NEWS RELEASE
FOR IMMEDIATE RELEASE Company Contact:
Stanley J. Musial
Chief Financial Officer
(302) 456-6789
www.sdix.com
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Strategic Diagnostics Reports Fourth Quarter and Year-End Results and
Release of Screening Test for Materials in Animal Feed that are Linked
to Mad Cow Disease
NEWARK, Del., February 27, 2003 - Strategic Diagnostics Inc. (Nasdaq: SDIX) - a
leading provider of antibody products and analytical test kits for the food
safety and water quality markets, today reported financial results for the
fourth quarter and year ended December 31, 2002.
Revenue for the fourth quarter of 2002 was $6.3 million, compared with $6.6
million in the fourth quarter of 2001. The net loss in the fourth quarter
totaled $113,000, or $0.01 per share, compared to a net loss of $763,000, or
$0.04 per share, in the prior year quarter. For the year ended December 31,
2002, revenues were $23.8 million, versus $29.4 million in the prior year. Net
loss for the year totaled $912,000, or $0.05 per share, down from net income of
$1.1 million, or $0.06 per diluted share in the prior year.
Revenues for the water quality category increased in 2002, primarily due to
increasing sales of the Microtox(R) toxicity screening systems. More than 50
North American water systems, most of which serve more than 100,000 households,
currently utilize the system for drinking water. The Company continues to work
with customers as they assess their vulnerability to threats of intentional
contamination as currently required under U.S. law and is expanding its efforts
to market its Microtox(R) test systems to potential customers in the food and
beverage industry. The increase in Microtox(R) sales has been somewhat offset by
a decrease in sales of tests in the remediation market. Sales in this category
during 2002 were slower due to weak general economic conditions and harsh
weather experienced during the winter. The Company expects water quality
revenues to grow in 2003, particularly due to increased demand for Microtox(R)
and its attendant consumables as water processors and users have a heightened
awareness of the potential threat of chemical contamination, intentional or
otherwise.
The Company was recently awarded a 2002 Business Achievement Award from
Environmental Business Journal (EBJ) for its work in developing Microtox(R)
Technology into an effective Homeland Security technology. In its announcement
of the award, EBJ stated it was awarding the Company its 2002 Homeland Security
Award "...for rapidly deploying the Microtox(R) technology it acquired from AZUR
Environmental in 2001 to water quality security applications. Used predominantly
for wastewater and research prior to 9/11, SDI developed additional protocols
and application notes and as of the end of 2002 Microtox(R) is being used by
more than 50 major drinking water utilities across the country." Also recently,
American Water Company adopted the Company's Microtox(R) toxicity testing
technology for drinking water as an emergency response to detect intentional
contamination of drinking water supplies. American Water is the largest private
drinking water utility in the United States, providing drinking water services
to more than 15 million customers in 27 states and Canada. The company's quality
control and research laboratory located in Belleville, Illinois conducted a
thorough technical analysis of the operation and detection capabilities of
Microtox(R) technology. Based on the positive results of that study, AW has
selected Microtox(R) technology for implementation as a rapid response
analytical technology for use throughout their service areas.
Additionally, a manufacturer and processor of prepared meat products and a
supplier of meat products to many major consumer brand companies has adopted
Microtox(R) to test the water that is used in and on all of their products. They
selected the Microtox(R) system due to its ease of use and the ease of
incorporating the system into their normal food safety analytical program. Their
customers have commented how pleased they are that the company is taking this
action to protect the products supplied to them and, in doing so, protecting
their brands.
"We are very pleased that American Water Company and food processors have
selected Microtox(R) Technology as part of their comprehensive counter-terrorism
drinking water monitoring program," commented Richard C. Birkmeyer, President
and CEO. "We are also pleased that our work in making Microtox(R) available to
serve as an early warning technology for drinking water systems has been
recognized by Environmental Business Journal, a leading environmental and water
industry publication. Microtox(R) technology is currently serving as a crucial
part of the drinking water security monitoring programs of many major drinking
water utilities across the country. Microtox(R) provides the best means
available for rapid detection of the actual chemical impact and increase in
toxicity from an intentional contamination of drinking water. We are pleased
that Microtox(R) systems can serve in this important application to help deter
the threat of terrorism and we will continue to work with more and more major
drinking water utilities, as well as food and beverage companies, to maximize
the utilization of this important application of Microtox(R) technology."
Food safety revenues decreased in 2002, primarily due to the significant decline
in sales of StarLink(TM) test kits from record sales levels in 2001, as the
removal of StarLink(TM) corn from the nation's grain supply commenced late in
2000. StarLink(TM), which has been approved only for non-food uses, was
discovered in food products in 2000 and resulted in the need for growers,
handlers, processors, shippers and exporters to test corn for the presence of
StarLink(TM). The Company believes that reliance on genetically modified
organism (GMO) technology continues to grow both in the U.S. and abroad, and
that as a result, demand for the Company's GMO testing products, other than
tests for StarLink(TM), will increase as well. Sales of Company's GMO tests for
cottonseed increased during 2002 and the Company believes it now supplies every
major cottonseed company (in terms of seed sales) in the U.S. Many countries
outside the U.S. and Canada have adopted labeling regulations relating to GMO
content that could stimulate demand for the Company's GMO tests as food
manufacturers develop protocols to comply with these regulations.
Since the July 2002 launch of the RapidChek(R) lateral flow test for E. coli
O157, several field evaluations have been performed by major independent
laboratories. The results from these evaluations have prompted a globally
recognized food safety laboratory corporation to begin a nationwide
implementation of the RapidChek(R) E. coli O157 test method into its testing
protocols. This corporation expects its implementation to be complete by the end
of March 2003. Also, a leading global foodservice provider has completed an
in-depth study of the RapidChek(R) E. coli O157 test method. According to
statements made by the foodservice provider, the findings of this study revealed
that laboratories performing the RapidChek(R) test found a 65% reduction in
overall false positives when compared to a well-recognized competitive test, and
that RapidChek(R) showed greater sensitivity and was easier to use than the
competitive brand. This foodservice provider has endorsed the use of
RapidChek(R) tests for E. coli O157 testing by its meat suppliers. Several of
these meat suppliers initiated use of RapidChek(R) in January 2003. Another
significant evaluation performed by a U.S. regulatory agency has shown that the
RapidChek(R) E. coli O157 growing media performs better than other leading
brands in either 8-hour or 24-hour methods. Based on the foregoing, the Company
expects to attract a meaningful share of the worldwide E. coli testing market.
In January 2003, the Company conducted the commercial launch of its newest food
pathogen test to detect salmonella in food. Salmonella is the most common food
pathogen and is found in a wide variety of foods including meats, dairy and
processed foods. The Company's new test has several advantages over competitive
methods including a simplified preparation process that makes the test easier to
perform versus competitive brands. The product's performance standard meets all
necessary regulatory requirements. The Company has submitted the salmonella test
for third party validation by the AOAC Research Institute and key evaluations
are currently underway with major food companies and laboratories. The Company
expects to complete a licensing agreement of a lateral flow reading instrument
to read and record test results from its food pathogen lateral flow strip tests,
including the strip test used to detect salmonella.
In another development, the Company announced the release of its screening test
for the detection of meat and bone meal in animal feed, which is linked to the
transmission of BSE, commonly known as mad cow disease. This test, known as
FeedCheck, was designed in a lateral flow format to be more sensitive and easier
to use than other rapid, on-site methods. Compared to certain competitive
products, this test does not require weighing or boiling of samples. By
eliminating these steps, the FeedCheck test is faster, easier to use and will
not require equipment such as scales and heating devices. The method for animal
feed has been designed with multiple tests per strip to address the various
analytical requirements throughout the world. SDI's product has been shown to
detect as little as 0.1% bovine meat-and-bone meal in feed. These product
features are important to comply with customer specifications and governmental
regulations throughout the U.S., Europe and Japan. The test was developed in
collaboration with Molecular Circuitry, Inc. and sponsored by McDonald's.
Additionally, the Company's research and product development efforts are
continuing toward the completion of new products, including tests for the food
pathogen listeria.
Antibody segment revenues declined slightly in 2002 as the Company completed the
consolidation of its San Diego, California, operations into a single site at its
Maine location during 2002. Several new or expanded relationships were
established during 2002 as customers and prospects had the opportunity to
validate manufacturing and quality procedures at the expanded manufacturing
facilities in Maine. The Company believes that these relationships are designed
to develop into increasing sales, as the antibody division earns additional
projects under these relationships. The Company's project to develop a
point-of-treatment diagnostic test for Bayer's new product Repinotan(TM) is
continuing with Bayer's Phase III clinical trials expected to be completed
during 2003.
Fourth quarter manufacturing expenses were $3.6 million in the fourth quarter of
2002 compared to $4.3 million in the prior year fourth quarter. For the year,
these expenses totaled $12.3 million in 2002 down from $14.5 million in 2001.
The decrease for the quarter and year is primarily attributable to lower
StarLink(TM)-related sales volume in 2002. For the year, gross profits (total
revenues less manufacturing costs) decreased $3.4 million or 23% to $11.4
million and gross margins declined to 48.1% in 2002 from 50.6% in 2001. The
decline in gross margins is primarily attributable to the fact that the
Company's utilization of its manufacturing capacity was reduced as compared to
2001, a result of lower sales volume during 2002, resulting primarily from
reduced StarLink(TM)-related sales. The Company instituted several initiatives
late in the fourth quarter 2002 and early in the first quarter 2003 to leverage
its manufacturing capacity and improve its production yields. One such effort is
the elimination of separate test kit and antibody business units, resulting in a
single manufacturing organization.
Research and development expenses increased slightly to $850,000 in the fourth
quarter of 2002 compared to $812,000 in the prior year fourth quarter. For the
year these expenses totaled $3.3 million in 2002 versus $3.0 million in 2001.
These increases are primarily due to continued investment in the animal feed
test and the lateral flow food pathogen tests.
Selling, general and administrative expenses decreased to $2.3 million in the
fourth quarter of 2002 from $3.0 million in the prior year fourth quarter
primarily due to the Company's efforts to lower its expenses, including the
consolidation of its antibody facilities in Maine. For the year, these expenses
were essentially flat at $10.3 million. These expenses are expected to decline
in 2003 as the Company has stepped-up its efforts to streamline its operations,
including creating a single sales and marketing organization, which had
previously been organized in three distinct teams in the water quality, food
safety and antibody product categories. The Company believes that its new sales
organization structure is more efficient and will be more effective in
addressing all of the Company's market opportunities.
Commenting on the recent product introductions and market opportunities, Mr.
Birkmeyer said, "We continue to build on our reputation for quality products. We
expect these new food safety products to complement the growth of our sales in
our water and antibody products and together drive increase in 2003 revenues.
The recent organizational changes allow us to leverage our staff and position us
to meet the growth in revenues with improved profitability."
In another development, the Company reported that its commercial bank waived the
loan covenant covering the required level of EBITDA for the fourth quarter of
2002 and has amended the loan covenants to a minimum quick ratio of 2.25 and a
minimum tangible net worth of $22.5 million for the first three quarters of
2003. Beginning with the fourth quarter of 2003, the original provisions of the
loan agreement regarding financial covenants will be operative, namely a ratio
of EBITDA to current maturities of debt plus interest and cash paid for taxes
and a ratio of funded debt to EBITDA. The Company reported cash and working
capital of $2.1 million and $12.5 million respectively at December 31, 2002.
Conference Call
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A conference call to review fourth quarter results is scheduled for 11:00 a.m.
EDT today. The dial-in number for the live conference call will be 703/871-3794.
A live webcast of the conference call will be available on the Company's Web
site, www.sdix.com, as well as www.on24.com. For those who cannot listen to the
live broadcast, an audio replay of the call will be available on these sites for
30 days. Telephone replays of the call will be available from 2:00 p.m. EDT on
February 27 through 11:59 p.m. on February 28. To listen to the telephone
replay, dial 888/266-2081 (703/925-2533 outside the U.S.) and enter passcode
6411294.
About Strategic Diagnostics Inc.
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SDI is a leading provider of biotechnology-based diagnostic tests for a broad
range of agricultural, industrial, and water treatment applications. Through its
antibody business, Strategic BioSolutions, Strategic Diagnostics also provides
antibody and immunoreagent research and development services. SDI's test kits
are produced in a variety of formats suitable for field and laboratory use,
offering advantages of accuracy, cost-effectiveness, portability, and rapid
response. Trait Check(TM), GMO QuickCheck(TM), and GMO Check(TM) are pending
trademarks for SDI.
This news release contains certain forward-looking statements reflecting the
current expectations of Strategic Diagnostics Inc. and its subsidiaries (the
"Company"). These statements include, among others, statements regarding: the
Company's intentions with respect to future spending on research and
development; the development, market acceptance and sales of tests for
food-borne pathogens and related growth media; the size and nature of demand in
the markets for the Company's products and related effects on operating results;
the need for water quality and toxicity tests; anticipated increases in sales of
the Company's Microtox(R) toxicity screening systems; the implementation by a
globally recognized food service laboratory and by the meat suppliers to a
leading global foodservice provider of the Company's RapidChek(R) E. coli O157
test method; approval and validation by third parties of the Company's food
pathogen tests; the performance of the Company's testing products, the Company's
ability to complete a licensing agreement relating to a lateral flow reading
instrument; the amount of the Company's contract revenue, sales of the Company's
antibodies; the Company's development of a point-of-treatment diagnostic test
for Repinotan(TM); anticipated increases in gross margins, timing of new product
introductions and other information that may be predictive of future operating
results; the Company's ability to reduce operating expenses; and the Company's
ability to improve operating results thus enabling it to meet future loan
covenants. In addition, when used in this news release, the words "anticipate,"
"enable," "estimate," "intend," "expect," "believe," "potential," "may," "will,"
"should," "project" and similar expressions as they relate to the Company are
intended to identify said forward-looking statements. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, which may
cause actual results to differ from those anticipated at this time. Such risks
and uncertainties include, without limitation, changes in demand for products,
delays in product development, delays in market acceptance of new products,
retention of customers, attraction and retention of management and key
employees, adequate supply of raw materials, inability to obtain or delays in
obtaining third party approvals, or required government approvals, the ability
to meet increased market demand, competition, protection of intellectual
property, non-infringement of intellectual property, seasonality, the ability to
obtain financing and other factors more fully described in the Company's public
filings with the U.S. Securities and Exchange Commission.
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
- ---------------------------------------------------------------------------------------------------------------------
2002 2001
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 2,098 $ 2,379
Receivables, net 3,956 4,737
Inventories 6,821 7,639
Deferred taxes 1,009 861
Other current assets 499 504
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 14,383 16,120
- ---------------------------------------------------------------------------------------------------------------------
Property and equipment, net 4,013 4,072
Other assets 40 351
Deferred taxes 7,664 6,875
Intangible assets, net 7,066 4,716
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 33,166 $ 32,134
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 1,024 $ 1,620
Accrued expenses 665 1,236
Current portion of long term debt 211 1,333
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,900 4,189
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt 1,212 1,174
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock, $.01 par value, 20,920,648 shares authorized,
no shares issued or outstanding - -
Common stock, $.01 par value, 35,000,000 shares authorized, 18,937,330 and
17,858,889 shares issued and outstanding at December 31, 2002 and
December 31, 2001, respectively 190 178
Additional paid-in capital 35,312 31,114
Accumulated deficit (5,408) (4,496)
Cumulative translation adjustments (40) (25)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 30,054 26,771
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 33,166 $ 32,134
=====================================================================================================================
STRATEGIC DIAGNOSTICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Twelve Months
Ended December 31, Ended December 31,
- ---------------------------------------------------------------------------------------------- ----------------------------
2002 2001 2002 2001
=============================================================================== ============= ============= =============
NET REVENUES:
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Product related $ 6,305 $ 6,337 $ 23,264 $ 28,497
Contract and other 37 284 517 874
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Total net revenues 6,342 6,621 23,781 29,371
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OPERATING EXPENSES:
Manufacturing 3,604 4,260 12,340 14,512
Research and development 850 812 3,298 2,954
Selling, general and administrative 2,339 2,973 10,277 10,290
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Total operating expenses 6,793 8,045 25,915 27,756
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Operating income (loss) (451) (1,424) (2,134) 1,615
Interest expense, net 1 19 (50) (33)
Gain on sale of assets - - 374 76
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Income (loss) before taxes (450) (1,405) (1,810) 1,658
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Income tax expense (benefit) (337) (662) (898) 512
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Net income (loss) (113) (743) (912) 1,146
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Preferred stock dividends - 20 - 20
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Net income
applicable to common stockholders (113) (763) (912) 1,126
- ------------------------------------------------------------------------------- ------------- ------------- -------------
Basic net income (loss) per share $ (0.01) $ (0.04) $ (0.05) $ 0.07
=============================================================================== ============= ============= =============
Shares used in computing basic
net income (loss) per share 18,938,000 17,490,000 18,419,000 17,008,000
=============================================================================== ============= ============= =============
Diluted net income (loss) per share $ (0.01) $ (0.04) $ (0.05) $ 0.06
=============================================================================== ============= ============= =============
Shares used in computing diluted
net income (loss) per share 18,938,000 17,490,000 18,419,000 17,642,000
=============================================================================== ============= ============= =============