<PAGE> 1
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, 2000
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 10, 2000, 16,215,307 shares of the Registrant's Common Stock were
outstanding.
<PAGE> 2
MOLECULAR DEVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999........................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2000 and 1999............................ 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999...................................... 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................ 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.................................................................. 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ....................................................... 26
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................................ 26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................... 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS......................................................... 26
ITEM 5. OTHER INFORMATION........................................................ 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................... 26
SIGNATURE ......................................................................... 27
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 32,214 $ 32,083
Short-term investments 70,003 4,567
Accounts receivable, net 21,574 19,463
Inventories 12,379 10,509
Deferred tax asset 12,150 10,205
Other current assets 2,284 880
--------- --------
Total current assets 150,604 77,707
Equipment and leasehold improvements, net 8,279 3,656
Intangible and other assets 6,777 5,486
--------- --------
$ 165,660 $ 86,849
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,072 $ 3,869
Accrued liabilities 9,061 6,276
Deferred revenue 1,712 1,532
Current portion of long-term debt 308 282
--------- --------
Total current liabilities 16,153 11,959
Long-term debt, net of current portion 351 586
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; 16,065,595 and 13,488,821
shares issued and outstanding, at September 30, 2000
and December 31, 1999, respectively 16 14
Additional paid-in capital 159,931 75,271
Retained earnings (accumulated deficit) (9,071) 101
Deferred compensation (515) (589)
Accumulated other comprehensive loss (1,205) (493)
--------- --------
Total stockholders' equity 149,156 74,304
--------- --------
$ 165,660 $ 86,849
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 24,341 $ 18,401 $ 68,558 $ 50,086
COST OF REVENUES 9,067 6,526 25,413 18,653
-------- -------- -------- --------
GROSS MARGIN 15,274 11,875 43,145 31,433
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development 4,292 3,621 12,717 10,249
Merger Expenses 15,181 -- 15,181 2,037
Selling, general and administrative 8,186 6,788 23,980 18,660
-------- -------- -------- --------
Total operating expenses 27,659 10,409 51,878 30,946
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (12,385) 1,466 (8,733) 487
Other income, net 1,734 420 3,323 1,504
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (10,651) 1,886 (5,410) 1,991
Income tax provision (1,744) (679) (3,762) (717)
-------- -------- -------- --------
NET INCOME (LOSS) $(12,395) $ 1,207 $ (9,172) $ 1,274
======== ======== ======== ========
BASIC NET INCOME (LOSS) PER SHARE $ (0.77) $ 0.09 $ (0.61) $ 0.10
======== ======== ======== ========
DILUTED NET INCOME (LOSS) PER SHARE $ (0.77) $ 0.08 $ (0.61) $ 0.09
======== ======== ======== ========
SHARES USED IN COMPUTING BASIC NET
INCOME (LOSS) PER SHARE 16,001 13,419 14,914 13,297
======== ======== ======== ========
SHARES USED IN COMPUTING DILUTED NET
INCOME (LOSS) PER SHARE 16,001 14,235 14,914 14,060
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
MOLECULAR DEVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (9,172) $ 1,274
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,480 947
Write-off of acquired in-process research & development -- 2,037
Amortization of deferred compensation 297 458
Amortization of goodwill and developed technology 235 117
(Increase) decrease in assets:
Accounts receivable (2,111) (2,953)
Inventories (1,870) (5,106)
Deferred tax asset (1,945) (3,283)
Other current assets (1,404) 17
Increase (decrease) in liabilities:
Accounts payable 1,203 1,628
Accrued liabilities 3,253 (191)
Deferred revenue 180 (126)
-------- --------
Net cash used in operating activities (9,854) (5,181)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (79,177) (5,809)
Proceeds from sales and maturities of short-term investments 13,741 6,465
Capital expenditures (6,103) (1,050)
Acquisition of Skatron Instruments AS, net of cash acquired -- (7,118)
Other assets (1,526) (419)
-------- --------
Net cash used in investing activities (73,065) (7,931)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing -- 223
Payments of short-term debt -- (369)
Payments on long-term debt (209) --
Issuance of long-term loans receivable to employees -- (33)
Issuance of common stock, net 83,971 7,728
-------- --------
Net cash provided by financing activities 83,762 7,549
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (712) (64)
Net increase (decrease) in cash and cash equivalents 131 (5,627)
Cash and cash equivalents at beginning of period 32,083 34,520
-------- --------
Cash and cash equivalents at end of period $ 32,214 $ 28,893
======== ========
</TABLE>
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
Molecular Devices Corporation ("Molecular Devices") acquired all of the
outstanding stock of LJL BioSystems, Inc. ("LJL BioSystems") in a tax-free,
stock-for-stock transaction on August 30, 2000. LJL BioSystems was also engaged
in the design, development, manufacture, sale and service of bioanalytical
measurement systems for life sciences and drug discovery applications. Molecular
Devices has accounted for the transaction as a pooling of interests, and,
accordingly, the condensed consolidated financial statements and all financial
information have been restated to reflect the combined operations, financial
position and cash flows of both companies.
The condensed consolidated financial statements included herein have been
prepared in accordance with the published rules and regulations of the
Securities and Exchange Commission ("SEC") applicable to interim financial
information. Certain information and footnote disclosures included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted in these interim statements as allowed by such SEC rules and
regulations. However, management believes that the disclosures are adequate to
make the information presented not misleading. The unaudited condensed
consolidated financial statements included in this Form 10-Q should be read in
conjunction with the audited consolidated financial statements and notes
thereto; for the fiscal year ended December 31, 1999, included in the Molecular
Devices and LJL BioSystems Annual Reports on Form 10-K for the fiscal year ended
December 31, 1999, filed with the SEC on March 28, 2000 and February 16, 2000,
respectively.
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, 2000 are not necessarily indicative of the results to be expected
for the entire fiscal year ending December 31, 2000.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, referred to as SAB 101. SAB 101 summarizes
the SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Molecular Devices is currently in
the process of evaluating SAB 101 and what effect it may have on Molecular
Devices' financial statements. Accordingly, Molecular Devices has not determined
whether SAB 101 will have an impact on Molecular Devices' financial position or
results of operations. In the event that the implementation of SAB 101 requires
Molecular Devices to report a change in accounting principles related to their
revenue recognition policy, Molecular Devices would be required to report such
change no later than the quarter ending December 31, 2000.
NOTE 3. BUSINESS COMBINATION
Molecular Devices acquired all of the outstanding stock of LJL BioSystems in a
tax-free, stock-for-stock transaction on August 30, 2000, as a result of which
LJL BioSystems became a wholly owned subsidiary of Molecular Devices. Molecular
Devices exchanged approximately 4.5 million shares of common stock for all of
the outstanding common shares of LJL BioSystems and assumed options and warrants
to
6
<PAGE> 7
issue up to an additional 901,183 shares of Molecular Devices common stock. The
transaction was accounted for under the pooling-of-interests method of
accounting and, accordingly, the accompanying condensed consolidated financial
statements and all financial information have been restated to include the
operations of LJL BioSystems for all periods presented. During the quarter ended
September 30, 2000, Molecular Devices and LJL BioSystems recorded a combined
charge of approximately $15.2 million of incurred direct costs related to the
merger, which were charged to operations. The table below presents the separate
results of operations for Molecular Devices and LJL BioSystems for the periods
prior to the merger and combined results after the merger (in thousands):
<TABLE>
<CAPTION>
Molecular LJL Merger-Related
Devices BioSystems Adjustment Total
--------- ---------- -------------- -------
<S> <C> <C> <C> <C>
Nine months ended September 30, 2000
Revenues $56,746 $ 11,812 $ -- $68,558
Net income (loss) 2,615 (13,730) 1,943(a) (9,172)
Nine months ended September 30, 2000
Revenues $44,127 $ 5,959 $ -- $50,086
Net income (loss) 5,481 (6,923) 2,716(a) 1,274
</TABLE>
(a) Represents tax benefits derived from LJL BioSystems' net loss.
NOTE 4. COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130 requires unrealized gains or
losses on Molecular Devices' short-term investments and the cumulative effect of
Molecular Devices' foreign currency translation adjustments, which are reported
in stockholders' equity, to be included in other comprehensive income (loss).
Comprehensive income (loss) was approximately $(12.5) million and $1.4 million
for the three-month periods ended September 30, 2000 and 1999, respectively.
Comprehensive income (loss) was approximately $(9.6) million and $1.2 million
for the nine-month periods ended September 30, 2000 and 1999, respectively.
NOTE 5. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Molecular Devices considers all highly liquid investments in debt securities
with a remaining maturity from the date of purchase of 90 days or less to be
cash equivalents. Cash equivalents consist of money market funds and corporate
debt securities and U.S. government debt instruments. Molecular Devices'
short-term investments include obligations of governmental agencies and
corporate debt securities with original maturities ranging between 3 and 12
months. By policy, Molecular Devices limits concentration of credit risk by
diversifying their investments among a variety of high credit-quality issuers.
All cash equivalents and short-term investments are classified as
available-for-sale. Available-for-sale securities are carried at amortized cost,
which approximated fair value at September 30, 2000. Material unrealized gains
and losses, if any, are reported in stockholders' equity and included in other
comprehensive income (loss). Fair value is estimated based on available market
information. The cost of securities sold is based on the specific identification
method. For the nine months ended September 30, 2000, gross realized gains and
losses on available-for-sale securities were immaterial.
7
<PAGE> 8
NOTE 6. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Finished goods $ 5,393 $ 4,320
Work in process 1,798 762
Raw materials and subassemblies 5,188 5,427
------- -------
$12,379 $10,509
======= =======
</TABLE>
NOTE 7. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average number
of shares of common stock outstanding and diluted net income (loss) 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 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Income (Loss) $(12,395) $ 1,207 $ (9,172) $ 1,274
======== ======= ======== =======
Denominator for basic EPS - weighted average common
shares outstanding 16,001 13,419 14,914 13,297
Effect of dilutive securities - employee stock options -- 816 -- 763
-------- ------- -------- -------
Denominator for diluted EPS - weighted average common
shares outstanding plus dilutive securities 16,001 14,235 14,914 14,060
-------- ------- -------- -------
BASIC NET INCOME (LOSS) PER SHARE $ (0.77) $ 0.09 $ (0.61) $ 0.10
======== ======= ======== =======
DILUTED NET INCOME (LOSS) PER SHARE $ (0.77) $ 0.08 $ (0.61) $ 0.09
======== ======= ======== =======
</TABLE>
Employee stock options have been excluded from the computation of diluted net
loss per share for the three and nine months ended September 30, 2000 because
their inclusion would be anti-dilutive due to the Company's net loss. If the
Company had been profitable, an additional 1,282,000 and 1,224,000 shares,
respectively, would have been included in the calculation of diluted net income
per share for the three and nine months ended September 30, 2000.
8
<PAGE> 9
NOTE 8. SECONDARY OFFERING
On May 31, 2000, Molecular Devices closed a public offering of 1,706,700 shares
of common stock at $38.50 per share. Molecular Devices received proceeds of
approximately $61.1 million, net of offering expenses.
NOTE 9. PRIVATE PLACEMENTS
On January 27, 1999, LJL BioSystems received cash proceeds of $6.7 million, net
of issuance costs of $270,000, in connection with a private placement of 2.0
million shares of unregistered, restricted common stock (600,000 equivalent
Molecular Devices shares). The terms of the sale required that LJL BioSystems
file a registration statement covering such shares. Such registration statement
was filed and became effective on July 21, 1999.
On February 2, 2000, LJL BioSystems received cash proceeds of $18.4 million, net
of issuance costs of $962,000, in connection with a private placement of 1.76
million shares of unregistered, restricted common stock (528,000 equivalent
Molecular Devices shares). The terms of the sale required that LJL BioSystems
file a registration statement covering such shares. Such registration statement
was filed and became effective on March 3, 2000.
9
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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 10-Q 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 Molecular Devices' results to differ
materially from those indicated by these forward-looking statements including,
among others, those discussed below and under the caption "Factors that May
Affect Future Results," as well as those identified in the Molecular Devices and
LJL BioSystems Annual Reports on Form 10-K for the year ended December 31, 1999
filed with the SEC on March 28, 2000 and February 16, 2000, respectively.
Molecular Devices acquired all of the outstanding stock of LJL BioSystems in a
tax-free, stock-for-stock transaction on August 30, 2000, as a result of which
LJL BioSystems became a wholly owned subsidiary of Molecular Devices. The
transaction was accounted for under the pooling-of-interests method of
accounting and, accordingly, all financial information has been restated to
include the operations of LJL BioSystems for all periods presented.
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,
1999 contained in the Molecular Devices and LJL BioSystems Annual Reports on
Form 10-K for the year ended December 31, 1999 filed with the SEC on March 28,
2000 and February 16, 2000, respectively. The results for the first nine months
of 2000 are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 2000.
Results of Operations - Three AND nine months ended september 30, 2000 and 1999
REVENUES. Revenues for the third quarter of 2000 increased 32% to $24.3 million
from $18.4 million in the third quarter of 1999. The Life Sciences Research and
Drug Discovery product families both generated increased levels of revenues. The
Life Sciences Research product family consists of Molecular Devices'
Maxline(TM), Skatron and Threshold(R) products. The Drug Discovery product
family consists of Molecular Devices' FLIPR(R), CLIPR and Cytosensor systems and
the entire LJL BioSystems product family. Life Sciences revenues increased due
primarily to the strength of the SPECTRAmax PLUS(384) and Gemini XS introduced
in the first quarter of 2000, the Skatron liquid handling product line acquired
during the second quarter of 1999, and increased Threshold revenues. Drug
Discovery revenues increased due to the continued worldwide strength of the
FLIPR(384), as well as increased sales of LJL BioSystems' Analyst AD, Analyst HT
and ScreenStation products.
Revenues for the first nine months of 2000 increased 37% to $68.6 million from
$50.1 million in the same period last year. Both product families generated
increased levels of revenues based on the same product trends discussed above.
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GROSS MARGIN. Gross margin decreased to 62.8% in the third quarter of 2000 as
compared to 64.5% in the third quarter of 1999. This margin deterioration was
primarily due to an increased volume of lower-margin FLIPR(R) products in the
overall product mix in the third quarter of 2000.
Gross margin remained relatively flat at 62.9% for the first nine months of 2000
as compared to 62.8% for the same period in 1999. The first quarter of 1999
(which posted a 61% margin) also had a mix more toward lower-margin FLIPR(R)
products. As a result, the margin for the first nine months of 1999 was
consistent with the same period of 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses for the third
quarter of 2000 increased by 19% to $4.3 million (17.6% of revenues) from $3.6
million (19.7% of revenues) for the third quarter of 1999. Research and
development expenses for the first nine months of 2000 increased by 24% to $12.7
million (18.5% of revenues) from $10.2 million (20.5% of revenues) for the same
period of 1999. The increased spending for both periods was primarily the result
of additional personnel required to support the development of new Life Sciences
Research and Drug Discovery products (including proprietary reagents) and
product line extensions.
MERGER EXPENSES. We recorded a charge of $15.2 million during the third quarter
of 2000 of incurred direct costs related to the merger with LJL BioSystems on
August 30, 2000 which was accounted for as a pooling of interests. We recorded a
charge of $2 million during the second quarter of 1999 due to the write-off of
acquired in-process research and development related to Molecular Devices'
acquisition of Skatron on May 17, 1999 which was accounted for as a purchase
transaction. Excluding these charges, our pro forma income from operations, net
income, and diluted net income per share for the three and nine month periods
ended September 30, 2000 and 1999 were as follows (net of tax):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------- ------- -------
(unaudited, in thousands except per share data)
<S> <C> <C> <C> <C>
INCOME FROM OPERATIONS $ 2,796 $ 1,466 $ 6,448 $ 2,524
======= ======= ======= =======
NET INCOME $ 2,786 $ 1,207 $ 6,009 $ 2,578
======= ======= ======= =======
DILUTED NET INCOME PER SHARE $ 0.16 $ 0.08 $ 0.37 $ 0.18
======= ======= ======= =======
SHARES USED IN COMPUTING DILUTED NET
INCOME PER SHARE 17,283 14,235 16,138 14,060
======= ======= ======= =======
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the third quarter of 2000 increased by 21% to $8.2 million (33.6%
of revenues) from $6.8 million (36.9% of revenues) for the third quarter of
1999. Selling, general and administrative expenses for the first nine months of
2000 increased by 29% to $24.0 million (35.0% of revenues) from $18.6 million
(37.3% of revenues) in the same period of 1999. The increased spending for both
periods was primarily the result of additional expenditures worldwide on
marketing, sales and service activities, most notably additional personnel, as
we continued our efforts to expand our worldwide market coverage.
OTHER INCOME (NET). Net other income increased to $1.7 million and $3.2 million,
respectively, in the third quarter and first nine months of 2000 as compared to
$420,000 and $1,504,000 in the same periods of 1999. The increases in both
periods were due to additional interest income generated from the $84.0 million
of cash raised during the first nine months of 2000 relating to the Molecular
Devices
11
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public offering in the second quarter of 2000, the LJL BioSystems private
placements in the first quarter of 2000, and cash proceeds from option exercises
during this period.
INCOME TAX PROVISION. We recorded income tax provisions of $1.7 million and $3.8
million, respectively, in the third quarter and first nine months of 2000 as
compared to $679,000 and $717,000 in the same periods of 1999. The $15.2 million
charge related to the LJL BioSystems merger was not deductible for tax purposes
and therefore, the tax provisions recorded for the third quarter and first nine
months of 2000 reflect a full 38.5% effective tax rate on pre-tax income
excluding the charge. The effective tax rate of 36% for the third quarter and
first nine months of 1999 is reflective of a larger proportionate research and
development tax credit as a result of the LJL BioSystems merger.
LIQUIDITY AND CAPITAL RESOURCES
We had cash, cash equivalents, and short-term investments of approximately
$102.2 million at September 30, 2000 compared to $36.6 million at December 31,
1999. Prior to the LJL BioSystems merger, we had typically financed our
operations primarily from cash flows provided by operating activities. However,
due to the $15.2 million merger charge in the third quarter of 2000, as well as
significant increases in accounts receivable, inventory and deferred tax assets
of the combined organization, approximately $9.9 million of cash was used in
operating activities for the first nine months of 2000. In addition,
approximately $73.1 million of cash was used in investing activities for the
first nine months of 2000 primarily due to: (1) $65.4 million of net short-term
investment purchases, (2) $6.1 million of capital expenditures, primarily
related to our facilities expansion in Sunnyvale, California, and (3) $1.5
million invested in other assets, primarily a $1.1 million strategic equity
investment in a privately held company. These two uses of cash were offset by
$83.8 million provided by financing activities primarily related to the
Molecular Devices public offering in the second quarter of 2000, the LJL
BioSystems private placements in the first quarter of 2000, as well as cash
proceeds from option exercises during the period.
We believe that our existing cash and investment securities and anticipated cash
flow from our operations will be sufficient to support our current operating
plan for the foreseeable future. Our forecast of the period of time through
which our financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary as a result of a number of factors. We have based this
estimate on assumptions that may prove to be wrong. Our future capital
requirements will depend on many factors, including:
- the progress of our research and development;
- the number and scope of our research programs;
- market acceptance and demand for our products;
- the costs that may be involved in enforcing our patent claims and other
intellectual property rights;
- potential acquisition and technology licensing opportunities;
- manufacturing capacity requirements; and
- the costs of expanding our sales, marketing and distribution
capabilities both in the United States and abroad.
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<PAGE> 13
We have generated sufficient cash flow from operations to fund our capital
requirements since our initial public offering in 1995. However, we cannot
assure you that we will not require additional financing in the future to
support our existing operations or potential acquisition and technology
licensing opportunities that may arise. Therefore, we may in the future seek to
raise additional funds through bank facilities, debt or equity offerings or
other sources of capital.
Our cash and investments policy emphasizes liquidity and preservation of
principal over other portfolio considerations. We select investments that
maximize interest income to the extent possible given these two constraints. We
satisfy liquidity requirements by investing excess cash in securities with
different maturities to match projected cash needs and limit concentration of
credit risk by diversifying our investments among a variety of high
credit-quality issuers.
RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, referred to as SAB 101. SAB 101 summarizes
the SEC staff's views in applying generally accepted accounting principles to
revenue recognition. We are currently in the process of evaluating SAB 101 and
what effect it may have on our financial statements. Accordingly, we have not
determined whether SAB 101 will have a material impact on our financial position
or results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our business, financial condition and results of operations are subject to
various risk factors, including those described below and elsewhere in this
report.
VARIATIONS IN THE AMOUNT OF TIME IT TAKES FOR US TO SELL OUR PRODUCTS AND
COLLECT ACCOUNTS RECEIVABLE AND THE TIMING OF CUSTOMER ORDERS MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO
DECLINE.
The timing of capital equipment purchases by customers is expected to be uneven
and difficult to predict. Our products represent major capital purchases for our
customers. We estimate that the average order price for our Maxline products is
$17,000, and that the average order price for our FLIPR products is $350,000.
Accordingly, our customers generally take a relatively long time to evaluate our
products, and a significant portion of our revenues is typically derived from
sales of a small number of relatively high-priced products. Purchases are
generally made by purchase orders and not long-term contracts. Delays in receipt
of anticipated orders for our relatively high priced products could lead to
substantial variability from quarter to quarter. Furthermore, we have
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 materially adverse affect on results of
operations for that quarter.
We expend significant resources educating and providing information to our
prospective customers regarding the uses and benefits of our products. Because
of the number of factors influencing the sales process, the period between our
initial contact with a customer and the time when we recognize revenues from
that customer, if ever, varies widely. Our sales cycles typically range from
three to six months, but can be much longer. During these cycles, we commit
substantial resources to our sales efforts in advance of receiving any revenues,
and we may never receive any revenues from a customer despite our sales efforts.
The relatively high purchase price for a customer order contributes to
collection delays that result in working capital volatility. While the terms of
most of our purchase orders require payment within 30
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days of product shipment, in the past we have experienced significant collection
delays. We cannot predict whether we will continue to experience similar or more
severe delays.
The capital spending policies of our customers have a significant effect on the
demand for our products. Those policies are based on a wide variety of factors,
including resources available to make purchases, spending priorities, and
policies regarding capital expenditures during industry downturns or
recessionary periods. Any decrease in capital spending by our customers
resulting from any of these factors could harm our business.
WE DEPEND ON ORDERS THAT ARE RECEIVED AND SHIPPED IN THE SAME QUARTER AND
THEREFORE HAVE LIMITED VISIBILITY OF FUTURE PRODUCT SHIPMENTS.
Our net sales in any given quarter depend upon a combination of orders received
in that quarter for shipment in that quarter and shipments from backlog. Our
products are typically shipped within 30 to 90 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. 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 of future product shipments,
and our results of operations are subject to significant variability from
quarter to quarter.
MANY OF OUR CURRENT AND POTENTIAL COMPETITORS HAVE SIGNIFICANTLY GREATER
RESOURCES THAN WE DO, AND INCREASED COMPETITION COULD IMPAIR SALES OF OUR
PRODUCTS.
We operate in a highly competitive industry and face competition from companies
that design, manufacture and market instruments for use in the life sciences
research industry, from genomic, pharmaceutical, biotechnology and diagnostic
companies and from academic and research institutions and government or other
publicly-funded agencies, both in the United States and abroad. We may not be
able to compete effectively with all of these competitors. Many of these
companies and institutions have greater financial, engineering, manufacturing,
marketing and customer support resources than we do. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
or market developments by devoting greater resources to the development,
promotion and sale of products, which could impair sales of our products.
Moreover, there has been significant merger and acquisition activity among our
competitors and potential competitors. These transactions by our competitors and
potential competitors may provide them with a competitive advantage over us by
enabling them to rapidly expand their product offerings and service capabilities
to meet a broader range of customer needs. Many of our customers and potential
customers are large companies that require global support and service, which may
be easier for our larger competitors to provide.
We believe that competition within the markets we serve is primarily driven by
the need for innovative products that address the needs of customers. We attempt
to counter competition by seeking to develop new products and provide quality
products and services that meet customers' needs. We cannot assure you, however,
that we will be able to successfully develop new products or that our existing
or new products and services will adequately meet our customers' needs.
Rapidly changing technology, evolving industry standards, changes in customer
needs, emerging competition and frequent new product and service introductions
characterize the markets for our products. To remain competitive, we will be
required to develop new products and periodically enhance our existing products
in a timely manner. We are facing increased competition as new companies
entering the market with new technologies compete, or will compete, with our
products and future products. We cannot assure you that one or more of our
competitors will not succeed in developing or
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marketing technologies or products that are more effective or commercially
attractive than our products or future products, or that would render our
technologies and products obsolete or uneconomical. Our future success will
depend in large part on our ability to maintain a competitive position with
respect to our current and future technologies, which we may not be able to do.
In addition, delays in the launch of our new products may result in loss of
market share due to our customers' purchases of competitors' products during any
delay.
IF WE ARE NOT SUCCESSFUL IN DEVELOPING NEW AND ENHANCED PRODUCTS, WE MAY LOSE
MARKET SHARE TO OUR COMPETITORS.
The life sciences instrumentation market is characterized by rapid technological
change and frequent new product introductions. Over 81% of our revenues in 1999
were derived from the sale of products that were introduced in the last three
years, and our future success will depend on our ability to enhance our current
products and to develop and introduce, on a timely basis, new products that
address the evolving needs of our customers. We may experience difficulties or
delays in our development efforts with respect to new products, and we may not
ultimately be successful in developing them. Any significant delay in releasing
new systems could adversely affect our reputation, give a competitor a
first-to-market advantage or cause a competitor to achieve greater market share.
In addition, our future success depends on our continued ability to develop new
applications for our existing products. If we are not able to complete the
development of these applications, or if we experience difficulties or delays,
we may lose our current customers and may not be able to attract new customers,
which could seriously harm our business and our future growth prospects.
WE MUST EXPEND A SIGNIFICANT AMOUNT OF TIME AND RESOURCES TO DEVELOP NEW
PRODUCTS AND IF THESE PRODUCTS DO NOT ACHIEVE COMMERCIAL ACCEPTANCE, OUR
OPERATING RESULTS MAY SUFFER.
We expect to spend a significant amount of time and resources to develop new
products and refine existing products. In light of the long product development
cycles inherent in our industry, these expenditures will be made well in advance
of the prospect of deriving revenues from the sale of new products. Our ability
to commercially introduce and successfully market new products is subject to a
wide variety of challenges during this development cycle that could delay
introduction of these products. In addition, since our customers are not
obligated by long-term contracts to purchase our products, our anticipated
product orders may not materialize, or orders that do materialize may be
canceled. As a result, if we do not achieve market acceptance of new products,
our operating results will suffer. In particular, while FLIPR and CLIPR reagent
kits have recently been introduced to the market, they have had only limited
sales to date and have not yet been widely commercially accepted. We cannot
predict whether these or other new products that we expect to introduce will
achieve commercial acceptance. Our products are generally priced higher than
competitive products, which may impair commercial acceptance.
IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED AND THE
SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.
Our products are complex and sometimes have contained errors, defects and bugs
when introduced. If we deliver products with errors, defects or bugs, our
credibility and the market acceptance and sales of our products would be harmed.
Further, if our products contain errors, defects or bugs, we may be required to
expend significant capital and resources to alleviate such problems. Defects
could also lead to product liability as a result of product liability lawsuits
against us or against our customers. We have agreed to indemnify our customers
in some circumstances against liability arising from defects in our products. In
the event of a successful product liability claim, we could be obligated to pay
damages significantly in excess of our product liability insurance limits.
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THE RECENT ISSUANCE BY THE SEC OF AN ACCOUNTING BULLETIN RELATED TO REVENUE
RECOGNITION, SAB 101, MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR FINANCIAL
PERFORMANCE.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, referred to as SAB 101. SAB 101 summarizes
the SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We are currently in the process of
evaluating SAB 101 and what effect it may have on our financial statements.
Accordingly, we have not determined whether SAB 101 will have a material impact
on our financial position or results of operations. In the event that the
implementation of SAB 101 requires us to report a change in accounting
principles related to our revenue recognition policy, we would be required to
report such change no later than the quarter ending December 31, 2000. In
addition to other uncertain risks related to SAB 101, it is possible that the
implementation of SAB 101 will result in increased fluctuations in our quarterly
operating results and increase the likelihood that we may fail to meet the
expectations of securities analysts for any period.
MOST OF OUR CURRENT AND POTENTIAL CUSTOMERS ARE FROM THE PHARMACEUTICAL AND
BIOTECHNOLOGY INDUSTRIES AND ARE SUBJECT TO RISKS FACED BY THOSE INDUSTRIES.
We derive a significant portion of our revenues from sales to pharmaceutical and
biotechnology companies. We expect that sales to pharmaceutical and
biotechnology companies will continue to be a primary source of revenues for the
foreseeable future. As a result, we are subject to risks and uncertainties that
affect the pharmaceutical and biotechnology industries, such as pricing
pressures as third-party payors continue challenging the pricing of medical
products and services, government regulation and uncertainty of technological
change, and reduction and delays in research and development expenditures by
companies in these industries.
In addition, our future revenues may be adversely affected by the ongoing
consolidation in the pharmaceutical and biotechnology industries, which will
reduce the number of our potential customers. Furthermore, we cannot assure you
that the pharmaceutical and biotechnology companies that are our customers will
not develop their own competing products or in-house capabilities.
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, any legal action against us could,
in addition to subjecting us to potential liability for damages, prohibit us
from selling our products before we obtain a license to do so from the party
owning the intellectual property, 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. There may be third-party patents that
may relate to our technology or potential products. Any public announcements
related to litigation or interference proceedings initiated or threatened
against us could cause our stock price to decline. We believe that there may be
significant litigation in the industry regarding patent and other intellectual
property rights. If we become involved in litigation, it could consume a
substantial portion of our managerial and financial resources.
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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. In order to protect or enforce our patent rights, we may
initiate patent litigation against third parties, such as infringement suits or
interference proceedings. Litigation may be necessary to:
- assert claims of infringement;
- enforce our patents;
- protect our trade secrets or know-how; or
- determine the enforceability, scope and validity of the proprietary
rights of others.
Lawsuits could be expensive, take significant time and 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 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.
Our success will depend in part on our ability to obtain commercially valuable
patent claims and to protect our intellectual property. Our patent position is
generally uncertain and involves complex legal and factual questions. Legal
standards relating to the validity and scope of claims in our technology field
are still evolving. Therefore, the degree of future protection for our
proprietary rights is uncertain.
The risks and uncertainties that we face with respect to our patents and other
proprietary rights include the following:
- the pending patent applications we have filed or to which we have
exclusive rights may not result in issued patents or may take longer
than we expect to result in issued patents;
- the claims of any patents which are issued may not provide meaningful
protection;
- we may not be able to develop additional proprietary technologies that
are patentable;
- the patents licensed or issued to us or our customers may not provide a
competitive advantage;
- other companies may challenge patents licensed or issued to us or our
customers;
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- patents issued to other companies may harm our ability to do business;
- other companies may independently develop similar or alternative
technologies or duplicate our technologies; and
- other companies may design around technologies we have licensed or
developed.
In addition to patents, we rely on a combination of trade secrets, 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 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
or prosecute potential infringements of our patents. 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 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 REVENUES.
We rely on outside vendors to manufacture many components and subassemblies.
Certain components, subassemblies and services necessary for the manufacture of
our systems are obtained from a sole supplier or limited group of suppliers,
some of which are our competitors. Additional components, such as optical,
electronic and pneumatic devices, are currently purchased in configurations
specific to our requirements and, 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.
For example, we currently rely primarily on a single supplier of disposable
plastic tips used with our FLIPR(384) system, and we have in the past
experienced delays and customer dissatisfaction due to our supplier's inability
to deliver an adequate supply of tips. We cannot predict whether we will
encounter additional similar delays in the future. Our current supplier and
known potential alternative suppliers of disposable plastic tips used with our
FLIPR(384) system are our competitors.
Because the manufacturing of certain of these components and subassemblies
involves extremely complex processes and requires long lead times, we may
experience delays or shortages caused by suppliers. We believe that alternative
sources could be obtained and qualified, if necessary, for most sole
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and limited source parts. However, if we were forced to seek alternative sources
of supply or to manufacture such components or subassemblies internally, we may
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. Any inability to obtain adequate
deliveries, 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.
WE MAY ENCOUNTER MANUFACTURING AND ASSEMBLY PROBLEMS OR DELAYS, WHICH COULD
RESULT IN LOST REVENUES.
We assemble our systems in our manufacturing facilities located in Sunnyvale,
California and Norway. Our manufacturing and assembly processes are highly
complex and require sophisticated, costly equipment and specially designed
facilities. As a result, any prolonged disruption in the operations of our
manufacturing facilities could seriously harm our ability to satisfy our
customer order deadlines. If we cannot deliver our systems in a timely manner,
our revenues will likely suffer.
Our product sales depend in part upon manufacturing yields. We currently have
limited manufacturing capacity and experience variability in manufacturing
yields. We are currently manufacturing high throughput instruments in-house, in
limited volumes and with largely manual assembly. If demand for our high
throughput instruments increases, we will either need to expand our in-house
manufacturing capabilities or outsource to other manufacturers. If we fail to
deliver our products in a timely manner, our relationships with our customers
could be seriously harmed, and revenues would decline.
As we develop new products, we must transition the manufacture of a new product
from the development stage to commercial manufacturing. We have only recently
transitioned the CLIPR system. We cannot predict whether we will be able to
complete these transitions on a timely basis and with commercially reasonable
costs. We cannot assure you that manufacturing or quality control problems will
not arise as we attempt to scale-up our production for any future new products
or that we can scale-up manufacturing and quality control in a timely manner or
at commercially reasonable costs. If we are unable to consistently manufacture
our products on a timely basis because of these or other factors, our product
sales will decline.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
We expect to continue to experience significant growth in the number of our
employees and customers and the scope of our operations. This growth may
continue to place a significant strain on our management and operations. Our
ability to manage this growth will depend upon our ability to broaden our
management team and our ability to attract, hire and retain skilled employees.
Our success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational and other systems, to manage
multiple, concurrent customer relationships and to hire, train and manage our
employees. Our future success is heavily dependent upon growth and acceptance of
new products. If we cannot scale our business appropriately or otherwise adapt
to anticipated growth and new product introductions, a key part of our strategy
may not be successful.
WE RELY UPON DISTRIBUTORS FOR PRODUCT SALES AND SUPPORT OUTSIDE NORTH AMERICA.
In 1999 approximately 17% of our sales were made through distributors. We often
rely upon distributors to provide customer support to the ultimate end users of
our products. As a result, our success depends on the continued sales and
customer support efforts of our network of distributors. The use of distributors
involves certain risks, including risks that distributors will not effectively
sell or support our products, that they will be unable to satisfy financial
obligations to us and that they will cease operations. Any reduction, delay or
loss of orders from our significant distributors could harm our
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revenues. We also do not currently have distributors in a number of significant
international markets that we have targeted and will need to establish
additional international distribution relationships. There can be no assurance
that we will engage qualified distributors in a timely manner, and the failure
to do so could have a materially adverse affect on our business, financial
condition and results of operations.
IF WE CHOOSE TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS OR
TECHNOLOGIES INSTEAD OF DEVELOPING THEM OURSELVES, WE MAY BE UNABLE TO COMPLETE
THESE ACQUISITIONS OR MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE AN ACQUIRED
BUSINESS OR TECHNOLOGY IN A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, from time to time we have acquired
complementary businesses, products, or technologies instead of developing them
ourselves and may choose to do so in the future. We do not know if we will be
able to complete any acquisitions, or whether we will be able to successfully
integrate any acquired business, operate it profitably or retain its key
employees. Integrating any business, product or technology we acquire could be
expensive and time consuming, disrupt our ongoing business and distract our
management. In addition, in order to finance any acquisitions, we might need to
raise additional funds through public or private equity or debt financings. In
that event, we could be forced to obtain financing on terms that are not
favorable to us and, in the case of equity financing, that may result in
dilution to our shareholders. If we are unable to integrate any acquired
entities, products or technologies effectively, our business will suffer. In
addition, any amortization of goodwill or other assets or charges resulting from
the costs of acquisitions could harm our business and operating results.
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, engineering
and scientific staff. The loss of the service 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 corporate headquarters is located in
Sunnyvale, California, where demand for personnel with these skills is extremely
high and is likely to remain high. 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 the planned expansion of our business.
WE ARE DEPENDENT ON INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO
FOREIGN CURRENCY EXCHANGE RATE, POLITICAL AND ECONOMIC RISKS.
We maintain facilities in Norway, the United Kingdom and Germany, and sales to
customers outside the U.S. accounted for approximately 39% of our revenues in
1999. We anticipate that international sales will continue to account for a
significant portion of our revenues.
All of our sales to international distributors are denominated in U.S. dollars.
All of our direct sales in the United Kingdom, Germany and Canada are
denominated in local currencies and totaled $15.8 million (22% of total
revenues) in 1999. To the extent that our sales and operating expenses are
denominated in foreign currencies, our operating results may be adversely
affected by changes in exchange rates. Historically, foreign exchange gains and
losses have been immaterial to our results of operations. However, we cannot
predict whether these gains and losses will continue to be immaterial,
particularly as we increase our direct sales outside North America. Owing to the
number of currencies involved, the substantial volatility of currency exchange
rates, and our constantly changing currency exposures, we
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cannot predict the effect of exchange rate fluctuations on our future operating
results. We do not engage in foreign currency hedging transactions.
Our reliance on international sales and operations exposes us to foreign
political and economic risks, including:
- political, social and economic instability;
- trade restrictions and changes in tariffs;
- import and export license requirements and restrictions;
- difficulties in staffing and managing international operations;
- disruptions in international transport or delivery;
- difficulties in collecting receivables; and
- potentially adverse tax consequences.
If any of these risks materialize, our international sales could decrease and
our foreign operations could suffer.
OUR OPERATING RESULTS FLUCTUATE AND ANY FAILURE TO MEET FINANCIAL EXPECTATIONS
MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE IN OUR
STOCK PRICE.
We typically experience 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.
Our quarterly operating results have fluctuated in the past, and we expect they
will fluctuate in the future as a result of many factors, some of which are
outside of our control. In particular, if sales levels in a particular quarter
do not meet expectations, we may not be able to adjust operating expenses
sufficiently quickly to compensate for the shortfall, and our results of
operations for that quarter may be seriously harmed. We manufacture our products
based on forecasted orders rather than to outstanding orders. Our manufacturing
procedures may in certain instances create a risk of excess or inadequate
inventory levels if orders do not match forecasts. In addition, our expense
levels are based, in part, on expected future sales, and we generally cannot
quickly adjust operating expenses. For example, research and development and
general and administrative expenses are not affected directly by variations in
revenues.
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 revenues and operating results are difficult to predict, we believe
that period-to-period comparisons of our results of operations are not a good
indication of our future performance.
OUR STOCK PRICE IS VOLATILE, WHICH COULD CAUSE SHAREHOLDERS TO LOSE A
SUBSTANTIAL PART OF THEIR INVESTMENT IN OUR STOCK.
The stock market in general, and the stock prices of technology companies in
particular, have recently experienced volatility which has often been unrelated
to the operating performance of any particular
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company or companies. Over the last twelve months, our stock price has ranged
from $27.13 to $122.35. Our stock price could decline regardless of our actual
operating performance, and shareholders could lose a substantial part of their
investment as a result of industry or market-based fluctuations. In the past,
our stock has traded relatively thinly. If a more active public market for our
stock is not sustained, it may be difficult for shareholders to resell shares of
our common stock. Because we do not anticipate paying cash dividends on our
common stock for the foreseeable future, stockholders will not be able to
receive a return on their shares unless they sell them.
THE MARKET PRICE OF OUR COMMON STOCK WILL LIKELY FLUCTUATE IN RESPONSE TO A
NUMBER OF FACTORS, INCLUDING THE FOLLOWING:
- our failure to meet the performance estimates of securities analysts;
- changes in financial estimates of our revenues and operating results or
buy/sell recommendations by securities analysts;
- the timing of announcements by us or our competitors of significant
products, contracts or acquisitions or publicity regarding actual or
potential results or performance thereof; and
- general stock market conditions, other economic or external factors.
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, merger in which we are not the surviving
company or changes in our management. For example, our certificate of
incorporation gives our board of directors the authority to issue shares of
preferred stock and to determine the price, rights, preferences and privileges
and restrictions, including voting rights, of those shares without any further
vote or action by our stockholders. The rights of the holders of common stock
will be subject to, and may harmed by, the rights of the holders of any shares
of preferred stock that may be issued in the future. The issuance of preferred
stock may delay, defer or prevent a change in control, as the terms of the
preferred stock that might be issued could potentially prohibit our consummation
of any merger, reorganization, sale of substantially all of our assets,
liquidation or other extraordinary corporate transaction without the approval of
the holders of the outstanding shares of preferred stock. The issuance of
preferred stock could also have a dilutive effect on our stockholders. 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 large stockholders, in particular those owning 15% or
more of the outstanding voting stock, from consummating a merger or combination
involving us. These provisions could limit the price that investors might be
willing to pay in the future for our common stock.
RISKS RELATING TO THE MERGER
IF WE DO NOT SUCCESSFULLY INTEGRATE THE COMPANIES INTO A SINGLE BUSINESS AND
REALIZE THE EXPECTED BENEFITS OF THE MERGER, WE WILL HAVE INCURRED SIGNIFICANT
COSTS WHICH MAY HARM OUR BUSINESS.
Molecular Devices expects to incur costs from integrating LJL BioSystems'
operations, products and personnel. These costs may be substantial and may
include costs for:
- employee redeployment, relocation or severance;
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- conversion of information systems;
- reorganization or closures of facilities; and
- relocation or disposition of excess equipment.
We do not know whether Molecular Devices will be successful in these integration
efforts and cannot assure you that we will realize the expected benefits of the
merger.
IF CUSTOMER RELATIONSHIPS OR STRATEGIC PARTNERSHIPS ARE DISRUPTED BY THE MERGER,
OUR SALES COULD DECLINE OR WE COULD LOSE CUSTOMERS.
Customers of Molecular Devices and LJL BioSystems may not continue their current
buying patterns following the merger. Any significant delay or reduction in
orders for Molecular Devices' or LJL BioSystems' products could have a
materially adverse affect on the combined company's business, financial
condition and results of operations. Customers may defer purchasing decisions as
they evaluate the likelihood of successful integration of Molecular Devices' and
LJL BioSystems' products and the combined company's future product strategy.
Customers may also consider purchasing products of competitors. In addition, by
increasing the breadth of Molecular Devices' and LJL BioSystems' business, the
merger may make it more difficult for the combined company to enter into or
maintain relationships, including relationships with customers or partners.
IF WE ARE NOT SUCCESSFUL IN INTEGRATING OUR ORGANIZATIONS, WE WILL NOT BE ABLE
TO OPERATE EFFICIENTLY AFTER THE MERGER.
Achieving the benefits of the merger will also depend in part on the successful
integration of Molecular Devices' and LJL BioSystems' operations and personnel
in a timely and efficient manner. For example, such integration requires
coordination of different development, engineering, sales, marketing,
manufacturing and administrative teams. This, too, will be difficult and
unpredictable because of possible cultural conflicts and different opinions on
technical decisions, product roadmaps and other decisions. If we cannot
successfully integrate our operations and personnel, we will not realize the
expected benefits of the merger and/or business results of operations may be
seriously harmed.
INTEGRATING OUR COMPANIES MAY DIVERT MANAGEMENT'S ATTENTION AWAY FROM OUR
OPERATIONS.
Successful integration of Molecular Devices' and LJL BioSystems' operations,
products and personnel may place a significant burden on our management and our
internal resources. The diversion of management attention and any difficulties
encountered in the transition and integration process could have a materially
adverse affect on the combined company's business, financial condition and
operating results.
FAILURE TO RETAIN KEY EMPLOYEES COULD DIMINISH THE BENEFITS OF THE MERGER.
The successful combination of Molecular Devices and LJL BioSystems will depend
in part on the retention of key personnel. We cannot assure you that the
combined company will be able to retain key management, technical, sales,
customer support and other personnel, or that the anticipated benefits of their
expertise, experience and capabilities will be realized.
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<PAGE> 24
IF WE DO NOT SUCCESSFULLY MANUFACTURE, PROMOTE, SELL AND SERVICE OUR PRODUCTS,
AND INTEGRATE OUR TECHNOLOGIES TO DEVELOP NEW PRODUCTS, WE MAY LOSE CUSTOMERS
AND FAIL TO ACHIEVE OUR FINANCIAL OBJECTIVES.
Achieving the benefits of the merger will depend in part on our ability to
continue to successfully manufacture, promote, sell and service our products,
and integrate our technologies to develop new products and product features, in
a timely and efficient manner. In order to provide enhanced and more valuable
products to our customers after the merger, we will need to integrate our
development organizations. This will be difficult and unpredictable because our
products:
- are highly complex;
- involve different technologies;
- have been developed independently; and
- were designed without regard to such integration.
If we cannot successfully manufacture, promote, sell and service our products
and integrate our technologies to provide customers with new products and
product features in the future on a timely basis, we may lose customers and our
business and results of operations may be seriously harmed.
FAILURE OF THE MERGER TO BE TREATED AS A POOLING OF INTERESTS UNDER ACCOUNTING
RULES COULD RESULT IN A REDUCTION OF REPORTED EARNINGS.
We expect the merger to be accounted for under the pooling-of-interests
accounting method and financial reporting rules. To qualify the merger as
pooling-of-interests for accounting purposes, certain criteria established in
opinions by the Accounting Principles Board and interpreted by the Financial
Accounting Standards Board and the Securities and Exchange Commission must be
met. These opinions are complex and the interpretation of them is subject to
change. In addition, the availability of pooling-of-interests accounting
treatment depends in part upon circumstances and events occurring after the
acquisition. The failure of the merger to qualify for pooling-of-interests
accounting treatment for financial reporting purposes for any reason would
materially adversely affect the combined company's reported earnings and likely,
the price of its common stock.
THE MARKET PRICE OF MOLECULAR DEVICES' COMMON STOCK MAY DECLINE AS A RESULT OF
THE MERGER.
The market price of Molecular Devices' common stock may decline as a result of
the merger if:
- the integration of Molecular Devices and LJL BioSystems is unsuccessful;
- we do not achieve the perceived benefits of the merger as rapidly or to
the extent anticipated by financial analysts or investors; or
- the effect of the merger on our financial results is not consistent with
the expectations of financial analysts or investors.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS.
This report contains forward-looking statements within the meaning of the
federal securities laws that relate to future events or our future financial
performance. When used in this report, you can identify forward-looking
statements by terminology such as "anticipate," "believe," "continue,"
"estimate,"
24
<PAGE> 25
"expect," "intend," "may," "plan," "potential," "predict," "should," "will" and
the negative of these terms or other comparable terminology. These statements
are only predictions. Our actual results could differ materially from those
anticipated in our forward-looking statements as a result of many factors,
including those set forth here under "Factors That May Affect Future Results"
and elsewhere in this report.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We assume
no duty to update any of the forward-looking statements after the date of this
report or to conform these statements to actual results.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk, including changes in interest rates and foreign
currency exchange rates. The primary objective of our 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 our
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
Molecular Devices and LJL BioSystems Annual Reports on Form 10-K for the fiscal
year ended December 31, 1999.
Our 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 our cash equivalents and short-term
investments. We invest our 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 to 180 days, and bear minimal valuation risk.
We have not experienced any significant losses on these investments.
We are exposed to changes in exchange rates primarily in the United Kingdom,
Germany and Canada. All export sales, with the exception of sales into Canada,
are denominated in U.S. dollars and bear no exchange rate risk. However, a
strengthening of the U.S. dollar could make our products less competitive in
overseas markets. Gains and losses resulting from foreign currency transactions
in Canada have historically been immaterial. Translation gains and losses
related to our foreign subsidiaries in the United Kingdom and Germany are
accumulated as a separate component of stockholders' equity. Those gains and
losses have historically been immaterial.
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MOLECULAR DEVICES CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In 1998, we entered into employment arrangements with each of Mr. Timothy A.
Harkness and Mr. John S. Senaldi pursuant to which we are obligated to issue to
each such officer shares of our common stock in exchange for services rendered.
As a result of these arrangements, we issued shares of our 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.
<TABLE>
<CAPTION>
Number of Shares Date of Issue
<S> <C> <C>
Mr. Harkness 1,250 07/09/00
Mr. Senaldi 312 08/06/00
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Matters presented at the Special Meeting of Stockholders on August 30, 2000, and
the voting of stockholders was as follows:
Approval of the issuance of shares of Molecular Devices common stock in the
merger contemplated by the Agreement and Plan of Merger and Reorganization,
dated as of June 7, 2000, among Molecular Devices Corporation, Mercury
Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of
Molecular Devices, and LJL BioSystems, Inc.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
8,628,145 9,978 4,114
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.24 Employee offer letter for Patricia Sharp.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
Reports on Form 8-K were filed on July 24, 2000 and September
14, 2000.
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<PAGE> 27
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 13, 2000
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C>
10.24 Employee offer letter for Patricia Sharp.
27.1 Financial Data Schedule
</TABLE>
