<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the Transition Period From
____________ to ____________
Commission file number 0-19688
DESTRON FEARING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 84-1079037
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
490 Villaume Avenue
South St. Paul, MN 55075
(612) 455-1621
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 May 14, 1997, there were 13,293,982 outstanding shares of Common Stock.
<PAGE>
DESTRON FEARING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
-----
Page
----
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements 3
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings 12
Item 6 -- Exhibits and Reports on Form 8-K 13
Signatures 13
-2-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DESTRON FEARING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1997 AND SEPTEMBER 30, 1996
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
ASSETS March 31, September 30,
1997 1996
--------- -------------
CURRENT ASSETS:
Cash $1,044 $39
Accounts receivable, net 2,908 1,016
Inventories, net 6,799 7,219
Prepaid expenses and other current assets 28 28
------- -------
Total current assets 10,779 8,302
PROPERTY AND EQUIPMENT, net 1,993 2,104
INVESTMENT IN JOINT VENTURE 225 225
GOODWILL, net 2,043 2,085
OTHER ASSETS, net 248 306
------- -------
$15,288 $13,022
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ -- $866
Accounts payable 5,370 5,597
Accrued liabilities 516 528
Current portion of long-term obligations 949 47
------- -------
Total current liabilities 6,835 7,038
LONG-TERM OBLIGATIONS,
net of current portion 761 1,688
------- -------
Total liabilities 7,596 8,726
------- -------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
20,000,000 shares authorized;
13,294,000 and 11,641,000 shares
issued and outstanding, respectively 133 116
Additional paid-in capital 19,789 16,692
Accumulated deficit (12,230) (12,512)
------- -------
Total shareholders' equity 7,692 4,296
------- -------
$15,288 $13,022
------- -------
------- -------
The accompanying notes are an integral part
of these consolidated balance sheets.
-3-
<PAGE>
DESTRON FEARING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE QUARTER AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31, Six Months Ended March 31,
----------------------- --------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET REVENUE $4,046 $4,206 $7,214 $6,682
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of sales 2,494 2,946 4,451 4,577
Selling, general and administrative 1,032 1,570 1,737 2,559
Research and development 195 267 393 480
Interest expense and other 124 83 351 28
------ ------ ------ ------
Total costs and expenses 3,845 4,866 6,932 7,644
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES 201 (660) 282 (962)
PROVISION FOR INCOME TAXES -- -- -- --
------ ------ ------ ------
NET INCOME (LOSS) $201 ($660) $282 ($962)
------ ------ ------ ------
------ ------ ------ ------
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $0.02 ($0.06) $0.02 ($0.08)
------ ------ ------ ------
------ ------ ------ ------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 13,010 11,612 12,449 11,399
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
DESTRON FEARING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(in thousands)
- --------------------------------------------------------------------------------
Six Months Ended March 31,
-------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $282 ($962)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 253 237
Equity in income of joint venture and other -- (18)
Changes in operating items:
Accounts receivable (1,892) (1,422)
Inventories 420 (3,346)
Prepaid expenses and other current assets -- 8
Royalties receivable -- 402
Accounts payable and accrued liabilities (239) 1,845
------ ------
Net cash used in operating activities (1,176) (3,256)
------ ------
INVESTING ACTIVITIES:
Purchases of fixed assets (42) (189)
Change in other assets -- 11
------ ------
Net cash used in investing activities (42) (178)
------ ------
FINANCING ACTIVITIES:
Issuance of common stock, net 3,114 2,026
Borrowings under long-term obligations -- 875
Repayments of long-term obligations (25) (1,245)
Net borrowings (repayments) on bank line of credit (866) 1,753
------ ------
Net cash provided by financing activities 2,223 3,409
------ ------
NET CHANGE IN CASH 1,005 (25)
CASH, beginning of period 39 62
------ ------
CASH, end of period $1,044 $37
------ ------
------ ------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $343 $173
------ ------
------ ------
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
<PAGE>
DESTRON FEARING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1996
(unaudited)
- --------------------------------------------------------------------------------
1. GENERAL
The information included in the accompanying consolidated interim financial
statements is unaudited and should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in the most
recent Annual Report on Form 10-KSB filed for Destron Fearing Corporation and
its subsidiaries (collectively, the "Company"). In the opinion of management,
all adjustments, consisting of normal recurring items, necessary for a fair
presentation of the financial position and results of operations for the
interim periods presented have been reflected herein. The results of
operations for interim periods are not necessarily indicative of the results
to be expected for the entire fiscal year.
2. RELATIONSHIP WITH SCHERING-PLOUGH
In January 1995, the Company entered into an agreement with Schering-Plough
Animal Health ("Schering-Plough"), under which Schering-Plough would market
and distribute a companion animal permanent identification product
manufactured by the Company.
In October 1995, Schering-Plough notified the Company that it would suspend
purchases for an indefinite period of time to allow for the sales of its
existing inventories. In response to this notification, the Company began to
curtail the purchase of materials required to manufacture and package the
product. However, as a result of previous commitments, the Company was
unable to discontinue certain purchases from its suppliers. As of March 31,
1997 and September 30, 1996, inventories included readers, transponders and
other components and packaging of $3,347,000 and $3,678,000 related to the
Company's agreement with Schering-Plough. The Company has the right to
recover the costs of certain of these inventories under this agreement.
Management believes that the cost of inventories on hand will be realized
through sales of the product to Schering-Plough or other customers, or
through enforcement of the Company's rights under the agreement to receive
reimbursement from Schering-Plough. However, it is also possible that the
Company will be required to dispose of these inventories through alternate
means, which could result in significant losses.
3. INVENTORIES
Inventories are valued at the lower of first in, first out cost or market,
and consist of the following (in thousands):
March 31, 1997 September 30, 1996
-------------- ------------------
Raw materials $3,409 $3,352
Finished goods 3,390 3,867
------ ------
Total inventories $6,799 $7,219
------ ------
------ ------
-6-
<PAGE>
4. PRIVATE PLACEMENTS OF COMMON STOCK
In December 1995, the Company completed a private placement of 625,000 shares
of common stock for gross proceeds of $2.0 million. A portion of these
proceeds was used to retire an outstanding $600,000 term loan, with the
remaining proceeds expected to be used to finance working capital needs and
new product development.
In January 1997, the Company sold an aggregate of 650,000 shares of common
stock to two United States investors for gross proceeds of $1.3 million.
Also in January 1997, the Company sold an aggregate of 1,000,000 shares of
common stock in a private placement to three foreign investors pursuant to
Regulation S under the Securities Act of 1933 for gross proceeds of
$2,000,000 (the Regulation S Offering"). The proceeds from these offerings
have been and will be used to finance working capital needs and new product
development.
5. LEGAL PROCEEDINGS
Destron is party to litigation in which it is asserting infringement by a
competitor of one of the Company's patents related to certain of its
technology. The defendants assert that the patent is not infringed, is
invalid and is unenforceable. The defendants also have asserted antitrust
and unfair competition claims against the Company and Hughes Aircraft Company
(Hughes).
The trial in the litigation commenced on January 8, 1996. On January 29,
1996, the jury in the trial returned a verdict in favor of the Company, found
that the defendants had willfully infringed on the Company's patent, and
awarded damages of $444,000, including prejudgment interest. The defendants
have appealed the judgment against them, and the Company cross-appealed the
failure of the court to increase Destron's damages. While management and its
legal counsel continue to believe that the final outcome of this litigation
will not have a significant impact on the Company's future financial
position, cash flows or results of operations, there can be no assurance of
the ultimate outcome of the litigation.
On December 17, 1996, three competitors filed a lawsuit against the Company
and its United States distributor, Schering-Plough, in the United States
District Court for the District of Minnesota. The plaintiffs alleged that
the defendants participated in unfair competition, breached an oral contract
and infringed on three of the plaintiffs' United States patents. On January
24, 1997, the plaintiffs withdrew this lawsuit in its entirety.
On April 21, 1997, four plaintiffs (including the three competitors
identified in the foregoing paragraph) filed a lawsuit against the Company
and Schering-Plough and another of the Company's competitors in the United
States District Court for the District of Minnesota. The plaintiffs allege
that the defendants participated in unfair competition, breached an oral
agreement and infringed on three of the plaintiffs' United States patents and
requested that the Court award compensatory and treble damages of an
unspecified amount. The Company and its legal counsel believe that the
claims are without merit and that the ultimate outcome of this litigation
will not have a significant adverse impact on the Company's future financial
position, cash flows or results of operations. However, there can be no
assurance of the ultimate outcome of this lawsuit.
6. PRIVATE PLACEMENT OF DEBT
In March 1996, the Company borrowed a total of $875,000 (and an additional
$25,000 in April 1996) from private investors through the issuance of
unsecured notes due October 21, 1997 and bearing interest at the rate of 11%
per annum. As part of the transaction, the Company issued warrants to the
noteholders to purchase a total of 147,539 shares of the Company's common
stock. The warrants are exercisable at $4.8125 per share for a term of five
(5) years beginning March 21, 1996. The value of these warrants at the time
of issuance was not deemed to be significant. Funds received from these
notes were used to retire indebtedness that was due on March 21, 1996, and to
provide additional working capital for operations.
-7-
<PAGE>
7. REAL ESTATE LOAN
In April 1996, the Company borrowed $658,000 from a commercial bank through
the issuance of a promissory 8.98% note collateralized by its real estate.
The proceeds of the loan were used to retire a previous bank loan and
industrial development revenue bonds and to provide additional working
capital for operations.
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, earnings per share (SFAS No. 128).
This standard establishes new guidelines for computing and presenting
earnings (loss) per share (EPS). Management believes that the adoption of
SFAS No. 128 will not have a material impact on the Company's calculation of
EPS.
-8-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RELATIONSHIP WITH SCHERING-PLOUGH
In January 1995, the Company entered into an agreement with Schering-Plough
under which Schering-Plough would market and distribute a companion animal
permanent identification product manufactured by the Company.
In October 1995, Schering-Plough notified the Company that it would suspend
purchases for an indefinite period of time to allow for the sales of its
existing inventories. In response to this notification, the Company began to
curtail the purchase of materials required to manufacture and package the
product. However, as a result of previous commitments, the Company was
unable to discontinue certain purchases from its suppliers. As a result, at
March 31, 1997 the Company had an outstanding balance payable to a major
vendor of approximately $4.6 million that it has been unable to pay in the
normal course of business and inventories of approximately $3,347,000 on hand
related to the Schering-Plough agreement. Also see "Liquidity and Capital
Resources." The Company has the right to recover the costs of certain of
these inventories under this agreement.
Management believes that the cost of inventories on hand will be realized
through sales of the product to Schering-Plough or other customers, or
through enforcement of the Company's rights under the agreement to receive
reimbursement from Schering-Plough. However, it is also possible that the
Company will be required to dispose of these inventories through alternate
means, which could result in significant losses.
RESULTS OF OPERATIONS
Net revenue for the quarter ended March 31, 1997 of $4,046,000 was 4% lower
than the $4,206,000 reported for the comparable quarter of fiscal 1996. For
the six-month period, fiscal 1997 revenue was $7,214,000, which represented
an 8% increase over the $6,682,000 fiscal 1996 amount. Second quarter
revenue from the Radio Frequency Identification Device (RFID) electronic
products declined 6% from last year principally because of reduced sales in
Europe in the current quarter. For the six-month period, RFID revenue
increased 11% over the fiscal 1996 period primarily due to increased sales to
the fisheries industries and sales into the new companion animal market in
Japan. Revenue from visual identification products during the second quarter
of fiscal 1997 was relatively unchanged from the prior year, while revenue
for the six-month period was 4% higher than for the comparable period of
fiscal 1996. Increased unit sales and a general price increase accounted for
the higher six-month sales of visual identification products in fiscal 1997.
Cost of sales of $2,494,000 for the second quarter and $4,451,000 for the
six-month period were lower than the comparable fiscal 1996 periods by 15%
and 3%, respectively. The lower costs are attributable to a more profitable
product mix, improved gross profit margins on the sales of electronic readers
and increased manufacturing efficiency of visual identification products. As
a result of these factors, the reported gross profit percentage increased for
the second quarter and six-month period of fiscal 1997 to 38% from 34% for
the fiscal 1996 second quarter and 32% for the six-month period ended March
31, 1996.
Selling, general and administrative expenses of $1,032,000 in the second
quarter ended March 31, 1997, were 34% lower than for the same period last
year. For the six-month period ended March 31, 1997, these expenses were
$1,737,000, which represented a 32% reduction from the comparable period in
fiscal 1996. The reduced expenses resulted primarily from significantly
lower legal fees in the current year (decreases of $464,000 in the second
quarter and $647,000 for the six-month period when compared to the fiscal
1996 period). Also, selling expenses declined for both the RFID and visual
identification product lines for the current quarter and six-month period
from the fiscal 1996 levels principally because of lower travel and travel
related expenses.
-9-
<PAGE>
Research and development expenses of $195,000 in the second quarter of fiscal
1997 declined 27% from fiscal 1996 while, for the six-month period, they
declined 18% from the previous year to $393,000. This year's reductions for
both the quarter and six-month period primarily resulted from lower outside
production development expenses.
Interest and other of $124,000 in the second quarter of fiscal 1997 were 49%
higher than the $83,000 reported for the comparable 1996 period. Interest
expense increased in the current quarter principally because of the
recognition of imputed interest on an outstanding balance payable to a
vendor. For the six-month period of fiscal 1997, interest and other of
$351,000 exceeded the $28,000 reported for the comparable fiscal 1996 period
because of the imputed interest expense incurred in fiscal 1997 and the
offsetting income recognized in fiscal 1996 from the collection of a $137,000
note that had been written off in a prior fiscal year.
The Company derives a significant portion of its revenue from export sales.
The gross profit and cash requirements of these sales do not vary materially
from the requirements of its domestic sales.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has utilized financing sources such as public and
private equity offerings and borrowings from financial institutions and
individual investors to fund its operating activities. In addition, during
fiscal 1996 and in fiscal 1997 to date, the Company has been required to
extend the term on payments to a significant vendor. As of the date of this
quarterly report, the Company is engaged in discussions with this vendor
regarding settlement of the approximately $4.6 million balance payable. In
order for the Company to continue to fund its operations in fiscal 1997, it
will be required to negotiate an agreement with the vendor with payment terms
that do not severely restrict other cash flow requirements. The Company
believes that funds available under its existing credit agreement or a credit
agreement with an alternative lending institution; funds generated by
operations and from private placements of common stock in January 1997; and
the successful negotiation of a satisfactory agreement with the
above-discussed vendor, will be sufficient to provide the Company with
adequate liquidity and capital resources for working capital and other cash
requirements.
However, the information set forth in the preceding paragraph is
forward-looking information. Therefore, if, for any reason (including,
without limitation, those described below), the Company's operations require
more capital than anticipated, revenues do not reach anticipated levels, the
Company does not reach a satisfactory agreement with its major vendor, or
cash flow needs are greater than planned, the Company may need additional
financing prior to the end of fiscal 1997 in order to maintain its
operations. There can be no assurance that the Company would be able to
obtain any required additional financing when needed or that such financing,
if obtained, would be on terms favorable or acceptable to the Company. If
the Company was unable to obtain additional financing when needed and under
acceptable conditions, it would be required to significantly scale back plans
for growth and perhaps reduce the scope of its operations. Factors that may
affect the Company's revenues, use of capital, expenses and/or cash flow, and
that would cause actual results to differ materially from those anticipated
include, but are not limited to, the introduction of competing products with
performance equivalent to or exceeding that of the Company's products, a
claim (whether or not successfully made) that the Company's products infringe
a patent held by another company or individual, any performance problems
involving the Company's products, changes in technology that could cause the
Company's products to become obsolete, the departure of key members of
management and/or key employees, regulatory requirements that would make the
Company's products difficult or uneconomical to produce, and general economic
conditions.
The Company's operating activities used $1,176,000 during the six-month
period ended March 31, 1997. Funds were generated from $282,000 of net
income for the period, depreciation and amortization of $253,000, and a
decrease in inventories of $420,000. Additionally, funds were used to finance
an increase in accounts receivable of $1,892,000 and decreases in accounts
payable and accrued liabilities of $239,000.
-10-
<PAGE>
The Company's financing activities provided net cash of $2,223,000 during the
six months ended March 31, 1997, principally through the issuance of common
stock in private placements, including the Regulation S Offering, which
generated $3,114,000, offset by reductions in its net borrowings on a bank
line of credit of $866,000.
As of March 31, 1997, the Company had net working capital of $3,944,000 with
a current ratio of 1.6 to 1, which represents a $2,680,000 increase in
working capital from September 30, 1996.
In June 1993, the Company entered into a $750,000 revolving credit agreement
with private investors (the "Lenders") that was amended in November 1993 to
reduce the principal to $600,000 and convert the indebtedness to a term loan.
One of the Lenders was a director of the Company through November 1995. This
term was repaid in November 1995 from the proceeds of the private placement
of common stock discussed below.
The Company has a discretionary revolving credit facility with a financial
institution, under which borrowings are limited based upon eligible accounts
receivable and inventories, as defined in the agreement. The credit facility
is collateralized by an interest in the Company's accounts receivable,
inventories, equipment and intangibles. Interest is payable monthly at a
rate of prime plus one and one-half percent (11/2%). The agreement expired
on January 24, 1997, and was replaced by a forbearance agreement which is
effective through July 31, 1997. On April 23, 1997, the Company received
notice from the lender of a covenant default and was advised that the Company
must be in complete compliance with all terms of the forbearance agreement by
May 20, 1997. In the interim period, the lender will not advance any funds
to the Company. The Company is presently negotiating a credit facility with
a new different financial institution and expects to have this agreement, or
an agreement with another financial institution, in place during its fiscal
third quarter. At March 31, 1997, the Company had no borrowings under its
existing credit facility, and believes that no such borrowings will be
required during the remaining term of the forbearance agreement.
In September 1994, the Company borrowed a total of $610,000 from private
investors (including certain executive officers and directors) through the
issuance of unsecured notes bearing interest at the rate of 12% per annum,
due March 21, 1996. Funds received on these notes were used to reduce
outstanding borrowings under the Company's bank line of credit and to provide
additional working capital for operations. These notes were repaid in March
1996 from the proceeds of the 11% unsecured notes discussed below.
In December 1995, the Company completed a private placement of 625,000 shares
of common stock for proceeds of $2.0 million. A portion of these proceeds
was used to retire the outstanding $600,000 term loan with the Lenders, with
the remaining proceeds used to finance working capital needs and new product
development.
In March and April 1996, the Company borrowed a total of $900,000 from
private investors through the issuance of unsecured notes due October 21,
1997 and bearing interest at the rate of 11% per annum. Funds received from
these notes were used to retire the $610,000 indebtedness that was due on
March 21, 1996, and to provide additional working capital for operations.
In April 1996, the Company borrowed $658,000 from a commercial bank through
the issuance of an 8.98% promissory note collateralized by its real estate.
The proceeds of the loan were used to retire a previous bank loan and
industrial development revenue bonds, and provide additional working capital
for operations.
In January 1997, the Company sold an aggregate of 650,000 shares of common
stock to two United States investors for gross proceeds of $1.3 million.
Also in January 1997, the Company sold an aggregate of 1,000,000 shares of
common stock in a private placement to three foreign investors pursuant to
Regulation S under the Securities Act of 1933 for gross proceeds of
$2,000,000 (the "Regulation S Offering").
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1993, the Company initiated a lawsuit for patent
infringement against three competitors in the U.S. District Court in
Colorado. (The patent involved is No. 5,211,129, which relates to the
Company's injectable transponder technology.) At a hearing on
November 12, 1993, the Court found that it did not have jurisdiction
in Colorado over two of the competitors and dismissed the Colorado
case against them without prejudice. The Court suggested that the
third competitor may be an infringer on the patent, but did not order
the temporary injunction requested by the Company.
On December 1, 1993, the two dismissed competitors commenced an action
against the Company in U.S. District Court for Southern Illinois
requesting actual damages of $20,000,000 This action was subsequently
transferred to the U.S. District Court of Colorado. In the suit, the
plaintiffs sought to invalidate the above-described patent of the
Company and alleged unfair competition, violation of U.S. antitrust
laws, interference with business relationships and abuse of process
due to the actions the Company had allegedly taken in obtaining,
announcing and enforcing its patent rights against the plaintiffs.
The trial in the litigation commenced on January 8, 1996. On January
29, 1996, the jury in the trial returned a verdict in favor of the
Company and found that the defendants had willfully infringed on the
Company's patent and awarded damages of $445,000, including
prejudgment interest. The defendants have appealed the judgment
against them, and the Company cross-appealed the failure of the court
to increase Destron's damages. While management and its legal counsel
continue to believe that the ultimate outcome of this litigation will
not have a significant impact on the Company's future financial
position, cash flows or results of operations, there can be no
assurance of the ultimate outcome or effect of the litigation.
On December 17, 1996, three competitors filed a lawsuit against the
Company and its United States distributor, Schering-Plough, in the
United States District Court for the District of Minnesota. The
plaintiffs alleged that the defendants participated in unfair
competition, breached an oral contract and infringed on three of the
plaintiffs' United States patents. On January 24, 1997, the
plaintiffs withdrew this lawsuit in its entirety.
On April 21, 1997, four plaintiffs (including the three competitors
identified in the foregoing paragraph) filed a lawsuit against the
Company and Schering-Plough and another of the Company's competitors
in the United States District Court for the District of Minnesota.
The plaintiffs allege that the defendants participated in unfair
competition, breached an oral agreement and infringed on three of the
plaintiffs' United States patents and requested that the Court award
compensatory and treble damages of an unspecified amount. The Company
and its legal counsel believe that the claims are without merit and
that the ultimate outcome of this litigation will not have a
significant adverse impact on the Company's future financial position,
cash flows or results of operations. However, there can be no
assurance of the ultimate outcome of this lawsuit.
-12-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 11.1 Calculation of Net Income (Loss) Per Common
and Common Equivalent Share
b. Reports on Form 8-K
Registrant filed a Current Report dated January 29, 1997,
reporting 1) the sale of an aggregate of 650,000 shares of
common stock for $2.00 per share in a private placement to
two United States investors and 2) the sale of an aggregate
of 1,000,000 shares of common stock for $2.00 per share in
the Regulation S Offering to three foreign investors.
SIGNATURES
In accordance with 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.
DESTRON FEARING CORPORATION
(Registrant)
/s/ Thomas J. Ahmann
--------------------------------
By Thomas J. Ahmann
Vice President Finance,
Chief Financial Officer
and Principal Accounting Officer
-13-
<PAGE>
Exhibit 11.1
DESTRON FEARING CORPORATION
Calculation of Net Income (Loss) Per Common and Common Equivalent Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended March 31, Six Months Ended March 31,
---------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $201 ($660) $282 ($962)
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of common
and common equivalent shares
outstanding:
Weighted average number of
common shares outstanding 12,766 11,612 12,205 11,399
Dilutive effect of stock options after
application of the treasury stock
method 244 -- 244 --
------- ------- ------- -------
13,010 11,612 12,449 11,399
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per common
and common equivalent share $0.02 ($0.05) $0.02 ($0.08)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,044
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0
0
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</TABLE>
