<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996 Commission File Number 0-19841
i-STAT Corporation
(Exact name of registrant as specified in its charter)
Delaware 22-2542664
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
303 College Road East, Princeton, N.J. 08540
(Address of principal executive offices) (Zip Code)
(609) 243-9300
(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
----- -----
The number of shares outstanding of each of the Issuer's classes of common stock
as of the latest practicable date.
<TABLE>
<CAPTION>
Class April 30, 1996
----- --------------
<S> <C>
Common Stock, $ .15 par value 11,184,787
</TABLE>
<PAGE> 2
i-STAT CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
NO. PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Condensed Balance Sheets
as of March 31, 1996 and December 31, 1995.......................................... 3
Consolidated Condensed Statements of Operations for the three
months ended March 31, 1996 and 1995 ............................................... 4
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 ............................................... 5
Notes to Consolidated Condensed 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............................................................. 9
ITEM 2 - Changes in Securities......................................................... N/A
ITEM 3 - Defaults upon Senior Securities............................................... N/A
ITEM 4 - Submission of Matters to a Vote of
Security Holders............................................................ N/A
ITEM 5 - Other Information............................................................. N/A
ITEM 6 - Exhibits and Reports on Form 8-K.............................................. 9
Signature ..................................................................................... 10
</TABLE>
<PAGE> 3
i-STAT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 44,496 $ 47,494
Short-term investments.............................................. -- 2,025
Accounts receivable, net............................................ 3,353 4,053
Inventories......................................................... 8,929 9,003
Prepaid expenses and other current assets........................... 832 688
--------- ---------
Total current assets........................................... 57,610 63,263
Plant and equipment, net..................................................... 9,726 9,163
Other assets................................................................. 1,496 1,624
--------- ---------
Total assets................................................... $ 68,832 $ 74,050
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 1,480 $ 1,554
Accrued expenses.................................................... 2,132 2,527
--------- ---------
Total current liabilities...................................... 3,612 4,081
Other non-current liabilities................................................ 5,681 6,375
--------- ---------
Total liabilities.............................................. 9,293 10,456
--------- ---------
Stockholders' equity:
Preferred Stock, $.10 par value, shares authorized 7,000,000:
Series A Junior Participating Preferred Stock, $.10 par value,
shares authorized 1,500,000; none issued at March 31, 1996
and December 31, 1995...................................... - -
Series B Preferred Stock, $.10 par value, shares authorized
2,138,702; 2,138,702 shares issued at March 31, 1996
and December 31, 1995................................... 214 214
Common Stock, $.15 par value, shares authorized 25,000,000;
shares issued 11,167,519 at March 31, 1995 and 11,123,698 at
December 31, 1995................................................. 1,675 1,669
Additional paid-in capital.......................................... 186,042 188,698
Other, net.......................................................... (261) (3,143)
Accumulated deficit ................................................ (128,131) (123,844)
--------- ---------
Total stockholders' equity................................... 59,539 63,594
--------- ---------
Total liabilities and stockholders' equity................... $ 68,832 $ 74,050
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
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<PAGE> 4
i-STAT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1996 1995
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<S> <C> <C>
Net Sales............................................................................ $ 6,411 $ 3,359
Cost of Sales........................................................................ 5,799 5,101
----------- -----------
Gross Profit (Loss)..................................................... 612 (1,742)
----------- -----------
Operating Expenses:
Research and Development...................................................... 1,320 1,220
General and Administrative.................................................... 1,102 1,243
Sales and Marketing........................................................... 3,077 2,487
----------- -----------
Total Operating Expenses...................................................... 5,499 4,950
----------- -----------
Operating Loss.......................................................... (4,887) (6,692)
----------- -----------
Other Income (Expenses), Net......................................................... 600 161
----------- -----------
Net Loss............................................................................. ($4,287) ($6,531)
=========== ===========
Net Loss Per Share................................................................... ($0.32) ($0.59)
=========== ===========
Shares used in computing.............................................................
Net Loss Per Share............................................................... 13,284,845 11,014,771
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
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<PAGE> 5
i-STAT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. ($ 4,287) ($ 6,531)
Adjustments to reconcile net loss to net cash used in
Operating activities...................................................... (6) 392
Change in assets and liabilities.......................................... 320 (589)
-------- --------
Net cash provided by (used in) operating activities................. (3,973) (6,728)
--------- --------
Cash flows from investing activities:
Purchase of investments................................................... -- (942)
Sale of investments....................................................... 2,025 7,181
Purchase of equipment..................................................... (1,197) (656)
Other..................................................................... (36) (45)
-------- --------
Net cash provided by (used in) investing activities................. 792 5,538
-------- --------
Cash flows from financing activities:
Proceeds from sale of Common Stock........................................ 257 47
-------- --------
Net cash provided by (used in) financing activities................. 257 47
-------- --------
Effect of currency exchange rate changes on cash............................. (74) (30)
-------- --------
Net decrease in cash and cash equivalents................................. (2,998) (1,173)
Cash and cash equivalents at beginning of period.......................... 47,494 4,719
-------- ---------
Cash and cash equivalents at end of period................................ $ 44,496 $ 3,546
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
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<PAGE> 6
i-STAT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The information presented as of March 31, 1996 and 1995, and for the
periods then ended, is unaudited, but includes all adjustments
(consisting only of normal recurring accruals) which the management of
i-STAT Corporation (the "Company") believes to be necessary for the
fair presentation of results for the periods presented. The results for
the interim periods are not necessarily indicative of results to be
expected for the year. The year end consolidated condensed balance
sheet data was derived from the audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. These condensed financial statements should be read in
conjunction with the Company's audited financial statements for the
year ended December 31, 1995 which were included as part of the
Company's Annual Report on Form 10-K, File No. 0-19841.
2. NET LOSS PER SHARE
Net loss per share is calculated using the weighted average number of
common shares and preferred shares outstanding for all periods
presented. Preferred shares have been included in the calculation since
their date of issuance as they are convertible into common on a 1:1
basis and have substantially the same characteristics as common stock.
Options and warrants outstanding are not included in the calculation as
they are anti-dilutive.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Raw materials $2,728,000 $3,113,000
Work in process 1,303,000 1,146,000
Finished goods 4,898,000 4,744,000
---------- ----------
$8,929,000 $9,003,000
========== ==========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a case entitled Nova Biomedical
---------------
Corporation, Plaintiff v. i-STAT Corporation, Defendant. The Complaint,
--------------------------------------------------------
which was filed in the United States District Court for the District of
Massachusetts on June 27, 1995, alleges infringement by i-STAT of
Nova's U.S. Patent No. 4,686,479. The Plaintiff seeks unspecified
damages and that the damages be trebled. Nova also is asking for
attorneys' fees and prejudgement interest. The case currently is in the
pre-trial discovery stage. Management intends to contest the case
vigorously and does not believe that it has infringed the Nova patent.
The Company has obtained an opinion from recognized patent counsel to
the effect that no infringement has occurred. However, if the plaintiff
should totally prevail in this matter, it could have a material impact
on the financial position, results of operations and cash flows of the
Company. The Company has asserted counterclaims under the antitrust
laws alleging that Nova commenced the action knowing that the patent
was not infringed and that it had reason to believe that the patent was
invalid and unenforceable.
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<PAGE> 7
i-STAT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops, manufactures and markets medical diagnostic
products for blood analysis that provide health care professionals with
immediate and accurate critical diagnostic information at the point of patient
care. The Company markets and distributes its products in the United States and
Canada principally through its own direct sales and marketing organization, in
Japan through Japanese marketing partners and in South America through selected
distribution channels. In February 1996, the Hewlett Packard Company ("HP")
began marketing and distributing the Company's products in certain countries in
Europe through its distribution arrangements with the Company. Distribution of
the Company's products by HP throughout the remainder of Europe is scheduled to
begin in May 1996. The Company is actively planning market introduction into
other foreign markets, including but not limited to, through its arrangements
with HP. In April 1996, the Company and HP entered into a Short Term U.S. Joint
Marketing Agreement pursuant to which HP and the Company have begun to jointly
market the Company's products into the critical care departments of hospitals in
the United States which meet certain criteria. The Company will pay HP a
marketing fee on all sales of i-STAT equipment (excluding cartridges) made by
the Company under this arrangement. In addition, if a hospital chooses to
purchase a handheld analyzer under a short-term trade-in program, the hospital
will have the option to exchange the handheld analyzer for the Integrated
Analyzers being jointly developed between the Company and HP under the terms of
the License Agreement entered into between the Company and HP in July 1995.
Since inception, the Company has funded its activities primarily from
the private placement and public sale of common and preferred stock, aggregating
approximately $190 million in net proceeds through 1995. The Company's objective
is to support its growth primarily through increases in revenue (see "Liquidity
and Capital Resources," below). The Company's revenues are affected principally
by the number of hospitals using the i-STAT(R)System and the rate at which
i-STAT's disposable cartridges are used by these hospitals.
The Company's performance during the first quarter of 1996 compared to
the prior period during 1995 was marked by increases of $3 million in product
sales, approximately $700,000 in manufacturing costs and approximately $600,000
in sales and marketing expenses. The Company also experienced its second
consecutive quarter of gross profit.
RESULTS OF OPERATIONS
The Company generated $6.4 million and $3.4 million from product sales
for the quarters ended March 31, 1996 and 1995, respectively. Of the $6.4
million and $3.4 million of the total sales generated in the quarters ended
March 31, 1996 and 1995, international sales accounted for $2.7 million and
$534,000, respectively. The increase in sales was due to increased shipments of
the Company's cartridges and analyzers as a result of greater hospital
penetration in the U.S. and internationally. The manufacturing costs associated
with product sales in the first quarters of 1996 and 1995 were approximately
$5.8 million and $5.1 million, respectively. As sales volume increases, the
Company expects its gross profit to improve as manufacturing costs (including
direct labor and a large component of overhead) are spread over a larger number
of product units. The increase in manufacturing costs from 1995 to 1996 was
attributable to the increase in personnel and equipment necessary to support the
Company's increased product sales.
The Company incurred sales and marketing expenses of approximately $3.1
million and $2.5 million for the quarters ended March 31, 1996 and 1995,
respectively, consisting primarily of salaries , benefits, travel, and other
expenditures for sales representatives, product literature, market research,
clinical studies and other infrastructure costs. The increase from 1995 to 1996
is attributable to increased marketing activities and the hiring of management
and other marketing personnel necessary to support the Company's planned growth
in product sales.
- 7 -
<PAGE> 8
The Company incurred research and development costs of approximately
$1.3 million and $1.2 million for the quarters ended March 31, 1996 and 1995,
respectively, consisting of costs associated with the personnel, material,
equipment and facilities necessary for conducting product development relating
to new products.
Other income (expense), net represents primarily interest income earned
on cash, cash equivalents and short-term investments.
During the first quarter of 1996 the Company achieved its first
milestone under its Strategic Milestone Stock Award Program. In connection with
the achievement of this milestone an aggregate amount of $33,000 will be
recognized as a non-cash compensation expense over a 27 month period. This
represents a reduction of approximately $2.26 million from amounts previously
estimated as of December 31, 1995. The difference relates to changes in the
price of the Company's Common Stock since the milestone first appeared likely to
be achieved.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash, cash equivalents and
short-term investments of approximately $44.5 million. The Company expects its
existing funds to be sufficient to meet its obligations and its liquidity and
capital requirements for the foreseeable future. The Company regularly monitors
capital raising alternatives in order to take advantage of opportunities to
supplement its current working capital upon favorable terms, including joint
ventures, strategic corporate partnerships or other alliances and the sale of
equity and/or debt securities. The Company's need, if any, to raise additional
funds to meet its working capital and capital requirements will depend upon
numerous factors, including the results of its product marketing and sales
activities, its new product development efforts, manufacturing efficiencies and
competitive conditions.
The impact of inflation and foreign currency translation on the
Company's business has been minimal and is expected to be minimal for the
near-term.
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<PAGE> 9
i-STAT CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, and Note 4 to the Notes
to Consolidated Condensed Financial Statements herein, for a
description of a legal proceeding entitled Nova Biomedical
---------------
Corporation, Plaintiff v. i-STAT Corporation, Defendant.
--------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.33 Amendment, dated March 28, 1995, to Lease
Agreement, December 23, 1991, between William S. Burnside
(Canada) Limited, "In Trust" and i-STAT Corporation.
(b) Reports on form 8-K
During the quarter for which this Report on Form 10-Q is
filed, no reports on Form 8-K were filed.
9
<PAGE> 10
i-STAT CORPORATION
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.
DATE: May 14, 1996
i-STAT Corporation
BY: /s/ William P. Moffitt
-----------------------------
President and Chief
Executive Officer
(Principal Executive
and Financial Officer)
10
<PAGE> 11
<TABLE>
<CAPTION>
EXHIBIT INDEX
- - -------------
<S> <C>
10.33 Amendment, date March 28, 1995, to Lease Agreement,
December 23, 1991 between William S. Burnside (Canada)
Limited, "In Trust" and i-Stat Coporation.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
[WILLIAM S. BURNSIDE (CANADA) LIMITED LETTERHEAD]
March 28, 1995
i-STAT Canada Limited
436 Hazeldean Road
Kanata, Ontario
K2L 1T9
Attention: Sandy Beveridge
Re: 436 Hazeldean Road, Kanata
Gentlemen:
We wish to confirm a meeting of yesterday's date between your Mr. Beveridge, Mr.
Uniac and the writer. At that meeting it was agreed and understood that, that
portion of the above mentioned building presently occupied by Atomic Energy
would be vacated at the earliest possible date. ( Not to exceed 120 days)AB
After the move by Atomic Energy, i-STAT Corporation will take over the space and
the commencement date for leasing purposes will be a date mutually agreed upon
by both parties.
It is agreed and understood that the rent for the additional space in the
building will be at the rate of $95,000 per annum, plus GST, on an absolutely
net basis. It is further agreed that the term of the agreement will run and be
coterminous with the present agreement that now exists between both parties.
Further to the above, it is agreed and understood that all conditions of the
existing lease will be applicable to the agreement to lease the additional
space.
Would you please signify your acceptance of this proposal by signing a copy in
the appropriate location and returning to this office.
We would also like to take this opportunity to thank you for continuing to carry
on business with our firm and we look forward to many years of mutual agreement.
Yours truly, ACCEPTED BY i-STAT CANADA LTD.
AM BEVERIDGE
------------------------------
DATE 30 MARCH 1995
--------------------------
Frank Dooher
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 44,496
<SECURITIES> 0
<RECEIVABLES> 3,455
<ALLOWANCES> (102)
<INVENTORY> 8,929
<CURRENT-ASSETS> 57,610
<PP&E> 20,098
<DEPRECIATION> (10,372)
<TOTAL-ASSETS> 68,832
<CURRENT-LIABILITIES> 3,612
<BONDS> 0
0
214
<COMMON> 1,675
<OTHER-SE> (61,936)
<TOTAL-LIABILITY-AND-EQUITY> 68,832
<SALES> 6,411
<TOTAL-REVENUES> 6,411
<CGS> 5,799
<TOTAL-COSTS> 5,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 99
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,287)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> 0
</TABLE>
