<PAGE> 1
UNITED STATES
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 29, 1996.
[ ] 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 0-19955
MOLECULAR DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3050031
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
928 EAST ARQUES AVENUE, SUNNYVALE, CALIFORNIA 94086
(Address of principal executive offices and zip code)
(408) 773-1222
(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.
[X] Yes [ ] No
As of October 27, 1996, 10,042,823 shares of Common Stock of the Registrant were
outstanding.
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MOLECULAR DYNAMICS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page(s)
-------
<S> <C>
Condensed Consolidated Balance Sheets September 30, 1996
and December 31, 1995 ..................................... 3
Condensed Consolidated Statements of Operations Three and
nine months ended September 30, 1996 and 1995 ............. 4
Condensed Consolidated Statements of Cash Flows Nine
months ended September 30, 1996 and 1995 .................. 5
Notes to Interim Condensed Consolidated Financial
Statements ................................................ 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................... 11
Signatures ............................................................ 12
</TABLE>
2
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FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,125 $ 2,727
Short-term investments 12,681 14,895
Accounts receivable, net 11,676 12,173
Inventories 6,064 7,470
Prepaids and other current assets 466 403
-------- --------
Total current assets 38,012 37,668
Property and equipment, net 2,718 2,788
Other assets, net 2,228 2,289
-------- --------
TOTAL ASSETS $ 42,958 $ 42,745
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,806 $ 4,197
Accrued expenses 4,061 3,754
Unearned revenue 1,058 1,149
-------- --------
Total current liabilities 7,925 9,100
-------- --------
Stockholders' equity:
Common stock and additional paid-in capital 40,057 40,180
Accumulated deficit (3,849) (5,834)
Cumulative translation adjustment (75) 11
Unrealized gain/(loss) on short-term investments (16) 43
Less 165,553 and 128,600 shares of common stock in
treasury on September 30, 1996 and December 31,
1995, at cost (1,084) (755)
-------- --------
Total stockholders' equity 35,033 $ 33,645
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,958 $ 42,745
======== ========
</TABLE>
See accompanying notes.
3
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MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Sales $ 12,910 $ 7,725 $35,945 $ 27,861
Cost of sales 5,800 3,763 15,741 12,786
-------- -------- ------- --------
Gross profit 7,110 3,962 20,204 15,075
-------- -------- ------- --------
Operating expenses:
Research and development 1,513 1,448 4,859 3,865
Sales and marketing 3,615 3,426 11,078 10,193
General and administrative 975 817 2,661 2,749
-------- -------- ------- --------
Total operating expenses 6,103 5,691 18,598 16,807
-------- -------- ------- --------
Operating income/(loss) 1,007 (1,729) 1,606 (1,732)
Interest income, net 212 221 583 708
Other income/(expense) (12) (2) 16 28
-------- -------- ------- --------
Income/(Loss) before income taxes 1,207 (1,510) $ 2,205 $ (996)
Provision for income taxes 139 25 220 51
-------- -------- ------- --------
NET INCOME/(LOSS) $ 1,068 $ (1,535) $ 1,985 $ (1,047)
======== ======== ======= ========
EARNINGS/(LOSS) PER SHARE $ .10 $ (.15) $ .19 $ (.10)
======== ======== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING 10,629 10,149 10,668 10,090
======== ======== ======= ========
</TABLE>
See accompanying notes.
4
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<PAGE>
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 1,985 $ (1,047)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 1,407 1,436
Loss on disposition of property 73 34
Changes in items affecting operations:
Accounts receivable 336 471
Inventories 1,384 (241)
Prepaids and other current assets (147) (36)
Accounts payable and other current liabilities (1,120) (2,352)
-------- --------
Net cash provided/(used) by operating activities 3,918 (1,735)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (944) (802)
Capitalized software development costs, net (360) (426)
Purchases of short-term investments (14,842) (15,460)
Maturities and sales of short-term investments 16,997 20,023
Purchase of intangible assets -- (1,100)
Other assets (69) (97)
-------- --------
Net cash provided by investing activities 782 2,138
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises -- 17
Proceeds from employee stock purchase plan -- 406
Purchase of treasury stock (1,519) (869)
Reissuance of treasury stock 976 857
Other liabilities -- (42)
-------- --------
Net cash (used)/provided by financing activities (543) 369
-------- --------
Effect of exchange rate changes on cash 241 (185)
-------- --------
Net increase in cash and cash equivalents 4,398 587
Cash and cash equivalents at beginning of period 2,727 2,095
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,125 $ 2,682
======== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid:
Interest $ 3 $ 4
======== ========
Income taxes $ 50 $ 16
======== ========
</TABLE>
See accompanying notes.
5
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MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Basis of Presentation
The accompanying condensed consolidated balance sheets of Molecular
Dynamics, Inc. and subsidiaries (Molecular Dynamics or the Company) as of
September 30, 1996 and December 31, 1995 and the related condensed consolidated
statements of operations and cash flows for the periods ended September 30, 1996
and 1995 have been prepared on substantially the same basis as the annual
consolidated financial statements. In the opinion of management, the financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position,
operating results and cash flows for those periods presented. The results of
operations for the three and nine months ended September 30, 1996 are not
necessarily indicative of results to be expected for the entire year. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements, and notes thereto, for the year ended
December 31, 1995 included in the Company's Form 10-K.
For clarity of presentation the Company has indicated that its third
quarter ended September 30, whereas in fact, the Company's third quarter for
fiscal years 1996 and 1995 ended on September 29, 1996 and October 1, 1995,
respectively.
NOTE 2 - Inventories
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw material $3,185 $3,316
Work-in-process 1,342 956
Finished goods 1,537 3,198
------ ------
$6,064 $7,470
====== ======
</TABLE>
NOTE 3 - Net Income per Share
Net income per share amounts are based on the weighted average number of
common shares and common stock equivalents, where dilutive, outstanding during
the period. Common stock equivalents arise from outstanding stock options and
are computed using the treasury stock method.
NOTE 4 - Collaboration with Affymetrix, Inc.
In the third quarter of 1994, a consortium led by Affymetrix, Inc. and
the Company was awarded funding from the Advanced Technology Program (ATP) of
the National Institute of Standards and Technology (NIST). The Company and its
partner, Affymetrix, will collaborate in an effort to develop miniaturized DNA
diagnostic systems. The amount of the grant for the two companies is up to $31
million in matching funds over the five years which began in January, 1995, for
research and development in the
6
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field of DNA diagnostic devices with a total shared project cost of $63 million.
Approximately $5 million of the $31 million was available for the first year of
the grant period, which ended in January 1996, and approximately $7 million is
available for the second year of the grant period, which ends in January 1997.
According to the terms of the grant, these funds are divided 33% to the Company
and 67% to Affymetrix. The additional funding will allow the Company to work
toward developing new fluorescence detection technologies and DNA separation
devices and apply these to the expanding field of molecular genetics. In the
third quarter and first nine months of 1996, the Company recognized credits to
its expenses of approximately $449,000 and $1,443,000, respectively,
representing support from the grant, compared to approximately $506,000 and $1.1
million in the prior year periods. The Company has been notified by the Advanced
Technology Program that funding under the program will continue at least through
the year ending in January, 1997, and has received preliminary notice from ATP
that funding for the remaining years of the award has been authorized. However,
availability of funds for years after January, 1997 is contingent upon annual
Congressional approval. Should funding of the ATP not be approved in years after
January 1997, this would have a material adverse effect on the Company's
research and development efforts and its business, financial condition and
results of operations.
NOTE 5 - Stock Repurchase Program
In May 1994, the Board of Directors authorized the purchase of up to
1,000,000 shares of the Company's common stock in the open market. The Company
has purchased approximately 646,000 shares under this program as of September
30, 1996. Of these shares, approximately 480,000 shares were reissued under the
Company's Employee Stock Option and Purchase Plans, of which approximately
92,000 shares were reissued during the third quarter of 1996. The Company
purchased 132,500 shares under the stock repurchase program during the third
quarter of 1996.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1995.
Except for the historical information contained herein, the matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties set forth below
under "Factors That May Affect Future Results".
RESULTS OF OPERATIONS
Sales. Sales for the third quarter and first nine months of 1996 were $12.9 and
$35.9 million, respectively, compared to $7.7 million and $27.9 million in the
prior year periods. The 67% and 29% increase over the third quarter and nine
month period, respectively, resulted primarily from sales of the Company's
Storm(TM) product line, which was introduced in the third quarter of 1995,
offset by decreases in sales of its PhosphorImager(TM) products. The Company
sells its products in North America, Europe, Japan and Australia. Foreign
currency fluctuations had the effect of reducing revenue by $148,000 in the
third quarter of 1996, compared to the prior-year period. Foreign currency
fluctuations for the nine months ended September 30, 1996 had the effect of
reducing revenue by $380,000, compared to the prior-year period.
Gross margins. Gross margins for the third quarter and first nine months of 1996
were 55.1% and 56.2%, respectively, compared to 51.3% and 54.1% in each of the
prior year periods. The increase in gross margins is primarily due to a greater
proportion of higher-margin instrument sales to total sales and lower costs per
unit sold due to increased absorption of fixed costs.
Research and development. Research and development expenses for the third
quarter and first nine months of 1996 were $1.5 and $4.9 million, respectively,
compared to $1.4 and $3.9 million in the prior year periods. The 5% and 26%
increase over the third quarter and nine month period, respectively, resulted
from the expansion of a number of major development programs, partially offset
by credits representing reimbursement from the Company's NIST Grant. Due to the
increase in sales, research and development expenses decreased as a percentage
of revenue to 11.8% and 13.5% for the third quarter and nine months ended
September 30, 1996, from 18.7% and 13.9% in the comparable 1995 periods.
Research and development expenses for the third quarter and first nine months of
1996 were reduced by $449,000 and $1,443,000, respectively, of credits which
represent reimbursement from the Company's NIST grant, compared to $506,000 and
$1.1 million of credits in the comparable prior year periods. The third quarter
and first nine months of 1996 also exclude $95,000 and $360,000, respectively,
of capitalized software development costs, compared to $126,000 and $426,000 for
the comparable prior year periods.
Sales and marketing. Sales and marketing expenses for the third quarter and
first nine months of 1996 were $3.6 and $11.1 million, respectively, as compared
to $3.4 and $10.2 million in the prior year periods. This increase is primarily
the result of increased investment in sales and marketing efforts, increased
headcount and greater commission expense associated with the increase in sales.
As a percentage of sales, sales and marketing expenses decreased to 28.0% and
30.8% in the third quarter and first nine months of 1996 from 44.3% and 36.6% in
the respective prior periods, primarily due to the increase in sales.
8
<PAGE> 9
General and administrative. General and administrative expenses for the third
quarter and first nine months of 1996 were $975,000 and $2.7 million,
respectively, compared to $817,000 and $2.7 million in the comparable prior
periods. The increase in the third quarter is primarily the result of increased
legal costs, primarily for patent issues. General and administrative expenses,
as a percentage of sales, decreased to 7.6% and 7.4% for the third quarter and
first nine months of 1996 from 10.6% and 9.9% in the respective prior periods,
primarily due to the increase in revenues.
Interest and other income, net. Interest and other income, net, decreased to
$200,000 from $219,000 in the third quarters of 1996 and 1995, respectively, and
to $599,000 from $736,000 in the nine-month periods of those years. These
decreases resulted primarily from the effects of lower average investment
balances, offset by slightly higher interest rates.
Provision for income taxes. During the third quarter and first nine months of
1996, the Company recorded tax expense utilizing an annual effective tax rate of
10.0%. The low tax rate in 1996 is attributable to usage of net operating loss
carryovers and consist of state and federal Alternative Minimum Taxes and
foreign taxes. The tax expense in 1995 consists of state and federal Alternative
Minimum Taxes and usage of net operating loss carryovers.
Earnings/(Loss) per share. The Company reported earnings per share of $.10 and
$.19, respectively, in the third quarter and first nine months of 1996, compared
to losses per share of $.15 and $.10 in the comparable periods of 1995. This
improvement is due primarily to the increase in revenue and gross margins.
Weighted average shares outstanding used in computing earnings per share were
10.6 and 10.7 million shares for the third quarter and first nine months of 1996
as compared to 10.1 million shares for both of the comparable periods in 1995,
due to the consideration of dilutive common stock equivalents in the profitable
1996 periods, shares issued under the Company's Employee Stock Purchase Plan,
and the exercise of stock options, partially offset by the repurchase of shares
under the stock repurchase program during the third quarter of 1996.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company believes that results of operations in any quarterly period
may be impacted by factors such as the effect of announcements of new
competitive products, delays in the introduction or shipment of new products,
increased competition, inability of the Company to maintain grant funding to
adequately support development programs, adverse changes in economic conditions
in any of the countries in which the Company does business, a slower growth rate
in the Company's target markets, difficulty in acquiring critical product
components of acceptable quality and in required quantity, order deferrals in
anticipation of new product releases, changes in the Company's product mix,
legal expenses, lack of market acceptance of new products, or reduction or delay
of government and private sector funding of research activities. Also, with a
significant portion of net sales and net income contributed by international
operations, fluctuations of the U.S. dollar against foreign currencies such as
those that have occurred in the past could affect the Company's results of
operations and financial condition in a particular quarter. In addition,
availability of funds under the Company's ATP grant for the years after January,
1997 is contingent upon annual Congressional approval. Should funding of the ATP
not be approved in years after January 1997, this would have a material adverse
effect on the Company's research and development efforts and its business,
financial condition and results of operations. There can be no assurance that
the Company will be able to grow in future periods or continue profitability on
a quarterly basis.
9
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Due to the factors noted above, the Company's future earnings and stock price
may be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenues or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock. The Company typically recognizes a substantial
portion of sales near the end of a quarter. Therefore, the Company may not
become aware of such shortfalls until late in a quarter, which may result in an
adverse effect on the trading price of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of September 30, 1996 was $30.1 million, compared to
$28.6 million at December 31, 1995.
The Company's principal commitments at September 30, 1996 consisted of
obligations under operating leases for facilities and equipment. Long term cash
requirements, other than normal operating expenses, are anticipated for
development of new products, enhancement of existing products, financing
continued growth, and possible acquisition of products, technologies or
businesses complementary to the Company's business. The Company believes its
cash, short-term investments, and cash flows from operating activities will be
sufficient to satisfy its working capital requirements for the foreseeable
future.
10
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PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibit 11.1 - Statement re Computation of Net Income (Loss)
Per Share
Exhibit 27.1 - Financial Data Schedule
(b) There were no reports on Form 8-K during the quarter ended
September 30, 1996.
11
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MOLECULAR DYNAMICS, INC.
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.
MOLECULAR DYNAMICS, INC.
(Registrant)
Date: November 7, 1996 By: /s/ Jay Flatley
---------------- ---------------------------
Jay Flatley
President, Chief Executive
Officer & Chief Financial Officer
By: /s/ Lynne Wagoner
---------------------------
Lynne Wagoner
Director of Finance
(Principal Accounting Officer)
12
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EXHIBIT INDEX
Exhibits Description
11.1 Statement re Computation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 1,068 $ (1,535) $ 1,985 $ (1,047)
------- -------- ------- --------
Weighted average shares outstanding:
Common stock 10,074 10,149 10,100 10,090
Common stock equivalents - options 555 -- 568 --
------- -------- ------- --------
10,629 10,149 10,668 10,090
------- -------- ------- --------
Net income (loss) per share $ 0.10 $ (0.15) $ 0.19 $ (0.10)
======= ======== ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 7,125
<SECURITIES> 12,681
<RECEIVABLES> 11,676
<ALLOWANCES> 0
<INVENTORY> 6,064
<CURRENT-ASSETS> 38,012
<PP&E> 2,718
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,958
<CURRENT-LIABILITIES> 7,925
<BONDS> 0
0
0
<COMMON> 40,057
<OTHER-SE> (5,024)
<TOTAL-LIABILITY-AND-EQUITY> 42,958
<SALES> 12,910
<TOTAL-REVENUES> 12,910
<CGS> 5,800
<TOTAL-COSTS> 5,800
<OTHER-EXPENSES> 6,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,207
<INCOME-TAX> 139
<INCOME-CONTINUING> 1,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,068
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
