SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ________________________
Commission File Number 0-27316
Molecular Devices Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-2914362
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1311 Orleans Drive
Sunnyvale, California 94089
(Address of principal executive offices, including zip code)
(408) 747-1700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
As of November 9, 1999, 9,632,004 shares of the Registrant's Common Stock were
outstanding.
<PAGE>
MOLECULAR DEVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Index
PAGE
PART I. FINANCIAL INFORMATION NUMBER
ITEM 1. FINANCIAL STATEMENTS (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998................. 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 1999 and 1998.. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999 and 1998............ 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.............................................. 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................... 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............... 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 12
ITEM 5. OTHER INFORMATION....................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................ 12
SIGNATURE................................................................... 13
2
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
September 30, December 31,
1999 1998
-------- --------
ASSETS: (unaudited)
Current assets:
Cash and cash equivalents $ 27,061 $ 32,689
Accounts receivable, net 15,782 12,958
Inventories 8,182 4,055
Deferred tax asset 2,197 1,630
Other current assets 636 688
-------- --------
Total current assets 53,858 52,020
Equipment and leasehold improvements, net 2,279 2,115
Other assets 5,289 270
-------- --------
$ 61,426 $ 54,405
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,178 $ 2,135
Accrued liabilities 4,550 4,945
Deferred revenue 1,215 1,502
-------- --------
Total current liabilities 8,943 8,582
Stockholders' equity:
Preferred stock, no par value;
3,000,000 authorized
no shares issued or outstanding -- --
Common stock, $.001 par value;
30,000,000 shares
authorized; 9,627,591 and 9,476,062
shares issued and outstanding,
at September 30, 1999
and December 31, 1998, respectively 10 9
Additional paid-in capital 43,313 42,391
Retained earnings 9,716 4,235
Deferred compensation (262) (586)
Accumulated translation adjustment (294) (226)
-------- --------
Total stockholders' equity 52,483 45,823
-------- --------
$ 61,426 $ 54,405
======== ========
The accompanying notes are an integral part of these statements.
3
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<TABLE>
MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 15,818 $ 11,901 $ 44,127 $ 34,114
COST OF REVENUES 5,719 4,424 16,267 12,648
-------- -------- -------- --------
GROSS MARGIN 10,099 7,477 27,860 21,466
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development 1,949 1,324 5,318 4,195
Write-off of acquired in-process research & development -- 876 2,037 876
Selling, general and administrative 4,581 3,511 12,673 10,002
-------- -------- -------- --------
Total operating expenses 6,530 5,711 20,028 15,073
-------- -------- -------- --------
INCOME FROM OPERATIONS 3,569 1,766 7,832 6,393
Other income, net 313 437 1,081 1,196
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 3,882 2,203 8,913 7,589
Income tax provision (1,495) (848) (3,432) (2,922)
-------- -------- -------- --------
NET INCOME $ 2,387 $ 1,355 $ 5,481 $ 4,667
======== ======== ======== ========
BASIC NET INCOME PER SHARE $ 0.25 $ 0.14 $ 0.57 $ 0.50
======== ======== ======== ========
DILUTED NET INCOME PER SHARE $ 0.24 $ 0.14 $ 0.55 $ 0.48
======== ======== ======== ========
SHARES USED IN COMPUTING BASIC NET INCOME PER SHARE 9,613 9,413 9,574 9,388
======== ======== ======== ========
SHARES USED IN COMPUTING DILUTED NET INCOME PER SHARE 10,108 9,705 10,023 9,718
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
4
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MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
1999 1998
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 5,481 4,667
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 657 570
Write-off of acquired in-process research & develoment 2,037 --
Amortization of deferred compensation 324 236
Amortization of goodwill and developed technology 117 --
(Increase) decrease in assets:
Accounts receivable (2,520) (2,572)
Inventories (3,614) (527)
Deferred tax asset (567) 495
Other current assets 70 (411)
Increase (decrease) in liabilities:
Accounts payable 942 1,033
Accrued liabilities (445) 872
Deferred revenue (287) 202
------- -------
Net cash provided by operating activities 2,195 4,565
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (732) (844)
Acquisition of Skatron Instruments AS, net of cash on hand (7,118) --
Other assets (419) (102)
------- -------
Net cash used in investing activities (8,269) (946)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of promissory notes (226) --
Issuance of common stock, net 740 362
------- -------
Net cash provided by financing activities 514 362
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (68) 56
Net (decrease) increase in cash and cash equivalents (5,628) 4,037
Cash and cash equivalents at beginning of period 32,689 26,773
------- -------
Cash and cash equivalents at end of period 27,061 30,810
======= =======
The accompanying notes are an integral part of these statements.
5
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MOLECULAR DEVICES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
the disclosures which are made are adequate to make the information presented
not misleading. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, as filed with the Securities and Exchange Commission on March
26, 1999.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) which
are, in the opinion of management, necessary to state fairly the results for the
periods presented. The results for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the entire fiscal year ending December 31, 1999.
Note 2. New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities". We are required to adopt SFAS No. 133 for the year
ending December 31, 2001. SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because we currently hold no
derivative financial instruments and do not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
our financial condition or results of operations.
Note 3. Comprehensive Income
Statement of Financial Accounting Standards No. 130 requires unrealized gains or
losses on the Company's foreign currency translation adjustments, which are
reported separately in stockholders' equity, to be included in other
comprehensive income. Comprehensive income was approximately $2.5 million and
$1.5 million for the three month periods ended September 30, 1999 and 1998,
respectively. Comprehensive income was approximately $5.4 million and $4.7
million for the nine month periods ended September 30, 1999 and 1998,
respectively.
Note 4. Inventories
Inventories consist of (in thousands):
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited)
Finished goods $3,936 $1,660
Work in process 1,429 602
Raw materials and subassemblies 2,817 1,793
------ ------
$8,182 $4,055
====== ======
Note 5. Acquisition of Skatron Instruments, AS
On May 17, 1999, the Company acquired all of the outstanding stock of Skatron
Instruments AS, a Norwegian company ("Skatron") and certain assets from Skatron
Instruments Inc., a Virginia corporation and wholly-owned
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subsidiary of Skatron, for a cash payment at closing of $7,118,000 (including
$300,000 of acquisition related expenses). The acquisition was accounted for as
a purchase and the total purchase price was allocated based on an independent
appraisal as follows:
Acquired developed technology and goodwill $4,717,000
Acquired in-process research and development 2,037,000
Net book value of acquired assets and liabilities 364,000
----------
Total purchase price $7,118,000
==========
The purchase price allocation resulted in a $2,037,000 charge related to the
value of acquired in-process research and development in the second quarter of
1999. The value of acquired in-process research and development represents the
appraised value of technology in the development stage that had not yet reached
economic and technological feasibility. In reaching this determination, the
Company considered, among other factors, the stage of development of each
product, the time and resources needed to complete each product, and expected
income and associated risks. The developed technology and goodwill are being
amortized over periods of up to 15 years, the estimated useful lives of the
acquired assets. The results of Skatron are consolidated from May 18, 1999.
Pro forma consolidated results for the Company as if the acquisition had been
consummated January 1, 1999, excluding the charge for acquired in-process
research and development, are as follows (in thousands except per share amount):
Revenue $45,177
Net income $6,727
Diluted net income per share $0.67
The pro forma information does not purport to be indicative of the results that
actually would have occurred had the acquisition been consummated January 1,
1999, or of results which may occur in the future. In accordance with SEC
Regulation 5-X, Rule 11-02(b)(5), nonrecurring charges, such as the charge for
acquired in-process technology resulting from the acquisition, are not reflected
in the pro forma financial summary.
Note 6. Net Income Per Share
<TABLE>
Basic net income per share is computed using the weighted average number of
shares of common stock outstanding and diluted net income per share is computed
using the weighted average number of shares of common stock outstanding and
dilutive common equivalent shares from outstanding stock options (using the
treasury stock method). Computation of earnings per share is as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 2,387 $ 1,355 $ 5,481 $ 4,667
Denominator for basic EPS-weigted
average common shares outstanding 9,613 9,413 9,574 9,388
Effect of dilutive securities-employee stock options 495 292 449 330
------- ------- ------- -------
Denominator for diluted EPS-weighted average
common shares outstanding plus di1utive securities 10,108 9,705 10,023 9,718
------- ------- ------- -------
BASIC NET INCOME PER SHARE $ 0.25 $ 0.14 $ 0.57 $ 0.50
======= ======= ======= =======
DILUTED NET INCOME PER SHARE $ 0.24 $ 0.14 $ 0.55 $ 0.48
======= ======= ======= =======
</TABLE>
7
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MOLECULAR DEVICES CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains "forward-looking statements" that involve risks and uncertainties. For
this purpose, any statements contained in this Form 10Q that are not statements
of historical fact may be deemed to be forward-looking statements. Words such as
"believes," "anticipates," "plans," "expects," "will" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the results of Molecular Devices Corporation
to differ materially from those indicated by these forward-looking statements
including, among others, those discussed in this section, as well as those
identified in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 as filed with the Securities and Exchange Commission on March
26, 1999.
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I
- - Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
1998 contained in the Company's 1998 Annual Report on Form 10-K for the year
ended December 31, 1998 as filed with the Securities and Exchange Commission on
March 26, 1999. The results for the three and nine month periods ended September
30, 1999 are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 1999.
Results of Operations - Three and Nine Months Ended September 30, 1999 and 1998.
REVENUES. Revenues for the third quarter of 1999 increased 33% to approximately
$15.8 million from approximately $11.9 million in the third quarter of 1998.
Maxline and Cell Analysis product families generated increased levels of revenue
which were partially offset by decreased Threshold revenues. Maxline revenues
increased primarily due to greater sales of new SPECTRAmax products, most
notably the Gemini, which addresses the fluorescence plate reader market and our
newly acquired Skatron washer product line which is included in the Maxline
family. Cell Analysis revenues increased due to the continued strength of our
FLIPR384 products introduced in late 1998. Threshold revenues declined primarily
as a result of decreased demand from military customers worldwide.
Revenues for the first nine months of 1999 increased 29% to approximately $44.1
million from approximately $34.1 million in the same period of 1998. Maxline and
Cell Analysis product families generated increased levels of revenue as
partially offset by decreased Threshold product family revenues based on the
same trends discussed above.
GROSS MARGIN. Gross margin increased to 63.8% and 63.1% in the third quarter and
first nine months of 1999, respectively, as compared to 62.8% and 62.9%,
respectively, in the same periods of 1998. The improved margin performance for
both periods was primarily due to increased sales of new higher margin Maxline
and Cell Analysis products, specifically the Gemini and FLIPR384, aimed at the
fluorescence market.
RESEARCH AND DEVELOPMENT. Research and development expenses for the third
quarter of 1999 increased by 47% to approximately $1.9 million (12.3% of total
revenues) from approximately $1.3 million (11.1% of total revenues) for the
third quarter of 1998. Research and development expenses for the first nine
months of 1999 increased by 27% to approximately $5.3 million (12.1% of total
revenues) from approximately $4.2 million (12.3% of total revenues) for the same
period of 1998. The increased spending for both periods is primarily the result
of additional personnel and increased spending on product development activities
both required to support on-going development of new products.
WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH & DEVELOPMENT. The Company recorded a
charge of $2,037,000 during the second quarter of 1999 due to the write-off of
acquired in-process research and development related to the Company's
acquisition of Skatron on May 17, 1999. See Note 5 of "Notes to Condensed
Consolidated Financial Statements," included in Part I - Item 1.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the third quarter of 1999 increased by 30% to approximately $4.6
million (29.0% of total revenues) from approximately $3.5 million (29.5% of
total revenues) for the third quarter of 1998. Selling, general and
administrative expenses for the
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first nine months of 1999 increased by 27% to approximately $12.7 million (28.7%
of total revenues) from approximately $10.0 million (29.3% of total revenues)
for the same period of 1998. This increased spending for both periods is
primarily the result of additional expenditures on marketing, sales and service
related activities, including additional personnel, as the Company continued its
efforts to expand worldwide market coverage and improve customer service.
OTHER INCOME (NET). Net other income for the third quarter of 1999 decreased by
28% to approximately $313,000 from approximately $437,000 in the third quarter
of 1998 due to a decreased average cash balance, and correspondingly lower
interest earnings as a result of the Skatron acquisition in the second quarter
of 1999. Net other income for the first nine months of 1999 decreased nominally
to $1.1 million from $1.2 million in the same period last year. Average cash
balances for these periods decreased nominally due to the use of cash for the
Skatron acquisition in the middle of the second quarter of 1999.
INCOME TAX PROVISION. Income tax provisions of $1.5 million and $3.4 million
were recorded in the third quarter and first nine months of 1999, respectively,
as compared to $848,000 and $2.9 million in the same periods of the prior year.
The effective tax rate for all periods was 38.5%.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $27.0 million at
September 30, 1999, compared to $32.7 million at December 31, 1998. During the
first nine months of 1999, the Company generated $2.2 million and $514,000,
respectively, from operating and financing activities as offset by $8.3 million
used in investing activities. The cash used in investing activities relates
primarily to the Skatron acquisition and approximately $732,000 spent on capital
additions. The cash generated by operating activities relates primarily to
earnings for the period as partially offset by short-term working capital needs
for accounts receivable and inventory required to support the Company's
increased sales levels and new product introductions. The cash generated by
financing activities related to stock option exercises as partially offset by
debt repayments required as a result of the Skatron acquisition.
The Company believes that its existing capital resources and cash expected to be
generated from future operations will be sufficient to fund its operations and
anticipated capital expenditures for the foreseeable future. However, the
Company's future liquidity and capital requirements will depend upon numerous
factors, including the resources the Company devotes to developing,
manufacturing and marketing its products, the extent to which the Company's
products generate market acceptance and demand, potential acquisition
opportunities that may arise and other factors. As such, there can be no
assurances that the Company will not require additional financing in the future
and, therefore, the Company may in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of capital.
Additional funding may not be available when needed or on terms acceptable to
the Company, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Factors That May Affect Future Results
The Company's business, financial condition and results of operations are
subject to various risk factors, including those described below and elsewhere
in this report.
o Uncertainty of Future Operating Results. Future operating results will
depend on many factors, including demand for the Company's products, the
levels and timing of government and private sector funding of life sciences
research activities, the timing of the introduction of new products by the
Company or by competing companies, the integration of acquired products and
technology into manufacturing and distribution processes, the Company's
ability to control costs and its ability to attract and retain highly
qualified personnel. Furthermore, the Company's gross margins can be
significantly affected by many factors, including shifts in product mix,
the mix of direct sales as compared with sales through distributors,
competitive price pressures and quarterly fluctuations in sales levels
relative to fixed costs.
o Fluctuations in Quarterly Operating Results; Lack of Backlog. The Company
manufactures its products to forecast rather than to outstanding orders,
and products are typically shipped within 30 to 90 days of purchase order
receipt. As a result, the Company does not believe the amount of backlog at
any particular date is indicative of its future level of sales. The
Company's manufacturing procedures may in certain instances create a risk
of excess or inadequate inventory levels if orders do not match forecasts.
The Company's expense levels are based, in part, on expected future sales.
However, the timing of capital equipment purchases by customers is
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expected to be uneven and difficult to predict. If sales levels in a
particular quarter do not meet expectations, the Company may not be able to
adjust operating expenses sufficiently quickly to compensate for the
shortfall, and the Company's results of operations for that quarter may be
materially adversely affected. Many of the Company's products are subject
to long customer procurement processes. In addition, a significant portion
of the Company's revenues are typically derived from sales of a small
number of relatively high-priced systems, and sales of such products may
increase as a percentage of revenue in the future. Delays in receipt of
anticipated orders of such products could lead to substantial variability
from quarter to quarter. Furthermore, the Company has historically received
purchase orders and made a significant portion of each quarter's product
shipments 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 have a material adverse effect on results of operations for
that quarter. The Company typically experiences a decrease in the level of
sales in the first calendar quarter as compared to the fourth quarter of
the preceding year because of budgetary and capital equipment purchasing
patterns in the life sciences industry. The Company also typically
experiences a decrease in revenues in the third quarter compared to the
second quarter, related to seasonality primarily associated with lower
European and academic sales during the summer months. Revenues for the
third quarters of 1999 and 1998 exceeded revenues for the second quarters
of 1999 and 1998 due to the phasing in of new products, including the
Skatron acquisition in the second quarter of 1999. The Company believes
that the third quarter seasonality trend may recur in the future as the
Company increases efforts to further penetrate European Markets. Operating
results in any period should not be considered indicative of the results to
be expected for any future period.
o Dependency on New Products; Rapid Technological Change. The life sciences
instrumentation market is characterized by rapid technological change and
frequent new product introductions. The Company's future success will
depend on its ability to enhance its current products and to develop and
introduce, on a timely basis, new products that address the evolving needs
of its customers.
o Reliance on Sole Source Suppliers. Certain components used in the Company's
products are currently purchased from single sources. Any delay in the
manufacture of such components could materially adversely affect the
Company's business, financial condition and results of operations.
o Year 2000 Compliance. The Company has a Year 2000 project in place to
address the potential exposures related to the impact on its computer
systems and scientific and manufacturing equipment containing computer
related components for the Year 2000 and beyond. The Company has
substantially completed assessing its internal and external Year 2000 risks
and continues to monitor, validate and implement the identified corrective
actions. The Company's internal business systems have been reviewed and
plans have been defined to achieve Year 2000 compliance. Testing of the
Company's business critical application programs began in the fourth
quarter of 1998 and was completed in the third quarter of 1999. Any failure
on the part of the Company to identify and correct Year 2000 compliance
issues related to the Company's internal business systems could materially
adversely affect the Company's business, financial condition and results of
operation.
All of the Company's products that are currently manufactured and supported
are Year 2000 compliant. There is an installed base of Company products no
longer distributed that are not Year 2000 compliant, all of which have an
identified upgrade path which our customers can purchase to achieve
compliance.
In addition to risks associated with the Company's own computer systems,
equipment and products, the Company has relationships with, and is to
varying degrees dependent upon, a large number of third parties that
provide information, goods and services to the Company. These include
financial institutions, suppliers, vendors, governmental entities,
distributors and customers. If significant numbers of these third parties
experience failures in their computer systems or equipment due to Year 2000
non-compliance, it could affect the company's ability to process
transactions, manufacture products, or engage in similar normal business
activities. While many of these risks are outside the control of the
Company, the Company has instituted programs, including internal records
review and use of external questionnaires, to identify key third parties,
assess their level of Year 2000 compliance and address any non-compliance
issues.
At this time, the Company believes there are no significant incremental
costs anticipated to achieve both internal and external Year 2000
compliance. The total cost of the Year 2000 systems assessments and
conversions is being funded through operating cash flows and the Company is
expensing these costs as they are incurred. However, there can be no
assurances that the third parties of the Company will be in compliance and
the Company has no control over whether such third parties will be in
compliance with Year 2000 requirements.
10
<PAGE>
Any failure on the part of the Company's third parties, which could include
inability to deliver or purchase product, could materially adversely affect
the Company's business, financial condition and results of operations.
Other Factors. The Company's business is affected by other factors, including:
(i) the possibility that the introduction or announcement of new products would
render existing products obsolete or result in a delay or decrease in purchase
orders for existing products; (ii) the extent to which and the timing in which
the Company's products achieve market acceptance; (iii) the capital spending
policies of the Company's customers (which depend on various factors, including
the resources available to such customers, the spending priorities among various
types of research equipment and the policies regarding capital expenditures
during recessionary periods), including those policies of universities,
government research laboratories and other institutions whose funding is
dependent on grants from government agencies; (iv) competition in the life
sciences instrumentation market which is highly competitive and expected by the
Company to increase; (v) the Company's ability to obtain and maintain patent and
other intellectual property protection for its products and technology; (vi)
compliance with governmental regulations, including those promulgated by the
United Sates Food and Drug Administration and similar state and foreign
agencies; and (vii) the extent of the Company's sales outside the United States,
which involve certain specific risks, including risks related to currency
fluctuations, imposition of government controls, export license requirements,
restrictions on export of critical technology, political and economic
instability or conflicts, trade restrictions, changes in tariffs and taxes and
difficulties in staffing and managing international operations and international
distributor relationships.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk, including changes in interest rates and
foreign currency exchange rates. The primary objective of the Company's
investment activities is to preserve principal while at the same time maximizing
the income we receive from our investments without significantly increasing
risk. A discussion of the Company's accounting policies for financial
instruments and further disclosures relating to financial institutions is
included in the Summary of Significant Accounting Policies note in the Notes to
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998. The Company's interest
income is sensitive to changes in the general level of interest rates, primarily
U.S. interest rates. In this regard, changes in U.S. interest rates affect the
interest earned on the Company's cash equivalents. The Company invests its
excess cash primarily in demand deposits with United States banks and money
market accounts and short-term securities. These securities, consisting of
commercial paper and U.S. government agency securities, are carried at market
value (which approximate cost), typically mature or are redeemable within 90
days, and bear minimal risk. The Company is exposed to changes in exchange rates
in Europe (primarily the United Kingdom, Germany and Norway) and Canada. All
export sales, with the exception of sales into Canada, are denominated in U.S.
dollars and bear no exchange rate risk. Gains and losses resulting from foreign
currency transactions in Canada have been immaterial.
11
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MOLECULAR DEVICES CORPORATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
Item 2. CHANGES IN SECURITIES AND USE OR PROCEEDS
The Company entered into employment arrangements with each of Dr.
Joseph D. Keegan, Mr. Timothy A. Harkness and Mr. John S. Senaldi pursuant to
which the Company is obligated to issue to each such officer shares of its
Common Stock in exchange for services rendered. As a result of these
arrangements, the Company issued shares of its Common Stock to these officers on
the dates and amounts indicated below in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended.
Number of Shares Date of Issue
Dr. Keegan 3,750 09/30/99
Mr. Harkness 1,250 07/09/99
Mr. Senaldi 312 08/06/99
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1999.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOLECULAR DEVICES CORPORATION
By: /s/Timothy A. Harkness
---------------------------------------------------
Vice President, Finance and Chief Financial Officer
(Duly Authorized and Principal Financial and
Accounting Officer)
Date: November 12, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,061
<SECURITIES> 0
<RECEIVABLES> 16,158
<ALLOWANCES> 376
<INVENTORY> 8,182
<CURRENT-ASSETS> 53,858
<PP&E> 8,130
<DEPRECIATION> 5,851
<TOTAL-ASSETS> 61,426
<CURRENT-LIABILITIES> 8,943
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 52,473
<TOTAL-LIABILITY-AND-EQUITY> 61,426
<SALES> 44,127
<TOTAL-REVENUES> 44,127
<CGS> 16,267
<TOTAL-COSTS> 16,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,913
<INCOME-TAX> 3,432
<INCOME-CONTINUING> 5,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,481
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.55
</TABLE>
