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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NUMBER 0-27316
MOLECULAR DEVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2914362
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1311 ORLEANS DRIVE
SUNNYVALE, CALIFORNIA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 747-1700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $.001 PAR VALUE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 22, 2000, based upon the last sale price reported for
such date on the NASDAQ National Market, was $397,073,104*.
The number of outstanding shares of the Registrant's Common Stock as of
March 22, 2000 was 9,732,132.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Proxy Statement for Registrant's 1999 Annual
Meeting of Stockholders (the "Proxy Statement") are incorporated by reference
into Part III of this Form 10-K Report.
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* Excludes approximately 5,416,120 shares of common stock held by Directors,
Officers and holders of 5% or more of the Registrant's outstanding Common
Stock at March 22, 2000. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of
the Registrant, or that such person is controlled by or under common control
with the Registrant.
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TABLE OF CONTENTS
MOLECULAR DEVICES CORPORATION
PART I
Item 1. Business........................................... 3
The Company...................................... 3
Industry Background.............................. 3
The Molecular Devices Solution................... 5
Strategy......................................... 5
Our Products..................................... 7
MAXline Products................................. 7
Cell Analysis Systems............................ 8
Threshold System................................. 10
Software and Customer Service.................... 11
Business Risks................................... 11
Research and Development......................... 19
Marketing and Customers.......................... 19
Manufacturing.................................... 20
Patents and Proprietary Technologies............. 20
Competition...................................... 20
Government Regulations........................... 21
Human Resources.................................. 21
Item 2. Properties......................................... 21
Item 3. Legal Proceedings.................................. 21
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 21
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 22
Item 6. Selected Consolidated Financial Data............... 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 24
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk............................................... 27
Item 8. Financial Statements and Supplementary Data........ 28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 28
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 29
Item 11. Executive Compensation............................. 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 29
Item 13. Certain Relationships and Related Transactions..... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................... 30
(a) Documents Filed with Report
(b) Reports on Form 8-K
(c) Exhibits
(d) Financial Statement Schedules
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PART 1
ITEM 1. BUSINESS
THE COMPANY
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Words such as "believes," "anticipates," "plans," "expects," "will," and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of Molecular Devices
Corporation to differ materially from those indicated by these forward-looking
statements, including, among others, those discussed in this section under
"Business Risks" as well as in the section entitled "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We are a leading developer of high-performance, bioanalytical measurement
systems that accelerate and improve drug discovery and other life sciences
research. Our systems enable pharmaceutical and biotechnology companies to
leverage advances in genomics and combinatorial chemistry by facilitating the
high throughput and cost effective identification and evaluation of drug
candidates. Our instrument systems are based on our advanced core technologies
which integrate our expertise in engineering, molecular and cell biology and
chemistry. Our systems are fundamental tools for drug discovery and life
sciences research, and our MAXline series of microplate readers and our FLIPR
Cell Analysis systems are market share leaders in their respective markets. Our
revenues were $62.0 million in 1999 and have increased at a compound annual rate
of 25% since 1995. We were originally incorporated in the state of California in
1983 and, in 1995, we reincorporated in the state of Delaware concurrent with
our initial public offering.
INDUSTRY BACKGROUND
Life sciences research, particularly drug discovery, is currently
undergoing a revolution as a result of two converging trends. The worldwide
effort to sequence the human genome is beginning to identify a large number of
previously unknown natural molecules that play a role in disease and thus are
likely targets for new therapeutic products. Until recently, only a few hundred
disease targets were available to drug discovery researchers; today, large-scale
DNA sequencing efforts such as the Human Genome Project appear likely to
identify tens of thousands of such targets. At the same time, advances in
combinatorial chemistry have provided chemists with techniques that allow them
to synthesize a greater number of and diversity of compounds than ever before.
Pharmaceutical companies previously maintained "libraries" of hundreds of
thousands of compounds to test against disease targets to determine their
potential as drugs; in the near future, drug researchers most likely will have
access to millions of such compounds.
The identification of disease targets and synthesis of chemical compounds
are key first steps in the drug discovery process. After this, researchers
undertake additional steps to determine which compounds are the most promising
drug candidates prior to entering clinical development. Among the most important
downstream steps in the drug discovery process are assay development, drug
candidate screening and lead optimization.
Assay Development. Once a disease target has been identified, researchers
must develop a test, or assay, to determine whether a particular compound has a
desired effect on the target. Most assays involve creating a biochemical
reaction that takes place in a microplate, which is a plate containing an array
of small wells that are similar to miniature test tubes. The plate is inserted
into a microplate reader, which measures the light absorbed or emitted by the
sample in each well. Depending upon its underlying technology, the reader
detects light in the form of absorption, fluorescence or luminescence. The type
of assay developed depends upon the characteristics of the disease target and
the type of information the researcher is seeking. Two major
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Molecular Devices, the Molecular Devices logo, FLIPR and SPECTRAmax are some of
our trademarks and
service marks. Other trademarks, trade names and service marks referred to in
this report are the property of
their respective owners.
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categories of assays are biochemical assays and cell-based assays. A cell-based
assay measures how a target on or inside a living cell responds to a compound;
in a biochemical assay, the target is isolated from the cell environment.
Because they more closely mimic the target's natural function, cell-based assays
are generally more valuable than biochemical assays in predicting how well a
compound is likely to function as a drug.
Drug Candidate Screening. Once an assay has been developed, it is performed
repeatedly to test the effects of a variety of compounds on the disease target,
a process known as screening. Primary screening identifies "hits," or compounds
that exhibit significant activity against a target; secondary screening gathers
more information on the hits to confirm and characterize their activity. Because
drug companies now have a rapidly increasing number of compounds to test, they
are interested in high throughput screening, or HTS, to reduce the amount of
time that is required for primary and secondary screening. Traditional
bioanalytical instruments and methods were not designed for high throughput
screening, which has contributed to the current bottleneck at this stage of the
drug discovery process.
Lead Optimization. Compounds that emerge from the secondary screening
process, now called "leads," are next subjected to successive rounds of
additional testing and chemical manipulations to make them even more suitable as
drug candidates. This process, known as lead optimization, involves a variety of
tests, such as cell-based assays, that yield a higher level of biological
information than screening assays. As drug companies generate increasing numbers
of leads, bottlenecks have emerged in this stage, resulting in demand for more
efficient lead optimization tools.
After optimization, a lead compound must pass a lengthy and expensive set
of pre-clinical and clinical trials before becoming a drug. Because of the
resources required to conduct such trials, the cost of failure is high; thus,
companies are interested in tools which allow more accurate assessment of a
compound's probability of success as early as possible in the drug discovery
process.
To reduce the length and cost of the drug discovery process, researchers
increasingly need tools that speed up the above steps and increase the value of
the information generated by them. Traditional bioanalytical instruments and
methods do not adequately address these needs because of several limitations,
including:
- Low sensitivity. One way to increase the speed of drug development is to
conduct assays in high-density microplates, such that many samples can be
analyzed in one equipment run. Microplates are now made in standard
formats with either 96, 384 or 1,536 wells; the more wells there are, the
smaller the sample volume in each well. Reading very small-volume samples
requires a higher level of sensitivity than is available in most
traditional detection equipment.
- Lack of automation. Throughput is often enhanced by incorporating a high
degree of automation into the drug discovery process. Some assays which
provide high levels of information, such as live cell-based assays,
require even more automation to run efficiently. For example, gaining
certain kinetic data from a live cell assay, which is valuable in lead
optimization, requires integrated liquid handling equipment so that
compounds can be added to the cells and the detector can read the result
of the assay almost instantaneously. Traditionally, many bioanalytical
instruments have not been designed to integrate easily with automation
equipment.
- Low information content. Many assays which provide a high level of
information about the activity of a compound against a target are
difficult to adapt to a high throughput mode of operation. The reasons
for this vary by the type of assay; for example, performing certain
cell-based assays in microplate wells requires a reader with a special
optical configuration and integrated liquid handling capability. Similar
technical hurdles have prevented researchers from performing other assays
with high information content quickly and efficiently.
The proliferation in disease targets and chemical compounds coupled with
the limitations of traditional technologies have created bottlenecks at each of
the downstream steps of the drug discovery process which our products are
specifically designed to address.
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THE MOLECULAR DEVICES SOLUTION
We offer a full range of high-performance bioanalytical systems that
address the sensitivity, automation, and depth-of-information challenges
currently faced by researchers. All of our major products possess levels of
detection sensitivity that enable the analysis of high-density microplates and
thereby increase throughput. These products also include, or are easily
integrated with, automation equipment to further enhance throughput and allow
complex assays to be performed with high efficiency. Additionally, we lead the
industry in providing technologies for performing information-rich live cell
assays in high throughput mode.
We currently offer three product families that address different segments
of the drug discovery market. Our MAXline family of microplate readers primarily
addresses the assay development market and offers the assay development
scientist seven differentiated microplate readers that include a wide range of
innovative and flexible feature sets. We are widely perceived as a leader in
microplate reader technology, and we believe that we have been the first to
offer a number of innovative features into the premium end of the microplate
reader market. Our Cell Analysis products, which include our Fluorometric
Imaging Plate Reader, or FLIPR, system, our new Chemiluminescence Imaging Plate
Reader, or CLIPR, system and our Cytosensor system, address cell-based research
in the high throughput screening and lead optimization market segments. We
believe that our FLIPR, CLIPR and Cytosensor systems provide researchers with
valuable information about the effect of potential drug compounds on cells.
Finally, our Threshold system is aimed at the biopharmaceutical manufacturing
and quality control process, and we believe that the Threshold system is the
only commercially available fully integrated system that rapidly and
reproducibly detects potential contaminants with picogram level sensitivity.
STRATEGY
Our objective is to be the world's leading provider of innovative
bioanalytical systems and related consumable products for life sciences
research. We are focusing on the drug discovery market and, specifically, on
providing comprehensive solutions that accelerate and improve the critical
downstream drug discovery processes of assay development, drug candidate
screening and lead optimization. Key elements of our strategy include:
- MAINTAIN AND ADVANCE OUR TECHNOLOGICAL LEADERSHIP. Since our first
product introduction in 1987, we have consistently developed innovative,
technologically advanced tools to facilitate and enhance life sciences research.
In the past, we have often been the first company among our competitors to
introduce a new technology to the market. We continue to invest in new products
as well as in enhancements to our existing products, thereby sustaining or
increasing our technological edge over competitors. Maintaining and advancing
our track record of innovation will be a key element of our future success,
particularly as the needs of drug discovery customers change due to advances in
genomics, proteomics, combinatorial chemistry and other disciplines. To
accomplish this, we typically invest and we intend to continue to invest 10% to
12% of our revenues in research and development to build upon our leading-edge
technological expertise and customer application knowledge.
- LEVERAGE OUR MARKET LEADERSHIP POSITION. Our technologically advanced
products and significant field presence have allowed us to develop strong
relationships with a broad range of drug discovery and life sciences research
customers. We have a large direct sales force which, in combination with our
technical and applications support staffs, provides high quality customer
service and possesses an in-depth understanding of customer needs. Historically,
our strong customer relationships have contributed to our ability to introduce
innovative, well-accepted products to the market, and we believe that these
relationships will continue to be an important source of new product development
ideas. Our large installed product base and field presence also provide us with
the opportunity to sell new products and product enhancements to our customers
with less effort and investment than would otherwise be required.
- INCREASE RECURRING REVENUE FROM OUR CONSUMABLE PRODUCTS. In order to
increase the value of our existing products and enhance our market position, we
have launched a significant effort to develop reagent kits that are optimized
for use on our Cell Analysis instruments. We have historically developed and
produced reagent kits for our Threshold systems, and we recently began to sell
consumables for our installed base of Cell
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Analysis instruments with the introduction of two kits for performing important
assays on FLIPR and CLIPR. We plan to introduce several additional kits this
year, and we have recently expanded our reagent manufacturing capacity. These
products allow us to offer complete assay systems (instruments and reagents) to
our customers, to increase our market share and to create a recurring revenue
stream to balance the inherent variability of our instrument revenue.
- EXPAND WORLDWIDE DISTRIBUTION AND SUPPORT. We maintain strong sales and
support organizations in North America and Europe and a network of selected
distribution partners to address regions that we do not serve directly. We
intend to enhance our market presence by expanding our existing direct sales
offices, opening new offices in attractive markets and forming additional
distribution relationships in new regions. We believe that building a direct
field presence in key markets in Asia and Europe will allow us to realize the
full potential of these markets in terms of increased sales, closer customer
relationships and improved competitive positioning.
- ACQUIRE COMPLEMENTARY BUSINESSES AND TECHNOLOGIES. We intend to seek
businesses and technologies that will enhance our ability to provide complete,
innovative solutions to drug discovery and life sciences research customers. As
we identify these opportunities, we intend to seek acquisitions, partnerships
and licensing arrangements with companies that meet our selection criteria. We
will focus on acquisitions that allow us to gain access to novel technologies,
broaden our product offerings to existing customers and extend our reach to new
customers. For example, in 1998 we acquired the underlying technology for CLIPR,
and in 1999 we acquired a complementary product line through our acquisition of
Skatron. In addition to pursuing acquisitions, we intend to seek partnerships
and licensing arrangements to supplement our in-house research and development
efforts and add complementary products to our existing offerings.
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OUR PRODUCTS
Our product lines include our MAXline family of microplate readers and
liquid handling systems, our Cell Analysis systems, which include the FLIPR,
CLIPR and Cytosensor systems, and our Threshold system.
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DATE US LIST PRICE PRIMARY DRUG
PRODUCT INTRODUCED RANGE DISCOVERY APPLICATION
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MAXLINE PRODUCTS
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Emax 1988 $ 5,000 - $ 7,195 Assay Development
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Vmax 1987 $ 6,900 - $ 8,695 Assay Development
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VERSAmax 1998 $ 9,825 - $ 13,800 Assay Development
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SPECTRAmax 340 PC 1998 $ 12,895 - $ 16,870 Assay Development
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SPECTRAmax 190 1998 $ 17,525 - $ 27,500 Assay Development
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SPECTRAmax PLUS(384) 2000 $ 23,000 - $ 29,000 Assay Development/HTS
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SPECTRAmax GEMINI XS 2000 $ 32,775 - $ 40,750 Assay Development/HTS
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Skatron Liquid Handling
Systems 1999 $ 5,990 - $ 39,500 Assay Development/HTS
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CELL ANALYSIS SYSTEMS
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FLIPR 1996 $265,000 Assay Development/HTS
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FLIPR(96) 1999 $320,000 - $410,000 HTS/Lead Optimization
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FLIPR(384) 1998 $370,000 - $460,000 HTS/Lead Optimization
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CLIPR 1999 $425,000 - $475,000 HTS/Lead Optimization
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Cytosensor 1992 $ 59,500 - $ 99,500 Lead Optimization
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Cell Analysis Reagent Kits 1999 $ 2,500 - $ 5,000 HTS
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THRESHOLD SYSTEM
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Threshold Instrument 1989 $ 49,500 Quality Control
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Threshold Reagent Kits 1989 $ 7,735 - $ 9,450 Quality Control
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MAXLINE PRODUCTS
Our MAXline products, which represented 57% of total revenues in 1999,
consist primarily of advanced microplate readers. Microplate readers have become
one of the most fundamental tools used in life sciences research by addressing
the increasing need for the acquisition and processing of large quantities of
biochemical and biological data. Microplate readers provide scientists the
benefit of high throughput analysis in a standardized, multi-sample format.
Because of the productivity gains using a multi-sample format, microplates have
largely replaced test tubes and cuvettes for many life sciences applications.
A microplate is a disposable plastic vessel that is used with a microplate
reader to measure light. The basic principles of microplate readers are that
light from an appropriate source is directed to a wavelength selection device,
such as a monochromator, and its intensity is measured before and after passing
through each of the sample wells of a microplate. Application of a mathematical
formula to the light intensity measurements of each microplate well provides a
measure of the sample present in the well. The measurement, known as optical
density, relative fluorescence, or luminescence, is proportional to the
concentration of the substance that is being measured. Historically, the
standard microplate was comprised of 96 individual wells. As cost and throughput
have become increasingly important, however, the industry has begun to move to
higher density plates including 384 wells and 1536 wells. We believe that this
trend towards miniaturization will continue to be a significant factor affecting
the microplate reader market in the future.
Our MAXline strategy has been to continue to introduce new products that
include first-of-a-kind features, as well as to offer varying feature sets and
price points to address different market segments. We have
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historically focused on the premium end of the microplate reader market through
offering products with advanced capabilities. Some of the first-of-a-kind
features that we have pioneered include the first reader and software capable of
kinetic analysis, the first monochromator-based reader that enabled continuous
wavelength selection and the first reader capable of performance comparable to a
spectrophotometer. In each case, we believe that the innovation helped expand
the utility of microplate readers and, more broadly, the available market for
microplate readers. Our MAXline family currently includes the following eight
primary products and product lines:
- Emax. This product is aimed at the market for traditional microplate
readers that do not require kinetic capability. We introduced it to
provide a reader for customers in academia and other customers with
restricted capital budgets.
- Vmax. This was the first microplate reader to offer kinetic read
capability and is designed to address the needs of biochemists.
- VERSAmax. The VERSAmax is our low cost variable wavelength offering that
provides kinetic capability and temperature control.
- SPECTRAmax 340PC. This product is a visible range microplate
spectrophotometer, offering tunability and the additional capability of
our patented PathCheck Sensor technology, which corrects common
variability problems across wells of microplates.
- SPECTRAmax 190. The predecessor to this product was the world's first
microplate reader that incorporated a monochromator for continuous
wavelength selection. Wavelength selection provides for enhanced
convenience and flexibility in assay design. In addition, the SPECTRAmax
190 also includes our patented PathCheck Sensor technology.
- SPECTRAmax PLUS(384). The SPECTRAmax PLUS, introduced in 1997, was our
first microplate reader aimed at the spectrophotometer market. It was the
industry's first microplate reader that was able to combine the high
throughput of a microplate reader with the performance of a cuvette based
spectrophotometer as a result of our patented PathCheck Sensor
technology. The SPECTRAmax PLUS was also the first microplate reader with
the ability to read wavelengths as short as 190 nanometers and as long as
1,000 nanometers, the equivalent range to a spectrophotometer. The
SPECTRAmax PLUS(384), introduced in 2000, addresses the needs of the high
throughput screening market by adding 384-well plate compatibility.
- SPECTRAmax GEMINI XS. SPECTRAmax GEMINI, introduced in late 1998, was the
world's first dual-scanning microplate spectrofluorometer. By
incorporating two scanning monochromators, the SPECTRAmax GEMINI allows
the user to automatically optimize the instrument setting for the
particular assay characteristics as well as for every fluorophore that is
in use today. GEMINI also was our first microplate reader capable of
multi-mode operation, in that the product is capable of fluorescence,
luminescence and time-resolved fluorescence measurements. The GEMINI XS
(Extra Sensitive), introduced in 2000, extends the GEMINI franchise by
significantly improving sensitivity and adding well scanning capability
which allows researchers to perform more complex cell based assays.
- Skatron Liquid Handling Systems. We acquired a line of liquid handling
systems, primarily washers, through our acquisition of Skatron in 1999.
Washers are used to dispense and remove fluid from microwell plates and
are used as an integral step during the course of many assays. The
Skatron products bring a complete line of state-of-the-art microwell
plate washers and other related tools, including cell harvesters, to the
MAXline product family. These products include a variety of cell and
plate washers that offer 96, 384 and 1536 well washing capabilities.
CELL ANALYSIS SYSTEMS
Our Cell Analysis systems, which represented 38% of our total revenues in
1999, are used to study the response of live cells to drug candidates and are
primarily targeted toward high throughput screening and lead
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optimization. Many therapeutic drugs are targeted to cell membrane receptors:
special proteins that function as control switches for cell activity and are
triggered by the specific binding of soluble natural substances to relay
messages to the cell via "signal transduction" mechanisms. Therapeutic drugs
which act on receptors either mimic or block the action of the natural
receptor-specific substance. The therapeutic potential of such drugs is,
therefore, most appropriately studied using live cell systems. These studies are
inherently challenging, but a high value is placed upon them by the
pharmaceutical industry and the research community. We focus on providing
complementary tools for studying the response of live cells to different
compounds, both for research and for drug candidate screening purposes.
FLIPR System
Our Fluorometric Imaging Plate Reader, or FLIPR, system satisfies a key
demand from pharmaceutical companies for live cell analysis at a high throughput
rate. Our FLIPR was the first instrument to enable high throughput screening of
live cells with high information content on cellular activation. Over 70
customers have purchased our FLIPR systems since introduction in 1996, including
the 20 largest pharmaceutical companies, several of which own five or more FLIPR
systems. The primary applications for our FLIPR system are the measurement of
intracellular calcium ion flux and membrane potential change, both of which
provide critical information on the activation of cells by test compounds.
In our FLIPR system, cells, along with appropriate fluorescent dyes, are
maintained in microplates in a humidified, thermally-controlled compartment
together with compound-addition plates. A laser light is then passed through the
wells to provide excitation illumination and fluorescence from cells on the
bottom of the wells. During the reading cycle, a built-in pipettor transfers
compound samples from the compound-addition plate to the cell plate and the
reaction is continuously monitored by an ultrasensitive charge coupled device, a
CCD camera, at intervals of less than one second. This strategy allows for
real-time monitoring of cells before and after compound addition, thus allowing
the measurement of rapid non-linear, response kinetics. Our FLIPR system's
limited depth-of-field fluorometry optical design is patented. We currently
offer three primary products based on our FLIPR technology platform.
- FLIPR. This product was introduced in 1996 and was our first entry into
the high throughput screening market. FLIPR is capable of simultaneously
analyzing each well of a 96 well plate and has a throughput of
approximately 10,000 samples per day. FLIPR will be discontinued in
mid-2000 and replaced with the FLIPR(96) described below.
- FLIPR(384). This product, introduced in 1998, was the second generation
FLIPR product. It combines all of the benefits of the original FLIPR
along with new automation capabilities and the ability to analyze samples
in 384 well microplates, as well as 96 well microplates. FLIPR(384) can
screen as many as 50,000 samples daily, and offers optional integrated
plate stacker and washer accessories which can dramatically reduce the
need for human intervention during sample processing. In addition, the
instrument also incorporates interfaces that enable it to integrate into
automated screening lines.
- FLIPR(96). This product is built on same chassis as the FLIPR(384) and is
capable of all of the automation benefits of the FLIPR(384). The primary
differentiation is that FLIPR(96) is not 384 well compatible, and
therefore will be targeted at lower throughput applications in lead
optimization. We also offer an upgrade package for the FLIPR(96) that
will enable 384 well capability.
CLIPR System
Our Chemiluminescence Imaging Plate Reader, or CLIPR, system was developed
based on telecentric lens luminometer technology licensed from Affymax Research
Institute in 1998. We introduced this system in the third quarter of 1999. It
satisfies a key demand from pharmaceutical companies for live cell analysis at
an ultra high throughput rate using luminescence technology. Our CLIPR can
support the analysis of over 200,000 samples in an eight hour day.
The system combines an ultra sensitive CCD camera with proprietary wide
field optics to achieve ultra high throughput by simultaneously imaging all of
the wells on a microplate. As a result of the simultaneous
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imaging, CLIPR is compatible with any microwell plate format including 96, 384,
1536 and beyond. Our CLIPR system can be integrated with a linear track robot,
used in workstation mode with an optional light-tight plate stacker module, or
used in a stand-alone mode.
The primary applications for CLIPR are cell-based and non-cell-based assays
such as reporter gene and SPA assays, which are important applications in the
drug discovery market. These applications complement the applications for our
FLIPR system, offering solutions for a wide range of cell-based assays.
Cytosensor System
We developed the Cytosensor system to provide a fast, reliable, single
assay system to investigate multiple cellular functions in numerous cell types.
Our Cytosensor system incorporates our core Light Addressable Potentiometric
Sensor, or LAPS, technology, a detection system capable of measuring a wide
variety of chemical reactions as they occur on the surface of a silicon based
sensor, into a patented system that permits researchers to conduct
microphysiometry (the study of cellular metabolism) without destroying the
cells. Cellular metabolism is the most fundamental and essential of all
physiological processes, and allows for the monitoring of cell activation,
stimulation, growth, toxicity and other biochemical events crucial to the
development of new therapeutics. We believe that the primary applications of the
Cytosensor system are receptor characterization, orphan receptor identification,
human cell pharmacological profiling and in vitro toxicology. We offer a
4-chamber Cytosensor system targeting customers with relatively low throughput
requirements and an 8-chamber system for customers who require higher
throughput.
Cell Analysis Reagents
We are expanding our reagent business by focusing on the internal
development of proprietary reagent kits optimized for our Cell Analysis
instruments. We have historically developed and produced reagent kits for our
Threshold systems, and we recently began to sell consumables for our installed
base of Cell Analysis instruments with the introduction of two kits for
performing important assays on FLIPR and CLIPR. During 1999, we hired a reagent
development and marketing team, built organic chemistry labs and expanded our
reagent production capacity. Our current Cell Analysis reagent offerings
include:
- FLIPR Calcium Assay Kit. This product will be officially released in the
second quarter of 2000, and we believe that it has the potential to
revolutionize the way FLIPR calcium assays are performed. The kit's
unique feature is that it enables researchers to eliminate a step in the
assay protocol, thereby saving up to 15 minutes of processing time for
each 384 well plate. This kit has the potential to significantly increase
throughput, reduce costs and increase screening efficiency.
- CLIPR Luciferase Assay Kit. This is optimized for 1536 well plates used
with the CLIPR system and targeted at reporter gene assay applications.
THRESHOLD SYSTEM
Our Threshold system, which is comprised of a detection instrument and
proprietary reagents, represented 5% of our total revenues in 1999. Our
Threshold system incorporates our LAPS technology to quantitate a variety of
biomolecules such as DNA, proteins and mRNA rapidly and accurately. The demand
for systems which can quantitate contaminants in the manufacturing and quality
control of bioengineered products is in response to the growing number of
biopharmaceutical therapeutics both entering clinical trials and receiving
regulatory approval for commercial sale. The Threshold system emerged from a
need by biopharmaceutical companies for more sensitive and reproducible methods
to detect contaminants in biopharmaceuticals during the manufacturing and
quality control process. Traditional detection methods, such as DNA
hybridization, can be slow, difficult to use in a manner that provides
reproducible and transferable results, and often require the use of radioactive
materials for detection. We believe that the Threshold system is the only
commercially available, fully-integrated system capable of rapidly and
accurately quantitating DNA with picogram level sensitivity. The Threshold
family of products includes a workstation, software and consumable reagent kits.
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- Threshold Instrument. The Threshold reader incorporates the proprietary
LAPS detection technology and proprietary software that collects and
analyzes the Threshold assay data.
- Threshold Reagents. We offer two Threshold reagent products. The Total
DNA Assay Kit allows for the detection of any DNA, and the ILA Kit is a
flexible format that can be used to detect and quantitate numerous
contaminants in the manufacture of bioengineered products.
SOFTWARE AND CUSTOMER SERVICE
In addition to instruments and consumable products, we also offer software
products and support services. All of our instrument products are used with
internally designed and developed software which are sold as an integral part of
the instrument system. We believe that our software is an important
differentiator for our instrument products relative to the competition based on
its ease-of-use and advanced data analysis capabilities.
Our service and support offerings include field service, customer support,
applications assistance and training through an organization of factory-trained
and educated service and application support personnel around the world. We
offer services to our installed base of customers on both a contract and time
and materials basis and we offer a variety of post-warranty contract options for
all our instrument offerings that customers may purchase. Our installed base
provides us with stable, recurring after-market service and support revenue, as
well as product upgrade and replacement opportunities.
BUSINESS RISKS
Our business, financial condition and results of operations are subject to
various risk factors, including those described below and elsewhere in this
report.
VARIATIONS IN THE AMOUNT OF TIME IT TAKES FOR US TO SELL OUR PRODUCTS AND
COLLECT ACCOUNTS RECEIVABLE AND THE TIMING OF CUSTOMER ORDERS MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO
DECLINE.
The timing of capital equipment purchases by customers is expected to be
uneven and difficult to predict. Our products represent major capital purchases
for our customers. We estimate that the average order price for our MAXline
products is $17,000, and that the average order price for our FLIPR products is
$350,000. Accordingly, our customers generally take a relatively long time to
evaluate our products, and a significant portion of our revenues is typically
derived from sales of a small number of relatively high-priced products.
Purchases are generally made by purchase orders and not long-term contracts.
Delays in receipt of anticipated orders for our relatively high priced products
could lead to substantial variability from quarter to quarter. Furthermore, we
have historically received purchase orders and made a significant portion of
each quarter's product shipments near the end of the quarter. If that pattern
continues, even short delays in the receipt of orders or shipment of products at
the end of a quarter could have a material adverse effect on results of
operations for that quarter.
We expend significant resources educating and providing information to our
prospective customers regarding the uses and benefits of our products. Because
of the number of factors influencing the sales process, the period between our
initial contact with a customer and the time when we recognize revenue from that
customer, if ever, varies widely. Our sales cycles typically range from three to
six months, but can be much longer. During these cycles, we commit substantial
resources to our sales efforts in advance of receiving any revenue, and we may
never receive any revenue from a customer despite our sales efforts.
The relatively high purchase price for a customer order contributes to
collection delays that result in working capital volatility. While the terms of
most of our purchase orders require payment within 30 days of product shipment,
in the past we have experienced significant collection delays. We cannot predict
whether we will continue to experience similar or more severe delays.
The capital spending policies of our customers have a significant effect on
the demand for our products. Those policies are based on a wide variety of
factors, including resources available to make purchases,
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spending priorities, and policies regarding capital expenditures during industry
downturns or recessionary periods. Any decrease in capital spending by our
customers resulting from any of these factors could harm our business.
WE DEPEND ON ORDERS THAT ARE RECEIVED AND SHIPPED IN THE SAME QUARTER AND
THEREFORE HAVE LIMITED VISIBILITY OF FUTURE PRODUCT SHIPMENTS.
Our net sales in any given quarter depend upon a combination of orders
received in that quarter for shipment in that quarter and shipments from
backlog. Our products are typically shipped within 30 to 90 days of purchase
order receipt. As a result, we do not believe that the amount of backlog at any
particular date is indicative of our future level of sales. Our backlog at the
beginning of each quarter does not include all product sales needed to achieve
expected revenues for that quarter. Consequently, we are dependent on obtaining
orders for products to be shipped in the same quarter that the order is
received. Moreover, customers may reschedule shipments, and production
difficulties could delay shipments. Accordingly, we have limited visibility of
future product shipments, and our results of operations are subject to
significant variability from quarter to quarter.
MANY OF OUR CURRENT AND POTENTIAL COMPETITORS HAVE SIGNIFICANTLY GREATER
RESOURCES THAN WE DO, AND INCREASED COMPETITION COULD IMPAIR SALES OF OUR
PRODUCTS.
We operate in a highly competitive industry and face competition from
companies that design, manufacture and market instruments for use in the life
sciences research industry, from genomic, pharmaceutical, biotechnology and
diagnostic companies and from academic and research institutions and government
or other publicly-funded agencies, both in the United States and abroad. We may
not be able to compete effectively with all of these competitors. Many of these
companies and institutions have greater financial, engineering, manufacturing,
marketing and customer support resources than we do. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
or market developments by devoting greater resources to the development,
promotion and sale of products, which could impair sales of our products.
Moreover, there has been significant merger and acquisition activity among our
competitors and potential competitors. These transactions by our competitors and
potential competitors may provide them with a competitive advantage over us by
enabling them to rapidly expand their product offerings and service capabilities
to meet a broader range of customer needs. Many of our customers and potential
customers are large companies that require global support and service, which may
be easier for our larger competitors to provide.
We believe that competition within the markets we serve is primarily driven
by the need for innovative products that address the needs of customers. We
attempt to counter competition by seeking to develop new products and provide
quality products and services that meet customers' needs. We cannot assure you,
however, that we will be able to successfully develop new products or that our
existing or new products and services will adequately meet our customers' needs.
Rapidly changing technology, evolving industry standards, changes in
customer needs, emerging competition and frequent new product and service
introductions characterize the markets for our products. To remain competitive,
we will be required to develop new products and periodically enhance our
existing products in a timely manner. We are facing increased competition as new
companies entering the market with new technologies compete, or will compete,
with our products and future products. We cannot assure you that one or more of
our competitors will not succeed in developing or marketing technologies or
products that are more effective or commercially attractive than our products or
future products, or that would render our technologies and products obsolete or
uneconomical. Our future success will depend in large part on our ability to
maintain a competitive position with respect to our current and future
technologies, which we may not be able to do. In addition, delays in the launch
of our new products may result in loss of market share due to our customers'
purchases of competitors' products during any delay.
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IF WE ARE NOT SUCCESSFUL IN DEVELOPING NEW AND ENHANCED PRODUCTS, WE MAY LOSE
MARKET SHARE TO OUR COMPETITORS.
The life sciences instrumentation market is characterized by rapid
technological change and frequent new product introductions. Over 70% of our
revenues in 1999 were derived from the sale of products that were introduced in
the last three years, and our future success will depend on our ability to
enhance our current products and to develop and introduce, on a timely basis,
new products that address the evolving needs of our customers. We may experience
difficulties or delays in our development efforts with respect to new products,
and we may not ultimately be successful in developing them. Any significant
delay in releasing new systems could adversely affect our reputation, give a
competitor a first-to-market advantage or cause a competitor to achieve greater
market share. In addition, our future success depends on our continued ability
to develop new applications for our existing products. If we are not able to
complete the development of these applications, or if we experience difficulties
or delays, we may lose our current customers and may not be able to attract new
customers, which could seriously harm our business and our future growth
prospects.
WE MUST EXPEND A SIGNIFICANT AMOUNT OF TIME AND RESOURCES TO DEVELOP NEW
PRODUCTS, AND IF THESE PRODUCTS DO NOT ACHIEVE COMMERCIAL ACCEPTANCE, OUR
OPERATING RESULTS MAY SUFFER.
We expect to spend a significant amount of time and resources to develop
new products and refine existing products. In light of the long product
development cycles inherent in our industry, these expenditures will be made
well in advance of the prospect of deriving revenue from the sale of new
products. Our ability to commercially introduce and successfully market new
products is subject to a wide variety of challenges during this development
cycle that could delay introduction of these products. In addition, since our
customers are not obligated by long-term contracts to purchase our products, our
anticipated product orders may not materialize, or orders that do materialize
may be canceled. As a result, if we do not achieve market acceptance of new
products, our operating results will suffer. In particular, while FLIPR and
CLIPR reagent kits have recently been introduced to the market, they have had
only limited sales to date and have not yet been widely commercially accepted.
We cannot predict whether these or other new products that we expect to
introduce will achieve commercial acceptance. Our products are generally priced
higher than competitive products, which may impair commercial acceptance.
IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED AND THE
SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL DECREASE.
Our products are complex and sometimes have contained errors, defects and
bugs when introduced. If we deliver products with errors, defects or bugs, our
credibility and the market acceptance and sales of our products would be harmed.
Further, if our products contain errors, defects or bugs, we may be required to
expend significant capital and resources to alleviate such problems. Defects
could also lead to product liability as a result of product liability lawsuits
against us or against our customers. We have agreed to indemnify our customers
in some circumstances against liability arising from defects in our products. In
the event of a successful product liability claim, we could be obligated to pay
damages significantly in excess of our product liability insurance limits.
MOST OF OUR CURRENT AND POTENTIAL CUSTOMERS ARE FROM THE PHARMACEUTICAL AND
BIOTECHNOLOGY INDUSTRIES AND ARE SUBJECT TO RISKS FACED BY THOSE INDUSTRIES.
We derive a significant portion of our revenues from sales to
pharmaceutical and biotechnology companies. We expect that sales to
pharmaceutical and biotechnology companies will continue to be a primary source
of revenues for the foreseeable future. As a result, we are subject to risks and
uncertainties that affect the pharmaceutical and biotechnology industries, such
as pricing pressures as third-party payors continue challenging the pricing of
medical products and services, government regulation and uncertainty of
technological change, and reduction and delays in research and development
expenditures by companies in these industries.
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In addition, our future revenues may be adversely affected by the ongoing
consolidation in the pharmaceutical and biotechnology industries, which will
reduce the number of our potential customers. Furthermore, we cannot assure you
that the pharmaceutical and biotechnology companies that are our customers will
not develop their own competing products or in-house capabilities.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD
ALSO CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR
PRODUCTS.
Third parties may assert infringement or other intellectual property claims
against us. We may have to pay substantial damages, including treble damages,
for past infringement if it is ultimately determined that our products infringe
a third party's proprietary rights. Further, any legal action against us could,
in addition to subjecting us to potential liability for damages, prohibit us
from selling our products before we obtain a license to do so from the party
owning the intellectual property, which, if available at all, may require us to
pay substantial royalties. Even if these claims are without merit, defending a
lawsuit takes significant time, may be expensive and may divert management
attention from other business concerns. There may be third-party patents that
may relate to our technology or potential products. Any public announcements
related to litigation or interference proceedings initiated or threatened
against us could cause our stock price to decline. We believe that there may be
significant litigation in the industry regarding patent and other intellectual
property rights. If we become involved in litigation, it could consume a
substantial portion of our managerial and financial resources.
WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH WOULD
BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO LOSE SOME OF OUR INTELLECTUAL
PROPERTY RIGHTS, WHICH WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
We rely on patents to protect a large part of our intellectual property and
our competitive position. In order to protect or enforce our patent rights, we
may initiate patent litigation against third parties, such as infringement suits
or interference proceedings. Litigation may be necessary to:
- assert claims of infringement;
- enforce our patents;
- protect our trade secrets or know-how; or
- determine the enforceability, scope and validity of the proprietary
rights of others.
Lawsuits could be expensive, take significant time and divert management's
attention from other business concerns. They would put our patents at risk of
being invalidated or interpreted narrowly and our patent applications at risk of
not issuing. We may also provoke third parties to assert claims against us.
Patent law relating to the scope of claims in the technology fields in which we
operate is still evolving and, consequently, patent positions in our industry
are generally uncertain. We cannot assure you that we will prevail in any of
these suits or that the damages or other remedies awarded, if any, will be
commercially valuable. During the course of these suits, there may be public
announcements of the results of hearings, motions and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
any of these results to be negative, it could cause our stock price to decline.
THE RIGHTS WE RELY UPON TO PROTECT OUR INTELLECTUAL PROPERTY UNDERLYING OUR
PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD ENABLE THIRD PARTIES TO USE OUR
TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO COMPETE IN THE MARKET.
Our success will depend in part on our ability to obtain commercially
valuable patent claims and to protect our intellectual property. Our patent
position is generally uncertain and involves complex legal and factual
questions. Legal standards relating to the validity and scope of claims in our
technology field are still evolving. Therefore, the degree of future protection
for our proprietary rights is uncertain.
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The risks and uncertainties that we face with respect to our patents and
other proprietary rights include the following:
- the pending patent applications we have filed or to which we have
exclusive rights may not result in issued patents or may take longer than
we expect to result in issued patents;
- the claims of any patents which are issued may not provide meaningful
protection;
- we may not be able to develop additional proprietary technologies that
are patentable;
- the patents licensed or issued to us or our customers may not provide a
competitive advantage;
- other companies may challenge patents licensed or issued to us or our
customers;
- patents issued to other companies may harm our ability to do business;
- other companies may independently develop similar or alternative
technologies or duplicate our technologies; and
- other companies may design around technologies we have licensed or
developed.
In addition to patents, we rely on a combination of trade secrets,
nondisclosure agreements and other contractual provisions and technical measures
to protect our intellectual property rights. Nevertheless, these measures may
not be adequate to safeguard the technology underlying our products. If they do
not protect our rights, third parties could use our technology, and our ability
to compete in the market would be reduced. In addition, employees, consultants
and others who participate in the development of our products may breach their
agreements with us regarding our intellectual property, and we may not have
adequate remedies for the breach. We also may not be able to effectively protect
our intellectual property rights in some foreign countries. For a variety of
reasons, we may decide not to file for patent, copyright or trademark protection
or prosecute potential infringements of our patents. We also realize that our
trade secrets may become known through other means not currently foreseen by us.
Notwithstanding our efforts to protect our intellectual property, our
competitors may independently develop similar or alternative technologies or
products that are equal or superior to our technology and products without
infringing on any of our intellectual property rights or design around our
proprietary technologies.
WE OBTAIN SOME OF THE COMPONENTS AND SUBASSEMBLIES INCLUDED IN OUR SYSTEMS FROM
A SINGLE SOURCE OR A LIMITED GROUP OF SUPPLIERS, AND THE PARTIAL OR COMPLETE
LOSS OF ONE OF THESE SUPPLIERS COULD CAUSE PRODUCTION DELAYS AND A SUBSTANTIAL
LOSS OF REVENUE.
We rely on outside vendors to manufacture many components and
subassemblies. Certain components, subassemblies and services necessary for the
manufacture of our systems are obtained from a sole supplier or limited group of
suppliers, some of which are our competitors. Additional components, such as
optical, electronic and pneumatic devices, are currently purchased in
configurations specific to our requirements and, together with certain other
components, such as computers, are integrated into our products. We maintain
only a limited number of long-term supply agreements with our suppliers.
Our reliance on a sole or a limited group of suppliers involves several
risks, including the following:
- we may be unable to obtain an adequate supply of required components;
- we have reduced control over pricing and the timely delivery of
components and subassemblies; and
- our suppliers may be unable to develop technologically advanced products
to support our growth and development of new systems.
For example, we currently rely on a single supplier of disposable plastic tips
used with our FLIPR(384) system, and we have in the past experienced delays and
customer dissatisfaction due to our supplier's inability to deliver an adequate
supply of tips. We cannot predict whether we will encounter additional similar
delays in the future. Our current supplier and known potential alternative
suppliers of disposable plastic tips used with our FLIPR(384) system are our
competitors.
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Because the manufacturing of certain of these components and subassemblies
involves extremely complex processes and requires long lead times, we may
experience delays or shortages caused by suppliers. We believe that alternative
sources could be obtained and qualified, if necessary, for most sole and limited
source parts. However, if we were forced to seek alternative sources of supply
or to manufacture such components or subassemblies internally, we may be forced
to redesign our systems, which could prevent us from shipping our systems to
customers on a timely basis. Some of our suppliers have relatively limited
financial and other resources. Any inability to obtain adequate deliveries, or
any other circumstance that would restrict our ability to ship our products,
could damage relationships with current and prospective customers and could harm
our business.
WE MAY ENCOUNTER MANUFACTURING AND ASSEMBLY PROBLEMS OR DELAYS, WHICH COULD
RESULT IN LOST REVENUE.
We assemble our systems in our manufacturing facilities located in
Sunnyvale, California and Norway. Our manufacturing and assembly processes are
highly complex and require sophisticated, costly equipment and specially
designed facilities. As a result, any prolonged disruption in the operations of
our manufacturing facilities could seriously harm our ability to satisfy our
customer order deadlines. If we cannot deliver our systems in a timely manner,
our revenues will likely suffer.
Our product sales depend in part upon manufacturing yields. We currently
have limited manufacturing capacity and experience variability in manufacturing
yields. We are currently manufacturing high throughput instruments in-house, in
limited volumes and with largely manual assembly. If demand for our high
throughput instruments increases, we will either need to expand our in-house
manufacturing capabilities or outsource to other manufacturers. If we fail to
deliver our products in a timely manner, our relationships with our customers
could be seriously harmed, and revenue would decline.
As we develop new products, we must transition the manufacture of a new
product from the development stage to commercial manufacturing. We have only
recently transitioned GEMINI XS and SPECTRAmax PLUS(384) from the development
stage to commercial manufacturing, and we have only recently begun the
transition process for the CLIPR system. We cannot predict whether we will be
able to complete these transitions on a timely basis and with commercially
reasonable costs. We cannot assure you that manufacturing or quality control
problems will not arise as we attempt to scale-up our production for any future
new products or that we can scale-up manufacturing and quality control in a
timely manner or at commercially reasonable costs. If we are unable to
consistently manufacture our products on a timely basis because of these or
other factors, our product sales will decline.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
We expect to continue to experience significant growth in the number of our
employees and customers and the scope of our operations. This growth may
continue to place a significant strain on our management and operations. Our
ability to manage this growth will depend upon our ability to broaden our
management team and our ability to attract, hire and retain skilled employees.
Our success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational and other systems, to manage
multiple, concurrent customer relationships and to hire, train and manage our
employees. Our future success is heavily dependent upon growth and acceptance of
new products. If we cannot scale our business appropriately or otherwise adapt
to anticipated growth and new product introductions, a key part of our strategy
may not be successful.
WE RELY UPON DISTRIBUTORS FOR PRODUCT SALES AND SUPPORT OUTSIDE NORTH AMERICA.
In 1999 approximately 17% of our sales were made through distributors. We
often rely upon distributors to provide customer support to the ultimate end
users of our products. As a result, our success depends on the continued sales
and customer support efforts of our network of distributors. The use of
distributors involves certain risks, including risks that distributors will not
effectively sell or support our products, that they will be unable to satisfy
financial obligations to us and that they will cease operations. Any reduction,
delay or loss of orders from our significant distributors could harm our
revenues. We also do not currently have distributors in
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a number of significant international markets that we have targeted and will
need to establish additional international distribution relationships. There can
be no assurance that we will engage qualified distributors in a timely manner,
and the failure to do so could have a material adverse effect on our business,
financial condition and results of operations.
IF WE CHOOSE TO ACQUIRE NEW AND COMPLEMENTARY BUSINESSES, PRODUCTS OR
TECHNOLOGIES INSTEAD OF DEVELOPING THEM OURSELVES, WE MAY BE UNABLE TO COMPLETE
THESE ACQUISITIONS OR MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE AN ACQUIRED
BUSINESS OR TECHNOLOGY IN A COST-EFFECTIVE AND NON-DISRUPTIVE MANNER.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, from time to time we have acquired
complementary businesses, products, or technologies instead of developing them
ourselves and may choose to do so in the future. We do not know if we will be
able to complete any acquisitions, or whether we will be able to successfully
integrate any acquired business, operate it profitably or retain its key
employees. Integrating any business, product or technology we acquire could be
expensive and time consuming, disrupt our ongoing business and distract our
management. In addition, in order to finance any acquisitions, we might need to
raise additional funds through public or private equity or debt financings. In
that event, we could be forced to obtain financing on terms that are not
favorable to us and, in the case of equity financing, that may result in
dilution to our shareholders. If we are unable to integrate any acquired
entities, products or technologies effectively, our business will suffer. In
addition, any amortization of goodwill or other assets or charges resulting from
the costs of acquisitions could harm our business and operating results.
WE DEPEND ON OUR KEY PERSONNEL, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO
COMPETE.
We are highly dependent on the principal members of our management,
engineering and scientific staff. The loss of the service of any of these
persons could seriously harm our product development and commercialization
efforts. In addition, research, product development and commercialization will
require additional skilled personnel in areas such as chemistry and biology,
software engineering and electronic engineering. Our corporate headquarters is
located in Sunnyvale, California, where demand for personnel with these skills
is extremely high and is likely to remain high. As a result, competition for and
retention of personnel, particularly for employees with technical expertise, is
intense and the turnover rate for these people is high. If we are unable to
hire, train and retain a sufficient number of qualified employees, our ability
to conduct and expand our business could be seriously reduced. The inability to
retain and hire qualified personnel could also hinder the planned expansion of
our business.
WE ARE DEPENDENT ON INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO
FOREIGN CURRENCY EXCHANGE RATE, POLITICAL AND ECONOMIC RISKS.
We maintain facilities in Norway, the United Kingdom and Germany, and sales
to customers outside the U.S. accounted for approximately 39% our revenues in
1999. We anticipate that international sales will continue to account for a
significant portion of our revenues.
All of our sales to international distributors are denominated in U.S.
dollars. All of our direct sales in the United Kingdom, Germany and Canada are
denominated in local currencies and totaled $13.9 million (22% of total
revenues) in 1999. To the extent that our sales and operating expenses are
denominated in foreign currencies, our operating results may be adversely
affected by changes in exchange rates. Historically, foreign exchange gains and
losses have been immaterial to our results of operations. However, we cannot
predict whether these gains and losses will continue to be immaterial,
particularly as we increase our direct sales outside North America. Owing to the
number of currencies involved, the substantial volatility of currency exchange
rates, and our constantly changing currency exposures, we cannot predict the
effect of exchange rate fluctuations on our future operating results. We do not
engage in foreign currency hedging transactions.
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Our reliance on international sales and operations exposes us to foreign
political and economic risks, including:
- political, social and economic instability;
- trade restrictions and changes in tariffs;
- import and export license requirements and restrictions;
- difficulties in staffing and managing international operations;
- disruptions in international transport or delivery;
- difficulties in collecting receivables; and
- potentially adverse tax consequences.
If any of these risks materialize, our international sales could decrease and
our foreign operations could suffer.
OUR OPERATING RESULTS FLUCTUATE AND ANY FAILURE TO MEET FINANCIAL EXPECTATIONS
MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE IN OUR
STOCK PRICE.
We typically experience a decrease in the level of sales in the first
calendar quarter as compared to the fourth quarter of the preceding year because
of budgetary and capital equipment purchasing patterns in the life sciences
industry. We also typically experience a decrease in revenues in the third
quarter compared to the second quarter, related to seasonality primarily
associated with lower European and academic sales during the summer months.
Our quarterly operating results have fluctuated in the past, and we expect
they will fluctuate in the future as a result of many factors, some of which are
outside of our control. In particular, if sales levels in a particular quarter
do not meet expectations, we may not be able to adjust operating expenses
sufficiently quickly to compensate for the shortfall, and our results of
operations for that quarter may be seriously harmed. We manufacture our products
based on forecasted orders rather than to outstanding orders. Our manufacturing
procedures may in certain instances create a risk of excess or inadequate
inventory levels if orders do not match forecasts. In addition, our expense
levels are based, in part, on expected future sales, and we generally cannot
quickly adjust operating expenses. For example, research and development and
general and administrative expenses are not affected directly by variations in
revenue.
It is possible that in some future quarter or quarters, our operating
results will be below the expectations of securities analysts or investors. In
this event, the market price of our common stock may fall abruptly and
significantly. Because our revenue and operating results are difficult to
predict, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance.
THE MARKET PRICE OF OUR COMMON STOCK WILL LIKELY FLUCTUATE IN RESPONSE TO A
NUMBER OF FACTORS, INCLUDING THE FOLLOWING:
- our failure to meet the performance estimates of securities analysts;
- changes in financial estimates of our revenues and operating results or
buy/sell recommendations by securities analysts;
- the timing of announcements by us or our competitors of significant
products, contracts or acquisitions or publicity regarding actual or
potential results or performance thereof; and
- general stock market conditions, other economic or external factors.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER,
WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR
OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing an acquisition, merger in which we are not the
surviving company or changes in our management. For example, our certificate of
incorporation gives our board of directors the authority to issue shares of
preferred stock and
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to determine the price, rights, preferences and privileges and restrictions,
including voting rights, of those shares without any further vote or action by
our stockholders. The rights of the holders of common stock will be subject to,
and may harmed by, the rights of the holders of any shares of preferred stock
that may be issued in the future. The issuance of preferred stock may delay,
defer or prevent a change in control, as the terms of the preferred stock that
might be issued could potentially prohibit our consummation of any merger,
reorganization, sale of substantially all of our assets, liquidation or other
extraordinary corporate transaction without the approval of the holders of the
outstanding shares of preferred stock. The issuance of preferred stock could
also have a dilutive effect on our stockholders. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of the outstanding voting
stock, from consummating a merger or combination involving us. These provisions
could limit the price that investors might be willing to pay in the future for
our common stock.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS.
This report, including the documents that we incorporate by reference,
contains forward-looking statements within the meaning of the federal securities
laws that relate to future events or our future financial performance. When used
in this report, you can identify forward-looking statements by terminology such
as "anticipate," "believe," "continue," "estimate," "expect," "intend," "may,"
"plan," "potential," "predict," "should," "will" and the negative of these terms
or other comparable terminology. These statements are only predictions. Our
actual results could differ materially from those anticipated in our
forward-looking statements as a result of many factors, including those set
forth here under "Business Risks" and elsewhere in this report.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We assume
no duty to update any of the forward-looking statements after the date of this
report or to conform these statements to actual results.
RESEARCH AND DEVELOPMENT
Our research and development team included 44 full time employees as of
December 31, 1999. We typically invest 10% to 12% of our revenues in research
and development, which has resulted in a track record of technological
innovation. Over 70% of our revenues in 1999 were derived from products that we
introduced in the last three years. Our research and development expenditures
were approximately $7,363,000 in 1999, $5,686,000 in 1998 and $4,721,000 in
1997.
Our research and development activities are focused on:
- broadening our technology solution, including development of new
proprietary reagent kits;
- providing more sensitive quantitative evaluation of biological events;
- providing greater throughput capability, especially with smaller sample
volumes; and
- developing increasingly sophisticated data management and analysis
capability.
MARKETING AND CUSTOMERS
Our sales and marketing organization included 68 full time employees in
North America and Europe as of December 31, 1999. We distribute our products
primarily through direct sales representatives in North America. We have
subsidiaries in the United Kingdom and Germany responsible for selling and
servicing our products. Our direct sales effort is supported by a team of
service, technical and applications specialists employed by us. We also sell our
products through international distributors, most of which enter into
distribution agreements with us that provide for exclusive distribution
arrangements and minimum purchase targets. Such agreements also generally
prohibit the distributors from designing, manufacturing, promoting or selling
any products that are competitive with our products.
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Our customers include leading pharmaceutical and biotechnology companies as
well as medical centers, universities, government research laboratories and
other institutions throughout the world. No single customer accounted for more
than 5% of our total 1999 revenues.
In 1999, sales to customers outside the United States accounted for 39% of
total revenues and total sales denominated in foreign currencies accounted for
22% of total revenues. We anticipate that international sales will account for
an increasing percentage of revenues in the future. We expect to continue
expanding our international operations in order to take advantage of increasing
international market opportunities resulting from worldwide growth in the life
sciences industry.
MANUFACTURING
We manufacture our products at our facilities in Sunnyvale, California and
Norway. Our California facility is ISO 9001 certified. We manufacture our own
components where we believe it adds significant value, but we rely on suppliers
for the manufacture of selected components and subassemblies, which are
manufactured to our specifications. We conduct all final testing and inspection
of our products. We have established a quality control program, including a set
of standard manufacturing and documentation procedures intended to ensure that,
where required, our instruments are manufactured in accordance with Good
Manufacturing Practices.
PATENTS AND PROPRIETARY TECHNOLOGIES
We protect our proprietary rights from unauthorized use by third parties to
the extent that our proprietary rights are covered by valid and enforceable
patents or are effectively maintained as trade secrets. Patents and other
proprietary rights are an essential element of our business. Our policy is to
file patent applications and to protect technology, inventions and improvements
to inventions that are commercially important to the development of our
business. As of December 31, 1999, we were maintaining 32 U.S. patents and other
corresponding foreign patents based on our discoveries that have been issued or
allowed. In addition, as of that date, we had 26 patent applications pending in
the United States and had filed several corresponding foreign patent
applications.
We are a party to various license agreements that give us rights to use
certain technologies. In particular, we have exclusive licenses for the
technologies on which our FLIPR and CLIPR are based. We pay royalties to the
parties from which we licensed or acquired the FLIPR and CLIPR core
technologies.
We also rely on trade secret, employee and third-party nondisclosure
agreements and other protective measures to protect our intellectual property
rights pertaining to our products and technology.
COMPETITION
The market for life sciences instrumentation is highly competitive, and we
expect competition to increase. We compete for the allocation of customer
capital funds with many other companies marketing capital equipment, including
those not directly competitive with any of our products. Some of our products
also compete directly with similar products from other companies.
The microplate reader market is characterized by intense competition among
a number of companies, including Bio-Tek Instruments, LJL Biosystems, Packard
BioScience, PerkinElmer, Tecan and Thermo BioAnalysis, that offer, or may in the
future offer, products with performance capabilities generally similar to those
offered by our products. We expect that competition is likely to increase in the
future, as several current and potential competitors have the technological and
financial ability to enter the microplate reader market. Our MAXline products
are generally priced at a premium to other microplate readers. We compete in the
microplate reader market primarily on the basis of performance and productivity.
Many companies, research institutions and government organizations that might
otherwise be customers for our products employ methods for bioanalytical
analysis that are internally developed.
The cell analysis instrument market is also characterized by intense
competition among a number of companies, including Amersham Pharmacia Biotech,
Aurora Biosciences, Cellomics, Packard BioScience, PE
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Biosystems and PerkinElmer, that offer, or may in the future offer, products
with performance capabilities generally similar to those offered by our
products. We believe that the primary competitive factors in the market for our
products are throughput, quantitative accuracy, breadth of applications,
ease-of-use, productivity enhancement, quality, support and price/performance.
We believe that we compete favorably with respect to these factors.
Many of our competitors have significantly greater financial, technical,
marketing, sales and other resources than we do. In addition to competing with
us with respect to product sales, these companies and institutions compete with
us in recruiting and retaining highly qualified scientific and management
personnel.
GOVERNMENT REGULATIONS
In the United States, the development, manufacturing, distribution,
labeling and advertising of products intended for use in the diagnosis of
disease or other conditions is extensively regulated by the U.S. Food and Drug
Administration, known as the FDA. These products generally require FDA clearance
before they may be marketed, and also are subject to postmarket manufacturing,
reporting and labeling requirements. With the exception of certain of our
MAXline microplate readers, none of our products is intended for use in the
diagnosis of disease or other conditions, and, therefore, they are not currently
subject to FDA regulation. The MAXline readers intended for diagnostic uses are
the subject of an FDA marketing clearance. If we were to offer any of our other
products for diagnostic uses, those products would become subject to FDA
regulation.
HUMAN RESOURCES
As of December 31, 1999, we employed 213 persons full time, including 44 in
research and development, 78 in manufacturing, 68 in marketing and sales and 23
in general administration and finance. Of these employees, 36 hold Ph.D. or
other advanced degrees. None of our employees is covered by collective
bargaining agreements, and we consider relations with our employees to be good.
ITEM 2. PROPERTIES
We lease two facilities with approximately 115,000 square feet of
laboratory, manufacturing and administrative space in Sunnyvale, California. Our
leases expire in November 2001 and April 2003. We also lease a sales and service
office in the United Kingdom, a sales and technical office in Germany, and a
small manufacturing facility in Norway. We believe that our current facilities
will be sufficient for our operations through at least 2001.
ITEM 3. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"MDCC."
The prices per share reflected on the table below represent the range of
high and low closing prices of the common stock on the Nasdaq National Market,
for the period indicated.
1999 1998
-------------- -----------
HIGH LOW HIGH LOW
----- ----- ---- ---
First Quarter................................. 31 20 1/2 22 3/8 15 1/4
Second Quarter................................ 37 1/2 21 3/4 19 3/8 14 3/8
Third Quarter................................. 41 1/2 26 1/18 18 1/2 12 1/8
Fourth Quarter................................ 52 27 17/18 21 3/4 16
Historically, we have not paid cash dividends on our common stock and do
not intend to pay any cash dividends in the foreseeable future. Any future cash
dividends will be determined by the Board of Directors. As of March 22, 2000,
there were approximately 104 stockholders of record of Molecular Devices. On
March 22, 2000, the last sale price reported on the Nasdaq National Market for
our common stock was $92.00 per share.
We entered into employment arrangements with each of Joseph D. Keegan,
Ph.D., Mr. Timothy A. Harkness and Mr. John S. Senaldi pursuant to which we are
obligated to issue to each such officer shares of our Common Stock in exchange
for services rendered. As a result of these arrangements, we issued shares of
our Common Stock to these officers on the dates and amounts indicated below in
reliance on the exemption from registration afforded by Section 4(2) of the
Securities act of 1933, as amended.
NUMBER
OF SHARES DATE OF ISSUE
--------- -------------
Dr. Keegan............................................ 3,750 03/30/99
3,750 06/30/99
3,750 09/30/99
3,750 12/30/99
Mr. Harkness.......................................... 1,250 01/01/99
1,250 04/09/99
1,250 07/09/99
1,250 10/09/99
Mr. Senaldi........................................... 312 02/06/99
312 05/06/99
312 08/06/99
312 11/06/99
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial information
for Molecular Devices certain portions of which are based on, and should be read
in conjunction with, our audited consolidated financial statements that are
being filed as a part of this report.
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues................................. $61,985 $47,798 $38,286 $30,926 $25,615
Cost of revenues......................... 22,745 17,716 14,426 11,741 10,416
------- ------- ------- ------- -------
Gross margin............................. 39,240 30,082 23,860 19,185 15,199
Operating expenses:
Research and development............... 7,363 5,686 4,721 4,581 3,639
Write-off of acquired in-process
research and development(1)......... 2,037 876 -- 4,637 --
Selling, general and administrative.... 17,431 14,078 11,883 9,920 8,549
------- ------- ------- ------- -------
Total operating expenses............ 26,831 20,640 16,604 19,138 12,188
------- ------- ------- ------- -------
Income from operations................... 12,409 9,442 7,256 47 3,011
Other income (expense), net.............. 1,421 1,584 1,220 1,079 (33)
------- ------- ------- ------- -------
Income before income taxes............... 13,830 11,026 8,476 1,126 2,978
Income tax provision (benefit)........... 5,325 4,245 3,174 (1,126) (1,081)
------- ------- ------- ------- -------
Net income............................... $ 8,505 $ 6,781 $ 5,302 $ 2,252 $ 4,059
======= ======= ======= ======= =======
Basic net income per share............... $ 0.89 $ 0.72 $ 0.58 $ 0.26 $ 0.58
Diluted net income per share............. $ 0.84 $ 0.70 $ 0.55 $ 0.24 $ 0.53
OTHER DATA:
Pro forma diluted net income per
share(2)............................... $ 0.97 $ 0.75 $ 0.55 $ 0.37 $ 0.24
DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $28,192 $32,689 $26,773 $23,727 $20,379
Working capital.......................... 48,745 43,438 35,752 27,395 22,786
Total assets............................. 64,751 54,405 42,791 36,833 28,800
Total stockholders' equity............... 56,784 45,823 37,417 29,277 24,525
- ---------------
(1) Our 1999 income from operations included a $2.0 million write-off for the
acquisition of in-process technology and acquisition costs relating to our
acquisition of Skatron Instruments AS. Our 1998 income from operations
included an $876,000 write-off for the acquisition of in-process technology
and acquisition costs relating to our acquisition of certain technology
rights from Affymax Research Institute, a subsidiary of Glaxo Wellcome. Our
1996 income from operations included a $4.6 million write-off for the
acquisition of in-process technology and acquisition costs related to our
acquisition of NovelTech Systems.
(2) We have excluded the impact of the write-offs of in-process technology and
acquisition costs in 1999, 1998 and 1996 described in footnote (1) above,
net of tax. 1996 and 1995 also exclude the tax benefits we realized from the
utilization of net operating loss carryforwards and include a provision for
taxes at a 38.5% effective rate.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. You can identify forward-looking statements by terminology such
as "anticipate", "believe", "continue", "estimate", "expect", "intend", "may",
"plan", "potential", "predict", "should", "will" and the negative of these terms
or other comparable terminology. Our actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section as well as
under "Item I. Business -- Business Risks."
We are a leading developer of high-performance, bioanalytical measurement
systems that accelerate and improve drug discovery and other life sciences
research. Our systems enable pharmaceutical and biotechnology companies to
leverage advances in genomics and combinatorial chemistry by facilitating the
high throughput cost effective identification and evaluation of drug candidates.
Our instrument systems are based on our advanced core technologies which
integrate our expertise in engineering, molecular and cell biology and
chemistry. Our systems are fundamental tools for drug discovery and life
sciences research, and our MAXline series of microplate readers and our FLIPR
Cell Analysis systems are market share leaders in their respective markets. Our
revenues were $62.0 million in 1999 and have increased at a compound annual rate
of 25% since 1995.
We typically invest 10% to 12% of our revenues in research and development,
which has resulted in a track record of technological innovation. Over 70% of
our revenues in 1999 were derived from products that we introduced in the last
three years. We have sold over 13,000 instruments since the introduction of our
first microplate reader in 1987. In addition, over 70 customers have purchased
our FLIPR systems since its introduction in 1996, including the 20 largest
pharmaceutical companies, several of which own five or more FLIPR systems. We
expect that increased sales of recently introduced products, including GEMINI
XS, FLIPR(384) and CLIPR, and revenues from new instrument introductions will
continue to drive our growth. We also believe that the introduction of reagent
kits optimized for our products represents a significant growth opportunity.
Our customers include small and large pharmaceutical, biotechnology and
industrial companies as well as medical centers, universities, government
research laboratories and other institutions throughout the world. No single
customer accounted for more than 5% of our consolidated revenues in 1999. We
recognize revenue on the sale of our products at the time of shipment either
directly to a customer or to a distributor. There are no significant customer
acceptance requirements or post shipment obligations on our part. Service
contract revenue is deferred at the time of sale and recognized ratably over the
period of performance. Total service revenue was less than 5% of total revenues
for all periods presented. In 1999, sales to foreign countries accounted for 39%
of total revenues and total sales denominated in foreign currencies accounted
for 22% of total revenues. We typically experience a decrease in the level of
sales in the first calendar quarter as compared to the fourth quarter of the
preceding year because of budgetary and capital equipment purchasing patterns in
the life sciences industry. We expect this trend to continue in future years.
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RESULTS OF OPERATIONS
The following table summarizes our consolidated statement of income as a
percentage of revenues:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of revenues............................................ 36.7 37.1 37.7
----- ----- -----
Gross margin................................................ 63.3 62.9 62.3
Research and development.................................... 11.9 11.9 12.3
Write-off of acquired in-process research and development... 3.3 1.8 0.0
Selling, general and administrative......................... 28.1 29.5 31.0
----- ----- -----
Income from operations...................................... 20.0 19.8 19.0
Other income, net........................................... 2.3 3.3 3.2
----- ----- -----
Income before income taxes.................................. 22.3 23.1 22.1
Income tax provision........................................ 8.6 8.9 8.3
----- ----- -----
Net income.................................................. 13.7% 14.2% 13.8%
===== ===== =====
Pro forma net income(1)..................................... 15.7% 15.3% 13.8%
- -------------------------
(1) Excludes the impact of the write-offs of acquired in-process research and
development recorded in 1999 and 1998, net of tax.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenues for 1999 increased by 30% to approximately $62.0 million from
approximately $47.8 million in 1998. This top-line growth was driven by strong
contributions from our MAXline and Cell Analysis product families, partially
offset by decreased performance of our Threshold product family. MAXline
revenues increased primarily due to the worldwide strength of the SPECTRAmax
GEMINI as well as our newly acquired Skatron liquid handling product line. Cell
Analysis growth was driven primarily by increased worldwide demand for new FLIPR
products introduced in late 1998, particularly FLIPR(384). Threshold revenues
declined primarily as a result of decreased demand from military customers
worldwide.
Revenues for 1998 increased by 25% to approximately $47.8 million from
approximately $38.2 million in 1997. All three product families showed increased
levels of revenue in 1998. MAXline revenues increased due to both greater sales
of the new SPECTRAmax products, including the SPECTRAmax PLUS, SPECTRAmax 190
and SPECTRAmax GEMINI, and increased penetration of MAXline products into our
European distribution channels. Cell Analysis revenues increased due to both the
introduction of FLIPR(384) and increased demand for other FLIPR products
worldwide. Threshold revenues increased due to greater volume shipments to
military customers worldwide.
Gross margin increased to 63.3% in 1999 from 62.9% in 1998 and 62.3% in
1997. Both year to year increases relate to increased sales of higher margin
products in both the MAXline and Cell Analysis product families, primarily the
SPECTRAmax GEMINI and FLIPR(384).
Research and development expenses for 1999 increased by 29% to
approximately $7.4 million from approximately $5.7 million in 1998 and by 20% in
1998 compared to approximately $4.7 million in 1997. The increased spending for
both periods is primarily the result of additional personnel as well as
increased expenditures on development activities required to support both the
introduction and on-going development of new MAXline and Cell Analysis products.
We recorded a charge of $2,037,000 during the second quarter of 1999 due to
the write-off of acquired in-process research and development related to our
acquisition of Skatron. We recorded an $876,000 charge during the third quarter
of 1998 due to the write-off of acquired in-process research and development
related to our acquisition of technology rights from Affymax Research Institute,
a subsidiary of Glaxo Wellcome.
Selling, general and administrative expenses for 1999 increased by 24% to
approximately $17.4 million from approximately $14.1 million in 1998 and by 18%
in 1998 compared to approximately $11.9 million in
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1997. The increased spending for both periods is primarily the result of
additional spending on marketing, sales and service related activities
(including additional personnel) as we continued our efforts to expand worldwide
market coverage and introduce new products. Selling, general and administrative
expenses as a percentage of revenues were 28.1% in 1999, 29.5% in 1998 and 31.0%
in 1997, reflecting improved operating leverage as our revenue base has grown.
Other income (net), consisting primarily of interest income, decreased by
10% in 1999 to approximately $1.4 million from approximately $1.6 million in
1998 due to a decreased average cash balance primarily as a result of the
Skatron acquisition. Other income (net) increased by 30% in 1998 to
approximately $1.6 million from approximately $1.2 million in 1997 due to
greater interest income earned resulting from higher average cash balances.
We recorded income tax provisions of approximately $5.3 million in 1999,
$4.2 million in 1998 and $3.2 million in 1997. These provisions reflected a
38.5% effective tax rate in 1999 and 1998 as compared to a 37.5% effective tax
rate in 1997. The higher effective tax rate for 1999 and 1998 reflects decreased
tax benefits from our foreign sales corporation.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of approximately $28.2 million at December
31, 1999 compared to $32.7 million at December 31, 1998. We have typically
financed operations primarily from cash flows provided by operating activities,
which contributed approximately $3.9 million in 1999, $6.9 million in 1998 and
$4.4 million in 1997. Cash provided by operations in these years was primarily
reflective of our earnings as offset by short-term working capital needs for
accounts receivable and inventory. Our requirements for inventory in 1999, in
particular, were greater than in previous years as a result of the Skatron
acquisition as well as the ramp up of production of new Cell Analysis systems.
Net cash used in investing activities was approximately $9.1 million in 1999,
$1.5 million in 1998 and $543,000 in 1997, and was used primarily for capital
expenditures, except for 1999 when approximately $7.1 million of cash was used
for the acquisition of Skatron. Net cash provided by financing activities was
$849,000 in 1999 and $521,000 in 1998 while net cash used in financing
activities was approximately $567,000 for 1997. The 1999 and 1998 proceeds
relate primarily to stock option exercises. The use of funds in 1997 reflects
repayment of a $1.5 million promissory note related to the 1996 acquisition of
NovelTech, partially offset by proceeds from stock option exercises.
We believe that our existing cash and investment securities and anticipated
cash flow from our operations will be sufficient to support our current
operating plan for the foreseeable future. Our forecast of the period of time
through which our financial resources will be adequate to support our operations
is a forward-looking statement that involves risks and uncertainties, and actual
results could vary as a result of a number of factors. We have based this
estimate on assumptions that may prove to be wrong. Our future capital
requirements will depend on many factors, including:
- the progress of our research and development;
- the number and scope of our research programs;
- market acceptance and demand for our products;
- the costs that may be involved in enforcing our patent claims and other
intellectual property rights;
- potential acquisition and technology licensing opportunities;
- manufacturing capacity requirements; and
- the costs of expanding our sales, marketing and distribution capabilities
both in the United States and abroad.
We have generated sufficient cash flow from operations to fund our capital
requirements since our initial public offering in 1995. However, we cannot
assure you that we will not require additional financing in the future to
support our existing operations or potential acquisition and technology
licensing opportunities that
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may arise. Therefore, we may in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of capital.
Our cash and investments policy emphasizes liquidity and preservation of
principal over other portfolio considerations. We select investments that
maximize interest income to the extent possible given these two constraints. We
satisfy liquidity requirements by investing excess cash in securities with
different maturities to match projected cash needs and limit concentration of
credit risk by diversifying our investments among a variety of high
credit-quality issuers.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to become
Year 2000 ready. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We expensed Year 2000
remediation costs as incurred. There were no significant incremental costs
incurred. We are not aware of any material problems resulting from Year 2000
issues, either with our products, our internal systems, or the products and
services of third parties. We will continue to monitor our mission critical
computer applications and those of our suppliers and vendors throughout the Year
2000 so that any latent Year 2000 matters that may arise are addressed promptly.
RECENT PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
referred to as SAB 101. SAB 101 summarizes certain of the SEC staff's views in
applying generally accepted accounting principles to revenue recognition. We are
currently in the process of evaluating SAB 101 and what effect it may have on
our financial statements. Accordingly, we have not determined whether SAB 101
will have a material impact on our financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including changes in interest rates and
foreign currency exchange rates. The primary objective of our investment
activities is to preserve principal while at the same time maximizing the income
we receive from our investments without significantly increasing risk. A
discussion of our accounting policies for financial instruments and further
disclosures relating to financial institutions is included in the Summary of
Significant Accounting Policies note in the Notes to Consolidated Financial
Statements.
Our interest income is sensitive to changes in the general level of
interest rates, primarily U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on our cash equivalents. We invest our
excess cash primarily in demand deposits with United States banks and money
market accounts and short-term securities. These securities, consisting of
commercial paper and U.S. government agency securities, are carried at market
value, which approximate cost, typically mature or are redeemable within 90
days, and bear minimal risk. We have not experienced any significant losses on
the investments.
We are exposed to changes in exchange rates primarily in the United
Kingdom, Germany and Canada. All export sales, with the exception of sales into
Canada, are denominated in U.S. dollars and bear no exchange rate risk. However,
a strengthening of the US dollar could make our products less competitive in
overseas markets. Gains and losses resulting from foreign currency transactions
in Canada have historically been immaterial. Translation gains and losses
related to our foreign subsidiaries in the United Kingdom and Germany are
accumulated as a separate component of Stockholders' equity. Those gains and
losses have historically been immaterial.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Molecular Devices and
financial statement schedules are attached to this report as pages F-1 through
F-16.
Financial Statements:
- Report of Ernst & Young LLP, Independent Auditors
- Consolidated Balance Sheets at December 31, 1999 and 1998
- Consolidated Statements of Income for each of the three years in the
period ended December 31, 1999
- Consolidated Statement of Stockholders' Equity for the three years in the
period ended December 31, 1999
- Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1999
- Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and Executive Officers may be found
in the sections entitled "Proposal 1 -- Election of Directors," and "Executive
Officers of the Company," respectively, appearing in the definitive Proxy
Statement to be delivered to stockholders in connection with the solicitation of
proxies for our Annual Meeting of Stockholders to be held on May 25, 2000 (the
"Proxy Statement"). Such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Proxy Statement
under the heading "Executive Compensation," which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the Proxy Statement
under the heading "Certain Transactions," which information is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements -- See Index to Consolidated Financial Statements
as Item 8 on page 28 of this report.
2. Financial Statement Schedules -- See Index to Consolidated Financial
Statements as Item 8 on page 28 of this report.
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1(1) Form of Agreement and Plan of Merger between the Registrant
and Molecular Devices Corporation, a California Corporation
2.2(6) Stock and Asset Purchase Agreement, dated as of May 17,
1999, among Molecular Devices Corporation, a Delaware
corporation, Helge Skare, Wiel Skare, Steinar Faanes and
Sten Skare, each an individual resident in Norway, Skatron
Instruments AS, a Norwegian company, and Skatron
Instruments, Inc., a Virginia corporation (the Disclosure
Schedule has been omitted as permitted pursuant to the rules
and regulations of the Securities and Exchange Commission
("SEC"), but will be furnished supplementally to the SEC
upon request)
2.3(6) Escrow Agreement, dated as of May 17, 1999, among Molecular
Devices Corporation, a Delaware corporation, Helge Skare,
Wiel Skare and Greater Bay Trust Company, as Escrow Agent.
3.1(1) Amended and Restated Certificate of Incorporation of
Registrant
3.2(1) Bylaws of the Registrant
4.1(1) Specimen Certificate of Common Stock of Registrant
4.2(1) Reference is made to Exhibits 3.1 through 3.2
10.1(1)* 1988 Stock Option Plan
10.2(1)* Form of Incentive Stock Option under the 1988 Stock Option
Plan
10.3(1)* Form of Supplemental Stock Option under the 1988 Stock
Option Plan
10.4(1)* 1995 Employee Stock Purchase Plan
10.5(1) 1995 Non-Employee Directors' Stock Option Plan
10.6(1) Form of Nonstatutory Stock Option under the 1995
Non-Employee Directors' Stock Option Plan
10.7(1)* 1995 Stock Option Plan
10.8(1)* Form of Incentive Stock Option under the 1995 Stock Option
Plan
10.9(1)* Form of Nonstatutory Stock Option under the 1995 Stock
Option Plan
10.10(1)* Form of Early Exercise Stock Purchase Agreement under the
1995 Stock Option Plan
10.11(1)* Form of Indemnity Agreement between the Registrant and its
Directors and Executive Officers
10.12(1)* Consulting Agreement dated July 20, 1988 by and between the
Registrant and Harden M. McConnell, Ph.D.
10.13(1) Lease Agreement dated January 17, 1994 by and between Aetna
Life Insurance Company and the Registrant
10.18(3) Reserved
30
31
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.19(4)* Key Employee Agreement for Joseph D. Keegan dated March 11,
1998 (as amended)
10.20(5) "Exclusive License and Technical Support Agreement" with
Affymax
10.21(5)* Employee Offer Letter for Tim Harkness
10.22(5)* Employee Offer Letter for Tony Lima
10.23(5)* Employee Offer Letter for John Senaldi
10.24(7) 1995 Non-Employee Director's Stock Option Plan, as amended
10.25(7) 1995 Stock Option Plan, as amended
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
- ---------------
(1) Incorporated by reference to the similarly described exhibit in our
Registration statement on Form S-1 (File No. 33-98926), as amended.
(2) Incorporated by reference to the similarly described exhibit in our Form 8-K
Current Report dated June 7, 1996, and filed June 21, 1996 (as amended
August 31, 1996).
(3) Incorporated by reference to the similarly described exhibit in our Form
10-K Annual Reported dated December 31, 1997 and filed March 26, 1998.
(4) Incorporated by reference to the similarly described exhibit in our Form
10-Q Quarterly Report dated June 30, 1998, and filed August 13, 1998.
(5) Incorporated by reference to the similarly described exhibit in our Form
10-Q Quarterly Report dated September 30, 1998, and filed November 13, 1998.
(6) Incorporated by reference to the similarly described exhibit in our current
report on Form 8-K filed May 26, 1999.
(7) Incorporated by reference to the similarly described exhibit in our Form
10-Q Quarterly Report dated June 30, 1999 and filed August 10, 1999.
* Management contract or arrangement.
(b) Reports on Form 8-K
A report on Form 8-K dated May 18, 1999 was filed on May 26, 1999.
(c) Exhibits
See Item 14(a) above.
(d) Financial Statement Schedule
See Item 14(a) above.
31
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on March
28, 2000.
MOLECULAR DEVICES CORPORATION
By: /s/ JOSEPH D. KEEGAN, PH.D.
------------------------------------
Joseph D. Keegan, Ph.D.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOSEPH D. KEEGAN, PH.D. President, Chief Executive March 28, 2000
- ----------------------------------------------------- Officer and Director (Principal
Joseph D. Keegan, Ph.D. Executive Officer)
/s/ TIMOTHY A. HARKNESS Vice President, Finance and March 28, 2000
- ----------------------------------------------------- Chief Financial Officer
Timothy A. Harkness (Principal Financial and
Accounting Officer)
/s/ MOSHE H. ALAFI Director March 28, 2000
- -----------------------------------------------------
Moshe H. Alafi
/s/ DAVID L. ANDERSON Director March 28, 2000
- -----------------------------------------------------
David L. Anderson
/s/ A. BLAINE BOWMAN Director March 28, 2000
- -----------------------------------------------------
A. Blaine Bowman
/s/ PAUL GODDARD, PH.D. Director March 28, 2000
- -----------------------------------------------------
Paul Goddard, Ph.D.
/s/ ANDRE F. MARION Director March 28, 2000
- -----------------------------------------------------
Andre F. Marion
/s/ HARDEN M. MCCONNELL, PH.D. Director March 28, 2000
- -----------------------------------------------------
Harden M. McConnell, Ph.D.
/s/ J. ALLAN WAITZ, PH.D. Director March 28, 2000
- -----------------------------------------------------
J. Allan Waitz, Ph.D.
32
33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Molecular Devices Corporation
We have audited the accompanying consolidated balance sheets of Molecular
Devices Corporation as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Molecular
Devices Corporation at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 18, 2000
F-1
34
MOLECULAR DEVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
------------------
1999 1998
------- -------
ASSETS
Current assets:
Cash and cash equivalents................................. $28,192 $32,689
Accounts receivable net of allowance for doubtful accounts
of $376 and $325 at December 31, 1999 and 1998,
respectively........................................... 17,416 12,958
Inventories............................................... 7,918 4,055
Deferred tax asset........................................ 2,465 1,630
Other current assets...................................... 721 688
------- -------
Total current assets.............................. 56,712 52,020
Equipment and leasehold improvements, net................... 2,776 2,115
Other assets................................................ 5,263 270
------- -------
$64,751 $54,405
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,624 $ 2,135
Accrued compensation...................................... 2,225 1,728
Other accrued liabilities................................. 1,732 3,217
Deferred revenue.......................................... 1,386 1,502
------- -------
Total current liabilities......................... 7,967 8,582
Commitments
Stockholders' equity:
Preferred stock, no par value, issuable in series; 3,000,000
shares authorized, no shares issued and outstanding at
December 31, 1999 and 1998, respectively.................. -- --
Common stock, $.001 par value; 30,000,000 shares authorized;
9,661,960 and 9,476,062 shares issued and outstanding at
December 31, 1999 and 1998, respectively.................. 10 9
Additional paid-in capital.................................. 44,661 42,391
Deferred compensation....................................... (154) (586)
Retained Earnings........................................... 12,740 4,235
Accumulated other comprehensive income...................... (473) (226)
------- -------
Total stockholders' equity........................ 56,784 45,823
------- -------
$64,751 $54,405
======= =======
See accompanying notes.
F-2
35
MOLECULAR DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
REVENUES.................................................... $61,985 $47,798 $38,286
COST OF REVENUES............................................ 22,745 17,716 14,426
------- ------- -------
GROSS MARGIN................................................ 39,240 30,082 23,860
------- ------- -------
OPERATING EXPENSES:
Research and development.................................. 7,363 5,686 4,721
Write-off of acquired in-process research and
development............................................ 2,037 876 --
Selling, general and administrative....................... 17,431 14,078 11,883
------- ------- -------
Total operating expenses.......................... 26,831 20,640 16,604
------- ------- -------
Income from operations...................................... 12,409 9,442 7,256
Other income, net........................................... 1,421 1,584 1,220
------- ------- -------
Income before income taxes.................................. 13,830 11,026 8,476
Income tax provision........................................ 5,325 4,245 3,174
------- ------- -------
NET INCOME.................................................. $ 8,505 $ 6,781 $ 5,302
======= ======= =======
Basic net income per share.................................. $ 0.89 $ 0.72 $ 0.58
======= ======= =======
Diluted net income per share................................ $ 0.84 $ 0.70 $ 0.55
======= ======= =======
See accompanying notes.
F-3
36
MOLECULAR DEVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ACCUMULATED OTHER TOTAL
COMMON ADDITIONAL DEFERRED RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK PAID-IN CAPITAL COMPENSATION EARNINGS INCOME EQUITY
------ --------------- ------------ -------- ----------------- -------------
BALANCE AT DECEMBER 31, 1996........... 9 37,462 (401) (7,848) 55 29,277
Comprehensive income
Net income......................... -- -- -- 5,302 -- 5,302
Currency translation............... -- -- -- -- (255) (255)
-------
Total comprehensive income.... 5,047
-------
Issuance of 318,370 shares of common
stock for options exercised........ -- 933 -- -- -- 933
Issuance of 25,135 shares of common
stock under Employee Stock Purchase
Plan............................... -- 332 -- -- -- 332
Tax benefits from employee stock
transactions....................... -- 1,706 -- -- -- 1,706
Amortization of deferred
compensation....................... -- -- 122 -- -- 122
Reversal of deferred compensation for
terminated employees............... -- (131) 131 -- -- --
-- ------- ----- ------- ----- -------
BALANCE AT DECEMBER 31, 1997........... 9 40,302 (148) (2,546) (200) 37,417
Comprehensive income
Net income......................... -- -- -- 6,781 -- 6,781
Currency translation............... -- -- -- -- (26) (26)
-------
Total comprehensive income.... 6,755
-------
Issuance of 111,666 shares of common
stock for options exercised........ -- 521 -- -- -- 521
Issuance of 19,984 shares of common
stock under Employee Stock Purchase
Plan............................... -- 309 -- -- -- 309
Tax benefits from employee stock
transactions....................... -- 477 -- -- -- 477
Deferred Compensation................ -- 782 (782) -- -- --
Amortization of deferred
compensation....................... -- -- 344 -- -- 344
-- ------- ----- ------- ----- -------
BALANCE AT DECEMBER 31, 1998........... 9 42,391 (586) 4,235 (226) 45,823
== ======= ===== ======= ===== =======
Comprehensive income
Net income......................... -- -- -- 8,505 -- 8,505
Currency translation............... -- -- -- -- (247) (247)
-------
Total comprehensive income.... 8,258
-------
Issuance of 144,752 shares of common
stock for options exercised........ 1 1,074 -- -- -- 1,075
Issuance of 19,898 shares of common
stock under Employee Stock Purchase
Plan............................... -- 380 -- -- -- 380
Tax benefits from employee stock
transactions....................... -- 816 -- -- -- 816
Amortization of deferred
compensation....................... -- -- 432 -- -- 432
-- ------- ----- ------- ----- -------
BALANCE AT DECEMBER 31, 1999........... 10 $44,661 $(154) $12,740 $(473) $56,784
== ======= ===== ======= ===== =======
See accompanying notes.
F-4
37
MOLECULAR DEVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 8,505 $ 6,781 $ 5,302
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 928 753 729
Loss on disposal of fixed assets.......................... -- -- 31
Charge for acquired in-process research and development... 2,037 -- --
Amortization of deferred compensation..................... 432 344 122
Amortization of goodwill and developed technology......... 196 -- --
(Increase) decrease in assets:
Accounts receivable.................................... (4,154) (4,059) (3,503)
Inventories............................................ (3,350) (590) (995)
Deferred tax asset..................................... (835) 237 1,349
Other current assets................................... (15) (566) 20
Increase (decrease) in liabilities:
Accounts payable....................................... 388 819 (617)
Accrued compensation................................... 497 476 225
Other accrued liabilities.............................. (522) 2,205 1,336
Deferred revenue....................................... (116) 494 412
------- ------- -------
Net cash provided by operating activities................... 3,991 6,894 4,411
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (1,500) (1,371) (625)
Acquisition of Skatron Instruments AS, net of cash on
hand...................................................... (7,118) -- --
Other assets................................................ (472) (102) 82
------- ------- -------
Net cash used in investing activities....................... (9,090) (1,473) (543)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of promissory notes............................... (226) -- (1,500)
Issuance of common stock.................................... 1,075 521 933
------- ------- -------
Net cash provided by (used in) financing activities......... 849 521 (567)
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (247) (26) (255)
------- ------- -------
Net (decrease) increase in cash and cash equivalents........ (4,497) 5,916 3,046
Cash and cash equivalents at beginning of year.............. 32,689 26,773 23,727
------- ------- -------
Cash and cash equivalents at end of year.................... 28,192 32,689 26,773
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes.............................................. $ 6,070 $ 2,932 $ 472
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Disposals of fully depreciated equipment and leasehold
improvements.............................................. $ 108 $ -- $ 85
======= ======= =======
See accompanying notes.
F-5
38
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Molecular Devices Corporation (the "Company"), a Delaware corporation, is
principally involved in the design, development, manufacture, sale and service
of bioanalytical measurement systems for life sciences applications. The
principal markets for the Company's products include leading pharmaceutical and
biotechnology companies as well as medical centers, universities, government
research laboratories and other institutions throughout the world.
The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiaries in Germany, the United Kingdom and
Norway. All significant intercompany balances and transactions have been
eliminated.
New Accounting Standard
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
referred to as SAB 101. SAB 101 summarizes certain of the SEC staff's views in
applying generally accepted accounting principles to revenue recognition. We are
currently in the process of evaluating SAB 101 and what effect it may have on
our financial statements. Accordingly, we have not determined whether SAB 101
will have a material impact on our financial position or results of operations.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company invests its excess cash primarily in demand deposits with
United States banks and money market accounts and short-term securities. These
securities, consisting of commercial paper and U.S. government agency
securities, are carried at market value (which approximates cost), typically
mature or are redeemable within 90 days, and bear minimal risk. The Company has
not experienced any significant losses on the investments.
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents. All such
investments are classified as available for sale.
The Company's investments at December 31, 1999 were comprised of short-term
corporate and government and non-government debt instruments that are classified
as cash equivalents. Due to the highly liquid nature of the Company's
investments, the adjusted cost basis of the investments approximated fair value
at December 31, 1999, and therefore unrealized gains or losses at that date were
immaterial.
Concentration of Credit Risk
The Company sells its products primarily to corporations, academic
institutions, government entities and distributors within the life sciences
research market. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been historically
within management's expectations.
F-6
39
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inventories
Inventories are stated on a first-in, first-out basis at the lower of cost
or market. Demonstration equipment, included in inventories, is amortized over
two years.
Equipment and Leasehold Improvements
Equipment is recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the assets (ranging from three to five
years). Leasehold improvements are amortized over the remaining term of the
lease.
Intangible Assets
Other assets include primarily goodwill and various intangible assets,
related to acquisition of Skatron in May 1999. These amounts are being amortized
over a period not exceeding 15 years using the straight-line method. At December
31, 1999, gross intangible assets were $4,717,000 and related accumulated
amortization was $196,000.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable based on expected undiscounted cash flows
attributable to that asset. The amount of any impairment is measured as the
difference between the carrying value and the fair value of the impaired asset.
There were no long-lived assets, which were considered to be impaired during all
periods presented.
Income Taxes
Income taxes are accounted for under the liability method whereby deferred
tax asset or liability account balances are calculated at the balance sheet date
using current tax laws and rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized
in future.
Foreign Currency Translation
The Company translates the assets and liabilities of its foreign
subsidiaries into dollars at the rates of exchange in effect at the end of the
period and translates revenues and expenses using rates in effect during the
period. Gains and losses from these translations are accumulated as a separate
component of stockholders' equity. Gains and losses resulting from foreign
currency transactions are immaterial and are included in the statements of
income.
Revenue Recognition and Warranty
The Company recognizes product revenue at the time of product shipment
directly either to a customer or to a distributor and provides for estimated
warranty expense at the time of sale. There are no significant customer
acceptance requirements or post shipment obligations on the part of the Company.
Service contract revenue is deferred at the time of sale and recognized ratably
over the period of performance.
Advertising Costs
The Company expenses the cost of advertising as incurred. The Company
incurred advertising costs of approximately $886,000, $766,000 and $641,000 for
1999, 1998, and 1997, respectively.
F-7
40
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Per Share Data
Basic net income per share is computed based on the weighted average number
of shares of the Company's common stock outstanding. Dilutive net income per
share is computed based on the weighted average number of shares of the
Company's common stock and other dilutive securities.
Computation of earnings per share is as follows (in thousands except per
share amounts):
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------ ------
BASIC
Weighted average common shares outstanding for the
period................................................ 9,595 9,411 9,137
======= ====== ======
Net Income.............................................. $ 8,505 $6,781 $5,302
======= ====== ======
Net income per share.................................... $ 0.89 $ 0.72 $ 0.58
======= ====== ======
DILUTED
Weighted average common shares outstanding for the
period................................................ 9,595 9,411 9,137
Common equivalent shares assuming exercise of stock
options under the treasury stock method............... 476 327 584
------- ------ ------
Shares used in per share calculation.................... 10,071 9,738 9,721
======= ====== ======
Net income.............................................. $ 8,505 $6,781 $5,302
======= ====== ======
Net income per share.................................... $ 0.84 $ 0.70 $ 0.55
======= ====== ======
Options to purchase 102,000, 344,700 and 48,500 shares of common stock at
weighted average per share prices of $31.57, $18.89 and $19.50 were outstanding
during 1999, 1998 and 1997, respectively, but were not included in the
computation of diluted earnings per share for those years as the options'
exercise price was greater than the average market price of the common shares
and, therefore, the effect would have been antidilutive.
Stock Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," the Company applies APB
Opinion 25 and related Interpretations in accounting for its Stock Option Plans
and, accordingly, recognizes no compensation expense for stock option grants
with an exercise price equal to the fair market value of the shares at the date
of grant. Note 5 to the Consolidated Financial Statements contains a summary of
the pro forma effects on reported net income and earnings per share for each of
the three years in the period ended December 31, 1999, if the Company had
elected to recognize compensation cost based on the fair value of the options
granted as prescribed by SFAS 123.
401(K) Plan
The Company's 401(k) Plan ("Plan") covers substantially all of its U.S.
based employees. Under the Plan, eligible employees may contribute up to 25% of
their eligible compensation, subject to certain internal Revenue Service
restrictions. The Company began matching a portion of employee contributions in
1997, up to a maximum of 3% of each employee's eligible compensation. The match
is effective December 31 of each year and vests over a period of five years of
service. For the years ended December 31, 1999, 1998 and 1997, the Company
provided approximately $158,000, $126,000 and $110,000, respectively, for the
Company match under the Plan.
F-8
41
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comprehensive Income.
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income included unrealized gains or losses from the
translation of the Company's foreign subsidiaries' financial statements, which
are reported separately in Stockholders' Equity, to be included in other
comprehensive income.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 and 1999 presentation.
NOTE 2. BALANCE SHEET AMOUNTS
DECEMBER 31,
----------------
1999 1998
------ ------
(IN THOUSANDS)
Inventories:
Raw materials............................................. $3,167 $1,793
Work-in-process........................................... 548 602
Finished goods and demonstration equipment................ 4,203 1,660
------ ------
$7,918 $4,055
====== ======
Equipment and leasehold improvements:
Machinery and equipment................................... $7,117 $6,124
Furniture and fixtures.................................... 768 708
Leasehold improvements.................................... 991 566
------ ------
8,876 7,398
Less accumulated depreciation and amortization.............. 6,100 5,283
------ ------
Net equipment and leasehold improvements.................... $2,776 $2,115
====== ======
Other accrued liabilities:
Accrued income tax........................................ $ -- $ 867
Sales tax payable......................................... 306 308
License fees payable...................................... -- 500
Other..................................................... 1,426 1,542
------ ------
$1,732 $3,217
====== ======
NOTE 3. COMMITMENTS
The Company's facilities are leased under noncancelable operating leases.
The Company generally pays taxes, insurance and maintenance cost on leased
facilities. Minimum annual rental commitments under these noncancelable
operating leases for the years ended 2000, 2001, 2002, 2003, 2004 and
thereafter, are approximately $1,875,000, $1,704,000, $1,150,000, $470,000,
$131,000 and $1,271,000, respectively.
Net rental expense under operating leases related to the Company's
facilities was approximately $664,000 for each of the three years in the period
ended December 31, 1999.
The Company has a contractual commitment for the purchase of certain resale
products and manufacturing components with a vendor. The minimum purchase
commitment for 2000, at current prices, is approximately $2,731,000. This
purchase commitment is not expected to result in a loss.
F-9
42
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. ACQUISITIONS
On May 17, 1999, the Company acquired all of the outstanding stock of
Skatron Instruments AS, a Norwegian company ("Skatron") and certain assets from
Skatron Instruments Inc., a Virginia corporation and wholly-owned subsidiary of
Skatron, for a cash payment at closing of $7,118,000 (including $300,000 of
acquisition related expenses). Skatron was principally involved in the design,
development, manufacture and sale and service of a complete line of microwell
plate washers. The acquisition was accounted for as a purchase and the total
purchase price was allocated based on an independent appraisal as follows (in
thousands):
Acquired developed technology and goodwill.................. $4,717
Acquired in-process research and development................ 2,037
Net book value of acquired assets and liabilities which
approximate fair value.................................... 364
------
Total purchase price.............................. $7,118
======
The purchase price allocation resulted in a $2,037,000 charge related to
the value of acquired in-process research and development in the second quarter
of 1999. The value of acquired in-process research and development represents
the appraised value of technology in the development stage that had not yet
reached economic and technological feasibility. In reaching this determination,
the Company used a present value net income approach and considered, among other
factors, the stage of development of each product, the time and resources needed
to complete each product, and expected income and associated risks. The
developed technology, goodwill and other intangibles are being amortized over
periods of up to 15 years, the estimated useful lives of these acquired assets.
The results of Skatron are included in consolidated results of operation from
May 18, 1999.
Pro forma consolidated results for the Company had the acquisition been
consummated January 1, 1998, excluding the charge for acquired in-process
research and development recorded in 1999, are as follows (in thousands except
per share amounts):
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
--------- ---------
Revenue..................................................... $63,035 $52,049
Net Income.................................................. $ 9,751 $ 6,943
Diluted net income per share................................ $ 0.97 $ 0.71
The pro forma information does not purport to be indicative of the results
that actually would have occurred had the acquisition been consummated January
1, 1999, or of results which may occur in the future. In accordance with SEC
Regulation 5-X, Rule 11-02(b)(5), nonrecurring charges, such as the charge for
acquired in-process technology resulting from the acquisition, are not reflected
in the pro forma financial summary.
On August 28, 1998, the Company acquired license rights to a Telecentric
Lens Luminometer technology from Affymax Research Institute, a subsidiary of
Glaxo Wellcome. Under the agreement, the Company received the rights to develop,
manufacture, market and distribute commercial systems based on this technology
in exchange for payment of up-front consideration and continuing royalties to
Affymax based on future product sales.
The $876,000 write-off of acquired in-process research and development
during 1998 represented the entire amount of up-front consideration that was
paid to Affymax as well as all related transaction costs associated with this
technology license agreement. Based on the stage of development of this
technology and the assessment of the time and resources needed to complete
product development, the Company believed that the acquired technology had not
yet reached economic or technological feasibility at the time of the agreement.
F-10
43
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. STOCKHOLDERS' EQUITY
Stock Options
Under the Company's 1995 Stock Option Plan ("1995 Plan"), a total of
1,750,000 shares of the Company's common stock have been reserved for issuance
as either incentive or nonqualified stock options to officers, directors,
employees and consultants of the Company. Option grants expire in ten years and
generally become exercisable in increments over a period of four to five years
from the date of grant. Options may be granted with different vesting terms from
time to time.
Under the Company's 1988 Stock Option Plan ("1988 Plan"), the Company was
authorized to grant stock options for up to 1,000,000 shares with terms similar
to those of the 1995 Plan. The 1988 Plan was terminated subsequent to the
establishment of the 1995 Plan. Options that are not exercised which were
outstanding under the 1988 Plan are reserved for future issuance under the 1995
Plan.
In September 1995, the Company established the 1995 Non-Employee Directors'
Stock Option Plan (the "Directors' Plan"). Under the Directors' Plan, the
Company is authorized to grant nonqualified stock options to purchase up to
347,500 shares of common stock at the fair market value of the common shares at
the date of grant. Options granted under the Directors' Plan vest and become
exercisable in three equal annual installments commencing one year from the date
of the grant.
As permitted by Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company applies APB Opinion
25 and related Interpretations in accounting for its stock option plans and,
accordingly, recognizes no compensation expense for stock option grants with an
exercise price equal to the fair market value of the shares at the date of
grant. If the Company had elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS 123, net
income and earnings per share would have been reduced to the pro forma amounts
indicated in the table below (in thousands, except per share amounts):
1999 1998 1997
------ ------ ------
Net income as reported................................... $8,505 $6,781 $5,302
Pro forma................................................ 6,885 5,939 4,887
Basic net income per share as reported................... 0.89 0.72 0.58
Pro forma................................................ 0.75 0.66 0.53
Diluted net income per share as reported................. 0.84 0.70 0.55
Pro forma................................................ $ 0.71 $ 0.64 $ 0.51
The pro forma net income and net income per share disclosed above is not
likely to be representative of the effects on net income and net income per
share on a pro forma basis in future years, as subsequent years may include
additional grants and years of vesting.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Expected dividend yield................ 0%
Expected stock price volatility........ 50.68 - 66.3%
Risk-free interest rate................ 5.38 - 7.56%
Expected life of options............... 3 - 5 years
F-11
44
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock activity under the 1988 and 1995 Stock Option Plans and the
Directors' Plan was as follows:
SHARES WEIGHTED
AVAILABLE FOR OPTIONS AVERAGE
FUTURE GRANT OUTSTANDING EXERCISE PRICE
------------- ----------- --------------
Balance December 31, 1996..................... 858,059 931,828 $ 4.14
Granted..................................... (323,250) 323,250 14.68
Exercised................................... -- (295,554) 2.94
Cancelled................................... 165,790 (165,790) 7.55
--------- --------- ------
Balance December 31, 1997..................... 700,599 793,734 8.08
Granted..................................... (562,700) 562,700 17.16
Exercised................................... -- (111,666) 4.67
Cancelled................................... 127,611 (127,611) 10.63
--------- --------- ------
Balance December 31, 1998..................... 265,510 1,117,157 12.68
Authorized.................................. 1,100,000 -- --
Granted..................................... (547,500) 547,500 27.56
Exercised................................... -- (144,752) 7.42
Cancelled................................... 52,513 (52,513) 18.43
--------- --------- ------
Balance December 31, 1999..................... 870,523 1,467,392 $10.19
========= ========= ======
The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 1999:
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ----------- -------- ----------- --------
$1.73 23,331 2.5 $ 1.73 23,331 $ 1.73
$3.00 61,583 4.9 $ 3.00 56,930 $ 3.00
$5.25 150,440 5.7 $ 5.25 137,815 $ 5.25
$8.0 - $12.0 23,850 6.6 $ 8.17 12,750 $ 8.24
$13.38 - $19.50 682,063 8.3 $16.83 196,675 $16.62
$26.63 - $35.25 526,125 9.4 $27.61 2,875 $27.00
--------- --- ------ ------- ------
$1.73 - $35.25.. 1,467,392 8.2 $18.55 430,376 $10.19
========= === ====== ======= ======
Deferred Compensation
For options granted in September 1995, the Company recognized $578,000 as
deferred compensation for the excess of the deemed value for accounting purposes
of the common stock issuable on exercise of such options over the aggregate
exercise price of such options. The deferred compensation expense is being
amortized ratably over the vesting period of the options, generally 3 - 5 years.
Additionally, $131,000 of unvested deferred compensation was reversed in 1997
due to employee termination.
During 1998 the Company granted 42,500 shares of restricted stock to
certain employees. These restricted shares vest in quarterly increments from the
date of grant over two years. The Company recognized $782,000 of deferred
compensation for the total value of these shares on their respective dates of
grant. The deferred compensation expense is being recognized ratably over the
two-year vesting period.
F-12
45
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (the "Purchase Plan") 200,000 shares
of common stock have been authorized for issuance. Shares may be purchased under
the Purchase Plan at 85% of the lesser of the fair market value of the common
stock on the grant or purchase date. As of December 31, 1999, 93,886 shares
remained available for purchase.
NOTE 6. INCOME TAXES
The components of the provisions for income taxes consist of the following:
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)
Current:
Federal................................................ $4,905 $2,671 $1,227
State.................................................. 861 756 350
Foreign................................................ 394 581 248
------ ------ ------
$6,160 $4,008 $1,825
Deferred:
Federal................................................ $ (603) $ 401 $ 969
State.................................................. (232) (164) 380
Foreign................................................ -- -- --
------ ------ ------
$ (835) $ 237 $1,349
------ ------ ------
$5,325 $4,245 $3,174
====== ====== ======
The provisions for income taxes differ from the amounts computed by
applying the statutory federal income tax rate to income before income taxes.
The source and tax effects of the differences are as follows:
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
(IN THOUSANDS)
Income before provisions for income taxes.............. $13,830 $11,026 $8,476
Income tax at statutory federal rate (35%)............. 4,841 3,859 2,967
State income tax, net of federal benefit............... 409 391 360
Foreign losses not currently benefitted................ -- 90 152
Foreign sales corp..................................... (243) (173) (168)
Research and development credits....................... (150) -- --
Other.................................................. 468 78 (137)
------- ------- ------
$ 5,325 $ 4,245 $3,174
======= ======= ======
Foreign pretax income was $582,000, $1,470,000 and $360,000 in 1999, 1998
and 1997, respectively.
F-13
46
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amount used for income tax purposes.
YEAR ENDED
DECEMBER 31,
----------------
1999 1998
------ ------
(IN THOUSANDS)
Deferred tax assets:
Non-deductible reserves................................... $ 840 $ 657
Warranty and accrued expenses............................. 408 589
Net undistributed profits of foreign subsidiaries......... 21 141
Foreign loss carryforwards................................ 869 530
Other..................................................... 1,196 243
Valuation allowance....................................... (869) (530)
------ ------
Total deferred tax assets......................... $2,465 $1,630
====== ======
The net valuation allowance increased by $90,000 for the year ended 1997.
As of December 31, 1999, the Company has fully utilized federal research
and development tax credit carryforwards.
NOTE 7. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in a single industry segment; the design, development,
manufacture, sale and service of bioanalytical measurement systems for life
sciences applications.
Foreign operations of European subsidiaries consist of sales, service and
distribution. Intercompany transfers between geographic areas are accounted for
at prices that approximate those negotiated in arm's-length transactions.
Summarized data for the Company's domestic and international operations was as
follows (in thousands):
UNITED ADJUSTMENTS
STATES EUROPE AND ELIMINATIONS TOTAL
------ ------ ---------------- ------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999
Revenues............................... 57,668 14,984 (10,667) 61,985
Income from operations................. 11,513 1,209 (313) 12,409
Identifiable assets.................... 63,541 9,117 (7,907) 64,751
YEAR ENDED DECEMBER 31, 1998
Revenues............................... 43,564 10,540 (6,306) 47,798
Income from operations................. 7,965 1,429 48 9,442
Identifiable assets.................... 53,187 5,567 (4,349) 54,405
YEAR ENDED DECEMBER 31, 1997
Revenues............................... 35,640 6,752 (4,106) 38,286
Income from operations................. 7,047 374 (165) 7,256
Identifiable assets.................... 42,939 4,318 (4,466) 42,791
F-14
47
MOLECULAR DEVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidated revenue from the Company's product lines was as follows (in
thousands):
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
Maxline............................................... $35,127 $25,028 $21,108
Cell Analysis......................................... 23,260 16,498 12,790
Threshold............................................. 3,598 6,272 4,388
------- ------- -------
Total revenues.............................. $61,985 $47,798 $38,286
======= ======= =======
Sources of consolidated revenue from significant geographic regions were as
follows (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
North America......................................... $39,983 $29,363 $24,671
Europe................................................ 16,847 13,821 9,206
Rest of World......................................... 5,155 4,614 4,409
------- ------- -------
Total revenues.............................. $61,985 $47,798 $38,286
======= ======= =======
NOTE 8. COMPARATIVE QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL 1999
Revenues.................................. $13,507 $14,801 $15,818 $17,859
Gross margin.............................. 8,243 9,518 10,099 11,380
Net income................................ 1,974 1,121(1) 2,387 3,023
Basic net income per share................ 0.21 0.12 0.25 0.31
Diluted net income per share.............. 0.20 0.11 0.24 0.30
FISCAL 1998
Revenues.................................. $10,346 $11,867 $11,901 $13,684
Gross margin.............................. 6,633 7,357 7,477 8,615
Net income................................ 1,414 1,898 1,355 2,114
Basic net income per share................ 0.15 0.20 0.14 0.22
Diluted net income per share.............. 0.15 0.20 0.14 0.22
- ---------------
(1) Includes a charge of approximately $2 million for the write-off of acquired
in-process research and development related to the acquisition of Skatron.
F-15
48
MOLECULAR DEVICES CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING CHARGED TO END
DESCRIPTION OF YEAR COSTS DEDUCTIONS OF YEAR
----------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts receivable for
the year ended December 31, 1997:............. 196 -- (16) 180
Allowance for doubtful accounts receivable for
the year ended December 31, 1998:............. 180 155 (10) 325
Allowance for doubtful accounts receivable for
the year ended December 31, 1999:............. 325 51 0 376
F-16
49
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1(1) Form of Agreement and Plan of Merger between the Registrant
and Molecular Devices Corporation, a California Corporation
2.2(6) Stock and Asset Purchase Agreement, dated as of May 17,
1999, among Molecular Devices Corporation, a Delaware
corporation, Helge Skare, Wiel Skare, Steinar Faanes and
Sten Skare, each an individual resident in Norway, Skatron
Instruments AS, a Norwegian company, and Skatron
Instruments, Inc., a Virginia corporation (the Disclosure
Schedule has been omitted as permitted pursuant to the rules
and regulations of the Securities and Exchange Commission
("SEC"), but will be furnished supplementally to the SEC
upon request)
2.3(6) Escrow Agreement, dated as of May 17, 1999, among Molecular
Devices Corporation, a Delaware corporation, Helge Skare,
Wiel Skare and Greater Bay Trust Company, as Escrow Agent.
3.1(1) Amended and Restated Certificate of Incorporation of
Registrant
3.2(1) Bylaws of the Registrant
4.1(1) Specimen Certificate of Common Stock of Registrant
4.2(1) Reference is made to Exhibits 3.1 through 3.2
10.1(1)* 1988 Stock Option Plan
10.2(1)* Form of Incentive Stock Option under the 1988 Stock Option
Plan
10.3(1)* Form of Supplemental Stock Option under the 1988 Stock
Option Plan
10.4(1)* 1995 Employee Stock Purchase Plan
10.5(1) 1995 Non-Employee Directors' Stock Option Plan
10.6(1) Form of Nonstatutory Stock Option under the 1995
Non-Employee Directors' Stock Option Plan
10.7(1)* 1995 Stock Option Plan
10.8(1)* Form of Incentive Stock Option under the 1995 Stock Option
Plan
10.9(1)* Form of Nonstatutory Stock Option under the 1995 Stock
Option Plan
10.10(1)* Form of Early Exercise Stock Purchase Agreement under the
1995 Stock Option Plan
10.11(1)* Form of Indemnity Agreement between the Registrant and its
Directors and Executive Officers
10.12(1)* Consulting Agreement dated July 20, 1988 by and between the
Registrant and Harden M. McConnell, Ph.D.
10.13(1) Lease Agreement dated January 17, 1994 by and between Aetna
Life Insurance Company and the Registrant
10.18(3) Reserved
10.19(4)* Key Employee Agreement for Joseph D. Keegan dated March 11,
1998 (as amended)
10.20(5) "Exclusive License and Technical Support Agreement" with
Affymax
10.21(5)* Employee Offer Letter for Tim Harkness
10.22(5)* Employee Offer Letter for Tony Lima
10.23(5)* Employee Offer Letter for John Senaldi
10.24(7) 1995 Non-Employee Director's Stock Option Plan, as amended
10.25(7) 1995 Stock Option Plan, as amended
21.1 Subsidiaries of the Registrant
50
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
23.1 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
- ---------------
(1) Incorporated by reference to the similarly described exhibit in our
Registration statement on Form S-1 (File No. 33-98926), as amended.
(2) Incorporated by reference to the similarly described exhibit in our Form 8-K
Current Report dated June 7, 1996, and filed June 21, 1996 (as amended
August 31, 1996).
(3) Incorporated by reference to the similarly described exhibit in our Form
10-K Annual Reported dated December 31, 1997 and filed March 26, 1998.
(4) Incorporated by reference to the similarly described exhibit in our Form
10-Q Quarterly Report dated June 30, 1998, and filed August 13, 1998.
(5) Incorporated by reference to the similarly described exhibit in our Form
10-Q Quarterly Report dated September 30, 1998, and filed November 13, 1998.
(6) Incorporated by reference to the similarly described exhibit in our current
report on Form 8-K filed May 26, 1999.
(7) Incorporated by reference to the similarly described exhibit in our Form
10-Q Quarterly Report dated June 30, 1999 and filed August 10, 1999.
* Management contract or arrangement.
(b) Reports on Form 8-K
A report on Form 8-K dated May 18, 1999 was filed on May 26, 1999.
(c) Exhibits
See Item 14(a) above.
(d) Financial Statement Schedule
See Item 14(a) above.