1
Exhibit 13.1
37
SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial statements
of Quidel Corporation and should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein.
Years ended March 31, (in thousands,
except per share data) 1998 1997 1996 1995 1994
===========================================================================================================================
STATEMENT OF OPERATIONS DATA
Revenues:
Quidel branded sales*........................$ 44,910 $ 41,086 $ 33,532 $ 28,782 $ 19,932
OEM sales (U.S. marketing partners).......... 811 833 949 2,285 8,450
------------------------------------------------------------------------------
Total net sales................... 45,721 41,919 34,481 31,067 28,382
Other revenues............................... 3,758 2,803 572 470 1,090
------------------------------------------------------------------------------
Total revenues........................ 49,479 44,722 35,053 31,537 29,472
Gross profit ................................ 21,473 22,250 18,448 14,925 13,045
Research and development..................... 7,940 6,700 4,130 3,728 3,830
Purchased in-process research
and development**..................... -- -- -- 1,423 --
Sales and marketing.......................... 10,625 10,744 10,451 10,470 9,097
Write down of investment
in European Subsidiaries.............. 3,058 -- -- -- --
General and administrative................... 5,107 3,534 3,483 3,271 3,148
Provision for income taxes................... 76 123 -- -- --
Tax benefit from
net operating loss carryforward....... (2,707) -- -- -- --
Net income (loss)............................$ 1,110 $ 3,549 $ 579 $ (4,035) $ (1,931)
Net income (loss) diluted per share..........$ 0.05 $ 0.16 $ 0.03 $ (0.21) $ (0.11)
BALANCE SHEET DATA
Cash and cash equivalents....................$ 9,720 $ 10,096 $ 2,538 $ 3,878 $ 3,173
Working capital.............................. 16,790 19,444 10,060 9,757 8,390
Total assets...................... 47,782 42,261 33,334 34,524 32,933
Long-term obligations........................ 3,002 3,203 3,490 4,145 4,725
Stockholders' equity......................... 36,889 35,158 25,718 23,938 22,301
Stockholders' equity per share...............$ 1.55 $ 1.49 $ 1.19 $ 1.14 $ 1.20
Common shares outstanding.................... 23,749 23,546 21,550 20,983 18,459
*Quidel branded and international sales
**Resulting from the acquisition of Pacific Biotech, Inc.
(Inside Front Cover of the 1998 Annual Report)
19
2
Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 seasonality, the competitive
and economic factors affecting the Company's domestic and international markets,
actions of our major distributors, manufacturing and production delays or
difficulties, adverse actions or delays in product reviews by United States Food
and Drug Administration ("FDA"), and the degree of acceptance that our new
products achieve during the year.
The Company has a new president and chief executive officer, Andre de Bruin. In
March 1998, Steven T. Frankel, president and chief executive officer, resigned.
One June 10, 1998 the board of directors announced that Andre de Bruin, vice
chairman of the board, had been appointed president and chief executive officer.
The Company believes that Mr. de Bruin will provide a fresh vision and valuable
leadership in the years ahead.
Fiscal 1998 sales established a new record high for the Company
increasing 9% over the prior year level. Net income for the year declined to
$1,110,000 or $.05 per share from $3,549,000 or $.16 per share in fiscal 1997.
NET SALES TRENDS BY MAJOR PRODUCT BRANDS
Percent increase (decrease)
Years ended March 31, (in thousands) 1998 1997 1996 1998 1997
==============================================================================================================================
DOMESTIC SALES
Professional sales ........... $30,418 $25,891 $16,132 17% 60%
OTC sales .................... 1,900 1,383 2,876 37% (52%)
Clinical lab sales ........... 1,271 1,295 1,288 (2%) 1%
OEM sales .................... 811 833 949 (3%) (12%)
---------------------------------------------------------------------------------
Total domestic sales .... 34,400 29,402 21,245 17% 38%
---------------------------------------------------------------------------------
INTERNATIONAL SALES
Export sales ................. 6,774 8,060 9,059 (16%) (11%)
European subsidiary sales .... 4,547 4,457 4,177 2% 7%
---------------------------------------------------------------------------------
Total international sales 11,321 12,517 13,236 (10%) (5%)
---------------------------------------------------------------------------------
Total net sales ................... $45,721 $41,919 $34,481 9% 22%
==============================================================================================================================
Domestic professional sales growth for both fiscal 1998 and fiscal 1997 is
primarily related to an increase in sales of the Company's infectious disease
products. This category includes the products which were the first to receive
CDC waived categorization status, the QuickVue(R) In-Line One-Step Strep A Test
and the QuickVue(R) H. Pylori Test, and the introduction of the CARDS(R) QS(R)
and Concise(R) Performance Plus(TM) strep tests, not present in fiscal 1996.
Quidel's domestic OTC home testing product sales improved in fiscal 1998, which
represented the second full year of distribution through Ansell Consumer
Products ("Ansell"). The conversion to distribution through Ansell has allowed
the Company to reduce its level of OTC sales and marketing expenses (see
Operating Expenses, below).
International sales have declined over the past two years. Declining export
sales levels reflect the expiration of distribution agreements in Japan and
Korea and the reduction in European allergy test sales due to a change in
reimbursement level. European subsidiary sales, although not significant in
total, grew 27% in fiscal 1998 to $1,739,000 in Germany.
The Company is in the process of defining its strategic objectives to increase
profitability. As part of this process, the Company has reassessed its
international sales strategy and has decided to change the management structure
responsible for international sales and to discontinue the operations of certain
European subsidiaries. The Company plans to continue this business through
distribution partners.
(Beginning on Page 3 of the 1998 Annual Report)
20
3
Exhibit 13.1
REVENUE FROM RESEARCH CONTRACTS, LICENSE FEES AND ROYALTIES
Percent increase (decrease)
Years ended March 31, (in thousands) 1998 1997 1996 1998 1997
===================================================================================================================================
Contract research and development..................... $ 3,483 $2,654 $ 13 31% N/M
License fee income ................................... 100 25 381 300% (93%)
Royalty income ....................................... 175 124 178 41% (30%)
---------------------------------------------------------------------------
Total .......................................... $ 3,758 $2,803 $ 572 34% 390%
===================================================================================================================================
Contract research and development revenue is principally related to funding
provided by Glaxo Wellcome ("Glaxo") for two multi-year rapid diagnostic test
development programs, influenza A and B, which commenced in March 1996, and the
development of two point-of-care diagnostic tests to detect genital herpes,
which commenced in October 1997. Both of these programs are expected to be
completed and, if successful, submitted to the FDA for marketing approval during
the first half of fiscal 1999. The revenue recognized under the Glaxo programs
is equal to the sum of the program direct research cost (see Operating Expenses,
below) and allocated support service cost. License fee income generally relates
to one-time fees received for the right to distribute the Company's products.
COST OF SALES AND GROSS PROFIT
Percent increase (decrease)
Years ended March 31, (in thousands) 1998 1997 1996 1998 1997
====================================================================================================================================
Direct Cost - material labor and
other variable costs .................. $ 16,876 $ 14,955 $ 11,555 13% 29%
as a percentage of sales .................... 36.9% 35.7% 33.5%
Royalty expense-patent licenses ............. 2,067 291 426 610% (32%)
as a percentage of sales .................... 4.5% 0.7% 1.2%
Total direct cost ........................... 18,943 15,246 11,981 24% 27%
as a percentage of sales .................... 41.4% 36.4% 34.7%
Direct Margin - contribution per sales dollar 58.6% 63.6% 65.3%
Manufacturing overhead cost ................. 5,305 4,423 4,052 20% 9%
as a percentage of sales .................... 11.6% 10.6% 11.8%
-----------------------------------------------------------------------------------
Total cost of sales .............. 24,248 19,669 16,033 23% 23%
-----------------------------------------------------------------------------------
Gross profit ................................ $ 21,473 $ 22,250 $ 18,448 (3%) 21%
as a percentage of sales .................... 47.0% 53.0% 53.5%
====================================================================================================================================
Gross profit declined six percentage points to 47% of sales in fiscal 1998 from
the prior year level. The most significant component of this change relates to
an increased royalty expense, which commenced April 1, 1997, resulting from the
settlement of the Becton Dickenson patent litigation. In addition, the fiscal
1998 and 1997 shift in product mix toward sales of the Company's strep throat
tests, which provide a slightly lower direct margin contribution, has increased
direct cost as a percent of sales. Manufacturing overhead cost increases in
fiscal 1998 related to increased production capacity, purchase of automation
equipment, production supervision to cover multiple shift operations and the
addition of purchasing and engineering support staff.
21
4
Exhibit 13.1
OPERATING EXPENSES
Percent increase (decrease)
Years ended March 31, (in thousands) 1998 1997 1996 1998 1997
===========================================================================================================================
RESEARCH AND DEVELOPMENT
Quidel research projects ..................... $ 4,903 $ 4,539 $ 4,117 8% 10%
As a percentage of sales ..................... 11% 11% 12%
Contract research - direct costs ............. 3,037 2,161 13 41% N/M
As a percentage of sales ..................... 6% 5% --
------------------------------------------------------------------
Total research and development .......... 7,940 6,700 4,130 19% 62%
As a percentage of sales ................ 17% 16% 12%
------------------------------------------------------------------
SALES AND MARKETING
Domestic professional sales and marketing .... 6,793 6,322 4,941 7%28%
Domestic OTC sales and marketing ............. 304 519 1,378 (41%) (62%)
International sales and marketing ............ 3,528 3,903 4,132 (10%) (6%)
------------------------------------------------------------------
Total sales and marketing ............... 10,625 10,744 10,451 (1%) 3%
As a percentage of sales ................ 23% 26% 30%
Write down of investment in
European Subsidiaries ........................ 3,058 -- -- N/M N/M
as a percentage of sales ................ 7%
GENERAL AND ADMINISTRATIVE ......................... 5,107 3,534 3,483 45% 1%
As a percentage of sales ..................... 11% 8% 10%
------------------------------------------------------------------
Total operating expenses ........................... $26,730 $20,978 $18,064 27% 16%
As a percentage of sales ........................... 58% 50% 52%
Total operating expenses excluding contract research
and write down of subsidiary investment ...... $20,635 $18,817 $18,051 10% 4%
as a percentage of sales ................ 45% 45% 52%
===========================================================================================================================
Research and development effort was substantially increased in fiscal 1998 and
1997 as the Company entered into several collaborative product development
programs. The Glaxo Wellcome influenza A and B and herpes programs, discussed
above, are the largest of these projects. Contract research expense represented
38% of the Company's total research and development investment in fiscal 1998.
Sales and marketing efficiencies continued to improve in fiscal 1998 as the
overall cost declined to 23% of sales. Fiscal 1998 professional sales and
marketing expenses increased 7% related to an increase in professional sales
volume of 17%. In Fiscal 1997 these expenses grew 28% in support of a 60%
increase in sales volume. Domestic OTC sales and marketing expenses continue to
decline as these expenses are assumed by Ansell. This savings partially offsets
the lower margin on domestic OTC products from reduced sales prices under this
distribution agreement.
International sales and marketing expenses continued to represent approximately
31% of total international sales. These expenses are expected to be reduced in
the second half of fiscal 1999 as the operations of all but one of the Company's
European sales subsidiaries are discontinued.
As a result of the Company's strategic decision to discontinue the operations of
certain European subsidiaries, a noncash charge of $3,058,000, representing a
write-down of the investment in such subsidiaries, was recorded in the fourth
quarter of fiscal 1998. Additionally, the Company intends to further evaluate
other organizational and operational matters regarding the restructuring of
domestic operations. The Company currently estimates that additional charges up
to $1.5 million will be recorded as restructuring plans for domestic and foreign
operations are finalized. These costs will be recorded in the period that the
restructuring plans are implemented during fiscal 1999, the majority of which
are expected to occur in the first half of the year.
General and administrative expenses increased significantly in fiscal 1998
related to employee severance costs, legal fees and consulting costs.
22
5
Exhibit 13.1
OTHER INCOME AND EXPENSE Other income, consisting primarily of interest income,
increased in fiscal 1998 as a result of the Company's higher average cash
balances.
PROVISION (BENEFIT) FOR INCOME TAXES In the fourth quarter of fiscal 1998 the
Company recorded a partial benefit of its net operating loss ("NOL)
carryforwards through a reduction in the valuation allowance of deferred tax
assets as the realization of such assets became probable. The recognition of
this asset provided a tax credit, which increased net income by $2,707,000. The
amount of the net deferred tax asset estimated to be recoverable was based on
the Company's assessment of near-term operations.
In previous periods the Company recognized the tax benefit of its NOL
carryforward only as income was earned, the impact of which reduced the
effective income tax rate to be equivalent to the alternative minimum tax rate
of approximately three percent. In future periods, commencing in fiscal 1999,
the Company will record an income tax provision at the normal statutory tax rate
currently amounting to approximately forty percent of pre-income tax.
The recognition of this deferred tax asset has the effect of increasing current
fiscal year net income and reducing future periods' net income as a result of
the timing of the NOL benefit recognition. However, it will not affect the
Company's cash flow as the NOL will continue to offset the income tax payable on
a year-by-year- basis.
NET INCOME Fiscal 1998 net income of $1,110,000 declined $2,439,000 from the
prior year. The significant changes in the current year included an increase in
royalty expense of $1,776,000, a one-time write-down of investment in certain
European subsidiaries of $3,058,000 and increased general and administration
costs of $1,573,000 which were in part offset by the recognition of the deferred
tax asset of $2,707,000.
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
seasonal nature (fall and winter sales) of the Company's strep throat tests
which accounted for approximately 31% of fiscal 1998 total sales, the
competitive and economic factors affecting the Company's domestic and
international markets, manufacturing and production delays or difficulties,
actions of our major distributors, adverse actions or delays in product reviews
by the United States Food and Drug Administration and the degree of acceptance
that our new products achieve during the year.
In April 1997, Becton Dickinson and Co. (the "plaintiff") filed a lawsuit
against the Company alleging that the Company's strep and chlamydia products and
certain of its pregnancy and ovulation products (collectively, the "Products")
infringe on two patents of the plaintiff. The Products in issue represent a
substantial majority of the Company's revenues. In June 1997, the Company
entered into a settlement agreement with the plaintiff. As a part of that
agreement, the Company received a license from the plaintiff under both patents
in exchange for a cash license fee, a royalty on net sales of the Products after
April 1, 1997, and a license of the Company's Q-Label technology back to
plaintiff (with a royalty on future net sales). While the Company denied the
allegations in the complaint and admitted no liability as part of the suit's
resolution, the Company believed the settlement was warranted when balanced
against the anticipated defense costs, the uncertainties of litigation in
general, and the expected diversion of management's time and attention over an
extended period.
LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company had cash and cash
equivalents of $9,720,000 compared to $10,096,000 at March 31, 1997. During
fiscal 1998 the Company generated $6,708,000 in cash from operating activities.
Cash flow provided by profitable operations (excluding the non-cash impact of
depreciation, amortization, effect of asset write-down and an increase in
deferred tax asset) amounted to $4,596,000. In addition, a net $2,112,000 in
cash was provided by changes in other operating asset and liability accounts,
principally due to increases in accounts payable and deferred contract research
revenue, offsetting increased inventory levels.
Cash used for investment activities totaled $7,520,000. Of this amount,
$5,082,000 related to capital expenditures to increase production capacity and
provide additional scientific research and development equipment. An additional
$2,438,000 was expended on other assets and intangibles, the majority of which
related to the license fee associated with the settlement of the Becton
Dickenson lawsuit discussed above.
Cash generated from financing activities totaled $436,000 which was principally
related to $621,000 in proceeds from the issuance of common stock from employee
stock option and stock purchase plan exercises, offset by the repayment of debt
and capital lease obligations, totaling $185,000.
23
6
Exhibit 13.1
The Company has a $3,000,000 (maximum) accounts receivable-based bank line of
credit which provides for interest at the bank's prime rate plus two percent.
The line of credit expires August 5, 1998. As of March 31, 1998, there were no
outstanding borrowings under the line of credit.
Inflation and any other changes in price have not had a material effect during
the last three fiscal years.
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 the Company's current cash position and its current assessment of future
operating results, management believes that its existing sources of liquidity
should be adequate to meet the Company's operating needs during fiscal 1999.
YEAR 2000 COMPLIANCE Many currently installed computer systems and software
products are coded to accept only two digit entries to represent years. For
example, the year "1998" would be represented by "98". These systems and
products will need to be able to accept four digit entries to distinguish years
beginning with 2000 from prior years. As a result, systems and products that do
not accept four digit year entries will need to be upgraded or replaced to
comply with such "Year 2000" requirements. The Company believes that its
internal systems are Year 2000 compliant or will be upgraded or replaced in
connection with previously planned changes to information systems prior to the
need to comply with Year 2000 requirements without material cost or expense. The
anticipated costs of any Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to the
availability or cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties. In addition,
there can be no assurance that Year 2000 compliance problems will not be
revealed in the future which could have a material adverse affect on the
Company's business, financial condition and results of operations. Many of the
Company's customers and suppliers may be affected by Year 2000 issues that may
require them to expend significant resources to modify or replace their existing
systems. This may result in those customers having reduced funds to purchase the
Company's products or in those suppliers experiencing difficulties in producing
or shipping key components to the Company on a timely basis or at all.
OTHER INFORMATION Except for the historical information contained herein, the
matters discussed in this annual report are, by their nature, forward-looking.
For the reasons stated in this annual report or in the Company's Securities and
Exchange Commission filings, or for various unanticipated reasons, actual
results may differ materially.
24
7
Exhibit 13.1
CONSOLIDATED BALANCE SHEETS
March 31, (in thousands) 1998 1997
=============================================================================================================================
ASSETS
Current assets:
Cash and cash equivalents ...............................................................$ 9,720 $ 10,096
Accounts receivable, net of allowances of $802 ($800 in 1997)............................ 8,524 8,384
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials........................................................................ 3,190 1,842
Work in process...................................................................... 1,420 1,216
Finished goods....................................................................... 1,287 726
---------------------------------
5,897 3,784
Prepaid expenses and other current assets................................................ 540 1,080
---------------------------------
Total current assets............................................................. 24,681 23,344
Property and equipment, at cost
Land ................................................................................. 1,080 1,080
Building and improvements................................................................ 10,162 8,976
Equipment, furniture and fixtures........................................................ 14,002 10,857
---------------------------------
25,244 20,913
Less accumulated depreciation and amortization....................................... (8,447) (7,027)
---------------------------------
Net property and equipment....................................................... 16,797 13,886
Intangible assets, net of accumulated amortization
of $6,332 ($2,502 in 1997)........................................................... 3,466 4,854
Deferred tax asset........................................................................... 2,707 --
Other assets................................................................................. 131 177
---------------------------------
$ 47,782 $ 42,261
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.........................................................................$ 3,246 $ 2,132
Accrued payroll and related expenses..................................................... 1,261 1,123
Current portion of long-term debt and obligations under capital leases................... 199 183
Deferred contract research revenue....................................................... 1,690 --
Accrued royalties........................................................................ 622 84
Other current liabilities ............................................................... 873 378
---------------------------------
Total current liabilities..................................................... 7,891 3,900
Long-term debt and obligations under capital leases.......................................... 3,002 3,203
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 5,000 shares authorized, none issued or outstanding.... -- --
Common stock, $.001 par value; 50,000 shares authorized, 23,749
shares issued and outstanding (23,546 in 1997)....................................... 24 24
Additional paid-in capital............................................................... 116,564 115,943
Accumulated deficit...................................................................... (79,699) (80,809)
---------------------------------
Total stockholders' equity.................................................... 36,889 35,158
---------------------------------
$ 47,782 $ 42,261
================================
See accompanying notes.
(Beginning on Page 7 of the 1998 Annual Report)
25
8
Exhibit 13.1
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, (in thousands) 1998 1997 1996
===================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................... $1,110 $ 3,549 $ 579
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation ................................................. 2,052 1,719 1,356
Amortization ................................................. 1,083 814 703
Write down of investment in European subsidiaries ............ 3,058 -- --
Deferred tax asset ........................................... (2,707) -- --
Changes in assets and liabilities:
Accounts receivable ...................................... (140) (782) (780)
Inventories .............................................. (2,113) (293) 1,374
Prepaid expenses and other current assets ................ 540 (525) 78
Accounts payable ......................................... 1,114 771 (815)
Accrued payroll and related expenses ..................... 138 351 (108)
Accrued acquisition expenses ............................. -- -- (621)
Deferred contract research revenue ....................... 1,690 (337) 337
Accrued royalties ........................................ 538 (1) 84
Other current liabilities ................................ 345 (69) (1,235)
------------------------------------
Net cash flows provided by operating activities ...... 6,708 5,197 952
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment ............................. (5,082) (1,878) (2,489)
Increase in other assets and intangibles ........................ (2,438) (424) (319)
------------------------------------
Net cash flows used for investing activities ......... (7,520) (2,302) (2,808)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock and warrants ......... 621 5,891 1,201
Payments on obligations under capital leases .................... (42) (43) (117)
Repayments of debt .............................................. (143) (744) (335)
Repayments of line of credit .................................... -- (441) (233)
------------------------------------
Net cash flows provided by financing activities ...... 436 4,663 516
------------------------------------
Net increase (decrease) in cash and cash equivalents .................. (376) 7,558 (1,340)
Cash and cash equivalents at beginning of year ........................ 10,096 2,538 3,878
------------------------------------
Cash and cash equivalents at end of year .............................. $ 9,720 $ 10,096 $ 2,538
====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest..........................$ 333 $ 415 $ 506
Cash paid during the year for income taxes ...................... 16 122 --
Purchase of equipment under capital lease ....................... -- -- 123
See accompanying notes.
26
9
Exhibit 13.1
CONSOLIDATED STATEMENTS OF INCOME
Years ended March 31, (in thousands, except per share data) 1998 1997 1996
=====================================================================================================
REVENUES
Net sales ........................................ $ 45,721 $ 41,919 $ 34,481
Research contracts, license fees and royalties ... 3,758 2,803 572
--------------------------------------
Total revenues ........................... 49,479 44,722 35,053
COSTS AND EXPENSES
Cost of sales .................................... 24,248 19,669 16,033
Research and development ......................... 7,940 6,700 4,130
Sales and marketing .............................. 10,625 10,744 10,451
Write down of investment in European subsidiaries 3,058 -- --
General and administrative ....................... 5,107 3,534 3,483
--------------------------------------
Total costs and expenses ................. 50,978 40,647 34,097
Operating income (loss) ................................. (1,499) 4,075 956
OTHER INCOME AND EXPENSE
Interest and other income ........................ 474 191 164
Interest and other expense ....................... (496) (594) (541)
--------------------------------------
Income (loss) before provision (benefit) for income taxes (1,521) 3,672 579
Provision (benefit) for income taxes .................... (2,631) 123 --
--------------------------------------
Net income .............................................. $ 1,110 $ 3,549 $ 579
======================================
Basic and diluted earnings per share .................... $ .05 $ .16 $ .03
======================================
Shares used in basic per share calculation .............. 23,649 21,976 21,238
======================================
Shares used in diluted per share calculation ............ 23,857 22,791 22,684
======================================
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock paid-in Accumulated
(in thousands) Shares Amount capital deficit Total
===============================================================================================================================
Balance at March 31, 1995 .............................. 20,983 $ 21 $108,854 $(84,937) $ 23,938
Issuance of common stock for cash under
stock options and stock purchase plans ...... 567 1 1,200 -- 1,201
Net income ....................................... -- -- -- 579 579
----------------------------------------------------------------
Balance at March 31, 1996 .............................. 21,550 $ 22 $110,054 $(84,358) $ 25,718
Issuance of common stock for cash under
stock options and stock purchase plans ...... 134 -- 391 -- 391
Issuance of common stock upon exercise of warrants 1,862 2 5,498 -- 5,500
Net income ....................................... -- -- -- 3,549 3,549
----------------------------------------------------------------
Balance at March 31, 1997 .............................. 23,546 $ 24 $115,943 $(80,809) $ 35,158
Issuance of common stock for cash under
stock options and stock purchase plans ...... 203 -- 621 -- 621
Net income ....................................... -- -- -- 1,110 1,110
----------------------------------------------------------------
Balance at March 31, 1998 .............................. 23,749 $ 24 $116,564 $(79,699) $ 36,889
================================================================
See accompanying notes.
27
10
Exhibit 13.1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quidel Corporation (the "Company") develops, manufactures and markets diagnostic
products for human healthcare. The following is a summary of the Company's
significant accounting policies.
CONSOLIDATION The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all significant intercompany
accounts and transactions.
CASH AND CASH EQUIVALENTS Cash equivalents consist of short-term highly liquid
investments which include certificates of deposit, commercial paper, bankers
acceptances with original maturities of three months or less, and money market
fund investments, all of which are stated at cost, which approximates market.
The Company has established practices relative to diversification and maturities
for safety and liquidity purposes. These practices are periodically reviewed and
modified to take advantage of trends in yields and interest rates. The Company
has not experienced any losses on its cash equivalents and short-term
investments.
The Company accounts for its investments in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires companies to
record certain debt and equity security investments at market value.
CONCENTRATION OF CREDIT RISK The Company sells its products to medical product
distribution companies and physicians worldwide. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company has established provisions for potential credit losses that are
expected to be incurred.
DEPRECIATION AND AMORTIZATION Depreciation and amortization of building and
equipment are provided on the straight-line method over the following estimated
useful lives: building - 40 years; equipment - 3 to 10 years; building
improvements - life of asset; furniture and fixtures - 3 to 10 years.
Amortization of trademarks and distribution agreements is provided on the
straight-line method over 10 years. Capitalized patent costs and patent license
agreements are amortized on the straight-line method over the useful life of the
patent.
REVENUE RECOGNITION Revenue from product sales are recorded net of estimated
returns at the time the product is shipped. Revenues from contracts to perform
research and development and license fees are recorded as earned based on the
performance requirements of the agreements. Payments in excess of amounts earned
are deferred. Revenue from the licensing of distribution rights is recorded when
earned under the terms of the related license agreements.
NET INCOME (LOSS) PER SHARE Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128. "Earnings per Share". In
accordance with this statement, the Company has changed the method used to
calculate earnings per share for the current and prior periods. The new
requirements include a calculation of basic earnings per share, from which the
dilutive effect of stock options are excluded, and the calculation of diluted
earnings per share, both of which did not differ from the previous primary
earnings per share calculation.
The following table reconciles the shares used in computing basic and diluted
earnings per share in the respective years:
Years ended March 31, (in thousands) 1998 1997 1996
========================================================================================================================
Shares used in basic earnings per share
(weighted average common shares outstanding)................. 23,649 21,976 21,238
Effect of dilutive stock options and warrants................... 208 815 1,446
-------------------------------------------
Shares used in diluted earnings per share calculation........... 23,857 22,791 22,684
===========================================
(Beginning on Page 10 of the 1998 Annual Report)
28
11
Exhibit 13.1
FOREIGN OPERATIONS Foreign currency transaction gains and losses were not
significant in the periods presented.
IMPAIRMENT OF LONG-LIVED ASSETS Effective April 1, 1996, the Company adopted
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the estimated undiscounted cash flows to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. At
March 31, 1998 the long-lived assets of the foreign subsidiaries, including
certain related identified intangibles were classified by management as held for
use. However, in April 1998 the Company's Board of Directors approved a plan
under which such foreign subsidiaries' operations would be disposed of through
abandonment. As such, those assets were reclassified as assets to be held for
disposal. This reclassification is considered an indicator of impairment of
those assets as of March 31, 1998. In accordance with FAS 121, management
assessed the recoverability of those assets by comparing the expected cash flows
to be generated by those assets (which are expected to be negative) to their
carrying amounts. This analysis concluded that the carrying amounts of the
assets were not recoverable. Accordingly, management wrote down the assets to
their fair value, which was determined to be minimal.
STOCK OPTIONS The Company has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123 "Accounting
for Stock-Based Compensation" requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), which
the Company is required to adopt for fiscal 1999. This statement will require
the Company to report in the financial statements, in addition to net income,
comprehensive income and its components including foreign currency items and
unrealized gains and losses on certain investments in debt and equity
securities. Upon adoption of SFAS 130, the Company is also required to
reclassify financial statements for earlier periods provided for comparative
purposes. Management believes that the adoption of SFAS 130 will not have a
significant impact on the Company's consolidated financial statement
disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131), which the Company is required to adopt for fiscal 1999 annual financial
statements. This statement establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Under SFAS 131,
operating segments are to be determined consistent with the way that management
organizes and evaluates financial information internally for making operating
decisions and assessing performance. The Company has not determined the impact
of the adoption of this new accounting standard on its consolidated financial
statement disclosures.
29
12
Exhibit 13.1
NOTE 2. INTANGIBLE ASSETS
Intangible assets consistof the following:
March 31, (in thousands) 1998 1997
====================================================================================================
Distribution agreement with European subsidiary.................$ 4,461 $ 4,461
License agreements.............................................. 2,300 --
Patent costs and trademarks..................................... 2,257 2,115
Other investment in European subsidiaries....................... 780 780
-----------------------------------
9,798 7,356
Less accumulated amortization................................... (6,332) (2,502)
------------------------------------
$ 3,466 $ 4,854
====================================================================================================
The fiscal 1998 increase in accumulated amortization includes a $2,789,000
write-off of the remaining net book value of the Company's long-lived assets
related to European subsidiaries shown above. This expense is included within
the total write-down of investment in European subsidiaries of
$3,058,000 shown in the Consolidated Statements of Income
Certain patent filing costs are capitalized and amortized upon the issuance
of the related patent.
NOTE 3. EXPORT SALES AND FOREIGN OPERATIONS
The Company's export sales were as follows:
Years ended March 31, (in thousands) 1998 1997 1996
=============================================================================================================
Europe................................................$ 4,309 $ 4,275 $ 4,572
Asia.................................................. 1,637 3,047 3,805
Other international................................... 828 738 682
-------------------------------------------------------
$ 6,774 $ 8,060 $ 9,059
=============================================================================================================
Sales and operating income (loss) for the three years ended March 31, 1998 and
identifiable assets at the end of each of those years, classified by geographic
area, were as follows:
Years Ended March 31, (in thousands) 1998 1997 1996
==============================================================================================================
Sales to unaffiliated customers from:
United States....................................$ 41,174 $ 37,462 $ 30,304
Europe........................................... 4,547 4,457 4,177
-------------------------------------------------------
$ 45,721 $ 41,919 $ 34,481
Operating income (loss):
United States....................................$ 1,066 $ 3,679 $ 865
Europe........................................... (2,565) 396 91
-------------------------------------------------------
$ (1,499) $ 4,075 $ 956
Identifiable assets:
United States....................................$ 45,773 $ 36,308 $ 27,117
Europe........................................... 2,009 5,953 6,217
-------------------------------------------------------
$ 47,782 $ 42,261 $ 33,334
==============================================================================================================
Intersegment sales to affiliates totaled $2,365,000, $2,301,000 and $1,613,000
in the three years ended March 31, 1998, 1997 and 1996, respectively.
Intercompany sales prices are established with consideration of each entity's
contribution to the overall gross profit generated, intercompany gross profit in
inventory is eliminated upon consolidation.
30
13
Exhibit 13.1
NOTE 4. LEASE COMMITMENTS
Rent expense under operating leases totaled $247,000, $152,000 and $128,000 for
the years ended March 31, 1998, 1997 and 1996, respectively.
Effective September 1, 1997, the Company entered into the lease of a 7,245
square foot research facility. The lease provides for an initial term of two
years and options to renew for three consecutive one-year periods. The remaining
minimum lease payments under the initial term total $225,316 at March 31, 1998.
The Company leases equipment under capital lease agreements. Cost and
accumulated amortization of equipment under capital leases in the accompanying
balance sheets at March 31, 1998 are $181,000 and $95,000, respectively, and at
March 31, 1997 are $181,000 and $64,000, respectively. Amortization of equipment
under capital lease agreements is included in depreciation in the accompanying
financial statements.
NOTE 5. LONG-TERM DEBT, CAPITAL LEASES AND CREDIT FACILITY
Long-term debt and capital leases consist of the following:
March 31, (in thousands) 1998 1997
========================================================================================================================
9.4% note secured by deed of trust on the Company's San Diego facility,
principal and interest of $37 payable monthly through November 2009...........$ 3,160 $ 3,303
Obligations under capital leases..................................................... 41 83
-----------------------------------
3,201 3,386
Less current portion of long-term debt and obligations under capital leases.......... 199 183
-----------------------------------
$ 3,002 $ 3,203
========================================================================================================================
The Company has an accounts receivable-based bank line of credit in an amount up
to $3,000,000, which provides for interest at prime plus two percent (10.5% at
March 31, 1998). The line of credit expires August 5, 1998. As of March 31,
1998, there were no outstanding borrowings under the line of credit.
Future principal debt and capital lease payments for fiscal years ended after
March 31, 1998 are as follows (in thousands):
1999 $ 199
2000 174
2001 191
2002 209
2003 230
Thereafter 2,198
-----------------------------------
$ 3,201
-----------------------------------
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK WARRANTS The Company has outstanding warrants to purchase shares of
its common stock as follows:
Exercise Number
Issue Date Term Price of Shares
====================================================================================================
April 1992..................................10 years $7.50 950,000
February 1994................................5 years $5.94 117,871
January 1995.................................5 years $3.00 12,500
January 1995.................................5 years $2.50 50,000
April 1995..............................4 yrs, 9 mos $4.50 275,000
May 1995.....................................5 years $4.75 - $8.50 50,000
------------
1,455,371
============
At March 31, 1998 1,430,371 warrant shares were exercisable.
31
14
Exhibit 13.1
STOCK OPTIONS The Company has stock options outstanding which were issued under
stock option plans to certain employees, paid consultants and directors. The
options have terms ranging up to ten years and generally vest over four to five
years. In fiscal 1997 the number of shares authorized to be issued under the
Company's 1990 Employee Stock Plan was increased by 750,000 to a total of
2,500,000 shares of common stock, under incentive stock rights, stock options,
stock appreciation rights and stock purchase rights. Also in fiscal 1997, the
Company's stockholders authorized the establishment of the 1996 Non-Employee
Directors Stock Option Plan ("1996 Plan") which provides for the grant of
options to purchase up to 400,000 shares of common stock.
As of March 31, 1998, 320,000 shares have been granted under the 1996
Non-Employee Director Plan. Options for 131,625 shares of common stock
previously granted under the 1990 Director Option Plan remain outstanding.
In June 1997, the Company established a special 300,000 share nonstatutory stock
option plan. This plan was created in order to grant a 300,000 share option to
an executive individual entering into employment with the Company.
The following table summarizes option activity in terms of thousands of shares
and the weighted average exercise per share:
1998 1997 1996
For the years ended March 31, Shares Price Shares Price Shares Price
===========================================================================================================
Outstanding at beginning of year 2,131 $ 3.94 1,748 $ 4.03 1,905 $ 3.57
Granted ........................ 850 3.25 818 3.77 440 3.74
Exercised ...................... (165) 2.48 (87) 2.41 (497) 2.05
Canceled ....................... (106) 3.88 (348) 4.33 (100) 4.15
--------------------------------------------------------------------
Outstanding at end of year ..... 2,710 $ 3.81 2,131 $ 3.94 1,748 $ 4.03
===========================================================================================================
At March 31, 1998, 459,129 shares remained available for grant under the plans.
Following is a further breakdown of the options outstanding as of March 31,
1998:
Contractual Weighted
Weighted Weighted Average
Options Average Average Options Exercise Price
Range of Outstanding Remaining Exercise Exercisable of Options
Exercise Prices (000's) Life in Years Price (000's) Exercisable
===============================================================================================================================
$0.72 - $3.50 522 8.58 $2.862 51 $1.976
$3.625 936 7.68 3.625 216 3.625
$3.688-$4.375 690 6.70 3.969 275 4.162
$4.50-$6.625 562 4.51 4.826 542 4.823
===============================================================================================================================
$0.72-$6.625 2,710 6.94 $ 3.815 1,084 $ 4.283
The weighted average fair value of options granted during 1998 and 1997 was
$2.01 and $2.53, respectively.
Pro forma information regarding net income and net income per share is required
by SFAS No. 123 and has been determined as if the Company has accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was established at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1997, respectively: risk-free interest rates of 6.0%
and 6.6%; dividend yields of 0%; volatility factor of the expected market price
of the Company's common stock of 75% in 1998 and 65% in 1997, and a
weighted-average life of the options of 5.0 years in 1998 and 5.7 years in 1997.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
32
15
Exhibit 13.1
For purposes of pro forma disclosures, the estimated fair value of the options
and the shares granted under the employee stock purchase plan is amortized to
expense over their respective vesting or option periods. The effects of applying
SFAS No. 123 for pro forma disclosure purposes are not likely to be
representative of the effects on pro forma net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1996. The Company's pro forma information follows:
Years ended March 31, (in thousands) 1998 1997
==========================================================================================
Net income as reported.................................$ 1,110 $ 3,549
Adjusted pro forma net income..........................$ 219 $ 3,135
Net income per share as reported.......................$ .05 $ .16
Adjusted pro forma net income per share................$ .01 $ .14
==========================================================================================
EMPLOYEE STOCK PURCHASE PLAN In fiscal 1997, the number of shares authorized to
be issued under The Employee Stock Purchase Plan ("the Plan") was increased by
100,000 to a total of 500,000 shares of common stock. Under the Plan, full-time
employees are allowed to purchase common stock through payroll deductions (which
cannot exceed 10% of the employee's compensation) at the lower of 85% of fair
market value at the beginning or end of each six-month option period. As of
March 31, 1998, 412,753 shares had been sold under the Plan, leaving 87,247
shares available for future issuance.
NOTE 7. INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following components:
Years ended March 31, (in thousands) 1998 1997
============================================================================================
Pre tax income:
United States....................................$ (1,170) $ 4,154
Foreign........................................ (351) (482)
---------------------------------
$ (1,521) $ 3,672
============================================================================================
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
Years ended March 31, (in thousands) 1998 1997
==================================================================================================
Current:
Federal................................................$ 51 $ 93
Foreign................................................ 5 --
State................................................ 20 30
--------------------------------
76 123
Benefit of operating loss
carryforwards........................................ (2,707) --
---------------------------------
Provision for income taxes....................................$ (2,631) $ 123
==================================================================================================
Significant components of the Company's deferred tax assets as of March 31 are
shown below. During the year ended March 31, 1998 the Company decreased the
valuation allowance for deferred tax assets by $2,277,000 ($2,707,000 reduction
in the valuation allowance for net operating losses and $430,000 increase on new
deferred tax assets) as the realization of such assets become more likely than
not based on expected future earnings.
($March 31, (in thousands) 1998 1997
=====================================================================================================
Deferred tax assets:
Net operating loss carryforwards........................$ 24,589 $ 25,244
Tax on credit carryforwards............................. 1,841 1,841
Other-net............................................... 3,343 2,258
-----------------------------------
Total deferred tax assets..................................... 29,773 29,343
Valuation allowance for deferred tax assets................... (27,066) (29,343)
-----------------------------------
Net deferred tax assets $ 2,707 $ --
=====================================================================================================
33
16
Exhibit 13.1
At March 31, 1998, the Company had Federal and California income tax net
operating loss carryforwards of approximately $69,971,000 and $1,656,000,
respectively, which will begin to expire in fiscal 1999 if not utilized to
offset taxable income. The difference between the Federal and California tax
loss carryforwards is primarily attributable to the capitalization of research
and development expenses for California tax purposes and 50% limitation on
California loss carryforwards as well as the shorter five year carryforward
period allowed by California (the Federal carryforward period is 15 years). The
Company also has federal investment tax, research and development and
alternative minimum tax credit carryforwards of $1,438,000 and California
research and development, manufacturers' investment and alternative minimum tax
credit carryforwards of $586,000 which will begin to expire in fiscal 1999 if
not utilized to offset taxable income.
A reconciliation between the amount of tax computed by multiplying income before
taxes by the applicable statutory rate and the effective tax rate is as follows:
Years Ended March 31, 1998 1997 1996
==========================================================================================================
Statutory tax rate............................... 34.0% 34.0% 34.0%
Utilization of valuation allowance............... (33.4) (31.2) (34.0)
Reduction in valuation allowance ................ (178.0) -- --
State taxes net of federal benefit............... 0.8 0.6 --
Other............................................ 3.6 0.1 --
---------------------------------------------------------
Effective rate (173.0%) 3.5% --
==========================================================================================================
In accordance with Internal Revenue Code Section 382, a change in ownership of
greater than 50% of a corporation within a three year period may limit the
Company's ability to utilize its existing net operating losses and tax credit
carryforwards. As a result of the 1991 merger with Monoclonal Antibodies, Inc.,
the Company succeeded to the tax carryforwards, which were generated by
Monoclonal and Quidel prior to the merger. Such loss carryforwards totaled
approximately $76,000,000 and $8,000,000 for Federal and California purposes,
respectively. The Company believes that, as a result of the merger, such a
change in ownership has occurred. However, the Company does not believe
application of Section 382 will materially impact the utilization of the
Company's net operating losses and tax credits.
NOTE 8. COMMITMENTS
RESEARCH AND DEVELOPMENT AGREEMENTS During 1998 and 1997 the Company entered
into agreements to perform research and development with Glaxo Wellcome
("Glaxo"). Under these agreements, specified costs related to the performance of
research and development for certain diagnostic test products are reimbursed by
Glaxo. The agreements provide for total funding up to $12,144,000. The Company
recorded revenue equal to the sum of the direct costs incurred under the
agreements plus a permitted overhead surcharge of $3,183,000 and $2,491,000 in
fiscal 1998 and 1997, respectively. In exchange for the funding provided by
Glaxo under these agreements, upon successful completion of the planned
products, the Company will be required to pay royalties on sales of the
developed products to Glaxo, as defined in the agreements.
NOTE 9. EMPLOYEE BENEFIT PLAN
The Company has defined contribution 401K plan (the "Plan") covering all
employees who are eligible to join the Plan upon employment. Employees may
contribute up to 20% of their compensation per year (subject to a maximum limit
by federal law). The Company does not match contributions to the Plan.
34
17
Exhibit 13.1
NOTE 10. LEGAL PROCEEDINGS
In April 1997, Becton Dickinson and Co. (the "plaintiff") filed a lawsuit
against the Company alleging that the Company's strep and chlamydia products and
certain of its pregnancy and ovulation products (collectively, the "Products")
infringe on two patents of the plaintiff. The Products in issue represent a
substantial majority of the Company's revenues. In June 1997, the Company
entered into a settlement agreement with the plaintiff. As a part of that
agreement, the Company received a license from the plaintiff under both patents
in exchange for a cash license fee, a royalty on net sales of the Products after
April 1, 1997, and a license of the Company's Q-Label technology back to
plaintiff (with a royalty on future net sales). The license fee paid of
$2,300,000 was capitalized and is being amortized over 7.5 years. Royalty
expense applicable to this agreement totaled $1,692,000 in fiscal 1998.
NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly results for the years ended
March 31, 1998 and 1997.
(In thousands, except per share data) Net Income
Gross Net Income
(Loss)
Year ended March 31, 1998 Revenues Profit (Loss) Per Share
- ---------------------------------------------------------------------------------------------------------------------------
March 31.................................$ 14,681 $ 5,841 $ (107) $ --
December 31............................... 13,442 6,256 1,704 .07
September 30.............................. 11,987 5,346 304 .01
June 30................................... 9,369 4,030 (791) (.03)
- ---------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
March 31..................................$ 12,905 $ 6,444 $ 1,343 $ .06
December 31................................ 12,437 6,369 1,805 .08
September 30............................... 9,668 4,660 208 .01
June 30.................................... 9,712 4,777 193 .01
- ----------------------------------------------------------------------------------------------------------------------------
Basic and diluted net income per share are the same for all quarterly periods.
The net loss for the quarter ended March 31, 1998 included expense of $3,058,000
associated with the write-down of investment in European subsidiaries offset by
an income tax credit of $2,707,000.
35
18
Exhibit 13.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Quidel Corporation
We have audited the accompanying consolidated balance sheets of Quidel
Corporation as of March 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quidel Corporation
at March 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended March 31, 1998,
in conformity with generally accepted accounting principles.
San Diego, California /s/ ERNST & YOUNG LLP
May 11, 1998 ------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK PRICE RANGE
The Company's common stock is traded on the NASDAQ National Market System under
the symbol QDEL. The following table sets forth the range of high and low
closing prices for the Company's common stock.
Quarter Ended Low High
===========================================================================================
March 31, 1998............................. 2.81 3.59
December 31, 1997.......................... 3.06 4.93
September 30, 1997......................... 3.12 5.12
June 30, 1997.............................. 2.62 4.37
March 31, 1997............................. 3.87 5.06
December 31, 1996.......................... 3.50 4.81
September 30, 1996......................... 3.37 5.25
June 30, 1996.............................. 4.75 6.19
No cash dividends have been paid on the common stock and the Company does not
anticipate paying any dividends in the foreseeable future. As of March 31, 1998,
the Company had approximately 1,139 stockholders of record.
FORM 10-K A copy of Quidel's annual report on form 10-K is available without
charge to shareholders upon written request to the Quidel Investor Relations
Department at the Company's headquarters in San Diego, California.
(Page 16 of the 1998 Annual Report)
36