SENTIGEN HOLDING CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM_____________________TO_____________________

COMMISSION FILE NUMBER: 0-18700

SENTIGEN HOLDING CORP.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 13-3570672
- ------------------------------------ ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

580 Marshall Street
Phillipsburg, New Jersey 08865
(908) 387-1673

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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)

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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]

As of August 14, 2003 the registrant had outstanding 7,454,744 shares of its
Common Stock, $.01 par value.

SENTIGEN HOLDING CORP. AND SUBSIDIARIES

INDEX

2

PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets

(Unaudited)
June 30, December 31,
2003 2002
------------ ------------

Assets
Current Assets
Cash and cash equivalents $ 10,114,783 $ 4,819,967
Investment securities, available for sale, at
fair value -- 5,307,419
Accounts receivable - net of allowance for doubtful
accounts of $45,000 for 2003 and 2002 864,548 509,298
Unbilled services 36,432 15,400
Inventory 225,169 212,104
Accrued interest receivable -- 18,645
Prepaid expenses 157,715 175,716
------------ ------------
11,398,647 11,058,549
------------ ------------
Property, plant and equipment 3,617,301 3,535,355
Equipment under capital lease 95,945 95,945
Less: Accumulated depreciation 2,171,391 1,938,272
------------ ------------
1,541,855 1,693,028
------------ ------------
Other Assets
Security deposits 17,961 17,961
Deferred financing costs - net of accumulated
amortization of $4,850 for 2003 and $4,116 for 2002 8,810 9,544
License costs - net of accumulated amortization of
$84,232 for 2003 and $71,272 for 2002 356,393 369,353
------------ ------------
383,164 396,858
------------ ------------
Total Assets $ 13,323,666 $ 13,148,435
============ ============

Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of long-term debt 239,722 235,234
Liability under capital lease - current portion 31,723 30,574
Accounts payable and accrued expenses 540,385 511,620
Customer deposits 162,378 410,507
Unearned revenue 142,917 58,850
------------ ------------
1,117,125 1,246,785

Liability under capital lease - long-term 41,332 57,486
Long-term debt - net of current maturities 852,116 973,675
------------ ------------
Total liabilities 2,010,573 2,277,946
------------ ------------

Stockholders' Equity
Preferred Stock - $.01 par value, 5,000,000 shares
authorized - none issued or outstanding -- --
Common Stock - $.01 par value, 20,000,000 shares
authorized, 7,454,744 and 7,451,044 shares issued
and outstanding in 2003 and 2002, respectively 74,547 74,511
Additional paid-in capital 12,341,047 12,237,896
Accumulated other comprehensive income -- 13,817
Accumulated deficit (1,102,501) (1,455,735)
------------ ------------
Total stockholders' equity 11,313,093 10,870,489
------------ ------------
Total Liabilities and Stockholders' Equity $ 13,323,666 $ 13,148,435
============ ============

See notes to consolidated financial statements.

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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations

(Unaudited) (Unaudited)
For the Three Months Ended For the Six Months Ended
------------------------------ ------------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------

Revenue
Molecular cell science $ 1,570,447 $ 1,128,502 $ 2,989,219 $ 2,174,494
Specialty media 793,800 772,037 1,560,045 1,448,623
----------- ----------- ----------- -----------
2,364,247 1,900,539 4,549,264 3,623,117
----------- ----------- ----------- -----------
Direct Costs
Molecular cell science 494,403 384,802 905,367 733,952
Specialty media 327,323 336,180 604,875 594,253
----------- ----------- ----------- -----------
821,726 720,982 1,510,242 1,328,205
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Income After Direct Costs
Molecular cell science 1,076,044 743,700 2,083,852 1,440,542
Specialty media 466,477 435,857 955,170 854,370
----------- ----------- ----------- -----------
1,542,521 1,179,557 3,039,022 2,294,912
----------- ----------- ----------- -----------
Operating Expenses
Selling, general and administrative costs 703,080 582,144 1,289,590 1,158,367
Research and development 263,336 241,966 490,683 502,140
Corporate overhead 227,431 272,725 500,517 584,314
Stock based compensation 82,211 53,769 98,677 159,330
Depreciation and amortization 124,582 119,787 246,813 219,934
----------- ----------- ----------- -----------
1,400,640 1,270,391 2,626,280 2,624,085
----------- ----------- ----------- -----------
Income (Loss) From Operations 141,881 (90,834) 412,742 (329,173)
----------- ----------- ----------- -----------
Interest income 23,503 85,843 48,083 177,252
Interest expense (17,468) (25,376) (36,855) (47,338)
----------- ----------- ----------- -----------
Interest income, net of expense 6,035 60,467 11,228 129,914
----------- ----------- ----------- -----------
Income (Loss) before Provision for Income Taxes 147,916 (30,367) 423,970 (199,259)
Provision for Income Taxes 30,822 38,000 70,736 75,394
----------- ----------- ----------- -----------
Net Income (Loss) $ 117,094 $ (68,367) $ 353,234 $ (274,653)
=========== =========== =========== ===========
Net Income (Loss) per Share
Basic $ 0.02 $ (0.01) $ 0.05 $ (0.04)
=========== =========== =========== ===========
Diluted $ 0.02 $ (0.01) $ 0.05 $ (0.04)
=========== =========== =========== ===========
Weighted Average of Common Shares Outstanding
Basic 7,453,894 7,451,044 7,452,944 7,349,804
=========== =========== =========== ===========
Diluted 7,604,776 7,451,044 7,621,787 7,349,804
=========== =========== =========== ===========

See notes to consolidated financial statements.

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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flow

(Unaudited)
For the Six Months Ended
--------------------------------
June 30, 2003 June 30, 2002
------------- -------------

Cash Flows from Operating Activities
Net income (loss) $ 353,234 $ (274,653)
Adjustments to reconcile loss
to net cash provided by (used for) operating activities:
Depreciation and amortization 246,813 219,934
Stock based compensation 98,677 159,330
(Increase) decrease in:
Accounts receivable, net of allowance (355,250) (136,928)
Unbilled services (21,032) 29,040
Inventory (13,065) (33,707)
Accrued interest receivable 18,645 1,159
Prepaid expenses 18,001 (58)
Increase (decrease) in:
Accounts payable and accrued expenses 28,765 (135,226)
Customer deposits (248,129) 48,019
Unearned revenue 84,067 5,898
------------ ------------
Cash provided by (used in) operating activities 210,726 (117,192)
------------ ------------
Cash Flows from Investing Activities
Acquisitions of property and equipment (81,946) (434,296)
Sales of investment securities 5,293,602 --
Purchase of investment securities -- (3,878)
------------ ------------
Cash (used in) investing activities 5,211,656 (438,174)
------------ ------------
Cash Flows from Financing Activities
Repayments of long term debt (132,076) (86,391)
Proceeds from issuance of long term debt -- 315,663
Cash received from stock options exercised 4,510 205,884
------------ ------------
Cash provided by financing activities (127,566) 435,156
------------ ------------
Increase (decrease) in cash and cash equivalents 5,294,816 (120,210)
Cash and cash equivalents - beginning of period 4,819,967 4,889,272
------------ ------------
Cash and cash equivalents - end of period $ 10,114,783 $ 4,769,062
============ ============

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 36,855 $ 47,338
============ ============
Income taxes $ 66,000 $ 120,202
============ ============

See notes to consolidated financial statements.

5

SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, June 30, 2003 (Unaudited)
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1. ORGANIZATION AND NATURE OF OPERATIONS

We are a holding company conducting business through two wholly-owned
operating subsidiaries, Cell & Molecular Technologies, Inc. (CMT) and
Sentigen Corp. CMT is comprised of a service organization that provides
contract research and development (R&D) services, and a products
organization that provides cell culture media, reagents and other research
products to companies engaged in the drug discovery process. Sentigen Corp.
is engaged in scientific research to develop assays for the screening of G
Protein-Coupled Receptors, or GPCRs. The assays have applications in drug
discovery, micro-array based detection technologies and environmentally
sound pest management solutions for agricultural and human health vectors.

CMT operates through two divisions -- Molecular Cell Science (MCS) and
Specialty Media (SM). MCS provides contract R&D services and High
Throughput Screening applications and services to companies engaged in the
drug discovery process. SM develops, manufactures, markets and sells
specialty cell culture media, reagents and other research products.

The operations of Sentigen Corp. are reflected as research and development
expenses in our consolidated statements of operations. Sentigen Corp's
operations, since its inception in February 2000, consist entirely of
research and development.

The expenses of Sentigen Holding Corp. are reflected as "Corporate
overhead" expenses in our consolidated statements of operations and include
the following major classes: (1) compensation and employee benefits cost
for our chairman of the board, chief financial officer, and administrative
assistant, (2) professional fees for legal and audit services, (3) office
rental, utilities and communication costs, (4) stock market listing fees
and (5) business travel expenses.

We were incorporated under the laws of the State of Delaware in May 1990
and, after having engaged in the acquisition and operation of different
business entities subsequent to our initial public offering in August 1990,
we commenced our current business operations when we acquired CMT in May
1998. CMT was incorporated in May 1997 to acquire all of the outstanding
stock of Specialty Media, Inc. and Molecular Cell Science, Inc., two
entities operating in the biotechnology and pharmaceutical industries since
1987 and 1991, respectively. Sentigen Corp. was formed on February 16,
2000. We changed our name to Sentigen Holding Corp. on June 23, 2000. On
January 9, 2002, our common stock began trading on The Nasdaq SmallCap
Market under the symbol SGHL.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Sentigen Holding Corp. and its wholly owned
subsidiaries, after elimination of all intercompany accounts and
transactions.
b. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include liquid
investments with maturities of three months or less at the time of
purchase.
c. INVESTMENT SECURITIES - Investment securities consist of U.S. Treasury
Notes. All investment securities are defined as available for sale
under the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and, as such, have been reported at fair value. Quoted
market prices are used to determine fair value. Investment securities
purchased before 2002 are defined as held-to-maturity under the
provisions of SFAS No. 115 and, as such, have been reported at
amortized cost.
d. INVENTORY - Inventory, consisting of cell culture media, reagents and
related packaging and raw materials for the SM division, is stated at
the lower of cost or market. We use the FIFO (first-in, first-out)
method for inventory accounting.
e. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost. Depreciation is provided on both straight-line and
accelerated methods over the estimated useful lives of the assets,
which range from three to forty years. Amortization of leasehold
improvements is provided on the straight-line basis over the lesser of
the estimated useful life of the asset or the remaining lease term.

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Repairs and maintenance, which do not extend the useful lives of the
related assets, are expensed as incurred.
f. LICENSE AND DEFERRED COSTS - License costs are amortized over 17 years
on a straight line basis and result from our exclusive licensing
agreement with the Trustees of Columbia University. Deferred financing
costs were incurred in connection with our various loan facilities.
Deferred financing costs are amortized on a straight-line basis over
the duration of the related loan.
g. IMPAIRMENT - We review intangible and long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. A review for
impairment includes comparing the carrying value of an asset to an
estimate of the undiscounted net future cash inflows over the life of
the asset. An asset is considered to be impaired when the carrying
value exceeds the calculation of the undiscounted net future cash
inflows or fair market value. An impairment loss is defined as the
amount of the excess of the carrying value over the fair market value
of the asset. We believe none of our intangible and long-lived assets
are impaired as of June 30, 2003.
h. REVENUE RECOGNITION - We record revenue from fixed-price contracts
extending over more than one accounting period on a
percentage-of-completion basis. Percentage-of-completion is determined
based on the proportion of completed costs to total anticipated costs
on each contract. If we determine that a loss will result from the
performance of a contract, the entire amount of estimated loss is
charged against income in the period in which the determination is
made. In general, prerequisites for billings are established by
contractual provisions including predetermined payment schedules, the
achievement of contract milestones or submission of appropriate
billing detail. Unbilled services arise when services have been
rendered but clients have not been billed. Similarly, unearned revenue
represents amounts billed in excess of revenue recognized. Revenues
from product sales are recognized upon transfer of title to the
product, which generally occurs upon shipment to the customer.
i. DIRECT COSTS - We expense direct costs as such costs are incurred.
Direct costs in the MCS division include: (1) costs incurred for
direct materials used in the services performed under research
contracts, (2) an allocation of the compensation costs for the time
incurred on such contracts by our scientists, (3) an allocation of
indirect materials costs for general laboratory expenses incurred for
the benefit of all contracts in process, and (4) an allocation of
certain general and administrative expenses incurred by CMT. The
direct costs of the SM division represent the direct costs of research
products sold, including an allocation of the compensation costs for
production personnel, and an allocation of certain general and
administrative expenses incurred by CMT.
j. RESEARCH AND DEVELOPMENT COSTS - We expense research and development
costs as such costs are incurred. The operations of Sentigen Corp. are
reflected as research and development expenses in our consolidated
statements of operations. Sentigen Corp's operations, since its
inception in February 2000, consist entirely of research and
development.
k. CORPORATE OVERHEAD COSTS - We expense corporate overhead costs as such
costs are incurred. The operations of the holding company are
reflected as corporate overhead expenses in our consolidated
statements of operations and include the following major classes: (1)
compensation and employee benefits cost for our chairman of the board,
chief financial officer, and administrative assistant, (2)
professional fees for legal and audit services, (3) office rental,
utilities and communication costs, (4) stock market listing fees and
(5) business travel expenses.
l. RESEARCH GRANTS - CMT was engaged in research and development
activities under grant from the National Institute of Health (NIH).
The research expenses incurred under the grants were exactly offset by
the cash received under the grants. This activity is not recorded in
the consolidated statements of operations as it was a reimbursement of
amounts passed through to sub-recipients (See Note 4).
m. INCOME TAXES - We account for certain income and expense items
differently for financial reporting and income tax purposes. Deferred
tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets and
liabilities and the tax effect of net operating loss and tax credit
carryforwards applying the enacted statutory tax rates in effect for
the year in which the differences are expected to reverse.
n. ADVERTISING, MARKETING AND SALES COSTS - We expense all costs relating
to advertising, marketing and sales as such costs are incurred.
o. ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires our management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
p. EARNINGS PER SHARE - The accompanying financial statements include
earnings per share calculated as required by SFAS No. 128 "Earnings
Per Share" which replaced the calculation of primary and fully

7

diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share is calculated by dividing net income (loss)
by the weighted average number of shares of common stock outstanding.
Diluted earnings per share include the effects of securities
convertible into common stock, consisting of stock options, to the
extent such conversion would be dilutive. For the three and six month
periods ending June 30, 2003, 150,882 and 168,843 shares of potential
common stock, respectively were included in the calculation of diluted
earnings per share. Potential common stock was excluded from the
computation for the three and six month periods ending June 30, 2002
because SFAS No. 128 prohibits adjusting the denominator of diluted
EPS for additional potential common shares when a net loss from
continuing operations is reported.
q. STOCK-BASED COMPENSATION - SFAS No. 123 "Accounting for Stock-Based
Compensation", encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair
value. We continue to account for stock-based compensation to
employees using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". APB No. 25 requires no recognition of compensation expense
for the stock-based compensation arrangements provided by us where the
exercise price is equal to the market price at the date of the grants.
Options issued to non-employees are valued at the fair value of the
consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. The expense for options
issued to non-employees is recorded as stock based compensation in our
consolidated statements of operations.
r. SEGMENTS - The accompanying financial statements include segment
disclosure as required by SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which expands and modifies
disclosures but has no impact on our consolidated financial position
or results of operations or cash flows. Our reportable operating
segments are: MCS, SM and Sentigen Corp (See Note 3).
s. NEW ACCOUNTING PRONOUNCEMENTS - In June 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 141, "Business Combinations."
This standard eliminates the pooling method of accounting for business
combinations initiated after June 30, 2001 and addresses the
accounting for intangible assets and goodwill acquired in a business
combination. The adoption of SFAS No. 141 did not have a material
effect on our financial position or results of operations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Intangible
Assets," which revises the accounting for purchased goodwill and
intangible assets. Under SFAS No. 142, goodwill and intangible assets
with indefinite lives are no longer amortized, but are tested for
impairment annually or in the event of an impairment indicator. SFAS
No. 142 was effective January 1, 2002. The adoption of SFAS No. 142
did not have a material effect on our financial position or results of
operations.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The standard requires entities to record the
fair value of a liability for an asset retirement obligation in the
period in which it is incurred. SFAS No. 143 is effective for all
fiscal years beginning after June 15, 2002. The adoption of SFAS No.
143 did not have a material effect on our financial position or
results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or
discontinued operations. Therefore, discontinued operations will no
longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS No. 144 also
broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from
the rest of the entity and that will be eliminated from the ongoing
operations of their entity in a disposal transaction. SFAS No. 144 was
effective January 1, 2002. The adoption of SFAS No. 144 did not have a
material effect on our financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements 4, 44 and 64, Amendment of FASB Statement 13, and Technical
Corrections." SFAS No. 145 is effective January 1, 2003. Among other
things, SFAS No. 145 requires that gains or losses on the
extinguishment of debt will generally be required to be reported as a
component of income from continuing operations and will no longer be
classified as an extraordinary item. The adoption of SFAS No. 145 did
not have a material effect on our financial position or results of
operations.

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In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability be recorded for such activities when the liability is
actually incurred, and unlike EITF 94-3, the existence of a plan does
not necessarily support the basis for the recording of a liability.
SFAS No. 146 is effective for all exit or disposal activities
initiated after December 31, 2002. The Company did not undertake any
exit or disposal activities for the three and six month periods ending
June 30, 2003.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation --Transition and Disclosure, an amendment of
SFAS No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. SFAS No. 148 was effective for the year ended December 31,
2002.

The following table reconciles net loss and diluted earnings per share
(EPS), as reported, to pro-forma net loss and diluted EPS, as if the
Company had expensed the fair value of stock options as permitted by
SFAS No. 123, as amended by SFAS No. 148, since it permits alternative
methods of adoption.

9

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
"Guarantor's Accounting And Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45
clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of this interpretation are applicable
on a prospective basis to guarantees issued or modified after December
31, 2002. The interpretation also requires enhanced and additional
disclosures of guarantees in financial statements ending after
December 15, 2002. In the normal course of business, the Company does
not issue guarantees to third-parties; accordingly, this
interpretation does not effect the disclosures included herein.

In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB 51." FIN No. 46
defines when a business enterprise must consolidate a variable
interest entity. This interpretation applies immediately to variable
interest entities created after January 31, 2003. It applies in the
first fiscal year or interim period beginning after June 15, 2003, to
entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The Company does not have variable
interest entities as of June 30, 2003.

In April 2003 the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends SFAS No. 133 for certain decisions made by the Board as part of
the Derivatives Implementation Group (DIG) process and is effective
for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. In addition,
SFAS No. 149 should be applied prospectively. The provisions of SFAS
No. 149 that relate to SFAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective
effective dates. The Company is not involved in any hedging
activities.

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3. SEGMENT INFORMATION

We operate through our two wholly-owned subsidiaries, CMT and Sentigen
Corp. CMT is evaluated on the performance of its two divisions, MCS and SM.
Sentigen Corp. is engaged in research and development. We consider MCS, SM
and Sentigen Corp. as our three separate and distinct reportable operating
segments. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Our reportable
segments are strategic business units that offer different products and
services. They are managed separately because each business requires
different technologies and marketing strategies. We account for sales and
transfers between segments, if any, as if the transactions were to third
parties, that is at current market prices. All inter-company transactions
have been eliminated in the presentation of segment information.

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4. RESEARCH GRANTS

The SM division, in collaboration with Harvard University, is the recipient
of an NIH Federal Phase II Grant in the amount of $757,532. The research
performed under this grant originally covered the period from July 1998
through August 2001, but was extended through March 2002.

For the six months ended June 30, 2002 research expenses incurred were
exactly offset by the cash received under the grants. This activity is not
recorded in the consolidated statements of operations as it is a
reimbursement of amounts passed through to sub-recipients. The amounts
received and expended are as follows:

There was no activity under NIH funded grants during the three and six
month periods ending June 30, 2003.

5. EARNINGS PER SHARE

Basic earnings (loss) per share is calculated by dividing net income (loss)
by the weighted average number of common shares outstanding for the
respective periods. Diluted earnings 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. For the three and
six month periods ending June 30, 2003, 150,882 and 168,843 shares of
potential common stock, respectively were included in the calculation of
diluted earnings per share. Potential common stock was excluded from the
computation for the three and six month periods ending June 30, 2002
because SFAS No. 128 "Earnings per Share," which prohibits adjusting the
denominator of diluted EPS for additional potential common shares when a
net loss from continuing operations is reported.

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6. INVENTORY

Inventory as of June 30, 2003 and December 31, 2002 is entirely comprised
of the physical inventory of the SM Division. Components of physical
inventory as of June 30, 2003 and December 31, 2002 are as follows:

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. The statements contained herein which
are not historical facts are forward-looking statements that involve known and
unknown risks and uncertainties that could significantly affect our actual
results, performance or achievements in the future and, accordingly, such actual
results, performance or achievements may materially differ from those expressed
or implied in any forward-looking statements made by or on our behalf. These
risks and uncertainties include, but are not limited to, risks associated with
our future growth and operating results; our ability to successfully integrate
newly acquired business operations and personnel into our operations; changes in
customer preferences; our ability to hire and retain key personnel; compliance
with federal or state environmental laws and other laws and changes in such laws
and the administration of such laws; risks associated with government grants and
funding of our customers' projects; dependence on certain significant customers;
protection of trademarks and other proprietary rights, technological change;
competitive factors; unfavorable general economic conditions. Actual results may
vary significantly from such forward-looking statements. 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.

OVERVIEW

We are a holding company conducting business through two wholly owned
operating subsidiaries, CMT and Sentigen Corp. CMT is comprised of a service
organization that provides contract research and development services, and a
products organization that provides cell culture media, reagents and other
research products to companies engaged in the drug discovery process. Sentigen
Corp. is engaged in scientific research to develop assays for the screening of G
Protein-Coupled Receptors, or GPCRs. These assays potentially would have
applications in drug discovery, micro-array based detection technologies and
environmentally sound pest management solutions for agricultural and human
health vectors.

CMT operates through two divisions -- Molecular Cell Science, or MCS
and Specialty Media, or SM. MCS provides contract research and development
services and High Throughput Screening applications and services to companies
engaged in the drug discovery process. SM develops, manufactures, markets and
sells specialty cell culture media, reagents and other research products.

SIGNIFICANT ACCOUNTING POLICIES

Cell & Molecular Technologies, Inc.

We evaluate the performance of CMT through its two divisions (both are
treated as separate business segments). Revenue, income after direct costs and
net income are used to measure and evaluate the financial results of CMT.

Revenue Recognition. The MCS division's services are performed on a
fee-for-service, fixed contract basis that provides for payments after specific
research milestones are achieved. Revenues from the MCS division are recognized
using the percentage-of-completion method for fixed price contracts extending
over more than one accounting period. Work-in-process, representing time and
costs incurred on projects in process in excess of amounts billed to customers,
are recorded as "Unbilled services" in our consolidated balance sheets. Unearned
revenue represents amounts billed in excess of costs incurred and are recorded
as liabilities in our consolidated balance sheets. Revenues from the product
sales of the SM division are recognized upon transfer of title to the product,
which generally occurs upon shipment to the customer.

Direct Costs. The major classes of direct costs for the MCS division
include: (1) costs incurred for direct materials used in the services performed
under research contracts, (2) an allocation of the compensation costs for the
time incurred on such contracts by our scientists, (3) an allocation of indirect
materials costs for general laboratory expenses incurred for the benefit of all
contracts in process, and (4) an allocation of certain general and
administrative expenses incurred by CMT. The direct costs of the SM division
represent the direct costs of research

15

products sold, including an allocation of the compensation costs for production
personnel, and an allocation of certain general and administrative expenses
incurred by CMT. The inventory of the SM division is determined using the FIFO
(first-in, first-out) method of accounting.

Selling, General and Administrative Expenses. The major classes of
selling, general and administrative expenses incurred by CMT include: (1) the
compensation and employee benefit costs of CMT's management, sales, and
administrative staff, (2) the compensation and employee benefit costs for the
time of scientific and production personnel spent on selling, general and
administrative activities, (3) facilities rental, utilities, communication costs
and related operating expenses, (4) marketing, sales and advertising costs, (5)
business travel expenses, (6) commercial and product liability insurance costs,
(7) repairs and maintenance costs on facilities and laboratory equipment and (8)
professional fees for legal and audit services.

Sentigen Corp.

The operations of Sentigen Corp. are reflected as research and
development expenses in our consolidated statements of operations. Sentigen
Corp's operations, since its inception in February 2000, consist entirely of
research and development. We expense research and development costs as such
costs are incurred.

On August 19, 2002, Sentigen Corp. was awarded a Federal Phase I Grant
in the amount of $100,003 from the National Institute of Health. The term of the
grant was from September 1, 2002 through February 28, 2003. The grant provides
for the direct costs of a specific project within Sentigen Corp.'s overall
research program (budgeted in the grant for $75,000) as well as an allocation
for the facilities and administrative costs of Sentigen Corp. related to the
project (budgeted in the grant at $25,003). As of December 31, 2002, Sentigen
Corp. completed the research project covered under the grant and all funds have
been received from the National Institute of Health.

Sentigen Holding Corp.

The expenses of Sentigen Holding Corp. are reflected as "Corporate
overhead" expenses in our consolidated statements of operations and include the
following major classes: (1) compensation and employee benefits cost for our
chairman of the board, chief financial officer, and administrative assistant,
(2) professional fees for legal and audit services, (3) office rental, utilities
and communication costs, (4) stock market listing fees and (5) business travel
expenses.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. We base these estimates and assumptions upon
historical experience and existing, known circumstances. Actual results could
differ from those estimates. Specifically, management must make estimates in the
following areas:

Allowance for doubtful accounts. We provide a reserve against our
receivables for estimated losses that may result from our customers' inability
to pay. We determine the amount of the reserve by analyzing known uncollectible
accounts, aged receivables, historical losses and our customers'
credit-worthiness. Amounts later determined and specifically identified to be
uncollectible are charged or written off against this reserve. To minimize the
likelihood of uncollectible accounts, customers' credit-worthiness is reviewed
periodically based on our experience with the account and external credit
reporting services (if necessary) and adjusted accordingly. Should a customer's
account become past due, we generally place a hold on the account and
discontinue further shipments or services to that customer, minimizing further
risk of loss. Additionally, our policy is to fully reserve for all accounts with
aged balances greater than one year. Reserves are fully provided for all
expected or probable losses of this nature.

16

Inventory adjustments. Inventories are stated at the lower of cost or
market. We review the components of our inventory on a regular basis for excess,
obsolete and impaired inventory based on estimated future usage and sales. Our
stock levels generally do not exceed one quarter's expectation of usage or
sales. Inventories were stated at $225,169 and no reserve for impairment or
obsolescence was necessary as of June 30, 2003.

Impairment of intangibles. Our intangible assets consist primarily of
license costs of $356,393 as of June 30, 2003, and are the result of our
exclusive licensing agreement with the Trustees of Columbia University. The
value of the license reflects the closing share price of our common stock on
April 10, 2000 (the closing date of our agreement with the Trustees of Columbia
University) less accumulated amortization. The value of the license is subject
to an amortization period of 17 years. We review the value of the license for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be fully recoverable. A review for
impairment includes comparing the carrying value of the license to an estimate
of the undiscounted net future cash inflows over the life of the license. The
license is considered to be impaired when the carrying value exceeds the
calculation of the undiscounted net future cash inflows or fair market value. An
impairment loss in the amount of the excess would be recognized in our
consolidated statements of operations if the carrying value exceeded the fair
market value of the license. We believe no such loss is necessary as of June 30,
2003.

Revenue recognition. Revenues from the MCS division are recognized
using the percentage-of-completion method for fixed price contracts.
Percentage-of-completion is determined based on the proportion of completed
costs to total anticipated costs on each contract. We use estimates of remaining
costs to complete each contract to determine the revenue and profitability on
each contract. We reevaluate these estimates periodically and such reevaluations
may, in the future, lead to changes in the rate of profitability on each
contract. There were no contracts where the expected costs exceeded the contract
price. All contract receivables are due within one year.

Stock-based compensation. SFAS No. 123 "Accounting for Stock-Based
Compensation", encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. We continue to
account for stock-based compensation to employees using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". APB No. 25 requires no recognition of compensation
expense for the stock-based compensation arrangements provided by us where the
exercise price is equal to the market price at the date of the grants. Options
issued to non-employees are valued at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The expense for options issued to non-employees is recorded
as stock based compensation in our consolidated statements of operations. The
fair value of each option grant is estimated using the Black-Scholes option
pricing model. We also adopted the provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation --Transition and Disclosure, an amendment of SFAS No.
123."

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 TO THREE MONTHS ENDED JUNE 30,
2002

Revenues. Revenues for the three months ended June 30, 2003 were
$2,364,247 compared to revenue of $1,900,539 for the three months ended June 30,
2002. This increase of $463,708, or 24%, was the result of an increase of
$441,945, or 39%, in contract revenue from CMT's MCS division and an increase of
$21,763, or 3%, in revenue from CMT's SM division. Our revenues were entirely
attributable to the operations of CMT and its two divisions, MCS and SM.

An analysis of our revenues from the MCS division is as follows:

17

The contract revenue for high-throughput screening, or HTS, services is
derived from a retainer contract. The contract provides for payments of $200,000
per month, regardless of the volume of services performed during the month. The
term of the contract is for one year and ends on December 31, 2003. The 20%
increase in the revenues we received under the contract resulted from the
increase in HTS services required by the customer to support its HTS programs
during the three months ended June 30, 2003 compared to the three months ended
June 30, 2002. We expect to enter into negotiations for a new 2004 HTS contract,
although we cannot assure you that we will be successful in this regard. The 55%
growth from other contracts was driven by: (1) mouse genetics services, (2)
protein expression services and (3) services for the pre-clinical analysis of
compound efficacy on diminishing or eliminating pathogen infection.

Revenues from the SM division grew 3% for the three months ended June
30, 2003 as compared to the three months ended June 30, 2002. The increase was
generally the result of the price increases implemented on January 1, 2003.

Income after Direct Costs and Gross Margin. Income after direct costs
for the three months ended June 30, 2003 was $1,542,521 compared to income after
direct costs of $1,179,557 for the three months ended June 30, 2002. Gross
margin for the three months ended June 30, 2003 was 65% compared to 62% for the
three months ended June 30, 2002. This increase was driven by reduced direct
materials costs for both the MCS division and the SM division.

Operating Expenses. Operating expenses for the three months ended June
30, 2003 were $1,400,640 compared to $1,270,391 for the three months ended June
30, 2002. This increase of $130,249, or 10%, was primarily attributable to an
increase of $120,936 in the selling, general and administrative expenses of CMT,
an increase of $21,370 in the research and development costs of Sentigen Corp.,
and an increase of $28,442 in stock based compensation. These increases were
partially offset in part by a decrease of $45,294 in corporate overhead.

Income / Loss from Operations. Income from operations for the three
months ended June 30, 2003 was $141,881 compared to a loss from operations of
$90,834 for the three months ended June 30, 2002. The components of this
improvement are as follows:

The increase in the income from operations of CMT was driven by its 24%
increase in revenues together with higher gross margins due to reduced materials
costs. The loss from operations attributable to Sentigen Corp. increased due to
higher research and development and stock based compensation costs. The loss
from corporate activities decreased due to lower professional fees and travel
expenses during the quarter ended June 30, 2003 compared to the 2002 period.

Interest income. Interest income, net of interest expenses declined by
$54,432 due to the fall in yields on U.S. Treasury and money market securities
in which we invest our available cash.

18

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2003 TO SIX MONTHS ENDED JUNE 30, 2002

Revenues. Revenues for the six months ended June 30, 2003 were
$4,549,264 compared to revenue of $3,623,117 for the six months ended June 30,
2002. This increase of $926,147, or 26%, was the result of an increase of
$814,725, or 37%, in contract revenue from CMT's MCS division and an increase of
$111,422, or 8%, in revenue from CMT's SM division. Our revenues were entirely
attributable to the operations of CMT and its two divisions, MCS and SM.

An analysis of our revenues from the MCS division is as follows:

The contract revenue for high-throughput screening, or HTS, services is
derived from a retainer contract. The contract provides for payments of $200,000
per month, regardless of the volume of services performed during the month. The
term of the contract is for one year and ends on December 31, 2003. The 20%
increase in the revenues we received under the contract resulted from the
increase in HTS services required by the customer to support its HTS programs
during the six months ended June 30, 2003 compared to the six months ended June
30, 2002. We expect to enter into negotiations for a new 2004 HTS contract,
although we cannot assure you that we will be successful in this regard. The 53%
growth from other contracts was driven by: (1) mouse genetics services, (2)
protein expression services and (3) services for the pre-clinical analysis of
compound efficacy on diminishing or eliminating pathogen infection.

Revenues from the SM division grew 8% for the six months ended June 30,
2003 as compared to the six months ended June 30, 2002. This growth was driven
by three factors:

o an increase in sales of the SM division's line of Murine Embryonic
stem cells and feeder cells as well as media associated with this
product line;

o increase in sales of the SM division's proprietary formulations sold
under private label; and

o price increases implemented as of January 1, 2003.

Income after Direct Costs and Gross Margin. Income after direct costs
for the six months ended June 30, 2003 was $3,039,022 compared to income after
direct costs of $2,294,912 for the six months ended June 30, 2002. Gross margin
for the six months ended June 30, 2003 was 67% compared to 63% for the three
months ended June 30, 2002. This increase was driven by reduced direct materials
costs for both the MCS division, and the SM division.

Operating Expenses. Operating expenses for the six months ended June
30, 2003 were $2,626,280 compared to $2,624,085 for the six months ended June
30, 2002. Selling, general and administrative expenses of CMT increased 131,223
during the six months ended June 30, 2003 and depreciation and amortization
increased $26,879 for the same period. These increases were partially offset by
a decrease of $83,797 in corporate overhead , a decrease of $60,653 in stock
based compensation and a decrease of $11,457 in the research and development
costs of Sentigen Corp.

19

Income / Loss from Operations. Income from operations for the six
months ended June 30, 2003 was $412,742 compared to a loss from operations of
$329,173 for the six months ended June 30, 2002. The components of this
improvement are as follows:

The increased income from operations of CMT was driven by its 26%
increase in revenues. The revenue increase was augmented by higher gross margins
due to reduced materials costs. The loss from operations attributable to
Sentigen Corp. decreased due to lower research and development and stock based
compensation costs. The loss from corporate activities improved due to lower
professional fees and travel expenses during the six months ended June 30, 2003
compared to the 2002 period.

Interest income. Interest income, net of interest expenses declined by
$118,686 due to the fall in yields on U.S. Treasury and money market securities,
in which we invest our available cash.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2003 we had $10,114,783 in cash and working capital of
$10,281,522. During the six months ended June 30, 2003 we financed our
operations and capital expenditures through working capital.

On January 22, 2003 we sold our $5,250,000 face value, 2.125% U.S.
Treasury Note maturing on October 31, 2004. The proceeds from the sale were
reinvested in 90-day U.S. Treasury Bills. Capital gains recognized from the
transaction were minimal. This sale accounts for the majority of the $5,294,816
increase in cash and cash equivalents reported in our consolidated balance
sheet.

We believe our financial resources will be sufficient to fund our
operations and capital requirements for at least the next 12 months. However, we
may, in the future, need to obtain additional debt or equity financing to meet
our liquidity needs. It is possible that any such financing may be dilutive to
our stockholders and the terms of any debt financings likely could contain
restrictive covenants limiting our ability to do certain things, including
paying dividends. Our ability to obtain financing depends upon the status of our
future business prospects, as well as conditions prevailing in the capital
markets.

Cell & Molecular Technologies, Inc.

In October 2002, CMT leased equipment for use in the performance of
certain contracts in the MCS division. The lease qualified for treatment as a
capital lease for accounting purposes. At the inception of the lease, we
recorded the equipment on our balance sheet and an offsetting capital lease
liability of $95,945. We used a fixed interest rate of 7.40% to approximate the
borrowing rate for the lease. The equipment will be depreciated on a
straight-line basis through the term of the lease which expires in September
2005. Through June 30, 2003, we made rental payments of $27,050. Of those
payments, we applied $22,890 to the capital lease liability and $4,160 to
interest expense. As of June 30, 2003 the total remaining lease obligation
amounted to $73,055.

During the first quarter of 2001 we leased approximately 3,000 square
feet of laboratory space to accommodate CMT's High Throughput Screening
applications and assay development services group. In connection with this new
facility, CMT borrowed $404,337 under a $720,000 loan commitment to finance
capital equipment expenditures. In March 2002, CMT borrowed the remaining
$315,663 available under this loan commitment to finance capital expenditures
made in connection with our new facility in Phillipsburg, New Jersey. We are
required to repay this loan over a seven year period that commenced in June
2002. The terms of the loan

20

require CMT to maintain annual cash flow equal to 1.25 to 1.00 times the total
annual debt service of CMT and a ratio of debt to net worth of 3.00 to 1.00. CMT
complied with these terms as of and during the six months ended June 30, 2003.
Sentigen Holding Corp. guarantees this obligation of CMT. The unpaid principal
balance on this loan at June 30, 2003 was $630,626. On April 15, 2003, CMT
renegotiated the interest rate on this loan from a fixed rate of 7.40% to a
fixed rate of 5.250%. The amortization period of the loan remained unchanged.

Sentigen Corp.

In June 2001, Sentigen Corp. borrowed an additional $60,000 under its
existing $500,000 loan facility. This facility has a term of five years, may be
used to finance capital expenditures. Sentigen Holding Corp. guarantees this
obligation of Sentigen Corp. The loan also requires that Sentigen Holding Corp.
keep unencumbered liquid assets equaling two-times the combined outstanding loan
balances for Sentigen and CMT. We complied with these terms as of June 30, 2003.
As of June 30, 2003, Sentigen Corp. had borrowed a total of $300,000 under this
facility, and the unpaid principal balance on this loan was $126,217. On
February 5, 2003 we renegotiated the interest rate on this borrowing from the
fixed rate of 8.75% to a variable interest rate. The variable interest rate is
the prime rate plus 1.00% with a minimum interest rate of 5.50%.

Sentigen Corp. was formed in February of 2000 and is focusing on
research and development activities. Our licensing agreement with The Trustees
of the Columbia University in New York required us to contribute a minimum of
$1,000,000 into Sentigen Corp. within one year of the date of the agreement (by
April 2001) or we must have been involved in active negotiations to raise
$1,000,000 in additional funding. We satisfied this provision through the
consummation of our private placement in November 2000 in which we sold 863,834
shares of our common stock at $6.00 per share for aggregate gross proceeds of
$5,183,004.

Another provision of the agreement calls for a minimum of $50,000 per
six month period or $100,000 per annual period to be spent on bona fide research
and development of the patents and licenses subject to the agreement from the
second through the fourth years of the agreement (April 2002 through April 2004)
or we must be involved in active negotiation to raise $1,000,000 in additional
funding. We satisfied this provision through April 2002 and 2003 (the second and
third fiscal years of the license agreement). We believe that we have enough
capital resources to meet the financial requirements of this provision for the
agreement years 2004 and beyond.

There is no assurance that the technology involved in the research and
development activities related to the licensing agreement with The Trustees of
Columbia University will prove to be productive. In the event we decide to
terminate such activities, there will be associated costs to us, such as payment
to employees and expenses related to the closing of our facility at 3960
Broadway, New York, New York. No provisions have been made for such possible
further expense.

INFLATION

Inflation has historically not had a material effect on our operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations." This standard eliminates the pooling
method of accounting for business combinations initiated after June 30, 2001 and
addresses the accounting for intangible assets and goodwill acquired in a
business combination. The adoption of SFAS No. 141 did not have a material
effect on our financial position or results of operations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Intangible
Assets," which revises the accounting for purchased goodwill and intangible
assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives
are no longer amortized, but are tested for impairment annually or in the event
of an impairment indicator. SFAS No. 142 was effective January 1, 2002. The
adoption of SFAS No. 142 did not have a material effect on our financial
position or results of operations.

21

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The standard requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. SFAS No. 143 is effective for all fiscal years beginning after June
15, 2002. The adoption of SFAS No. 143 did not have a material effect on our
financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 144 requires that long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or discontinued operations. Therefore,
discontinued operations will no longer be measured at net realizable value or
include amounts for operating losses that have not yet occurred. SFAS No. 144
also broadens the reporting of discontinued operations to include all components
of an entity with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of their entity
in a disposal transaction. SFAS No. 144 was effective January 1, 2002. The
adoption of SFAS No. 144 did not have a material effect on our financial
position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements 4, 44 and 64, Amendment of FASB Statement 13, and Technical
Corrections." SFAS No. 145 is effective January 1, 2003. Among other things,
SFAS No. 145 requires that gains or losses on the extinguishment of debt will
generally be required to be reported as a component of income from continuing
operations and will no longer be classified as an extraordinary item. The
adoption of SFAS No. 145 did not have a material effect on our financial
position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability be recorded for such activities when the liability is
actually incurred, and unlike EITF 94-3, the existence of a plan does not
necessarily support the basis for the recording of a liability. SFAS No. 146 is
effective for all exit or disposal activities initiated after December 31, 2002.
The Company did not undertake any exit or disposal activities for the six months
ended June 30, 2003.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation --Transition and Disclosure, an amendment of SFAS No.
123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for the year ended December 31, 2002 and the
appropriate disclosures have been included herein.

22

The following table reconciles net loss and diluted earnings per share
(EPS), as reported, to pro-forma net loss and diluted EPS, as if the Company had
expensed the fair value of stock options as permitted by SFAS No. 123, as
amended by SFAS No. 148, since it permits alternative methods of adoption.

23

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
"Guarantor's Accounting And Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The interpretation also requires enhanced and additional
disclosures of guarantees in financial statements ending after December 15,
2002. In the normal course of business, the Company does not issue guarantees to
third-parties; accordingly, this interpretation does not effect the disclosures
included herein.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an interpretation of ARB 51." FIN No. 46 defines when a
business enterprise must consolidate a variable interest entity. This
interpretation applies immediately to variable interest entities created after
January 31, 2003. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The Company does not
have variable interest rate entities as of June 30, 2003.

In April 2003 the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No.
133 for certain decisions made by the Board as part of the Derivatives
Implementation Group (DIG) process and is effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. In addition, SFAS No. 149 should be applied prospectively. The
provisions of SFAS No. 149 that relate to SFAS No. 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. The company is not involved in any hedging activities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

We are exposed to market risk for the effect of interest rate changes
on our U.S. Treasury securities, money market securities and variable rate bank
debt. We are not currently exposed to any foreign currency risks. Other
information relating to quantitative and qualitative disclosure about market
risk is set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

INTEREST RATE RISK

Our exposure to market risk for changes in interest rates relates
primarily to our cash, investment securities and our long-term debt. We
generally invest our excess cash in U.S. Treasury securities of short- to
intermediate-term and money market mutual funds. Fixed rate securities may have
their fair market value adversely affected due to a rise in interest rates, and
we may suffer losses in principal if forced to sell securities that have
declined in market value due to changes in interest rates prior to maturity.

At June 30, 2003, we have total debt of $1,164,893. This debt consists
of a capital lease, three bank notes used for equipment financing and a mortgage
on our executive office at 580 Marshall Street, Phillipsburg, New Jersey 08865.
Our payment commitments under these debt instruments are comprised of interest
and principal payments. We may incur additional interest expense over the
repayment period with increases in the prime rate of interest.

On February 5, 2003, CMT renegotiated the interest rate on its
equipment loan maturing August 2004 from a fixed rate of 8.75% to a variable
interest rate. The variable interest rate is the prime rate of interest plus
1.00% with a minimum interest rate of 5.50%.

On February 5, 2003, Sentigen Corp. renegotiated the interest rate on
its equipment loan maturing May 2005 from a fixed rate of 8.75% to a variable
interest rate. The variable interest rate is the prime rate of interest plus
1.00% with a minimum interest rate of 5.50%.

24

The interest rate on CMT's mortgage obligation maturing in August 2017
is a variable interest rate which resets every 3 years. The interest rate reset
in February 2003 from an interest rate of 9.50% to a rate of 5.00%.

On April 15, 2003, CMT renegotiated the interest rate on its equipment
loan, maturing May 2009 from a fixed rate of 7.40% to a fixed rate of 5.25%. The
amortization period of the loan remained unchanged.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective in timely alerting them to
material information relating to our company (including its consolidated
subsidiaries) required to be included in our periodic SEC filings. There have
not been any changes in our internal control over financial reporting during
the fiscal quarter to which this report relates that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

RECENT ISSUANCES OF UNREGISTERED SECURITIES

Not applicable.

USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF SENTIGEN
HOLDING CORP. PURSUANT TO RULE 13a-14 AND 15d-14 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF SENTIGEN
HOLDING CORP. PURSUANT TO RULE 13a-14 AND 15d-14 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED

32.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF SENTIGEN
HOLDING CORP.PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

32.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF SENTIGEN
HOLDING CORP. PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(b) Reports on Form 8-K

None.

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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.

SENTIGEN HOLDING CORP.

Dated: August 14, 2003
By: /s/ Fredrick B. Rolff
----------------------------------------
Fredrick B. Rolff,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

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