<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 MARCH 31, 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 April 29, 1996, 10,065,438 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
March 31, 1996 and December 31, 1995 .................................. 3
Condensed Consolidated Statements of Income
Three months ended March 31, 1996 and 1995 ............................ 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 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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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,126 $ 2,727
Short-term investments 11,998 14,895
Accounts receivable, net 13,123 12,173
Inventories 7,596 7,470
Prepaids and other current assets 637 403
-------- --------
Total current assets 36,480 37,668
Property and equipment, net 2,746 2,788
Other assets, net 2,300 2,289
-------- --------
Total assets $ 41,526 $ 42,745
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,685 $ 4,197
Accrued expenses 3,654 3,754
Unearned revenue 934 1,149
-------- --------
Total current liabilities 7,273 9,100
-------- --------
Stockholders' equity:
Common stock and additional paid-in capital 40,156 40,180
Accumulated deficit (5,548) (5,834)
Cumulative translation adjustment (54) 11
Unrealized loss on short-term investments (27) 43
Less 46,668 and 128,600 shares of common stock
in treasury in 1996 and 1995, respectively,
at cost (274) (755)
-------- --------
Total stockholders' equity 34,253 33,645
-------- --------
Total liabilities and stockholders' equity $ 41,526 $ 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
MARCH 31,
1996 1995
---- ----
<S> <C> <C>
Sales $10,884 $ 9,781
Cost of sales 4,750 4,543
------- --------
Gross margin 6,134 5,238
------- --------
Operating expenses:
Research and development 1,604 1,228
Sales and marketing 3,659 3,313
General and administrative 803 920
------- --------
Total operating expenses 6,066 5,461
------- --------
Operating income (loss) 68 (223)
Interest and other income, net 230 298
------- --------
Income before income taxes 298 75
Income tax expense 12 4
------- --------
Net income $ 286 $ 71
======= ========
Net income (loss) per share $ 0.03 $ 0.01
======= ========
Weighted average shares and common
stock equivalents 10,892 10,644
======= ========
</TABLE>
See accompanying notes.
4
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MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 286 $ 71
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 453 437
Loss on disposition of assets 41 --
Changes in items affecting operations:
Accounts receivable (1,006) (1,660)
Inventories (136) (71)
Prepaids and other current assets (312) (157)
Accounts payable and other current liabilities (1,787) (1,636)
------- -------
Net cash used by operating activities (2,461) (3,016)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (330) (257)
Capitalized software development costs (173) (171)
Purchases of short-term investments (3,793) (3,374)
Maturities and sales of short-term investments 6,621 6,681
Other assets 27 (82)
------- -------
Net cash provided by investing activities 2,352 2,797
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock option exercises -- 17
Proceeds from employee stock purchase plan -- 391
Purchase of treasury stock -- (650)
Reissuance of treasury stock 455 34
Other liabilities -- (42)
------- -------
Net cash provided (used) by financing activities 455 (250)
------- -------
Effect of exchange rate changes on cash 53 (244)
------- -------
Net increase (decrease) in cash and cash equivalents 399 (713)
Cash and cash equivalents at beginning of period 2,727 2,095
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,126 $ 1,382
======= =======
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid:
Interest $ 1 $ 1
======= =======
Income taxes $ 2 $ 2
======= =======
</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 March
31, 1996 and December 31, 1995 and the related condensed consolidated statements
of operations and cash flows for the three months ended March 31, 1996 and 1995
have been prepared on substantially the same basis as are 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 months ended March 31, 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 first
quarter ended March 31 and its year ended December 31, whereas in fact, the
Company's first quarter for fiscal years 1996 and 1995 ended on March 31, 1996
and April 2, 1995, and its fiscal year ended December 31, 1995, respectively.
NOTE 2 - Inventories
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw material $3,020 $3,316
Work-in-process 1,619 956
Finished goods 2,957 3,198
------ ------
$7,596 $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 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 field of DNA diagnostic devices with a total shared
project cost of $63 million. Approximately $5 million of the $31
6
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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 first quarter of 1996 and
1995, the Company recognized credits to its expenses of approximately $519,000
and $460,000, respectively, representing support from the grant. 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. Availability of
funds 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.
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 413,000 shares under this program as of March 31, 1996.
Of these, approximately 367,000 shares were reissued under the Company's
Employee Stock Option and Purchase Plans, of which approximately 82,000 shares
were reissued during the first quarter of 1996. Subsequent to the end of the
first quarter, the Company purchased 100,000 additional shares under the stock
repurchase program at a total cost of $650,000.
7
<PAGE> 8
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.
RESULTS OF OPERATIONS
Sales. The Company's first quarter 1996 sales of $10.9 million increased 11%
from sales of $9.8 million in the first quarter of the prior fiscal year. This
increase resulted primarily from sales of the Company's Storm(TM) products,
which the Company began to sell in the third quarter of 1995. Foreign currency
fluctuations between the 1996 and 1995 periods had the effect of reducing
revenue by $137,000.
The Company believes that a majority of its sales are generated from
research groups which depend on grant funding from governmental agencies. The
remaining portion is primarily from biotechnology, pharmaceutical and chemical
companies. The Company's revenues are directly affected by the availability,
timing and amount of funding for these research groups and companies. Such
funding is generally subject to a grant or capital budgeting process that
affects the sales cycle for the Company's products.
Gross margin. Gross margin for the first quarter of 1996 was 56.4% compared to
53.6% for the same period in the prior year. The increase in gross margin is
primarily due to a greater proportion of instrument sales to total sales, and
greater manufacturing efficiencies as sales increased in the 1996 quarter
compared to the same period in the prior year.
Research and development. Research and development expenses for the first
quarter of 1996 were $1.6 million, a 31% increase over the first quarter of
1995, as a result of the expansion of a number of major development programs,
partially offset by support from the Company's NIST Grant. Due to this
expansion, research and development expenses as a percentage of revenue
increased as a percent of revenue to 15% from 13%. Research and development
expenses for the first quarter of 1996 and 1995 have been reduced by $519,000
and $280,000, respectively, of credits representing support from the Company's
NIST grant. The first quarter of 1996 and 1995 also exclude $173,000 and
$171,000, respectively, of capitalized software development costs.
Sales and marketing. Sales and marketing expenses for the first quarter of 1996
were $3.7 million as compared to $3.3 million in the first quarter of 1995. This
is the result of increased investment in sales efforts in the first quarter of
1996 as well as greater sales and marketing costs relating to the strategic
alliance with Amersham International plc. Sales and marketing expenses for the
first quarter of 1995 were reduced by $140,000 of credits representing overhead
allocations from the Company's NIST grant. Sales and marketing expenses
represented 34% of revenues during the first quarters of 1995 and 1996.
General and administrative. General and administrative expenses for the first
quarter of 1996 were $0.8 million as compared to $0.9 million in the first
quarter of 1995, as a result of continuing cost control measures. General and
administrative expenses decreased to 7% from 9% as a percentage of revenue,
primarily due to decreased spending and increased revenue.
8
<PAGE> 9
Interest and other income, net. Interest and other income, net, decreased to
$230,000 in the first quarter of 1996 from $298,000 in the first quarter of
1995. This is primarily the result of lower average cash and investment
balances, offset by slightly higher interest rates in the 1996 quarter compared
to the same quarter in 1995.
Provision for income taxes. During the first quarter of 1996, the Company
recorded a tax expense utilizing an effective tax rate of 4%, as compared to a
rate of 5% for the first quarter of 1995. The low tax rates in 1996 and 1995 are
attributable to usage of net operating loss carryovers, and consist of state and
federal Alternative Minimum Taxes.
Earnings per share. The Company generated earnings per share of $.03 in the
first quarter of 1996 as compared to earnings per share of $.01 in the first
quarter of 1995. This improvement is due primarily to the increase in revenue
and gross margins. Weighted average shares outstanding increased to 10.9 million
shares for the first quarter of 1996 as compared to 10.6 million shares for the
first quarter of 1995. This increase resulted from shares issued under the
Employee Stock Purchase Plan and the exercise of stock options in the 1996
quarter.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company believes that results of operations in any quarterly period may be
impacted by factors such as delays in the shipment of new products, difficulty
in acquiring critical product components of acceptable quality and in required
quantity, increased competition, the effect of announcements of new competitive
products, a slower growth rate in the Company's target markets, order deferrals
in anticipation of new product releases, or lack of market acceptance of new
products, reduction or delay of government and private sector funding of
research activities, legal expenses or adverse changes in economic conditions in
any of the countries in which the Company does business. Specifically, the
Company is experiencing some limitations in ramping up production of its newer
products. 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 recently occurred could affect the
Company's results of operations and financial condition in a particular quarter.
There can be no assurance that the Company will be able to grow in future
periods or continue profitability on a quarterly basis.
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.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of March 31, 1996 was $29.2 million, a slight increase over
the $28.6 million at December 31, 1995.
The Company's principal commitments at March 31, 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
Per Share
(b) There were no reports on Form 8-K during the quarter ended
March 31, 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: May 13, 1996 By: /s/ Jay Flatley
------------ ------------------------------------
Jay Flatley
President, Chief Executive
Officer & Chief Financial Officer
Date: May 13, 1996 By: /s/ Lynne R. Wagoner
------------ ------------------------------------
Lynne R. Wagoner
Director of Finance
(Principal Accounting Officer)
12
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EXHIBIT 11.1
MOLECULAR DYNAMICS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1996 1995
---- ----
<S> <C> <C>
Net income $ 286 $ 71
------- -------
Weighted average shares outstanding:
Common stock 10,121 10,060
Common stock equivalents - options 771 584
------- -------
10,892 10,644
------- -------
Net income per share $ 0.03 $ 0.01
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,126
<SECURITIES> 11,998
<RECEIVABLES> 13,123
<ALLOWANCES> 0
<INVENTORY> 7,596
<CURRENT-ASSETS> 36,480
<PP&E> 2,746
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,526
<CURRENT-LIABILITIES> 7,273
<BONDS> 0
0
0
<COMMON> 40,156
<OTHER-SE> (5,903)
<TOTAL-LIABILITY-AND-EQUITY> 41,526
<SALES> 10,884
<TOTAL-REVENUES> 10,884
<CGS> 4,750
<TOTAL-COSTS> 4,750
<OTHER-EXPENSES> 6,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 298
<INCOME-TAX> 12
<INCOME-CONTINUING> 286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
