<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MARCH 29, 2000
REGISTRATION NO. 333-32378
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
LJL BIOSYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3826 77-0360183
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
Incorporation or
Organization)
</TABLE>
405 TASMAN DRIVE
SUNNYVALE, CA 94089
(408) 541-8787
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
------------------------------
LEV J. LEYTES
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
405 TASMAN DRIVE
SUNNYVALE, CA 94089
(408) 541-8787
(Name, Address Including Zip Code, and Telephone Number Including Area Code, of
Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN TALKINGTON PETER T. HEALY
DAVID SOBUL MARK C. EASTON
SCOTT PORTER O'MELVENY & MYERS LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP 275 BATTERY STREET
OLD FEDERAL RESERVE BANK BUILDING SAN FRANCISCO, CA 94111
400 SANSOME STREET
SAN FRANCISCO, CA 94111
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value $0.001.............. 2,875,000 $33.10 $95,162,500 $25,123
</TABLE>
(1) Includes up to 375,000 shares of common stock that the underwriters have an
option to purchase pursuant to a 30-day over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the registration
fee based on the average of the high and low closing price of the Common
Stock as reported on the Nasdaq National Market on March 10, 2000, pursuant
to Rule 457(c).
(3) Registration fee was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus front cover
pages: (a) one to be used in connection with an offering in the United States
and Canada and (b) one to be used in connection with a concurrent offering
outside of the United States and Canada. The U.S. prospectus and the
international prospectus are otherwise identical in all respects. The
international version of the front cover page is included immediately before
Part II of this registration statement.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND
WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 29, 2000
[LJL LOGO]
2,500,000 SHARES
COMMON STOCK
We are offering 2,500,000 shares of our common stock. Our common stock is
quoted on the Nasdaq National Market under the symbol LJLB. The last reported
sale price of our common stock on the Nasdaq National Market on March 28, 2000
was $19.13 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to LJL............................................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares from us to cover any over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
investors on , 2000.
------------------------
ROBERTSON STEPHENS CHASE H&Q
PACIFIC GROWTH EQUITIES, INC.
THE DATE OF THIS PROSPECTUS IS APRIL , 2000
<PAGE>
[INSIDE FRONT COVER]
LJL Logo
Title: "High Throughput Solution for Drug Discovery"
Color Artwork: Circular collage of photographs. Clockwise from top: (1) three
microplates, (2) an individual holding a stack of microplates, (3) TKX enzyme
assay kit, (4) scientists discussing assay results while standing beside an
Analyst high throughput analyzer, and (5) Analyst high throughput analyzers.
Block of text beneath color artwork: "In the Genomics and Post-Genomics Era"
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE
YOU WITH INFORMATION DIFFERENT THAN THAT CONTAINED IN THIS PROSPECTUS. WE ARE
NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL AND SEEKING OFFERS TO
BUY, THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF THESE SECURITIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Special Note Regarding Forward-Looking Statements........... i
Summary..................................................... 1
Risk Factors................................................ 5
Use of Proceeds............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Price Range of Common Stock................................. 20
Dividend Policy............................................. 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 30
Management.................................................. 39
Underwriting................................................ 42
Where You Can Find More Information......................... 45
Incorporation of Certain Documents by Reference............. 45
Experts..................................................... 45
Legal Matters............................................... 45
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
Our trademarks, Acquest-TM-, Analyst-TM-, CRITERION-TM-, DPX-TM-, FLARe-TM-,
HE-TM-, HEFP-TM-, LJL BioSystems-TM-, ProteasePX-TM-, ScreenStation-TM-,
SmartOptics-TM-, Sunnyvale Red-TM-, The High Throughput Company-TM-, TKX-TM-,
TKXtra-TM- and our logo are our trademarks or service marks. All other trade
names and trademarks referred to in this prospectus are the property of their
respective owners.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
forward-looking statements including, without limitation, statements concerning
the future of the industry, product development, business strategy including the
possibility of future acquisitions, continued acceptance and growth of our
current and future products and dependence on significant customers. These
statements can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "intend," "anticipate," "estimate," "continue" or other
similar words. These statements discuss future expectations, contain projections
of results of operations or of financial condition or state other
forward-looking information. When considering forward-looking statements, you
should keep in mind the risk factors and other cautionary statements in this
prospectus. The risk factors noted below and other factors noted throughout this
prospectus could cause our actual results to differ significantly from those
contained in any forward-looking statement.
i
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE
BUYING OUR SHARES. YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, AND THE NOTES TO
THOSE CONSOLIDATED FINANCIAL STATEMENTS, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
ANTICIPATED IN THOSE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS
DESCRIBED UNDER THE HEADING "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OUR BUSINESS
We design, produce and sell infrastructure tools that accelerate and enhance
the process of discovering new drugs in the genomics and post-genomics era. Our
products, including instruments and consumables, are designed to provide
flexible, cost-efficient, high throughput solutions that can be used across all
stages of the drug discovery process. Our customers include pharmaceutical,
biotechnology and genomics companies as well as research institutions. Since
1998, 21 of the top 25 pharmaceutical companies have purchased our products and
more than 60% of these customers are repeat customers. In addition we have
entered into strategic collaborations with AstraZeneca in October 1999 and
SmithKline Beecham in September 1998 that provide each of them with early access
to certain of our new technologies. Our customers primarily use our products for
high throughput drug discovery, including screening and genotyping.
Screening, or testing, of compounds against a target is an essential stage
in the drug discovery process. Advances in genomics, synthetic chemistry and
other technologies have dramatically increased the number of both targets and
compounds. Screening significantly larger numbers of compounds against an
increasing number of targets requires new high throughput infrastructure tools
that can operate with a high degree of automation and analytical flexibility.
In addition, we believe there is a growing demand for high throughput
genotyping, including the analysis of certain variations in DNA, called single
nucleotide polymorphisms or SNPs. SNPs are believed to be associated with
differences between individuals, including disease predispositions and
dissimilarity in patient responses to drugs. We believe that SNP analysis will
play an essential role in the development of drugs, diagnostics and other life
science applications. In order to discover and utilize SNPs, it is expected that
extremely large numbers of SNPs must be analyzed and correlated with health and
other physical and mental features. SNP analysis requires highly accurate,
cost-efficient, high throughput genotyping technology.
OUR CURRENT PRODUCTS AND TECHNOLOGIES
Our current products, which are based on our proprietary technologies, are
summarized below:
<TABLE>
<CAPTION>
PRODUCT COMMERCIAL LAUNCH DESCRIPTION
------------------ ----------------- ----------------------------------------------
<S> <C> <C> <C>
INSTRUMENTS Analyst HT May 1998 High throughput analyzer
Acquest September 1998 Ultra-high throughput analyzer
Analyst AD April 1999 Assay development analyzer
CONSUMABLE TKX June 1998 Enzyme assay kit
REAGENTS TKXtra April 1999 Enzyme assay kit
DPX September 1999 Receptor assay kit
ProteasePX September 1999 Enzyme assay kit
cAMP September 1999 Cell signaling molecule assay
Sunnyvale Red September 1999 Reagent for detecting large molecule
interactions
CONSUMABLE 96-well HE Plate December 1999 Microplates for miniaturized 96-well format
assays
MICROPLATES 384-well HE Plate December 1999 Microplates for miniaturized 384-well format
assays
</TABLE>
1
<PAGE>
Our current products are based on our proprietary technologies that
integrate our expertise in a number of areas including advanced optics,
electronics, automation and robotics, microfluidics, fluorescence detector
technologies, software and information systems, biophysics, biology and
chemistry.
One of our core technologies is called High Efficiency Fluoresence
Polarization, or HEFP. HEFP detects molecular binding events by measuring
changes in the speed of molecular rotation. HEFP enables high throughput,
cost-efficient, flexible test, or assays, that can be easily miniaturized and
automated.
In August 1999 we created our Genomics Sciences Group to commercialize our
HEFP technology in the area of genotyping. We recently began selling and
shipping our analyzer platform for high throughput SNP genotyping to customers
at several leading genomics companies and research institutions.
OUR TECHNOLOGIES UNDER DEVELOPMENT
In addition to our current product offerings, we are developing new
technologies and services designed to address the evolving high throughput
demands of life science research. Some of our new technologies under development
include:
SCREENSTATION. In September 1999, we demonstrated a prototype and announced
the introduction of our next generation instrument platform, ScreenStation.
ScreenStation is being developed to enable integrated assay automation,
miniaturization and multiple detection modes at a high throughput rate. We
believe ScreenStation technology represents a significant advance in high
throughput screening as it enables pharmaceutical companies to easily implement
homogeneous assays that are fast, miniaturized, and non-radioactive. We plan to
start shipments in 2000.
FLARE TECHNOLOGY AND SMITHKLINE BEECHAM COLLABORATION. FLARe, or
Fluorescence Lifetime Assay Repertoire, is our proprietary instrumentation and
reagent platform that significantly reduces the effect of background noise in
certain fluorescence-based assays. In September 1998, we entered into a
collaboration agreement with SmithKline Beecham, which provides them early
access to our FLARe technology. In February 2000, we announced the successful
completion of an important milestone in our collaboration with SmithKline
Beecham with the acceptance and delivery of the first system utilizing our FLARe
technology.
OUR ADDRESS
Our principal executive offices are located at 405 Tasman Drive, Sunnyvale,
CA 94089 and our telephone number is (408) 541-8787. Our corporate web site is
www.ljlbio.com. Our website is not a part of this prospectus.
2
<PAGE>
THE OFFERING
The calculation of the shares of common stock outstanding in the table below
is based on the number of shares outstanding as of February 29, 2000.
<TABLE>
<S> <C>
Common stock offered................... 2,500,000 shares(1)
Common stock outstanding after the
offering.............................. 17,247,391 shares(2)
Use of proceeds........................ We expect to use the net proceeds of this offering to fund
research and development and sales and marketing activities,
especially relating to our genomics and consumables
businesses, as well as investments in manufacturing,
administrative infrastructure, working capital and other
general corporate purposes, which may include the potential
acquisition of technologies, products and businesses.
Nasdaq National Market symbol.......... LJLB
</TABLE>
- ------------------------------
(1) Unless we specifically state otherwise, the information in this prospectus
does not take into account the sale, pursuant to the underwriters'
over-allotment option, of up to 375,000 shares of common stock which the
underwriters have the option to purchase from us.
(2) The common stock outstanding after the offering does not include (i) up to
65,653 shares of common stock issuable upon exercise of stock warrants
outstanding as of February 29, 2000 at an exercise price of $7.00 per share;
and (ii) up to 2,461,370 shares of common stock issuable upon exercise of
options previously awarded or which may be awarded in the future. Options to
purchase 2,011,281 shares of common stock exercisable at a weighted-average
exercise price per share of $6.44, were outstanding as of February 29, 2000.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $5,151 $9,285 $ 5,204 $ 4,436 $ 9,917
Cost of sales................................... 1,174 2,755 2,319 2,487 3,554
------ ------ ------- -------- --------
Gross profit.................................. 3,977 6,530 2,885 1,949 6,363
------ ------ ------- -------- --------
Operating expenses:
Research and development...................... 1,740 2,384 3,511 5,472 6,787
Selling, general and administrative........... 1,963 4,062 2,145 5,308 8,199
------ ------ ------- -------- --------
Total operating expenses.................... 3,703 6,446 5,656 10,780 14,986
------ ------ ------- -------- --------
Income (loss) from operations................... 274 84 (2,771) (8,831) (8,623)
Interest and other income, net.................. 87 181 237 629 590
Interest expense................................ (5) (5) (9) (35) (90)
------ ------ ------- -------- --------
Income (loss) before provision for income
taxes......................................... 356 260 (2,543) (8,237) (8,123)
Provision for income taxes...................... 4 2 12 -- 15
------ ------ ------- -------- --------
Net income (loss)............................... 352 258 (2,555) (8,237) (8,138)
Accretion of mandatorily redeemable convertible
preferred stock redemption value.............. -- -- (636) (254) --
------ ------ ------- -------- --------
Net income (loss) available to common
stockholders(1)............................... $ 352 $ 258 $(3,191) $ (8,491) $ (8,138)
====== ====== ======= ======== ========
Basic and diluted net income (loss) per share
available to common stockholders(1)........... $ 0.08 $ 0.06 $ (0.71) $ (0.91) $ (0.65)
====== ====== ======= ======== ========
Shares used in computation of basic and diluted
net income (loss) per share available to
common stockholders(1)........................ 4,501 4,501 4,504 9,283 12,506
====== ====== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
PRO PRO FORMA
ACTUAL FORMA(2) AS ADJUSTED(3)
-------- ---------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments................... $ 8,458 $ 26,829 $ 71,308
Total assets............................................. 14,358 32,729 77,208
Accumulated deficit...................................... (20,379) (20,379) (20,379)
Total stockholders' equity............................... 9,780 28,151 72,630
</TABLE>
- ------------------------------
(1) See Note 1 of "Notes to Consolidated Financial Statements" for a description
of the computation of basic and diluted per share amounts.
(2) Pro forma information gives effect to the sale of 1.76 million shares of
common stock in a private placement completed in February 2000 with net cash
proceeds of approximately $18.4 million.
(3) Adjusted to reflect the receipt and application of the net proceeds from the
sale of 2.5 million shares of common stock offered by us at an assumed
public offering price of $19.13 per share, after deduction of the
underwriting discount and estimated offering expenses. See "Use of Proceeds"
and "Capitalization."
4
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
RISKS DESCRIBED BELOW BEFORE PURCHASING OUR COMMON STOCK. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE MATERIALLY HARMED, AND OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY
AFFECTED. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND
YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT.
SINCE WE ADOPTED OUR CURRENT BUSINESS STRATEGY IN 1996, WE HAVE CONSISTENTLY HAD
OPERATING LOSSES; THE MARKET FOR OUR PRODUCTS IS RELATIVELY NEW AND UNDEFINED,
AND WE MAY NEVER ACHIEVE PROFITABILITY.
We began implementing our current strategic business model to develop
products for the high throughput market in 1996 and we began targeting the SNP
genotyping market in 1999. In connection with this change in strategy, we
shifted our focus from developing and manufacturing clinical diagnostic and
research products on an original equipment manufacturing basis to developing,
manufacturing and marketing products for the high throughput market. As a
result, our historical operating and financial performance is generally not
indicative of future financial and business results. We incurred operating
losses for the years ended December 31, 1999, 1998 and 1997 as a result of our
change in business strategy and anticipate that we may continue to incur losses
for at least the next several years due to the substantial increases in
expenditures necessary to continue to develop and commercialize our product
line. We began commercial shipments of our first high throughput instrument, the
Analyst HT, in the second quarter of 1998, we began commercial shipments of our
ultra-high throughput product, Acquest, in the fourth quarter of 1998 and began
commercial shipments of our Analyst AD instrument in June 1999. Accordingly, we
are subject to the risks inherent in the operation of a new business, such as:
- failure to develop effective sales, marketing and distribution channels;
- failure to achieve market acceptance and demand for our product line;
- failure to effectively service and maintain the product line;
- failure to implement commercial scale-up of developed products; and
- failure to attract and retain key personnel.
Furthermore, our target markets are relatively new and the use of high
throughput products by pharmaceutical, biotechnology and genomics companies is
still developing. Demand for our instruments will depend upon the extent to
which our customers adopt high throughput analysis as a drug discovery tool. If
high throughput analysis does not become widely used, demand for our products
will not develop as we currently expect or at all. The lack of demand for our
product line would have a material adverse effect on our business, financial
condition and results of operations.
BECAUSE WE ARE IN THE EARLY STAGE OF DEVELOPMENT OF CERTAIN INSTRUMENTS, OUR
ABILITY TO DEVELOP AND COMMERCIALIZE THESE PRODUCTS IS UNCERTAIN.
Our success will depend on our ability to develop and commercialize our
instruments. We began commercial shipments of our first high throughput
instrument, the Analyst HT, in the second quarter of 1998, we began commercial
shipments of our ultra-high throughput product, Acquest, in the fourth quarter
of 1998 and began commercial shipments of our Analyst AD instrument in
June 1999. We had not previously developed or commercialized products for the
high throughput market before this time. We are also developing new technologies
and products for our product line, such as FLARe and ScreenStation. The
successful implementation and operation of our product line, including the new
technologies and products currently being developed, is a complex process
requiring the integration and maintenance of, among other technologies: advanced
optics, electronics, automation and robotics,
5
<PAGE>
microfluidics, fluorescence detector technologies, software and information
systems, biophysics, biology and chemistry.
Even if our current and future products appear promising at commercial
launch, they may not achieve market acceptance at a level necessary to enable
production at a reasonable cost, to support the required sales and marketing
effort, to cost effectively service and maintain, and to support continuing
research and development costs. In addition, our product line instruments may:
- be difficult or overly expensive to produce;
- fail to achieve performance levels expected by customers;
- have a price level that is unacceptable in our targeted industries; or
- be precluded from commercialization by the proprietary rights of others or
other competitive forces.
There can be no assurance that we will be able to successfully manufacture
and market our products on a timely basis, achieve anticipated performance
levels or throughputs, gain and maintain industry acceptance of our products or
develop a profitable business. The failure to achieve any of these objectives
would have a material adverse effect on our business, financial condition and
results of operations.
BECAUSE WE ARE IN THE EARLY STAGE OF DEVELOPMENT, OUR ABILITY TO DEVELOP AND
COMMERCIALIZE CONSUMABLES IS UNCERTAIN.
We expect in the future that a substantial portion of our revenues may be
derived from the sale of reagents, assay kits and microplates. We have limited
experience in the development, manufacture and marketing of reagents, assay kits
and microplates, having only recently introduced our first assay kits and HE
microplates. We intend to continue to license assay technologies from third
parties and to develop reagents, assay kits and microplates internally. We may
not succeed in licensing any additional assay technologies on acceptable terms,
if at all, and we may not successfully commercialize any assay technologies that
we license. In addition, we are internally developing reagents, assay kits and
microplates, but have limited experience in this area. We may not successfully
develop additional reagents, assay kits or microplates internally, and any
reagents, assay kits or microplates we do develop may not achieve market
acceptance. We intend to outsource the manufacture of microplates and, as sales
volumes increase, to also outsource the manufacture of reagents and assay kits.
We may not be able to enter into agreements with third parties for the
manufacture of reagents, assay kits or microplates on terms commercially
acceptable to us or at all. In addition, we intend to sell reagents, assay kits
and microplates to purchasers of our instruments, including the Analyst HT,
Analyst AD and Acquest. Sales of the Analyst HT, Analyst AD and Acquest may not
be sufficient to support this strategy. A failure to achieve commercial
acceptance of our reagents, assay kits and microplates would have a material
adverse effect on our business, financial condition and results of operations.
BECAUSE WE DEPEND ON DEVELOPING TECHNOLOGIES AND OUR MARKETS ARE SUBJECT TO
RAPID TECHNOLOGICAL CHANGE, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.
The pharmaceutical, biotechnology and genomics instrumentation and reagents
markets are characterized by rapid technological change and frequent new product
introductions by many competitors. Our targeted markets are in early stages of
development and may not grow as we currently anticipate, which would
significantly reduce the market potential for our products. In addition, our
future success will depend on our ability to enhance and maintain our current
and planned product line and to develop and introduce, on a timely basis, new
technologies and products that address the evolving needs of our customers.
These new technologies and products include but are not limited to
fluorescence-based reagents and assay kits, products based on our ScreenStation,
HEFP, FLARe and SmartOptics technologies, as well as future additions to our SNP
genotyping platform. Development of
6
<PAGE>
these new technologies subjects us to significant risks and uncertainties, as we
may encounter unanticipated technical issues that may cause development delays.
These technical issues may require us to cancel such development programs
altogether, if we are unable to find solutions to these issues. Even if
development is successful, we anticipate that production units for these new
products may not be available for several months or years, if at all. The
production of instruments and consumables may present manufacturing challenges.
We may experience difficulties that could delay or prevent the successful
manufacturing, introduction and marketing of our new products or our product
enhancements. Any failure to manufacture and introduce products in a timely
manner in response to changing market demands or customer requirements could
have a material adverse effect on our business, financial condition and results
of operations.
WE HAVE LIMITED SALES, MARKETING AND SERVICE EXPERIENCE AND MAY NOT BE ABLE TO
DEVELOP A DIRECT SALES AND SERVICE FORCE OR DISTRIBUTION CHANNELS THAT CAN MEET
OUR CUSTOMERS' NEEDS.
We have limited experience in direct marketing, sales, service and
distribution. Our future profitability will depend on our ability to further
develop a direct sales and service force to sell and maintain our product line.
Our products are technical in nature and we therefore believe it is necessary to
develop a direct sales and service force consisting of people with scientific
backgrounds and expertise. Competition for such employees is intense. We may not
be able to attract and retain qualified sales and service personnel or be able
to build an efficient and effective sales, support and marketing organization.
Failure to attract or retain qualified sales and service personnel or to build
such a sales, support and marketing organization would have a material adverse
effect on our business, financial condition and results of operations.
We are marketing our product line in certain international markets through
distributors. While we currently have two distributors in international markets,
one in Japan and another with the territory of Belgium, Netherlands and
Luxembourg, there can be no assurance that we will be able to engage additional
qualified distributors. Such distributors may:
- fail to satisfy financial or contractual obligations to us;
- fail to adequately market our products;
- cease operations with little or no notice to us; or
- offer, design, manufacture or promote competing product lines.
The failure to develop and maintain effective distribution channels could
have a material adverse effect on our business, financial condition and results
of operations.
WE PARTICIPATE IN A HIGHLY COMPETITIVE MARKET AND OUR PRODUCTS MAY NOT BE
ACCEPTED IN THE MARKET.
The market for high throughput products for drug discovery and SNP
genotyping is highly competitive. We anticipate that competition will increase
significantly as more customers adopt high throughput tools for drug discovery
and SNP genotyping, and as competitors enter the market with new advanced
technologies and products. We are competing in many areas, including high
throughput instruments, assay development, consumables and reagent sales. We
compete with companies that directly market high throughput products. In
addition, pharmaceutical and biotechnology companies, academic institutions,
governmental agencies and other research organizations are conducting research
and developing products in various areas which compete with our technology
platform, either on their own or in collaboration with others. As a result, our
potential customers may choose not to purchase our products. Our potential
customers may assemble and run high throughput systems by purchasing products
from competitors or making their own. Further, certain companies offer screening
and genotyping services on a contract or collaborative basis, and these services
could eliminate the need for a potential customer to purchase our products. Our
technological approaches may be rendered obsolete or uneconomical by advances in
existing technological approaches or the development of different
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approaches by one or more of our current or future competitors. Many of these
competitors have greater financial and personnel resources, and more experience
in research and development, sales and marketing and other areas than us.
THE MARKET FOR OUR PRODUCT LINE IS CONCENTRATED, WHICH LIMITS THE NUMBER OF OUR
POTENTIAL CUSTOMERS.
We currently market our product line to pharmaceutical, biotechnology and
genomics companies, as well as academic institutions; however, our primary
marketing efforts and the majority of our sales are to pharmaceutical companies.
Our market for high throughput and ultra-high throughput products is highly
concentrated, with approximately 50 large pharmaceutical companies operating a
substantial portion of our targeted drug discovery laboratories. In 1999, sales
to a single customer accounted for 15% of our revenues. We expect a relatively
small number of customers will continue to account for a substantial portion of
our revenues. We face risks associated with a highly concentrated customer base
to which we sell our product line, including the failure to establish or
maintain relationships within a limited customer pool, or substantial financial
difficulties or decreased capital spending by our customers, any of which could
have a material adverse effect on our business, financial condition and results
of operations.
OUR PRODUCTS HAVE LENGTHY SALES CYCLES, WHICH COULD CAUSE OUR OPERATING RESULTS
TO FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER.
The sale of our product line typically involves a significant technical
evaluation and commitment of capital by customers. Accordingly, the sales cycle
associated with our products is expected to be lengthy and subject to a number
of significant risks, including customers' budgetary constraints and internal
acceptance reviews, that are beyond our control. Due to this lengthy and
unpredictable sales cycle, our operating results could fluctuate significantly
from quarter to quarter.
IF OUR CUSTOMERS ARE UNABLE TO ADEQUATELY PREPARE SAMPLES AS REQUIRED BY OUR
INSTRUMENTS, THE OVERALL MARKET DEMAND FOR OUR PRODUCTS MAY DECLINE.
Before using our instruments, customers must prepare assays by following
several steps that are prone to human error. If assays are not prepared
appropriately, our instruments will not generate a useful reading. If our
customers experience these difficulties, they may achieve lower levels of
throughput or accuracy than those for which our instruments were designed. If
our customers are unable to generate expected levels of throughput or accuracy,
they may not continue to purchase our products and they may express their
discontent with our products in the marketplace. Any or all of these actions
would reduce the overall market demand for our products.
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY NOT BE ABLE TO SCALE-UP OUR
MANUFACTURING OPERATIONS TO COMMERCIAL LEVELS.
We are producing certain of our products in limited quantities, and have not
yet manufactured other products and reagents and assay kits in significant
quantities. We may encounter difficulties in scaling up production of our
product line due to, among other things, quality control and assurance,
component supply and availability of qualified personnel. Even if we
successfully develop and introduce our products to market, we may not be able to
manufacture or support them in sufficient quantities at acceptable cost while
meeting quality control standards. We intend to outsource the manufacture of
microplates and, as sales volumes increase, to evaluate outsourcing the
manufacture of reagents and assay kits. Difficulties encountered in the
manufacturing scale-up of other products in our product line could have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH.
Our success will depend on the expansion of our operations and the effective
management of growth, which will place a significant strain on our management,
operational and financial resources. To
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manage such growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. Our failure to manage growth effectively would have a material
adverse effect on our business, financial condition and results of operations.
WE DEPEND UPON KEY PERSONNEL WHO MAY TERMINATE THEIR EMPLOYMENT WITH US AT ANY
TIME; WE NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL.
Our success will depend to a significant degree upon the continued services
of key management, technical and scientific personnel, including Lev J. Leytes,
the Chairman of our Board of Directors, President and Chief Executive Officer.
In addition, our success will depend on our ability to attract and retain other
highly skilled personnel. Competition for qualified personnel is intense, and
the process of hiring such qualified personnel is often lengthy. There can be no
assurance that we can recruit such personnel on a timely basis, if at all. Our
management and other employees may voluntarily terminate their employment with
us at any time. The loss of the services of key personnel, or the inability to
attract and retain additional qualified personnel, could have a material adverse
effect on our business, financial condition and results of operations.
BECAUSE WE DEPEND ON SUPPLIERS AND CONTRACT MANUFACTURERS, WE ARE SUBJECT TO
RISKS BEYOND OUR CONTROL.
Certain components used in our product line are currently purchased from a
single or a limited number of outside sources. The reliance on a sole or limited
number of suppliers could result in:
- delays associated with redesigning a product due to a failure to obtain a
single source component;
- an inability to obtain an adequate supply of required components; and
- reduced control over pricing, quality and timely delivery.
We do not maintain long-term agreements with any of our suppliers, and
therefore the supply of a particular component could be terminated at any time
without penalty to the supplier. Any interruption in the supply of single source
components could have a material adverse effect on our business, financial
condition and results of operations. We intend to rely on contract
manufacturers, some of which may be single source vendors, for the development,
manufacture and supply of certain of our reagents, assay kits and microplates.
There can be no assurance that we will be able to enter into such manufacturing
contracts on commercially reasonable terms, if at all, or that our current or
future contract manufacturers will meet our requirements for quality, quantity
or timeliness. If the supply of any components, reagents, assay kits or
microplates is interrupted, components, reagents, assay kits and microplates
from alternative suppliers and contract manufacturers may not be available in
sufficient volumes within required timeframes, if at all, to meet our production
needs.
IF OUR PRODUCTS ARE NOT PROPERLY USED OR IF THEY CONTAIN DEFECTS, THEY MAY
SUBJECT US TO PRODUCT LIABILITY, COSTLY REPAIRS AND PRODUCT RETURNS.
Our products include complex components, including high voltage and moving
parts, which must be properly used and may contain defects. Defects may occur
despite our testing and may not be discovered until after a product has been
shipped and used by our customers. For example, we recently discovered that a
component provided by one of our suppliers which is used in the power supply for
certain of our products may fail, which could cause instrument failure and, if
the product is not used properly in the presence of combustible materials, could
cause significant property damage or personal injury. Even without defects, our
products could present significant risks for customers if they are not properly
used. This risk associated with the use of our products, together with the
possibility of defects, could result in product liability, costly repairs,
product returns, and, more generally, delayed market acceptance of our products
or damage to our reputation and business. In addition, defense against any
claims, regardless of their merit, could result in substantial expense to us,
divert management time and attention, damage our business reputation and hurt
our ability to retain existing customers or attract new customers.
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WE HAVE AN ACCUMULATED DEFICIT AND OUR FUTURE PROFITABILITY IS UNCERTAIN.
As of December 31, 1999, we had an accumulated deficit of approximately
$20.4 million. The expansion of our operations and continued development of our
product line will require a substantial increase in sales, marketing and
research and development expenditures for at least the next several years. As a
result, we expect to incur operating losses for the next several years. Our
future profitability will depend on our ability to successfully develop, support
and commercialize our product line. Accordingly, the extent of future losses and
the time required to achieve profitability, if achieved at all, is highly
uncertain. Moreover, if profitability is achieved, the level of such
profitability cannot be predicted and may vary significantly from quarter to
quarter.
WE MAY NEED TO RAISE CAPITAL IN THE FUTURE AND ADDITIONAL FUNDING IS UNCERTAIN.
We may be required to raise substantial additional capital over a period of
several years in order to develop and commercialize our products. Our future
capital requirements will depend on numerous factors, including the costs
associated with:
- developing and commercializing our products;
- developing a direct marketing, service and sales force;
- maintaining existing, or entering into future, licensing and distribution
agreements;
- protecting intellectual property rights;
- expanding our reagents and assay kits business;
- broadening our product lines to include genotyping of SNPs;
- expanding facilities and administrative infrastructure; and
- consummating possible future acquisitions of technologies, products or
businesses.
We may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. Accordingly, we may be required to
raise additional capital through a variety of sources, including the public
equity market, private equity financing, collaborative arrangements, and public
or private debt. Additional capital may not be available on acceptable terms, if
at all. If adequate funds are not available, we may be required to significantly
reduce or refocus our operations or to obtain funds through arrangements that
may require us to relinquish rights to certain of our products, technologies or
potential markets, which would have a material adverse effect on our business,
financial condition and results of operations. To the extent that additional
capital is raised through the sale of equity or convertible securities, the
issuance of such securities would result in ownership dilution to our existing
stockholders.
WE HAVE INTERNATIONAL SALES AND OPERATIONS, WHICH SUBJECT US TO RISKS RELATED TO
FOREIGN CURRENCY EXCHANGE RATES, TARIFFS, FOREIGN REGULATIONS, IMPORT AND EXPORT
RESTRICTIONS AND DIFFICULTIES MANAGING AND STAFFING INTERNATIONAL OPERATIONS.
We sell products in foreign countries in local currencies, which exposes us
to foreign currency exchange risk. The U.S. dollar is the functional currency
for our U.K. subsidiary; however, we do enter into transactions in currencies
other than the U.S. dollar or pound sterling. Monetary and non-monetary assets
and liabilities of our U.K. subsidiary are remeasured into U.S. dollars at
period end and historical exchange rates, respectively. Sales and expenses are
remeasured at average exchange rates in effect during each period, except for
those expenses related to non-monetary assets, which are remeasured at
historical exchange rates. Gains or losses from foreign currency transactions
are included in net income (loss) and to date have not been material. We have
not entered into any currency hedging activities but may choose to do so in the
future.
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We expect that international sales could account for a significant portion
of our total sales in the future. International sales and operations are subject
to a number of risks, including:
- the imposition of government controls;
- export license requirements;
- restrictions on the export of critical technology;
- political and economic instability or conflicts;
- trade restrictions;
- changes in tariffs and taxes;
- difficulties in staffing and managing international operations;
- problems in establishing or managing distributor relationships; and
- general economic conditions.
In addition, as we expand our international operations and the amount of
sales invoiced in local currencies becomes a larger portion of our business,
fluctuations in the value of foreign currencies relative to the U.S. dollar may
adversely affect our business, financial condition and results of operations.
WE MAY ACQUIRE TECHNOLOGIES, PRODUCTS AND BUSINESSES, WHICH COULD EXPOSE US TO
ADDITIONAL RISKS AND BE DILUTIVE TO EXISTING STOCKHOLDERS.
We may acquire certain technologies, products or businesses to broaden the
scope of our existing and planned product lines and technologies. Such
acquisitions would expose us to:
- the risks associated with the assimilation of new technologies,
operations, sites and personnel;
- the diversion of resources from our existing business and technologies;
- the inability to generate revenues to offset associated acquisition costs;
- the requirement to maintain uniform standards, controls, and procedures;
and
- the impairment of relationships with employees and customers as a result
of any integration of new management personnel.
Acquisitions may also result in the issuance of dilutive equity securities,
the incurrence or assumption of debt or additional expenses associated with the
amortization of acquired intangible assets or potential businesses. Our failure
to successfully address such risks could have a material adverse effect on our
business, financial condition and results of operations.
THIRD PARTY INTELLECTUAL PROPERTY RIGHTS MAY LIMIT OUR ABILITY TO DEVELOP,
SUPPORT AND SELL OUR PRODUCTS; WE HAVE LICENSED TECHNOLOGY THAT WE USE IN OUR
PRODUCTS, BUT WE COULD LOSE RIGHTS TO THIS TECHNOLOGY AND THE ABILITY TO SELL
AND SUPPORT OUR PRODUCTS.
Our success will depend in part on our ability to obtain patents, maintain
trade secret protection and operate without infringing the proprietary rights of
others. As of February 29, 2000, we held seven U.S. patents and had thirteen
pending U.S. patent applications, two pending European regional patent
applications, one pending Israeli patent application, one pending Japanese
patent application, thirteen pending PCT, or international, patent applications,
and twenty-four pending U.S. provisional patent applications. To supplement our
proprietary technology, we have licensed, and expect to continue to license from
time to time, certain patent rights from third parties. These licenses may be
terminated under certain circumstances, including a material breach by us.
Furthermore, under some of these agreements, the licensors may elect to convert
the exclusive rights into non-exclusive rights in the event
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that we fail to make certain minimum royalty payments. If these licenses are
terminated due to a material breach of the license by us, or otherwise then we
would lose the right to incorporate the licensed technology into our products,
which would require us to exclude this certain technology from our existing and
future products and either license or internally develop alternative
technologies. There can be no assurance that we would be able to license
alternative technologies on commercially acceptable terms, or at all, or that we
would be capable of internally developing such technologies. Furthermore, other
companies may independently develop technology with functionality similar or
superior to the licensed technology that does not or is claimed not to infringe
the licensed patents or that otherwise circumvents the technology we have
licensed.
We are aware of third party patents that contain issued claims that may
cover certain aspects of our reagent technologies. In the future we may be
required to license third-party patents to produce or sell certain reagents,
assay kits and related products. Licenses for such patents may not be available
on commercially acceptable terms, if at all. Any action against us claiming
damages and seeking to enjoin commercial activities relating to the affected
technologies could subject us to potential liability for damages. We could incur
substantial costs in defending patent infringement claims, obtaining patent
licenses, engaging in interference and opposition proceedings or other
challenges to our patent rights or intellectual property rights made by third
parties, or in bringing such proceedings or enforcing any patent rights against
third parties. Our inability to obtain necessary licenses or our involvement in
proceedings concerning patent rights could have a material adverse effect on our
business, financial condition and results of operations.
The patent positions of life science product companies, including ours, are
uncertain and involve complex legal and factual questions. In addition, the
coverage claimed in a patent application can be significantly reduced before the
patent is issued. Consequently, there can be no assurance that our patent
applications or those of our licensors will result in patents being issued or
that any issued patents will provide protection against competitive technologies
or will be held valid if challenged or circumvented. Others may independently
develop products similar to our products, or design around or otherwise
circumvent patents issued to us. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, we could be prevented
from practicing the subject matter claimed in such patents, or would be required
to obtain licenses from the patent owners of each of such patents or to redesign
our products or processes to avoid infringement. There can be no assurance that
such licenses would be available or, if available, would be on terms acceptable
to us or that we would be successful in any attempt to redesign our products or
processes to avoid infringement. If we do not obtain the necessary licenses, we
could be subject to litigation and encounter delays in product introductions
while we attempt to design around such patents. Alternatively, the development,
manufacture or sale of such products could be prevented. Litigation would result
in significant costs to us as well as diversion of management time. Adverse
determinations in any such proceedings could have a material adverse effect on
our business, financial condition and results of operations.
We also rely on trade secret and copyright law, as well as employee and
third-party nondisclosure agreements to protect our intellectual property rights
in our products and technology. There can be no assurance that these agreements
and measures will provide meaningful protection of our trade secrets,
copyrights, know-how, or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure. In addition, others may
independently develop substantially equivalent proprietary technologies.
Litigation to protect our trade secrets or copyrights would result in
significant costs to us as well as diversion of management time. Adverse
determinations in any such proceedings or unauthorized disclosure of our trade
secrets could have a material adverse effect on our business, financial
condition and results of operations. In addition, the laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
U.S. laws. There can be no assurance that we will be able to protect our
intellectual property in these markets.
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SOME OF OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATION, AND THE FAILURE BY US
OR OUR ORIGINAL EQUIPMENT MANUFACTURING CUSTOMERS TO COMPLY WITH GOVERNMENT
REGULATIONS COULD LIMIT OUR SALES OF THESE PRODUCTS.
While we believe that none of our products will be regulated as medical
devices or otherwise subject to FDA regulation, our clinical diagnostics
products, including the Luminometer, Q2000, Horizon and a microplate heater, are
subject to FDA regulation as medical devices, as well as similar foreign
regulation. The process of obtaining and maintaining required regulatory
clearances and approvals and otherwise remaining in regulatory compliance in the
U.S. and certain other countries is lengthy, expensive and uncertain. Although
we have phased out production of the Luminometer, Q2000 and the microplate
heater, we will continue to manufacture the Horizon on an original equipment
manufacturing basis during 2000 but do not expect to manufacture the Horizon
after 2000. The Horizon is used in research and clinical laboratories to perform
in vitro diagnostic tests, which are exempt from investigational device
exemption requirements, including the need to obtain the FDA's prior approval,
provided that, among other things:
- the testing is noninvasive;
- the product is not used as a diagnostic procedure without confirmation by
another medically established test or procedure; and
- distribution controls are established to assure that in vitro diagnostic
products distributed for research are used only for those purposes.
To our knowledge, our original equipment manufacturing customers have met
these conditions. However, the FDA may not agree that our original equipment
manufacturing customers' distribution of our clinical diagnostic products meets
and have met the requirements for investigational device exemption. Failure by
us, our original equipment manufacturing customers or the recipients of our
clinical diagnostic products to comply with the investigational device exemption
requirements could result in enforcement action by the FDA, which could
adversely affect us or our original equipment manufacturing customers' ability
to gain marketing clearance or approval of these products or could result in the
recall of previously distributed products.
Applicable law requires that we comply with the FDA's regulations for the
manufacture of the Horizon. The FDA monitors compliance with its regulations by
subjecting medical product manufacturers to periodic FDA inspections of their
manufacturing facilities. The FDA has recently revised its regulations, and the
new regulations impose design controls and make other significant changes in the
requirements applicable to manufacturers. We are also subject to other
regulatory requirements, and may need to submit reports to the FDA, including
adverse event reporting. Failure to comply with current FDA regulations or other
applicable legal requirements can lead to, among other things:
- warning letters;
- seizure of violative products;
- suspension of manufacturing, government injunctions; and
- potential civil or criminal liability on our part and the part of the
responsible officers and employees.
In addition, the government may halt or restrict continued sale of such
instruments. In conjunction with the export of our clinical diagnostics
instruments, we maintain International Organization for Standardization 9001
certification and apply the CE mark to certain products that are exported, which
subjects our operations to periodic surveillance audits. While we believe we are
currently in compliance with all applicable regulations and standards, there can
be no assurance that our operations will be found to comply with these
regulations or standards or other applicable legal requirements in the future or
that we will not be required to incur substantial costs to maintain our
compliance with existing or future manufacturing regulations, standards or other
requirements. Any such noncompliance or increased cost of compliance could have
a material adverse effect on our business, results of operations and financial
condition.
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We are also subject to numerous federal, state and local laws relating to
safe working conditions, manufacturing practices, environmental protection,
storage, use and disposal of hazardous or potentially hazardous substances. Any
material failure to comply with such laws could require us to incur significant
costs and would have a material, adverse effect upon our ability to do business.
Changes in existing requirements or adoption of new requirements or policies
relating to government regulations could materially and adversely affect our
ability to comply with such requirements.
WE USE HAZARDOUS MATERIALS AND IMPROPER HANDLING OF THESE MATERIALS BY OUR
EMPLOYEES OR AGENTS COULD EXPOSE US TO SIGNIFICANT FINANCIAL PENALTIES.
Our research and development and manufacturing operations involve the use of
hazardous materials, biological samples and chemicals. We manufacture certain
reagents and assay kits, some of which contain hazardous materials, including
carcinogens. We are subject to federal, state and local laws and regulations
governing the storage, use and disposal of such materials and certain waste
products. The risk of accidental contamination or injury from the use of these
materials cannot be completely eliminated. In the event of an accident, we could
be held liable for damages that result and any such liability could exceed our
resources, which would have a material adverse effect on us. We may incur
substantial costs to comply with environmental and safety regulations.
IF ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION BECOME
WIDESPREAD, WE MAY HAVE LESS DEMAND FOR OUR PRODUCTS.
Genetic testing has raised ethical issues regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may call for limits on or regulation of the use of genetic testing
or prohibit testing for genetic predisposition to certain conditions,
particularly for those that have no known cure. Any of these scenarios could
reduce the potential markets for our products, which could seriously harm our
business, financial condition and results of operation.
YEAR 2000 PROBLEMS COULD ADVERSELY IMPACT OUR BUSINESS.
In fiscal 1999, we established a year 2000 program to address certain year
2000 issues. This program focuses on four key areas of readiness:
- internal infrastructure readiness, addressing internal hardware and
software, including both information and non-information technology
systems;
- supplier readiness, addressing the preparedness of suppliers providing
material incorporated into our products;
- product readiness, addressing product functionality; and
- customer readiness, addressing customer support and transactional
activity.
For each readiness area, we performed risk assessment, tested and repaired
year 2000 issues as needed, developed contingency plans as considered necessary
to mitigate unknown risks, and communicated year 2000 information to employees,
suppliers, customers and other third parties.
INTERNAL INFRASTRUCTURE READINESS. We completed an assessment of our
internal software applications and information technology hardware and completed
any necessary testing and repairs. These readiness activities were intended to
encompass all major categories of software applications we use, including:
- those used for manufacturing, engineering, sales, finance, and human
resources;
- hardware, including hubs, routers, telecommunication equipment,
workstations and other items; and
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- non-information technology systems, including embedded systems, facilities
and other operations, such as financial, banking, security and utility
systems.
As of December 31, 1999, we completed the evaluation and any necessary
testing and repairs of our mission critical internal infrastructure and
determined it to be year 2000 ready.
SUPPLIER READINESS. This area focused on minimizing two components of risk
associated with suppliers:
- a supplier's product integrity; and
- a supplier's business capability to continue providing products and
services.
We identified and contacted key suppliers regarding their relative risks in
these two components. As of December 31, 1999, we had received responses from
approximately 95% of our key suppliers, who indicated that the products provided
to us were year 2000 compliant, or they were in the process of developing or
executing repair plans to address year 2000 issues which may have affected their
ability to continue providing products and services to us. Since we had no way
of testing or validating what third party suppliers represented to us and given
the fact that we had not received responses from 100% of our key suppliers, as a
contingency plan we had enough material on hand at year end to satisfy our
production needs through the first quarter of 2000.
PRODUCT READINESS. This area focused on identifying and resolving year 2000
issues existing in our products. This area encompassed a number of activities,
including testing, evaluation, engineering and manufacturing implementation. As
of December 31, 1999, we had completed a year 2000 readiness assessment for our
current generation of released products based upon a series of
industry-recognized testing parameters and had determined that these products
were year 2000 ready.
CUSTOMER READINESS. This area focused on customer readiness as it related
to our responsibility to provide customer support, including retrofitting
products as well as providing other services to our customers. Primarily due to
our product readiness efforts regarding our current generation of released
products, we completed our assessment of year 2000 risk in this area and
determined that there were no issues to address as of December 31, 1999.
SUMMARY. As of December 31, 1999, we completed our year 2000 readiness
program for internal infrastructure, product and customer readiness. Regarding
supplier readiness, since we had no way of testing or validating what third
party suppliers represent to us and given the fact that we had not received
responses from 100% of our key suppliers, we had enough material on hand at year
end to satisfy our production needs through the first quarter of 2000. Our
overall cost to address year 2000 issues was not material. As of February 29,
2000, we have not had any year 2000 readiness issues. Although we are not aware
of any year 2000 readiness issues affecting us at this time, there can be no
assurance that issues, not yet apparent to us, will not arise during the year
2000 and beyond.
OUR FUTURE OPERATING RESULTS ARE LIKELY TO FLUCTUATE.
Our future operating results are likely to fluctuate substantially from year
to year and quarter to quarter. The degree of fluctuation will depend on a
number of factors, including:
- the timing and level of sales;
- the mix of products sold through direct sales channels and third party
distributors; and
- any change in the product mix among our existing and planned product
lines.
Fluctuations of these factors could have a material adverse effect on our
business, financial condition and results of operations. Because we expect a
significant portion of our business to be derived from orders placed by a
limited number of large customers, variations in the timing of such
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orders could cause significant fluctuations in our operating results. Other
factors that may result in fluctuations in operating results include:
- industry acceptance of high throughput and ultra-high throughput products
as a drug discovery tool;
- market acceptance of our products;
- the timing of new product announcements and the introduction of new
products and new technologies by us or our competitors;
- delays in research and development of new products;
- increased research and development expenses;
- increased marketing and sales expenses associated with the implementation
of our direct marketing efforts;
- increased spending to develop and market our SNP genotyping product lines;
- availability and cost of component parts from our suppliers;
- competitive pricing pressures; and
- developments with respect to regulatory matters.
In connection with future introductions of new products, we may be required
to record charges for inventory obsolescence in connection with unsold
inventory, if any, of older generations of products.
Our expenditures for research and development, selling, support and
marketing and general and administrative functions are based in part on future
revenue projections. We may be unable to adjust spending in a timely manner in
response to any unanticipated declines in revenues, which may have a material
adverse effect on our business, financial condition and results of operations.
We may be required to reduce prices in response to competitive pressures or
other factors or increase spending to pursue new market opportunities. Any
decline in the average selling price of a product which is not offset by a
reduction in product costs or by sales of other products with higher gross
margins would decrease our overall gross profit and adversely affect our
business, financial condition and results of operations. In addition, our
operating results may vary from the expectations of public market analysts and
investors, and, as a result, the price of our common stock could be materially
and adversely affected.
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USE OF PROCEEDS
The net proceeds to us from the sale of the 2,500,000 shares of common stock
we are offering will be approximately $44.5 million. If the underwriters fully
exercise the over-allotment option, the net proceeds to us will be approximately
$51.2 million. For the purpose of estimating net proceeds, we are assuming that
the public offering price will be $19.13 per share. "Net proceeds" is what we
expect to receive after we pay the underwriting discount and other estimated
expenses for this offering.
We expect to use the net proceeds to fund research and development and sales
and marketing activities, especially relating to our genomics and consumables
businesses, as well as investments in manufacturing, administrative
infrastructure, working capital and other general corporate purposes, which may
include the acquisition of technologies, products and businesses. We have no
present understandings, commitments or arrangements with respect to any such
acquisitions. Notwithstanding the intended use of proceeds, we may use the
proceeds differently than currently anticipated, depending on changes in market
conditions, progress of our research and development programs and other factors.
Prior to using the net proceeds as described above, we intend to invest the net
proceeds in short-term, investment-grade, interest-bearing financial
instruments.
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CAPITALIZATION
The following table sets forth as of December 31, 1999 (1) our actual
capitalization, (2) our pro forma capitalization giving effect to the sale of
1.76 million shares of our common stock in a private placement completed in
February 2000 resulting in net cash proceeds of approximately $18.4 million, and
(3) our pro forma capitalization as adjusted to reflect the sale of 2.5 million
shares of common stock offered hereby at an assumed public offering price of
$19.13 per share, after deducting the underwriting discounts and estimated
offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
ACTUAL (UNAUDITED) (UNAUDITED)
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt, current and long-term................................. $ 868 $ 868 $ 868
-------- -------- --------
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000 shares
authorized; issued and outstanding: 12,756,203 actual;
14,513,748 shares pro forma; 17,013,748 pro forma as
adjusted(1)............................................. 13 15 17
Additional paid-in capital................................ 30,601 48,970 93,447
Deferred stock compensation............................... (435) (435) (435)
Accumulated comprehensive loss............................ (20) (20) (20)
Accumulated deficit....................................... (20,379) (20,379) (20,379)
-------- -------- --------
Total stockholders' equity.............................. 9,780 28,151 72,630
-------- -------- --------
Total capitalization........................................ $ 10,648 $ 29,019 $ 73,498
======== ======== ========
</TABLE>
- ------------------------
(1) Excludes options to purchase up to 1,851,720 shares of common stock
exercisable at a weighted-average exercise price per share of $3.57, which
were outstanding as of December 31, 1999; and up to 75,965 shares of common
stock issuable upon exercise of stock warrants outstanding as of
December 31, 1999 at a weighted average price per share of $6.78
The table should be read in conjunction with our consolidated financial
statements and the related notes appearing elsewhere in this prospectus.
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 after giving
effect to our sale of 1,757,545 shares of common stock in a private placement in
February 2000 would have been approximately $28,151,000, or approximately $1.94
per share. Net tangible book value per share represents the amount of tangible
assets less total liabilities, divided by 14,513,748 pro forma shares of common
stock outstanding.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of the 17,013,748 pro forma as adjusted
shares of common stock outstanding immediately after this offering. After giving
effect to our sale of 2,500,000 shares of common stock in this offering at an
assumed public offering price of $19.13 per share and after deduction of the
underwriting discounts and estimated offering expenses, our pro forma as
adjusted net tangible book value as of December 31, 1999 would have been
approximately $72,630,000, or $4.27 per share. This represents an immediate
increase in pro forma net tangible book value of $2.33 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$14.86 per share to purchasers of common stock in this offering:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering per share................................. $ 19.13
Pro forma net tangible book value per share before
offering.............................................. $ 1.94
Increase per share attributable to new investors........ 2.33
------
Pro forma as adjusted net tangible book value per share
after offering.......................................... 4.27
-------
Net tangible book value dilution per share to new
investors............................................... $ 14.86
=======
</TABLE>
The following table sets forth the total consideration paid and the average
price per share paid by the existing stockholders and by new investors, after
deducting estimated underwriting discounts and commissions and offering expenses
payable by us at an assumed public offering price of $19.13 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................ 14,513,748 85.3% $50,919,995 51.6% $ 3.51
New Investors........................ 2,500,000 14.7 47,812,500 48.4 19.13
----------- ------ ----------- ------
Total.............................. 17,013,748 100.0% $98,732,495 100.0%
=========== ====== =========== ======
</TABLE>
- ------------------------
The number of shares of common stock outstanding at December 31, 1999 excludes:
(a) 1,851,720 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999, with a weighted average exercise price
of $3.57 per share; and
(b) 75,965 shares of common stock issuable upon exercise of warrants outstanding
as of December 31, 1999, with a weighted average exercise price of $6.78 per
share.
19
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"LJLB." The following table sets forth, for the periods indicated, the high and
low sale prices per share of our common stock, as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1998:
First Quarter............................................. $ 7.25 $6.75
Second Quarter............................................ 7.13 4.88
Third Quarter............................................. 5.00 2.50
Fourth Quarter............................................ 3.38 2.00
FISCAL 1999:
First Quarter............................................. $ 8.13 $3.25
Second Quarter............................................ 6.06 3.13
Third Quarter............................................. 4.63 2.88
Fourth Quarter............................................ 9.63 1.88
FISCAL 2000:
First Quarter, through March 28, 2000..................... $47.00 $6.50
</TABLE>
On March 28, 2000, the closing price for our common stock as reported on the
Nasdaq National Market was $19.13. As of February 29, 2000, we had 122 holders
of record of our common stock. There are approximately 1,600 beneficial owners
of our common stock.
DIVIDEND POLICY
Prior to June 1997, we operated as an S corporation for federal and state
income tax purposes and distributed our taxable income to our stockholders in
the form of dividends. Since September 1997, shortly after we became a C
corporation, we have not paid any dividends and do not anticipate paying cash
dividends in the foreseeable future. We currently intend to retain all available
funds and any future earnings for use in the operation of our business.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains our selected consolidated financial data and is
qualified by the more detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this prospectus. The consolidated statement of
operations data for the fiscal years ended December 31, 1999, December 31, 1998
and December 31, 1997 have been derived from our audited consolidated financial
statements, which are included elsewhere in this prospectus. The consolidated
statement of operations data for the fiscal years ended December 31, 1996 and
December 31, 1995 have been derived from our audited consolidated financial
statements, which are not included in this prospectus. This data should be read
in conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $5,151 $9,285 $ 5,204 $ 4,436 $ 9,917
Cost of sales.................................... 1,174 2,755 2,319 2,487 3,554
------ ------ ------- ------- -------
Gross profit................................... 3,977 6,530 2,885 1,949 6,363
------ ------ ------- ------- -------
Operating expenses:
Research and development....................... 1,740 2,384 3,511 5,472 6,787
Selling, general and administrative............ 1,963 4,062 2,145 5,308 8,199
------ ------ ------- ------- -------
Total operating expenses..................... 3,703 6,446 5,656 10,780 14,986
------ ------ ------- ------- -------
Income (loss) from operations.................... 274 84 (2,771) (8,831) (8,623)
Interest and other income, net................... 87 181 237 629 590
Interest expense................................. (5) (5) (9) (35) (90)
------ ------ ------- ------- -------
Income (loss) before provision for income
taxes.......................................... 356 260 (2,543) (8,237) (8,123)
Provision for income taxes....................... 4 2 12 -- 15
------ ------ ------- ------- -------
Net income (loss)................................ 352 258 (2,555) (8,237) (8,138)
Accretion of mandatorily redeemable convertible
preferred stock redemption value............... -- -- (636) (254) --
------ ------ ------- ------- -------
Net income (loss) available to common
stockholders................................... $ 352 $ 258 $(3,191) $(8,491) $(8,138)
====== ====== ======= ======= =======
Basic and diluted net income (loss) per share
available to common stockholders............... $ 0.08 $ 0.06 $ (0.71) $ (0.91) $ (0.65)
====== ====== ======= ======= =======
Shares used in computation of basic and diluted
net income (loss) per share available to common
stockholders................................... 4,501 4,501 4,504 9,283 12,506
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments.......... $1,773 $1,166 $ 5,525 $ 10,204 $ 8,548
Total assets.................................... 2,483 2,458 6,793 13,458 14,358
Long-term debt.................................. 32 43 40 542 586
Mandatorily redeemable convertible preferred
stock......................................... -- -- 9,308 -- --
Retained earnings (accumulated deficit)......... 46 (226) (3,750) (12,241) (20,379)
Total stockholders' equity (deficit)............ 85 (187) (3,795) 10,420 9,780
</TABLE>
- ------------------------
See Note 1 of "Notes to Consolidated Financial Statements" for a description of
the computation of basic and diluted per share amounts.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We design, produce and sell products under the CRITERION name specifically
targeted for both the current and evolving high throughput markets. Our
CRITERION product line is comprised of instruments and consumables for drug
discovery and genomics. To develop these products, we have assembled an
integrated team of scientists and engineers with expertise in multiple
disciplines, including biology, fluorescence, chemistry, biophysics,
biochemistry, chemical and mechanical engineering, optics, electronics and
software. Since our inception in 1988, we have designed, developed and
manufactured high performance clinical diagnostics analyzers and other automated
instruments.
Starting in the second half of 1996, we began focusing on the high
throughput market. Since then our efforts have resulted in the achievement of
several key milestones.
- In May 1998, we began shipping Analyst HT, our first-generation detection
system for the high throughput market. This system was designed
specifically for the high throughput market and offers multi-mode
capability, flexibility and performs up to 70,000 screens per day.
- Later in 1998, we shipped our first ultra-high throughput system, Acquest.
Also multi-modal, Acquest was designed to accept microplates with both
384-well and 1,536-well formats and to perform up to 200,000 screens per
day.
- In June 1999, we began shipping Analyst AD, which was designed
specifically for assay development and is fully compatible with Analyst
HT.
We have developed and are developing value-added, application-specific
reagents, assay kits and microplates, which are being optimized for use in high
throughput systems and specifically for use with our Analyst and Acquest product
lines. We believe that customers will prefer to purchase consumables and
instruments from a single source for convenience, ongoing support and
accountability.
As part of our shift in focus, we have de-emphasized our original equipment
manufacturing development activities and have phased out production of all but
one of our original equipment manufacturing instruments. However, we expect to
support and may continue to manufacture products under our agreement with one
customer through 2000 and possibly beyond.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES. Total sales were $9.9 million for the year ended December 31,
1999, as compared to $4.4 million for the year ended December 31, 1998,
representing an increase of $5.5 million or 124%. This increase in sales was due
primarily to an increase in sales volumes of our CRITERION products. We began
shipping and recognizing revenue on our first high throughput product, Analyst,
in the second quarter of 1998, and our follow-on ultra-high throughput product,
Acquest, in the fourth quarter of 1998. As a result, we reported combined
Analyst and Acquest instrument sales of $8.7 million for the year ended
December 31, 1999, as compared to $4.0 million for the year ended December 31,
1998. Sales to a single customer represented 15% of total sales during fiscal
1999. Sales to this customer represented less than 10% of our sales in fiscal
1998 and no customer in fiscal 1998 represented more than 10% of sales. For
additional discussion of risks related to customer concentration, see "Risk
Factors--The market for our product line is concentrated, which limits the
number of our potential customers."
We decided in 1996 to focus our future efforts on development of our
proprietary product platform and not to pursue additional development or
manufacturing agreements for original
22
<PAGE>
equipment manufacturing products. We did, however, record sales of $764,000
related to an original equipment manufacturing product during the year ended
December 31, 1999. This compares to revenues from original equipment
manufacturing product sales of $438,000 for the year ended December 31, 1998,
representing an increase of $326,000 or 74%. We expect comparable sales from
original equipment manufacturing products during 2000 but expect little or no
original equipment manufacturing product sales in future periods beyond 2000.
COST OF SALES. Cost of sales were $3.6 million for the year ended
December 31, 1999, as compared to $2.5 million for the year ended December 31,
1998, representing an increase of $1.1 million or 43%. This was due primarily to
the significant increase in sales of our CRITERION products. Gross profit, as a
percentage of sales, was 64% for the year ended December 31, 1999, as compared
to 44% for the year ended December 31, 1998. This increase was primarily the
result of favorable product mix and higher manufacturing volumes, which resulted
in better manufacturing overhead cost absorption. We expect that gross profit,
as a percentage of sales, will fluctuate for the next several years based on
sales volumes and product mix for the Analyst, Acquest and other products.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$6.8 million for the year ended December 31, 1999, as compared to $5.5 million
for the year ended December 31, 1998, representing an increase of $1.3 million
or 24%. This increase was primarily due to increased costs associated with the
development of our CRITERION product line platform. The fiscal 1999 percentage
increase in research and development expenses of 24% was significantly lower
than the fiscal 1998 percentage increase of 56% due to our efforts in fiscal
1999 to slow the growth of research and development expense. We expect research
and development expenditures to continue to increase in future periods to
support the development of our CRITERION product line, especially reagents and
SNP related products.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs were $8.2 million for the year ended December 31, 1999, as compared to
$5.3 million for the year ended December 31, 1998, representing an increase of
$2.9 million or 54%. This increase was primarily due to increases in marketing
and sales expenses associated with the addition of sales and marketing personnel
and higher marketing expenses for the Analyst and Acquest product lines. This
increase was also due to increases in general and administrative expenses, which
include higher costs associated with the addition of administrative personnel
and higher infrastructure costs associated with our fiscal 1999 headcount
increases. We expect selling, general and administrative expenses to increase in
future periods to support the development of our CRITERION product line,
especially reagents and SNP related products.
INTEREST AND OTHER INCOME, NET. Net interest and other income was $590,000
for the year ended December 31, 1999, as compared to $629,000 for the year ended
December 31, 1998, representing a decrease of $39,000 or 6%. This decrease was
primarily due to lower interest earned on lower average levels of invested cash,
cash equivalents and investments in 1999 as compared to 1998.
INTEREST EXPENSE. Interest expense was $90,000 for the year ended
December 31, 1999, as compared to $35,000 for the year ended December 31, 1998,
representing an increase of $55,000 or 157%. This increase was primarily due to
higher interest paid on a higher average level of debt on our line of credit in
1999 as compared to 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
SALES. Total sales were $4.4 million for the year ended December 31, 1998,
as compared to $5.2 million for the year ended December 31, 1997, representing a
decrease of $0.8 million or 15%. This decrease in sales was due primarily to the
significant decrease in sales from original equipment manufacturing and
development agreements, which made up all of the revenue reported in the year
23
<PAGE>
ended December 31, 1997, partially offset by shipments of our first high
throughput products in 1998. We began shipping and recognizing revenue on our
first high throughput product, Analyst, in the second quarter of 1998, and our
follow-on ultra-high throughput product, Acquest, in the fourth quarter of 1998,
reporting combined systems sales in excess of $4.0 million for the year ended
December 31, 1998. No revenue was recognized under development agreements for
the year ended December 31, 1998, as compared with $0.6 million recognized under
development agreements for the year ended December 31, 1997. The decrease in
sales from original equipment manufacturing products and development agreements
was due to our decision in 1996 to focus our future efforts on development of
our proprietary CRITERION product platform and not to pursue additional
development or manufacturing agreements for original equipment manufacturing
products. Revenue from original equipment manufacturing product sales was
$438,000 for the year ended December 31, 1998, as compared to $4.6 million for
the year ended December 31, 1997, representing a decrease of $4.2 million. The
decrease in original equipment manufacturing product revenue was due to our
increasing focus on our CRITERION product line and the phasing out of the
Luminometer, which is a microplate reader, the Q2000, which is a clinical
analyzer, and the microplate heater products.
COST OF SALES. Cost of sales were $2.5 million for the year ended
December 31, 1998, as compared to $2.3 million for the year ended December 31,
1997, representing an increase of $0.2 million or 7%. This increase was
primarily due to our transition in product mix from mature original equipment
manufacturing products to our new CRITERION product line. Gross profit, as a
percentage of product sales, was 44% for the year ended December 31, 1998, as
compared to 49% for the year ended December 31, 1997. This decrease was
primarily the result of decreased absorption of manufacturing overhead resulting
from low production volumes of CRITERION instruments early in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$5.5 million for the year ended December 31, 1998, as compared to $3.5 million
for the year ended December 31, 1997, representing an increase of $2.0 million
or 56%. This increase was primarily due to increased costs associated with the
development of our CRITERION product line platform, partially offset by a
decrease in the level of research and development expenses incurred in
connection with development agreements for original equipment manufacturing
customers.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs were $5.3 million for the year ended December 31, 1998, as compared to
$2.1 million for the year ended December 31, 1997, representing an increase of
$3.2 million or 147%. This increase was primarily due to increases in marketing
and sales expenses associated with the addition of sales and marketing
personnel, as well as marketing expenses for the Analyst and Acquest, and other
increases in general and administrative expenses which include the additional
administrative costs of being a public company.
INTEREST AND OTHER INCOME, NET. Net interest and other income was $629,000
for the year ended December 31, 1998, as compared to $237,000 for the year ended
December 31, 1997, representing an increase of $392,000 or 165%. This increase
was primarily due to higher interest earned on higher average levels of invested
cash, cash equivalents and investments in 1998, as compared to 1997, as a result
of the receipt of the proceeds from our IPO.
INTEREST EXPENSE. Interest expense was $35,000 for the year ended
December 31, 1998, as compared to $9,000 for the year ended December 31, 1997,
representing an increase of $26,000 or 289%. This increase was primarily due to
higher interest paid on a higher average level of debt in 1998 as compared to
1997, when we did not have a line of credit but did have equipment loan
agreements with a bank related to the purchase of equipment and software.
24
<PAGE>
INCOME TAXES
Prior to June 1997, we were taxed as an S corporation for federal and state
income tax purposes. Under the Internal Revenue Code provisions regarding S
corporations, we were not subject to federal income taxes but were subject to
state income taxes at a reduced rate. As an S corporation, our stockholders paid
taxes on their share of our taxable income in their individual tax returns. In
June 1997, in connection with a preferred stock financing, we became subject to
the C corporation provisions of the Internal Revenue Code pursuant to which our
earnings are taxed for federal and state income tax purposes at the corporate
level. Through June 1997, our profits were distributed to our stockholders
through a combination of compensation, which was treated as an expense in the
Statement of Operations, and dividends. Future distributions are not expected.
During 1999, we recorded a provision for foreign income taxes of $15,000. At
December 31, 1999, we had net operating loss carryforwards of approximately
$18 million and $9 million for federal and state income tax purposes,
respectively, which expire from 2003 to 2020. A full valuation allowance has
been provided for the net operating loss other deferred tax assets as our
management does not consider their realization more likely than not.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had cash, cash equivalents and investments of
$8.5 million, working capital of $9.3 million and an accumulated deficit of
$20.4 million. We completed an initial public offering of our common stock in
March 1998, raising approximately $12.2 million in cash, net of underwriting
discounts and associated costs. In April 1998, we sold an additional 88,000
shares of common stock in connection with the exercise of an over-allotment
option granted to the underwriters and received cash proceeds, net of
underwriting commissions and associated costs, of approximately $0.6 million. On
January 27, 1999, we raised net cash proceeds of $6.7 million in connection with
a private placement of 2.0 million shares of unregistered restricted common
stock. The terms of the sale required that we file a registration statement
covering such shares. Such registration statement was filed and became effective
on July 22, 1999. On February 2, 2000, we received net cash proceeds of
approximately $18.4 million in connection with a private placement of
1.76 million shares of unregistered restricted common stock. The terms of the
sale required that we file a registration statement covering such shares. Such
registration statement was filed and became effective on March 3, 2000. Prior to
our IPO, we satisfied our liquidity needs primarily through cash flows generated
from operations, private sales of preferred stock, and to a lesser extent, from
bank loans for equipment purchases and loans from stockholders.
Net cash from operating activities has historically fluctuated based on:
- the timing of payments of accounts payable balances;
- receipts of customer deposits;
- payments of accounts receivable balances;
- changes in inventory balances resulting from varying levels of
manufacturing activities; and
- fluctuations in our net loss.
Net cash used in operating activities totaled $8.4 million, $8.1 million and
$2.9 million during the years ended December 31, 1999, 1998 and 1997,
respectively. The fiscal 1999 increase in net cash used in operations, as
compared to 1998, was attributable to changes in accounts receivable, inventory,
other current assets and accrued expenses. This increase in net cash used in
operations was partially offset by a decrease in our fiscal 1999 net loss, as
compared to fiscal 1998, as well as by changes in our accounts payable, customer
deposits and deferred revenue.
25
<PAGE>
Net cash provided by (used in) investing activities totaled $3.3 million,
$(9.0) million and $(0.4) million during the years ended December 31, 1999, 1998
and 1997, respectively. The increase in net cash provided by investing
activities in fiscal 1999, as compared to the net cash used in investing
activities in fiscal 1998, was primarily due to increased proceeds from the
sales and maturities of investments, net of purchases of investments. The
increase in net cash used in investing activities in fiscal 1998, as compared to
fiscal 1997, was due primarily to purchases of investments, net of sales and
maturities of investments. These financial instruments, like all fixed income
instruments, are subject to interest rate risk and may fluctuate in value if
market interest rates fluctuate. We attempt to limit this exposure by primarily
investing in short-term investments.
Net cash provided by financing activities totaled $7.1 million,
$13.4 million and $7.7 million during the years ended December 31, 1999, 1998
and 1997, respectively. The decrease in net cash from financing activities for
fiscal 1999, as compared to fiscal 1998, was primarily due to lower net proceeds
from our private placement of common stock during the first quarter of 1999,
which raised approximately $6.7 million, net of issuance costs, compared to our
1998 initial public offering and the related exercise of an over-allotment
option granted to the underwriters, which raised approximately $12.8 million in
cash, net of underwriting discounts and associated costs. The lower net cash
from financing activities also resulted from a decrease in the amount drawn
under our line of credit during fiscal 1999, as compared to fiscal 1998. The
increase in net cash from financing activities for fiscal 1998, as compared to
fiscal 1997, was primarily due to higher net proceeds from our 1998 initial
public offering and the related exercise of an over-allotment option granted to
the underwriters, referred to above, compared to our 1997 private placement of
mandatorily redeemable preferred stock, which raised approximately $8.7 million
in cash. The higher net cash from financing activities also resulted from an
increase in the amount drawn under our line of credit during fiscal 1998, as
compared to fiscal 1997 when we did not have a line of credit. Net cash from
financing activities for the year ended December 31, 1997 also included
$1.1 million in S corporation distributions to our stockholders.
In February 1998, we entered into an equipment financing agreement that
provided a $1.3 million line of credit that was used to finance the purchases of
equipment, computers and software necessary to support our CRITERION product
line development effort and additions to the marketing, sales and administrative
infrastructure. The initial term of this agreement was through February 16,
1999. The agreement was extended twice with the latest extension expiring on
December 31, 1999. At December 31, 1999, we had an obligation to repay
$0.9 million under this agreement through 2003.
In June 1997, we entered into a development, license and sales agreement
with FluorRx, Inc. under which we obtained worldwide rights to certain patented
technologies. In August 1998, we amended certain terms of this agreement. Future
minimum royalty payments due through 2003 under the agreement amount to
approximately $1.0 million.
We may be required to raise substantial additional capital over a period of
several years in order to continue to develop and commercialize our products.
Our future capital requirements will depend on numerous factors, including:
- the costs associated with developing and commercializing our products;
- broadening our direct marketing and sales force;
- maintaining existing or entering into future licensing and distribution
agreements;
- protecting intellectual property rights;
- building our business;
- broadening our product lines to include genotyping of SNPs;
- expanding facilities and administrative infrastructure; and
26
<PAGE>
- consummating possible future acquisitions of technologies, products or
businesses.
We believe that our cash, cash equivalents and short-term investments
balances, including approximately $18.4 million in net cash proceeds from the
February 2, 2000 private placement of 1.76 million shares of our common stock
and the estimated net cash proceeds of $44.5 million from this offering will be
sufficient to fund our operations for at least the next twelve months.
We may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. Accordingly, we may be required to
raise additional capital through a variety of sources, including:
- the public equity market;
- private equity financing;
- collaborative arrangements; and
- public or private debt.
There can be no assurance that additional capital will be available on
favorable terms, if at all. If adequate funds are not available, we may be
required to significantly reduce or refocus our operations or to obtain funds
through arrangements that may require us to relinquish rights to certain of our
products, technologies or potential markets; either of which could have a
material adverse effect on our business, financial condition and results of
operations. To the extent that additional capital is raised through the sale of
equity, the issuance of such securities would result in ownership dilution to
our existing stockholders.
IMPACT OF YEAR 2000
In fiscal 1999, we established a year 2000 program to address certain year
2000 issues. This program focused on four key areas of readiness:
- internal infrastructure readiness, addressing internal hardware and
software, including both information and non-information technology
systems;
- supplier readiness, addressing the preparedness of suppliers providing
material incorporated into our products;
- product readiness, addressing product functionality; and
- customer readiness, addressing customer support and transactional
activity.
For each readiness area, we performed risk assessment, tested and repaired
year 2000 issues as needed, developed contingency plans as considered necessary
to mitigate unknown risks, and communicated year 2000 information to employees,
suppliers, customers and other third parties.
INTERNAL INFRASTRUCTURE READINESS. We completed an assessment of our
internal software applications and information technology hardware and completed
any necessary testing and repairs. These readiness activities were intended to
encompass all major categories of software applications we use, including:
- those used for manufacturing, engineering, sales, finance, and human
resources;
- hardware, including hubs, routers, telecommunication equipment,
workstations and other items; and
- non-information technology systems, including embedded systems, facilities
and other operations, such as financial, banking, security and utility
systems.
27
<PAGE>
As of December 31, 1999, we completed the evaluation and necessary testing
and repairs of our mission critical internal infrastructure and determined it to
be year 2000 ready.
SUPPLIER READINESS. This area focused on minimizing two components of risk
associated with suppliers:
- a supplier's product integrity; and
- a supplier's business capability to continue providing products and
services.
We identified and contacted key suppliers regarding their relative risks in
these two components. As of December 31, 1999, we had received responses from
approximately 95% of our key suppliers, who indicated that the products provided
to us were year 2000 compliant, or they were in the process of developing or
executing repair plans to address year 2000 issues which may have affected their
ability to continue providing products and services to us. Since we had no way
of testing or validating what third party suppliers represented to us and given
the fact that we had not received responses from 100% of our key suppliers, as a
contingency plan we had enough material on hand at year end to satisfy our
production needs through the first quarter of 2000.
PRODUCT READINESS. This area focused on identifying and resolving year 2000
issues existing in our products. This area encompassed a number of activities,
including testing, evaluation, engineering and manufacturing implementation. As
of December 31, 1999, we had completed a year 2000 readiness assessment for our
current generation of released products based upon a series of
industry-recognized testing parameters and had determined that these products
were year 2000 ready.
CUSTOMER READINESS. This area focused on customer readiness as it related
to our responsibility to provide customer support, including retrofitting
products as well as providing other services to our customers. Primarily due to
our product readiness efforts regarding our current generation of released
products, we completed our assessment of year 2000 risk in this area and
determined that there were no issues to address as of December 31, 1999.
SUMMARY. As of December 31, 1999, we completed our year 2000 readiness
program for internal infrastructure, product and customer readiness. Regarding
supplier readiness, since we had no way of testing or validating what third
party suppliers represented to us and given the fact that we had not received
responses from 100% of our key suppliers, we had enough material on hand at year
end to satisfy our production needs through the first quarter of 2000. Our
overall cost to address year 2000 issues was not material. As of February 29,
2000, we have not had any year 2000 readiness issues. Although we are not aware
of any year 2000 readiness issues affecting us at this time, there can be no
assurance that issues, not yet apparent to us, will not arise during the year
2000 and beyond.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures contains
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We assume no obligation to update
these forward-looking statements. We are exposed to market risk related to
changes in interest rates and foreign currency exchange rates. We do not use
derivative financial instruments for speculative or trading purposes.
INTEREST RATE RISK. Our strategy to manage interest rate risk is to invest
primarily in cash equivalents and short-term marketable securities with at least
an investment grade rating to minimize interest rate and credit risk as well as
to provide for appropriate liquidity. We diversify our cash equivalents and
marketable securities portfolio by investing in multiple types of short-term
investment grade securities. Interest rates payable on our debt are generally
fixed. Based on these factors, we do not believe that near-term changes in
interest rates will have a material effect on our future results of operations.
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FOREIGN CURRENCY RISK. We have a wholly owned U.K. subsidiary which exposes
us to foreign currency exchange rate risk. The U.S. dollar is the functional
currency for our U.K. subsidiary; however, we do enter into transactions in
currencies other than the U.S. dollar or pound sterling. Monetary and
non-monetary assets and liabilities of our U.K. subsidiary are remeasured into
U.S. dollars at period end and historical exchange rates, respectively. Sales
and expenses are remeasured at average exchange rates in effect during each
period, except for those expenses related to non-monetary assets, which are
remeasured at historical exchange rates. Gains or losses resulting from foreign
currency transactions are included in net loss and to date have not been
material. We have not entered into any currency hedging activities but may
choose to do so in the future.
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BUSINESS
We design, produce and sell infrastructure tools that accelerate and enhance
the process of discovering new drugs in the genomics and post-genomics era. Our
products, including instruments and consumables, are designed to provide
flexible, cost-efficient, high throughput solutions that can be used across all
stages of the drug discovery process. Our customers include pharmaceutical,
biotechnology and genomics companies as well as research institutions. Since
1998, 21 of the top 25 pharmaceutical companies have purchased our products and
more than 60% of these customers are repeat customers. In addition we have
entered into strategic collaborations with AstraZeneca in October 1999 and
SmithKline Beecham in September 1998 that provide each of them with early access
to certain of our new technologies. Our customers primarily use our products for
high throughput drug discovery, including screening and genotyping.
Screening, or testing, of compounds against a target is an essential stage
in the drug discovery process. Advances in genomics, synthetic chemistry and
other technologies have dramatically increased the number of both targets and
compounds. Screening significantly larger numbers of compounds against an
increasing number of targets requires new high throughput infrastructure tools
that can operate with a high degree of automation and analytical flexibility.
In addition, we believe there is a growing demand for high throughput
genotyping, including the analysis of certain variations in DNA, called single
nucleotide polymorphisms or SNPs. SNPs are believed to be associated with
differences between individuals, including disease predispositions and
dissimilarity in patient responses to drugs. We believe that SNP analysis will
play an essential role in the development of drugs, diagnostics and other life
science applications. In order to discover and utilize SNPs, it is expected that
extremely large numbers of SNPs must be analyzed and correlated with health and
other physical and mental features. SNP analysis requires highly accurate,
cost-efficient, high throughput genotyping technology.
DRUG DISCOVERY
The drug discovery process involves the synthesis and testing, or screening,
of compounds against a target. A compound is a molecule that might influence a
disease by its effect on a target. Targets are biological molecules, such as
enzymes, receptors, other proteins and nucleic acids that are believed to play a
role in the onset or progression of a disease. The stages of the drug discovery
process include:
- target identification;
- target validation, including genotyping of SNPs;
- assay development;
- primary screening;
- secondary and tertiary screening;
- lead compound optimization; and
- clinical candidate selection.
DRUG DISCOVERY--SCREENING
Targets are identified based on their potential role in altering the
progression or prevention of a disease. Until recently, scientists using
conventional methods had identified only a few hundred targets, many of which
had not been comprehensively screened. Recent developments in molecular biology
and genomics have led to a dramatic increase in the number of targets available
for drug discovery.
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After a target is validated, the researcher selects a library of compounds
to screen against this target. Compounds have historically been obtained from
natural sources or synthesized one at a time. Traditionally, pharmaceutical
companies, using conventional synthesis techniques, have compiled their compound
libraries over decades. However, recent technology advancements in parallel
synthesis combinatorial chemistry and other chemical synthesis techniques, as
well as licensing arrangements, have enabled industrial and academic groups to
greatly increase the supply and diversity of compounds available for screening
against targets. As a result, many researchers now have access to libraries of
hundreds of thousands of compounds.
Prior to high throughput screening of compounds against a target, a
biological test or assay must be developed. An assay is a combination of
reagents, which measures the effect of a compound on the activity of a target.
Assay development involves screening the assays to optimize performance against
the selected target and are broadly classified as either biochemical or
cellular. Following target and compound library selection and synthesis and
assay development, the compounds must be screened to determine their effect on
the target, if any. In the primary screening campaign, a compound that has an
effect on the target is defined as a hit. A greater number of compounds screened
against a given target result in a higher statistical probability that a hit
will be identified, assuming that the library is sufficiently diverse.
Scientists use both cellular and biochemical assays in their drug discovery
efforts. Both types of assays use a variety of detection methods, including:
- absorbence;
- radioisotopic;
- luminescence; and
- a variety of fluorometric technologies, such as fluorescence intensity,
fluorescence polarization and time-resolved fluorescence.
Biochemical assays are usually performed with purified molecular targets and
generally have certain advantages, such as speed, convenience, simplicity and
specificity. Cellular assays are performed with living cells, which may
sacrifice speed and simplicity, but may deliver more biologically relevant
information. Once a compound is identified as a hit, and the data is validated
in a follow up screen, several secondary and tertiary screens are performed to
evaluate its potency and specificity for the intended target. This cycle of
repeated screening continues until a small number of lead compounds is selected.
Further screening, notably against pharmacokinetic and toxicological parameters,
optimizes these lead compounds. Optimized lead compounds with the greatest
therapeutic potential and window of selectivity may be selected as candidates
for clinical evaluation.
Due to the recent dramatic increase in the number of available compounds and
targets, a bottleneck has developed at the screening stage of the drug discovery
process. Historically, screening has been a manual, time-consuming process.
Screening significantly larger numbers of compounds against an increasing number
of targets requires a system that can operate with a high degree of automation
and analytical flexibility.
To address these bottlenecks, we have developed instrumentation and assays
to provide integrated high throughput solutions. We believe that our technology
platform addresses the major throughput limitations associated with current high
throughput systems and will allow our customers to accelerate the identification
and optimization of lead compounds for development into new medicines.
DRUG DISCOVERY--GENOTYPING
We are participating in the new field of high throughput genomics, including
the analysis of certain variations in DNA called single nucleotide polymorphisms
or SNPs. These variations in DNA are believed to be the origin of many
differences between individuals, including disease predispositions and
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dissimilarity in drug responses. SNPs represent the smallest possible genetic
change, and occur where the DNA molecules of different individuals vary at a
single location. In the future, we believe that SNP analysis may play an
essential role in the development of drugs, diagnostics and other life science
applications.
The process of determining the SNPs present in an individual is one method
of genotyping. It is generally estimated that there are millions of SNPs
inherited from each parent. Some SNPs may be genetic markers of inherited
diseases or responsible for individual differences in drug responsiveness.
Determining which patients have such markers is called patient stratification.
While most SNPs are believed to be of no medical consequence, thousands of SNPs
are expected to be medically relevant and correlate to disease susceptibility or
responsiveness to therapy. Establishing such a correlation is called an
association study. To capture this information, up to tens of thousands of SNPs
may have to be measured in each individual.
After a SNP is discovered, its potential relevance for human health must be
validated by determining how common the variation is in different segments of
the population. To identify the small subset of SNPs that occur with the
greatest frequency in human disease or are responsible for variations in drug
responsiveness, hundreds of millions of SNP measurements must be made and
correlated with health and other physical and mental features of interest. SNPs
with a validated medical relevance may be useful in drug development and human
medical diagnostics. Identification of these SNPs will require a highly
accurate, cost-efficient, high throughput DNA analysis technology.
CURRENT SCREENING SYSTEMS
Many screening systems operate with varying degrees of automation. Full
automation--from sample dispensing to data collection--enables round-the-clock
operation, thereby increasing the screening rate. Fully automated high
throughput systems consist of assay analyzers, liquid handling systems,
robotics, a computerized system for data management, reagents and assay kits and
microplates. A microplate is a plastic plate that generally contains 96 wells,
384 wells or 1,536 wells, each well holding a mixture of a target, a compound
and reagents. In the automated high throughput process, a robot moves a
microplate among preparatory stations and then delivers the microplate to the
analyzer. In the case of fluorescence-based assays, after the microplate is
placed into the analyzer, the instrument directs a light source onto a well. The
intensity of the light emitted from the well in response to this light source is
then measured by the analyzer, showing the degree of the effect, if any, of the
compound on the target. In this manner, the analyzer detects and measures
possible bioactivity of a compound against a target.
Most screening systems utilize general-purpose assay analyzers, which were
not originally designed for high throughput use. We believe that most screening
systems in use today have the following limitations:
LACK OF ANALYTICAL FLEXIBILITY. Many general-purpose analyzers do not
provide sufficient analytical flexibility because they operate in only one
or a few types of assay detection modes. In order to perform assays using
different detection modes, researchers generally must physically move such
analyzers and reconfigure the high throughput line. Alternatively,
researchers may set up the high throughput line with multiple
general-purpose analyzers, which often results in critical space
constraints.
INADEQUATE SENSITIVITY. As researchers continue to use smaller assay
volumes to reduce reagents costs and increase throughput, many
general-purpose analyzers are inadequate because they are not sensitive
enough to read results based on these smaller volumes. Inadequate
sensitivity may result in:
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- missed hits;
- limited research capabilities;
- increased costs of compounds, assays and reagents; and
- lower throughput.
POOR HIGH THROUGHPUT SYSTEM INTEGRATION. Most analyzers have not been
designed specifically for a high throughput environment. They are difficult
and expensive to integrate into a high throughput automated line. Even after
the analyzer is integrated into the high throughput line, there are often
many problems, including:
- increased probability of system failures;
- loss of data;
- time delays; and
- loss of costly compounds and reagents.
INABILITY TO REACH HIGH PERFORMANCE IN DENSER FORMATS. Many analyzers
can achieve high performance in the standard 96-well microplate format.
However, drug discovery companies are moving to the denser 384-well and
1,536-well formats to reduce costs of reagents, assays and compounds, while
increasing throughput. Most existing analyzers cannot achieve high
performance in this denser format.
LIMITATIONS OF CURRENT ASSAYS. Many assays in use today are performed
in a complex, multi-step process and are expensive, time-consuming and
difficult to implement in a high throughput setting. In addition, certain
assays use radioactive isotopes, which are hazardous and result in expensive
waste-disposal. Fluorescence-based assays are becoming more accepted in high
throughput settings due to the relative lack of waste-disposal problems, as
well as their sensitivity, versatility and adaptability to high throughput.
However, historically the use of many of the fluorescence-based assays in
high throughput was limited by the relative insensitivity of available
analyzers. Certain assays are also unsuitable for high throughput because of
the low sensitivity of both the assay and general-purpose analyzer.
The high throughput laboratory today must balance the needs for performance,
such as dynamic range, sensitivity and analytical flexibility. The increasing
use of high throughput and the need for higher throughput further exposes the
limitations of current screening systems. These limitations result in higher
costs, lower throughput and lower productivity.
OUR SOLUTION
We design, produce and sell products under the CRITERION name specifically
targeted for both the current and evolving high throughput markets. Our
CRITERION product line is comprised of instruments and consumables for drug
discovery and genomics. To develop these products, we have assembled an
integrated team of scientists and engineers with expertise in multiple
disciplines, including biology, fluorescence, chemistry, biophysics,
biochemistry, chemical and mechanical engineering, optics, electronics and
software. Since our inception in 1988, we have designed, developed and
manufactured high performance clinical diagnostics analyzers and other automated
instruments.
Starting in the second half of 1996, we began focusing on the high
throughput market. Since then our efforts have resulted in the achievement of
several key milestones:
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- In May 1998, we began shipping Analyst HT, our first-generation detection
system for the high throughput market. This system was designed
specifically for the high throughput market and offers multi-mode
capability, flexibility and performs up to 70,000 screens per day.
- Later in 1998, we shipped our first ultra-high throughput system, Acquest.
Also multi-modal, Acquest was designed to accept microplates with both
384-well and 1,536-well formats and to perform up to 200,000 screens per
day.
- In June 1999, we began shipping Analyst AD, which was designed
specifically for assay development and is fully compatible with Analyst
HT.
We believe that the Analyst and Acquest product lines provide several
important customer benefits, including:
- increased throughput;
- improved analytical performance and flexibility, especially in higher
density formats;
- lower reagents costs; and
- ability to be quickly integrated into existing high throughput
laboratories and to evolve with changing high throughput needs.
We have developed and are developing value-added, application-specific
reagents, assay kits and microplates, which are being optimized for use in high
throughput systems and specifically for use with our instruments.
- In 1998, we introduced and shipped our first value-added consumable
product, the TKX, or Tyrosine Kinase Fluorescence Polarization assay kit.
- In September 1998, we started marketing our first-generation line of HE
microplates.
- In September 1999, we started marketing four additional assay and reagent
products including:
- DPX for dopamine receptor screening;
- cAMP for a general cell signaling molecule;
- ProteasePX for protease inhibitor screens; and
- a new proprietary fluorescent reagent, Sunnyvale Red.
- In December 1999, we started marketing our second-generation line of HE
microplates.
We believe that customers will prefer to purchase consumables and
instruments from a single source for convenience, ongoing support and
accountability.
OUR DRUG SCREENING STRATEGY
Our successful market introductions in 1998 of two instruments and our TKX
assay kit, followed by our introduction of one additional instrument and several
additional assays in 1999, helped to establish our brand and set the stage for
other new products. We believe our proprietary technologies are already
increasing the efficiencies and reducing the cost of identifying drugs that show
potential as new medicines. In addition, we have a pipeline of instruments and
consumables that we are developing in concert with our customers, such as
SmithKline Beecham, in the case of our FLARe fluorescence technology.
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Building upon this background, our objective is to become a leader in the
development and commercialization of advanced technologies and products that
accelerate the pace and improve the productivity of the drug discovery process.
To implement this strategy, we intend to:
PROVIDE HIGH THROUGHPUT SOLUTIONS. Our technology platform is comprised
of two principal proprietary components: instrumentation and assay
technologies. We intend to leverage this technology platform and our proven
expertise in rapid product development and manufacturing of automated
instrumentation systems to be the first to market with effective high
throughput solutions.
PURSUE AN EVOLUTIONARY APPROACH TO PRODUCT DEVELOPMENT. We anticipate
that the high throughput needs of the pharmaceutical industry will continue
to change rapidly over the coming years and are difficult to predict at this
time. We intend to offer products with features and capabilities that
provide solutions to the current and evolving high throughput needs of drug
discovery laboratories. For example, our Analyst product line can perform
seven major types of optically detected assays and can perform multi-mode
protocols in both the industry standard 96-well and 384-well microplate
formats. Additionally, our ultra-high throughput instrument, Acquest, is
designed to read the higher-density 1,536-well microplates at a rate of up
to 200,000 wells per day.
EXTEND INSTRUMENTATION AND ASSAY PRODUCTS INTO OTHER STAGES OF THE DRUG
DISCOVERY PROCESS. We believe that our screening products are well suited
for primary and secondary screening and other closely related stages of the
drug discovery process such as assay development, genotyping of SNPs,
toxicology and lead optimization, which require repetitive screening. We
believe that our customers will benefit from using integrated high
performance screening products.
GENERATE RECURRING REVENUE THROUGH THE SALE OF CONSUMABLES. We believe
that establishing an installed base of high throughput instruments will
enable us to generate recurring revenue from the sale of consumables. These
products are envisioned as high value-added, application-specific tools that
are optimized for use in high throughput systems and specifically with our
high throughput instruments. We believe that customers will prefer to
purchase consumables and instruments from a single source for convenience,
ongoing support and accountability.
DEVELOP AND ACQUIRE NOVEL TECHNOLOGIES. We believe our FLARe
technology, a platform of patented bioassay technologies, will address a
number of the current limitations associated with fluorescence-based high
throughput assays. We are also developing internally certain other
technologies and have licensed and intend to license or acquire additional
technologies in order to establish and maintain a market advantage for our
products.
PROVIDE EARLY ACCESS TO STRATEGIC CUSTOMERS. In September 1998,
SmithKline Beecham signed a collaborative agreement with us, which gives
them early access to our FLARe technology. In October 1999, AstraZeneca
signed a Master Technology Partnership Agreement with us, which gives them
early access to emerging technologies such as FLARe and our assay
development services. In addition to these agreements, we intend to provide
strategic customers early access to certain of our technologies, which will
provide insight into next generation product requirements and technology
needs. We believe this insight will allow us to provide products that more
closely meet the needs of our customers.
OUR SNP GENOTYPING PLATFORM AND BUSINESS STRATEGY
SNP genotyping generally involves a multi-step chemical reaction, the
results of which are detected using a specialized hardware platform. We have
developed a proprietary implementation of polarization technology that enables
sensitive and robust detection, called HEFP. During the second half of 1999,
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our customers and our staff have demonstrated that this HEFP platform has the
ability to perform highly accurate, cost effective, high throughput SNP
genotyping, using off-the-shelf consumables. We believe that our HEFP genotyping
platform has significant advantages because it requires only a simple "mix and
measure" chemical reaction, without the need to attach any molecules to a solid
surface and the attendant washing and separation steps. In addition, our
approach to genotyping does not require labeled primers, thus further reducing
costs and complexity. Similar to our high throughput technologies used in drug
discovery, we intend to expand our genomics product portfolio and augment this
HEFP hardware platform with proprietary software solutions and consumables. In
addition to HEFP, we are developing other high throughput technologies.
Our goal is to become the leader in the commercialization of high throughput
SNP analysis technology, capitalizing on what we believe is the quickly emerging
demand for SNP genotyping. Our strategy is to initially focus on the drug
discovery markets, where we already have a customer base. We intend to expand
our penetration within our customer base into related areas such as clinical and
pre-clinical trials to perform patient stratification by genetic traits. We
believe that there are other significant potential applications areas for our
HEFP platform in SNP genotyping, including human DNA diagnostics and other life
science areas. To implement this strategy, we created our Genomics Sciences
Group in August 1999. We have started selling and shipping our HEFP platform for
high throughput SNP genotyping. Customers at several leading genomics
organizations are already successfully utilizing our high throughout HEFP-SNP
platform. We intend to grow the genomics business in a manner similar to the way
we are growing our business in high throughput drug discovery.
OUR PRODUCTS
ANALYST PRODUCT LINE
Starting in May 1998, we began commercial shipments of Analyst HT, the first
assay detection instrument system in our Analyst product line. Analyst HT is a
multi-mode analyzer designed specifically for use in high throughput settings.
The term "assay detection" refers to the instrument's ability to read and
analyze how potential drug compounds perform when tested against specific
biological targets. Analyst HT can read several major types of fluorescence and
other assays, including HEFP. We believe that our SmartOptics proprietary
technology enables Analyst HT to detect assay results with improved sensitivity
in smaller volumes, thus saving costs. With a built-in capability of reading
both 96-well and 384-well plates, our customers are currently using our Analyst
HT to perform up to 70,000 tests per day.
Starting in June 1999, we began commercial shipments of Analyst AD, which is
designed specifically to allow for an efficient transfer of assays from assay
development to the screening and lead optimization part of the drug discovery
process. Analyst AD is a cost-effective system with flexible assay development
capabilities and is fully compatible with our other products. Having this
compatibility eliminates the need to modify or re-validate assays upon their
transfer from assay development into screening and lead optimization.
ACQUEST PRODUCT LINE
Starting in the fourth quarter of 1998, we began commercial shipments of
Acquest, our first ultra-high throughput system. This high-density analyzer is
an evolution of the Analyst technology platform, which dramatically increases
the number of screens that can be performed at any one time. Current assay
throughput is estimated at up to 200,000 tests per day. Acquest is also
multi-modal and accepts microplates with both 384-well and 1,536-well formats.
In addition, Acquest performs screens using significantly reduced assay volumes,
thus reducing the costs of reagents, targets and compounds. We are developing
1,536-well microplates to operate with Acquest. We believe that high throughput
system performance will be optimized with the use of these proprietary plates in
conjunction with
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Acquest due to the lower error tolerance between system components in this
miniaturized format. In addition, Acquest operates with third party 1,536-well
microplates, reagents and liquid handling systems. We also plan to bring to
market additional products to miniaturize assays for use in the high-density
format.
CONSUMABLES
In 1998, we began offering high value-added, application-specific reagents
and assay kits that are optimized for use in high throughput applications and
specifically for use with our instruments. We intend to develop additional
consumables in a single-step format. We believe that a single-step assay format
is better suited to the high throughput environment because it is faster, less
expensive and easier to automate than multi-step assays. We also believe that
our reagents and assay kits will provide two major benefits to our customers.
First, overall assay performance is expected to improve as these consumables are
being optimized for use with our instruments. Second, we believe that customers
will prefer to purchase consumables and instruments from a single source for
convenience, integrated support and accountability.
The use of fluorescence-based assays in high throughput is increasing due to
their sensitivity, versatility, adaptability and safety together with the
relative lack of waste-disposal problems as compared with radioactive isotopic
assays. Among fluorescence-based assays, fluorescence polarization assays are
especially well suited for high throughput because they can be used in a
single-step format and are relatively insensitive to volume variations.
We believe the increased sensitivity and precision of our Analyst and
Acquest product lines in the HEFP format will improve the performance of
fluorescence polarization assays. We recently introduced Sunnyvale Red, a
long-lifetime fluorescence polarization reagent which allows the detection of
large molecule interactions. Traditional fluorescence polarization reagents have
short lifetimes and cannot be used in screening certain targets involving the
interactions of large molecules. We believe that Sunnyvale Red has the potential
to expand the class of available targets for certain major diseases, including
cardiovascular and viral diseases, that can be screened in a single-step,
fluorescence polarization format.
We also introduced our first generation line of HE microplates in September
1998 and our second generation line of HE microplates in December 1999 to
provide a "tuned" solution that optimizes assay performance in the Analyst
system. These microplates allow users to reduce assay volume and as a result,
dramatically reduce the costs without loss of performance.
NEW TECHNOLOGIES BEING DEVELOPED
SCREENSTATION. In September 1999, we demonstrated a prototype and announced
the introduction of our next generation instrument platform, ScreenStation.
ScreenStation is being developed to enable integrated assay automation,
miniaturization and multiple detection modes at a high throughput rate. We
believe ScreenStation technology represents a significant advance in high
throughput screening as it enables pharmaceutical companies to easily implement
homogeneous assays that are fast, miniaturized, and non-radioactive. We plan to
start shipments in 2000.
FLARE TECHNOLOGY AND SMITHKLINE BEECHAM COLLABORATION. FLARe is our
proprietary instrumentation and reagent platform for addressing next generation
solutions for critical drug discovery challenges. Many targets, compounds and
microplates have transient fluorescent properties that obscure the assay
specific signal by transient background signal, or noise. Through a combination
of advanced biophysics and electronics, FLARe significantly reduces the effect
of background noise in certain fluorescence-based assays.
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Fluorescence-based assay technologies are well suited to high throughput
because they are:
- sensitive;
- versatile;
- easy to automate; and
- safer than radioisotopic assays.
However, use of fluorescence-based high throughput assays has been limited due
to the high level of background noise in the fluorescence signal within the
assay, which obscures the assay-specific signal and results in loss of
sensitivity and reduced accuracy. We believe our FLARe technology may
significantly reduce false readings when running these assays.
In September 1998, we entered into a collaboration agreement with SmithKline
Beecham which provides them early access to our FLARe technology. In May 1999,
we announced the successful completion of the first milestone in our
collaboration with SmithKline Beecham, which demonstrated the unique enabling
performance of FLARe. In September 1999, we demonstrated a prototype of our
proprietary platform for drug discovery assays based on the measurement of
fluorescence lifetime using our FLARe technology. In February 2000, we announced
the successful completion of another milestone in our collaboration with
SmithKline Beecham with the acceptance and delivery of the first system
utilizing our FLARe technology.
Our principal executive offices are located at 405 Tasman Drive, Sunnyvale,
CA 94089 and our telephone number is (408) 541-8787. As used in this prospectus,
"we," "us," "our" and "LJL" refer to LJL BioSystems, Inc., a Delaware
corporation, and its wholly-owned subsidiary.
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MANAGEMENT
DIRECTORS
Our directors, executive officers, officers and certain other key employees,
and their ages and positions as of February 29, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Lev J. Leytes............................. 44 President, Chief Executive Officer and
Chairman of the Board of Directors
Galina Leytes............................. 46 Executive Vice President and Director
Richard M. Eglen Ph.D..................... 42 Senior Vice President of Assay
Technologies
James S. Richey........................... 46 Senior Vice President of Sales and
Marketing
Larry Tannenbaum.......................... 48 Senior Vice President and Chief Financial
Officer
Anthony H. Bautista....................... 44 Vice President of Manufacturing Operations
Robert T. Beggs........................... 51 Vice President of Finance and
Administration
Douglas N. Modlin, Ph.D................... 47 Vice President of Instrumentation Systems
and Research Development
Michael F. Bigham......................... 41 Director
John D. Diekman, Ph.D..................... 57 Director
George W. Dunbar, Jr...................... 53 Director
John G. Freund, M.D....................... 45 Director
Daniel S. Janney.......................... 34 Director
</TABLE>
LEV J. LEYTES is one of our co-founders and has been our President, Chief
Executive Officer and Chairman of the Board of Directors since inception. Prior
to our founding, Mr. Leytes worked in various technical and management positions
at Beckman Instruments, Inc., a life sciences company, and Molecular Devices
Corporation, a bioanalytical instrumentation company. Mr. Leytes holds an M.S.
in engineering from the Moscow Engineering Institute. Mr. Leytes is the spouse
of Galina Leytes.
GALINA LEYTES is one of our co-founders and has been our Vice President and
a director since inception, and was promoted to Executive Vice President in
January 1996. Ms. Leytes previously served as our Chief Financial Officer and
Secretary from inception to December 1997. Prior to our founding,, Ms. Leytes
managed the information systems group at Stanford University, was a consultant
in management information systems, and was a senior programmer at Charles
Schwab & Co., Inc. She holds an M.S. in engineering from the Kiev Engineering
Institute. Ms. Leytes is the spouse of Lev J. Leytes.
RICHARD M. EGLEN, PH.D joined us in February 2000 as our Senior Vice
President of Assay Technologies. From 1997 to December 1999, Dr. Eglen was Vice
President and Director of Roche Bioscience, a drug discovery company based in
Palo Alto, California and part of Roche Pharmaceuticals. From 1997 to 1999, he
was the Global Coordinator of High Throughput Screening for Hoffman La Roche.
Previously, he was Director of Pharmacology at Syntex Research, also based in
Palo Alto, California. He holds a B.Sc. in Special Honors Physiology from the
University of Sheffield, United Kingdom and a Ph.D in Pharmacology from Trent
University, United Kingdom. He currently serves on the editorial board of
several industry publications.
JAMES S. RICHEY joined us in February of 1998 as our Senior Vice President
of Sales and Marketing. Prior to joining us, Mr. Richey was Vice President,
Indirect Channels at PerSeptive BioSystems, Inc, a biotechnology tools provider,
from January 1996 to February 1998. Mr. Richey held various management positions
including his last position of Vice President of Global Sales and Marketing for
Biosensor AB, an analytical research technology provider from September 1989 to
39
<PAGE>
January 1996. Prior to that, Mr. Richey held various positions in sales,
marketing and research and development in various divisions of Pharmacia
Biotech Inc., a subsidiary of Pharmacia Biotech AB. Mr. Richey holds a B.S. in
Biochemistry from Rutgers University.
LARRY TANNENBAUM joined us in November 1998 as Senior Vice President and
Chief Financial Officer. From August 1998 to October 1998, Mr. Tannenbaum served
as an independent consultant. Mr. Tannenbaum was Vice President and Chief
Financial Officer at SinoGen, a privately held pharmaceutical company, from
October 1997 to August 1998. From September 1995 to October 1997,
Mr. Tannenbaum was Vice President, Finance and Administration and Chief
Financial Officer at ArthroCare, a medical device company. Mr. Tannenbaum was
Vice President, Finance and Administration and Chief Financial Officer at Target
Therapeutics, a developer of minimally invasive neurological devices, from
May 1992 to May 1995. Prior to that, Mr. Tannenbaum held various financial
management positions at Tandem Computer (Compaq), Alpha Partners, Gould/AMI
(American Microsystem) and Intel Corporation. Mr. Tannenbaum holds a B.S. in
political science from Arizona State University and an M.B.A. in finance from
the University of Utah.
ANTHONY H. BAUTISTA joined us in November 1991 as Manufacturing Operations
Manager, and was promoted to Director of Manufacturing Operations in
December 1993 and Vice President of Manufacturing Operations in May 1996. Prior
to joining us, Mr. Bautista held various management positions in the
manufacturing divisions of Molecular Devices Corporation, a bioanalytical
instrumentation company, and Hewlett-Packard Company, a computer and electronics
company. Mr. Bautista holds an A.A. in electronic technology from the College of
San Mateo and a B.S. in electrical engineering from San Jose State University.
ROBERT T. BEGGS joined us in November 1992 as Controller, and was promoted
to Director of Finance and Administration in December 1994 and Vice President of
Finance and Administration in May 1996. Prior to joining us, Mr. Beggs was the
Controller of Sequoia-Turner Corporation, a medical instruments company,
acquired in 1991 by Abbott Laboratories, a pharmaceutical and diagnostics
company. Mr. Beggs held several financial management positions at G.D. Searle &
Co., a pharmaceutical company and a wholly-owned subsidiary of Monsanto Company,
Siemens AG, a diversified electronics company, and Tandem Computer (Compaq), a
diversified computer and electronics company. Mr. Beggs holds a B.S. in business
administration from Nichols College and an M.B.A. from the University of
Massachusetts, Amherst.
DOUGLAS N. MODLIN, PH.D joined us in December 1996 as Senior Director of
Research and Development, and was promoted to Vice President of Instrumentation
Systems Research and Development in October 1997. Prior to joining us,
Dr. Modlin was the Manager of Advanced Test Systems Development at Micro Module
Systems, Inc., an electronic integration company, from November 1995 to
December 1996, and was the Associate Technical Director of Research at Molecular
Devices Corporation, a bioanalytical instrumentation company, from August 1993
to October 1995. From November 1991 to August 1993, he was the Program Manager
of Diagnostic Instrumentation for Affymax NV, a drug discovery company.
Dr. Modlin holds a B.S. in electrical engineering from the California
Polytechnic State University, San Luis Obispo, and an M.S. and Ph.D in
electrical engineering from Stanford University.
MICHAEL F. BIGHAM has been one of our directors since June 1997. Mr. Bigham
has been the President, Chief Executive Officer and a director of Coulter
Pharmaceutical, Inc., a drug development company, since July 1996. Prior to
joining Coulter, Mr. Bigham served as Executive Vice President of Operations
from April 1994 to June 1996, Chief Financial Officer from April 1989 to
June 1996, and Vice President of Corporate Development from July 1988 to
March 1992 at Gilead Sciences, Inc., a biotechnology company. Previously,
Mr. Bigham was Co-head of Healthcare Investment Banking for Hambrecht & Quist
LLC, an investment banking firm. Mr. Bigham is also a member of the Board of
Directors of Datron Systems, Inc., an electronics company, and several
privately-held companies.
40
<PAGE>
Mr. Bigham received a B.S. degree in commerce with distinction from the
University of Virginia and an M.B.A. from the Stanford University Graduate
School of Business.
JOHN D. DIEKMAN, PH.D has been one of our directors since January 1999.
Dr. Diekman has been a managing partner of Bay City Capital, a life sciences
merchant bank since 1997 and has also been Chairman of Affymetrix, Inc., a
company developing and marketing DNA chip technology for the genetic analysis,
genomics, clinical diagnostics and research instrumentation markets since 1995.
Until April 1997, he was also Chief Executive Officer of Affymetrix. Over the
past ten years, Dr. Diekman has served as Chairman and Managing Director of
Affymax N.V., President of Monclonal Antibodies Inc., President of Salutar, and
he spent sixteen years at Zoecon Corporation, the last three of which as
President and Chief Executive Officer. Dr. Diekman is a director of Quidel
Corporation, a diagnostic company, Metabolex, Inc., a private biotechnology
diabetes company, and Hilltop Laboratories, a consumer testing and clinical
research site management organization. He is Chairman of the Board of Molecular
Applications Group, a private bioinformatics company. He holds an A.B. in
chemistry from Princeton University and a Ph.D. in chemistry from Stanford
University.
GEORGE W. DUNBAR, JR. has been one of our directors since February 1995.
Mr. Dunbar is the Acting President and CEO of CytoTherapeutics, Inc. and
StemCells, Inc. From 1991 to 1999, Mr. Dunbar was the President, Chief Executive
Officer and a director of Metra BioSystems, Inc. Metra was acquired by Quidel
Corporation in 1999 and Mr. Dunbar now serves on Quidel's Board of Directors. He
is also a member of the Board of Directors of DepoTech Corporation, a drug
delivery company, Sonus Pharmaceuticals, Inc., a medical diagnostic ultrasound
company, Competitive Technologies and The Valley Medical Center Foundation.
Mr. Dunbar holds a B.S. in electrical engineering and an M.B.A. from Auburn
University.
JOHN G. FREUND, M.D. has been one of our directors since June 1997.
Dr. Freund has been Managing Director of the General Partner of Skyline Venture
Partners, L.P., a venture capital firm, since October 1997. He served as
Managing Director in the Alternative Assets Group of Chancellor LGT Asset
Management, Inc., now AMVESCAP PLC, from August 1995 to September 1997. In 1995,
Dr. Freund co-founded Intuitive Surgical Devices, Inc., a privately-held medical
device company. From July 1988 through December 1994, Dr. Freund was employed at
Acuson Corporation, a medical equipment company, where he was Vice
President-Corporate Development and later Executive Vice President. Previously,
he was a partner in Morgan Stanley Venture Partners, a venture capital firm, and
co-founded the healthcare group in the corporate finance department of Morgan
Stanley & Co., Inc. Dr. Freund holds a B.A. from Harvard College, an M.D. from
Harvard Medical School and an M.B.A. from Harvard Business School, where he was
a Baker Scholar and won what is now called the John L. Loeb Fellowship for
excellence in finance. He serves as a director of Allos Therapeutics, Inc. and
several private companies.
DANIEL S. JANNEY has been one of our directors since June 1997. Mr. Janney
is a Managing General Partner of Alta Partners, a venture capital company. Prior
to joining Alta Partners, Mr. Janney served as a Vice President in the health
care investment banking group of Montgomery Securities now, Banc of America
Securities LLC, from January 1994 to April 1996. Mr. Janney sits on the Boards
of several private companies. Mr. Janney holds a B.A. from Georgetown University
and an M.B.A. from the Anderson School at the University of California, Los
Angeles.
41
<PAGE>
UNDERWRITING
The underwriters named below have each separately agreed, subject to the
terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their respective names. The
underwriters are committed to purchase and pay for all these shares if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Chase Securities Inc........................................
Pacific Growth Equities, Inc................................
INTERNATIONAL UNDERWRITERS
FleetBoston Robertson Stephens International Limited........
Chase Securities Inc........................................
Pacific Growth Equities, Inc................................
---------
Total....................................................... 2,500,000
</TABLE>
The underwriters have advised us that they propose to offer the shares of
common stock to the public at the public offering price set forth on the cover
page of this prospectus, and to certain dealers at that price less a concession
not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the underwriters. No such reduction
will change the amount of proceeds to be received by us as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated in this prospectus subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. The underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
In June 1997, H&Q Healthcare Investors and H&Q Life Sciences Investors,
entities affiliated with Chase H&Q, purchased 769,232 shares of our preferred
stock at a purchase price of $2.60 per share, for an aggregate of $2,000,000.
Such shares were converted into 769,232 shares of common stock upon completion
of our initial public offering.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 375,000 additional shares of common stock to cover
over-allotment, if any, at the same purchase price per share as we will receive
for the 2,500,000 shares of common stock that the underwriters have agreed to
purchase. If the underwriters exercise their over-allotment option to purchase
any of the additional 375,000 shares of common stock, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
these additional shares that the number of shares of common stock to be
purchased by it shown in the table above bears to the total number of the shares
shown in the table above. If purchased, these additional shares will be sold by
the underwriters on the same terms as those on which the 2,500,000 shares are
being sold. If the option is exercised, we will be obligated to sell shares in
the same
42
<PAGE>
proportion between them as applies in their sale of the 2,500,000 shares. The
underwriters may exercise the over-allotment option only to cover over-allotment
made in connection with the sale of the shares of common stock offered by this
prospectus.
UNDERWRITING DISCOUNTS. The following table summarizes the compensation to
be paid to the underwriters by us.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discount and commission payable by us...... $ $ $
</TABLE>
The expenses of this offering are estimated at $465,000 other than
underwriting discounts and commissions and are payable entirely by us.
INDEMNITY. The underwriting agreement contains covenants of indemnity
between the underwriters and us against civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS. All of our executive officers and directors have
agreed, for a period of 90 days after the date of this prospectus, not to offer
to sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant
any rights to, any shares of common stock, any options or warrants to purchase
any shares of common stock or any securities convertible into or exchangeable
for shares of common stock owned as of the date of this prospectus or
subsequently acquired directly by the holders or to which they have or
subsequently acquire the power of disposition, without the prior written consent
of the underwriters. However, the underwriters may, in their discretion and at
any time without notice, release all or any portion of the securities subject to
the lock-up agreements.
FUTURE SALES. In addition, we have agreed that during the period of
90 days after the date of this prospectus, we will not, without prior written
consent of the underwriters subject to certain exceptions:
- consent to the disposition of any shares held by stockholders subject to
lock-up agreements prior to the expiration of the lock-up period; or
- issue, sell, contract to sell or otherwise dispose of any shares of common
stock, any options or warrants to purchase any shares of common stock or
any securities convertible into, exercisable for or exchangeable for
shares of our common stock, other than our sale of common stock in this
offering, our issuance of shares of common stock upon the exercise of
currently outstanding options or warrants and our grant of options to
purchase shares of common stock under our existing employee stock option
and stock purchase plans.
STABILIZATION. The underwriters have advised us that, pursuant to
Regulation M under the Exchange Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of our common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of our
common stock. A "syndicate covering transaction" is a bid for or the purchase of
our common stock by an underwriter to reduce a short position incurred by
another underwriter in connection with the offering. A "penalty bid" is an
arrangement permitting an underwriter to reclaim the selling concession
otherwise accruing to an underwriter in connection with the offering if the
common stock originally sold by that underwriter is purchased by another
underwriter in a covering transaction and has therefore not been effectively
placed by such underwriter. The underwriters have advised us that these
43
<PAGE>
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
PASSIVE MARKET MAKING. In connection with this offering, certain
underwriters and selling group members, if any, who are qualified market makers
on the Nasdaq National Market may engage in passive market making transactions
in our common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Exchange Act, during the business day prior to the
pricing of the offering, before the commencement of offers or sales of our
common stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
From time to time the underwriters have performed and may, in the future
perform, investment banking or other services for us.
44
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission. Certain information in the
registration statement has been omitted from this prospectus in accordance with
the rules of the SEC. We are a public company and file proxy statements and
annual, quarterly and special reports and other information with the SEC. You
can inspect and copy the registration statement as well as the reports, proxy
statements and other information we have filed with the SEC at the public
reference room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. You can call the SEC at
1-800-732-0330 for further information about the public reference rooms. We are
also required to file electronic versions of these documents with the SEC, which
may be accessed from the SEC's World Wide Web site at http://www.sec.gov.
Reports, proxy and information statements and other information concerning LJL
BioSystems, Inc., may be inspected at The Nasdaq Stock Market at 1735 K Street,
N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" certain of our
publicly-filed documents into this prospectus, which means that information
included in those documents is considered part of this prospectus. Information
that we file with the SEC after the effective date of this prospectus will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, until all the shares of
common stock that are part of this offering are sold.
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31, 1999
filed with the SEC on February 16, 2000.
2. Our Current Reports on Form 8-K, filed with the SEC on January 12,
2000, January 13, 2000, January 26, 2000, February 3, 2000, February 9,
2000, February 16, 2000, February 22, 2000 and March 14, 2000, and on
Form 8-K/A on February 10, 2000.
3. The description of our common stock in our Registration Statement on
Form 8-A filed with the SEC on January 22, 1998 (File No. 000-23647).
We will furnish without charge to you, on written or oral request, a copy of any
or all of the documents incorporated by reference, other than exhibits to those
documents. You should direct any requests for documents to Robert T. Beggs, 405
Tasman Drive, Sunnyvale, CA 94089, telephone: (408) 541-8787.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K and included herein for the year
ended December 31, 1999, have been so incorporated and included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of the common stock offered by this prospectus
will be passed upon by Orrick, Herrington & Sutcliffe LLP, San Francisco,
California, counsel to LJL BioSystems, Inc. O'Melveny & Myers LLP, San
Francisco, California is acting as counsel for the underwriters in connection
with certain legal matters relating to the securities offered by this
prospectus.
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet.............................................. F-3
Consolidated Statement of Operations.................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)................ F-5
Consolidated Statement of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
LJL BioSystems, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of LJL BioSystems, Inc. and its subsidiary at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
January 25, 2000, except as to Note 11,
which is as of February 2, 2000
F-2
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,891,000 $ 1,831,000
Short-term investments.................................... 4,567,000 5,510,000
Accounts receivable, net.................................. 2,047,000 840,000
Inventories............................................... 2,591,000 1,173,000
Other current assets...................................... 159,000 262,000
----------- -----------
Total current assets.................................. 13,255,000 9,616,000
Property and equipment, net................................. 880,000 789,000
Investments................................................. -- 2,863,000
Loans receivable from employees............................. 223,000 190,000
----------- -----------
$14,358,000 $13,458,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,245,000 $ 508,000
Accrued expenses.......................................... 2,026,000 1,801,000
Customer deposits......................................... 293,000 19,000
Deferred revenue.......................................... 146,000 --
Current portion of long-term debt......................... 282,000 168,000
----------- -----------
Total current liabilities............................. 3,992,000 2,496,000
Long-term debt, net of current portion...................... 586,000 542,000
----------- -----------
Total liabilities..................................... 4,578,000 3,038,000
----------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock; $0.001 par value; 50,000,000 shares
authorized at December 31, 1999 and 1998, 12,756,203 and
10,524,493 shares issued and outstanding at
December 31, 1999 and 1998, respectively................ 13,000 11,000
Additional paid-in capital................................ 30,601,000 23,258,000
Deferred stock compensation............................... (435,000) (614,000)
Accumulated other comprehensive income (loss)............. (20,000) 6,000
Accumulated deficit....................................... (20,379,000) (12,241,000)
----------- -----------
Total stockholders' equity............................ 9,780,000 10,420,000
----------- -----------
$14,358,000 $13,458,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................. $ 9,917,000 $ 4,436,000 $ 5,204,000
Cost of sales......................................... 3,554,000 2,487,000 2,319,000
----------- ----------- -----------
Gross profit........................................ 6,363,000 1,949,000 2,885,000
----------- ----------- -----------
Operating expenses:
Research and development............................ 6,787,000 5,472,000 3,511,000
Selling, general and administrative................. 8,199,000 5,308,000 2,145,000
----------- ----------- -----------
Total operating expenses.......................... 14,986,000 10,780,000 5,656,000
----------- ----------- -----------
Loss from operations.................................. (8,623,000) (8,831,000) (2,771,000)
Interest and other income, net........................ 590,000 629,000 237,000
Interest expense...................................... (90,000) (35,000) (9,000)
----------- ----------- -----------
Loss before provision for income taxes................ (8,123,000) (8,237,000) (2,543,000)
Provision for income taxes............................ 15,000 -- 12,000
----------- ----------- -----------
Net loss.............................................. (8,138,000) (8,237,000) (2,555,000)
Accretion of mandatorily redeemable convertible
preferred stock redemption value.................... -- (254,000) (636,000)
----------- ----------- -----------
Net loss available to common stockholders............. $(8,138,000) $(8,491,000) $(3,191,000)
=========== =========== ===========
Basic and diluted net loss per share available to
common stockholders................................. $ (0.65) $ (0.91) $ (0.71)
=========== =========== ===========
Shares used in computation of basic and diluted net
loss per share available to common stockholders..... 12,505,955 9,283,076 4,503,969
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL DEFERRED OTHER STOCKHOLDERS'
--------------------- PAID-IN STOCK COMPREHENSIVE ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT (DEFICIT)
---------- -------- ----------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... 4,500,500 $ 5,000 $ 34,000 $ -- $ -- $ (226,000) $ (187,000)
S corporation dividends
paid...................... -- -- -- -- -- (1,075,000) (1,075,000)
Transfer of S corporation
accumulated deficit (Note
1)........................ -- -- (742,000) -- -- 742,000 --
Issuance of common stock
upon exercise of
restricted stock purchase
rights.................... 45,000 -- 90,000 -- -- -- 90,000
Issuance of common stock
upon exercise of stock
options................... 38,250 -- 4,000 -- -- -- 4,000
Accretion of mandatorily
redeemable convertible
preferred stock redemption
value..................... -- -- -- -- -- (636,000) (636,000)
Deferred compensation
related to certain stock
options and restricted
stock..................... -- -- 772,000 (772,000) -- -- --
Stock compensation
expense................... -- -- 547,000 17,000 -- -- 564,000
Net loss.................... -- -- -- -- -- (2,555,000) (2,555,000)
---------- ------- ----------- --------- --------- ------------ -----------
Balance at December 31,
1997...................... 4,583,750 5,000 705,000 (755,000) -- (3,750,000) (3,795,000)
Accretion of mandatorily
redeemable convertible
preferred stock redemption
value..................... -- -- -- -- -- (254,000) (254,000)
Conversion of mandatorily
redeemable convertible
preferred stock........... 3,621,503 4,000 9,559,000 -- -- -- 9,563,000
Issuance of common stock
upon initial public
offering.................. 2,088,000 2,000 12,818,000 -- -- -- 12,820,000
Issuance of common stock
upon exercise of stock
options................... 216,578 -- 78,000 -- -- -- 78,000
Issuance of common stock
under Employee Stock
Purchase Plan............. 14,662 -- 64,000 -- -- -- 64,000
Deferred compensation
related to certain stock
options and restricted
stock grants.............. -- -- 34,000 (34,000) -- -- --
Stock compensation
expense................... -- -- -- 175,000 -- -- 175,000
Comprehensive income:
Unrealized gains on
investments............. -- -- -- -- 6,000 -- 6,000
Net loss.................... -- -- -- -- -- (8,237,000) (8,237,000)
---------- ------- ----------- --------- --------- ------------ -----------
Balance at December 31,
1998...................... 10,524,493 11,000 23,258,000 (614,000) 6,000 (12,241,000) 10,420,000
Issuance of common stock
upon private placement.... 2,000,000 2,000 6,728,000 -- -- -- 6,730,000
Issuance of common stock
upon exercise of stock
options................... 192,188 -- 131,000 -- -- -- 131,000
Issuance of common stock
under Employee Stock
Purchase Plan............. 39,522 -- 149,000 -- -- -- 149,000
Stock compensation
expense................... -- -- 335,000 179,000 -- -- 514,000
Comprehensive income:
Unrealized (losses) on
investments............. -- -- -- -- (26,000) -- (26,000)
Net loss.................... -- -- -- -- -- (8,138,000) (8,138,000)
---------- ------- ----------- --------- --------- ------------ -----------
Balance at December 31,
1999...................... 12,756,203 $13,000 $30,601,000 $(435,000) $ (20,000) $(20,379,000) $ 9,780,000
========== ======= =========== ========= ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(8,138,000) $ (8,237,000) $(2,555,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 402,000 296,000 138,000
Stock compensation expense........................ 514,000 175,000 564,000
Changes in assets and liabilities:
Accounts receivable............................. (1,207,000) (781,000) 338,000
Inventories..................................... (1,418,000) (890,000) 390,000
Other current assets............................ 103,000 222,000 (413,000)
Accounts payable................................ 737,000 (173,000) 448,000
Accrued expenses................................ 225,000 1,441,000 (36,000)
Customer deposits............................... 274,000 (134,000) (1,790,000)
Deferred revenue................................ 146,000 -- --
----------- ------------ -----------
Net cash used in operating activities......... (8,362,000) (8,081,000) (2,916,000)
----------- ------------ -----------
Cash flows provided by (used in) investing activities:
Purchases of property and equipment................. (493,000) (643,000) (429,000)
Purchases of investments............................ (7,730,000) (14,762,000) --
Proceeds from sales and maturities of investments... 11,488,000 6,406,000 --
----------- ------------ -----------
Net cash provided by (used in) financing
activities.................................. 3,265,000 (8,999,000) (429,000)
----------- ------------ -----------
Cash flows provided by financing activities:
Proceeds from borrowings............................ 361,000 785,000 13,000
Repayments of borrowings............................ (203,000) (161,000) --
Issuance of long-term loans receivable to
employees......................................... (33,000) (190,000) --
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net.................. -- -- 8,672,000
Proceeds from issuance of common stock, net......... 7,010,000 12,962,000 94,000
Payment of S corporation dividends.................. -- -- (1,075,000)
----------- ------------ -----------
Net cash provided by financing activities..... 7,135,000 13,396,000 7,704,000
----------- ------------ -----------
Effect of exchange rate changes on cash and cash
equivalents......................................... 22,000 (10,000) --
Net increase (decrease) in cash and cash
equivalents......................................... 2,060,000 (3,694,000) 4,359,000
Cash and cash equivalents at beginning of year........ 1,831,000 5,525,000 1,166,000
----------- ------------ -----------
Cash and cash equivalents at end of year.............. $ 3,891,000 $ 1,831,000 $ 5,525,000
=========== ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for interest.............. $ 90,000 $ 35,000 $ 10,000
=========== ============ ===========
Cash paid during the year for income taxes.......... $ -- $ -- $ 1,000
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Issuance of common stock upon conversion of
mandatorily redeemable convertible preferred
stock............................................. $ -- $ 9,562,000 $ --
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
LJL BioSystems, Inc. (the "Company") was incorporated in Delaware on
January 19, 1993 and is the surviving corporation of three commonly controlled
predecessor companies. In March 1998, the Company established a wholly owned
subsidiary, LJL BioSystems, Ltd., in the United Kingdom. The Company designs,
produces, and sells primarily to pharmaceutical and biotechnology firms
infrastructure products and, to a lesser extent, services that accelerate and
enhance the process of discovering new drugs. The Company's proprietary
integrated technology platform is comprised of instrumentation and consumables
(microplates and fluorescence-based assay technologies) designed to provide
flexible solutions to the current and evolving high throughput requirements of
drug discovery laboratories. The Company operates in one business segment.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated on consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INITIAL PUBLIC OFFERING
In April 1998, the Company completed an initial public offering of 2,088,000
shares of its common stock, raising net cash proceeds of $12.8 million. In
connection with the offering, all outstanding shares of mandatorily redeemable
convertible preferred stock were converted into 3,621,503 shares of the
Company's common stock.
REVENUE RECOGNITION
Product sales are generally recognized upon shipment. Amounts received prior
to completion of the earnings process are recorded as customer deposits or
deferred revenue, as appropriate. Development agreements, which were completed
during 1997, were performed on a best effort basis and revenues were recognized
based on work performed using the percentage-of-completion method, completion
being measured using costs incurred to total estimated costs at completion.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments, principally money
market accounts and marketable debt securities, with maturities of three months
or less at the time of purchase.
F-7
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVESTMENTS
The Company's short-term and long-term investments consist of marketable
securities classified as "available-for-sale." Available-for-sale securities are
carried at fair market value, with unrealized gains and losses; net of tax,
included in accumulated other comprehensive income in stockholders' equity.
Gains and losses on securities sold are based on the specific identification
method and are included in the results of operations.
Fair values of marketable securities are based on quoted market values at
December 31, 1999. At December 31, 1999, the difference between the fair value
and amortized cost of marketable securities was not significant. As of December
31, 1999, marketable securities consisted of U.S. government securities and
corporate securities maturing within twelve months or less.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income," during 1998. Under SFAS 130, the
Company is required to display comprehensive income and its components as part
of the Company's consolidated financial statements. The measurement and
presentation of net income (loss) did not change. Comprehensive income is
comprised of net income (loss) and other comprehensive income. Other
comprehensive income includes certain changes in the equity of the Company that
are excluded from net income (loss). Specifically, SFAS 130 requires unrealized
gains and losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which otherwise would have been reported
separately in stockholders' equity, to be included in accumulated other
comprehensive income. Comprehensive income (loss) for the years ended
December 31, 1999 and 1998 has been reflected in the Consolidated Statement of
Stockholders' Equity (Deficit).
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash, cash equivalents, short-term
investments, loans receivable from employees and accounts receivable. The
Company deposits cash with high credit quality financial institutions. The
Company's cash equivalents and marketable securities are primarily invested in
federal government agency obligations and corporate securities that have various
maturities during 2000. The Company has issued a loan to an executive officer as
part of the terms of his employment agreement. The executive's home and shares
of the Company's common stock secure the loan.
The Company's accounts receivable are derived from revenue earned from
customers located in the U.S., the United Kingdom and Japan. Generally, the
Company requires no collateral on trade receivables. The Company performs
ongoing credit evaluations of its customers' financial condition and provides
for expected losses; however, such amounts have not been significant. At
December 31, 1999, amounts due from one customer represented 43% of gross trade
receivables, amounts due from another customer represented 13% of gross trade
receivables and amounts due from another customer represented 10% of gross trade
receivables. At December 31, 1998, amounts due from one customer represented 25%
of gross trade receivables and amounts due from four other customers each
represented 13% of gross trade receivables. As a percentage of total revenues,
product sales and
F-8
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
revenues recognized under development agreements from individual customers in
excess of 10% of total revenues were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
AstraZeneca........................................... 15% -- --
Chiron Corporation.................................... -- 1% 64%
Ventana Medical Systems, Inc.......................... -- 9% 24%
Becton Dickinson and Company.......................... -- -- 10%
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market.
CAPITALIZED SOFTWARE COSTS
Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized in accordance with Statement of
Financial Standards No. 86; "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." Amortization of capitalized software
development costs is the greater of the amount computed using (a) the ratio of
current revenues to the total of current and anticipated future revenues or
(b) the straight-line method over the estimated economic life of the product. No
amounts have been capitalized to date.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, generally ranging from three to five years, or the lease term of the
respective assets. Maintenance and repairs are expensed as incurred.
LONG-LIVED ASSETS
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that the assets might be impaired. No
such events have occurred with respect to the Company's long-lived assets, which
consist primarily of property and equipment and leasehold improvements.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs are expensed as incurred and consist of costs
incurred for internally funded research and development activities and
development agreements. These amounts include direct costs and research-related
overhead expenses. Research and development expenses under development
agreements were $316,000 in 1997.
INCOME TAXES
Prior to June 6, 1997, the Company elected to be treated as an S corporation
for federal and California income tax purposes. As a result, little or no
federal or state income taxes were payable at
F-9
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the corporate level. Rather, the Company's stockholders included their
respective portions of the Company's taxable income in their individual income
tax returns. On June 6, 1997, in connection with the preferred stock financing,
the Company became subject to the C corporation provisions of the Internal
Revenue Code. Accordingly, any earnings after this date are taxed at federal and
state corporate income tax rates. Upon termination of the Company's S
corporation status, the S corporation accumulated deficit of $742,000 was
transferred to additional paid-in capital.
The Company uses the asset and liability approach for accounting for income
taxes which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events recognized in the Company's
consolidated financial statements or income tax returns. Deferred tax assets are
recognized, net of any valuation allowance, for deductible temporary
differences, net operating losses and tax credit carryforwards when their
realization is considered more likely than not. Deferred tax expense represents
the change in the deferred tax asset and liability balances.
FOREIGN CURRENCY
The U.S. dollar is the functional currency of the Company's UK subsidiary.
Monetary and non-monetary assets and liabilities are remeasured into U.S.
dollars at period end and historical exchange rates, respectively. Sales and
expenses are remeasured at average exchange rates in effect during each period,
except for these expenses related to non-monetary assets which are remeasured at
historical exchange rates. Gains or losses resulting from foreign currency
transactions are included in net loss and were not material.
SEGMENT REPORTING
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 requires use of the "management" approach, which
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of reportable
segments. SFAS 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not have a
material effect on the consolidated financial statements or notes thereto. At
December 31, 1999, 97% of the Company's total assets were held domestically and
the Company earned 69% of its fiscal 1999 sales from domestic customers. At
December 31, 1998, 98% of the Company's total assets were held domestically and
the Company earned 91% of its fiscal 1998 sales from domestic customers. During
1997, 100% of the Company's assets and sales, were domestic.
STOCK-BASED COMPENSATION
The Company has adopted the pro forma disclosure requirements of Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation". As permitted, the Company continues to recognize
stock-based compensation under the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25. The pro forma effects
of applying SFAS 123 are shown in Note 7 to the consolidated financial
statements. The Company accounts for stock options issued to consultants in
accordance with the provisions of SFAS 123 and EITF 96-18.
F-10
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE AVAILABLE TO COMMON STOCKHOLDERS
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon conversion of outstanding convertible
preferred stock (using the if-converted method) and shares issuable upon the
exercise of stock options and warrants (using the treasury stock method).
Potential common shares are excluded from the computation if their effect is
anti-dilutive, as was the case for the years ended December 31, 1999, 1998 and
1997. For the years ended December 31, 1998 and 1997, the net loss available to
common stockholders includes $254,000 and $636,000, respectively, to reflect
accretion of the mandatorily redeemable convertible preferred stock redemption
value.
Shares excluded from the computation of diluted net loss per share include
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Stock options............................... 1,748,827 1,498,105 605,308
Stock warrants.............................. 75,076 69,049 37,413
Convertible preferred stock................. -- 704,457 2,063,761
--------- --------- ---------
1,823,903 2,271,611 2,706,482
========= ========= =========
</TABLE>
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
financial statement presentation.
NOTE 2 COMPOSITION OF BALANCE SHEET AMOUNTS:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Accounts receivable comprise:
Trade receivables.................................. $1,915,000 $ 872,000
Other receivables.................................. 56,000 12,000
---------- ----------
1,971,000 884,000
Less allowance for doubtful accounts............... (76,000) (44,000)
---------- ----------
$2,047,000 $ 840,000
========== ==========
Inventories comprise:
Raw materials...................................... $1,224,000 $ 476,000
Work-in-process.................................... 214,000 --
Finished goods..................................... 1,153,000 697,000
---------- ----------
$2,591,000 $1,173,000
========== ==========
</TABLE>
F-11
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 COMPOSITION OF BALANCE SHEET AMOUNTS: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Property and equipment comprise:
Computer equipment and software.................... $1,267,000 $1,057,000
Furniture and equipment............................ 877,000 594,000
Leasehold improvements............................. 64,000 64,000
---------- ----------
2,208,000 1,715,000
Less accumulated depreciation and amortization..... (1,328,000) (926,000)
---------- ----------
$ 880,000 $ 789,000
========== ==========
Accrued expenses comprise:
Accrued employee costs............................. $ 990,000 $ 879,000
Warranty accrual................................... 439,000 351,000
Accrued professional services...................... 133,000 218,000
Public company related expenses.................... 300,000 200,000
Other.............................................. 164,000 153,000
---------- ----------
$2,026,000 $1,801,000
========== ==========
</TABLE>
NOTE 3 LONG-TERM DEBT:
In September 1995, September 1996 and June 1997, the Company entered into
equipment loan agreements with a bank related to the purchase of equipment and
software. The loans, which were collateralized by the related equipment and
software and by personal guarantees by the Company's stockholders, bore interest
at 10.20% to 11.85% per annum and were repaid in full in March 1998.
In February 1998, the Company entered into an equipment financing agreement
that provided a $1.3 million line of credit that was used to finance the
purchases of equipment, computers and software necessary to support the
Company's CRITERION product line development effort and additions to the
marketing, sales and administrative infrastructure. The initial term of this
agreement was through February 16, 1999. Amounts borrowed under this agreement
bear interest at 11.08% to 12.16%. The agreement was extended twice with the
latest extension expiring on December 31, 1999. At December 31, 1999, the
Company had an obligation to repay $868,000 under this agreement through 2003.
Future principal payments under this line of credit are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $282,000
2001........................................................ 317,000
2002........................................................ 243,000
2003........................................................ 26,000
--------
$868,000
========
</TABLE>
F-12
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INCOME TAXES:
The provision for income taxes for the year ended December 31, 1997 reflects
S corporation taxes imposed in California at the statutory rate of 1.5% of
taxable income, adjusted for nondeductible items. On June 6, 1997, the Company
became subject to the C corporation provisions of the Internal Revenue Code. No
provision for income taxes relating to the US operation of the Company has been
recognized for periods subsequent to June 6, 1997, as the Company incurred net
operating losses for income tax purposes and has no carryback potential. During
1999, the Company recorded a provision for foreign income taxes relating to its
UK subsidiary.
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss and tax credit carryforwards.... $ 7,375,000 $ 4,788,000
Nondeductible reserves and accruals................ 481,000 288,000
----------- -----------
Gross deferred tax assets........................ 7,856,000 5,076,000
Valuation allowance................................ (7,856,000) (5,076,000)
----------- -----------
Net deferred tax assets.......................... $ -- $ --
=========== ===========
</TABLE>
Due to incurring ongoing operating losses, management believes that there is
sufficient uncertainty regarding the realization of deferred tax assets such
that a full valuation allowance is appropriate.
At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $18 million and $9 million, respectively,
available to reduce future taxable income, which expire from 2003 to 2020. The
Company's ability to utilize net operating loss and tax credit carryforwards may
be subject to limitation as set forth in applicable federal and state tax laws.
As specified in the Internal Revenue Code, an ownership change of more than 50%
during any three-year period would result in certain annual limitations on the
Company's ability to utilize its net operating loss and tax credit
carryforwards.
NOTE 5 MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In May and June 1997, the Company amended its Certificate of Incorporation
to authorize a total of 7,400,000 shares of preferred stock for future issuance.
In June 1997, the Company completed a private placement of 3,621,503 shares of
Series A mandatorily redeemable convertible preferred stock (the "Series A") for
$2.60 per share, resulting in cash proceeds of $8,672,000, net of issuance costs
of $744,000.
The Series A stockholders were entitled to annual dividends at a rate of
$0.312 per share (subject to adjustment for dilution or stock splits). Such
dividends were noncumulative and were payable when and if declared by the Board
of Directors provided, however, that such dividends would be deemed to be
accrued and cumulatively payable upon the redemption of the Series A shares or a
liquidation or dissolution of the Company. Accordingly, such amounts were
accreted to the carrying value of the Series A shares with a corresponding
charge to accumulated deficit. The Series A shares were converted into 3,621,503
shares of common stock in connection with the Company's initial public offering
in March 1998.
F-13
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 STOCKHOLDERS' EQUITY:
The Company has the right to repurchase, at the original issuance price,
certain of the shares of common stock issued to employees and directors under
restricted stock agreements. The Company's repurchase right lapses over four
years based on the length of the individual's service with the Company. At
December 31, 1999, 45,000 shares of common stock were subject to repurchase by
the Company.
In connection with the Series A private placement in June 1997, the Company
issued to the placement agent two warrants to purchase a total of 65,653 shares
of Series A at an exercise price of $5.20 per share. The warrants originally
were to expire on the earlier of June 6, 2002, the closing of an initial public
offering of the Company's common stock pursuant to a registration statement
under the Securities Act of 1993 or a merger or sale of substantially all of the
Company's assets and were exercisable immediately. In March 1998, the terms of
the warrants were amended such that the warrants are now exercisable to purchase
65,653 shares of the Company's common stock at an exercise price of $7.00 per
share and expire in 2001. The Company determined that the value of the amended
warrants was not material.
In connection with entering into a line of credit agreement with a leasing
company in February 1998, the Company issued a warrant to purchase up to 13,290
shares of the Company's common stock at $5.38. The actual number of shares to be
issued under the warrant was based on 5.5% of the borrowings against the line of
credit divided by the exercise price of $5.38 and was determined during 1999 to
be 10,312 shares of the Company's common stock, none of which were exercised as
of December 31, 1999. The warrant will expire in February 2002. The Company
determined that the value of this warrant was not material.
At December 31, 1999, the Company had two million shares of preferred stock
authorized, of which no shares were issued or outstanding.
NOTE 7 EQUITY INCENTIVE PLANS:
In January 1994, the Company adopted the 1994 Equity Incentive Plan (the
"1994 Plan") under which 499,500 shares of the Company's common stock were
reserved for issuance to employees, directors and consultants of the Company, as
approved by the Board of Directors. On March 14, 1997, the Company reduced the
number of shares reserved for issuance under the 1994 Plan to 479,250. The 1994
Plan, which expires in 2004, provides for the grant of incentive as well as
nonstatutory stock options, stock bonuses, stock appreciation rights and
restricted stock purchase rights.
In March 1997, the Company adopted the 1997 Stock Plan (the "1997 Plan"). As
amended, 2,520,750 shares of the Company's common stock have been reserved for
issuance to employees, directors and consultants of the Company under the 1997
Plan. The 1997 Plan, which expires in 2007, provides for the grant of incentive
as well as nonstatutory stock options and restricted stock purchase rights.
Options granted under the 1994 Plan and the 1997 Plan are for terms not to
exceed ten years. If the option is granted to a stockholder who owns more than
10% of the Company's outstanding stock, the term may not exceed five years and
the exercise price of the stock option must be at least 110% of the fair market
value of the stock at the date of grant. Exercise prices of incentive stock
options granted to all other persons are generally equal to at least 100% of the
fair market value of the stock at the date of grant. For nonstatutory stock
options granted to all other persons, the exercise price
F-14
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 EQUITY INCENTIVE PLANS: (CONTINUED)
under the 1994 Plan and the 1997 Plan is generally equal to at least 50% or 85%,
respectively, of the fair market value of the stock at the date of grant.
Options under the plans generally vest over a five-year period.
The term of restricted stock purchase rights granted under the 1997 Plan is
thirty days, after which unaccepted stock purchase rights expire. If the stock
purchase right is granted to a stockholder who owns stock representing more than
10% of the total combined voting power of all classes of stock of the Company,
the exercise price is generally at least equal to 100% of the fair market value
of the stock on the date of grant. The exercise price of stock purchase rights
granted to all other persons is generally equal to at least 85% of the fair
market value of the stock on the date of grant. There were no unaccepted
restricted stock purchase rights outstanding at December 31, 1999.
On December 16, 1997, the Board of Directors adopted the 1998 Employee Stock
Purchase Plan (the "1998 Purchase Plan") and the 1998 Directors' Plan and
reserved 300,000 and 150,000 shares of common stock, respectively, for issuance
under these plans, which were approved by the stockholders in February 1998. The
1998 Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, permits eligible employees to purchase common stock
through payroll deductions at a purchase price equal to 85% of the fair market
value of the Company's common stock at the beginning or end of the offering
period, whichever is less. During 1999, 39,522 shares were issued under the 1998
Purchase Plan. The 1998 Directors' Plan provides for certain automatic grants of
nonstatutory stock options to nonemployee directors of the Company. Options
granted under the 1998 Directors' Plan vest over four years, have a term of ten
years and are granted at exercise prices equal to the fair market value of the
Company's common stock on the date of grant.
F-15
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 EQUITY INCENTIVE PLANS: (CONTINUED)
The following table summarizes activity under the 1994 Plan, the 1997 Plan
and the 1998 Directors' Plan:
<TABLE>
<CAPTION>
WEIGHTED
SHARES STOCK AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
--------- ----------- --------
<S> <C> <C> <C>
Balance at December 31, 1996................. 111,250 388,250 $0.10
Shares authorized............................ 2,050,500 -- --
Issuance of restricted stock................. (45,000) -- 2.00
Options granted.............................. (480,000) 480,000 1.34
Options exercised............................ -- (38,250) 0.10
--------- --------- -----
Balance at December 31, 1997................. 1,636,750 830,000 0.71
Options granted.............................. (964,256) 964,256 3.76
Options exercised............................ -- (216,578) 0.36
Options canceled............................. 79,723 (79,723) 4.19
--------- --------- -----
Balance at December 31, 1998................. 752,217 1,497,955 2.53
Shares authorized............................ 600,000 -- --
Options granted.............................. (696,640) 696,640 4.98
Options exercised............................ -- (192,188) 0.69
Options canceled............................. 150,687 (150,687) 3.44
--------- --------- -----
Balance at December 31, 1999................. 806,264 1,851,720 3.57
========= ========= =====
</TABLE>
The following table summarizes information about stock options under the
1994 Plan, the 1997 Plan and the 1998 Directors' Plan at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10 to $1.00 309,314 7.1 years $0.75 126,997 $0.77
$2.00 to $2.875 467,340 8.5 years 2.58 117,452 2.41
$3.19 to $4.50 538,150 9.4 years 3.94 45,300 4.19
$5.00 to $6.30 536,916 8.5 years 5.69 125,035 5.72
--------- -------
1,851,720 8.5 years 3.57 414,784 3.10
========= =======
</TABLE>
Deferred compensation is recorded when the exercise price of an option is
less than the deemed fair value of the underlying stock on the date of grant.
From inception through June 1997, all stock options were granted at exercise
prices that equaled the estimated fair value of the underlying stock on the
respective grant dates. In August 1997, the Company granted options to purchase
a total of 75,000 shares of common stock at an exercise price of $1.00 per
share. Deferred compensation of
F-16
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 EQUITY INCENTIVE PLANS: (CONTINUED)
approximately $56,000 was recorded on these options, based on the deemed fair
value of the common stock on the date of grant of $1.75 per share. In
October 1997, the Company granted options to purchase 24,500 shares of common
stock at an exercise price of $1.00 per share. Additional deferred compensation
of approximately $123,000 was recorded based on a deemed fair value of $6.00 per
share on the date of grant. Additionally, in October 1997 the Company granted to
a consultant options to purchase 7,500 shares of the Company's common stock at
an exercise price of $1.00 per share, resulting in additional deferred
compensation of $40,000 based on the estimated fair value of the options
granted. In December 1997, the Company granted rights to purchase 45,000 shares
of restricted common stock at an exercise price of $2.00 per share and options
to purchase 30,250 shares of common stock at an exercise price of $2.00 per
share. Additional deferred compensation of approximately $553,000 related to
these grants was recorded based on a deemed fair value of the common stock of
$9.35 per share on the date of grant. On March 10, 1998, the Company granted an
option to an employee to purchase 15,000 shares of the Company's common stock at
a price 15% below fair market value at the date of the grant. Deferred
compensation of $33,600 was recorded based on the estimated fair value of the
options granted. Deferred compensation is amortized over the vesting period of
the options, generally four to five years.
In December 1997, the Company also granted fully vested options to employees
to purchase 75,000 shares of common stock at exercise prices of $2.00 to $2.20
per share, in lieu of cash bonuses. Compensation expense of $547,000 related to
these options, based on a deemed fair value of the common stock on the date of
grant of $9.35 per share, was recognized in 1997.
Stock compensation expense for options granted to consultants has been
determined using the Black-Scholes option pricing model to measure the fair
value of the option. The fair value of such options is periodically remeasured
as the options vest.
The Company accounts for issuances of stock options to employees in
accordance with the provisions of Accounting Principles Board Opinion No. 25.
Had compensation cost for the Company's option plans been determined based on
the fair value of the options at the dates of grant, as prescribed in SFAS 123,
the Company's pro forma net income (loss) for the years ended December 31, 1999,
1998 and 1997 would have included additional stock compensation expense of
$394,000, $286,000 and $10,000, respectively. The fair value of each option has
been estimated on the date of grant using the Black-Scholes option pricing model
for all options granted after the effective date of the Company's initial public
offering on March 13, 1998 and using the minimum value method for options
granted prior to the initial public offering. The following assumptions were
used in computing the fair value of options granted: dividend yield of 0.0% for
1999, 1998 and 1997; risk-free interest rates of 4.6% to 6.4% for 1999, 4.4% to
5.7% for 1998, and 6.3% to 6.5% for 1997; volatility of 90% for options granted
in 1999, volatility of 84% for options granted after the effective date of the
Company's initial public offering on March 13, 1998 through December 31, 1998;
and a weighted average expected option term of four years for 1999 and 1998 and
1997.
Additional option grants are expected to be made beyond 1999. Accordingly,
pro forma disclosures may differ significantly from the reported results of
operations in the future.
At December 31, 1999, the Company had 2,723,637 shares of common stock
reserved for future issuance upon the exercise of stock options and common stock
purchase warrants.
F-17
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 EMPLOYEE BENEFIT PLAN:
The Company maintains the tax deferred LJL BioSystems, Inc. 401(k) Plan (the
"401(k) Plan"), that covers all employees over twenty-one years of age who
become eligible to enroll the first day of the calendar month following their
employment date. Employees may contribute up to 15% of their compensation to the
401(k) Plan on a pre-tax basis, subject to the maximum amount allowable under
IRS regulations. Pre-tax contributions are allocated to each employee's
individual account, which is invested in selected investment alternatives
according to the directions of the employee. The Company may contribute a
discretionary matching contribution equal to a specified percentage of the
participant's compensation. Matching contributions to an individual employee's
account vest over five years of service with the Company. Through December 31,
1999, the Company had not made any matching contributions under the 401(k) Plan.
NOTE 9 COMMITMENTS AND CONTINGENCIES:
In January 2000, the Company amended its operating lease agreement for one
of its principal facilities to extend the lease term to December 2002. The lease
agreement requires the Company to pay minimum rent as well as certain facilities
operating expenses incurred by the lessor. In July 1997, the Company entered
into a lease agreement for a laboratory facility and the use of certain
laboratory equipment. During 1999, the lease was amended to extend the lease
term to June 2000, at which time the lease may be continued on a month-to-month
basis, by mutual consent. In April 1998, the Company entered into a lease
agreement for a facility in the United Kingdom with a lease term to April 1999.
In April 1999, the Company extended its operating lease on its United Kingdom
office space through April 2000. In January 2000, the Company amended its
operating lease agreement for its other principal facility to extend the lease
term to May 2002. The lease agreement requires the Company to pay minimum rent
as well as certain facility operating expenses incurred by the lessor. Rent
expense during the years ended December 31, 1999, 1998 and 1997 totaled
$542,000, $381,000 and $161,000, respectively.
Future minimum payments under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $ 514,000
2001........................................................ 330,000
2002........................................................ 238,000
----------
$1,082,000
==========
</TABLE>
In June 1997, the Company entered into a development, license and sales
agreement (the "Agreement") under which the Company obtained worldwide rights to
certain patented assay technologies. As amended, the Agreement provides for
future minimum royalties that aggregate approximately $1.0 million and are due
through 2003.
In the normal course of business, the Company is subject to various claims
and assessments, which, in the opinion of management, will not have a material
adverse effect on its results of operations or financial condition.
F-18
<PAGE>
LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 RELATED PARTY TRANSACTIONS:
During 1998, the Company extended a loan in the amount of $190,000 to an
executive officer as part of the terms of the executive's employment agreement.
The officer's home and shares of the Company's common stock secure the loan. The
loan bears interest at 5.83% per annum and is to be repaid in full on the
earliest of February 15, 2008 or the dates of certain other conditions of the
note. All or a portion of the loan and the interest may be forgiven based on the
executive's performance or upon termination by the Company without cause. During
1999, the Company extended two loans totaling $32,500 to two employees as part
of the terms of each employee's employment agreement. One loan is unsecured and
bears interest at 5.187% per annum and is to be repaid in full on the earliest
of January 12, 2003 or the dates of certain other conditions of the note. The
other loan is secured by shares of the Company's common stock, bears interest at
7.5% per annum and is to be repaid in full thirty days after the employee's
termination or on the dates of certain other conditions of the note. All or a
portion of each loan and the interest may be forgiven based on the respective
employee's performance or upon termination of the respective employee by the
Company without cause.
NOTE 11 SUBSEQUENT EVENT:
On February 2, 2000, the Company received net cash proceeds of approximately
$18.4 million in connection with a private placement of 1.76 million shares of
unregistered restricted common stock. The terms of the sale require that the
Company file a registration statement covering such shares by February 16, 2000.
F-19
<PAGE>
[LJL BIOSYSTEMS LOGO]
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 29, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND
WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LJL BIOSYSTEMS LOGO]
2,500,000 SHARES
COMMON STOCK
We are offering 2,500,000 shares of our common stock. Our common stock is
quoted on the Nasdaq National Market under the symbol LJLB. The last reported
sale price of our common stock on the Nasdaq National Market on March 28, 2000
was $19.13 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to LJL............................................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares from us to cover over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 2000.
------------------------
ROBERTSON STEPHENS INTERNATIONAL CHASE H&Q
PACIFIC GROWTH EQUITIES, INC.
THE DATE OF THIS PROSPECTUS IS APRIL , 2000.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale and distribution of the Common Stock
being registered. All amounts shown are estimates except the SEC registration
fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee........................................ $ 25,123
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 50,000
Blue Sky qualification fees and expenses.................... 7,000
Miscellaneous fees and expenses............................. 32,877
--------
Total................................................... $465,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Articles XIII and XIV of the
Registrant's Fourth Amended and Restated Certificate of Incorporation and
Article VI of the Registrant's Bylaws provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by law. In addition, the Registrant has entered into Indemnification Agreements
with its officers and directors and maintains director and officer liability
insurance.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP**
23.1 Consent of Independent Accountants
23.2 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1)**
24.1 Power of Attorney**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
II-1
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 15 above or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Sunnyvale, State of California, on March 28,
2000.
<TABLE>
<S> <C> <C>
LJL BIOSYSTEMS, INC.
By: /s/ LEV J. LEYTES
---------------------------------------------
Lev J. Leytes
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amendment to
registration statement has been signed on March 28, 2000 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ LEV J. LEYTES President, Chief Executive Officer and
------------------------------------------ Chairman of the Board (principal
(Lev J. Leytes) executive officer)
/s/ LARRY TANNENBAUM Senior Vice President and Chief
------------------------------------------ Financial Officer (principal
(Larry Tannenbaum) financial officer)
* Vice President of Finance and
------------------------------------------ Administration (principal accounting
(Robert T. Beggs) officer)
*
------------------------------------------ Executive Vice President and Director
(Galina Leytes)
*
------------------------------------------ Director
(George W. Dunbar)
*
------------------------------------------ Director
(Daniel S. Janney)
*
------------------------------------------ Director
(Michael F. Bigham)
*
------------------------------------------ Director
(John G. Freund)
*
------------------------------------------ Director
(John D. Diekman)
</TABLE>
* Larry Tannenbaum, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is
attorney-in-fact pursuant to a power of attorney duly executed by such
persons and filed with the Securities and Exchange Commission.
<TABLE>
<S> <C>
/s/ LARRY TANNENBAUM
-------------------------------------------------
Larry Tannenbaum
Attorney-in-fact
</TABLE>
II-3
<PAGE>
LJL BIOSYSTEMS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP**
23.1 Consent of Independent Accountants
23.2 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1)**
24.1 Power of Attorney (see page II-3)**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-3 of
our report dated January 25, 2000, except as to Note 11, which is as of
February 2, 2000, relating to the consolidated financial statements of LJL
Biosystems, Inc., which appears in such Registration Statement. We also consent
to the incorporation by reference in this Registration Statement on Form S-3 of
our report dated January 25, 2000, except as to Note 11, which is as of
February 2, 2000, relating to the consolidated financial statements and
financial statement schedule, which appears in LJL BioSystems, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1999. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
March 28, 2000
