TRIPOS, INC., Form 10-Q, June 30, 1996
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 0-23666
TRIPOS, INC.
(Exact Name of Registrant as Specified in its Charter)
Utah 43-1454986
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1699 South Hanley Road
St. Louis, Missouri 63144
(Address of Principal Executive Offices and Zip Code)
(314) 647-1099
(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
requirement for the past 90 days.
Yes X No
Number of shares outstanding of the issuer's Common Stock, par
value $.01 per share, as of June 30, 1996: 2,906,954 shares.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION, Item 1. Financial Page
Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for Three Months Ended June 30, 1996 and June 30, 1995
and Six Months Ended June 30, 1996 and June 30, 1995 4
Consolidated Statements of Cash Flows for Six Months
Ended June 30, 1996 and June 30, 1995 5
Notes to Consolidated Financial Statements 6
PART I FINANCIAL INFORMATION, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations 7
PART II OTHER INFORMATION 10
SIGNATURES 11
EXHIBITS - Exhibit 27, Financial Data Schedule
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, Dec 31,
1996 1995
ASSETS
Current Assets:
Cash and cash
equivalents $4,090 $3,955
Investments 3,290 3,179
Accounts receivable 6,763 7,357
Prepaid expenses 455 469
Deferred income taxes 610 610
Total current assets $15,208 $15,570
Property and equipment, less
accumulated depreciation 1,216 1,191
Capitalized development costs,
less accumulated amortization 3,124 2,265
Other, net 334 33
Total assets $19,882 $19,059
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 1,737 $ 1,120
Accrued expenses 2,316 2,490
Deferred revenue 3,353 3,322
Total current liabilities 7,406 6,932
Deferred income taxes 834 805
Shareholders' equity:
Common stock 29 29
Additional paid-in capital 14,387 14,237
Accumulated deficit (3,161) (3,334)
Cumulative translation adjustment 387 390
Total shareholders equity 11,642 11,322
Total liabilities and
shareholders equity $19,882 $19,059
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
Net sales:
Software licenses $ 2,293 $ 1,782 $ 4,220 $ 4,005
Support 1,635 1,632 3,220 3,123
Accelerated discovery 1,291 0 1,838 0
Hardware 1,600 755 2,328 1,877
Total net sales 6,819 4,169 11,606 9,005
Operating costs & expenses:
Cost of sales 2,511 1,031 4,138 2,457
Sales and marketing 2,630 2,554 4,991 4,720
Research and development 817 814 1,621 1,759
General and administrative 407 389 758 773
Total costs and expenses 6,365 4,788 11,508 9,709
Income (loss) from operations 454 (619) 98 (704)
Other income (expense), net 39 162 127 261
Income (loss) before taxes 493 (457) 225 (443)
Income tax expense (benefit) 96 (149) 52 (143)
Net income (loss) $ 397 $ (308) $ 173 $ (300)
Earnings (loss) per common
and common equivalent share $ 0.13 $ (0.11) $ 0.06 $ (0.11)
Weighted average number of
common and common equivalent
shares 3,077,267 2,854,766 3,095,805 2,853,986
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
1996 1995
Cash flows from operating activities
Net income (loss) $ 173 $ (300)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation of property and equipment 317 506
Amortization of capitalized development costs 1,465 308
Deferred income taxes 29 309
Change in operating assets and liabilities:
Accounts receivable 580 2,811
Prepaid expenses and other assets 17 (50)
Accounts payable and accrued expenses 438 (3,167)
Deferred revenue 64 521
Net cash provided by operating activities 3,083 938
Cash flows from investing activities:
Net purchases, sales, and maturities of
investments (112) (148)
Purchases of property and equipment (360) (401)
Capitalized development costs (2,316) (799)
Other (300) 0
Net cash used in investing activities (3,088) (1,348)
Cash flows from financing activities:
Stock issuance pursuant to stock plans 151 49
Net cash provided by financing activities 151 49
Effect of foreign exchange rate changes on cash
and cash equivalents (11) 80
Net increase (decrease) in cash and cash
equivalents 135 (281)
Cash and cash equivalents at beginning of period 3,955 1,932
Cash and cash equivalents at end of period $ 4,090 $ 1,651
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies
(a) Organization
Tripos, Inc. (the Company) delivers science, tools and
analysis services that advance customers' creativity and productivity
in pharmaceutical, agrochemical, biotechnology and related research
industries worldwide. The Company is also a value-added reseller of
third party hardware products required to operate its software products.
A substantial portion of the Company's business is conducted with
pharmaceutical companies, however, the Company is not economically
dependent on any customer on an ongoing basis.
(b) Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all normal recurring adjustments necessary for a
fair presentation of such financial statements have been included. Operating
results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
(2) Income taxes
The provision for income taxes is computed using the liability
method. The difference between financial statement and taxable income
results primarily from the use of different methods of computing capitalized
development costs, accrued vacation and customer deposits. The difference
between the Company's effective tax rate and the statutory rate is primarily
the result of recognizing the benefit of certain tax carryforwards for which
no previous benefit had been recognized.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company's quarterly operating results can vary significantly
depending upon such factors as the capital expenditure budgets of its
customers, lengthy sales cycles, market acceptance of new products and
enhanced versions of existing products, the timing of new product
introductions by the Company and other vendors, changes in pricing policies
by the Company and other vendors, and changes in general economic and
competitive conditions. In addition, a substantial portion of the Company's
revenues for each quarter is attributable to a limited number of orders and
tends to be realized towards the end of each quarter. Thus, even short
delays or deferrals of sales near the end of a quarter can cause quarterly
results to fluctuate substantially. The Company typically experiences
greater gross margins on software licenses, consulting, and compound sales
than on sales of hardware. The Company's profitability depends in part on
the mix of its revenue components and not necessarily on total revenues.
Results of Operations
Net sales for the second quarter of 1996 were $6.8 million compared
with $4.2 million for the second quarter of 1995. The overall increase in
net sales for the quarter was attributed to increases in software license
and hardware sales and by the addition of accelerated discovery services
sales. Net sales for the first six months of 1996 were $11.6 million
compared to $9.0 million for the same period in 1995. Increases were
achieved in software license, support and hardware sales, along with the
continuing addition of accelerated discovery services sales for the six
month period. Accelerated discovery services is a new product line,
consisting of diverse compound libraries and consulting services, which
was introduced in the third quarter of 1995.
For the three months ended June 30, 1996, software licenses sales
increased 28.7% to $2.3 million. The increase is due to the surge in
the Company's sales of mass screening tools, namely Legion and Selector,
that were introduced in December, 1994 and gained momentum in 1995. For
the first six months of 1996, software license sales increased 5.3% to
$4.2 million compared to the same period for 1995. Support revenues for
the second quarter of 1996 were unchanged from the same period in 1995.
Support sales increased 3.0% to $3.2 million for the six month period
ending June 30, 1996. Support sales increased due to a larger installed
base of customers as a result of the increase in software license sales
over the past several years. Accelerated discovery services sales, primarily
diverse compound libraries, amounted to $1.3 million in the second quarter
of 1996 and $1.8 million for the six months year-to-date. The collaboration
with Panlabs, Inc. to design and manufacture chemical compounds was initiated
late in the second quarter of 1995 and continues to meet expectations.
Hardware sales increased by 111.6% to $1.6 million for the second quarter
1996 due to a large European order. For the first six months of 1996,
hardware sales increased 24.0% to $2.3 million compared to 1995. This
increase over the prior year is due to the continuing demand by customers
for integrated hardware and software sales. Sales to existing customers
represent 89.4% of total revenues for the six-month period. For the same
period, sales of new products represent 34.0% of software license and
discovery service sales.
Net sales for the Company's activities outside North America
represented approximately 55.3% for the first six months of 1996 compared
to 52.1% for the same period in 1995. Net sales in Europe increased 36.0%
for the first six months of 1996 compared to 1995 and accounted for 43.8%
and 41.5% of net sales for the six month periods in 1996 and 1995,
respectively. Net sales in the Pacific Rim, principally Japan, increased
7.9% compared to the first six months of 1995 and accounted for 11.5% and
10.6% of net sales for the respective periods.
Cost of sales for the quarter ending June 30, 1996 increased 143.5%
to $2.5 million and increased 68.5% to $4.1 million for the six month
period in 1996. These increases were due to the additional costs related
to diverse compound library sales and an increase in hardware costs which
were directly related to the increase in hardware sales. Cost of sales as
a percent of net sales was 36.8% and 35.7% for the three and six month
periods in 1996, and 24.7% and 27.3% for the three and six month periods
in 1995, respectively.
Gross profit margin percentage for the second quarter 1996 declined
to 63.2% from 75.3% in 1995. For the first six months of 1996, gross
profit margin percentage decreased to 64.3% from 72.7% for the same period
in 1995. The decrease is attributable to a change in the sales mix in that
lower margin revenue sources, specifically hardware and chemical compound
sales, represent a higher percentage of total net sales in 1996 compared
to 1995.
Sales and marketing expenses increased 3.0% to $2.6 million for the
three month period in 1996 and 5.7% to $5.0 million for the six months
period. Sales and marketing expenses as a percentage of net sales were
38.6% and 43.0% for the three and six month periods in 1996 as compared to
61.3% and 52.4% for the same periods in 1995. The decrease in the percent
to sales, for the three and six month periods of 1996, is a function of
increased sales in all categories along with improved efficiencies among
the sales and marketing staff.
Research and development costs, including the costs that were
capitalized, were $2.7 million and $1.2 million for the three month periods
in 1996 and 1995, $3.7 million and $2.4 million for the six month periods,
respectively and represented 39.1%, 30.0%, 32.2% and 26.5% of net sales.
Research and development expenses, net of capitalized development costs,
represented 12.0% and 19.5% of net sales for the three month periods in
1996 and 1995, and 14.0% and 19.5% of net sales for the six month periods
ending June 30, 1996 and 1995, respectively. The decrease as a percentage
of net sales for the period is due to reductions in development staff
resulting from the discontinuation of Unison. The Company anticipates that
its investments in new product research will remain relatively constant as
a percentage of net sales as Tripos continues development in the desktop,
database, diverse compound libraries and combinatorial chemistry markets.
General and administrative expenses were unchanged at $0.4
million for the second quarter of 1996 compared to 1995, and
represent 6.0% and 9.3% of net sales for the respective periods.
For the six month period, G & A expenses were $0.8 million and $0.8
million in 1996 and 1995, respectively.
Other income (expense) decreased from income of $162.000 for
the second quarter in 1995 to income of $39,000 for the comparable
period in 1996. For the first six months of 1996, other income
(expense) was $127,000 compared to $261,000 in 1995. This change
was due to an increase in foreign currency translation losses.
Interest income on investments for the period was unchanged from
1995.
Income tax expense was $52,000 for the six month period in 1996
which represents an effective tax rate of 23%. The rate is the Company's
anticipated effective rate for the year ending December 31, 1996 and
reflects the recognition of the benefit of certain tax carryforwards for
which no previous benefit had been recognized.
Liquidity, Capital Resources and Capital Commitments
For the six month period ending June 30, 1996, net cash provided
by operations was $3.0 million on the as a result of decreases in accounts
receivable of $0.6 million and increases in net income, depreciation,
amortization and accounts payable of $0.2 million, $0.3 million, $1.4 million
and $0.4 million, respectively. Largest among these is amortization, of
which $1.3 million is attributable to the manufacturing of the compound
library. For the same period in 1995, net cash provided by operations was
$0.9 million primarily due to an increase in deferred revenue, depreciation
and amortization.
Investments of $0.3 million in property and equipment, $0.3 million
in an equity position in Phase-1 Molecular Toxicology, Inc. and $2.3 million
in capitalized development costs, resulted in a use of cash of approximately
$3.0 million in the first half of 1996.
The Company believes that current working capital, together with cash
from operations, will be adequate to fund short-term liquidity requirements
including investment in research and development, capital purchases and any
other commitments in the upcoming year. The Company may seek to obtain
additional financing at any time in connection with the Company's product
development efforts and its efforts to penetrate existing and new markets
for its products, depending upon the associated working capital requirements.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material litigation and is
not aware of any threatened material litigation.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of the
shareholders of the Company at its Annual Meeting of
Shareholders on May 10, 1996:
(a) To elect directors to serve for the ensuing year or until
their successors are elected; and
(b) To amend the 1994 Director Option plan to increase the
number of shares reserved thereunder from 100,000 to 300,000,
and to accelerate the vesting of outstanding options in the
event of a change in control; and
(c) To adopt the 1996 Director Stock Compensation Plan which
changes the form of the Directors' annual compensation from
100% cash to 50% cash and 50% Common Stock of the Company.
All Directors standing for election were elected and all other
matters submitted to the shareholders for a vote were approved.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit 27, Financial Data Schedule
(b) The following reports on Form 8-K were filed
during the period from March 31, 1996 to June 30, 1996.
None.
TRIPOS, 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 hereunto duly authorized.
TRIPOS, INC.
Date: July 29, 1996 John P. McAlister
John P. McAlister
President and
Chief Executive Officer
Date: July 29, 1996 Colleen A. McDonnell
Colleen A. McDonnell
Chief Financial Officer, Secretary
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