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UNITED STATES
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 JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER
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CEPHEID
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0441625
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1190 BORREGAS AVENUE, SUNNYVALE, CALIFORNIA 94089-1302
(Address of principal executive offices)
(408) 541-4191
(Registrant's telephone number, including area code)
---------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ ] NO [X]
AS OF AUGUST 1, 2000, THERE WERE 26,389,469 OUTSTANDING SHARES OF THE
REGISTRANT'S COMMON STOCK OUTSTANDING.
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CEPHEID
INDEX
<TABLE>
<CAPTION>
Item Page Number
---------------------------------------------------------------------------------------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
1. Financial Statements:
a. Condensed Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 ...3
b. Condensed Consolidated Statements of Operations for the three and six month
periods ended June 30, 2000 and 1999 ......................................4
c. Condensed Consolidated Statements of Cash Flows for the six month periods
ended June 30, 2000 and 1999 ..............................................5
d. Notes to Condensed Consolidated Financial Statements ........................6-8
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .............................................................9-11
3. Quantitative and Qualitative Disclosures of Market Risk........................12
PART II. OTHER INFORMATION
1. Legal Proceedings ............................................................12
2. Changes in Securities and Use of Proceeds .....................................12
3. Defaults Upon Senior Securities ...............................................13
4. Submission of Matters to Vote of Security Holders .............................13
5. Other Information ............................................................13
6 Exhibits and Reports on Form 8-K...............................................14
Signatures ...................................................................14
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CEPHEID
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999(1)
------------ ------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 41,284,935 $ 1,493,313
Accounts receivable ............................ 1,246,913 566,033
Inventory ...................................... 857,547 285,433
Prepaid expenses and other current assets ...... 395,294 434,998
------------ ------------
Total current assets ......................... 43,784,689 2,779,777
Property and equipment, net ....................... 2,706,726 2,077,844
Other assets ...................................... 57,299 28,299
------------ ------------
Total assets ................................. $ 46,548,714 $ 4,885,920
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 842,745 $ 574,029
Accrued compensation ........................... 555,718 345,796
Other accrued liabilities ...................... 1,095,586 490,231
Deferred revenue ............................... -- 128,533
Current portion of equipment financing ......... 540,063 496,742
Current portion of deferred rent ............... 17,671 12,313
------------ ------------
Total current liabilities .................... 3,051,783 2,047,644
Equipment financing, less current portion ......... 921,087 1,205,066
Deferred rent, less current portion ............... 67,075 76,357
Commitments
Shareholders' equity:
Convertible preferred stock .................... -- 13,565,965
Common stock ................................... 60,358,248 350,690
Additional paid-in capital ..................... 7,814,156 766,005
Note receivable from shareholder ............... (69,000) (69,000)
Deferred stock-based compensation .............. (5,223,092) (552,466)
Accumulated other comprehensive loss ........... (5,171) --
Accumulated deficit ............................ (20,366,372) (12,504,341)
------------ ------------
Total shareholders' equity ................... 42,508,769 1,556,853
------------ ------------
Total liabilities and shareholders' equity ... $ 46,548,714 $ 4,885,920
============ ============
</TABLE>
(1) The balance sheet at December 31, 1999 has been derived from the audited
financial statements at the date which are included in the Company's Form
S-1, as amended, originally filed on April 7, 2000 with the Securities and
Exchange Commission and related prospectus dated June 21, 2000. This balance
sheet does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
See accompanying notes.
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CEPHEID
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Product revenue ................................. $ 785,325 $ 625 $ 936,713 $ 625
Contract revenue ................................ 403,544 825,813 1,168,114 1,441,097
----------- ----------- ------------ -----------
Total revenues .................................. 1,188,869 826,438 2,104,827 1,441,722
Operating costs and expenses:
Cost of product sales ............................ 682,463 1,692 813,048 1,692
Research and development ......................... 4,060,543 2,695,778 7,527,750 4,977,828
Selling, general and administrative .............. 1,276,509 319,498 2,006,664 608,470
----------- ----------- ------------ -----------
Total operating costs and expenses ............... 6,019,515 3,016,968 10,347,462 5,587,990
----------- ----------- ------------ -----------
Loss from operations ............................. (4,830,646) (2,190,530) (8,242,635) (4,146,268)
Interest income, net ............................. 221,767 41,163 380,604 125,888
----------- ----------- ------------ -----------
Net loss ......................................... (4,608,879) (2,149,367) (7,862,031) (4,020,380)
Deemed dividend upon issuance of convertible
preferred stock ................................ -- -- (19,113,629) --
----------- ----------- ------------ -----------
Net loss attributable to common shareholders ..... $(4,608,879) $(2,149,367) $(26,975,660) $(4,020,380)
=========== =========== ============ ===========
Net loss per common share, basic and diluted ..... $ (0.60) $ (0.56) $ (4.23) $ (1.11)
=========== =========== ============ ===========
Weighted average shares used in computing net loss
per common share, basic and diluted ............ 7,700,811 3,831,650 6,371,301 3,626,478
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
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CEPHEID
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................................................... $ (7,862,031) $(4,020,380)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization ..................................... 417,695 205,287
Amortization of deferred stock-based compensation ................. 1,594,099 37,550
Issuance of options to purchase common stock
for services rendered ............................................ 783,426 13,425
Deferred rent ..................................................... (3,924) (624)
Unrealized loss on securities ..................................... (5,171) --
Changes in operating assets and liabilities:
Accounts receivable .......................................... (680,880) 171,942
Inventory .................................................... (572,114) --
Prepaid expenses and other assets ............................ 10,704 102,990
Accounts payable and other current liabilities ............... 745,538 408,196
Accrued compensation ......................................... 209,922 191,716
------------ -----------
Net cash used in operating activities ....................................... (5,362,736) (2,889,898)
------------ -----------
INVESTING ACTIVITIES:
Capital expenditures ........................................................ (1,046,577) (1,027,561)
Proceeds from maturities of marketable securities ........................... -- 1,596,529
Restricted cash ............................................................. -- 300,000
------------ -----------
Net cash (used in) provided by investing activities ......................... (1,046,577) 868,968
------------ -----------
FINANCING ACTIVITIES:
Net proceeds from the sale of preferred and common shares ................... 46,441,593 22,790
Proceeds from loan arrangements ............................................. -- 192,826
Principle payments under loan arrangements .................................. (240,658) (97,613)
------------ -----------
Net cash provided by financing activities ................................... 46,200,935 118,003
------------ -----------
Net increase (decrease) in cash and cash equivalents ........................ 39,791,622 (1,902,927)
Cash and cash equivalents at beginning of period ............................ 1,493,313 7,079,031
------------ -----------
Cash and cash equivalents at end of period .................................. $ 41,284,935 $ 5,176,104
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ..................................................... $ 93,202 $ 44,740
============ ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of accounts payable to convertible preferred stock ............. $ 30,000 $ --
============ ===========
Deferred stock-based compensation related to stock options ................ 6,264,725 264,990
============ ===========
</TABLE>
See accompanying notes.
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Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Cepheid was incorporated in the State of California on March 4, 1996. We develop
new technology platforms that exploit the advantages of micromachining,
microelectronics, and microfluidic technologies to create automated, integrated,
miniaturized instrument systems for life sciences research, clinical
diagnostics, industrial testing and pharmacogenomics markets. Through March 31,
2000, we were considered to be in the development stage. During May 2000, we
launched our first product, the Smart Cycler(R), through a distributor in the
United States and recognized revenue from product sales. Consequently, we are no
longer considered to be in the development stage.
The accompanying unaudited condensed consolidated financial statements have been
prepared by management in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include certain
information and footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles. In the opinion of
management, all adjustments (consisting of normal recurring entries) considered
necessary for a fair presentation have been included. Operating results for the
three and six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000 or any other
future period. The accompanying financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our Registration Statement on Form S-1 (File No. 333-34340), as
amended, originally filed with the SEC on April 7, 2000, and related Prospectus
dated June 21, 2000 for the year ended December 31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Contract revenues related to best efforts, research and development agreements
and government grants are recognized as the related services are performed.
Under these agreements, we are required to perform specific research and
development activities and are reimbursed based on the costs associated with
each specific contract over the term of the agreement. Milestone related
revenues are recognized upon the achievement of the specified milestone.
Deferred revenue is recognized when funds are received in advance of services to
be performed.
Product sales are recognized upon the shipment and the transfer of title to
customers and are recorded net of discounts and allowances for estimated
returns, if any.
SIGNIFICANT CONCENTRATION
We distribute our products through our direct sales and a third-party
distributor. In the three and six months ended June 30, 2000, the distributor
accounted for 57 % and 48 % of total product sales, respectively.
WARRANTY ACCRUAL
We generally warrant our products from defect for a period of 12 months from
the date of sale for material and labor costs to repair the product.
Accordingly, a provision for the estimated cost of the warranty is recorded at
the time revenue is recognized.
INVENTORY
Inventory is stated at the lower of standard cost (which approximates actual
cost) or market. At June 30, 2000 and December 31, 1999, inventory consisted
mainly of raw materials.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with banks, money market
instruments, commercial paper and debt securities with original maturities of 90
days or less. At June 30, 2000 and December 31, 1999, we had $41,284,637 and
$1,493,015, respectively in cash equivalents. We classify our marketable
securities as available-for-sale and record our investments at fair market value
in accordance with Statement of Financial Accounting standards No. 115.
Available-for-sale securities are carried at amounts that approximate fair
market value based on quoted market prices with unrealized gains and losses
recorded as a separate component of the shareholders' equity.
PRINCIPLES OF CONSOLIDATION
Our consolidated financial statements include the accounts of our Company and
its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
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ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists primarily of unrealized gains or
losses on available-for-sale securities. There was no significant difference
between the reported net loss and the comprehensive net loss for all the periods
presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which contains
rules designed to clarify the application of APB 25. FIN 44 will be effective
July 1, 2000 and we will adopt it at that time. We believe that the anticipated
impact of adoption of FIN 44 will not be material to our operating results and
financial position.
In December 1999, the Staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. We will be required to adopt SAB 101, as
amended, in our fiscal quarter beginning October 1, 2000. We are currently
evaluating the impact of SAB 101.
3. COMMON STOCK OFFERING
On June 21, 2000, we completed our initial public offering of 5,000,000 shares
of common stock at a price of $6.00 per share. The offering resulted in net
proceeds to us of approximately $26.8 million. At the close of the offering, all
issued and outstanding shares of our preferred stock were converted into
13,326,636 shares of common stock.
4. NET LOSS PER COMMON SHARE
Basic net loss per common share has been calculated based on the
weighted-average number of common shares outstanding during the period less
shares subject to repurchase. Diluted net loss 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 our net loss.
The computation of pro forma basic and diluted net loss per share includes
shares issuable upon the conversion of outstanding shares of convertible
preferred stock (using the as-if converted method) from the original date of
issuance.
The following table presents the calculations of basic, diluted and pro forma
basic and diluted net loss per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual:
Net loss ...................................................... $ (4,608,879) $(2,149,367) $ (7,862,031) $ (4,020,380)
Deemed dividend to preferred shareholders .................... - - (19,113,629) -
------------ ----------- ------------ ------------
Net loss allocable to common shareholders .................... (4,608,879) (2,149,367) (26,975,660) (4,020,380)
============ =========== ============ ============
Basic and diluted:
Weighted-average shares of common stock outstanding .......... 9,280,334 6,830,577 8,109,385 6,814,860
Less: weighted-average shares subject to repurchase ......... (1,579,523) (2,998,927) (1,738,084) (3,188,382)
------------ ----------- ------------ ------------
Weighted-average shares used in computing basic and diluted
net loss per common share ......................... 7,700,811 3,831,650 6,371,301 3,626,478
============ =========== ============ ============
Basic and diluted net loss per common share .................. $ (0.60) $ (0.56) $ (4.23) $ (1.11)
============ =========== ============ ============
Pro forma basic and diluted:
Net loss allocable to common stockholders .................... $ (4,608,879) $(2,149,367) $(26,975,660) $ (4,020,380)
============ =========== ============ ============
Shares used above ............................................ 7,700,811 3,831,650 6,371,301 3,626,478
Pro forma adjustment to reflect weighted average effect of
assumed conversion of preferred stock ............. 11,862,171 6,946,658 11,858,252 6,946,658
------------ ----------- ------------ ------------
Weighted-average shares used in computing pro forma basic
and diluted net loss per common share ............. 19,562,982 10,778,308 18,229,553 10,573,136
============ =========== ============ ============
Pro forma basic and diluted net loss per common share ........ $ (0.24) $ (0.20) $ (1.48) $ (0.38)
============ =========== ============ ============
</TABLE>
5. STOCK BASED COMPENSATION
In connection with the grant of stock options to employees and directors, we
recorded deferred stock compensation totaling $878,100 and $6,264,725 for the
three and six months ended June 30, 2000 respectively, and $264,990 for the
three and six months ended June 30, 1999, representing the difference between
the fair value of the common stock for financial statement reporting purposes
and the exercise price of the underlying options. These
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amounts are included as a reduction of stockholders' equity and are being
amortized over the vesting period of the individual options, generally four
years. We recorded amortization of deferred stock compensation of $978,663
and $1,594,099 for the three and six months ended June 30, 2000, respectively
and $37,550 for the three and six months ended June 30, 1999. Additionally, we
recorded $618,426 and $783,426 of non-employee stock-based compensation for the
three and six month periods ended June 30, 2000, respectively. No non-employee
stock-based compensation was recorded for the comparable periods ended June 30,
1999.
6. DEEMED DIVIDEND
In January through March 2000, we consummated the sale of 6,379,978 shares of
Series C convertible preferred stock from which we received proceeds of
approximately $19.1 million or $3.00 per share. At the date of issuance, we
believed the per share price of $3.00 represented the fair value of the
preferred stock. Subsequent to the commencement of our initial public offering
process, we re-evaluated the fair value of our common stock as of January and
March 2000. Accordingly, the increase in fair value has resulted in a beneficial
conversion feature of $19.1 million, that has been recorded as a deemed dividend
to preferred shareholders in 2000. We recorded the deemed dividend at the date
of issuance by offsetting charges and credits to additional paid-in-capital,
without any effect on total shareholders' equity. This change was made against
additional paid in capital as we did not have retained earnings from which it
could have deducted a deemed dividend. The preferred stock dividend increases
the net loss allocable to common shareholders in the calculation of basic and
diluted net loss per common share for the three months ended March 31, 2000. The
guidelines set forth in the Emerging Issues Task Force Consensus No. 98-5 limit
the amount of the deemed dividend to the amount of the proceeds of the related
financing.
7. SUBSEQUENT EVENTS
In July 2000, the underwriters of our initial public offering exercised their
over-allotment option and purchased an additional 750,000 shares of our common
stock, generating additional proceeds of approximately $4.2 million, net of
underwriting discounts and commissions.
In July 2000, we signed an exclusive, multi-year agreement with the Biomedical
Group of Takara Shuzo Co., Ltd., of Japan to market the Cepheid Smart Cycler(R)
system to the life sciences research markets in Japan, Taiwan and South Korea.
Under the terms of the agreement, we granted to Takara the exclusive right to
distribute and provide support for our thermal cyclers, accessories and reaction
tubes to the prescribed territories. The term of the agreement extends for
several years from the date of the initial product launch and remains in force
for successive twelve month periods unless either party gives written notice of
non-renewal. We may also terminate the exclusivity of the distribution rights if
Takara fails to achieve certain sales targets.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Except for historical information contained in this report, some matters
discussed in this report constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth in this report and in our Registration
Statement (Form S-1, Registration No. 333-34340), as amended, originally filed
with the SEC on April 7, 2000, and Prospectus dated June 21, 2000. In light of
the substantial risks and uncertainties inherent in all future projections, the
inclusion of forward-looking statements in this report should not be regarded as
representations by us that the objectives or plans of the Company will be
achieved. Many factors could cause our actual results, performance or
achievements to differ materially from those in the forward-looking statements.
Reference is made in particular to the discussions set forth below in this
Report under "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and set forth in the Registration Statement (Form S-1,
Registration No. 333-34340), as amended, originally filed with the SEC on April
7, 2000, and Prospectus' under the captions "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OVERVIEW
Cepheid is applying proprietary microfluidic and microelectronic technologies to
the development of fast, versatile, miniaturized systems that can perform all
the steps required to analyze complex biological samples, including sample
preparation, amplification and detection, with a single platform. Cepheid is
initially focused on the detection of DNA and RNA in such application areas as
life sciences research, clinical diagnostics, industrial testing and
pharmacogenomics.
We commenced commercial sales of our first product, the Smart Cycler, during May
2000. The Smart Cycler is a fast, versatile DNA amplification and detection
system initially directed to the life sciences research market. Our GeneXpert
system, currently in development, is designed to integrate automated sample
preparation with our Smart Cycler amplification and detection technology in a
disposable cartridge format. We are collaborating with strategic partners to
co-develop assays, or biological tests, and to provide marketing and sales
support across a broad range of markets.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenues
Total revenues increased 44% to $1.2 million in the second quarter of 2000 from
$826,000 in the second quarter of 1999. The components of this increase were a
$784,000 increase in product sales, offset by a $199,000 decrease in grant and
government-sponsored research revenue and a $223,000 decrease in research and
development revenue from commercial partners. The increase in sales result from
the launch of our Smart Cycler product through Fisher Scientific in May 2000.
Cost of product sales
Cost of sales increased to $682,000 from $2,000 in the second quarter of 1999,
reflecting the corresponding increase in sales. Sales and cost of sales in 1999
resulted from the limited sale of prototypes.
Research and development expenses
Research and development expenses increased 51% to $4.1 million in the second
quarter of 2000 from $2.7 million in the second quarter of 1999. This $1.4
million increase included $628,000 of non-cash charges related to the
amortization of deferred stock-based compensation and $618,000 of non-cash,
non-employee, stock-based compensation. The remaining increase of $119,000 was
attributable to a $318,000 increase in salary and related personnel cost, a net
$336,000 increase in several miscellaneous costs, offset by a reduction of
$535,000 in prototype part expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses increased 300% to $1.3 million in
the second quarter of 2000 from $319,000 in the second quarter of 1999. This
$957,000 increase included $313,000 of non-cash charges related to the
amortization of deferred stock-based compensation. The remaining $644,000
increase was primarily attributable to $232,000 increase in salaries and related
personnel costs, a $92,000 increase in legal and accounting and a $78,000
increase in advertising expense related to the Smart Cycler.
Interest income, net
Net interest income increased to $222,000 in the second quarter of 2000 from
$41,000 in the second quarter of 1999. This $181,000 increase was due primarily
to increased interest income resulting from increases in cash, cash equivalents
and investments as a result of our private equity financing in the three months
ended March 31, 2000 and our initial public offering completed on June 21, 2000.
Net loss per common share
Basic net loss per common share for the quarter of 2000 was $0.60, compared with
a basic net loss per common share of $0.56 for the same period in 1999. The pro
forma basic net loss per common share for the quarter of 2000 was $0.24,
compared with $0.20 for the same period in 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues
Total revenues increased 46% to $2.1 million in the first six months of 2000
from $1.4 million in the first six months of 1999. Revenues in the first six
months of 2000 include $937,000 of Smart Cycler sales. A limited number of Smart
Cycler prototypes were sold in 1999 and through April 2000. We launched the
Smart Cycler in the United States through Fisher Scientific in May 2000.
Cost of product sales
Cost of product sales increased to $813,000 in the first six months of 2000 from
$2,000 in the first six months of 1999, reflecting the corresponding increase in
sales due to the commercial launch of our product.
Research and development expenses
Research and development expenses increased 51% to $7.5 million in the first six
months of 2000 from $5.0 million in the first six months of 1999. This $2.5
million increase included $1.0 million of non-cash charges related to the
amortization of deferred stock-based compensation and $783,000 of non-cash
non-employee stock-based compensation. The remaining increase of $729,000 was
attributable to a $733,000 increase in salary and related personnel cost, a net
$436,000 increase in several miscellaneous costs, offset by a reduction in
prototype part expenses.
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Selling, general and administrative expenses
Selling, general and administrative expenses increased 230% to $2.0 million in
the first six months of 2000 from $608,000 in the first six months of 1999. This
$1.4 million increase included $519,000 of non-cash charges related to the
amortization of deferred stock-based compensation. The remaining $879,000
increase was primarily attributable to a $320,000 increase in salaries and
related personnel costs, a $116,000 increase in recruiting fees and temporary
employees and a $108,000 increase in legal and accounting fees.
Interest income, net
Net interest income increased to $381,000 in the first six months of 2000 from
$126,000 in the first six months of 1999. This $255,000 increase was due
primarily to increased interest income resulting from increases in cash, cash
equivalents and investments as a result of our private equity financing in the
three months ended March 31, 2000 and our initial public offering on June 21,
2000.
Net loss per common share
Basic net loss per common share for the 2000 six month period was $4.23,
compared with $1.11 for the same period in 1999. The pro forma basic net loss
per common share was $1.48, compared with $0.38 for the same period in 1999. For
the 2000 six month period, the historic and pro forma basic net loss per common
share include a one-time loss of $3.00 and $1.05, respectively, associated with
a deemed dividend of $19,113,629 relating to conversion of preferred stock
recorded upon our initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception through sales of equity
securities, contract payments to us under government and commercial research and
development agreements, product sales and equipment financing arrangements.
Through June 30,2000 we received net proceeds of $60.3 million from issuances of
common and preferred stock and $9.5 million from contract payments and product
revenues. In addition, through June 30, 2000 we had financed equipment purchases
and leasehold improvements totaling approximately $2.1 million. As of June 30,
2000, we had $1.5 million in equipment financing obligations. These obligations
are secured by the equipment financed, bear interest at a weighted average fixed
rate of 12.48% and are due in monthly installments through June 2003. Under the
terms of the equipment financing agreement a balloon payment is due at the end
of the loan term. This equipment financing facility has expired.
As of June 30, 2000, we had $41.3 million in cash and cash equivalents, as
compared to $1.5 million as of December 31, 1999. We used $7.1 million for
operations in the year ended December 31, 1999 and $5.4 million for the six
months ended June 30, 2000. In 1999, this consisted of the net loss for the
period of $7.9 million offset in part by non-cash charges of $214,000 related to
stock-based compensation, $498,000 of amortization and depreciation expense and
working capital changes of $104,000. For the six months ended June 30, 2000,
this amount consisted of $7.9 million in net loss for the period; offset in part
by $2.4 million related to stock based compensation, amortization and
depreciation of $418,000 and working capital changes of $287,000. In 1999, cash
provided by investing activities was $421,000, which consisted of $1.6 million
of proceeds from the maturities of marketable securities, $300,000 related to
the expiration of a standby letter of credit, offset by $1.5 million of capital
expenditures. We used $1.0 million for the six months ended June 30, 2000, which
consisted of capital expenditures. We received $1.1 million from financing
activities for the year ended December 31, 1999 and $46.2 million for the six
months ended June 30, 2000. In 1999, this amount was attributed to proceeds from
equipment financing of $1.3 million, offset by repayment of our equipment
financing arrangement of $270,000. In the six months ended June 30, 2000, the
amount was related to our receipt of $46.4 million from the issuance of
preferred and common stock, offset by repayment of our equipment financing
arrangement of $241,000.
We expect to have negative cash flow from operations through at least 2002. We
expect to incur increasing research and development expenses, as well as
expenses for additional personnel for production and commercialization efforts.
Our future capital requirements depend on a number of factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, continued progress of our research and development of potential
products, the need to acquire licenses to new technology and the availability of
other financing. We believe that our current cash balances, together with
revenue to be derived from product sales and research and development
collaborations will be sufficient to fund our operations at least through the
year 2001. To the extent our capital resources are insufficient to meet future
capital requirements, we will need to raise additional capital or incur
indebtedness to fund our operations. There can be no
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assurance that additional debt or equity financing will be available on
acceptable terms, if at all. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate our research and development
programs, reduce our commercialization efforts or obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to technologies or products that we might otherwise seek to
develop or commercialize.
QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Our exposure to market risk is confined to cash and cash equivalents, which have
maturities of less than three months. We invest cash and cash equivalents in
high-grade commercial paper and money market funds. The securities in the
investment portfolio are not leveraged, are classified as available-for-sales
and are, due to their very short term nature, subject to minimal interest rate
risk.
Part II
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the first quarter ended March 31, 2000, we sold 6,379,978 shares of
Series C Convertible Preferred Stock ("Series C Stock") at a price per share of
$3.00. Sales were completed January 21, 2000 through March 3, 2000. The
securities were sold to accredited investors, as defined in Regulation D under
the Securities Act of 1933.
We relied upon Section 4(2) of the Securities Act of 1933 following the
requirements described in Securities Act Rule 506 and Regulation D.
By its terms the Series C Stock sold in the first quarter of 2000 was
automatically convertible upon the closing of the initial public offering at a
ratio of 1 to 1.
Our first Registration Statement on Form S-1 (File No. 333-34340), as amended,
became effective June 21, 2000, and the offering commenced June 21, 2000. The
offering terminated with the sale of all of the securities registered, including
the underwriters' overallotment option.
The managing underwriters were UBS Warburg LLC, Prudential Vector Healthcare, a
unit of Prudential Securities and Invemed Associates.
The securities registered were 5,000,000 shares of Common Stock, plus 750,000
additional shares to cover the underwriters' overallotment option. All shares
were registered for our account.
The aggregate price of the offering amount registered and sold, including shares
to cover the underwriters' overallotment option, was $34.5 million.
Expenses incurred in connection with the issuance and distribution of the
securities registered were as follows: for underwriting discounts and
commissions - $2,415,000; other expenses - $1,135,000; and total expenses -
$3,550,000. Other expenses and total expenses are estimates. None of such
payments were direct or indirect payments to directors or officers of the issuer
or their associates or to persons owning 10 percent or more of any class of
equity securities of the issuer or any of its affiliates or direct or indirect
payments to others.
The net offering proceeds to us after deducting underwriters' discounts
and the total expenses described above were $30,950,000.
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<PAGE> 13
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Pursuant to an action by written consent, our shareholders approved the
following in May 2000:
1. Adoption of our Fifth Amended and Restated Articles of Incorporation to be
filed following the closing of the initial public offering.
2. Adoption of our Amended and Restated Bylaws.
3. Approval of certain amendments to our 1997 Stock Option Plan.
4. Adoption of our 2000 Employee Stock Purchase Plan.
5. Adoption of our 2000 Non-Employee Directors' Stock Option Plan.
Each of the foregoing was approved by the shareholders as follows:
<TABLE>
<CAPTION>
Shares Shares
Class or Series Approving Outstanding
--------------- --------- -----------
<S> <C> <C>
Common Stock .......................... 6,786,469 7,297,279
Series A Preferred Stock .............. 2,490,000 2,530,000
Series B Preferred Stock .............. 3,632,658 3,666,658
Series C Preferred Stock .............. 6,517,616 7,129,978
</TABLE>
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORMS 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------------------------------------------------------------------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
----------------------
13
<PAGE> 14
------------
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of Sunnyvale, State of
California on this 14th day of August 2000.
CEPHEID
by: /s/ Thomas Gutshall
------------------------------------
Thomas Gutshall
Chief Executive Officer
by: /s/ Catherine A. Smith
------------------------------------
Catherine A. Smith
Chief Financial Officer
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<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------------------------------------------------------------------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
----------------------
15
