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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, 2005
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 Number)
Incorporation or Organization)
445 Marshall Street, Phillipsburg, NJ 08865
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(908) 387-1673
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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 5, 2005 the registrant had outstanding 7,474,542 shares of its Common
Stock, $.01 par value.
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SENTIGEN HOLDING CORP. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION......................................................................... 3
Item 1. Consolidated Financial Statements.......................................................... 3
Consolidated Balance Sheets
March 31, 2005 (Unaudited) and December 31, 2004................................ 3
Consolidated Statements of Operations (Unaudited)
For the three months ended, March 31, 2005 and 2004............................. 5
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended, March 31, 2005 and 2004............................. 7
Notes to Consolidated Financial Statements (Unaudited).................................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................ 15
Item 3. Quantitative and Qualitative Disclosure of Market Risk..................................... 22
Item 4. Controls and Procedures.................................................................... 23
PART II. OTHER INFORMATION........................................................................... 23
Item 1. Legal Proceedings.......................................................................... 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds................................ 23
Item 3. Defaults Upon Senior Securities............................................................ 23
Item 4. Submission of Matters to a Vote of Security Holders........................................ 23
Item 5. Other Information.......................................................................... 23
Item 6. Exhibits ................................................................................ 23
SIGNATURES
Exhibit 31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF
SENTIGEN HOLDING CORP. PURSUANT TO RULE 13a-14(a) AND
15d-14(a) UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS
AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF
SENTIGEN HOLDING CORP. PURSUANT TO RULE 13a-14(a) AND
15d-14(a) UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS
AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
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
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
2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets (page 1 of 2)
(Unaudited)
March 31, December 31,
2005 2004
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 708,875 $ 347,560
U.S. treasury notes, available for sale, at fair value 14,553,678 9,738,938
Restricted cash held in escrow from sale of assets 516,419 --
Assets held for sale -- 1,173,962
Accounts receivable - net of allowance for doubtful accounts
of $40,000 for 2005 and 2004 509,857 616,831
Accrued interest receivable 131,511 39,844
Prepaid expenses 199,584 193,542
----------- -----------
16,619,924 12,110,677
----------- -----------
Property, plant and equipment 3,124,841 3,106,815
Equipment under capital lease 197,777 197,777
Less: accumulated depreciation 2,487,622 2,365,326
----------- -----------
834,996 939,266
----------- -----------
Other assets
Security deposits 21,111 21,111
Deferred financing costs - net of accumulated amortization
of $3,326 for 2004 -- 174
License costs - net of accumulated amortization
of $129,590 for 2005 and $123,110 for 2004 311,035 317,515
----------- -----------
332,146 338,800
----------- -----------
Total assets $17,787,066 $13,388,743
=========== ===========
(Consolidated Balance Sheets are continued on the next page)
See notes to consolidated financial statements.
3
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets (page 2 of 2)
(Unaudited)
March 31, December 31,
2005 2004
------------ ------------
Liabilities and stockholders' equity
Current liabilities
Current maturities of long-term debt $ 105,324 $ 122,367
Liability under capital lease - current
portion 50,139 58,331
Liabilities held for sale -- 467,438
Accounts payable and accrued expenses 2,139,867 968,820
Customer deposits 450,879 910,295
Unearned revenue 14,045 14,045
------------ ------------
2,760,254 2,541,296
Liability under capital lease - long-term 26,745 35,451
Long-term debt - net of current maturities 723,885 749,044
------------ ------------
Total liabilities 3,510,884 3,325,791
------------ ------------
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, 7,471,692 and 7,470,692 shares issued
and outstanding in 2005 and 2004, respectively 74,716 74,706
Additional paid-in capital 14,037,332 14,035,532
Accumulated other comprehensive loss (164,516) (3,843)
Retained earnings (accumulated deficit) 328,650 (4,043,443)
------------ ------------
Total stockholders' equity 14,276,182 10,062,952
------------ ------------
Total liabilities and stockholders' equity $ 17,787,066 $ 13,388,743
============ ============
See notes to consolidated financial statements.
4
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations (page 1 of 2)
(Unaudited)
For the Three Months Ended
March 31,
2005 2004
----------- -----------
Revenue
Molecular cell science $ 1,597,704 $ 1,330,217
Federal contracts 163,812 --
----------- -----------
1,761,516 1,330,217
Direct Costs
Molecular cell science 600,602 526,132
Federal contracts 99,762 --
----------- -----------
700,364 526,132
Income After Direct Costs
Molecular cell science 997,102 804,085
Federal contracts 64,050 --
----------- -----------
1,061,152 804,085
Operating Expenses
Selling, general and administrative costs 545,824 482,741
Research and development 415,548 402,215
Federal contracts 56,250 --
Corporate overhead 538,887 491,520
Stock based compensation -- 648,565
Depreciation and amortization 128,950 93,414
----------- -----------
1,685,459 2,118,455
Operating loss (624,307) (1,314,370)
Interest income 95,187 27,706
Interest expense 12,628 10,745
----------- -----------
82,559 16,961
Loss from continuing operations before provision for income tax (541,748) (1,297,409)
Provision for income taxes 9,480 9,354
----------- -----------
Loss from continuing operations (551,228) (1,306,763)
Income from discontinued operations, net of tax
(including gain on disposal of $4,773,810, net of tax for 2005) 4,923,322 319,440
----------- -----------
Net income (loss) $ 4,372,094 $ (987,323)
Other comprehensive net (loss):
Change in unrealized loss on U.S. Treasury Notes (160,673) --
----------- -----------
Comprehensive income (loss) $ 4,211,421 $ (987,323)
=========== ===========
(Consolidated Statements of Operation are continued on the next page)
See notes to consolidated financial statements.
5
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations (page 2 of 2)
(Unaudited)
For the Three Months Ended
March 31,
2005 2004
--------- -------------
NET INCOME (LOSS) PER SHARE INFORMATION:
Basic and diluted loss per share from continuing operations $ (0.07) $ (0.18)
============ =============
Basic and diluted net income per share from discontinued operations $ 0.66 $ 0.05
============ =============
Basic and diluted net income (loss) per share $ 0.59 $ (0.13)
============ =============
Weighted average shares outstanding:
Basic and Diluted 7,471,492 7,455,984
============ =============
See notes to consolidated financial statements.
6
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (page 1 of 2)
(Unaudited)
For the Three Months Ended
March 31,
2005 2004
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 4,372,094 $ (987,323)
Income from discontinued operation, net of tax (4,923,322) (319,440)
------------ ------------
Net (loss) from continuing operations (551,228) (1,306,763)
Adjustments to reconcile net loss from continuing operations to net
cash (used in) continuing operations:
Depreciation and amortization 128,950 93,414
Stock based compensation -- 648,565
Decrease (increase) in:
Accrued interest receivable (91,667) (25,458)
Accounts receivable, net of allowance 106,974 156,517
Unbilled services -- (17,623)
Prepaid expenses (6,042) (86,550)
Increase (decrease) in:
Accounts payable and accrued expenses 281,837 295,646
Customer deposits (459,416) (70,493)
Unearned revenue -- 11,721
------------ ------------
Net cash (used in) operating activities from continuing operations (590,592) (301,024)
------------ ------------
Cash flows from investing activities:
Capital expenditures (18,026) (96,132)
Purchases of U.S. Treasury Notes (4,972,978) --
------------ ------------
Net cash (used in) investing activities from continuing operations (4,991,004) (96,132)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (42,202) (62,055)
Payments on capital lease obligations (16,898) (10,832)
Proceeds from stock options exercised 1,810 2,869
------------ ------------
Net cash (used in) financing activities from continuing operations (57,290) (70,018)
Net cash provided by discontinued operations 6,000,201 281,613
------------ ------------
Increase (decrease) in cash and cash equivalents 361,315 (185,561)
Cash and cash equivalents - beginning of period 347,560 10,086,952
------------ ------------
Cash and cash equivalents - end of period $ 708,875 $ 9,901,391
============ ============
(Consolidated Statements of Cash Flows are continued on the next page)
See notes to consolidated financial statements.
7
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (page 2 of 2)
(Unaudited)
For the Three Months Ended
March 31,
2005 2004
------------ -------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Interest $ 16,207 $13,657
============ =======
Income taxes $ -- $ --
============ =======
See notes to consolidated financial statements.
8
SENTIGEN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, March 31, 2005 (Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
We are a biotechnology company conducting business through two-wholly
owned operating subsidiaries, Sentigen Biosciences, Inc. ("Sentigen
Biosciences") and Cell & Molecular Technologies, Inc. ("CMT"). Sentigen
Biosciences has been primarily engaged in the development and commercialization
of novel bioassay systems that elucidate the underlying biology of
protein-protein interactions. Sentigen Biosciences has initially targeted 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 it expects to
file additional patent applications on this technology and related matters in
the future. CMT provides contract research and development services to companies
engaged in the drug discovery process.
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 primarily
of research and development. Sentigen Biosciences is devoting a portion of its
research effort and resources to the development of a novel molecular profiling
system, which if successful, the Company will attempt to commercialize.
While we believe our technology capabilities in the Bioscience area are
substantial, up to this point, Sentigen Biosciences has not generated any
significant revenues and, moreover, has incurred quite substantial operating
losses. Although we have completed several pilot research collaborations, we
have not entered into any drug discovery or development agreements, nor can any
assurance be given that we will be able to do so on terms that are acceptable to
us.
Management intends to continually review the commercial validity of the
Tango Assay System, its applicability to functionalizing orphan GPCR's and the
prospects of our proposed new novel molecular profiling system in order to make
the appropriate decisions as to the best way to allocate our limited resources.
CMT is a contract research organization that specializes in supporting
the drug discovery process. CMT provides custom contract research services and
High Throughput Screening ("HTS") support services. On February 22, 2005 we sold
the assets of Specialty Media, a division of CMT, for $6.5 million in cash. Of
this amount, $500,000 is being held in escrow pursuant to the terms of an Escrow
Agreement to satisfy indemnification obligations of the Company or CMT. Assuming
no indemnification obligations of the Company or CMT, $250,000 will be paid to
the Company on each of the six month and one year anniversaries of the Asset
Purchase Agreement. Accordingly, the assets and liabilities of Specialty Media
have been accounted for as assets and liabilities held for sale in our
consolidated balance sheets. In addition, the statements of operation for
Specialty Media have been accounted for as discontinued operations, in our
consolidated statements of operation.
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.
9
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, 2004, 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.
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 December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment."
SFAS No. 123R is a revision of SFAS No. 123, "Accounting for Stock Based
Compensation," and supersedes APB Opinion No. 25. Among other items, SFAS No.
123R eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards, in the financial statements. On April 14, 2005, the compliance
date for SFAS 123R was extended. The Company will be required to comply with
SFAS 123R for the three months ended March 31, 2006. SFAS No. 123R permits
companies to adopt its requirements using either a "modified prospective"
method, or a "modified retrospective" method. Under the "modified prospective"
method, compensation cost is recognized in the financial statements beginning
with the effective date, based on the requirements of SFAS No. 123R for all
share-based payments granted after that date, and based on the requirements of
SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS
No. 123R. Under the "modified retrospective" method, the requirements are the
same as under the "modified prospective" method, but also permits entities to
restate financial statements of previous periods, either for all prior periods
presented or to the beginning of the fiscal year in which the statement is
adopted, based on previous pro forma disclosures made in accordance with SFAS
No. 123. The Company has not yet determined which of the methods it will use
upon adoption.
The Company currently utilizes the Black-Scholes option pricing model
to measure the fair value of stock options granted to employees. While SFAS No.
123R permits entities to continue to use such a model, it also permits the use
of a "lattice" model. The Company expects to continue using the Black-Scholes
option pricing model upon adoption of SFAS No. 123R to measure the fair value of
stock options.
The adoption of this statement will have the effect of reducing net
income and income per share as compared to what would be reported under the
current requirements. These future amounts cannot be precisely estimated because
they depend on, among other things, the number of options issued in the future,
and accordingly, the Company has not determined the impact of adoption of this
statement on its results of operations.
SFAS No. 123R also requires that the benefits associated with the tax
deductions in excess of recognized compensation cost be reported as a financing
cash flow, rather than as an operating cash flow as required under current
literature. This requirement will reduce net operating cash flows and increase
net financing cash flows in periods after the effective date. These future
amounts cannot be estimated, because they depend on, among other things, when
employees exercise stock options.
In March 2005, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payment ("SAB No.
107"), which provides interpretive guidance related to the interaction between
SFAS No. 123R and certain SEC rules and regulations, as well as provides the SEC
staff's views regarding the valuation of share-based payment arrangements. The
Company is currently assessing the impact of SAB No. 107 on our implementation
and adoption of SFAS No. 123R.
10
The following table reconciles net loss and diluted earnings per share
(EPS), as reported, to pro-forma net loss and diluted EPS, as if we had expensed
the fair value of employee 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,
2005 2004
----------- -----------
Net Income (loss):
As reported $ 4,372,094 $ (987,323)
Pro-forma expense as if
stock options were charged
against net income (loss) (125,675) (87,995)
----------- -----------
Pro-forma net income (loss)
using the fair value method $ 4,246,419 $(1,075,318)
=========== ===========
Diluted EPS:
As reported $ 0.59 $ (0.13)
Pro-forma using the fair
value method $ 0.57 $ (0.14)
In November 2004, the FASB issued Statement 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4 to clarify the accounting for abnormal
amounts of idel facility expense, freight, handling costs, and wasted material
(spoilage). This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of FASB No. 151 is not
expected to have a material impact on the results of operations or financial
position of the Company.
4. DISCONTINUED OPERATION
On February 22, 2005 we entered into agreements with Serologicals
Corporation and its direct and indirect subsidiaries, Chemicon Specialty Media,
Inc. ("Purchaser") and Chemicon International, Inc., pursuant to which CMT sold
substantially all of the assets, including the facility on 580 Marshall Street,
Phillipsburg, NJ, of its Specialty Media Division (the "Division") to the
Purchaser for $6,500,000 in cash.
Pursuant to the Asset Purchase Agreement among the parties, CMT sold
substantially all of the assets of the Division for $6,095,000. Of this amount,
$500,000 is being held in escrow pursuant to the terms of an Escrow Agreement to
satisfy indemnification obligations of the Company or CMT. Assuming no
indemnification obligations of the Company or CMT, $250,000 will be paid to the
Company on each of the six month and one year anniversaries of the Asset
Purchase Agreement. In addition the post-closing working capital adjustment to
be paid to the Company is estimated to be $16,419.
The parties also entered into an Agreement of Sale pursuant to which
the Purchaser acquired the Division's facility at 580 Marshall St., Philipsburg,
NJ for $405,000 (the "Real Estate Purchase Agreement"). The Purchaser also
agreed to retire the outstanding loan in the amount of $243,310 secured by a
mortgage on the property pursuant to the terms of the Asset Purchase Agreement.
The parties also entered into a Transition Services Agreement pursuant
to which CMT will provide the Purchaser with certain telecommunication,
accounting and document management services until June 30, 2005.
11
The assets and liabilities of the Division disposed of were as follows:
DISPOSED HELD FOR SALE
AS OF AS OF
FEBRUARY 22, DECEMBER 31,
2005 2004
---------- ----------
Assets:
Accounts receivable $ 397,755 $ 443,986
Inventory 231,819 234,875
Deferred financing costs 6,370 6,434
Property, plant and equipment 486,551 488,667
---------- ----------
Total assets $1,122,495 $1,173,962
========== ==========
Liabilities:
Accounts payable 190,598 222,943
Mortgage payable 243,310 244,495
---------- ----------
Total liabilities $ 433,908 $ 467,438
========== ==========
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets," the
operations of the Division are reported separately as discontinued operations
for all periods presented. The financial results of the Division, included in
discontinued operations, were as follows:
For the
period
January 1 For the three
through months ended
February 22, March 31,
2005 2004
---------- ----------
Product revenues $ 526,300 $ 816,500
Direct costs 226,127 298,489
---------- ----------
Income after direct costs 300,173 518,011
Operating expenses:
Selling, general and administrative 129,676 149,396
Research and development 2,619 4,797
Depreciation and amortization -- 24,095
---------- ----------
Total operating expenses 132,295 178,288
Income from operations 167,878 339,723
Interest expenses 3,579 2,912
---------- ----------
Income before provision for income taxes 164,299 336,811
Provision for income taxes 14,787 17,371
---------- ----------
Income from discontinued operation, net of tax 149,512 319,440
Gain on sale of discontinued
operation, net of taxes of $889,209 4,773,810 --
---------- ----------
Net income from discontinued operation $4,923,322 $ 319,440
========== ==========
12
5. SEGMENT INFORMATION
We operate through two wholly-owned subsidiaries, CMT and Sentigen
Biosciences. CMT, Sentigen Biosciences and Corporate are distinct reportable
operating segments. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. These
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. Sales and transfers between
segments, if any, are accounted for 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,
2005 2004
----------- -----------
Revenues
CMT $ 1,597,704 $ 1,330,217
Sentigen Biosciences 163,812 --
----------- -----------
Total reported $ 1,761,516 $ 1,330,217
=========== ===========
Operating income (loss)
CMT $ 296,951 $ 179,196
Sentigen Biosciences (380,871) (820,432)
Corporate (540,387) (673,134)
----------- -----------
Total reported $ (624,307) $(1,314,370)
=========== ===========
Depreciation and amortization
CMT $ 112,545 $ 77,009
Sentigen Biosciences 14,905 14,905
Corporate 1,500 1,500
----------- -----------
Total reported $ 128,950 $ 93,414
=========== ===========
March 31, December 31,
2005 2004
----------- -----------
Segment assets
CMT $ 1,262,540 $ 1,490,437
Sentigen Biosciences 656,890 629,504
Corporate 15,867,636 10,094,840
----------- -----------
Total assets for reportable segments $17,787,066 $12,214,781
Assets held for sale -- 1,173,962
----------- -----------
Total reported $17,787,066 $13,388,743
=========== ===========
13
6. EARNINGS PER SHARE
Basic income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for the
respective periods. Diluted income (loss) per share includes the effects of
securities which are convertible into common stock, consisting of stock options
and warrants, to the extent such conversion would be dilutive. Securities which
are convertible into common stock were excluded from the computation of diluted
loss per share for the three month periods ending March 31, 2005 and 2004
because SFAS No. 128 "Earnings per Share," prohibits adjusting the denominator
of diluted net income (loss) per share for additional potential common shares
when a net loss from continuing operations is reported.
14
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 within this
Form 10-Q which are not historical facts are forward-looking statements. Such
forward-looking statements include statements about our strategies, intentions,
expectations, goals, objectives, research programs, technologies, service
offerings, and our future achievements. These forward looking statements 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;
risk of the lack of commercial acceptance of our Tango(TM) Assay System; 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 "will," "estimate," "could,"
"believe," "expect," "predict," "potential," "anticipate," "may," "intend,"
"opportunity," "continue," or "plan," the negative of these words and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak only as of
the date the statement was made. Except as required by law, we undertake no
obligation to publicly revise our forward-looking statements to reflect events
or circumstances that arise after the filing of this Form 10-Q or documents
incorporated by reference herein that include forward-looking statements.
OVERVIEW
We are a biotechnology company conducting business through two-wholly
owned operating subsidiaries, Sentigen Biosciences and CMT. Sentigen Biosciences
has been primarily engaged in the development and commercialization of novel
bioassay systems that elucidate the underlying biology of protein-protein
interactions. Sentigen Biosciences has initially targeted 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 it expects to file additional
patent applications on this technology and related matters in the future.
Sentigen Biosciences is also devoting a portion of its effort and resources to
the development of a novel molecular profiling system which, if successful, the
Company will attempt to commercialize. CMT provides contract research and
development services to companies engaged in the drug discovery process.
At Sentigen Biosciences, we are spending a portion of our time and
resources to execute the development and commercialization of the Tango Assay
System. Sentigen Biosciences believes that the ability to profile the
cross-reactivity of lead drug compounds against a wide range of GPCRs in the
Tango System could result in the generation of selectivity profiles for drug
candidates, thereby enabling the identification of more specific drugs with
fewer side effects.
While we believe our technology capabilities in the Bioscience area are
substantial, up to this point, Sentigen Biosciences has not generated any
significant revenues and, moreover, has incurred quite substantial operating
losses. Although we have completed several pilot research collaborations, we
have not entered into any drug discovery or development agreements, nor can any
assurance be given that we will be able to do so on terms that are acceptable to
us.
Management intends to continually review the commercial validity of the
Tango Assay System, its applicability to functionalizing orphan GPCR's and the
prospects of our proposed new novel molecular profiling system in order to make
the appropriate decisions as to the best way to allocate our limited resources.
15
CMT is expending time and resources attempting to broaden its customer
base and its service offerings to the drug discovery community. The earnings to
date generated from our base business at CMT have provided us, in part, with the
financial resources to execute our research program at Sentigen Biosciences. Our
continued success in these efforts depends on CMT's ability to broaden its
customer base and expand its portfolio of services to the drug discovery
community. To this end, the management team at CMT has spent its time developing
its business through trade conferences, exhibitions and project collaborations
that demonstrate CMT's service platform to companies engaged in the drug
discovery process.
On February 22, 2005 we sold the assets of Specialty Media, a division
of CMT, for $6.5 million in cash to Serologicals Corporation. Of this amount,
$500,000 is being held in escrow pursuant to the terms of an Escrow Agreement to
satisfy indemnification obligations of the Company or CMT. Assuming no
indemnification obligations of the Company or CMT, $250,000 will be paid to the
Company on each of the six month and one year anniversaries of the Asset
Purchase Agreement. Accordingly, the assets and liabilities of Specialty Media
have been accounted for as assets and liabilities held for sale in our
consolidated balance sheets. In addition, the statements of operation for
Specialty Media have been accounted for as discontinued operations, net of tax
in our consolidated statements of operation.
It should be noted that we will need substantial amounts of additional
financing to commercialize the research programs undertaken by us which
financing may not be available or if available may not be on reasonable terms.
CRITICAL ACCOUNTING POLICIES
Sentigen Biosciences
Research and Development Costs. 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.
Cell & Molecular Technologies, Inc.
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. CMT's services are performed on a fee-for-service,
fixed contract basis that provide for payments after specific research
milestones are achieved. Revenues for fixed price contracts with a term of less
than 12 months are recognized when specific research milestones are achieved.
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.
Direct Costs. The major classes of direct costs for CMT 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.
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.
16
Sentigen Holding Corp.
Corporate Overhead Costs. 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.
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 services are
discontinued to that customer, minimizing further risk of loss. Additionally,
all accounts with aged balances greater than one year are fully reserved.
Impairment of intangibles. Our intangible assets consist primarily of
license costs of $311,035 as of March 31, 2005, and are the result of the April
10, 2000 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) multiplied by the 75,000 shares of common stock issued to Columbia
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, 2005.
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 the provisions of SFAS No.
148, "Accounting for Stock-Based Compensation --Transition and Disclosure, an
amendment of SFAS No. 123."
17
Deferred Tax Valuation Allowance. In accordance with SFAS No. 109,
"Accounting for Income Taxes," a deferred tax asset or liability is determined
based on the difference between the financial statement and tax basis of assets
and liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. We provide a valuation allowance against net
deferred tax assets unless, based upon the available evidence, it is more likely
than not that the deferred tax assets will be realized.
OFF-BALANCE-SHEET ARRANGEMENTS
As of March 31, 2005, 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, 2005 TO THE THREE MONTHS ENDED
MARCH 31, 2004
On February 22, 2005 we sold the Specialty Media Division of our
wholly-owned subsidiary, Cell & Molecular Technologies, Inc. ("CMT") to Chemicon
International, Inc., a wholly-owned subsidiary of Serologicals Corporation
(Nasdaq: SERO). As such the results of this division have been accounted for as
discontinued operations. Our consolidated results of continuing operations
consist of CMT's contract research division, Sentigen Biosciences, Inc. and the
expenses of the parent company.
Revenues. Revenues for the three months ended March 31, 2005 were
$1,761,516 compared to revenues of $1,330,217 for the three months ended March
31, 2004, an increase of $431,299 or 32%. For the three months ended March 31,
2005, revenues attributable to CMT were $1,597,704, an increase of 20% when
compared to revenues for the three months ended March 31, 2004. The remainder of
the increase was the result of the revenues earned by Sentigen Biosciences under
its contract with Technical Support Working Group (TSWG) - an interagency
government office with representatives from the Departments of Defense, State
and Homeland Security - to develop advanced biotechnology for the detection of
explosives and other threats. Under this contract we earned revenues of $163,812
during the three months ended March 31, 2005.
An analysis of the services revenue earned by CMT is as follows:
FOR THE THREE MONTHS ENDED,
MARCH 31,
PERCENT
2005 2004 CHANGE
------------- ------------- ------
HTS contract $ 600,000 $ 600,000 -%
All other contracts 997,704 730,217 37%
------------- -------------
Total $ 1,597,704 $ 1,330,217 20%
============= =============
The services revenue for high-throughput screening, or HTS, services is
derived from one contract with Merck & Co., Inc. The contract has a term of one
year, and ends on December 31, 2005. 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. If actual deliveries during
2005 exceed the fixed number of deliveries provided for in the contract
additional deliveries will be billed at the rate of $1,000 per delivery. The
contract also provides for a credit against other services (in addition to the
base contract value) performed for the customer in 2006 if actual deliveries
during 2005 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 2006 cannot exceed 30% of the value of the
additional services performed in addition to the base contract value for 2005.
The 37% increase in other contracts was the result of the study
agreement we signed on August 18, 2004, with Merck & Co., Inc. Under the
agreement, CMT will develop, bank and study certain cell lines based on
standards and protocols specified by Merck & Co., Inc. The agreement provides
for total payments to CMT of $1,338,130. Under the agreement Merck & Co., Inc.
made up-front payments totaling $1,003,598, of those payments $490,060 was
accounted for as earned revenues during 2004, based on the milestones completed
under the
18
agreement, while the remainder is accounted for as customer deposits in our
consolidated balance sheet. For the three months ended March 31, 2005 an
additional $333,801 was accounted for as earned revenue.
Income after Direct Costs and Gross Margin. Income after direct costs
for the three months ended March 31, 2005 was $1,061,152 (a gross margin on
revenue of 60%) compared to income after direct costs of $804,085 (a gross
margin on revenue of 60%) for the three months ended March 31, 2004. Gross
margin for CMT increased from 60% for the three months ended March 31, 2004 to
62% for the three months ended March 31, 2005, the components of direct costs as
a percentage of contract revenues for CMT for the three months ended March 31,
2005 and 2004 are as follows:
For the Three Months Ended
March 31,
--------
2005 2004
---- ----
Reagents and materials 23% 25%
Labor 12% 12%
Allocation of selling,
general and
administrative costs 3% 3%
--- ---
Direct cost as a
percentage of
contract revenues 38% 40%
=== ===
Operating Expenses. Operating expenses for the three months ended March
31, 2005 were $1,685,459 compared to $2,118,455 for the three months ended March
31, 2004. This decrease of $432,996 or 20% was primarily the result of:
- a decline in stock based compensation costs of $648,565. The
decline in stock based compensation results from the
expiration of stock option grants to non-employee scientific
consultants.
This decrease was partially offset by:
- Selling, general and administrative expenses of CMT increased
$63,083 or 13% due to higher compensation costs.
- Research and development expenses (including the costs under
the TSWG contract) increased $69,583 or 17% due to expenses
incurred under the TSWG contract which accounted for $56,250
in costs. The TSWG contract was not in-force during the three
months ended March 31, 2004.
- Corporate overhead expenses increased $47,367 or 10%. The
increase was primarily due to increased compensation costs and
commercial insurance premiums.
- Depreciation and amortization costs increased $35,536 or 38%.
This increase is attributable to depreciation on capital
expenditures made by CMT during the second half of 2004.
19
Loss from Continuing Operations. Loss from continuing operations for
the three months ended March 31, 2005 was $551,228, compared to a loss from
continuing operations of $1,306,763 for the three months ended March 31, 2004, a
decrease of 58%. The breakdown of our loss from continuing operations for the
three months ended March 31, 2005 as compared to the three months ended March
31, 2004 is as follows:
For the Three Months Ended
March 31,
--------- Percent
2005 2004 Change
---- ---- ------
Income from operations
provided by CMT $ 296,951 $ 179,196 66%
Loss from operations of
Sentigen Biosciences (380,871) (820,432) (54%)
Parent company expenses (540,387) (673,134) (20%)
Net interest income 82,559 16,961 387%
Provision for income taxes (9,480) (9,354) 1%
----------- -----------
Total $ (551,228) $(1,306,763) (58%)
=========== ===========
The income from operations provided by CMT increased 66% for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004.
The increase is primarily attributable to CMT's increase in revenues. The loss
from operations of Sentigen Biosciences declined 54% due to the decline in stock
based compensation expenses discussed above. Net interest income increased 387%
due to the investment of our cash and cash equivalents in two-year U.S. Treasury
Notes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005 we had $708,875 in cash and cash equivalents and
$14,553,678 invested in U.S. Treasury Notes. Our working capital as of March 31,
2005 was $13,859,670. During the three months ended March 31, 2005 we financed
our operations and capital expenditures through working capital.
On February 22, 2005, we purchased a $5,000,000 face value, 3.125%,
U.S. Treasury Note, maturing on January 31, 2007 with a portion of the proceeds
from the sale of the Specialty Media Division.
There is no assurance that the technology related to the licensing
agreements 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.
We believe that our financial resources will be sufficient to fund
operations and capital requirements for at least the next 12 months. It should
be noted that we will need substantial amounts of additional financing to fully
commercialize the research programs undertaken by us which financing may not be
available or if available may not be on reasonable terms. 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. Management intends to continually
review the commercial validity of the Tango Assay System, its applicability to
functionalizing orphan GPCR's and the prospects of our proposed new novel
molecular profiling system in order to make the appropriate decisions as to the
best way to allocate our limited resources.
20
INFLATION
We historically offset the impact of inflation through price increases.
Periods of high inflation could have a material adverse impact on us to the
extent that increased borrowing costs for floating rate debt may not be offset
by increases in cash flow. There was no significant impact on our operations as
a result of inflation during the three months ended March 31, 2005 and 2004.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment."
SFAS No. 123R is a revision of SFAS No. 123, "Accounting for Stock Based
Compensation," and supersedes APB Opinion No. 25. Among other items, SFAS No.
123R eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards, in the financial statements. On April 14, 2005, the compliance
date for SFAS 123R was extended. The Company will be required to comply with
SFAS 123R for the three months ended March 31, 2006. SFAS No. 123R permits
companies to adopt its requirements using either a "modified prospective"
method, or a "modified retrospective" method. Under the "modified prospective"
method, compensation cost is recognized in the financial statements beginning
with the effective date, based on the requirements of SFAS No. 123R for all
share-based payments granted after that date, and based on the requirements of
SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS
No. 123R. Under the "modified retrospective" method, the requirements are the
same as under the "modified prospective" method, but also permits entities to
restate financial statements of previous periods, either for all prior periods
presented or to the beginning of the fiscal year in which the statement is
adopted, based on previous pro forma disclosures made in accordance with SFAS
No. 123. The Company has not yet determined which of the methods it will use
upon adoption.
The Company currently utilizes the Black-Scholes option pricing model
to measure the fair value of stock options granted to employees. While SFAS No.
123R permits entities to continue to use such a model, it also permits the use
of a "lattice" model. The Company expects to continue using the Black-Scholes
option pricing model upon adoption of SFAS No. 123R to measure the fair value of
stock options.
The adoption of this statement will have the effect of reducing net
income and income per share as compared to what would be reported under the
current requirements. These future amounts cannot be precisely estimated because
they depend on, among other things, the number of options issued in the future,
and accordingly, the Company has not determined the impact of adoption of this
statement on its results of operations.
SFAS No. 123R also requires that the benefits associated with the tax
deductions in excess of recognized compensation cost be reported as a financing
cash flow, rather than as an operating cash flow as required under current
literature. This requirement will reduce net operating cash flows and increase
net financing cash flows in periods after the effective date. These future
amounts cannot be estimated, because they depend on, among other things, when
employees exercise stock options.
In March 2005, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin ("SAB") No. 107, Share-Based Payment ("SAB No.
107"), which provides interpretive guidance related to the interaction between
SFAS No. 123R and certain SEC rules and regulations, as well as provides the SEC
staff's views regarding the valuation of share-based payment arrangements. The
Company is currently assessing the impact of SAB No. 107 on our implementation
and adoption of SFAS No. 123R.
21
The following table reconciles net loss and diluted earnings per share
(EPS), as reported, to pro-forma net loss and diluted EPS, as if we had expensed
the fair value of employee 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,
--------
2005 2004
---- ----
Net Income (loss):
As reported $ 4,372,094 $ (987,323)
Pro-forma expense as if
stock options were charged
against net income (loss) (125,675) (87,995)
----------- -----------
Pro-forma net income (loss)
using the fair value method $ 4,246,419 $(1,075,318)
=========== ===========
Diluted EPS:
As reported $ 0.59 $ (0.13)
Pro-forma using the fair
value method $ 0.57 $ (0.14)
In November 2004, the FASB issued Statement 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4 to clarify the accounting for abnormal
amounts of idel facility expense, freight, handling costs, and wasted material
(spoilage). This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of FASB No. 151 is not
expected to have a material impact on the results of operations or financial
position of the Company.
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, 2005, we have total debt of $906,093. This debt consists
of three capital leases and three bank notes used for equipment financing. 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.
22
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS 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
10.29 Asset Purchase Agreement dated February 22, 2005 by and
among Chemicon Specialty Media, Inc., Chemicon
International, Inc. Serologicals Corporation, Sentigen
Holding Corp. and Cell & Molecular Technologies, Inc.
(Incorporated by reference from Form 8-K dated February
28, 2005)
10.30 Real Estate Purchase Agreement dated February 22, 2005
by and between Chemicon Specialty Media, Inc., Sentigen
Holding Corp. and Cell & Molecular Technologies, Inc.
(Incorporated by reference from Form 8-K dated February
28, 2005)
10.31 Escrow Agreement dated February 22, 2005 by and among
Chemicon Specialty Media, Inc., Chemicon International,
Inc. Serologicals Corporation, Sentigen Holding Corp.,
Cell & Molecular Technologies, Inc. and Sun Trust Bank,
N.A. (Incorporated by reference from Form 8-K dated
February 28, 2005)
23
10.32 Transition Services Agreement by and between Chemicon
Specialty Media, Inc., Chemicon International, Inc.
Serologicals Corporation, Sentigen Holding Corp. and
Cell & Molecular Technologies, Inc. (Incorporated by
reference from Form 8-K dated February 28, 2005)
31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF SENTIGEN
HOLDING CORP. PURSUANT TO RULE 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS
AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002 (Filed Herewith)
31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF SENTIGEN
HOLDING CORP. PURSUANT TO RULE 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS
AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002 (Filed Herewith)
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 (Filed Herewith)
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 (Filed Herewith)
24
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 5, 2005
By: /s/ Fredrick B. Rolff
--------------------------------
Fredrick B. Rolff,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)