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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-31019
ARGONAUT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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94-3216714 |
(State or other jurisdiction of
incorporation or organization) |
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(IRS Employer
Identification Number) |
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220 Saginaw Drive
Redwood City, CA
(Address of principal executive offices) |
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94063
(zip code) |
(650) 716-1600
(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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of voting and non-voting equity held
by non-affiliates of the Registrant as of June 30, 2004 was
approximately $27.0 million based the closing price of
$1.34 per share reported on the Nasdaq National Market
reported for such date. The number of shares outstanding of the
Registrant’s common stock on February 28, 2005 was
20,728,679 shares. The determination of affiliate status is
not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III are
incorporated by reference from the Registrant’s Proxy
Statement for the 2005 Annual Meeting of Stockholders.
Argonaut Technologies, Inc.
Form 10-K
TABLE OF CONTENTS
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PART I
This annual report contains forward-looking statements for
purposes of the Private Securities Litigation Reform Act of
1995, and it is the Company’s intention that such
statements be protected by the safe harbor created thereby.
Examples of such forward-looking statements include statements
regarding future revenues, expenses, losses and cash flows,
values of our assets and liabilities over their remaining useful
lives and our testing for impairment of goodwill, our
expectations as to the duration of our negative cash flows from
operations and the sufficiency of existing cash reserves for the
next 12 months and the possibility of selling substantially
all of our assets and winding up our business. Actual results
may differ materially from those projected in such
forward-looking statements due to various known and unknown
risks and uncertainties, including the risk that a decline in
the economy generally or the market for our products will
adversely affect our business. For a further discussion of these
and other risks and uncertainties related to our business see
the discussion set forth herein under “Additional Factors
That May Affect Future Results.”
OVERVIEW
Argonaut Technologies, Inc. was incorporated in the state of
Delaware on November 10, 1994. We have been a leader in the
development of innovative products designed to help
pharmaceutical chemists engaged in the discovery and development
of new chemical entities increase their productivity and reduce
their operating costs without compromising the scientific
integrity of their research.
On March 24, 2005 the Company filed a proxy statement
asking stockholders of Argonaut Technologies, Inc. at a special
meeting to approve a sale of the assets of Argonaut’s
chemistry consumables business and certain assets related to the
process chemistry business, which constitutes substantially all
of Argonaut’s assets, to Biotage AB (“Biotage”).
If the asset sale is completed, Argonaut will be paid
$21.2 million in cash by Biotage, plus Biotage will assume
specified liabilities. A special meeting of our stockholders
will be held following the approval and distribution to our
stockholders of a proxy statement in connection with this
transaction. The primary purpose of the special meeting will be
to consider and vote upon the proposed asset sale.
Assuming the proposed sale is approved by our stockholders,
following the closing of the transaction, we currently intend to
wind up our affairs in an orderly fashion and continue to
explore the alternatives for the use and disposition of our
remaining assets, while settling our liabilities and any claims
that may arise. Alternatives could include, without limitation,
a sale of the remaining company, a sale of our process chemistry
business or the shut-down of our process chemistry business
followed by a sale or transfer of our other assets and/or
liabilities. We may ultimately pursue a plan of complete
liquidation and dissolution. Our board of directors has not yet
approved any such plan, and, if it were to do so, it would be
submitted to the stockholders for approval.
As the proposed asset sale has not yet been approved or closed,
unless otherwise indicated, any forward-looking information
disclosed in this Form 10-K assumes the continued operation
of our current business.
INDUSTRY
The pharmaceutical industry faces ever greater financial
pressure to deliver both growth and profitability. One of the
most significant issues is the productivity of research and
development (“R&D”) efforts. Specifically,
traditional drug discovery efforts have not increased the number
of new drug candidates, new genomics-based technologies will
take longer to exploit, and cost control initiatives are
requiring more scientific output with minimal additional
resources. According to the Pharmaceutical Research &
Manufacturers of America, R&D spending in 2001 had more than
tripled since 1990 ($30.3 billion vs. $8.4 billion in
1990), while only 24 new drugs were approved by the FDA in 2001
versus 30 in 1990. This decrease in R&D productivity is
further amplified by the fact that drugs generating some
$30 billion in U.S. sales are expected to lose
U.S. patent protection or other forms of exclusivity from
2002 to 2006. With these current realities
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facing the pharmaceutical industry, there is keen awareness and
justification for pharmaceutical companies to improve
productivity throughout R&D.
With the above challenges, and with competition in the
pharmaceutical industry increasing, many R&D organizations
have been exploring multiple strategies to enhance success
rates. Recent completion of the sequencing of the human genome
will provide an estimated 5,000 to 10,000 relevant new drug
targets according to the publication, Science. The
expected large influx of quality therapeutic targets will
require greater efficiency in all stages of chemical discovery
and development. Due to the high percentage of failed drug
candidates, new strategies are utilizing small molecules with
sufficient potencies to validate a new target before investing
time and money on a faulty therapeutic concept. Such demands
have driven the development of novel instrument and chemistry
consumables technologies which enable chemists to produce more
relevant compounds at a greater rate than previously possible.
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Chemical Discovery and Development |
The process of discovering potential chemicals, which could
prove useful as new medicines, involves a number of steps that
can best be understood in the context of two phases:
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Discovery Phase. Discovery is the process by which
biologists and chemists organize drug targets identified through
biology, including genomics, which is the study of gene
function, and proteomics, which is the study of protein
function, into biological screens. Chemists then test millions
of compounds using high throughput biological screens to
identify possible compounds that interact with the drug target. |
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Development Phase. Chemists optimize the pharmacological
(potency), pharmacokinetic (availability and specificity) and
toxicology (safety) of chemical leads for human testing and
approval during the development phase. The development phase can
be further broken down into three stages: |
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Lead Identification. During lead identification, chemists
evaluate, using a specific process, the hundreds of potential
lead chemicals that could be drug candidates that may emerge
from the discovery phase. Chemists perform successive rounds of
chemical syntheses to create numerous variants of the drug
candidates to find compounds likely to have appropriate drug
properties. They then work to optimize these compounds for their
biological potency, thus creating lead compounds. |
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Lead Optimization. In pre-clinical development, chemists
further refine a limited number of lead compounds into clinical
drug candidates by applying additional chemistry methodologies
in the pre-clinical development process. During this process,
chemists make relatively small changes to the compounds in order
to optimize their safety and pharmacokinetic properties. |
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Process Development. During clinical development,
chemists test clinical drug candidates in humans to demonstrate
their safety and effectiveness, or efficacy. The successful
outcome of clinical trails may result in regulatory approval to
commercialize the new drug product. During this phase of
development, chemists optimize the methods by which they will
manufacture much larger quantities of the compound being tested.
Manufacturing process development involves optimizing the
chemical synthesis process in order to yield much larger
quantities of the drug than were needed in the previous phases.
By optimizing and selecting the most effective method of
compound synthesis, chemists reduce the cost of synthesis. This
may be achieved by reducing the number of products used in
synthesis, improving the yield of the desired compound or
reducing the time needed for synthesis. |
Traditional Chemistry Methods for Chemical Development
Chemists typically employ traditional chemistry synthesis
methods in their drug development efforts. Utilizing traditional
methods of chemical synthesis, a chemist performs a series of
chemical reactions, or
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transformations, until the desired compound is obtained.
Chemists generally achieve each transformation in a four-part
process:
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Set-up and Execution of Reaction |
Chemists build a reaction apparatus as the first step in
chemical synthesis. Chemists often construct the apparatus using
a variety of traditional laboratory components depending on the
type of chemistry they are performing. Chemists use the
apparatus to combine chemicals, reagents and solutions, which
the chemist will often heat or cool to specific temperatures
under air and moisture-free, or inert, conditions. The chemist
then monitors reactions over time to determine reaction
progress. In traditional chemistry development, the assembly of
a specific apparatus and the periodic addition of chemicals can
often be very complicated and time-consuming depending on the
complexity of the desired reaction.
Chemists perform a product work-up as the second step in
chemical synthesis. Once the chemist determines that a reaction
has proceeded to completion, the chemist subjects the reaction
mixture to an extensive reaction work-up. During the work-up the
chemist stops the reaction and carries out an initial cleanup of
the reaction mixture prior to purification. The chemist performs
a series of washes with a variety of solvents, a drying process
and a filtration process during the work-up. The chemist usually
takes several hours to complete this labor-intensive work-up
process.
Chemists perform product purification as the third step in
chemical synthesis. During this step, the chemist isolates the
desired product from its starting materials and various
byproducts. Product purification is an integral step in chemical
synthesis due to the fact that impurities may interfere in the
next chemical transformation or mask a drug’s potency and
toxicity. Chemists commonly use column chromatography, which is
a tedious technique. This product purification step often takes
the chemists days to complete.
Chemists perform product analysis as the final step in chemical
synthesis. In this step, the chemist confirms that the desired
drug has been synthesized and isolated before continuing on in
the synthetic pathway or submitting the compound for biological
testing. A variety of biological tests are performed on
synthesized compounds. In many cases, analytical chemists
perform bio-analysis on serum extracts. Bio-analysis supports
investigations of compound activity, pharmocokinetics, and
toxicity. In recent years HPLC-mass spectroscopy has become a
standard tool for performing bio-analysis. Bio-analysis with
this tool utilizes serum extracts obtained by sample preparation
techniques, e.g., solid phase extraction. Many thousands of
bioanalytical samples are generated during the progression of a
drug candidate through pre-clinical and clinical trials.
Analysis requires a large amount of data collection and is
labor-intensive.
Chemists must repeat this laborious, four-step process until the
desired compound is obtained. In the Lead Identification and
Lead Optimization phase of a pharmaceutical project, the
development of a particular compound could take months and even
years to complete before researchers can determine whether the
compound has the desired drug properties. In the later stage of
Process Development, chemists not only repeat this four-step
chemical reaction process for every synthesis, but they must
document and analyze the reaction information in more detail for
growing regulatory needs.
Limitations of Existing Chemical Development Technologies
Traditional chemistry development methods described above have
the following limitations:
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Limited Productivity. Traditional methods are time
consuming, inefficient and labor-intensive. Industry experts
estimate that chemists can create approximately 100 compounds
per year using the traditional approach of performing one
reaction at a time. Since it is not economically feasible for |
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customers to employ chemists in the large numbers necessary to
take advantage of the thousands of expected drug targets, we
believe that efficiency, or throughput in the development phase
must increase dramatically. |
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Long Drug Development Timelines. Traditional methods
require chemists to synthesize, purify and test compounds one at
a time in an inefficient, sequential process. This results in
long drug development timelines, which delay product
commercialization and reduce the commercial value of the
exclusivity period provided by patent protection. |
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High Cost. Traditional methods are expensive due to the
time and labor required of a chemist to produce a single
compound. In addition, companies utilizing the traditional
methods incur the costs associated with the high volumes of
solvents and chemicals utilized and the expense associated with
their disposal. |
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High Rate of Drug Candidate Failures. Traditional methods
limit the number of compounds synthesized, which can lead to
companies or chemists selecting sub-optimal drug candidates,
often resulting in drug candidate failures. These failures
greatly increase the average length of time and cost required to
bring a specific drug to market. If a drug candidate fails
during clinical trials, a company must incur the time and
expense of repeating all of the development steps or face
abandoning the project altogether. The cost of a failed
candidate increases significantly as it progresses to later
stages of the development process. |
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Lack of Flexibility. To date, chemists have lacked
flexible tools and systems to easily perform the wide variety of
complex experiments required for chemistry development. Instead,
chemists have had to repeatedly assemble various components into
complicated systems, personally monitor the process and manually
collect critical data to comply with corporate and governmental
requirements. |
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Difficulty of Use. The steps required for a chemist to
put together an apparatus, perform the reaction, work-up,
purification and analysis are cumbersome, time consuming and
susceptible to human error. In addition, to design and
successfully complete an experiment requires experience to
determine the best protocols and methods to use. Therefore,
traditional methods require the experience of skilled chemists
with many years of training, yet the productivity of those
chemists is handicapped by requiring them to spend time on
trivial, manual tasks. |
These limitations restrict the ability of chemists in the
pharmaceutical industry to efficiently identify and produce new
chemical compounds as potential candidates for the large,
increasing number of therapeutic targets that are emerging from
genomics and proteomics. In order to be competitive in the
pharmaceutical industry, we believe that research and
development organizations will need to increase productivity by
shortening the drug development process. We believe that these
objectives will be achieved through advances and innovations in
chemistry development technologies and tools such as our
instruments and chemistry consumables.
THE ARGONAUT SOLUTION
We design, manufacture and market chemistry consumables and
instrumentation products that increase the productivity of
chemists, thereby accelerating and improving the chemical
development process, and therefore, increasing the likelihood of
developing a new drug candidate. Our products enable rapid
synthesis of a wide range of compounds at a reduced cost. Our
products also enable high throughput bioanalytical evaluation of
a potential drug candidate against a wide variety of tests to
evaluate potency, selectivity, pharmacokinetics (what the body
does to the drug) and pharmacodynamics (what the drug does to
the body). We design and develop products using extensive
customer assessment, validation and testing. We intend to
promote our products as the laboratory standard for chemists and
the industry standard for companies seeking
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more efficient methods of addressing their increasing drug
development needs. We believe our technology provides the
following key benefits over traditional chemistry development
methods:
We create products that simplify the creation and isolation of
compounds. Chemists can create approximately 100 compounds per
year using the traditional approach of performing one reaction
at a time. The same chemist can create between 1,000 to 7,500
compounds per year using our products to rapidly synthesize and
purify large collections of compounds around lead candidates.
During the course of lead generation and lead optimization, the
purity of compounds undergoing biological testing is paramount.
Our flash chromatography instruments facilitate this process
with selected chromatographic conditions and purified compound
collection. We offer the associated columns with a variety of
high quality sorbents to achieve purification of the vast
majority of compounds. The use of our instruments in conjunction
with our columns and sorbents provides productivity and
performance enhancements compared to traditional chromatography.
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Reduced Drug Development Timelines |
Our synthesis and purification products enable chemists to focus
their research and experimentation on the design of promising
lead candidates around a particular target. Our purification
automation and consumables products speed the critical,
time-consuming step of product purification prior to biological
testing. Our sample preparation products enable the efficient
processing of large sample sets for bioanalytical studies, and
therefore, reduce the time to obtain biological test results. By
simultaneously producing (synthesizing, purifying and testing)
numerous variants of drug candidates, our tools provide more
comprehensive and timely information for research management to
make critical decisions through out the drug development project.
We believe that our consumable products provide chemists with a
wide variety of synthesis and purification methodologies to
address the demand to rapidly assemble highly pure compounds in
the early stages of chemistry development, dramatically
improving their productivity over traditional methods. In
addition, by synthesizing more drug candidates, our products
provide greater amounts of information and enable our customers
to abandon poor drug candidates sooner compared to traditional
methods; thereby eliminating the costs associated with later
stage drug candidate failures.
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Increase Probability of Success Early in the Development
Process |
Our advanced chemistry consumables allow chemists to rapidly
synthesize high quality compounds designed according to themes
of drug-likeness (drugs with a higher probability of success in
humans). We believe this increased attention to physical
properties of compounds early in the drug development process
will increase the chance for a successful outcome.
Our products are flexible in their configurations and packaging
and chemists can perform a wide range of chemical reactions,
from simple reactions to complex, multi-step reactions. As a
result, chemists are able to perform more complex and difficult
reactions more easily, thereby encouraging innovation on the
part of chemists.
Our systems are designed to make the labor-intensive steps of
performing the synthesis, work-up, purification and product
analysis faster and easier for chemists, and can be operated by
chemists with minimal product training.
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OUR STRATEGY
Our objective is to become the leading provider of chemistry
solutions that accelerate the development of new chemical
entities, primarily in the pharmaceutical industry. To attain
that objective, we will leverage our unique strengths to provide
novel, high value tools that improve the productivity of
chemists in all stages of chemical development. To ensure that
we meet that objective, we have implemented the following
corporate strategy:
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Focus on the Pharmaceutical Market |
We are focused on the large and fast-growing sector of drug
development within the pharmaceutical market. We have targeted
leading pharmaceutical, biotechnology and life sciences
companies as well as academic institutions for our principal
marketing and sales efforts. We believe that these customers
provide the greatest opportunity for maximizing the use of our
products and that early adoption by these industry leaders and
academic institutions will promote wider market acceptance of
our products.
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Expand Our Chemistry Consumables Business |
We will continue to invest in our proprietary consumables
business, which includes synthesis and purification, flash
chromatography and bioanalytical products. These products enable
chemists to make and test drug candidates throughout the drug
development process. In 2004, we concentrated our manufacturing,
research and development in Cardiff, Wales. We focused our
internal product development on new bioanalytical products. Two
new bioanalytical sample preparation products,
ISOLUTE® PPT+ and
EVOLUTEtm
ABN, were launched in 2004.
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Focus Our Instrument Business on the Process Development
and the Flash Chromatography Markets |
We will focus our instrument business on solving the needs of
chemists in two critical areas of the pharmaceutical drug
development process. We will leverage our knowledge of the
process development market to address the needs of process
chemists in the pharmaceutical industry, who are under increased
pressure to scale-up the production of new lead candidates to
support pre-clinical testing and trials. Leveraging our
proprietary Camile TG® control software, we will work to
expand our suite of laboratory instrumentation products, the
Advantage
Seriestm,
that addresses the workflow and reporting requirements of these
chemists. In addition, we are committed to support and enhance
our family of flash chromatography products, the
FlashMastertm
series, which addresses the needs of medicinal chemists who need
to quickly and effectively purify the compounds they make. In
2003, we discontinued further development and manufacturing of
several instruments. In the first quarter of 2004, we launched
the Advantage Series 2410 personal screening synthesizer.
The 2410 personal screening synthesizer is designed to help
process chemists, who work with small amounts of material,
simulate and replicate the thermal and mixing conditions seen in
larger production reactors. In 2004, we concentrated our
manufacturing, research and development efforts for all
instrument product lines at our offices in California.
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Continue to Invest in Product Development
Collaborations |
We are continuing to invest in collaborations with
pharmaceutical companies and technology suppliers to deliver
new, novel chemistry solutions to enhance the ability of
chemists to rapidly discover and develop new drug candidates,
although that effort is expected to be less in 2005 than in
recent years. In addition, we intend to selectively in-license
and commercialize technology that can enhance our total product
portfolio and allow us to gain market share.
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Build Global Customer Relationships Through Direct
Sales |
Our marketing approach is based on a thorough understanding of
our customers’ specific chemistry needs, which we develop
through the close interaction of our direct sales and
applications support personnel with our customers. Currently, we
have approximately 30 sales, service and support specialists
supporting our customers worldwide. We now have a strong, direct
presence in the US, the UK and Japan which is reflected
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in our 2004 revenue mix (43% US and 57% international) and which
correlates to the global worldwide pharmaceutical research
market. While we have successful distribution partners in
secondary markets, we may increase our direct presence in
Europe. With this dedicated team of professionals, we are able
to build long term relationships with existing customers, gain
access to new accounts and expand into new geographic
territories.
PRODUCTS
Argonaut provides chemistry consumables, instrumentation
(instruments and software), and services to enable chemists
primarily in the pharmaceutical industry to accelerate the
chemical development process and to increase the number of
successful new chemical entities.
Chemistry consumables comprise approximately 52% of
2004 net sales. Our high value, chemistry consumables are
essential to the challenges associated with lead generation and
lead optimization stages of chemistry development. Our products
address the increased demand for chemists to make exclusive,
novel and high-quality compounds designed according to themes of
drug-likeness (drugs with a higher probability of success in
humans).
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Polymer Reagent and Scavenger Products: |
Chemists primarily use our polymer reagents and scavengers
products to rapidly assemble collections of highly pure small
molecules with the high levels of structural complexity
currently in demand in drug discovery. The polymer reagents and
scavengers are technologies that enable chemists to markedly
improve their productivity in the crucial, multi-step synthesis
aspects of generating novel chemical entities and complex drug
target molecules. Our Solution Phase Toolboxes and Kits are
collections of bound reagents and scavengers that are
pre-configured to enable chemists to rapidly optimize
traditional work-ups and purification processes.
A potential drug candidate must continually be tested from the
lead optimization stage through clinical trials to determine its
pharmacological (potency), pharmacokinetic (availability and
specificity) and toxicology (safety). Our ISOLUTE® brand of
solid phase extraction (“SPE”) products is used by
chemists to extract and purify samples to test for compatibility
of these essential properties. We manufacture our own sorbents
that are subsequently packed into single columns and 96-well
high throughput SPE plates. In addition, we manufacture sample
processing stations that are designed to simplify the task of
processing samples using disposable ISOLUTE® extraction
products.
In 2004, we launched two new bioanalytical sample preparation
products. ISOLUTE® PPT+ Protein Precipitation Plates
improve removal of unwanted proteins from biological fluid
samples using a ’solvent first’ methodology This
technique is utilized as a sample preparation method prior to
LC-MS/ MS characterization.
EVOLUTEtm
ABN is an advanced water-wettable polymer-based sorbent for
extracting drugs from biological fluids. Developed specifically
for analyte quantification by LC-MS/ MS, EVOLUTE ABN provides a
highly effective solution to the problems of ion suppression and
matrix effects from dirty extracts. It allows scientists to use
generic methodologies to reduce method development time while
producing clean extracts for a wide range of compounds.
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Flash Chromatography Purification: |
A fast and cost-effective technique for the separation and
preparation of complex mixtures, flash chromatography is quickly
replacing traditional column chromatography. With the increasing
number of organic compounds being produced, there are subsequent
demands placed on purification throughput. Economical and easy
to use, our ISOLUTE® Flash Columns provide flexible method
development and scale-up options for organic chemists.
Pre-packed, high purity polypropylene columns containing
ISOLUTE® Flash
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sorbents, ISOLUTE® Flash chromatography columns are time
saving and economical alternatives to traditional self-packed
glass columns. The ISOLUTE® Flash columns are disposable,
thereby saving time and effort. Moreover, they provide
consistent chromatographic reproducibility and uniform flow
profiles. All ISOLUTE® Flash columns are fully compatible
with the FlashMaster instrument systems.
Instrumentation products comprise approximately 42% of
2004 net sales. Our Advantage
Seriestm
products focus on the needs of chemists in the process
development stage who are under increased pressure to rapidly
develop robust, safe, cost effective and scale-independent
processes for the production of pharmaceuticals. Our products
utilize the benefits of automated synthesis guided by software
to design, execute and collect data essential to the production
of large quantities of the drug candidate for clinical trials.
In addition, our instrumentation resources fully support our
Flashmastertm
family of flash chromatography instruments, providing chemists
with a full range of purification products. A fast and
cost-effective technique for the separation and preparation of
complex mixtures, flash chromatography is quickly replacing
traditional column chromatography methods. With an increasing
number of organic compounds being produced, there are subsequent
demands placed on purification throughput. Whether providing a
simple single column system to provide simple, proven
chromatography or a fully featured, multiple column system to
optimize throughput, the Flashmaster products provide chemists
with a fast, reliable, and cost-effective way to purify their
compounds.
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Advantage
Seriestm
Endeavor®: |
The Endeavor® product brings parallel methodology to
catalyst discovery and screening. The process chemist can run
eight individual pressurized, gaseous reactions simultaneously,
while monitoring gas consumption in each reaction vessel. Based
on technology developed by Symyx Technologies, Endeavor® is
used for polymerization, hydrogenation and catalyst screening
which are essential to the drug development process.
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Advantage
Seriestm
3400 process chemistry workstation: |
During 2003, we launched the Advantage
Seriestm
3400 process chemistry workstation, a new product from the
Pfizer and ICI consortium. The Advantage
Seriestm
3400 process chemistry workstation is used by process chemists
who need a reproducible and reliable means to scale-up
production of lead compounds for clinical trials. It is a
multi-reactor system designed to automate, capture and document
the process chemistry workflow. Data is recorded in an easy to
use format that both chemistry departments and individuals can
use. The reporting functions are designed to meet the scale-up
needs of departmental review, data archiving and FDA
referencing. This product is important to our ability to
increase revenues in 2005 and therefore, failure to achieve our
anticipated levels of revenues for this product will harm our
ability to achieve our financial goals during 2005.
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Advantage
Seriestm
4100 process scale-up reactor: |
The Advantage
Seriestm
4100 process scale-up reactor is a fully automated, integrated
batch reactor used for computer-controlled production of
intermediate quantities of pharmaceutical compounds. As an
automated system it simplifies scale-up work by allowing
chemists to program and control reaction conditions such as
temperature, reagent additions and rates using a single computer
interface. The Advantage
Seriestm
4100 process scale-up reactor uses real-time feedback from
analytical devices to automatically obtain optimum reaction
conditions as well as to work at greater levels of lab safety.
The Advantage
Seriestm
2410 Personal Screening Synthesizer provides four individual
reactors that allow process chemists to work at bench-scale to
replicate the temperature profile, mixing and data collection
features of a larger-scale reactor. Designed to provide chemists
with simple, more efficient and less expensive
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process screening, the 2410 Personal Screening Synthesizer
incorporates features that help chemists expedite the scaling of
materials in larger-scale quantities.
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Flashmastertm
flash chromatography systems: |
Our
Flashmastertm
family of products is used for a variety of purification
applications and fully utilizes the advantages of our
Flashmastertm
column consumables. The systems offered range from low cost
single-user purification systems, to high throughput parallel
purification systems, and include a fully automated software
controlled system.
FlashMastertm II
is a complete, software-controlled flash chromatography system
for purification of multiple samples. The system offers on-line
UV detection for real time tracking of separation, four-solvent
isocratic or gradient elution and intelligent fraction
collection and sample tracking for optimum parallel throughput
in purification of compounds.
FlashMastertm
Solo is a system for use by an individual chemist involved in
purification method development. This system features an on-line
variable wavelength UV detector for the immediate visualization
of the separation, an intelligent fraction collection system.
The system’s highly intuitive peak cutting and tracking
logic, eliminates the need for TLC of collected fractions.
FlashMastertm
Parallel is a manual system with binary gradient capability for
use by medicinal chemists engaged in drug discovery or
agrochemical research studies. The system is capable of parallel
purification of up to ten samples, provides automated fraction
collection and a stop-valve manifold to eliminate sample losses.
The FlashMaster Parallel system is speeds up throughput in
parallel organic synthesis purification without the need to use
a personal computer.
FlashMastertm
Personal is a compact, space efficient instrument that
facilitates the purification of compounds for medicinal chemists
who wish to eliminate the need to pack traditional glass
purification columns. The benefits of pre-packed columns,
solvent mixing and proven, reliable chromatography can be
realized with this simple system
FlashMastertm
Personal+ is another easy-to-use, entry-level flash
chromatography system for medicinal chemists purifying one
sample at a time. A second column position offers the
flexibility to perform on-line dry sample loading, which
improves separations and reduces solvent vapors. The second
column can also be used as a guard column, or for two-column
separations.
We provide a variety of services for our customers, which
include integration services, contract research and development
services, installation of instruments, instrument warranty
services and instrument preventative maintenance programs.
Services comprise approximately 6% of our 2004 net sales.
Our integration services focus on creating customer specific
modifications for the chemists who have unique requirements for
the Advantage
Seriestm
4100 process scale-up reactor.
PRODUCT DEVELOPMENT STRATEGY
Our product development strategy is to combine our expertise in
chemistry and engineering with an understanding of the needs of
our market to rapidly design, validate and launch products that
fulfill these needs. To understand market needs, we often form
product development teams with our customers. Through this
process of forming product development consortia and other
strategic collaborations with our customers, we have developed
innovative products with the benefit of extensive customer
input, validation and testing prior to commercial introduction.
We have used the consortium approach to develop five instruments
and several reagents. The most recent consortium was comprised
of two major companies, Pfizer Inc. and ICI, PLC, and was
established with the goal of developing a state-of-the-art,
multi-channel synthesizer for chemical process scale-up and
production. As a result of the consortia efforts, Argonaut
released the Advantage
Seriestm
3400 process chemistry workstation.
10
Through our collaborations, we frequently in-license technology
that we believe has significant potential for commercialization.
Typically, our partner will have developed and tested a concept
to the prototype level. We further develop and enhance the
prototype into a commercially viable product. Our contributions
include design for manufacturing, cost reduction, safety and
code compliance and ease of use issues. Our partner may receive
royalties on sales of the final product, or other commercial
consideration, in recognition of their technology contribution.
We used this approach with the
Endeavortm
product, which we developed in collaboration with Symyx
Technologies (“Symyx”). In August 1999, we entered
into a license and supply agreement, which was extended in
January 2002, with Symyx related to technology used in the
Endeavor product. The agreement was further expanded and
modified in August 2002. Under the August 2002 agreement, we
have licensed both exclusive and non-exclusive worldwide rights
under a broader collection of Symyx patents than was available
under the initial agreement. The agreement provides Argonaut
with a fully paid up license for the life of the issued and
pending licensed patents. In conjunction with the signing of
this agreement, Argonaut made a one-time payment to Symyx, and
Symyx will receive no further royalties or payments from
Argonaut in connection with this license agreement.
Product development of chemistry consumables is managed by an
analogous process to instruments. We often collaborate with our
customer base to develop new products to address synthesis,
purification and sample preparation needs. To date, we have not
used a formal product development consortium for the development
of consumable products. The product development process is
controlled under the ISO 9001 project system.
Company sponsored research and development activities totaled
approximately $4.0 million, $4.4 million and
$5.6 million for the years 2004, 2003 and 2002,
respectively. Customer sponsored research and development
activities totaled approximately $284,000 in 2004,
$1.1 million for 2003 and $999,000 for 2002.
CUSTOMERS
Our customers consist of a broad range of companies in the
pharmaceutical, life sciences, biotechnology and chemical
industries, as well as academic institutions and other research
organizations. Through December 31, 2004, we have sold our
products to more than 1,200 customers and we have installed
approximately 3,400 instruments worldwide. Our leading customers
include:
| |
|
|
|
|
|
Abbott Laboratories
|
|
Eli Lilly and Company |
|
Novartis Pharmaceuticals |
|
Advion Biosciences
|
|
GlaxoSmithKline |
|
Pfizer, Inc. |
|
AstraZeneca
|
|
MDS Pharma |
|
Procter & Gamble Pharmaceuticals |
|
Bristol-Myers Squibb
|
|
Merck & Company |
|
|
Sales and long-lived assets by geographic region and market for
fiscal years 2004, 2003 and 2002 are represented in Note 14
to the Consolidated Financial Statements.
No single customer accounted for more than 10% of our revenue
during fiscal years 2004, 2003 and 2002.
SALES, MARKETING AND SERVICE
We base our sales strategy on understanding our customers’
needs, recommending solutions and ensuring successful
implementation of that solution in our customers’ research
laboratories. Our approach is designed to achieve customer
satisfaction and build a long-term working relationship with our
customer.
Currently, our direct sales, marketing and service organizations
include 31 full-time employees located in North America,
Europe and Japan. Our team of professionals is comprised of
senior account-oriented sales people, application chemists,
service engineers and marketing specialists who sell directly to
our customers worldwide. We have 20 sales professionals with
experience in selling high technology products to the scientific
industry. In addition to their sales expertise, the industrial
laboratory experience of our sales professionals is essential to
their ability to understand our customers’ needs. We have
application chemists and service engineers with expertise in
both chemistry and engineering to support our customers
worldwide. We have
11
professional marketing communication specialists located in the
United States and the United Kingdom dedicated to providing
local marketing programs.
We use distributors to provide local sales and marketing in some
15 foreign countries, including China, Australia, Korea, Eastern
Europe, Finland, Sweden, Denmark, Italy and Spain. In these
countries, we seek to maintain close contact with our customers
and potential customers by providing application and service
support through our worldwide marketing organization. We have
developed scientific seminars to educate and train our
customers. We conduct on-site seminars in the use of our
chemistry reagents and purification products, referencing
important scientific publications and research that validate
their successful usage.
Our web site provides technical information regarding the use of
our instruments and chemistry consumables for our customers. The
combination of our telesales personnel and readily available
technical information simplifies the process for a customer to
make routine purchases of our reagents and consumables.
MANUFACTURING
Qualified outside suppliers manufacture important components of
our instruments and reagents to our specifications. Our
suppliers then deliver the finished product to us for final
quality assurance testing. The space available at our
manufacturing facilities will accommodate the current and
near-term production levels. All products are assembled and
tested by qualified personnel at our manufacturing sites in
Redwood City, California and Cardiff, Wales, United Kingdom.
Our instrument manufacturing staff is comprised of skilled
manufacturing engineers, material procurement, assembly and test
personnel, which are closely integrated with our product
development group. We focus these resources on the rapid
development of manufacturing processes and methods, selecting
suppliers to minimize the requirements for inspecting, stocking
and testing of components during the manufacturing process. In
2004, we consolidated manufacturing of our instrument products
at our facility in Redwood City, California.
Our chemistry organization develops, validates, documents and
initially manufactures our reagents, functional silica and
polymer products at our site in Cardiff, Wales, United Kingdom.
Our Cardiff facility has modern automation equipment for the
packaging of our sample preparation and flash columns into a
variety of formats, including columns and plates. During reagent
development, we qualify outside manufacturers, known as toll
manufacturers, so that we can outsource production as demand and
volume increase.
INTELLECTUAL PROPERTY
As of December 31, 2004, we owned a patent portfolio of
eight issued U.S. patents and one issued foreign patent as
well as several pending U.S. patent applications.
Corresponding foreign patent applications have been filed in a
number of countries. Of these issued patents, five
U.S. patents relate to the reactor and fluidics technology
incorporated into our instruments. Several of our patent
applications relate to this technology and others relate to our
reagent technologies. We intend to continue to file patent
applications covering any new inventions incorporated into our
products and technologies as appropriate. In addition, we rely
upon copyright protection as well as trade secrets, know-how and
continuing technological innovation to develop and maintain our
competitive position. Our success will depend in part upon our
ability to obtain patent protection for our products and
technologies, to preserve our copyrights and trade secrets, and
to operate without infringing on the proprietary rights of third
parties. Our issued patents expire between 2018 and 2021.
We have an exclusive license from Symyx Technologies relating to
technology incorporated in our Endeavor product. We have a
non-exclusive license to certain other Symyx patents based on an
agreement completed in August 2002. The exclusive and
non-exclusive portions of the license are in perpetuity.
BACKLOG
Manufacturing turnaround time has generally been sufficiently
short so as to permit us to manufacture to fill orders for most
of our products, which helps to limit our inventory costs. Due
to the generally short time period between order and shipment
and occasional customer directed changes in delivery schedules,
we do not
12
believe that our backlog, as of any particular date, is an
accurate indicator of actual net sales for any future period.
Backlog is therefore generally a function of requested customer
delivery dates and is typically no longer than one to two
months. The value of the backlog as of December 31, 2004
was approximately $2.3 million as compared to approximately
$1.7 million at December 31, 2003.
COMPETITION
Our competition comes primarily from companies providing
products based on traditional chemistry methods as well as
companies that offer competing products based on alternative
technologies. In order to compete effectively, we will need to
demonstrate the advantages of our products over well-established
traditional chemistry methods and alternative technologies and
products. We will also need to demonstrate the potential
economic value of our products relative to traditional chemistry
methods and alternative technologies and products. Some of the
companies that provide products that compete with ours include
Waters, Varian, Phenomenex, Biotage, Isco Inc., Mettler-Toledo
AG, HEL, Sigma-Aldrich, Nova Biochem, Polymer Laboratories and
several smaller instrument and reagent companies.
GOVERNMENT REGULATION
We are subject to various federal, state and local laws and
regulations relating to the protection of the environment. In
the course of our business, we are involved in the handling,
storage and disposal of chemicals. The laws and regulations
applicable to our operations include provisions that regulate
the discharge of materials into the environment. Usually these
environmental laws and regulations impose “strict
liability,” rendering a person liable without regard to
negligence or fault on the part of such person. Such
environmental laws and regulations may expose us to liability
for the conduct of, or conditions caused by, others, or for acts
that were in compliance with all applicable laws at the time the
checks were performed. We have not been required to make
material expenditures in connection with our efforts to comply
with environmental requirements. We do not believe that
compliance with such requirements will have a material adverse
effect upon our capital expenditures, results of operations or
competitive position. Because the requirements imposed by such
laws and regulations are frequently changed, we are unable to
predict the cost of compliance with such requirements in the
future, or the effect of such laws on our capital expenditures,
results of operations or competitive position.
EMPLOYEES
As of December 31, 2004, we had approximately 150 employees
worldwide. None of our employees are covered by a collective
bargaining agreement. We believe that our relations with our
employees are good.
AVAILABLE INFORMATION
Our principal executive offices are located at 220 Saginaw
Drive, Redwood City, CA 94063, and our main telephone number is
(650) 716-1600. Investors can obtain access to this annual
report on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K, and
all other reports and documents we are required to file with the
SEC and all amendments to these reports, free of charge, on our
website at http://www.argotech.com as soon as reasonably
practicable after such filings are electronically filed with the
SEC. The public may read and copy any material we file with the
SEC at the SEC’s Public Reference Room at 450 Fifth
Street, N.W., Washington D.C., 20549. The public may obtain
information on the operations of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site, http://www.sec.gov, which contains reports, proxy
and information statements and other information regarding
issuers that file electronically with the SEC.
We occupy approximately 24,000 combined square feet of leased
office space and research facilities in Redwood City,
California. These facilities serve as the base for our marketing
and product support operations,
13
research and development, manufacturing and administration
activities. The operating lease for this facility commenced in
August 2004 for a term of seven years with an expiration date of
July 2011. We have an early termination option, which allows us
to terminate the lease after four years from the commencement
date, if we provide timely and proper notice. In addition, we
lease approximately 3,500 square feet of office space in
Carmel, Indiana, 1,880 square feet of research and
development space in Tucson, Arizona, 2,200 square feet of
office space in Midland, Michigan, and 125 square meters of
office space in Tokyo, Japan. These offices are the base
operations for our sales and support groups in the respective
regions. We also own approximately 50,000 combined square feet
in two facilities located near Cardiff, Wales, United Kingdom.
The facilities serve as the base of operations for marketing and
product support operations, research and development,
manufacturing and administration for our European based
activities. Currently, we are in the process of selling one of
the facilities in Cardiff, with a provision to allow us to
sublease a portion of the building for a period of one year. We
believe that our existing facilities are suitable for our
current operations and that additional space will be available
and can be added as required in the future.
|
|
| Item 3. |
Legal Proceedings. |
From time to time, we may be involved in litigation that arises
through the normal course of business. As of the date of filing
of this Form 10-K, we are not a party to any litigation
that we believe could reasonably be expected to harm our
business or results of operations in any material respect.
|
|
| Item 4. |
Submission of Matters to a Vote of Security
Holders. |
None.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity and Related
Stockholder Matters |
|
|
|
Price Range of Common Stock |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
Sales Price | |
|
Sales Price | |
| |
|
| |
|
| |
| Quarter Ended |
|
High | |
|
Low | |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
| |
|
| |
|
March 31
|
|
$ |
2.68 |
|
|
$ |
1.34 |
|
|
$ |
0.99 |
|
|
$ |
0.81 |
|
|
June 30
|
|
|
1.80 |
|
|
|
1.06 |
|
|
|
1.61 |
|
|
|
0.84 |
|
|
September 30
|
|
|
1.33 |
|
|
|
0.89 |
|
|
|
1.48 |
|
|
|
1.14 |
|
|
December 31
|
|
|
1.10 |
|
|
|
0.59 |
|
|
|
1.91 |
|
|
|
1.17 |
|
Our common stock is quoted on the Nasdaq Stock Market’s
National Market under the symbol “AGNT”. The preceding
table sets forth the high and low sales prices per share of our
common stock as reported on the Nasdaq Stock Market’s
National Market for the periods indicated.
We have not paid any cash dividends to date. We anticipate
paying a special cash dividend following the proposed asset sale
to Biotage AB, provided that the transaction is approved by our
stockholders and closes on the current terms.
As of March 10, 2005, there were 107 registered
shareholders of our common stock.
14
|
|
|
Securities Authorized for Issuance Under Equity
Compensation Plans |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities | |
| |
|
|
|
|
|
Remaining Available for | |
| |
|
Number of Securities | |
|
|
|
Future Issuance Under | |
| |
|
to be Issued Upon | |
|
Weighted-Average | |
|
Equity Compensation | |
| |
|
Exercise of | |
|
Exercise Price of | |
|
Plans (Excluding | |
| |
|
Outstanding Options, | |
|
Outstanding Options, | |
|
Securities Reflected in | |
| Plan Category |
|
Warrants and Rights | |
|
Warrants and Rights | |
|
Column (a)) | |
| |
|
| |
|
| |
|
| |
| |
|
(a) | |
|
(b) | |
|
(c) | |
|
Equity compensation plans approved by security holders
|
|
|
3,272,419 |
|
|
$ |
2.46 |
|
|
|
1,675,921 |
|
|
Equity compensation plans not approved by security holders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,272,419 |
|
|
$ |
2.46 |
|
|
|
1,675,921 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Item 6. |
Selected Financial Data |
The following selected financial data has been derived from our
audited financial statements and the following table should be
read in conjunction with the consolidated financial statements
and the notes to such statements and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” included elsewhere in this Annual Report on
Form 10-K. Historical results are not necessarily
indicative of the results to be expected in the future.
The pro forma net loss per share and shares used in computing
pro forma net loss per share are calculated as if all of our
convertible preferred stock was converted into shares of our
common stock on the date of
15
issuance. Each outstanding share of preferred stock was
converted to 0.88 shares of common stock upon completion of
our initial public offering on July 19, 2000.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands except per share data) | |
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
20,204 |
|
|
$ |
24,469 |
|
|
$ |
26,317 |
|
|
$ |
17,063 |
|
|
$ |
17,449 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of sales
|
|
|
13,315 |
|
|
|
13,256 |
|
|
|
15,004 |
|
|
|
9,431 |
|
|
|
7,994 |
|
| |
Research and development
|
|
|
4,019 |
|
|
|
4,368 |
|
|
|
5,627 |
|
|
|
7,089 |
|
|
|
5,057 |
|
| |
Selling, general and administrative
|
|
|
12,443 |
|
|
|
13,060 |
|
|
|
17,453 |
|
|
|
16,686 |
|
|
|
13,819 |
|
| |
Amortization of goodwill and purchased intangible assets
|
|
|
483 |
|
|
|
738 |
|
|
|
735 |
|
|
|
1,157 |
|
|
|
— |
|
| |
Acquired in-process research and development
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
270 |
|
|
|
— |
|
| |
Restructuring charges (recoveries)
|
|
|
— |
|
|
|
(184 |
) |
|
|
1,802 |
|
|
|
384 |
|
|
|
— |
|
| |
Asset impairment charges
|
|
|
2,249 |
|
|
|
1,612 |
|
|
|
— |
|
|
|
5,520 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
32,509 |
|
|
|
32,850 |
|
|
|
40,621 |
|
|
|
40,537 |
|
|
|
26,870 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,305 |
) |
|
|
(8,381 |
) |
|
|
(14,304 |
) |
|
|
(23,474 |
) |
|
|
(9,421 |
) |
|
Realized gain from the sale of asset
|
|
|
— |
|
|
|
460 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Interest and other income (expenses), net
|
|
|
637 |
|
|
|
552 |
|
|
|
663 |
|
|
|
2,679 |
|
|
|
1,900 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
|
(11,668 |
) |
|
|
(7,369 |
) |
|
|
(13,641 |
) |
|
|
(20,795 |
) |
|
|
(7,521 |
) |
|
Provision (benefit) for income taxes
|
|
|
(150 |
) |
|
|
783 |
|
|
|
217 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(11,518 |
) |
|
$ |
(8,152 |
) |
|
$ |
(13,858 |
) |
|
$ |
(20,795 |
) |
|
$ |
(7,521 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$ |
(0.56 |
) |
|
$ |
(0.40 |
) |
|
$ |
(0.70 |
) |
|
$ |
(1.09 |
) |
|
$ |
(0.79 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net loss per common
share, basic and diluted
|
|
|
20,494 |
|
|
|
20,160 |
|
|
|
19,876 |
|
|
|
19,048 |
|
|
|
9,538 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per common share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.50 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing pro forma net loss per
common share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,009 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
10,158 |
|
|
$ |
13,470 |
|
|
$ |
26,894 |
|
|
$ |
57,632 |
|
|
$ |
73,372 |
|
|
Working capital
|
|
|
18,211 |
|
|
|
8,978 |
|
|
|
31,001 |
|
|
|
58,292 |
|
|
|
76,131 |
|
|
Total assets
|
|
|
39,405 |
|
|
|
63,315 |
|
|
|
72,373 |
|
|
|
71,772 |
|
|
|
83,032 |
|
|
Long-term obligations, less current portion
|
|
|
523 |
|
|
|
23 |
|
|
|
12,334 |
|
|
|
— |
|
|
|
180 |
|
|
Accumulated deficit
|
|
|
(88,762 |
) |
|
|
(77,244 |
) |
|
|
(69,092 |
) |
|
|
(55,234 |
) |
|
|
(34,439 |
) |
|
Total stockholders’ equity
|
|
|
35,388 |
|
|
|
45,243 |
|
|
|
52,513 |
|
|
|
63,764 |
|
|
|
77,720 |
|
16
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
This annual report contains forward-looking statements for
purposes of the Private Securities Litigation Reform Act of
1995, and it is the Company’s intention that such
statements be protected by the safe harbor created thereby.
Examples of such forward-looking statements include statements
regarding future revenues, expenses, losses and cash flows,
research and development activities and sales and marketing
initiatives such as our plan to concentrate our efforts in those
areas such as building our core consumables business, and
related accruals, values of our assets and liabilities over
their remaining useful lives and our testing for impairment of
goodwill, our expectations as to the duration of our negative
cash flows from operations and the sufficiency of existing cash
reserves for the next 12 months and the possibility of
selling substantially all of our assets and winding up our
business. Actual results may differ materially from those
projected in such forward-looking statements due to various
known and unknown risks and uncertainties, including the risk
that a decline in the economy generally or the market for our
products will adversely affect our business. For a further
discussion of these and other risks and uncertainties related to
our business see the discussion set forth herein under
“Factors That May Affect Our Future Results”.
OVERVIEW
We develop innovative products designed to help pharmaceutical
and other chemists engaged in the discovery and development of
new chemical entities increase their productivity and reduce
their operating costs without compromising the scientific
integrity of their research. Our products are designed to enable
chemists to increase their productivity, reduce their operating
costs through automation and process simplification, and cost
effectively explore the increasing number of drug targets
available for drug development. We derive revenues primarily
from the sale of our chemistry consumable products,
instrumentation products and services. We also derive revenues
from the sale of reagents, and other instrument-related
consumables and consumables products of Jones Chromatography
Limited (“Jones Group”), which we acquired on
February 20, 2002. Our expenses have consisted primarily of
costs incurred in research and development, manufacturing and
general and administrative costs associated with our operations,
and our sales and marketing organization.
In March 2001, we completed the acquisition of Camile Products,
LLC, a privately held instrumentation and software company in
Indianapolis, Indiana, and renamed this subsidiary Argonaut
Technologies Systems, Inc. (“ATSI”).
In February 2002, we completed the strategic acquisition of
Jones Chromatography Limited (and its wholly owned subsidiaries:
International Sorbent Technology Limited and Jones
Chromatography U.S.A., Inc.), a privately held chemistry
consumables and instrument company (“Jones Group”)
headquartered in Cardiff, Wales, United Kingdom.
Since our inception, we have incurred significant losses and, as
of December 31, 2004, we had an accumulated deficit of
$88.8 million.
On March 24, 2005 the Company filed a proxy statement
asking stockholders of Argonaut Technologies, Inc. at a special
meeting to approve a sale of the assets of Argonaut’s
chemistry consumables business and certain assets related to the
process chemistry business. As the proposed asset sale has not
yet been approved or closed, unless otherwise indicated, any
forward-looking information disclosed in this Management’s
Discussion and Analysis of Financial Condition and Results of
Operations assumes the continued operation of our current
business.
CRITICAL ACCOUNTING POLICIES AND MANAGEMENT’S
ESTIMATES
|
|
|
Critical Accounting Policies and Estimates |
The discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
We consider certain accounting policies related to revenue
recognition, allowance for doubtful accounts, impairment of
investments, inventory adjustments, warranty
17
liabilities, restructuring charges, purchase accounting,
goodwill and other purchased intangibles, impairment of
long-lived assets, income tax and stock-based compensation to be
critical policies due to the estimation processes involved in
each. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.
The Company complies with Financial Accounting Standards
Board’s Emerging Issues Task Force No. 00-21(EITF
00-21), “Revenue Arrangements with Multiple
Deliverables.”
In an arrangement with multiple deliverables, the delivered
item(s) are considered a separate unit of accounting if the
delivered item(s) has value on a standalone basis; if there is
objective evidence of the fair value of the undelivered item(s);
and, if the arrangement includes a general right of return
relative to the delivered item, delivery or performance of the
undelivered item(s) is considered probable and substantially in
the control of the vendor.
There are standard products offered by Argonaut where
consideration of EITF 00-21 is applicable. Generally, the
multiple items are priced and sold separately, have standalone
value to the customer as evidenced by history of sales to other
customers on a standalone basis, and is recognized when
persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, collectibility is
reasonably assured and fees are fixed or determinable. If any of
these criteria are not met, revenue recognition is deferred
until all of the criteria are met.
Revenue related to product sales with no future obligation is
recognized upon shipment when the recognition criteria have been
met. For those arrangements where we have obligations to provide
installation services, revenue is recognized when installation
is complete and all other revenue recognition criteria have been
met. Sales that require customer acceptance are not recognized
until acceptance has been obtained.
Maintenance contract revenue, including revenue for extended
warranties, is recognized ratably over the contractual term.
Training, contract research and development and other services
revenue are recognized as the services are rendered.
|
|
|
Allowance for Doubtful Accounts |
We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make
required payments. We determine the adequacy of this allowance
by regularly reviewing the composition of our accounts
receivable aging and evaluating individual customer receivables,
considering (i) our customer’s financial condition,
(ii) credit history (iii) current economic conditions
and (iv) other known factors. If the financial condition of
our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required.
|
|
|
Impairment of Investments |
Investments are classified as available-for-sale and recorded at
fair value. Unrealized investment gains and losses are reflected
in stockholders’ equity. Investment income is recorded when
earned, and capital gains and losses are recognized when
investments are sold. Investments are reviewed periodically to
determine if they have suffered an impairment of value that is
considered other than temporary. If investments are determined
to be impaired, a capital loss is recognized at the date of
determination. Testing for impairment of investments also
requires significant management judgment. The identification of
potentially impaired investments, the determination of their
fair value and the assessment of whether any decline in value is
other
18
than temporary are the key judgment elements. The discovery of
new information and the passage of time can significantly change
these judgments. Revisions of impairment judgments are made when
new information becomes known, and any resulting impairment
adjustments are made at that time. The current economic
environment and recent volatility of securities markets increase
the difficulty of determining fair value and assessing
investment impairment. The same influences tend to increase the
risk of potentially impaired assets.
Inventories are stated at the lower of cost (on a first-in,
first-out cost method) or market value. We record adjustments to
the value of inventory based upon a detailed assessment at each
balance sheet date which reviews, among other factors, the
forecasted demand and plans to sell our inventories. The
physical condition (e.g., age and quality) of the inventory is
also considered in establishing its valuation, as well as
product lifecycle and product development plans. Based on this
analysis, we reduce the cost of inventory that we specifically
identify and consider obsolete or excessive to fulfill future
sales estimates. These adjustments are estimates, which could
vary significantly, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory
levels or competitive conditions differ from our expectations.
We provide for the estimated cost of product warranties at the
time revenue is recognized. We also sell warranty extensions and
the related revenue is recognized ratably over the term of the
extension. While the Company engages in extensive product
quality programs and processes, including actively monitoring
and evaluating the quality of its component suppliers, our
warranty obligation is affected by product failure rates,
material usage and service delivery costs incurred in correcting
a product failure. Should actual product failure rates, material
usage or service delivery costs differ from our estimates,
revisions to the estimated warranty liability would be required.
During fiscal year 2002, we recorded significant reserves in
connection with our restructuring program. These reserves
included estimates pertaining to employee separation costs,
related abandonment of excess equipment, the abandonment of
excess leased facilities, and other related charges.
We accounted for the acquisitions of Camile Products, LLC, now
Argonaut Technologies Systems, Inc. (“ATSI”) and the
Jones Group under the purchase method of accounting and
accordingly, the acquired assets and liabilities assumed were
recorded at their respective fair values. The recorded values of
assets and liabilities were based on third-party estimates and
valuations. The remaining values were based on our judgments and
estimates, and accordingly, the Company’s consolidated
financial position or results of operations may be affected by
changes in estimates and judgments.
|
|
|
Goodwill and Other Purchased Intangibles |
Goodwill and other purchased intangible assets have resulted
from the acquisition of ATSI and the Jones Group. Goodwill and
other intangible assets with indefinite lives are not amortized
subsequent to the Company’s adoption of SFAS 142,
“Goodwill and Other Intangible Assets”
(“SFAS 142”).
All goodwill and intangible assets have been assigned to one of
two reporting units. The Argonaut (“AGNT”)-Legacy
reporting unit consists primarily of goodwill and intangible
assets related to the Company’s acquisition of ATSI. The
Jones-Group reporting unit consists of goodwill and intangible
assets deriving from the Company’s acquisition of Jones
Chromatography, Ltd.
The Company performs the annual test for impairment of
intangible assets with indefinite lives as prescribed by
SFAS 142 during the fourth fiscal quarter of each year. The
first step is a screen for potential impairment, while the
second step measures the amount of impairment by reporting unit,
if any.
19
During the third quarter ended September 30, 2003 the
Company performed an interim test for goodwill impairment in
light of lower than expected third quarter revenue. Based on the
discounted cash flows of the AGNT-Legacy reporting unit, the
Company recognized an impairment charge of $1.6 million
relating to the goodwill and intangible assets associated with
ATSI. Approximately, $763,000 of the impairment charge was
related to goodwill associated with ATSI, and the remainder was
related to completed technology assets associated with the
acquisition of ATSI.
|
|
|
Impairment of Long-Lived Assets |
In accordance with SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” the
Company monitors the carrying value of long-lived assets for
potential impairment based on whether certain trigger events
have occurred. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. In the event that
such cash flows are not expected to be sufficient to recover the
carrying amount of the assets, the assets are written down to
their estimated fair values. The Company determined that there
existed an indicator of impairment during the fourth quarter of
2004 with respect to its long-lived assets. The Company compared
projected undiscounted future cash flows to the carrying value
of the assets. As a result, the Company recognized an impairment
charge related to fixed assets of approximately
$1.4 million and purchased intangible assets of
approximately $833,000.
The Company accounts for income taxes based upon SFAS
No. 109, “Accounting for Income Taxes.” Under
this method, we recognize deferred tax assets and liabilities
based on the differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. We
regularly review our deferred tax assets for recoverability and
establish a valuation allowance based upon historical losses,
projected future taxable income and the expected timing of the
reversals of existing temporary differences. As a result of this
review, we have established a full valuation allowance against
our deferred tax assets.
The Company accounts for its stock-based employee compensation
as permitted by Statement of Financial Accounting Standard
No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”), as amended by
Statement of Financial Accounting Standard No. 148,
“Accounting for Stock-Based Compensation —
Transition and Disclosure,” whereby stock-based employee
compensation arrangements are accounted for under the intrinsic
value method prescribed by Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”). Under APB 25,
when the exercise price of the Company’s stock options is
less than the market price of the underlying shares on the date
of grant, compensation expense is recognized. We have recorded
amortization of deferred stock compensation of approximately
$5,000, $65,000 and $222,000 in the years ended
December 31, 2004, 2003 and 2002, respectively. As of
December 31, 2004, we had a total of approximately $4,000
to be amortized over the remaining vesting period of the options.
We also recorded stock compensation of $0, $46,000 and $49,000
for the years ended December 31, 2004, 2003 and 2002,
respectively, in connection with options granted to consultants.
These options are periodically re-measured as they vest, in
accordance with Emerging Issues Task Force No. 96-18
“Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.”
COMPARATIVE RESULTS OF OPERATIONS
|
|
|
Years Ended December 31, 2004 and 2003 |
Net sales in the year ended December 31, 2004 were
$20.2 million compared to $24.5 million for the same
period in 2003, a decrease of 17%. For the year ended
December 31, 2004, instrument sales comprised
20
approximately 40% of net sales, chemistry consumables sales
comprised approximately 53% of net sales, and service,
integration services and contract research and development
(“R&D”) together comprised approximately 6% of net
sales. Instrument sales were $8.2 million for 2004 versus
$10.1 million for the same period in 2003, a decrease of
19%. The decrease was caused by primarily slower than
anticipated growth of new instrument product sales. Sales of
discontinued instrument products accounted for $0.6 million
of instrument sales in 2004 compared to $1.5 million for
the same period of 2003. Chemistry consumables sales were
$10.7 million for the year ended December 31, 2004
versus $11.7 million in the same period in 2003, a decrease
of 10%. Sales of ongoing chemistry consumables products in 2004
were flat compared to 2003, whereas revenues from product lines
sold to W. R. Grace in July 2003 decreased to approximately
$38,000 in 2004 compared to $1.3 million in 2003. The
decrease in revenue from discontinued products was the result of
the sale of the HPLC assets in the third quarter of 2003 and
lower resin product sales. The HPLC products contributed
approximately $1.2 million to chemistry consumables sales
in 2003.
Cost of sales, comprised of cost of products and cost of
services were $13.3 million for the year ended
December 31, 2004 and were essentially flat from the same
period in 2003. Gross margin as a percent of sales was 34% for
2004 compared to 46% for 2003. Lower margin performance was
primarily the result of (i) recording a charge of
approximately $1.1 million during the quarter ended
September 30, 2004 for the write-down of discontinued and
slow moving inventory, (ii) additional costs incurred
related to our integrated service revenue, (iii) costs of
approximately $211,000 incurred to transfer the manufacturing of
our flash chromatography business from Cardiff, Wales to
California and the transfer of a chemistry resins business from
California to Cardiff and (iv) the fact that lower revenue
did not support the relatively fixed manufacturing costs. The
gross margin as a percent of sales for the year ended
December 31, 2003 included the favorable impact of
approximately $480,000 related to the sale of discontinued
products previously charged to cost of sales as excess inventory
in the third quarter of 2002.
|
|
|
Research and development expenses |
Research and development expenses were $4.0 million for the
year ended December 31, 2004 compared to $4.4 million
for the same period in 2003, a decrease of 8%. These expenses
include salaries and related costs of research and development
personnel, fees paid to consultants and outside service
providers, the costs of facilities and related expenses,
non-recurring engineering charges and prototype costs related to
the design, development testing, pre-manufacturing and
significant improvement of our products. The decrease was
primarily attributable to lower personnel costs, a decrease in
spending for outside services and lower engineering expense.
|
|
|
Selling, general and administrative expenses |
Selling, general and administrative expenses decreased to
$12.4 million in the year ended December 31, 2004 from
$13.1 million for the same period in 2003, a decrease of
5%. These expenses consist primarily of salaries and related
costs for executive, sales and marketing, finance and other
administrative personnel, the cost of facilities and related
spending, and the costs associated with promotional and other
marketing expenses. The decrease was primarily attributable to
lower personnel costs and lower costs associated with
promotional activities, offset by higher legal and accounting
fees and outside service expense.
|
|
|
Amortization and write-off of goodwill and other purchased
intangible assets |
For the year ended December 31, 2004, the Company recorded
amortization of purchased intangibles of $483,000 as compared to
$738,000 in the same period in 2003. The decrease for
amortization expense in 2004 is due to the lower carrying value
of the purchased intangible assets, as a result of an impairment
write-off recorded in September 2003.
21
On August 8, 2002, the Company announced its intention to
execute a restructuring program focused on improving
productivity, reducing operational expenses in remote offices,
and implementing a workforce reduction of approximately 20% of
the existing worldwide employees. As a result, the Company
recognized a charge of $1.8 million in the third quarter of
the year ended December 31, 2002. The charge included
termination benefits and related expenses of approximately
$630,000 related to the reduction of our workforce by 44
employees, expenses of approximately $683,000 related to the
abandonment of excess equipment, expenses of approximately
$356,000 for the abandonment of excess leased facilities, and
expenses of approximately $133,000 for various related charges.
As of December 31, 2004, all of the 44 employees had been
terminated. For the year ended December 31, 2004, cash
payments related to the restructuring program were approximately
$153,000. As of December 31, 2004, all amounts related to
workforce reduction and other related charges and abandonment of
excess leased facilities have been paid.
The Company recorded asset impairment charges of
$2.2 million for the year ended December 31, 2004,
based upon undiscounted cash flows related to the write-off of
certain fixed assets and purchased licenses (intangibles) that
are not part of the proposed asset sale to Biotage AB. (See
Note 15).
Interest and other income of $925,000 decreased for the year
ended December 31, 2004 from $1.2 million for the same
period in 2003, primarily because of lower interest income due
to lower cash balances invested. Interest and other expense was
$288,000 for the period ended December 31, 2004 compared to
$688,000 in the same period in 2003. The reduction was primarily
due to lower interest expense as the notes payable for the Jones
Group acquisition were repaid in full during the second quarter
of 2004.
On July 30, 2003, the Company announced the sale of its
HPLC product line to the Grace Vydac business unit of W.R.
Grace & Co. The sale principally included the Genesis
and ApexTM brands of HPLC columns inventory, as well as
HPLC-related capital assets and trademarks. The sale of these
assets enables the Company to focus R&D and sales and
marketing efforts on core product areas providing consumable and
instrument products to the critical areas of drug development.
The pretax gain on the sale of net assets was approximately
$460,000 for the period ended December 31, 2003.
|
|
|
Provision for income taxes |
As of December 31, 2004, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$65.8 million, which will expire beginning in the year 2010
and federal research and development tax credits of
approximately $1.3 million, which begin to expire in the
year 2010. The Company also has California net operating loss
carryforwards of approximately $15.9 million, which expire
beginning in the year 2005; other state net operating losses of
$3.0 million; state research and development tax credits of
$0.9 million, which have no expiration date; and California
Manufacturers’ Investment Credit of approximately $30,000,
which begin to expire in the year 2006.
The Company recorded a net tax benefit of approximately $150,000
for the year ended December 31, 2004. The net tax benefit
was comprised of a tax benefit recorded by Argonaut
Technologies, Ltd., which was offset by state income tax
payments made by the Company in the US. For the year ended
December 31, 2003, the Company recorded a provision for
income taxes of approximately $783,000 to record the UK
corporate tax liability of Jones Group. The provision was the
result of the UK recording net income in 2003 and the tax on the
gain related to the sale of the HPLC assets to the Grace Vydac
business unit of W.R. Grace & Co. completed in July
2003.
22
|
|
|
Years Ended December 31, 2003 and 2002 |
Operating results for the year ended December 31, 2002
include Jones Group since February 21, 2002.
Net sales in the year ended December 31, 2003 were
$24.5 million compared to $26.3 million for the same
period in 2002, a decrease of 7%. For the year ended
December 31, 2003, instrument sales comprised approximately
41% of net sales, chemistry consumables sales comprised
approximately 48% of net sales, and service, integration
services and contract research and development
(“R&D”) together comprised approximately 11% of
net sales. Instrument sales were $10.1 million for 2003
versus $11.9 million for the same period in 2002, a
decrease of 15%. The decrease was caused by slower than
anticipated growth of new instrument product sales combined with
the transition away from discontinued legacy instrument
products, begun in the second half of 2002. Sales of
discontinued instrument products accounted for $1.5 million
of instrument sales in 2003 compared to $4.7 million for
the same period of 2002. Ongoing core instrument sales grew 21%
in 2003 versus 2002 ($8.7 million versus
$7.2 million). Chemistry consumables sales were
$11.7 million for the year ended December 31, 2003
versus $11.1 million in the same period in 2002, an
increase of 5%. Full year chemistry consumables growth was
negatively impacted by the decline in the HPLC business after
the sale of the HPLC assets in the third quarter and lower resin
product sales. The HPLC products contributed approximately
$1.2 million to chemistry consumables sales in 2003 versus
$2.1 million in the same period of 2002. The year over year
growth in ongoing chemistry consumables sales was 16%.
Cost of sales, comprised of cost of products and cost of
services was $13.3 million for the year ended
December 31, 2003 versus $15.0 million for the same
period in 2002, a decrease of 12%, due primarily to lower sales
volume and the inclusion of $0.8 million of special charges
in 2002 related to the write-off of excess and obsolete
inventory recorded based on the Company’s decision to
discontinue active selling of those products as a component of a
broader restructuring plan. Gross margin as a percent of sales
was 46% for 2003 compared to 43% for 2002. Product gross margin
as a percent of sales increased to 48% for the year ended
December 31, 2003 as compared to 43% for the same period in
2002. The gross margin as a percent of sales for the year ended
December 31, 2003 includes the favorable impact of
approximately $480,000 related to the sale of discontinued
products previously charged to cost of sales as excess inventory
in the third quarter of 2002.
|
|
|
Research and development expenses |
Research and development expenses were $4.4 million for the
year ended December 31, 2003 compared to $5.6 million
for the same period in 2002, a decrease of 22%. These expenses
include salaries and related costs of research and development
personnel, fees paid to consultants and outside service
providers, the costs of facilities and related expenses,
non-recurring engineering charges and prototype costs related to
the design, development testing, pre-manufacturing and
significant improvement of our products. The decrease was
primarily attributable to lower personnel costs resulting from
the effects of the restructuring program initiated in the third
quarter of 2002 and reduced stock-based compensation expenses.
Stock-based compensation expenses related to research and
development decreased by approximately $80,000 for the year
ended December 31, 2003 as compared to the same period in
2002.
|
|
|
Selling, general and administrative expenses |
Selling, general and administrative expenses decreased to
$13.1 million in the year ended December 31, 2003 from
$17.5 million for the same period in 2002, a decrease of
25%. These expenses consist primarily of salaries and related
costs for executive, sales and marketing, finance and other
administrative personnel, the cost of facilities and related
spending, and the costs associated with promotional and other
marketing expenses. The decrease was primarily attributable to
the effects of the restructuring efforts initiated in the third
quarter of 2002 and reduced stock-based compensation expenses.
Stock-based compensation expenses
23
related to selling, general and administrative decreased by
approximately $80,000 for the year ended December 31, 2003
versus the same period in 2002.
|
|
|
Amortization and write-off of goodwill and other purchased
intangible assets |
For the year ended December 31, 2003, the Company recorded
amortization of purchased intangibles of $738,000 as compared to
$735,000 in the same period of 2002. During the third quarter
ended September 30, 2003 the Company performed an interim
test for goodwill impairment in light of lower than expected
third quarter revenue. Based on the discounted cash flows of the
AGNT-Legacy reporting unit, the Company recognized an impairment
charge of $1.6 million relating to the goodwill and
intangible assets associated with ATSI. Approximately $763,000
of the impairment charge was related to goodwill associated with
ATSI, and the remainder was related to completed technology
assets associated with the acquisition of ATSI.
On August 8, 2002, the Company announced its intention to
execute a restructuring program focused on improving
productivity, reducing operational expenses in remote offices,
and implementing a workforce reduction of approximately 20% of
the existing worldwide employees. As a result, the Company
recognized a charge of $1.8 million in the third quarter of
the year ended December 31, 2002. The charge included
termination benefits and related expenses of approximately
$630,000 related to the reduction of our workforce by 44
employees, expenses of approximately $683,000 related to the
abandonment of excess equipment, expenses of approximately
$356,000 for the abandonment of excess leased facilities, and
expenses of approximately $133,000 for various related charges.
As of December 31, 2003, 40 of the 44 employees had been
terminated and the accrued restructuring liability was $158,000.
For the year ended December 31, 2003, cash payments related
to the restructuring program were approximately $535,000.
Remaining cash expenditures relating to workforce reduction and
other related charges will be paid during the first half of
2004. Amounts related to the abandonment of excess leased
facilities will be paid as the lease payments are due over the
remainder of the lease terms through 2004. At December 31,
2003 the Company revised certain estimates of outstanding
restructuring obligations. As a result, a recovery of
approximately $184,000 was recorded as a credit to restructuring
charges.
Interest and other income of $1.2 million for the year
ended December 31, 2003 was essentially flat as compared to
$1.2 million for the same period in 2002. Interest and
other expense was $688,000 for the period ended
December 31, 2003 compared to $528,000 in the same period
in 2002.
On July 30, 2003, the Company announced the sale of its
HPLC product line to the Grace Vydac business unit of W.R.
Grace & Co. The sale principally included the
Genesis® and Apex™ brands of HPLC columns inventory as
well as HPLC-related capital assets and trademarks. The sale of
these assets enables the Company to focus R&D and sales and
marketing efforts on core product areas providing consumable and
instrument products to the critical areas of drug development.
The pretax gain on the sale of net assets was approximately
$460,000 for the period ended December 31, 2003.
|
|
|
Provision for income taxes |
As of December 31, 2003, we had federal net operating loss
and research credit carryforwards of approximately
$61.0 million and $1.2 million, respectively, which
expire on various dates between 2010 and 2023. Utilization of
our net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by
the Internal Revenue Code and similar state provisions. Such an
annual limitation could result in the expiration of the net
operating loss before utilization.
The Company recorded a provision for income taxes of
approximately $783,000 to record the UK corporate tax liability
of Jones Group for the year ended December 31, 2003 as
compared to $217,000 recorded for the same period in 2002. The
increase is due to the combination of higher UK net income and
tax
24
on the gain related to the sale of the HPLC assets to the Grace
Vydac business unit of W.R. Grace & Co. completed in
July.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2004, we had cash, cash equivalents,
investments and restricted cash of $11.0 million compared
to $31.2 million at December 31, 2003 and $39.2 at
December 31, 2002. Working capital at December 31,
2004 was $18.2 million, compared to $9.0 million at
December 31, 2003 and $31.0 million at
December 31, 2002. The 2004 decrease in cash, cash
equivalents, investments and restricted cash was primarily due
to the use of $8.0 million in general operating activities,
repayment of the notes payable related to the acquisition of the
Jones Group, using restricted cash of approximately
$12.1 million, and approximately $1.7 million used for
capital expenditures.
Net cash used in operating activities was $8.0 million for
the year ended December 31, 2004, compared to
$8.6 million in 2003 and $11.1 million in 2002. Cash
used in operating activities in 2004 of $8.0 million
resulted primarily from our net loss of $11.5 million,
foreign currency translation of $1.0 million and working
capital requirements of $0.2 million, offset by non-cash
expenses of $4.0 million and disposal of property and
equipment of $0.4 million. Cash used in 2003 resulted from
a net loss of $8.2 million and working capital requirements
of $4.4 million, offset by non-cash expenses of
$3.7 million and disposal of property and equipment of
$0.2 million. Cash used in 2002 resulted primarily from a
net loss of $13.9 million and working capital requirements
of $0.4 million, offset by non-cash expenses of
$3.2 million.
Net cash provided by investing activities was $17.2 million
for the year ended December 31, 2004, compared to net cash
used in investing activities of $2.1 million in 2003 and
net cash provided by investing activities of $14.0 million
in 2002. Net cash provided by investing activities in 2004
resulted primarily from using the restricted cash of
approximately $12.2 million to repay the notes payable
related to the acquisition of the Jones Group, the net
conversion of short and long-term investments into cash to fund
operations, offset by purchases of property and equipment. The
net cash used in investing activities in 2003 resulted primarily
from the net movement into short and long-term investments and
purchase of property and equipment, partially offset by the
proceeds from the sale of our HPLC business. The net cash
provided by investing activities in 2002 related primarily to
the net conversion of short-term investments into cash to fund
operations, offset by the purchases of technology licenses and
expenditures for property and equipment.
Net cash used in financing activities was $12.0 million for
the year ended December 31, 2004 compared to
$1.0 million in 2003 and $0.1 million in 2002. The
cash used by financing activities in 2004 resulted from the use
of restricted cash to repay the notes payable related to the
acquisition of the Jones Group, offset by the exercise of stock
options. The cash used in 2003 resulted primarily from the
repayment of long-term debt, offset by the exercise of stock
options. The cash used in 2002 resulted primarily from capital
lease payments and the repayment of long-term debt, offset by
the exercise of stock options.
On August 8, 2002, the Company announced the approval by
its Board of Directors of a stock repurchase program pursuant to
which shares of its outstanding common stock having an aggregate
value of up to $500,000 may be repurchased through open market
transactions at prices deemed appropriate by the Company. The
duration of the stock repurchase program is open-ended. The
timing and amount of repurchase transactions under this program
will depend on market conditions, corporate and regulatory
considerations, and will be funded from available working
capital. During the year ended December 31, 2004, the
Company repurchased 50,000 shares of its common stock on
the open market for approximately $81,000 at an average price of
$1.62 per share. Through December 31, 2004, the
Company had repurchased 100,000 shares of outstanding
common stock at an average purchase price per share of $1.28,
pursuant to our stock repurchase program.
The Company expects to have negative cash flows from operations
through at least the fourth quarter of 2005. On March 24,
2005 the Company filed a proxy statement asking stockholders of
Argonaut Technologies, Inc. at a special meeting to approve a
sale of the assets of Argonaut’s chemistry consumables
business and certain assets related to the process chemistry
business. If the asset sale is completed, Argonaut will be paid
$21.2 million in cash by Biotage, plus the assumption of
specified liabilities. If the proposed sale to Biotage is
25
completed as anticipated, we intend to distribute a substantial
portion of the cash proceeds to our stockholders. If the
proposed asset sale to Biotage AB is not completed as
anticipated, we may also use cash resources and/or raise
additional funds to fund future strategic alternatives we may
elect to pursue.
|
|
|
Off-Balance Sheet Financings and Liabilities |
Other than contractual obligations incurred in the normal course
of business, we do not have any off-balance sheet financing
arrangements or liabilities, guarantee contracts, retained or
contingent interests in transferred assets or any obligation
arising out of a material variable interest in an unconsolidated
entity. We do not have any majority-owned subsidiaries that are
not included in the financial statements.
The following summarizes the Company’s contractual cash
obligations at December 31, 2004, and the effect such
obligations are expected to have on our liquidity and cash flows
in future periods (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period: | |
| |
|
| |
| |
|
|
|
Less than | |
|
1 to 3 | |
|
4 to 7 | |
| Contractual Obligations |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
Capital lease obligations
|
|
$ |
83 |
|
|
$ |
26 |
|
|
$ |
57 |
|
|
$ |
— |
|
|
Operating lease obligations
|
|
|
1,941 |
|
|
|
289 |
|
|
|
892 |
|
|
|
760 |
|
|
Minimum royalty payments
|
|
|
175 |
|
|
|
100 |
|
|
|
75 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
2,199 |
|
|
$ |
415 |
|
|
$ |
1,024 |
|
|
$ |
760 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
26
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
|
|
|
We may sell substantially all of our assets and wind up
our business. |
We have signed a definitive agreement with Biotage AB to
purchase our chemistry consumables business and process
development business, which represents substantially all of our
assets. If our stockholders approve the sale and we sell the
business, we may wind up our affairs and continue to explore
alternatives for the use and disposition of our remaining
assets, including a plan of liquidation and dissolution.
|
|
|
We have a history of operating losses and we may never
achieve or sustain profitability and may be required to raise
additional funds if losses continue. |
We have incurred operating losses and negative cash flows from
operations since our inception. As of December 31, 2004, we
had an accumulated deficit of $88.8 million and we recorded
a net loss of $11.5 million for the year ended
December 31, 2004. We expect to continue to incur operating
and net losses through 2005 and we may never generate positive
cash flows.
Our future capital requirements depend on a number of factors,
including market acceptance of our products, the resources we
devote to developing and supporting our products, continued
progress of our research and development of potential products,
the need to acquire licenses to new technology and the
availability of other financing on acceptable terms. To the
extent that our capital resources are insufficient to meet
future capital requirements, we will need to raise additional
capital or incur indebtedness to fund our operations. To the
extent that we raise additional capital through the sale of
equity, the issuance of those securities will result in dilution
to our stockholders. There can be no assurance that additional
debt or equity financing will be available on acceptable terms,
if at all. If adequate funds are not available, we may be
required to delay, reduce the scope of, or eliminate, our
operations. We may be required to obtain funds through
arrangements with collaborative or strategic partners or others
that may require us to relinquish rights to certain technologies
or products that we might otherwise seek to retain.
|
|
|
If our products do not become widely used in the
pharmaceutical, biotechnology, life sciences and chemical
industries, it is unlikely that we will ever become
profitable. |
Pharmaceutical, biotechnology, life sciences and chemical
organizations have historically performed chemistry development
using traditional laboratory methods. To date, our products have
not been as widely adopted by these industries as we had
expected. The commercial success of our products will depend
upon the adoption of these products as a method to develop
chemical compounds for these industries. In order to be
successful, our products must meet the performance and pricing
requirements for chemistry development within the
pharmaceutical, biotechnology, life sciences and chemical
industries. Market acceptance will depend on many factors,
including our ability to:
|
|
|
| |
• |
Convince prospective customers that our products are a
cost-effective alternative to traditional methods and other
technologies that may be introduced for chemistry development. |
| |
| |
• |
Convince prospective customers that our products provide the
same or enhanced quality and accuracy as compared with
traditional methods and other new technologies that may be
developed. |
| |
| |
• |
Manufacture products in sufficient quantities with acceptable
quality and at an acceptable cost. |
| |
| |
• |
Install and service sufficient numbers of our instruments,
particularly new instruments such as the Advantage
Seriestm
3400 process chemistry workstation. |
| |
| |
• |
Convince prospective customers that our products and our ability
to supply and support our products are equivalent or better as
compared to competitor companies. |
If we cannot achieve these objectives, our products will not
gain market acceptance.
27
|
|
|
Our product development efforts may not produce
commercially viable products. |
We continue to devote significant personnel and financial
resources to research and development activities to develop new
products. We may not be successful in developing new products,
and we may never realize any benefits from such research and
development activities, which may not produce commercially
viable products. Our ability to increase our revenues and
achieve and sustain profitability is dependent upon our ability
to successfully develop new and commercially viable products.
During the first half of 2003, we launched a new product, the
Advantage
Seriestm
3400 workstation and in the first half of 2004, we launched the
FlashMaster Personal+ system and the Advantage Series 2410
personal screening synthesizer. Our ability to increase revenues
in 2005 and beyond is dependent on the success of these products.
|
|
|
Our instrument products have lengthy sales cycles, which
could cause our operating results to fluctuate significantly
from quarter to quarter. |
Our ability to obtain customers for our instrument products
depends, in significant part, upon the perception that our
products can help accelerate efforts in chemical development.
The sale of many of our instrument products typically involves a
significant technical evaluation and commitment of capital by
customers. Accordingly, the sales cycles of many of our
instrument products are lengthy and subject to a number of risks
that are beyond our control, including customers’ budgetary
constraints and internal acceptance reviews. Our revenues could
fluctuate significantly from quarter to quarter, due to this
lengthy and unpredictable sales cycle. A large portion of our
expenses, including expenses for facilities, equipment and
personnel, are relatively fixed. Accordingly, if our revenues
decline or do not grow as we anticipate, we might not be able to
correspondingly reduce our operating expenses. Our failure to
achieve our anticipated levels of revenues could significantly
harm our operating results for a particular fiscal period. Due
to the possibility of fluctuations in our operating results, we
believe that quarter-to-quarter comparisons of our operating
results are not always a good indication of our future
performance.
|
|
|
The capital spending policies of pharmaceutical,
biotechnology, life sciences and other chemical research
organizations have a significant effect on the demand for our
instruments. |
We market our products to and receive our revenues principally
from pharmaceutical, biotechnology, life sciences and other
chemical research organizations, and the capital spending
policies of these entities can have a significant effect on the
demand for our instruments. These policies are based on a wide
variety of factors, including the resources available for
purchasing research equipment, the spending priorities among
various types of research equipment and the policies regarding
capital expenditures. In particular, the volatility of the
public stock market for biotechnology and related companies has
at certain times significantly impacted their ability to raise
capital, which has directly affected their capital spending
budgets. In addition, continued consolidation within these
industries will likely delay and may potentially reduce capital
spending by pharmaceutical companies involved in such
consolidations. Any decrease or delay in capital spending by
life sciences companies could cause our revenues to decline and
harm our profitability.
|
|
|
Our direct worldwide sales force and network of
distributors may not be sufficient to successfully address the
market for our products. |
We sell a major portion of our products through our own sales
force. We may not be able to build an efficient and effective
sales and marketing force and continue to expand our network of
distributors. Our failure to build an efficient and effective
sales and marketing force could negatively impact sales of our
products, thus reducing our revenues and profitability.
|
|
|
In order to be successful, we must recruit, retain and
motivate key employees, and failure to do so could seriously
harm us. |
In order to be successful, we must recruit, retain and motivate
executives and other key employees, including those in
managerial, technical, marketing and sales positions. In
particular, our product generation efforts depend on hiring and
retaining qualified technical personnel. Attracting and
retaining qualified sales
28
representatives is also critical to our future. Experienced
management and technical, marketing and support personnel in the
chemistry instrumentation and consumables industry are in high
demand and competition for their talents is intense, although
current economic conditions have moderated this demand and
competition for talent. The loss of key employees could have a
significant impact on our operations. We also must continue to
motivate employees and keep them focused on Argonaut’s
strategies and goals, which may be particularly difficult due to
morale challenges posed by workforce reductions and general
uncertainty. Changes in management may be disruptive to our
business and may result in the departure of existing employees,
customers and/or research collaborators. It may take significant
time to locate, retain and integrate qualified management
personnel.
|
|
|
The life sciences industry is highly competitive and
subject to rapid technological change, and we may not have the
resources necessary to successfully compete. |
We compete with companies worldwide that are engaged in the
development and production of similar products. We face
competition primarily from the following three sectors:
|
|
|
| |
• |
pharmaceutical companies developing their own instruments; |
| |
| |
• |
companies marketing products based upon parallel synthesis and
other non-traditional technologies, such as
Mettler-Toledo AG and several smaller instrument and
reagent companies; and |
| |
| |
• |
companies marketing conventional products based on traditional
chemistry methodologies, such as Biotage AB, and
Isco, Inc. |
Many of our competitors have access to greater financial,
technical, research, marketing, sales, distribution, service and
other resources than we do. We face, and will continue to face,
intense competition from organizations serving the life sciences
industry that are developing or marketing competing products and
technologies. These organizations may develop products or
technologies that are superior to our products or technologies
in terms of performance, cost or both. Moreover, our competitors
may offer price discounts or other concessions as a competitive
tactic that we may not be in a position to match.
We will need to develop new applications for our products to
remain competitive. Our present or future products could be
rendered obsolete or uneconomical by technological advances of
one or more of our current or future competitors. In addition,
the introduction or announcement of new products by us or by
others could result in a delay of or decrease in sales of
existing products, as customers evaluate these new products. Our
future success will depend on our ability to compete effectively
against current technology as well as to respond effectively to
technological advances.
|
|
|
We are exposed to the credit risk of some of our
customers. |
Due to the prior slowdown in the economy, the credit risks
relating to our customers increased. Although we have programs
in place to monitor and mitigate the associated risk, there can
be no assurance that such programs will be effective in reducing
our credit risks. We have experienced losses due to customers
failing to meet their obligations. Although these losses have
not been significant, future losses, if incurred, could harm our
business and have a material adverse effect on our operating
results and financial conditions.
|
|
|
Because we outsource our instrument component, chemical
intermediates and product manufacturing, our ability to produce
and supply our products could be impaired. |
We outsource most of the production of components of our
instruments to vendors. We also outsource significant quantities
of our high volume chemical intermediates for our consumables
products. Our reliance on our outside vendors exposes us to
risks including:
|
|
|
| |
• |
the possibility that one or more of our vendors could terminate
their services at any time without notice; |
| |
| |
• |
reduced control over pricing, quality and timely delivery, due
to the difficulties in switching to alternative vendors; and |
| |
| |
• |
the potential delays and expenses of seeking alternative sources
of manufacturing services. |
29
Consequently, in the event that components from our suppliers or
work performed by our vendors are delayed or interrupted for any
reason, our ability to produce and deliver our products in
sufficient quantities and at acceptable costs would decline.
Additionally, certain components are provided by a single
source. The effect of a disruption of delivery of those single
source components could impact our ability to deliver product to
our customers.
|
|
|
We may face litigation from some of our stockholders that
might be costly to resolve. |
We have received correspondence from a stockholder claiming that
our Board of Directors wasted corporate funds, breached their
fiduciary duty and otherwise took actions contrary to Delaware
law. Such claims may result in our being involved in litigation.
Although we believe that these claims are without merit, we
cannot assure you that these or additional claims will not
result in litigation in the future or that any lawsuits will not
be successful. We could incur substantial costs and diversion of
management resources to defend any lawsuit, which could harm our
business. In addition, we may be obligated under our charter
documents and written indemnification agreements to indemnify
our management and directors for legal fees and other costs
incurred in defending any such lawsuits. Legal fees and costs in
connection with any litigation are likely to be substantial.
|
|
|
We are exposed to fluctuations in the exchange rates of
foreign currency and the U.S. dollar. |
As a global concern, we face exposure to adverse movements in
foreign currency and U.S. dollar exchange rates. During the
year ended December 31, 2004, approximately 57% of our net
sales were exposed to foreign currency risk. During the same
period, approximately 24% of our operating expenses were exposed
to foreign currency risk. These exposures may change over time
as business practices evolve and could have a material adverse
impact on our financial results. We will monitor our exposure
and may hedge against this and any other emerging market
currencies as necessary.
|
|
|
Our business is subject to risks from international
operations. |
We conduct business globally. Accordingly, our future results
could be materially adversely affected by a variety of
uncontrollable and changing factors including, among others,
foreign currency exchange rates; regulatory, political, or
economic conditions in a specific country or region; trade
protection measures and other regulatory requirements; and
natural disasters. Any or all of these factors could have a
material adverse impact on our future international business.
Our business is subject to the effects of general global
economic conditions, and particularly economic conditions in the
United States and the United Kingdom. Specifically, our business
is subject to the effects of market conditions in the
pharmaceutical, biotechnology, life sciences and chemical
industries. In recent quarters, our operating results have been
adversely affected as a result of unfavorable economic
conditions and reduced capital spending in the United States,
Europe, and Asia. If the economic conditions in the United
States and globally do not improve, or if we experience a
worsening in the global economic slowdown, we may continue to
experience material adverse impacts on our business, operating
results, and financial condition.
|
|
|
If we infringe on or misappropriate the proprietary rights
of others or we are unable to protect our own intellectual
property rights our revenues could be harmed. |
We may be sued for infringing on the intellectual property
rights of others. Intellectual property litigation is costly,
and, even if we prevail, the cost of such litigation could
affect our profitability. In addition, litigation is time
consuming and could divert management attention and resources
away from our business. If we do not prevail in any litigation,
in addition to any damages we might have to pay, we could be
required to stop the infringing activity or obtain a license. We
may not be able to obtain required licenses on acceptable terms,
or at all. In addition, some licenses may be nonexclusive, and
therefore, our competitors may have access to the technology
licensed to us. If we fail to obtain a required license or are
unable to design around a patent, we may be unable to sell some
of our products, which could harm our ability to compete and
result in a decline in our revenues.
30
Our success may depend on our ability to obtain and enforce
patents on our technology and to protect our trade secrets. Any
patents we own may not afford meaningful protection for our
technology and products. Others may challenge our patents and,
as a result, our patents could be narrowed, invalidated or
rendered unenforceable. In addition, our current and future
patent applications may not result in the issuance of patents to
us in the United States or foreign countries. Moreover,
competitors may develop products similar to ours that are not
covered by our patents.
We try to protect our non-patented trade secrets by requiring
our employees, consultants and advisors to execute
confidentiality agreements. However, we cannot guarantee that
these agreements will provide us with adequate protection
against improper use or disclosure of our trade secrets.
Further, others may independently develop substantially
equivalent proprietary information and techniques. If we are
unable to protect our proprietary information and techniques,
our ability to exclude certain competitors from the market will
be limited.
|
|
|
Our stock price has been highly volatile, and your
investment could suffer a further decline in value. |
The trading price of our common stock has been highly volatile
and ranged in 2004 from a per-share high of $2.68 to a low of
$0.59 and could continue to be subject to wide fluctuations in
price in response to various factors, many of which are beyond
our control, including;
|
|
|
| |
• |
actual or anticipated variations in quarterly operating results; |
| |
| |
• |
failure to achieve, or changes in, financial estimates by
securities analysts; |
| |
| |
• |
announcements of new products or services or technological
innovations by us or our competitors; |
| |
| |
• |
conditions or trends in the pharmaceutical, biotechnology, life
sciences and chemical industries; |
| |
| |
• |
announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments; |
| |
| |
• |
additions or departures of key personnel, including any
directors; |
| |
| |
• |
developments in the application or interpretation of new or
existing accounting pronouncements and reporting obligations; |
| |
| |
• |
purchases or sales of our common stock, including any
repurchases of our common stock under the existing or future
stock repurchase program; and |
| |
| |
• |
developments regarding our patents or other intellectual
property or that of our competitors. |
In addition, the stock market in general, and the NASDAQ Stock
Market’s National Market and SmallCap Market and the market
for technology companies in particular, have experienced
significant price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of
those companies. Further, there has been particular volatility
in the market prices of securities of life science companies.
These broad market and industry factors may negatively impact
the market price of our common stock, regardless of our
operating performance. In the past, following periods of
volatility in the market price of a company’s securities,
securities class action litigation has often been instituted. A
securities class action suit against us could result in
substantial costs, potential liabilities and the diversion of
management’s attention and resources.
|
|
|
Recently Enacted and Proposed Changes in Securities Laws
and Regulations are Likely to Increase Our Costs |
The Sarbanes-Oxley Act of 2002 that became law in July 2002
requires changes in some of our corporate governance and
securities disclosure or compliance practices. That Act also
requires the SEC to promulgate new rules on a variety of
subjects, in addition to rule proposals already made, and Nasdaq
has proposed revisions to its requirements for companies that
are Nasdaq-listed. We expect these developments to increase our
legal compliance costs, and to make some activities more
time-consuming. We are presently evaluating
31
and monitoring regulatory developments and cannot estimate the
timing or magnitude of additional costs we may incur as a result.
|
|
|
Legislative Actions, Potential New Accounting
Pronouncements and Higher Compliance Costs are Likely to
Adversely Impact Our Future Financial Position and Results of
Operations. |
Future changes in financial accounting standards, including the
requirement to measure all sock-based compensation awards using
a fair value method and record such expense in the consolidated
financial statements, may cause adverse, unexpected earnings
fluctuations and affect our financial position and results of
operations. New accounting pronouncements and varying
interpretations of such pronouncements have occurred with
frequency in the recent past and may occur in the future. In
addition, we may make changes in our accounting policies in the
future. Compliance with changing regulation of corporate
governance and public disclosure will also result in additional
expenses. Changing laws, regulations and standards relating to
corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq
National Market listing requirements, are creating uncertainty
for companies such as ours and compliance costs are increasing
as a result of this uncertainty and other factors. We are
committed to maintaining high standards of corporate governance
and public disclosure. As a result, we intend to invest all
reasonably necessary resources to comply with evolving
standards, and this investment will result in increased general
and administrative expenses and may cause a diversion of
management time and attention from revenue-generating activities
to compliance activities.
|
|
|
Sales of large numbers of shares of our common stock could
cause our stock price to decline. |
The market price of our common stock could decline as a result
of sales of substantial amounts of our common stock in the
public market, or the perception that these sales could occur.
In addition, these factors could make it more difficult for us
to raise funds through future offerings of common stock. All of
the shares sold in our initial public offering are now freely
transferable without restriction or further registration under
the Securities Act, except for any shares purchased by our
affiliates, as defined in Rule 144 of the Securities Act.
The remaining shares of common stock outstanding are restricted
securities as defined in Rule 144. These shares may be sold
in the future without registration under the Securities Act, to
the extent permitted by Rule 144 or other exemptions under
the Securities Act.
On March 1, 2001, we issued 666,667 shares of
unregistered common stock in connection with the acquisition of
ATSI.
On February 5, 2002, we registered 2,628,618 shares of
common stock that are reserved for issuance upon exercise of
options granted under our stock option and employee stock
purchase plans. These shares can be sold in the public market
upon issuance, subject to restrictions under the securities laws
applicable to resales by affiliates.
On February 20, 2002, we issued 572,152 shares of
unregistered common stock in connection with the acquisition of
Jones Group.
|
|
|
Anti-takeover provisions in our charter, bylaws and
Preferred Stock Rights Agreement and under Delaware law could
make a third-party acquisition of us difficult. |
Our certificate of incorporation, bylaws and Stockholder Rights
Plan contain provisions that could make it more difficult for a
third party to acquire us, even if doing so might be deemed
beneficial by our stockholders. These provisions could limit the
price that investors might be willing to pay in the future for
shares of our common stock. We are also subject to certain
provisions of Delaware law that could delay, deter or prevent a
change in control of us.
The rights issued pursuant to our Preferred Stock Rights
Agreement will become exercisable the tenth day after a person
or group announces acquisition of 10% or more of our common
stock or announces commencement of a tender or exchange offer
the consummation of which would result in ownership by the
person or group of 10 % or more of
our common stock. If the rights become exercisable, the holders
of the
32
rights (other than the person acquiring
10 % or more of our common stock)
will be entitled to acquire, in exchange for the rights’
exercise price, shares of our common stock or shares of any
company in which we are merged, with a value equal to twice the
rights’ exercise price.
FACTORS RELATED TO THE POTENTIAL SALE AND WINDING UP OF THE
COMPANY
|
|
|
We cannot assure you of the amount, if any, or timing of
any distributions to our stockholders. |
Although our board of directors has not established a firm
timetable for distributions to stockholders, our board of
directors intends, subject to contingencies inherent in winding
up our business, to make distributions as promptly as
practicable, including an initial distribution of a portion of
the net proceeds of the asset sale to Biotage. We intend that
any distributions to the stockholders will be in the form of
cash. Our board of directors is, however, currently unable to
predict the precise nature, amount or timing of any distribution
to stockholders. The actual nature, amount and timing of any
distributions will be determined by our board of directors (or
possibly in the case of a plan complete liquidation and
dissolution, a trustee designated by our board of directors), in
its sole discretion, and will depend in part on, among other
things, the final amount of the purchase price we receive from
Biotage in the asset sale, our ability to convert our remaining
assets into cash and the amount of our liabilities and
obligations, including any amounts we may owe to Biotage
pursuant to our indemnification obligations under the purchase
agreement.
In lieu of satisfying all of our liabilities and obligations
prior to making distributions to our stockholders, we may
instead reserve assets deemed by management and our board of
directors to be adequate to provide for those liabilities and
obligations.
Uncertainties as to the precise value of our non-cash assets and
the ultimate amount of our liabilities make it impracticable to
predict the aggregate net value ultimately distributable to
stockholders. Claims, liabilities and expenses from operations
(including operating costs, salaries, income taxes, payroll and
local taxes, legal, accounting and miscellaneous office
expenses), although declining, will continue to be incurred
following stockholder approval of the asset sale to Biotage.
These expenses will reduce the amount of assets available for
ultimate distribution to stockholders, and, while a precise
estimate of those expenses cannot currently be made, management
and the board of directors believe that available cash amounts
received from the sale of assets will be adequate to provide for
our obligations, liabilities, expenses and claims (including
contingent liabilities) and to make cash distributions to
stockholders. However, no assurances can be given that available
cash and amounts received on the sale of assets will be adequate
to provide for our obligations, liabilities, expenses and claims
and to make cash distributions to stockholders. If available
cash and amounts received on the sale of assets are not adequate
to provide for our obligations, liabilities, expenses and
claims, distributions of cash and other assets to our
stockholders will be reduced and could be eliminated.
Further, we are currently unable to predict the precise timing
of any distributions pursuant to our wind up. The timing of any
distribution will depend on and could be delayed by, among other
things, the timing of sales of our non-cash assets and claim
settlements with creditors. Additionally, a creditor could seek
an injunction against the making of distributions to our
stockholders on the ground that the amounts to be distributed
were needed to provide for the payment of our liabilities and
expenses. Any action of this type could delay or substantially
diminish the amount available for distribution to our
stockholders.
|
|
|
The announcement of our entry into a stock and asset
purchase agreement with Biotage AB could have a negative
impact on our business. |
The announcement of our intent to sell our chemistry consumables
business to Biotage AB may result in adverse consequences
to us, including causing our customers to stop purchasing from
us or to purchase less of our products due to uncertainties
regarding the transaction and our future operations. If this
occurs, we would experience negative impacts on our revenues and
cash flows, which may reduce the assets available for ultimate
distribution to our stockholders in a liquidation and
dissolution of our company.
33
|
|
|
We will continue to incur claims, liabilities and expenses
that will reduce the amount available for distribution to
stockholders. |
Claims, liabilities and expenses from operations (such as
operating costs, salaries, directors’ and officers’
insurance, payroll and local taxes and legal and accounting
fees), including operation of our process chemistry business,
will continue to be incurred as we seek to close the asset to
Biotage and wind up operations. These expenses will reduce the
amounts of assets available for ultimate distribution to
stockholders. Claims against the escrow account and any purchase
price reduction could reduce the amount available to us from the
sale of our chemistry consumables business. If available, cash
and amounts received on the sale of non-cash assets are not
adequate to provide for our obligations, liabilities, expenses
and claims, we may not be able to distribute meaningful cash, or
any cash at all, to our stockholders.
|
|
|
We will continue to incur the expenses of complying with
public company reporting requirements. |
We have an obligation to continue to comply with the applicable
reporting requirements of the Securities Exchange Act of 1934,
as amended, even though, compliance with the reporting
requirements is economically burdensome.
If we pursue a plan of complete liquidation and dissolution, in
order to curtail expenses, we currently intend to seek relief
from the Securities and Exchange Commission from the reporting
requirements under the Exchange Act after the filing of a
certificate of dissolution. We anticipate that in that event, if
relief were granted, we would continue to file current reports
on Report 8-K to disclose material events relating to our
liquidation and dissolution, along with any other reports that
the Securities and Exchange Commission might require. However,
the Securities and Exchange Commission may not grant relief.
|
|
|
If we fail to retain the services of key personnel, the
winding up of our business may not succeed. |
The success of our winding up depends in large part on our
ability to retain the services of certain of our key personnel.
The retention of key personnel is particularly difficult under
our current circumstances. Failure to retain these personnel
could harm the implementation of our winding up. If we fail to
retain these personnel, we will need to hire others to oversee
our winding up, which could involve additional compensation
expenses.
Under their change of control severance agreements,
Ms. Goldenstein and Messrs. Foster, Tredger and
Labadie have agreed to remain reasonably available to assist us
in the transition for 90 days (180 days in the case of
Ms. Goldenstein) after the asset sale to Biotage at the
same base salary and level of benefits in effect before the
asset sale. However, those executives will be entitled to their
change of control benefits pursuant to their change of control
severance agreements in any case.
|
|
|
Our common stock may be delisted from the Nasdaq
Market |
On October 19, 2004, we received a notice from the Listing
Qualifications division of the Nasdaq National Market that for
the last 30 consecutive business days the bid price of our
common stock had closed below the minimum $1.00 per share
requirement for continued inclusion under Nasdaq Marketplace
Rule 4450(a)(5). The notice further provided that in
accordance with Nasdaq Marketplace Rule 4450(a)(5), we were
provided 180 calendar days, or until April 18, 2005, to
regain compliance. The Nasdaq staff will provide written
notification that we have achieved compliance with the rule if
at any time before April 18, 2005, the bid price of our
common stock closes at $1.00 per share or more for a
minimum of 10 consecutive days.
If we do not regain compliance with the Nasdaq Marketplace rules
by April 18, 2005, and are not eligible for an additional
compliance period, the Nasdaq will provide written notification
that our securities will be delisted or moved to The Nasdaq
SmallCap Market. At that time, we may appeal the Nasdaq
staff’s determination to delist our securities to a
Listings Qualifications Panel.
As of the date of this filing, we have not yet achieved
compliance with the Nasdaq Marketplace rules. We currently
anticipate that we will trade below the minimum required
$1.00 per share after we make any initial distribution to
our stockholders. If our common stock is delisted, your ability
to resell your shares of our common stock could be adversely
affected.
34
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued Statement of Financial
Accounting Standards No. 151, “Inventory Costs, an
amendment to ARB No. 43, Chapter 4”
(“SFAS 151”). SFAS 151 amends ARB
No. 43, Chapter 4, to clarify that, abnormal amounts
of idle facility expense, freight, handling costs and wasted
materials (spoilage) should be recognized as current period
charges. In addition, SFAS 151 requires that the allocation
of fixed production overheads to the cost of conversion be based
on the normal capacity of the production facilities.
SFAS 151 is effective for inventory costs incurred for
fiscal years beginning after June 5, 2005. We do not expect
the adoption of SFAS 151 to have a significant impact on
our financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 123R,
“Shared-Based Benefits.” This statement is a revision
to SFAS 123 and supercedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and amends
SFAS No. 95, “Statement of Cash Flows.”
SFAS 123R will require us to measure the cost of our
employee stock-based compensation awards granted after the
effective date based on the grant date fair value of those
awards and to record that cost as compensation expense over the
period during which the employee is required to perform services
in exchange for the award (generally over the vesting period of
the award). SFAS 123R addresses all forms of share-based
payments awards, including shares issued under employee stock
purchase plans, stock option, restricted stock and stock
appreciation rights. In addition, we will be required to record
compensation expense (as previous awards continue to vest) for
the unvested portion of previously granted awards that remain
outstanding at the date of adoption. SFAS 123R was
originally effective for fiscal periods beginning after
June 15, 2005. On April 14, 2005, the Securities and
Exchange Commission delayed the effective date, and as such the
Company will be required to implement the provisions of
SFAS 123R beginning January 1, 2006.
We have not yet completed the analysis of the ultimate impact
that this new pronouncement will have on the results of
operations, nor the method of adoption for this new standard.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
INTEREST RATE RISK
Our exposure to interest rate risk is related principally to our
investment portfolio. Fixed rate investments may have their fair
market value adversely impacted from changes in interest rates
and floating rate investments may produce less income than
expected if interest rates fall. Due in part to these factors,
our future investment income may fall short of expectations.
Further, we may suffer losses in investment principal if we are
forced to sell securities that have declined in market value due
to changes in interest rates. We invest our excess cash in debt
instruments of the U.S. government and its agencies, and in
debt instruments of high quality corporate issuers. The
principal notional amount with an expected maturity in the
following year, weighted average interest rate, and average
contractual maturity were as follows ($ in millions):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Principal notional amount with an expected maturity in following
year
|
|
$ |
3.7 |
|
|
$ |
6.5 |
|
|
Weighted average interest rate
|
|
|
4.4 |
% |
|
|
5.0 |
% |
|
Average contractual maturity of investments (days)
|
|
|
188 |
|
|
|
257 |
|
The Company also had limited interest rate exposure related to
the notes payable issued in consideration for the acquisition of
the Jones Group. The notes payable were denominated in British
Pound Sterling in the amount of £7,650,000
($10.9 million at origination) and interest was payable to
the note holders at an initial rate of 3.9% per annum for
the first twelve month period (ending February 20, 2003),
and subsequently at the rate equal to the published base rate of
Barclays Bank PLC on the date immediately preceding each
quarterly interest period, less any fees and costs. The notes
payable matured at April 30, 2004 and were paid in full at
that time. The Company had limited interest rate risk on the
notes payable due to a deposit of £7,650,000
($10.9 million at origination) in cash with Barclays Bank
PLC as collateral for the principal and interest on
35
the notes payable. The cash amounts held as collateral were
represented as restricted cash in the Company’s
consolidated balance sheet at December 31, 2003 and were
invested in money market instruments to yield rates approximate
to the interest rates due on the notes payable.
FOREIGN CURRENCY EXCHANGE RATE EXPOSURE
Our exposure to market risk due to fluctuations in currency
exchange rates relates primarily to the intercompany balances
with our subsidiaries in the United Kingdom and Japan. Gains and
losses resulting from foreign currency transactions have
historically been immaterial. However, in 2004, net foreign
exchange transaction gain included in Interest and other income
was approximately $528,000. The gain resulted primarily from
foreign currency denominated short-term investments (British
Pound Sterling) and the settlement of foreign currency
denominated accounts receivable (mainly British Pound Sterling)
as the US dollar weakened against the British pound during 2004.
Translation gain and losses related to our foreign subsidiaries
in the United Kingdom, Japan and Switzerland are accumulated as
a separate component of stockholders’ equity. We do not
currently engage in foreign currency hedging transactions.
As we have operations and sales outside of the United States,
our financial results can be affected by changes in foreign
currency exchange rates or weak economic conditions in the
foreign markets in which we operate. We manage our exposure to
these risks through our regular operating activities. Our
foreign operations and sales increased significantly in 2002 due
primarily to the acquisition of the Jones Group. With the Jones
Group acquisition, approximately 57% of our net sales were
exposed to foreign currency risk in 2004, predominantly in the
British Pound, the Euro, and the Japanese Yen. Approximately 24%
of our expenses were exposed to foreign currency risk in 2004.
36
|
|
| Item 8. |
Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
|
|
|
38 |
|
|
Consolidated Balance Sheets at December 31, 2004 and 2003
|
|
|
39 |
|
|
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002
|
|
|
40 |
|
|
Consolidated Statement of Stockholders’ Equity for the
years ended December 31, 2004, 2003 and 2002
|
|
|
41 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
|
|
|
42 |
|
|
Notes to Consolidated Financial Statements
|
|
|
43 |
|
37
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Argonaut
Technologies, Inc.
We have audited the accompanying consolidated balance sheets of
Argonaut Technologies, Inc. as of December 31, 2004 and
2003, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2004. Our audits
also include the financial statement schedule listed in the
index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Argonaut Technologies, Inc. at
December 31, 2004 and 2003, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
more fully described in Note 1, the Company has incurred
recurring operating losses and negative cash flows from
operating activities. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are described
in Note 15. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome
of this uncertainty.
Walnut Creek, California
April 14, 2005
38
ARGONAUT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, except | |
| |
|
share data) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
8,321 |
|
|
$ |
9,620 |
|
| |
Short-term investments
|
|
|
1,837 |
|
|
|
3,850 |
|
| |
Accounts receivable, less allowance for doubtful accounts of
$121 in 2004 and $102 in 2003
|
|
|
4,353 |
|
|
|
5,993 |
|
| |
Inventories
|
|
|
6,615 |
|
|
|
6,946 |
|
| |
Prepaid expenses and other current assets
|
|
|
532 |
|
|
|
562 |
|
| |
Note receivable
|
|
|
47 |
|
|
|
56 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
21,705 |
|
|
|
27,027 |
|
|
Restricted cash
|
|
|
169 |
|
|
|
12,317 |
|
|
Property and equipment, net
|
|
|
4,231 |
|
|
|
4,454 |
|
|
Goodwill
|
|
|
9,410 |
|
|
|
9,410 |
|
|
Other intangible assets, net
|
|
|
3,017 |
|
|
|
4,471 |
|
|
Long-term investments
|
|
|
699 |
|
|
|
5,432 |
|
|
Other assets
|
|
|
174 |
|
|
|
204 |
|
| |
|
|
|
|
|
|
| |
|
$ |
39,405 |
|
|
$ |
63,315 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
1,100 |
|
|
$ |
1,494 |
|
| |
Accrued compensation
|
|
|
534 |
|
|
|
971 |
|
| |
Other accrued liabilities
|
|
|
1,136 |
|
|
|
2,406 |
|
| |
Deferred revenue
|
|
|
618 |
|
|
|
978 |
|
| |
Current portion of deferred rent
|
|
|
82 |
|
|
|
— |
|
| |
Current portion of notes payable and capital lease obligations
|
|
|
24 |
|
|
|
12,200 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
3,494 |
|
|
|
18,049 |
|
|
Capital lease obligations
|
|
|
53 |
|
|
|
23 |
|
|
Long term portion of deferred rent
|
|
|
470 |
|
|
|
— |
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Convertible preferred stock, $0.0001 par value;
10,000,000 shares authorized at December 31, 2004 and
2003, issuable in series; no shares issued and outstanding at
December 31, 2004 and 2003
|
|
|
— |
|
|
|
— |
|
| |
Common stock, $0.0001 par value; 120,000,000 shares
authorized at December 31, 2004 and 2003; 20,625,102 and
20,376,918 shares issued and outstanding at
December 31, 2004 and 2003, respectively
|
|
|
2 |
|
|
|
2 |
|
| |
Additional paid-in capital
|
|
|
121,822 |
|
|
|
121,670 |
|
| |
Deferred stock compensation
|
|
|
(4 |
) |
|
|
(9 |
) |
| |
Accumulated other comprehensive income (loss)
|
|
|
2,330 |
|
|
|
824 |
|
| |
Accumulated deficit
|
|
|
(88,762 |
) |
|
|
(77,244 |
) |
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
35,388 |
|
|
|
45,243 |
|
| |
|
|
|
|
|
|
| |
|
$ |
39,405 |
|
|
$ |
63,315 |
|
| |
|
|
|
|
|
|
See accompanying notes.
39
ARGONAUT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Products
|
|
$ |
18,844 |
|
|
$ |
21,801 |
|
|
$ |
22,994 |
|
| |
Services
|
|
|
1,360 |
|
|
|
2,668 |
|
|
|
3,323 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total net sales
|
|
|
20,204 |
|
|
|
24,469 |
|
|
|
26,317 |
|
| |
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Costs of products
|
|
|
12,643 |
|
|
|
11,492 |
|
|
|
13,202 |
|
| |
Costs of services
|
|
|
672 |
|
|
|
1,764 |
|
|
|
1,802 |
|
| |
Research and development (Note A)
|
|
|
4,019 |
|
|
|
4,368 |
|
|
|
5,627 |
|
| |
Selling, general and administrative (Note A)
|
|
|
12,443 |
|
|
|
13,060 |
|
|
|
17,453 |
|
| |
Amortization of goodwill and purchased intangibles
|
|
|
483 |
|
|
|
738 |
|
|
|
735 |
|
| |
Acquired in-process research and development
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Restructuring charges (recoveries)
|
|
|
— |
|
|
|
(184 |
) |
|
|
1,802 |
|
| |
Asset impairment charges
|
|
|
1,416 |
|
|
|
— |
|
|
|
— |
|
| |
Goodwill and other purchased intangibles write-off
|
|
|
833 |
|
|
|
1,612 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
32,509 |
|
|
|
32,850 |
|
|
|
40,621 |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,305 |
) |
|
|
(8,381 |
) |
|
|
(14,304 |
) |
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Realized gain on the sale of assets
|
|
|
— |
|
|
|
460 |
|
|
|
— |
|
| |
Interest and other income
|
|
|
925 |
|
|
|
1,240 |
|
|
|
1,191 |
|
| |
Interest and other expense
|
|
|
(288 |
) |
|
|
(688 |
) |
|
|
(528 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
|
(11,668 |
) |
|
|
(7,369 |
) |
|
|
(13,641 |
) |
|
Provision (benefit) for income tax
|
|
|
(150 |
) |
|
|
783 |
|
|
|
217 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(11,518 |
) |
|
$ |
(8,152 |
) |
|
$ |
(13,858 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$ |
(0.56 |
) |
|
$ |
(0.40 |
) |
|
$ |
(0.70 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net loss per common
share, basic and diluted
|
|
|
20,494 |
|
|
|
20,160 |
|
|
|
19,876 |
|
| |
|
|
|
|
|
|
|
|
|
|
Note A: Research and development expenses and selling,
general and administrative expenses include charges for
stock-based compensation as follows: |
|
Research and development
|
|
$ |
5 |
|
|
$ |
65 |
|
|
$ |
145 |
|
|
Selling, general and administrative
|
|
|
— |
|
|
|
46 |
|
|
|
126 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
5 |
|
|
$ |
111 |
|
|
$ |
271 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes.
40
ARGONAUT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
|
|
|
|
|
|
|
|
Other | |
|
|
| |
|
Common Stock | |
|
Additional | |
|
Deferred | |
|
|
|
Comprehensive | |
|
Total | |
| |
|
| |
|
Paid-In | |
|
Stock | |
|
Accumulated | |
|
Income | |
|
Stockholders’ | |
| |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Deficit | |
|
(Loss) | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share data) | |
|
BALANCES AT DECEMBER 31, 2001
|
|
|
19,281,691 |
|
|
$ |
2 |
|
|
$ |
120,036 |
|
|
$ |
(1,008 |
) |
|
$ |
(55,234 |
) |
|
$ |
(32 |
) |
|
$ |
63,764 |
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13,858 |
) |
|
|
— |
|
|
|
(13,858 |
) |
| |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unrealized gain on investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(167 |
) |
|
|
(167 |
) |
| |
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
488 |
|
|
|
488 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,537 |
) |
| |
Issuance of common stock upon exercise of stock options, net of
repurchase
|
|
|
92,769 |
|
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
| |
Issuance of common stock related to the acquisition of Jones
Chromatography, Ltd.
|
|
|
572,152 |
|
|
|
— |
|
|
|
1,829 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,829 |
|
| |
Issuance of common stock related to employee stock purchase plan
|
|
|
119,096 |
|
|
|
— |
|
|
|
152 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
152 |
|
| |
Stock repurchase
|
|
|
(50,000 |
) |
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47 |
) |
| |
Compensation expense related to issuance of options to
consultants
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
| |
Deferred stock compensation associated with stock options
cancelled
|
|
|
— |
|
|
|
— |
|
|
|
(712 |
) |
|
|
712 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
222 |
|
|
|
— |
|
|
|
— |
|
|
|
222 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT DECEMBER 31, 2002
|
|
|
20,015,708 |
|
|
$ |
2 |
|
|
$ |
121,388 |
|
|
$ |
(74 |
) |
|
$ |
(69,092 |
) |
|
$ |
289 |
|
|
$ |
52,513 |
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,152 |
) |
|
|
— |
|
|
|
(8,152 |
) |
| |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unrealized gain on investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
11 |
|
| |
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
524 |
|
|
|
524 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,617 |
) |
| |
Issuance of common stock upon exercise of stock options, net of
repurchase
|
|
|
249,697 |
|
|
|
— |
|
|
|
155 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
155 |
|
| |
Issuance of common stock related to employee stock purchase plan
|
|
|
111,513 |
|
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
| |
Compensation expense related to issuance of options to
consultants
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65 |
|
|
|
— |
|
|
|
— |
|
|
|
65 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT DECEMBER 31, 2003
|
|
|
20,376,918 |
|
|
$ |
2 |
|
|
$ |
121,670 |
|
|
$ |
(9 |
) |
|
$ |
(77,244 |
) |
|
$ |
824 |
|
|
$ |
45,243 |
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,518 |
) |
|
|
— |
|
|
|
(11,518 |
) |
| |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Unrealized gain on investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
(12 |
) |
| |
|
Foreign currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,518 |
|
|
|
1,518 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,012 |
) |
| |
Issuance of common stock upon exercise of stock options, net of
repurchase
|
|
|
231,715 |
|
|
|
— |
|
|
|
185 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
185 |
|
| |
Issuance of common stock related to employee stock purchase plan
|
|
|
66,469 |
|
|
|
— |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
| |
Stock repurchase
|
|
|
(50,000 |
) |
|
|
— |
|
|
|
(81 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(81 |
) |
| |
Compensation expense related to issuance of options to
consultants
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
| |
Amortization of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AT DECEMBER 31, 2004
|
|
|
20,625,102 |
|
|
$ |
2 |
|
|
$ |
121,822 |
|
|
$ |
(4 |
) |
|
$ |
(88,762 |
) |
|
$ |
2,330 |
|
|
$ |
35,388 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
ARGONAUT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
$ |
(11,518 |
) |
|
$ |
(8,152 |
) |
|
$ |
(13,858 |
) |
| |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
1,209 |
|
|
|
1,363 |
|
|
|
1,467 |
|
| |
|
Amortization of goodwill and other purchased intangible assets
|
|
|
621 |
|
|
|
850 |
|
|
|
785 |
|
| |
|
Disposal of fixed assets
|
|
|
356 |
|
|
|
229 |
|
|
|
— |
|
| |
|
Stock-based compensation
|
|
|
5 |
|
|
|
65 |
|
|
|
222 |
|
| |
|
Issuance of equity for noncash benefits
|
|
|
(1 |
) |
|
|
46 |
|
|
|
49 |
|
| |
|
Impairment charges
|
|
|
2,249 |
|
|
|
1,612 |
|
|
|
— |
|
| |
|
Non-cash portion of restructuring charges
|
|
|
— |
|
|
|
(184 |
) |
|
|
683 |
|
| |
|
Foreign currency translation
|
|
|
(1,069 |
) |
|
|
(16 |
) |
|
|
(39 |
) |
| |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
1,640 |
|
|
|
(1,818 |
) |
|
|
2,271 |
|
| |
|
|
Inventories
|
|
|
331 |
|
|
|
(1,269 |
) |
|
|
197 |
|
| |
|
|
Prepaid expenses and other assets
|
|
|
69 |
|
|
|
116 |
|
|
|
154 |
|
| |
|
|
Accounts payable
|
|
|
(394 |
) |
|
|
(387 |
) |
|
|
(1,304 |
) |
| |
|
|
Accrued compensation
|
|
|
(438 |
) |
|
|
(116 |
) |
|
|
(365 |
) |
| |
|
|
Other accrued liabilities
|
|
|
(1,225 |
) |
|
|
26 |
|
|
|
(106 |
) |
| |
|
|
Deferred rent
|
|
|
552 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Deferred revenue
|
|
|
(360 |
) |
|
|
(994 |
) |
|
|
(1,255 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in operating activities
|
|
|
(7,973 |
) |
|
|
(8,629 |
) |
|
|
(11,099 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures
|
|
|
(1,699 |
) |
|
|
(1,260 |
) |
|
|
(781 |
) |
| |
Business acquisition (net of cash received)
|
|
|
— |
|
|
|
— |
|
|
|
(6,464 |
) |
| |
Proceeds from the sale of the HPLC business
|
|
|
— |
|
|
|
1,228 |
|
|
|
— |
|
| |
Purchase of short-term investments
|
|
|
— |
|
|
|
(14,941 |
) |
|
|
(10,749 |
) |
| |
Purchase of long-term investments
|
|
|
(2,866 |
) |
|
|
(5,432 |
) |
|
|
— |
|
| |
Proceeds from the sales of short-term investments
|
|
|
2,170 |
|
|
|
3,902 |
|
|
|
4,910 |
|
| |
Proceeds from the maturities of short-term investments
|
|
|
3,693 |
|
|
|
13,195 |
|
|
|
39,309 |
|
| |
Proceeds from sale of long-term investments
|
|
|
2,649 |
|
|
|
— |
|
|
|
— |
|
| |
Proceeds from the maturities of long-term investments
|
|
|
1,100 |
|
|
|
— |
|
|
|
— |
|
| |
Purchases of licenses
|
|
|
— |
|
|
|
(35 |
) |
|
|
(1,400 |
) |
| |
Restricted cash
|
|
|
12,148 |
|
|
|
1,167 |
|
|
|
(10,863 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided (used) in investing activities
|
|
|
17,195 |
|
|
|
(2,176 |
) |
|
|
13,962 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Principal payments on notes payable
|
|
|
(12,192 |
) |
|
|
— |
|
|
|
— |
|
| |
Principal payments on capital lease obligations
|
|
|
— |
|
|
|
(94 |
) |
|
|
(187 |
) |
| |
Proceeds from capital lease obligations
|
|
|
— |
|
|
|
31 |
|
|
|
94 |
|
| |
Repayment of long-term debt
|
|
|
— |
|
|
|
(1,167 |
) |
|
|
(200 |
) |
| |
Repurchase of common stock
|
|
|
(81 |
) |
|
|
— |
|
|
|
(47 |
) |
| |
Net proceeds from issuances of common stock
|
|
|
234 |
|
|
|
236 |
|
|
|
233 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used in financing activities
|
|
|
(12,039 |
) |
|
|
(994 |
) |
|
|
(107 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
1,518 |
|
|
|
524 |
|
|
|
143 |
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,299 |
) |
|
|
(11,275 |
) |
|
|
2,899 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
9,620 |
|
|
|
20,895 |
|
|
|
17,996 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
8,321 |
|
|
$ |
9,620 |
|
|
$ |
20,895 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
162 |
|
|
$ |
394 |
|
|
$ |
426 |
|
| |
|
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$ |
1,225 |
|
|
$ |
247 |
|
|
$ |
524 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock compensation (cancellations)
|
|
$ |
5 |
|
|
$ |
111 |
|
|
$ |
(712 |
) |
| |
|
|
|
|
|
|
|
|
|
42
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| NOTE 1 — |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
Nature of Operations and Basis of Presentation |
Argonaut Technologies, Inc. (the “Company”) was
incorporated in the state of Delaware on November 10, 1994.
The Company is a leader in the development, manufacturing and
marketing of innovative products designed to help chemists
engaged in the discovery and development of new molecules
increase their productivity and reduce their operating costs
without compromising the scientific integrity of their research.
Pharmaceutical, biotechnology and chemical industry
organizations worldwide have implemented the Company’s
solutions to achieve faster time to market for new products. The
Company’s products include a variety of instruments and
chemistry consumables that enable chemists to increase their
productivity, accelerate the drug development process and reduce
costs. Its principal markets are in the United States, Western
Europe, and the Far East.
The Company has five wholly owned subsidiaries, Argonaut
Technologies Systems, Inc. (formerly Camile Products, LLC.) in
Indiana, Argonaut Technologies KK in Japan, Argonaut
Technologies AG in Switzerland, Argonaut Technologies, Ltd.
(formerly Jones Chromatography, Ltd.) in Cardiff, Wales, United
Kingdom and Jones Chromatography, Inc. in Redwood City,
California.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company has incurred cumulative net losses of $88.8 million
through December 31, 2004 and expects continued losses in
the near term. The Company has also incurred negative cash flows
from operations since inception. These conditions raise
substantial doubt about the Company’s ability to continue
as a going concern. Management’s plans in regard to these
matters are described further in Note 15. The accompanying
financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts and
results of operations of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated on consolidation.
Certain reclassifications have been made to the prior
years’ financial statements to conform to the current year
presentation. These reclassifications had no material effect on
previously reported results of operations or retained earnings.
|
|
|
Foreign Currency Translation |
The Company translates the assets and liabilities of its foreign
subsidiaries stated in local functional currencies to
U.S. dollars at the rates of exchange in effect at the end
of the period. Revenues and expenses are translated using rates
of exchange in effect during the period. Gains and losses from
translation of financial statements denominated in foreign
currencies, if material, are included as a separate component of
other comprehensive income (loss) in the Consolidated Statements
of Stockholders’ Equity.
The Company records foreign currency transactions at the
exchange rate prevailing at the date of the transaction.
Monetary assets and liabilities denominated in foreign currency
are retranslated at the exchange rates in effect at the balance
sheet date. All translation differences arising from foreign
currency transactions are recorded through profit and loss. The
Company recorded foreign currency translation gains (losses) of
approximately $1,058,000, ($16,000) and ($39,000) for 2004,
2003, and 2002, respectively.
43
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The preparation of financial statements requires management to
make estimates, assumptions and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses,
and related disclosures of contingent assets and liabilities. On
an ongoing basis, management evaluates its estimates, which are
based on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. The
Company periodically evaluates its estimates including those
relating to revenue recognition, allowance for doubtful
accounts, impairment of investments, inventory adjustments,
warranty liabilities, restructuring charges, purchase
accounting, impairment of goodwill, purchased intangible assets
and long-lived assets, income taxes and stock compensation.
Actual results may differ from those estimates under assumptions
or conditions.
|
|
|
Cash, Cash Equivalents and Short-Term Investments |
The Company invests its excess cash in deposits, money market
accounts, and high quality marketable debt securities. The
Company considers all highly liquid investments with a maximum
original maturity of 90 days or less at the time of
purchase to be cash equivalents.
The Company accounts for its investments in marketable
securities in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”
(“SFAS 115”). Management determines the
appropriate classification of securities at the time of purchase
and reevaluates such designation as of each balance sheet date.
The Company’s investments are classified as
available-for-sale and are carried at fair market value. The
fair market value is based upon market prices quoted on the last
day of the fiscal year, with unrealized gains and losses
reported as a separate component of other comprehensive income
(loss) in the statement of stockholders’ equity, if
material. Realized gains and losses and declines in value judged
to be other-than-temporary, if any, on short-term investments
are included in other income. The cost of securities sold is
based on the specific identification method. Interest on
securities classified as available-for-sale is included in
interest income.
In connection with the acquisition of Jones Chromatography, Ltd.
(“Jones Group”), the Company deposited
$10.9 million (£7,650,000) denominated in British
Pounds Sterling as collateral for the notes payable issued in
the same amount and recorded the deposit as restricted cash. The
restricted cash served as collateral for the guarantee by
Barclays Bank PLC of the notes payable principal and interest.
During the second quarter of 2004, the restricted cash of
approximately $12.2 million was used to repay the notes
payable in full. As of December 31, 2004, the Company has
deposited restricted cash of approximately $169,000 as
collateral in accordance with the provisions of a sublease
agreement for its Redwood City facility.
The Company complies with Financial Accounting Standards
Board’s Emerging Issues Task Force No. 00-21 (EITF
00-21), “Revenue Arrangements with Multiple
Deliverables.” In an arrangement with multiple
deliverables, the delivered item(s) are considered a separate
unit of accounting if the delivered item(s) has value on a
standalone basis; if there is objective evidence of the fair
value of the undelivered item(s); and, if the arrangement
includes a general right of return relative to the delivered
item, delivery or performance of the undelivered item(s) is
considered probable and substantially in the control of the
vendor.
There are standard products offered by Argonaut where
consideration of EITF 00-21 is applicable. Generally, the
multiple elements are priced and sold separately, have
standalone value to the customer, as evidenced by history of
sales to other customers on a standalone basis, and is
recognized when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered,
collectibility is
44
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
reasonably assured and fees are fixed or determinable. If any of
these criteria are not met, revenue recognition is deferred
until all of the criteria are met.
Product Revenue
Revenue related to product sales with no future obligation is
recognized upon shipment when the recognition criteria have been
met. For those arrangements where we have obligations to provide
installation services, revenue is recognized when installation
is complete and all other revenue recognition criteria have been
met. Sales that require customer acceptance are not recognized
until acceptance has been obtained.
Services Revenue
Maintenance contract revenue, including revenue for extended
warranties, is recognized ratably over the contractual term.
Training, contract research and development and other services
revenue are recognized as the services are rendered.
|
|
|
Shipping and Handling Costs |
Shipping and handling costs are classified as a component of
cost of products.
The Company generally warrants its equipment for a period of one
year and provides a reserve for estimated warranty costs
concurrent with the recognition of revenue. The Company also
sells warranty extensions and the related revenue is recognized
ratably over the term of the extension. Warranty costs incurred
during the extension period are expensed as incurred.
Changes in the Company’s product warranty accrual for the
years ended December 31, 2004 and 2003 are as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance | |
|
Increase in | |
|
Cost of | |
|
Balance | |
| |
|
Beginning | |
|
Warranty | |
|
Warranty | |
|
End of | |
| Accrued Product Warranty Year Ended: |
|
of Period | |
|
Accrual | |
|
Repair | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
December 31, 2003
|
|
$ |
211 |
|
|
|
324 |
|
|
|
(336 |
) |
|
$ |
199 |
|
|
December 31, 2004
|
|
$ |
199 |
|
|
|
199 |
|
|
|
(142 |
) |
|
$ |
256 |
|
|
|
|
Software Development Costs |
Software development costs included in the research and
development of new products and enhancements to existing
products are expensed as incurred until technological
feasibility in the form of a working model has been established.
To date, software development costs subsequent to reaching
feasibility have not been significant and accordingly, no costs
have been capitalized.
Advertising costs are accounted for as expenses in the period in
which they are incurred. Advertising expense for 2004, 2003, and
2002 was approximately $450,000, $727,000 and $1.3 million,
respectively.
|
|
|
Allowance for Doubtful Accounts |
We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make
required payments. We determine the adequacy of this allowance
by regularly reviewing the composition of our accounts
receivable aging and evaluating individual customer receivables,
considering (i) our customer’s financial condition,
(ii) credit history (iii) current economic conditions
and (iv) other
45
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
known factors. If the financial condition of our customers were
to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. Amounts
charged to bad debts expense were approximately $87,000 in 2004,
$10,000 in 2003 and $58,000 in 2002.
Inventories are stated at the lower of cost (on a first-in,
first-out cost method) or market value. We record adjustments to
the value of inventory based upon a detailed assessment at each
balance sheet date which reviews, among other factors, the
forecasted demand and plans to sell our inventories. The
physical condition (e.g., age and quality) of the inventory is
also considered in establishing its valuation, as well as
product lifecycle and product development plans. Based on this
analysis, we reduce the cost of inventory that we specifically
identify and consider obsolete or excessive to fulfill future
sales estimates. These adjustments are estimates, which could
vary significantly, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory
levels or competitive conditions differ from our expectations.
During the third quarter of 2004, the Company recorded a
write-off of inventory of approximately $1.1 million for
discontinued and slow moving inventory.
Property and
Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method over the estimated
useful lives of the assets, which range from two to five years.
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life.
Impairment of Long-Lived
Assets
In accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” the Company
monitors the carrying value of long-lived assets for potential
impairment based on whether certain trigger events have
occurred. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. In the event that
such cash flows are not expected to be sufficient to recover the
carrying amount of the assets, the assets are written down to
their estimated fair values. The Company determined that there
existed an indicator of impairment during the fourth quarter of
2004 with respect to its long-lived assets. The Company compared
projected undiscounted future cash flows as compared to the
carrying value of the assets. As a result, the Company
recognized an impairment charge related to fixed assets of
approximately $1.4 million and purchased intangible assets
of approximately $833,000.
Goodwill and Other Purchased
Intangible Assets
Goodwill and other purchased intangible assets have resulted
from the acquisition of Camile Products, LLC, now Argonaut
Technologies Systems, Inc. (“ATSI”) and the Jones
Group. Goodwill and other intangible assets with indefinite
lives are not amortized subsequent to the Company’s
adoption of SFAS 142, “Goodwill and Other Intangible
Assets” (“SFAS 142”).
The Company performs the annual test for impairment of
intangible assets with indefinite lives as prescribed by
SFAS 142 during the fourth fiscal quarter of each year. The
first step is a screen for potential impairment, while the
second step measures the amount of impairment by reporting unit,
if any.
All goodwill and intangible assets have been assigned to one of
two reporting units. The Argonaut (“AGNT”)-Legacy
reporting unit consists primarily of goodwill and intangible
assets related to the Company’s acquisition of ATSI. The
Jones-Group reporting unit consists of goodwill and intangible
assets deriving from the Company’s acquisition of Jones
Chromatography, Ltd.
46
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
During the third quarter ended September 30, 2003 the
Company performed an interim test for goodwill impairment in
light of lower than expected third quarter revenue. Based on the
discounted cash flows of the AGNT-Legacy reporting unit, the
Company recognized an impairment charge of $1.6 million
relating to the goodwill and intangible assets associated with
ATSI. Approximately $763,000 of the impairment charge was
related to goodwill associated with ATSI, and the remainder was
related to completed technology assets associated with the
acquisition of ATSI.
Concentrations of
Risk
Financial instruments that potentially subject the Company and
its subsidiaries to concentrations of credit risk consist
primarily of cash, cash equivalents, investments and accounts
receivable. In addition, the Company outsources part of its
manufacturing process to third party contractors. There are no
other third party contractors who could readily assume this
manufacturing function on short notice. Any delay in production
could result in failure to meet customer demand.
Cash equivalents and investments are financial instruments,
which potentially subject the Company to concentration of risk
to the extent recorded on the balance sheet. Management of the
Company believes it has established guidelines for investment of
its excess cash relative to diversification and maturities that
maintain safety and liquidity.
The majority of cash, cash equivalents and investments are
invested in major financial institutions in the United States.
Such deposits may be in excess of insured limits and are not
insured in other jurisdictions. Management believes that the
financial institutions that hold the Company’s investments
are financially sound and, accordingly, minimal credit risk
exists with respect to these investments.
The accounts receivable of the Company and its subsidiaries are
derived from sales to customers located primarily in the United
States and Europe. The Company performs ongoing credit
evaluations of its customers.
An allowance for doubtful accounts is determined with respect to
those amounts that the Company has determined to be doubtful of
collection. At December 31, 2004 and 2003, no customer
accounted for 10% or more of the Company’s accounts
receivable balance. At December 31, 2004 and 2003, accounts
receivable due from foreign customers as a percent of total
trade receivables were 55% and 57%, respectively. The Company
generally does not require collateral.
The Company has no off-balance-sheet concentration of credit
risk such as foreign exchange contracts, option contracts, or
other hedging arrangements.
Accounting for Stock-Based Compensation
The Company accounts for its stock-based employee compensation
as permitted by Statement of Financial Accounting Standard
No. 123, “Accounting for Stock-Based Compensation
“(“SFAS 123”), as amended by Statement of
Financial Accounting Standard No. 148, “Accounting for
Stock-Based Compensation — Transition and
Disclosure,” whereby stock-based employee compensation
arrangements are accounted for under the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees”
(“APB 25”). Under APB 25, when the exercise
price of the Company’s stock options is less than the
market price of the underlying shares on the date of grant,
compensation expense is recognized. Pro forma information
regarding net loss per share is required by SFAS 123 as if
the Company had accounted for its employee stock options under
the fair value method of SFAS 123. The fair value of these
options granted prior to the Company’s initial public
offering in July 2000 was estimated at the date of grant using
the minimum value method. The fair value of stock options
granted subsequent to the initial public offering were valued
using the Black-Scholes valuation model based on the actual
stock closing price on the
47
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
date of grant. The fair value of these options was estimated at
the date of grant using the following weighted-average
assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk-free interest rate
|
|
|
2.21 |
% |
|
|
2.36 |
% |
|
|
3.61 |
% |
|
Dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Weighted-average expected life
|
|
|
3.7 years |
|
|
|
3.6 years |
|
|
|
4.0 years |
|
|
Volatility
|
|
|
0.70 |
|
|
|
1.06 |
|
|
|
0.94 |
|
The fair value of shares purchased in the Company’s
Employee Stock Purchase Plan (“the Purchase Plan”) was
estimated at the date of purchase using the following
weighted-average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk-free interest rate
|
|
|
2.29 |
% |
|
|
1.68 |
% |
|
|
1.94 |
% |
|
Dividend yield
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Weighted-average expected life
|
|
|
0.5 years |
|
|
|
0.5 years |
|
|
|
0.5 years |
|
|
Volatility
|
|
|
0.70 |
|
|
|
0.81 |
|
|
|
0.94 |
|
The pro forma disclosures required by SFAS 123 are as
follows (in thousands, except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net loss, as reported
|
|
$ |
(11,518 |
) |
|
$ |
(8,152 |
) |
|
$ |
(13,858 |
) |
|
Stock-based employee compensation expense included in reported
net loss
|
|
|
5 |
|
|
|
65 |
|
|
|
222 |
|
|
Total stock-based employee compensation expense determined under
fair value based methods for all awards
|
|
|
(1,234 |
) |
|
|
(1,570 |
) |
|
|
(1,383 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(12,747 |
) |
|
$ |
(9,657 |
) |
|
$ |
(15,019 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share, as reported
|
|
$ |
(0.56 |
) |
|
$ |
(0.40 |
) |
|
$ |
(0.70 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted net loss per common share
|
|
$ |
(0.62 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.76 |
) |
| |
|
|
|
|
|
|
|
|
|
Equity instruments granted to non-employees are accounted for
using the Black-Scholes valuation model prescribed by
SFAS 123 and, in accordance with Emerging Issues Task Force
Consensus No. 96-18, “Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling Goods or
Services.” The equity instruments are subject to periodic
revaluations over their vesting terms. The expense is recognized
as the instruments vest.
Comprehensive Loss
SFAS No. 130, “Reporting Comprehensive
Income” (“SFAS 130”), requires unrealized
gains or losses on the Company’s investments designated as
available-for-sale securities and foreign currency translation
adjustments to be included as part of total comprehensive loss.
Total comprehensive loss has been disclosed in the consolidated
statement of stockholders’ equity.
48
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Net Loss Per Share
Net loss per share has been computed according to the
SFAS No. 128, “Earnings Per Share,” which
requires disclosure of basic and diluted earnings per share.
Basic earnings per share excludes any dilutive effects of
options, shares subject to repurchase, warrants, and convertible
securities. Diluted earnings per share includes the impact of
potentially dilutive securities (calculated using the treasury
stock method).
During all periods presented, the Company had securities
outstanding that could potentially dilute basic earnings per
common share in the future, but were excluded from the
computation of diluted net loss per common share, as their
effect would have been antidilutive. These outstanding
securities consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Outstanding options
|
|
|
3,240 |
|
|
|
3,637 |
|
|
|
4,062 |
|
|
Outstanding warrants
|
|
|
— |
|
|
|
63 |
|
|
|
81 |
|
Income Taxes
The Company accounts for income taxes based upon SFAS
No. 109, “Accounting for Income Taxes.” Under
this method, the Company recognizes deferred tax assets and
liabilities based on the differences between the financial
statement carrying amounts and the tax bases of assets and
liabilities. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation allowance
based upon historical losses, projected future taxable income
and the expected timing of the reversals of existing temporary
differences. As a result of this review, the Company has
established a full valuation allowance against its deferred tax
assets.
Recent Accounting
Pronouncements
In November 2004, the FASB issued Statement of Financial
Accounting Standards No. 151, “Inventory Costs, an
amendment to ARB No. 43, Chapter 4”
(“SFAS 151”). SFAS 151 amends ARB
No. 43, Chapter 4, to clarify that abnormal amounts of
idle facility expense, freight, handling costs and wasted
materials (spoilage) should be recognized as current period
charges. In addition, SFAS 151 requires that the allocation
of fixed production overheads to the cost of conversion be based
on the normal capacity of the production facilities.
SFAS 151 is effective for inventory costs incurred for
fiscal years beginning after June 5, 2005. We do not expect
the adoption of SFAS 151 to have a significant impact on
our financial condition or results of operations.
In December 2004, the FASB issued SFAS No. 123R,
“Shared-Based Benefits.” This statement is a revision
to SFAS 123 and supercedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and amends
SFAS No. 95, “Statement of Cash Flows,”
SFAS 123R will require us to measure the cost our employee
stock-based compensation awards granted after the effective date
based on the grant date fair value of those awards and to record
that cost as compensation expense over the period during which
the employee is required to perform services in exchange for the
award (generally over the vesting period of the award).
SFAS 123R addresses all forms of share-based payments
awards, including shares issued under employee stock purchase
plans, stock option, restricted stock and stock appreciation
rights. In addition, we will be required to record compensation
expense (as previous awards continue to vest) for the unvested
portion of previously granted awards that remain outstanding at
the date of adoption. SFAS 123R was originally effective
for fiscal periods beginning after June 15, 2005. On
April 14, 2005, the Securities and Exchange Commission
delayed the effective date, and as such the Company will be
required to implement the provisions of SFAS 123R beginning
January 1, 2006. Argonaut has not yet completed the
analysis of the ultimate impact
49
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
that this new pronouncement will have on the results of
operations, nor the method of adoption for this new standard.
NOTE 2 — BUSINESS COMBINATION
On February 20, 2002, Argonaut completed its acquisition of
Jones Chromatography Limited, a company organized under the laws
of England and Wales (“JCL”), and its wholly owned
subsidiaries International Sorbent Technology (“IST”)
and Jones Chromatography U.S.A., Inc. (“JCI”)
(together with JCL, “Jones Group”), pursuant to a
Share Purchase Agreement (the “Purchase Agreement”),
dated February 11, 2002, among Argonaut and the
stockholders of JCL.
In the transaction, the stockholders of JCL exchanged all of
their respective shares of JCL’s stock for (i) cash in
an aggregate amount of £3,825,000 ($5,431,500),
(ii) 572,152 shares of unregistered Argonaut Common
Stock, and (iii) notes payable in the aggregate principal
amount of £7,650,000 ($10,863,000). The aggregate purchase
price, including transaction costs of $875,000, was
approximately $19.0 million. Barclays Bank PLC guarantees
the notes payable, which are redeemable for cash over a two-year
period following the closing date. In addition, certain
employees of the Jones Group that remained as employees after
the transaction received stock options to purchase an aggregate
349,800 shares of Argonaut’s Common Stock at an
average price per share of $3.1967.
The acquisition was accounted for under the purchase method of
accounting. The 572,152 shares of unregistered Argonaut
Common Stock issued in the transaction were valued at
$3.196 per share based on the average closing price of
Argonaut’s Common Stock on the Nasdaq Stock Market’s
National Market on the two trading days prior and two trading
days subsequent to the announcement date of the acquisition
(February 11, 2002).
The Consolidated Statements of Operations for the year ended
December 31, 2002 include the results of Jones Group for
the period from February 21, 2002 to December 31, 2002.
The Company allocated the purchase price based on the estimated
fair value of the net tangible and intangible assets acquired.
Based on the information obtained from an independent valuation,
the Company allocated the purchase price as follows (in
thousands):
| |
|
|
|
|
|
|
Net tangible assets
|
|
$ |
5,250 |
|
|
Goodwill and other purchased intangible assets:
|
|
|
|
|
| |
Completed technology
|
|
|
4,090 |
|
| |
Trade names
|
|
|
250 |
|
| |
Goodwill
|
|
|
9,410 |
|
| |
|
|
|
|
Total purchase price
|
|
$ |
19,000 |
|
| |
|
|
|
The following unaudited pro forma summary presents the
consolidated results of operations of the Company as if the
acquisition of Jones Group had occurred at the beginning of 2002
and does not purport to
50
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
be indicative of what would have occurred had the acquisition
been made as of those dates or of results which may occur in the
future.
| |
|
|
|
|
| |
|
Twelve Months | |
| |
|
Ended | |
| |
|
December 31, 2002 | |
| |
|
| |
| |
|
(In thousands, | |
| |
|
except per share | |
| |
|
data) | |
|
Total net sales
|
|
$ |
28,073 |
|
|
Net loss
|
|
|
(13,756 |
) |
|
Net loss per share
|
|
$ |
(0.69 |
) |
|
|
| NOTE 3 — |
RESTRUCTURING CHARGES |
On August 8, 2002, the Company announced its intention to
execute a restructuring program focused on improving
productivity, reducing operational expenses in remote offices,
and implementing a workforce reduction of approximately 20% of
its existing worldwide employees. As a result, the Company
recognized a charge of $1.8 million in the third quarter
ended September 30, 2002. The charge includes termination
benefits and related expenses of approximately $630,000 related
to the reduction of the workforce by 44 employees, expenses of
approximately $683,000 related to the abandonment of excess
equipment, expenses of approximately $356,000 for the
abandonment of excess leased facilities, and expenses of
approximately $133,000 for various other related charges. As of
December 31, 2004, all of the 44 employees had been
terminated.
A summary of the restructuring charges is as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
2003 | |
|
2004 |
| |
|
|
|
| |
|
|
| |
|
Accrued | |
|
|
|
Accrued | |
|
|
|
Accrued |
| |
|
Restructuring at | |
|
|
|
Noncash | |
|
Restructuring at | |
|
|
|
Noncash | |
|
Restructuring at |
| |
|
December 31, | |
|
Cash | |
|
Charges | |
|
December 31, | |
|
Cash | |
|
Charges | |
|
December 31, |
| |
|
2002 | |
|
Payments | |
|
(Recoveries) | |
|
2003 | |
|
Payments | |
|
(Recoveries) | |
|
2004 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
Workforce reductions
|
|
$ |
418 |
|
|
$ |
(348 |
) |
|
$ |
— |
|
|
$ |
70 |
|
|
$ |
(65 |
) |
|
$ |
(5 |
) |
|
$ |
— |
|
|
Abandonment of excess equipment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Abandonment of excess leased facilities
|
|
|
356 |
|
|
|
(49 |
) |
|
|
(219 |
) |
|
|
88 |
|
|
|
(88 |
) |
|
|
— |
|
|
|
— |
|
|
Other
|
|
|
103 |
|
|
|
(138 |
) |
|
|
35 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
877 |
|
|
$ |
(535 |
) |
|
$ |
(184 |
) |
|
$ |
158 |
|
|
$ |
(153 |
) |
|
$ |
(5 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash expenditures related to workforce reduction were paid
in the first half of 2004. Amounts related to the abandonment of
excess leased facilities have all been paid as of
December 31, 2004. At December 31, 2003 the Company
revised certain estimates of outstanding restructuring
obligations. As a result, a recovery of approximately $184,000
was recorded as a credit to restructuring charges.
|
|
| NOTE 4 — |
GOODWILL AND OTHER PURCHASED INTANGIBLES |
Goodwill and other purchased intangible assets have resulted
from the acquisition of Camile Products, LLC, now Argonaut
Technologies Systems, Inc. (“ATSI”) and the Jones
Group. Goodwill and other intangible assets with indefinite
lives are not amortized subsequent to the Company’s
adoption of SFAS 142, “Goodwill and Other Intangible
Assets” (“SFAS 142”).
All goodwill and intangible assets have been assigned to one of
two reporting units. The AGNT-Legacy reporting unit consists
primarily of goodwill and intangible assets related to the
Company’s acquisition of
51
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
ATSI. The Jones-Group reporting unit consists of goodwill and
intangible assets deriving from the Company’s acquisition
of Jones Chromatography, Ltd.
During the third quarter ended September 30, 2003 the
Company performed an interim test for goodwill impairment in the
light of lower than expected third quarter revenue. Based on the
discounted cash flows of the AGNT-Legacy reporting unit, the
Company recognized an impairment charge of $1.6 million
relating to the goodwill and intangible assets associated with
ATSI. Approximately $763,000 of the impairment charge was
related to goodwill associated with ATSI, and the remainder was
related to completed technology assets associated with the
acquisition of ATSI.
See Note 5 regarding impairment charge recorded on
intangible assets. The amortization expense relating to the
purchased intangible assets for the twelve-month periods ended
December 31, 2004 and 2003 was $622,000 and $850,000
respectively.
The following represents the gross carrying amounts and
accumulated amortization of amortized intangible assets after
impairment (see Note 5) at December 31, 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
Gross | |
|
|
|
Gross | |
|
|
| |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Accumulated | |
| |
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amortization | |
| |
|
| |
|
| |
|
| |
|
| |
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Completed technology
|
|
$ |
5,533 |
|
|
$ |
(2,690 |
) |
|
$ |
5,540 |
|
|
$ |
(2,522 |
) |
| |
Licenses
|
|
|
609 |
|
|
|
(609 |
) |
|
|
1,435 |
|
|
|
(180 |
) |
| |
Tradenames
|
|
|
250 |
|
|
|
(76 |
) |
|
|
250 |
|
|
|
(52 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
6,392 |
|
|
$ |
(3,375 |
) |
|
$ |
7,225 |
|
|
$ |
(2,754 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amortization expense for each of the five
succeeding fiscal years is as follows (in thousands):
| |
|
|
|
|
|
|
|
Estimated amortization expense:
|
|
|
|
|
| |
For the year ending 12/31/2005
|
|
$ |
443 |
|
| |
For the year ending 12/31/2006
|
|
|
443 |
|
| |
For the year ending 12/31/2007
|
|
|
443 |
|
| |
For the year ending 12/31/2008
|
|
|
443 |
|
| |
For the year ending 12/31/2009
|
|
|
443 |
|
| |
Thereafter
|
|
|
802 |
|
| |
|
|
|
| |
|
Total
|
|
$ |
3,017 |
|
| |
|
|
|
52
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The weighted average amortization period remaining of the
amortized intangible assets at December 31, 2004 is as
follows (in thousands):
| |
|
|
|
|
|
|
| |
|
Years | |
| |
|
| |
|
Amortized intangible assets:
|
|
|
|
|
| |
Completed technology
|
|
|
6.2 |
|
| |
Tradenames
|
|
|
6.2 |
|
| |
|
|
|
| |
|
Total
|
|
|
6.2 |
|
| |
|
|
|
The carrying amount of indefinite lived intangible assets at
December 31, 2004 and 2003 is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
| |
Assembled workforce
|
|
$ |
1,460 |
|
|
$ |
1,460 |
|
| |
Customer base
|
|
|
1,220 |
|
|
|
1,220 |
|
| |
Goodwill and indefinite lived intangible assets
|
|
|
6,730 |
|
|
|
6,730 |
|
| |
|
|
|
|
|
|
| |
|
Total
|
|
$ |
9,410 |
|
|
$ |
9,410 |
|
| |
|
|
|
|
|
|
The changes in the carrying amount of goodwill for the years
ended December 31, 2004 and 2003 are as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Balance at January 1
|
|
$ |
9,410 |
|
|
$ |
10,173 |
|
|
Impairment losses
|
|
|
— |
|
|
|
(763 |
) |
| |
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
9,410 |
|
|
$ |
9,410 |
|
| |
|
|
|
|
|
|
|
|
| NOTE 5 — |
IMPAIRMENT OF LONG-LIVED ASSETS |
In the fourth quarter of 2004, the Company was preparing to
enter into an agreement to sell substantially all of the assets
of the company to Biotage AB. This became an indicator that
there would be an impairment to our remaining long-lived assets.
Impairment charges of long-lived assets have been recognized in
accordance with SFAS 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” For the year
ended December 31, 2004, the Company recognized asset
impairment charges of approximately $2.2 million, of which
$1.4 million relates to fixed assets and $833,000 relates
to intangible assets with finite lives. These impairments were
measured after comparing the carrying value of such long-lived
assets to the undiscounted cash flows from the related reporting
unit, as defined by SFAS 142. This comparison indicated
impairment, at which point Argonaut estimated the fair value of
these assets using a discount cash flow methodology. The
carrying value of these assets exceeded this estimated fair
value by $2.2 million.
53
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
NOTE 6 — INVESTMENTS
Investments consist of the following (in thousands):
At December 31, 2004 the maturity of investments was
between three and twelve months. At December 31, 2003, the
maturity of investments was between one and twenty months.
| |
|
|
|
|
|
|
|
|
|
| |
|
Fair Value at | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Money market funds
|
|
$ |
1,796 |
|
|
$ |
2,807 |
|
|
U.S. government obligations
|
|
|
— |
|
|
|
3,850 |
|
|
Corporate bonds
|
|
|
2,533 |
|
|
|
5,432 |
|
| |
|
|
|
|
|
|
| |
|
$ |
4,329 |
|
|
$ |
12,089 |
|
| |
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
| |
Cash equivalents
|
|
$ |
1,793 |
|
|
$ |
2,807 |
|
| |
Short term investments
|
|
|
1,837 |
|
|
|
3,850 |
|
| |
Long term investments
|
|
|
699 |
|
|
|
5,432 |
|
| |
|
|
|
|
|
|
| |
|
$ |
4,329 |
|
|
$ |
12,089 |
|
| |
|
|
|
|
|
|
There were no material gross realized gains or losses from sales
of securities in the periods presented. Unrealized losses were
$20,000 and $7,000 at December 31, 2004 and 2003,
respectively.
NOTE 7 — INVENTORIES
Inventories consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
|
December 31, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Raw materials
|
|
$ |
3,836 |
|
|
$ |
5,063 |
|
|
Work in process
|
|
|
1,416 |
|
|
|
429 |
|
|
Finished goods
|
|
|
1,363 |
|
|
|
1,454 |
|
| |
|
|
|
|
|
|
| |
|
$ |
6,615 |
|
|
$ |
6,946 |
|
| |
|
|
|
|
|
|
|
|
| NOTE 8 — |
PROPERTY AND EQUIPMENT, NET |
Property and equipment, net consists of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Laboratory and office equipment
|
|
$ |
7,227 |
|
|
$ |
6,994 |
|
|
Property
|
|
|
2,816 |
|
|
|
2,095 |
|
|
Leasehold improvements
|
|
|
27 |
|
|
|
1,217 |
|
| |
|
|
|
|
|
|
| |
|
|
10,070 |
|
|
|
10,306 |
|
|
Less accumulated depreciation and amortization
|
|
|
(5,839 |
) |
|
|
(5,852 |
) |
| |
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
4,231 |
|
|
$ |
4,454 |
|
| |
|
|
|
|
|
|
54
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Equipment leased under capital leases is included in laboratory
and office equipment. At December 31, 2004 and 2003,
equipment under capital leases was approximately $118,000 and
$38,000 with accumulated amortization of approximately $14,000
and $6,000, respectively.
During the fourth quarter of 2004 as part of its impairment
analysis of long-lived assets, the Company wrote off
approximately $1.4 million of property and equipment, net.
(See Note 5).
|
|
|
Operating and capital leases: |
The Company leases its primary office and research facilities in
Redwood City, California, an office facility in Indianapolis,
Indiana, and office facilities in Midland, Michigan and Tokyo,
Japan under operating leases. The Company finances certain
laboratory and office equipment under capital leases. Future
minimum annual lease payments under all non-cancelable leases
are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Capital | |
|
Operating | |
| Year Ending December 31, |
|
Leases | |
|
Leases | |
| |
|
| |
|
| |
|
2005
|
|
$ |
26 |
|
|
$ |
289 |
|
|
2006
|
|
|
26 |
|
|
|
296 |
|
|
2007
|
|
|
23 |
|
|
|
293 |
|
|
2008
|
|
|
8 |
|
|
|
303 |
|
|
2009
|
|
|
— |
|
|
|
306 |
|
|
Beyond
|
|
|
— |
|
|
|
454 |
|
| |
|
|
|
|
|
|
|
Total
|
|
$ |
83 |
|
|
$ |
1,941 |
|
| |
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
(6 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
Present value of future lease payments
|
|
|
77 |
|
|
|
|
|
|
Less current portion
|
|
|
(24 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
Noncurrent obligations under capital leases
|
|
$ |
53 |
|
|
|
|
|
| |
|
|
|
|
|
|
The Company has minimum royalty commitments pursuant to a
software development and license agreement. The minimum
royalties under this agreement are as follows (in thousands):
| |
|
|
|
|
| |
|
Minimum | |
| Year Ending December 31, |
|
Royalties | |
| |
|
| |
|
2005
|
|
$ |
100 |
|
|
2006
|
|
|
25 |
|
|
2007
|
|
|
25 |
|
|
2008
|
|
|
25 |
|
| |
|
|
|
|
Total
|
|
$ |
175 |
|
| |
|
|
|
Rent expense:
Rent expense under operating leases was approximately
$1.0 million, $1.1 million, and $1.1 million, in
2004, 2003, and 2002, respectively.
55
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Other:
The Company from time to time enters into certain types of
contracts that contingently require the Company to indemnify
parties against third party claims. These contracts primarily
relate to: (i) certain real estate leases, under which the
Company may be required to indemnify property owners for
environmental and other liabilities, and other claims arising
from the Company’s use of the applicable premises; and
(ii) certain agreements with the Company’s officers,
directors and employees, under which the Company may be required
to indemnify such persons for liabilities arising out of their
employment relationship.
The terms of such obligations vary. Generally, a maximum
obligation is not explicitly stated. Because the obligated
amounts of these types of agreements often are not explicitly
stated, the overall maximum amount of the obligations cannot be
reasonably estimated. Historically, the Company has not been
obligated to make significant payments for these obligations,
and no liabilities have been recorded for these obligations on
its balance sheet as of December 31, 2004.
NOTE 10 — DEBT
In connection with the acquisition of Jones Group, the Company
issued notes payable of approximately $10.9 million. The
notes payable were denominated in British Pound Sterling in the
amount of £7,650,000 ($12.2 million as of
December 31, 2003) and interest was payable to the note
holders at an initial rate of 3.9% per annum for the first
twelve month period (ending February 20, 2003), and
subsequently at the rate equal to the published base rate of
Barclays Bank PLC on the date immediately preceding each
quarterly interest period, less any fees and costs. The Company
deposited cash in the amount of £7,650,000
($10.9 million at origination) with Barclays Bank PLC as
collateral for the principal and interest on the notes payable.
The cash amounts held as collateral were represented as
restricted cash in the Company’s balance sheet at
December 31, 2003 and were invested in money market
instruments to yield rates approximate to the interest rates due
on the notes payable. The notes were paid in full during the
second quarter of 2004.
NOTE 11 — STOCKHOLDERS’ EQUITY
|
|
|
Convertible Preferred Stock |
Pursuant to our charter, our board of directors has the
authority to issue up to 10,000,000 shares of preferred
stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those
shares without any further vote of action by our stockholders.
At December 31, 2004 and 2003, there were no shares issued
and outstanding.
In February 2002, the Company issued 572,152 shares of
unregistered common stock in connection with the acquisition of
Jones Group.
In March 2001, the Company issued 666,667 shares of
unregistered common stock in connection with the acquisition of
ATSI.
|
|
|
Common Stock Repurchase Program |
On August 8, 2002, the Company announced the approval by
its Board of Directors of a stock repurchase program pursuant to
which shares of its outstanding common stock having an aggregate
value of up to $500,000 may be repurchased through open market
transactions at prices deemed appropriate by the Company. The
duration of the stock repurchase program is open-ended. The
timing and amount of repurchase transactions under this program
will depend on market conditions, corporate and regulatory
considerations,
56
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
and will be funded from available working capital. At
December 31, 2004, the Company had repurchased
100,000 shares of outstanding common stock at an average
price of $1.28 per share.
In 1997, the Company issued a series of warrants to purchase
30,799 shares of common stock at an exercise price of
$6.82 per share in connection with the execution of a
capital lease line and a loan and security agreement. These
warrants expired at various dates through December 2004.
In 1998, the Company issued two warrants to purchase a total of
32,266 shares of common stock at an exercise price of
$6.82 per share in connection with two loan agreements
entered into in July 1998. The warrants have expired.
In 1999, the Company issued a warrant to purchase
17,600 shares of common stock at an exercise price of
$6.82 per share in connection with a draw down on one of
its loans. The warrant expired in January 2003. The fair value
of the warrant, determined using the Black-Scholes valuation
model, was $22,200 and has been recorded as interest expense
over the term of the loan.
|
|
|
1995 Incentive Stock Plan |
The Company’s 1995 Incentive Stock Plan (the “1995
Plan”) provides for (i) the grant of incentive stock
options to employees, (ii) the grant of non-statutory stock
options to employees and consultants, and (iii) the grant
of stock purchase rights. A total of 3,464,179 shares of
common stock have been authorized for issuance under the 1995
Plan.
Under the terms of the 1995 Plan, the options and purchase
rights granted generally vest at a rate of 25% at the end of the
first year with the remaining balance vesting in equal amounts
over the next 36 months.
|
|
|
2000 Incentive Stock Plan |
In April 2000, the Company adopted its 2000 Incentive Stock Plan
(the “2000 Plan”) and initially reserved a total of
1,760,000 shares of common stock for issuance. Under the
terms of the 2000 Plan, the number of shares reserved shall
increase annually on the first day of the Company’s fiscal
year beginning 2001 by the lesser of
(i) 1,320,000 shares, (ii) 5% of the outstanding
shares on such date or (iii) an amount determined by the
Board. The 2000 Plan provides for (i) the grant of
incentive stock options to employees, (ii) the grant of
non-statutory stock options to employees and consultants, and
(iii) the grant of stock purchase rights. The 2000 Plan
permits options and or purchase rights to be granted at an
exercise price of not less than 100% of the fair value on the
date of the grant. The vesting term of option and purchase
rights is
57
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
determined by the Board of Directors and is generally over four
years. A summary of activity under the Plans is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted | |
| |
|
Shares | |
|
|
|
Average | |
| |
|
Available | |
|
Number of | |
|
Exercise | |
| |
|
For Grant | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
Balance at December 31, 2001
|
|
|
1,726,832 |
|
|
|
2,810,746 |
|
|
|
4.52 |
|
| |
Additional shares authorized
|
|
|
964,084 |
|
|
|
— |
|
|
|
— |
|
| |
Options granted
|
|
|
(2,479,896 |
) |
|
|
2,479,896 |
|
|
|
1.71 |
|
| |
Options exercised
|
|
|
— |
|
|
|
(92,769 |
) |
|
|
0.84 |
|
| |
Options canceled
|
|
|
1,135,741 |
|
|
|
(1,135,741 |
) |
|
|
4.95 |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
1,346,761 |
|
|
|
4,062,132 |
|
|
|
2.75 |
|
| |
Additional shares authorized
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Options granted
|
|
|
(570,720 |
) |
|
|
570,720 |
|
|
|
0.96 |
|
| |
Options exercised
|
|
|
— |
|
|
|
(249,697 |
) |
|
|
0.62 |
|
| |
Options canceled
|
|
|
746,169 |
|
|
|
(746,169 |
) |
|
|
2.78 |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
1,510,803 |
|
|
|
3,636,986 |
|
|
|
2.62 |
|
| |
Additional shares authorized
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
Options granted
|
|
|
(666,820 |
) |
|
|
666,820 |
|
|
|
1.38 |
|
| |
Options exercised
|
|
|
— |
|
|
|
(231,715 |
) |
|
|
0.80 |
|
| |
Options canceled
|
|
|
831,938 |
|
|
|
(831,938 |
) |
|
|
2.91 |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
1,675,921 |
|
|
|
3,240,153 |
|
|
|
2.42 |
|
| |
|
|
|
|
|
|
|
|
|
All options and shares were granted with exercise prices equal
to the fair value of the Company’s common stock on the date
of grant. As of December 31, 2004, information about
options outstanding and options exercisable was as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
|
| |
|
| |
|
Options Exercisable | |
| |
|
|
|
Weighted | |
|
|
|
| |
| |
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
| |
|
Number of | |
|
Contractual | |
|
Exercise | |
|
Number of | |
|
Exercise | |
| Exercise Price |
|
Options | |
|
Life (Years) | |
|
Price | |
|
Options | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$0.06 - $ 0.85
|
|
|
706,924 |
|
|
|
7.26 |
|
|
$ |
0.71 |
|
|
|
558,452 |
|
|
$ |
0.68 |
|
|
$0.86 - $ 2.33
|
|
|
1,374,210 |
|
|
|
8.08 |
|
|
$ |
1.49 |
|
|
|
782,911 |
|
|
$ |
1.50 |
|
|
$2.49 - $ 4.74
|
|
|
697,090 |
|
|
|
7.02 |
|
|
$ |
3.04 |
|
|
|
555,713 |
|
|
$ |
3.08 |
|
|
$5.68 - $20.13
|
|
|
461,929 |
|
|
|
6.07 |
|
|
$ |
6.82 |
|
|
|
438,699 |
|
|
$ |
6.86 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
3,240,153 |
|
|
|
7.39 |
|
|
$ |
2.42 |
|
|
|
2,335,775 |
|
|
$ |
2.69 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 2,335,775 and 2,136,608 options exercisable as of
December 31, 2004 and 2003, respectively.
The weighted-average fair value of the stock options granted
were $1.38, $0.96 and $1.71 for the years ended
December 31, 2004, 2003 and 2002, respectively.
Deferred stock compensation is the difference between the
exercise price of the options and the deemed fair value of the
common stock at the date of grant. Prior to the Company’s
initial public offering, the fair value was determined based on
the business factors underlying the value of the Company’s
common stock on the date of grant viewed in light of our initial
public offering and the anticipated initial public offering
price per
58
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
share. Subsequently, fair value was determined based on the
share price of the Company’s stock at the date of grant.
The deferred stock compensation was recorded as a component of
stockholders’ equity and is being amortized over the
vesting periods of the options, generally four years, using the
graded vesting method. The Company recorded deferred stock
compensation of approximately $2.8 million in the year
ended December 31, 2000 and approximately $3.8 million
in the year ended December 31, 1999 in connection with the
grant of stock options to employees. The Company has recorded
amortization of deferred stock compensation of $5,000, $65,000
and $222,000 in the years ended December 31, 2004, 2003 and
2002, respectively. As of December 31, 2004, the Company
had a total of $4,000 to be amortized over the remaining vesting
period of the options.
The Company has granted options to consultants in exchange for
services. There were no shares granted in 2004, 30,850 shares
granted in 2003, and 62,000 shares granted in 2002. The Company
recorded compensation expense related to these options of $0,
$46,000, and $49,000 for the years ended December 31, 2004,
2003 and 2002, respectively. In accordance with SFAS 123
and EITF 96-18, options granted to consultants are
periodically revalued until exercised, cancelled or forfeited.
|
|
|
2000 Employee Stock Purchase Plan |
The Company has a 2000 Employee Stock Purchase Plan (the
“Purchase Plan”) with a total of 534,461 shares
available for issuance. Under the terms of the Purchase Plan,
the number of shares reserved shall increase annually on the
first day of the Company’s fiscal year beginning in 2001 by
the lesser of (i) 440,000 shares, (ii) 2% of the
outstanding shares on such date or (iii) a lesser amount
determined by the board. The Purchase Plan permits eligible
employees to purchase common stock at a discount through payroll
during defined offering periods. The price at which the stock is
purchased is equal to the lower of 85% of the fair market value
of the common stock on the first day of the offering or 85% of
the fair market value of the Company’s common stock on the
purchase date. The initial offering period commenced on
November 1, 2000. During 2004, 66,469 shares were
issued under the stock purchase plan.
As of December 31, 2004, the Company has reserved shares of
common stock for future issuance as follows:
| |
|
|
|
|
|
Incentive stock plans
|
|
|
3,240,153 |
|
|
Employee Stock Purchase Plan
|
|
|
549,140 |
|
| |
|
|
|
| |
|
|
3,789,293 |
|
| |
|
|
|
|
|
| NOTE 12 — |
401(k) RETIREMENT SAVINGS PLAN |
The Company maintains a 401(k) retirement savings plan for its
full-time employees. Each participant in the Plan may elect to
contribute from 1% to 20% of annual compensation to the Plan.
The Company, at its discretion, may make contributions to the
Plan. The Company’s expenses related to the Plan have been
immaterial. During 2002, in conjunction with the acquisition of
the Jones Group, the Company merged the 401(k) plan of the Jones
Group U.S. subsidiary, Jones Chromatography U.S.A., Inc.,
into the Company plan. Plan costs recognized as expenses were
approximately $10,000, $5,000 and $10,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
The Company has a current provision (benefit) for foreign income
taxes of ($106,000), $783,000 and $217,000 for the years ended
December 31, 2004, 2003 and 2002, respectively related to
its UK, Switzerland
59
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
and Japan operations. The Company also has current provision
(benefit) for the U.S. income taxes of $(44,000), $0 and $0 for
years ended December 31, 2004, 2003 and 2002, respectively.
Foreign income (loss) from continuing operations before income
taxes was approximately ($1.0 million), $1.9 million
and $301,000 in the years ended December 31, 2004, 2003 and
2002, respectively.
As of December 31, 2004, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$65.8 million, which will expire beginning in the year 2010
and federal research and development tax credits of
approximately $1.3 million, which begin to expire in the
year 2010. The Company also has California net operating loss
carryforwards of approximately $15.9 million, which expire
beginning in the year 2005; other state net operating losses of
$3.0 million; state research and development tax credits of
$0.9 million, which have no expiration date; and California
Manufacturers’ Investment Credit of approximately $30,000,
which begin to expire in the year 2006.
Utilization of the Company’s net operating loss may be
subject to substantial annual limitation due to the ownership
change limitations provided by the Internal Revenue Code and
similar state provisions. Such an annual limitation could result
in the expiration of the net operating loss before utilization.
Income tax expense (benefit) related to continuing operations
differs from the amounts computed by applying the statutory
income tax rate of 34% to pretax loss as follows
(in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. federal taxes (benefit) |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
At statutory rate
|
|
$ |
(3,967 |
) |
|
$ |
(2,505 |
) |
|
$ |
(4,638 |
) |
|
Foreign taxes
|
|
|
(106 |
) |
|
|
783 |
|
|
|
217 |
|
|
Net operating losses not benefited
|
|
|
3,476 |
|
|
|
1,706 |
|
|
|
4,388 |
|
|
Impairment and non-deductible amortization
|
|
|
447 |
|
|
|
799 |
|
|
|
250 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(150 |
) |
|
$ |
783 |
|
|
$ |
217 |
|
| |
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of net
operating losses and tax credit carryforwards and temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company’s deferred tax assets are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Net operating loss carryforwards
|
|
$ |
23,655 |
|
|
$ |
21,022 |
|
| |
Tax and research credits
|
|
|
2,929 |
|
|
|
2,780 |
|
| |
Capitalized research and development
|
|
|
1,126 |
|
|
|
860 |
|
| |
Other
|
|
|
1,600 |
|
|
|
1,030 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
29,310 |
|
|
|
25,692 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Unremitted foreign earnings
|
|
|
(871 |
) |
|
|
(971 |
) |
| |
UK deferred tax liabilities
|
|
|
(313 |
) |
|
|
(455 |
) |
| |
|
|
|
|
|
|
| |
|
Total deferred tax liabilities
|
|
|
(1,184 |
) |
|
|
(1,426 |
) |
| |
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(28,439 |
) |
|
|
(24,721 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax liabilities:
|
|
$ |
(313 |
) |
|
$ |
(455 |
) |
| |
|
|
|
|
|
|
60
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Realization of deferred tax assets is dependent upon future
earnings, if any, the timing and amount of which are uncertain.
Accordingly, the net deferred tax assets have been fully offset
by a valuation allowance. The valuation allowance increased by
$3.7 million, $2.1 million and $5.3 million
during 2004, 2003 and 2002, respectively.
The Company is currently subject to an ongoing tax examination
and assessment with the UK Inland Revenue for the
year 2002. Since the examination is at its early stage, any
incremental tax expense based upon the probable outcome is not
possible to estimate at this time. However, an unfavorable
resolution could materially affect our future results of
operations or cash flows in a particular period.
|
|
| NOTE 14 — |
MARKET SALES, EXPORT SALES, AND SIGNIFICANT CUSTOMERS |
The Company has determined that it operates in only one segment
in accordance with SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information”
(“SFAS 131”) as it only reports profit and loss
information on an aggregate basis to its chief operating
decision maker.
The Company had net sales by market as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Instruments
|
|
$ |
8,133 |
|
|
$ |
10,148 |
|
|
$ |
11,888 |
|
|
Consumables
|
|
|
10,541 |
|
|
|
11,653 |
|
|
|
11,106 |
|
|
Services
|
|
|
1,530 |
|
|
|
2,668 |
|
|
|
3,323 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
20,204 |
|
|
$ |
24,469 |
|
|
$ |
26,317 |
|
| |
|
|
|
|
|
|
|
|
|
The Company had net sales by geographical region as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
US
|
|
$ |
8,046 |
|
|
$ |
11,235 |
|
|
$ |
14,169 |
|
|
Europe
|
|
|
9,974 |
|
|
|
11,438 |
|
|
|
10,282 |
|
|
Far East (principally Japan)
|
|
|
2,184 |
|
|
|
1,796 |
|
|
|
1,866 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
20,204 |
|
|
$ |
24,469 |
|
|
$ |
26,317 |
|
| |
|
|
|
|
|
|
|
|
|
No single customer accounted for more than 10% of total net
sales during 2004, 2003 and 2002. Net sales are attributed to
countries based on the location of the customer. During 2003,
sales to customers in the United Kingdom accounted for
approximately 26% of net sales.
The Company’s long-lived assets after reduction for
impairment were segmented by geography as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
US
|
|
$ |
13,218 |
|
|
$ |
20,489 |
|
|
$ |
5,080 |
|
|
Europe
|
|
|
4,432 |
|
|
|
3,378 |
|
|
|
16,371 |
|
|
Far East
|
|
|
50 |
|
|
|
70 |
|
|
|
68 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
17,700 |
|
|
$ |
23,937 |
|
|
$ |
21,519 |
|
| |
|
|
|
|
|
|
|
|
|
61
ARGONAUT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
| NOTE 15 — |
SUBSEQUENT EVENT |
On March 24, 2005 the Company filed a proxy statement
asking stockholders of Argonaut Technologies, Inc. at a special
meeting to approve a sale of the assets of Argonaut’s
chemistry consumables business and certain assets related to the
process chemistry business, which constitutes substantially all
of Argonaut’s assets, to Biotage AB
(“Biotage”). If the asset sale is completed, Argonaut
will be paid $21.2 million in cash by Biotage, plus the
assumption of specified liabilities by Biotage. The purchase
price will be decreased to the extent that the value of the
working capital of our chemistry consumables business at the
closing of the asset sale is less than $7,080,000, and will be
increased to the extent that the value of the working capital of
our chemistry consumables business is greater than $7,080,000.
At the closing of the asset sale, $2,000,000 of the cash
purchase price will be put into an escrow account to secure our
indemnification obligations under the purchase agreement.
We anticipate the transaction will close shortly after the
special meeting. After the closing of the asset sale to Biotage,
we currently intend to wind up our affairs and continue to
explore alternatives for the use and disposition of our
remaining assets. We currently intend to make an initial
distribution to our stockholders of a portion of the net
proceeds of the asset sale to Biotage after the closing of the
asset sale.
If the asset sale to Biotage is not approved we will review all
options for continuing operations, including reducing expenses
through the termination of employees and the discontinuation of
our process chemistry business, and we will potentially seek to
sell our stock or all or any part of our assets to the highest
bidder, if any. We may be required to pay to Biotage a
termination fee of $950,000 if the purchase agreement is
terminated under certain circumstances. In addition, under the
terms of the purchase agreement, we would be obligated to
reimburse Biotage for its expenses incurred in connection with
the transaction in an amount up to $550,000.
|
|
| NOTE 16 — |
UNAUDITED QUARTERLY DATA |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31 | |
|
September 30 | |
|
June 30 | |
|
March 31 | |
|
December 31 | |
|
September 30 | |
|
June 30 | |
|
March 31 | |
| |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net sales
|
|
$ |
5,443 |
|
|
$ |
4,796 |
|
|
$ |
5,285 |
|
|
$ |
4,680 |
|
|
$ |
6,166 |
|
|
$ |
5,166 |
|
|
$ |
6,884 |
|
|
$ |
6,253 |
|
|
Gross profit
|
|
|
2,251 |
|
|
|
792 |
|
|
|
2,279 |
|
|
|
1,567 |
|
|
|
2,837 |
|
|
|
2,608 |
|
|
|
3,012 |
|
|
|
2,756 |
|
|
Loss from operations
|
|
|
(4,009 |
) |
|
|
(3,536 |
) |
|
|
(2,015 |
) |
|
|
(2,745 |
) |
|
|
(745 |
) |
|
|
(3,104 |
) |
|
|
(1,994 |
) |
|
|
(2,538 |
) |
|
Net loss
|
|
|
(3,478 |
) |
|
|
(3,469 |
) |
|
|
(2,045 |
) |
|
|
(2,526 |
) |
|
|
(650 |
) |
|
|
(3,065 |
) |
|
|
(1,906 |
) |
|
|
(2,531 |
) |
|
Net loss per share, basic & diluted
|
|
$ |
(0.17 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.13 |
) |
62
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
| Item 9A. |
Controls and Procedures |
Evaluation of disclosure controls and procedures. Our
management, including our Chief Executive Officer
(“CEO”) and our Chief Financial Officer
(“CFO”), are responsible for evaluating and attesting
as to the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K as required by
Rule 13a-15 under the Securities Exchange Act of 1934. In
connection with the audit of our consolidated financial
statements for the year ended December 31, 2004, our
independent registered public accounting firm, Ernst &
Young LLP, reported to our audit committee the identification of
a “material weakness” (under the standards established
by the Public Company Accounting Oversight Board) in our
internal controls. Based on that evaluation, our management,
including the CEO and CFO, concluded that as of
December 31, 2004, our disclosure controls were not
effective to ensure that that information about us required to
be disclosed by us were recorded, processed, summarized and
reported as required by applicable Securities and Exchange
Commission rules and forms.
The material weakness identified related to: (1) the
failure to retain supporting documentation in our records
relating to certain items, (2) a lack of sufficient
accuracy in certain of our records and accounting entries,
(3) the failure to timely reconcile certain accounts and
(4) the failure to timely record certain expenses incurred
in 2004.
Management believes that many of the items cited in connection
with the material weakness determination were due to employee
turnover in our finance department and the focus of our
remaining resources on the pending sale of substantially all of
our assets to Biotage AB. In response to the material
weakness, we began instituting a number of corrective actions to
insure that the financial information and other disclosures
included in future reports are complete and accurate in all
material respects. Those actions included increasing internal
review time in our finance department as well as utilizing
additional third-party accounting experts and temporary
staffing, when needed.
Changes in Internal Control Over Financial Reporting. In
addition to the actions identified above, we will continue to
evaluate the corrective actions addressing the material weakness
that was identified and will take all necessary action to
correct the deficiencies identified. The Audit Committee of our
Board of Directors is performing oversight of our implementation
of enhancements and improvements to our internal controls, and
our management is reporting to our Audit Committee on a regular
basis regarding these matters.
Other than the changes noted above, there have been no changes
in our internal control over financial reporting that occurred
during the period covered by this Annual Report on
Form 10-K that have materially affected, or are likely to
materially effect, the Company’s internal control over
financial reporting.
|
|
| Item 9B. |
Other Information |
None.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
The information required by this Item 10 is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 annual meeting of stockholders.
63
Code of Ethics
We have adopted a Code of Ethics that applies to all of our
directors, officers and employees. We publicize the Code of
Ethics through posting the policy on our website. We will
disclose on our website any waivers of, or amendments to, our
Code of Ethics.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended requires the Company’s executive officers and
directors and persons who own more than ten percent (10%) of a
registered class of our equity securities to file reports of
ownership and changes in ownership with the Securities and
Exchange Commission, or SEC, and the National Association of
Securities Dealers, Inc. Executive officers, directors and
greater than ten percent (10%) stockholders are required by
Commission regulation to furnish us with copies of all
Section 16(a) forms they file. We believe all of our
executive officers and directors complied with all applicable
filing requirements during the fiscal year ended
December 31, 2004.
|
|
| Item 11. |
Executive Compensation. |
The information required by this Item 11 is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 annual meeting of stockholders.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. |
The information required by this Item 12 is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 annual meeting of stockholders.
|
|
| Item 13. |
Certain Relationships and Related Transactions. |
The information required by this Item 13 is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 annual meeting of stockholders.
|
|
| Item 14. |
Principal Accountant Fees and Services |
The information required by this item 14 is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 annual meeting of stockholders.
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this
Form 10-K:
|
|
| |
(1) Financial Statements: |
|
|
|
| |
|
The following financial statements are filed as part of this
report under Item 8. “Financial Statements and
Supplementary Data.” |
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
64
|
|
| |
(2) Financial Statement Schedules: |
|
|
|
| |
|
Schedule II — Valuation and Qualifying Accounts
for the three fiscal years in the period ended December 31,
2004. |
The following financial statement schedule of Argonaut
Technologies, Inc. for each of the past three years in the
period ended December 31, 2004 should be read in
conjunction with the Consolidated Financial Statements of
Argonaut Technologies, Inc.
Schedule II — Valuation and Qualifying
Accounts
Allowance for Doubtful Accounts (in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
Additions | |
|
|
|
Balance at | |
| |
|
Beginning | |
|
Charged to Costs | |
|
Deductions | |
|
End of | |
| |
|
of Period | |
|
and Expenses | |
|
Writeoffs | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
Year Ended December 31, 2002
|
|
$ |
154 |
|
|
|
58 |
|
|
|
102 |
|
|
$ |
110 |
|
|
Year Ended December 31, 2003
|
|
$ |
110 |
|
|
|
10 |
|
|
|
18 |
|
|
$ |
102 |
|
|
Year Ended December 31, 2004
|
|
$ |
102 |
|
|
|
87 |
|
|
|
68 |
|
|
$ |
121 |
|
All other schedules have been omitted since the required
information is not present in amounts sufficient to require
submission of the schedule or because the information required
is included in the financial statements or notes thereto.
| |
|
|
| Number |
|
Description of Document |
| |
|
|
|
2.1(c)
|
|
Agreement and Plan of Merger dated January 31, 2001, by and
among the Registrant, CPL Acquisition Corp. and Camile Products,
LLC. |
|
2.2(d)
|
|
Agreement for the sale and purchase of the entire issued share
capital of Jones Chromatography Limited, dated February 11,
2002, by and among the Registrant and the former Jones Group
shareholders. |
|
3.1(a)
|
|
Amended and Restated Certificate of Incorporation of the
Registrant. |
|
3.2(h)
|
|
Amended and Restated Bylaws of Registrant. |
|
3.3(h)
|
|
Certificate of Designation of Rights, Preferences and Privileges
of Series A Participating Preferred Stock of the Registrant. |
|
4.3(c)
|
|
Registration Rights Agreement dated March 1, 2001, by and
among the Registrant and the members of Camile Products, LLC. |
|
4.4(d)
|
|
Registration Rights Agreement dated February 20, 2002, by
and among the Registrant and the former Jones Group shareholders. |
|
4.5(d)
|
|
£7,650,000 Loan Note Instrument Creating Principal
Amount Guaranteed Loan Notes 2004 guaranteed by Barclays
Bank PLC dated February 20, 2002. |
|
4.6(h)
|
|
Preferred Stock Rights Agreement, dated as of May 24, 2004. |
|
10.19(i)
|
|
Agreement between the Registrant and Howard Goldstein dated
April 16, 2004. |
|
10.20(i)
|
|
Lease Agreement between the Registrant and Metropolitan Life
Insurance Company dated April 2, 2004. |
|
10.21
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between David Foster and Argonaut
Technologies, Inc. |
|
10.22
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between Lissa Goldenstein and Argonaut
Technologies, Inc. |
|
10.23
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between Jeffrey Labadie and Argonaut
Technologies, Inc. |
|
10.24
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between Gordon Tredger and Argonaut
Technologies, Inc. |
65
| |
|
|
| Number |
|
Description of Document |
| |
|
|
|
10.25
|
|
Change of Control Severance Agreement dated September 1,
2004 between Steve Nelson and Argonaut Technologies, Inc. |
|
10.26(l)
|
|
Amendment to Change of Control Severance Agreement dated
March 17, 2005 between David Foster and Argonaut
Technologies, Inc. |
|
10.27(l)
|
|
Amendment to Change of Control Severance Agreement dated
March 17, 2005 between Jeffrey Labadie and Argonaut
Technologies, Inc. |
|
10.28(l)
|
|
Amendment to Change of Control Severance Agreement dated
March 17, 2005 between Gordon Tredger and Argonaut
Technologies, Inc. |
|
10.29(j)
|
|
Asset Purchase Agreement by and between Argonaut Technologies,
Inc. and Biotage AB, dated as of February 21, 2005. |
|
10.30(k)
|
|
Amended and Restated Stock and Asset Purchase Agreement by and
between Argonaut Technologies, Inc. and Biotage AB, dated as of
March 17, 2005. |
|
23.1
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm. |
|
31.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) of the Exchange Act. |
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) of the Exchange Act. |
|
32
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
(a) |
|
Incorporated by reference from our registration statement on
Form S-1, registration number 333-35782, declared
effective by the Securities and Exchange Commission on
July 18, 2000. |
| |
|
(b) |
|
Incorporated by reference from our Form 10-K filed with the
Securities and Exchange Commission on April 1, 2002. |
| |
|
(c) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 16, 2001. |
| |
|
(d) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 6, 2002. |
| |
|
(e) |
|
Incorporated by reference from our Form 10-Q filed with the
Securities and Exchange Commission on September 30, 2002.
Certain portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to such
omitted portions. |
| |
|
(f) |
|
Incorporated by reference from our Form 10-K filed with the
Securities and Exchange Commission on March 31, 2003. |
| |
|
(g) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on May 14, 2003. |
| |
|
(h) |
|
Incorporated by reference from our Form 8-K/ A filed with
the Securities and Exchange Commission on July 2, 2004. |
| |
|
(i) |
|
Incorporated by reference from our Form 10-Q filed with the
Securities and Exchange Commission on May 13, 2004. |
| |
|
(j) |
|
Incorporated by reference from our Form 8-K/ A filed with
the Securities and Exchange Commission on February 24, 2005. |
| |
|
(k) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 21, 2005. |
| |
|
(l) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 22, 2005. |
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
ARGONAUT TECHNOLOGIES, INC. |
|
|
|
| |
By: |
/s/ LISSA A. GOLDENSTEIN |
|
|
| |
|
| |
Lissa A. Goldenstein |
| |
President and Chief Executive Officer |
Dated: April 15, 2005
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Lissa A.
Goldenstein, his or her true and lawful attorneys-in-fact, each
with full power of substitution, for him or her in any and all
capacities, to sign any amendments to this report on
Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact or their substitute or
substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ LISSA A.
GOLDENSTEIN
Lissa
A. Goldenstein |
|
Chief Executive Officer, Director
(Principal Executive Officer) |
|
April 15, 2005 |
| |
/s/ DAVID J. FOSTER
David
J. Foster |
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
April 15, 2005 |
| |
/s/ BROOK H. BYERS
Brook
H. Byers |
|
Director |
|
April 15, 2005 |
| |
/s/ DAVID G. LUDVIGSON
David
G. Ludvigson |
|
Director |
|
April 15, 2005 |
| |
/s/ PETER MACINTYRE
Peter
Macintyre |
|
Director |
|
April 15, 2005 |
| |
/s/ BRIAN METCALF
Brian
Metcalf, Ph.D. |
|
Director |
|
April 15, 2005 |
67
ARGONAUT TECHNOLOGIES, INC.
FORM 10-K
Annual Period Ended December 31, 2004
EXHIBIT INDEX
| |
|
|
| Number |
|
Description of Document |
| |
|
|
|
2.1(c)
|
|
Agreement and Plan of Merger dated January 31, 2001, by and
among the Registrant, CPL Acquisition Corp. and Camile Products,
LLC. |
|
2.2(d)
|
|
Agreement for the sale and purchase of the entire issued share
capital of Jones Chromatography Limited, dated February 11,
2002, by and among the Registrant and the former Jones Group
shareholders. |
|
3.1(a)
|
|
Amended and Restated Certificate of Incorporation of the
Registrant. |
|
3.2(h)
|
|
Amended and Restated Bylaws of Registrant. |
|
3.3(h)
|
|
Certificate of Designation of Rights, Preferences and Privileges
of Series A Participating Preferred Stock of the Registrant. |
|
4.3(c)
|
|
Registration Rights Agreement dated March 1, 2001, by and
among the Registrant and the members of Camile Products, LLC. |
|
4.4(d)
|
|
Registration Rights Agreement dated February 20, 2002, by
and among the Registrant and the former Jones Group shareholders. |
|
4.5(d)
|
|
£7,650,000 Loan Note Instrument Creating Principal
Amount Guaranteed Loan Notes 2004 guaranteed by Barclays
Bank PLC dated February 20, 2002. |
|
4.6(h)
|
|
Preferred Stock Rights Agreement, dated as of May 24, 2004. |
|
10.19(i)
|
|
Agreement between the Registrant and Howard Goldstein dated
April 16, 2004. |
|
10.20(i)
|
|
Lease Agreement between the Registrant and Metropolitan Life
Insurance Company dated April 2, 2004. |
|
10.21
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between David Foster and Argonaut
Technologies, Inc. |
|
10.22
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between Lissa Goldenstein and Argonaut
Technologies, Inc. |
|
10.23
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between Jeffrey Labadie and Argonaut
Technologies, Inc. |
|
10.24
|
|
Amended and Restated Change of Control Severance Agreement dated
August 3, 2004 between Gordon Tredger and Argonaut
Technologies, Inc. |
|
10.25
|
|
Change of Control Severance Agreement dated September 1,
2004 between Steve Nelson and Argonaut Technologies, Inc. |
|
10.26(l)
|
|
Amendment to Change of Control Severance Agreement dated
March 17, 2005 between David Foster and Argonaut
Technologies, Inc. |
|
10.27(l)
|
|
Amendment to Change of Control Severance Agreement dated
March 17, 2005 between Jeffrey Labadie and Argonaut
Technologies, Inc. |
|
10.28(l)
|
|
Amendment to Change of Control Severance Agreement dated
March 17, 2005 between Gordon Tredger and Argonaut
Technologies, Inc. |
|
10.29(j)
|
|
Asset Purchase Agreement by and between Argonaut Technologies,
Inc. and Biotage AB, dated as of February 21, 2005. |
|
10.30(k)
|
|
Amended and Restated Stock and Asset Purchase Agreement by and
between Argonaut Technologies, Inc. and Biotage AB, dated as of
March 17, 2005. |
|
23.1
|
|
Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm. |
|
31.1
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) of the Exchange Act. |
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) of the Exchange Act. |
68
| |
|
|
| Number |
|
Description of Document |
| |
|
|
|
32
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
(a) |
|
Incorporated by reference from our registration statement on
Form S-1, registration number 333-35782, declared
effective by the Securities and Exchange Commission on
July 18, 2000. |
|
(b) |
|
Incorporated by reference from our Form 10-K filed with the
Securities and Exchange Commission on April 1, 2002. |
|
(c) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 16, 2001. |
|
(d) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 6, 2002. |
|
(e) |
|
Incorporated by reference from our Form 10-Q filed with the
Securities and Exchange Commission on September 30, 2002.
Certain portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission.
Confidential treatment has been requested with respect to such
omitted portions. |
|
(f) |
|
Incorporated by reference from our Form 10-K filed with the
Securities and Exchange Commission on March 31, 2003. |
|
(g) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on May 14, 2003. |
|
(h) |
|
Incorporated by reference from our Form 8-K/ A filed with
the Securities and Exchange Commission on July 2, 2004. |
|
(i) |
|
Incorporated by reference from our Form 10-Q filed with the
Securities and Exchange Commission on May 13, 2004. |
|
(j) |
|
Incorporated by reference from our Form 8-K/ A filed with
the Securities and Exchange Commission on February 24, 2005. |
|
(k) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 21, 2005. |
|
(l) |
|
Incorporated by reference from our Form 8-K filed with the
Securities and Exchange Commission on March 22, 2005. |
69