<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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)
------------------------------------
(408) 541-8787
(Registrant's telephone number, including area code)
------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of April 28, 2000, 14,829,081 shares of the Registrant's Common Stock, $0.001
par value, were issued and outstanding.
===============================================================================
<PAGE>
- -------------------------------------------------------------------------------
LJL BIOSYSTEMS, INC.
INDEX
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM NO. PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements (Unaudited)..................... 3
Consolidated Condensed Balance Sheet as of March 31, 2000 and
December 31, 1999 (Unaudited)............................................... 3
Consolidated Condensed Statement of Operations for the Three-Month
Periods Ended March 31, 2000 and 1999 (Unaudited)........................... 4
Consolidated Condensed Statement of Cash Flows for the Three-Month
Periods Ended March 31, 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...................................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk................. 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................... 22
Item 2. Changes in Securities and Use of Proceeds.................................. 22
Item 3. Defaults Upon Senior Securities............................................ 22
Item 4. Submission of Matters to a Vote of Security Holders........................ 22
Item 5. Other Information.......................................................... 22
Item 6. Exhibits and Reports on Form 8-K........................................... 22
Signatures................................................................. 24
Exhibits................................................................... 24
</TABLE>
-2-
<PAGE>
- -------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 11,480,000 $ 3,891,000
Short-term investments.......................................... 14,980,000 4,567,000
Accounts receivable, net........................................ 1,337,000 2,047,000
Inventories..................................................... 2,155,000 2,591,000
Other current assets............................................ 1,034,000 159,000
-------------- --------------
Total current assets.......................................... 30,986,000 13,255,000
Property and equipment, net........................................ 975,000 880,000
Loans receivable from employees.................................... 223,000 223,000
-------------- --------------
$ 32,184,000 $ 14,358,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 815,000 $ 1,245,000
Accrued expenses................................................ 2,307,000 2,026,000
Customer deposits............................................... 293,000 293,000
Deferred revenue................................................ 773,000 146,000
Current portion of long-term debt............................... 290,000 282,000
-------------- --------------
Total current liabilities..................................... 4,478,000 3,992,000
Long-term debt, net of current portion............................. 511,000 586,000
-------------- --------------
Total liabilities............................................. 4,989,000 4,578,000
-------------- --------------
Stockholders' equity:
Common stock.................................................... 15,000 13,000
Additional paid-in capital...................................... 50,256,000 30,601,000
Deferred stock compensation..................................... (391,000) (435,000)
Accumulated other comprehensive loss............................ (23,000) (20,000)
Accumulated deficit............................................. (22,662,000) (20,379,000)
-------------- --------------
Total stockholders' equity.................................... 27,195,000 9,780,000
-------------- --------------
$ 32,184,000 $ 14,358,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
-3-
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------- --------------
<S> <C> <C>
Net sales............................................................. $ 3,111,000 $ 1,359,000
Cost of sales......................................................... 1,111,000 698,000
------------- --------------
Gross profit.......................................................... 2,000,000 661,000
------------- --------------
Operating Expenses:
Research and development........................................... 2,099,000 1,483,000
Selling, general and administrative................................ 2,395,000 1,689,000
------------- --------------
Total operating expenses......................................... 4,494,000 3,172,000
------------- --------------
Loss from operations.................................................. (2,494,000) (2,511,000)
Interest and other income, net........................................ 240,000 180,000
Interest expense...................................................... (25,000) (20,000)
------------- --------------
Loss before provision for income taxes................................ (2,279,000) (2,351,000)
Provision for income taxes............................................ 4,000 -
------------- --------------
Net loss.............................................................. $ (2,283,000) $ (2,351,000)
============= ==============
Basic and diluted net loss per share.................................. $ (0.16) $ (0.20)
============= ==============
Shares used in computation of basic and diluted net loss per share.... 13,999,933 11,968,738
============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
-4-
<PAGE>
LJL BIOSYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (2,283,000) $ (2,351,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................................... 193,000 92,000
Stock compensation expense....................................... 535,000 45,000
Changes in assets and liabilities:
Accounts receivable............................................ 710,000 (38,000)
Inventories.................................................... 436,000 (551,000)
Other current assets........................................... (875,000) (15,000)
Accounts payable............................................... (430,000) 550,000
Accrued expenses............................................... 281,000 (59,000)
Customer deposits.............................................. - 283,000
Deferred revenue............................................... 627,000 -
------------- --------------
Net cash used in operating activities........................ (806,000) (2,044,000)
------------- --------------
Cash flows from investing activities:
Purchases of property and equipment................................ (288,000) (162,000)
Purchases of investments........................................... (11,414,000) (5,809,000)
Proceeds from sales and maturities of investments.................. 997,000 2,469,000
------------- --------------
Net cash used in investing activities........................ (10,705,000) (3,502,000)
------------- --------------
Cash flows from financing activities:
Proceeds from borrowings........................................... - 102,000
Repayments of borrowings........................................... (67,000) (42,000)
Issuance of long-term notes receivable from related parties........ - (17,000)
Proceeds from issuance of common stock, net........................ 19,167,000 6,832,000
------------- --------------
Net cash provided by financing activities.................... 19,100,000 6,875,000
------------- --------------
Effect of exchange rate changes on cash and cash equivalents.......... - (8,000)
Net increase in cash and cash equivalents............................. 7,589,000 1,321,000
Cash and cash equivalents at beginning of period...................... 3,891,000 1,831,000
------------- --------------
Cash and cash equivalents at end of period............................ $ 11,480,000 $ 3,152,000
============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
-5-
<PAGE>
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" 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:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ---------------
<S> <C> <C>
Raw materials....................................... $ 935,000 $ 1,224,000
Work-in-process..................................... 421,000 214,000
Finished goods...................................... 799,000 1,153,000
---------------- ---------------
$ 2,155,000 $ 2,591,000
================ ===============
</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 the three-month periods
ended March 31, 2000 and 1999.
NOTE 5 - COMPREHENSIVE INCOME:
Comprehensive income is comprised of net income (loss) and other
items of comprehensive income. During the quarter ended March 31, 2000,
comprehensive loss amounted to $3,000. At March 31, 2000, accumulated
comprehensive loss consisted of unrealized gains and losses on the Company's
available-for-sale securities.
-6-
<PAGE>
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.
RESULTS OF OPERATIONS
NET SALES. Total sales were $3.1 million for the quarter ended March
31, 2000, as compared to $1.4 million for the quarter ended March 31, 1999,
representing an increase of $1.8 million or 129%. This increase in sales was
due to an increase in sales volume of our CRITERION products. We reported
combined Analyst and Acquest instrument sales of $2.9 million for the quarter
ended March 31, 2000, as compared to $1.3 million for the quarter ended March
31, 1999. Sales to a single customer represented 12% of total sales during
the quarter ended March 31, 2000. Sales to this customer represented 10% of
our sales in the quarter ended March 31, 1999. Two additional customers each
represented 10% of total sales during the quarter ended March 31, 1999. 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."
-7-
<PAGE>
COST OF SALES. Cost of sales were $1.1 million for the quarter ended
March 31, 2000, as compared to $0.7 million for the quarter ended March 31,
1999, representing an increase of $0.4 million or 59%. 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 quarter ended March 31, 2000, as
compared to 49% for the quarter ended March 31, 1999. 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
$2.1 million for quarter ended March 31, 2000, as compared to $1.5 million
for the quarter ended March 31, 1999, representing an increase of $0.6
million or 42%. This increase was primarily due to $0.4 million in non-cash
compensation expense related to stock options granted to non-employees. The
increase was also due to increased costs associated with the development of
our CRITERION product line platform. 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 $2.4 million for the quarter ended March 31, 2000,
as compared to $1.7 million for the quarter ended March 31, 1999,
representing an increase of $0.7 million or 42%. 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 headcount increases since March 31, 1999. The increase
was also partially due to $0.1 million in non-cash compensation expense
related to stock options granted to non-employees. 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
$240,000 for the quarter ended March 31, 2000, as compared to $180,000 for
the quarter ended March 31, 1999, representing an increase of $60,000 or 33%.
This increase was primarily due to higher interest earned as a result of
higher average levels of invested cash, cash equivalents and investments in
the quarter ended March 31, 2000 as compared to the quarter ended March 31,
1999.
INTEREST EXPENSE. Interest expense was $25,000 for the quarter ended
March 31, 2000, as compared to $20,000 for the quarter ended March 31, 1999,
representing an increase of $5,000 or 25%. This increase was primarily due to
higher interest paid as a result of a higher average level of debt on our
line of credit in the quarter ended March 31, 2000 as compared to the quarter
ended March 31, 1999.
INCOME TAXES
During the quarter ended March 31, 2000, we recorded a provision for
foreign income taxes of $4,000. No provision for income taxes was recorded
for the three-month periods ended March 31, 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 March 31, 2000, we had cash, cash equivalents and investments
of $26.5 million, working capital of $26.5 million and an accumulated deficit
of $22.7 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
-8-
<PAGE>
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 $0.8 million and $2.0 million
during the quarters ended March 31, 2000 and 1999, respectively. This
decrease was attributable to changes in stock compensation expense, accounts
receivable, inventory, deferred revenue and accrued expenses, partially
offset by changes in accounts payable and other current assets.
Net cash used in investing activities totaled $10.7 million and $3.5
million during the quarters ended March 31, 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 $19.1 million and
$6.9 million the quarters ended March 31, 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 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 March 31, 2000, we had an
obligation to repay $0.8 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;
-9-
<PAGE>
- 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
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
Year 2000 issues have not had a material effect on our business.
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. 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 quarter ended March 31, 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
-10-
<PAGE>
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.
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.
-11-
<PAGE>
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
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:
-12-
<PAGE>
- 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 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 March 31, 2000, sales to a
single customer accounted for 12% 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 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
-13-
<PAGE>
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 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
-14-
<PAGE>
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 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 March 31, 2000, we had an accumulated deficit of approximately
$22.7 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
-15-
<PAGE>
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.
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
-16-
<PAGE>
- 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 March 31, 2000, we held seven U.S.
patents and had fourteen pending U.S. patent applications, two pending
European regional patent applications, one pending Israeli patent
application, one pending Japanese patent application, fourteen 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 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.
-17-
<PAGE>
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.
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.
-18-
<PAGE>
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.
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;
-19-
<PAGE>
- 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.
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.
-20-
<PAGE>
- -------------------------------------------------------------------------------
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
Not applicable.
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 eight reports on Form 8-K during the quarter ended
March 31, 2000. Information regarding the items reported on is as follows:
<TABLE>
<CAPTION>
Date Item Reported On
- ---- ----------------
<S> <C>
January 12, 2000 The Company pre-announced fourth quarter financial results.
January 13, 2000 The Company announced expansion of its genomics platform
with Informatics tools to enable automated SNP scoring and
that Incyte Europe adopts LJL SNP Scoring Platform. The Company
discusses pivotal year and entry into genomics market at Chase
Hambrecht & Quist conference.
January 26, 2000 The Company announced fourth quarter and fiscal 1999
financial results.
February 3, 2000 The Company announced that it has entered into purchase
agreements for a private placement of 1.76 million shares of
unregistered common stock to new and current investors for
approximately $19 million at an offering price of $11.00 per
share.
February 9, 2000 The Company announced that Columbia University and Virginia
Commonwealth University release favorable results from LJL's SNP
platform.
-21-
<PAGE>
February 16, 2000 The Company announced that Richard Eglen, Ph.D. joined LJL
BioSystems as Senior Vice President, Assay Technologies.
February 22, 2000 The Company announced that SmithKline Beecham is using LJL
BioSystems' first FLARe system to screen difficult compounds.
March 14, 2000 The Company announced it has filed a registration statement with the
Securities and Exchange Commission for a proposed offering of up to
2.5 million shares of its common stock.
</TABLE>
The Company filed one report on Form 8-K/A during the quarter ended
March 31, 2000. Information regarding the items reported on is as follows:
<TABLE>
<CAPTION>
Date Item Reported On
- ---- ----------------
<S> <C>
February 10, 2000 Amended the 8-K dated February 9, 2000 related to the Company's
announcement that Columbia University and Virginia Commonwealth
University release favorable results from LJL's SNP platform.
</TABLE>
-22-
<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: May 12, 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)
-23-
<PAGE>
- -------------------------------------------------------------------------------
INDEX TO EXHIBITS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C>
Exhibit 10.4a - Fifth Amendment to Lease between LJL BioSystems, Inc.
and The Ann Sobrato 1989 Revocable Trust............................. 25
Exhibit 10.11a - Sublease Extension of Lease between LJL BioSystems,
Inc. and Coptech West................................................ 26
Exhibit 10.15 - Employment Agreement between LJL BioSystems, Inc.
and Richard M. Eglen dated February 4, 2000.......................... 27
Exhibit 27.1 - Financial Data Schedule............................... 30
</TABLE>
-24-
<PAGE>
Exhibit 10.4a
Fifth Amendment to Lease between LJL BioSystems, Inc. and The Ann Sobrato
1989 Revocable Trust
FIFTH AMENDMENT TO LEASE
This amendment to lease ("Fifth Amendment") is made this 7th day of December
1999, by and between The Ann Sobrato 1989 Revocable Trust, having an address at
10600 North De Anza Boulevard, Suite 200, Cupertino, California 95014
("Landlord") and LJL BioSystems, a Delaware corporation having its principal
place of business at 404 Tasman Drive, Sunnyvale, California, 94089 ("Tenant").
WITNESSETH
WHEREAS Landlord and Tenant entered into a lease dated October 14, 1992, and
subsequent lease amendments dated December 3, 1993, October 20, 1995, September
16, 1996, and June 10, 1999 (collectively the "Lease") for the premises located
at 404 Tasman Drive in Sunnyvale, California ("Premises"); and
WHEREAS effective the date of this Fifth Amendment, Landlord and Tenant wish to
modify the Lease to (i) change the expiration date of the Lease; and (ii) define
the monthly rent for the months of February through April, 2000;
NOW, THEREFORE, in order to effect the intent of the parties as set forth above
and for good and valuable consideration exchanged between the parties, the Lease
is amended as follows:
1. The Lease expiration date is changed from April 30, 2000 to December
31, 2002.
2. Monthly rent from May 1, 2000 through December 31, 2002 shall be
payable according to the following schedule:
May 1, 2000 through January 31, 2001: $18,736.00 per month
February 1, 2001 through January 31, 2002: $19,313.00 per month
February 1, 2002 through December 31, 2002: $19,889.00 per month
3. All defined terms shall have the same meanings as in the Lease, except
as otherwise stated in this Fifth Amendment. In the event of any
conflict or inconsistency between the terms and provisions of this
Fifth Amendment and the terms and provisions of the Lease, the terms
and provisions of this Fifth Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have set its hands to this Fifth
Amendment as of the day and date first above written.
LANDLORD TENANT
Ann Sobrato 1989 Revocable Trust LJL BioSystems, a Delaware Corporation
By: /s/ JOHN M. SOBRATO By: /s/ ROBERT T. BEGGS
-------------------- --------------------
Its: General Partner Its: Vice President, Finance and
Administration
-25-
<PAGE>
Exhibit 10.11a
Sublease Extension of Lease between LJL BioSystems, Inc. and Coptech West
COPTECH WEST
P.O. Box 60609
Sunnyvale, CA 94088-0609
1190 Morse Avenue
Sunnyvale, CA 94089
SUBLEASE EXTENSION
Coptech West and LJL BioSystems hereby agree to extend the Sublease dated March
26, 1998 from May 1, 2000 through August 31, 2002. The base monthly rent
beginning May 1, 2000 through April 30, 2001 shall be $19,051.00. The Base
monthly rent from May 1, 2001 through August 30, 2002 shall be $20,289.00. All
other terms of the original sublease remain in effect.
Agreed Agreed
Coptech West LJL BioSystems
/s/ FRANK VELOZ /s/ ROBERT T. BEGGS
- --------------- -------------------
Date: 1/18/2000 Date: 1/18/2000
-26-
<PAGE>
Exhibit 10.15
Employment Agreement between LJL BioSystems, Inc. and Richard M. Eglen dated
February 4, 2000
February 4, 2000
Richard Malcolm Eglen
1410 Marinovich Way
Los Altos, CA 94024
Dear Richard:
On behalf of LJL BioSystems, Inc. (the "Company"), I am pleased to
offer you the position of Sr. Vice President, Assay Technologies. Speaking
for myself, as well as the other members of the Company's management team, we
are all very impressed with your credentials and we look forward to your
future success in this position.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become a Sr. Vice President, Assay Technologies of
the Company, working out of the Company's headquarters office in
Sunnyvale, California. As a Sr. Vice President, you will have the
overall responsibility for strategic direction and implementation of
research and development, and growth of the reagent business, including
creating and managing corporate collaborations and partnerships, as
well as being a participant with the Company's executives in other
areas of the business as required. You will report to the Company's
Chief Executive Officer.
b. You agree to the best of your ability and experience that
you will at all times loyally and conscientiously perform all of the
duties and obligations required of and from you pursuant to the express
and implicit terms hereof, and to the reasonable satisfaction of the
Company. During the term of your employment, you further agree that you
will devote all of your business time and attention to the business of
the Company, the Company will be entitled to all of the benefits and
profits arising from or incident to all such work services and advice,
you will not render commercial or professional services of any nature
to any person or organization, whether or not for compensation, without
the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business
that is competitive in any manner with the business of the Company.
Nothing in this letter agreement will prevent you from accepting
speaking or presentation engagements in exchange for honoraria or from
serving on boards of charitable organizations, or from owning no more
than one percent (1%) of the outstanding equity securities of a
corporation whose stock is listed on a national stock exchange.
2. START DATE. Subject to fulfillment of any conditions
imposed by this letter agreement, you will commence this new position with
the Company on or before February 28, 2000 (which date of employment shall be
your "START DATE").
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration
law, you will be required to provide to the Company documentary evidence of
your identity and eligibility for employment in the United States. Such
documentation must be provided to us within three (3) business days of your
Start Date, or our employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of
$18,333.33, which is equivalent to $220,000.00 on an annualized basis.
Your salary will be payable pursuant to the Company's regular payroll
policy (or in the same manner as other officers of the Company).
-27-
<PAGE>
b. ANNUAL REVIEW. Your base salary will be reviewed at the end
of each calendar year as part of the Company's normal salary review
process.
c. SIGNING BONUS. You will receive a signing bonus of
$20,000.00 if you are employed with the Company 90 days after your
Start Date.
5 STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors
grant you an option to purchase 100,000 shares of the Company's Common
Stock ("Initial Grant Shares") at the market price on the date of
grant. The Initial Grant Shares will vest at the following rate: 20% of
the total Initial Grant Shares shall vest on the first annual
anniversary of the vesting commencement date (your Start Date) and
1/20th of the total Initial Grant Shares shall vest on the quarterly
anniversary of the vesting commencement date thereafter. Vesting will,
of course, depend on your continued employment with the Company. The
option will be an incentive stock option subject to the terms of the
Company's 1997 Stock Plan and the Stock Option Agreement between you
and the Company and limits under the tax code.
b. BONUS OPTION. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors
grant you an additional option to purchase 50,000 shares of the
Company's Common Stock ("Bonus Shares") at the market price on the date
of grant. The Bonus Shares will vest on the five year anniversary of
the vesting commencement date (your Start Date), PROVIDED THAT if you
and your department meet certain performance milestones (to be mutually
agreed on between the CEO and you) during your first twelve months of
employment, up to 20% of the Bonus Shares shall vest on the annual
anniversary of the vesting commencement date, and PROVIDED FURTHER that
if you and your department meet certain performance milestones (to be
mutually agreed on between the Chief Executive Officer and you each
subsequent 12 month period of employment) during each subsequent twelve
month period of employment, up to an additional 20% of the Bonus Shares
shall vest on each such subsequent annual anniversary of the vesting
commencement date, such that if the performance milestones for each
year are fully met, the option to purchase Bonus Shares shall vest at
an accelerated rate of 20% per annum on each annual anniversary of the
vesting commencement date (full vesting in five years). Vesting will of
course, depend on your continued employment with the Company. The
option will be an incentive stock option subject to the terms of the
Company's 1997 Stock Plan and the Stock Option Agreement between you
and the Company and limits under the tax code.
c. SUBSEQUENT OPTION GRANTS. Subject to the discretion of the
Company's Board of Directors, you may be eligible to receive additional
grants of stock options or purchase rights from time to time in the
future, on such terms and subject to such conditions as the Board of
Directors shall determine as of the date of any such grant.
6. BENEFITS.
a. INSURANCE BENEFITS. The Company will provide you with its
standard medical and dental insurance benefits, beginning on the first
day of the month after the month in which your employment commences,
with 100% of the premium paid by the Company. Dependent coverage will
be offered at extra cost and partially paid for by you on a pretax
basis. Long term disability insurance is included in the benefits
package and is paid for by the Company. After you have been employed
for three months with the Company, you will be eligible to participate
in the Company's 401k retirement plan offered through Prudential
Securities. In addition, the Company currently indemnifies all officers
and directors to the maximum extent permitted by law, and you
will be requested to enter into the Company's standard form of
Indemnification Agreement giving you such protection. Pursuant to
the Indemnification Agreement, the Company will agree to advance any
expenses for which indemnification is available to the extent
allowed by applicable law.
b. VACATION. You will be entitled to 10 days paid vacation per
year, pro-rated for the remainder of this calendar year. After three
years of employment with the Company, you will be entitled to 15 days
paid vacation per year. After seven years of employment with the
Company, you will be entitled to 20 days paid vacation per year. In
addition, the Company provides a personal day off per year that could
be taken with your vacation.
-28-
<PAGE>
7. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Your acceptance of
this offer and commencement of employment with the Company is contingent upon
the execution, and delivery to an officer of the Company, of the Company's
Proprietary Information and Inventions Agreement prior to or on your Start Date.
8. AT-WILL EMPLOYMENT. Notwithstanding the Company's obligation
described in Section 9 below, your employment with the Company will be on an "at
will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
9. SEVERANCE AGREEMENT. In the event of a change in control of the
Company where your employment is terminated within a 12 month period of that
change (i) you will be entitled to receive continuation of your base salary for
up to twelve months following the date of termination of your employment (the
"Severance Period"), PROVIDED THAT if you commence full-time employment during
the Severance Period, the Company's obligation to pay any severance shall cease
at the time of such employment, and (ii) 20,000 shares of stock subject to your
unvested outstanding Initial Grant Shares shall immediately vest in full. For
purposes of this section, "full-time employment" shall be defined as at least 35
hours per week of compensated labor, including, but not limited to, consulting
or other contract work.
10. CONTINGENCY. This offer is contingent on approval by the
Compensation Committee and the Board of Directors.
We are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Proprietary Information and
Inventions Agreement. This letter and Proprietary Information and Inventions
Agreement set forth the terms of your employment with the Company and supersede
any prior representations or agreements, whether written or oral. This letter
may not be modified or amended except by a written agreement, signed by the
Company and by you. This offer shall expire at 5:00 PM on February 5, 2000, if
you have not delivered an acceptance to the Company before then.
Very truly yours,
LJL BIOSYSTEMS, INC.
By: /s/ LEV J. LEYTES
------------------
Title: CEO
---
ACCEPTED AND AGREED:
Richard Malcom Eglen
/s/ RICHARD M. EGLEN
- --------------------
Signature
2/8/00
- ------
Date
-29-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,480,000
<SECURITIES> 14,980,000
<RECEIVABLES> 1,425,000
<ALLOWANCES> 88,000
<INVENTORY> 2,155,000
<CURRENT-ASSETS> 1,034,000
<PP&E> 2,496,000
<DEPRECIATION> 1,521,000
<TOTAL-ASSETS> 32,184,000
<CURRENT-LIABILITIES> 4,478,000
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> 27,180,000
<TOTAL-LIABILITY-AND-EQUITY> 32,184,000
<SALES> 3,111,000
<TOTAL-REVENUES> 3,111,000
<CGS> 1,111,000
<TOTAL-COSTS> 5,605,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,000
<INCOME-PRETAX> (2,279,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (2,283,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,283,000)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
