| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, DC 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, 2009 |
| | |
| o | 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 000-22400 |
| |
| STRATEGIC DIAGNOSTICS INC. |
| (Exact name of Registrant as specified in its charter) |
| | | |
| | | |
| Delaware | 56-1581761 |
| (State or other jurisdiction of | (I.R.S. employer |
| incorporation or organization) | identification no.) |
| | |
| 111 Pencader Drive | |
| Newark, Delaware | 19702 |
| (Address of principal executive offices) | (Zip Code) |
| | |
Registrant’s telephone number, including area code: (302) 456-6789 |
| | | |
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.
Yes: x No: o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
Yes: o No: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| | Large accelerated filer o | Accelerated filer o | |
| | | | |
| | Non-accelerated filer o | Smaller reporting company x | |
| | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes: o No: x
As of May 12, 2009, there were 20,749,521 outstanding shares of the Registrant’s common stock, par value $.01 per share.
| STRATEGIC DIAGNOSTICS INC. |
| | | |
| INDEX |
| |
| | Item | | | Page |
| PART I FINANCIAL INFORMATION | | |
| | ITEM 1. Financial Statements (Unaudited) | | |
| | Consolidated Balance Sheets – March 31, 2009 and December 31, 2008 | | 2 |
| | Consolidated Statements of Operations – Three months ended March 31, 2009 and 2008 | | 3 |
| | Consolidated Statements of Cash Flows – Three months ended March 31, 2009 and 2008 | | 4 |
| | Notes to Consolidated Interim Financial Statements | | 5 |
| | ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 12 |
| | ITEM 3. Quantitative and Qualitative Disclosures About Market Risk | | 17 |
| | ITEM 4. Controls and Procedures | | 17 |
| PART II OTHER INFORMATION | | 18 |
| | ITEM 5. Other Information | | 18 |
| | ITEM 6. Exhibits | | 18 |
| SIGNATURES | | 19 |
| PART I. – FINANCIAL INFORMATION |
| |
| ITEM 1. FINANCIAL STATEMENTS |
| |
| STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES |
| |
| CONSOLIDATED BALANCE SHEETS |
| (in thousands, except share and per share data) |
| (unaudited) |
| | | March 31, | | | December 31, | |
| | | 2009 | | | 2008 | |
| ASSETS | | | | | | |
| Current Assets : | | | | | | |
| Cash and cash equivalents | | $ | 9,066 | | | $ | 9,980 | |
| Receivables, net | | | 3,587 | | | | 4,099 | |
| Inventories | | | 3,994 | | | | 3,890 | |
| Deferred tax asset | | | 3 | | | | 3 | |
| Other current assets | | | 1,110 | | | | 534 | |
| Total current assets | | | 17,760 | | | | 18,506 | |
| | | | | | | | | |
| Property and equipment, net | | | 5,178 | | | | 5,275 | |
| Other assets | | | 33 | | | | 107 | |
| Deferred tax asset | | | 59 | | | | 71 | |
| Intangible assets, net | | | 1,523 | | | | 1,562 | |
| Total assets | | $ | 24,553 | | | $ | 25,521 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS�� EQUITY | | | | | | | | |
| Current Liabilities : | | | | | | | | |
| Current portion of long-term debt | | $ | 1,505 | | | $ | 1,658 | |
| Accounts payable | | | 422 | | | | 691 | |
| Accrued expenses | | | 1,353 | | | | 1,860 | |
| Deferred revenue | | | 364 | | | | 64 | |
| Total current liabilities | | | 3,644 | | | | 4,273 | |
| | | | | | | | | |
| Stockholders’ Equity: | | | | | | | | |
| Preferred stock, $.01 par value, 20,920,648 shares authorized, no shares issued or outstanding | | | — | | | | — | |
| Common stock, $.01 par value, 35,000,000 shares authorized, 20,749,521 and 20,680,522 issued at March 31, 2009 and December 31, 2008, respectively | | | 208 | | | | 206 | |
| Additional paid-in capital | | | 40,573 | | | | 40,345 | |
| Treasury stock, 406,627 and 406,627 common shares at cost at March 31, 2009 and December 31, 2008, respectively | | | (555 | ) | | | (555 | ) |
| Accumulated deficit | | | (19,186 | ) | | | (18,625 | ) |
| Cumulative translation adjustments | | | (131 | ) | | | (123 | ) |
| Total stockholders’ equity | | | 20,909 | | | | 21,248 | |
| Total liabilities and stockholders’ equity | | $ | 24,553 | | | $ | 25,521 | |
The accompanying notes are an integral part of these statements.
| STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES |
| |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| (in thousands, except share and per share data) |
| (unaudited) |
| | | Three Months Ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Revenues | | $ | 6,902 | | | $ | 7,155 | |
| | | | | | | | | |
| OPERATING EXPENSES: | | | | | | | | |
| Manufacturing | | | 3,097 | | | | 3,122 | |
| Research and development | | | 663 | | | | 940 | |
| Selling, general and administrative | | | 3,720 | | | | 3,178 | |
| Total operating expenses | | | 7,480 | | | | 7,240 | |
| | | | | | | | | |
| Operating loss | | | (578 | ) | | | (85 | ) |
| | | | | | | | | |
| Interest income, net | | | 5 | | | | 62 | |
| | | | | | | | | |
| | | | | | | | | |
| Loss before taxes | | | (573 | ) | | | (23 | ) |
| | | | | | | | | |
| Income tax benefit | | | (12 | ) | | | (11 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Net loss | | $ | (561 | ) | | $ | (12 | ) |
| | | | | | | | | |
| Basic loss per share | | $ | (0.03 | ) | | $ | (0.00 | ) |
| | | | | | | | | |
| Shares used in computing basic loss per share | | | 20,035,174 | | | | 20,440,000 | |
| | | | | | | | | |
| Diluted loss per share | | $ | (0.03 | ) | | $ | (0.00 | ) |
| | | | | | | | | |
| Shares used in computing diluted loss per share | | | 20,035,174 | | | | 20,440,000 | |
The accompanying notes are an integral part of these statements.
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Cash Flows from Operating Activities : | | | | | | |
| Net loss | | $ | (561 | ) | | $ | (12 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities : | | | | | | | | |
| Depreciation and amortization | | | 329 | | | | 326 | |
| Share-based compensation expense | | | 218 | | | | 252 | |
| Deferred income tax provision | | | 12 | | | | 35 | |
| (Increase) decrease in : | | | | | | | | |
| Receivables | | | 512 | | | | 545 | |
| Inventories | | | (104 | ) | | | 205 | |
| Other current assets | | | (576 | ) | | | (633 | ) |
| Other assets | | | 82 | | | | — | |
| Increase (decrease) in : | | | | | | | | |
| Accounts payable | | | (269 | ) | | | (83 | ) |
| Accrued expenses | | | (507 | ) | | | (774 | ) |
| Deferred revenue | | | 300 | | | | 70 | |
| Other non-current liabilities | | | — | | | | 1 | |
| Net cash used in operating activities | | | (564 | ) | | | (68 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities : | | | | | | | | |
| Purchase of property and equipment | | | (193 | ) | | | (325 | ) |
| | | | | | | | | |
| Net cash used in investing activities | | | (193 | ) | | | (325 | ) |
| | | | | | | | | |
| Cash Flows from Financing Activities : | | | | | | | | |
| Proceeds from employee stock purchase plan | | | 4 | | | | 17 | |
| Repayments on financing obligations | | | (153 | ) | | | (152 | ) |
| | | | | | | | | |
| Net cash used in financing activities | | | (149 | ) | | | (135 | ) |
| | | | | | | | | |
| Effect of exchange rate changes on cash | | | (8 | ) | | | 1 | |
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | | (914 | ) | | | (527 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents, Beginning of Period | | | 9,980 | | | | 12,988 | |
| | | | | | | | | |
| Cash and Cash Equivalents, End of Period | | $ | 9,066 | | | $ | 12,461 | |
| | | | | | | | | |
| Supplemental Cash Flow Disclosure : | | | | | | | | |
| | | | | | | | | |
| Cash paid for taxes | | | 8 | | | | 1 | |
| | | | | | | | | |
| Cash paid for interest | | | 26 | | | | 33 | |
The accompanying notes are an integral part of these statements
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
| | |
| 1. | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Business
Strategic Diagnostics Inc. and its subsidiaries (“SDI” or the “Company”) is a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.
The Company’s Life Science portfolio includes products and custom services that supply critical reagents used across the Life Science research and development markets. The Company’s Genomic Antibody Technology™ (“GAT™”) is gaining wide adoption in proteomic research, disease understanding and drug/biomarker discovery among academic, biotech, in-vitro diagnostic and large pharmaceutical customers.
The Company’s Industrial BioDetection portfolio includes immunoassays which represent advanced technology for rapid, cost-effective detection of food pathogens as well as water and soil contaminants. SDI’s RapidChek® and SELECT ™ kits are experiencing growing adoption for the detection of pathogens such as E. coli, Salmonella and Listeria in the production, processing and manufacturing of food and beverages.
The Company’s technology is also finding potential new applications in strategic emerging markets such as renewable bio-fuel, where the application of the Company’s patent pending phage technology is being developed to increase corn-to-ethanol profits through improvements in plant efficiency that generate higher yields at a lower operational cost, while increasing the value of by-products used in animal feed by eliminating antibiotic contamination of those feeds.
By applying its core competencies of creating proprietary antibodies and assay development, the Company has produced sophisticated testing and reagent systems that are responsive to each customer’s analytical information needs.
SDI is a customer-centric organization. The Company’s goals are to consistently deliver increased value to its customers that facilitate their business results, reduce costs and help in the management of risk. SDI sales professionals focus on delivering a quantifiable “return on investment” to their customers by reducing time and total costs associated with applications for which the Company’s products are used. In addition, the Company believes its tests provide high levels of accuracy and reliability, which deliver more actionable test results to the customer as compared to alternative products. The Company is focused on sustaining profitable growth by leveraging its expertise in antibodies and immuno-technologies to successfully develop proprietary products and services that enhance the competitive advantage of its customers.
The Company believes that its competitive position has been enhanced through the combination of talent, technology and resources resulting from the business development activities it has pursued since its inception. The Company has achieved meaningful economies of scale for the products it offers through the utilization of its facilities in Newark, Delaware for the manufacture of test kits and antibodies, and its facilities located in Dallas, Texas and Windham, Maine for the manufacture of antibodies.
The continued economic downturn, including disruptions in the capital and credit markets, may continue indefinitely and intensify, and could adversely affect our results of operations, cash flows and financial condition or those of our customers and suppliers. These circumstances could adversely affect our access to liquidity needed to conduct or expand our business or conduct acquisitions or make other discretionary investments. These circumstances could adversely affect our ability to draw on existing credit facilities, which depend on the ability of the bank that is a party to that facility to meet its funding commitments to us. A bank may not be able to meet its funding commitments if it experiences shortages of capital and liquidity. These circumstances may also adversely impact the capital needs of our customers and suppliers, which, in turn, could adversely affect their ability to purchase our products or supply us with necessary equipment and raw materials. This could adversely affect our results of operations, cash flows and financial condition. A weakening business climate could cause longer sales cycles and slower growth, and could expose us to increased business or credit risk in dealing with customers or suppliers adversely affected by economic conditions. Our ability to collect accounts receivable may be delayed or precluded if our customers are unable to pay their obligations.
Basis of Presentation and Interim Financial Statements
The accompanying unaudited consolidated interim financial statements of the Company have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. In the opinion of management, the accompanying consolidated interim financial statements include all adjustments (all of which are of a normal recurring nature) necessary for a fair presentation of the results of operations. The interim operating results are not necessarily indicative of he results to be expected for the entire year.
Revenue Recognition
Revenues composed of sales of immunoassay-based test kits and certain antibodies and immunochemical reagents are recognized upon the shipment of the product and transfer of title, or when related services are provided. Revenues associated with such products or services are recognized when persuasive evidence of an order exists, shipment of product has occurred or services have been provided, the price is fixed and determinable and collectibility is reasonably assured. Management is required to make judgments based on actual experience about whether or not collectibility is reasonably assured.
The Company enters into contracts related to the production of custom antibodies, which provide for the performance of defined tasks for a fixed price, with delivery of the product upon completion of production. The standard time to complete a project is typically longer than 30 days but less than 12 months, and effort is expended over the life of the project. Revenues related to sales of custom antibody projects are recognized when a project’s specifications have been met and the related materials have been shipped.
Fees associated with products and services added on to a custom antibody project subsequent to delivery of the initial project are billed monthly and recognized as revenue as the services and other deliverables are provided. Sales taxes collected from customers are presented net in the consolidated statement of operations.
Use of Estimates
The preparation of the consolidated interim financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated interim financial statements, and the reported amounts of revenues and expenses during the period. These estimates include those made in connection with assessing the valuation of accounts receivable, inventories, deferred tax assets and long lived assets. Actual results could differ from these estimates.
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. No. 141(Revised), Business Combinations (“SFAS No. 141(R)”), which replaces SFAS No. 141, Business Combinations, and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, measured at their fair values as of that date, with limited exceptions. This statement also requires the acquirer in a business combination achieved in stages to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquired, at the full amounts of their fair values. SFAS No. 141(R) makes various other amendments to authoritative literature intended to provide additional guidance or to confirm the guidance in that literature to that provided in this statement. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS No. 141(R)’s impact on accounting for business combinations is dependent upon future acquisitions the Company may make.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. FSP 142-3’s impact on the Company is dependent upon future acquisitions the Company may make.
Comprehensive Loss
Comprehensive loss consists of the following for each period:
| | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Net loss | | $ | (561 | ) | | $ | (12 | ) |
| | | | | | | | | |
| Currency translation adjustment | | | (8 | ) | | | 1 | |
| | | | | | | | | |
| Total comprehensive loss | | $ | (569 | ) | | $ | (11 | ) |
| 2. | BASIC AND DILUTED LOSS PER SHARE |
Basic loss per share (EPS) is computed by dividing net loss available for common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is similar to basic EPS, except that the dilutive effect of converting or exercising all potentially dilutive securities is also included in the denominator. The Company’s calculation of diluted EPS includes the dilutive effect of stock options and restricted stock units. Basic loss per share excludes potentially dilutive securities. For the periods ended March 31, 2009 and 2008, conversion of stock options and unvested restricted shares totaling 2,114,040 and 1,558,852 into common share equivalents were excluded from this calculation because they were anti-dilutive.
| | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Weighted average common shares outstanding | | | 20,035,174 | | | | 20,439,528 | |
| | | | | | | | | |
Shares used in computing basic loss per share | | | 20,035,174 | | | | 20,439,528 | |
| | | | | | | | | |
Dilutive effect of stock options and unvested restricted stock units | | | — | | | | — | |
| | | | | | | | | |
Shares used in computing diluted loss per share | | | 20,035,174 | | | | 20,439,528 | |
| 3. | SHARE-BASED COMPENSATION |
Under various plans, executives, key employees and outside directors receive awards of options to purchase common stock. The Company has a stock option plan (the “2000 Plan”) which authorizes the granting of incentive and nonqualified stock options and restricted stock units. Incentive stock options are granted at not less than 100% of fair market value at the date of grant (110% for stockholders owning more than 10% of the Company’s common stock). Nonqualified stock options are granted at not less than 85% of fair market value at the date of grant. A maximum of 4,000,000 shares of common stock are issuable under the 2000 Plan. Certain additional options have been granted outside the 2000 Plan. These options generally follow the provisions of the 2000 Plan. The Company issues new shares to satisfy option exercises and the vesting of restricted stock units.
The Company also has an Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible full-time employees to purchase shares of common stock at 90 percent of the lower of the fair market value of a share of common stock on the first or last day of the quarter. Eligible employees are provided the opportunity to acquire Company common stock during each quarter. No more than 661,157 shares of common stock may be issued under the ESPP. Such stock may be unissued shares or treasury shares of the Company or may be outstanding shares purchased in the open market or otherwise on behalf of the ESPP. Under SFAS 123R, Share-Based Payment, the Company’s ESPP is compensatory. Therefore, the Company is required to recognize compensation expense related to the discount from market value of shares sold under the ESPP. The Company issues new shares to satisfy shares purchased under the ESPP.
Share-based compensation expense recorded in the three month periods ended March 31, 2009 and 2008 is summarized as follows:
| | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| | | | | | | |
| Stock options | | $ | 101 | | | $ | 137 | |
| Employee stock purchase plan | | | 1 | | | | 2 | |
| Restricted stock units | | | 116 | | | | 113 | |
| | | | | | | | | |
| Total share-based compensation expense | | $ | 218 | | | $ | 252 | |
The deferred income tax benefit related to share-based compensation expense for the quarter ended March 31, 2009 was $0 due to the full valuation allowance against deferred tax assets, and $55 for the quarter ended March 31, 2008. Share-based compensation expense is a component of selling, general and administrative expense, and is recorded as a non-cash expense in the operating activities section of the Company’s Consolidated Statements of Cash Flows.
No options were exercised in the three month periods ended March 31, 2009 and 2008. Proceeds received from employee payments into the ESPP in the three month periods ended March 31, 2009 and 2008, were $4 and $17, respectively. These amounts are recorded in the cash flows from financing activities section of the Company’s Consolidated Statements of Cash Flows.
Information with respect to the activity of outstanding stock options granted under the 2000 Plan and options granted separately from the 2000 Plan for the three months ended March 31, 2009 is summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Number of Shares | | Price Range | | Weighted Average Remaining Contractual term | | Aggregate Instrinsic Value | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, January 1, 2009 | | | 1,719,972 | | $ | 1.50 | | | — | | $ | 6.94 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Granted | | | 101,000 | | $ | 1.10 | | | — | | $ | 1.50 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balance, March 31, 2009 | | | 1,820,972 | | $ | 1.10 | | | — | | $ | 6.94 | | | 6.0 years | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Vested and excercisable at | | | | | | | | | | | | | | | | | | | |
| March 31, 2009 | | | 1,245,431 | | $ | 1.50 | | | — | | $ | 6.94 | | | 4.5 years | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Expected to vest as of | | | | | | | | | | | | | | | | | | | |
| March 31, 2009 | | | 1,745,243 | | $ | 1.10 | | | — | | $ | 6.94 | | | 5.9 years | | $ | — | |
During the three month period ended March 31, 2009, there were 101,000 options granted with a weighted average grant date fair value, based on a Black-Scholes option pricing model, of $0.40 per share. The assumptions used in the Black-Scholes model are as follows: dividend yield 0%, expected volatility 50.30%, risk-free interest rate 1.84% and an expected life of 5.83 years. The Company uses the Simplified Method for determining the expected life of options granted which is computed using the sum of the average vesting period and the contractual life of the option and dividing by 2, for all periods presented.
The following table provides additional information about the Company’s stock options outstanding and exercisable at March 31, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Options Outstanding | | Options Exercisable | |
| | | | | | | | | | | Weighted Average | | | | | Wtd. Average | |
Range of Exercise Prices | | Number of Shares | | Remaining Contractual Life | | Exercise Price | | Number of Shares | | Exercise Price | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| $ 1.10 | | — | | $ | 2.88 | | | 559,400 | | | 7.4 | | Years | | $ | 1.84 | | | 176,950 | | $ | 2.59 | |
| $ 3.05 | | — | | $ | 3.57 | | | 286,400 | | | 5.2 | | Years | | $ | 3.34 | | | 266,400 | | $ | 3.33 | |
| $ 3.69 | | — | | $ | 6.94 | | | 975,172 | | | 5.4 | | Years | | $ | 4.13 | | | 802,081 | | $ | 4.12 | |
| $ 1.10 | | — | | $ | 6.94 | | | 1,820,972 | | | 6.0 | | Years | | $ | 3.30 | | | 1,245,431 | | $ | 3.73 | |
A summary of the status of the Company’s unvested restricted stock as of December 31, 2008 and changes during the three month period ended March 31, 2009 is presented below.
| | | | | | | | | | | | | | | |
| | | Shares | | Weighted Average Grant Date Fair Value | | Aggregate Intrinsic Value | |
| | | | | | | | | | | | | | | |
| Non-vested RSU’s at January 1, 2009 | | | 296,406 | | | $ | 2.28 | | | | | | | |
| Granted | | | 27,000 | | | $ | 1.03 | | | | | | | |
| Vested | | | (30,338 | ) | | $ | 3.80 | | | | | | | |
| | | | | | | | | | | | | | | |
| Non-vested RSU’s at March 31, 2009 | | | 293,068 | | | $ | 2.00 | | | | $ | 317 | | |
| | | | | | | | | | | | | | | |
| Expected to vest at March 31, 2009 | | | 275,420 | | | $ | 1.92 | | | | $ | 297 | | |
Restricted stock granted is generally scheduled to vest over periods of two to four years. The cost of the grant is charged to operations over the vesting period. At March 31, 2009 the weighted average remaining term of non-vested restricted stock was 1.5 years.
On October 20, 2008, the Company announced that its Board of Directors had approved a program to repurchase up to $3.0 million of the Company’s outstanding common shares from time to time over the next 12 months, depending on market conditions, share price and other factors.
During the fourth quarter of 2008, the Company repurchased 406,627 common shares at a weighted average price of $1.34 per share. The total cost of the share repurchase including applicable broker fees was approximately $555. The Company did not repurchase any common shares during the three month period ended March 31, 2009.
The Company’s inventories are valued at the lower of cost or market. For inventories that consist primarily of test kit components, bulk serum and antibody products, cost is determined using the first in, first out method. For inventories that consist of costs associated with the production of custom antibodies, cost is determined using the specific identification method. At March 31, 2009 and December 31, 2008, inventories consisted of the following:
| | | | | | | |
| | | March 31, 2009 | | | December 31, 2008 | |
| | | | | | | |
| Raw materials | | $ | 1,340 | | | $ | 1,216 | |
| Work in progress | | | 948 | | | | 946 | |
| Finished goods | | | 1,706 | | | | 1,728 | |
| Inventories | | $ | 3,994 | | | $ | 3,890 | |
At March 31, 2009 and December 31, 2008, intangible assets consisted of the following:
| | | | | | | | | | |
| | | March 31, 2009 | | | December 31, 2008 | | | Lives | |
| Intangible assets | | | 2,614 | | | | 2,614 | | | | 2-20 | |
| Accumulated amortization | | | (1,091 | ) | | | (1,052 | ) | | | | |
| Net intangible assets | | $ | 1,523 | | | $ | 1,562 | | | | | |
On May 5, 2000, the Company entered into a financing agreement with a commercial bank which was amended on October 1, 2008 (the “Credit Agreement”). The Credit Agreement provides for up to a $5,000 revolving line of credit, none of which was outstanding and all of which was available at March 31, 2009. The revolving line of credit bears a variable interest rate of between 150 basis points and 250 basis points over the one month LIBOR rate depending upon the ratio of the Company’s funded debt to EBITDA. The Company’s annual effective rate of interest on this line of credit, taking into account the variable interest rate and LIBOR, was approximately 3.00% at March 31, 2009.
On December 13, 2001, the Company received a term loan under the Credit Agreement to finance the construction of new facilities at its Windham, Maine location. This agreement provided for up to $1,500 in financing, $105 of which was outstanding at March 31, 2009, and is repayable over seven years, with principal payments that began on October 1, 2002. The loan bears a variable interest rate of 100 basis points less than the current Prime Interest Rate. Payments are due monthly, with equal amortization of principal payments plus interest. The Company’s annual effective rate of interest on this loan at March 31, 2009 was approximately 2.25%.
On August 21, 2007, the Company received a term loan under the Credit Agreement to finance the construction of new facilities at its Windham, Maine location. This agreement provided for up to $2,000 in financing, $1,400 of which was outstanding at March 31, 2009, and is repayable over five years, with principal payments that began on October 1, 2007. The loan bears a fixed interest rate of 5.96% with equal amortization of principal payments plus interest.
Under the Credit Agreement, the Company is required to meet certain quarterly financial covenants that include a ratio of EBITDA to current maturities of debt plus interest and cash paid for taxes greater than 1.50, a ratio of funded debt to EBITDA not to exceed 3.25 and a requirement of liquid assets (cash and cash equivalents) to be greater than or equal to $2.5 million at all times.
The Company did not meet its financial covenants with respect to its indebtedness at March 31, 2009 and does not expect that it will be able to meet all of its financial covenants under the Credit Agreement for the next 12 months. The Company received a waiver of the financial covenants relating to the above financing from its commercial bank as of March 31, 2009.
As of March 31, 2009, the Company has classified the balance of its long-term obligations under the Credit Agreement of $1,000 as current debt in the consolidated balance sheet as the Company believes it is probable that there will be a violation of the same covenants within the next 12 months if the covenant terms are not amended. If the Company is unable to obtain a waiver of future debt covenant violations, the Company will be unable to draw upon its line of credit until such violations are cured. As of March 31, 2009, the Company is not required to repay these long-term debt obligations within 12 months and expects to amend the Credit Agreement before December 31, 2009 to allow the Company to meet its financial covenants and reclassify these long-term obligations from current to non-current in the consolidated balance sheet.
As of March 31, 2009, the outstanding balance on all of the Company’s commercial bank debt was $1,505. This indebtedness is secured by substantially all of the Company’s assets.
SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”) requires a company to evaluate its deferred tax assets on a regular basis to determine if a valuation allowance against the net deferred tax assets is required. In accordance with SFAS No. 109, the Company had a full valuation allowance offsetting its United States federal and state net deferred tax assets which primarily represent net operating loss carryforwards (“NOLs”) at December 31, 2008. During the three-month period ended March 31, 2009, the Company’s management concluded that the full valuation allowance for United States federal and state net deferred tax assets is appropriate as the facts and circumstances have not changed since the year ended December 31, 2008.
The Company is subject to U.S. federal and UK income tax, as well as income taxes of multiple state jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Upon adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement 109 and at March 31, 2009, the Company had no interest or penalties accrued related to uncertain tax positions due to the available net operating loss carryforwards.
As of January 1, 2009, the Company provided a liability for approximately $487 of unrecognized tax benefits, which if recognized in a period where there was not a full valuation allowance, would affect the effective tax rate.
For the quarter ended March 31, 2009, unrecognized tax benefits increased $8 to $495, which if recognized in a period where there was not a full valuation allowance, would affect the effective tax rate.
For federal purposes, post-1993 tax years remain open to examination as a result of earlier net operating losses being utilized in recent years. For state purposes, the statute of limitations remains open in a similar manner for states that have generated net operating losses. The Company does not expect that the total amount of unrecognized tax benefits related to positions taken in prior periods will change significantly during the next 12 months.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements reflecting the current expectations of Strategic Diagnostics Inc. and its subsidiaries (the “Company” or “SDI”). In addition, when used in this quarterly report, the words “anticipate,” “enable,” “estimate,” “intend,” “expect,” “believe,” “potential,” “may,” “will,” “should,” “project” and similar expressions as they relate to the Company are intended to identify said forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated at this time. Such risks and uncertainties include, without limitation, changes in demand for products, delays in product development, delays in market acceptance of new products, retention of customers, attraction and retention of management and key employees, adequate supply of raw materials, inability to obtain or delays in obtaining third party approvals or required government approvals, the ability to meet increased market demand, competition, protection of intellectual property, non-infringement of intellectual property, seasonality, the ability to obtain financing and other factors more fully described in the Company’s public filings with the U.S. Securities and Exchange Commission, including, without limitation, its Annual Report on Form 10-K for the year ended December 31, 2008.
Background
SDI is a biotechnology company with a core mission of developing, commercializing and marketing innovative and proprietary products, services and solutions that preserve and enhance the quality of human health and wellness.
The Company believes that its competitive position has been enhanced through the combination of talent, technology and resources resulting from the business development activities it has pursued since its inception. The Company has achieved meaningful economies of scale for the products it offers through the utilization of its consolidated facilities in Newark, Delaware for the manufacture of test kits and antibodies, and its facilities located in Windham, Maine and Dallas, Texas for the manufacture of antibodies.
The Company believes that by applying its core competency of creating custom antibodies to assay development, it produces sophisticated diagnostic testing and reagent systems that are responsive to customer diagnostic and information needs. Customers benefit from a quantifiable “return on investment” by reducing time, labor and/or material costs associated with applications for which the Company’s products are used. In addition, the Company believes its tests provide high levels of accuracy, reliability and actionability of essential test results as compared to alternative products. The Company is focused on sustaining this competitive advantage by leveraging its expertise in immunology, proteomics, bio-luminescence and other bio-reactive technologies to continue its successful customer-focused research and development efforts. The Company believes that an established product base, quality manufacturing expertise, experienced sales and marketing organization, established network of distributors, corporate partner relationships and proven research and development expertise will be critical elements of its potential future success.
In 2008, the Company continued the transition from a fragmented product offering and marketing strategy to becoming a focused organization, with proven, proprietary technologies tied directly to its customers’ needs. The transition is most evident in the Genomic Antibody Technology™ (GAT™) initiative and food pathogen detection products, where the Company believes significant progress is being made.
The Company continues to develop and introduce new methods for the detection of food pathogens that deliver a strong competitive advantage to its customers. In 2005, the Company filed a patent for new technology to be used in proprietary enrichments of its food pathogen testing methods. The patent covers technology for increasing the specificity and sensitivity of the Company’s immunoassay test methods. The patent also makes claims for the application of the technology in large scale bio-production/bio-fermentation processes, such as those used in the production of amino acids, ethanol, enzymes and other processes using microbiological production methods.
The Company continues to develop multiple channels to market products worldwide through an approach that includes direct sales, inside sales, distributors and agents. The Company increased distribution for its food pathogen products in Europe and Asia where there is growing demand for the Company’s product line.
The Company believes it is making progress in most of its business efforts. As the deployment of new initiatives is accelerated, building on the Company’s leadership position in food pathogens and expanding its strong positioning in the emerging area of genomic antibodies, the Company anticipates that the revenue lost to market changes in its legacy businesses will be replaced and the Company will develop a stronger, more predictable revenue base.
The Company expects the GAT™ and food pathogen products to be its primary growth drivers in the future, and that the Company’s competencies and competitive positions in these two areas are strong.
Results of Operations
Three Months Ended March 31, 2009 versus Three Months Ended March 31, 2008
Revenues for the first quarter of 2009 decreased 4% to $6.9 million, compared to $7.2 million for the same period in 2008. The decrease in revenues in the first quarter of 2009 was primarily the result of a 31% decrease in sales of Ag-GMO products and a 4% decrease in the sale of antibody products when comparing the first quarter of 2009 to the first quarter of 2008. These decreases were partially offset by a 7% increase in sales of food pathogen products and a 2% increase in the sale of water and environmental products, all as described below.
Antibody Products
Antibody revenues decreased 4% to $3.7 million for the first quarter of 2009, compared to $3.8 million for the same quarter in 2008. The Company recorded a significant increase in sales of products utilizing its GAT ™ platform of 47% to $350,000 and an increase of 20% to $1.2 million in sales of its bulk antibody offerings. These increases were offset by decreased sales of custom monoclonal products of 38% to $678,000 and custom polyclonal products of 6% to $1.4 million. These decreased sales are primarily the result of a reduced number of completed monoclonal projects and a reduced number of polyclonal orders received during the three months ended March 31, 2009.
Food Safety Products
Food safety revenues decreased 9% to $2.0 million for the first quarter of 2009 compared to $2.2 million in the first quarter of 2008. Food pathogen sales increased 7% in the first quarter of 2009 as compared to the first quarter of 2008. The Company continues to see revenue gains with its RapidChek® SELECT™ for Salmonella products. Ag-GMO product sales were down $285,000, or 31%, for the first quarter of 2009 as compared to the first quarter of 2008. This decrease is primarily attributable to decreased demand for the Company’s testing products in Brazil and reduced demand for products that detect the StarlinkTM trait in grains.
Water and Environmental Products
Water and environmental products revenue was $1.1 million for each of the first quarters of 2009 and 2008.
Gross profits (defined as total revenues less manufacturing costs) for the first quarter of 2009 was $3.8 million compared to $4.0 million for the same period in 2008. Gross margins were 55% and 56% for the first quarters of 2009 and 2008, respectively. The decrease in margins was primarily attributable to decreased levels of production creating a higher cost per unit.
Operating expenses for the first quarter of 2009 increased 3% to $7.5 million, compared to $7.2 million for the first quarter of 2008. This increase was primarily attributable to a 17% increase in selling, general and administrative costs, partially offset by a 29% decrease in research and development costs and a 1% decrease in manufacturing costs, all as described below.
Research and development spending was $663,000, or 10% of net revenues, in the first quarter of 2009, compared to $940,000, or 13% of net revenues, in the first quarter of 2008. This decrease was primarily due to decreased spending and effort on development of the Company’s proprietary SEQer™ antibodies, which are produced by the Company’s GAT ™ platform and are being sold through the Company’s antibody catalog.
Selling, general and administrative expenses were $3.7 million for the first quarter of 2009, compared to $3.2 million for the same quarter in 2008. The increase is primarily associated with severance charges for management changes and the Company’s continued expansion of its sales and marketing efforts to strengthen the Company’s life sciences position.
The Company recorded net interest income of $5,000 in the first quarter of 2009 compared to $62,000 in the prior year first quarter. The decrease was primarily due to lower interest rates received on decreased levels of invested cash and cash equivalents during the first quarter of 2009.
The Company’s effective rate was 2% for the three month period ended March 31, 2009 and approximately 48% for the three month period ended March 31, 2008. This decrease is primarily due to the full valuation allowance placed against U.S. federal and state deferred tax assets as of March 31, 2009.
Net loss in the first quarter of 2009 was $561,000, or $0.03 per diluted share, compared to a net loss of $12,000, or $0.00 per diluted share, for the same period in 2008. Diluted shares utilized in these computations were 20.0 million and 20.4 million for the first quarters of 2009 and 2008, respectively.
Liquidity and Capital Resources
The net cash used in operating activities of $564,000 for the first quarter of 2009 compared to net cash used in operating activities of $68,000 for the first quarter of 2008. The net cash used in operating activities for the first quarter of 2009 was primarily the result of the net loss recorded in the period, and increases in other current assets and deferred revenues and decreases in accrued expenses, accounts payable and inventories. The increase in other current assets was primarily the result of the purchase of insurance for 2009, while the decrease in accrued expenses is primarily attributable to reductions in accrued commissions and salaries.
Net cash used in investing activities of $193,000 for the first quarter of 2009 related to the capital expenditures for the period. This compares to net cash used in investing activities of $325,000 for the first quarter of 2008. The capital expenditures for the first quarter of 2009 were primarily related to computer and electronic equipment. In the first quarter of 2008, the capital expenditures were primarily related to purchases of laboratory and manufacturing equipment.
Net cash used in financing activities of $149,000 and $135,000 for the first quarters of 2009 and 2008, respectively, was primarily the result of scheduled debt repayments.
The Company’s working capital, current assets less current liabilities, decreased $117,000 to $14.1 million at March 31, 2009 from $14.2 million at December 31, 2008.
On May 5, 2000, the Company entered into a financing agreement with a commercial bank which was amended on October 1, 2008 (the “Credit Agreement”). The Credit Agreement provides for up to a $5.0 million revolving line of credit, none of which was outstanding and all of which was available at March 31, 2009. The revolving line of credit bears a variable interest rate of between 150 basis points and 250 basis points over the one month LIBOR rate depending upon the ratio of the Company’s funded debt to EBITDA. The Company’s annual effective rate of interest on this line of credit, taking into account the variable interest rate and LIBOR, was approximately 3.00% at March 31, 2009.
On December 13, 2001, the Company received a term loan under the Credit Agreement to finance the construction of new facilities at its Windham, Maine location. This agreement provided for up to $1.5 million in financing, $105,000 of which was outstanding at March 31, 2009, and is repayable over seven years, with principal payments that began on October 1, 2002. The loan bears a variable interest rate of 100 basis points less than the current Prime Interest Rate. Payments are due monthly, with equal amortization of principal payments plus interest. The Company’s annual effective rate of interest on this loan at March 31, 2009 was approximately 2.25%.
On August 21, 2007, the Company received a term loan under the Credit Agreement to finance the construction of new facilities at its Windham, Maine location. This agreement provided for up to $2.0 million in financing, $1.4 million of which was outstanding at March 31, 2009, and is repayable over five years, with principal payments that began on October 1, 2007. The loan bears a fixed interest rate of 5.961% with equal amortization of principal payments plus interest.
Under the Credit Agreement, the Company is required to meet certain quarterly financial covenants that include a ratio of EBITDA to current maturities of debt plus interest and cash paid for taxes greater than 1.50, a ratio of funded debt to EBITDA not to exceed 3.25 and a requirement of liquid assets (cash and cash equivalents) to be greater than or equal to $2.5 million at all times.
The Company did not meet its financial covenants with respect to its indebtedness at March 31, 2009 and does not expect that it will be able to meet all of its financial covenants under the Credit Agreement for the next 12 months. The Company received a waiver of the financial covenants relating to the above financing from its commercial bank as of March 31, 2009 and expects it will receive waivers of the financial covenants until such covenants are amended.
As of March 31, 2009, the Company has classified the balance of its long-term obligations under the Credit Agreement of $1.0 million as current debt in the consolidated balance sheet as the Company believes it is probable that there will be a violation of the same covenants within the next 12 months if the covenant terms are not amended. If the Company is unable to obtain a waiver of future debt covenant violations, the Company will be unable to draw upon its line of credit until such violations are cured. As of March 31, 2009, the Company is not required to repay these long-term debt obligations within 12 months and expects to amend the Credit Agreement before December 31, 2009 to allow the Company to meet its financial covenants and reclassify these long-term obligations from current to non-current in the consolidated balance sheet.
As of March 31, 2009, the outstanding balance on all of the Company’s commercial bank debt was $1.5 million. This indebtedness is secured by substantially all of the Company’s assets.
For the quarter ended March 31, 2009, the Company satisfied all of its cash requirements from cash available and on-hand. At March 31, 2009, the Company had $1.5 million in debt and stockholders’ equity of $20.9 million.
Based upon its cash and cash equivalents on hand, credit facilities, current product sales and the anticipated sales of new products, the Company believes it has, or has access to, sufficient resources to meet its operating requirements through the next 12 months. The Company’s ability to meet its long-term capital needs will depend on a number of factors, including compliance with existing and new loan covenants, the success of its current and future products, the focus and direction of its research and development programs, competitive and technological advances, future relationships with corporate partners, government regulation, the Company’s marketing and distribution strategy, its successful sale of additional common stock and/or the Company successfully locating and obtaining other financing, and the success of the Company’s plan to make future acquisitions. Accordingly, no assurance can be given that the Company will be able to meet the future liquidity requirements that may arise from these inherent and similar uncertainties.
Non-GAAP Financial Measures
The Company presents an earnings before interest, tax, depreciation and amortization (“EBITDA”) measure as the Company believes this provides investors and the Company’s management with additional information to measure the Company’s liquidity. EBITDA measures are not a measure of performance under GAAP, and therefore should not be considered in isolation or as a substitute for net loss or cash flows from operations. Additionally, the Company’s EBITDA calculations may differ from the EBITDA calculations for other companies.
The Company excludes stock compensation expense from its measure of EBITDA. The calculation of the Company’s EBITDA measure (as discussed above), and the reconciliation of the Company’s EBITDA measure to net cash provided by operating activities for the three months ended March 31, 2009 and 2008, respectively, is as follows:
| | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2009 | | | 2008 | |
| | | (in thousands) | |
| Net cash used in operating activities | | $ | (564 | ) | | $ | (68 | ) |
| Changes in assets and liabilities: | | | | | | | | |
| Receivables | | | (512 | ) | | | (545 | ) |
| Inventories | | | 104 | | | | (205 | ) |
| Other current assets | | | 576 | | | | 633 | |
| Other assets | | | (82 | ) | | | — | |
| Accounts payable | | | 269 | | | | 83 | |
| Accrued expenses | | | 507 | | | | 774 | |
| Deferred revenue | | | (300 | ) | | | (70 | ) |
| Other non-current liabilities | | | — | | | | (1 | ) |
| Net change in deferred income tax | | | (12 | ) | | | (35 | ) |
| Income tax provision | | | (12 | ) | | | (11 | ) |
| Stock compensation expense | | | (218 | ) | | | (252 | ) |
| Interest income, net | | | (5 | ) | | | (62 | ) |
| EBITDA | | $ | (249 | ) | | $ | 241 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has exposure to changing interest rates, and is currently not engaged in hedging activities. Interest on approximately $105,000 of outstanding indebtedness is at a variable rate of 1% less than the published prime interest rate. At the Company’s current level of indebtedness, each 1% change in the variable interest rate will have an effect of $1,000 on the Company’s annual interest expense charges.
The Company conducts operations in the United Kingdom. The consolidated financial statements of the Company are denominated in U.S. dollars and changes in exchange rates between foreign countries and the U.S. dollar will affect the translation of financial results of foreign subsidiaries into U.S. dollars for purposes of recording the Company’s consolidated financial results. Historically, the effects of translation have not been material to the consolidated financial results.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2009, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Change in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.
PART II – OTHER INFORMATION
Item 5. Other Information
On May 14, 2009, the Company and Stanley Fronczkowski (“Fronczkowski”) entered into Amendment No. 1, effective as of April 3, 2009, to the December 8, 2008 Separation Agreement and General Release by and between the Company and Fronczkowski (the “Separation Agreement”). Under Amendment No. 1, the date on which Fronczkowski is to be released from employment by SDI has been extended to July 3, 2009; through that date, Fronczkowski will remain the Company’s Vice President – Finance and Chief Financial Officer. Under Amendment No. 1, the date through which Fronczkowski will receive benefits has been extended to January 31, 2010, and the Company has agreed, in satisfaction of its obligation under the Separation Agreement to provide Fronczkowski with up to $20,000 worth of outplacement services to Fronczkowski, to instead pay Fronczkowski in cash the amount of $20,000. A copy of Amendment No. 1 is attached to this Form 10-Q as Exhibit 33.1.
Also, on May 12, 2009, the Company’s Board of Directors determined to revise the Company’s director compensation policy. The changes are not designed to alter in a material respect, from an economic standpoint, the overall value to the directors of the compensation paid to them.
As under the existing policy, non-employee directors will continue to receive under the new policy, upon their election to the Board, a non-statutory option to purchase, at the fair market value, which is equal to the greater of $1.50 and the closing price of the Common Stock on the date of grant, shares of Common Stock with an aggregate value of $30,000. This option is immediately vested with respect to one-third of the option shares, with the remaining shares vesting in a series of two (2) successive equal annual installments upon the optionee’s completion of each year of service as a Board member.
Each non-employee Board member shall also receive an annual base retainer in cash of $25,000, an increase from the $14,000 annual base retainer which had been payable in restricted shares of Common Stock. Directors will no longer receive payments for meeting attendance; previously directors had received $1,000 for each Board meeting attended and $500 for each committee meeting attended.
The $20,000 payable to the Chairman of the Board and the $10,000 payable to the Chairman of the Audit Committee as annual base retainers will be payable in cash rather than in restricted shares of Common Stock. In addition, payments made for service in other leadership and committee membership positions are modified under the new policy, and shall all be payable in cash.
Finally, the new policy provides that on the date of each annual meeting of stockholders, each individual who is to continue to serve as a non-employee Board member following that meeting shall be granted (i) a non-statutory option to purchase 10,000 shares of Common Stock (increased from 8,000 shares) with an exercise price per share that is equal to the greater of $1.50 or the closing price of the Common Stock on the date of grant and a term of seven years and (ii) 2,500 shares of the Common Stock, which such options and restricted stock shall vest in two (2) successive equal annual installments upon the first two anniversaries of the date of grant.
Item 6. Exhibits
| | |
| 10.1 | Amendment No. 1, effective as of April 3, 2009, to the Seperation Agreement by and between the Company and Stanley Fronczkowski. |
| | |
| 31.1 | Certifications of the Chief Executive Officer of Strategic Diagnostics Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934 |
| | |
| 31.2 | Certifications of the Chief Financial Officer of Strategic Diagnostics Inc. required by Rule 13a-14(a) under the Securities Exchange Act of 1934 |
| | |
| 32.1 | Certification of the Chief Executive Officer of Strategic Diagnostics Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
| | |
| 32.2 | Certification of the Chief Financial Officer of Strategic Diagnostics Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| | STRATEGIC DIAGNOSTICS INC. | |
| | | |
| Date: May 15, 2009 | /s/ Francis M. DiNuzzo | |
| | Francis M. DiNuzzo | |
| | President, Chief Executive Officer | |
| | (Principal Executive Officer) | |
| | | |
| Date: May 15, 2009 | /s/ Stanley A. Fronczkowski | |
| | Stanley A. Fronczkowski | |
| | Vice President – Finance and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
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