DGEN Deltaagen Inc (CE)

Deltagen, Inc. (Pink Sheets: DGEN), a leading provider of drug discovery tools to the biopharmaceutical industry, today reported financial results for the three months ended September 30, 2006 and declared a 20-cent per share dividend scheduled to be distributed on or about December 28, 2006 to shareholders of record as of the close of business on December 18, 2006. Revenues: The Company�s consolidated revenues for the three months ended September 30, 2006 totaled $0.970 million. The third quarter revenues were attributable primarily to license fees associated with the provision of knockout mice and related phenotypic data under the Company�s DeltaOneTM program. A delivery order for four knockout mouse lines was placed by the NIH in the third quarter of 2006. The revenues relating to this delivery order ($0.160 million) will be recognized starting in the fourth quarter of 2006 and through the first two quarters of 2007. There are no assurances that the NIH will place any additional delivery orders during the three-year term of the NIH contract, which expires on September 30, 2008. Interest Income: The Company had interest income of $0.126 million for the three months ended September 30, 2006. Expenses: Total consolidated expenses for the three months ended September 30, 2006 were $0.959 million, of which $0.246 million were attributable to third-party royalty and commission obligations and $0.123 million were attributable to a non-cash stock-based compensation expense relating to stock options granted by the Company on March 30, 2006 in accordance with Statement of Financial Standards (SFAS 123R). Other operating expenses, which totaled $0.590 million for the three months ended September 30, 2006, were attributable primarily to salaries and other general and administrative expenses. Legal and administrative fees associated with prosecution of the Company�s patent portfolio for the three months ended September 30, 2006 were $0.083 million, compared to $0.201 million for the second quarter of 2006 and $0.373 million in the first quarter of 2006. The decrease in patent-related expenses is due to the Company reducing or discontinuing in the third quarter of 2006 its efforts on the prosecution of certain of its patent applications in an effort to reduce such expenses and for the other reasons set forth in the "Risk Factors" and other sections of Management's Discussion and Analysis of Financial Conditions and Results of Operations. Net Income: Net income for the three months ended September 30, 2006 was $0.137 million. Cash, Cash Equivalents and Accounts Receivable: As of September 30, 2006, the Company had $11.993 million in consolidated cash and cash equivalents and $1.808 million in accounts receivable. The proposed dividend will reduce cash by approximately $7.7 million. Subsequent Events: Completion of Strategic Review: In July 2006, the Company engaged the services of an investment banking firm to assist the Company in identifying and evaluating various strategic alternatives and opportunities, including possible sale of the Company. After thoroughly reviewing the alternatives, the Board of Directors of the Company decided in November 2006 not to pursue any such opportunities and terminated its agreement with the investment banking firm. DeltaBase Milestone Buyouts: In October 2006, the Company entered into an agreement with one of its DeltaBase collaborators under which the Company received in early December 2006 a one-time buyout payment in exchange for the elimination of any future access extension fees and potential milestone payments that may become due or payable under the DeltaBase agreement with such collaborator. This buyout does not affect any fees due Deltagen associated with the provision of knockout mouse materials in the future. The Company is also currently negotiating with another of its DeltaBase collaborators for a buyout of that collaborator�s access extension fees and potential milestone payments. Assuming the Company will be successful in reaching agreement with such collaborator, the Company may discontinue prosecution of a significant portion or all of its patent applications relating to individual knockout mouse lines relating to those DeltaBase collaborations. Any decision whether to discontinue prosecution of its patent applications will also involve consideration of the factors discussed in the �Risk Factors� and other sections of Management�s Discussion and Analysis of Financial Conditions and Results of Operations. Cessation of patent prosecution efforts would significantly reduce operating expenses. The patent prosecution expenses totaled $1.138 million during 2005 and $0.657 million during the first nine months of 2006. Contracts with The Wellcome Trust and GSF: In November 2006, the Company entered into agreements with The Wellcome Trust and GSF � National Research Center for Environment and Health GmbH (�GSF�) for the provision by the Company of knockout mouse lines for distribution to academic researchers. The terms of these agreements are generally consistent with those of the NIH contract, under which The Wellcome Trust, as a �partner� of the NIH, was eligible for financial terms no less favorable than those under the NIH contract. The Wellcome Trust and GSF are not obligated to place any orders under these contracts and, to date, have not placed any orders. However, the Company expects to receive an initial order in the first quarter of 2007. New Facilities Lease: In November 2006, the Company signed a lease for new office space located at The Atrium, 1900 South Norfolk Street, Suite 105, San Mateo, CA 94403. The new address will become effective in January 2007. Dividend Declaration: The Company will distribute on or about December 28, 2006 a dividend of $0.20 per share. The Company�s shareholders of record as of the close of business on December 18, 2006 will receive this dividend. The unaudited consolidated financial statements for the third quarter of 2006, accompanying notes, and Management�s Discussion and Analysis of Financial Conditions and Results of Operations for such period will be posted on Deltagen�s website (www.deltagen.com). Review of the financial statements for the third quarter of 2006 has not been completed by our independent auditors. As a result, the financial statements for the third quarter of 2006 are subject to change. About Deltagen Deltagen, Inc. is a leading provider of drug discovery tools to the biopharmaceutical industry. Deltagen offers access to its extensive inventory of knockout mouse lines and related phenotypic data, which enhance the efficiency of target validation and drug discovery. In addition, Deltagen offers target validation data in the areas of immunology and metabolic diseases. Deltagen's products and programs have been validated by customers and partners such as Eli Lilly & Co., GlaxoSmithKline, Merck & Co., Inc. and Pfizer Inc. For more information on Deltagen, visit the Company's website at www.deltagen.com. Safe Harbor Statement This press release contains �forward-looking statements,� including statements about Deltagen�s future revenues and operating results, any possible future dividend declarations, royalty and milestone revenues, third-party royalty obligations and third-party licenses and intellectual property, as well as other matters that are not historical facts or information. These forward-looking statements are based on management�s current assumptions and expectations and involve risks, uncertainties and other important factors, specifically including those relating to Deltagen�s ability to achieve its operational objectives and revenue projections and to obtain patent protection for its discoveries, that may cause Deltagen�s actual results to be materially different from any future results expressed or implied by such forward-looking statements. There are no assurances that the Company will declare any future dividends. Information identifying such important risk factors is contained in �Management�s Discussion and Analysis of Financial Conditions and Results of Operations�, which can be found at Deltagen�s website at www.deltagen.com. Deltagen undertakes no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise. Consolidated Balance SheetFor Quarters ending 3/31/06, 6/30/06 & 9/30/06 � Unaudited Unaudited Unaudited (In Thousands) 03/31/06� 06/30/06� 09/30/06� Consolidated Consolidated Consolidated Assets Current assets: Cash and cash equivalents 10,434� 10,789� 11,992� Accounts receivable, net 1,561� 3,380� 1,808� Prepaids, Deposits and Tax Assets 490� 642� 701� Total current assets 12,485� 14,811� 14,501� � Property and equipment, net 84� 72� 73� � Non-current portion of deferred tax assets 848� 400� 400� � � � Total assets 13,417� 15,283� 14,974� � � Liabilities and Stockholders' Equity Current liabilities: Accounts payable 1,539� 1,590� 909� Accrued expenses 80� 143� 275� Total liabilities 1,619� 1,733� 1,184� � Stockholders' equity: Common stock 39� 39� 39� Treasury Stock (867) (867) (867) Additional paid-in capital 238,648� 217,223� 217,348� Additional paid-in capital � Stock-based compensation -� 21,548� 21,548� Retained Earnings (226,089) (224,605) (224,468) Foreign currency translation adjustment 67� 211� 190� Total stockholders' equity 11,798� 13,549� 13,790� � � � Total liabilities and stockholders' equity 13,417� 15,282� 14,974� Consolidated Income Statement and Statement of Retained Earnings For Quarters ending 3/31/06, 6/30/06 & 9/30/06 (In Thousands) Unaudited Unaudited Unaudited 03/31/06� 06/30/06� 09/30/06� Consolidated Consolidated Consolidated � Revenue 1,882� 3,749� 970� Royalty and Commission Costs 493� 1,125� 246� Stock-Based Compensation Expense -� 123� 123� Other Operating Costs 1,063� 767� 590� � Income From Operations 327� 1,734� 11� � Interest Income 97� 89� 126� Loss on disposal of assets (44) -� -� � Total Other Income 53� 89� 126� � Income before provision for income taxes 380� 1,823� 137� � Provision for income taxes Current income tax expense 11� 39� -� Deferred income tax expense 152� 817� -� Adjustment for valuation allowance -� (518) -� � Total income tax expense 163� 338� -� � � � Net Income (Loss) 217� 1,485� 137� � Retained earnings at beginning of period (226,306) (226,089) (224,605) � Retained earnings at end of period (226,089) (224,605) (224,468) Consolidated Cash FlowFor Quarters ending 3/31/06, 6/30/06 & 9/30/06 (In Thousands) Unaudited Unaudited Unaudited 03/31/06� 06/30/06� 09/30/06� Consolidated Consolidated Consolidated � Cash flows from operating activities: � Net Income 217� 1,485� 137� � Adjustments to reconcile net income to net cash used by operating activities Depreciation 11� 11� -� Loss on disposal of fixed assets 44� -� -� Stock-based compensation expense -� 123� 123� � (Increase) / Decrease in operating assets Accounts receivable 926� (1,819) 1,573� Prepaids, deposits and tax assets 1,165� 297� (59) � (Increase) / Decrease in operating liabilities Accounts payable (2,757) 51� (681) Accrued Expenses (796) 63� 132� � � � Net Increase (Decrease) in cash (1,190) 211� 1,225� � Effect of foreign exchange rate change on cash 67� 144� (21) � Cash at beginning of period 11,557� 10,434� 10,789� � Cash at end of period 10,434� 10,789� 11,992�