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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------
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 MARCH 31, 2004
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 Identification
Incorporation or Organization) Number)
580 Marshall Street
Phillipsburg, New Jersey 08865
(908) 387-1673
- --------------------------------------------------------------------------------
(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 May 14, 2004 the registrant had outstanding 7,464,474 shares of its Common
Stock, $.01 par value.
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION ................................................. 3
Item 1. Consolidated Financial Statements ..................................... 3
Consolidated Balance Sheets
March 31, 2004 (Unaudited) and December 31, 2003 ............. 3
Consolidated Statements of Operations (Unaudited)
For the three months ended, March 31, 2004 and 2003 .......... 4
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended, March 31, 2004 and 2003 .......... 5
Notes to Consolidated Financial Statements (Unaudited) ................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 11
Item 3. Quantitative and Qualitative Disclosure of Market Risk ................ 19
Item 4. Controls and Procedures ............................................... 19
PART II. OTHER INFORMATION ..................................................... 20
Item 1. Legal Proceedings ..................................................... 20
Item 2. Changes in Securities and Use of Proceeds ............................. 20
Item 3. Default Upon Senior Securities ........................................ 20
Item 4. Submission of Matters to a Vote of Security Holders ................... 20
Item 5. Other Information ..................................................... 20
Item 6. Exhibits and Reports on Form 8-K ...................................... 20
SIGNATURES ..................................................................... 21
Exhibit 31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF SENTIGEN
HOLDING CORP. PURSUANT TO RULE 13a-15 AND 15d-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED 22
Exhibit 31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF SENTIGEN
HOLDING CORP. PURSUANT TO RULE 13a-15 AND 15d-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED 23
Exhibit 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 24
Exhibit 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 25
2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2004 2003
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 9,901,391 $ 10,086,952
Accounts receivable - net of allowance for doubtful accounts
of $45,000 for 2004 and 2003 822,916 940,570
Unbilled services 22,273 4,650
Inventory 275,859 241,134
Accrued interest receivable 29,614 4,156
Prepaid expenses 156,946 70,396
------------ ------------
11,208,999 11,347,858
------------ ------------
Property, plant and equipment 3,847,113 3,736,039
Equipment under capital lease 130,945 130,945
Less: accumulated depreciation 2,574,046 2,463,384
------------ ------------
1,404,012 1,403,600
------------ ------------
Other assets
Security deposits 20,411 20,411
Deferred financing costs - net of accumulated amortization
of $5,951 for 2004 and $5,584 for 2003 7,709 8,076
License costs - net of accumulated amortization
of $103,671 for 2004 and $97,191 for 2003 336,954 343,434
------------ ------------
365,074 371,921
------------ ------------
Total assets $ 12,978,085 $ 13,123,379
============ ============
Liabilities and stockholders' equity
Current liabilities
Current maturities of long-term debt $ 193,028 $ 211,927
Liability under capital lease - current portion 45,205 44,448
Accounts payable and accrued expenses 1,214,757 892,059
Customer deposits 164,077 234,570
Unearned revenue 20,321 8,600
------------ ------------
1,637,388 1,391,604
Liability under capital lease - long-term 30,894 42,483
Long-term debt - net of current maturities 714,498 758,098
------------ ------------
Total liabilities 2,382,780 2,192,185
------------ ------------
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, 7,457,224 and 7,454,744 shares issued
and outstanding in 2004 and 2003, respectively 74,572 74,547
Additional paid-in capital 13,836,979 13,185,570
Accumulated deficit (3,316,246) (2,328,923)
------------ ------------
Total stockholders' equity 10,595,305 10,931,194
------------ ------------
Total liabilities and stockholders' equity $ 12,978,085 $ 13,123,379
============ ============
See notes to consolidated financial statements.
3
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
------------------------------
March 31, 2004 March 31, 2003
-------------- --------------
Revenue
Molecular cell science $ 1,330,217 $ 1,418,772
Specialty media 816,500 766,245
------------ ------------
2,146,717 2,185,017
------------ ------------
Direct costs
Molecular cell science 526,132 410,964
Specialty media 298,489 277,552
------------ ------------
824,621 688,516
------------ ------------
Income after direct costs
Molecular cell science 804,085 1,007,808
Specialty media 518,011 488,693
------------ ------------
1,322,096 1,496,501
------------ ------------
Operating expenses
Selling, general and administrative costs 632,137 586,510
Research and development 407,012 227,347
Corporate overhead 491,520 273,086
Stock based compensation 648,565 16,466
Depreciation and amortization 117,509 122,231
------------ ------------
2,296,743 1,225,640
------------ ------------
(Loss) income from operations (974,647) 270,861
------------ ------------
Interest income 27,706 24,580
Interest expense 13,657 19,387
------------ ------------
Interest income, net of interest expense 14,049 5,193
------------ ------------
(Loss) income before provision for income taxes (960,598) 276,054
Provision for income taxes 26,725 39,914
------------ ------------
Net (loss) income $ (987,323) $ 236,140
============ ============
Net (loss) income per share:
Basic $ (0.13) $ 0.03
============ ============
Diluted $ (0.13) $ 0.03
============ ============
Weighted average shares outstanding:
Basic 7,455,984 7,452,044
============ ============
Diluted 7,455,984 7,638,807
============ ============
See notes to consolidated financial statements.
4
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Unaudited)
For the Three Months Ended
------------------------------
March 31, 2004 March 31, 2003
-------------- --------------
Cash Flows from Operating Activities
Net (loss) income $ (987,323) $ 236,140
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 117,509 122,231
Stock based compensation 648,565 16,466
(Increase) decrease in:
Accounts receivable, net of allowance 117,654 (196,564)
Unbilled services (17,623) (965)
Inventory (34,725) (60,213)
Accrued interest receivable (25,458) 18,645
Prepaid expenses (86,550) 13,543
Increase (decrease) in:
Accounts payable and accrued expenses 322,698 89,720
Customer deposits (70,493) (240,223)
Unearned revenue 11,721 26,102
------------ ------------
Cash (used in) provided by operating activities (4,025) 24,882
------------ ------------
Cash Flows from Investing Activities
Acquisitions of property and equipment (111,074) (37,512)
Sales of investment securities - 5,293,602
------------ ------------
Cash (used in) provided by investing activities (111,074) 5,256,090
------------ ------------
Cash Flows from Financing Activities
Repayments of long term debt (62,499) (57,664)
Payments on capital lease obligations (10,832) (7,434)
Cash received from stock options exercised 2,869 2,000
------------ ------------
Cash (used in) financing activities (70,462) (63,098)
------------ ------------
Decrease in cash and cash equivalents (185,561) 5,217,874
Cash and cash equivalents - beginning of period 10,086,952 4,819,967
------------ ------------
Cash and cash equivalents - end of period $ 9,901,391 $ 10,037,841
------------ ------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period:
Interest $ 13,657 $ 19,387
============ ============
Income taxes $ - $ 33,000
============ ============
See notes to consolidated financial statements.
5
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, March 31, 2004 (Unaudited)
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 Biosciences, Inc. ("Sentigen Biosciences," formerly
Sentigen Corp.). CMT provides contract research and development
services and manufactures specialty cell culture media, reagents and
other research products for companies engaged in the drug discovery
process. Sentigen Biosciences is primarily engaged in the development
and commercialization of novel bioassay systems that elucidate the
underlying biology of protein-protein interactions. Sentigen
Biosciences is initially targeting its Tango(TM) Assay System to
address the functionalization of G protein-coupled receptors (GPCRs)
for pharmaceutical drug discovery and development. Sentigen Biosciences
has filed patent applications on its Assay System and expects to file
additional patent applications on this technology in the future.
CMT operates through two divisions -- Molecular Cell Science ("MCS")
and Specialty Media ("SM"). MCS provides contract research and
development services and High Throughput Screening support services to
companies engaged in the drug discovery process. SM develops,
manufactures, and markets high quality cell culture media, reagents and
other research products.
The operations of Sentigen Biosciences are reflected as research and
development expenses in our consolidated statements of operations.
Sentigen Biosciences' operations, since its inception in February 2000,
consist entirely of research and development.
The expenses of the parent company, 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 the chairman of the board,
chief financial officer, executive vice president of commercial
operations and administrative assistant, (2) professional fees for
legal and accounting services, (3) office rental, utilities and
communication costs, (4) stock market listing fees and other related
public company expenses and (5) business travel expenses.
We were incorporated under the laws of the State of Delaware in May
1990. After having engaged in the acquisition and operation of
different businesses 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 on May 6, 1997 to
acquire all of the outstanding stock in each 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, and
changed its name to Sentigen Biosciences, Inc. on February 24, 2004. We
changed our name from Prime Cellular Inc. 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. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Sentigen Holding Corp. and subsidiaries should be read in conjunction
with the audited financial statements and notes thereto included in our
annual report on Form 10-K for the year ended December 31, 2003, as
filed with the Securities and Exchange Commission. The accompanying
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP") for interim
financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, since they are
interim statements, the accompanying financial statements do not
include all of the information and notes required by GAAP for complete
financial statements. The accompanying financial statements reflect all
adjustments, consisting of normal recurring adjustments, that are, in
the opinion of management, necessary for a fair statement of the
results of operations for the interim periods presented. Interim
results are not necessarily indicative of results for a full year.
6
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect
amounts reported in the financial statements and notes thereto. A
discussion of the Company's critical accounting policies and management
estimates is described in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in
this quarterly report on Form 10-Q.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("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 an 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 an 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. We did not undertake any exit or disposal
activities for the three months ended March 31, 2004.
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.
7
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.
For the three months
ended
March 31,
----------------------------
2004 2003
------------ ------------
Net Loss:
As reported $ (987,323) $ 236,140
Pro-forma expense as if
stock options were charged
against net loss (87,995) (37,856)
------------ ------------
Pro-forma net loss
using the fair value method $ (1,075,318) $ 198,284
============ ============
Diluted EPS:
As reported $ (0.13) $ 0.03
Pro-forma using the fair
value method $ (0.14) $ 0.03
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, we do 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, as restated by FIN No.
46R, "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 December 15,
2003, to entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. We do not have variable interest
entities as of March 31, 2004.
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 FASB 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. We
are not involved in any hedging activities.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 addresses how certain financial instruments with
characteristics of both liabilities and equity should be classified and
measured. The adoption of SFAS No. 150 did not have an effect on the
Company's financial position.
8
4. SEGMENT INFORMATION
We operate through our two wholly-owned subsidiaries, CMT and Sentigen
Biosciences. CMT is evaluated on the performance of its two divisions,
MCS and SM. Sentigen Biosciences is engaged in research and
development. We consider MCS, SM and Sentigen Biosciences as our three
separate and distinct reportable operating segments. The accounting
policies of the segments are the same as those described in "Critical
Accounting Policies" appearing elsewhere in this quarterly report. 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.
For the Three Months Ended
--------------------------
March 31, March 31,
2004 2003
----------- -----------
Revenues
MCS $ 1,362,980 $ 1,442,524
SM 816,500 766,245
Sentigen Biosciences - -
----------- -----------
Revenues for reportable segments 2,179,480 2,208,769
Elimination of intersegment revenues (32,763) (23,752)
----------- -----------
Total Reported $ 2,146,717 $ 2,185,017
----------- -----------
Income (Loss) from Operations
MCS $ 179,196 $ 462,782
SM 339,723 326,084
Sentigen Biosciences (820,432) (241,643)
----------- -----------
Income from operations for reportable segments (301,513) 547,223
Corporate loss unallocated to reportable segments (673,134) (276,362)
----------- -----------
Total Reported $ (974,647) $ 270,861
----------- -----------
Depreciation and Amortization
MCS $ 77,009 $ 81,241
SM 24,095 21,296
Sentigen Biosciences 14,905 16,418
----------- -----------
Depreciation and amortization for
reportable segments 116,009 118,955
Corporate depreciation and amortization
unallocated to segments 1,500 3,276
----------- -----------
Total Reported $ 117,509 $ 122,231
----------- -----------
March 31, December 31,
2004 2003
----------- -----------
Segment Assets
MCS $ 1,406,837 $ 1,486,108
SM 972,861 990,133
Sentigen Biosciences 497,202 459,919
----------- -----------
Total assets for reportable segments 2,876,900 2,936,160
Corporate assets unallocated to segments 10,101,185 10,187,219
----------- -----------
Total Reported $12,978,085 $13,123,379
----------- -----------
9
5. INVENTORY
Inventory as of March 31, 2004 and December 31, 2003 is entirely
comprised of the physical inventory of the SM Division. Components of
physical inventory as of March 31, 2004 and December 31, 2003 are as
follows:
March 31, December 31,
2004 2003
-------- ------------
Finished goods $170,742 $ 139,020
Packaging materials 30,243 30,019
Raw materials 74,874 72,095
-------- ------------
Total inventory $275,859 $ 241,134
======== ============
6. EARNINGS PER SHARE
Basic loss per share is calculated by dividing net loss by the weighted
average number of common shares outstanding for the respective periods.
Diluted 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 three months ended March 31, 2004
because SFAS No. 128 "Earnings per Share," prohibits adjusting the
denominator of diluted EPS for additional potential common shares when
a net loss from continuing operations is reported. For the quarter
ended March 31, 2003, 186,803 shares of potential common stock were
included in the calculation of diluted earnings per share.
10
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 behalf of us. These
risks and uncertainties include, but are not limited to, risks associated with
our history of consolidated net losses; our dependence on a limited number of
customers; our dependence on research and development expenditures by the
pharmaceutical and biotechnology industries; our need for additional capital to
finance our expanding research and development programs; changes in customer
preferences; the ability to hire and retain key personnel; compliance with
federal or state environmental laws and other laws, changes in such laws and the
administration of such laws; protection of patents, trademarks and other
proprietary rights; technological change, competitive factors and 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, Cell & Molecular Technologies, Inc. ("CMT"), and
Sentigen Biosciences. CMT provides contract research and development services
and manufactures specialty cell culture media, reagents and other research
products for companies engaged in the drug discovery process. Sentigen
Biosciences is primarily engaged in the development and commercialization of
novel bioassay systems that elucidate the underlying biology of protein-protein
interactions. Sentigen Biosciences is initially targeting its Tango Assay System
to address the functionalization of G protein-coupled receptors (GPCRs) for
pharmaceutical drug discovery and development. Sentigen Biosciences has filed
patent applications on its Assay System and expects to file additional patent
applications on this technology in the future.
CMT operates through two divisions -- Molecular Cell Science ("MCS")
and Specialty Media ("SM"). MCS provides contract research and development
services and High Throughput Screening support services to companies engaged in
the drug discovery process. SM develops, manufactures and markets specialty cell
culture media, reagents and other research products.
The cost of our research programs at Sentigen Biosciences is exceeding
the income provided by CMT, primarily accounting for the increased loss from
operations for the quarter ended March 31, 2004. CMT's revenues for the quarter
ended March 31, 2004 declined 2% when compared to the same period in 2003. If
CMT is not successful in increasing its revenues and its income does not
increase commensurate with the increased research and development expenditures
by Sentigen Biosciences, our losses could increase.
Sentigen Biosciences has been primarily focused on research and
development, and has participated in various scientific and industry conferences
and met with leading pharmaceutical, biotechnology and agricultural companies in
an effort to raise awareness of its technologies among constituents in those
communities. Sentigen Biosciences intends to seek strategic discovery and
development partnerships around key molecular targets with biotechnology,
pharmaceutical and other life sciences research institutions and although
introductory meetings have begun, no assurance can be given that any such
partnerships will be successfully entered into. Sentigen Biosciences also
intends to expand its research and development programs and we may seek to
obtain additional debt or equity financing to fund these expanded research and
development programs.
11
CRITICAL ACCOUNTING POLICIES
Cell & Molecular Technologies, Inc.
Management evaluates the performance of CMT through its two divisions
(both are treated as separate business segments). Revenue, income after direct
costs (also referred to as "gross margin on revenues" or "gross margin") 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 provide for payments after specific
research milestones are achieved. Revenues from fixed price contracts with a
term of more than 12 months are recognized using the percentage-of-completion
method for fixed price contracts. Work-in-process, representing time and costs
incurred on projects in process in excess of amounts billed to customers, are
recorded as "Unbilled services" on our consolidated balance sheets. Unearned
revenue represents amounts billed in excess of costs incurred and are recorded
as liabilities on our consolidated balance sheets. Revenues for fixed price
contracts with a term of less than 12 months are recognized when specific
research milestones are achieved. Revenues from the product sales of the SM
division are recognized upon transfer of title and transfer of risk of loss to
the product, which generally occurs upon shipment to the customer.
Direct Costs. The major classes of direct costs for the MCS division
are as follows: (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 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. 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 are as follows: (1)
compensation and employee benefit costs of CMT's management, sales, and
administrative staff, (2) 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 accounting services.
Sentigen Biosciences
The operations of Sentigen Biosciences are reflected as research and
development expenses in our consolidated statements of operations. Sentigen
Biosciences operations, since its inception in February 2000, consist entirely
of research and development. Research and development costs are expensed as such
costs are incurred.
Sentigen Holding Corp.
The expenses of the parent company, 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 the chairman of the board, chief financial officer,
executive vice president of commercial operations and administrative assistant,
(2) professional fees for legal and accounting services, (3) office rental,
utilities and communication costs, (4) stock market listing fees and other
related public company expenses and (5) business travel expenses.
12
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. Management bases 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. Our consolidated balance sheet
includes a reserve against receivables for estimated losses that may result from
customers' inability to pay. Management determines the amount of the reserve by
analyzing uncollectible accounts, aged receivables, and customers'
creditworthiness. Amounts later determined and specifically identified to be
uncollectible are charged against this reserve. To minimize the likelihood of
uncollectible accounts, customers' creditworthiness is reviewed periodically
based on our experience with the customer and external credit services (if
necessary) and adjusted accordingly. Should a customer's account become past
due, a hold is generally placed on the account and further shipments or services
are discontinued to that customer, minimizing further risk of loss.
Additionally, all accounts with aged balances greater than one year are fully
reserved.
Inventory valuation. Inventories are stated at the lower of cost or
market. Management reviews the components of inventory on a regular basis for
excess, obsolete and impaired inventory based on estimated future usage and
sales. Stock levels generally do not exceed one quarter's expectation of usage
or sales. Inventories were stated at $275,859 and no reserve for impairment or
obsolescence was necessary as of March 31, 2004.
Impairment of intangibles. Our intangible assets consist primarily of
license costs of $336,954 as of March 31, 2004, and are the result of the
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 the agreement with the Trustees of Columbia
University) less accumulated amortization. The value of the license is subject
to an amortization period of 17 years. Management reviews 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 March
31, 2004.
Revenue recognition. Revenues from the MCS division for contracts with
a term of more than 12 months 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. Management uses estimates of remaining costs to complete each contract
to determine the revenue and profitability on each contract. Management
reevaluates 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 that the exercise
price is equal to the market price at the date of the grants. Options granted to
non-employees are valued at either 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.
The Black-Scholes model requires management to estimate common stock price
volatility, risk-free interest rates and other parameters in order to determine
the fair value of an option grant. We also adopted
13
the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation
- --Transition and Disclosure, an amendment of SFAS No. 123."
OFF-BALANCE-SHEET ARRANGEMENTS
As of March 31, 2004, we did not have any off-balance-sheet
arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 TO THE THREE MONTHS ENDED
MARCH 31, 2003
Revenues. Revenues for the three months ended March 31, 2004 were
$2,146,717 compared to revenues of $2,185,017 for the three months ended March
31, 2003. This decrease of $38,300, or 2%, was the result of a decrease of
$88,555, or 6%, in contract revenue from CMT's MCS division, offset by an
increase of $50,255, or 7%, 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:
For the Three Months Ended
March 31,
-------------------------- Percent
2004 2003 Change
---------- ---------- ------
HTS contract $ 622,273 $ 600,000 4%
All other contracts 707,944 818,772 (14%)
---------- ----------
Total $1,330,217 $1,418,772 (6%)
========== ==========
The contract revenue for high-throughput screening, or HTS, services is
derived from a contract with one customer. The contract has a term of one year,
ending on December 31, 2004. The contract provides for payments to CMT of
$200,000 per month in exchange for a fixed number of cell and reagent deliveries
to support the customer's HTS program. Should actual deliveries during 2004
exceed the fixed number of deliveries provided for in the contract additional
deliveries will be billed at the rate of $909 per delivery. The 4% increase in
revenues from the HTS contract results from 24.5 deliveries in excess of the
fixed number of deliveries provided for in the contract for the first quarter of
2004.
The contract also provides for a credit against other services (outside
the scope of the base contract) performed for the customer in 2005 should actual
deliveries during 2004 fall below the fixed number of deliveries provided for in
the contract. The contract states that the credit against the value of future
additional services performed in 2005 cannot exceed 30% of the value of the
additional services performed in addition to the base contract value for 2004.
At March 31, 2004 we made a provision for unearned revenue in the amount of
$4,163 to account for the value of the potential credit in 2005.
The 14% decline in other contracts was driven primarily by the
termination of a contract for the pre-clinical analysis of compound efficacy on
diminishing or eliminating pathogen infection using the Taqman(TM) assay.
Revenues from the SM division grew 7% for the three months ended March
31, 2004 as compared to the three months ended March 31, 2003. The increase was
generally the result of the price increases (approximately 3% across all product
lines) implemented on January 1, 2004. The remaining 4% increase is the result
of increased direct sales to customers.
Income after Direct Costs and Gross Margin. Income after direct costs
for the three months ended March 31, 2004 was $1,322,096 compared to income
after direct costs of $1,496,501 for the three months ended March 31,
14
2003. Gross margin for the three months ended March 31, 2004 was 62% compared to
68% for the three months ended March 31, 2003. The decline was due to higher
direct labor and materials costs in the MCS division.
Operating Expenses. Operating expenses for the three months ended March
31, 2004 were $2,296,743 compared to $1,225,640 for the three months ended March
31, 2003. This increase of $1,071,103, or 87%, was primarily attributable to the
following:
- An increase of $45,627, or 8% in the selling, general and
administrative expenses of CMT, attributable to higher compensation
costs and higher marketing and sales expenses;
- An increase of $179,665, or 79% in research and development costs. The
increase is primarily attributable to the increased costs associated
with the expansion of our research programs at Sentigen Biosciences. It
is believed that these costs will continue to increase as we pursue our
drug discovery initiatives;
- An increase of $218,434 or 80% in corporate overhead due to increased
compensation expenses, higher professional fees and travel expenses.
- An increase in stock based compensation of $632,099. The increase in
stock based compensation results primarily from the increase in the
fair values of stock options granted to non-employee scientific
consultants and directors. The increase in the fair values of the stock
options is primarily the result of the increase in the price of our
common stock during the three months ended March 31, 2004 when compared
to the three months ended March 31, 2003.
- These increases were partially offset by a decrease of $4,722 in
depreciation and amortization.
Income / Loss from Operations. Loss from operations for the three
months ended March 31, 2004 was $970,484 compared to income from operations of
$270,861 for the three months ended March 31, 2003. The components of this
increase are as follows:
For the Three Months Ended
March 31,
---------------------------- Percent
2004 2003 Change
------------ ------------ -------
CMT $ 518,919 $ 788,866 (34%)
Sentigen Biosciences (820,432) (241,643) 240%
Holding company expenses (673,134) (276,362) 144%
------------ ------------
Total $ (974,647) $ 270,861 (460%)
============ ============
The decline in the income from operations of CMT was driven by its
decline in revenues, income after direct costs and increases in operating
expenses. The loss from operations attributable to Sentigen Biosciences
increased due to higher research and development costs and stock based
compensation costs. Holding company expenses increased due to higher
compensation costs, professional fees and travel expenses.
Interest income. Interest income, net of interest expenses increased by
$8,856 due to lower interest expenses on our debt balances.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003 we had $9,901,391 in cash and cash equivalents and
working capital of $9,571,611. During the three months ended March 31, 2004 we
financed our operations and capital expenditures primarily through working
capital.
On January 22, 2003 we sold $5,250,000 face value, 2.125% U.S. Treasury
Notes 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 $5,266,985 increase in
cash and cash equivalents reported in our consolidated statement of cash flows
for the three months ended March 31, 2003.
15
We believe that our financial resources will be sufficient to fund
operations and capital requirements for at least the next 12 months. However, we
may seek to obtain additional debt or equity financing to fund expanded research
and development programs. It is possible that any such financing may be dilutive
to current 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 future business prospects, as well as conditions prevailing in the
capital markets.
Cell & Molecular Technologies, Inc.
In July 2003, 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, equipment
and an offsetting capital lease liability was recorded on our consolidated
balance sheet in the amount of $35,000. We used a fixed interest rate of 5.00%
to approximate the borrowing rate for the lease. The equipment is being
depreciated on a straight-line basis through the term of the lease which expires
in June 2006. Rental payments for the three months ended March 31, 2004 totaled
$3,187. Of those payments, $2,830 was applied to the capital lease liability and
$357 was applied to interest expense. As of March 31, 2004 the total remaining
lease obligation amounted to $26,615.
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, equipment
and an offsetting capital lease liability was recorded on our consolidated
balance sheet in the amount of $95,945. We used a fixed interest rate of 7.40%
to approximate the borrowing rate for the lease. The equipment is being
depreciated on a straight-line basis through the term of the lease which expires
in September 2005. Rental payments for the three months ended March 31, 2004
totaled $9,016. Of those payments, $8,002 was applied to the capital lease
liability and $1,014 was applied to interest expense. As of March 31, 2004 the
total remaining lease obligation amounted to $49,484.
During the first quarter of 2001, CMT leased approximately 3,000 square
feet of laboratory space to accommodate its High Throughput Screening support
services group. In connection with the leasing of this 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 its
leased facility in Phillipsburg, New Jersey. CMT is required to repay this loan
over a seven year period that commenced in June 2002. The terms of the loan
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 three months ended March 31,
2004. Sentigen Holding Corp. guarantees this obligation of CMT. The unpaid
principal balance on this loan at March 31, 2004 was $561,178. On April 15,
2003, CMT renegotiated the interest rate on this loan from a fixed rate of 7.40%
to a fixed rate of 5.25%. The amortization period of the loan remained
unchanged.
Sentigen Biosciences
In June 2001, Sentigen Biosciences borrowed an additional $60,000 under
a $500,000 loan facility. We are no longer able to borrow under this facility.
Sentigen Holding Corp. guarantees this obligation of Sentigen Biosciences. 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 March 31, 2004. The loan is being amortized
over a five year period and at March 31, 2004, Sentigen Biosciences had borrowed
a total of $300,000 under this facility, and the unpaid principal balance on
this loan was $74,706. On February 5, 2003 Sentigen Biosciences 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 Biosciences 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 Biosciences within one year of the date of the
agreement (by April 2001) or we must be involved in active negotiations to raise
$1,000,000 in additional funding. We satisfied
16
this provision through the consummation of a 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 requires that a minimum of $50,000
per six month period or $100,000 per annual period 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 2004.
There is no assurance that the technology related to the licensing
agreement with The Trustees of Columbia University or other technologies
involved in the research and development activities of Sentigen Biosciences 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 its 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 August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("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 an 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 an 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.
We did not undertake any exit or disposal activities for the three months ended
March 31, 2004.
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.
17
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.
For the three months
ended
March 31,
---------------------------
2004 2003
------------ ------------
Net Loss:
As reported $ (987,323) $ 236,140
Pro-forma expense as if
stock options were charged
against net loss (87,995) (37,856)
------------ ------------
Pro-forma net loss
using the fair value method $ (1,075,318) $ 198,284
============ ============
Diluted EPS:
As reported $ (0.13) $ 0.03
Pro-forma using the fair value method $ (0.14) $ 0.03
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, we do 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, as restated by FIN No.
46R, "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 December 15, 2003, to entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
We do not have variable interest entities as of March 31, 2004.
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 FASB 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. We are not involved in any hedging activities.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 addresses how certain financial instruments with characteristics of both
liabilities and equity should be classified and measured. The adoption of SFAS
No. 150 did not have an effect on the Company's financial position.
18
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
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."
Our exposure to market risk for changes in interest rates relates
primarily to our cash and cash equivalents, investment securities and 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 March 31, 2004, we have total debt of $983,625. This debt consists
of two capital leases, three bank notes used for equipment financing and a
mortgage on our executive office at 580 Marshall Street, Phillipsburg, New
Jersey 08865. The 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 Biosciences renegotiated the interest
rate on its equipment loan maturing April 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%.
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.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT ISSUANCES OF UNREGISTERED SECURITIES
None.
USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
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-15 AND 15d-15 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-15 AND 15d-15 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
20
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: May 14, 2004
By: /s/ Fredrick B. Rolff
------------------------------------
Fredrick B. Rolff,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
21