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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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 |
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For the transition period
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Commission file number 000-28229
Caliper Life Sciences, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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33-0675808 |
(State or Jurisdiction of
Incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
68 Elm Street
Hopkinton, MA 01748
(Address and zip code of principal executive offices)
Registrant’s telephone number, including area code:
(508) 435-9500
Securities registered pursuant to Section 12(b) of the
Act: None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.001 Par Value
(Title of Class)
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 the
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. o
Indicate by check mark whether registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
Based on the closing sale price of common stock on the Nasdaq
National Market on June 30, 2004, the aggregate market
value of the voting stock held by non-affiliates of the
registrant was $103,520,318. Excludes an aggregate of
7,093,021 shares of common stock held by officers and
directors and by each person known by the registrant to own 5%
or more of the outstanding common stock. Exclusion of shares
held by any of these persons should not be construed to indicate
that such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of
the registrant, or that such person is controlled by or under
common control with the registrant.
The number of shares outstanding of registrant’s common
stock, $0.001 par value was 30,497,006 at February 28,
2005.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in Part III of this Annual Report on
Form 10-K is incorporated by reference to the Proxy
Statement for the registrant’s 2005 Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Form 10-K.
CALIPER LIFE SCIENCES, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2004
TABLE OF CONTENTS
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future events
or our future financial performance. We have identified
forward-looking statements by terminology denoting future events
such as “anticipates,” “believes,”
“can,” “continue,” “could,”
“estimates,” “expects,” “intends,”
“may,” “plans,” “potential,”
“predicts,” “should” or “will” or
the negative of these terms or other comparable terminology.
These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including the
risks outlined under “Factors Affecting Operating
Results” contained in “Part II —
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” that may
cause our actual results, levels of activity, performance or
achievements to be materially different from any future results,
levels or activity, performance or achievements expressed or
implied by these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
Our expectations are as of the date we file this Form 10-K,
and we do not intend to update any of the forward-looking
statements after the date we file this Annual Report on
Form 10-K to conform these statements to actual results,
unless required by law.
Caliper, the Caliper logo, LabChip, the LabChip logo, Zymark,
LibraryCard, Allegro, CLARA, MultiDose, Prelude, RapidPlate,
RapidTrace, Staccato, TurboVap and Twister are registered
trademarks of Caliper Life Sciences, Inc. and iLink, inL10,
Sciclone, Tablet Processing Workstation, TPW, and iBlox are
trademarks of Caliper Life Sciences, Inc.
PART I
Overview
Caliper Life Sciences, Inc. (“Caliper”) uses its core
technologies of liquid handling, automation, and LabChip
microfluidics to create enabling solutions for the life sciences
industry. Caliper is a leader in microfluidic lab-on-a-chip
technologies. We believe our LabChip systems add value to the
life sciences industry by miniaturizing, integrating, automating
and standardizing many laboratory processes, and by raising the
quality and reproducibility of data derived by our customers. In
July 2003, Caliper acquired Zymark Corporation, a global
provider of liquid handling, laboratory automation and robotics
technology. We believe that by combining our microfluidic
technologies with advanced liquid handling capabilities, we are
well positioned to develop and deliver next-generation
laboratory automation products that address the key challenges
of modern scientific research. Caliper changed its name from
Caliper Technologies Corp. to Caliper Life Sciences, Inc. in
January 2004, and the Zymark legal entity was merged into
Caliper in April 2004.
Within the life sciences industry, Caliper is currently pursuing
three major markets: drug discovery and development, genomics
and proteomics, and molecular diagnostics. We believe that our
products and technologies are capable of addressing these
markets in a number of ways. For example, in the drug discovery
and development market, pharmaceutical companies face many new
challenges. These include late-stage drug failures, increased
research and development spending yielding fewer new drugs and,
more recently, drugs being removed from the market due to
unforeseen side effects that were not discovered in pre-launch
clinical trials. Caliper is focused on helping pharmaceutical
companies address these challenges by providing products that
help researchers make better choices earlier in their drug
discovery process, increase the speed and efficiency of their
high-throughput screening efforts, and enable profiling
experiments that can identify drug side effects earlier in the
drug discovery process. In the genomics and proteomics market,
recent advances in DNA research and a subsequent surge of
interest in protein functionality has created an increased
industry need for high-throughput, cost-efficient tools for DNA
and protein experiments. Products such as our
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LabChip 90 system for high-throughput DNA and protein analysis
directly address this need by integrating and automating the
multiple steps required by conventional gel electrophoresis
experiments. Molecular diagnostics, another significant
scientific frontier that has evolved from the genomics
revolution, holds enormous potential to impact human health
through earlier detection of disease. However, existing
molecular diagnostic tests tend to be complex and expensive,
limiting their acceptance by health care organizations already
burdened by high costs. We believe that our LabChip technologies
may help address these cost issues through integration and
miniaturization of the various steps required to carry out these
tests.
We have three channels of distribution for our products: direct
to customers, indirect through our international network of
distributors, and through original equipment manufacturer
(“OEM”) channels. Through our direct and indirect
distributor channels, we sell complete systems solutions
developed by Caliper to end customers. Our OEM distribution
channel is core to our business strategy and complementary to
our direct sales and distribution network activities, as it
enables us to extend the commercial potential of our LabChip and
advanced liquid handling technologies into new industries and
new applications with experienced commercial partners. In the
OEM channel we provide liquid handling products, microfluidics
chips, product development expertise and other enabling
technologies to commercial partners who then typically integrate
an application solution and market it to their end customers. In
addition to these product distribution channels, Caliper has
begun to out-license its extensive microfluidic patent estate
for applications for which it does not have current product
development plans, or which Caliper cannot access because of the
licensee’s proprietary technology. By using direct and
indirect distribution, and OEM product distribution channels, as
well as out-licensing our technology in appropriate
circumstances, Caliper seeks to maximize penetration of our
products and technologies into the marketplace and position
itself as a leader in the life sciences tools market.
Caliper was incorporated in Delaware on July 26, 1995. Our
principal offices are located at 68 Elm Street, Hopkinton,
Massachusetts, 01748, and our telephone number is
(508) 435-9500. We also have research and development,
operations and manufacturing facilities for LabChip devices in
Mountain View, California. We file or furnish electronically
with the Securities and Exchange Commission (or SEC) our annual
reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and
amendments to those reports pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934. The public may
read or copy any materials we file with the SEC at the
SEC’s Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is
http://www.sec.gov.
You may obtain a free copy of our annual reports on
Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K and any amendments to those reports on
the day of filing with the SEC through our website at
http://www.caliperLS.com. Our website address is given solely
for informational purposes; we do not intend, by this reference,
that our website should be deemed to be part of this Annual
Report on Form 10-K.
Technologies
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LabChip Microfluidic Technologies |
We have developed our LabChip microfluidic technology to provide
significant advances in laboratory experimentation for the
pharmaceutical and other industries. Microfluidic chips are the
key components of our LabChip systems, which also include a
LabChip instrument and experiment-specific reagents and
software. Our chips contain a network of miniaturized,
microfabricated channels through which fluids and chemicals are
moved to perform experiments. A single type of chip, used with
customized reagents and software to perform a particular
experiment, comprises one LabChip application. Depending on the
chip format, reagents are introduced either automatically or by
the user. The instrument and software control the movement of
fluids via pressure or voltage, and an integrated optical system
detects the results of the particular experiment. Because we
have great flexibility in channel design, and can exert
split-second computer control over fluid flow, we have the
ability to create chips for numerous applications. Our LabChip
systems miniaturize, integrate and
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automate experiments with the goal of providing the benefits of
improved data accuracy and reproducibility, reduced cost and
higher speed, leading to expanded individual researcher
capability and improved enterprise-wide productivity.
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Features of LabChip Systems |
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Miniaturization. Conventional laboratory equipment
typically uses at least a drop of fluid, or 1 to 100
microliters, to perform each experiment. In many LabChip
applications, the sample volume needed from external sources is
reduced to below 1 nanoliter, a reduction of up to 100,000-fold
over conventional systems. In some processes within the chip,
reagents are dispensed in the microchannels in volumes down to
tens of picoliters, another 10-100 fold reduction, which speeds
analysis times and increases sample throughput. A microliter is
one millionth of a liter, a nanoliter is one billionth of a
liter, and a picoliter is one trillionth of a liter. |
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Integration. Integration is the combining of multiple
processes into a single process, or the inclusion of multiple
functions into one device. Today many laboratory systems perform
only one or two steps of an experimental protocol. Our LabChip
systems can integrate complete experiments involving half a
dozen or more steps into one continuous process performed on a
single chip. |
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Automation. Many laboratory experiments are performed in
multiple manual steps. With our LabChip systems, entire
experiments can be automated and performed inside a chip using
one instrument, freeing up valuable research time and laboratory
space and reducing labor requirements. |
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Key Benefits of LabChip Systems |
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Improved Data Quality and Accuracy. Our LabChip systems
are designed to produce more accurate, consistent and
reproducible data by reducing human error, reducing the
variability caused by the use of multiple instruments, and
enabling more analytical approaches to experimentation that are
impractical in traditional systems. For example, biochemical
screening assays typically call for fast, “bulk”
measurements of an experimental mixture. Reducing the size of
the experiment allows for rapid separation and measurement of
individual molecular species in the test mixture, which in turn
enhances the accuracy of the overall result. With higher quality
data, our customers can make better decisions earlier in the
drug discovery and development process. This enables our
customers to avoid the time and expense of performing additional
analyses and experiments on “false positive” results
from their primary screening experiments. |
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Improved Sensitivity. When screening against drug
targets, such as kinases, the higher quality data from our
LabChip systems allows customers to detect lower levels of
inhibition than can be detected with traditional microplate
well-based assays. This has two advantages: (1) an increase
in the pool of potential lead compounds, and (2) the
possibility that a “hit” found at lower levels of
inhibition will be more selective for the target of interest
than a hit found at higher levels of inhibition because
compounds that hit at higher levels of inhibition may also
produce unacceptable levels of inhibition on other, non-target
kinases. |
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Reduced Reagent and Labor Cost. Our LabChip systems
utilize only a small fraction of the usual amount of expensive
reagents used in experiments performed in test tubes, 96-well
plates, or 384-well plates, and also reduce the labor involved
in each experiment. We believe that saving on reagent cost and
labor can enable pharmaceutical companies to expand the scale of
experimentation in ways that would otherwise not be commercially
feasible. |
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High Speed. We believe our LabChip systems can, depending
on the application, accelerate some experiments as much as
100-fold or more. For example, molecular separations such as
electrophoresis may take two hours or more using conventional
equipment. On a chip, however, we can perform these separations
in less than one minute. |
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Faster Assay Development. Traditional assays,
particularly those used for enzymatic screening, can require
complex and time-consuming assay development. For example, some
popular assays rely on |
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developing specific antibodies for the assay — a
process that can take up to six weeks or more. Because they
eliminate the requirement for assay development steps such as
antibody preparation, LabChip assays are much faster to develop.
In addition, Caliper has exploited the predictable nature of
fluid and reagent movement inside microfluidic channels and has
developed software tools to facilitate the process of optimizing
the experimental conditions necessary for a successful enzymatic
assay on a LabChip device, such as separating a substrate
peptide from its product. Typically, our customers have found
that these combined benefits translate into a two- to
three-month assay development process for a traditional assay
being shortened to just a few weeks for a LabChip assay. |
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Expanded Individual Researcher Capability. Because our
LabChip systems can combine a multi-step, complex experiment
into one step, we believe that individual researchers can
perform experiments previously outside their areas of expertise.
By comparison, with conventional, non-integrated equipment,
researchers need to master the complexities of performing each
individual step. |
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Improved Enterprise-Wide Productivity. We believe our
LabChip systems can improve data quality and reproducibility to
the point where researchers can utilize data generated outside
their laboratory or organization. This has the potential to
greatly improve enterprise-wide productivity by supporting data
sharing and reducing the need to repeat experiments. For
example, a typical primary screen produces approximate,
“yes/no” answers about the activity of library
compounds against a particular kinase target, and therefore the
information from such primary screens is only useful for one
primary screening experiment. With LabChip assays, the primary
screening data is more specific, in terms of the degree of
inhibition, and more reproducible. This should enable an
organization to build a database of primary screening data that
could ultimately be mined by other scientists within the
organization interested in a particular compound/target
interaction. |
Not all laboratory processes, however, are ideally suited to be
performed using our LabChip systems. For example, detecting
clinically important materials that appear in low concentrations
in a sample, such as the virus that causes AIDS, is not always
practical with our microfluidic LabChip systems. This is because
there is a risk that the virus will not be present in the very
small sample volumes used by our chips. As a result, in certain
applications use of our LabChip microfluidic system may require
the pre-processing of a sample to increase concentration.
Furthermore, if the analysis of a sample must involve even one
process that cannot currently be performed in the LabChip
system, then use of the system for the parts it can perform is
often impractical. This is because the very small scale of the
chip experiment does not generally produce enough material to be
analyzed by conventional laboratory equipment.
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Liquid Handling and Automation Technologies |
Our advanced liquid handling and laboratory automation expertise
has resulted in a portfolio of proprietary technologies that are
used for precision liquid handling, microplate management, and
pharmaceutical development and quality control.
Our liquid handling systems provide fast and accurate liquid
transfers and plate reformatting for multiple microplate
formats. Our systems are characterized by their open and modular
design that addresses a wide range of applications.
Our plate management and storage automation systems provide
users with the ability to automate several lab instruments and
build completely automated work cells, with expandable storage
capacity, to enable valuable walk-away time for scientists and
researchers.
Our Pharmaceutical Development and Quality Assurance
(PDQ) workstations fully automate quantitative sample
preparation and analysis of pharmaceutical samples, such as
tablets, capsules, granulations and bulk drugs. In the
Development function, our workstations can improve speed to
market with efficient method development, process scale-up,
validation, and stability programs. In the QA laboratory,
inventory cycle time is reduced and documentation is improved.
In any department, analysts are freed to contribute to more
value-added responsibilities. Precise, technique-independent
results ensure smooth method transfer to other
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laboratories. Our PDQ workstations meet the rigorous regulatory
requirements of the Food and Drug Administration
(FDA),United States Pharmacopeia (USP) and other
regulatory bodies.
Products and Services
Our portfolio of products includes high- and
ultra-high-throughput screening systems, automated
electrophoresis systems, liquid handlers, advanced robotics,
storage devices, dissolution, extraction and evaporation
workstations, and easy-to-use software that controls scheduling,
integration and data management. In addition, we derive a
substantial portion of revenue from services and aftermarket
products, including consumable and accessory products such as
LabChip devices, pipette tips, filters, glassware and storage
trays.
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High-Throughput Screening Systems and Integrated
Workstations |
LabChip 3000 Drug Discovery System. The LabChip 3000
system is our next-generation microfluidic system for the drug
discovery market. A replacement for the Caliper 250, the initial
microfluidics screening system launched in September 2001, the
LabChip 3000 represents a significant advance over the Caliper
250 in terms of industrial design, functional reliability and
reduced cost. A completely new commercial design reduces the
overall size of the platform to approximately one-third that of
its predecessor. We reduced manufacturing costs to achieve
acceptable profit margins for the product while also allowing
for a lower price to the end user.
Using proprietary “sipper” chips to automatically
sample library compounds from 96- or 384-well plates, the
LabChip 3000 performs unattended, high-volume screening,
producing high quality data that minimizes false positives and
false negatives and detects weak inhibitors with high accuracy,
potentially identifying drug candidates that conventional
techniques can miss. Each chip has either 4 or 12
“sippers,” small glass capillary tubes attached to the
chip. Once the researcher prepares the chip and places it into a
LabChip 3000 system, minute quantities of sample can be
introduced, or “sipped,” through the capillary tube
onto the chip. This sipping process can be repeated many times
with different compounds, enabling a single chip to analyze
thousands of samples quickly and without human intervention.
Assays are available for the LabChip 3000 system for enzymatic
drug targets such as kinases, proteases phosphatases, and
lipid-modifying enzymes, and cell-based targets such as
G-protein coupled receptors (GPCRs). New capabilities allow
screening against both adherent and non-adherent cell types, and
the small volumes of cells required enable screening against
cells that are in short supply, e.g., primary cells.
We have identified compound selectivity screening, especially
for kinases, as an emerging opportunity within the drug
discovery market. A typical kinase drug development program will
focus on finding lead compounds that inhibit a particular kinase
thought to play a role in the disease being studied. As
scientists learn more about the human “kinome,” the
newly coined word for the 518 different kinases found in the
human body, they also are becoming increasingly concerned about
the interactions of lead compounds on other kinases, and the
potential adverse side effects resulting from these
interactions. As a result, selectivity or “profiling”
screens, where lead compounds are screened against a
representative group of human kinases, are increasingly becoming
a routine part of drug discovery programs. Our LabChip 3000
system has the ability to generate the highest quality data for
this kind of experimentation. In addition, the system is a fast,
cost-effective way to generate numerous assays to meet the
evolving requirements of pharmaceutical companies’ specific
profiling strategies. In 2004, some of our newer profiling
customers also requested that Caliper provide assay development
services to them, and we view this as an emerging business
opportunity.
Staccato Automated Workstations. Staccato workstations
provide fast, reliable and scalable automation for drug
discovery, genomics, proteomics and drug development
laboratories. Staccato systems are available in three base
configurations: Mini Workstation Series, Application Series and
Custom Systems Series. Staccato Mini Workstations offer the
minimal amount of equipment required to automate basic liquid
handling and material management tasks. Staccato Application
Series are pre-configured and pre-integrated solutions for
common applications such as plate reformatting and replication,
hit-picking, enzyme-linked immunosorbent assays (ELISA), and a
variety of cell-based assays. Staccato Custom Systems use proven
automation-friendly building blocks, iBlox, that are designed
into custom configurations as dictated by the needs of the end
user.
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Staccato Application and Custom Series systems are controlled
with our CLARA assay development and schedule planning software.
CLARA ties together robots, incubators, readers, washers and
other devices into one cohesive system to increase laboratory
automation and productivity. Staccato Mini-Workstations can use
either our CLARA or iLinkPro software. iLinkpro is our next
generation graphical software package that provides drag and
drop functionality to system integrators, method developers and
end users. The software greatly simplifies the process of
generating new automation methods and provides a simple way for
bench scientists to run complex automated systems.
Allegro Automated Systems. The Allegro platform is
designed to eliminate screening bottlenecks while offering
maximum flexibility and performance across a range of drug
discovery applications, including high-throughput screening
(HTS), ultra-high-throughput screening (UHTS), and high-speed
preparation of 96- or 384-well microplates. The demand for
maximum throughput in screening procedures often requires a
larger industrial process rather than a laboratory workstation
approach. The Allegro system connects independent workstation
modules consisting of storage and incubation carousels, washers,
liquid handlers and readers in an assembly-line format. Modules
are added to incorporate additional steps or increase a
system’s capabilities. Allegro’s ultra-high-throughput
is realized when intramodule process times are kept under one
minute. Under these conditions, an Allegro system can process
approximately 1,000 384-well plates (384,000 assays) per
two-shift day.
Caliper Sciclone ALH 3000. The Caliper Sciclone ALH 3000
Liquid Handling System provides fast and accurate liquid
transfers, reagent additions, and plate reformatting for 96-,
384- and 1536-well microplates. Sciclone liquid handling systems
have an open and modular design so that they can be configured
to automate a variety of research and diagnostic applications
from genomics and proteomics sample preparation to biomolecular
and cell-based screening assays.
The ALH 3000 features interchangeable 96- and 384-channel
pipetting heads that can pipette and dispense volumes from 100
nanoliters to 200 microliters, an independent 8-channel pipettor
for single-well access, and bulk reagent dispense modules for
efficient reagent broadcasting. Available accessories include
the Sciclone gripper, microplate shakers, positive pressure
filtration system, temperature-controlled locators and more. The
ALH 3000 is now available with a new software version that
provides additional ease-of-use capabilities and integrated
pressure control, and enables 21 CFR Part 11
compliance.
Caliper Sciclone inL10. The Caliper Sciclone inL10 is our
most advanced liquid handling system. Based on the Sciclone ALH
3000, it has the added feature of high-speed solenoid valves
that ensure reliable and efficient non-contact (through-the-air)
dispensing of liquids at volumes from 10 nanoliters to 10
microliters. The ability to generate real-time performance data
allows the Sciclone inL10 to automatically react to changing
conditions, such as temperature, that can alter the sample
viscosity. Each pipetting channel can dispense an independent
volume and offers its own liquid level detection capability,
allowing scientists to “poll” a plate to determine the
liquid level and volume in each well. The benefit of this type
of control over the dispensing and monitoring of fluids is
higher quality data and increased probability that a particular
experiment will not have to be repeated.
The inL10 also offers many of the same options and accessories
as the ALH 3000, including the Z-8 pipettor, bulk dispense
modules, and multiple deck accessories.
RapidPlate. The RapidPlate Workstation offers precise 96-
and 384-well liquid transfers in a small, highly scalable format
for basic plate replication and reformatting liquid handling
applications. Using 100-microliter and 200-microliter disposable
tips, the 96-channel, parallel pipetting head delivers liquids
accurately and precisely across a volume range of 1 to 200
microliters. The six-position rotary deck includes two positions
that enable indexing into 384-well plates, and one position that
can be fitted with an optional, on-line fill reservoir/tip wash
station. The RapidPlate’s compact size enables it to fit
into standard bio-safety or chemical hoods, or on any lab bench.
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Plate Management and Storage |
Twister I and II. The Twister Universal Microplate
Handler automates the movement of microplates to and from a
microplate reader, washer, or other microplate-processing
instrument. Twister I has a capacity of 80 microplates, and is
used as a dedicated autoloader with a wide variety of scientific
instruments. The Twister II, sold exclusively to our OEM
partners, provides increased capacity, handling up to 400
standard microplates and increased integration capabilities
compared to Twister I.
LabChip 90 Automated Electrophoresis System. Our LabChip
90 Automated Electrophoresis System, formerly marketed under the
name AMS 90 SE, automates the sizing and concentration analysis
of proteins and DNA fragments, and is designed to meet the needs
of higher-throughput research and production laboratories that
presently use SDS-PAGE and agarose gel electrophoresis. Using
our proprietary microfluidic sipper chips to introduce samples
directly from 96-well or 384-well plates, the LabChip 90
provides walk-away automation, reduced analysis time, and
immediate reporting of high-quality sizing and concentration
data. For DNA and protein separations, the LabChip 90 provides
an automated, higher-throughput alternative to the Agilent 2100
Bioanalyzer and Bio-Rad Experion systems, each of which are
discussed further below under the caption, “Key Corporate
Partnerships.”
Automated electrophoresis is still in its relatively early
stages of market adoption. However, as scientists identify needs
for higher-throughput research, we believe they will find the
throughput, data quality and reporting capabilities of the
LabChip 90 system attractive. In response to the slow initial
market reaction, we modified the software of the LabChip 90
system to make the instrument more compatible with the workflow
requirements of a typical laboratory, and introduced a new
faster and more sensitive protein assay, the “Protein
Express” assay. We have also focused our marketing
activities to better position LabChip 90 and support
sales-related activities in order to convert opportunities into
new sales. Despite these developments, we believe that market
adoption for LabChip 90 will continue at an improved, but still
relatively slow, pace in 2005.
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Pharmaceutical Development and Quality Control |
MultiDose G3. The MultiDose G3 is a fully automated
dissolution testing system that works within an open
architecture, allowing the use of industry-standard accessories.
It performs eight unattended dissolution runs without
intervention. Benefits of the workstation include decreased
labor requirements and technique-independent results. Used in
pharmaceutical method and dosage form development, dissolution
testing and quality assurance work, the MultiDose G3 operating
system is USP and 21 CFR Part 11 compliant.
Tablet Processing Workstation II (TPW II). The
TPW II performs quantitative sample preparation on
pharmaceutical dosage forms such as tablets or capsules,
automating processes such as content uniformity testing and
stability analysis. Suitable for use in method development and
routine quality assurance work, TPW II complies with the
requirements for 21 CFR Part 11.
Prelude Workstation. The Prelude Workstation automates
pharmaceutical sample preparation for samples such as bulk drug
substances, performing tasks such as solvent addition,
extraction, sample transfer, mixing and dilutions. Capabilities
also include on-line HPLC and UV detection. Used in
pharmaceutical methods development and quality assurance labs,
the Prelude operating system complies with 21 CFR
Part 11.
Benefits of the MultiDose G3, TPW II, and Prelude
Workstation include increased analyst productivity, decreased
technician-to-technician variability, and easy method transfer
from one laboratory to another.
8
We provide a wide range of services to our customers, and
believe that our ability to service clients through our global
service infrastructure is an important competitive strength that
is critical to future growth. Our service offerings include:
Product Support. In our technical support centers,
service engineers work to tailor products to our customer’s
specific needs, thereby maximizing each product’s
efficiency and productivity. The range of product support
services we provide includes technical telephone support, field
engineering support for both emergency and preventative
maintenance, field applications support, formal classroom
training at Caliper and customer locations, a repair depot, and
loaner support. Our maintenance contracts are typically for
one-year terms.
Validation Services. Primarily targeted at pharmaceutical
development and quality control laboratories, these services
include on-site validation of equipment to meet current Good
Manufacturing Practices, transfer of manual methods to automated
methods, and applications support.
Assay Development Services. This class of services
emerged as a growing business opportunity in 2004. The need for
potential drug compound selectivity profiling, especially for
kinases, has arisen in the drug discovery industry over the last
few years. This trend has in turn generated a need for fast,
cost-effective ways to generate numerous assays to meet the
evolving requirements of the companies’ specific profiling
strategies. To meet this need, our customers are increasingly
turning to Caliper for assay development services that provide
them with a “plug and play” solution to their
profiling activities.
Key Corporate Partnerships
A key element of our growth strategy is the formation of
strategic product development collaborations and technology
licensing arrangements with our customers and other life science
technology providers in order to enhance our position in the
life sciences market. In our product development collaborations,
our partners typically fund all or a portion of our development
costs for a particular product and work with our research and
development team to develop new products. In our technology
licensing arrangements, we license all or a portion of our
microfluidic technology to other companies interested in
pursuing applications outside of our product development plans
or who wish to combine our microfluidic technology with their
own proprietary technologies.
In January 2004, we established a collaboration and supply
agreement with Affymetrix, Inc., a leader in DNA microarray
technology and products. Under this agreement, we are working
with Affymetrix to develop and provide automated target
preparation instruments for Affymetrix’ commercialized
proprietary microarray system, and its new high-throughput array
system. These new automation systems are expected to standardize
microarray preparation, reduce variability and labor costs, and
enable researchers to industrialize their genomic research.
These products will leverage our expertise in high-throughput
automation and Affymetrix’ expertise in DNA microarray
technology and applications. The first products were launched to
early access partners in the last quarter of 2004. These
products automate microarray target preparation steps including
target amplification, labeling and preparation for hybridization.
Affymetrix will market and distribute the co-branded line of
automation products developed under the multi-year agreement. We
will serve as the OEM supplier of these systems and will partner
with Affymetrix to provide installation, training and field
service for these new automated systems. Affymetrix has the
right to assume responsibility for these services at its option.
Agilent Technologies, Inc. is a global diversified technology
company with four primary business units: Test and Measurement,
Life Sciences and Chemical Analysis, Semiconductor Products, and
Automated Test
9
Equipment. Agilent provides enabling solutions to markets within
the communications, electronics, life sciences and chemical
analysis industries.
Until we terminated our collaboration agreement with Agilent,
which termination was effective in May 2003, Agilent and Caliper
collaborated to create and distribute commercial research
products based on Caliper’s microfluidic LabChip
technologies. The relationship effectively combined
Agilent’s expertise in the life sciences marketplace with
Caliper’s microfluidic innovation to bring novel products
to market. Through its partnership with Caliper, Agilent
introduced the 2100 Bioanalyzer system in September 1999, and
the Agilent 5100 Lab-on-a-Chip instrument system in the fall of
2004. Although the termination of our collaboration agreement
with Agilent was effective in May 2003, we continue to
manufacture and supply LabChip products to Agilent under the
termination provisions of the collaboration agreement.
Agilent 2100 Bioanalyzer. The first instrument platform
to be introduced for LabChip applications, the Agilent 2100
Bioanalyzer is a desktop instrument designed to perform a wide
range of everyday scientific applications using a menu of
different LabChip kits. The 2100 Bioanalyzer uses our
“planar” chips, in which the researcher pipettes
chemical reagents into the reservoirs of the chip, including the
various samples to be tested, before placing the LabChip into
the instrument. The chips and LabChip kits are manufactured and
supplied by Caliper to Agilent, and Agilent manufactures and
distributes the 2100 Bioanalyzer instrument under a license from
us.
Agilent launched the 2100 Bioanalyzer in September 1999, and
Agilent and Caliper have continued to expand the menu of
applications capable of being run on this instrument. Current
applications include DNA, RNA and protein sizing and
concentration analysis, and cell analysis. The 2100 Bioanalyzer
integrates several experimental steps into one, reducing
analysis time from hours to minutes. Other benefits of the
system include significantly reduced sample consumption and
higher quality data than conventional slab gel electrophoresis
experiments.
Under our ongoing supply arrangements for the 2100 Bioanalyzer,
Agilent purchases chips and reagents at a price which reimburses
us for our costs of manufacturing these products and pays us a
share of the gross margin realized by Agilent on sales of all
components of the 2100 Bioanalyzer system, including
instruments. We recognize revenue related to the reimbursement
of costs for the supply of chips and reagents to Agilent upon
shipment, and we recognize the related costs as components of
the cost of sales. We recognize as revenue our share of gross
margin on components of the 2100 Bioanalyzer systems sold by
Agilent upon shipment to the end user. Our gross margin share
varies depending on the type of collaboration product, and on
whether Agilent or Caliper manufactures the collaboration
product. Under the supply agreement terms, our gross margin
share for chips, reagents and instruments decreased in November
2004, and will decrease again in May 2006.
Agilent 5100 Lab-on-a-Chip (ALP) Instrument. The
Agilent 5100 system, launched by Agilent in the fall of 2004,
enables unattended high-throughput sizing and concentration
analysis of DNA and proteins, utilizing sipper chips
manufactured by Caliper. As with the 2100 Bioanalyzer, the 5100
system was developed under license from Caliper and is
manufactured by Agilent. The sipper chips for the 5100 system
are manufactured and sold by us to Agilent at negotiated prices.
Caliper also receives a gross margin share payment from Agilent
based upon sales of the 5100 instrument in a manner similar to
that described above for the 2100 Bioanalyzer instrument.
Agilent currently has a non-exclusive license to our LabChip
technology, as it existed in May 2003, to develop, manufacture
and sell new products in the field of collaboration. Agilent
will be required to pay royalties to Caliper based on its net
revenue from sales of such new products at the established
royalty rates set forth in the termination provisions of the
collaboration agreement.
Amphora Discovery Corp. is a privately held company established
in 2001 as a spin-off from Caliper. Amphora uses our LabChip
systems to screen large numbers of targets against
well-characterized compound libraries, thereby generating lead
molecules that the company can choose to develop on its own or
with
10
partners. Its current partners include Aventis (now Sanofi
Aventis) and Ortho-McNeil Pharmaceutical, an affiliate of
Johnson & Johnson. In December of 2004, Amphora
announced it had completed a $20 million Series C
financing. Caliper’s ownership interest in Amphora has been
essentially reduced to zero through the various rounds of
financing completed by Amphora since its spin-off from Caliper.
Since 2001, Amphora has engaged in large-scale implementation of
LabChip discovery systems. Amphora operates approximately 20
Caliper 250 drug discovery systems and one LabChip 3000
instrument. Amphora purchases LabChip devices from Caliper and
pays us for datapoints generated using the LabChip devices. We
did not realize any incremental datapoint revenue from Amphora
during 2004 based on the terms of the contractual arrangements
with Amphora that were effective until December 2004. We are in
the process of negotiating a new supply agreement with Amphora.
Bio-Rad Laboratories, Inc. is a multinational manufacturer and
distributor of life science research and clinical diagnostic
products. Bio-Rad is based in Hercules, California, and serves
more than 70,000 research and industry customers worldwide
directly and through a network of more than 30 wholly-owned
subsidiary offices.
In June 2003, Caliper and Bio-Rad entered into a multi-year
product development and commercialization agreement to develop
and market a novel microfluidics instrument system for worldwide
distribution. Under the terms of the agreement, Caliper received
research and development funding from Bio-Rad for the
development of this system, and will receive royalties on all
future sales of the developed instrument. Caliper will be the
exclusive manufacturer of LabChip devices intended for use with
developed instrument platforms. In the fall of 2004, Bio-Rad
launched the Experion automated electrophoresis system as a
product of this agreement. The Experion system provides rapid,
reproducible analysis of protein and RNA samples. Bio-Rad is a
long-established leader in gel electrophoresis separations,
particularly protein separations, and the Experion product
represents its first microfluidics-based product for this market.
Predicant Biosciences, Inc. is an emerging life sciences company
focused on developing tests to detect and diagnose disease
through the analysis of complex protein patterns in blood.
In November 2004, Caliper and Predicant entered into an
agreement under which Predicant has non-exclusively licensed a
portion of Caliper’s microfluidics patent estate for use
with Predicant’s proprietary technology for the analysis of
proteins using mass spectrometry. Predicant has chosen to use
microfluidics because this approach enables samples to be
processed much more rapidly and reproducibly than is possible
with traditional separation techniques. The current agreement
between Caliper and Predicant consists solely of licensing
privileges, and does not include product development work by
Caliper. Any future product development arrangement between
Caliper and Predicant would be negotiated and entered into under
a separate agreement.
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Wako Pure Chemical Industries |
In 2001, Caliper established a collaboration with Wako Pure
Chemical Industries, Ltd., a large Japanese chemical and
diagnostics reagents company. The objective of this
collaboration is to develop a new microfluidics-based instrument
and chips designed for the worldwide immunodiagnostics market.
The new system is intended to provide a faster, more highly
automated and cost-effective approach to running diagnostic
blood panels in the clinical laboratory setting. This ongoing
collaboration provides for Wako to develop immunodiagnostic
reagents and assays for the system, and Caliper to develop
LabChip devices and microfluidic assays and breadboard
instruments.
11
Customers
Our current customers include many of the world’s leading
pharmaceutical and biotechnology companies as well as OEM
providers of complementary life science solutions. Approximately
63%, 71% and 92% of our total revenues for 2004, 2003 and 2002,
respectively, were derived from customers in the United States.
See Note 18 to our financial statements located at the end
of this Annual Report for revenues from customers and long-lived
assets attributable to geographic areas outside of the United
States. During 2004, Agilent accounted for approximately 11% of
our total revenue and 15% of our product revenue. No other
customer exceeded 10% of our revenue in 2004 (see Note 2 of
Notes to Consolidated Financial Statements).
We typically experience higher revenues in the second half of
our fiscal year as a result of capital spending patterns of our
customers.
For a portion of our sales, we manufacture products based on our
forecast of customer demand and maintain inventories in advance
of receipt of purchase orders. Our net sales in any given
quarter depend upon a combination of (1) orders received in
that quarter for shipment in the same quarter,
(2) shipments from our backlog of orders from previous
quarters, and (3) recognition of revenues that had been
previously recorded as deferred revenue pursuant to our revenue
recognition policy. Our products are typically shipped within
ninety days of purchase order receipt. As a result, we do not
believe that the amount of backlog at any particular date is
indicative of our future level of sales in any succeeding
quarter. The level of backlog at December 31, 2004 was
$13.5 million, and at December 31, 2003 was
$14.7 million. In our backlog, we include only the total
value of open purchase orders for products and services that
management has concluded have a reasonable probability of being
delivered over the subsequent twelve-month period. This amount
specifically excludes deferred revenue, and products and
services to be provided in the future pursuant to terms of
contractual agreements for which we have not yet received
purchase orders.
Our backlog at the beginning of each quarter does not include
all product sales needed to achieve expected revenues for that
quarter. Consequently, we are dependent on obtaining orders for
products to be shipped in the same quarter that the order is
received. Moreover, customers may reschedule shipments, and
production difficulties could delay shipments. Accordingly, we
have limited visibility into future product shipments, and our
results of operations are subject to variability from quarter to
quarter.
Research and Development
We have made substantial investments in lab-on-a-chip research
since our inception, and believe that we have established a
leading position in lab-on-a-chip technology. We explored
fundamental issues of lab-on-a-chip technology as early as
possible in order to find solutions to important technical
challenges. Where our developed technology shows commercial
promise, we have sought patent protection for our solutions. We
intend to combine developing new versions of our
microfluidics-based drug discovery systems with enhanced
features that address existing or emerging customer needs, such
as offering a broad range of standardized, easy-to-use assays.
With the realignment of Caliper following our acquisition of
Zymark, we have made some important changes to our approach to
research and development which have resulted in a substantial
decrease in our research and development expenses. First, we are
now emphasizing what we refer to as a sequential, rather than
parallel, approach to our R&D projects, meaning that we now
undertake R&D projects in a more methodical manner, rather
than pursuing all of our projects at the same time. In doing
this, we are prioritizing those projects that we believe have
the greatest potential commercial value. Second, we are now
emphasizing a shared investment risk approach to R&D in
which we have our customers or potential customers share in the
expense of an R&D project. In 2004, customer funding, which
we include in our contract revenues, was approximately 38% of
our research and development expense. This percentage could vary
significantly in a given year based on our ability to obtain
customer funding. Nonetheless, we believe that this shared
investment risk model is important not only because it offsets
at least a portion of our R&D expense, but also because it
provides important customer validation that a particular R&D
project has potential commercial
12
value. Through these measures, we have been able to reduce our
research and development expenses and utilize our resources more
efficiently.
Today we have ongoing core technology research and applied
product development efforts in several areas:
Our technology research activities fall into several classes.
Chip Design. We are increasing our understanding of the
design rules guiding the development of new microfluidic chips.
Using the principles of engineering, we create patterns of
interconnected channels that permit execution of the various
common steps of experimentation. For example, we have designed
and implemented rapid thermal control methods on chips for
applications requiring precise temperature control and fast
cycling. Designs from one chip can be used for other chips
needing similar fluidic functions for a different application.
Mathematics and computer models also help minimize the number of
iterations necessary to achieve new functional chip designs.
Chip Manufacturing. We continue to seek ways to improve
the yield and decrease the cost of manufacturing our chips. We
are exploring novel fabrication techniques and the use of new
materials that offer functional advantages, such as superior
optical features or lower manufacturing costs. We have
development programs exploring manufacturing technology for
chips made of plastic. Plastic devices potentially offer cost
advantages and can offer favorable surface chemical and design
features for some applications. One area of continuous
improvement is micromachining technology for precisely attaching
capillaries to our sipper chips to access reagents. In automated
experimentation, the number of capillaries and channels running
in parallel determines the level of throughput. Accordingly, we
have developed high-yield fabrication methods to enable us to
cost-effectively manufacture chips with many capillaries.
Another important area of development is surface chemistry, in
particular, controlling the reproducibility of channel surface
characteristics in our LabChip products.
Instrument Manufacturing and Software Design. We use the
skills of electrical engineers, optical engineers, mechanical
engineers, product designers and software engineers to create
new instruments and software. The instruments are designed to
optimize liquid handling and automation of life science
laboratory applications, or to control fluid movement,
temperature control, and detection functionality for our
microfluidic chips. Software engineers write computer programs
to manage tasks such as controlling chip functionality,
collecting data, communicating between different instrument
modules and communicating between Caliper’s and other
manufacturer’s instruments. Currently, our instrument
research and development efforts are focused on:
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the miniaturization of fluidics, |
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robotics for target preparation and handling of microarray chips, |
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the development of modular microfluidic instrument components
that can be combined with other types of instruments and liquid
handling equipment, depending on the desired application, |
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high-efficiency liquid handling workstations, |
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the development of software to promote integration
capability, and |
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continued development of productivity workstations for genomics
and biotech. |
Systems Integration. When developing commercial products,
we seek to incorporate features that are necessary to perform a
specific experiment, and configure the assay so that it offers
tangible benefits to users. By carefully characterizing the
problem, as well as the solution, we are able to define precise
product specifications. For instance, in each microfluidics
application, we determine how to manipulate flow conditions and
how to control surface interactions in order to create novel
functions and/or suppress undesirable effects. The resulting
complete solution includes the LabChip device, the instrument
interface, computer software and reagents.
13
We have developed expertise in discovering new functions that
microfluidic chips can perform. We generate computer models of
how an experiment can be carried out, store these
“functional designs,” and can incorporate them into
new designs that simulate complete experimental pathways. In
this way, we believe the value of new microfluidic inventions
can be rapidly expanded across many application development
projects.
Drug discovery is one application area that has benefited
greatly from microfluidics. Higher data quality allows less
potent inhibitors to be discovered using our LabChip 3000
platform. A current area of focus is kinase selectivity
screening. The LabChip 3000 system can be used to understand how
candidate drug compounds react with a particular kinase drug
target relative to other kinase molecules in the human body,
with potential impact on the safety and efficacy of the
resultant drug. We have developed more than 50 kinase assays
that can be provided to the customer to facilitate
implementation of their kinase selectivity screening programs.
Another important application is cell-based screening against
G-protein coupled receptor (GPCR) targets. We have
developed a control mechanism to keep suspension as well as
adherent cells stable on chip for many hours to facilitate use
of the LabChip 3000 with the widest variety of cells. Due to the
greatly reduced consumption of cells and reagents, this
application is well suited for screening of primary cells, which
are believed to be more physiologically relevant to drug
discovery.
Another application focus area is tools to improve proteomics
and genomics research. The recently introduced high-speed
protein separation assay for our LabChip 90 platform increases
productivity in protein expression, protein purification, and
antibody engineering laboratories. With this application, we
achieve automated sampling of protein samples from microplates
using sipper chips, and the digital data output can be easily
manipulated and analyzed to greatly reduce the time to answer.
We have also increased our application focus on our more
traditional macrofluidic automation products, such as liquid
handling, plate handling, and complete automation systems. Our
applications group works closely with key customers to
understand their critical application needs. These needs are
then addressed directly by developing specific automation
configurations and software specified methods that are optimized
for key applications such as cell based assays, nucleic acid
purification, and mass spectrometry sample preparation. For
example, our Staccato platform has been configured specifically
for cell-based assays and is now marketed as a standard
application system.
Our product development efforts are currently focused on new
applications and capabilities for our existing instruments and
the development of new instrument platforms.
Extensions of Existing Product Lines. For our LabChip
instrument systems, we are expanding the menu of applications to
include assays that measure many important activities of cells
and proteins. For the LabChip 3000 high-throughput screening
system for drug discovery, our recently introduced applications
include calcium flux assays for adherent cells. The system
improvements incorporated for this application also enhance the
throughput of suspension cells and make the system well suited
for primary cell screening. For the LabChip 90 automated
electrophoresis system, we recently announced a new application
and LabChip device for higher throughput protein separations.
The “Protein Express” Assay provides faster analysis,
higher sensitivity, and enhanced ease of use.
Extensions to our liquid handling and automation product lines
are ongoing. These include the development of additional
application-based Staccato systems and the further development
of our liquid handling automation to include positive pressure
filtration and low volume disposable tip capability, as well as
enhance nanoliter dispensing and feedback control capability. We
are also developing extensions of certain existing products to
address applications of high interest to our partners, such as
the automation of target preparation for Affymetrix’
commercialized proprietary microarray system.
Polymerase Chain Reaction on a Chip. Our PCR-on-a-chip
technology has potential utility for a variety of molecular
diagnostic applications, including pharmacogenomics and early
detection and screening for a variety of cancers and infections.
We are developing an integrated application that is designed to
perform the
14
required steps of reagent assembly, amplification and readout in
rapid, serial fashion inside the channels of a microfluidic
chip. We believe that our technology will offer the advantages
of nanoliter-scale processing of valuable reagents, automated
reagent assembly, and computer-controlled heating and mixing for
high-quality data production. Though our nanoliter-scale system
is still in development, our prototype instrument is capable of
performing a large number of 10-nanoliter reactions with
starting material down to single copies of genomic DNA. Compared
to conventional methods, which can take between 30 minutes to
two hours to complete, we can do a complete amplification and
detection reaction in about nine minutes.
Our research and development expenses for the years ended
December 31, 2004, 2003, and 2002 were approximately
$22.7 million, $33.7 million and $43.3 million,
respectively. As a percentage of revenues, we expect research
and development spending to decrease in the future to the extent
our revenues grow and as we slow the pace of discretionary
spending on research programs by focusing on those opportunities
with maximum commercial viability and sharing the funding of
R&D programs with other partners.
Manufacturing
Effective in November 2003, we consolidated all instrument
manufacturing in our Hopkinton, Massachusetts manufacturing
facility, which is ISO 9001:2000 compliant. ISO, the
International Standards Organization, sets international
standards for quality in product design, manufacturing and
distribution.
We manufacture some subassemblies ourselves and other components
are made to our specifications by outside vendors. To ensure the
quality and on-time delivery of parts and subassemblies, we
track our top suppliers and score them on a monthly basis. The
subassemblies are inspected and tested before being placed into
final product assemblies. Production cycle times range from
several hours to five days for more complex workstations.
Systems and workstations are produced from components based on a
wide variety of proprietary technologies, including intricate
mechanical actuators, precision fluid handling systems,
computers and software. We produce systems by combining certain
of our products with third-party vendor equipment, primarily
detection instrumentation. The systems are a combination of
standard components, assembled in either standard or custom
configurations to meet a customer’s specific needs. A
typical production cycle ranges from 30 to 90 days from
receipt of order to shipment of a system. The final products are
then put through an extensive testing cycle before being
released for shipment. Testing at our factory and/or the
customer’s site establishes that the system is performing
to the customer’s specifications.
We manufacture all of our chips in a Class 1000 clean room
facility in Mountain View, California. Caliper is ISO 9001:2000
compliant for the development, manufacture and distribution of
its chips and reagents. We contract with third parties to supply
raw materials, component parts and sub-assemblies used in our
chips and reagents kits. We intend to continue to invest in our
infrastructure for the manufacture and distribution of our chips
while reviewing outsourcing options for manufacturing our
products at a lower cost. For a discussion of the methods we use
to manufacture our chips see “Technology” and
“Research and Development.”
We obtain key components of our chips, instruments and
reagent-based products from a number of suppliers, including, in
certain cases, single-source or limited-source suppliers. A
third party supplies us with its proprietary dyes, which are
used in many of our LabChip products. Furthermore, we depend on
a foreign single-source supplier for the manufacture of glass
stock used in the manufacture of certain types of our chips. The
majority of key components for our chip and instrument products
are available on short lead time from our suppliers. The only
component requiring any significant lead time to acquire is our
proprietary glass stock, as our supplier requires a minimum
order to cover an entire production run. We anticipate that
inventories of this proprietary material, at current production
levels, will be sufficient for the next 12 months.
Although we have established licensing arrangements and supply
agreements with most of our suppliers, there can be no
assurances that these companies could not in some way be
adversely affected in the future and
15
be unable to meet our critical supply needs. If the supply of
components from these suppliers were interrupted, we might not
be able to manufacture our products at all or in a timely
fashion, which would disrupt our delivery of products to our
customers.
Competition
In general, markets for instruments designed for life sciences
applications are very competitive, and we believe these markets
will remain competitive in the future. The competition we face
in these markets not only arises from other companies selling
instruments that are directly competitive with our instruments,
but also from companies selling other types of instruments who
are competing for the same, scarce funds in a potential
customer’s capital budget.
We encounter competition from a number of life science tools
companies, especially in the areas of liquid handling,
separations analysis, and high-throughput screening. In
particular, we anticipate that our competition will come
primarily from:
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Companies providing competitive liquid handling, automation
products and integration services for applications similar to
ours. We believe the primary competitive factors in these
markets are productivity enhancement, breadth of applications,
accuracy, ease-of-use, price versus performance, product
reliability and service support. Competition for these types of
products and services comes from many companies, including
Tecan, Beckman Coulter, Velocity 11, Applied Biosystems
division of Applera, and PerkinElmer. |
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Companies supplying conventional technologies for gel
electrophoresis separations for proteins, DNA and RNA. We
believe the primary competitive factors in these markets are
cost per sample analyzed, throughput and productivity
enhancement, data quality, ease-of-use, and service support.
Competition for these types of products and services comes from
many companies, including Agilent, Bio-Rad Laboratories, and
Beckman Coulter. |
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Companies supplying products for high throughput screening for
the discovery of new drug compounds. We believe the primary
competitive factors in these markets are cost per compound
analyzed, throughput, data quality, ease-of-use, and reliability
and service support. Competition for these types of products and
services comes from many companies, including G.E. Healthcare,
Molecular Devices, PerkinElmer, and Tecan. |
We believe our products compete favorably with respect to all of
these factors in each of these markets. However, in markets
where we sell products based on our LabChip technology, we not
only need to demonstrate the advantages of our products over
competing technologies and products, but we must also often
overcome a customer’s resistance to switching from a
well-established, familiar technology to a fundamentally new
technology.
We also need to compete effectively with companies developing
their own microfluidics or lab-on-a-chip technologies and
products, such as Fluidigm, Gyros, Micronics, Tecan, BioTrove,
Microfluidic Systems, Nanostream, 3M, Applied Biosystems, and
Cepheid. Microfluidic technologies have undergone and are
expected to continue to undergo rapid and significant change.
Our future success will depend in large part on our ability to
establish and maintain a competitive position in these and
future technologies, which we may not be able to do. Rapid
technological development may result in our products or
technologies becoming obsolete. Products offered by us could be
made obsolete either by less expensive or more effective
products based on similar or other technologies.
There is the possibility that we may experience increased
competition from Agilent in the future. For example, our LabChip
90 Automated Electrophoresis System provides many of the same
capabilities as the Agilent 5100 system launched by Agilent in
2004. We terminated our collaboration agreement with Agilent
effective in May 2003, and under the surviving terms of the
agreement, Agilent has a non-exclusive, royalty-bearing license
to certain of our LabChip technologies. Under the terms of this
license, Agilent is able to develop, make and sell LabChip
devices in the field of our collaboration with Agilent.
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In many instances, particularly with respect to our liquid
handling and automation products, our competitors have or may
have substantially greater financial, technical, research and
other resources and larger, more established marketing, sales,
distribution and service organizations than we do. Our
competitors also generally have greater name recognition than we
do, and may offer more favorable pricing as a competitive
tactic. In addition, given the larger scale of their operations,
most of our competitors spend more on research and development
than we do. Accordingly, we cannot be sure that our competitors
will not succeed in developing or marketing technologies or
products that are more effective or commercially attractive than
our products, or that would render our technologies and products
obsolete. Also, we may not have the financial resources,
technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. Our success
will depend in large part on our ability to maintain a
competitive position with our technologies.
Intellectual Property
We seek patent protection for our lab-on-a-chip technologies. As
of December 31, 2004, we owned or held licenses to over 250
issued U.S. patents and approximately 174 pending
U.S. patent applications, some of which derive from a
common parent application. The issued U.S. patents expire
between 2011 and 2021. Foreign counterparts of many of these
patents and applications have been filed and/or issued in one or
more other countries, resulting in a total of more than 757
issued patents and pending patent applications in the United
States and foreign countries. These patents and applications are
directed to various technological areas which we believe are
valuable to our business, including:
|
|
|
| |
• |
control of movement of fluid and other material through
interconnected microchannels; |
| |
| |
• |
continuous flow, high-throughput screening assay methods and
systems; |
| |
| |
• |
analytical and control instrumentation; |
| |
| |
• |
analytical system architecture; |
| |
| |
• |
automated liquid handling systems; |
| |
| |
• |
chip-based assay chemistries and methods; |
| |
| |
• |
chip-compatible sample accession; |
| |
| |
• |
software for control of microfluidic based systems and data
analysis; and |
| |
| |
• |
chip manufacturing processes. |
We also rely upon copyright protection, trade secrets, know-how,
continuing technological innovation and licensing opportunities
to develop and maintain our competitive position. Our success
will depend, in part, on our ability to obtain patent protection
for our products and processes, to preserve our copyrights and
trade secrets, to operate without infringing the proprietary
rights of third parties and to acquire licenses related to
enabling technology or products used with our lab-on-a-chip
technology.
We are party to various exclusive and non-exclusive license
agreements with third parties which give us rights to use
certain technologies. For example, we have licenses in the
fields we are currently operating in from UT-Battelle, LLC,
relating to patents covering inventions by Dr. J. Michael
Ramsey, and from the Trustees of the University of Pennsylvania
covering microfluidic applications and chip structures. These
licenses extend for the duration of the life of the licensed
patents. A failure to maintain some or all of the rights to
these technologies could seriously harm our business.
Environmental Matters
We continuously assess the compliance of our operations with
applicable federal, state and local environmental laws and
regulations. Our policy is to record liabilities for
environmental matters when loss amounts are probable and
reasonably determinable. Our manufacturing sites utilize
chemicals and other potentially hazardous materials and
generates both hazardous and non-hazardous waste, the
transportation,
17
treatment, storage and disposal of which are regulated by
various governmental agencies. When needed, we have engaged
environmental consultants to assist with our compliance efforts.
We believe we are currently in compliance with all applicable
environmental permits and are aware of our responsibilities
under applicable environmental laws. Any expenditures
necessitated by changes in law and permitting requirements
cannot be predicted at this time, although we do not expect such
costs to be material to our financial position, results of
operations or competitive position.
Other Business Risks
In addition to the risks to our business associated with
suppliers, competition and intellectual property discussed
above, our business is subject to a number of other significant
risks, including the risks that our LabChip products may not
achieve wide market acceptance, and we may not be successful in
developing new and enhanced liquid handling products. These and
other risks that may cause our actual results, financial
performance or achievements to be materially different from our
present expectations are discussed in more detail below under
“Factors Affecting Operating Results” contained in
“Part II — Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” which discussion is incorporated by reference
here.
Employees
As of December 31, 2004, we had a total of 414 employees,
including 82 in research and development, 187 in operations and
service, 86 in sales and marketing and 59 in administration and
finance. None of our employees is represented by a collective
bargaining agreement, nor have we experienced any work stoppage.
We consider our relations with our employees to be good.
Executive Officers of the Registrant
The following are our executive officers and key employees,
together with their ages and biographical information:
E. Kevin Hrusovsky, 43, was appointed
President and CEO of Caliper immediately following the
acquisition of Zymark by Caliper in July 2003. Prior to the
acquisition, Mr. Hrusovsky served as President and CEO of
Zymark starting in late 1996. Before joining Zymark,
Mr. Hrusovsky was Director of International Business,
Agricultural Chemical Division and President of the
Pharmaceutical Division for FMC Corporation. Prior to FMC,
Mr. Hrusovsky held several management positions at E.I.
DuPont de Nemours. He also serves as a board member of the
Association for Laboratory Automation. He received his B.S. in
Mechanical Engineering from Ohio State University, an M.B.A.
from Ohio University, an Extended M.B.A. from Harvard
University, and an Honorary Doctorate from Framingham State
College for his contributions to life sciences.
Bruce J. Bal, 46, was appointed to the position of
Vice President, Operations & Aftermarket Businesses
following the combination of Caliper with Zymark. Mr. Bal
joined Zymark in 1997 as Vice President of R&D and
Operations. He previously worked at FMC Corporation in the
Biotechnology Division as Director of Operations. He also held a
wide range of management positions in his 13 years at E.I.
DuPont de Nemours and was general manager of United States
Pollution Control, Inc. in Utah. Mr. Bal received a B.S. in
Chemical Engineering from the University of Wisconsin in 1981
and an M.B.A. from Loyola University, Louisiana in 1986.
Enrique Bernal, 66, was appointed to the position of Vice
President, Instrument R&D following the combination of
Caliper with Zymark. Mr. Bernal joined Zymark in February
1999, prior to which he worked at Galileo Corporation of
Sturbridge, Massachusetts, a developer and manufacturer of
electro-multipliers and optical fiber products, where he was
responsible for all engineering functions and product
development. Previously, he had spent 29 years at Honeywell
Inc. He received a B.S. in Physics from the College of St.
Thomas, and a Masters in Physics from the University of
Minnesota.
Andrea Chow, Ph.D., 47, was appointed to the
position of Vice President, Microfluidics R&D, in December
2003. Prior to that, she held the position of Senior Director of
Microfluidics at Caliper. Before
18
joining Caliper in 1997, Dr. Chow conducted research at the
Lockheed Palo Alto Research Laboratories and SRI International,
and completed a postdoctoral fellowship at the University of
Bristol in the United Kingdom. Dr. Chow received her B.S.
degree in Chemical Engineering from the University of Southern
California, and M.S. and Ph.D. degrees in Chemical Engineering
from Stanford University.
Stephen E. Creager, 51, joined Caliper in October 2002 as
Associate General Counsel and was appointed Vice President and
General Counsel in June 2003. Prior to joining Caliper,
Mr. Creager was Vice President of Business Development for
Tyco Electronics, an operating unit of Tyco International
involved in the development and manufacture of electronic
components, with approximately $12 billion of annual
revenue. In this role, he provided the legal support for the
business development initiatives of Tyco Electronics, including
the acquisition of over 40 businesses. Prior to taking on these
business development responsibilities at Tyco Electronics,
Mr. Creager served as the General Counsel of Tyco
Electronics. Prior to that, Mr. Creager served as Associate
General Counsel of Raychem Corporation, a manufacturer of
electronic components, from November 1993 until August 1999,
when Raychem was acquired by Tyco Electronics. Prior to that,
Mr. Creager was in private legal practice for nine years.
Mr. Creager received a B.A. degree from The Evergreen State
College, and a Masters of Philosophy degree in economics and a
J.D. degree, both from Yale University.
Thomas T. Higgins, 53, joined Caliper in 2005 as
Executive Vice President and CFO. Prior to joining Caliper,
Mr. Higgins was Executive Vice President, Operations and
Chief Financial Officer at V.I. Technologies, Inc., a
biotechnology company developing novel anti-infective
technologies. In that position, Mr. Higgins was responsible
for finance and accounting, capital financing activities,
investor relations, and research and development support
activities. Mr. Higgins also had responsibility for the New
York-based plasma manufacturing business until its divesture in
2001. Prior to joining V.I. Technologies, Inc. in 1998,
Mr. Higgins was with Cabot Corporation, a global specialty
chemicals company, from 1985 where he held various senior
operations and finance positions during his tenure. In his last
position he served as Executive Vice President of Cabot’s
LNG operations, and prior to that was responsible for
Cabot’s Asia Pacific carbon black operations. He also
served in other senior management roles for Cabot’s Asia
business. Before Cabot, Mr. Higgins was with
PricewaterhouseCoopers. Mr. Higgins holds a B.B.A with
honors from Boston University.
William C. Kruka, 44, joined Caliper in 2002 as Vice
President, Business Development. Prior to joining Caliper,
Mr. Kruka was Senior Manager of Business Development with
Applied Biosystems Group, an Applera Corporation business, a
leading life science tool provider. In this role, he led the
business development initiatives for proteomics, including
related mass spectrometry, sample preparation, chromatography
and microfluidic technologies. These initiatives included
developing strategy, formulating deal structures and negotiating
collaborations, licensing deals and divestitures. He also
chaired an internal business development council that addressed
strategic and operational matters from a cross-functional
business and technology perspective. Prior to Applied
Biosystems, Mr. Kruka held a number of corporate business
development, sales and marketing positions with Applera and its
predecessor, The Perkin-Elmer Company, from 1983 to 2002.
Peter F. McAree, 40, was appointed to the position of
Vice President, Finance following the combination of Caliper
with Zymark. Mr. McAree joined Zymark as Chief Financial
Officer in May 2001 after serving in the same capacity as an
independent consultant since November 2000. From January 2000
through October 2000, Mr. McAree served as Chief Financial
Officer of Iconomy.com, a commerce solutions provider. From
January 1999 through December 1999 Mr. McAree was an
independent consultant. From January 1997 through December 1998,
Mr. McAree was with Elcom International, Inc., a commercial
distributor of computers and automated business solutions, as
Executive Vice President, Finance and as President of Elcom
Systems, an operating unit involved with the development of
electronic procurement software solutions. Previously,
Mr. McAree was Chief Financial Officer of
Geerlings & Wade, Inc., a direct marketer of wine, from
1995 through 1996. Mr. McAree was with Arthur Andersen,
Boston, from 1986 through 1995. He received his B.S. in
Accountancy from Bentley College, Waltham, MA, and is a licensed
Certified Public Accountant in Massachusetts.
19
Auro Nair, Ph.D., 44, was appointed to the position
of Vice President, North American Sales of Caliper Life Sciences
following the combination of Caliper and Zymark, where since
1998 he had led Zymark’s North American Sales organization.
Prior to arriving at Zymark, Dr. Nair managed Quality
Compliance and Analytical Services at Glaxo Wellcome, Singapore,
where he was responsible for all analytical chemistry support
for two manufacturing plants and a pilot facility. Dr. Nair
received his Ph.D. in Analytical Chemistry from the University
of Oklahoma and an M.B.A. from Suffolk University.
Mark Roskey, Ph.D., 45, was appointed to the
position of Vice President, Worldwide Marketing following the
combination of Caliper and Zymark, where he had held this role
since he joined Zymark in December 2001. Prior to that,
Dr. Roskey worked at Applied Biosystems, a life sciences
company, for six years where he served as Director of Marketing.
He has more than 13 years of experience in product
research, development and strategic marketing with complex
biological solutions and automated instrument systems.
Dr. Roskey completed a postdoctoral fellowship in Molecular
Immunobiology at the Harvard Medical School, and holds a Ph.D.
in Microbiology from the University of Notre Dame.
Jean-Louis Rufener, 60, was appointed to the position of
Vice President, International Operations following the
combination of Caliper and Zymark. At Zymark, he had held this
position since becoming a member of Zymark’s executive team
when Zymark acquired Scitec Automation Holdings in August 1999.
During his tenure at Scitech, a liquid handling and laboratory
automation company, Mr. Rufener held the position of
President and CEO. Prior to Scitec, Mr. Rufener was
President of Tecan Corporation. Mr. Rufener completed his
primary and secondary education in Switzerland, and graduated
with a degree in Chemical Engineering from the Institute of
Technology in Bern Canton, Switzerland.
Our headquarters is located in Hopkinton, Massachusetts, where
we occupy two leased buildings totaling approximately
120,000 square feet, which houses research and development,
instrument manufacturing and administration. Our existing lease
in Massachusetts expires in December 2005. We are in
negotiations to enter into a new 10-year operating lease, with
two additional 5-year renewal options, and expand our
Massachusetts facilities by approximately 16,000 square
feet. In addition, we have three buildings totaling
approximately 111,000 square feet of leased space in
Mountain View, California, of which we occupied approximately
53,000 square feet as of December 31, 2004. Our
Mountain View facilities are primarily used for microfluidics
research and development, LabChip device manufacturing, and
certain administrative functions. We are currently reviewing
options to sublease the currently unoccupied 58,000 square
feet in Mountain View. The leases for this space will expire in
2007 and 2008. We have no other properties or facilities in the
United States. Our wholly owned subsidiaries are engaged in
marketing, sales and service activities in Europe and Japan. In
total, our subsidiaries occupy leased space of approximately
34,000 square feet under leases which expire through 2012.
We believe that, based upon our long-term strategic facilities
plan, our current facilities are adequate for our needs for the
foreseeable future.
|
|
| Item 3. |
Legal Proceedings |
Commencing on June 7, 2001, Caliper and three of its
officers and directors (David V. Milligan, Daniel L. Kisner and
James L. Knighton) were named as defendants in three securities
class action lawsuits filed in the United States District Court
for the Southern District of New York. The cases have been
consolidated under the caption In re Caliper Technologies
Corp. Initial Public Offering Securities Litigation, 01
Civ. 5072 (SAS) (GBD). Similar complaints were filed
against approximately 300 other public companies that conducted
IPOs of their common stock during the late 1990s (the “IPO
Lawsuits”). On August 8, 2001, the IPO Lawsuits were
consolidated for pretrial purposes before United States Judge
Shira Scheindlin of the Southern District of New York. Together,
those cases are denominated In re Initial Public Offering
Securities Litigation, 21 MC 92(SAS). On April 19,
2002, a Consolidated Amended Complaint was filed alleging claims
against Caliper and the individual defendants under
Sections 11 and 15 of the Securities Act of 1933, and under
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, as well as Rule 10b-5 promulgated thereunder. The
Consolidated Amended Complaint also names certain underwriters
of Caliper’s December 1999 initial public offering of
common stock. The Complaint alleges that these underwriters
charged
20
excessive, undisclosed commissions to investors and entered into
improper agreements with investors relating to aftermarket
transactions. The Complaint seeks an unspecified amount of money
damages. Caliper and the other issuers named as defendants in
the IPO Lawsuits moved on July 15, 2002, to dismiss all
claims on multiple grounds. By Stipulation and Order dated
October 9, 2002, the claims against
Messrs. Milligan, Kisner and Knighton were dismissed
without prejudice. On February 19, 2003, the Court granted
Caliper’s motion to dismiss all claims against it.
Plaintiffs were not given the right to replead the claims
against Caliper. The time to appeal the dismissal has not yet
expired. In May 2003, a Memorandum of Understanding was executed
by counsel for plaintiffs, issuers and their insurers setting
forth the terms of a settlement that would result in the
termination of all claims brought by plaintiffs against the
issuers and individual defendants named in the IPO Lawsuits. On
July 7, 2003, a Special Litigation Committee of the Caliper
Board of Directors approved the settlement terms described in
that Memorandum of Understanding, which was subsequently set
forth in definitive Settlement Agreement among the settling
parties. On February 15, 2005, Judge Scheindlin issued an
order granting preliminary approval of the settlement, subject
to the condition that the settling parties agree to modify the
terms of the settlement to limit the scope of the bar order
contemplated by the settlement. Caliper is in the process of
determining whether the condition contained in Judge
Scheindlin’s order granting conditional approval of the
settlement is acceptable to it.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of our security holders
during the quarter ended December 31, 2004.
21
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Market for Registrant’s Common Equity
Our common stock has been quoted on the Nasdaq National Market
under the symbol “CALP” since our initial public
offering in December 1999. Prior to that time, there was no
public market for our common stock. The following table shows
the high and low sales prices per share of our common stock as
reported on the Nasdaq National Market for the periods indicated.
| |
|
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Fiscal 2004:
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
9.75 |
|
|
$ |
5.75 |
|
| |
Second Quarter
|
|
$ |
7.78 |
|
|
$ |
4.64 |
|
| |
Third Quarter
|
|
$ |
7.13 |
|
|
$ |
4.67 |
|
| |
Fourth Quarter
|
|
$ |
8.15 |
|
|
$ |
6.54 |
|
|
Fiscal 2003:
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
3.50 |
|
|
$ |
2.92 |
|
| |
Second Quarter
|
|
$ |
4.56 |
|
|
$ |
3.41 |
|
| |
Third Quarter
|
|
$ |
6.25 |
|
|
$ |
5.21 |
|
| |
Fourth Quarter
|
|
$ |
6.66 |
|
|
$ |
5.61 |
|
As of December 31, 2004, there were approximately 259
holders of record of our common stock. We have never declared or
paid any dividends on our capital stock. We currently expect to
retain future earnings, if any, for use in the operation and
expansion of our business. Although we have no restrictions on
paying cash dividends, we do not anticipate paying any cash
dividends in the foreseeable future.
On January 27, 2004, Caliper issued a total of
38,460 shares of its common stock to J. Michael Ramsey at
an aggregate purchase price of $46,949 upon the exercise of
warrants outstanding issued in connection with certain
agreements entered into in 1995 and 1996. These shares were
issued in reliance on Section 4(2) under the Securities
Act., and the purchaser represented, in connection with such
purchase of the warrants, that he was an accredited investor as
defined in the Regulation D under the Securities Act.
Caliper granted restricted stock to a number of its employees in
connection with its acquisition of Zymark in July 2003, which
restricted stock grants were subject to a right of repurchase by
the Caliper in the event that the grantees left the employment
of Caliper. A number of these employees did leave the employment
of Caliper prior to the actual issuance of this stock to these
employees. Consequently, Caliper only issued the vested shares
to these employees, as the remaining unvested shares continued
to be subject to this repurchase right and would have been
repurchased by Caliper. During 2004, 9,000 unvested shares,
having a price per share of $.001, were not issued to the
employees as if these shares had been issued and subsequently
repurchased during the year.
22
|
|
| Item 6. |
Selected Financial Data |
The following table sets forth selected consolidated financial
data for each of the last five fiscal years of Caliper. This
data should be read in conjunction with the detailed
information, financial statements and related notes, as well as
Management’s Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere herein. The
historical results are not necessarily indicative of the results
of operations to be expected in the future.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Statements of Operations Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product revenue
|
|
$ |
57,808 |
|
|
$ |
31,916 |
|
|
$ |
15,644 |
|
|
$ |
12,468 |
|
|
$ |
3,201 |
|
| |
Service revenue
|
|
|
13,448 |
|
|
|
5,879 |
|
|
|
37 |
|
|
|
— |
|
|
|
— |
|
| |
License fees and contract revenue
|
|
|
8,871 |
|
|
|
11,616 |
|
|
|
10,152 |
|
|
|
17,120 |
|
|
|
15,363 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total revenue
|
|
$ |
80,127 |
|
|
|
49,411 |
|
|
|
25,833 |
|
|
|
29,588 |
|
|
|
18,564 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of product revenue
|
|
|
38,350 |
|
|
|
23,494 |
|
|
|
10,927 |
|
|
|
6,887 |
|
|
|
2,519 |
|
| |
Cost of service revenue
|
|
|
6,673 |
|
|
|
2,486 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Research and development
|
|
|
22,728 |
|
|
|
33,691 |
|
|
|
43,317 |
|
|
|
38,263 |
|
|
|
33,478 |
|
| |
Selling, general and administrative
|
|
|
32,325 |
|
|
|
27,292 |
|
|
|
17,534 |
|
|
|
15,545 |
|
|
|
9,787 |
|
| |
Employee stock compensation, net(2)
|
|
|
2,770 |
|
|
|
1,000 |
|
|
|
378 |
|
|
|
2,540 |
|
|
|
4,545 |
|
| |
Amortization of intangible assets
|
|
|
3,805 |
|
|
|
2,756 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Restructuring charges
|
|
|
5,774 |
|
|
|
11,535 |
|
|
|
314 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
112,425 |
|
|
|
102,254 |
|
|
|
72,470 |
|
|
|
63,235 |
|
|
|
50,329 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(32,298 |
) |
|
|
(52,843 |
) |
|
|
(46,637 |
) |
|
|
(33,647 |
) |
|
|
(31,765 |
) |
|
Interest income, net
|
|
|
602 |
|
|
|
2,227 |
|
|
|
4,353 |
|
|
|
9,970 |
|
|
|
7,468 |
|
|
Other income, net
|
|
|
517 |
|
|
|
1,279 |
|
|
|
1,320 |
|
|
|
— |
|
|
|
— |
|
|
Litigation settlement and reimbursement
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,500 |
|
|
|
13,274 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and cumulative effect of change in
accounting principle
|
|
|
(31,179 |
) |
|
|
(49,337 |
) |
|
|
(40,964 |
) |
|
|
3,823 |
|
|
|
(11,023 |
) |
|
Provisions for income taxes
|
|
|
(377 |
) |
|
|
(190 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Cumulative effect of a change in accounting principle(3)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,294 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(31,556 |
) |
|
$ |
(49,527 |
) |
|
$ |
(40,964 |
) |
|
$ |
3,823 |
|
|
$ |
(13,317 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of a change in
accounting principle
|
|
$ |
(1.08 |
) |
|
$ |
(1.88 |
) |
|
$ |
(1.68 |
) |
|
$ |
0.16 |
|
|
$ |
(0.50 |
) |
|
Cumulative effect of a change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.11 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
$ |
(1.08 |
) |
|
$ |
(1.88 |
) |
|
$ |
(1.68 |
) |
|
$ |
0.16 |
|
|
$ |
(0.61 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Shares used in computing net income (loss) per common share,
basic
|
|
|
29,273 |
|
|
|
26,396 |
|
|
|
24,403 |
|
|
|
23,997 |
|
|
|
21,853 |
|
|
Net income (loss) per common share, diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of a change in
accounting principle
|
|
$ |
(1.08 |
) |
|
$ |
(1.88 |
) |
|
$ |
(1.68 |
) |
|
$ |
0.15 |
|
|
$ |
(0.50 |
) |
|
Cumulative effect of a change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.11 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, diluted
|
|
$ |
(1.08 |
) |
|
$ |
(1.88 |
) |
|
$ |
(1.68 |
) |
|
$ |
0.15 |
|
|
$ |
(0.61 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per common share,
diluted
|
|
|
29,273 |
|
|
|
26,396 |
|
|
|
24,403 |
|
|
|
25,634 |
|
|
|
21,853 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance Sheet Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, marketable securities and short-term
restricted cash
|
|
$ |
50,237 |
|
|
$ |
66,996 |
|
|
$ |
154,602 |
|
|
$ |
166,176 |
|
|
$ |
191,699 |
|
|
Working capital
|
|
|
52,234 |
|
|
|
66,577 |
|
|
|
155,583 |
|
|
|
195,310 |
|
|
|
187,475 |
|
|
Total assets
|
|
|
147,947 |
|
|
|
168,230 |
|
|
|
179,878 |
|
|
|
222,543 |
|
|
|
212,514 |
|
|
Long-term obligations, less current portion
|
|
|
— |
|
|
|
646 |
|
|
|
1,986 |
|
|
|
3,749 |
|
|
|
3,534 |
|
|
Total stockholders’ equity
|
|
|
111,579 |
|
|
|
134,797 |
|
|
|
167,558 |
|
|
|
206,564 |
|
|
|
196,457 |
|
|
|
| (1) |
The statement of operations data include the results of Zymark
beginning July 14, 2003, the date of acquisition. The
balance sheet includes the balances of Zymark as of
December 31, 2004 and 2003. As such, comparison of the 2004
and 2003 selected financial data to selected financial data for
the prior years presented may not be meaningful. See Note 3
of Notes to Consolidated Financial Statements. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
(2) Includes employee stock compensation, net, related to
employees classified within expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$ |
208 |
|
|
$ |
56 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Research and development
|
|
|
515 |
|
|
|
384 |
|
|
|
(315 |
) |
|
|
610 |
|
|
|
1,601 |
|
|
Selling, general and administrative
|
|
|
2,047 |
|
|
|
560 |
|
|
|
693 |
|
|
|
1,930 |
|
|
|
2,944 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,770 |
|
|
$ |
1,000 |
|
|
$ |
378 |
|
|
$ |
2,540 |
|
|
$ |
4,545 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3) |
Effective January 1, 2000, Caliper changed its method of
accounting for non-refundable license fees to recognize such
fees ratably over the term of the related agreement. This change
resulted in a $2.3 million cumulative effect of a change in
accounting principle which was reported as a change in 2000. The
cumulative effect was initially recorded as deferred revenue
over the remaining terms of the underlying contractual
agreements. |
24
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion and analysis should be read with
“Selected Financial Data” and our financial statements
and notes included elsewhere in this Annual Report on
Form 10-K. The discussion in this Annual Report on
Form 10-K contains forward-looking statements that
involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary
statements made in this Annual Report on Form 10-K should
be read as applying to all related forward-looking statements
wherever they appear in this Annual Report on Form 10-K.
Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to these
differences include those discussed in “Factors Affecting
Operating Results” below, as well as those discussed
elsewhere.
The following discussion and analysis is based upon our
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States.
Overview
Caliper uses its core technologies of liquid handling,
automation, and LabChip microfluidics to create enabling
solutions for the life sciences industry. Caliper is a leader in
microfluidic lab-on-a-chip technologies. We believe our LabChip
systems can add value to the life sciences industry by
miniaturizing, integrating, automating and standardizing many
laboratory processes, and by raising the quality of data derived
from experimentation. In July, 2003, Caliper acquired Zymark
Corporation, a global provider of liquid handling, laboratory
automation and robotics technologies. We believe that by
combining our microfluidic technologies with advanced liquid
handling capabilities we are well positioned to develop and
deliver next-generation laboratory automation products that
address the key challenges of modern scientific research.
Within the life sciences industry, we compete in certain
application segments of the drug discovery and drug development,
and genomics and proteomics markets, and currently estimate our
addressable market size at approximately $1.5 billion. We
see future attractiveness in the molecular diagnostics market,
which holds enormous potential to impact human health through
earlier detection of disease. The overall market potential for
our products increases to the extent that we are able to access
new markets through our partnerships and technology licensing
arrangements with companies such as Agilent, Affymetrix,
Amphora, Bio-Rad, Predicant, and Wako.
|
|
|
| |
• |
Our $80 million of revenue in 2004 was consistent with our
previous estimates. Revenue growth was principally the result of
having the benefit of a full year of sales from Zymark products
and services in 2004. Revenue from products and services,
totaled $71 million, or 89% of total revenue. We believe
that product and service revenue provides more stability for the
growth of Caliper in comparison to less predictable license and
contract revenues. |
| |
| |
• |
Our 2004 SG&A and R&D expenses of $55 million were
lower than our initial projections for the year. We were able to
achieve better than expected efficiencies as a result of our new
commercial “philosophy” toward R&D investments.
This, in turn, enabled us to further reduce costs in R&D and
enabled us to complete the closure of a second building in our
Mountain View, California facilities. |
| |
| |
• |
We ended 2004 with $50 million in cash, cash equivalents,
marketable securities and short-term restricted cash and believe
our current cash balances are adequate to meet our cash needs,
at least through the end of 2006. |
The markets for life science research tools and products have
experienced modest growth of 5-9% over the last several years
due to a reduced rate of increase in research funding and
capital spending cutbacks in the pharmaceutical and
biotechnology research markets. We believe that we have the
potential to grow faster than the overall market through
increased adoption of our LabChip technologies, increased chip
sales as new instruments in our OEM partnership channel gain
traction, and increased sales of the Caliper Sciclone liquid
handler and related integrated platforms.
25
LabChip 3000 Product Adoption. In 2004, we saw increased
adoption of the LabChip 3000 and we ended the year with 60% of
the top 20 pharmaceutical companies worldwide using our LabChip
screening systems, including such prominent companies as Merck,
Pfizer, J&J, Novartis, Sanofi-Aventis, Lilly, Wyeth, Takeda,
Taisho, Serono, Amgen and Millenium. We consider the adoption
process for our LabChip screening systems to consist of three
phases: Phase I, in which customers purchase their first
unit and evaluate its performance versus traditional
technologies; Phase II, in which customers have purchased
additional LabChip instruments for their other labs or have
purchased additional instruments for their original lab; and
Phase III, which is characterized by enterprise-wide
adoption of our LabChip system. We currently have 14 customers
in Phases I and II and one customer, Amphora Discovery
Corp., in Phase III. One of our principal business
strategies for 2005 is to drive our existing LabChip 3000
customers to higher levels of adoption of these products.
During the past year, we have identified compound selectivity
screening, especially for kinases, as an emerging opportunity
within the drug discovery market. A typical kinase drug
development program will focus on finding lead compounds that
inhibit a particular kinase thought to play a role in the
disease being studied. As scientists learn more about the human
“kinome,” the newly coined word for the 518 different
kinases found in the human body, they also are becoming
increasingly concerned about the interactions of lead compounds
on other kinases, and the potential adverse side effects
resulting from these interactions. As a result, selectivity or
“profiling” screens, where lead compounds are screened
against a representative group of human kinases, are
increasingly becoming a routine part of drug discovery programs.
Our LabChip 3000 system has the ability to generate the highest
quality data for this kind of experimentation. In addition, the
system is a fast, cost-effective way to generate numerous assays
to meet the evolving requirements of pharmaceutical
companies’ specific profiling strategies. In 2004, some of
our newer profiling customers also requested that Caliper
provide assay development services to them, and we view this as
an emerging business opportunity.
LabChip 90 Product Adoption. We introduced the LabChip 90
Automated Electrophoresis System in February 2004, as an updated
version of the former AMS 90 System. During 2004, market
adoption of the LabChip 90 system was slower than anticipated.
Automated electrophoresis is still in its relatively early
stages of market adoption. However, as scientists identify needs
for higher-throughput research, we believe they will find the
throughput, data quality and reporting capabilities of the
LabChip 90 system attractive. In response to the slow initial
market reaction, we modified the software of the LabChip 90
system to make the instrument more compatible with the workflow
requirements of a typical laboratory, and introduced a new
faster and more sensitive protein assay, the “Protein
Express” assay. We have also focused our marketing
activities to better position LabChip 90 and support
sales-related activities in order to convert opportunities into
new sales. Despite these developments, we believe that market
adoption for LabChip 90 will continue at an improved, but still
relatively slow, pace in 2005.
Chip Sales from OEM Products. Agilent launched the 2100
Bioanalyzer system for DNA, RNA and protein analysis in 1999.
Since then, Agilent has shipped over three thousand Bioanalyzer
instruments, which are manufactured by Agilent under license
from Caliper, and more than 1.0 million associated chips,
all of which were manufactured by Caliper. In the fall of 2004,
Agilent launched the 5100 lab-on-a-chip (ALP) platform,
which is a higher-throughput, automated platform for separations
and analysis. We are presently providing Agilent with the sipper
chips that run on this platform, and expect revenue from the
sales of these chips to increase to the extent that this product
gains traction. In 2004, our revenues from Agilent were
$8.7 million, or approximately 11% of our total revenue.
This revenue came from our sales of chips to Agilent, including
the sale of sipper chips for the Agilent 5100 instrument system,
as well as from royalties that we receive from our gross-margin
sharing arrangement. There is the possibility that Agilent could
decide to manufacture its own supply of chips, which could
adversely impact our revenues, and to a lesser extent our net
income. Were this to occur, Caliper would continue to receive
ongoing royalties on Agilent’s product sales and,
potentially, revenue from the sale of chips and LabChip kits
directly to the end users of the 2100 Bioanalyzer and 5100
instrument platforms.
In the fall of 2004, Bio-Rad launched the Experion Automated
Electrophoresis System, which performs electrophoretic
separation and analysis of protein and RNA samples. Experion is
the first product to come out of our collaboration with Bio-Rad,
which began in June 2003. Under this OEM arrangement, Caliper is
the
26
exclusive supplier of LabChip devices to Bio-Rad and we receive
a royalty on sales of instruments and software by Bio-Rad.
Caliper Sciclone Liquid Handling Sales. In 2004, we
entered into a new OEM partnership with Affymetrix in which we
provide automated target preparation instruments for
Affymetrix’ commercialized proprietary microarray system.
The first product of our partnership with Affymetrix, the
GeneChip Array System (GCAS), is based on the Caliper Sciclone
ALH3000 liquid handler. This new product was released to early
access customers in the fourth quarter of 2004. We are expecting
our liquid handling product sales to increase in 2005 as a
result of this collaboration, and as a result of feature and
performance enhancements that we believe give us a competitive
advantage for direct channel sales of the Caliper Sciclone
liquid handler and related Staccato system products.
|
|
|
Key Issues for Future Performance |
In order to continue to grow our business, reach profitability,
gain market share and remain competitive we will need to address
the following ongoing issues:
|
|
|
| |
• |
Revenues — We must grow revenues significantly to meet
the company’s goal of reaching positive cash flow from
operations. |
| |
| |
• |
Improvement in Gross Margins — We need to improve our
gross margins by increasing volume, especially in the area of
chip production, to increase capacity utilization, and by
achieving a larger proportion of our sales from higher margin
products such as consumable products and services. |
| |
| |
• |
Cost Control — It is essential for us to continue to
control costs in order to allow us to reach operating cash flow
break-even. |
We may consider other actions to further control costs, and we
may also evaluate suitable acquisition candidates over the next
several years to help us address the above issues.
We continue to face risks and uncertainties that could challenge
our efforts to grow revenue, gain market share and remain
competitive. Our microfluidic technologies still require
significant development investment, and our drug discovery
systems incorporating these technologies have only recently
begun to be used commercially. If our drug discovery systems do
not gain further market acceptance, we will be unable to
generate significant sales of these products and our revenue may
decline. The commercial success of our drug discovery systems
will depend upon capital spending by our potential customers,
and market acceptance of the merits of our drug discovery
systems by pharmaceutical and biotechnology companies, academic
research centers and other companies that rely upon laboratory
experimentation.
To increase the likelihood that our microfluidic technologies
gain market acceptance, a core element of our business strategy
is to broaden our network of commercial OEM partners in order to
access new applications and new markets. We believe that this
will allow us to more effectively leverage the commercial
potential of microfluidics in ways that would be difficult to
achieve, from both a research investment and infrastructure
perspective. This strategy allows us to combine our proprietary
technical expertise with partners who have complementary
capabilities. These types of collaborations diminish our risk
and reduce our costs while leveraging larger, established
partners’ strengths to tap markets that are new to Caliper.
As we create new relationships of this type, we expect the
financial implications for us to be modest in the early
years — primarily product development
funding — until substantial product revenues are
generated, beginning one to two years following the commercial
introduction of our partner’s product.
In the future, we believe that our strategy to expand the
proportion of our revenue from higher margin, recurring sources
such as LabChip products, and to continue to expand our base of
service business revenues will lessen the potential negative
impact on our business of customers’ reduced capital
spending patterns.
27
Results of Operations
Our financial results for the year ended December 31, 2003
include the financial results of Zymark from the date of
acquisition, July 14, 2003, through December 31, 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
|
|
|
Year Ended | |
|
|
|
|
|
Year Ended | |
| |
|
December 31, | |
|
|
|
|
|
December 31, | |
|
|
|
|
|
December 31, | |
| |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Product revenue
|
|
$ |
57,808 |
|
|
$ |
25,892 |
|
|
|
81 |
% |
|
$ |
31,916 |
|
|
$ |
16,272 |
|
|
|
104 |
% |
|
$ |
15,644 |
|
|
Service revenue
|
|
|
13,448 |
|
|
|
7,569 |
|
|
|
129 |
% |
|
|
5,879 |
|
|
|
5,842 |
|
|
|
n/a |
|
|
|
37 |
|
|
License fees and contract revenue
|
|
|
8,871 |
|
|
|
(2,745 |
) |
|
|
(24 |
)% |
|
|
11,616 |
|
|
|
1,464 |
|
|
|
14 |
% |
|
|
10,152 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
80,127 |
|
|
$ |
30,716 |
|
|
|
62 |
% |
|
$ |
49,411 |
|
|
$ |
23,578 |
|
|
|
91 |
% |
|
$ |
25,833 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue. Our total revenue increase in 2004 was
principally the result of having the benefit of a full year of
sales of products we acquired as a result of the Zymark
acquisition, while our 2003 results included sales of Zymark
products for only the latter half of 2003. Other factors
underlying our revenue growth in 2004 are discussed in further
detail below. In 2003, the increase in total revenue over 2002
was due almost exclusively to the additional revenues from sales
of Zymark products, offset, in part, by a $3.7 million
decrease in sales to Amphora.
Product Revenue. Approximately $23.9 million of the
increase in product revenue in 2004 was the result of having a
full year of the acquired Zymark product sales in our operating
results versus a partial year in 2003. In addition, the increase
in product revenue included increased sales to Agilent, and
increased sales of our LabChip 3000 instrument (newly introduced
in 2004), offset by a decline in datapoint revenues. Agilent
revenues increased as a result of (1) increased LabChip kit
purchases including purchases of sipper chips that run on
Agilent’s new 5100 instrument, (2) a volume driven
increase in the share of the gross margin we receive for chips,
reagents and instruments sold by Agilent, and (3) a
retroactive price adjustment to LabChip kits previously
purchased by Agilent. The Amphora datapoint revenue decline came
about as a result of Amphora having prepaid approximately
$1.7 million in 2003 for the right to generate a certain
number of datapoints. As a result of this prepayment, we had no
additional datapoint revenue from Amphora in 2004. However, we
expect that Amphora will begin to owe us for additional
datapoints generated beginning in early 2005, and we are in the
process of negotiating new datapoint pricing terms. The increase
in product revenue in 2003 was due almost exclusively to the
revenue added by the acquired Zymark products. The remainder of
the 2003 product revenue increase resulted from higher revenue
from Agilent, offset by a net decline in sales of our other
products, especially Caliper 250 drug discovery system sales.
Service Revenue. Prior to the acquisition of Zymark, we
did not have significant service revenue. The increase in both
2004 and 2003 primarily consisted of annual maintenance
contracts and support services associated with the installed
base of Zymark products.
License Fees and Contract Revenue. In 2004, the total net
decrease in license fees and contract revenue was the result of
a $3.2 million decrease in license fees and a decrease in
contract revenue from Agilent of approximately
$1.7 million, offset in part by an increase in contract
revenue from our other collaboration partners of approximately
$2.2 million. The decrease in license fees was primarily
due to payments from Aclara and Molecular Devices received in
2003 for which there were no comparable revenue sources in 2004.
The decrease was partially offset by a license fee we received
from Predicant Biosciences under a new patent licensing
agreement and ongoing royalties we received from Molecular
Devices based upon their IMAP product sales. Agilent contract
revenues decreased because we have not had any new collaborative
development projects with Agilent since our collaboration
agreement terminated in May 2003. This decrease was more than
offset by new sources of contract revenues as a result of having
formed new strategic collaborations, such as Bio-Rad. In 2003,
license fees and contract revenues increased primarily due to an
28
increase in license fees and contract revenues from non-Agilent
collaborations, including Zymark research and development
collaborations, and the initial license fee we received from
Molecular Devices as a result of the settlement of our patent
infringement lawsuit against Molecular Devices in November 2003.
These sources of revenue were partially offset by a
$2.8 million decline in research and development funding
from Agilent as we concluded several development programs
related to the Agilent 2100 Bioanalyzer and 5100 product lines.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
|
|
|
Year Ended | |
|
|
|
|
|
Year Ended | |
| |
|
December 31, | |
|
|
|
|
|
December 31, | |
|
|
|
|
|
December 31, | |
| |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cost of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product revenue
|
|
$ |
38,350 |
|
|
$ |
14,856 |
|
|
|
63 |
% |
|
$ |
23,494 |
|
|
$ |
12,567 |
|
|
|
115 |
% |
|
$ |
10,927 |
|
| |
Service revenue
|
|
|
6,673 |
|
|
|
4,187 |
|
|
|
168 |
% |
|
|
2,486 |
|
|
|
2,486 |
|
|
|
n/a |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenue
|
|
$ |
45,023 |
|
|
$ |
19,043 |
|
|
|
73 |
% |
|
$ |
25,980 |
|
|
$ |
15,053 |
|
|
|
138 |
% |
|
$ |
10,927 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Product Revenue. In both 2004 and 2003, cost of
product revenue increased primarily due to higher product
revenues driven mainly by the Zymark acquisition. In 2004, we
reduced headcount in our LabChip manufacturing operations (see
Restructuring Charges below), which reduced our costs by
approximately $500,000 during the last half of 2004. The 2003
increase also included a $1.2 million write-off of Caliper
250 instrument inventory prompted by the development and release
of our new LabChip 3000 drug discovery system, and amortization
of $494,000 of purchase price that was allocated to acquired
Zymark inventories. In addition, approximately $1.2 million
of the increase in 2003 resulted from excess manufacturing
capacity previously absorbed by research and development
programs.
Cost of Service Revenue. Costs of service revenue in 2004
and 2003 represents costs incurred in relation to providing
billable services and supporting installed systems under annual
maintenance contracts, including parts replacement and service
labor and overhead. In 2004, the increase of $4.2 million
relates primarily to the inclusion of a full year of legacy
Zymark service costs.
Gross Margins. Our gross margin on product revenue was
34% for the year ended December 31, 2004, as compared to
26% in 2003. Reduced product obsolescence charges and the
absence of further purchase accounting amortization, as noted
above, accounted for approximately 50% of this improvement. The
remainder of the gross margin improvement resulted from
increased leverage of fixed manufacturing costs in relation to
sales and the effects of cost reductions across the combined
businesses. Gross margin on service revenue was 50% for the year
ended December 31, 2004, as compared to 58% in 2003. We do
not believe this comparison is meaningful due to the partial
year inclusion of the Zymark products in 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
|
|
|
Year Ended | |
|
|
|
|
|
Year Ended | |
| |
|
December 31, | |
|
|
|
|
|
December 31, | |
|
|
|
|
|
December 31, | |
| |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Research and development
|
|
$ |
22,728 |
|
|
$ |
(10,963 |
) |
|
|
(33 |
)% |
|
$ |
33,691 |
|
|
$ |
(9,626 |
) |
|
|
(22 |
)% |
|
$ |
43,317 |
|
|
Selling, general and administrative
|
|
|
32,325 |
|
|
|
5,033 |
|
|
|
18 |
% |
|
|
27,292 |
|
|
|
9,758 |
|
|
|
56 |
% |
|
|
17,534 |
|
|
Employee stock compensation, net
|
|
|
2,770 |
|
|
|
1,770 |
|
|
|
177 |
% |
|
|
1,000 |
|
|
|
622 |
|
|
|
165 |
% |
|
|
378 |
|
|
Amortization of intangible assets
|
|
|
3,805 |
|
|
|
1,049 |
|
|
|
38 |
% |
|
|
2,756 |
|
|
|
2,756 |
|
|
|
n/a |
|
|
|
— |
|
|
Restructuring charges
|
|
|
5,774 |
|
|
|
(5,761 |
) |
|
|
(50 |
)% |
|
|
11,535 |
|
|
|
11,221 |
|
|
|
n/a |
|
|
|
314 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
67,402 |
|
|
$ |
(8,872 |
) |
|
|
(12 |
)% |
|
$ |
76,274 |
|
|
$ |
14,731 |
|
|
|
24 |
% |
|
$ |
61,543 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Research and Development Expenses. In 2004, research and
development expenses decreased despite the inclusion of a full
year of Zymark R&D and acquired research and development of
$1.0 million, as discussed in Note 4 of Notes to
Consolidated Financial Statements, due to prioritization of our
R&D programs and related downsizing activities that occurred
in 2003, and as a result of the facility closures in 2004 that
reduced the amount of facility related costs within R&D by
approximately $300,000. In 2003, research and development
expenses declined despite the acquisition of Zymark, which
contributed $2.9 million to our overall ongoing R&D
expenses, primarily due to our R&D prioritization efforts
and the associated employee downsizing actions, which are
described in Restructuring Charges below. As a percentage
of revenues, we expect research and development spending to
decrease in the future to the extent our revenues grow and as we
slow the pace of discretionary spending on research programs by
focusing on those opportunities with maximum commercial
viability and sharing the funding of R&D programs with other
partners.
Selling, General and Administrative Expenses. In 2004,
the increase in selling, general and administrative expenses was
primarily due to the inclusion of Zymark in the full year
results of operations, offset, in part, by downsizing activities
in 2004 and 2003. In 2004, implementation costs of
Section 404 of the Sarbanes-Oxley Act of 2002 were
approximately $1.0 million versus insignificant costs in
2003. In 2003, SG&A expenses increased primarily due to the
additional costs of Zymark for the period following the
acquisition, offset in part by cost synergies realized through
our integration efforts. We expect selling, marketing and
product promotion expenses to increase modestly over the next
several years as we continue to make investments to grow our
sales.
Employee Stock Compensation. Deferred stock compensation
represents the difference, at the date of grant, between the
deemed fair value of our common stock for accounting purposes
and the exercise price of stock awards including stock options
and restricted stock issuances. In 2003, we recorded deferred
compensation of $2.2 million related to stock awards
granted to retain certain key executives and employees in
connection with our acquisition and subsequent integration with
Zymark. In 2004, we recorded deferred compensation of
$2.6 million related to stock awards granted to retain
certain key executives and employees. We are amortizing these
amounts over the respective vesting periods using the
accelerated expense attribution method. The amortization expense
related to deferred stock compensation in 2004 and 2003 was net
of reversals of $96,000 and $17,000, respectively, of stock
compensation expense recognized in previous periods as a result
of forfeited options. Of the $2.7 million of remaining
deferred stock compensation included within stockholder’s
equity as of December 31, 2004, we expect to record
amortization of deferred compensation expense of
$1.3 million during 2005 and the remaining
$1.4 million during future periods beyond 2005. The amount
of deferred compensation expense to be recorded in future
periods may further decrease if unvested options and restricted
stock awards for which deferred compensation has been recorded
are subsequently canceled.
Restructuring Charges. Below is a summary of various
restructuring activities during the period September 2002
through December 2004:
|
|
|
| |
• |
We recorded charges totaling $5.7 million related to
facility closures. As a result of efficiencies achieved
following our prioritization of research and development
programs, in June 2004 we were able to shut down one-half of a
Mountain View, CA facility that was primarily used for research
and development activities. In December, we completed the full
closure of this building, and we reassessed our previous
estimates regarding the sublease potential of our two idled
facilities. We adjusted our previous restructuring charges on
the basis of recent market information that indicated a low
probability of obtaining sublease income from these properties.
The ongoing payments will reduce the liability we have recorded
as of December 31, 2004, of $11.6 million (see
Note 12 of Notes to Consolidated Financial Statements in
this report), and the only expected ongoing impact to our
statement of operations will be accretion of interest, provided
that the assumptions considered in determining the restructuring
charge do not change. |
30
|
|
|
| |
• |
We recorded a charge of $180,000 in June 2004 as a result of a
downsizing that reduced manufacturing headcount in our LabChip
manufacturing operation by 14 positions. All separation payments
were completed in 2004. We believe that this downsizing will
result in an estimated annual savings of approximately
$1.1 million. We also recognized a $134,000 credit related
to severance payments made in 2004 which were less than the
provision estimate we made in 2003. |
|
|
|
| |
• |
We recorded a $7.7 million charge, based upon the estimated
net present value of our future lease payments related to the
closure of one of our Mountain View facilities, net of
anticipated sublease rentals, including leasehold improvement
write-offs and other asset disposals of $319,000 related to the
building closure. The facility lease accrual charge involved
certain key assumptions including the amount, if any, of future
sublease rentals which we subsequently revised to zero in 2004. |
| |
| |
• |
We recorded total charges of $3.8 million during 2003 for
three downsizing actions related to severance and benefits,
including $401,000 of non-cash charges related to acceleration
of stock option vesting for certain terminated employees. Two of
these reductions in force were completed following our
acquisition of Zymark, and were principally related to
elimination of redundant positions, the relocation of instrument
manufacturing to Hopkinton, MA, and the prioritization of
research and development programs. These actions resulted in the
elimination of approximately 100 positions, including 52% in
research and development, 24% in manufacturing operations and
service, and 24% in selling, general and administration. As of
December 31, 2003, approximately $2.1 million of the
$3.8 million remained in accrued restructuring charges, and
remaining payments were completed by December 2004. |
|
|
|
| |
• |
We recorded a charge of $314,000 in September 2002, due to a
reduction in force carried out in response to depressed market
conditions. This action resulted in the elimination of 28
positions, including 75% in research and development with the
remaining divided equally between manufacturing and
administrative functions. All of the associated cash payments
were completed in 2002. |
|
|
|
Interest and Other Income and Expenses |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
|
|
|
Year Ended | |
|
|
|
|
|
Year Ended | |
| |
|
December 31, | |
|
|
|
|
|
December 31, | |
|
|
|
|
|
December 31, | |
| |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Interest income
|
|
$ |
1,012 |
|
|
$ |
(1,627 |
) |
|
|
(62 |
)% |
|
$ |
2,639 |
|
|
$ |
(3,607 |
) |
|
|
(58 |
)% |
|
$ |
6,246 |
|
|
Interest expense
|
|
|
(410 |
) |
|
|
2 |
|
|
|
n/a |
|
|
|
(412 |
) |
|
|
1,481 |
|
|
|
78 |
% |
|
|
(1,893 |
) |
|
Other income, net
|
|
|
517 |
|
|
|
(762 |
) |
|
|
(60 |
)% |
|
|
1,279 |
|
|
|
(41 |
) |
|
|
(3 |
)% |
|
|
1,320 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,119 |
|
|
$ |
(2,387 |
) |
|
|
(68 |
)% |
|
$ |
3,506 |
|
|
$ |
(2,167 |
) |
|
|
(38 |
)% |
|
$ |
5,673 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income (Expense), Net. Interest income decreased
in both 2004 and 2003 primarily due to lower cash, cash
equivalents and marketable securities balances, on average, over
the previous years due to cash used in operating and investing
activities. In 2003, interest income was particularly lower due
to approximately $52 million of cash used to acquire Zymark
in July 2003. Interest expense decreased in 2003 due to the
reduction of our financing obligations.
Other Income, Net. Other income, net in 2004 consists
primarily of marking-to-market unrealized gains and losses
related to account balances denominated in non-US currencies.
Other income, net of $1.3 million in 2003 resulted
primarily from the effect of realized gains on marketable
securities, and unrealized foreign currency gains, offset in
part by the disposal of surplus manufacturing equipment no
longer needed in our operations. Other income, net in 2002 was
primarily due to realized gains on marketable securities.
31
Liquidity and Capital Resources
Since the company’s inception, we have financed our
operations primarily through sale of equity, product sales and
services, out-licensing revenues, contract and milestone
payments to us under our collaboration and former Technology
Access Program agreements, $32.5 million received from the
comprehensive settlement agreement with Aclara, and equipment
financing under sale-leaseback arrangements. As of
December 31, 2004, we had received net proceeds of
$237.6 million from issuances of common and preferred
stock, which includes $104.9 million raised in August 2000
from the sale of 2,300,000 shares of common stock in a
private placement and $75.9 million raised from our initial
public offering in December 1999.
As of December 31, 2004, we had $50.2 million in cash,
cash equivalents, marketable securities and short-term
restricted cash, as compared to $67.0 million as of
December 31, 2003 and $154.6 million as of
December 31, 2002. In July 2003, we used cash of
$52.4 million to acquire Zymark, which was net of
$5.8 million of Zymark’s cash on hand on the date of
acquisition. As such, our cash flow changes in operating assets
and liabilities are net of the acquired current assets and
liabilities of Zymark. The inclusion of Zymark’s results of
operations after July 14, 2003, had a significant impact on
the business in 2003 and the comparability of operating results
and cash flows on a year-over-year basis.
Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
|
|
|
Year Ended | |
|
|
|
Year Ended | |
| |
|
December 31, | |
|
Increase | |
|
December 31, | |
|
Increase | |
|
December 31, | |
| |
|
2004 | |
|
(Decrease) | |
|
2003 | |
|
(Decrease) | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
$ |
(17,614 |
) |
|
$ |
13,810 |
|
|
$ |
(31,424 |
) |
|
$ |
(20,738 |
) |
|
$ |
(10,686 |
) |
|
Investing Activities
|
|
$ |
13,934 |
|
|
$ |
(11,515 |
) |
|
$ |
25,449 |
|
|
$ |
9,484 |
|
|
$ |
15,965 |
|
|
Financing Activities
|
|
$ |
4,587 |
|
|
$ |
6,052 |
|
|
$ |
(1,465 |
) |
|
$ |
(1,715 |
) |
|
$ |
250 |
|
Operating Activities. In 2004, our cash used in
operations decreased from 2003 as a result of our reduced net
loss before non-cash expenses such as depreciation,
amortization, stock compensation and restructuring charges. The
narrowed loss was enabled by the significant increase in our
overall sales and corresponding cash collections from customers,
especially as a result of having a full year of the acquired
Zymark business in our results. We spent more on materials to
support our higher sales, but elsewhere we reduced our cost
structure, leading to the reduction in the amount of cash used
for operating activities. In addition, we paid out
$4.4 million in severance and lease payments related to
restructuring activities. All other changes in working capital
resulted in a use of $200,000 of cash.
In 2003, our cash used in operations increased from 2002
primarily due to the $32.5 million payment we received as a
settlement payment from Aclara in 2002. In addition, excluding
this impact in 2002, our cash used for operating activities in
2003 improved in comparison to 2002. This improvement is
primarily attributable to the reductions in force that we
implemented during 2002 and 2003, and other cost cutting
measures including more focused R&D activities, which were
reflected in our financial results.
Investing Activities. In 2004, our purchases of property
and equipment increased primarily due to our investment of
$1.9 million related to the purchase and on-going
implementation of our new Oracle ERP system. Otherwise, our
investment needs decreased overall as there was no similar-sized
investment need comparable to our acquisition of Zymark in 2003.
Coupled with our improved operating cash flows, we derived less
cash proceeds from sales and maturities of marketable
securities. In 2003, the increase in net cash provided by
investing activities was primarily caused by $57.7 million
of additional proceeds from net sales and maturities of
marketable securities in order to finance the acquisition of
Zymark which utilized $52.4 million of cash, and also due
to a $4.2 million decrease in property equipment purchases.
Financing Activities. In 2004, cash provided by financing
activities increased due primarily to an increase in proceeds
from common stock sales pursuant to option exercises and
employee stock plan purchases, and a decrease in the payments
made under sale-leaseback and other long-term obligations. In
32
2003, cash used in financing activities decreased as a result of
increased sale-leaseback debt payments, a decline in
sale-leaseback financing proceeds, and a decline in proceeds
from common stock sales.
As of December 31, 2004, we had commitments under leases
and other contractual obligations as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Other | |
| |
|
Operating | |
|
|
|
Sale-Leaseback | |
|
Long-term | |
| |
|
Leases | |
|
Idle Facilities | |
|
Arrangements | |
|
Obligations | |
| |
|
| |
|
| |
|
| |
|
| |
|
Years ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2005
|
|
$ |
4,174 |
|
|
$ |
3,535 |
|
|
$ |
312 |
|
|
$ |
409 |
|
| |
2006
|
|
|
2,776 |
|
|
|
3,657 |
|
|
|
— |
|
|
|
— |
|
| |
2007
|
|
|
2,442 |
|
|
|
3,784 |
|
|
|
— |
|
|
|
— |
|
| |
2008
|
|
|
2,227 |
|
|
|
1,922 |
|
|
|
— |
|
|
|
— |
|
| |
2009
|
|
|
283 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Thereafter
|
|
|
490 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total minimum lease and principal payments
|
|
$ |
12,392 |
|
|
|
12,898 |
|
|
|
312 |
|
|
|
409 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amount representing interest
|
|
|
|
|
|
|
1,293 |
|
|
|
11 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of future payments
|
|
|
|
|
|
|
11,605 |
|
|
|
301 |
|
|
|
409 |
|
|
Less: Current portion of obligations
|
|
|
|
|
|
|
3,177 |
|
|
|
301 |
|
|
|
409 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion of obligations
|
|
|
|
|
|
$ |
8,428 |
|
|
$ |
— |
|
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In addition to the commitments in the table above, as of
December 31, 2004, we had a non-cancelable purchase
commitment in the amount of approximately $167,000 with the
foreign supplier of our proprietary glass stock used in the
manufacture of certain types of chips. We also have minimum
royalty obligations under separate license agreements with
UT-Battelle, LLC and the Trustees of the University of
Pennsylvania that in the aggregate never exceed
$213,000 per year.
Our capital requirements depend on numerous factors, including
market acceptance of our products, the resources we devote to
developing and supporting our products, and acquisitions. We
expect to devote substantial capital resources to continuing our
research and development efforts, expanding our support and
product development activities, and for other general corporate
activities. Based on current plans, we believe that our current
cash balances will be sufficient to fund our operations at least
through the year 2006. Our future capital requirements will
depend on many factors, including:
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continued market acceptance of our microfluidic and lab
automation products; |
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the magnitude and scope of our research and product development
programs; |
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our ability to maintain existing, and establish additional,
corporate partnerships and licensing arrangements; |
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the time and costs involved in expanding and maintaining our
manufacturing facilities; |
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the potential need to develop, acquire or license new
technologies and products; and |
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other factors not within our control. |
We ended 2004 with $50.2 million in total cash, cash
equivalents, marketable securities and short-term restricted
cash. We expect to attain positive cash flows from operations
during the fourth quarter of 2005, and believe our current cash
balances are adequate to satisfy our cash needs through the end
of 2006. Our actual cash needs could vary considerably, however,
depending on opportunities that arise over time. If, at any
time, cash generated by operations is insufficient to satisfy
our liquidity requirements, we may need to reduce our research
and development efforts, sell additional equity or debt
securities or obtain credit arrangements. The sale of additional
equity or convertible debt securities may result in additional
dilution to our stockholders. Additional financing may not be
available on terms acceptable to us or at all. The inability to
obtain additional
33
financing may force delays in research and product development
activities and, ultimately, cause us to cease operations.
Financial Outlook. For the first quarter and full year
2005 our outlook is as follows:
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We project first quarter revenues in the range of $17 to
$19 million, and full year revenues in the range of
$87-92 million. |
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We project combined gross margins from products and services in
the range of 36% to 38% in the first quarter and 37% to 40% on a
full-year basis. |
The financial projections that we have provided above are
forward-looking statements that are subject to risks and
uncertainties, and are only made as of the date of the filing of
this Form 10-K. These projections are based upon
assumptions that we have made and believe to be reasonable.
However, actual results may vary significantly from these
projections due to the risks and uncertainties inherent in our
business as described in the section entitled “Factors
Affecting Operating Results” below.
Impact of Inflation
The effect of inflation and changing prices on our operations
was not significant during the periods presented.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of our financial statements requires management
to make estimates and assumptions that affect the reported
amounts of revenue and expenses, and assets and liabilities
during the periods reported. We use estimates when accounting
for certain items such as warranty expense, sales and marketing
programs, employee compensation programs, depreciation and
amortization periods, taxes, inventory values, and valuations of
investments and intangible assets. We base our estimates on
historical experience, where applicable, and other assumptions
that we believe are reasonable under the circumstances. Actual
results may differ from our estimates due to changing conditions
or the validity of our assumptions. We believe that the
following critical accounting policies affect our more
significant judgments and estimates used in the preparation of
our financial statements.
Restructuring Charges. During the years ended
December 31, 2004, 2003 and 2002, we recorded restructuring
charges of $5.8 million, $11.5 million and $314,000,
respectively. We established exit plans for activities which
took place in the period 2002-2004 and accounted for these plans
in accordance with EITF Issue No. 94-3, “Liability
Recognition for Certain Employee Benefits and Other Costs to
Exit an Activity (including Certain Costs incurred in a
Restructuring),” Statement of Financial Accounting
Standards (SFAS) No. 146, “Accounting for Costs
Associated with Exit or Disposal Activities,” and SEC Staff
Accounting Bulletin No. 100
(“SAB 100”), “Restructuring and
Impairment.” In accordance with such standards, management
makes certain judgmental estimates related to these
restructuring charges. For example, the consolidation of
facilities required us to make estimates including with respect
to contractual rental commitments or lease buy-outs for office
space being vacated and related costs, and leasehold improvement
write-downs, offset by estimated sublease income. We review on
at least a quarterly basis our sublease assumptions. These
estimates include anticipated rates to be charged to a
sub-tenant and the timing of the sublease arrangement. If the
rental markets change, our sublease assumptions may not be
accurate and changes in these estimates might be necessary and
could materially affect our financial condition and results of
operations. For example, in December 2004, we further
consolidated our space needs in Mountain View, CA, and in
connection with this we also evaluated recent real estate market
conditions in Mountain View, CA. As a result of our review, we
determined that the probability of subleasing our vacant
facilities was low. This caused us to lower our monthly sublease
income estimate from $1 per square foot to zero (on
approximately 58,000 square feet of available space), and
to increase our estimated liability for the fair value of the
remaining lease rentals by approximately $1.7 million
during the fourth quarter of 2004. If we are able to identify a
sublease tenant, enter into a favorable lease buy-out related to
the idle space, or otherwise reassess our use of
34
the vacant space, we may be required to further revise the
restructuring accrual that we have recorded as of
December 31, 2004. For a further discussion of our
restructuring activities, see Note 12, Restructuring
Activities, in the Notes to Consolidated Financial Statements in
Item 15 of this report.
Revenue Recognition. Revenue arrangements that include
multiple deliverables are divided into separate units of
accounting if the deliverables meet certain criteria, including
whether the delivered items have stand alone value and whether
there is evidence of fair value of the undelivered items. In
addition, we allocate the consideration among the separate units
of accounting based on their fair values, and consider the
applicable revenue recognition criteria separately for each of
the separate units of accounting. We determine “fair
value” of undelivered items based upon our historic selling
prices, or where no historic information exists, based upon
management’s estimate of the probable selling prices for
such undelivered items. The amount of our product revenue is
affected by our judgments as to whether an arrangement includes
multiple elements and if so, whether there is objective evidence
of fair value for those elements. Changes to the elements in an
arrangement and the ability to establish objective evidence of
fair value for those elements could affect the timing of revenue
recognition. These conditions are sometimes subjective and
actual results could vary from the estimated outcome, requiring
future adjustments to revenue. We recognize contract revenue for
certain arrangements based upon proportional performance which
requires that we estimate resources required to perform the
work. The extent to which our resource estimates prove to be
inaccurate could affect the timing of the revenue recognition
for a particular contract arrangement.
Accounts Receivable Reserves. We grant credit to
customers based on evaluations of their financial condition,
generally without requiring collateral. We attempt to limit
credit risk by monitoring our exposure for credit losses. This
analysis may involve review of historical bad debts, customer
concentrations, customer credit-worthiness, and current economic
trends. We establish allowances for those accounts considered
uncollectible based on the analysis of the recoverability of our
trade accounts receivable performed at the end of each reporting
period. Establishing an adequate allowance for doubtful accounts
involves the use of considerable judgment and subjectivity.
Actual results could vary from the assumptions we use to
estimate the adequacy of our accounts receivable reserves which
could require future adjustment to our reserve provisions.
Caliper’s allowance for doubtful accounts was $475,000 and
$252,000 as of December 31, 2004 and 2003, respectively.
Caliper wrote off $21,000 and $130,000 of accounts deemed
uncollectible in 2004 and 2003, respectively.
Inventory Reserves. We reserve or write off 100% of the
cost of inventory that we specifically identify and consider
obsolete or excessive to fulfill future sales estimates. Caliper
defines obsolete inventory as inventory that will no longer be
used in the manufacturing process. Excess inventory is generally
defined as inventory in excess of projected usage, and is
determined using management’s best estimate of future
demand at the time, based upon information then available to
Caliper. Caliper uses a twelve-month demand forecast and, in
addition to the demand forecast, Caliper also considers:
(1) parts and subassemblies that can be used in alternative
finished products; (2) parts and subassemblies that are
unlikely to be impacted by engineering changes; and
(3) known design changes which would reduce Caliper’s
ability to use the inventory as planned. Determination of the
excess balance is highly subjective and relies in part on the
accuracy of our forecasts and our assessment of market
conditions. If actual conditions are less favorable than
conditions upon which we base our estimates, additional
write-downs may be required. Conversely, if conditions are more
favorable than conditions upon which we base our estimates,
inventory previously written down may be sold, resulting in
lower cost of sales and higher income from operations in that
period. During 2004 and 2003, respectively, Caliper recorded
charges of $1.3 million and $2.4 million to cost of
product revenues for excess and obsolete inventories. Of the
amount charged to cost of product revenue in 2003,
$1.2 million was related to the discontinuance of the
Caliper 250 drug discovery instrument.
Warranty Provision. At the time revenue is recognized, we
establish an accrual for estimated warranty expenses associated
with sales, recorded as a component of cost of revenue. Caliper
offers a one-year limited warranty on instrumentation products
and a 90-day warranty on chips, which is included in the sales
price of many of its products. Caliper’s standard limited
warranty covers repair or replacement of defective goods, a
preventative maintenance visit on certain products, and
telephone based technical support. No upgrades are included in
the standard warranty. Provision is made for estimated future
warranty costs at the time of sale.
35
Factors that affect Caliper’s warranty liability include
the number of installed units, historical and anticipated rates
of warranty claims, and cost per claim. Caliper periodically
assesses the adequacy of its recorded warranty liabilities and
adjusts amounts as necessary.
Goodwill. We perform a test for the impairment of
goodwill annually or more frequently if events or circumstances
indicate that goodwill may be impaired. Because we have a single
operating segment which is our sole reporting unit, we perform
this test by comparing the fair value of the company with its
book value, including goodwill. If the fair value exceeds the
book value, goodwill is not impaired. If the book value exceeds
the fair value, we would calculate the potential impairment loss
by comparing the implied fair value of goodwill with the book
value. If the implied goodwill is less than the book value, an
impairment charge would be recorded. We performed our fiscal
2004 annual impairment analysis in the fourth quarter of 2004.
Based upon our market capitalization at the time, we concluded
that we did not have any impairment.
Impairment. We review long-lived assets and identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If indicators of impairment exist, we assess
recoverability of assets to be held and used by a comparison of
the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. We perform the
recoverability measurement and estimating of undiscounted cash
flows at the lowest possible level for which there are
identifiable assets. If the aggregate undiscounted cash flows
are less than the carrying value of the asset, we calculate the
resulting impairment charge to be recorded based on the amount
by which the carrying amount of assets exceeds the fair value of
the assets. We report assets to be disposed of at the lower of
the carrying amount or fair value less costs to sell. During
2004, we recorded impairment charges of $320,000 related to
certain leasehold improvements and other fixed assets no longer
being used.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123 (revised 2004),
“Share-Based Payment,” which is a revision of FASB
Statement No. 123, “Accounting for Stock-Based
Compensation.” Generally, the approach in
Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requires
all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement
based on their fair values. Pro forma disclosure is no longer an
alternative. Caliper will be required to adopt
Statement 123(R) at the beginning of its third quarter of
fiscal 2005. We are currently assessing the impact that the
adoption of Statement 123(R) will have on our results of
operations and related disclosures.
In November 2004, the FASB issued FASB Statement No. 151,
“Inventory Costs,” an amendment of ARB
No. 43, Chapter 4. The amendments made by
Statement 151 clarify that abnormal amounts of idle
facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges
and require the allocation of fixed production overheads to
inventory based on the normal capacity of the production
facilities. SFAS 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005.
We do not believe there will be a material effect upon our
financial condition or results of operations from the adoption
of the provisions of SFS 151.
Factors Affecting Operating Results
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Risks Related to Our Business |
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Our LabChip products may not achieve widespread market
acceptance, which could cause our revenue to grow slowly or
decline. |
The commercial success of our LabChip products depends upon
market acceptance of the merits of our drug discovery and
automated electrophoresis separations systems by pharmaceutical
and biotechnology companies, academic research centers, and
other companies that rely upon laboratory experimentation.
However, because our microfluidic drug discovery and automated
electrophoresis systems have been in operation for only a
limited period of time, their accuracy, reliability, ease-of-use
and commercial value have
36
not yet gained widespread commercial acceptance. If these
systems do not continue to gain further market acceptance, our
revenue may grow more slowly than expected or decline.
In addition, our strategy for the LabChip 3000 system depends
upon the early users of these systems buying additional units as
they spread the adoption of this technology throughout their
organizations worldwide. New customers for our drug discovery
systems may wait for indications from our initial drug discovery
system customers that our drug discovery systems work
effectively and generate substantial benefits. If the early
users of our LabChip 3000 systems do not endorse the further
adoption of these systems because they fail to generate the
quantities and quality of data they expected, are too difficult
or costly to use, or are otherwise deficient in meeting the
screening needs of these customers, further sales of these
systems to these early users may be limited, and our sales to
new users will be more difficult.
Our microfluidic-based drug discovery systems are now being
marketed and sold principally by the sales and marketing
organization we acquired with our acquisition of Zymark. These
systems and the technologies on which they are based are still
relatively new to this sales and marketing organization, which
may limit our ability to effectively market and sell these
systems. If we cannot market these systems effectively, their
market acceptance may be limited.
For all of the foregoing reasons, we cannot assure you that our
efforts to increase the adoption of our high-throughput drug
screening and automated electrophoresis systems, by both
existing and new users, will be expeditious or effective.
In summary, market acceptance of our LabChip systems will depend
on many factors, including:
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our ability to demonstrate the advantages and potential economic
value of our LabChip drug discovery systems over alternative
well-established technologies; |
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our ability to develop a broader range of standard assays and
applications that enable customers and potential customers to
perform many different types of experiments on a single LabChip
instrument system; and |
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our ability to market and sell our drug discovery systems and
related consumable products. |
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If we are not successful in developing new and enhanced
liquid handling, LabChip and other life sciences products, we
may lose market share to our competitors. |
The life sciences productivity tools equipment market is very
competitive and is characterized by rapid technological change
and frequent new product introductions. The commercial success
of our liquid handling systems, LabChip and other products
depends upon continued and expanding market acceptance of our
systems and products by pharmaceutical and biotechnology
companies and genomics research organizations, and upon our
ability to address quickly any performance problems that our
customers encounter. We anticipate that our competitors will
introduce new, enhanced products in this market in the near
future. Our future success will depend on our ability to offer
new products and technologies that researchers believe are an
attractive alternative to current products and technologies,
that address the evolving needs of our customers and that are
technologically superior to new products that may be offered by
our competitors. We may experience difficulties or delays in our
development efforts for new products, and we may not ultimately
be successful in developing them. Any significant delay in
releasing new products in this market could adversely affect our
reputation, give a competitor a first-to-market advantage or
cause a competitor to achieve greater market share.
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If we are not successful in improving the cost of our LabChip
products relative to the performance delivered, we may not be
successful in displacing alternative or more established
products and technologies that are competitive with our LabChip
products. |
Customers in the life sciences productivity tools equipment
market tend to be very price and cost sensitive relative to
product performance. The commercial success of our LabChip
products will depend not only upon our ability to demonstrate
that their performance is superior to the performance of
conventional
37
products, but also that their total cost to purchase and operate
is competitive with or lower than the cost of alternative or
more established products. We may need to reduce our
manufacturing costs in order for us sell our LabChip products at
more competitive prices. Although we have been successful in
achieving significant reductions in the manufacturing costs of
our LabChip instruments and chips, we are engaged in ongoing
efforts to further reduce the costs of our LabChip products.
Some of these efforts involve a substantial amount of technical
risk, such as manufacturing our chips on plastic substrates
rather than glass. If we are not successful in achieving these
additional cost reductions, the market demand for our LabChip
products may be limited, and the rate of adoption of these
products may be slower than we anticipate. We cannot assure you
that our efforts to achieve further cost reductions will be
successful.
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If we do not successfully expand the range of applications
for our drug discovery systems, we may experience a decline in
revenue or slow revenue growth and may not achieve or maintain
profitability. |
Because drug screening systems represent substantial capital
expenditures, it is important that these systems be capable of
performing a wide variety of different types of assays and
experiments in order to justify the cost of the systems. We
intend to continue developing new versions of our
microfluidic-based drug discovery systems with enhanced features
that address existing or emerging customer needs, such as
offering a broad range of standardized, easy-to-use assays. If
we are unable to do so, our drug discovery systems may not
become more widely used and we may experience a decline in
revenue or slow revenue growth and may not achieve or maintain
profitability. We currently have several assays in development,
including assays that measure many important activities of cells
and proteins. We are developing product extensions that are
particularly well suited for the evaluation of kinases, one of
the largest focus areas of drug discovery efforts today, as well
as running assays with adherent cell lines. We are creating new
tools to make it easier for our customers to develop their own
custom assays in a microfluidic format. We are also developing
kinase profiling and selectivity screening kits. If we are not
able to complete the development of any of these expanded
applications and tools, or if we experience difficulties or
delays, we may lose our current customers and may not be able to
obtain new customers.
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We are subject to the capital spending patterns of the
pharmaceutical industry, which over the past several years have
been adversely impacted by general economic conditions, industry
consolidation and increased competition. |
Many of our instrument products represent relatively large
capital expenditures by our customers. During the past several
years, many of our customers and potential customers,
particularly in the pharmaceutical industry, have reduced their
capital spending budgets because of generally adverse prevailing
economic conditions, consolidation in the industry, and
increased pressure on the profitability of pharmaceutical
companies, due in part to more competition from generic drugs.
If our customers and potential customers do not increase their
capital spending budgets, because of continuing adverse economic
conditions or further consolidation in the industry, we could
face weak demand for our products, in particular our products
used for high-throughput screening. If the demand for our
instrument products is weak because of constrained capital
spending by our pharmaceutical industry customers and potential
customers, we may not achieve our targets for revenue and cash
flow from operations.
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A significant portion of our business depends upon
collaborations with OEM business partners, and our financial
success depends upon our ability to develop new product concepts
with compelling value propositions to generate new OEM
collaboration relationships, as well as our ability to manage
our existing OEM relationships. |
Historically, an important part of our business strategy has
been to collaborate with OEM business partners in the
development of new applications for our microfluidic and liquid
handling products and the subsequent commercialization of the
developed products. The expenses associated with these product
development efforts are large, and the time to market for these
product development efforts is generally two or more years.
Accordingly, attracting an OEM collaboration partner to
undertake and underwrite a proposed product development effort
requires a compelling value proposition for the product proposed
to be developed.
38
Moreover, even if we are successful in initiating a new product
development effort with an OEM partner, these collaboration
arrangements can be difficult to manage, and technical problems
encountered in the development programs or disagreements with
our OEM business partners may adversely impact our ability to
complete development programs, and therefore to realize
increased product sales through these product development and
commercialization collaborations. There can be no assurance that
we will continue to be able to define compelling new products,
or to identify new collaboration partners or new applications
for our technologies to develop with our existing collaboration
partners. If we are unable to define new product opportunities
or to identify new collaboration partners or to agree on the
terms of a collaboration, or if we are unable to identify new
applications for our technologies to develop and commercialize
with an existing collaboration partner, our revenues could
decline and the growth of our business could be adversely
affected.
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Potential future acquisitions may have unexpected
consequences or impose additional costs on us. |
Our business is highly competitive and our growth is dependent
upon market growth and our ability to enhance our existing
products, introduce new products on a timely basis and offer
products to our customers that provide a more complete solution.
One of the ways we may address the need to develop new products
is through acquisitions of complementary businesses and
technologies, such as our acquisition of Zymark in July 2003.
From time to time, we consider and evaluate potential business
combinations both involving our acquisition of another company
and transactions involving the sale of Caliper through, among
other things, a possible merger or consolidation of our business
into that of another entity. Acquisitions involve numerous
risks, including the following:
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difficulties in integration of the operations, technologies, and
products of the acquired companies; |
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the risk of diverting management’s attention from normal
daily operations of the business; |
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potential cost and disruptions caused by the integration of
financial reporting systems and development of uniform
standards, controls, procedures and policies; |
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accounting consequences, including amortization of acquired
intangible assets or other required purchase accounting
adjustments, resulting in variability or reductions of our
reported earnings; |
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potential difficulties in completing projects associated with
purchased in-process research and development; |
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risks of entering markets in which we have no or limited direct
prior experience and where competitors in these markets have
stronger market positions; |
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the potential loss of key employees of Caliper or the acquired
company due to the employment uncertainties inherent in the
acquisition process; |
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the assumption of known and potentially unknown liabilities of
the acquired company; |
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the risk that we may find that the acquired company or business
does not further our business strategy or that we paid more than
what the company or business was worth; |
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our relationship with current and new employees and customers
could be impaired; |
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the acquisition may result in litigation from terminated
employees or third parties who believe a claim against us would
be valuable to pursue; |
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our due diligence process may fail to identify significant
issues with product quality, product architecture and legal
contingencies, among other matters; and |
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insufficient revenues to offset increased expenses associated
with acquisitions. |
Acquisitions may also cause us to:
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issue common stock that would dilute our current
stockholders’ percentage ownership; |
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record goodwill and non-amortizable intangible assets that will
be subject to impairment testing and potential periodic
impairment charges; |
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incur amortization expenses related to certain intangible
assets; or |
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incur other large and immediate write-offs. |
39
We cannot assure you that future acquisitions will be successful
and will not adversely affect our business. We must also
maintain our ability to manage any growth effectively. Failure
to manage growth effectively and successfully integrate
acquisitions we make could harm our business.
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We expect to incur future operating losses and may not
achieve profitability. |
We have experienced significant operating losses each year since
our inception and expect to incur substantial additional
operating losses in 2005. We may never achieve profitability. As
of December 31, 2004, we had an accumulated deficit of
approximately $166.6 million. Our losses have resulted
principally from costs incurred in research and development,
product marketing and from general and administrative costs
associated with our operations. These costs have exceeded our
interest income and revenue which, to date, have been generated
principally from product sales, collaborative research and
development agreements, technology access fees, cash and
investment balances.
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Our operating results fluctuate significantly and any failure
to meet financial expectations may disappoint securities
analysts or investors and result in a decline in our stock
price. |
Our quarterly operating results have fluctuated significantly in
the past, and we expect they will continue to fluctuate in the
future as a result of many factors, some of which are outside of
our control. For example, many of our products represent
relatively large capital expenditures for our customers, which
leads to variations in the amount of time it takes for us to
sell our products because customers may take several months or
longer to evaluate and obtain the necessary internal approvals
for the purchase of our products. In addition, a significant
portion of our revenues is derived from sales of relatively
high-priced products, and these sales are generally made by
purchase orders and not long-term contracts. Delays in receipt
of anticipated orders for higher-priced products could lead to
substantial variability of revenue from quarter to quarter.
Furthermore, we commonly receive purchase orders and ship a
significant portion of each quarter’s product orders near
the end of the quarter. If that pattern continues, even short
delays in the receipt of orders or shipment of products at the
end of a quarter could result in shipment during the next
quarter, which could have a material adverse effect on results
of operations for the quarter in which the shipment did not
occur. Our business is affected by capital spending patterns of
our customers with a greater percentage of purchases, and
therefore we typically experience higher revenues in the second
half of our fiscal year. There can be no assurance that this
trend will continue. For all of these and other reasons, it is
possible that in some future quarter or quarters, our operating
results will be below the expectations of securities analysts or
investors. In this event, the market price of our common stock
may fall abruptly and significantly. Because our revenue and
operating results are difficult to predict, we believe that
period-to-period comparisons of our results of operations are
not a reliable indication of our future performance.
If revenue declines in a quarter, whether due to a delay in
recognizing expected revenue or otherwise, our earnings will
decline because many of our expenses are relatively fixed. In
particular, research and development and general and
administrative expenses and amortization of deferred stock
compensation and intangible assets are not affected directly by
variations in revenue.
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We have limited experience in manufacturing our products and
may encounter manufacturing problems or delays, which could
result in lost revenue. |
Although Agilent manufactures the Agilent 2100 Bioanalyzer and
Bio-Rad manufactures the Experion instrument system, we
manufacture the chips used in these instruments and in the
Agilent 5100 instrument system. We also currently manufacture
instruments and sipper chips for our drug discovery systems. If
we fail to deliver chips and automated drug discovery products
in a timely manner, our relationships with our customers could
be seriously harmed, and revenue would decline. We currently
have one manufacturing location for LabChip products in Mountain
View, California, and one manufacturing location for instruments
and other products located in Hopkinton, Massachusetts. The
actual number of chips we are able to sell or use depends in
part upon the manufacturing yields for these chips. We have only
recently begun to manufacture significant numbers of sipper
chips and are continuing to develop our manufacturing procedures
for these chips. In order to offer sipper chips with four or
more capillaries for drug discovery applications, we will need
40
to continue to achieve consistently high yields in this process.
We have experienced difficulties in manufacturing both our chips
and instruments. We cannot assure you that manufacturing or
quality problems will not continue or arise as we attempt to
scale-up our production of chips or that we can scale-up
manufacturing in a timely manner or at commercially reasonable
costs. If we are unable to consistently manufacture sipper chips
or chips for the Agilent 2100 Bioanalyzer or the Bio-Rad
Experion instrument systems on a timely basis because of these
or other factors, our product sales will decline. We are
currently manufacturing drug discovery instruments in-house and
in limited volumes. If demand for our drug discovery instruments
increases significantly, we will either need to expand our
in-house manufacturing capabilities or outsource to other
manufacturers, which could result in a decrease in yields, and
therefore an increase in manufacturing costs and a decrease in
net income from sales.
Our ability to scale-up chip manufacturing may be compromised by
uncertainty regarding the volume of chips for the Agilent 2100
Bioanalyzer and the Bio-Rad Experion instrument systems that we
will need to supply to Agilent and Bio-Rad in the future. Due to
our termination of our exclusive collaboration with Agilent in
May 2003, Agilent now has the option to manufacture chips itself
rather than continue to receive its supply of chips from
Caliper. Accordingly, we face uncertainty regarding future
demand for these chips from our manufacturing operations.
|
|
|
Because Agilent and a small number of other customers have
accounted for, and may continue to account for, a substantial
portion of our revenue, our revenue could decline due to the
loss of one of these customers. |
Historically, we have had very few customers and one commercial
partner, Agilent, from which we have derived the majority of our
revenue, although our acquisition of Zymark in July 2003 greatly
expanded our customer base. During 2004, Agilent accounted for
approximately 11% of our total revenue. If we were to lose
Agilent as a customer for our chips, and one or more of our
other significant customers, our revenue could decrease
significantly.
|
|
|
Our revenue could decline due to the termination of our
agreement with Agilent because of a number of different factors,
including a reduction in our gross margin share of Agilent 2100
Bioanalyzer and LabChip products sold by Agilent or reduced
sales of such products by Agilent due to competition from us or
our other commercial partners. |
Due to our termination of the collaboration agreement with
Agilent, effective in May 2003, we are now operating under the
surviving provisions of that agreement. We will continue to
receive revenue from Agilent based on a formula for gross margin
sharing on sales by Agilent of instruments and chips developed
under our collaboration agreement, and we expect to continue to
receive revenue from Agilent based on our sale of sipper chips
to Agilent for its 5100 instrument system. Although we
anticipate that future sales of the Agilent 2100 Bioanalyzer
system will further expand our revenue base, under the surviving
provisions of our agreement with Agilent, our gross margin share
of collaboration products sold by Agilent declined at the end of
2004, and will decline again in May 2006. If sales of these
products do not increase fast enough to offset the decline in
our gross margin share, the amount of revenue we receive from
Agilent will decline.
In addition, under the surviving terms of our agreement with
Agilent, we granted to Agilent a non-exclusive, royalty-bearing
license to certain of our LabChip technologies existing as of
the termination date for Agilent to develop, make and sell
products in the field of the collaboration. Consequently, there
is the possibility that Agilent may manufacture its own supply
of LabChip products, rather than purchasing them from us, or
that we may experience competition from Agilent in the future,
which would reduce our ability to sell products independently or
through other commercial partners.
Now that our agreement with Agilent is terminated,
Agilent’s sales of collaboration products could be reduced
due to competition from us or our other commercial partners,
such as Bio-Rad. In such event, the revenue we would receive
from Agilent could be reduced by more than the revenue we
receive from other commercial partners. Further, Agilent may
decide for reasons wholly independent of competition to reduce
its sales efforts and/or pricing for these products. If Agilent
does so, our revenue may decline.
41
|
|
|
We depend on our key personnel, the loss of whom would impair
our ability to compete. |
We are highly dependent on the principal members of our
management team, especially our Chief Executive Officer, and
certain of our scientific staff. The loss of services of any of
these persons could seriously harm our product development and
commercialization efforts. In addition, research, product
development, and commercialization will require additional
skilled personnel in areas such as chemistry and biology,
software engineering and electronic engineering. Our principal
business locations in the United States are Silicon Valley,
California, and in the Boston metropolitan area, where demand
for personnel with these skills remains high, and may increase
further as the economic outlook in these areas improves. As a
result, competition for and retention of personnel, particularly
for employees with technical expertise, is intense and the
turnover rate for these people is high. If we are unable to
hire, train and retain a sufficient number of qualified
employees, our ability to conduct and expand our business could
be seriously reduced. The inability to retain and hire qualified
personnel could also hinder any planned expansion of our
business.
|
|
|
Our products could infringe on the intellectual property
rights of others, which may cause us to engage in costly
litigation and, if we are not successful, could also cause us to
pay substantial damages and prohibit us from selling our
products. |
Third parties may assert infringement or other intellectual
property claims against us. We may have to pay substantial
damages, including treble damages, for past infringement if it
is ultimately determined that our products infringe a third
party’s proprietary rights. Further, we may be prohibited
from selling our products before we obtain a license, which, if
available at all, may require us to pay substantial royalties.
Even if these claims are without merit, defending a lawsuit
takes significant time, may be expensive and may divert
management attention from other business concerns. We are aware
of third-party patents that may relate to our technology or
potential products. In addition, a third party has provoked an
interference action in the US Patent and Trademark Office with
respect to one issued U.S. patent that we have exclusively
licensed to determine the priority of the inventions covered by
that patent. Any public announcements related to litigation or
interference proceedings initiated or threatened against us
could cause our stock price to decline.
|
|
|
We may need to initiate lawsuits to protect or enforce our
patents, which would be expensive and, if we lose, may cause us
to lose some of our intellectual property rights, which would
reduce our ability to compete in the market. |
We rely on patents to protect a large part of our intellectual
property and our competitive position, especially in our
microfluidics business. In order to protect or enforce our
patent rights, we may initiate patent litigation against third
parties, such as the patent infringement suit against Molecular
Devices we settled in November 2003. These lawsuits could be
expensive, take significant time, and could divert
management’s attention from other business concerns. They
would put our patents at risk of being invalidated or
interpreted narrowly and our patent applications at risk of not
issuing. We may also provoke these third parties to assert
claims against us. Patent law relating to the scope of claims in
the technology fields in which we operate is still evolving and,
consequently, patent positions in our industry are generally
uncertain. We cannot assure you that we will prevail in any of
these suits or that the damages or other remedies awarded, if
any, will be commercially valuable. During the course of these
suits, there may be public announcements of the results of
hearings, motions and other interim proceedings or developments
in the litigation. If securities analysts or investors perceive
any of these results to be negative, it could cause our stock
price to decline.
|
|
|
The rights we rely upon to protect our intellectual property
underlying our products may not be adequate, which could enable
third parties to use our technology and would reduce our ability
to compete in the market. |
In addition to patents, we rely on a combination of trade
secrets, copyright and trademark laws, nondisclosure agreements
and other contractual provisions and technical measures to
protect our intellectual property rights. Nevertheless, these
measures may not be adequate to safeguard the technology
underlying our products. If they do not protect our rights,
third parties could use our technology, and our ability to
compete in the market would be reduced. In addition, employees,
consultants and others who participate in the
42
development of our products may breach their agreements with us
regarding our intellectual property, and we may not have
adequate remedies for the breach. We also may not be able to
effectively protect our intellectual property rights in some
foreign countries. For a variety of reasons, we may decide not
to file for patent, copyright or trademark protection outside of
the United States. We also realize that our trade secrets may
become known through other means not currently foreseen by us.
Notwithstanding our efforts to protect our intellectual
property, our competitors may independently develop similar or
alternative technologies or products that are equal or superior
to our technology and products without infringing on any of our
intellectual property rights or design around our proprietary
technologies.
|
|
|
We are dependent on a single-source supplier for the glass
used in our LabChip products and if we are unable to buy this
glass on a timely basis, we will not be able to deliver our
LabChip products to customers. |
We currently purchase a key component for our chips from a
single-source supplier located in Germany. Although we keep
surplus inventory in our Mountain View manufacturing facility,
if we are unable to replenish this component on a timely basis,
we will not be able to deliver our chips to our customers, which
would harm our business.
|
|
|
We obtain some of the components and subassemblies included
in our systems from a single source or a limited group of
suppliers, and the partial or complete loss of one of these
suppliers could cause production delays and a substantial loss
of revenue. |
We rely on outside vendors to manufacture many components and
subassemblies for our products. Certain components,
subassemblies and services necessary for the manufacture of our
products are provided by a sole supplier or limited group of
suppliers, some of which are our competitors. We currently
purchase additional components, such as optical, electronic, and
pneumatic devices, in configurations specific to our
requirements that, together with certain other components, such
as computers, are integrated into our products. We maintain only
a limited number of long-term supply agreements with our
suppliers.
Our reliance on a sole or a limited group of suppliers involves
several risks, including the following:
|
|
|
| |
• |
we may be unable to obtain an adequate supply of required
components; |
| |
| |
• |
we have reduced control over pricing and the timely delivery of
components and subassemblies; and |
| |
| |
• |
our suppliers may be unable to develop technologically advanced
products to support our growth and development of new systems. |
Because the manufacturing of certain of these components and
subassemblies involves complex processes and requires long lead
times, we may experience delays or shortages caused by
suppliers. We believe that alternative sources could be obtained
at the same prices and on substantially the same terms and
conditions, if necessary, for most sole and limited source
parts. However, if we were forced to seek alternative sources of
supply or to manufacture such components or subassemblies
internally, we might be forced to redesign our systems, which
could prevent us from shipping our systems to customers on a
timely basis. Some of our suppliers have relatively limited
financial and other resources, and, therefore, their businesses
could fail. Any inability to obtain sufficient quantities of
components and subassemblies, or any other circumstance that
would restrict our ability to ship our products, could damage
relationships with current and prospective customers and could
harm our business.
|
|
|
If a natural disaster strikes our manufacturing facility we
would be unable to manufacture our products for a substantial
amount of time and we would experience lost revenue. |
We rely on a single manufacturing location to produce our chips
and drug discovery systems, and a single location to produce
laboratory automation and robotics systems, with no alternative
facilities. These facilities and some pieces of manufacturing
equipment are difficult to replace and could require substantial
replacement lead-time. Our manufacturing facilities may be
affected by natural disasters such as earthquakes and floods.
Earthquakes are of particular significance because our LabChip
product manufacturing facility is located in
43
Mountain View, California, an earthquake-prone area. In the
event that our existing manufacturing facilities or equipment is
affected by man-made or natural disasters, we would be unable to
manufacture products for sale, meet customer demands or sales
projections. If our manufacturing operations were curtailed or
ceased, it would harm our business.
|
|
|
Failure to raise additional capital or generate the
significant capital necessary to expand our operations and
invest in new products could reduce our ability to compete and
result in lower revenue. |
We anticipate that our existing capital resources, together with
the revenue to be derived from our commercial partners and from
commercial sales of our microfluidic and lab automation products
and services, will enable us to maintain currently planned
operations at least through the year 2006. However, we premise
this expectation on our current operating plan, which may change
as a result of many factors, including our acquisition of
another company or business. Consequently, we may need
additional funding sooner than anticipated. Our inability to
raise needed capital would seriously harm our business and
product development efforts. In addition, we may choose to raise
additional capital due to market conditions or strategic
considerations even if we believe we have sufficient funds for
our current or future operating plans. To the extent that
additional capital is raised through the sale of equity or
convertible debt securities, the issuance of these securities
could result in dilution to our stockholders.
We currently have no credit facility or committed sources of
capital. To the extent operating and capital resources are
insufficient to meet future requirements, we will have to raise
additional funds to continue the development and
commercialization of our technologies. These funds may not be
available on favorable terms, or at all. If adequate funds are
not available on attractive terms, we may be required to curtail
operations significantly or to obtain funds by entering into
financing, supply or collaboration agreements on unattractive
terms.
|
|
|
Our tax net operating losses and credit carryforwards may
expire if we do not achieve or maintain profitability. |
As of December 31, 2004, Caliper had federal and state net
operating loss carryforwards of approximately $132 million
and $47 million, respectively. Caliper also had federal and
state research and development tax credit carryforwards of
approximately $4.1 million and $2.8 million,
respectively. The federal net operating loss and credit
carryforwards will expire at various dates through 2024
beginning in the year 2009 if not utilized. State net operating
losses of approximately $750,000 expired in 2004. The current
remaining state net operating losses have varying expiration
dates through 2013.
Utilization of the federal and state net operating losses and
credits may be subject to a substantial limitation due to the
change in ownership provisions of the Internal Revenue Code of
1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits
before utilization.
Because of our lack of earnings history and the uncertainty of
realizing these net operating losses, the deferred tax assets
have been fully offset by a valuation allowance.
Risks Related to Owning Our Common Stock
|
|
|
Our stock price is extremely volatile, and you could lose a
substantial portion of your investment. |
Our stock has been trading on the Nasdaq National Market only
since mid-December 1999. We initially offered our common stock
to the public at $16.00 per share. Since then our stock
price has been extremely volatile and has ranged, through
March 10, 2005 from a high of approximately
$202.00 per share on March 2, 2000 to a low of
$2.71 per share both on January 28, 2003 and
February 6, 2003. Our stock price may drop
44
substantially following an investment in our common stock. We
expect that our stock price will remain volatile as a result of
a number of factors, including:
|
|
|
| |
• |
announcements by analysts regarding their assessment of Caliper
and its prospects; |
| |
| |
• |
announcements by our competitors of complementary or competing
products and technologies; |
| |
| |
• |
announcements of our financial results, particularly if they
differ from investors’ expectations; and |
| |
| |
• |
general market volatility for technology stocks. |
These factors and fluctuations, as well as general economic,
political and market conditions, may materially adversely affect
the market price of our common stock.
|
|
|
We have been sued, and are at risk of future securities class
action litigation. |
In the Spring and Summer of 2001, class action lawsuits were
filed against certain leading investment banks and over
300 companies that did public offerings during the prior
several years, including lawsuits against Caliper and certain of
its officers and directors as described under
“Part I — Item 3. Legal
Proceedings.” This and other securities litigation could
result in potential liability, cause us to incur litigation
costs and divert management’s attention and resources, any
of which could harm our business. In addition, announcements of
future lawsuits of this or some other nature, and announcements
of events occurring during the course of the current and any
future lawsuits, could cause our stock price to drop.
|
|
|
Provisions of our charter documents and Delaware law may
inhibit a takeover, which could limit the price investors might
be willing to pay in the future for our common stock. |
Provisions in our certificate of incorporation and bylaws may
have the effect of delaying or preventing an acquisition in
which we are not the surviving company or changes in our
management. In addition, because we are incorporated in
Delaware, we are governed by the provisions of Section 203
of the Delaware General Corporation Law. These provisions may
prohibit stockholders owning 15% or more of the outstanding
voting stock, from consummating a merger or combination
including us. These provisions could limit the price that
investors might be willing to pay in the future for our common
stock.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
Foreign Currency
As a multinational company, we are subject to changes in foreign
currency fluctuations. We have operations in the United Kingdom,
France, Germany, Belgium, Switzerland, Canada and Japan. To the
extent our sales and operating expenses are denominated in
foreign currencies, our operating results may be adversely
impacted by changes in exchange rates. While foreign exchange
gains and losses have historically been immaterial, we cannot
predict whether such gains and losses will continue to be
immaterial, especially as our sales grow outside the United
States. We cannot predict whether changes in exchange rates or
whether foreign exchange gains and losses will have a material
impact on our income. During 2004, sales to customers outside
the United States accounted for approximately 37% of our total
revenues, of which 67% were sales denominated in foreign
currencies.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio. Fixed rate
securities may have their fair market value adversely impacted
due to fluctuations in interest rates, while floating rate
securities 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 due to changes in interest
rates or we may suffer losses in principal if forced to sell
securities that have declined in market value due to changes in
interest rates.
45
The potential change in fair value for interest rate sensitive
instruments has been assessed on a hypothetical 100 basis
point adverse movement across all maturities. We estimate that
such hypothetical adverse 100 basis point movement would
not have materially impacted net income or materially affected
the fair value of interest rate sensitive instruments at either
December 31, 2004 or 2003.
Our equipment sale-leaseback financings, amounting to $301,000
as of December 31, 2004, and $1.9 million at
December 31, 2003, were all at fixed rates and, therefore,
have minimal exposure to changes in interest rates.
Our primary investment objective is to preserve principal while
at the same time maximizing yields without significantly
increasing risk. Our portfolio includes money markets funds,
commercial paper, medium-term notes, corporate notes, government
securities, asset-backed securities, and corporate bonds. The
diversity of our portfolio helps us to achieve our investment
objective. As of December 31, 2004 and 2003, the average
remaining maturity of our investment portfolio was approximately
1 year. All of our instruments are held other than for
trading purposes.
The following table presents by year of maturity the amounts of
our cash equivalents and investments, and related weighted
average interest rates, that may be subject to interest rate
risk as of December 31, 2004 (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Fair Value | |
| |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
Total | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and money market funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed rate
|
|
$ |
10,403 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
10,403 |
|
|
$ |
10,403 |
|
| |
|
Average interest rate
|
|
|
0.03 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0 .03 |
% |
|
|
|
|
|
Available for sale marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed rate
|
|
$ |
17,006 |
|
|
$ |
21,742 |
|
|
|
— |
|
|
$ |
1,261 |
|
|
$ |
40,009 |
|
|
$ |
39,834 |
|
| |
|
Average interest rate
|
|
|
3.70 |
% |
|
|
3.37 |
% |
|
|
— |
|
|
|
4.16 |
% |
|
|
3.53 |
% |
|
|
|
|
| |
Variable rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$ |
27,409 |
|
|
$ |
21,742 |
|
|
|
— |
|
|
$ |
1,261 |
|
|
$ |
50,412 |
|
|
$ |
50,237 |
|
| |
|
Average interest rate
|
|
|
2.31 |
% |
|
|
3.37 |
% |
|
|
— |
|
|
|
4.16 |
% |
|
|
2.81 |
% |
|
|
|
|
This differs from our position at December 31, 2003, which
the following table presents (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Fair Value | |
| |
|
|
|
|
|
|
|
|
|
December 31, | |
| |
|
2004 | |
|
2005 | |
|
2006 | |
|
Total | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and money market funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed rate
|
|
$ |
9,168 |
|
|
|
— |
|
|
|
— |
|
|
$ |
9,168 |
|
|
$ |
9,168 |
|
| |
|
Average interest rate
|
|
|
0.07 |
% |
|
|
— |
|
|
|
— |
|
|
|
0.07 |
% |
|
|
|
|
|
Available for sale marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed rate
|
|
$ |
12,391 |
|
|
$ |
28,723 |
|
|
$ |
11,268 |
|
|
$ |
52,382 |
|
|
$ |
52,710 |
|
| |
|
Average interest rate
|
|
|
5.23 |
% |
|
|
4.07 |
% |
|
|
2.75 |
% |
|
|
4.05 |
% |
|
|
|
|
| |
Variable rate
|
|
$ |
3,253 |
|
|
$ |
1,853 |
|
|
|
— |
|
|
$ |
5,106 |
|
|
$ |
5,118 |
|
| |
|
Average interest rate
|
|
|
1.45 |
% |
|
|
1.36 |
% |
|
|
— |
|
|
|
1.42 |
% |
|
|
|
|
|
Total securities
|
|
$ |
24,812 |
|
|
$ |
30,576 |
|
|
$ |
11,268 |
|
|
$ |
66,656 |
|
|
$ |
66,996 |
|
| |
|
Average interest rate
|
|
|
2.85 |
% |
|
|
3.90 |
% |
|
|
2.75 |
% |
|
|
3.30 |
% |
|
|
|
|
46
|
|
| Item 8. |
Financial Statements and Supplementary Data |
The Report of Independent Registered Public Accounting Firm,
Consolidated Financial Statements and Notes to Consolidated
Financial Statements begin on page F-1 immediately following the
signature page and certifications in this report and are
incorporated here by reference, including the unaudited
quarterly information for the last two years in Note 19.
|
|
| 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. We
have established disclosure controls and procedures that are
designed to provide reasonable assurance that information
required to be disclosed in our reports filed under the
Securities Exchange Act of 1934, such as this Annual Report on
Form 10-K, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission’s (“SEC”) rules and forms. Disclosure
controls are also designed to provide reasonable assurance that
such information is accumulated and communicated to our
management, including the chief executive officer and chief
financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Based on their evaluation as of December 31, 2004, the
chief executive officer and the chief financial officer have
concluded that our disclosure controls and procedures are
effective to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC
rules and forms.
Limitations on the Effectiveness of Disclosure Controls and
Procedures. Our management, including our chief executive
officer and principal financial officer, does not expect that
our disclosure controls and procedures will prevent all error
and all fraud. A control system can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within Caliper
have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by
management override of the control. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error fraud may occur and not be detected.
Changes in internal controls. In fiscal 2004, we
initiated the implementation of a new Enterprise Resource
Planning System (Oracle). During July 2004, we implemented the
order management, fixed assets and general ledger system modules
of the new system, which involved changes in systems that
included internal controls, and accordingly, the need for us to
make changes to our system of internal controls. We have
reviewed the systems implemented to date and the controls
affected by the implementation of the new systems and made
appropriate changes to affected internal controls. We believe
that the controls as modified are appropriate and functioning
effectively.
Management’s report on internal control over financial
reporting. Our management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term in defined in Exchange Act
Rules 13a-15(f), for Caliper. As part of that process, as
of December 31, 2004, the end of the fiscal year covered by
this report, under the supervision and with the participation of
our management, including our principal executive officer and
principal financial officer, we carried out an evaluation of the
effectiveness of Caliper’s internal control over financial
reporting. The evaluation was conducted following the Committee
of Sponsoring Organizations of the Treadway Commission
(COSO) Internal Control — Inte-
47
grated Framework (1992). The evaluation did not identify any
material weaknesses in our internal control over financial
reporting and our management concluded that our internal control
over financial reporting was effective as of December 31,
2004. The registered public accounting firm that audited our
financial statements contained in this annual report has issued
an attestation report on management’s assessment of our
internal control over financial reporting.
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Caliper Life Sciences, Inc.:
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting, that Caliper Life Sciences, Inc. maintained
effective internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Caliper Life Sciences, Inc.’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the
company’s internal control over financial reporting based
on our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Caliper Life
Sciences, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Caliper Life Sciences, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Caliper Life Sciences, 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 of Caliper Life Sciences, Inc. and our
report dated March 4, 2005 expressed an unqualified opinion
thereon.
Boston, Massachusetts
March 4, 2005
49
|
|
| Item 9B. |
Other Information |
None.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
Information concerning our directors is set forth in the section
entitled “Proposal 1 — Election of
Directors” contained in our definitive Proxy Statement with
respect to our 2005 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission not later than
April 30, 2005 (the “Proxy Statement”) and
incorporated by reference here. Information concerning our
Executive Officers is set forth under “Executive Officers
of the Registrant” in Part I of this Annual Report on
Form 10-K and is incorporated by reference here.
Information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 is set forth under the section
entitled “Section 16(a) Beneficial Ownership Reporting
Compliance” contained in our Proxy Statement and is
incorporated herein by reference.
Caliper has adopted a Code of Business Conduct and Ethics that
applies to all officers, directors and employees. The Code
of Business Conduct and Ethics is available for free on our
website at www.caliperLS.com under “Investor
Relations.” If Caliper makes any substantive amendments to
the Code of Business Conduct and Ethics or grants any waiver
from a provision of the Code to any executive officer or
director, Caliper will promptly disclose the nature of the
amendment or waiver on its website.
|
|
| Item 11. |
Executive Compensation |
Information concerning director and executive compensation
required by this Item 11 is set forth in the sections
entitled “Compensation of Directors,”
“Compensation of Executive Officers,”
“Compensation Committee Interlocks and Insider
Participation” contained in our Proxy Statement and
incorporated by reference here.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information concerning security ownership of certain beneficial
owners and management required by this Item 12 is set forth
in the section entitled “Security Ownership of Certain
Beneficial Owners and Management” contained in our Proxy
Statement and incorporated by reference here.
Information concerning securities authorized for issuance under
equity compensation plans required by this Item 12 is set
forth in the table entitled “Equity Compensation Plan
Information” and information thereunder contained in our
Proxy Statement and incorporated by reference here.
|
|
| Item 13. |
Certain Relationships and Related Transactions |
Information concerning certain relationships and related
transactions required by this Item 13 is set forth in the
section entitled “Certain Relationships and Related
Transactions” contained in our Proxy Statement and
incorporated by reference here.
|
|
| Item 14. |
Principal Accountant Fees and Services |
Information concerning principal accountant fees and services
required by this Item 14 is set forth in the section
entitled “Proposal 2 — Ratification Of
Selection Of Independent Registered Public Accounting Firm”
contained in our Proxy Statement and incorporated by reference
here.
50
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a) The following documents are filed as a part of this
Annual Report:
|
|
| |
(1) Financial Statements: |
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
|
|
|
F-2 |
|
|
Consolidated Balance Sheets at December 31, 2004 and 2003
|
|
|
F-3 |
|
|
Consolidated Statements of Operations — For the Years
ended December 31, 2004, 2003 and 2002
|
|
|
F-4 |
|
|
Consolidated Statement of Stockholders’ Equity —
For the Years ended December 31, 2004, 2003 and 2002
|
|
|
F-5 |
|
|
Consolidated Statements of Cash Flows — For the Years
ended December 31, 2004, 2003 and 2002
|
|
|
F-6 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7 |
|
|
|
| |
(2) Financial Statement Schedules: |
Schedule II, “Valuation and Qualifying Accounts”
is included on page F-37 of this report. All other
schedules are omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description of Document |
| |
|
|
| |
2 |
.1(17) |
|
Stock Purchase Agreement, by and among Caliper, Berwind
Corporation and The Berwind Company LLC, dated June 9, 2003. |
| |
2 |
.2(17) |
|
Amendment No. 1 to the Stock Purchase Agreement, by and
among Caliper, Berwind Corporation and The Berwind Company LLC,
dated July 10, 2003. |
| |
2 |
.3(20) |
|
Amendment No. 2 to the Stock Purchase Agreement, by and
among Caliper, Berwind Corporation and The Berwind Company LLC,
dated April 1, 2004. |
| |
3 |
.1(20) |
|
Amended and Restated Certificate of Incorporation of Caliper. |
| |
3 |
.2(9) |
|
Certificate of Designation Of Series A Junior Participating
Preferred Stock. |
| |
3 |
.3(1) |
|
Restated Bylaws of Caliper. |
| |
3 |
.4(18) |
|
Amendment No. 1 to Bylaws of Caliper. |
| |
4 |
.1 |
|
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4. |
| |
4 |
.2 |
|
Specimen Stock Certificate. |
| |
4 |
.3(9) |
|
Rights Agreement, dated as of December 18, 2001, between
Caliper and Wells Fargo Bank Minnesota, N.A., as Rights Agent. |
| |
10 |
.1(2) |
|
Lease Agreement, dated December 1, 1998, between Caliper
and 605 East Fairchild Associates, L.P. |
| |
10 |
.2(2)(3) |
|
1996 Equity Incentive Plan. |
| |
10 |
.3(2)(3) |
|
1999 Equity Incentive Plan. |
| |
10 |
.4(2)(3) |
|
1999 Employee Stock Purchase Plan. |
| |
10 |
.5(2)(3) |
|
1999 Non-Employee Directors’ Stock Option Plan. |
| |
10 |
.6(3) |
|
Form of Grant Agreement for 1999 Equity Incentive
Plan — Option Awards. |
| |
10 |
.7(3) |
|
Form of Grant Agreement for 1999 Equity Incentive
Plan — Restricted Stock Unit Awards. |
| |
10 |
.8(3) |
|
Form of Grant Agreement for 1999 Non-Employee Directors’
Stock Option Plan. |
| |
10 |
.9(2)(3) |
|
Form of Indemnification Agreement entered into between Caliper
and its directors and executive officers. |
| |
10 |
.10(2)(4) |
|
Collaboration Agreement, dated May 2, 1998, between Caliper
and Hewlett-Packard Company (now Agilent Technologies, Inc.). |
51
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description of Document |
| | |
|
|
| |
10 |
.11(3) |
|
Form of Stock Option Grant Agreement for Acquisition Equity
Incentive Plan. |
| |
10 |
.12(3) |
|
Form of Stock Award Agreement for Acquisition Equity Incentive
Plan (pro rata vesting). |
| |
10 |
.13(3) |
|
Form of Stock Award Agreement for Acquisition Equity Incentive
Plan (5 year cliff vesting). |
| |
10 |
.17(3) |
|
Non-Employee Directors’ Cash Compensation Plan. |
| |
10 |
.18(3)(12) |
|
Caliper Performance Bonus Plan. |
| |
10 |
.19(3) |
|
Employment Offer Letter dated November 30, 2004 between
Caliper and Mr. Thomas T. Higgins. |
| |
10 |
.20(3)(12) |
|
Summary Cash Compensation Sheet. |
| |
10 |
.23(2)(3) |
|
The Corporate Plan for Retirement Select Plan Adoption Agreement
and related Basic Plan Document. |
| |
10 |
.27(6) |
|
Lease Agreement, dated June 23, 2000 and effective
July 5, 2000, between Caliper and Martin CBP Associates,
L.P. |
| |
10 |
.28(3)(6) |
|
Amended Promissory Note, dated July 17, 2000, between
Caliper and Dr. Daniel L. Kisner. |
| |
10 |
.29(3) |
|
Key Employee Change of Control and Severance Benefit Plan. |
| |
10 |
.30(5)(9) |
|
Cross-License Agreement, dated March 12, 2001 between
Aclara Biosciences, Inc. and Caliper. |
| |
10 |
.32(4)(7) |
|
Settlement Agreement and Mutual General Release, dated
March 12, 2001 between Aclara Biosciences, Inc. and Caliper. |
| |
10 |
.33(4)(8) |
|
LabChip Solutions Agreement, dated September 21, 2001,
between Amphora Discovery Corp. and Caliper. |
| |
10 |
.39(3)(10) |
|
2001 Non-Statutory Stock Option Plan. |
| |
10 |
.46(3) |
|
Form of Grant Agreement for 2001 Non-Statutory Stock Option Plan. |
| |
10 |
.48(3)(11) |
|
Key Employee Agreement, dated July 1, 2002, between Caliper
and Dr. Daniel Kisner. |
| |
10 |
.52(4)(18) |
|
Sole Commercial Patent License Agreement, effective
September 1, 1995, between UT-Battelle, LLC, the successor
to Lockheed Martin Energy Research Corporation, and Caliper, as
amended on November 1, 2002. |
| |
10 |
.53(4)(18) |
|
Modification of LabChip Solutions Agreement, dated
December 12, 2002, between Amphora Discovery Corp. and
Caliper. |
| |
10 |
.55(4)(14) |
|
Collaboration Agreement, dated June 4, 2003, between
Caliper and Bio-Rad Laboratories, Inc. |
| |
10 |
.56(3)(15) |
|
Key Employee Agreement, dated July 14, 2003, between
Caliper and E. Kevin Hrusovsky. |
| |
10 |
.61(15) |
|
Letter Agreement, dated September 17, 2003, between Caliper
and Berwind Company LLC regarding the appointment of a Berwind
nominee to the Caliper Board of Directors. |
| |
10 |
.62(3)(16) |
|
Acquisition Equity Incentive Plan. |
| |
10 |
.63(3)(19) |
|
Key Employee Agreement Amendment, dated December 24, 2003,
between Caliper and Dr. Daniel L. Kisner. |
| |
10 |
.64(3)(19) |
|
Consulting Agreement, dated January 1, 2004, between
Caliper and Dr. David V. Milligan. |
| |
10 |
.66(4)(19) |
|
Collaboration and Supply Agreement, dated January 9, 2004,
among Caliper, Zymark Corporation and Affymetrix, Inc. |
| |
10 |
.69(4)(19) |
|
Letter Amendment to Modification Agreement, dated
December 22, 2003, between Caliper and Amphora Discovery
Corp. |
| |
11 |
.1 |
|
Subsidiaries of the Registrant. |
| |
23 |
.1 |
|
Consent of Ernst & Young LLP, independent registered
public accounting firm. |
| |
24 |
.1 |
|
Power of Attorney (reference is made to the signature page of
this report). |
| |
31 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
52
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description of Document |
| | |
|
|
| |
31 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
32 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
| |
32 |
.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
| |
(1) |
Previously filed as Exhibit 3.4 to our Registration
Statement on Form S-1, as amended, File No. 333-88827,
filed on October 12, 1999 and incorporated by reference
herein. |
| |
| |
(2) |
Previously filed as the like-numbered Exhibit to our
Registration Statement on Form S-1, as amended, File
No. 333-88827, filed on October 12, 1999 and
incorporated by reference herein. |
| |
| |
(3) |
Management contract or compensatory plan or arrangement. |
| |
| |
(4) |
Confidential treatment has been granted for a portion of this
exhibit. |
| |
| |
(5) |
Filed as the like-numbered exhibit to Annual Report of
Form 10-K for the year ended December 31, 1999 and
incorporated by reference herein. |
| |
| |
(6) |
Previously filed as the like-numbered Exhibit to our
Registration Statement on Form S-1, as amended, File
No. 333-45942, filed on September 15, 2000, and
incorporated by reference herein. |
| |
| |
(7) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended March 31, 2001 and
incorporated by reference herein. |
| |
| |
(8) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended September 30, 2001 and
incorporated by reference herein. |
| |
| |
(9) |
Previously filed as Exhibit 99.1 to Current Report on
Form 8-K filed December 19, 2001 and incorporated by
reference herein. |
|
|
| (10) |
Previously filed as Exhibit 99.1 to our Registration
Statement on Form S-8, File No. 333-76636, filed
January 11, 2002 and incorporated by reference herein. |
| |
| (11) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended September 30, 2002 and
incorporated by reference herein. |
| |
| (12) |
Previously filed as the like-numbered Exhibit to Current Report
on Form 8-K filed March 16, 2005 and incorporated by
reference herein. |
| |
| (13) |
Confidential treatment has been requested for a portion of this
exhibit. |
| |
| (14) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended June 30, 2003 and
incorporated by reference herein. |
| |
| (15) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended September 30, 2003 and
incorporated by reference herein. |
| |
| (16) |
Previously filed as Exhibit 99.1 to our Registration
Statement on Form S-8, File No. 333-106946, filed
June 10, 2003 and incorporated by reference herein. |
| |
| (17) |
Previously filed as the like-numbered Exhibit to Form 8-K
filed July 25, 2003 and incorporated by reference herein. |
| |
| (18) |
Previously filed as the like-numbered Exhibit to Form 10-K
for the year ended December 31, 2002 and incorporated by
reference herein. |
| |
| (19) |
Previously filed as the like-numbered Exhibit to Form 10-K
for the year ended December 31, 2003 and incorporated by
reference herein. |
| |
| (20) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended March 31, 2004 and
incorporated by reference herein. |
53
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.
|
|
| |
Caliper Life Sciences, Inc.
|
|
|
|
| |
By: |
/s/ E. Kevin Hrusovsky
|
|
|
| |
|
| |
E. Kevin Hrusovsky |
| |
Chief Executive Officer |
Date: March 16, 2004
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose
signature appears below constitutes and appoints E. Kevin
Hrusovsky and Thomas T. Higgins, and each or any one of them,
his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Report,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully 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.
| |
|
|
|
|
|
|
| Signatures |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ E. Kevin Hrusovsky
E.
Kevin Hrusovsky |
|
Chief Executive Officer, President, and Director
(principal executive officer) |
|
March 16, 2005 |
| |
/s/ Thomas T. Higgins
Thomas
T. Higgins |
|
Chief Financial Officer
(principal financial officer) |
|
March 16, 2005 |
| |
/s/ Peter F. McAree
Peter
F. McAree |
|
Vice President, Finance
(principal accounting officer) |
|
March 16, 2005 |
| |
/s/ Daniel L.
Kisner, M.D.
Daniel
L. Kisner, M.D. |
|
Chairman of the Board of Directors |
|
March 16, 2005 |
| |
/s/ David V.
Milligan, Ph.D.
David
V. Milligan, Ph.D. |
|
Vice Chairman of the Board of
Directors |
|
March 16, 2005 |
| |
/s/ Van Billet
Van
Billet |
|
Director |
|
March 16, 2005 |
| |
/s/ Robert C.
Bishop, Ph.D.
Robert
C. Bishop, Ph.D. |
|
Director |
|
March 16, 2005 |
54
| |
|
|
|
|
|
|
| Signatures |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Edgar J. Cummins
Edgar
J. Cummins |
|
Director |
|
March 16, 2005 |
| |
/s/ Kathryn Tunstall
Kathryn
Tunstall |
|
Director |
|
March 16, 2005 |
55
CALIPER LIFE SCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
|
|
|
|
|
F-7 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Caliper Life
Sciences, Inc.
We have audited the accompanying consolidated balance sheets of
Caliper Life Sciences, Inc. as of December 31, 2004 and
2003, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2004. Our audits
also included 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 schedules 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as 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 Caliper Life Sciences, Inc. at
December 31, 2004 and 2003, and the consolidated results of
their operations and their 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 schedules, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Caliper Life Science’s internal control
over financial reporting as of December 31, 2004 based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 4, 2005
expressed an unqualified opinion thereon.
Boston, Massachusetts
March 4, 2005
F-2
CALIPER LIFE SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, except | |
| |
|
share and per share data) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents, including restricted cash of $962 and
$279, respectively
|
|
$ |
10,403 |
|
|
$ |
9,168 |
|
| |
Marketable securities
|
|
|
39,834 |
|
|
|
57,828 |
|
| |
Accounts receivable, net of allowance for doubtful accounts of
$475 and $252, respectively
|
|
|
17,040 |
|
|
|
9,700 |
|
| |
Inventories
|
|
|
9,828 |
|
|
|
11,580 |
|
| |
Note receivable from officer
|
|
|
146 |
|
|
|
— |
|
| |
Prepaid expenses and other current assets
|
|
|
1,992 |
|
|
|
3,451 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
79,243 |
|
|
|
91,727 |
|
|
Restricted cash
|
|
|
2,151 |
|
|
|
3,102 |
|
|
Property and equipment, net
|
|
|
6,186 |
|
|
|
9,106 |
|
|
Note receivable from officer
|
|
|
— |
|
|
|
178 |
|
|
Goodwill and intangibles, net
|
|
|
59,960 |
|
|
|
63,890 |
|
|
Other assets
|
|
|
407 |
|
|
|
227 |
|
| |
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
147,947 |
|
|
$ |
168,230 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
3,164 |
|
|
$ |
3,212 |
|
| |
Accrued compensation
|
|
|
6,348 |
|
|
|
4,148 |
|
| |
Other accrued liabilities
|
|
|
5,841 |
|
|
|
4,759 |
|
| |
Deferred revenue and customer deposits
|
|
|
7,769 |
|
|
|
7,203 |
|
| |
Current portion of accrued restructuring
|
|
|
3,177 |
|
|
|
3,930 |
|
| |
Current portion of long-term obligations
|
|
|
409 |
|
|
|
377 |
|
| |
Current portion of sale-leaseback arrangements
|
|
|
301 |
|
|
|
1,521 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
27,009 |
|
|
|
25,150 |
|
|
Long-term portion of sale-leaseback arrangements
|
|
|
— |
|
|
|
331 |
|
|
Noncurrent portion of accrued restructuring
|
|
|
8,428 |
|
|
|
5,972 |
|
|
Other noncurrent liabilities
|
|
|
931 |
|
|
|
1,980 |
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding
|
|
|
— |
|
|
|
— |
|
| |
Common stock, $0.001 par value; 70,000,000 shares
authorized; 30,360,288 and 28,382,043 shares issued and
outstanding in 2004 and 2003, respectively
|
|
|
30 |
|
|
|
28 |
|
| |
Additional paid-in capital
|
|
|
280,709 |
|
|
|
271,232 |
|
| |
Deferred stock compensation
|
|
|
(2,666 |
) |
|
|
(1,808 |
) |
| |
Accumulated deficit
|
|
|
(166,649 |
) |
|
|
(135,093 |
) |
| |
Accumulated other comprehensive income
|
|
|
155 |
|
|
|
438 |
|
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
111,579 |
|
|
|
134,797 |
|
| |
|
|
|
|
|
|
| |
|
|
Total liabilities and stockholders’ equity
|
|
$ |
147,947 |
|
|
$ |
168,230 |
|
| |
|
|
|
|
|
|
See accompanying notes.
F-3
CALIPER LIFE SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product revenue
|
|
$ |
57,808 |
|
|
$ |
31,916 |
|
|
$ |
15,644 |
|
| |
Service revenue
|
|
|
13,448 |
|
|
|
5,879 |
|
|
|
37 |
|
| |
License fees and contract revenue
|
|
|
8,871 |
|
|
|
11,616 |
|
|
|
10,152 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total revenue
|
|
|
80,127 |
|
|
|
49,411 |
|
|
|
25,833 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of product revenue
|
|
|
38,350 |
|
|
|
23,494 |
|
|
|
10,927 |
|
| |
Cost of service revenue
|
|
|
6,673 |
|
|
|
2,486 |
|
|
|
— |
|
| |
Research and development
|
|
|
22,728 |
|
|
|
33,691 |
|
|
|
43,317 |
|
| |
Selling, general and administrative
|
|
|
32,325 |
|
|
|
27,292 |
|
|
|
17,534 |
|
| |
Employee stock compensation, net(1)
|
|
|
2,770 |
|
|
|
1,000 |
|
|
|
378 |
|
| |
Amortization of intangible assets
|
|
|
3,805 |
|
|
|
2,756 |
|
|
|
— |
|
| |
Restructuring charges
|
|
|
5,774 |
|
|
|
11,535 |
|
|
|
314 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total costs and expenses
|
|
|
112,425 |
|
|
|
102,254 |
|
|
|
72,470 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(32,298 |
) |
|
|
(52,843 |
) |
|
|
(46,637 |
) |
| |
|
Interest income
|
|
|
1,012 |
|
|
|
2,639 |
|
|
|
6,246 |
|
| |
|
Interest expense
|
|
|
(410 |
) |
|
|
(412 |
) |
|
|
(1,893 |
) |
| |
|
Other income, net
|
|
|
517 |
|
|
|
1,279 |
|
|
|
1,320 |
|
| |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(31,179 |
) |
|
|
(49,337 |
) |
|
|
(40,964 |
) |
|
Provision for income taxes
|
|
|
(377 |
) |
|
|
(190 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(31,556 |
) |
|
$ |
(49,527 |
) |
|
$ |
(40,964 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$ |
(1.08 |
) |
|
$ |
(1.88 |
) |
|
$ |
(1.68 |
) |
|
Shares used in computing net loss per common share, basic and
diluted
|
|
|
29,273 |
|
|
|
26,396 |
|
|
|
24,403 |
|
|
|
| (1) |
Includes employee stock compensation, net, related to employees
classified within expenses as follows: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$ |
208 |
|
|
$ |
56 |
|
|
$ |
— |
|
|
Research and development
|
|
|
515 |
|
|
|
384 |
|
|
|
(315 |
) |
|
Selling, general and administrative
|
|
|
2,047 |
|
|
|
560 |
|
|
|
693 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
2,770 |
|
|
$ |
1,000 |
|
|
$ |
378 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
CALIPER LIFE SCIENCES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stockholders’ Equity | |
| |
|
| |
| |
|
|
|
|
|
Accumulated | |
|
|
| |
|
Common Stock | |
|
Additional | |
|
Deferred | |
|
|
|
Other | |
|
Total | |
| |
|
| |
|
Paid-In | |
|
Stock | |
|
Accumulated | |
|
Comprehensive | |
|
Stockholders’ | |
| |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Deficit | |
|
Income/(Loss) | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except shares) | |
|
Balances at December 31, 2001
|
|
|
24,200,097 |
|
|
$ |
24 |
|
|
$ |
251,357 |
|
|
$ |
(2,232 |
) |
|
$ |
(44,602 |
) |
|
$ |
2,017 |
|
|
$ |
206,564 |
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(40,964 |
) |
|
|
— |
|
|
|
(40,964 |
) |
| |
Change in unrealized gain on available-or-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(500 |
) |
|
|
(500 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(41,464 |
) |
| |
Issuance of common stock upon exercise of stock options and in
connection with the employee stock purchase plan
|
|
|
494,354 |
|
|
|
1 |
|
|
|
1,627 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,628 |
|
| |
Amortization and reversals of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
(1,217 |
) |
|
|
1,595 |
|
|
|
— |
|
|
|
— |
|
|
|
378 |
|
| |
Stock options issued to non-employees
|
|
|
— |
|
|
|
— |
|
|
|
452 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
452 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
24,694,451 |
|
|
|
25 |
|
|
|
252,219 |
|
|
|
(637 |
) |
|
|
(85,566 |
) |
|
|
1,517 |
|
|
|
167,558 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(49,527 |
) |
|
|
— |
|
|
|
(49,527 |
) |
| |
Foreign currency translation gain/loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
98 |
|
|
|
98 |
|
| |
Change in unrealized gain on available-for-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,177 |
) |
|
|
(1,177 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(50,606 |
) |
| |
Issuance of common stock upon exercise of stock options and in
connection with the employee stock purchase plan
|
|
|
537,592 |
|
|
|
— |
|
|
|
1,419 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,419 |
|
| |
Issuance of common stock for the purchase of Zymark Corporation
|
|
|
3,150,000 |
|
|
|
3 |
|
|
|
14,588 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,591 |
|
| |
Issuance of restricted common stock to employees and related
deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
2,188 |
|
|
|
(2,188 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization and reversals of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
|
1,017 |
|
|
|
— |
|
|
|
— |
|
|
|
1,000 |
|
| |
Compensation expense associated with modifications to certain
stock options
|
|
|
— |
|
|
|
— |
|
|
|
401 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
401 |
|
| |
Stock options issued to non-employees
|
|
|
— |
|
|
|
— |
|
|
|
434 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
434 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
28,382,043 |
|
|
|
28 |
|
|
|
271,232 |
|
|
|
(1,808 |
) |
|
|
(135,093 |
) |
|
|
438 |
|
|
|
134,797 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(31,556 |
) |
|
|
— |
|
|
|
(31,556 |
) |
| |
Foreign currency translation gain/loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
232 |
|
|
|
232 |
|
| |
Change in unrealized gain on available-for-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(515 |
) |
|
|
(515 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(31,839 |
) |
| |
Issuance of common stock upon exercise of stock options and in
connection with the employee stock purchase plan
|
|
|
1,738,137 |
|
|
|
2 |
|
|
|
6,343 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,345 |
|
| |
Issuance of common stock upon exercise of warrants
|
|
|
38,460 |
|
|
|
— |
|
|
|
47 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47 |
|
| |
Issuance of restricted common stock to employees and related
deferred compensation
|
|
|
201,648 |
|
|
|
— |
|
|
|
2,585 |
|
|
|
(2,585 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization and reversals of deferred stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
(96 |
) |
|
|
1,743 |
|
|
|
— |
|
|
|
— |
|
|
|
1,647 |
|
| |
Compensation expense associated with modifications to certain
stock options
|
|
|
— |
|
|
|
— |
|
|
|
540 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
540 |
|
| |
Compensation expense and deferred compensation related to stock
options issued to non-employees
|
|
|
— |
|
|
|
— |
|
|
|
58 |
|
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
|
|
42 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
30,360,288 |
|
|
$ |
30 |
|
|
$ |
280,709 |
|
|
$ |
(2,666 |
) |
|
$ |
(166,649 |
) |
|
$ |
155 |
|
|
|
111,579 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
CALIPER LIFE SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(31,556 |
) |
|
$ |
(49,527 |
) |
|
$ |
(40,964 |
) |
|
Adjustments to reconcile net loss to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization
|
|
|
10,020 |
|
|
|
10,169 |
|
|
|
5,795 |
|
| |
Employee stock compensation, net
|
|
|
2,770 |
|
|
|
1,000 |
|
|
|
378 |
|
| |
Stock options issued to non-employees
|
|
|
42 |
|
|
|
434 |
|
|
|
452 |
|
| |
Non-cash restructuring charge
|
|
|
5,774 |
|
|
|
10,623 |
|
|
|
— |
|
| |
Loss from disposal of fixed assets
|
|
|
4 |
|
|
|
313 |
|
|
|
— |
|
| |
Changes in operating assets and liabilities, net of acquisition
of Zymark:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts receivable and other receivables
|
|
|
(7,150 |
) |
|
|
(1,296 |
) |
|
|
27,389 |
|
| |
|
Inventories
|
|
|
1,410 |
|
|
|
4,343 |
|
|
|
(2,553 |
) |
| |
|
Prepaid expenses and other current assets
|
|
|
2,184 |
|
|
|
(577 |
) |
|
|
803 |
|
| |
|
Other assets
|
|
|
40 |
|
|
|
(568 |
) |
|
|
35 |
|
| |
|
Notes receivable from officers
|
|
|
32 |
|
|
|
37 |
|
|
|
260 |
|
| |
|
Accounts payable and other accrued liabilities
|
|
|
1,369 |
|
|
|
(463 |
) |
|
|
172 |
|
| |
|
Accrued compensation
|
|
|
1,617 |
|
|
|
(2,874 |
) |
|
|
(363 |
) |
| |
|
Deferred revenue
|
|
|
566 |
|
|
|
(1,299 |
) |
|
|
(2,162 |
) |
| |
|
Other non-current liabilities
|
|
|
(298 |
) |
|
|
(401 |
) |
|
|
386 |
|
| |
|
Payments of accrued restructuring obligations
|
|
|
(4,438 |
) |
|
|
(1,338 |
) |
|
|
(314 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash from operating activities
|
|
|
(17,614 |
) |
|
|
(31,424 |
) |
|
|
(10,686 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(51,410 |
) |
|
|
(44,257 |
) |
|
|
(168,689 |
) |
|
Proceeds from sales of marketable securities
|
|
|
61,058 |
|
|
|
115,164 |
|
|
|
114,116 |
|
|
Proceeds from maturities of marketable securities
|
|
|
7,831 |
|
|
|
8,232 |
|
|
|
76,018 |
|
|
Restricted cash, net
|
|
|
48 |
|
|
|
279 |
|
|
|
279 |
|
|
Purchases of property and equipment
|
|
|
(3,593 |
) |
|
|
(1,533 |
) |
|
|
(5,759 |
) |
|
Acquisition of Zymark, net of cash acquired
|
|
|
— |
|
|
|
(52,436 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash from investing activities
|
|
|
13,934 |
|
|
|
25,449 |
|
|
|
15,965 |
|
| |
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds under sale-leaseback arrangements
|
|
|
— |
|
|
|
— |
|
|
|
822 |
|
|
Payments of obligations under sale-leaseback arrangements
|
|
|
(1,443 |
) |
|
|
(2,884 |
) |
|
|
(2,200 |
) |
|
Payments of long-term obligations
|
|
|
(362 |
) |
|
|
— |
|
|
|
— |
|
|
Proceeds from issuance of common stock
|
|
|
6,392 |
|
|
|
1,419 |
|
|
|
1,628 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash from financing activities
|
|
|
4,587 |
|
|
|
(1,465 |
) |
|
|
250 |
|
| |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on changes in cash and cash equivalents
|
|
|
328 |
|
|
|
145 |
|
|
|
— |
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,235 |
|
|
|
(7,295 |
) |
|
|
5,529 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
9,168 |
|
|
|
16,463 |
|
|
|
10,934 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
10,403 |
|
|
$ |
9,168 |
|
|
$ |
16,463 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
409 |
|
|
$ |
412 |
|
|
$ |
642 |
|
|
Income taxes paid
|
|
$ |
103 |
|
|
$ |
171 |
|
|
$ |
— |
|
|
Supplemental disclosure of significant non-cash investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash consideration exchanged for acquired research and
development
|
|
$ |
810 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Stock issued for acquisition of Zymark
|
|
$ |
— |
|
|
$ |
14,591 |
|
|
$ |
— |
|
|
Purchase price adjustment for Zymark acquisition
|
|
$ |
(47 |
) |
|
$ |
— |
|
|
$ |
— |
|
See accompanying notes.
F-6
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| 1. |
Organization and Basis of Presentation |
Caliper Life Sciences, Inc. (“Caliper”), formerly
known as Caliper Technologies Corp., was incorporated in the
state of Delaware on July 26, 1995. Caliper uses its core
technologies of liquid handling, automation, and LabChip
microfluidics to create enabling solutions for the life sciences
industry. These products perform laboratory experiments for use
in the pharmaceutical industry and other industries.
|
|
|
Financial Statement Presentation |
Caliper’s financial statements include the accounts of its
wholly owned subsidiaries including Caliper Life Sciences
Limited (UK), Caliper Life Sciences Ltd. (Canada), Caliper Life
Sciences N.V. (Belgium), Caliper Life Sciences GmbH (Germany),
Caliper Life Sciences SA (France), and Caliper Life Sciences AG
(Switzerland). All significant intercompany balances and
transactions have been eliminated in consolidation.
|
|
| 2. |
Summary of Significant Accounting Policies |
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
|
|
|
Cash Equivalents and Marketable Securities |
Caliper considers all highly liquid investments with maturities
of three months or less from the date of purchase to be cash
equivalents. Those instruments with original maturities between
three and twelve months are considered to be short-term
marketable securities. Management determines the appropriate
classification of its investment securities at the time of
purchase and re-evaluates such determination at each reporting
date. Management has classified Caliper’s marketable
securities as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried
at fair value based on quoted market prices, with unrealized
gains and losses reported in a separate component of
stockholders’ equity. Realized gains and losses and
declines in value, if any, judged to be other than temporary on
available-for-sale securities are reported in other income or
expense. The cost of securities sold is based on the specific
identification method.
Caliper invests its excess cash in U.S. government and
agency securities, debt instruments of financial institutions
and corporations, and money market funds with strong credit
ratings. Caliper has established guidelines regarding
diversification of its investments and their maturities to
maintain safety and liquidity.
|
|
|
Customer Accounts Receivable |
Customer accounts receivable are stated at billed amounts, net
of related reserves. No collateral is required on these
receivables. The majority of sales made by Caliper do not
include any return rights or privileges. Caliper has
historically not experienced significant credit losses in
connection with its customer receivables.
Inventories for use in the manufacture of Caliper’s
instruments include electronic components, devices and
accessories either produced or purchased from original equipment
manufacturers. Inventories for use in the manufacture of LabChip
technologies consist primarily of glass, quartz and reagents.
Inventories are stated at the lower of standard cost (which
approximates actual cost on a first-in, first-out basis) or
market,
F-7
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reflect appropriate reserves for potential obsolete, slow moving
or otherwise impaired material, and include appropriate elements
of material, labor and overhead.
Restricted cash consists of deposits held as collateral against
letters of credit to secure lease arrangements and certain
customer deposits. The lease security deposits lapse over the
associated leases’ terms through 2008 (see Note 11).
Restricted cash that is due to lapse within one year is
classified as cash and cash equivalents.
Additions to property and equipment are recorded at cost. Major
replacements and improvements are capitalized, while general
repairs and maintenance are expensed as incurred. Depreciation
commences once the assets have been placed in service, and is
computed using the straight-line method over the shorter of the
financing period or the estimated useful lives of the assets,
which primarily range from three to seven years. Furniture and
equipment acquired under equipment sale and lease back
arrangements are amortized over the shorter of the useful lives
or the financing period, generally four years. Leasehold
improvements are amortized over the shorter of the estimated
useful life of the assets or the lease term, generally four to
seven years.
|
|
|
Impairment of Long-lived Assets |
Caliper reviews long-lived assets and identifiable intangibles
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. If indicators of impairment exist, recoverability
of assets to be held and used is assessed by a comparison of the
carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. Recoverability
measurement and estimating of undiscounted cash flows is done at
the lowest possible level for which there are identifiable
assets. If the aggregate undiscounted cash flows are less than
the carrying value of the asset, the resulting impairment charge
to be recorded is calculated based on the amount by which the
carrying amount of assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. In 2004,
Caliper recorded charges of $320,000 related to the impairment
of certain leasehold improvements and other fixed assets no
longer being utilized. Of this amount, $174,000 was classified
within selling, general and administrative expenses and $146,000
was classified within research and development expenses. In
2003, Caliper recorded charges of $214,000, classified as
research and development expense, as a result of the impairment
of certain instruments used to support research and development
operations. Caliper did not incur any impairment losses in 2002.
|
|
|
Fair Value of Financial Instruments |
The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, accounts receivable, notes
receivable, other current assets, accounts payable and other
accrued expenses approximate fair value due to their short-term
maturities. Caliper’s available-for-sale marketable
securities are carried at fair value based on quoted market
prices, consistent with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities.”
The fair values of Caliper’s cash, cash equivalents and
marketable securities are subject to change as a result of
potential changes in market interest rates. The potential change
in fair value for interest rate-sensitive instruments has been
assessed on a hypothetical 100 basis point adverse movement
across all maturities. Caliper estimates that such hypothetical
adverse 100 basis point movement would not have materially
impacted net income or materially affected the fair value of
interest rate sensitive instruments.
F-8
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Caliper recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services have been
rendered, the fee is fixed or determinable, and collectibility
is reasonably assured. Revenue is recognized on product sales
when goods are shipped under Caliper’s standard terms of
“FOB origin.” Revenues on shipments subject to
customer acceptance provisions are recognized only upon customer
acceptance, provided all other revenue recognition criteria are
met. Services offered by Caliper are generally recognized as
revenue as the services are performed. Revenue from licensing
agreements is deferred and recognized over the term of the
agreement, or in certain circumstances, when milestones are met.
Revenue recognized is not subject to repayment. Cash received
that is related to future performance under such contracts is
deferred and recognized as revenue when earned. Except in
limited circumstances, sales made by Caliper do not include
general return rights or privileges. Based upon Caliper’s
prior experience, sales returns are not significant, and
therefore Caliper has made no provision for sales returns or
other allowances. Provision is made at the time of sale for
estimated costs related to Caliper’s warranty obligations
to customers.
Revenue arrangements with multiple contractual elements are
divided into separate units of accounting if the deliverables in
the arrangement meet certain criteria under Emerging Issues Task
Force (EITF) Issue 00-21, “Revenue Arrangements
with Multiple Deliverables.” The criteria applied to
multiple element arrangements are whether a) each delivered
element has standalone value to the customer, b) there is
objective and reliable evidence of fair value of the undelivered
elements and if applicable, c) delivery of the undelivered
elements is probable and within the control of Caliper.
Arrangement consideration is allocated among the separate units
of accounting based on their relative fair values.
Product revenue is recognized upon the shipment and transfer of
title to customers and is recorded net of discounts and
allowances. Revenues on shipments subject to customer acceptance
provisions are recognized only upon customer acceptance,
provided all other revenue recognition criteria are met.
Customer product purchases are delivered under standardized
terms of “FOB origin” with the customer assuming the
risks and rewards of product ownership at the time of shipping
from Caliper’s warehouse. Caliper offers discounts based on
the volume of products and services purchased. In accordance
with EITF 00-21, Caliper defers the fair value of any
elements that remain undelivered after product shipment and/or
acceptance (as applicable). Undelivered elements generally
consist of annual maintenance agreements, installation and/or
training.
In certain cases, customers will be charged on a datapoint
pricing basis for their usage of chips. A datapoint is generated
each time a Caliper instrument system introduces a sample into a
chip through a sipper in order to perform a particular LabChip
technology assay. Datapoints are the test-results that
Caliper’s customers record when they use Caliper’s
instruments. Caliper records datapoint revenues in the period
that Caliper’s customers produce these datapoints and
communicate such use to Caliper. Datapoint rates are
contractually negotiated between Caliper and its customers.
Under minimum datapoint fee arrangements, datapoint revenues are
recorded over the period during which the minimum applies,
provided Caliper has no ongoing performance obligations with
respect to these minimum fees.
Under its ongoing supply arrangement with Agilent, Caliper sells
LabChip kits and reagents to Agilent at a transfer price
reflective of Caliper’s cost to manufacture, and receives a
royalty based upon Agilent’s gross margin on sales to its
end users. Revenue related to the reimbursement of costs for the
supply of chips and reagents to Agilient is recognized upon
shipment within product revenue. Caliper has no continuing
obligations at the time these sales are made and Agilent has no
return privileges. Further, Caliper’s transfer of
F-9
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
title to the chips and reagents is not contingent on
Agilent’s resale of these products to third parties.
Caliper’s share of gross margin on components of the
LabChip system sold by Agilent is recognized as product revenue
upon shipment by Agilent to the end user. The instruments, chips
and reagents as sold, are useable by Agilent and its customers
without additional support from Caliper.
|
|
|
Service and Annual Maintenance Agreements |
Service revenue is recognized as services are performed or, as
applicable, ratably over the contract service term in the case
of annual maintenance contracts. Customers may purchase optional
warranty coverage during the initial standard warranty term and
annual maintenance contracts beyond the standard warranty
expiration. These optional service offerings are not included in
the price Caliper charges customers for the initial product
purchase. Under Caliper’s standard warranty, the customer
is entitled to repair or replacement of defective goods. No
upgrades are included in the standard warranty.
Revenue from Caliper’s up-front license fees is recognized
when the earnings process is complete and no further obligations
exist. If further obligations exist, the up-front license fee is
recognized ratably over the obligation period. Royalties from
licenses are based on third-party sales, and are recorded as
earned in accordance with contract terms when third-party
results are reliably measured and collectibility is reasonably
assured.
Revenue from contract research and development services is
recognized as earned based on the performance requirements of
the contract. Non-refundable contract fees which are neither
time and materials- or time and expense- based, nor tied to
substantive milestones, are recognized using the proportional
performance method, subject to the consideration of the guidance
in SAB 104, “Revenue Recognition (a replacement of
SAB 101).” Contract fees received in advance of work
performed are recorded as deferred revenue, and are recognized
as revenue as the work is performed. For contracts recognized on
the proportional performance method, the amount recognized as
revenue is limited to the lesser of the amount measured as
earned on a proportional performance method, or the cumulative
amount of non-refundable payments earned in accordance with the
contract.
Caliper has developed software that is marketed with its
solutions as a component to operate and run its instruments and
systems. Caliper does not sell or otherwise market the software
independently. Caliper’s customers are purchasing the
instruments and systems in order to be able to conduct
scientific research, and the software is incidental to the
overall cost of the instrument’s development and marketing
effort. Caliper does not provide post-sale software support,
except for functional defects in the software as contemplated in
Caliper’s warranty on its instruments.
Caliper currently operates in one business segment, the
development and commercialization of life science instruments
and related consumables and services for use in drug discovery
and other life sciences research and development. Caliper’s
entire business is comprehensively managed by a single
management team that reports to the Chief Executive Officer.
Caliper does not operate separate lines of business or separate
business entities with respect to its products or product
candidates. Accordingly, Caliper does not accumulate discrete
financial information with respect to separate product areas and
does not have separately
F-10
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reportable segments as defined by SFAS No. 131,
“Disclosure about Segments of an Enterprise and Related
Information.”
Caliper performs a test for the impairment of goodwill annually
following the related acquisition, or more frequently if events
or circumstances indicate that goodwill may be impaired. Because
Caliper has a single operating segment which is the sole
reporting unit, Caliper performs this test by comparing the fair
value of Caliper with its book value, including goodwill. If the
fair value exceeds the book value, goodwill is not impaired. If
the book value exceeds the fair value, Caliper would calculate
the potential impairment loss by comparing the implied fair
value of goodwill with the book value. If the implied goodwill
is less than the book value, an impairment charge would be
recorded.
|
|
|
Foreign Currency Translation |
The financial statements of Caliper’s foreign subsidiaries
are translated in accordance with SFAS No. 52,
“Foreign Currency Translation.” In translating the
accounts of the foreign subsidiaries into U.S. dollars,
stockholders’ equity is translated at historical rates,
while assets and liabilities are translated at the rate of
exchange in effect as of the end of the period. Revenue and
expense transactions are translated using the weighted-average
exchange rate in effect during the period in which they arise.
The resulting foreign currency translation adjustments are
reflected as a separate component of stockholders’ equity.
Cumulative translation adjustments included in
stockholders’ equity as of December 31, 2004 and 2003
were $330,000 and $98,000, respectively.
Foreign currency transaction gains and losses from the
settlement of account balances denominated in another currency
are included in current period other income, net, as incurred.
Caliper charges research and development costs to expense as
incurred. Research and development costs consist primarily of
salaries and related personnel costs, fees paid to consultants
and outside service providers for development, material cost of
prototypes and test units, facility and other research-related
allocation expenses, and other expenses related to the design,
development, testing and enhancement of Caliper’s products.
Caliper conducts collaborative research and development for
several third parties. Funding of research and development is
typically based upon full-time equivalent billing rates for
scientists and technicians working on each applicable project.
Arrangements may include milestone funding and royalties on
future products being developed under existing arrangements.
At the time revenue is recognized, Caliper establishes an
accrual for estimated warranty expenses associated with sales,
recorded as a component of cost of revenue. Caliper offers a
one-year limited warranty on instrumentation products and a
90-day warranty on chips, which is included in the sales price
of many of its products. Caliper’s standard limited
warranty covers repair or replacement of defective goods, a
preventative maintenance visit on certain products, and
telephone-based technical support. No upgrades are included in
the standard warranty. In accordance with FASB Interpretation
No. 45 (“FIN 45”) “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Others,” provision
is made for estimated future warranty costs at the time of sale.
Factors that affect Caliper’s warranty liability include
the number of installed units, historical and anticipated rates
of warranty claims, and cost per
F-11
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
claim. Caliper periodically assesses the adequacy of its
recorded warranty liabilities and adjusts amounts as necessary.
Changes in Caliper’s warranty obligation during the years
ended December 31, 2004 and 2003 are as follows (in
thousands):
| |
|
|
|
|
|
Balance, December 31, 2002
|
|
$ |
265 |
|
|
Zymark warranty obligations assumed on July 14, 2003
|
|
|
850 |
|
|
Warranties issued during the period
|
|
|
1,002 |
|
|
Settlements and adjustments made during the period
|
|
|
(1,009 |
) |
| |
|
|
|
|
Balance, December 31, 2003
|
|
|
1,108 |
|
|
Warranties issued during the period
|
|
|
1,751 |
|
|
Settlements and adjustments made during the period
|
|
|
(1,423 |
) |
| |
|
|
|
|
Balance, December 31, 2004
|
|
$ |
1,436 |
|
| |
|
|
|
Other income, net consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Realized gain on marketable securities, net
|
|
$ |
124 |
|
|
$ |
924 |
|
|
$ |
1,371 |
|
|
Foreign exchange transaction gain
|
|
|
338 |
|
|
|
783 |
|
|
|
— |
|
|
Loss on sale of equipment
|
|
|
(4 |
) |
|
|
(313 |
) |
|
|
(51 |
) |
|
Other income (expense), net
|
|
|
59 |
|
|
|
(115 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
517 |
|
|
$ |
1,279 |
|
|
$ |
1,320 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees and Indemnifications |
Caliper recognizes liabilities for guarantees in accordance with
FIN 45 that requires upon issuance of a guarantee, the
guarantor must recognize a liability for the fair value of the
obligations it assumes under that guarantee.
Caliper, as permitted under Delaware law and in accordance with
its Bylaws, indemnifies its officers and directors for certain
events or occurrences, subject to certain limits, while the
officer or director is or was serving at Caliper’s request
in such capacity. The term of the indemnification period is the
officer’s or director’s lifetime. Caliper may
terminate the indemnification agreements with its officers and
directors upon 90 days written notice, but termination will
not affect claims for indemnification relating to events
occurring prior to the effective date of termination. The
maximum amount of potential future indemnification is unlimited;
however, Caliper has a director and officer insurance policy
that limits its exposure and may enable it to recover a portion
of any future amounts paid. Caliper believes the fair value of
these indemnification agreements is minimal. Accordingly,
Caliper has not recorded any liabilities for these agreements as
of December 31, 2004.
F-12
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Shipping and Handling Fees and Costs |
Shipping and handling fees billed to customers for product
shipments are recorded in “Product revenue” in the
Consolidated Statements of Operations. Shipping and handling
costs incurred for inventory purchases are recorded in
“Cost of revenue” in the Consolidated Statements of
Operations.
Caliper expenses costs of advertising as incurred. Advertising
costs were $1,389,000, $870,000 and $690,000 during 2004, 2003
and 2002, respectively.
Caliper has purchased commercial insurance to cover its
estimated future legal costs and settlements related to
workers’ compensation, product, general, auto and
operations liability claims. Caliper’s management decides
the amount of insurance coverage to purchase from unaffiliated
companies and the appropriate amount of risk coverage based on
the cost and availability of insurance and the likelihood of a
loss. Management believes that the levels of risk that Caliper
has provided insurance coverage for are consistent with those of
other companies in its industry. There can be no assurance that
Caliper will not incur losses beyond the limits, or outside the
coverage, of its insurance.
|
|
|
Significant Concentrations, Credit and Other Risks |
Financial instruments, which potentially subject Caliper to
concentrations of credit risk, consist principally of cash (see
Note 5) and trade accounts receivable. Caliper invests
excess cash in securities that it believes bear minimal risk.
These investments are of a short-term nature and include
investments in commercial paper and government and corporate
debt securities. By policy, the amount of credit exposure to any
one institution or issuer is limited. These investments are
generally not collateralized and primarily mature within three
years. Caliper has not experienced any losses due to
institutional failure or bankruptcy.
Caliper’s allowance for doubtful accounts at
December 31, 2004 and 2003 was $475,000 and $252,000,
respectively. Caliper grants credit to customers based on
evaluations of their financial condition, generally without
requiring collateral. However, credit risk is reduced through
Caliper’s efforts to monitor its exposure for credit losses
and maintain allowances, if necessary. One customer, Agilent,
accounted for approximately 11% and 17% of Caliper’s total
revenues in 2004 and 2003, respectively. Two customers, Agilent
and Amphora, accounted for approximately 63% of Caliper’s
total revenues in 2002. As of December 31, 2004 and 2003,
no individual customer accounted for greater than 10% of
Caliper’s outstanding gross accounts receivable balance.
Caliper’s policy is to perform an analysis of the
recoverability of its trade accounts receivable at the end of
each reporting period and to establish allowances for those
accounts considered uncollectible. Caliper analyzes historical
bad debts, customer concentrations, customer credit-worthiness,
and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts.
Caliper’s products include certain components that are
currently single-sourced. Caliper believes that other vendors
would be able to provide similar equipment, however, the
qualification of such vendors may require start-up time. In
order to mitigate any adverse impacts from a disruption of
supply, Caliper attempts to maintain an adequate supply of
critical single-sourced equipment.
|
|
|
Comprehensive Income (Loss) |
Caliper accounts for comprehensive income (loss) in accordance
with SFAS No. 130, “Reporting Comprehensive
Income.” The components of comprehensive income (loss) are
unrealized gains and losses on available-for-sale securities and
foreign currency translation adjustments. Comprehensive income
(loss) has been disclosed in the Statement of Stockholders’
Equity. As of December 31, 2004, accumulated other
F-13
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
comprehensive income included $330,000 in cumulative foreign
currency translation gains and $175,000 in unrealized losses on
available-for-sale securities. As of December 31, 2003,
accumulated other comprehensive income included $98,000 in
foreign currency translation gains and $340,000 in unrealized
gains on available-for-sale securities.
Caliper presently accounts for its stock options and equity
awards in accordance with the intrinsic value method under the
provisions of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” and
related interpretations, and has elected to follow the
“disclosure only” alternative prescribed by Financial
Accounting Standards Board’s SFAS No. 123,
“Accounting for Stock-Based Compensation.”
Accordingly, no compensation expense is recognized in
Caliper’s financial statements for stock options granted to
employees which had an exercise price equal to the fair value of
the underlying common stock on date of grant. Caliper accounts
for stock options issued to non-employees in accordance with the
provisions of SFAS No. 123 and EITF No. 96-18,
“Accounting for Equity Instruments that are issued to other
than Employees for Acquiring, or in Conjunction with Selling
Goods or Services.” For the years ended December 31,
2004, 2003 and 2002, compensation expense related to stock
options issued to non-employees was $42,000, $434,000 and
$452,000, respectively.
The following table illustrates the effect on net loss and net
loss per share if Caliper had applied the fair value recognition
provisions of SFAS No. 123, as amended by
SFAS No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure —
and amendment of FASB Statement No. 123.” For purposes
of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the
options using the straight-line method. Caliper’s pro forma
information is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
(31,556 |
) |
|
$ |
(49,527 |
) |
|
$ |
(40,964 |
) |
| |
Add: Stock-based employee compensation expense included in
reported net loss (see Note 13)
|
|
|
2,770 |
|
|
|
1,841 |
|
|
|
378 |
|
| |
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards
|
|
|
(12,827 |
) |
|
|
(20,142 |
) |
|
|
(25,221 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma net loss
|
|
$ |
(41,613 |
) |
|
$ |
(67,828 |
) |
|
$ |
(65,807 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic and diluted
|
|
$ |
(1.08 |
) |
|
$ |
(1.88 |
) |
|
$ |
(1.68 |
) |
| |
Pro forma:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic and diluted
|
|
$ |
(1.42 |
) |
|
$ |
(2.57 |
) |
|
$ |
(2.70 |
) |
The effects of applying SFAS No. 123 for pro forma
disclosures are not necessarily representative of the effects on
reported net loss for future years.
|
|
|
Net Income (Loss) Per Share |
Basic earnings per share is calculated based on the
weighted-average number of common shares outstanding during the
period. Diluted earnings per share would give effect to the
dilutive effect of common
F-14
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
stock equivalents consisting of stock options, unvested
restricted stock, unvested restricted stock units and warrants
(calculated using the treasury stock method).
Common stock equivalents equal to 7.4, 9.0 and 4.4 million
shares (prior to the application of the treasury stock method)
were excluded from the computation of net loss per share in each
of the three year periods ended December 31, 2004, 2003 and
2002, respectively, as they would have an antidilutive effect
due to Caliper’s net loss.
Certain amounts in the 2003 and 2002 financial statements have
been reclassified to conform with the 2004 financial statement
presentation. These reclassifications had no effect on
previously reported net loss, stockholders’ equity or net
loss per share.
|
|
|
Recent Accounting Pronouncements |
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued Statement No. 123 (revised 2004),
“Share-Based Payment”
(“Statement 123(R)”), which is a revision of FASB
Statement No. 123, “Accounting for Stock-Based
Compensation.” Generally, the approach in
Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requires
all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement
based on their fair values. Pro forma disclosure is no longer an
alternative. Caliper will be required to adopt
Statement 123(R) at the beginning of its third quarter of
fiscal 2005.
Statement 123(R) permits public companies to adopt its
requirements using one of two methods:
|
|
|
| |
• |
A “modified prospective” method in which compensation
cost is recognized beginning with the effective date
(a) based on the requirements of Statement 123(R) for
all share-based payments granted after the effective date and
(b) based on the requirements of Statement 123 for all
awards granted to employees prior to the effective date of
Statement 123(R) that remain unvested on the effective date. |
| |
| |
• |
A “modified retrospective” method which includes the
requirements of the modified prospective method described above,
but also permits entities to restate based on the amounts
previously recognized under Statement 123 for purposes of
pro forma disclosures either (a) all prior periods
presented or (b) prior interim periods of the year of
adoption. |
Caliper plans to adopt Statement 123(R) using the modified
prospective method. Caliper is currently assessing the impact
that the adoption of Statement 123(R) will have on its
results of operations and related disclosures.
Statement 123(R) will likely affect Caliper’s option
and restricted stock issuances, grants of restricted stock units
and shares purchased by employees under the employee stock
purchase plan. Caliper is evaluating whether to use a
closed-form model (for example, the Black-Scholes-Merton
formula) or a lattice model to estimate fair value. In addition,
Caliper is considering the election of an accelerated method
(for example, the graded-vesting method as defined by FASB
Interpretation No. 28) or a straight-line recognition
method.
On November 24, 2004, the FASB issued FASB Statement
No. 151, “Inventory Costs,” an amendment
of ARB No. 43, Chapter 4. The amendments made by
Statement 151 clarify that abnormal amounts of idle
facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges
and require the allocation of fixed production overheads to
inventory based on the normal capacity of the production
facilities. SFAS 151 is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred
during fiscal year beginning after November 24, 2004.
Caliper will apply the provisions of SFAS 151 starting
January 1, 2006 on
F-15
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
a prospective basis as required by SFAS 151. Caliper does
not believe there will be a material effect upon its financial
condition or results of operations from the adoption of the
provisions of SFAS 151.
|
|
| 3. |
Acquisition of Zymark Corporation |
On July 14, 2003, Caliper completed the acquisition of 100%
of ZYAC Holding Corporation (ZYAC is the parent holding company
of Zymark Corporation (“Zymark”) and has no operating
activities) from The Berwind Company LLC (“Berwind”)
for consideration of approximately $72.8 million in the
form of $55.7 million in cash, 3.15 million shares of
Caliper’s common stock valued at $14.6 million, and
acquisition costs of $2.5 million. The purchase terms also
provided for Caliper to issue Berwind an additional
1.575 million contingent shares if certain financial
targets were met in 2003 and 2004. These targets were not
achieved, causing 100% of the contingent shares to lapse.
Zymark is a global developer, manufacturer and marketer of life
science instruments and related consumables and services for use
in drug discovery and other life sciences research and
development. The Zymark legal entity was merged into Caliper in
April 2003. Caliper acquired Zymark in order to obtain a
worldwide commercial infrastructure to market its current
product offerings. The principal goals of the acquisition
included (1) gaining immediate access to a global sales and
marketing distribution platform to accelerate adoption and
penetration of our microfluidic technologies,
(2) accelerating Caliper’s commercial transition by
building upon the capabilities of a more commercially
experienced management team, (3) increasing revenues, while
reducing expenses through combination synergies, and
(4) increasing operating cash flows.
Zymark’s operations, assumed as of the date of the
acquisition, are included in the results of operations of
Caliper beginning on July 14, 2003 and, as a result, are
not reflected in the results of operations for the year ended
December 31, 2002. The acquisition was accounted for as a
purchase in accordance with SFAS No. 141,
“Accounting for Business Combinations,” and Caliper
accordingly allocated the estimated purchase price of Zymark
based upon the fair value of net assets acquired and liabilities
assumed. The components and allocation of the purchase price, as
finalized in 2004, consisted of the following (in thousands):
| |
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
5,803 |
|
|
Other current assets
|
|
|
17,472 |
|
|
Other assets
|
|
|
2,838 |
|
|
Liabilities assumed
|
|
|
(19,663 |
) |
|
Identifiable intangible assets
|
|
|
19,165 |
|
|
Goodwill
|
|
|
47,215 |
|
| |
|
|
|
| |
|
$ |
72,830 |
|
| |
|
|
|
Management determined the fair value of the assets acquired by
considering the anticipated cash flows to be generated from the
existing products, the valuation of customer relationships, the
estimated life of the technology acquired and other assumptions.
Expected future discounted cash flows took into account risks
related to the characteristics and application of the
technology, existing and future markets and assessments of life
cycle stage of the technology.
|
|
| 4. |
Acquired Research and Development |
On April 15, 2004, Caliper purchased from Amphora (see
Note 15) certain technology rights and know-how related to
improving the performance of certain types of cell-based assays
on a microfluidic chip. Caliper paid $200,000 in cash and issued
to Amphora credits to purchase $900,000 worth of products from
Caliper in
F-16
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
exchange for the acquired technology and know-how. Through
April 15, 2009, Caliper will also pay royalties to
Amphora based on datapoint revenue received by Caliper from
end-users as a result of datapoints produced using the acquired
technology. Caliper is further developing the acquired
technology to adapt it for potential applications and uses on
the LabChip 3000 instrument platform. Given that additional
development work is necessary to produce a commercially saleable
product based on this technology, and the absence of material
revenue streams currently derived from the acquired technology,
the entire consideration was expensed as research and
development expense during the second quarter of 2004. The
transaction has been accounted for in accordance with APB
No. 29, “Accounting for the Non-Monetary
Transactions,” pursuant to which Caliper valued the
acquired research and development based on the fair value of the
product credits and cash paid and established a deferred
liability for the future product credits owed to Amphora.
Caliper recognized $810,000 of product revenue (the determined
fair value of the credits) in 2004 based upon the product
credits which were fully utilized by Amphora as of
December 31, 2004.
|
|
| 5. |
Cash, Cash Equivalents and Marketable Securities |
Caliper’s cash, cash equivalents and marketable securities
are invested in a diversified portfolio of financial
instruments, including money market instruments, corporate notes
and bonds, government or government agency securities and other
debt securities issued by financial institutions and other
issuers with strong credit ratings. Marketable securities are
freely tradable at any time, irrespective of their maturity
dates. By policy, the amount of credit exposure to any one
institution is limited. Investments are generally not
collateralized and primarily mature within three years. The
following is a summary of available-for-sale securities as of
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
|
Gross | |
|
|
| |
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
| |
|
Cost | |
|
Losses | |
|
Gains | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash and money market funds
|
|
$ |
10,403 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10,403 |
|
|
Bonds of the U.S. Government and its agencies
|
|
|
24,575 |
|
|
|
(161 |
) |
|
|
— |
|
|
|
24,414 |
|
|
Corporate debt securities
|
|
|
15,434 |
|
|
|
(84 |
) |
|
|
70 |
|
|
|
15,420 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
50,412 |
|
|
$ |
(245 |
) |
|
$ |
70 |
|
|
$ |
50,237 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
10,403 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10,403 |
|
| |
Marketable securities
|
|
|
40,009 |
|
|
|
(245 |
) |
|
|
70 |
|
|
|
39,834 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
50,412 |
|
|
$ |
(245 |
) |
|
$ |
70 |
|
|
$ |
50,237 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the cost and estimated fair value
of available-for-sale securities at December 31, 2004, by
contractual maturity:
| |
|
|
|
|
|
|
|
|
|
| |
|
Amortized | |
|
Estimated | |
| |
|
Cost | |
|
Fair Value | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Mature within one year
|
|
$ |
27,409 |
|
|
$ |
27,285 |
|
|
Mature after one year through three years
|
|
|
23,003 |
|
|
|
22,952 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
50,412 |
|
|
$ |
50,237 |
|
| |
|
|
|
|
|
|
F-17
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following is a summary of available-for-sale securities as
of December 31, 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
|
Gross | |
|
Estimated | |
| |
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Fair | |
| |
|
Cost | |
|
Losses | |
|
Gains | |
|
Value | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash and money market funds
|
|
$ |
9,168 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,168 |
|
|
Bonds of the U.S. Government and its agencies
|
|
|
20,140 |
|
|
|
(2 |
) |
|
|
119 |
|
|
|
20,257 |
|
|
Corporate debt securities
|
|
|
37,348 |
|
|
|
(2 |
) |
|
|
225 |
|
|
|
37,571 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
66,656 |
|
|
$ |
(4 |
) |
|
$ |
344 |
|
|
$ |
66,996 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
9,168 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,168 |
|
| |
Marketable securities
|
|
|
57,488 |
|
|
|
(4 |
) |
|
|
344 |
|
|
|
57,828 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
66,656 |
|
|
$ |
(4 |
) |
|
$ |
344 |
|
|
$ |
66,996 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the cost and estimated fair value
of available-for-sale securities at December 31, 2003, by
contractual maturity:
| |
|
|
|
|
|
|
|
|
|
| |
|
Amortized | |
|
Estimated | |
| |
|
Cost | |
|
Fair Value | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Mature within one year
|
|
$ |
24,808 |
|
|
$ |
24,869 |
|
|
Mature after one year through three years
|
|
|
41,848 |
|
|
|
42,127 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
66,656 |
|
|
$ |
66,996 |
|
| |
|
|
|
|
|
|
Gross realized gains and losses on sales of available-for-sale
securities were $153,000 and $29,000 respectively, in 2004,
$932,000 and $8,000, respectively, in 2003, and $1,653,000 and
$282,000, respectively, in 2002, and have been included within
other income in Caliper’s statement of operations. Caliper
utilizes the specific identification basis to reclassify amounts
out of accumulated other comprehensive income into earnings.
As of December 31, 2004, the majority of Caliper’s
available-for-sale securities are in an unrealized loss
position. The investments have all been in a loss position for
less than one year and therefore are temporary in nature and
such unrealized losses have been included within accumulated
other comprehensive income.
As of December 31, 2004, Caliper held a note receivable of
$146,000 for principal and accumulated interest from Daniel L.
Kisner, Chairman of the Board of Directors of Caliper. This
note, with an initial principal amount of $500,000, bears annual
interest at 5.96% and is repayable upon the earlier of
(i) July 29, 2005, or (ii) the voluntary
termination of the officer’s employment with Caliper. Prior
to July 1, 2002, this note was subject to forgiveness by
Caliper of principal and interest amounts based on performance
reviews of the officer with $285,000 of the note principal
having been forgiven between 1999 and 2001. During 2003 and
2002, Dr. Kisner repaid $50,000 of note principal together
with accrued interest. Caliper believes this $146,000 note
receivable approximates fair value as of December 31, 2004.
F-18
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market. Inventories consist of the
following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Raw material
|
|
$ |
4,780 |
|
|
$ |
5,929 |
|
|
Work-in-process
|
|
|
852 |
|
|
|
1,087 |
|
|
Finished goods
|
|
|
4,196 |
|
|
|
4,564 |
|
| |
|
|
|
|
|
|
| |
Inventories
|
|
$ |
9,828 |
|
|
$ |
11,580 |
|
| |
|
|
|
|
|
|
Caliper reserves or writes off 100% of the cost of inventory
that Caliper specifically identifies and considers obsolete or
excessive to fulfill future sales estimates. Caliper defines
obsolete inventory as inventory that will no longer be used in
the manufacturing process. Excess inventory is generally defined
as inventory in excess of projected usage, and is determined
using management’s best estimate of future demand at the
time, based upon information then available to Caliper. Caliper
uses a twelve-month demand forecast and, in addition to the
demand forecast, Caliper also considers: (1) parts and
subassemblies that can be used in alternative finished products,
(2) parts and subassemblies that are unlikely to be
impacted by engineering changes, and (3) known design
changes which would reduce Caliper’s ability to use the
inventory as planned. During 2004 and 2003, respectively,
Caliper recorded charges of $1.3 million and
$2.4 million to cost of product revenues for excess and
obsolete inventories. Of the amount charged to cost of product
revenue in 2003, $1.2 million was related to the
discontinuance of the Caliper 250 drug discovery instrument.
|
|
| 8. |
Property and Equipment |
Property and equipment consists of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
December 31, | |
| |
|
|
|
| |
| Asset Classification |
|
Estimated Useful Life | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
(In thousands) | |
|
Machinery and equipment
|
|
|
2-5 years |
|
|
$ |
15,122 |
|
|
$ |
14,439 |
|
|
Computers and information systems
|
|
|
3-5 years |
|
|
|
5,782 |
|
|
|
3,501 |
|
|
Office equipment, furniture and fixtures
|
|
|
5 years |
|
|
|
2,019 |
|
|
|
1,858 |
|
|
Leasehold improvements
|
|
Shorter of estimated useful life or life of lease |
|
|
4,715 |
|
|
|
5,001 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
27,638 |
|
|
|
24,799 |
|
|
Accumulated depreciation and amortization
|
|
|
|
|
|
|
(21,452 |
) |
|
|
(15,693 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
$ |
6,186 |
|
|
$ |
9,106 |
|
| |
|
|
|
|
|
|
|
|
|
Depreciation expense, including amortization of assets under
capital leases, was $6.1 million, $7.4 million and
$5.8 million for the years ended December 31, 2004,
2003, and 2002, respectively. As of December 31,
F-19
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2004 and 2003, property and equipment includes assets acquired
under capital leases which consists of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| Asset Classification |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Machinery and equipment
|
|
$ |
1,218 |
|
|
$ |
3,441 |
|
|
Computers and information systems
|
|
|
135 |
|
|
|
1,179 |
|
|
Office equipment, furniture and fixtures
|
|
|
54 |
|
|
|
202 |
|
|
Leasehold improvements
|
|
|
17 |
|
|
|
1,132 |
|
| |
|
|
|
|
|
|
| |
|
|
1,424 |
|
|
|
5,954 |
|
|
Accumulated depreciation and amortization
|
|
|
(1,303 |
) |
|
|
(4,835 |
) |
| |
|
|
|
|
|
|
|
Leased property and equipment, net
|
|
$ |
121 |
|
|
$ |
1,119 |
|
| |
|
|
|
|
|
|
|
|
| 9. |
Goodwill and Intangibles |
Goodwill and intangibles consist of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Intangibles, net
|
|
$ |
12,745 |
|
|
$ |
16,628 |
|
|
Goodwill
|
|
|
47,215 |
|
|
|
47,262 |
|
| |
|
|
|
|
|
|
| |
Total goodwill and intangibles
|
|
$ |
59,960 |
|
|
$ |
63,890 |
|
| |
|
|
|
|
|
|
In accordance with SFAS No. 141 and
SFAS No. 142, “Goodwill and Other Intangible
Assets,” goodwill and certain other intangibles are not
amortized but are instead subject to periodic impairment
assessments. As of December 31, 2004 and 2003,
Caliper’s goodwill relates entirely to the acquisition of
Zymark (see Note 3), which occurred on July 14, 2003.
No amount of the goodwill balance at December 31, 2004 will
be deductible for income tax purposes.
As of December 31, 2004, intangible assets consists of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortization | |
|
|
|
Accumulated | |
|
|
| Asset Classification |
|
Period | |
|
Cost | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Developed technology
|
|
|
5 years |
|
|
$ |
14,314 |
|
|
$ |
(4,175 |
) |
|
$ |
10,139 |
|
|
Customer list
|
|
|
5 years |
|
|
|
3,640 |
|
|
|
(1,062 |
) |
|
|
2,578 |
|
|
Backlog
|
|
|
0.5 years |
|
|
|
1,211 |
|
|
|
(1,211 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total acquired intangibles
|
|
|
|
|
|
|
19,165 |
|
|
|
(6,448 |
) |
|
|
12,717 |
|
|
Other intangibles
|
|
|
5 years |
|
|
|
910 |
|
|
|
(882 |
) |
|
|
28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
20,075 |
|
|
$ |
(7,330 |
) |
|
$ |
12,745 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
F-20
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The weighted average amortization period for acquired
intangibles is 4.7 years. Amortization expense is computed
using the straight-line method over the estimated useful life of
the intangible asset. Amortization expense was $3.9 million
and $2.8 million during the years ended December 31,
2004 and 2003, respectively. The remaining amortization in
future periods is as follows (in thousands):
| |
|
|
|
|
|
2005
|
|
$ |
3,619 |
|
|
2006
|
|
|
3,591 |
|
|
2007
|
|
|
3,591 |
|
|
2008
|
|
|
1,944 |
|
| |
|
|
|
| |
|
$ |
12,745 |
|
| |
|
|
|
|
|
| 10. |
Other Current and Non-current Liabilities |
Other current and non-current liabilities consist of the
following;
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Accrued bonus
|
|
$ |
4,364 |
|
|
$ |
2,272 |
|
|
Accrued other
|
|
|
1,984 |
|
|
|
1,876 |
|
| |
|
|
|
|
|
|
| |
Total accrued compensation
|
|
$ |
6,348 |
|
|
$ |
4,148 |
|
| |
|
|
|
|
|
|
|
Accrued warranty
|
|
$ |
1,436 |
|
|
$ |
1,108 |
|
|
Accrued VAT and other taxes
|
|
|
1,571 |
|
|
|
1,306 |
|
|
Accrued accounting and legal
|
|
|
1,031 |
|
|
|
587 |
|
|
Accrued other
|
|
|
1,803 |
|
|
|
1,758 |
|
| |
|
|
|
|
|
|
| |
Total other accrued liabilities
|
|
$ |
5,841 |
|
|
$ |
4,759 |
|
| |
|
|
|
|
|
|
|
Deferred rent
|
|
$ |
611 |
|
|
$ |
1,088 |
|
|
Deferred compensation obligation
|
|
|
202 |
|
|
|
497 |
|
|
Other
|
|
|
118 |
|
|
|
395 |
|
| |
|
|
|
|
|
|
| |
Total other noncurrent liabilities
|
|
$ |
931 |
|
|
$ |
1,980 |
|
| |
|
|
|
|
|
|
F-21
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 31, 2004, future minimum payments under
operating leases (excluding vacated facilities), sale-leaseback
obligations and other long-term obligations were as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other | |
| |
|
Operating | |
|
Sale-Leaseback | |
|
Long-term | |
| |
|
Leases | |
|
Obligations | |
|
Obligations | |
| |
|
| |
|
| |
|
| |
|
Years ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2005
|
|
$ |
4,174 |
|
|
$ |
312 |
|
|
$ |
409 |
|
| |
2006
|
|
|
2,776 |
|
|
|
— |
|
|
|
— |
|
| |
2007
|
|
|
2,442 |
|
|
|
— |
|
|
|
— |
|
| |
2008
|
|
|
2,227 |
|
|
|
— |
|
|
|
— |
|
| |
2009
|
|
|
283 |
|
|
|
— |
|
|
|
— |
|
| |
Thereafter
|
|
|
490 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total minimum lease and principal payments
|
|
$ |
12,392 |
|
|
|
312 |
|
|
|
409 |
|
| |
|
|
|
|
|
|
|
|
|
|
Less: Amount representing interest
|
|
|
|
|
|
|
11 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Present value of future payments
|
|
|
|
|
|
|
301 |
|
|
|
409 |
|
|
Less: Current portion of obligations
|
|
|
|
|
|
|
301 |
|
|
|
409 |
|
| |
|
|
|
|
|
|
|
|
|
|
Noncurrent portion of obligations
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
Rent expense relating to operating leases was approximately
$4.6 million in 2004, $6.4 million in 2003, and
$5.2 million in 2002.
Caliper’s worldwide headquarters and instrument
manufacturing operations are located in Hopkinton, MA.
Caliper’s research and development and manufacturing
operations for LabChip devices are located in Mountain View, CA.
Caliper also has direct sales, service and application support
operations in several European countries and Japan.
Caliper occupies approximately 120,000 square feet in two
leased buildings in Massachusetts. Current lease payments are
approximately $100,000 per month through the expiration of
the lease in December 2005. Caliper is in negotiations to enter
into a new 10-year operating lease, with two additional 5-year
renewal options, and expand its Massachusetts facilities by
approximately 16,000 square feet.
Through efforts to consolidate and make more efficient its
LabChip research and development and manufacturing operations,
Caliper was able to consolidate all of its Mountain View-based
operations into its 53,000 square foot main facility.
Current minimum lease payments, which escalate annually at 3%,
are approximately $168,000 per month through the expiration
of the lease in November 2008.
In December 2004, Caliper vacated the second of two buildings
which it no longer occupies in Mountain View. The above
operating lease commitments exclude $12.9 million of
related future minimum payments through June 2008. As a result
of this consolidation, Caliper has accounted for the future
estimated lease obligations of the two unoccupied facilities
through the accrued restructuring liability (see Note 12)
on its balance sheet as of December 31, 2004.
In total, Caliper’s subsidiary operations occupy leased
space of approximately 34,000 square feet under leases
which expire through 2012.
F-22
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Sale-Leaseback Obligations |
As of December 31, 2004, Caliper had a $301,000 remaining
obligation related to property and equipment financed through a
sale-leaseback credit line that expired as of December 31,
2002. Since 2002, Caliper has not entered into any new financing
agreements for the purchase of property and equipment. The
obligations under the equipment sale-leaseback arrangements are
secured by the equipment financed, bear interest at a weighted
average fixed rate of 12.2%, ranging between 11.2% and 12.3%,
and are due in monthly installments through July 2005. Each
currently outstanding equipment sale-leaseback agreement
requires a balloon payment at the end of each loan term.
In connection with the acquisition of Zymark, Caliper assumed a
900,000 Euro non-interest bearing obligation to the former owner
of Labotec, a business acquired by Zymark in August 2002. As of
July 14, 2003, the acquired obligation was
$979,000 stated in U.S dollars. As of December 31,
2004, there is one remaining installment due related to the
obligation on August 13, 2005.
In connection with its Mountain View, CA leases, Caliper has
pledged cash deposits to secure standby letters-of-credit in the
outstanding amount of $2.2 million as of December 31,
2004 as security deposits under the leases. In addition, Caliper
has pledged cash deposits to secure standby letters-of-credit in
the amount of $895,000 as of December 31, 2004, as security
for certain customer deposits. As of December 31, 2004,
$683,000 of the pledged cash deposits expire and the funds
became unrestricted in January 2005. The total amount of cash
deposits pledged as collateral of $3.1 million are shown as
restricted cash on the accompanying balance sheet as of
December 31, 2004.
As of December 31, 2004, Caliper had a non-cancelable
purchase commitment in the amount of approximately $167,000 with
its foreign supplier for the purchase of proprietary glass stock
used in the manufacture of certain types of its chips.
During the fourth quarter of 2002, Caliper entered into an
amendment and restatement of Caliper’s existing license
agreements with UT-Battelle, LLC under which Caliper has
obtained an exclusive license to the patents covering the
inventions of Dr. J. Michael Ramsey. Royalty obligations to
UT-Batelle, which exceeded certain minimums set forth in the
amendment, were $53,000, $581,000 and $81,000 in 2004, 2003 and
2002, respectively. Caliper also has an exclusive license from
the Trustees of the University of Pennsylvania to certain
patents relating to microfluidic applications and chip
structures. The University of Pennsylvania license includes
minimum annual royalty obligations which increase
$20,000 per year, up to $160,000 in 2008. Caliper incurred
minimum royalties of $80,000 and $60,000 in 2004 and 2003. In
2002, Caliper paid an initial up front license fee of $300,000
to the University of Pennsylvania. Royalties are expensed when
incurred.
|
|
| 12. |
Restructuring Activities |
During the period from September 2002 through December 2004,
Caliper incurred restructuring charges related to planned
actions that were taken by management to control costs and
improve the focus of its operations in order to reduce losses,
conserve cash and improve the likelihood of achieving cash flow
break-even operations in the future. Certain of these activities
took place following Caliper’s acquisition of Zymark
F-23
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in 2003, and were actions designed to eliminate redundant costs
and to improve the overall operating efficiency of the newly
combined business. The following summarizes the restructuring
activity during this period:
|
|
|
| |
• |
In September 2002, Caliper reduced its workforce by 28
employees, or approximately 10%, in response to depressed market
conditions. Of the employees affected by the reduction, 75% were
in research and development, with the remaining divided equally
between manufacturing and administrative functions. Caliper
recorded a charge of $314,000 for severance and related
benefits, and all of the separations and payments were completed
by December 31, 2002. |
| |
| |
• |
In May 2003, Caliper reduced its workforce by 26 employees, or
approximately 10%, in response to a continuing broad economic
slowdown and reduced research and development spending by
biopharmaceutical companies. The reduction primarily affected
employees in research and development and was due to a change in
focus in product development and technology research to better
align with the changing needs of Caliper’s customers.
Caliper recorded a charge of $322,000 for severance payments and
related benefits, and all of the separations and payments were
completed by June 30, 2003. |
| |
| |
• |
In August 2003, Caliper reduced its workforce by 37 positions,
or approximately 7% of the total headcount of Caliper and the
newly acquired Zymark. The reduction was the first of two phases
of reductions designed to eliminate redundancies and increase
organizational efficiencies within the newly combined company,
and primarily affected manufacturing, sales and administration.
Of the 37 terminations, 33% occurred in August 2003 and the
remainder of the terminations occurred by March 31, 2004.
Caliper recorded a charge of $774,000 in the third quarter of
2003 and a related charge of $1.5 million during the fourth
quarter of 2003 for severance payments and related benefits. All
separations and related payments were completed by June 2004. Of
the amount included in accrued restructuring expenses at
December 31, 2003, $1.5 million was related to the
August downsizing. |
| |
| |
• |
In December 2003, Caliper reduced its workforce by 37 positions,
or approximately 8% of total headcount as the second phase of
consolidating operations following the Zymark acquisition. This
reduction primarily affected research and development staff as a
result of certain strategy and priority decisions finalized
during the fourth quarter of 2003. Caliper recorded a charge of
$1.2 million in the fourth quarter of 2003 for severance
payments and related benefits for the December downsizing. All
separations and related payments were completed during 2004. Of
the amount included in accrued restructuring expenses at
December 31, 2003, $569,000 was related to the December
downsizing. |
| |
| |
• |
In June 2004, Caliper reduced its workforce by 14 positions, or
approximately 3% of total headcount. The intent of the reduction
was to finalize the implementation of identified cost
efficiencies achieved as a result of the Zymark acquisition,
aimed to reduce LabChip manufacturing costs. Caliper recorded a
charge of $180,000 for severance and related benefits, and all
separations and related payments were completed by
September 30, 2004. |
|
|
|
| |
• |
In November 2003, Caliper closed one of its three facilities in
Mountain View, CA that was used primarily for instrument
manufacturing and research and development activities, and
recognized a $7.7 million charge related to costs estimated
over the remainder of the lease (June 2008), including leasehold
improvements having a carrying value of $319,000 that had no
further use. |
| |
| |
• |
In June 2004, as a result of efficiencies achieved following
Caliper’s strategic prioritization of research and
development programs, Caliper vacated and shut down
approximately one half of a second |
F-24
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
| |
|
Mountain View facility that was primarily used for research and
development activities, and recognized an additional
$2.2 million charge related to costs estimated over the
remainder of the lease (June 2008), including leasehold
improvements having a carrying value of $67,000 that had no
further use. |
| |
| |
• |
In December 2004, Caliper was successful in achieving additional
efficiencies that enabled it to complete the full closure of the
second facility above. In connection with the latest action
taken in December Caliper also reassessed its previous estimates
supporting the earlier charges taken and determined, on the
basis of recent market information indicating a low probability
of obtaining sublease income from these idled facilities, that a
$3.6 million charge was necessary to both account for the
latest closure and reflect the fair value of its remaining lease
payments for both idled facilities as of December 31, 2004.
Of the total charge, $1.7 million was related to Caliper
revised estimate of the sublease income potential and $246,000
was related to leasehold improvements that had no further use. |
The facility closures were accounted for in accordance with
Statement of Financial Accounting Standard No. 146,
“Accounting for Costs Associated with Exit or Disposal
Activities,” pursuant to which Caliper recorded a liability
equal to the fair value of the remaining lease payments as of
the cease-use date for each of the closed facilities. Fair value
was determined based upon the discounted present value of
remaining lease rentals (5% discount rate used), for the space
no longer occupied, reduced by the discounted present value of
future estimated sublease rentals (revised in December 2004 to
reflect the likelihood of no future sublease rentals), through
the end of the lease.
The following table summarizes the restructuring accrual
activity during 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Severance | |
|
|
|
|
|
|
| |
|
and | |
|
|
|
|
|
|
| |
|
Related | |
|
Facility | |
|
Leaseholds | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance, December 31, 2002
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Restructuring charges
|
|
|
3,822 |
|
|
|
7,394 |
|
|
|
319 |
|
|
|
11,535 |
|
|
Non-cash restructuring charges
|
|
|
(401 |
) |
|
|
— |
|
|
|
(319 |
) |
|
|
(720 |
) |
|
Reclassification of deferred rent liability
|
|
|
— |
|
|
|
425 |
|
|
|
— |
|
|
|
425 |
|
|
Payments
|
|
|
(1,338 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,338 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
2,083 |
|
|
|
7,819 |
|
|
|
— |
|
|
|
9,902 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
180 |
|
|
|
5,415 |
|
|
|
313 |
|
|
|
5,908 |
|
|
Non-cash restructuring charges
|
|
|
— |
|
|
|
— |
|
|
|
(313 |
) |
|
|
(313 |
) |
|
Restructuring credits
|
|
|
(134 |
) |
|
|
— |
|
|
|
— |
|
|
|
(134 |
) |
|
Reclassification of deferred rent liability
|
|
|
— |
|
|
|
436 |
|
|
|
— |
|
|
|
436 |
|
|
Accretion of facility lease accrual
|
|
|
— |
|
|
|
244 |
|
|
|
— |
|
|
|
244 |
|
|
Payments
|
|
|
(2,129 |
) |
|
|
(2,309 |
) |
|
|
— |
|
|
|
(4,438 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$ |
— |
|
|
$ |
11,605 |
|
|
$ |
— |
|
|
$ |
11,605 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The two unoccupied facilities each include 28,800 square
feet of space. Minimum monthly lease and operating expense
payments under these leases are currently $180,000 and $114,000
related to each building. These payments escalate at
approximately 4% and 3%, respectively, through the expiration of
the leases in June 2008. The restructuring liability as of
December 31, 2004 reflects the minimum future payment
F-25
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
obligations related to base lease rentals and operating charges
over the remaining lease lives through June 30, 2008,
discounted at 5%, as follows (in thousands):
| |
|
|
|
|
|
|
|
Years ending December 31:
|
|
|
|
|
| |
2005
|
|
$ |
3,535 |
|
| |
2006
|
|
|
3,657 |
|
| |
2007
|
|
|
3,784 |
|
| |
2008
|
|
|
1,922 |
|
| |
|
|
|
| |
|
Total minimum lease and principal payments
|
|
|
12,898 |
|
|
Less: Amount representing interest
|
|
|
1,293 |
|
| |
|
|
|
|
Present value of future payments
|
|
|
11,605 |
|
|
Less: Current portion of obligations
|
|
|
3,177 |
|
| |
|
|
|
|
Noncurrent portion of obligations
|
|
$ |
8,428 |
|
| |
|
|
|
During 2004, Caliper recorded interest expense of $244,000
related to accretion of the lease obligation due to the 5%
discount assumption.
|
|
|
Preferred Share Purchase Rights Plan |
In December 2001, the Board of Directors and stockholders of
Caliper adopted a Preferred Share Purchase Rights Plan
(“Rights Plan”) under which Caliper issued as a
dividend to all holders of its common stock certain rights to
acquire additional shares of common stock at a discount price
under certain circumstances (“Rights”). The dividend
of the Rights was made to holders of record of Caliper’s
common stock as of January 8, 2002. Shares of common stock
that are newly issued after this date will also carry Rights.
The Rights Plan is designed to provide protection to
stockholders from unsolicited and abusive takeover tactics,
including attempts to acquire control of Caliper at an
inadequate price or to treat all stockholders equally. Under the
Rights Plan, each stockholder received one Right for each share
of Caliper’s outstanding common stock held by the
stockholder. Each Right will entitle the holder to purchase one
one-hundredth of a share of newly designated Series A
Junior Participating Preferred Stock of Caliper at an initial
exercise price of $100. Initially, the Rights are not detachable
from Caliper’s common stock and are not exercisable.
Subject to certain exceptions, they become immediately
exercisable after any person or group (an “Acquiring
Person”) acquires beneficial ownership of 15% or more of
Caliper’s common stock, or 10 business days (or such date
as the Board of Directors may determine) after any person or
entity announces a tender or exchange offer that would result in
a 15% or greater beneficial ownership level. At no time will the
Rights have any voting power. If the Rights become exercisable
and a buyer becomes an Acquiring Person, all Rights holders,
except the Acquiring Person, will be entitled to purchase, for
each Right held, $200 worth of Caliper’s common stock for
$100. Caliper’s Board of Directors may amend or terminate
the Rights Plan at any time or redeem the Rights prior to the
time a person acquires more than 15% of Caliper’s common
stock. Issuance of the Rights will not affect the financial
position of Caliper or interfere with its business plans.
Issuance of the Rights will not affect reported earnings per
share and will not be taxable to Caliper or Caliper’s
stockholders except, under certain circumstances, if the Rights
become exercisable.
In January 2004, two warrants were exercised and
38,460 shares of common stock were issued. The warrants
were originally issued in October 1996 in connection with
certain agreements and in February 2000
F-26
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
upon achievement of patent milestones that were defined in an
August 1995 agreement. As of December 31, 2004, there are
no warrants outstanding.
The following is a summary of Caliper’s stock plans that
are in place as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Common Stock | |
| |
|
Plan Shares | |
|
Plan Shares | |
|
Awards | |
|
Reserved for Future | |
| Plan |
|
Authorized | |
|
Available | |
|
Outstanding | |
|
Issuance | |
| |
|
| |
|
| |
|
| |
|
| |
|
Option Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 Equity Plan
|
|
|
12,820,000 |
|
|
|
3,699,719 |
|
|
|
6,042,871 |
|
|
|
9,742,590 |
|
|
1999 Directors’ Plan
|
|
|
556,023 |
|
|
|
410,823 |
|
|
|
138,200 |
|
|
|
549,023 |
|
|
2001 Non-Statutory Stock Option Plan
|
|
|
500,000 |
|
|
|
108,437 |
|
|
|
391,563 |
|
|
|
500,000 |
|
|
Acquisition Plan
|
|
|
900,000 |
|
|
|
25,000 |
|
|
|
838,750 |
|
|
|
863,750 |
|
|
1996 Stock Plan
|
|
|
89,797 |
|
|
|
— |
|
|
|
1,410 |
|
|
|
1,410 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
14,865,820 |
|
|
|
4,243,979 |
|
|
|
7,412,794 |
|
|
|
11,656,773 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 Purchase Plan
|
|
|
1,484,892 |
|
|
|
242,261 |
|
|
|
— |
|
|
|
242,261 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
In October 1999, Caliper’s Board of Directors and
stockholders adopted the 1999 Equity Incentive Plan (“1999
Equity Plan”). The 1999 Equity Plan provided for an
automatic annual increase in the shares reserved for issuance,
by the greater of 5% of outstanding shares on a fully-diluted
basis or the number of shares that have been made subject to
awards granted under the 1999 Equity Plan during the prior
12-month period, to a maximum of 12,820,000 shares in the
aggregate over a 10-year period. Stock awards under the 1999
Equity Plan may be granted in the form of stock options
(incentive and nonstatutory stock options) or stock bonuses
(restricted stock and restricted stock units). Each restricted
stock unit represents the recipient’s right to receive a
stock bonus of one (1) share of common stock, subject to
vesting or other performance considerations. Stock awards
cancelled under the 1999 Equity Plan are made available for
future grants.
In October 1999, Caliper’s Board of Directors and
stockholders adopted the 1999 Non-Employee Directors’ Stock
Option Plan (“1999 Directors’ Plan”) which
provides for the automatic grant of options to non-employee
directors. The number of shares reserved for issuance will
automatically increase by the greater of 0.3% of outstanding
shares on a fully-diluted basis or the number of shares subject
to options granted under the 1999 Directors’ Plan
during the prior 12-month period.
In December 2001, Caliper’s Board of Directors adopted the
2001 Non-Statutory Stock Option Plan (“2001 Non-Statutory
Plan”). Options under the 2001 Non-Statutory Plan cannot be
issued to Caliper’s current officers and directors and was
therefore not required to be voted on and approved by
stockholders.
In June 2003, Caliper’s Board of Directors adopted the
Acquisition Equity Plan (“Acquisition Plan”) which
provides for the grant of options and restricted shares as
inducements to retain key employees in connection with a
significant acquisition. In July 2003, Caliper granted 600,000
options and 275,000 shares of restricted common stock under this
plan in connection with the Zymark acquisition.
On August 31, 1996, Caliper’s Board of Directors and
stockholders adopted the 1996 Stock Incentive Plan (the
“1996 Stock Plan”). Few options remain outstanding
under this plan, and options canceled under the 1996 Stock Plan
are not available for future grants.
In October 1999, Caliper’s Board of Directors and
stockholders adopted the 1999 Employee Stock Purchase Plan
(“1999 Purchase Plan”). The initial number of shares
reserved was 300,000 and under the
F-27
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
1999 Equity Plan, the number of shares reserved for issuance
automatically increases annually by the greater of 0.5% of
outstanding shares on a fully-diluted basis, or the number of
shares issued under the 1999 Purchase Plan during the prior
12-month period. The automatic share reserve increase may not
exceed 3 million shares in aggregate over the 10-year
period.
The 1999 Purchase Plan permits eligible employees to acquire
shares of Caliper’s common stock through payroll deductions
of up to 10% of their gross earnings. No employee may
participate in the 1999 Purchase Plan if, immediately after the
grant, the employee has voting power over 5% or more of the
outstanding capital stock. Under the 1999 Purchase Plan, the
Board may specify offerings of up to 27 months. Unless the
Board determines otherwise, common stock may be purchased at the
lower of 85% of the fair market value of Caliper’s common
stock on the first day of the offering or 85% of the fair market
value of Caliper’s common stock on the purchase date. The
initial offering period began on the effective date of the
initial public offering. Caliper issued 363,199, 359,926 and
337,424 shares under the 1999 Purchase Plan in the years
2004, 2003 and 2002, respectively, at a weighted average price
of $3.48, $3.01 and $4.33, respectively.
A summary of activity under the option plans, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Outstanding | |
|
Weighted- | |
| |
|
|
|
| |
|
Average | |
| |
|
|
|
Number of | |
|
|
|
Exercise | |
| |
|
Available | |
|
Shares | |
|
Exercise Price | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at December 31, 2001
|
|
|
1,563,995 |
|
|
|
4,888,039 |
|
|
$ |
0.06–$162.00 |
|
|
$ |
20.95 |
|
| |
Authorized
|
|
|
2,492,997 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Granted
|
|
|
(2,682,387 |
) |
|
|
2,682,387 |
|
|
$ |
3.52–$ 17.66 |
|
|
$ |
9.46 |
|
| |
Exercised
|
|
|
— |
|
|
|
(157,866 |
) |
|
$ |
0.06–$ 3.12 |
|
|
$ |
1.07 |
|
| |
Canceled
|
|
|
3,030,253 |
|
|
|
(3,030,253 |
) |
|
$ |
0.47–$102.00 |
|
|
$ |
26.60 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
4,404,858 |
|
|
|
4,382,307 |
|
|
$ |
0.06–$162.00 |
|
|
$ |
10.15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Authorized
|
|
|
4,543,275 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Granted
|
|
|
(5,670,660 |
) |
|
|
5,670,660 |
|
|
$ |
0.00–$6.45 |
|
|
$ |
4.12 |
|
| |
Exercised
|
|
|
— |
|
|
|
(177,666 |
) |
|
$ |
0.06–$ 3.63 |
|
|
$ |
1.89 |
|
| |
Vested
|
|
|
— |
|
|
|
(15,152 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
| |
Canceled
|
|
|
923,799 |
|
|
|
(923,799 |
) |
|
$ |
0.97–$77.00 |
|
|
$ |
9.89 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
4,201,272 |
|
|
|
8,936,350 |
|
|
$ |
0.06–$162.00 |
|
|
$ |
6.54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Authorized
|
|
|
103,980 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Granted
|
|
|
(1,055,470 |
) |
|
|
1,055,470 |
|
|
$ |
0.00–$ 9.32 |
|
|
$ |
3.71 |
|
| |
Exercised
|
|
|
— |
|
|
|
(1,374,938 |
) |
|
$ |
0.06–$6.37 |
|
|
$ |
3.69 |
|
| |
Vested
|
|
|
— |
|
|
|
(188,746 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
| |
Un-vested repurchases
|
|
|
— |
|
|
|
(21,145 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
| |
Canceled
|
|
|
994,197 |
|
|
|
(994,197 |
) |
|
$ |
0.97–$162.00 |
|
|
$ |
11.15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
4,243,979 |
|
|
|
7,412,794 |
|
|
$ |
0.00–$162.00 |
|
|
$ |
6.24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2004
|
|
|
|
|
|
|
4,047,952 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2003
|
|
|
|
|
|
|
3,695,624 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2002
|
|
|
|
|
|
|
1,546,056 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Included in the grant activity above are nonqualified options of
256,960, 3,368,761 and 1,757,729 granted to employees and
directors for the years ended December 31, 2004, 2003, and
2002, respectively.
F-28
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The grant activity above includes 409,660 restricted stock units
and 28,000 restricted shares awarded in 2004, and 426,398
restricted shares awarded in 2003. There were no restricted
stock awards in 2002.
The following table summarizes information with respect to stock
options and restricted stock awards outstanding at
December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding | |
|
|
| |
|
| |
|
Exercisable | |
| |
|
|
|
Weighted | |
|
|
|
| |
| |
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
Number of | |
|
Remaining | |
|
Average | |
|
Number of | |
|
Average Exercise | |
| Range of Exercise Price |
|
Shares | |
|
Contractual Life | |
|
Exercise Price | |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 0.00
|
|
|
639,020 |
|
|
|
3.5 |
|
|
$ |
0.00 |
|
|
|
— |
|
|
|
— |
|
|
$ 0.06
|
|
|
1,410 |
|
|
|
1.2 |
|
|
$ |
0.06 |
|
|
|
1,410 |
|
|
$ |
0.06 |
|
|
$ 0.47–$ 0.62
|
|
|
35,796 |
|
|
|
2.6 |
|
|
$ |
0.58 |
|
|
|
35,796 |
|
|
$ |
0.58 |
|
|
$ 0.97
|
|
|
563,664 |
|
|
|
4.1 |
|
|
$ |
0.97 |
|
|
|
563,664 |
|
|
$ |
0.97 |
|
|
$ 3.12–$ 4.64
|
|
|
1,893,223 |
|
|
|
7.1 |
|
|
$ |
3.61 |
|
|
|
1,318,428 |
|
|
$ |
3.57 |
|
|
$ 4.71–$ 7.06
|
|
|
3,111,736 |
|
|
|
8.4 |
|
|
$ |
5.60 |
|
|
|
1,171,005 |
|
|
$ |
5.60 |
|
|
$ 7.39–$ 9.96
|
|
|
343,530 |
|
|
|
6.9 |
|
|
$ |
8.75 |
|
|
|
234,507 |
|
|
$ |
8.87 |
|
|
$ 11.80–$ 17.34
|
|
|
587,744 |
|
|
|
5.9 |
|
|
$ |
14.20 |
|
|
|
490,326 |
|
|
$ |
14.27 |
|
|
$ 20.62–$ 22.40
|
|
|
6,721 |
|
|
|
4.7 |
|
|
$ |
21.23 |
|
|
|
5,633 |
|
|
$ |
21.23 |
|
|
$ 31.13–$ 44.44
|
|
|
187,300 |
|
|
|
4.4 |
|
|
$ |
33.08 |
|
|
|
184,533 |
|
|
$ |
33.07 |
|
|
$ 58.44–$ 77.00
|
|
|
34,100 |
|
|
|
5.3 |
|
|
$ |
70.98 |
|
|
|
34,100 |
|
|
$ |
70.98 |
|
|
$130.00–$162.00
|
|
|
8,550 |
|
|
|
5.1 |
|
|
$ |
150.21 |
|
|
|
8,550 |
|
|
$ |
150.21 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
7,412,794 |
|
|
|
6.9 |
|
|
$ |
6.24 |
|
|
|
4,047,952 |
|
|
$ |
7.63 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 16, 2002, Caliper announced that its Board of
Directors approved a voluntary stock option exchange program for
employees. Under the exchange program, employees were offered
the opportunity to exchange outstanding stock options with
exercise prices of $100 per share or lower for new stock
options to be granted at an exercise price determined on the
date the new stock options were granted. Participating employees
received new stock options in exchange for outstanding stock
options at an exchange ratio of one-for-one. In accordance with
the exchange program, on November 19, 2002, Caliper
cancelled approximately 2.18 million of its outstanding
stock options. Caliper granted new options to purchase
approximately 1.96 million shares of its common stock on
May 20, 2003, the first business day that was six months
and one day after the cancellation of the exchanged options. The
exercise price per share of the new options was $3.63, the fair
market value of Caliper’s common stock at the close of
regular trading on May 19, 2003. Employees received the
same vesting as with their previous options, except that any
future vesting of the replacement options was delayed during the
exchange period. In addition, participating employees were
prohibited from exercising the replacement options for six
months after the date of exchange.
Pro forma information regarding net loss and net loss per share
is required by SFAS No. 123, and has been determined
as if Caliper had accounted for its employee stock options under
the fair-value method of that Statement (as disclosed in
Note 2 to our consolidated financial statements). The
weighted-average fair value of options granted during 2004,
2003, and 2002 was $3.78, $2.82 and $7.16, respectively. The
fair value
F-29
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of these options was estimated at the date of grant using the
Black-Scholes method and the following weighted average
assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Volatility(%)
|
|
|
78 |
|
|
|
81 |
|
|
|
112 |
|
|
Risk-free interest rate(%)
|
|
|
3.11 |
|
|
|
2.26 |
|
|
|
3.70 |
|
|
Expected life (years)
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
Expected dividend yield(%)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
The following table summarizes employee stock compensation
recorded (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Grants related to Caliper’s initial public offering in 1999
|
|
$ |
95 |
|
|
$ |
542 |
|
|
$ |
1,388 |
|
|
Restricted stock issuances
|
|
|
1,599 |
|
|
|
475 |
|
|
|
— |
|
|
Option accelerating and other stock-based expenses incurred in
connection with employment and separation agreements
|
|
|
1,123 |
|
|
|
— |
|
|
|
— |
|
|
Reversal of stock compensation due to forfeited options and
restricted stock
|
|
|
(47 |
) |
|
|
(17 |
) |
|
|
(1,010 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
2,770 |
|
|
$ |
1,000 |
|
|
$ |
378 |
|
| |
|
|
|
|
|
|
|
|
|
Caliper recorded deferred stock compensation related to grants
issued near the date of Caliper’s initial public offering
in 1999, representing the difference between the exercise price
of the options granted and the deemed fair value of the common
stock. These amounts are being amortized by charges to
operations over the vesting periods of the individual stock
options using the accelerated expense attribution method. As of
December 31, 2004, all of the charges have been recorded.
During 2003, Caliper granted 426,398 shares of restricted
common stock under the Acquisition Plan and 1999 Equity Plan at
a weighted average grant-date fair value of $5.20 to certain key
employees, including key employees of Zymark that were retained
by Caliper following the acquisition in July 2003. The
restricted shares vest 100% either 12, 48 or 60 months
from the date of grant. Vesting may be accelerated in the case
of certain restricted stock grants based upon the achievement of
specified Caliper performance milestones. During 2003, Caliper
recorded deferred compensation of $2.2 million and
recognized compensation expense of $475,000 related to
restricted stock awards. During 2004, Caliper recognized
compensation of $843,000 related to these restricted stock
awards.
During 2004, Caliper granted restricted stock unit awards
(“RSUs”) to purchase 409,660 shares of
common stock and 28,000 shares of restricted stock, at a
weighted average grant date fair value of $5.95, under the 1999
Equity Plan. The majority of RSUs granted in 2004 vest
25% per year from the date of grant over a four-year
period. The 28,000 shares of restricted stock granted in
2004 vested in the first quarter of 2004 pursuant to the terms
of Caliper’s separation agreements with its former Chief
Financial Officer and Corporate Controller. The value of this
restricted stock of $257,000 was expensed as part of employee
stock compensation in the accompanying statement of operations.
During 2004, Caliper recorded deferred compensation of
$2.6 million and recognized compensation expense of
$756,000 related to the 2004 restricted stock awards. As of
December 31, 2004, deferred compensation of
$2.7 million is included as a reduction of total
stockholders’ equity, of which $845,000 relates to the 2003
grants of restricted stock.
Caliper recognizes compensation cost on a straight-line basis
over the vesting period for awards that are subject to cliff
vesting on a defined date. Restricted stock that vests ratably
over a defined period is recognized as compensation expense
using the accelerated expense attribution method. Provided no
acceleration of
F-30
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
vesting occurs, and assuming no forfeitures, amounts to be
recognized as compensation expense in future periods are as
follows (in thousands):
| |
|
|
|
|
|
2005
|
|
$ |
1,263 |
|
|
2006
|
|
|
747 |
|
|
2007
|
|
|
494 |
|
|
2008
|
|
|
162 |
|
| |
|
|
|
| |
|
$ |
2,666 |
|
| |
|
|
|
Caliper has no provision for U.S. federal or state income
taxes for any period, as it has incurred only operating losses.
A reconciliation of income taxes at the statutory federal income
tax rate to net income taxes included in the accompanying
statements of operations is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
U.S. federal taxes (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At statutory rate
|
|
$ |
(10,601 |
) |
|
$ |
(16,775 |
) |
|
$ |
(14,197 |
) |
|
State
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign
|
|
|
377 |
|
|
|
190 |
|
|
|
— |
|
|
Permanent differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock Compensation
|
|
|
(685 |
) |
|
|
340 |
|
|
|
542 |
|
| |
Other
|
|
|
95 |
|
|
|
151 |
|
|
|
169 |
|
|
Unutilized net operating losses
|
|
|
11,191 |
|
|
|
16,284 |
|
|
|
13,486 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
377 |
|
|
$ |
190 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of Caliper’s deferred tax assets for
federal and state income taxes are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Net operating loss carryforwards
|
|
$ |
47,859 |
|
|
$ |
36,099 |
|
|
$ |
22,400 |
|
|
Research credit carryforwards
|
|
|
7,093 |
|
|
|
6,230 |
|
|
|
4,350 |
|
|
Capitalized research and development
|
|
|
2,567 |
|
|
|
3,026 |
|
|
|
3,420 |
|
|
Restructuring accrual
|
|
|
4,473 |
|
|
|
3,917 |
|
|
|
— |
|
|
Intangible assets
|
|
|
(5,041 |
) |
|
|
(6,564 |
) |
|
|
— |
|
|
Other, net
|
|
|
5,736 |
|
|
|
4,349 |
|
|
|
3,050 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
62,687 |
|
|
|
47,057 |
|
|
|
33,220 |
|
|
Valuation allowance
|
|
|
(62,687 |
) |
|
|
(47,057 |
) |
|
|
(33,220 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
F-31
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 31, 2004, Caliper had federal and state net
operating loss carryforwards of approximately $132 million
and $47 million, respectively. Caliper also had federal and
state research and development tax credit carryforwards of
approximately $4.1 million and $2.8 million,
respectively. The federal net operating loss and credit
carryforwards will expire at various dates through 2024
beginning in the year 2009, if not utilized. State net operating
losses of approximately $750,000 expired in 2004. The current
remaining state net operating losses have varying expiration
dates through 2013.
Because of Caliper’s lack of earnings history and the
uncertainty of realizing these net operating losses, the
deferred tax assets have been fully offset by a valuation
allowance. The valuation allowance increased by
$15.6 million, $13.8 million and $17.4 million
during the years ended December 31, 2004, 2003 and 2002,
respectively.
Utilization of the federal and state net operating losses and
credits may be subject to a substantial limitation due to the
change in ownership provisions of the Internal Revenue Code of
1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits
before utilization.
On October 22, 2004, the American Jobs Creation Act of 2004
(the “Act”), was signed into law. The Act provides for
a special one-time tax deduction of 85% of certain foreign
earnings that are repatriated (as defined in the Act) in either
an enterprise’s last tax year that began before the
enactment date, or the first tax year that begins during the one
year period beginning on the date of enactment. Caliper does not
expect the evaluation to materially affect the financial
statements and disclosures presented within this Annual Report
on Form 10-K. As allowable under FASB Staff Position
FAS 109-2, Caliper is evaluating the effect of the Act on
its plan for reinvestment or repatriation of foreign earnings
for purposes of applying Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes”
in 2005.
|
|
| 15. |
Relationship with Amphora |
Caliper was one of several investors that formed Amphora
Discovery Corp. in 2001 to create and commercialize a
comprehensive database of chemical genomics information, in
which it retained an initial ownership interest of 28%. Caliper
occupied two seats on Amphora’s Board of Directors, one of
which was relinquished in March 2003, and the other in October
2003. Caliper’s investment in Amphora was historically
accounted for under the equity method of accounting until
December 2003, when Amphora completed its third private equity
placement with third party investors that reduced Caliper’s
ownership to a fraction of 1%. Caliper did not account for its
proportionate share of Amphora’s operating losses in its
financial statements, since the investment in Amphora had no
basis for accounting purposes, and because Caliper did not
guarantee debt or have commitments to fund losses of Amphora.
In 2001, Caliper and Amphora entered into a LabChip Solutions
Agreement and an Intellectual Property Agreement. The LabChip
Solutions Agreement provided for the ongoing supply of Caliper
automated drug discovery systems and chips to Amphora, and for
the provision of related services by Caliper to Amphora. Under
this agreement, Amphora agreed to purchase a certain minimum
number Caliper 250 Drug Discovery instruments through
December 31, 2002. Amphora also agreed to purchase
datapoints at a fixed amount of $2 million in the first
year and a minimum of $4 million to a maximum based on
volume of $6 million in the second year of the agreement.
The LabChip Solutions Agreement also contained certain
intellectual property licensing provisions pertaining to the
parties’ independent and collaborative efforts to develop
new drug discovery systems based on Caliper’s microfluidic
technologies. Under the Intellectual Property Agreement, Caliper
granted Amphora certain exclusive rights to use Caliper’s
drug discovery products in a chemical genomics database business.
In 2002, in connection with the completion of Amphora’s
second private placement financing, Caliper and Amphora agreed
to a renegotiation of Amphora’s remaining obligations under
the LabChip Solutions
F-32
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Agreement. In consideration for Caliper’s agreement to this
restructuring, Amphora issued to Caliper 2.5 million shares
of Amphora preferred stock for which a nominal value was
ascribed, and ultimately written off in 2003. Under the
renegotiated agreement, the companies agreed to restructure the
$4 million minimum datapoint payment for 2002 as follows:
Amphora agreed to purchase a minimum of $1.8 million of
datapoints during the second year of the agreement beginning in
December 2002 and over time to make up to $2.2 million of
deferred payments to Caliper. These deferred payments are
contingent upon Amphora’s future revenue generation,
datapoint production and other conditions, and can be satisfied
by Amphora under three methods: (i) quarterly payments to
Caliper based on Amphora’s revenues, (ii) commissions
earned by Amphora as they provide certain marketing assistance
to Caliper for Caliper’s instruments, and
(iii) additional datapoint payments if Amphora exceeds the
certain minimum datapoint levels.
In 2002, Caliper recognized $6.2 million of related party
revenue from Amphora consisting of $3.3 million in Caliper
250 drug discovery system products and chips, $1.7 million
in datapoints, $900,000 in assay development services and
$300,000 in gross profit previously deferred under equity method
accounting. In 2003, Caliper recognized $2.5 million of
related party revenue consisting of $500,000 in Caliper 250 drug
discovery system products and chips, $1.7 million in
datapoints and $300,000 gross profit previously deferred
under equity method accounting. In 2004, Caliper recognized
$810,000 in revenue from Amphora as a result of a non-monetary
transaction pursuant to which Caliper acquired certain
technology rights from Amphora for $1.0 million as more
fully described in Note 4. Aside from the transaction
described in Note 4, Caliper no longer intends to
separately disclose its revenues from Amphora due to the current
nature of the relationship.
Caliper has a 401(k) plan qualified under section 401(k) of
the Internal Revenue code that is available to all eligible
employees as defined in the plan. Caliper has not historically
matched employee contributions.
In January 2001, Caliper announced a comprehensive settlement
agreement with Aclara Biosciences, Inc. of a patent litigation
that was begun in 1999. Under the terms of the settlement, both
companies agreed to dismiss all suits and countersuits in the
federal and state court actions and to cross-license selected
patents. Under the terms of the agreement, Aclara agreed to pay
Caliper $37.5 million. Caliper recognized a
$5.0 million license fee and a $27.5 million
litigation settlement in 2002. In addition, Caliper was entitled
to receive ongoing royalty payments on certain Aclara product
sales through 2008, with a minimum royalty payment of
$2.5 million in each of 2002 and 2003. Such amounts were
received by Caliper and recognized in license fee revenue. There
were no royalty payments received in 2004.
In November 2003, Caliper and Molecular Devices Corporation
settled a lawsuit that was begun in 2002 in which Caliper
asserted that Molecular Devices’s IMAP and Reagent Assay
Kits willfully infringed one or more claims of patents owned by
Caliper. In connection with the settlement, Caliper and
Molecular Devices entered into a nonexclusive license agreement
pursuant to which Molecular Devices agreed to pay to Caliper a
one-time license fee as well as royalties based on future sales
of IMAP products. Caliper received the undisclosed license fee
in the fourth quarter of 2003 and recognized this amount as
license revenue.
Commencing on June 7, 2001, Caliper and three of its
officers and directors (David V. Milligan, Daniel L. Kisner and
James L. Knighton) were named as defendants in three securities
class action lawsuits filed in the United States District Court
for the Southern District of New York. The cases have been
consolidated under the caption In re Caliper Technologies
Corp. Initial Public Offering Securities Litigation, 01
Civ. 5072 (SAS) (GBD). Similar complaints were filed
against approximately 300 other public companies that conducted
IPOs of their common stock during the late 1990s (the “IPO
Lawsuits”). On August 8, 2001, the IPO Lawsuits were
consolidated for pretrial purposes before United States Judge
Shira Scheindlin of the Southern District of New York. Together,
those cases are denominated In re Initial Public Offering
Securities
F-33
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Litigation, 21 MC 92(SAS). On April 19, 2002, a
Consolidated Amended Complaint was filed alleging claims against
Caliper and the individual defendants under Sections 11 and
15 of the Securities Act of 1933, and under Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as well as
Rule 10b-5 promulgated thereunder. The Consolidated Amended
Complaint also names certain underwriters of Caliper’s
December 1999 initial public offering of common stock. The
Complaint alleges that these underwriters charged excessive,
undisclosed commissions to investors and entered into improper
agreements with investors relating to aftermarket transactions.
The Complaint seeks an unspecified amount of money damages.
Caliper and the other issuers named as defendants in the IPO
Lawsuits moved on July 15, 2002, to dismiss all claims on
multiple grounds. By Stipulation and Order dated
October 9, 2002, the claims against
Messrs. Milligan, Kisner and Knighton were dismissed
without prejudice. On February 19, 2003, the Court granted
Caliper’s motion to dismiss all claims against it.
Plaintiffs were not given the right to replead the claims
against Caliper. The time to appeal the dismissal has not yet
expired. In May 2003, a Memorandum of Understanding was executed
by counsel for plaintiffs, issuers and their insurers setting
forth the terms of a settlement that would result in the
termination of all claims brought by plaintiffs against the
issuers and individual defendants named in the IPO Lawsuits. On
July 7, 2003, a Special Litigation Committee of the Caliper
Board of Directors approved the settlement terms described in
that Memorandum of Understanding, which was subsequently set
forth in definitive Settlement Agreement among the settling
parties. On February 15, 2005, Judge Scheindlin issued an
order granting preliminary approval of the settlement, subject
to the condition that the settling parties agree to modify the
terms of the settlement to limit the scope of the bar order
contemplated by the settlement. Caliper is in the process of
determining whether the condition contained in Judge
Scheindlin’s order granting conditional approval of the
settlement is acceptable to it. The final resolution of this
litigation is not expected to have a material impact on
Caliper’s financial statements.
The table below presents Caliper’s activities by
geographical location. Caliper attributes revenue to geographic
locations based upon customer service and business development
activities.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
50,154 |
|
|
$ |
34,668 |
|
|
$ |
23,838 |
|
| |
Europe
|
|
|
20,029 |
|
|
|
10,291 |
|
|
|
307 |
|
| |
Asia
|
|
|
8,233 |
|
|
|
3,986 |
|
|
|
1,688 |
|
| |
Other
|
|
|
1,711 |
|
|
|
466 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
80,127 |
|
|
$ |
49,411 |
|
|
$ |
25,833 |
|
| |
|
|
|
|
|
|
|
|
|
F-34
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
(34,199 |
) |
|
$ |
(49,105 |
) |
|
$ |
(41,226 |
) |
| |
Europe
|
|
|
1,211 |
|
|
|
(516 |
) |
|
|
(133 |
) |
| |
Asia
|
|
|
1,095 |
|
|
|
132 |
|
|
|
395 |
|
| |
Other
|
|
|
337 |
|
|
|
(38 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(31,556 |
) |
|
$ |
(49,527 |
) |
|
$ |
(40,964 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
5,946 |
|
|
$ |
8,843 |
|
|
$ |
12,522 |
|
| |
Europe
|
|
|
227 |
|
|
|
244 |
|
|
|
23 |
|
| |
Asia
|
|
|
13 |
|
|
|
19 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
6,186 |
|
|
$ |
9,106 |
|
|
$ |
12,545 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
107,292 |
|
|
$ |
136,089 |
|
|
$ |
167,928 |
|
| |
Europe
|
|
|
4,392 |
|
|
|
(1,221 |
) |
|
|
(370 |
) |
| |
Asia
|
|
|
(631 |
) |
|
|
(259 |
) |
|
|
— |
|
| |
Other
|
|
|
526 |
|
|
|
188 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
111,579 |
|
|
$ |
134,797 |
|
|
$ |
167,558 |
|
| |
|
|
|
|
|
|
|
|
|
For all periods presented, sales did not exceed 10% of our total
revenues in any individual country other than the United States.
Caliper’s other long-lived assets include restricted cash,
goodwill, intangible assets and other assets which are primarily
located in the United States.
F-35
CALIPER LIFE SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 19. |
Quarterly Financial Data (Unaudited) |
The following quarterly financial data include the results of
Zymark, effective from the date of acquisition, July 14,
2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
16,933 |
|
|
$ |
18,922 |
|
|
$ |
20,181 |
|
|
$ |
24,091 |
|
|
Gross profit(1)
|
|
|
4,808 |
|
|
|
6,432 |
|
|
|
7,196 |
|
|
|
7,797 |
|
|
Operating loss
|
|
|
(10,103 |
) |
|
|
(9,637 |
) |
|
|
(5,159 |
) |
|
|
(7,399 |
) |
|
Net loss
|
|
|
(10,036 |
) |
|
|
(9,473 |
) |
|
|
(5,129 |
) |
|
|
(6,918 |
) |
|
Basic and diluted loss per share
|
|
$ |
(0.35 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.23 |
) |
|
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
5,612 |
|
|
$ |
5,878 |
|
|
$ |
16,523 |
|
|
$ |
21,398 |
|
|
Gross profit(1)
|
|
|
1,190 |
|
|
|
979 |
|
|
|
5,321 |
|
|
|
2,325 |
|
|
Operating loss
|
|
|
(10,854 |
) |
|
|
(10,620 |
) |
|
|
(10,961 |
) |
|
|
(20,408 |
) |
|
Net loss
|
|
|
(9,968 |
) |
|
|
(9,542 |
) |
|
|
(10,148 |
) |
|
|
(19,869 |
) |
|
Basic and diluted loss per share
|
|
$ |
(0.40 |
) |
|
$ |
(0.39 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.70 |
) |
|
|
| (1) |
Gross profit refers to total product and service revenue, less
costs associated with those revenues. Costs related to contract
revenues are included within research and development expenses
in the accompanying statements of operations. |
F-36
Caliper Life Sciences, Inc.
Schedule II — VALUATION AND QUALIFYING
ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance | |
|
Additions | |
|
|
|
|
| |
|
at | |
|
Charged to | |
|
|
|
Balance at | |
| |
|
Beginning | |
|
Costs and | |
|
|
|
End of | |
| |
|
Period | |
|
Expenses | |
|
Deductions | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
252 |
|
|
$ |
244 |
|
|
$ |
21 |
|
|
$ |
475 |
|
|
Valuation allowance for deferred tax assets
|
|
|
47,057 |
|
|
|
15,630 |
(1) |
|
|
— |
|
|
|
62,687 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
47,309 |
|
|
$ |
15,874 |
|
|
$ |
21 |
|
|
$ |
63,162 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
119 |
|
|
$ |
263 |
|
|
$ |
130 |
|
|
$ |
252 |
|
|
Valuation allowance for deferred tax assets
|
|
|
33,220 |
|
|
|
13,837 |
(1) |
|
|
— |
|
|
|
47,057 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
33,339 |
|
|
$ |
14,100 |
|
|
$ |
130 |
|
|
$ |
47,309 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
— |
|
|
$ |
119 |
|
|
$ |
— |
|
|
$ |
119 |
|
|
Valuation allowance for deferred tax assets
|
|
|
15,827 |
|
|
|
17,393 |
(1) |
|
|
— |
|
|
|
33,220 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
15,827 |
|
|
$ |
17,512 |
|
|
$ |
— |
|
|
$ |
33,339 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Charged to deferred tax expense |
F-37
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description of Document |
| | |
|
|
| |
2 |
.1(17) |
|
Stock Purchase Agreement, by and among Caliper, Berwind
Corporation and The Berwind Company LLC, dated June 9, 2003. |
| |
2 |
.2(17) |
|
Amendment No. 1 to the Stock Purchase Agreement, by and
among Caliper, Berwind Corporation and The Berwind Company LLC,
dated July 10, 2003. |
| |
2 |
.3(20) |
|
Amendment No. 2 to the Stock Purchase Agreement, by and
among Caliper, Berwind Corporation and The Berwind Company LLC,
dated April 1, 2004. |
| |
3 |
.1(20) |
|
Amended and Restated Certificate of Incorporation of Caliper. |
| |
3 |
.2(9) |
|
Certificate of Designation Of Series A Junior Participating
Preferred Stock. |
| |
3 |
.3(1) |
|
Restated Bylaws of Caliper. |
| |
3 |
.4(18) |
|
Amendment No. 1 to Bylaws of Caliper. |
| |
4 |
.1 |
|
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4. |
| |
4 |
.2 |
|
Specimen Stock Certificate. |
| |
4 |
.3(9) |
|
Rights Agreement, dated as of December 18, 2001, between
Caliper and Wells Fargo Bank Minnesota, N.A., as Rights Agent. |
| |
10 |
.1(2) |
|
Lease Agreement, dated December 1, 1998, between Caliper
and 605 East Fairchild Associates, L.P. |
| |
10 |
.2(2)(3) |
|
1996 Equity Incentive Plan. |
| |
10 |
.3(2)(3) |
|
1999 Equity Incentive Plan. |
| |
10 |
.4(2)(3) |
|
1999 Employee Stock Purchase Plan. |
| |
10 |
.5(2)(3) |
|
1999 Non-Employee Directors’ Stock Option Plan. |
| |
10 |
.6(3) |
|
Form of Grant Agreement for 1999 Equity Incentive
Plan — Option Awards. |
| |
10 |
.7(3) |
|
Form of Grant Agreement for 1999 Equity Incentive
Plan — Restricted Stock Unit Awards. |
| |
10 |
.8(3) |
|
Form of Grant Agreement for 1999 Non-Employee Directors’
Stock Option Plan. |
| |
10 |
.9(2)(3) |
|
Form of Indemnification Agreement entered into between Caliper
and its directors and executive officers. |
| |
10 |
.10(2)(4) |
|
Collaboration Agreement, dated May 2, 1998, between Caliper
and Hewlett-Packard Company (now Agilent Technologies, Inc.). |
| |
10 |
.11(3) |
|
Form of Stock Option Grant Agreement for Acquisition Equity
Incentive Plan. |
| |
10 |
.12(3) |
|
Form of Stock Award Agreement for Acquisition Equity Incentive
Plan (pro rata vesting). |
| |
10 |
.13(3) |
|
Form of Stock Award Agreement for Acquisition Equity Incentive
Plan (5 year cliff vesting). |
| |
10 |
.17(3) |
|
Non-Employee Directors’ Cash Compensation Plan. |
| |
10 |
.18(3)(12) |
|
Caliper Performance Bonus Plan. |
| |
10 |
.19(3) |
|
Employment Offer Letter dated November 30, 2004 between
Caliper and Mr. Thomas T. Higgins. |
| |
10 |
.20(3)(12) |
|
Summary Cash Compensation Sheet. |
| |
10 |
.23(2)(3) |
|
The Corporate Plan for Retirement Select Plan Adoption Agreement
and related Basic Plan Document. |
| |
10 |
.27(6) |
|
Lease Agreement, dated June 23, 2000 and effective
July 5, 2000, between Caliper and Martin CBP Associates,
L.P. |
| |
10 |
.28(3)(6) |
|
Amended Promissory Note, dated July 17, 2000, between
Caliper and Dr. Daniel L. Kisner. |
| |
10 |
.29(3) |
|
Key Employee Change of Control and Severance Benefit Plan. |
| |
10 |
.30(5)(9) |
|
Cross-License Agreement, dated March 12, 2001 between
Aclara Biosciences, Inc. and Caliper. |
| |
10 |
.32(4)(7) |
|
Settlement Agreement and Mutual General Release, dated
March 12, 2001 between Aclara Biosciences, Inc. and Caliper. |
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description of Document |
| | |
|
|
| |
10 |
.33(4)(8) |
|
LabChip Solutions Agreement, dated September 21, 2001,
between Amphora Discovery Corp. and Caliper. |
| |
10 |
.39(3)(10) |
|
2001 Non-Statutory Stock Option Plan. |
| |
10 |
.46(3) |
|
Form of Grant Agreement for 2001 Non-Statutory Stock Option Plan. |
| |
10 |
.48(3)(11) |
|
Key Employee Agreement, dated July 1, 2002, between Caliper
and Dr. Daniel Kisner. |
| |
10 |
.52(4)(18) |
|
Sole Commercial Patent License Agreement, effective
September 1, 1995, between UT-Battelle, LLC, the successor
to Lockheed Martin Energy Research Corporation, and Caliper, as
amended on November 1, 2002. |
| |
10 |
.53(4)(18) |
|
Modification of LabChip Solutions Agreement, dated
December 12, 2002, between Amphora Discovery Corp. and
Caliper. |
| |
10 |
.55(4)(14) |
|
Collaboration Agreement, dated June 4, 2003, between
Caliper and Bio-Rad Laboratories, Inc. |
| |
10 |
.56(3)(15) |
|
Key Employee Agreement, dated July 14, 2003, between
Caliper and E. Kevin Hrusovsky. |
| |
10 |
.61(15) |
|
Letter Agreement, dated September 17, 2003, between Caliper
and Berwind Company LLC regarding the appointment of a Berwind
nominee to the Caliper Board of Directors. |
| |
10 |
.62(3)(16) |
|
Acquisition Equity Incentive Plan. |
| |
10 |
.63(3)(19) |
|
Key Employee Agreement Amendment, dated December 24, 2003,
between Caliper and Dr. Daniel L. Kisner. |
| |
10 |
.64(3)(19) |
|
Consulting Agreement, dated January 1, 2004, between
Caliper and Dr. David V. Milligan. |
| |
10 |
.66(4)(19) |
|
Collaboration and Supply Agreement, dated January 9, 2004,
among Caliper, Zymark Corporation and Affymetrix, Inc. |
| |
10 |
.69(4)(19) |
|
Letter Amendment to Modification Agreement, dated
December 22, 2003, between Caliper and Amphora Discovery
Corp. |
| |
11 |
.1 |
|
Subsidiaries of the Registrant. |
| |
23 |
.1 |
|
Consent of Ernst & Young LLP, independent registered
public accounting firm. |
| |
24 |
.1 |
|
Power of Attorney (reference is made to the signature page of
this report). |
| |
31 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
31 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
32 |
.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
| |
32 |
.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
| (1) |
Previously filed as Exhibit 3.4 to our Registration
Statement on Form S-1, as amended, File No. 333-88827,
filed on October 12, 1999 and incorporated by reference
herein. |
| |
| (2) |
Previously filed as the like-numbered Exhibit to our
Registration Statement on Form S-1, as amended, File
No. 333-88827, filed on October 12, 1999 and
incorporated by reference herein. |
| |
| (3) |
Management contract or compensatory plan or arrangement. |
| |
| (4) |
Confidential treatment has been granted for a portion of this
exhibit. |
| |
| (5) |
Filed as the like-numbered exhibit to Annual Report of
Form 10-K for the year ended December 31, 1999 and
incorporated by reference herein. |
| |
| (6) |
Previously filed as the like-numbered Exhibit to our
Registration Statement on Form S-1, as amended, File
No. 333-45942, filed on September 15, 2000, and
incorporated by reference herein. |
| |
| (7) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended March 31, 2001 and
incorporated by reference herein. |
| |
| (8) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended September 30, 2001 and
incorporated by reference herein. |
|
|
| (9) |
Previously filed as Exhibit 99.1 to Current Report on
Form 8-K filed December 19, 2001 and incorporated by
reference herein. |
|
|
| (10) |
Previously filed as Exhibit 99.1 to our Registration
Statement on Form S-8, File No. 333-76636, filed
January 11, 2002 and incorporated by reference herein. |
| |
| (11) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended September 30, 2002 and
incorporated by reference herein. |
| |
| (12) |
Previously filed as the like-numbered Exhibit to Current Report
on Form 8-K filed March 16, 2005 and incorporated by
reference herein. |
| |
| (13) |
Confidential treatment has been requested for a portion of this
exhibit. |
| |
| (14) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended June 30, 2003 and
incorporated by reference herein. |
| |
| (15) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended September 30, 2003 and
incorporated by reference herein. |
| |
| (16) |
Previously filed as Exhibit 99.1 to our Registration
Statement on Form S-8, File No. 333-106946, filed
June 10, 2003 and incorporated by reference herein. |
| |
| (17) |
Previously filed as the like-numbered Exhibit to Form 8-K
filed July 25, 2003 and incorporated by reference herein. |
| |
| (18) |
Previously filed as the like-numbered Exhibit to Form 10-K
for the year ended December 31, 2002 and incorporated by
reference herein. |
| |
| (19) |
Previously filed as the like-numbered Exhibit to Form 10-K
for the year ended December 31, 2003 and incorporated by
reference herein. |
| |
| (20) |
Previously filed as the like-numbered Exhibit to Form 10-Q
for the quarterly period ended March 31, 2004 and
incorporated by reference herein. |