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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 quarter ended June 30, 1996
OR
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: 0-10961
QUIDEL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2573850
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10165 McKellar Court, San Diego, California 92121
(Address of principal executive offices)
Registrant's telephone number, including area code (619) 552-1100
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
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
June 30, 1996 was 21,583,347.
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QUIDEL CORPORATION
TABLE OF CONTENTS
Page
Numbers
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 and March 31, 1996............................. 3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1996 and 1995.................... 4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995.................... 5
Notes to Unaudited Condensed Consolidated Financial Statements ... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings....................................... 10
ITEM 2. Changes in Securities................................... 10
ITEM 3. Defaults upon Senior Securities......................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders .... 10
ITEM 5. Other Information....................................... 11
ITEM 6. Exhibits and Reports on Form 8-K........................ 12
Signatures............................................................. 13
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1996 1996
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,653,000 $ 2,538,000
Accounts receivable, net 6,881,000 7,602,000
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials 2,377,000 1,899,000
Work in process 864,000 1,014,000
Finished goods 969,000 578,000
------------- -------------
4,210,000 3,491,000
Prepaid expenses and other current assets 300,000 555,000
------------- -------------
Total current assets 14,044,000 14,186,000
Property and equipment, net 13,895,000 13,727,000
Intangible assets, net 5,050,000 5,161,000
Other assets 295,000 260,000
------------- -------------
$ 33,284,000 $ 33,334,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,743,000 $ 1,361,000
Accrued payroll and related expenses 1,031,000 772,000
Note payable to bank under line of credit 332,000 441,000
Deferred contract research revenue 83,000 337,000
Current portion of long-term debt and obligations
under capital leases 372,000 683,000
Other current liabilities 291,000 532,000
------------- -------------
Total current liabilities 3,852,000 4,126,000
Long-term debt and obligations under capital leases 3,405,000 3,490,000
Stockholders' equity:
Common stock 22,000 22,000
Additional paid-in capital 110,170,000 110,054,000
Accumulated deficit (84,165,000) (84,358,000)
------------- -------------
Total stockholders' equity 26,027,000 25,718,000
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$ 33,284,000 $ 33,334,000
============= =============
See accompanying notes.
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30,
1996 1995
------------ ------------
Revenues:
Net sales $ 9,047,000 $ 8,481,000
Research contracts and royalties 665,000 66,000
------------ ------------
Total revenues 9,712,000 8,547,000
Costs and expenses:
Cost of sales 4,270,000 3,875,000
Research and development 1,732,000 971,000
Sales and marketing 2,607,000 2,757,000
General and administrative 816,000 832,000
------------ ------------
Total costs and expenses 9,425,000 8,435,000
Operating income 287,000 112,000
Other income and expense:
Interest income 37,000 49,000
Interest expense (131,000) (144,000)
------------ ------------
Net income $ 193,000 $ 17,000
============ ============
Net income per share $ .01 $ --
============ ============
Shares used in computing net income per share 22,962,000 21,908,000
============ ============
See accompanying notes.
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended June 30,
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 193,000 $ 17,000
Adjustments to reconcile net income to net cash flows provided by (used
for) operating activities:
Depreciation and amortization 563,000 472,000
Changes in operating assets and liabilities:
Accounts receivable 721,000 834,000
Inventories (719,000) 134,000
Prepaid expenses and other current assets 255,000 186,000
Accounts payable 382,000 (894,000)
Accrued payroll and related expenses 259,000 (31,000)
Accrued acquisition expenses -- (371,000)
Deferred contract research revenue (254,000) --
Other current liabilities (241,000) (486,000)
----------- -----------
Net cash flows provided by (used for)
operating activities 1,159,000 (139,000)
Cash flows used for investing activities:
Additions to equipment and improvements (547,000) (1,008,000)
Increase in other assets (108,000) (3,000)
----------- -----------
Net cash flows for investing activities (655,000) (1,011,000)
Cash flows (used for) provided by financing activities:
Net proceeds from issuance of common stock 116,000 148,000
Payments on notes payable, long term debt and
obligations under capital leases (505,000) (62,000)
----------- -----------
Net cash flows (used for) provided by
financing activities (389,000) 86,000
Net increase (decrease) in cash and cash equivalents 115,000 (1,064,000)
Cash and cash equivalents at beginning of period 2,538,000 3,878,000
----------- -----------
Cash and cash equivalents at end of period $ 2,653,000 $ 2,814,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 131,000 $ 135,000
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See accompanying notes.
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QUIDEL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
QUIDEL Corporation ("QUIDEL" or the "Company") discovers, develops, manufactures
and markets diagnostic products for human health care. The unaudited financial
information included herein is condensed and has been prepared in accordance
with generally accepted accounting principles applicable to interim periods;
consequently it does not include all generally accepted accounting disclosures
required for complete annual financial statements. The condensed financial
information contains, in the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary to state fairly the financial
position, results of operations and cash flows. The results of operations for
the three months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
Management suggests that these condensed financial statements be read in
conjunction with the financial statements and notes thereto for the year ended
March 31, 1996, included in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
NET INCOME PER SHARE - Net income per share has been computed using the weighted
average number of common shares and dilutive common stock equivalents
outstanding during each period presented.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis presents factors that had a material effect on the
Company's results of operations for the three months ended June 30, 1996 and the
Company's financial position at that date. Trends of a material nature are
discussed to the extent considered relevant.
NET SALES TRENDS BY MAJOR SALES CHANNELS
INCREASE/
(DECREASE)
THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1996 1995 AMOUNT PERCENT
===================================================================================
Domestic sales:
Professional sales $5,220 $3,422 $1,798 53%
OTC sales 352 803 (451) (56%)
Clinical lab sales 334 319 15 5%
OEM sales 200 231 (31) (13%)
-----------------------------------
Total domestic sales 6,106 4,775 1,331 28%
- ---------------------------------------------------------------------------------
International sales:
Export sales 2,126 2,455 (329) (13%)
European subsidiary sales 815 1,251 (436) (35%)
-----------------------------------
Total international sales 2,941 3,706 (765) (21%)
- ---------------------------------------------------------------------------------
Total net sales $9,047 $8,481 $ 566 7%
=================================================================================
Domestic professional sales for the quarter ended June 30, 1996 increased
significantly over the prior year period. Approximately 80% of this increase is
related to sales of the Company's strep throat tests which were enhanced by the
receipt of CDC CLIA waived classification status of the QuickVue(R) In-Line
Strep Throat Test and the introduction of CARDS(R) QS(R) and Concise(R)
Performance Plus(TM) Strep A tests. Sales of the Company's one-step pregnancy
test and the new one-step H. pylori test for point-of-care detection of this
ulcer-causing bacterium also continued to improve.
QUIDEL's Conceive(R), RapidVue(R) and Q-Test(R) home testing products are now
sold domestically over-the-counter through Ansell Consumer Products ("Ansell").
Under this agreement Ansell purchases these products at a lower price than that
obtained by the Company when these products were sold directly to retail drug
stores. With this lower pricing, Ansell has assumed responsibility for related
sales and marketing expenses. The intention of this agreement is to produce
higher operating income for QUIDEL. QUIDEL believes that sales of OTC products
through Ansell in the quarter may have been limited by the fact that Ansell's
full marketing program for these products was not scheduled to begin until their
new fiscal year beginning July 1, 1996. These factors account for the OTC sales
decline in the current quarter.
The decline in international export sales is principally related to reduced
allergy product sales in Germany resulting from a change in the authorized
reimbursement level.
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Sales of the Company's four European subsidiaries were also reduced in the
current quarter as the Company focused on QUIDEL products only and eliminated
non-QUIDEL branded sales.
REVENUE FROM RESEARCH CONTRACTS AND ROYALTIES
THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1996 1995
===============================================================================
Contract research and development $ 653 $ --
Royalty income 12 66
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Total $ 665 $ 66
===============================================================================
Contract research revenue in the current quarter is principally related to the
Glaxo influenza program which commenced in March 1996 and is equal to the sum of
the program direct research cost (see operating expenses below) and allocated
support service cost.
Gross profit as a percent of sales declined 1% to 53% in the current quarter
from the prior year level. This decline was in part related to reduced OTC
product sales pricing to Ansell discussed above.
OPERATING EXPENSES
THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1996 1995
==============================================================================
Research and development
Quidel research projects $1,147 $ 971
Contract research-- direct costs 585 --
----------------------
Total research and development 1,732 971
As a percentage of sales 19% 11%
----------------------
Sales and marketing
Domestic professional sales and marketing 1,489 1,169
Domestic OTC sales and marketing 137 495
International sales and marketing 981 1,093
----------------------
Total sales and marketing 2,607 2,757
As a percentage of sales 29% 33%
----------------------
General and administrative 816 832
As a percentage of sales 9% 10%
- ------------------------------------------------------------------------------
Total operating expenses $5,155 $4,560
As a percentage of sales 57% 54%
==============================================================================
Total operating expenses excluding contract research $4,570 $4,560
As a percentage of sales 51% 54%
==============================================================================
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Research and Development. Quidel new product research clinical trials cost and
basic research directed towards the next product platform account for the
increase in the Quidel project category shown above. Contract research is
related principally to the direct research costs of the Glaxo influenza
diagnostic product development program and is funded by the contract research
revenue shown above.
Sales and Marketing. Domestic professional sales and marketing expense increased
27% over the prior year's quarter and is related in part to new product
introduction and promotion costs which contributed to this quarter's 53%
increase in U.S. professional sales. Domestic OTC sales and marketing expense
has been reduced to the level considered appropriate to support these sales now
that Ansell has assumed responsibility for the related sales and marketing
expenses under the agreement discussed above.
Net Income. Net income improved to $193,000 ($.01 per share) in the current
quarter from $17,000 in the prior year quarter. This quarter's $171,000 increase
in gross profit, generated from the overall 7% sales increase, and the
combination of flat "net operating expenses" (operating expenses less related
contract research revenue) account for this improvement.
The Company's operating results may continue to fluctuate on a
quarter-to-quarter basis as a result of a number of factors, including the
competitive and economic factors affecting the Company's markets, actions of our
major distributors, adverse actions or delays in product reviews by the United
States Food and Drug Administration, the degree of acceptance that our new
products achieve during the year, and seasonality.
Liquidity and Capital Resources. At June 30, 1996, the Company had cash and cash
equivalents of $2,653,000, compared to $2,538,000 at March 31, 1996. During the
quarter the Company generated $1,159,000 in cash from operating activities. Cash
flow provided from profitable operations, the reduction of accounts receivable
and increases in accounts payable and accrued liabilities more than offset an
increase in inventory and reduction in deferred contract revenue.
Cash used for investment activities of $655,000 related primarily to capital
expenditures for equipment associated with increased production capacity and
equipment supporting scientific research.
Cash used in financing activities totaled $389,000 and reflects the repayment of
debt and capital lease liabilities offset by the proceeds from the exercise of
employee stock options.
The Company has a domestic accounts receivable-based bank line of credit in an
amount up to $3,000,000 which provides for interest at the bank's prime rate
plus two percent. The line of credit expires August 5, 1997. As of June 30,
1996, there were no outstanding borrowings under this line of credit. The note
payable to bank shown on the balance sheet is related to Spanish bank debt
secured by receivables of the Company's subsidiary in Spain.
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QUIDEL's principal capital requirements are for working capital. These
requirements fluctuate as a result of numerous factors, such as the extent to
which the Company uses or generates cash in operations, progress in research and
development projects, competition and technological developments and the time
and expenditures required to obtain governmental approval of its products. Based
on its current cash position and its current assessment of future operating
results, management believes that its existing sources of liquidity should be
adequate to meet its operating needs during fiscal 1997.
Except for the historical information contained herein, the matters discussed in
this report are by their nature forward-looking. For the reasons stated in this
report or in the Company's Securities and Exchange Commission filings, or for
various unanticipated reasons, actual results may differ materially.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on July 30,
1996 at the principal offices of the Company in San Diego, California.
(b) The directors elected at the meeting were:
John D. Diekman
Steven T. Frankel
Thomas A. Glaze
Roger F. Greaves
Rockell N. Hankin
Margaret G. McGlynn
Richard C.E. Morgan
Mary Lake Polan
Faye Wattleton
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(c) Matters voted upon at the meeting and the results of those votes
were as follows:
For Against Abstain
---------- --------- -------
1. Elected as director:
John D. Diekman 15,669,297 1,753,609 --
Steven T. Frankel 17,230,620 192,286 --
Thomas A. Glaze 17,229,698 193,208 --
Roger F. Greaves 17,229,798 193,108 --
Rockell N. Hankin 17,229,798 193,108 --
Margaret G. McGlynn 17,227,798 195,108 --
Richard C.E. Morgan 17,230,698 192,208 --
Mary Lake Polan 15,669,297 1,753,609 --
Faye Wattleton 15,664,797 1,758,109 --
2. Increase by 100,000 shares the
total number of shares
reserved for issuance under
the Company's 1983 Employee
Stock Purchase Plan. 10,605,066 634,381 149,136
3. Increase by 750,000 shares the
total number of shares reserved
for issuance under the Company's
1990 Employee Stock Option Plan. 8,532,238 2,457,337 175,019
4. Adopt the 1996 Non-Employee
Director's Stock Option Plan under
which 400,000 shares of the
Company's common stock is
reserved for issuance. 8,562,250 2,423,809 178,535
5. Ratification of the selection of
Ernst & Young LLP as independent
auditors for the Company for the
fiscal year ending March 31, 1997. 17,206,913 138,942 64,451
The foregoing matters are described in detail in the Company's proxy statement
dated June 28, 1996 for the 1996 Annual Meeting of Stockholders.
ITEM 5. OTHER INFORMATION None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K filed in the first quarter of fiscal 1997
None.
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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.
QUIDEL CORPORATION
------------------------------------
(Registrant)
Date: August 13, 1996 /S/ STEVE C. BURKE
------------------------------------
Steven C. Burke
Chief Accounting Officer
Signed both as a duly authorized
officer to sign on behalf of the
Registrant and as Chief Accounting
Officer
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