss attributable to common
stockholders of $4,511,685 or ($0.34) per share as compared to $2,370,264 or
($0.27) per share in the third quarter of 1997. Since inception, the Company
has incurred operating losses, and as of September 30, 1998 had an accumulated
deficit of $20,689,239 and therefore, has not paid any federal income taxes.
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, valuation allowances in
amounts equal to the deferred income tax assets have been established to reflect
these uncertainties in all periods presented.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had approximately $48.9 million in cash
and cash equivalents, compared to $17.4 million as of December 31, 1997. This
increase primarily reflects the Company's initial public offering with net
proceeds of $41.2 million, which included its concurrent private placements with
Biogen, Genentech and the University of Florida Research Foundation, Inc. The
Company has financed its operations since inception primarily through its
initial public offering of Common Stock, private placements of equity
securities, government grants, collaborative research and development agreements
and capital leases. As of September 30, 1998, the Company had recognized
$19,193,317 of cumulative sponsored research revenues from government grants and
collaborative research agreements. To date, inflation has not had a material
effect on the Company's business.
The Company's investing activities have consisted primarily of acquisitions of
equipment and expenditures for leasehold improvements. At September 30, 1998,
the Company's gross investment in equipment, computers and leasehold
improvements since inception was $16,719,404. At September 30, 1998, equipment
with a gross book value of $11,095,525 secures the Company's equipment financing
facility for equipment and tenant improvements in support of the laboratory
expansions at the New Haven, Connecticut, Branford, Connecticut and greater-
Gainesville, Florida locations. The Company had a material commitment for
capital expenditures of approximately $3.3 million at September 30, 1998,
consisting of machinery and equipment in support of the Company's
PathCalling(TM), SeqCalling(TM) and GeneCalling(R) research processes.
9
<PAGE>
Net cash used in operating activities was $7,484,389 for the nine months ended
September 30, 1998, compared to $1,613,654 for the same period ended September
30, 1997. The increase of $5,870,735, or 364%, can be primarily attributed to an
increase in the Company's net loss, depreciation and amortization expenses, and
deferred revenue, primarily offset by increases in prepaid expenses, and a
decrease in accrued expenses.
As of September 30, 1998, the Company had net operating loss carryforwards of
approximately $19,421,000 to offset federal and state income taxes. If not
utilized, the federal and state net operating loss carryforwards will begin to
expire in 2008 and 1998, respectively. The Company also had research and
development tax credit carryforwards at September 30, 1998, estimated to be
approximately $1,001,000 and $2,134,000 for federal and state income tax
purposes, respectively.
YEAR 2000 COMPLIANCE
The "Year 2000 Problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs may
recognize a year that ends in "00" as the Year 1900 rather than the Year 2000.
This could result in a significant disruption of operations and an inability to
process certain transactions.
Strategic Plan
Early in 1998, upon going public, the Company assessed its internal computer
systems. It was determined that, because its computer applications use four
digits to identify a year in the field date, the Company was in fact internally
compliant with Year 2000 requirements. However, the Company has developed a
strategic plan to estimate the potential risks related to third parties with
whom it has relationships. The third parties include financial institutions,
vendors, payroll service providers, collaborative partners, utility companies
and granting agencies. If any of these third parties encounter Year 2000
problems, it could have a potentially significant outcome on the ability of the
Company to effectively continue its normal daily operations.
The initial stage to be immediately undertaken by the Company will include
distribution of inquiry letters to its most significant third parties, followed
by subsequent internal evaluation of the responses received. Upon learning that
certain third parties are not Year 2000 compliant, the Company may be required
to manually process transactions, delay vendor payments, and/or issue manual
checks to employees in place of direct deposits. These processes, if necessary,
would be a part of the second stage - implementation, in which the Company would
correct and/or replace any vendors or vendor software that is not Year 2000
compliant, as soon as is feasible.
Costs
There have been no historical costs incurred to date by the Company related to
Year 2000 compliance. The Company expects to complete the initial stage of the
Year 2000 Strategic Plan by the end of the first quarter of 1999. The total
cost of this stage is not expected to exceed $25,000. While the Company can not
predict what impact the Year 2000 problem may have on third parties, it does not
currently believe that it will incur material costs in the implementation stage
of resolving potential Year 2000 problems of third parties with whom it
electronically interacts.
Risks
Until the initial stage of the Company's strategic plan is complete, the Company
can not accurately assess the potential risks associated with non-compliance of
its external third parties. While it is understood by the Company that the
potential effect on results of operations could be serious and could have a
material adverse affect on the Company's business or financial condition, at
this time management has not determined the entire potential level of risk.
10
<PAGE>
Contingency Plan
At the present time, a contingency plan has not been developed. The Company
will continue to monitor the need for a contingency plan based on the results of
its Year 2000 compliance strategic plan.
RECENTLY ENACTED PRONOUNCEMENTS
On March 4, 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Planned for Internal
Use". This SOP provides guidance on accounting for the costs of computer
software developed or obtained for internal use. This SOP requires that the
following costs be capitalized: 1) external direct costs of materials and
services incurred in developing or obtaining internal-use computer software; 2)
payroll and payroll-related costs for employees who are directly associated with
and devote time to the internal-use software project (to the extent of time
spent directly on the project); and 3) interest costs. Computer software costs
that are research and development should be expensed as incurred. In addition,
training costs should be expensed as incurred. This statement is effective for
financial statements for fiscal years beginning after December 15, 1998,
however, earlier application is encouraged. The Company will adopt this
pronouncement in 1999 and has determined that SOP 98-1 will have no material
effect on its financial statements.
CERTAIN FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS
This report may contain forward-looking statements that are subject to certain
risks and uncertainties. These statements include statements regarding the
expected future levels of losses, operating expenses and material commitments,
as well as the Company's Year 2000 readiness. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. The Company cautions investors
that there can be no assurance that actual results or business conditions will
not differ materially from those projected or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the Company's early stage of development, technological uncertainty
and product development risks, uncertainty of additional funding, reliance on
research collaborations, competition, the Company's ability to protect its
patents and proprietary rights and uncertainties relating to commercialization
rights.
11
<PAGE>
Part II - Other Information
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the Company's initial public offering, the Company sold
3,275,000 shares of its Common Stock and received net offering proceeds of
$33,160,350. On March 17, 1998, the Securities and Exchange Commission declared
the Company's Registration Statement on Form S-1 (File No. 333-38051) effective.
The following table sets forth the Company's cumulative use of net offering
proceeds as of September 30, 1998:
<TABLE>
<S> <C>
Construction of plant, building and facilities $ 287,122
Purchase and installation of machinery and equipment 2,330,234
Purchase of Real Estate 0
Acquisition of other businesses 0
Repayment of indebtedness 1,967,631
Working Capital 6,166,689
Temporary Investments:
Cash and cash equivalents 22,408,674
All other purposes 0
</TABLE>
The foregoing use of net offering proceeds does not represent a material change
in the use of proceeds described in the Registration Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 11 - Computation of Net Loss Per Share Attributable to
Common Stockholders
Exhibit 27 - Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1998.
12
<PAGE>
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.
Dated: November 9, 1998 CuraGen Corporation
By: /s/ Jonathan M. Rothberg, Ph.D.
---------------------------------
Jonathan M. Rothberg, Ph.D.
Chief Executive Officer, President and
Chairman of the Board
By: /s/ David M. Wurzer
---------------------
David M. Wurzer
Executive Vice-President, Treasurer
and Chief Financial Officer
13
<PAGE>
CURAGEN CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
No. 11 Computation of Net Loss Per Share Attributable to Common Stockholders 15
</TABLE>
14
<PAGE>
EXHIBIT 11
CURAGEN CORPORATION
COMPUTATION OF NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON STOCKHOLDERS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net loss ($4,511,685) ($2,353,158) ($10,178,215) ($4,349,728)
Preferred dividends 0 (17,106) (508,435) (51,318)
------------- -------------- -------------- ---------------
Net loss attributable to common
stockholders ($4,511,685) ($2,370,264) ($10,686,650) ($4,401,046)
------------- -------------- -------------- ---------------
Basic and diluted net loss per share
attributable to common stockholders ($0.34) ($0.27) ($0.90) ($0.53)
------------- -------------- -------------- ---------------
Weighted average number of shares
used in computing basic and diluted
net loss per share attributable to
common stockholders 13,203,058 8,871,987 11,831,393 8,358,307
------------- --------------- -------------- ---------------
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 48,905,392
<SECURITIES> 0
<RECEIVABLES> 455,564
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,030,572
<PP&E> 16,719,404
<DEPRECIATION> 3,467,130
<TOTAL-ASSETS> 63,859,568
<CURRENT-LIABILITIES> 5,911,310
<BONDS> 0
0
0
<COMMON> 132,986
<OTHER-SE> 50,187,561
<TOTAL-LIABILITY-AND-EQUITY> 63,859,568
<SALES> 0
<TOTAL-REVENUES> 7,013,213
<CGS> 0
<TOTAL-COSTS> 13,089,333
<OTHER-EXPENSES> 5,219,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,178,215)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,178,215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,686,650)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
