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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For quarter ended June 30, 1997
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: 0-10961
QUIDEL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2573850
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10165 McKellar Court, San Diego, California 92121
(Address of principal executive offices)
Registrant's telephone number, including area code (619) 552-1100
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 __
The number of shares outstanding of the Registrant's Common Stock as of
June 30, 1997 was 23,554,333.
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QUIDEL CORPORATION
TABLE OF CONTENTS
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Page
Numbers
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1997 and March 31, 1997....................................... 3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1997 and 1996.............................. 4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1997 and 1996.............................. 5
Notes to Unaudited Condensed Consolidated Financial Statements............ 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................ 10
ITEM 2. Changes in Securities............................................ 10
ITEM 3. Defaults upon Senior Securities.................................. 11
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 11
ITEM 5. Other Information................................................ 12
ITEM 6. Exhibits and Reports on Form 8-K................................. 12
Signatures................................................................... 13
</TABLE>
2
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 8,396,000 $ 10,096,000
Accounts receivable, net ..................................... 6,013,000 8,384,000
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials ....................................... 1,951,000 1,842,000
Work in process ..................................... 1,456,000 1,216,000
Finished goods ...................................... 983,000 726,000
------------- -------------
4,390,000 3,784,000
Prepaid expenses and other current assets .................... 854,000 1,080,000
------------- -------------
Total current assets ....................... 19,653,000 23,344,000
Property and equipment, net ........................................... 14,859,000 13,886,000
Intangible assets, net ................................................ 6,932,000 4,854,000
Other assets .......................................................... 178,000 177,000
------------- -------------
$ 41,622,000 $ 42,261,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ .......................................... $ 2,412,000 $ 2,132,000
Accrued payroll and related expenses ......................... 957,000 1,123,000
Current portion of long-term debt and obligations
under capital leases ................................ 188,000 183,000
Other current liabilities .................................... 539,000 462,000
------------- -------------
Total current liabilities .................. 4,096,000 3,900,000
Long-term debt and obligations under capital leases ................... 3,153,000 3,203,000
Stockholders' equity:
Common stock ................................................. 24,000 24,000
Additional paid-in capital ................................... 115,949,000 115,943,000
Accumulated deficit .......................................... (81,600,000) (80,809,000)
------------- -------------
Total stockholders' equity .......................... 34,373,000 35,158,000
------------- -------------
$ 41,622,000 $ 42,261,000
============= =============
</TABLE>
See accompanying notes.
3
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, 1997 1996
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<S> <C> <C>
Revenues:
Net sales ................................ $ 8,747,000 $ 9,047,000
Research contracts and royalties ......... 622,000 665,000
------------ ------------
Total revenues .................... 9,369,000 9,712,000
Costs and expenses:
Cost of sales ............................ 4,717,000 4,270,000
Research and development ................. 1,747,000 1,732,000
Sales and marketing ...................... 2,543,000 2,607,000
General and administrative ............... 1,157,000 816,000
------------ ------------
Total costs and expenses .......... 10,164,000 9,425,000
Operating income (loss) ........................... (795,000) 287,000
Other income and expense:
Interest and other income ................ 108,000 37,000
Interest and other expense ............... (104,000) (131,000)
------------ ------------
Net income (loss) ................................. $ (791,000) $ 193,000
============ ============
Net income (loss) per share ....................... $ (.03) $ .01
============ ============
Shares used in per share calculation .............. 23,552,000 22,962,000
============ ============
</TABLE>
See accompanying notes.
4
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, 1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................................... $ (791,000) $ 193,000
Adjustments to reconcile net income (loss) to net cash
flows provided by (used for) operating activities:
Depreciation and amortization ................................ 740,000 563,000
Changes in operating assets and liabilities:
Accounts receivable ................................. 2,371,000 721,000
Inventories ......................................... (606,000) (719,000)
Prepaid expenses and other current assets ........... 226,000 255,000
Accounts payable .................................... 280,000 382,000
Accrued payroll and related expenses ................ (166,000) 259,000
Deferred contract research revenue .................. -- (254,000)
Other current liabilities ........................... 77,000 (241,000)
------------ ------------
Net cash flows provided by operating activities ..... 2,131,000 1,159,000
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to equipment and improvements ............................... (1,429,000) (547,000)
Increase in intangible and other assets ............................... (2,363,000) (108,000)
------------ ------------
Net cash flows for investing activities ............. (3,792,000) (655,000)
CASH FLOWS (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ............................ 6,000 116,000
Payments on notes payable, long term debt and
obligations under capital leases ............................. (45,000) (505,000)
------------ ------------
Net cash flows used for financing activities ........ (39,000) (389,000)
Net increase (decrease) in cash and cash equivalents ........................... (1,700,000) 115,000
Cash and cash equivalents at beginning of period ............................... 10,096,000 2,538,000
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 8,396,000 $ 2,653,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .............................. $ 80,000 $ 131,000
============ ============
</TABLE>
See accompanying notes.
5
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QUIDEL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
QUIDEL Corporation ("QUIDEL" or the "Company") discovers, develops,
manufactures and markets diagnostic products for human health care. The
unaudited financial information included herein is condensed and has been
prepared in accordance with generally accepted accounting principles
applicable to interim periods; consequently it does not include all
generally accepted accounting disclosures required for complete annual
financial statements. The condensed financial information contains, in the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to state fairly the financial position, results of
operations and cash flows. The results of operations for the three months
ended June 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
Management suggests that these condensed financial statements be read in
conjunction with the financial statements and notes thereto for the year
ended March 31, 1997, included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
NET INCOME PER SHARE - Net income (loss) per share as presented on the
statements of income represent primary earnings (loss) per share. Dual
presentation of primary and fully diluted earnings per share has not been
made because the differences are insignificant.
Effective December 31, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128, "Earnings per Share." At that time, the
Company will be required to change the method currently used to calculate
earnings per share and to restate all prior periods. The new requirements
will include a calculation of basic earnings per share, from which the
dilutive effect of stock options will be excluded, and the calculation of
diluted earnings per share, which is not expected to differ materially from
the current primary earnings per share calculation. Due to the Company's
loss in the three month period ended June 30, 1997, the basic loss per
share amount will not differ from the primary loss per share amount being
reported.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations. The Company's financial results for the first quarter
ended June 30, 1997 were adversely impacted by a 3% decline in sales and
increased patent license royalty expense and settlement costs associated with
the Becton Dickinson ("BD") lawsuit, which resulted in a net loss of $791,000 or
$(.03) per share.
NET SALES TRENDS BY MAJOR SALES CHANNELS
<TABLE>
<CAPTION>
INCREASE/
(DECREASE)
THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1997 1996 AMOUNT PERCENT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic sales:
Professional sales .................... $ 5,523 $ 5,298 $ 225 4%
OTC sales ............................. 92 223 (131) (59%)
Clinical lab sales .................... 380 334 46 14%
OEM sales ............................. 87 208 (121) (58%)
------- ------- ------- -------
Total domestic sales ......... 6,082 6,063 19 --
- ---------------------------------------------------------------------------------------------------
International sales:
Export sales .......................... 1,484 2,168 (684) (32%)
European subsidiary sales ............. 1,181 816 365 45%
------- ------- ------- -------
Total international sales .... 2,665 2,984 (319) (11%)
- ---------------------------------------------------------------------------------------------------
Total net sales .............. $ 8,747 $ 9,047 $ (300) (3%)
- ---------------------------------------------------------------------------------------------------
</TABLE>
Overall sales for the first quarter declined $300,000 or 3% from the same period
of the prior year. The current quarter's sales were constrained, however, due to
the inability to produce and ship certain products due to production issues.
This resulted in a $773,000 increase in the amount of open unshipped orders at
June 30, 1997 over the level at the beginning of the quarter. The Company
expects to resolve these production issues and to fill these backorders early in
the second fiscal quarter.
Total domestic sales were flat between years. Domestic professional sales
improved slightly over the prior year period due in part to increased H. Pylori
product sales; however, this was offset by reduced OTC and OEM sales volume.
International export sales declined principally as a result of reduced pregnancy
product sales due to price competition (these products are sold to distributors
in U.S. dollars which results in a higher local currency sales price when the
dollar is strong) and the end of our contract with our pregnancy distributor in
Japan. This decline was partially offset by improved sales by the Company's
European subsidiaries in Germany and Spain.
Revenue from research contracts and royalties is principally related to revenue
from the Glaxo influenza product development program which commenced in March
1996 and is equal to the
7
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sum of the program direct research cost (see Operating Expenses below) and
allocated support service cost.
COST OF SALES AND GROSS PROFIT
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THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1997 1996
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Direct Costs - material, labor and other variable cost ..... $3,186 $3,088
As a percentage of sales ................................... 36% 34%
Royalty Expense - patent licenses .......................... 395 82
As a percentage of sales ................................... 5% 1%
------ ------
Total direct cost .......................................... 3,581 3,170
As a percentage of sales ................................... 41% 35%
------ ------
Direct Margin - contribution per sales dollar .............. 59% 65%
Manufacturing overhead cost ................................ 1,136 1,100
As a percentage of sales ................................... 13% 12%
------ ------
Total cost of sales ............................... 4,717 4,270
------ ------
Gross profit ............................................... $4,030 $4,777
As a percentage of sales ................................... 46% 53%
- -------------------------------------------------------------------------------------
</TABLE>
Gross profit as a percentage of sales declined seven percentage points to 46% of
sales in the current quarter from the prior year level. The most significant
component of this change relates to increased patent license royalty expense
which commenced April 1, 1997 resulting from the settlement of the BD patent
lawsuit. This variable cost will be ongoing as long as the current Generation
III format products are sold. The direct cost of material, labor and other
variable cost also increased as a percentage of sales due in part to higher
production variances and scrap costs of certain products; these higher costs are
not expected to continue.
8
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OPERATING EXPENSES
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THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1997 1996
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Research and development
Quidel research projects .......................... $1,276 $1,147
As a percentage of sales .......................... 15% 13%
Contract research -- direct costs ................. 471 585
As a percentage of sales .......................... 5% 6%
------ ------
Total research and development ........... 1,747 1,732
As a percentage of sales ................. 20% 19%
------ ------
Sales and marketing
Domestic professional sales and marketing ......... 1,598 1,489
Domestic OTC sales and marketing .................. 55 137
International sales and marketing ................. 890 981
------ ------
Total sales and marketing ................ 2,543 2,607
As a percentage of sales ................. 29% 29%
------ ------
General and administrative ................................. 1,157 816
As a percentage of sales ................................... 13% 9%
- -------------------------------------------------------------------------------------
Total operating expenses ................................... $5,447 5,155
As a percentage of sales ................................... 62% 57%
- -------------------------------------------------------------------------------------
Total operating expenses excluding contract research ....... $4,976 $4,570
As a percentage of sales ................................... 57% 51%
- -------------------------------------------------------------------------------------
</TABLE>
Operating expenses increased $292,000 (5.7%) in the current quarter over the
prior year level.
Research and Development. Research and development expense reflects reduced
contract research expense due to the program start up expenses in the prior year
period offset by increased Quidel R&D and clinical project spending and
increased patent amortization costs.
Sales and Marketing. Sales and marketing expense declined slightly from the
prior year level as increased domestic marketing expense due in part to the H.
Pylori product promotion with Procter & Gamble was offset with reduced OTC and
international sales and marketing expenses.
General and Administrative. General and administrative expense increased
significantly in the current quarter due to legal fees and other costs
associated with the BD lawsuit settlement and the estimated costs associated
with other legal matters.
Net Income (Loss). The net loss for the quarter resulted from lower sales
volume, reduced level of gross profit due in part to higher royalty expenses
which are ongoing, and higher legal expenses related to the settlement of the BD
lawsuit which are not ongoing expenses.
9
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The Company's operating results may continue to fluctuate on a
quarter-to-quarter basis as a result of a number of factors, including the
competitive and economic factors affecting the Company's markets, actions of our
major distributors, adverse actions or delays in product reviews by the United
States Food and Drug Administration, the degree of acceptance that our new
products achieve during the year, and seasonality.
Liquidity and Capital Resources. At June 30, 1997, the Company had cash and cash
equivalents of $8,396,000, compared to $10,096,000 at March 31, 1997. During the
three months ended June 30, 1997 the Company generated $2,131,000 in cash from
operating activities. Net cash used as a result of the net loss and increase in
inventory was more than offset by reduction in accounts receivable.
Net cash used for investment activities of $3,792,000 related to $1,429,000 in
capital expenditures for increased production capacity and product cost
reduction and $2,363,000 paid for patent licenses and capitalized patent
application costs.
Net cash used in financing activities totaled $39,000, primarily related to debt
repayment.
The Company has a domestic accounts receivable-based bank line of credit in an
amount up to $3,000,000 which provides for interest at the bank's prime rate
plus two percent. The line of credit expires August 5, 1998. As of June 30,
1997, there were no outstanding borrowings under this line of credit.
QUIDEL's principal capital requirements are for working capital. These
requirements fluctuate as a result of numerous factors, such as the extent to
which the Company uses or generates cash in operations, progress in research and
development projects, competition and technological developments and the time
and expenditures required to obtain governmental approval of its products. Based
on its current cash position and its current assessment of future operating
results, management believes that its existing sources of liquidity should be
adequate to meet its operating needs during fiscal 1998.
Except for the historical information contained herein, the matters discussed in
this report are by their nature forward-looking. For the reasons stated in this
report or in the Company's Securities and Exchange Commission filings, or for
various unanticipated reasons, actual results may differ materially.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
10
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on July 29,
1997 at the principal offices of the Company in San Diego, California.
(b) The directors elected at the meeting were:
Andre de Bruin
John D. Diekman
Steven T. Frankel
Thomas A. Glaze
Roger F. Greaves
Rockell N. Hankin
Margaret G. McGlynn
Richard C.E. Morgan
Mary Lake Polan
Faye Wattleton
(c) Matters voted upon at the meeting and the results of those votes
were as follows:
<TABLE>
<CAPTION>
For Against Abstain
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<S> <C> <C> <C>
1. Elected as director:
Andre de Bruin 18,456,686 270,122 --
John D. Diekman 18,457,506 269,302 --
Steven T. Frankel 18,434,451 292,357 --
Thomas A. Glaze 18,458,656 268,152 --
Roger F. Greaves 18,456,656 270,152 --
Rockell N. Hankin 18,457,706 269,102 --
Margaret G. McGlynn 18,457,556 269,252 --
Richard C.E. Morgan 18,469,506 257,302 --
Mary Lake Polan 18,457,856 268,952 --
Faye Wattleton 18,456,406 270,402 --
2. Ratification of the selection of
Ernst & Young LLP as independent
auditors for the Company for the
fiscal year ending March 31, 1998. 18,509,145 147,480 70,183
</TABLE>
The foregoing matters are described in detail in the Company's proxy statement
dated July 1, 1997 for the 1997 Annual Meeting of Stockholders.
11
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ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
------ -------
3.4 Certificate of Designation of Rights,
Preferences, Privileges and Restrictions of
Series C Junior Participating Preferred Stock
(incorporated by reference to Exhibit A of
Exhibit 1 to the Registrant's Form 8-A dated
January 8, 1997)
4.1 Rights Agreement dated as of December 31, 1996
between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent
(incorporated by reference to Exhibit 1 to the
Registrant's Form 8-A dated January 8, 1997)
27* Financial Data Schedule
* Attached hereto.
(b) Reports on Form 8-K filed in the first quarter of fiscal 1998
None.
12
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SIGNATURES
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.
QUIDEL CORPORATION
-----------------------------------
(Registrant)
Date: August 1, 1997 /S/ STEVEN C. BURKE
-----------------------------------
Steven C. Burke
Chief Accounting Officer
Signed both as an officer duly authorized
to sign on behalf of the Registrant and
as Chief Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,396
<SECURITIES> 0
<RECEIVABLES> 6,013
<ALLOWANCES> 787
<INVENTORY> 4,390
<CURRENT-ASSETS> 19,653
<PP&E> 22,331
<DEPRECIATION> 7,472
<TOTAL-ASSETS> 41,622
<CURRENT-LIABILITIES> 4,096
<BONDS> 3,153
<COMMON> 24
0
0
<OTHER-SE> 34,349
<TOTAL-LIABILITY-AND-EQUITY> 41,622
<SALES> 8,747
<TOTAL-REVENUES> 9,369
<CGS> 4,717
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<OTHER-EXPENSES> (108)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (791)
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<EPS-PRIMARY> (0.03)
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