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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to_________
COMMISSION FILE NUMBER 0-19841
i-STAT CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 22-2542664
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
303 COLLEGE ROAD EAST, PRINCETON, NJ 08540
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(Address of principal executive offices) (Zip code)
(609) 243-9300
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(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: COMMON STOCK, PAR VALUE $.15 PER SHARE
SERIES A PREFERRED STOCK PURCHASE RIGHTS
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. _____
Number of shares of Common Stock outstanding as of January 15, 1997: 11,215,748
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of January 15, 1997 is approximately
$162,066,355. Shares of voting stock held by each executive officer and director
and by each person who owns 5% or more of any voting stock have been excluded in
that such persons may be deemed affiliates of the Registrant. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)
Part III incorporates certain information by reference to the Registrant's Proxy
Statement for its 1997 Annual Meeting of Stockholders.
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TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business
(a) General development of business...................................................... 1
(b) Industry segment and geographic area data............................................ 8
(c) Description of business.............................................................. 1
2. Properties................................................................................ 8
3. Legal Proceedings......................................................................... 8
4. Submission of Matters to a Vote of Security Holders....................................... 9
PART II
5. Market for the Registrant's
Common Equity and Related
Stockholder Matters...................................................................... 12
6. Selected Consolidated Financial Data..................................................... 13
7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................................................ 14
8. Financial Statements and
Supplementary Data
(a) Financial Statements................................................................ 22
(b) Selected Quarterly Financial Data................................................... 37
9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................................................................... 16
PART III
10. Directors and Executive Officers of
the Registrant........................................................................... 10, 16
11. Executive Compensation................................................................... 16
12. Security Ownership of Certain
Beneficial Owners and Management......................................................... 17
13. Certain Relationships and Related Transactions........................................... 17
PART IV
14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K........................................................ 18
(2)
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This Annual Report contains both historical financial information and
forward looking statements. The Company operates in a high technology, emerging
market environment that involves significant risks and uncertainties which may
cause actual results to vary from such forward looking statements and to vary
significantly from reporting period to reporting period. These risks include,
among others, competition from existing manufacturers and marketers of blood
analysis products who have greater resources than the Company, the uncertainty
of new product development initiatives, difficulties in transferring new
technology to the manufacturing stage, market resistance to new products and
point-of-care blood diagnosis, domestic and international regulatory
constraints, uncertainties of international trade, pending and potential
disputes concerning ownership of intellectual property, dependence upon
strategic corporate partners for assistance in development of new markets and
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
i-STAT Corporation ("i-STAT" or the "Company"), was incorporated in
Delaware in 1983, and develops, manufactures and markets medical diagnostic
products for blood analysis that provide health care professionals with
immediate and accurate critical diagnostic information at the point of patient
care. The Company's current products, known as the i-STAT(R) System, consist of
portable, hand-held analyzers and single-use, disposable cartridges, each of
which simultaneously performs different combinations of commonly ordered blood
tests in approximately two minutes. The i-STAT System uses a simple, one-step
procedure, the results of which can be easily linked by infrared transmission to
a health care provider's information system. As of December 31, 1996, i-STAT had
777 customers throughout the United States, as well as customers in Japan,
Western Europe, Canada and South America. The Company intends for the i-STAT
System to become the standard of care for blood analysis at the patient's side.
The i-STAT System provides accurate and reliable blood test results
more quickly and more simply than the most advanced clinical laboratory
equipment. Blood analysis performed at the point of patient care with the i-STAT
System permits more timely diagnosis and therapeutic intervention and reduces
the occurrence of common testing errors. The Company believes these attributes
of the i-STAT System result in improved patient care and lower overall health
care costs. In addition, the Company believes that the i-STAT System reduces or
eliminates the need for expensive capital equipment, specialized labor force,
equipment maintenance and space required for traditional testing laboratories.
The original i-STAT System, introduced in September 1992, was capable
of performing six of the most commonly ordered blood tests, which are tests for
sodium, potassium, chloride, glucose, urea nitrogen and hematocrit. In 1994, the
Company expanded the testing capabilities of the i-STAT System through the
introduction of cartridges which perform tests for pH, ionized calcium and
bicarbonate. In 1995, the Company introduced cartridges which measure arterial
blood gases (pH, PCO(2) and PO(2)). The Company believes that 95% of the
approximately 200 million blood tests (electrolyte and blood gas) performed on a
"stat" basis in the United States each year now can be conducted using the
i-STAT System. The Company believes that because the i-STAT System can now
perform the vast majority of the tests required on a "stat" basis, it is
substantially more attractive as a total replacement for hospital "stat"
laboratories. The Company has additional tests under development.
i-STAT's near-term objective is to further increase sales of its test
cartridges to the critical care departments of hospitals in the United States,
where the highest volume of "stat" blood tests are performed. The Company
intends to achieve this goal, for the most part, by focusing its sales efforts
on those hospitals that have the greatest likelihood of fully adopting the
i-STAT System throughout all of their critical care departments and of using the
i-STAT System as their principal means of testing blood. By virtue of the
strategic technology and marketing alliance concluded in mid-1995 between the
Company and Hewlett-Packard Company ("HP"), the i-STAT System was introduced and
marketed in Western Europe by HP during 1996. In addition, i-STAT and HP are
jointly developing a blood analysis device (the "Integrated Analyzer"), based on
the i-STAT System, that can be integrated into HP's customer installed base of
patient monitoring systems. This device is planned to be introduced during 1997.
The Company's longer-term strategy is to expand its distribution throughout Asia
and to increase its efforts, through the use of distribution and partnering
arrangements, to market its products to alternate site health care providers
such as physician offices, freestanding dialysis centers, nursing homes,
outpatient clinics, emergency medical services units, home healthcare agencies
and veterinary clinics.
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i-STAT SYSTEM COMPONENTS
The i-STAT System is composed of two types of analyzers, which are
hand-held, portable instruments, and various single-use, disposable cartridges,
which contain the electrochemical biosensors necessary to perform the
desired blood tests. The i-STAT System includes peripheral components that
enable the results of tests to be transmitted by infrared means to both a
proprietary information system for managing the user's point-of-care testing
program and to the user's information systems for billing and archiving. One of
the Company's analyzers is thermostatically controlled and can be used for all
cartridges manufactured by the Company and the other can be used for all
cartridges manufactured by the Company except the arterial blood gas
cartridges. The Company's single-use, disposable cartridges currently allow the
i-STAT System to perform blood tests for sodium, potassium, chloride, glucose,
urea nitrogen, hematocrit, ionized calcium, arterial blood gases, (pH, PCO2 and
PO2), and bicarbonate, and to derive certain other values, such as total carbon
dioxide, base excess, anion gap, hemoglobin and O2 saturation, by calculation
from the tests performed.
i-STAT believes its proprietary thin-film, biosensor technology
provides the Company with significant competitive advantages over other
technologies. As a result of the Company's proprietary know-how and the
attributes of its thin-film biosensors, the i-STAT System produces accurate
results in approximately two minutes in an easy, single step procedure, is small
enough to be hand-held and to be carried from patient to patient, operates with
only two to three drops of blood and is virtually maintenance free. The
Company's thin-film technology uses micro-fabrication techniques which permit
dimensionally small product features resulting in faster reactions than larger
configurations such as those used in thick-film technology. Thin-film technology
permits i-STAT's biosensors to "wet-up" quickly with small amounts of calibrant
and blood samples, thereby enabling the Company to package its biosensors in a
dry state while retaining the ability to produce results in approximately two
minutes. The Company believes that packaging its biosensors in a dry state
facilitates extended shelf life and simplifies the calibration process. The
Company's disposable cartridges have a shelf life ranging from a minimum of six
months to a maximum of twelve months. In addition, the Company's thin-film
biosensor technology permits the cartridges in the i-STAT System to be
configured to perform multiple tests and combinations of tests. The Company
believes products based on other existing technologies cannot achieve
performance characteristics or product design features of the type described
above.
MARKETING AND DISTRIBUTION
The Company currently markets the i-STAT System primarily to the
critical care departments of hospitals in the United States, where the highest
volume of blood tests are performed on a "stat" basis. The i-STAT System also is
marketed to hospitals in Japan, Western Europe, Canada and South America. The
Company markets and distributes the i-STAT System in the United States and
Canada principally through its own direct sales and marketing organization, in
Japan through Japanese marketing partners and in South America through selected
distribution channels. In February 1996, HP began marketing and distributing the
i-STAT System in certain countries in Europe through its distribution
arrangements with the Company. The Company is actively planning market
introduction into other foreign markets, including, but not limited to, through
its arrangements with HP. In April 1996, the Company and HP entered into a
marketing agreement pursuant to which HP and the Company have begun to jointly
market the Company's products into the critical care departments of hospitals in
the United States which meet certain criteria; all product sales continue to be
made by the Company.
In July 1995, the Company entered into license and distribution
agreements with HP at which time HP invested approximately $61 million in
exchange for 2,138,702 shares of the Company's Series B Preferred Stock (the
"Series B Stock"). Pursuant to the distribution agreement, HP has become the
exclusive distributor of the Company's current products, and certain new
products the Company may develop, in Europe, Africa, the Middle East and the
former Soviet block countries, for a period of three years. Upon the occurrence
of certain events, HP's exclusivity term may be extended or the distributorship
may be converted into a non-exclusive arrangement. If HP's distributorship is
converted to a non-exclusive arrangement for failure to meet designated
milestones, HP will not be entitled to distribute new products introduced by the
Company during the period of nonexclusivity. The Company's license agreement
with HP provides for the grant by the Company to HP of a perpetual, worldwide
license under certain of the Company's intellectual property to develop and
distribute the Integrated Analyzer. HP will have no license to lease or sell
Integrated Analyzers outside the field of professionally attended human
healthcare institutions. The license does not include the right to make, use or
sell the Company's cartridges and will be subject to the payment of royalties.
The license will be
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exclusive for three years and may be extended depending on the achievement by HP
of designated milestones, but under certain circumstances the license may become
non-exclusive. The license agreement also provides that, during the exclusivity
period, HP will have a right of first refusal to license from the Company new
intellectual property for Integrated Analyzers on substantially the same terms
as the license agreement. In addition, if after the exclusivity period the
Company grants to any third party a license to make and distribute Integrated
Analyzers on royalty terms more favorable to the third party than under the HP
license agreement, then HP's royalty obligations generally will be adjusted to
such third party's rates. The license agreement is scheduled to expire generally
at the time of expiration of the Company's last-to-expire patent covering the
licensed technology. HP plans market introduction of the Integrated Analyzer
during 1997.
In August 1988, the Company entered into product commercialization
and distribution agreements with JCR Pharmaceuticals Inc. and FUSO Inc., two
Japanese pharmaceutical and medical device companies. Pursuant to such
agreements, i-STAT granted exclusive distribution rights covering Japan, South
Korea and Taiwan for an initial period which expires in December 1997; and an
additional five-year, exclusive period expiring in December 2002, if a certain
minimum quantity of products has been purchased during the initial period. If
such minimums are not purchased, the Japanese companies retain non-exclusive
rights during the five-year period from December 1997 to December 2002. These
agreements, which expire in 2002, also provide the Japanese companies with a
right of first offer with respect to the distribution of the covered products in
certain Southeast Asian countries. The Company understands that JCR has assigned
to Fuso all distribution rights under these agreements. Sales to FUSO
represented approximately 24.7% of the Company's worldwide sales (including
deferred revenue) for 1996.
The Company, through its marketing efforts and through distribution
and partnering arrangements, is in the early stages of introduction of the
i-STAT System to health care providers other than hospitals, such as
free-standing dialysis centers, emergency medical services, home care providers,
outpatient clinics, physicians' offices and nursing homes. The Company markets
its products to veterinarians' offices in the U.S. through a distribution
agreement with Sensor Devices, Inc. Over the longer term, the Company expects to
increase its efforts to market its products to such alternate site health care
providers through the use of distribution and partnering arrangements.
COMPETITION
The Company competes principally with manufacturers of traditional
blood analysis equipment used by clinical laboratories. Historically, most
clinical testing has been performed in the hospital or commercial laboratory
setting. These clinical laboratories provide analyses similar to those conducted
by the i-STAT System and have traditionally been effective at processing large
panels of tests with the use of skilled technicians and complex equipment. While
i-STAT cannot provide the same range of tests, the Company believes that its
products offer several advantages over clinical laboratories, including lower
costs, faster results and reduced opportunity for error. In addition, the i-STAT
System's testing capabilities currently are sufficiently broad to enable larger
health care facilities to close "stat" laboratories and replace them wholly with
the i-STAT System.
Other companies may introduce products performing the same or similar
functions as the i-STAT System. In such case, the Company may not be able to
compete effectively with these products, or these products may render the
Company's products obsolete. The Company is aware of products that have been
developed and are being marketed for point-of-care analysis of some or all of
the analytes measured by the i-STAT System. The Company believes that these
products are more difficult to use and more costly, test for fewer analytes than
the i-STAT System and otherwise do not offer the same features and benefits.
To the extent that the i-STAT System achieves penetration into
non-hospital markets such as veterinarians' offices, doctors' offices, nursing
homes and outpatient clinics, it may face competition from commercial
laboratories and from established pharmaceutical and medical device companies
which have developed multitest blood analyzers specifically for use in these
markets. The Company believes that its products are capable of competing
favorably with these other products on the basis of ease-of-use, speed, the
ability to conduct tests without a skilled technician, variety of test menu,
cost-effectiveness and accuracy of results.
Other manufacturers and academic institutions are currently
conducting research and development with respect to blood testing technologies,
including biosensor technology, and other companies may in the future engage
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in research and development activities regarding products competitive with those
of the Company. Certain of the Company's current and potential competitors have
significantly greater financial, technical, manufacturing and marketing
resources than the Company.
Although the Company's patents may prevent or restrict others from
successfully developing or marketing competing systems in the United States or
other countries, the Company may be required to expend substantial resources to
enforce its patents through litigation or otherwise to maintain its competitive
advantage. See "Patents and Proprietary Rights."
MANUFACTURING
The Company's products are manufactured by the Company with various
components being supplied by outside vendors. The Company manufactures its
biosensors in order to protect the proprietary nature of the Company's products
and to control the development and enhancement of its proprietary technology.
Other cartridge components are manufactured to the Company's specifications by
outside vendors. Final assembly, quality testing and inspection of cartridges
are performed by the Company. All components of the analyzers as well as
peripheral components, such as the infrared data communication link, are either
custom fabricated by outside suppliers or purchased by the Company from outside
sources. Software for the analyzers and peripheral systems is engineered and
maintained by the Company. All major assembly, software download and final
quality testing and inspection are performed by the Company.
Most product manufacturing and assembly by the Company is conducted
in its 52,000 square foot facility in Kanata, Ontario, Canada. This facility,
which is leased, includes an 8,000 square foot Class 1000 clean room augmented
by additional environmentally controlled assembly and packaging space. The
Company also conducts cartridge assembly and inspection in a 30,325 square foot
leased facility in Plainsboro, New Jersey. In addition, the Company assembles
analyzers at its principal offices in Princeton, New Jersey. The Company
believes that its manufacturing capacity is sufficient to meet its immediately
foreseeable production requirements. The Company is currently manufacturing its
cartridges at an annualized rate of over 4,000,000 cartridges per year and
believes that, with certain engineering changes it is in the process of
implementing, its current manufacturing facilities could yield in excess of
45,000,000 cartridges per year.
The Company maintains a comprehensive quality assurance and quality
control program, which includes complete documentation of all material
specifications, operating procedures, maintenance and equipment calibration
procedures, training programs and quality control test methods. To control the
quality of its finished products, the Company utilizes statistical process
control systems during the manufacturing process and comprehensive performance
testing of finished goods. The Company believes that it operates in accordance
with all applicable regulations including the Food and Drug Administration (the
"FDA") Good Manufacturing Practices.
The majority of the raw materials and purchased components used to
manufacture the Company's products are readily available from more than one
source. The Company is also developing alternative sources for some of the raw
materials it presently obtains from a single source. Some of the components of
the i-STAT System are custom manufactured by a limited number of outside
vendors. While the Company's efforts to expand the number of vendors having the
capacity to produce these components continue, the loss of its sources of supply
for these components could adversely impact, for a period of time, the Company's
ability to meet the demand for its products.
RESEARCH AND DEVELOPMENT
From commencement of the Company's operations in 1984 until 1992,
most of its financial resources were dedicated to the development of the core
technology that has resulted in the i-STAT System. The Company continues to
engage in research and development in order to improve its existing products and
develop new products based on the i-STAT System technology. The Company
currently is developing tests for measurement of creatinine, ionized magnesium
and coagulation, and is working on expanding its existing product range. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of research and development costs during 1994, 1995
and 1996.
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As of December 31, 1996 the Company's research and development staff
consisted of 66 full-time employees, 26 of whom hold advanced degrees in
chemistry, engineering, software and related disciplines.
PATENTS AND PROPRIETARY RIGHTS
i-STAT pursues a policy of seeking patent protection, both in the
United States and abroad, for each of the areas of invention embodied in the
i-STAT System. The Company holds sixteen United States utility patents related
to the i-STAT System, the earliest of which was issued on September 5, 1989,
which on average have over 13 years remaining on their patent terms, and two
United States design patents related to the i-STAT System. These patents relate
to the unique functional features and fabrication of the electrode technology
contained in the i-STAT cartridges, operation of the cartridges, the
technologies used in the i-STAT analyzers, in-house quality control
instrumentation and matters related to other potential uses of the i-STAT
System. The Company has fourteen pending United States utility patent
applications. The Company has received patents in Japan, Europe, Canada and
Taiwan corresponding to certain of the patents issued in the United States and
has filed or plans to file for patent protection in certain countries which
represent a significant segment of the intended market for its products. There
can be no assurance that additional patents for i-STAT's products will be
obtained, or that issued patents will provide substantial protection or be of
commercial benefit to i-STAT. The issuance of a patent is not conclusive as to
its validity or enforceability, nor does it provide the patent holder with
freedom to operate without infringing the patent rights of others. A patent
could be challenged by litigation and, if the outcome of such litigation were
adverse to the patent holder, competitors could be free to use the subject
matter covered by the patent, or the patent holder may license the technology to
others in settlement of such litigation. The invalidation of key patents owned
by the Company or nonapproval of pending patent applications could create
increased competition, with potential adverse effects on the Company and its
business prospects. In addition, there can be no assurance that any application
of the Company's technology will not infringe patents or proprietary rights of
others or that, as a result of such infringement, licenses that might be
required for the Company's processes or products would be available on
commercially reasonable terms, if at all. See Item 3. "Legal Proceedings".
Pursuant to the Company's license agreement with HP, the Company has
granted HP certain rights to commence and control prosecution of any third party
infringement actions involving the intellectual property covered under the HP
license agreement.
In addition to its patent protection, i-STAT also relies upon trade
secrets, know-how and continuing technological innovation. The Company maintains
a policy requiring all employees and consultants to sign confidentiality
agreements under which they agree not to use or disclose i-STAT's confidential
information as long as that information remains proprietary or, in some cases,
for fixed time periods. There can be no assurance, however, that such
proprietary technology will not be independently developed or that secrecy will
not be breached. Under Company policy, all technical employees are required to
agree to assign to the Company all rights to any inventions made during their
employment or relating to the Company's activities and not to engage in
activities similar to the Company's for any other person or entity during the
term of their employment or for at least six months thereafter.
i-STAT is aware that research efforts in biosensor technology are
taking place at universities, government laboratories and other corporations
around the world and that numerous patent applications have been filed, and that
patents have been issued, relating to fundamental technologies and to specific
biosensor products and processes. If patents that cover the technologies,
products or processes utilized by the Company are issued to third parties,
i-STAT may have to obtain licenses under such patents. No assurance can be given
concerning the terms on which such licenses would be available, if at all.
GOVERNMENT REGULATION
The i-STAT System is a medical diagnostic device subject to the
provisions of the Food, Drug and Cosmetic Act (the "FDC Act") and implementing
regulations. The 1976 Medical Device Amendments and the Safe Medical Device
Amendments of 1990 to the FDC Act provide comprehensive regulation of all stages
of development, manufacture, distribution and promotion of medical devices.
There are two regulatory routes by which to bring a medical diagnostic device to
market: the Pre-market Approval Application ("PMA") and the Pre-market
Notification ("510(k) Notification"). The PMA requires a comprehensive review of
specified pre-clinical and clinical data, prior to an FDA finding that a device
is safe and effective for its designated indicated use. The 510(k) Notification
permits
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marketing upon a demonstration to the FDA's satisfaction that a device is
substantially equivalent to a device already in commercial distribution. The
clearance process can require extended periods of testing, both prior to and
after submissions are made. Review of submissions can take protracted periods of
time and involve significant resource expenditure. There is no certainty that
the FDA will clear any given device for marketing.
All of the Company's current products have received clearance to
market for use by health care professionals in all health care settings pursuant
to 510(k) Notifications. Any change or modification of an analyzer or a
cartridge that could significantly affect the safety or efficiency of the device
would require the filing of a new 510(k) Notification, and the Company would not
be able to market the i-STAT System as modified until FDA clearance is received.
The FDA may not concur in any such modification, and any such concurrence may be
subject to delay and require significant resources to provide the FDA with
needed data.
FDA regulations classify medical devices into three classes that
determine the degree of regulatory control to which the manufacturer of the
device is subject. The FDA classified the i-STAT System (as currently
configured) in Class II, meaning that the device may at some time in the future
also have to comply with mandatory performance standards or other "special
controls" if it is to remain in commercial distribution. The Company cannot
predict whether such additional standards or controls will ever be enacted, nor
what impact the enactment of such standards or controls might have on its
ability to produce and sell its products. Such standards or controls may relate
to any aspect of product performance which must be controlled to minimize any
risk associated with use of the device. All devices, including those
manufactured in Canada, must be manufactured in accordance with Good
Manufacturing Practices specified in implementing regulations under the FDC Act.
These practices control every phase of production from the design control and
incoming receipt of raw materials, components and subassemblies to the labeling,
tracing of consignees after distribution and follow-up and reporting of
complaint information.
The FDA has the authority to conduct unannounced inspections of all
facilities where devices are manufactured or assembled, and, if the investigator
observes conditions which might be violations, those conditions must be
corrected or satisfactorily explained, or the manufacturer could face regulatory
action that might include physical removal of the product from the marketplace.
The Company's New Jersey facilities were inspected in November 1994 and June
1995 and at each time found free of any violations. The FDA also regulates
labeling for devices and supervises the advertising for devices restricted to
use by health care professionals, such as the i-STAT System.
Recently, the FDA has pursued a more rigorous enforcement program to
ensure that regulated firms, such as the Company, comply with the provisions of
the FDC Act. A firm not in compliance may face a variety of regulatory actions,
ranging from warning letters, product detention, device alerts and mandatory
recalls or field corrections, to seizures, injunction actions, civil penalties
and criminal prosecutions of the firm or responsible individuals, employees,
officers or directors. The commencement of any action against the Company of the
type described above could seriously impact the Company's ability to conduct
business.
The Company's products are also affected by the Clinical Laboratory
Improvement Act of 1988 ("CLIA"). This law is intended to assure the quality and
reliability of all medical testing in the United States regardless of where
tests are performed. The regulations require laboratories performing blood
chemistry tests to meet specified standards in the areas of personnel
qualification, administration, participation in proficiency testing, patient
test management, quality control, quality assurance and inspections. The
regulations have established three levels of regulatory control based on test
complexity -- "waived," "moderate complexity" and "high complexity." The
Company's products have been designated as "moderate complexity." Subsequent
categorization of the Company's products as "high complexity" tests could hinder
the Company's ability to market its products. Expansion into alternate site
markets, particularly doctors' offices, may be limited by the regulatory burden
imposed by the classification of the i-STAT System as a moderately complex test
under CLIA. There can be no assurance that CLIA regulations or future
administrative interpretations of CLIA will not have an adverse impact on the
Company.
The Company and its products are also subject to a variety of state
laws and regulations in those states where its products are marketed, sold or
used. Certain states currently restrict or control, to varying degrees, the use
of medical devices such as the i-STAT System outside the clinical laboratory by
persons other than doctors or technologists. These restrictions have hindered
the Company's ability to market its products in these locations. The Company is
seeking interpretations, rulings or changes in relevant laws and regulations
that will remove or ameliorate
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these restrictions. Although the Company has been successful in gaining
favorable rulings and changes in certain relevant laws and regulations, there
can be no assurance that the Company will be successful in its efforts to remove
or ameliorate all these legal restrictions.
The Company distributes the i-STAT System outside the United States
in Japan, Canada and South America and plans to do so in other foreign
countries. Through its arrangements with HP, in February 1996 the Company
commenced introduction of the i-STAT System in Western Europe. The i-STAT System
is and will be subject to a wide variety of laws and regulations in these
markets, ranging from simple product registration in certain countries to
complex clearance and production controls in others. Speaking generally, the
extent and complexity of regulation of medical devices is increasing worldwide,
with regulation in some countries already nearly as comprehensive as that in the
United States. The Company anticipates that this trend will continue and that
the cost and time required to obtain approval to market in any given country
will increase, with no assurance that such approval will be given.
Because some of the Company's production facilities currently are
located in Canada, sales of the Company's products in the United States are
subject to U.S. laws regulating international trade practices. The Company does
not believe that these laws will materially and adversely affect its marketing
strategy or operations generally, although such laws are subject to change and
the Company cannot accurately predict the impact on the Company of any future
changes.
Federal, state and foreign regulations regarding the sale of medical
devices are subject to change. The Company cannot predict what impact, if any,
such changes may have on its business.
REIMBURSEMENT
Third party payors can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement provided for blood testing services. If the reimbursement amounts
for blood testing services are decreased in the future, it may decrease the
amount which physicians and hospitals are able to charge patients for such
services and consequently the price the Company can charge for its products.
EMPLOYEES
As of December 31, 1996, the Company employed 471 persons on a
full-time basis. The Company expects to hire additional employees during 1997.
None of i-STAT's employees is covered by a collective bargaining agreement.
i-STAT believes that its relationship with its employees is good and that its
success is dependent on, among other things, achieving and retaining scientific
and technological superiority and being capably managed. Consequently, the
success of the Company is highly dependent upon the continued availability of a
limited number of executives, scientists and engineers, the loss of some of whom
could have a material and adverse effect on the Company.
INSURANCE
The Company maintains a "claims made" product liability insurance
policy in the amount of $1 million, and an excess liability insurance policy in
the amount of $15 million, which are the maximum payouts for all claims that
could be made during a calendar year. The Company may seek broader coverage in
greater amounts depending on the rate of sales of the i-STAT System. If the
Company does not or cannot maintain its existing or comparable products
liability insurance, its ability to market its products may be significantly
impaired. The amount and scope of any insurance coverage upon which the Company
relies may not be adequate to protect the Company in the event a successful
product liability claim is made upon the Company. No product liability insurance
claim has ever been made by the Company. The Company also maintains
comprehensive general liability and business interruption liability insurance
policies. The Company's Kanata, Ottawa, wafer fabrication facility is the only
source of its proprietary thin film, biosensor chips, and, consequently, any
damage to the facility as a result of fire or other causes could materially and
adversely impact the Company. The amount and scope of any insurance coverage may
not be adequate to protect the Company in the event of any such loss.
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BACKLOG
In order to obtain discounts from i-STAT's established list price for
its products, some customers commit to purchase a specified quantity of i-STAT's
products for a period of time. However, at December 31, 1996, the Company did
not believe its backlog to be material.
SEASONALITY
The Company's operating results may fluctuate from quarter to quarter
due to many factors. Sales may be slower in the traditional vacation months, may
be accelerated in the fourth calendar quarter by customers whose annual budgets
are about to expire (especially affecting analyzer purchases), may be distorted
by unusually large analyzer shipments from time to time, or may be affected by
the timing of customer cartridge ordering patterns. (For example, a customer
might order two quarterly cartridge shipments in one quarter, perhaps at the
beginning of the end of the quarter, and none in the next quarter.)
GEOGRAPHIC SEGMENT DATA
Information regarding geographic segment data is provided in Note 15
to Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company's principal manufacturing facility is located at 436
Hazeldean Road, Kanata, Ontario, Canada, where it leases a 52,000 square-foot
space. The lease is for a term expiring in February 1999, subject, at the
Company's option, to renewal for one five-year term. The Company also leases
executive offices in Princeton, New Jersey, where it occupies approximately a
30,745 square-foot space. The Princeton lease expires in September 1998 subject,
at the Company's option, to two five-year options to renew. The Company has
established a cartridge assembly facility in Plainsboro, New Jersey, where it
leases a 30,325 square-foot space. The lease is for a term expiring in February
1999, subject, at the Company's option, to renewal for one five-year term.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a case entitled Nova Biomedical
Corporation, Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which
was filed in the United States District Court for the District of Massachusetts
on June 27, 1995, alleges infringement by i-STAT of Nova's U.S. Patent No.
4,686,479. The Plaintiff seeks unspecified damages and that the damages be
trebled. Nova also is asking for attorneys' fees and prejudgment interest. The
case currently is in the preliminary stages of discovery. The Company is
contesting the case vigorously and does not believe that it has infringed the
Nova patent. The Company has obtained an opinion from recognized patent counsel
to the effect that no infringement has occurred. However, if the plaintiff
should prevail in this matter, it could have a material impact on the financial
position, results of operations and cash flows of the Company. The Company has
asserted counterclaims under the antitrust laws alleging that Nova commenced the
action knowing that the patent was not infringed and that it had reason to
believe that the patent was invalid and unenforceable.
The Company is a defendant in a class action complaint entitled Susan
Kaufman, on behalf of herself and all others similarly situated, Plaintiff, v.
i-STAT Corporation, William P. Moffitt, Lionel N. Sterling, Imants R. Lauks and
Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf
and on behalf of all purchasers of the Company's Common Stock between May 9,
1995 and March 19, 1996. The complaint, which was filed in the Superior Court of
New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law
"fraud on the market" in connection with certain sales of i-STAT stock by the
Company's chief executive officer, chief technology officer and two outside
directors during a nine-month period. The plaintiffs seek unspecified
compensatory damages, interest and payment of all costs and expenses incurred in
connection with the class action. The Company believes the complaint is without
merit and intends to vigorously contest it. However, if the plaintiff should
prevail in this matter, it could have a material impact on the financial
position, results of operation and cash flows of the Company.
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The Company is a defendant in a case entitled Customedix Corporation,
Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was filed in
the United States District Court for the District of Connecticut on December 26,
1996, alleges infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964.
The Plaintiff seeks injunctive relief and an accounting for i-STAT's profits and
the damages to Customedix from such alleged infringement. The case currently is
in the preliminary stages of discovery. The Company intends to contest the case
vigorously and does not believe that it has infringed the Customedix patent. The
Company has obtained an opinion from recognized patent counsel to the effect
that no infringement has occurred. However, if the plaintiff should prevail in
this matter, it could have a material impact on the financial position, results
of operation and cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS
The executive officers of the Company and their respective ages and positions
with the Company are as follows:
William P. Moffitt Age 50. Mr. Moffitt is the Company's President and Chief
Executive Officer and also serves on the Company's Board
of Directors. From July 1989 through November 1991, Mr.
Moffitt held the position of Executive Vice President of
the Company. Mr. Moffitt was elected President of the
Company in November 1991 and Chief Executive Officer of
the Company in February 1993. Mr. Moffitt was elected a
director in May 1990. From 1985 to 1989, Mr. Moffitt was
President of the Physician Diagnostic Division of Baxter
Healthcare Corp., a diversified health care company. He
holds a B.S. from Duke University.
Imants R. Lauks Age 44. Dr. Lauks is a founder of the Company and serves
as a director and as the Company's Executive Vice
President and Chief Technology Officer. Dr. Lauks has
served as a director since the Company's incorporation
in 1983. He has served as the Company's Executive Vice
President since 1995, as its Vice President of Research
and Development from 1983 to 1995, and as its Chief
Technology Officer since 1991. He is internationally
recognized for his research on ion sensing phenomena in
microfabricated sensors, charge transport in membranes,
surface physics and gas-solid chemical interactions. Dr.
Lauks has spent twenty years researching and developing
unique microfabricated sensors, resulting in
thirty-eight scientific publications, eighteen United
States patents, eight Canadian patents, five Taiwanese
patents and fourteen pending United States patent
applications to date. Until he founded the Company in
1983, Dr. Lauks was a tenured Associate Professor at the
University of Pennsylvania in the Moore School of
Engineering. He is an Associate of the Royal College of
Science in London, England. He received both a Ph.D. in
Electrical Engineering and a B.S. in Chemistry from
Imperial College of London University.
Patricia Hennessey Age 43. Ms. Hennessey has served as Vice President of
Sales and Marketing since she joined the Company in
January 1995. She has over fifteen years of sales,
marketing and general management experience in the
medical device field. From 1986 to 1994, Ms. Hennessey
was employed by C.R. Bard, Inc. in a series of
senior-level marketing and general management positions
and most recently Vice President of Marketing of the
USCI Division. Ms. Hennessey received an M.B.A. from
Harvard University.
Noah J. Kroloff Age 34. Mr. Kroloff has served as Vice President of
Business Development and Strategy since he joined the
Company in May 1994. From September 1990 to May 1994, he
was a manager at McKinsey & Company, a leading
management consulting firm, where he specialized in
international alliances among medical products
companies. Prior to joining McKinsey, he served in
consulting and business development roles for several
biotechnology companies and for Merck & Co., Inc. Mr.
Kroloff received an M.B.A. in finance and marketing from
the MIT Sloan School of Management.
Roger J. Mason Age 48. Mr. Mason has served as Vice President of
Finance, Treasurer and Chief Financial Officer since he
joined the Company in July 1996. From October 1994 to
June 1996, he was Vice President, Finance and Treasurer,
and Chief Financial Officer at Concurrent Computer
Corporation, a publicly held, leading worldwide supplier
of networked and distributed, high performance, real
time, fault-tolerant computing systems. From April 1991
to October 1994, Mr. Mason served as Chief Financial
Officer and Treasurer at Integral Peripherals Inc., a
disk drive manufacturer. From 1981 to 1991, he held
senior executive positions at Maxtor Corporation, a
publicly held disk drive manufacturer, MiniScribe
Corporation, a publicly held disk drive manufacturer
whose assets were acquired by Maxtor Corporation, and
Ironstone Group, Inc., a publicly held holding company.
His experience also includes public accounting with
Coopers & Lybrand and Honey, Perriam & Company. He is a
fellow of the Institute of Chartered Accountants in
England and Wales.
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Michael P. Zelin Age 36. Mr. Zelin has served as Vice President of
Systems Development since March 1992. Since joining the
Company in February 1986 he has held various technical
positions including Manager and Director of Systems
Engineering, and has contributed to nine of the
Company's U.S. patents or patents pending.
Executive officers of the Company are elected by the Board of
Directors of the Company.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the NASDAQ National Market
System under the symbol "STAT". The following table sets forth for the periods
indicated the range of high and low prices for the Company's Common Stock as
reported on NASDAQ.
1996 High Low
- ---- ---- ---
First Quarter.................................. 41 24
Second Quarter................................. 30 1/2 14 3/4
Third Quarter.................................. 19 11 1/2
Fourth Quarter................................. 25 13 3/4
1995 High Low
- ---- ---- ---
First Quarter.................................. 28 16 1/2
Second Quarter................................. 40 1/2 18 1/4
Third Quarter.................................. 45 3/4 28
Fourth Quarter................................. 38 28
HOLDERS
There were approximately 411 holders of the Company's Common Stock of
record as of January 15, 1997.
RIGHTS
On June 29, 1995, the Company declared a dividend distribution of
rights (each, a "Right") to purchase a certain number of units at a price of
$104.00, subject to adjustment. The Rights are deemed to attach to and trade
together with the Common Stock. Each unit is equal to one one-hundredth of a
share of Series A Junior Participating Preferred Stock of the Company. Rights
are distributed in connection with issuances of shares of Common Stock and
Series B Stock. The Rights are not exercisable until the occurrence of certain
events enumerated in the Stockholder Protection Agreement between the Company
and First Fidelity Bank, National Association, the Company's rights agent. Until
a Right is exercised, no holder of Rights will have rights as a stockholder of
the Company (other than rights resulting from such holder's ownership of Common
Stock or Series B Stock), including, without limitation, the right to vote or to
receive dividends. A description of the Rights is hereby incorporated by
reference from the Company's Current Report on Form 8-K dated July 10, 1995, as
amended.
DIVIDENDS
Except for the Rights, the Company has not declared or paid dividends
on its Common Stock to date and intends to retain future earnings, if any, for
use in its business for the foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below have been
derived from the audited financial statements of the Company. The consolidated
financial statements of the Company as of December 31, 1996 and 1995 and for
each of the years in the three-year period ended December 31, 1996, together
with the notes thereto and the related report of Coopers & Lybrand L.L.P.,
independent accountants, are included elsewhere in this Report. The selected
consolidated financial data set forth below should be read in conjunction with
the consolidated financial statements, related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report.
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands of dollars, except share and per share data)
Statement of Operations Data:
Net sales........................................ $ 30,330 $ 20,102 $ 10,695 $ 4,798 $ 833
Cost of sales.................................... 26,291 22,013 14,803 10,227 2,129
Operating expenses:
Research and development...................... 5,780 5,664 8,333 4,476 8,024
General and administrative.................... 5,778 4,937 4,004 3,584 3,056
Sales and marketing........................... 11,991 11,506 8,484 6,051 4,147
Relocation.................................... -- -- -- (900) --
Other income, net................................ 2,054 1,010 1,249 1,563 1,521
Net loss......................................... (17,456) (23,008) (23,680) (17,077) (15,002)
Net loss per share............................... ($1.31) ($1.90) ($2.16) ($1.87) ($1.88)
Shares used in computing
net loss per share ........................... 13,321,603 12,122,089 10,974,467 9,110,888 7,962,555
As of December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands of dollars)
Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 28,417 $ 49,519 $ 21,619 $ 47,030 $ 35,512
Working capital.................................. 33,577 55,942 23,537 47,473 33,491
Total assets..................................... 55,365 74,050 39,178 59,239 42,404
Accumulated deficit.............................. (141,300) (123,844) (100,836) (77,156) (60,079)
Total stockholders' equity....................... $ 46,834 $ 63,594 $ 26,093 $ 49,517 $ 30,583
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MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND OVERVIEW
The Company's results for the year ended December 31, 1996 are marked
by a significant increase in product sales, significant improvements in
manufacturing efficiencies and a significant reduction in net loss.
The Company's revenues are affected principally by the number of
hospitals using the i-STAT System and the rate at which i-STAT's disposable
cartridges are used by these hospitals. This, in turn, is highly dependent upon
the willingness of hospitals to adapt their traditional blood diagnostic testing
approaches to the point-of-care system advocated by the Company. During 1996 the
Company began to focus its marketing efforts primarily on potential large scale
adopters of the i-STAT System. Such high volume customers tend to require a
longer sales cycle as the marketing focus with respect to such customers is on
having these customers re-engineer or replace their "stat" lab departments with
the i-STAT System, as compared to other potential customers who may be using the
i-STAT System as a supplement to their existing arrangements. To further this
strategy, the Company has recently expanded its policy of offering substantial
price discounts to high volume users. The Company believes that this strategy
will accelerate the rate of market penetration for its products and thus have a
beneficial long-term effect upon revenue growth. However, the near-term rate of
growth in sales revenue and gross margin will be adversely impacted by both the
longer sales cycle and the lower cartridge prices that such high volume
customers may receive.
The first beneficiaries of the Company's recent expanded pricing
strategy will be existing customers who already exceed the new volume discount
thresholds. These customers represented approximately 22.6% of 1996 worldwide
cartridge sales volume. It is possible that this percentage will rapidly
increase because there are other existing customers which will qualify for the
lower pricing by making incremental volume purchase commitments. These volume
discounts only will be provided to customers who commit to purchase 30,000 or
more cartridges per year, with the highest discounts going to purchasers of
80,000 or more cartridges per year. The Company believes that the gross margin
impact of lowering the selling prices for high volume customers can be more than
offset by lower manufacturing costs per cartridge produced as a result of the
incremental cartridge sales volume generated by the expanded pricing strategy.
However, it is likely to be more than a year before the benefits from any such
incremental sales volume are realized because of the long sales and
implementation cycle involved.
The Company anticipates that, during the second half of 1997,
additional revenues will be realized from the planned introduction of the HP
Integrated Analyzer. However, the extent of the impact upon revenues will be
affected by both the timing of such introduction and the likelihood that some of
the initial purchasers of the Integrated Analyzer will be existing users of the
hand-held analyzer sold by the Company. Therefore, net cartridge revenue growth
attributable to usage of the HP Integrated Analyzer may not, in the near term,
be significant.
RESULTS OF OPERATIONS
The Company generated revenues of approximately $30.3 million, $20.1
million and $10.7 million in 1996, 1995 and 1994, including international
revenues (as a percentage of worldwide revenues) of $9.5 million (31.2%), $3.9
million (19.4%) and $1.0 million (9.4%), respectively. International revenues
include deferred Japanese revenue which has been amortized to income at the rate
of approximately $3.2 million, $1.4 million and $0.5 million for 1996, 1995 and
1994, respectively. The balance of approximately $3.2 million of such deferred
revenue will be fully amortized by December 31, 1997, when the period of
exclusivity under the Company's agreements with its Japanese marketing partners
comes up for review. Sales to its Japanese marketing partners represented
approximately 24.7%, 14.4% and 9.2% of the Company's worldwide sales (including
deferred revenue) for 1996, 1995 and 1994, respectively.
The $10.2 million (50.9%) increase in revenues from 1995 to 1996 was
primarily due to increased shipment volume of the Company's cartridges and
analyzers, reflecting higher cartridge consumption by existing hospital
customers and the addition of new hospital customers in the U.S. and
internationally. Worldwide cartridge shipments increased 50.0% to 3,157,192
units from 2,104,061 units and worldwide analyzer shipments increased 85.9% to
2,340 units from 1,259 units for the twelve months ended December 31, 1996 and
1995, respectively. Other elements of the increase in revenues included 1)
recognition of an additional $1.8 million of deferred revenue, due to a change
in accounting estimate
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in 1996, from the Company's Japanese marketing partners, 2) higher average
selling prices per unit of the Company's analyzers, and 3) slightly higher
worldwide average selling prices per unit of the Company's cartridges,
reflecting increases in the unit transfer prices specified in the Company's
contracts with its Japanese partners which were partially offset by lower
average selling prices per unit in the U.S. as a result of a shift to higher
volume U.S. customers that receive lower cartridge prices. The $9.4 million
(88.0%) increase in revenues from 1994 to 1995 primarily reflects the
introduction of the Company's arterial blood gas cartridges.
The manufacturing costs associated with product sales in 1996, 1995
and 1994 were approximately $26.3 million, $22.0 million, and $14.8 million,
respectively. This resulted in a gross profit of $4.0 million in 1996, compared
with a gross loss of $1.9 million and $4.1 million in 1995 and 1994,
respectively. The improvement in gross margin was primarily due to increased
shipment volume of the Company's cartridges and analyzers. The additional
deferred revenue and higher average selling prices noted above also contributed
to the gross margin improvement. To the extent that sales volume increases, the
Company expects its gross profit to improve as manufacturing costs (including
direct labor and a large component of overhead) are spread over a larger number
of product units.
The Company incurred research and development costs (as a percentage
of sales) of approximately $5.7 million (19.1%), $5.6 million (28.1%) and $8.3
million (77.9%) in 1996, 1995 and 1994, respectively, consisting of costs
associated with the personnel, material, equipment and facilities necessary for
conducting new product development. Research and development costs declined
significantly in 1995 from 1994 due to the completion of development of the
Company's arterial blood gas products in 1994. The Company's current research
and development program includes the development of tests for the measurement of
creatinine, ionized magnesium and coagulation, which are scheduled to move into
the production phase over the next twelve to eighteen months. The Company also
is studying the development of tests to measure enzymes, hematology parameters
(such as platelets and white blood cell counts) and other analytes.
Consequently, research and development expenditures are expected to increase
significantly over the next three years. The amount and timing of such increase
will depend upon numerous factors including the level of activity at any point
in time, the breadth of the Company's development objectives and the success of
its development programs.
The Company incurred general and administrative expenses (as a
percentage of sales) of approximately $5.8 million (19.1%), $4.9 million (24.6%)
and $4.0 million (37.4%) in 1996, 1995 and 1994, respectively. General and
administrative expenses consisted primarily of salaries and benefits of
personnel, office costs, professional fees and other costs necessary to support
the Company's infrastructure. The year-to-year increase primarily reflects the
Company's increased need for management personnel and other services to support
its growth, and legal fees and expenses associated with the defense of the Nova
patent infringement action.
The Company incurred sales and marketing expenses (as a percentage of
sales) of approximately $12.0 million (39.5%), $11.5 million (57.2%) and $8.5
million (79.3%) in 1996, 1995 and 1994, respectively, consisting primarily of
salaries, commissions, benefits, travel and other expenditures for sales
representatives, product literature, market research, clinical studies and other
sales infrastructure costs. The dollar increase from year to year is
attributable to increased marketing activities, and the hiring of management and
other marketing personnel necessary to support the Company's planned growth in
product sales.
The increase in investment income to approximately $2.1 million, from
$1.4 million and from $1.2 million in 1996, 1995 and 1994, respectively,
primarily reflects additional interest income earned on significantly higher
cash and cash equivalent balances subsequent to July 1995. Such higher balances
reflect the receipt in mid-1995 of net proceeds of approximately $59.2 million
in connection with the issuance of Series B Stock to HP. Interest income is
expected to decline in the near future as cash and cash equivalent balances
decline. The Company also recorded a charge against other income (expense), net,
of $0.4 million in the twelve months ended December 31, 1995 relating to the
implementation of stockholder protection measures and a proposed offering of
securities that was terminated.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash, cash equivalents and
short-term investments of approximately $28.4 million, a decline of $21.1
million from the December 31, 1995 balance of approximately $49.5 million,
primarily reflecting approximately $16.2 million of cash used in operating
activities and equipment purchases of approximately $5.2 million during the year
ended December 31, 1996. Working capital declined by approximately $22.4 million
from $55.9
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million to $33.5 million during the same period, primarily reflecting
the decline in cash, cash equivalents and short-term investments. The Company
expects its existing funds to continue to decline until its revenues are
sufficient to support its growth, but to be sufficient to meet its obligations
and its liquidity and capital requirements for the near term. The Company
regularly monitors capital raising alternatives in order to take advantage of
opportunities to supplement its current working capital upon favorable terms,
including joint ventures, strategic corporate partnerships or other alliances
and the sale of equity and/or debt securities, and expects during 1997 to
seriously explore means by which to fund the Company's planned increased
investment in research and development and maintain its working capital at a
desirable level while the expanded pricing strategy discussed previously is in
the early stages of implementation. The Company's need, if any, to raise
additional funds to meet its working capital and capital requirements will
depend upon numerous factors, including the results of its product marketing and
sales activities, its new product development efforts, manufacturing
efficiencies and competitive conditions.
The change in additional paid-in capital and unearned compensation,
net, under stockholders' equity primarily reflects: 1) a change of estimate with
respect to the Company's Strategic Milestone Stock Award Program of $2.3
million, and 2) treasury stock of $0.7 million which was retired in 1996. During
the first quarter of 1996 the Company achieved its first milestone under its
Strategic Milestone Stock Award Program. In connection with the achievement of
this milestone, an aggregate amount of $33,000 will be recognized as a non-cash
compensation expense over a 27 month period. This represents a reduction of
approximately $2.3 million from amounts previously estimated as of December 31,
1995. The difference relates to changes in the price of the Company's Common
Stock since the inception of the program.
At December 31, 1996, the Company had available for Federal Income
Tax purposes net operating loss carryforwards of approximately $122 million,
which expire in varying amounts through 2011. The timing and manner in which the
operating loss carryforwards may be utilized in any year by the Company will be
limited by Section 382 of the Internal Revenue Code.
The impact of inflation and foreign currency translation on the
Company's business has been minimal and is expected to be minimal for the
near-term.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 for an Index to Financial Statements and Financial
Statement Schedules. Such Financial Statements and Schedules are incorporated
herein by reference.
CHANGES IN AND DISAGREEMENTS WITH
ITEM 9. ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers of the
Company and compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended, is included under the caption "Election of Directors" of the
Proxy Statement for the 1997 Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is included under the
caption "Executive Compensation" of the Proxy Statement for the 1997 Annual
Meeting of Stockholders and is incorporated herein by reference.
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SECURITY OWNERSHIP OF CERTAIN
ITEM 12. BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial
owners and management is included under the captions "Principal Stockholders"
and "Election of Directors" of the Proxy Statement for the 1997 Annual Meeting
of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning transactions and other relationships, if any,
between the Company and its directors, officers or principal stockholders is
included under the caption "Certain Transactions" of the Proxy Statement for the
1997 Annual Meeting of Stockholders and is incorporated herein by reference.
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PART IV
EXHIBITS, FINANCIAL STATEMENT
ITEM 14. SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) Financial Statements -- The following are included in Item 8:
Page
----
Report of Independent Accountants................................................................. 23
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1996............................................... 24
Consolidated Balance Sheets at December 31, 1996 and 1995......................................... 25
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended December 31, 1996............................... 26
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996............................................... 27
Notes to Consolidated Financial Statements........................................................ 28
(2) Financial Statement Schedules -- The following are included in Item 14(d):
Report of Independent Accountants................................................................. 38
Schedule II -- Valuation and Qualifying Accounts.................................................. 39
Consolidated financial statement schedules not filed herein have been
omitted either because they are not applicable, not required or the equivalent
information has been included in the consolidated financial statements and notes
thereto or elsewhere herein.
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(a) Exhibits
--------
Exhibit No. Description
---------- -----------
(3.1) Restated Certificate of Incorporation (Form S-8/S-3
Registration Statement, File No. 33-48889)*
(3.2) By-laws
(3.3) Certificate of Designation, Preferences and Rights of Series
A Preferred Stock (Form 8-K, dated July 10, 1995 and amended
on September 11, 1995)*
(3.4) Certificate of Designation, Preferences and Rights of Series
B Preferred Stock (Form 8-K, dated July 10, 1995 and amended
on September 11, 1995)*
(4.1) Stockholder Protection Agreement, dated as of June 26, 1995,
between Registrant and First Fidelity Bank, National
Association (Form 8-K, dated July 10, 1995 and amended on
September 11, 1995)*
(10.1) Series A Convertible Preferred Stock Purchase Agreement (Form
S-1 Registration Statement, File No. 33-44800)*
(10.2) Restated Registration Rights Agreement, dated May 3, 1990,
among the Registrant and certain of its stockholders (Form
S-1 Registration Statement, File No. 33-44800)*
(10.3)** 1985 Stock Option Plan (Form S-8 Registration Statement, File
No. 33-96114)*
(10.4.1) Form of Incentive Stock Option Agreement under 1985 Stock
Option Plan (U.S. Resident Non-Affiliate) (Form 10-K for
fiscal year ended December 31, 1992)*
(10.4.2)** Form of Incentive Stock Option Agreement under 1985 Stock
Option Plan (U.S. Resident Affiliate) (Form 10-K for fiscal
year ended December 31, 1992)*
(10.4.3) Form of Non-Statutory Stock Option Agreement under 1985 Stock
Option Plan (U.S. Resident Non-Affiliate) (Form 10-Q for
quarter ended September 30, 1996)*
(10.4.4)** Form of Non-Statutory Stock Option Agreement under 1985 Stock
Option Plan (U.S. Resident Affiliate) (Form 10-Q for quarter
ended September 30, 1996)*
(10.4.5) Form of Non-Statutory Stock Option Agreement under 1985 Stock
Option Plan (Ontario Resident Non-Affiliate) (Form 10-Q for
quarter ended September 30, 1996)*
(10.4.6)** Form of Non-Statutory Stock Option Agreement under 1985 Stock
Option Plan (Ontario Resident Affiliate) (Form 10-Q for
quarter ended September 30, 1996)*
(10.4.7) Form of Non-Statutory Stock Option Agreement under 1985 Stock
Option Plan (Quebec Resident Non-Affiliate) (Form 10-Q for
quarter ended September 30, 1996)*
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No. 0-19841)
and are hereby made a part of this Report.
** This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
19
22
Exhibit No. Description
- ----------- -----------
(10.4.8)** Form of Non-Statutory Stock Option Agreement under 1985 Stock
Option Plan (Quebec Resident Affiliate) (Form 10-Q for
quarter ended September 30, 1996)*
(10.6) Shareholders' Agreement, dated July 19, 1985, among the
Registrant and certain of its stockholders, with amendments
thereto (Form S-1 Registration Statement, File No. 33-44800)*
(10.11) Letter Agreement between the Registrant and Japanese
corporate entities, dated August 23, 1988 (Form S-1
Registration Statement, File No. 33-44800)*
(10.12) Letter Agreement between the Registrant and Japanese
corporate entities, dated August 23, 1988 (Form S-1
Registration Statement, File No. 33-44800)*
(10.13) Distribution Agreement between the Registrant and Japanese
corporate entities, dated August 23, 1988 (Form S-1
Registration Statement, File No. 33-44800)*
(10.15) Development Agreement between the Registrant and Japanese
corporate entities, dated August 23, 1988 (Form S-1
Registration Statement, File No. 33-44800)*
(10.20) Lease Agreement, dated May 23, 1993, between Linpro Princeton
O.R. Offices II L.P. and the Registrant (Form 10-Q for
quarter ended June 30, 1993)*
(10.21) Lease Agreement, dated December 23, 1991, between William S.
Burnside (Canada) Limited, "In Trust" and the Registrant
(Form 10-K for fiscal year ended December 31, 1993)*
(10.23) i-STAT 1994 Stock Award Plan (Form S-8 Registration
Statement, File No. 33-76152)*
(10.24) Form of Stock Award Agreement under 1994 Stock Award Plan
(Form S-8 Registration Statement, File No. 33-76152)*
(10.25)** Letter Agreement, dated April 15, 1994, between Registrant
and Noah Kroloff (Form 10-Q for quarter ended June 30, 1994)*
(10.27)** Letter Agreement, dated November 22, 1994, between Registrant
and Patricia Hennessey (Form 10-K for fiscal year ended
December 31, 1994)*
(10.28) Series B Preferred Stock Purchase Agreement, dated as of June
23, 1995, between the Registrant and Hewlett-Packard Company
(Form 8-K, dated July 10, 1995 and amended on September 11,
1995)*
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No. 0-19841)
and are hereby made a part of this Report.
** This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
20
23
Exhibit No. Description
- ----------- -----------
(10.29) Registration Rights Agreement between the Registrant and
Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and
amended on September 11, 1995)*
(10.30) License Agreement between the Registrant and Hewlett-Packard
Company (Form 8-K, dated July 10, 1995 and amended on
September 11, 1995)*
(10.31) Distribution Agreement between the Registrant and
Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and
amended on September 11, 1995)*
(10.33) Amendment, dated March 28, 1995 to Lease Agreement dated
December 23, 1991, between William S. Burnside (Canada)
Limited, "In Trust" and the Registrant (Form 10-Q for quarter
ended March 31, 1996)*
(10.34)** Letter Agreement, dated June 6, 1996 between the Registrant
and Roger J. Mason (Form 10-Q for quarter ended June 30,
1996)*
(10.35) Form of Officer Indemnification Agreement
(10.36) Form of Director Indemnification Agreement
(10.37) Amendment, dated November 20, 1996 to Lease Agreement dated
May 27, 1993, between Linpro Princeton O.R. Offices II L.P.
and the Registrant.
(21) Subsidiaries of the Registrant (Form S-1 Registration
Statement, File No. 33-44800)*
(23) Consent of Coopers & Lybrand, L.L.P., Independent Accountants
(24) Powers of Attorney, executed by certain officers of the
Registrant and the individual members of the Board of
Directors, authorizing such officers of the Registrant to
file amendments to this Report, are located on the signature
page of this Report.
(27) Financial Data Schedule
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No. 0-19841)
and are hereby made a part of this Report.
** This exhibit is a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
21
24
i-STAT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Description Page
- ----------- ----
Report of Independent Accountants............................................................................ 23
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1996................................................................................... 24
Consolidated Balance Sheets as of December 31, 1996 and 1995................................................. 25
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended December 31, 1996......................................... 26
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1996..................................................................... 27
Notes to Consolidated Financial Statements................................................................... 28
22
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of i-STAT Corporation:
We have audited the accompanying consolidated balance sheets of
i-STAT Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of i-STAT
Corporation and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
January 28, 1997
23
26
i-STAT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
For the Years Ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
Net sales............................................ $ 30,330 $ 20,102 $ 10,695
Cost of sales........................................ 26,291 22,013 14,803
---------- ---------- ----------
Gross profit (loss)............................... 4,039 (1,911) (4,108)
Operating expenses:
Research and development.......................... 5,780 5,664 8,333
General and administrative........................ 5,778 4,937 4,004
Sales and marketing............................... 11,991 11,506 8,484
---------- ---------- ----------
Total operating expenses....................... 23,549 22,107 20,821
---------- ---------- ----------
Operating loss.............................. (19,510) (24,018) (24,929)
Other income (expense):
Investment income ................................ 2,105 1,421 1,248
Other ............................................ (51) (411) 1
---------- ---------- ----------
Other income (expense), net.................... 2,054 1,010 1,249
---------- ---------- ----------
Net loss ............................................ ($17,456) ($23,008) ($23,680)
========== ========== ==========
Net loss per share................................... ($1.31) ($1.90) ($2.16)
========== ========== ==========
Shares used in computing net loss per share.......... 13,321,603 12,122,089 10,974,467
========== ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
24
27
i-STAT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
December 31,
-------------------------
1996 1995
--------- ---------
Assets
Current assets:
Cash and cash equivalents .............................................. $ 28,417 $ 47,494
Short-term investments (Note 1) ........................................ -- 2,025
Accounts receivable, net of reserve for doubtful accounts of $195
in 1996 and $110 in 1995 ............................................ 4,948 4,053
Inventories (Note 2) ................................................... 7,788 9,003
Prepaid expenses and other current assets .............................. 955 688
--------- ---------
Total current assets ................................................ 42,108 63,263
Plant and equipment, net (Note 3) ......................................... 11,534 9,163
Intangible assets, net (Note 4) ........................................... 1,166 928
Other assets .............................................................. 557 696
--------- ---------
Total assets ........................................................ $ 55,365 $ 74,050
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ....................................................... $ 1,537 $ 1,554
Accrued expenses (Note 5) .............................................. 3,754 2,527
Deferred revenue, current (Note 9) ..................................... 3,240 3,240
--------- ---------
Total current liabilities ........................................... 8,531 7,321
Deferred revenue, non-current (Note 9) .................................... -- 3,135
--------- ---------
Total liabilities ................................................... 8,531 10,456
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.10 par value, shares authorized 7,000,000:
Series A Junior Participating Preferred Stock, $.10 par value,
1,500,000 shares authorized; none issued at December 31, 1996
and December 31, 1995 ............................................ -- --
Series B Preferred Stock, $.10 par value, 2,138,702 shares authorized
and issued at December 31, 1996 and December 31, 1995 ............ 214 214
Common Stock, $.15 par value, shares authorized 25,000,000;
shares issued 11,215,214 at December 31, 1996
and 11,123,698 at December 31, 1995 ................................. 1,682 1,669
Treasury Stock ......................................................... -- (691)
Additional paid-in capital ............................................. 186,434 188,698
Unearned compensation .................................................. (19) (2,354)
Foreign currency translation adjustment ................................ (177) (98)
Accumulated deficit .................................................... (141,300) (123,844)
--------- ---------
Total stockholders' equity .......................................... 46,834 63,594
--------- ---------
Total liabilities and stockholders' equity .......................... $ 55,365 $ 74,050
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
25
28
i-STAT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
Preferred Stock Common Stock
----------------------------- -----------------------------
Additional
Number Par Number Par Paid-in
of shares Value of Shares Value Capital
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 ............. -- $ -- 10,930,668 $ 1,640 $ 125,231
Shares issued at $.525 to $12.375 per share
under the 1985 Stock Option Plan and
exercise of warrants (Note 8) ............. 61,565 9 453
Restricted Stock issued at $14.22 ......... 29,450 4 414
Compensation related to options issued,
net of forfeitures ..................... 311
Net unrealized investment loss ............
Amortization of unearned compensation
related to options issued ..............
Purchase and retirement of Treasury Stock . (14,398) (2) (232)
Translation adjustment ....................
Net loss for the year .....................
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 ............. -- -- 11,007,285 1,651 126,177
Shares issued at $1.50 to $14.85 per share
under the 1985 Stock Option Plan
(Note 8) ................................. 114,913 18 573
Restricted Stock issued at $23.13 ......... 1,500 34
Compensation related to options
issued net of forfeitures .............. 2,916
Shares (Series B Preferred Stock) issued
to Hewlett-Packard Company at
$28.50 per share ....................... 2,138,702 214 58,998
Net unrealized investment gain ............
Amortization of unearned compensation
related to options issued ..............
Purchase of Treasury Stock during year ....
Translation adjustment ....................
Net loss for the year .....................
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 ............. 2,138,702 214 11,123,698 1,669 188,698
Shares issued at $1.50 to $23.125 per share
under the 1985 Stock Option Plan
(Note 8) ............................... 111,347 16 706
Compensation related to options
issued net of forfeitures .............. (2,216)
Amortization of unearned compensation
related to options issued ..............
Purchase of Treasury Stock during year ....
Retirement of Treasury Stock during year .. (19,831) (3) (754)
Translation adjustment ....................
Net loss for the year .....................
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 ............. 2,138,702 $ 214 11,215,214 $ 1,682 $ 186,434
=========== =========== =========== =========== ===========
Unearned
Treasury Compen- Accumulated
Stock sation Other Deficit
----------- ----------- ----------- -----------
Balance, December 31, 1993 ............. $ -- ($ 135) ($ 63) ($ 77,156)
Shares issued at $.525 to $12.375 per share
under the 1985 Stock Option Plan and
exercise of warrants (Note 8) .............
Restricted Stock issued at $14.22 ......... (209)
Compensation related to options issued,
net of forfeitures ..................... (311)
Net unrealized investment loss ............ (625)
Amortization of unearned compensation
related to options issued .............. 381
Purchase and retirement of Treasury Stock .
Translation adjustment .................... 63
Net loss for the year ..................... (23,680)
----------- ----------- ----------- -----------
Balance, December 31, 1994 ............. -- (274) (625) (100,836)
Shares issued at $1.50 to $14.85 per share
under the 1985 Stock Option Plan
(Note 8) .................................
Restricted Stock issued at $23.13 ......... (17)
Compensation related to options
issued net of forfeitures .............. (2,916)
Shares (Series B Preferred Stock) issued
to Hewlett-Packard Company at
$28.50 per share .......................
Net unrealized investment gain ............ 625
Amortization of unearned compensation
related to options issued .............. 853
Purchase of Treasury Stock during year .... (691)
Translation adjustment .................... (98)
Net loss for the year ..................... (23,008)
----------- ----------- ----------- -----------
Balance, December 31, 1995 ............. (691) (2,354) (98) (123,844)
Shares issued at $1.50 to $23.125 per share
under the 1985 Stock Option Plan
(Note 8) ...............................
Compensation related to options
issued net of forfeitures .............. 2,216
Amortization of unearned compensation
related to options issued .............. 119
Purchase of Treasury Stock during year .... (66)
Retirement of Treasury Stock during year .. 757
Translation adjustment .................... (79)
Net loss for the year ..................... (17,456)
----------- ----------- ----------- -----------
Balance, December 31, 1996 ............. $ -- ($ 19) ($ 177) ($ 141,300)
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
26
29
i-STAT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
For the Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net loss ................................................................. ($17,456) ($23,008) ($23,680)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ......................................... 2,888 2,381 2,013
Accounts receivable provision ......................................... 85 85 --
Write-off of patents .................................................. -- 90 --
Gains on disposal of equipment ........................................ (8) -- (3)
Deferred revenue ...................................................... (3,136) (1,374) (503)
Expense related to restricted stock, options and warrants ............. 119 853 591
Change in assets and liabilities:
Accounts receivable ...................................................... (980) (655) (2,406)
Inventories .............................................................. 1,215 (4,292) (1,777)
Prepaid expenses and other current assets ................................ (224) (254) (129)
Accounts payable ......................................................... (17) (1,429) 1,056
Accrued expenses ......................................................... 1,227 174 908
Restricted cash, letter of credit ........................................ 96 118 (22)
-------- -------- --------
Net cash used in operating activities ................................. (16,191) (27,311) (23,952)
-------- -------- --------
Cash flows from investing activities:
Purchases of investments ................................................. -- (10,032) (17,597)
Sales of investments ..................................................... 2,025 25,532 42,833
Purchase of equipment .................................................... (5,196) (4,218) (2,924)
Cost of intangible assets ................................................ (311) (227) (105)
Proceeds from sale of equipment .......................................... 19 -- 3
-------- -------- --------
Net cash used in investing activities ................................. (3,463) 11,055 22,210
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of development, distribution and manufacturing rights . -- -- 1,900
Proceeds from sale of Common Stock ....................................... 656 608 228
Proceeds from sale of Preferred Stock .................................... -- 59,212 --
Purchase of Treasury Stock ............................................... -- (691) --
-------- -------- --------
Net cash provided by financing activities ............................. 656 59,129 2,128
-------- -------- --------
Effect of currency exchange rate changes on cash ............................ (79) (98) 63
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ..................... (19,077) 42,775 449
Cash and cash equivalents at beginning of year ........................... 47,494 4,719 4,270
-------- -------- --------
Cash and cash equivalents at end of year ................................. $ 28,417 $ 47,494 $ 4,719
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes ............................................... -- -- --
======== ======== ========
Cash paid for interest ................................................... -- $ 1 $ 1
======== ======== ========
Supplemental disclosures of cash flow information and non cash investing and
financing activities:
Equipment purchases included in accounts payable at year end ............. $ 136 $ 361 --
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements
27
30
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations
The accompanying consolidated financial statements include the accounts
of i-STAT Corporation and i-STAT Canada Limited, collectively known as i-STAT or
the Company. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company develops, manufactures and markets
medical diagnostic products for blood analysis that provide health care
professionals with immediate and accurate critical diagnostic information at the
point of patient care. The Company's products currently are marketed through the
Company's direct sales force principally to hospitals in the United States and
Canada and through marketing partners in other countries.
The Company operates in a high technology, emerging market environment
that involves significant risks and uncertainties which may cause results to
vary significantly from reporting period to reporting period. These risks
include, but are not limited to, among others, competition from existing
manufacturers and marketers of blood analysis products who have greater
resources than the Company, the uncertainty of new product development
initiatives, difficulties in transferring new technology to the manufacturing
stage, market resistance to new products and point-of-care blood diagnosis,
domestic and international regulatory constraints, uncertainties of
international trade, pending and potential disputes concerning ownership of
intellectual property and dependence upon strategic corporate partners for
assistance in development of new markets.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents include investments with original maturities
of three months or less. Short-term investments include investments which have a
maturity of greater than three months and which are intended to be sold within
one year. The Company implemented the provisions of Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115) in 1994.
The January 1, 1994 balance of stockholders' equity was reduced by
$233,000 to reflect the net unrealized losses on securities, all of which had
been classified as available for sale, that were previously carried at the lower
of cost or market. Realized gains and losses are calculated on the specific
identification method. Gross unrealized losses were $0, $175,000 and $234,000
for 1996, 1995 and 1994, respectively.
Foreign Currency Translation/Transactions
Generally Consolidated Balance Sheet amounts have been translated using
exchange rates in effect at the balance sheet dates and the translation
adjustments have been included in the foreign currency translation adjustment as
a separate component of Consolidated Stockholders' Equity. Amounts related to
transactions in the Consolidated Statements of Operations have been translated
using the average exchange rates in effect each year and transaction gains and
losses which are not material have been included therein.
Inventories
Inventories are carried at the lower of actual cost or market and cost
is accounted for on the first-in first-out (FIFO) basis.
Plant and Equipment
Plant and equipment are stated at cost and are depreciated on a
straight-line basis over their useful lives which are estimated to be three to
seven years. Leasehold improvements are amortized over five years or the term of
the lease, whichever is less. The cost of major additions and betterments are
capitalized; maintenance and repairs which do not improve or extend the life of
the respective assets are charged to operations as incurred. When depreciable
assets are retired or sold the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
Consolidated Statements of Operations.
28
31
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Patents, Licenses and Trademarks
Costs to obtain and maintain and defend patents, licenses and
trademarks are capitalized and amortized on a straight-line basis over their
estimated useful lives or a period of 17 years, whichever is shorter. The
Company reviews these items on a regular basis for realization.
Unearned Compensation
Unearned compensation related to stock options and awards is amortized
over the period during which the options become exercisable or awards are
earned.
Deferred Revenue
The Company recognized deferred revenue ratably during 1995 and 1994 as
cartridges were shipped to its Japanese distributors based on the forecast of
total cartridges to be shipped during the contract period. Effective January 1,
1996, the Company began recognizing deferred revenue on a straight-line basis
through December 31, 1997, when the period of exclusivity under the Company's
agreements with its Japanese marketing partners comes up for review.
Income Taxes
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109), which requires an asset and liability approach for financial
accounting and reporting of income taxes. In addition, deferred income taxes are
adjusted for changes in income tax rates.
Net Loss per Share
Net loss per share is calculated using the weighted average number of
common shares and preferred shares outstanding for all periods presented.
Preferred shares have been included in the calculation since their date of
issuance as they are convertible into common on a 1:1 basis and have
substantially the same characteristics as common stock. Options outstanding are
not included in the calculation as they are anti-dilutive.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's significant concentrations of credit risk are with its
cash, short-term investments and accounts receivable. Substantially all the
Company's cash and cash equivalents at December 31, 1996 were invested in the
securities of a single U.S. Government Agency. Accounts receivable are generally
with major hospitals. The Company provides credit to its customers on an
unsecured basis after evaluating their credit status.
Reclassification
Certain reclassifications have been made to 1995 amounts to conform
them to the 1996 presentation.
29
32
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. INVENTORIES
Inventories consist of the following:
December 31,
--------------------------
1996 1995
------ ------
(In thousands of dollars)
Raw materials .......................... $2,477 $3,113
Work in process ........................ 1,596 1,146
Finished goods ......................... 3,715 4,744
------ ------
$7,788 $9,003
====== ======
3. PLANT AND EQUIPMENT
Plant and equipment, net, consists of the following:
December 31,
-----------------------
1996 1995
-------- --------
(In thousands of dollars)
Manufacturing equipment .......................... $ 20,344 $ 15,895
Furniture and fixtures ........................... 762 641
Leasehold improvements ........................... 2,992 2,385
-------- --------
24,098 18,921
Less accumulated depreciation and amortization ... (12,564) (9,758)
-------- --------
$ 11,534 $ 9,163
======== ========
4. INTANGIBLE ASSETS
Intangible assets, net consist of the following:
December 31,
-------------------------
1996 1995
------- -------
(In thousands of dollars)
Patents, licenses and trademarks ........... $ 1,440 $ 1,129
Less accumulated amortization .............. (274) (201)
------- -------
$ 1,166 $ 928
======= =======
Amortization expense was approximately $73,000, $38,000 and $46,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
------------------------
1996 1995
------ ------
(In thousands of dollars)
Payroll and withholding taxes .............. $ 695 $ 695
Professional fees .......................... 398 394
Accrued commissions ........................ 280 365
Rent ....................................... 128 201
Other ...................................... 2,253 872
------ ------
Total accrued expenses .................. $3,754 $2,527
====== ======
30
33
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. LEASING TRANSACTIONS
The Company's lease for its manufacturing facility in Ontario, Canada
expires in February 1999 and is subject, at the Company's option, to one
five-year option to renew. Rent expense was approximately $335,000, $254,000 and
$296,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company's lease for its administrative, marketing and selected
research and development facility in Princeton, New Jersey, expires in
September, 1998 and is subject, at the Company's option, to two five-year
options to renew. Rent expense for this facility was approximately $484,000,
$483,000 and $479,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company's lease for its assembly facility in Plainsboro, New Jersey
expires in February 1999 and is subject, at the Company's option, to one
five-year option to renew. At December 31, 1996 other assets include $473,000 in
restricted cash which acts as collateral for the leasehold improvements made in
the facility. Rent expense for this facility was approximately $357,000,
$359,000 and $308,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. In November, 1996 the Company entered into a lease for additional
space in the assembly facility in Plainsboro, New Jersey. Rental payments on
this additional space will begin in 1997.
As of December 31, 1996, future minimum lease payments, are as follows:
Year Ending December 31,: Operating
Leases
(In thousands of dollars)
1997.................................................................. $ 1,109
1998.................................................................. 1,011
1999.................................................................. 117
2000.................................................................. 0
2001.................................................................. 0
2002.................................................................. 0
-------
Total minimum lease payments.......................................... $ 2,237
=======
7. PREFERRED STOCK
The Company has authorized 7,000,000 shares of preferred stock. The
rights, preferences, qualifications, and voting powers are determined by the
Board of Directors. In June, 1995 the Board designated 1,500,000 shares as
Series A Junior Participating Preferred Stock that may be issued in the future
in connection with certain shareholder protection measures. Also in June, 1995
the Board designated 2,138,702 shares as Series B Preferred Stock (the "Series B
Stock"). The Series B Stock is convertible into Common Stock on a 1:1 basis,
subject to certain potential adjustments and has substantially the same
characteristics as the Common Stock. The Series B Stock was issued to
Hewlett-Packard Company ("HP") at $28.50 per share in July, 1995 for net
proceeds of approximately $59.2 million.
31
34
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. STOCK OPTIONS
As incentives to Company personnel and others, the Board of Directors
from time to time grants options to purchase shares of the Company's Common
Stock. All options are granted under the 1985 Stock Option Plan ("the Plan").
The maximum number of issuable shares of Common Stock is 3,000,000 of which
1,130,230 are available for grant at December 31, 1996. Options under the Plan
can be issued until November 26, 2005. The option price generally is based upon
the fair market value of the Company's Common Stock at the time of the grant.
All outstanding options become exercisable over a two to five-year period from
the date of grant. Unexercised options expire five to ten years from the date of
grant or three months following termination of the optionee's employment,
whichever occurs first.
During 1995, the Company implemented a Strategic Milestone Stock Award
Program in which employees (including most executive officers) were eligible to
participate. Under this program, options were granted under the Company's 1985
Stock Option Plan to purchase up to 764,387 shares of Common Stock. The exercise
price of the options granted was $23.125 per share, representing the fair market
value of the Common Stock at the inception of the program. These options became
exercisable if two pre-selected milestones were met, on the basis of
approximately 50% of the underlying shares for each milestone. The options vest
over two years from the attainment of the applicable milestone. During the first
quarter of 1996 the Company achieved its first milestone under its Strategic
Milestone Stock Award Program; the second milestone was not achieved. In
connection with the achievement of the first milestone, an aggregate amount of
$33,000 will be recognized as a non-cash compensation expense over a 27 month
period.
The table below is a summary of stock option activity under the Plan for the
years 1994, 1995, and 1996:
Weighted Weighted
Average Average
Number of Exercise Fair Value Range of
Options Shares Price per per Option Exercise
Exercisable Outstanding Share Granted Prices
----------- ----------- ----- ------- ------
Balance January 1, 1994 ................. 437,372 $ 4.91
Balance January 1, 1994 ................. 894,557 $ 7.55 $0.53-$18.50
Options granted ......................... 224,754 $ 13.31
Options exercised ....................... (43,565) ($ 8.43)
Options forfeited ....................... (43,878) ($ 11.13)
---------
Balance December 31, 1994 ............... 584,406 $ 5.80
Balance December 31, 1994 ............... 1,031,868 $ 8.61 $0.53-$18.50
Options granted ......................... 185,638 $ 21.17 $ 14.60
Options exercised ....................... (112,913) ($ 5.09)
Options forfeited ....................... (20,432) ($ 9.69)
---------
Balance December 31, 1995 ............... 650,780 $ 7.71
Balance December 31, 1995 ............... 1,084,161 $ 11.11 $1.50-$23.125
Options granted ......................... 218,026 $ 23.74 $ 16.61
Options granted - Strategic Milestone
Stock Award Program .................. 764,387 $ 23.12 $ 15.70
Options exercised ....................... (111,041) ($ 6.49)
Options forfeited ....................... (76,734) ($ 21.51)
Options forfeited - Strategic Milestone .
Stock Award Program .................. (381,050) ($ 23.13)
---------
Balance December 31, 1996 ............... 746,700 $ 9.79
Balance December 31, 1996 ............... 1,497,749 $ 15.84 $10.52-$26.228
=========
32
35
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The weighted average remaining contractual lives of outstanding options
at December 31, 1996 was approximately 5.8 years.
The Company applies the provisions of Opinion 25 ("APB 25") and related
Interpretations in accounting for its stock based compensation plans.
Accordingly, compensation expense has been recognized in the financial
statements in respect to the above plans to the extent required by APB 25. Had
compensation costs for the above plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation", the Company's net loss and net loss per share would have been
increased to the pro forma amounts below:
1996 1995
---- ----
(In thousands of dollars, except per share data)
Pro forma net loss ........................... ($22,038) ($23,801)
Pro forma net loss per share ................. ($ 1.65) ($ 1.96)
As options vest over a varying number of years, and awards are
generally made each year, the proforma impacts shown here may not be
representative of future proforma expense amounts due to the annual grant of
options by the Company, the impact of the Strategic Milestone Stock Award
Program and the variable vesting of options. The pro forma additional
compensation expense of $ 4,582,000 and $ 793,000 for 1996 and 1995,
respectively, was calculated based on the fair value of each option grant using
the Black-Scholes model with the following weighted-average assumptions used for
grants:
1996 1995
---- ----
Dividend yield ......................................... - 0 - - 0 -
Expected volatility .................................... 56.44 56.44
Risk free interest rate ................................ 6.40% 7.12%
Expected option lives .................................. 8 years 8 years
9. DEVELOPMENT, DISTRIBUTION AND MANUFACTURING RIGHTS AGREEMENTS
In August 1988, the Company entered into development, distribution and
instrument manufacturing license agreements with two Japanese companies. Total
sales under these agreements were $7,492,000, $2,887,000 and $984,000 for the
years ended December 31, 1996, 1995 and 1994, respectively, including deferred
revenue of $3,151,000, $1,374,000 and $503,000, respectively. At December 31,
1996, $3,240,000 is recorded as deferred revenue, current, and is being
amortized to income on a straight-line basis through 1997. The Company also has
other license and distribution agreements, including agreements with HP (see
Note 12).
33
36
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. INCOME TAXES
At December 31, 1996, the Company had a net operating loss carryforward
of approximately $122,000,000 for United States Federal income tax purposes
which expires in varying amounts through 2011. The Company also has unused
research and development tax credits of approximately $1,100,000 for United
States Federal income tax purposes which expire in varying amounts through 2011.
Additionally, the Company has unused Canadian investment tax credits of
approximately $2,221,000 which expire in varying amounts through 2003. The
timing and manner in which the operating loss carryforwards and credits may be
utilized in any year by the Company will be limited by Internal Revenue Code
Section 382.
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The Company provides a valuation allowance against the net deferred tax debits
due to the uncertainty of realization. The increase in the valuation allowance
for the years ended December 31, 1996 and 1995 was $3,437,000 and $11,733,000,
respectively.
Temporary differences and carryforwards which give rise to the deferred
tax assets and liabilities at December 31, 1996 and 1995 are as follows:
1996 1995
Deferred Tax Deferred Tax
Assets (Liabilities) Assets (Liabilities)
(In thousands of dollars)
Net Operating Loss -- U.S. ............... $ 41,439 $ 35,867
Net Operating Loss -- Canada ............. 858 1,236
Net Operating Loss -- Province (Can) ..... 846 2,286
State Taxes .............................. 7,116 6,249
Deferred Revenue ......................... 1,101 2,168
Tax Credits -- U.S. ...................... 1,100 1,005
Tax Credits -- Canada .................... 2,221 3,104
Intangibles .............................. (268) (222)
Depreciation -- U.S. ..................... 104 446
Depreciation -- Canada ................... 180 (203)
Depreciation -- Province (Can) ........... 160 (187)
Other .................................... 1,145 816
-------- --------
56,002 52,565
-------- --------
Valuation Allowance -- U.S. .............. (44,621) (40,080)
Valuation Allowance -- Canada ............ (3,259) (4,137)
Valuation Allowance -- Province (Can) .... (1,006) (2,099)
Valuation Allowance -- State ............. (7,116) (6,249)
-------- --------
Total Deferred Taxes ..................... $ -- $ --
======== ========
11. SAVINGS AND INVESTMENT RETIREMENT PLAN
i-STAT has a defined contribution savings and investment retirement
plan under section 401(k) of the Internal Revenue Code, as amended, whereby
substantially all full-time employees are eligible to participate. i-STAT has
not made any matching contributions to the Plan.
34
37
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. RELATED PARTY TRANSACTIONS
One director of the Company has provided consulting services to the
Company. Consulting fees incurred totaled approximately $30,000 for each of the
years ended December 31, 1996, 1995 and 1994.
The Company had the following activity with HP, primarily related to
license and distribution agreements.
1996 1995
---- ----
(In thousands of dollars)
Revenues .................................... $961 $25
Purchases ................................... $370 $14
Receivable at year end ...................... $ 67 $ 7
Payable at year end ......................... $158 --
13. SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
Maintenance and repairs expense for the years ended December 31, 1996,
1995 and 1994 was approximately $723,000, $675,000 and $585,000, respectively.
14. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a case entitled Nova Biomedical
Corporation, Plaintiff v. i-STAT Corporation, Defendant, The Complaint, which
was filed in the United States District Court for the District of Massachusetts
on June 27, 1995, alleges infringement by i-STAT of Nova's U.S. Patent No.
4,686,479. The Plaintiff seeks unspecified damages and that the damages be
trebled. Nova also is asking for attorneys' fees and prejudgment interest. The
case currently is in the preliminary stages of discovery. The Company is
contesting the case vigorously and does not believe that it has infringed the
Nova patent. The Company has obtained an opinion from recognized patent counsel
to the effect that no infringement has occurred. However, if the plaintiff
should prevail in this matter, it could have a material impact on the financial
position, results of operations and cash flows of the Company. The Company has
asserted counterclaims under the antitrust laws alleging that Nova commenced the
action knowing that the patent was not infringed and that it had reason to
believe that the patent was invalid and unenforceable.
The Company is a defendant in a class action complaint entitled Susan
Kaufman, on behalf of herself and all others similarly situated, Plaintiff, v.
i-STAT Corporation, William P. Moffitt, Lionel N. Sterling, Imants R. Lauks and
Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf
and on the behalf of all purchasers of the Company's Common Stock between May 9,
1995 and March 19, 1996. The complaint, which was filed in the Superior Court of
New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law
"fraud on the market" in connection with certain sales of i-STAT stock by the
Company's chief executive officer, chief technology officer and two outside
directors during a nine-month period. The plaintiffs seek unspecified
compensatory damages, interest and payment of all costs and expenses incurred in
connection with the class action. The Company believes the complaint is without
merit and intends to vigorously contest it. However, if the plaintiff should
prevail in this matter, it could have a material impact on the financial
position, results of operation and cash flows of the Company.
The Company is a defendant in a case entitled Customedix Corporation,
Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was filed in
the United States District Court for the District of Connecticut on December 26,
1996, alleges infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964.
The Plaintiff seeks injunctive relief and an accounting for i-STAT's profits and
the damages to Customedix from such alleged infringement. The case currently is
in the preliminary stages of discovery. The Company intends to contest the case
vigorously and does not believe that it has infringed the Customedix patent. The
Company has obtained an opinion from recognized patent counsel to the effect
that no infringement has occurred. However, if the plaintiff should prevail in
this matter, it could have a material impact on the financial position, results
of operation and cash flows of the Company.
35
38
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. GEOGRAPHIC SEGMENT DATA
The Company is engaged in the development, manufacturing and marketing of its
proprietary blood analysis products in the health care sector.
The Company's operations are classified into the following geographic areas:
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands of dollars)
Operating Loss:
Domestic ................. ($17,631) ($23,613) ($24,379)
Canada ................... (1,879) (405) (550)
-------- -------- --------
Total .................... ($19,510) ($24,018) ($24,929)
======== ======== ========
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands of dollars)
Identifiable Assets:
Domestic ....................... $47,173 $66,794 $33,521
Canada ......................... 8,192 7,256 5,657
------- ------- -------
Total .......................... $55,365 $74,050 $39,178
======= ======= =======
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands of dollars)
Net Sales:
Domestic ....................... $20,878 $16,194 $ 9,689
Canada ......................... 286 190 22
Japan .......................... 7,492 2,887 984
Other International ............ 1,674 831 0
------- ------- -------
Total .......................... $30,330 $20,102 $10,695
======= ======= =======
36
39
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1996
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands of dollars, except share and per share data)
Net sales ........................ $ 6,411 $ 6,740 $ 7,772 $ 9,407
Gross profit ..................... $ 612 $ 104 $ 1,122 $ 2,201
Net loss ......................... ($ 4,287) ($ 5,102) ($ 4,009) ($ 4,058)
Net loss per share ............... ($ 0.32) ($ 0.38) ($ 0.30) ($ 0.30)
Weighted average shares used in
computing net loss per share... 13,284,845 13,324,591 13,326,127 13,350,836
1995
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands of dollars, except share and per share data)
Net sales ........................ $ 3,359 $ 5,125 $ 5,591 $ 6,027
Gross profit (loss) .............. ($ 1,742) ($ 538) ($ 258) $ 627
Net loss ......................... ($ 6,531) ($ 6,441) ($ 4,912) ($ 5,124)
Net loss per share ............... ($ 0.59) ($ 0.58) ($ 0.37) ($ 0.39)
Weighted average shares used in
computing net loss per share... 11,014,771 11,041,186 13,200,238 13,232,163
During the fourth quarter of 1995, the Company recorded compensation
expense of $667,000 in connection with the Strategic Milestone Stock Award
Program (see Note 8) and recorded a favorable inventory adjustment of $689,000.
Net loss per common share amounts are calculated independently for each
of the quarters presented. The sum of the quarters may not equal the full year
net loss per common share amounts.
37
40
REPORT OF INDEPENDENT ACCOUNTANTS
FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of i-STAT
Corporation is included in Item 14 of this Annual Report on Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index in Item 14 of this
Annual Report on Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Princeton, New Jersey Coopers & Lybrand L.L.P.
January 28, 1997
38
41
SCHEDULE II
i-STAT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged to Balance at
Beginning Costs and Other end of
of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- ------
(In thousands of dollars)
For the year ended December 31, 1996:
Reserve for Doubtful Accounts .... $ 110 $ 85 -- -- $ 195
======= ======= ======= ======== =======
For the year ended December 31, 1995:
Reserve for Doubtful Accounts .... $ 25 $ 85 -- -- $ 110
======= ======= ======= ======== =======
For the year ended December 31, 1994:
Reserve for Doubtful Accounts .... $ 25 -- -- -- $ 25
======= ======= ======= ======== =======
For the year ended December 31, 1996:
Tax Valuation Reserve ............ $52,565 $ 3,437 -- -- $56,002
======= ======= ======= ======== =======
For the year ended December 31, 1995:
Tax Valuation Reserve ............ $40,832 $11,733 -- -- $52,565
======= ======= ======= ======== =======
For the year ended December 31, 1994:
Tax Valuation Reserve ............ $29,888 $10,944 -- -- $40,832
======= ======= ======= ======== =======
39
42
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 to be signed on
its behalf by the undersigned, thereunto duly authorized, in New Jersey on the
26th day of March, 1997.
i-STAT CORPORATION
By: /s/ William P. Moffitt
-------------------------------------
William P. Moffitt
President and Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William P. Moffitt and Roger J. Mason, or
either of them, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue thereof.
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/ William P. Moffitt President, Chief Executive Officer March 26, 1997
- ------------------------------ and Director (Principal Executive Officer)
William P. Moffitt
/s/ Roger J. Mason Vice President of Finance, Treasurer March 26, 1997
- ------------------------------ and Chief Financial Officer (Principal
Roger J. Mason Financial and Accounting Officer)
/s/ J. Robert Buchanan Director March 26, 1997
- ------------------------------
J. Robert Buchanan
/s/ James A. Cyrier Director March 26, 1997
- ------------------------------
James A. Cyrier
/s/ Curtis J. Crawford Director March 26, 1997
- ------------------------------
Curtis J. Crawford
/s/ Richard Hodgson Director March 26, 1997
- ------------------------------
Richard Hodgson
/s/ Imants R. Lauks Director March 26, 1997
- ------------------------------
Imants R. Lauks
/s/ Matthias Plum, Jr. Director March 26, 1997
- ------------------------------
Matthias Plum, Jr.
/s/ Lionel N. Sterling Director March 26, 1997
- ------------------------------
Lionel N. Sterling
40
43
Exhibit No. Description Sequential Page No.
3.2 By-laws
(10.35) Form of Officer Indemnification Agreement
(10.36) Form of Director Indemnification Agreement
(10.37) Amendment, dated November 20, 1996 to Lease Agreement
dated May 27, 1993, between Linpro Princeton O.R. Offices
II L.P. and the Registrant.
23 Consent of Coopers & Lybrand, L.L.P., Independent
Accountants
24 Powers of Attorney, executed by certain officers of the
Registrant and the individual members of the Board of
Directors, authorizing such officers of the Registrant to
file amendments to this Report, are located on the
signature page of this report.
27 Financial Data Schedule
41