TRIPOS, INC., Form 10-Q, March 31, 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 March 31, 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 March 31, 1996: 2,882,887 shares.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION, Item 1. Financial Page
Statements (Unaudited)
Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for Three Months Ended March 31, 1996 and March 31, 1995 4
Consolidated Statements of Cash Flows for Three Months
Ended March 31, 1996 and March 31, 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)
Mar. 31, 1996 Dec. 31,1995
ASSETS
Current Assets:
Cash and cash equivalents $ 4,893 $ 3,955
Investments 3,132 3,179
Accounts receivable 5,858 7,357
Prepaid expenses 531 469
Deferred income taxes 610 610
Total current assets $15,024 $15,570
Property and equipment,
less accumulated depreciation 1,226 1,191
Capitalized development costs,
less accumulated
amortization 1,837 2,265
Other, net 184 33
Total assets $18,271 $19,059
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 945 $ 1,120
Accrued expenses 1,494 2,490
Deferred revenue 3,965 3,322
Total current liabilities 6,404 6,932
Deferred income taxes 805 805
Shareholders' equity:
Common stock 29 29
Additional paid-in capital 14,254 14,237
Accumulated deficit (3,557) (3,334)
Cumulative translation adjustment 336 390
Total shareholders' equity 11,062 11,322
Total liabilities and
shareholders' equity $18,271 $19,059
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
Mar. 31, 1996 Mar. 31, 1995
Net sales:
Software licenses $ 1,927 $ 2,223
Support 1,585 1,491
Accelerated discovery services 547 0
Hardware 728 1,122
Total net sales 4,787 4,836
Operating costs and expenses:
Cost of sales 1,627 1,426
Sales and marketing 2,361 2,166
Research and development 804 945
General and administrative 351 384
Total costs and expenses 5,143 4,921
(Loss) from operations (356) (85)
Other income (expense), net 88 99
Income (loss) before income taxes (268) 14
Income tax expense (benefit) (44) 6
Net income (loss) $ (224) $ 8
Earnings (loss) per common and
common equivalent share $ (0.08) $ 0.00
Weighted average number of common
and common equivalent shares 2,881,217 2,852,722
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
Mar. 31, 1996 Mar. 31, 1995
Cash flows from operating activities
Net income (loss) $ (224) $ 8
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation of property and equipment 167 237
Amortization of capitalized
development costs 732 135
Deferred income taxes 0 1
Change in operating assets and liabilities:
Accounts receivable 1,446 2,779
Prepaid expenses and other assets (65) (189)
Accounts payable and
accrued expenses (1,138) (2,612)
Deferred revenue 669 371
Net cash provided by
operating activities 1,587 730
Cash flows from investing activities:
Net purchases, sales,
and maturities of investments 46 948
Purchases of property and equipment (208) (192)
Capitalized development costs (320) (243)
Other (150) 0
Net cash provided by (used in)
investing activities (632) 513
Cash flows from financing activities:
Stock issuance pursuant to
stock option plans 17 0
Net cash provided by financing activities 17 0
Effect of foreign exchange rate changes
on cash and cash equivalents (34) 45
Net increase in cash and cash equivalents 938 1,288
Cash and cash equivalents at
beginning of period 3,955 1,932
Cash and cash equivalents at
end of period $ 4,893 $ 3,220
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 month period ended March 31, 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 primary difference between financial statement and
taxable income results 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 the
utilization of certain tax carryforwards for which no previous
benefit has 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 first quarter of 1996 and 1995 were $4.8
million. Decreases in software license and hardware sales were
offset by increases in support and accelerated discovery services
sales in the quarter. Accelerated discovery services is a new
product line, consisting of diverse compound libraries and
consulting services, that was introduced in the third quarter of
1995.
For the three months ended March 31, 1996, software licenses
sales decreased 13% to $1.9 million. The decrease is due to the
refocusing of the Company's sales force on remaining product lines
since the announcement of the discontinuation of the Unison product
in mid-February, 1996. Support revenues increased 6% to $1.6
million over the first three month period in 1995. Support sales
increased due to a larger installed base of customers as a result
of the overall increase in software license sales over the past
several years. Accelerated discovery services sales, primarily
diverse compound libraries, accounted for $0.5 million in the
first quarter of 1996. 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 decreased by 35% to $0.7 million for the first
quarter 1996. This decrease compared to the prior year is due to
the Company's position of de-emphasizing low margin hardware sales.
Sales to existing customers represent 64% of total revenues for the
three-month period. For the same period, sales of new products
represent 26% of software license and discovery service sales.
Additional orders of $0.6 million were received for diverse
compound libraries that were not shipped due to the large volume
and specialized nature of the orders. These orders are in backlog
and are expected to be recognized in the second quarter of 1996.
Net sales for the Company's activities outside North America
represented approximately 63% for the first three months of 1996
compared to 45% for the same period in 1995. Net sales in Europe
increased 34% for the first three months of 1996 compared to 1995
and accounted for 49% and 36% of net sales for the three-month
periods in 1996 and 1995, respectively. Net sales in the Pacific
Rim, principally Japan, increased 47% compared to the first three
months of 1995 and accounted for 14% and 9% of net sales for the
respective periods.
Cost of sales for the three-month period ending March 31, 1996
increased 14% compared to the same period in 1995. Cost of sales
was $1.6 million and $1.4 million for the first quarter of 1996 and
1995, respectively. This change was due to the addition of costs
related to diverse compound library sales which were partially
offset by a decrease in hardware costs which were directly related
to the decrease in hardware sales. Cost of sales as a percent of
net sales was 34% and 30% for the three-month periods in 1996 and
1995, respectively.
Gross profit margins for the first quarter 1996 decreased 7%
compared to 1995 and were 66% and 71% of total net sales,
respectively. The decrease is attributable to a change in the
sales mix in that lower margin revenue sources represent a higher
percentage of total net sales in 1996 compared to 1995.
Sales and marketing expenses increased 9% to $2.4 million for
the three-month period in 1996 as compared to $2.2 million for the
same period of 1995. Sales and marketing expenses as a percentage
of net sales were 49% and 45% for the three-month periods in 1996
and 1995, respectively. The increase in the first quarter of 1996
is a function of having additional staff to support the promotion
of the diverse compound libraries and related consulting services.
Research and development costs, including the costs that were
capitalized, were $1.1 million for the three-month periods in 1996
and 1995 and represented 22% and 24% of net sales, respectively.
Research and development expenses, net of capitalized development
costs, represented 17% and 20% of net sales for the three-month
periods in 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 decreased 9% to $351,000
for the first quarter of 1996 compared to $384,000 in 1995, and
represent 7% and 8% of net sales for the respective periods. The
decrease in G & A expenses for the period is due primarily to
reduced Director and Officer insurance costs.
Other income (expense) decreased from income of $99,000 for
the first quarter in 1995 to income of $88,000 for the comparable
period in 1996. This change was due to an increase in foreign
currency translation losses that were partially offset by an
increase in interest income earned on investments.
Income tax benefit was $44,000 for the three-month period in
1996 which represents an effective tax rate of 17%. The rate is
the Company's anticipated effective rate for the year ending
December 31, 1996 and reflects the impact of the utilization of
certain tax carryforwards for which no previous benefit has been
recognized.
Liquidity, Capital Resources and Capital Commitments
For the three-month period ending March 31, 1996, decreases in
accounts receivable of $1.4 million and increases in depreciation,
amortization and deferred revenue of $0.2 million, $0.7 million and
$0.7 million, respectively, offset decreases in accounts payable
and accrued expenses of $1.1 million and $0.2 million loss for the
quarter, resulting in $1.6 million in net cash provided by
operations. For the same period in 1995, net cash provided by
operations was $0.7 million primarily due to an increase in
deferred revenue, depreciation and amortization.
Investments of $0.2 million in property and equipment, $0.2
million in an equity position in Phase-1 Molecular Toxicology, Inc.
and $0.3 million in capitalized development costs, resulted in a
use of cash of approximately $0.6 million in the first three months
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
None
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 December 31, 1995 to March 31, 1996.
A Form 8-K was filed on March 15, 1996 reporting
the Company's adoption of a shareholder rights plan. Details on
the shareholder rights plan can be found on the Form 8-K and are
incorporated herein by reference.
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: May 10, 1996 John P. McAlister
John P. McAlister
President and
Chief Executive Officer
Date: May 10, 1996 Colleen A. McDonnell
Colleen A. McDonnell
Chief Financial Officer, Secretary
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