SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1996
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number: 000-20198
CHOLESTECH CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3065493
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3347 INVESTMENT BOULEVARD, HAYWARD, CA 94545
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 732-7200
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 and 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
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At September 27, 1996, 11,152,239 shares of no par common stock of the
Registrant were outstanding.
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CHOLESTECH CORPORATION
PART I
FINANCIAL INFORMATION
Page
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ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. 8
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 13
SIGNATURES 14
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHOLESTECH CORPORATION
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
September 27, 1996 March 29, 1996 (1)
------------------ ------------------
Current assets:
Cash and cash equivalents $ 5,424 $ 361
Marketable securities 4,405 --
Restricted marketable securities 3,750 3,750
Accounts receivable 2,032 1,107
Inventories 2,374 1,910
Prepaid expenses and other assets 305 167
---------- ----------
Total current assets 18,290 7,295
Property and equipment, net 2,344 2,041
Other assets, net 254 309
---------- ----------
$ 20,888 $ 9,645
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---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ -- $ 250
Accounts payable and accrued expenses 1,713 1,614
Accrued payroll and benefits 209 253
Product warranty 187 187
Current portion of long-term debt -- 499
Other liabilities 41 50
---------- ----------
Total current liabilities 2,150 2,853
Long-term debt, less current portion -- 799
Other liabilities 31 11
---------- ----------
Total liabilities 2,181 3,663
---------- ----------
Shareholders' equity:
Preferred stock -- --
Common stock 69,017 55,644
Accumulated deficit (50,310) (49,662)
---------- ----------
Total shareholders' equity 18,707 5,982
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$ 20,888 $ 9,645
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---------- ----------
(1) The information in this column was derived from the Company's audited
financial statements for the fiscal year ended March 29, 1996.
See accompanying notes to condensed financial statements.
3
CHOLESTECH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
----------------------- ----------------------
9/27/96 9/29/95 9/27/96 9/29/95
------- ------- ------- -------
Revenues:
Domestic $ 2,670 $ 1,343 $ 5,143 $ 2,413
International 386 222 673 521
---------- ---------- ---------- ----------
3,056 1,565 5,816 2,934
Cost of products sold 1,626 981 3,269 1,859
---------- ---------- ---------- ----------
Gross profit 1,430 584 2,547 1,075
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing 963 730 1,869 1,400
Research and development 269 166 453 390
General and administrative 464 363 879 717
---------- ---------- ---------- ----------
Total operating expenses 1,696 1,259 3,201 2,507
---------- ---------- ---------- ----------
Loss from operations (266) (675) (654) (1,432)
Other income, net 29 53 6 138
---------- ---------- ---------- ----------
Net loss $ (237) $ (622) $ (648) $ (1,294)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share $ (0.02) $ (0.08) $ (0.07) $ (0.16)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares 10,969,099 8,018,259 9,566,660 8,009,554
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notes to condensed financial statements.
4
CHOLESTECH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twenty-six weeks ended
----------------------
September 27, 1996 September 29, 1995
------------------ ------------------
Cash flows from operating activities:
Net loss $ (648) $ (1,294)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 374 306
Deferred revenue (4) (18)
Compensation expense relating to
stock options issued below market -- 24
Forgiveness of note receivable -- 36
Changes in assets and liabilities:
Accounts receivable (925) (458)
Inventories (464) 63
Prepaid expenses and other assets (138) (171)
Other assets (16) --
Accounts payable and accrued expenses 99 132
Accrued payroll and benefits (44) (118)
---------- ----------
Net cash used in operating activities (1,766) (1,498)
---------- ----------
Cash flows from investing activities:
Purchase of marketable securities (152,937) --
Proceeds from the sale of marketable securities 148,532 --
Purchases of property and equipment (561) (80)
---------- ----------
Net cash used in investing activities (4,966) (80)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt -- 1,500
Repayment of long-term debt (1,298) --
Proceeds from short-term bank borrowing 800 --
Repayment of short-term bank borrowing (1,050) --
Principal payments on capital leases (30) (61)
Issuance of common stock 13,373 48
---------- ----------
Net cash provided by financing activities 11,795 1,487
---------- ----------
Net change in cash and cash equivalents 5,063 (91)
Cash and cash equivalents at beginning of period 361 1,230
---------- ----------
Cash and cash equivalents at end of period $ 5,424 $ 1,139
---------- ----------
---------- ----------
Supplemental disclosures of non-cash financing
and investing activities:
Capital lease obligations incurred for
acquisition of property and equipment $ 46 $ --
---------- ----------
---------- ----------
See accompanying notes to condensed financial statements.
5
CHOLESTECH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The interim unaudited financial information of Cholestech Corporation (the
"Company") is prepared in conformity with generally accepted accounting
principles and such principles are applied on a basis consistent with the
audited financial information contained in the Annual Report on Form 10-K
filed with the Securities and Exchange Commission on June 25, 1996.
However, certain information or footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. The financial
information included herein has been prepared by management, without audit
by independent accountants who do not express an opinion thereon, and
should be read in conjunction with the audited financial statements
contained in the Annual Report on Form 10-K. The condensed balance sheet
as of March 29, 1996 has been derived from, but does not include all the
disclosures contained in, the audited financial statements for the year
ended March 29, 1996. The information furnished includes all adjustments
and accruals consisting only of normal recurring accrual adjustments that
are, in the opinion of management, necessary for a fair presentation of
results for the interim periods.
2. The foregoing interim results are not necessarily indicative of the results
of operations for the full fiscal year ending March 28, 1997.
3. The components of inventories are as follows (in thousands):
SEPTEMBER 27, 1996 MARCH 29, 1996
------------------ --------------
Raw materials $ 686 $ 875
Work-in-process 821 380
Finished goods 867 655
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$2,374 $1,910
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------- -------
4. Net loss per share is computed by dividing the net loss by the weighted
average number of common and common equivalent shares outstanding during
each period. Common equivalent shares are included in determining net loss
per share, to the extent they are dilutive, using the treasury stock method.
5. In May 1996, the Company entered into a development, marketing and license
agreement (the "Agreement") with Metra Biosystems, Inc. ("Metra
Biosystems") to develop an immunoassay test cassette incorporating Metra
Biosystems' bone resorption technology to be used with the Cholestech
L-D-X-Registered Trademark- System. Pursuant to the Agreement, Metra
Biosystems purchased 39,526 shares of the Company's common stock for an
aggregate purchase price of $250,000 ($6.325 per share) and is obligated
to purchase $750,000 of additional shares of common stock upon the
completion of specified development milestones by the Company.
6. On June 28, 1996, the Company successfully completed a public offering and
issued 2,500,000 shares of common stock at $5.00 per share. On July 9,
1996, the underwriters for the public offering exercised an over allotment
option to purchase an additional 375,000 shares of Cholestech common stock
at $5.00 per share. Aggregate proceeds to the Company from the public
offering and over allotment option (collectively the "Public Offering")
were $12.9 million, net of underwriting discounts and commissions and
offering expenses. A portion of the proceeds was used to repay the
outstanding balances of the Company's (a) bank line of credit of
approximately $1.0 million and (b) a long-term note of approximately
$1.2 million.
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CHOLESTECH CORPORATION
7. In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation." Effective March 30, 1996, the Company adopted
FAS 123 and elected to continue to measure compensation cost for its
employee stock compensation plans using the intrinsic value-based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Annual proforma disclosure of
net earnings and net earnings per share will reflect the difference
between compensation cost included in net earnings and the related costs
measured by the fair value-based method defined in FAS 123, including tax
effects, that would have been recognized in the statement of operations if
the fair value-based method had been used.
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CHOLESTECH CORPORATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS
DISCUSSED HEREIN, UNDER "GENERAL" AND "FACTORS AFFECTING FUTURE OPERATING
RESULTS." THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE
STATEMENT UNDER "GENERAL" REGARDING THE COMPANY'S EXPECTATION OF CONTINUING TO
INCUR OPERATING LOSSES AS WELL AS NEGATIVE CASH FLOWS, THE STATEMENT UNDER
"SALES AND MARKETING" REGARDING THE COMPANY'S ANTICIPATION THAT SALES AND
MARKETING EXPENSES WILL INCREASE, THE STATEMENT UNDER "RESEARCH AND
DEVELOPMENT" REGARDING THE COMPANY'S ANTICIPATION THAT RESEARCH AND DEVELOPMENT
EXPENDITURES WILL INCREASE AND THE STATEMENT IN THE THIRD PARAGRAPH UNDER
"LIQUIDITY AND CAPITAL RESOURCES" REGARDING THE LENGTH OF TIME THAT THE
COMPANY'S RESOURCES WILL BE SUFFICIENT TO MEET ITS CAPITAL REQUIREMENTS.
GENERAL
The Company develops, manufactures and markets a proprietary point of
care diagnostic system that measures specific analytes to detect various
diseases and disorders within five minutes using a single drop of whole
blood. The Company has experienced significant operating losses since
inception and, as of September 27, 1996, had an accumulated deficit of $50.3
million. The Company has not generated significant revenues to date, and
there can be no assurance that significant revenues will ever be achieved.
The Company is developing certain additional tests designed to extend the
L-D-X System's capabilities. The Company believes that its future growth will
depend, in part, upon its ability to complete development and successfully
introduce these new tests. The Company expects to continue to incur operating
losses as well as negative cash flows from operations as it expands product
research and development efforts for new test panels, pursues regulatory
clearances and approvals, expands sales and marketing activities to address
the monitoring market, and develops and expands manufacturing capacity for
existing and new test panels. The development and commercialization of the
new tests will require additional development, sales and marketing,
manufacturing and other expenditures. The required level and timing of such
expenditures will have an impact on the Company's ability to achieve
profitability and positive cash flows from operations.
RESULT OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 27, 1996 VS. THIRTEEN WEEKS ENDED
SEPTEMBER 29, 1995
AND
TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1996 VS. TWENTY-SIX WEEKS ENDED
SEPTEMBER 29, 1995
REVENUES. During the thirteen weeks ended September 27, 1996, revenues
increased $1.5 million (95%) to $3.1 million from $1.6 million in the
thirteen weeks ended September 29, 1995. Domestic revenues increased $1.3
million (99%) to $2.7 million from $1.3 million in the thirteen weeks ended
September 27, 1996. During the first twenty-six weeks of fiscal 1997,
revenues increased $2.9 million (98%) to $5.8 million from $2.9 million in
the first twenty-six weeks of fiscal 1996. Domestic revenues increased $2.7
million (113%) to $5.1 million from $2.4 million in the first twenty-six
weeks of fiscal 1996. These increases in revenues reflect a continuing
increase in unit sales of the L-D-X System and disposable test cassettes to
hospitals, managed care organizations, public health departments,
corporations and other health care providers in the screening market. In
April 1996 the Company launched its CLIA waived product line into the
physician office laboratory ("POL") market, utilizing the 700 person sales
force of Physician Sales and Services, Inc. which focuses on the POL market.
The Company has shipped approximately 460 Cholestech L-D-X Systems into the
POL market as of September 27, 1996. The Company is represented in the
8
CHOLESTECH CORPORATION
monitoring market by Physician Sales and Service, Inc. and General Medical,
two of the largest distributors in the POL market. As of September 27, 1996,
there were approximately 968 active health promotion accounts.
During the thirteen weeks ended September 27, 1996, international
revenues grew $164,000 (74%) to $386,000 from $222,000 in the thirteen weeks
ended September 29, 1995. During the first twenty-six weeks of fiscal 1997,
international revenues grew $152,000 (29%) to $673,000 from $521,000 in the
first twenty-six weeks of fiscal 1996. The Company expects that
international revenues will continue to decline as a percentage of total
revenues in future periods as the Company increases sales and marketing
efforts in the United States.
COST OF PRODUCTS SOLD. Cost of products sold during the thirteen
weeks ended September 27, 1996 increased $645,000 (66%) to $1.6 million from
$981,000 in the thirteen weeks ended September 29, 1995, as unit sales of the
L-D-X Systems and disposable test cassettes increased. Gross margin was 47%
and 37% in the thirteen weeks ended September 27, 1996 and September 29, 1995,
respectively. The improvement in the gross margin was primarily attributable
to improved cassette manufacturing yields, improved quality assurance
procedures and growth in the volume of units sold.
During the first twenty-six weeks of fiscal 1997, cost of products sold
increased $1.4 million (76%) to $3.3 million from $1.9 million in the first
twenty-six weeks of fiscal 1996, as unit sales of the L-D-X Systems and
disposable test cassettes increased. Gross margin was 44% and 37% in the
first twenty-six weeks of fiscal 1997 and 1996, respectively. The
improvement in the gross margin was primarily attributable to improved
cassette manufacturing yields, improved quality assurance procedures and
growth in the volume of units sold.
The Company has obtained rights to use certain technology in the
manufacturing of certain of its products. The related agreements, which
expire at various times in calendar 1997 through 2006, provide for the
Company to pay royalties ranging from 0.6% to 6.0% of net sales of the
applicable products. Total royalty expense in the thirteen weeks ended
September 27, 1996 and September 29, 1995 was $126,000 and $52,000,
respectively, and was charged to cost of products sold. Total royalty
expense for first twenty-six weeks of fiscal 1997 and 1996 was $237,000 and
$88,000, respectively, and was charged to cost of products sold.
SALES AND MARKETING. Sales and marketing expenses in the thirteen weeks
ended September 27, 1996 were $963,000 compared to $730,000 for the same
period in fiscal 1996, and $1.9 million for the first twenty-six weeks of
fiscal 1997 compared to $1.4 million for the same period in fiscal 1996.
These increases in sales and marketing expenses were primarily attributable
to continued expansion of the Company's domestic direct sales and marketing
organization, increased expenses related to the penetration in the monitoring
market, increased commissions associated with increased revenues and, to a
lesser extent, participation in domestic conferences and trade shows. Sales
and marketing expenses as a percentage of revenues decreased to 32% for the
thirteen weeks ended September 27, 1996 from 47% for the same period in
fiscal 1996, and decreased to 32% for the first twenty-six weeks of fiscal
1997 from 48% for the same period in fiscal 1996. The Company currently
anticipates that sales and marketing expenses will increase in future periods
as the Company expands sales and marketing activities to address the
monitoring market, in particular the POL segment.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
thirteen weeks ended September 27, 1996 were $269,000 compared
to $166,000 for the same period in fiscal 1996, and $453,000 for the first
twenty-six weeks of fiscal 1997 compared to $390,000
9
CHOLESTECH CORPORATION
for the same period in fiscal 1996. The Company is currently developing
additional tests to detect disease states such as metabolic bone diseases and
disorders, prostate cancer and diabetes. Each of these new tests is at an
early stage of development and the Company will be required to undertake time
consuming and costly development activities and seek regulatory approval for
these new tests. Research and development expenses as a percentage of
revenues decreased to 9% for the thirteen weeks ended September 27, 1996 from
11% for thirteen weeks ended September 29, 1995, and decreased to 8% for the
first twenty-six weeks of fiscal 1997 from 13% for the same period in fiscal
1996. These decreases as a percentage of revenues resulted primarily from
the increase in revenues as the level of research & development expenditures
remained relatively constant. The Company currently anticipates that
research and development expenditures will increase significantly in future
periods as product development and manufacturing scale-up efforts for new
tests increase.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
thirteen weeks ended September 27, 1996 were $464,000 compared to $363,000
for the same period in fiscal 1996 and $879,000 for the first twenty-six
weeks of fiscal 1997 compared to $717,000 for the same period in fiscal 1996.
These increases in general and administrative expenses resulted primarily
from higher professional fees relating to business development efforts.
General and administrative expenses as a percentage of revenues decreased to
15% for the thirteen weeks ended September 27, 1996 from 23% for the same
period in fiscal 1996, and decreased to 15% for the first twenty-six weeks of
fiscal 1997 from 24% for the same period in fiscal 1996. These decreases as
a percentage of revenues resulted primarily from the increase in revenues.
OTHER INCOME, NET. For the thirteen and twenty-six weeks
ended September 27, 1996 and for the same periods of the prior year, other
income, net generally consists of interest income earned on investment of
cash and marketable security balances, offset in part by interest expense
incurred on capital lease financing and other borrowings of the Company. The
decreases in other income, net in the first thirteen and twenty six weeks of
fiscal 1997, as compared to the same periods of fiscal 1996, primarily
reflect higher average borrowings outstanding during fiscal 1997 and a
prepayment penalty of $90,000 incurred by the Company upon repayment of
long-term debt during the thirteen weeks ended September 27, 1996.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company may experience significant fluctuations in revenues and
results of operations on a quarter to quarter basis in the future. Quarterly
operating results will fluctuate due to numerous factors, such as (i) the
timing and level of market acceptance of the L-D-X System, particularly with
respect to the monitoring market; (ii) the timing of introduction and
availability of new tests; (iii) the timing and level of expenditures
associated with new product development activities; (iv) the timing and level
of expenditures associated with expansion of sales and marketing activities
and overall operations; (v) the Company's ability to cost-effectively expand
cassette manufacturing capacity and maintain consistently acceptable yields
in the manufacture of cassettes; (vi) the timing of establishment of
strategic distribution arrangements and success of the activities conducted
under such arrangements; (vii) variations in manufacturing efficiencies;
(viii) changes in demand for its products based on changes in third party
reimbursement, competition, changes in government regulation and other
factors; (ix) the timing of significant orders from and shipments to
customers; and (x) general economic conditions. These factors are difficult
to forecast, and these or other factors could have a material adverse effect
on the Company's business, financial condition and results of operations.
Fluctuations in quarterly demand for products and order cancellations may
adversely affect the continuity of the Company's manufacturing operations,
increase uncertainty in operational planning, disrupt cash flow from
operations and contribute to the volatility of the Company's stock price. The
Company's expenses are based in part on the Company's expectations as to
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CHOLESTECH CORPORATION
future revenue levels and to a large extent are fixed in the short-term. If
actual revenues do not meet expectations, the Company's business, financial
condition and results of operations could be materially adversely affected.
The Company has generated only limited revenues to date, primarily from
sales of the L-D-X System to hospitals, public health departments, corporate
wellness programs, health promotion service providers, managed care
organizations, community health centers, the military and others in the
screening market. In order for the Company to increase revenues and achieve
profitability and positive cash flows from operations, the L-D-X System must
achieve a significant degree of market acceptance among health care providers
in the monitoring market, particularly POLs. Physicians and other health
care providers will not use the L-D-X System unless they determine that it is
an attractive alternative to other means of screening or monitoring blood
detected diseases. Even if the advantages of the L-D-X System in diagnosing
and monitoring patients with blood detected diseases are established,
physicians, medical clinics, pharmacists and other health care providers may
elect not to purchase and use the L-D-X System for any number of reasons. As
a result, there could be no assurance that demand for the L-D-X System,
particularly in the monitoring market, will be sufficient to allow for
profitable operations.
The Company is in the early stages of developing tests designed to extend
the L-D-X System's capability to include additional tests useful to health
care providers, particularly POLs. The Company believes that its revenue
growth and profitability will depend, in part, upon its ability to complete
development of and successfully introduce these new tests. The Company will
be required to undertake time-consuming and costly development activities and
seek regulatory approval for these new tests. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these new tests, that
regulatory clearance or approval of any new tests will be granted by the
United States Food and Drug Administration on a timely basis, if at all, or
that the new tests will adequately meet the requirements of the applicable
market or achieve market acceptance. If the Company is unable for
technological or other reasons to complete the development, introduction and
scale up of manufacturing of any new tests or if such new tests do not
achieve a significant level of market acceptance, the Company's business,
financial condition and results of operations could be materially adversely
affected.
The Company manufactures internally all of the test cassettes that are
components of the L-D-X System. The manufacture of cassettes is a highly
complex and precise process. To the extent the Company does not achieve
acceptable manufacturing yields of test cassettes or experiences product
shipment delays, the Company's business, financial condition and results of
operations would be materially adversely affected.
The test market in which the Company competes is intensely competitive.
The Company's competition consists mainly of independent clinical
laboratories and hospital-based laboratories, as well as manufacturers of
bench top and other point of care analyzers. In order to achieve market
acceptance for the L-D-X System, the Company will be required to demonstrate
that the L-D-X System is an attractive alternative to the clinical laboratory
and hospital-based laboratory. This will require physicians to change their
established means of having such tests performed. There can be no assurance
that the L-D-X System will be able to compete with the testing services
provided by these laboratories.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities and, to a lesser extent, through capital lease financing and a
long-term note payable. Through September 27, 1996, the Company had received
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CHOLESTECH CORPORATION
approximately $69 million in net proceeds from equity financings. As of
September 27, 1996, the Company had approximately $5.4 million of cash and
cash equivalents and $4.4 million in marketable securities. In addition, the
Company had $3.8 million of restricted marketable securities that currently
secure a $3.0 million revolving bank line of credit. While the line of credit
is in effect, the Company is required to maintain on deposit with the bank
$3.8 million of restricted marketable securities or a $3.0 million
certificate of deposit as pledged collateral, restricted as to use when the
Company has outstanding borrowings under the agreement. The term of this
revolving bank line of credit, originally expiring on October 31, 1996 was
extended through December 1996 under the same provisions of the original
agreement. As of September 27, 1996, the Company had no outstanding
borrowings under the agreement. If the Company's cash and restricted
marketable securities were to fall below $3.0 million, the Company would be
required to either renegotiate the terms or cancel the revolving line of
credit agreements. Net proceeds of the Public Offering of $12.9 million were
used to repay the outstanding balances of the Company's (a) bank line of
credit of approximately $1.0 million and (b) a long-term note of
approximately $1.2 million and will be used to develop new products and
expand on sales and marketing activities.
Net cash used in operating activities was approximately $1.8 million and
$1.5 million in the first twenty-six weeks of fiscal 1997 and 1996,
respectively. Cash used in operating activities resulted primarily from net
losses and increases in accounts receivable. In fiscal 1997, increases in
inventory also contributed to net cash used in operating activities. Net cash
used in investing activities of approximately $5 million in the first
twenty-six weeks of fiscal 1997 resulted from the Company's net purchases of
marketable securities and property and equipment, while in the same period of
fiscal 1996 net cash used in investing activities in the amount of $80,000,
reflects purchases of property and equipment. Net cash provided by financing
activities in the first twenty-six weeks of fiscal 1997 was $11.8 million,
reflecting issuance of Common Stock, primarily from the Public Offering,
offset in part by principal payments on capital leases, repayment of
long-term debt and repayment of short-term bank borrowings. The net cash
provided by financing activities in the first twenty-six weeks of fiscal 1996
reflected borrowings under the long-term debt and issuance of Common Stock.
The Company intends to expend substantial funds for product research and
development, expansion of sales and marketing activities, expansion of
manufacturing capacity and other working capital and general corporate
purposes. Although the Company believes that the net proceeds of $12.9
million from the Public Offering, together with its unrestricted cash
balances, internally generated funds, available bank borrowings under an
existing line of credit and proceeds from issuance of Common Stock to Metra
Biosystems, will be sufficient to meet its capital requirements for the
foreseeable future, there can be no assurance that the Company will not
require additional financing. The Company's actual liquidity and capital
requirements will depend upon numerous additional factors, including the
costs and timing of expansion of manufacturing capacity, the number and type
of new tests the Company seeks to develop, the costs and timing of expansion
of sales and marketing activities, the extent to which the Company's existing
and new products gain market acceptance, competing technological and market
developments, the progress of commercialization efforts of the Company's
distributors, the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property
rights, developments related to regulatory and third party reimbursement
matters and CLIA, and other factors. In the event that additional financing
is needed, the Company may seek to raise additional funds through public or
private financing, collaborative relationships or other arrangements. Any
additional equity financing may be dilutive to shareholders, and debt
financing, if available, may involve restrictive covenants. Collaborative
arrangements, if necessary to raise additional funds, may require the Company
to relinquish its rights to certain of its technologies, products or
marketing territories. The failure of the Company to raise capital when
needed could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
such financing, if required, will be available on satisfactory terms, if at
all.
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CHOLESTECH CORPORATION
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 22, 1996, the Company held the 1996 Annual Meeting of
Shareholders. The following is a brief description of each matter voted upon
at the meeting and a statement of the number of votes cast for, against or
withheld and the number of abstentions and the number of broker non-voters
with respect to each matter.
1. The shareholders elected the following Directors:
Nominee For Withheld
--------------------- --------- --------
Dr. Joseph Buchman 8,521,001 350,326
John L. Castello 8,521,001 350,326
Warren E. Pinckert II 8,521,001 350,326
Dr. Harvey S. Sadow 8,521,001 350,326
H.R. Shepherd 8,521,001 350,326
2. The shareholders approved an amendment to the Company's 1988 Stock
Incentive Program to increase the aggregate number of shares of Common
Stock authorized for issuance thereunder by 500,000.
For Against Abstain Broker Non-Vote
--------- --------- ------- ---------------
7,136,972 1,482,635 127,300 124,420
3. The shareholders ratified the appointment of Price Waterhouse LLP as
independent accountants for fiscal 1997.
For Against Abstain Broker Non-Vote
--------- --------- ------- ---------------
8,798,256 30,910 42,161 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27.1 Financial Data Schedule.
b. Reports on Form 8-K. No reports on Form 8-K were filed during
the thirteen weeks ended September 27, 1996.
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CHOLESTECH CORPORATION
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 thereunto duly authorized.
CHOLESTECH CORPORATION
Date November 12, 1996 /s/ Warren E. Pinckert II
--------------------------- -----------------------------------------
Warren E. Pinckert II
President and Chief Executive Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer)
14