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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
Commission file number 333-43529
--------------------------------
LJL BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0360183
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
405 TASMAN DRIVE
SUNNYVALE, CA 94089
(Address of principal executive offices)
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(408) 541-8787
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 2000, 14,868,478 shares of the Registrant's Common Stock, $0.001
par value, were issued and outstanding.
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LJL BIOSYSTEMS, INC.
INDEX
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ITEM NO. PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements (Unaudited)......................3
Consolidated Condensed Balance Sheet as of June 30, 2000 and
December 31, 1999 (Unaudited)................................................3
Consolidated Condensed Statement of Operations for the Three- and
Six-Month Periods Ended June 30, 2000 and 1999 (Unaudited)...................4
Consolidated Condensed Statement of Cash Flows for the Six-Month
Periods Ended June 30, 2000 and 1999 (Unaudited).............................5
Notes to Consolidated Condensed Financial Statements (Unaudited).............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................24
Item 2. Changes in Securities and Use of Proceeds...................................24
Item 3. Defaults Upon Senior Securities.............................................24
Item 4. Submission of Matters to a Vote of Security Holders.........................24
Item 5. Other Information...........................................................25
Item 6. Exhibits and Reports on Form 8-K............................................25
Signatures..................................................................26
Exhibits....................................................................27
</TABLE>
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PART I: FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 6,386,000 $ 3,891,000
Short-term investments ........................ 17,244,000 4,567,000
Accounts receivable, net ...................... 2,163,000 2,047,000
Inventories ................................... 2,048,000 2,591,000
Other current assets .......................... 1,359,000 159,000
------------ ------------
Total current assets ....................... 29,200,000 13,255,000
Property and equipment, net ...................... 976,000 880,000
Loans receivable from employees .................. 223,000 223,000
------------ ------------
$ 30,399,000 $ 14,358,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 972,000 $ 1,245,000
Accrued expenses .............................. 2,380,000 2,026,000
Customer deposits ............................. 193,000 293,000
Deferred revenue .............................. 641,000 146,000
Current portion of long-term debt ............. 299,000 282,000
------------ ------------
Total current liabilities .................. 4,485,000 3,992,000
Long-term debt, net of current portion ........... 432,000 586,000
------------ ------------
Total liabilities .......................... 4,917,000 4,578,000
------------ ------------
Stockholders' equity:
Common stock .................................. 15,000 13,000
Additional paid-in capital .................... 50,798,000 30,601,000
Deferred stock compensation ................... (347,000) (435,000)
Accumulated other comprehensive loss .......... (33,000) (20,000)
Accumulated deficit ........................... (24,951,000) (20,379,000)
------------ ------------
Total stockholders' equity ................. 25,482,000 9,780,000
------------ ------------
$ 30,399,000 $ 14,358,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales ................................... $ 3,731,000 $ 2,018,000 $ 6,842,000 $ 3,377,000
Cost of sales ............................... 1,282,000 882,000 2,393,000 1,580,000
-------------- -------------- -------------- --------------
Gross profit ................................ 2,449,000 1,136,000 4,449,000 1,797,000
-------------- -------------- -------------- --------------
Operating expenses:
Research and development ................. 2,273,000 1,775,000 4,372,000 3,258,000
Selling, general and administrative ...... 2,714,000 2,093,000 5,109,000 3,782,000
-------------- -------------- -------------- --------------
Total operating expenses .............. 4,987,000 3,868,000 9,481,000 7,040,000
-------------- -------------- -------------- --------------
Loss from operations ........................ (2,538,000) (2,732,000) (5,032,000) (5,243,000)
Interest and other income, net .............. 273,000 178,000 513,000 358,000
Interest expense ............................ (23,000) (22,000) (48,000) (42,000)
-------------- -------------- -------------- --------------
Loss before provision for income taxes ...... (2,288,000) (2,576,000) (4,567,000) (4,927,000)
Provision for income taxes .................. 1,000 -- 5,000 --
-------------- -------------- -------------- --------------
Net loss .................................... $ (2,289,000) $ (2,576,000) $ (4,572,000) $ (4,927,000)
============== ============== ============== ==============
Basic and diluted net loss per share ........ $ (0.15) $ (0.20) $ (0.32) $ (0.40)
============== ============== ============== ==============
Shares used in computation of basic and
diluted net loss per share ............... 14,830,386 12,627,249 14,415,160 12,309,107
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
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Six Months Ended June 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... $ (4,572,000) $ (4,927,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............................. 336,000 189,000
Stock compensation expense ................................ 856,000 89,000
Changes in assets and liabilities:
Accounts receivable ..................................... (116,000) 73,000
Inventories ............................................. 543,000 (854,000)
Other current assets .................................... (1,200,000) (155,000)
Accounts payable ........................................ (273,000) 872,000
Accrued expenses ........................................ 354,000 112,000
Customer deposits ....................................... (100,000) 321,000
Deferred revenue ........................................ 495,000 --
-------------- --------------
Net cash used in operating activities ................ (3,677,000) (4,280,000)
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment .......................... (432,000) (230,000)
Purchases of investments ..................................... (15,367,000) (5,809,000)
Proceeds from sales and maturities of investments ............ 2,676,000 2,469,000
-------------- --------------
Net cash used in investing activities ................ (13,123,000) (3,570,000)
-------------- --------------
Cash flows from financing activities:
Proceeds from borrowings ..................................... -- 102,000
Repayments of borrowings ..................................... (137,000) (89,000)
Issuance of long-term notes receivable from related parties .. -- (33,000)
Proceeds from issuance of common stock, net .................. 19,432,000 6,892,000
-------------- --------------
Net cash provided by financing activities ............ 19,295,000 6,872,000
-------------- --------------
Effect of exchange rate changes on cash and cash equivalents .... -- (10,000)
Net increase in cash and cash equivalents ....................... 2,495,000 (988,000)
Cash and cash equivalents at beginning of period ................ 3,891,000 1,831,000
-------------- --------------
Cash and cash equivalents at end of period ...................... $ 6,386,000 $ 843,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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LJL BIOSYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of the management of LJL BioSystems, Inc. ("we", "LJL
BioSystems" or the "Company"), the accompanying unaudited consolidated condensed
financial data contains all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary to present fairly the
financial information included herein. This Quarterly Report on Form 10-Q should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K dated February 16, 2000
as filed with the Securities and Exchange Commission. The interim results
presented herein are not necessarily indicative of the results of operations
that may be expected for the full fiscal year ending December 31, 2000, or any
other future period.
NOTE 2 - INVENTORIES:
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<CAPTION>
June 30, December 31,
2000 1999
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Raw materials ..................... $ 867,000 $ 1,224,000
Work-in-process ................... 176,000 214,000
Finished goods .................... 1,005,000 1,153,000
------------ ------------
$ 2,048,000 $ 2,591,000
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</TABLE>
NOTE 3 -PRIVATE PLACEMENTS:
On January 27, 1999, the Company received cash proceeds of $6.7
million, net of issuance costs of $270,000, in connection with a private
placement of 2.0 million shares of unregistered, restricted common stock. The
terms of the sale required that the Company file a registration statement
covering such shares. Such registration statement was filed and became effective
on July 21, 1999.
On February 2, 2000, the Company received cash proceeds of $18.4
million, net of issuance costs of $962,000, in connection with a private
placement of 1.76 million shares of unregistered, restricted common stock. The
terms of the sale required that the Company file a registration statement
covering such shares. Such registration statement was filed and became effective
on March 3, 2000.
NOTE 4 - BASIC AND DILUTED NET LOSS PER SHARE:
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 all periods presented.
NOTE 5 - COMPREHENSIVE INCOME:
Comprehensive income is comprised of net income (loss) and other
items of comprehensive income. During the three- and six-month periods ended
June 30, 2000, comprehensive loss amounted to $2,292,000 and $4,585,000,
respectively. At June 30, 2000, accumulated comprehensive loss consisted of
unrealized gains and losses on the Company's available-for-sale securities.
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NOTE 6 - SIGNIFICANT TRANSACTIONS:
In July 2000, LJL BioSystems and Molecular Devices Corporation
("Molecular Devices") announced that they had entered into a merger agreement.
As a result, LJL BioSystems will become a wholly-owned subsidiary of Molecular
Devices. As part of the proposed merger, at the effective time, each issued and
outstanding share of LJL BioSystems common stock will be automatically converted
into 0.30 of a share of Molecular Devices common stock.
THE PROPOSED MERGER IS EXPECTED TO CLOSE IN AUGUST 2000 AND IS
SUBJECT TO CUSTOMARY CLOSING CONDITIONS, INCLUDING THE APPROVAL OF THE
STOCKHOLDERS OF BOTH LJL BioSystems AND MOLECULAR DEVICES AT SPECIAL MEETINGS OF
STOCKHOLDERS TO BE HELD ON AUGUST 30, 2000, AS WELL AS ALL NECESSARY REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH APPROVALS WILL BE OBTAINED.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION, which
outlines the basic criteria that must be met to recognize revenue and provides
guidance for presentation of revenue and for disclosure related to revenue
recognition policies in financial statements filed with the SEC. In June 2000,
the SEC issued SAB 101B which delays the implementation of SAB 101 until no
later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999. The Company believes that the adoption of SAB 101 will not have a
material effect on its consolidated financial statements.
In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION AN INTERPRETATION OF APB
OPINION NO. 25 ("FIN 44"). This Interpretation clarifies the definition of an
employee for the purposes of applying Accounting Practices Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, the criteria for determining whether a
plan qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is generally effective July 1, 2000. The Company believes
that FIN 44 will not have a material effect on its consolidated financial
statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
Consolidated Condensed Financial Statements and Notes thereto contained in Item
1 of this report. Except for the historical information contained herein, the
matters discussed in this report are forward-looking statements that involve
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Potential risks and
uncertainties include, without limitation, those mentioned in this report and,
in particular, the factors described below under "Additional Factors That May
Affect Future Results."
OVERVIEW
We design, produce and sell products under the CRITERION name
specifically targeted for both the current and evolving markets for high
throughput products used for drug discovery and genomics ("high throughput
market"). 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.
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
will continue to manufacture one of our OEM products under an agreement with one
customer in 2000 and possibly beyond.
In connection with the proposed merger with Molecular Devices
Corporation, we incurred $0.6 million in nonrecurring transaction costs
including legal, accounting, financial advisory and other fees during the
quarter ended June 30, 2000. Such amounts have been capitalized at June 30,
2000, and will be expensed when the merger is completed. A more complete
description of the proposed merger with Molecular Devices Corporation can be
found in the joint proxy statement/prospectus and merger agreement attached as
an exhibit thereto, filed with the SEC on July 18, 2000.
RESULTS OF OPERATIONS
NET SALES. Total sales were $3.7 million and $6.8 million for the
three- and six-month periods ended June 30, 2000, respectively, compared to $2.0
million and $3.4 million for the three- and six-month periods ended June 30,
1999, respectively, representing increases of $1.7 million or 85% and $3.5
million or 103%, respectively. These
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increases were due to increases in sales volume of our CRITERION products. We
reported combined Analyst and Acquest instrument sales of $3.2 million
and $6.1 million for the three- and six-month periods ended June 30,
2000, respectively, compared to $1.6 million and $2.9 million for the
three- and six-month periods ended June 30, 1999, respectively. The
Company's marketing focus continues to be directed at penetrating large
pharmaceutical companies; therefore, revenue generated from multiple
sales to these large pharmaceutical customers continues to represent a
significant percentage of sales. Instrument sales to two customers each
represented 19% of total sales during the quarter ended June 30, 2000.
Neither of these customers represented 10% of our sales in the quarter
ended June 30, 1999. Instrument sales to two other large pharmaceutical
customers represented 29% and 21% of total sales during the quarter ended
June 30, 1999. Sales of our OEM product, Horizon, were $216,000 during
the three- and six-month periods ended June 30, 2000, representing 6% and
3% of our total sales, respectively, compared to $423,000 or 21% and
$425, 000 or 13% of our total sales for the three- and six-month periods
ended June 30, 1999. All of the sales of our OEM product in the three-
and six-month periods ended June 30, 2000 and 1999 were sold to the same
customer. For additional discussion of risks related to customer
concentration, see "Additional Factors That May Affect Future Results -
The market for our product line is concentrated, which limits the number
of our potential customers."
COST OF SALES. Costs of sales were $1.3 million and $2.4 million
for the three- and six-month periods ended June 30, 2000, respectively,
compared to $0.9 million and $1.6 million for the three- and six-month
periods ended June 30, 1999, respectively, representing increases of $0.4
million or 45% and $0.8 million or 51%, respectively. This was due primarily
to the significant increase in sales volume of our CRITERION products. Gross
profit, as a percentage of net sales, was 66% and 65% for the three- and
six-month periods ended June 30, 2000, respectively, compared to 56% and 53%
for the three- and six-month periods ended June 30, 1999, respectively. These
increases were 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 $2.3
million and $4.4 million for the three- and six-month periods ended June 30,
2000, respectively, compared to $1.8 million and $3.3 million for the three- and
six-month periods ended June 30, 1999, respectively, representing an increase of
$0.5 million or 28% and $1.1 million or 34%, respectively. These increases were
primarily due to $0.3 million and $0.6 million in non-cash compensation expense
related to stock options granted to non-employees recorded during the three- and
six-month periods ended June 30, 2000, respectively. These increases were also
due to increases in costs associated with the development of our CRITERION
product line platform, as well as due to fluctuations in the timing of when some
development expenses are incurred. We do, however, 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 $2.7 million and $5.1 million for the three- and
six-month periods ended June 30, 2000, respectively, compared to $2.1 million
and $3.8 million for the three- and six-month periods ended June 30, 1999,
respectively, representing an increase of $0.6 million or 30% and $1.3 million
or 35%, respectively. These increases were primarily attributable to expenses
related to a contemplated secondary offering of our common stock, for which we
filed a registration statement in March 2000. Due to market conditions, we
withdrew the registration statement in April 2000 and expensed all printing,
legal, accounting and other professional costs related to this contemplated
secondary offering during the quarter ended June 30, 2000. The increase was also
due to increased expenses associated with the addition of sales and marketing
personnel and higher marketing expenses for the CRITERION product lines.
Further, increases in general and administrative expenses included higher costs
associated with the addition of administrative personnel and higher
infrastructure costs associated with our headcount increases since June 30, 1999
and $0.1 million in non-cash compensation expense related to stock options
granted to non-employees during the three- and six-month periods ended June 30,
2000. 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
$273,000 and $513,000 for the three- and six-month periods ended June 30, 2000,
respectively, compared to $178,000 and $358,000 for the three- and six-month
periods ended June 30, 1999, respectively, representing increases of $95,000 or
53% and $155,000 or 43%, respectively. These increases were primarily due to
higher interest earned as a result of higher average levels of invested cash,
cash equivalents and investments in the three- and six-month periods ended June
30, 2000, compared to the three- and six-month periods ended June 30, 1999.
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INTEREST EXPENSE. Interest expense was $23,000 and $48,000 for the
three- and six-month periods ended June 30, 2000, respectively, compared to
$22,000 and $42,000 for the three- and six-month periods ended June 30, 1999,
respectively, representing increases of $1,000 or 5% and $6,000 or 14%,
respectively. These increases were primarily due to higher interest paid as a
result of a higher average level of debt on our line of credit in the three-
and six-month periods ended June 30, 2000, compared to the three- and
six-month periods ended June 30, 1999.
INCOME TAXES
For the three- and six-month periods ended June 30, 2000, we recorded
provisions for foreign income taxes of $1,000 and $5,000, respectively. No
provision for income taxes was recorded for the three- and six-month periods
ended June 30, 2000 or 1999 for the Company's U.S. operations as the Company
incurred net operating losses and had no carryback potential. Utilization of net
operating loss carryforwards, which expire from 2003 to 2020, may be subject to
limitations as set forth in applicable federal and state laws. Due to
uncertainties regarding realizability of the deferred tax assets, the Company
has provided a full valuation allowance on all deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had cash, cash equivalents and investments of
$23.6 million, working capital of $24.7 million and an accumulated deficit of
$25.0 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 21, 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 initial public offering, which occurred in March 1998, 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 $3.7 million and $4.3 million
during the six months ended June 30, 2000 and 1999, respectively. This decrease
was attributable to our operating losses and changes in inventory, deferred
revenue and accrued expenses, partially offset by changes in accounts
receivable, accounts payable and other current assets.
Net cash used in investing activities totaled $13.1 million and
$3.6 million during the six months ended June 30, 2000 and 1999,
respectively. This increase was primarily due to increased 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 investing entirely in short-term
investments.
Net cash provided by financing activities totaled $19.3 million
and $6.9 million during the six months ended June 30, 2000 and 1999,
respectively. This increase was primarily due to higher net proceeds from our
private placement of common stock during the first quarter of 2000, which
raised approximately $18.4 million, net
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of issuance costs, compared to our private placement of common stock during
the first quarter of 1999, which raised approximately $6.7 million, net of
issuance costs.
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 June 30, 2000, we had an
obligation to repay $0.7 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 $0.9 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
- 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,
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
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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.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
WE DESIRE TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OF SECTION 21E AND RULE
3b-6 UNDER THE SECURITIES EXCHANGE ACT OF 1934. SPECIFICALLY, WE WISH TO ALERT
READERS THAT THE FOLLOWING IMPORTANT FACTORS, AS WELL AS OTHER FACTORS
INCLUDING, WITHOUT LIMITATION, THOSE DESCRIBED ELSEWHERE IN REPORTS WE HAVE
FILED WITH THE SEC AND INCORPORATED INTO THIS QUARTERLY REPORT ON FORM 10-Q BY
REFERENCE, COULD IN THE FUTURE AFFECT, AND IN THE PAST HAVE AFFECTED, OUR ACTUAL
RESULTS AND COULD CAUSE OUR RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF US. WE
ASSUME NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM OUR MANAGEMENT'S EXPECTATIONS DUE TO THE
RISKS RELATED TO THE PROPOSED MERGER WITH MOLECULAR DEVICES CORPORATION,
INCLUDING THE FAILURE OF OUR STOCKHOLDERS OR THE MOLECULAR DEVICES STOCKHOLDERS
TO APPROVE THE MERGER, THE RISK THAT OUR BUSINESS WILL NOT BE INTEGRATED
SUCCESSFULLY WITH MOLECULAR DEVICES CORPORATION'S BUSINESS, THE COSTS RELATED TO
THE PROPOSED MERGER, OUR INABILITY TO OBTAIN OR MEET CONDITIONS IMPOSED FOR THE
MERGER, AND OTHER FACTORS GENERALLY AFFECTING THE BUSINESSES OF THE COMBINED
COMPANY. FOR MORE INFORMATION REGARDING THE MERGER, SEE THE JOINT PROXY
STATEMENT/PROSPECTUS FILED WITH THE SEC ON JULY 18, 2000.
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. Our historical operating and financial performance is generally not
indicative of future financial and business results. We incurred operating
losses for the six months ended June 30, 2000 and 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 the
failure to:
- develop effective sales, marketing and distribution channels;
- achieve market acceptance and demand for our product line;
- effectively service and maintain the product line;
- implement commercial scale-up of developed products; and
- 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 products 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.
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FAILURE TO SATISFY CLOSING CONDITIONS OR OBTAINING STOCKHOLDER APPROVAL COULD
RESULT IN OUR MERGER WITH MOLECULAR DEVICES CORPORATION NOT CLOSING, WHICH COULD
RESULT IN SUBSTANTIAL PENALTIES AND DISRUPTIONS TO OUR OPERATIONS THAT WOULD
NEGATIVELY AFFECT OUR RESULTS
The closing of our merger with Molecular Devices Corporation is
contingent upon the satisfaction of certain standard closing conditions and
obtaining stockholder approval from both companies, which is scheduled to
occur at special meetings of the stockholders for both companies to be held
on August 30, 2000. Failure to obtain stockholder approval or to meet closing
conditions could result in the merger not occurring. In certain
circumstances, such a failure would result in our incurring substantial
monetary penalties of up to $9.0 million, which would have a material adverse
effect on our business, financial condition and operating results. In
addition, the planning for integration of the operations and personnel of
both companies into the combined company is placing a burden on LJL's
management and internal resources. The diversion of LJL's management's
attention during such planning and the potential loss of key personnel could
result in disruptions to our operations and have a materials adverse effect
on LJL's business, financial condition and results of operations.
IF WE DO NOT SUCCESSFULLY INTEGRATE LJL BIOSYSTEMS AND MOLECULAR DEVICES
CORPORATION INTO A SINGLE BUSINESS AND REALIZE THE EXPECTED BENEFITS OF THE
MERGER, WE WILL HAVE INCURRED SIGNIFICANT COSTS WHICH MAY HARM OUR BUSINESS.
The costs of integrating our products, operations and personnel with
those of Molecular Devices Corporation may be substantial and may include
conversion of information systems, reorganization or closure of facilities and
relocation or disposition of excess equipment. In addition, achieving the
benefits of the merger will also depend in part on the successful integration of
our operations and personnel with Molecular Devices Corporation's operations and
personnel in a timely and efficient manner, and the costs associated with this
integration may include employee redeployment, relocation and severance.
IF THE COMBINED COMPANY DOES NOT SUCCESSFULLY MANUFACTURE, PROMOTE, SELL AND
SERVICE OUR PRODUCTS, AND INTEGRATE THE TECHNOLOGIES OF BOTH COMPANIES TO
DEVELOP NEW PRODUCTS AND PRODUCT FEATURES, THE COMBINED COMPANY MAY LOSE
CUSTOMERS AND FAIL TO ACHIEVE ITS FINANCIAL OBJECTIVES.
Achieving the benefits of our merger with Molecular Devices
Corporation will depend in part on the combined company's ability to continue to
successfully manufacture, promote, sell and service its products, and integrate
the technologies of both companies to develop new products and product features,
in a timely and efficient manner. In order for the combined company to provide
enhanced and more valuable products to its customers after the merger, it will
need to integrate the development organizations of both companies. This will be
difficult and unpredictable because both our products and the products of
Molecular Devices Corporation:
- are highly complex;
- involve different technologies;
- have been developed independently; and
- were designed without regard to such integration.
If the combined company cannot successfully manufacture, promote, sell and
service its products, and integrate the technologies of both companies to
provide customers with new products and product features in the future on a
timely basis, the combined company may lose customers and its business and
results of operations may be seriously harmed.
INTEGRATING OUR BUSINESS WITH THE BUSINESS OF MOLECULAR DEVICES CORPORATION MAY
DIVERT MANAGEMENT'S ATTENTION AWAY FROM OPERATIONS.
The successful integration of the operations, products and
personnel of both companies into the combined company may place a significant
burden on management and internal resources. The diversion of management's
attention and any difficulties encountered in the transition and integration
process could have a material adverse effect on the combined company's business,
financial condition and results of operations.
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FAILURE OF THE MERGER TO BE TREATED AS A POOLING OF INTERESTS UNDER ACCOUNTING
RULES COULD RESULT IN A REDUCTION OF REPORTED EARNINGS.
We expect the merger to be accounted for under the
pooling-of-interests accounting method and financial reporting rules. To qualify
the merger as a pooling-of-interests for accounting purposes, certain criteria
established in opinions by the Accounting Principles Board and interpreted by
the Financial Accounting Standards Board and the Securities and Exchange
Commission must be met. These opinions are complex and the interpretation of
them is subject to change. In addition, the availability of pooling-of-interests
accounting treatment depends in part upon circumstances and events occurring
upon the closing of the transaction. The failure of the merger to qualify as a
pooling-of-interests for accounting purposes for any reason would likely result
in the merger not occurring or, if the merger still occurred, would materially
adversely affect the combined company's reported earnings and likely, the price
of its common stock.
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 development and commercialization 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, 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.
We may not 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 manufactured and sold a limited number
of 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
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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 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 sufficient numbers of 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.
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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 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 the quarter
ended June 30, 2000, instrument sales to two customers each represented 19% of
total sales. Neither of these customers represented 10% of our sales in the
quarter ended June 30, 1999. Instrument sales to two other large pharmaceutical
customers represented 29% and 21% of total sales during the quarter ended June
30, 1999. 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 seasonality, 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.
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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 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 and the successful combination of our business with
Molecular Devices Corporation will depend to a significant degree upon the
continued services of key management, technical and scientific personnel,
including Lev J. Leytes, the Chairman of LJL BioSystems' 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.
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IF OUR PRODUCTS ARE NOT PROPERLY USED OR IF THEY CONTAIN DEFECTS, THEY MAY
SUBJECT US TO PRODUCT LIABILITY CLAIMS, 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 claims,
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.
WE HAVE AN ACCUMULATED DEFICIT AND OUR FUTURE PROFITABILITY IS UNCERTAIN.
As of June 30, 2000, we had an accumulated deficit of approximately
$25.0 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.
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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.
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.
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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 June 30, 2000, we held eight U.S. patents
and had fourteen pending U.S. patent applications, three pending European
regional patent applications, two pending Israeli patent applications, two
pending Japanese patent applications, seventeen pending PCT, or
international, patent applications, and twenty 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 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,
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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.
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,
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<PAGE>
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.
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
operations.
OUR FUTURE OPERATING RESULTS ARE LIKELY TO FLUCTUATE.
Past financial results, including but not limited to revenue growth
and product gross margins, are not indicative of our future operating
performance. 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 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;
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<PAGE>
- 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.
ITEM 3. 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.
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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--------------------------------------------------------------------------------
PART II. OTHER INFORMATION
--------------------------------------------------------------------------------
ITEM 1: LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 2, 2000, the Company issued approximately 1.76 million
shares of unregistered common stock to new and current accredited investors in a
private placement transaction, at a price of $11.00 per share, resulting in net
cash proceeds to the Company of approximately $18.4 million after issuance costs
of approximately $962,000. The issuance of securities in the private placement
was deemed exempt from registration under the Securities Act of 1933, as amended
(the "Act"), in reliance on Section 4(2) of the Act as a transaction by an
issuer not involving any public offering. The recipients of the securities in
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities
issued in such transaction. The recipients were given adequate access to
information about the Company. The Company intends to use net cash proceeds from
this private placement for working capital and other general corporate purposes.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Matters presented at the Annual Meeting of Stockholders on June 14, 2000, and
the voting of stockholders was as follows:
(a) Proposal No. 1 - Election of directors of the Company to serve for a
term expiring at the Annual Meeting of Stockholders held in the second year
following the year of their election or until their respective successors are
elected and qualified:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Lev J. Leytes 11,904,008 - 31,890
Michael F. Bigham 11,904,008 - 31,890
John G. Freund, M.D. 11,904,008 - 31,890
</TABLE>
(b) Proposal No. 2 - Amendment of the 1997 Stock Plan to increase the
aggregate number of shares of Common Stock authorized for issuance under such
plan by 800,000 shares, to 3,320,750:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
9,020,172 650,603 2,289,291*
</TABLE>
* Includes broker non-votes
(c) Proposal No. 3 - Ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants of the Company for the
fiscal year ending December 31, 2000:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
11,930,439 1,297 -
</TABLE>
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<PAGE>
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a: Exhibits
Exhibit 27.1 - Financial Data Schedule.
b: Reports on Form 8-K
The Company filed five reports on Form 8-K during the quarter ended
June 30, 2000. Information regarding the items reported on is as follows:
<TABLE>
<CAPTION>
Date Item Reported On
---- ----------------
<S> <C>
April 10, 2000 LJL BioSystems, Inc. withdraws follow-on
offering.
April 20, 2000 LJL BioSystems, Inc. announced that it has been
awarded a Phase 1 Small Business Innovation
Research (SBIR) grant from the National
Institutes of Health. The grant is for research
into the application of LJL's High Efficiency
Fluorescence Polarization (HEFP(TM)) technology
for measuring G-protein coupled receptor (GPCR)
signaling.
April 26, 2000 LJL BioSystems, Inc. announced that it has
introduced and initiated commercial shipments of
its first generation High Efficiency Fluorescence
Polarization (HEFP(TM)), assay for cyclic AMP
(cAMP) to be used in cell-based analysis. LJL
BioSystems, Inc. announced its first quarter
of 2000 results.
June 8, 2000 Molecular Devices Corporation and LJL BioSystems,
Inc. announced the signing of a definitive merger
agreement. Under the terms of the agreement,
each share of LJL BioSystems common stock would
convert into 0.30 of a share of common stock of
Molecular Devices.
June 15, 2000 LJL BioSystems, Inc. announced the award of U.S.
Patent and Trademark Office Patent No. 6,071,748
covering its SmartOptics-TM- light detection
technology, a key element of LJL's instrument
product line.
</TABLE>
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<PAGE>
--------------------------------------------------------------------------------
SIGNATURES
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LJL BIOSYSTEMS, INC.
Date: August 14, 2000 By: /S/ LEV J. LEYTES
------------------
Lev J. Leytes
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
(DULY AUTHORIZED AND PRINCIPAL EXECUTIVE
OFFICER)
By: /S/ LARRY TANNENBAUM
---------------------
Larry Tannenbaum
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(DULY AUTHORIZED AND PRINCIPAL FINANCIAL
OFFICER)
By: /S/ ROBERT T. BEGGS
--------------------
Robert T. Beggs
VICE PRESIDENT OF FINANCE AND ADMINISTRATION
(DULY AUTHORIZED AND PRINCIPAL ACCOUNTING
OFFICER)
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