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, 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 June 30, 1997: 3,090,731 shares.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION, Item 1. Financial Page
Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for Three Months Ended June 30, 1997 and June 30, 1996
and Six Months Ended June 30, 1997 and June 30, 1996 4
Consolidated Statements of Cash Flows for Six Months
Ended June 30, 1997 and June 30, 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 - Exhibit 27, Financial Data Schedule
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, Dec 31,
1997 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 6,419 $ 5,393
Investments 3,114 3,335
Accounts receivable 7,455 10,558
Prepaid expenses 426 496
Deferred income taxes 121 118
Total current assets $ 17,535 $ 19,900
Notes Receivable 1,674 0
Property and equipment,
less accumulated depreciation 1,264 1,163
Capitalized development costs,
less accumulated amortization 3,304 3,130
Other, net 684 316
Total assets $ 24,461 $ 24,509
LIABILITIES AND SHAREHOLDERSO EQUITY
Current Liabilities:
Accounts payable $ 760 $ 845
Accrued expenses 3,679 5,306
Deferred revenue 4,122 3,389
Total current liabilities 8,561 9,540
Deferred income taxes 774 602
Shareholders' equity:
Common stock 31 30
Additional paid-in capital 15,581 15,220
Accumulated deficit (827) (1,382)
Cumulative translation adjustment 341 499
Total shareholders equity 15,126 14,367
Total liabilities and $ 24,461 $ 24,509
shareholders equity
See accompanying notes.
Item 1. Financial Statements (continued)
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,
1997 1996 1997 1996
Net sales:
Software licenses $ 1,853 $ 2,293 $ 3,921 $ 4,220
Support 1,783 1,635 3,529 3,220
Accelerated discovery 1,448 1,291 3,795 1,838
services
Hardware 1,267 1,600 1,898 2,328
Total net sales 6,351 6,819 13,143 11,606
Operating costs and
expenses:
Cost of sales 2,375 2,511 4,699 4,138
Sales and marketing 2,146 2,630 4,674 4,991
Research and 969 817 2,004 1,621
development
General and 346 407 1,135 758
administrative
Total costs and expenses 5,836 6,365 12,512 11,508
Income from operations 515 454 631 98
Other income, net 112 39 266 127
Income before income 627 493 897 225
taxes
Income tax expense 240 96 342 52
Net income $ 387 $ 397 $ 555 $ 173
Earnings per common and
common equivalent share $ 0.11 $ 0.13 $ 0.16 $ 0.05
Weighted average number
of common and common 3,457 3,154 3,472 3,145
equivalent shares
See accompanying notes.
Item 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
1997 1996
Cash flows from operating activities
Net income $ 555 $ 173
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of property and 318 317
equipment
Amortization of capitalized 1,461 1,465
development costs
Deferred income taxes 169 29
Change in operating assets and
liabilities:
Accounts receivable 2,816 580
Notes receivable (1,674) 0
Prepaid expenses and other 79 17
assets
Accounts payable and accrued (1,461) 438
expenses
Deferred revenue 806 64
Net cash provided by operating 3,069 3,083
activities
Cash flows from investing activities:
Net purchases, sales, and 221 (112)
maturities of investments
Purchases of property and equipment (431) (360)
Capitalized development costs (1,758) (2,316)
Other (293) (300)
Net cash used in investing activities (2,261) (3,088)
Cash flows from financing activities:
Stock issuance pursuant to stock plans 449 151
Net cash provided by financing 449 151
activities
Effect of foreign exchange rate changes on
cash and cash equivalents (231) (11)
and cash equivalents
Net increase in cash and cash 1,026 135
equivalents
Cash and cash equivalents at beginning 5,393 3,955
of period
Cash and cash equivalents at end of $ 6,419 $ 4,090
period
See accompanying notes.
Item 1. Financial Statements (continued)
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, 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 primarily from the use of different methods
of computing capitalized development costs, accrued vacation and
customer deposits.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The CompanyOs quarterly operating results can vary
significantly depending upon such factors as the capital
expenditure budgets of its customers, lengthy sales cycles,
selection of compounds from our chemical compound library, 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 CompanyOs
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
doucment. 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 second quarter of 1997 were $6.4 million
compared with $6.8 million for the second quarter of 1996. The
overall decrease in net sales for the quarter was attributed to
decreases in software license and hardware sales being partially
offset by increases in accelerated discovery services and software
support sales. Overall, the Company received orders in excess of
$8.0 million in the current three-month period compared to $6.9
million in the same period in 1996. A backlog was created at June
30, 1997 of approximately $1.6 million that is expected to be
shipped in the third and fourth quarters of 1997. Net sales for
the first six months of 1997 were $13.1 million compared to $11.6
million for the same period in 1996. Increases were achieved in
accelerated discovery services and software support sales while
software license and hardware sales decreased in the six month
period.
For the three months ended June 30, 1997, software licenses
sales decreased 19.2% to $1.9 million. For the first six months of
1997, software license sales decreased 7.1% to $3.9 million
compared to the same period for 1996. The decreases are due to the
inclusion of two large orders in the second quarter of 1996.
Support revenues for the second quarter of 1997 increased 9.0% from
the same period in 1996. Support sales increased 9.6% to $3.5
million for the six month period ending June 30, 1997. Support
revenue increased due to a larger installed base of customers from
software license sales in recent years along with incremental
revenue from the Company's subscription access sales. Accelerated
discovery services ("ADS") sales, exclusively diverse compound
libraries, increased 12.2% to $1.4 million in the second quarter
of 1997 and 106.5% to $3.8 million for the six months year-to-date.
The increases in ADS revenue is due to the continuing development
in the Optiverse library of chemical compounds which provides the
basis for larger sales per customer. Hardware sales decreased by
20.8% to $1.3 million for the second quarter 1997 in comparison to
the same period in 1996 due to a large order being shipped in the
second quarter of 1996. For the first six months of 1997, hardware
sales decreased 18.5% to $1.9 million compared to 1996. This
decrease from the prior year is also due to the large order in the
prior year period. Sales to existing customers represent 88.3% of
total revenues for the six-month period. For the same period,
sales of new products represent 4.1% of software license and
discovery service sales.
Net sales for the Company's activities outside North America
represented approximately 46.1% for the first six months of 1997
compared to 55.3% for the same period in 1996. Net sales in Europe
decreased 16.0% for the first six months of 1997 compared to 1996
and accounted for 32.5% and 43.8% of net sales for the six month
periods in 1997 and 1996, respectively. Net sales in the Pacific
Rim, principally Japan, increased 34.9% in 1997 compared to the
first six months of 1996 and accounted for 13.7% and 11.5% of net
sales for the respective periods.
Cost of sales for the quarter ending June 30, 1997 decreased
5.4% to $2.4 million and increased 13.6% to $4.7 million for the
six month period in 1997. The decrease in the second quarter was
due to the large hardware order shipping in 1996. The increase in
year-to-date cost of sales for 1997 compared to 1996 relates to the
additional costs from increases in diverse compound library sales.
Cost of sales as a percent of net sales was 37.4% and 35.8% for the
three and six month periods in 1997, and 36.8% and 35.7% for the
three and six month periods in 1996, respectively.
Gross profit margin percentage for the second quarter of
1997 declined to 62.6% from 63.2% in 1996. For the first six
months of 1997, gross margin percentage was virtually unchanged at
64.2% compared to 64.3% for the same period in 1996. The decrease
for the quarter 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 1997 compared to 1996.
Sales and marketing expenses decreased 18.4% to $2.1
million for the three month period in 1997 and 6.4% to $4.7 million
for the six months period. Sales and marketing expenses as a
percentage of net sales were 33.8% and 35.6% for the three and six
month periods in 1997 as compared to 38.6% and 43.0% for the same
periods in 1996. The decreases for the three and six month periods
of 1997, are due to open positions and improved efficiencies among
the sales and marketing operations.
Research and development costs, including the costs that
were capitalized, were $1.7 million and $2.7 million for the three
month periods in 1997 and 1996, $3.7 million and $3.6 million for
the six month periods, respectively and represented 26.2%, 39.1%,
27.6% and 32.2% of net sales. The reductions in these percentages
from 1996 to 1997 reflect development and costing efficiencies
related to the compound library. Research and development
expenses, net of capitalized development costs, represented 15.3%
and 12.0% of net sales for the three month periods in 1997 and
1996, and 15.2% and 14.0% of net sales for the six month periods
ending June 30, 1997 and 1996, respectively.
The expense increase as a percentage of net sales for the three-
month period is due to the decline in sales. The percentage
increase for the six-month period is due to a reduction in the
capitalizeable development costs in the period. The Company
anticipates that its overall investment in new product research
will remain relatively constant as Tripos continues development in
the desktop, database, diverse compound libraries and combinatorial
chemistry markets.
General and administrative expenses decreased to $0.3
million for the second quarter of 1997 compared to $0.4 million in
1996, and represent 5.4% and 6.0% of net sales for the respective
periods. The slight decline in G&A relates to the booking of
bonuses and other reserves in the prior year. For the six month
period, G & A expenses were $1.1 million and $0.8 million in 1997
and 1996, respectively, and represent 8.6% and 6.5% of net sales in
the six-month periods. The increase in expense for 1997 relates to
the inclusion of two departments in G&A that were recorded in Sales
and Marketing and R&D in the prior year.
Other income (expense) increased from income of $39,000 for
the second quarter in 1996 to income of $112,000 for the comparable
period in 1997. For the first six months of 1997, other income
(expense) was $266,000 compared to $127,000 in 1996. These changes
were due to increases in foreign currency translation gains and
interest income on investments.
Income tax expense was $342,000 for the six month period in
1997 which represents an effective tax rate of 38% compared to
$52,000 and 23% for the same period in 1996. The rates reflect the
change in valuation of the Company's prior losses, including
foreign subsidiary losses. The Company's effective tax rate for
the six months ended June 30, 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 six month period ending June 30, 1997, net cash
provided by operations was $3.1 million as a result of decreases in
accounts receivable of $2.8 million and accounts payable of $1.5
million along with increases in net income, depreciation,
amortization, notes receivable and deferred revenue of $0.6
million, $0.3 million, $1.5 million, $1.7 million and $0.8 million,
respectively. Amortization of $1.2 million is attributable to the
cost of manufacturing the compound library. Increased notes
receivable of $1.7 million are from longer term sales contracts and
a note arising from an investment in a private biotechnology
company. For the same period in 1996, net cash provided by
operations was $3.1 million primarily due to an increase in
depreciation, amortization and accounts payable along with a
decrease in accounts receivable.
Investments of $0.4 million in property and equipment,
together with $1.8 million in capitalized development costs,
resulted in a use of cash of approximately $2.3 million in the
first half of 1997.
The Company believes that current working capital of $9.0
million, together with continued cash from operations, will be
adequate to fund short-term liquidity requirements including
investments 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 9, 1997:
(a) To elect directors to serve for the ensuing year or until
their successors are elected; and
(b) To amend the 1994 Stock Option plan to increase the number
of shares reserved thereunder from 704,000 to 1,100,000
All Directors standing for election were elected and
the amendment to the 1994 Stock Option Plan was
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) No reports on Form 8-K were required to be filed
during the period from March 31, 1997 to June 30, 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: August 6, 1997 John P. McAlister/s
John P. McAlister
President and
Chief Executive Officer
Date: August 6, 1997 Colleen A. Martin/s
Colleen A. Martin
Chief Financial Officer, Secretary
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