TRIPOS, INC., Form 10-Q, March 31, 1997
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, 1997
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, 1997: 3,049,175 shares.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION, Item 1. Financial
Page Statements (Unaudited)
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for Three Months Ended March 31, 1997 and March 31,1996 4
Consolidated Statements of Cash Flows for Three Months
Ended March 31, 1997 and March 31,1996 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 12
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Mar. 31, 1997 Dec.31, 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 6,725 $ 5,393
Investments 3,510 3,335
Accounts receivable 7,744 10,558
Prepaid expenses 309 496
Deferred income taxes 118 118
Total current assets 18,406 19,900
Notes Receivable 1,189 0
Property and equipment, less 1,274 1,163
accumulated depreciation
Capitalized development 3,267 3,130
costs, net
Other, net 319 316
Total assets $ 24,455 $ 24,509
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 814 $ 845
Accrued expenses 3,979 5,306
Deferred revenue 4,512 3,389
Total current liabilities 9,305 9,540
Deferred income taxes 616 602
Shareholders' equity :
Common Stock 30 30
Additional paid-in capital 15,388 15,220
Common stock
Accumulated deficit (1,214) (1,382)
Cumulative translation 330 499
adjustment
Total shareholders' equity 14,534 14,367
Total liabilities and $ 24,455 $ 24,509
shareholders' equity
See accompanying notes.
Item 1. Financial Statements (cont'd)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
Mar. 31, 1997 Mar. 31,1996
Net sales:
Software licenses $ 2,068 $ 1,927
Support 1,746 1,585
Accelerated discovery 2,347 547
services
Hardware 631 728
Total net sales 6,792 4,787
Operating costs and expenses:
Cost of sales 2,324 1,627
Sales and marketing 2,528 2,361
Research and development 1,035 804
General and administrative 789 351
Total costs and expenses 6,676 5,143
Income (loss) from operations 116 (356)
Other income, net 154 88
Income (loss) before income 270 (268)
taxes
Income tax expense (benefit) 102 (44)
Net income (loss) $ 168 $ (224)
Earnings (loss) per common
and common equivalent share $ 0.05 $ (0.08)
Weighted average number of common
and common equivalent 3,495,193 2,881,217
shares
See accompanying notes.
Item 1. Financial Statements (cont'd)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
Mar. 31,1997 Mar. 31,1996
Cash flows from operating activities
Net income (loss) $168 $ (224)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation of property and 161 167
equipment
Amortization of capitalized 726 732
development costs
Deferred income taxes 14 0
Change in operating assets and
liabilities:
Accounts and notes receivable 1,344 1,446
Prepaid expenses and other 195 (65)
assets
Accounts payable and accrued (1,102) (1,138)
expenses
Deferred revenue 1,186 669
Net cash provided by operating 2,692 1,587
activities
Cash flows from investing activities:
Net purchases, sales, and
maturities of investments (175) 46
Purchases of property and (290) (208)
equipment
Long-term investments 3 (150)
Capitalized development costs (863) (320)
Net cash (used in) investing (1,325) (632)
activities
Cash flows from financing activities:
Stock issuance pursuant to 168 17
stock option plans
Net cash provided by financing 168 17
activities
Effect of foreign exchange rate changes
on cash and cash equivalents (203) (34)
Net increase in cash and cash 1,332 938
equivalents
Cash and cash equivalents at 5,393 3,955
beginning of period
Cash and cash equivalents at end $ 6,725 $ 4,893
of period
See accompanying notes.
Item 1. Financial Statements (cont'd)
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, 1997 are not necessarily
indicative of the results that may be expected
for the year ended December 31, 1997.
(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.
Overview
Tripos, Inc. is a leader in
discovery services, informatics and products for
compound research in life science organizations
worldwide.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
Except for the historical information and
statements contained in Management's Discussion and
Analysis of Financial Condition and Results of
Operations ("MD&A"), the matters and items
contained in this document, including MD&A, contain
certain forward-looking statements that involve
uncertainties and risks. The Company's future
results could differ materially from those discussed
in this document. Factors that could cause
a contribution to such differences, include, but are
not limited to, those presented in the Company's
Form 10-K for the year ended December 31, 1996.
Results of Operations
Net sales for the first quarter of 1997 and
1996 were $6.8 million and $4.8 million,
respectively. The Company experienced increases
in software license, support and
accelerated discovery services revenues with a slight
decrease in hardware sales for the quarter.
For the three months ended March 31,
1997, software licenses sales increased 7.3% to
$2.1 million. The increase in software license
sales is due to increases in combinatorial
chemistry products and sales of the Alchemy
2000 desktop product line introduced in the third
quarter of 1996.
Support revenues increased 10.2% to $1.7
million over the first three month period in
1996. 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 accounted for $2.3
million in the first quarter of 1997 and $0.5
million in the same period in 1996. This
increase in ADS business is attributable to the
elimination of the backlog conditions that existed
in first quarter 1996 and the larger inventory
of compounds available for sale in the library.
Hardware sales decreased by 13.3% to $0.6 million
for the first quarter 1997. 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 89% of total
revenues for the three-month period.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
(cont'd)
Net sales for the Company's activities
outside of North America represented
approximately 45.2% for the first three months
of 1997 compared to 62.5% for the same period in
1996. Net sales in Europe decreased 4.1% for the
first three months of 1997 compared to 1996 and
accounted for 33.0% and 48.8% of net sales for
the three-month periods in 1997 and 1996,
respectively. Net sales in the Pacific Rim,
principally Japan, increased 26.6% compared to
the first three months of 1996 and accounted for
12.2% and 13.7% of net sales for the respective
periods.
Cost of sales for the three-month period
ending March 31, 1997 increased 42.8% compared
to the same period in 1996. Cost of sales was
$2.3 million and $1.6 million for the first
quarter of 1997 and 1996, respectively. This
change was due to increased costs directly
related to increased sales of compounds which
was partially offset by a decrease in
hardware costs from lower hardware sales. Cost of
sales as a percent of net sales was 34.2% and
34.0% for the three-month
periods in 1997 and 1996, respectively.
Gross profit margins for the first quarter
1997 were essentially unchanged compared to 1996
and were 65.8% and 66.0% of total net
sales, respectively. Gross profit increased
41.4% compared to first quarter 1996 due to the
increases in sales described above.
Sales and marketing expenses increased
7.1% to $2.5 million for the three-month period
in 1997 compared to $2.4 million for the same
period of 1996. Sales and marketing expenses as
a percentage of net sales were 37.2% and 49.3% for
the three-month periods in 1997 and 1996, respectively.
The increase in the first quarter of 1997 is a
result of an increase in the European bad
debt provision and increased commissions related
to increased sales.
Research and development costs, including
the amount of capitalized costs, increased $0.6
million for the three-month period in 1997
compared to 1996 and represented 28.8% and 23.0%
of net sales, respectively. Research and
development expenses, net of capitalized
development costs, represented 15.2% and 16.8%
of net sales for the three-month periods in 1997
and 1996, respectively. The slight decrease
as a percentage of net sales for the period is
due to the increase in net sales. 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 increased 124.8% to
$0.8 million for the first quarter of 1997
compared to $0.4 million in 1996, and represent
11.6% and 7.3% of net sales for the respective
periods. The increase in G & A expenses in the
period is due primarily to costs associated
with public company expenses, legal and
professional fees, and bonuses along with the
reclassification of certain employees from the
other areas into G&A.
Other income (expense) increased from
$88,000 of income for the first quarter in 1996
to $154,000 of income for the comparable period
in 1997. This change was due to foreign
currency translation gains and increases in
interest earned on investments.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (cont'd)
Income tax expense was $102,000 for the
three-month period in 1997, which represents an
effective tax rate of 38%, compared to an income
tax benefit of ($45,000) for the first quarter of
1996, an effective rate of 17% . The rates
reflect the change in valuation of the
Company's losses including foreign subsidiary
losses. The Company's effective tax rate for the
three months ended March 31, 1997 reflects an
increase to approximate the expected effective
tax rate for the year ending December 31, 1997.
Liquidity, Capital Resources and Capital Commitments
For the three-month period ending March
31, 1997, decreases in accounts and notes
receivable of $1.3 million and prepaid expenses
of $0.2 million along with net income,
depreciation, amortization and increases in
deferred revenue of $0.2 million, $0.2 million, $0.7 million and
$1.2 million, respectively, were offset by a
decrease in accounts payable and accrued
expenses of $1.1 million, resulting in $2.7
million in net cash provided by operations.
For the same period in 1996, net cash
provided by operations was $1.6 million
primarily due to increases in deferred revenue
and decreases in accounts and notes receivable.
Notes receivable represent the long-term portion
of revenue generated from the Company's sales
of subscription access to its software
technologies.
Investments of $0.3 million in property and
equipment, marketable securities of $0.2 million
and $0.9 million of capitalized development
costs, resulted in a use of cash of
approximately $1.4 million in the first three
months of 1997. Continuing design and synthesis
of the ADS compound library represented $0.7
million of the capitalized development costs for
the first quarter of 1997.
The Company believes that current working
capital of $9.1 million, together with continued
cashflow 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
27 Financial Data Schedule
(b) No reports on Form 8-K were required
to be filed during the three
months ended March 31, 1997.
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 13, 1997 John P. McAlister
President and
Chief Executive Officer
Date: May 13, 1997 Colleen A. Martin
Chief Financial Officer, Secretary
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