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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 the quarterly period ended September 30, 1997
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
September 30, 1997 was 23,712,577.
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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
September 30, 1997 and March 31, 1997................................3
Condensed Consolidated Statements of Income
Three months ended September 30, 1997 and 1996.......................4
Condensed Consolidated Statements of Income
Six months ended September 30, 1997 and 1996.........................5
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1997 and 1996.........................6
Notes to Unaudited Condensed Consolidated
Financial Statements.................................................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................8-11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................12
ITEM 2. Changes in Securities...............................................12
ITEM 3. Defaults upon Senior Securities.....................................12
ITEM 4. Submission of Matters to a Vote of Security Holders.................12
ITEM 5. Other Information...................................................12
ITEM 6. Exhibits and Reports on Form 8-K....................................12
Signatures...........................................................................13
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31,
1997 1997
=========================================================================================================
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 6,878,000 $ 10,096,000
Accounts receivable, net ..................................... 7,659,000 8,384,000
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials ............................................ 2,071,000 1,842,000
Work in process .......................................... 1,362,000 1,216,000
Finished goods ........................................... 749,000 726,000
------------- -------------
4,182,000 3,784,000
Prepaid expenses and other current assets .................... 880,000 1,080,000
------------- -------------
Total current assets .................................. 19,599,000 23,344,000
Property and equipment, net ...................................... 15,716,000 13,886,000
Intangible assets, net ........................................... 6,702,000 4,854,000
Other assets ..................................................... 177,000 177,000
------------- -------------
$ 42,194,000 $ 42,261,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 2,310,000 $ 2,132,000
Accrued payroll and related expenses ......................... 755,000 1,123,000
Accrued royalties ............................................ 484,000 85,000
Current portion of long-term debt and obligations
under capital leases ..................................... 192,000 183,000
Other current liabilities .................................... 232,000 377,000
------------- -------------
Total current liabilities ............................. 3,973,000 3,900,000
Long-term debt and obligations under capital leases .............. 3,103,000 3,203,000
Stockholders' equity:
Common stock ................................................. 24,000 24,000
Additional paid-in capital ................................... 116,390,000 115,943,000
Accumulated deficit .......................................... (81,296,000) (80,809,000)
------------- -------------
Total stockholders' equity ............................... 35,118,000 35,158,000
------------- -------------
$ 42,194,000 $ 42,261,000
============= =============
See accompanying notes.
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended September 30, 1997 1996
==========================================================================
Revenues:
Net sales ....................... $ 11,254,000 $ 8,902,000
Research contracts and royalties 733,000 766,000
------------ ------------
Total revenues ........... 11,987,000 9,668,000
Costs and expenses:
Cost of sales ................... 5,908,000 4,242,000
Research and development ........ 2,037,000 1,717,000
Sales and marketing ............. 2,469,000 2,513,000
General and administrative ...... 1,233,000 878,000
------------ ------------
Total costs and expenses . 11,647,000 9,350,000
Operating income .................... 340,000 318,000
Other income and expense:
Interest and other income ....... 122,000 37,000
Interest and other expense ...... (158,000) (116,000)
------------ ------------
Income before income taxes .......... 304,000 239,000
Provision for income taxes .......... -- 31,000
------------ ------------
Net income .......................... $ 304,000 $ 208,000
============ ============
Net income per share ................ $ .01 $ .01
============ ============
Shares used in per share calculations 23,942,000 22,476,000
============ ============
See accompanying notes.
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six months ended September 30, 1997 1996
=========================================================================
Revenues:
Net sales ...................... $ 20,001,000 $ 17,949,000
Research contracts and royalties 1,355,000 1,431,000
------------ ------------
Total revenues .......... 21,356,000 19,380,000
Costs and expenses:
Cost of sales .................. 10,625,000 8,512,000
Research and development ....... 3,784,000 3,449,000
Sales and marketing ............ 5,012,000 5,120,000
General and administrative ..... 2,390,000 1,694,000
------------ ------------
Total costs and expenses 21,811,000 18,775,000
Operating income (loss) ............ (455,000) 605,000
Other income and expense:
Interest and other income ...... 230,000 74,000
Interest and other expense ..... (262,000) (247,000)
------------ ------------
Income (loss) before income taxes .. (487,000) 432,000
Provision for income taxes ......... -- 31,000
------------ ------------
Net income (loss) .................. $ (487,000) $ 401,000
============ ============
Net income (loss) per share ........ $ (.02) $ .02
============ ============
Shares used in per share calculation 23,577,000 22,719,000
============ ============
See accompanying notes.
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended September 30, 1997 1996
===============================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ (487,000) $ 401,000
Adjustments to reconcile net income (loss) to net cash
flows provided by operating activities:
Depreciation and amortization .................... 1,502,000 1,171,000
Changes in assets and liabilities:
Accounts receivable ........................... 725,000 1,249,000
Inventories ................................... (398,000) (974,000)
Prepaid expenses and other current assets ..... 200,000 171,000
Accounts payable .............................. 178,000 225,000
Accrued payroll and related expenses .......... (368,000) 4,000
Accrued royalty expense ....................... 400,000 (25,000)
Deferred contract research revenue ............ -- (173,000)
Other current liabilities ..................... (146,000) (39,000)
------------ ------------
Net cash flows provided by operating activities 1,606,000 2,010,000
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to equipment and improvements .............. 2,765,000 (1,221,000)
Increase in intangible and other assets .............. 2,415,000 (403,000)
------------ ------------
Net cash flows used for investing activities .. 5,180,000 (1,624,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ........... 447,000 264,000
Payments on notes payable, long term debt and
obligations under capital leases ................. (91,000) (756,000)
------------ ------------
Net cash flows from financing activities ...... 356,000 (492,000)
Net decrease in cash and cash equivalents ................ (3,218,000) (106,000)
Cash and cash equivalents at beginning of period ......... 10,096,000 2,538,000
------------ ------------
Cash and cash equivalents at end of period ............... $ 6,878,000 $ 2,432,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............. $ 170,000 $ 230,000
============ ============
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 six months ended September 30, 1997 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, 1997, included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
NET INCOME PER SHARE - Net income (loss) per share as presented on the
statements of income represent primary earnings (loss) per share. Dual
presentation of primary and fully diluted earnings per share has not
been made because the differences are insignificant.
Effective December 31, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128, "Earnings per Share." At that
time, the Company will be required to change the method currently used
to calculate earnings per share and to restate all prior periods. The
new requirements will include a calculation of basic earnings per share,
from which the dilutive effect of stock options will be excluded, and
the calculation of diluted earnings per share, which is not expected to
differ materially from the current primary earnings per share
calculation. Due to the Company's loss in the six month period ended
September 30, 1997, the basic loss per share amount will not differ from
the primary loss per share amount being reported.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. 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.
Results of Operations. The Company's financial results for the second quarter
ended September 30, 1997 returned to profitability due to increased sales
volume. Net income for the second quarter totaled $304,000 or $.01 per share.
NET SALES TRENDS BY MAJOR SALES CHANNELS
INCREASE INCREASE
PERIODS ENDED SEPTEMBER 30, THREE MONTHS (DECREASE) SIX MONTHS (DECREASE)
(IN THOUSANDS) 1997 1996 % 1997 1996 %
=======================================================================================================
Domestic sales:
Professional sales .......... $ 7,845 $ 5,306 48% $13,367 $10,603 26%
OTC sales ................... 510 347 47% 603 569 6%
Clinical lab sales .......... 331 379 (13%) 711 713 --
OEM sales ................... 145 262 (45%) 232 471 (50%)
------------------------------------------------------------------
Total domestic sales .... 8,831 6,294 40% 14,913 12,356 21%
- -------------------------------------------------------------------------------------------------------
International sales:
Export sales ................ 1,496 1,707 (12%) 2,980 3,876 (23%)
European subsidiary sales ... 927 901 3% 2,108 1,717 23%
------------------------------------------------------------------
Total international sales 2,423 2,608 (7%) 5,088 5,593 (9%)
- -------------------------------------------------------------------------------------------------------
Total net sales ......... $11,254 $ 8,902 26% $20,001 $17,949 11%
=======================================================================================================
Overall sales for the second quarter increased $2,352,000 or 26% over the same
period of the prior year. The current quarter sales were enhanced in part by the
shipment of approximately $773,000 of backorders carried into the quarter which
had resulted from the first quarter production issues. Year to date sales
reached $20 million, an 11% increase over the prior year level.
Domestic sales increased 40% in the second quarter, over the prior year level,
driven by a 48% increase in Professional product sales. The Company's strep A
products accounted for the majority of this growth along with increased
pregnancy and H. pylori product sales.
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International export sales continue to decline from the prior year level. The
decline in the current quarter occurred primarily in Asia and Japan related to
certain discontinued distributor relationships. European subsidiary sales
reflect a 3% increase in the current quarter versus the prior year, which is the
net effect of an approximate 21% sales increase in local currency offset by the
translation effect of the strong U.S. Dollar.
REVENUE FROM RESEARCH CONTRACTS, LICENSE FEES AND ROYALTIES
PERIODS ENDED SEPTEMBER 30, THREE MONTHS SIX MONTHS
(IN THOUSANDS) 1997 1996 1997 1996
=================================================================================
Contract research and development $ 713 $ 758 $1,300 $1,411
License Fees .................... -- -- 25 --
Royalty income .................. 20 8 30 20
------------------------------------------
Total ....................... $ 733 $ 766 $1,355 $1,431
=================================================================================
Contract research revenue in the current quarter and six month period 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.
COST OF SALES AND GROSS PROFIT
PERIODS ENDED SEPTEMBER 30, THREE MONTHS SIX MONTHS
(IN THOUSANDS) 1997 1996 1997 1996
=========================================================================================================
Direct Cost - material, labor and other
variable cost ........................... $ 4,116 $ 3,151 $ 7,302 $ 6,239
As a percentage of sales .................... 36.6% 35.4% 36.5% 34.8%
Royalty expense - patent licenses ........... 505 50 900 132
As a percentage of sales .................... 4.5% 0.6% 4.5% 0.7%
------------------------------------------------------
Total direct cost ........................... 4,621 3,201 8,202 6,371
As a percentage of sales .................... 41.1% 36.0% 41.0% 35.5%
------------------------------------------------------
Direct Margin - contribution per sales dollar 58.9% 64.0% 59.0% 64.5%
Manufacturing overhead cost ................. 1,287 1,041 2,423 2,141
As a percentage of sales .................... 11.4% 11.7% 12.1% 11.9%
------------------------------------------------------
Total cost of sales .............. 5,908 4,242 10,625 8,512
------------------------------------------------------
Gross profit ................................ $ 5,346 $ 4,660 $ 9,376 $ 9,437
As a percentage of sales .................... 47.5% 52.3% 46.9% 52.6%
=========================================================================================================
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Gross profit as a percentage of sales has declined from the prior year periods.
The most significant component of this change relates to increased patent
license royalty expense which commenced April 1, 1997. This variable cost will
be ongoing as long as the current Generation III format products are sold.
The second quarter's gross profit percentage improved 1.5 points to 47.5% of
sales over that of the first quarter ended June 30, 1997. This improvement
reflects the operating leverage associated with increased sales volume and a
relatively fixed level of manufacturing overhead cost.
OPERATING EXPENSES
PERIODS ENDED SEPTEMBER 30, THREE MONTHS SIX MONTHS
(IN THOUSANDS) 1997 1996 1997 1996
====================================================================================================
Research and development
Quidel research projects ................ $ 1,479 $ 1,119 $ 2,755 $ 2,266
Contract research-- direct costs ........ 558 598 1,029 1,183
-------------------------------------------------
Total research and development ...... 2,037 1,717 3,784 3,449
As a percentage of sales ............ 18% 19% 19% 19%
Sales and marketing
Domestic professional sales and marketing 1,631 1,405 3,229 2,894
Domestic OTC sales and marketing ........ 92 200 147 337
International sales and marketing ....... 746 908 1,636 1,889
-------------------------------------------------
Total sales and marketing ........... 2,469 2,513 5,012 5,120
As a percentage of sales ............ 22% 28% 25% 29%
General and administrative .................. 1,233 878 2,390 1,694
As a percentage of sales .................... 11% 10% 12% 9%
-------------------------------------------------
Total operating expenses .................... $ 5,739 $ 5,108 $11,186 $10,263
As a percentage of sales .................... 51% 57% 56% 57%
-------------------------------------------------
Total operating expenses excluding
contract research ....................... $ 5,181 $ 4,510 $10,157 $ 9,080
As a percentage of sales .................... 46% 51% 51% 51%
====================================================================================================
Research and Development. Research and development expense has increased during
the quarter ended September 30, 1997. Cost increases occurred in the areas of
recruiting and relocation associated with the hiring of four new senior
scientists, patent license amortization which commenced April 1, 1997 related to
the licenses obtained from Becton Dickinson, and the clinical trials costs
associated with the recent FDA 510(k) filings for two new pregnancy products.
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Sales and Marketing. Overall sales and marketing expense declined in the second
quarter from the prior year level as volume related increases in the domestic
professional sales and marketing expenses were offset by reductions in OTC and
international sales and marketing costs. The effectiveness of the sales and
marketing effort improved in the second quarter as the total cost dropped to 22%
of sales from 28% of sales in the comparable prior year period.
General and Administrative. General and administrative expense for the second
quarter ended September 30, 1997 increased $355,000 over the prior year period.
Approximately $196,000 or 55% of this increase was related to certain personnel
costs which are not expected to continue.
Net Income (Loss). The Company returned to profitability in the second quarter
as gross profit from increased sales volume more than offset the increased
royalty, research and general administrative expenses. The $304,000 ($.01 per
share) net income was $96,000 above the $208,000 ($.01 per share) net income of
the comparable prior year period and reduced the current year-to-date net loss
to $487,000 ($.02 per share).
Liquidity and Capital Resources. At September 30, 1997, the Company had cash and
cash equivalents of $6,878,000, compared to $10,096,000 at March 31, 1997.
During the six months ended September 30, 1997, the Company generated $1,606,000
in cash from operating activities. Net cash used as a result of the net loss and
increase in inventory was more than offset by reduction in accounts receivable
and the non-cash impact of depreciation and amortization.
Net cash used for investment activities of $5,180,000 related to $2,765,000 in
capital expenditures for increased production capacity and product cost
reduction and $2,415,000 paid for patent licenses and capitalized patent
application costs.
Net cash from financing activities totaled $356,000 related to proceeds from the
exercise of employee stock options offset by debt repayment.
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, 1998. As of September 30,
1997, there were no outstanding borrowings under this line of credit.
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 1998.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS N/A
ITEM 2. CHANGES IN SECURITIES N/A
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE N/A
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION N/A
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 second quarter of fiscal 1998
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: October 23, 1997
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