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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, 1998
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, 1998 was 23,767,616.
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QUIDEL CORPORATION
TABLE OF CONTENTS
Page
Numbers
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and March 31, 1998.................................................3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1998 and 1997........................................4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1998 and 1997........................................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..........................................................11
ITEM 2. Changes in Securities......................................................11
ITEM 3. Defaults upon Senior Securities............................................11
ITEM 4. Submission of Matters to a Vote of Security Holders........................11
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
JUNE 30, MARCH 31,
1998 1998
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents .................................... $ 9,712,000 $ 9,720,000
Accounts receivable, net ..................................... 6,289,000 8,524,000
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials ........................................... 3,108,000 3,190,000
Work in process ......................................... 2,343,000 1,420,000
Finished goods .......................................... 1,284,000 1,287,000
------------- -------------
6,735,000 5,897,000
Prepaid expenses and other current assets .................... 374,000 540,000
------------- -------------
Total current assets ............................... 23,110,000 24,681,000
Property and equipment, net ........................................ 17,189,000 16,797,000
Deferred tax asset ................................................. 2,707,000 2,707,000
Intangible assets, net ............................................. 3,382,000 3,466,000
Other assets ....................................................... 245,000 131,000
------------- -------------
$ 46,633,000 $ 47,782,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 2,171,000 $ 3,246,000
Accrued payroll and related expenses ......................... 1,164,000 1,261,000
Current portion of long-term debt and obligations
under capital leases .................................... 193,000 199,000
Deferred contract research revenue ........................... 1,664,000 1,690,000
Accrued royalties ............................................ 496,000 622,000
Other current liabilities .................................... 1,064,000 873,000
------------- -------------
Total current liabilities .......................... 6,752,000 7,891,000
Long-term debt and obligations under capital leases ................ 2,960,000 3,002,000
Stockholders' equity:
Common stock ................................................. 24,000 24,000
Additional paid-in capital ................................... 116,578,000 116,564,000
Accumulated deficit .......................................... (79,681,000) (79,699,000)
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Total stockholders' equity .............................. 36,921,000 36,889,000
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$ 46,633,000 $ 47,782,000
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See accompanying notes
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30, 1998 1997
------------ ------------
Revenues:
Net sales .................................... $ 9,803,000 $ 8,747,000
Research contracts and royalties ............. 1,068,000 622,000
------------ ------------
Total revenues ..................... 10,871,000 9,369,000
Costs and expenses:
Cost of sales ................................ 5,025,000 4,717,000
Research and development ..................... 2,047,000 1,747,000
Sales and marketing .......................... 2,222,000 2,543,000
General and administrative ................... 1,205,000 1,157,000
Restructuring related to European subsidiaries 420,000 --
------------ ------------
Total costs and expenses ........... 10,919,000 10,164,000
Operating income (loss) ............................ (48,000) (795,000)
Other income and expense:
Interest and other income .................... 154,000 108,000
Interest and other expense ................... (88,000) (104,000)
------------ ------------
Net income (loss) .................................. $ 18,000 $ (791,000)
------------ ============
Basic and diluted earnings (loss) per share ........ $ -- $ (.03)
============ ============
Shares used in basic per share calculation ......... 23,754,000 23,552,000
============ ============
Shares used in diluted per share calculation ....... 23,825,000 23,552,000
============ ============
See accompanying notes.
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended June 30, 1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 18,000 $ (791,000)
Adjustments to reconcile net income (loss) to net cash
flows provided by (used for) operating activities:
Depreciation and amortization ................................... 746,000 740,000
Changes in operating assets and liabilities:
Accounts receivable ........................................ 2,235,000 2,371,000
Inventories ................................................ (838,000) (606,000)
Prepaid expenses and other current assets .................. 166,000 413,000
Accounts payable ........................................... (1,075,000) 280,000
Accrued payroll and related expenses ....................... (97,000) (166,000)
Deferred contract research revenue ......................... (26,000) (187,000)
Accrued royalties .......................................... (126,000) 311,000
Other current liabilities .................................. 191,000 (234,000)
----------- -----------
Net cash flows provided by operating activities ............ 1,194,000 2,131,000
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to equipment and improvements .............................. (1,007,000) (1,429,000)
Increase in intangible and other assets .............................. (161,000) (2,363,000)
----------- -----------
Net cash flows used for investing activities ............... (1,168,000) (3,792,000)
CASH FLOWS (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ........................... 14,000 6,000
Payments on notes payable, long term debt and
obligations under capital leases ................................ (48,000) (45,000)
----------- -----------
Net cash flows used for financing activities ............... (34,000) (39,000)
Net decrease in cash and cash equivalents .................................. (8,000) (1,700,000)
Cash and cash equivalents at beginning of period ........................... 9,720,000 10,096,0000
----------- -----------
Cash and cash equivalents at end of period ................................. $ 9,712,000 $ 8,396,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............................. $ 78,000 $ 80,000
=========== ===========
Income taxes paid during the period................................... $ 69,000 $ 22,000
=========== ===========
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 three months ended June 30, 1998 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, 1998, included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange
Commission.
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 and warrants are excluded, and the calculation of diluted
earnings per share, both of which did not differ from the previous
primary earnings per share calculation.
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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 other 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.
Results of Operations. The Company's financial results for the first quarter
ended June 30, 1998 were favorably impacted by a 12% increase in net sales. Net
income for the quarter was $18,000, compared to a loss of $791,000, $.03 per
share in the first quarter of the prior year.
NET SALES TRENDS BY MAJOR SALES CHANNELS
INCREASE/
(DECREASE)
THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1998 1997 AMOUNT PERCENT
------- ------- ------- -------
Domestic sales:
Professional sales $ 6,327 $ 5,523 $ 804 15%
OTC, OEM and Clinical lab sales 662 559 103 18%
------- ------- ------- -------
Total domestic sales 6,989 6,082 907 15%
Percent of total sales 71% 70%
------- ------- ------- -------
International sales:
Export sales 1,698 1,484 214 14%
European subsidiary sales 1,116 1,181 (65) (6%)
------- ------- ------- -------
Total international sales 2,814 2,665 149 6%
Percent of total sales 29% 30%
------- ------- ------- -------
Total net sales $ 9,803 $ 8,747 $ 1,056 12%
======= ======= ======= =======
Overall sales for the first quarter increased $1,056,000 or 12% from the same
period of the prior year. U.S. Professional sales continue to account for the
majority of the sales growth as sales in the Company's core product areas of
pregnancy, Strep A and H. pylori each grew in excess of 20%.
International sales increased 6% over the prior year period. Export sales growth
in Latin America, Europe and Canada more than offset a decline in Asian sales,
which resulted from expiration of distribution agreements. European subsidiary
sales declined significantly in France, The Netherlands and Spain; however, this
was offset in part by our German subsidiary, which increased sales by 56% to
$683,000 in the quarter.
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The Company is in the process of closing its sales subsidiaries in France, The
Netherlands and Spain. Sales in these markets are expected to continue through
new distribution partners. This shift from direct to distributor sales will
initially result in lower sales and gross profit, due to reduced unit sales
prices to the distributor. The impact of this gross profit reduction is expected
to be offset by reduced subsidiary sales, marketing, and administrative
expenses.
Revenue from research contracts and royalties is principally related to revenue
from the Glaxo influenza and genital herpes diagnostic product development
programs which commenced in March 1996 and October 1997, respectively. If
successful, the products developed under these programs are expected to be
submitted to the FDA for marketing approval during the second half of calendar
year 1999. The amount of contract research revenue recognized is equal to the
sum of the direct program research cost (see Operating Expenses, below) and
allocated support service cost.
COST OF SALES AND GROSS PROFIT
THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1998 1997
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Direct Costs - material, labor and other variable cost $ 2,987 $ 3,186
As a percentage of sales 30.5% 36.4%
Royalty Expense - patent licenses 471 395
As a percentage of sales 4.8% 4.5%
-------- --------
Total direct cost 3,458 3,581
As a percentage of sales 35.3% 40.9%
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Direct Margin - contribution per sales dollar 64.7% 59.1%
Manufacturing overhead cost 1,567 1,136
As a percentage of sales 16.0% 13.0%
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Total cost of sales 5,025 4,717
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Gross profit $ 4,778 $ 4,030
As a percentage of sales 48.7% 46.1%
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Gross profit as a percentage of sales improved to 48.7% of sales which
represents an increase of 2.6 percentage points from the prior year level. The
average direct margin percentage provided by products sold increased 5.6
percentage points to 64.7%. This increase resulted from a shift in sales mix
toward higher margin products and cost reductions in areas of scrap, unfavorable
production cost variances, and outbound freight. Manufacturing overhead cost was
increased as a result of expanded production capacity, production supervision to
cover multiple shift operations, and the addition of purchasing and engineering
support staff.
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OPERATING EXPENSES
THREE MONTHS ENDED JUNE 30, (IN THOUSANDS) 1998 1997
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Research and development
Quidel research projects $1,158 $1,276
As a percentage of sales 12% 15%
Contract research -- direct costs 889 471
As a percentage of sales 9% 5%
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Total research and development 2,047 1,747
As a percentage of sales 21% 20%
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Sales and marketing
Domestic professional sales and marketing 1,506 1,598
Domestic OTC sales and marketing 56 55
International sales and marketing 660 890
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Total sales and marketing 2,222 2,543
As a percentage of sales 23% 29%
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General and administrative 1,205 1,157
As a percentage of sales 12% 13%
Restructuring costs related to European subsidiaries 420 --
As a percent of sales 4% --
------ ------
Total operating expenses $5,894 $5,447
As a percentage of sales 60% 62%
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Total operating expenses excluding contract research
and restructuring cost $4,585 $4,976
As a percentage of sales 47% 57%
====== ======
Operating expenses increased $447,000 in the current quarter over the prior year
level, $420,000 of which is related to costs of closing the Company's sales
subsidiaries in France, The Netherlands and Spain.
Research and Development. Research and development expense reflects increased
contract research expense due to the October 1997 commencement of the second
program with Glaxo Wellcome for the development of the two point-of-care
diagnostic tests to detect genital herpes; this program was not present in the
prior year period.
Sales and Marketing. Sales and marketing efficiency improved in the quarter as
reflected by the decline in total expense as a percent of sales. Reduced fixed
cost associated with the Company's European subsidiaries provided the majority
of the international sales and marketing expense reduction.
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General and Administrative. General and administrative expense increased 4% in
the current quarter in part as a result of increased recruiting and consulting
costs.
Net Income (Loss). The net income for the quarter resulted from increased gross
profit, derived from a combination of higher sales volume and production cost
reductions, offset in part by the restructuring cost related to the Company's
European subsidiaries.
Liquidity and Capital Resources. At June 30, 1998, the Company had cash and cash
equivalents of $9,712,000, compared to $9,720,000 at March 31, 1998. During the
three months ended June 30, 1998 the Company generated $1,194,000 in cash from
operating activities. Net cash used as a result of the increase in inventory and
payment of accounts payable was more than offset by net income, non-cash
depreciation and amortization, and the reduction in accounts receivable.
Net cash used for investment activities of $1,168,000 related to $1,007,000 in
capital expenditures for equipment and improvements to increase production
capacity and reduce product manufacturing cost and $161,000 paid for capitalized
patent application costs.
Net cash used in financing activities totaled $34,000, primarily related to debt
repayment.
QUIDEL's principal capital requirements are currently 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 1999.
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 other Securities and Exchange Commission filings, or
for various unanticipated reasons, actual results may differ materially.
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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 28, 1998 at the Wyndham Garden Hotel in San Diego, California.
(b) The directors elected at the meeting were:
Andre de Bruin
John D. Diekman
Thomas A. Glaze
Margaret G. McGlynn
Richard C.E. Morgan
Mary Lake Polan
Faye Wattleton
(c) Matters voted upon at the meeting and the results of those
votes were as follows:
1. Elected as director: For Against
--- -------
Andre de Bruin 19,416,529 160,749
John D. Diekman 19,417,049 160,229
Thomas A. Glaze 19,415,599 161,679
Margaret G. McGlynn 19,417,049 160,229
Richard C.E. Morgan 19,417,049 160,229
Mary Lake Polan 19,416,749 160,529
Faye Wattleton 19,416,649 160,629
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Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
2. Increase by 100,000 shares the total number of shares reserved for
issuance under the Company's 1983 Employee Stock
Purchase Plan. 10,024,504 1,380,101 150,573 8,022,100
---------- --------- ------- ---------
3. Increase by 80,000 shares the total number of shares reserved for
issuance under the Company's 1996 Non-Employee Directors
Stock Option Plan. 8,659,577 2,743,859 151,742 8,022,100
--------- --------- ------- ---------
4. Approve the adoption of the Quidel Corporation 1998 Stock Incentive
Plan under which a total of 3,000,000 shares are
reserved for issuance. 7,887,401 3,478,182 189,595 8,022,100
--------- --------- ------- ---------
5. Ratification of the selection of Ernst & Young LLP as independent
auditors for the Company for the
fiscal year ending March 31, 1999. 19,376,960 119,925 80,393
---------- ------- ------
The foregoing matters are described in detail in the Company's proxy statement
dated July 8, 1998 for the 1998 Annual Meeting of Stockholders.
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
------ -------
10.23* Employment agreement dated as of June 9, 1998
between the Registrant and Andre de Bruin.
10.24* Stock option agreement dated as of June 9, 1998
between the Registrant and Andre de Bruin.
27* Financial Data Schedule
* Attached hereto.
(b) Reports on Form 8-K filed in the first quarter of
fiscal 1999 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, 1998 /S/ STEVEN C. BURKE
--------------------------
Steven C. Burke
Chief Accounting Officer
Signed both as an officer duly authorized
to sign on behalf of the Registrant and
as Chief Accounting Officer
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