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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period of __________________ to ________________
Commission file number: 0-18700
SENTIGEN HOLDING CORP.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3570672
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
580 Marshall Street, Phillipsburg, NJ 08865
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(Address of Principal Executive Office) (Zip Code)
Issuer's Telephone Number, Including Area Code: (908) 387-1673
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Former Name, Former Address and Former Fiscal year,
if Changed Since Last Report.
Check whether the issuer (1) 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 November 7, 2000 the registrant had 6,156,500 shares outstanding of
its Common Stock, $.01 par value.
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION............................................... 3
Item 1. Consolidated Financial Statements
Independent Accountants' Report ..................................... 3
Consolidated Balance Sheets (unaudited) at September 30, 2000
and December 31, 1999............................................ 4
Consolidated Statements of Operations (unaudited) for the three
months ended September 30, 2000 and September 30, 1999 .......... 6
Consolidated Statements of Operations (unaudited) for the nine months
ended September 30, 2000 and September 30, 1999 ................. 7
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 2000 and September 30, 1999.................. 8
Notes to Consolidated Financial Statements........................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ......... 16
PART II. OTHER INFORMATION.................................................. 16
Item 2. Changes in Securities............................................... 16
Item 6. Exhibits and Reports on Form 8-K.................................... 17
SIGNATURES.................................................................. 18
2
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PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Sentigen Holding Corp. and Subsidiaries
We have reviewed the consolidated balance sheet of Sentigen Holding Corp. and
Subsidiaries at September 30, 2000 and the related consolidated statements of
operations for each of the three-month and nine-month periods ended September
30, 2000 and 1999 and the consolidated statements of cash flows for the nine
months ended September 30, 2000 and 1999 as set forth in the accompanying
unaudited financial statements. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists primarily of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements as of September 30, 2000 and
for the three and nine months ended September 30, 2000 and 1999 for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet at December 31, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended (not presented herein); and in our report dated February 17,
2000, we expressed an unqualified opinion on these consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1999 is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
RAICH ENDE MALTER & Co., LLP
East Meadow, New York
November 3, 2000
3
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2000 December 31, 1999
------------------ -----------------
Assets
Current Assets
Cash $ 63,791 $ 125,954
Investment securities 5,371,093 5,008,533
Accounts receivable - less allowance
for doubtful accounts of $20,000 588,310 572,075
Unbilled services 162,645 109,809
Inventory 173,136 151,816
Prepaid expenses 38,533 14,968
----------- -----------
6,397,508 5,983,155
----------- -----------
Property, Plant and Equipment 2,152,242 1,759,290
Less: Accumulated depreciation 865,133 667,659
----------- -----------
1,287,109 1,091,631
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Other Assets
Investment securities 202,483 345,932
Security deposits 1,000 1,000
Deferred financing costs - net of
accumulated amortization of $1,082 and
$681 for 2000 and 1999, respectively 9,499 6,964
License costs - net of accumulated
amortization of $5,514 for 2000 369,486 -
----------- -----------
582,468 353,896
----------- -----------
$ 8,267,085 $ 7,428,682
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See accompanying notes and accountants' report.
4
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2000 December 31, 1999
------------------ -----------------
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt $ 134,100 $ 88,761
Current maturities of stockholders loans 567,935 -
Accounts payable and accrued expenses 484,358 315,433
Customer deposits 242,857 143,842
Unearned revenue 69,446 54,460
------------ ----------
1,538,696 602,496
Non-Current Liabilities
Long-term debt -net of current maturities 661,415 560,107
Stockholder loans -net of current maturities - 531,988
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2,200,111 1,694,591
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Stockholders' Equity
Common stock 61,557 60,787
Additional paid-in capital 6,351,420 5,832,704
Accumulated (deficit) (346,003) (159,400)
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6,066,974 5,734,091
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$ 8,267,085 $7,428,682
============ ==========
See accompanying notes and accountants' report.
5
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
------------------------------
September 30, September 30,
2000 1999
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Revenue
Contract revenue $ 819,995 $ 720,008
Sale of goods 398,159 397,458
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1,218,154 1,117,466
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Direct Costs
Contract revenue 302,359 289,085
Sale of goods 198,970 197,710
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501,329 486,795
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Income After Direct Costs
Contract revenue 517,636 430,923
Sale of goods 199,189 199,748
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716,825 630,671
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Other Operating Expenses
Contract revenue 243,255 171,536
Sale of goods 115,071 94,728
Contract revenue- research &
development 28,952 5,367
Sentigen- research & development 228,301 -
---------- -----------
615,579 271,631
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Income (Loss) from Segment Operations
Contract revenue 245,429 254,020
Sale of goods 84,118 105,020
Sentigen (228,301) -
---------- -----------
101,246 359,040
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Corporate Activities
Selling, general and administ. exp. (182,962) (126,041)
Interest income 67,485 60,537
Interest expense (26,231) (23,414)
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(141,708) (88,918)
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Income (Loss) Before Provision for Income Taxes (40,462) 270,122
Provision for Income Taxes 25,445 523
----------- -----------
Net Income (Loss) $ (65,907) $ 269,599
=========== ===========
Basic and Diluted Net Income (Loss) Per Share $ (.01) $ .04
=========== ===========
Weighted Average Shares Outstanding - Basic 6,154,700 6,108,700
=========== ===========
- Diluted 6,154,700 6,563,830
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See accompanying notes and accountants' report.
6
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended
------------------------------
September 30, September 30,
2000 1999
-------------- --------------
Revenue
Contract revenue $ 2,172,268 $ 1,711,571
Sale of goods 1,239,839 1,083,862
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3,412,107 2,795,433
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Direct Costs
Contract revenue 973,083 781,052
Sale of goods 591,666 536,404
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1,564,749 1,317,456
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Income After Direct Costs
Contract revenue 1,199,185 930,519
Sale of goods 648,173 547,458
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1,847,358 1,477,977
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Other Operating Expenses
Contract revenue 718,365 453,899
Sale of goods 353,766 248,227
Contract revenue- research & development 59,479 17,877
Sentigen- research & development 450,820 -
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1,582,430 720,003
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Income (Loss) from Segment Operations
Contract revenue 421,341 458,743
Sale of goods 294,407 299,231
Sentigen (450,820) -
---------- -----------
264,928 757,974
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Corporate Activities
Selling, general and administ. exp. (523,122) (415,408)
Interest income 198,446 232,268
Interest expense (79,065) (108,256)
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(403,741) (291,396)
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Income (Loss) Before Provision for Income Taxes (138,813) 466,578
Provision for Income Taxes 47,790 655
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Net Income (Loss) $ (186,603) $ 465,923
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Net Income (Loss) Per Share- Basic $ (.03) $ .08
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- Diluted $ (.03) $ .07
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Weighted Average Shares Outstanding - Basic 6,116,700 6,108,700
============= ===========
- Diluted 6,116,700 6,403,736
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See accompanying notes and accountants' report.
7
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
------------------------------
September 30, September 30,
2000 1999
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Cash Flows from Operating Activities
Net income (loss) $ (186,603) 465,923
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 203,453 166,973
Accrued interest on stockholder loans 35,947 37,352
Compensation on stock options 142,486 -
Changes in assets and liabilities:
Accrued interest on investment securities (69,408) 24,307
Accounts receivable (16,235) (336,729)
Unbilled services (52,836) (76,013)
Inventory (21,320) (45,453)
Prepaid expenses (23,565) (12,511)
Accounts payable and accrued expenses 168,925 (61,510)
Customer deposits 139,015 (26,049)
Unearned revenue 14,986 23,878
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334,845 160,168
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Cash Flows from Investing Activities
Acquisitions of property and equipment (392,952) (244,024)
Sale of investment securities - 5,000,000
Purchase of investment securities (149,703) (340,707)
Redemption of certificate of deposit - 200,000
Payment of deferred finance cost (3,000) -
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(545,655) 4,615,269
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Cash Flows from Financing Activities
Repayments of notes payable - (160,000)
Proceeds from long term debt 240,000 350,000
Repayments of long term debt (93,353) (30,748)
Payment of collateralized investment loan - (5,000,000)
Issuance of common stock 2,000 -
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148,647 (4,840,748)
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Net Increase (Decrease) in Cash (62,163) (65,311)
Cash - beginning 125,954 84,146
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Cash - end $ 63,791 $ 18,835
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Supplemental Disclosures
Cash paid (refunded) during the year:
Interest $ 49,232 $ 70,904
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Income taxes $ 50,185 $ 988
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Non-cash Investing and Financing Activities:
Common stock issued for License $ 375,000 $ -
=========== ===========
See accompanying notes and accountants' report.
8
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: ORGANIZATION OF THE COMPANY AND NATURE OF ITS OPERATIONS
In June 2000, the Company changed its name from Prime Cellular, Inc. to Sentigen
Holding Corp. The Company is comprised of three separate business segments. Cell
& Molecular Technologies, Inc. has two segments that provide goods and services
in the domestic biotechnology and pharmaceutical industries. The Specialty Media
Division ("SM") is a manufacturer and wholesaler of cell culture media and
reagents. The Molecular Cell Science Division ("MCS") provides contract research
and development services to pharmaceutical companies and other molecular and
cell biology research and development entities.
The Sentigen segment is engaged in scientific research to develop
environmentally sound approaches to prevent insect crop damage and the spread of
human diseases by impacting insect behavior.
NOTE 2: UNAUDITED INTERIM STATEMENTS
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation of financial position and results of
operations have been included. All significant intercompany transactions and
balances have been eliminated. Operating results for the nine months ended
September 30, 2000, are not necessarily indicative of the results to be expected
for the year ending December 31, 2000. These financial statements and notes
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Forms 10-K for the year ended
December 31, 1999.
NOTE 3: RECLASSIFICATION
Certain amounts from the prior periods have been restated to conform to the
current presentation. These reclassifications have no effect on previously
reported income periods.
NOTE 4: SEGMENT INFORMATION
The following is information pertaining to the Company's three operating
segments: (1) SM, which manufactures and wholesales cell culture media and
reagents, (2) MCS, which provides contract research and development services to
pharmaceutical companies and other molecular and cell biology research and
development entities, and (3) Sentigen which is engaged in scientific research
to develop environmentally sound approaches to prevent insect crop damage and
the spread of human disease by impacting insect behavior.
9
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For the Nine Months Ended
----------------------------
September 30, September 30,
2000 1999
-------------- -----------
Revenues:
MCS - $ 2,250,438 $ 1,739,076
Intersegment Revenues (78,170) (27,505)
-------- ----------
MCS - Contract Revenues from External
Customers 2,172,268 1,711,571
--------- ---------
SM 1,239,839 1,101,936
Intersegment Revenues -- (18,074)
--------- ---------
SM - Sales of goods to External Customers 1,239,839 1,083,862
--------- ---------
$ 3,412,107 $ 2,795,433
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Income (Loss) before Income Taxes:
MCS $ 421,341 $ 458,743
SM 294,407 299,231
Sentigen (450,820) --
----------- --------
264,928 757,974
Corporate income and expenses unallocated to
segments (403,741) (291,396)
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$ (138,813) $ 466,578
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For the Three Months Ended
----------------------------
September 30, September 30,
2000 1999
------------- --------------
Revenues:
MCS - $ 858,194 $ 747,513
Intersegment Revenues (38,199) (27,505)
-------- ----------
MCS - Contract Revenues from External Customers 819,995 720,008
------- -------
SM 398,159 397,458
Intersegment Revenues -- --
------- --------
SM - Sales of goods to External Customers 398,159 397,458
------- ---------
$ 1,218,154 $ 1,117,466
=========== ===========
Income (Loss) before Income Taxes:
MCS $ 245,429 $ 254,020
SM 84,118 105,020
Sentigen (228,301) --
---------- ----------
101,246 359,040
Corporate income and expenses unallocated to
segments (141,708) (88,918)
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$ (40,462) $ 270,122
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Grants-
------
The SM division is the recipient of a NIH (National Institute of Health) Federal
Phase II Grant for $757,532. The work performed under this grant covered the
period July 1998 to August 2001. For the nine and the three months ended
10
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September 30, 2000, the company recognized $135,888 and $45,102, respectively,
in grant revenue under this grant which was offset by a like amount in cost.
The MCS division is the recipient of a NIH Federal Phase I Grant for $100,270.
The work performed under this grant covered the period June 1999 to May 2000.
The Company is currently in the process of receiving additional time to complete
the work covered by the grant. For the nine and the three months ended September
30, 2000, the company recognized $44,613 and $0, respectively, in grant revenue
under this grant which was offset by a like amount in cost.
NOTE 5: EARNINGS PER SHARE
Basic income (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding for the respective periods.
Diluted income (loss) per share includes the effects of securities which are
convertible into common stock, consisting of stock options, to the extent such
conversion would be dilutive.
Potential common stock was excluded from the computation for the nine and three
months ended September 30, 2000 because of their anti-dilutive effect. The
following is a summary of the weighted average shares outstanding.
For the Nine Months Ended
----------------------------
September 30, September 30,
2000 1999
-------------- ------------
Basic 6,116,700 6,108,700
Effect of dilutive options - 295,036
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Diluted weighted average shares outstanding 6,116,700 6,403,736
=========== ==========
Anti-dilutive options 623,453 -
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For the Three Months Ended
-----------------------------
September 30, September 30,
2000 1999
-------------- -------------
Basic 6,154,700 6,108,700
Effect of dilutive options - 455,130
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Diluted weighted average shares outstanding 6,154,700 6,563,830
========== =========
Anti-dilutive options 632,637 -
========== ==========
Note 6: Formation of Sentigen Corp.
During the quarter ended March 31, 2000, the Company formed Sentigen Corp.
("Sentigen") as a wholly owned subsidiary to engage in scientific research to
develop environmentally sound approaches to prevent insect crop damage and the
spread of human diseases by impacting insect behavior. Sentigen began its
planned scientific research during the quarter ended June 30, 2000. In that
connection the Company has entered into the following agreements:
On March 29, 2000 Sentigen entered into a three year employment agreement with
Dr. Kevin J. Lee for the position of executive vice president at $110,000 per
year plus annual performance-based incentive bonuses. In addition, Mr. Lee
received Options to purchase 200,000 shares of the Company's stock at $5.00 per
share, vesting 25% per year and expiring on March 29, 2005.
On April 10, 2000, Sentigen entered into a license agreement with Columbia
University for an exclusive worldwide right to Columbia's patent applications
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and other proprietary rights in this area. A minimum of $1,000,000 must be
contributed by Sentigen Holding Corp. in Sentigen Corp. within one year of the
date of the agreement. A minimum of $50,000 per six month period or $100,000 per
annual period must be spent on bona fide research and development of the patents
and licenses subject to the agreement from the second through the fourth years
or the Company must be involved in active negotiations to raise $1,000,000 in
additional funding. In consideration of the license, Columbia was issued 75,000
shares of the Company's stock and will receive royalties of 1% of the net sales
of any licensed products or services.
On April 18, 2000 Sentigen received a commitment from Norwest Bank to borrow up
to $500,000 to be repaid over five years with interest at 8.75% per annum.
During the quarter ended June 30, 2000 Sentigen was advanced $240,000 in loan
proceeds under this loan arrangement.
On May 1, 2000, Sentigen acquired a license to use laboratory space at Columbia
University in New York City for two years with the option to renew for an
additional two years. The license agreement calls for license fee commitments,
exclusive of operating expenses, as follows:
For the year ending September 30, 2001 $65,813
2002 39,054
------
Total $104,867
========
Note 7: Stock Option Plans
The Company adopted the 2000 Performance Equity Plan (the "Performance Equity
Plan") which provides for grants and options to purchase up to 2,000,000 shares
of Common Stock. Under the Performance Equity Plan, options may be granted to
employees, directors, consultants, agents and other persons deemed valuable to
the Company or any of its subsidiaries. The Performance Equity Plan permits the
Board of Directors or the Committee of the Performance Equity Plan to issue
incentive stock options (ISO's) as defined in Section 422 of the Internal
Revenue Code (the "Code") and stock options that do not conform to the
requirements of that code section ("non-ISOs"). The exercise price of each ISO
may not be less then 100% of the fair market value of the Common Stock at the
time of grant, except that in the case of a grant to an employee who owns
(within the meaning of Code Section 422) 10% or more of the outstanding stock of
the Company or any subsidiary (a "10% stockholder"), the exercise price may not
be less then 100% of the market value of the Common Stock at the time of grant.
Under the Performance Equity Plan, the committee may award stock appreciation
rights, restricted stock, deferred stock, stock reload options and other
stock-based awards in addition to stock options. The Performance Equity Plan is
administered by the Board of Directors and may be administered by a committee
chosen by the Board of Directors. Subject to the provisions of the Performance
Equity Plan, the Board of Directors or such Committee, as applicable, have the
authority to determine the individuals to whom the stock options are to be
granted, the number shares to be covered by each option, the option price, the
type of option, the option period, the restrictions, if any, on the exercise of
the option, the terms for the payment of the option price and other terms and
conditions. Payment by option holders upon exercise of an option may be made (as
determined by the Board of Directors or the Committee) in cash, or, in certain
instances, by shares of Common Stock. No more than 200,000 shares in the
aggregate may be granted to any one holder in any one calendar year under the
Performance Equtiy Plan.
On January 3, 2000 (the "Grant Date"), the Company granted options to certain
key employees of the Company, pursuant to the Company's 1990 Stock Option Plan,
to purchase up to an aggregate of 22,850 shares of the Company's Common Stock,
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at an exercise price of $1.81. Such options vest and become exercisable in five
equal annual installments, commencing on the one (1) year anniversary of the
Grant Date.
On March 29, 2000 (the "Grant Date"), the Company granted to certain other
individuals, options, pursuant to the Company's 2000 Performance Equity Plan, to
purchase up to an aggregate of 495,000 shares of the Company's Common Stock, at
an exercise price of $5.00. Such options vest and become exercisable in four
equal annual installments, commencing on the Grant date.
Options issued to other than employees are valued at the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured.
On August 8, 2000 (the "Grant Date"), the Company granted options to an
individual, pursuant to the Company's 2000 Performance Equity Plan, to purchase
up to an aggregate of 30,000 shares of the Company's Common Stock, at an
exercise price of $6.00 per share. Such options vest and become exercisable in
four equal annual installments, commencing on the one (1) year anniversary of
the Grant Date.
On September 15, 2000 (the "Grant Date"), the Company granted options to an
individual, pursuant to the Company's 2000 Performance Equity Plan, to purchase
up to an aggregate of 200,000 shares of the Company's Common Stock, at an
exercise price of $9.00 per share. Such options vest and become exercisable in
five equal annual installments, commencing on the one (1) year anniversary of
the Grant Date.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a
"safeharbor" for forward-looking statements. Certain information included in
this Report contains statements that are forward-looking, such as statements
relating to plans for future activities. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: the Company's history of losses; the Company's need to obtain
additional financing and the ability to obtain such financing; outstanding
indebtedness; the ability to hire and retain key personnel; successful
completion and integration of prior and any future acquisitions; relationships
with and dependence on third-party equipment manufacturers and suppliers;
uncertainties relating to business and economic conditions in markets in which
the Company operates; uncertainties relating to government and regulatory
policies and other political risks; uncertainties relating to customer plans and
commitments; cost of and availability of component materials and inventories;
effect of governmental export and import policies; the highly competitive
environment in which the Company operates; potential entry of new,
well-capitalized competitors into the Company's markets; and the uncertainty
regarding the Company's continued ability, through sales growth, to absorb the
increasing costs incurred and expected to be incurred in connection with its
business activities. The words "believe", "expect", "anticipate", "intend" and
"plan" and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made.
Results of Operations
Comparison of Three Months Ended September 30, 2000 to Three Months Ended
September 30, 1999.
13
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Revenue for the three months ended September 30, 2000 was $1,218,154 as compared
to revenue of $1,117,466 for the three months ended September 30, 1999. This
increase of $100,688 was as a result of a $701 or a 0% increase in sales of
goods and a $99,987 or a 14% increase in contract revenue. Sale of goods,
through the SM Division, slowed during the three months ended September 30, 2000
as compared to the three months ended September 30, 1999 as major customer
orders were received late in September 2000, but were not shipped and invoiced
until October 2000. Contract revenue growth, through the MCS Division, was
attributable to the continuation of numerous contracts which were started during
the quarter ended June 30, 2000, as well as additional contracts resulting from
the efforts of the VP of Sales & Marketing who joined the Company during the
quarter ended June 30, 2000.
Income after direct costs for the three months ended September 30, 2000 was
$716,825 as compared to income after direct costs of $630,671 for the three
months ended September 30, 1999. This increase in income after direct costs is
the result of a $86,713 or 20% increase from MCS. The increase in MCS Division's
income after direct costs for the three months ended September 30, 2000 was
attributable to the efficient utilization of manpower to staff the additional
contracts during the three months ended September 30, 2000.
Other operating expenses for the three months ended September 30, 2000 was
$615,579 as compared to $271,631 for the three months ended September 30, 1999.
This $343,948 increase was a result of increased advertising and sales efforts
for the three months ended September 30, 2000, including the addition in May
2000 of a VP of Sales & Marketing plus additional administrative expansion which
was not present in 1999 as the expansion started in the second half of 1999.
Additionally, contract revenue research and development increased by $23,585 and
Sentigen research and development costs of $228,301 were incurred during the
three months ended September 30, 2000 as compared to $0 for the three months
ended September 30, 1999 as Sentigen was not incorporated until February 2000.
Corporate activities of $141,708 resulted in a net expense for the three months
ended September 30, 2000 as compared to net expense of $88,918 for the three
months ended September 30, 1999. This $52,790 net increase in expense resulted
from increased selling, general and administrative expenses mainly due to
activities in connection with the start up of the Company's wholly owned
subsidiary, Sentigen, Corp. Interest income increased $6,948 for the three
months ended September 30, 2000 as compared to the three months ended September
30, 1999 as well as an increase in interest expense of $2,817 for the three
months ended September 30, 2000 as compared to the three months ended September
30, 1999. The interest income increase resulted because the Company had
approximately $150,000 in additional securities and related investments for the
three months ended September 30, 2000 as compared to the three months ended
September 30, 1999.
Net (loss) income for the three months ended September 30, 2000 was $(65,907) or
$(.01) per share basic and diluted, based on weighted average common shares
outstanding of 6,154,700, basic and diluted, as compared to a net income of
$269,599 or $.04 per share based on 6,108,700, basic and 6,563,830, diluted
weighted average common shares outstanding. The decrease in net income was
mainly the result of a 9% increase in revenue reduced by an increase in other
operating expenses, which included Sentigen research and development, which was
not present for the three month period ended September 30, 1999 as well as an
increase in corporate activities and provision for taxes.
Comparison of Nine Months Ended September 30, 2000 to Nine Months Ended
September 30, 1999.
Revenue for the nine months ended September 30, 2000 was $3,412,107 as compared
to revenue of $2,795,433 for the nine months ended September 30, 1999. This
increase of $616,674 was as a result of a $155,977 or a 14% increase in sales of
14
<PAGE>
goods and a $460,697 or a 27% increase in contract revenue. Sale of goods,
through the SM Division, continue to grow due to the introduction of new
products and addition of international distributors. Contract revenue growth,
through the MCS Division, was attributable to additional contracts as the
division's customer base broadens as well as the efforts of the VP of Sales &
Marketing who joined the Company during the quarter ended June 30, 2000.
Income after direct costs for the nine months ended September 30, 2000 was
$1,847,358 as compared to income after direct costs of $1,477,977 for the nine
months ended September 30, 1999. This increase in income after direct costs is
the result of a $100,715 or 18% increase from the sales of goods plus a $268,666
or 29% increase from MCS. This increase in income after direct costs from the
sales of goods resulted from the 14% increase in revenue plus higher margins
from the new products. The increase in MCS Division's income after direct costs
for the nine months ended September 30, 2000 was attributable to the efficient
utilization of additional manpower to staff the additional contracts which were
started during the nine months ended September 30, 2000.
Other operating expenses for the nine months ended September 30, 2000 was
$1,582,430 as compared to $720,003 for the nine months ended September 30, 1999.
This $862,427 increase was a result of an administrative expansion which
occurred in the second half of 1999 and continued into the six months ended June
30, 2000. Additionally, contract revenue research & development increased by
$41,602 and Sentigen research and development costs of $450,820 were incurred
during the nine months ended September 30, 2000 as compared to $0 for the nine
months ended September 30, 1999 as Sentigen was not incorporated until February
2000.
Corporate activities of $403,741 resulted in a net expense for the nine months
ended September 30, 2000 as compared to net expense of $291,396 for the nine
months ended September 30, 1999. This $112,345 net increase in expense resulted
from increased selling, general and administrative expenses mainly due to
activities in connection with the start up of the Company's new wholly owned
subsidiary, Sentigen, Corp. Interest income decreased $33,822 for the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999 as well as an decrease in interest expense of $29,191 for the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999. This resulted because the Company had approximately $4,500,000 in
additional securities and a related investment loan for the first three months
of 1999, which was not present during 2000. This decrease of interest income
during the nine months ended September 30,2000 was partially offset as a result
of approximately $150,000 in additional securities and related investments for
the three months ended September 30, 2000 as compared to the three months ended
September 30, 1999.
Net (loss) income for the nine months ended September 30, 2000 was $(186,603) or
$(.03) per share basic and diluted, based on weighted average common shares
outstanding of 6,116,700, basic and diluted, as compared to a net income of
$465,923 or $.08 basic and $.07 diluted, per share based on 6,108,700, basic and
6,403,736, diluted weighted average common shares outstanding. The decrease in
net income was mainly the result of a 22% increase in revenue reduced by an
increase in other operating expenses, which included $450,820 in Sentigen
research and development, which was not present for the nine month period ended
September 30, 1999 as well as an increase in corporate activities and provision
for taxes.
Liquidity and Capital Resources
At September 30, 2000, the Company had approximately $64,000 in cash and working
capital of approximately $4,860,000.
Net cash provided by operating activities aggregated $334,845 and $160,168 for
the nine months ended September 30, 2000 and 1999, respectively. The $174,677
15
<PAGE>
net increase provided by operating activities was principally attributable to a
net decrease in accounts receivable and an increase in customer deposits and
accounts payable reduced by a net (loss) for the nine months ended September
30,2000 as compared to net income for the nine months ended September 30, 1999.
Net cash used by investing activities aggregated $(545,655) for the nine months
ended September 30, 2000 as compared with net cash provided by investing
activities of $4,615,269 for the nine months ended September 30, 1999. This net
decrease in cash provided by investing activities was primarily attributable to
the $5,000,000 sale of investment securities for the nine months ended September
30, 1999 as well as a net $149,703 purchase of investment securities and the
purchase of $392,952 in fixed assets for the nine months ended September 30,
2000.
Net cash provided by financing activities aggregated $148,647 for the nine
months ended September 30, 2000 as compared net cash used by financing
activities of $4,840,748 for the nine months ended September 30, 1999. The
decrease was due primarily to the repayment of the $5,000,000 collateralized
investment loan during the nine months ended September 30, 1999 offset by a net
$110,000 in proceeds from new financing for the nine months ended September 30,
2000 as compared to the nine months ended September 30, 1999.
During the nine months ended September 30, 2000, the Company financed its
operations primarily through working capital plus $240,000 in new financing.
Pursuant to a License Agreement between Sentigen Corp. and Columbia University,
for an exclusive worldwide right to Columbia patent applications and other
proprietary rights in the area of the mechanisms of chemosentations in medical
conditions and agricultural pests, a minimum of $1,000,000 must be invested by
the Company by April 10, 2001. A minimum of $50,000 per six month period or
$100,000 per annual period must be spent on bona fide research and development
of the patents and licenses subject to the agreement from the second through the
fourth years or the Company must be involved in active negotiations to raise
$1,000,000 in additional funding. The Company has enough funds available in
working capital to make the required investment if it chooses not to raise the
money through debt and equity financings.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
On August 8, 2000 (the "Grant Date"), the Company granted options to an
individual, pursuant to the Company's 2000 Performance Equity Plan, to purchase
up to an aggregate of 30,000 shares of the Company's Common Stock, at an
exercise price of $6.00 per share. Such options vest and become exercisable in
four equal annual installments, commencing on the one (1) year anniversary of
the Grant Date. The Company relied upon Section 4(2) of the Securities Act for
an exemption from registration for this private transaction.
On September 15, 2000 (the "Grant Date"), the Company granted options to another
individual, pursuant to the Company's 2000 Performance Equity Plan, to purchase
an aggregate of 200,000 shares of the Company's Common Stock, at an exercise
price of $9.00 per share. Such options vest and become exercisable in five equal
16
<PAGE>
annual installments, commencing on the one (1) year anniversary of the Grant
Date. The Company relied upon Section 4(2) of the Securities Act for an
exemption from registration for this private transaction.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
November 10, 2000 SENTIGEN HOLDING CORP.
By: /s/ ROBERT A. REINHART
---------------------------------
Robert A. Reinhart,
Chief Financial Officer and
Principal Accounting Officer
18
<PAGE>
39756.2
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated
Exhibit By Reference No. in
Number Description from Document Document Page
------ ----------- ------------- --------- ----
<S> <C> <C> <C> <C>
3.1 Certificate of Incorporation, as amended A Exhibit 3.1
3.2 By-laws of the Company A Exhibit 3.2
10.1 1990 Stock Option Plan A Exhibit 10.1
10.2 Consulting Agreement dated July 2, 1991, among B Exhibit 10.2
the Company, Prime Cellular of Florida, Inc.
and Joseph K. Pagano (the
"Consulting Agreement")
10.3 Amendment to Consulting Agreement B Exhibit 10.3
10.4 Agreement and Plan of Merger, dated as of C Exhibit 2.1
May 14, 1996, by and among the Company,
Prime Cellular Acquisition Corp., Bern
Associates, Inc. and the stockholders of Bern
10.5 Registration Rights Agreement, dated June C Exhibit 10.1
10, 1996, between Registrant and the Bern
Stockholders
10.6 Escrow Agreement, dated June 10, 1996, C Exhibit 10.2
between Registrant and the Bern Stockholders
10.7 Indemnification Agreement, dated June 10, C Exhibit 10.3
1996 between Registrant and the Bern
Stockholders
10.8 Form of Amendment to Merger Agreement, dated D Exhibit 10.9
June 11, 1997
10.9 Form of Settlement Agreement, dated August 28, D Exhibit 10.10
1997
<PAGE>
10.10 Agreement and Plan of Merger, dated as of May E Exhibit 2
29, 1998, by and among the Company, CMT
Acquisition Corp., Cell & Molecular
Technologies, Inc. and the stockholders of
Cell & Molecular Technologies, Inc.
10.11 Mortgage dated February 6, 1997, with respect F Exhibit 10.11
to premises located at 580 Marshall Street,
Phillipsburg, NJ 08865, assumed by the
Company in connection with the CMT Merger
10.12 Form of Employment Agreement dated May 22, F Exhibit 10.12
1997 between Cell & Molecular Technologies,
Inc. and Thomas Livelli
10.13 Form of Amendment to Employment Agreement G Exhibit 10.13
dated as of May 29, 1998 between Cell &
Molecular Technologies, Inc. and Thomas
Livelli
10.14 Employment Agreement between Joseph K. Pagano H Exhibit 10.14
and the Company
10.15 Employment Agreement between Kevin Lee and I Exhibit 10.15
Sentigen Corp.
10.16 Option Agreement between the Company and Kevin I Exhibit 10.16
Lee
21 List of Subsidiaries H Exhibit 21
27.1 Financial Data Schedule -- -- Filed
Herewith
99 Risk Factors H Exhibit 99
</TABLE>
A. Company's Registration Statement on Form S-18 (Registration No.
33-35537-NY)
B. Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1992.
C. Company's Report on Form 8-K dated June 11, 1996.
D. Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1997.
E. Company's Report on Form 8-K for the event dated May 29, 1998.
F. Company's Report on Form 10-K for the fiscal year ended December 31, 1998.
<PAGE>
G. Company's Report on Form 10-K/A for the fiscal year ended December 31,
1998.
H. Company's Report on Form 10-K for the fiscal year ended December 31, 1999.
I. Company's Report on Form 10-Q for the quarter ended March 31, 2000.
J. Company's Report on Form 10-Q for the quarter ended June 30, 2000.
