SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarter ended | Commission File No. | |
| March 31, 2004 | No. 1-9767 |
IRIS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 94-2579751 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| 9172 Eton Avenue, Chatsworth, CA. | 91311 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s Telephone Number: (818) 709-1244
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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The registrant had 14,815,342 shares of common stock outstanding as of May 5, 2004.
INDEX TO FORM 10-Q
| Page | ||||
| PART I - FINANCIAL INFORMATION |
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| Item 1 - Consolidated Financial Statements |
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| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |||
| Item 3 - Quantitative and Qualitative Disclosure About Market Risk |
25 | |||
| Item 4 – Controls and Procedures |
25 | |||
| PART II - OTHER INFORMATION |
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| Item 1 - Legal Proceedings |
26 | |||
| Item 6 - Exhibits and Reports on Form 8-K |
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| (a) Exhibits |
26 | |||
| 26 | ||||
| 26 | ||||
1
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
| March 31, 2004 |
December 31, 2003 |
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| (unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 3,215,938 | $ | 2,443,995 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $262,066 and $262,066 |
6,877,602 | 7,193,058 | ||||||
| Inventories |
5,612,246 | 5,352,601 | ||||||
| Prepaid expenses and other current assets |
569,503 | 461,706 | ||||||
| Investment available for sale |
428,086 | 581,910 | ||||||
| Deferred tax asset |
1,573,431 | 1,573,431 | ||||||
| Total current assets |
18,276,806 | 17,606,701 | ||||||
| Property and equipment, at cost, net of accumulated depreciation of $5,732,347 and $5,510,111 |
3,727,851 | 3,613,233 | ||||||
| Goodwill |
188,911 | 188,911 | ||||||
| Software development costs, net of accumulated amortization of $1,778,008 and $1,655,458 |
2,287,759 | 2,396,851 | ||||||
| Deferred tax asset |
6,847,397 | 7,220,407 | ||||||
| Inventories – long term portion |
637,080 | 973,593 | ||||||
| Other assets |
471,143 | 480,734 | ||||||
| Total assets |
$ | 32,436,947 | $ | 32,480,430 | ||||
| Liabilities And Shareholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Short-term borrowings |
$ | 3,400,000 | $ | 2,900,000 | ||||
| Current portion of long-term debt |
350,000 | 350,000 | ||||||
| Accounts payable |
2,320,301 | 3,635,696 | ||||||
| Accrued expenses |
2,923,616 | 2,955,955 | ||||||
| Deferred revenue |
1,114,359 | 1,150,643 | ||||||
| Total current liabilities |
10,108,276 | 10,992,294 | ||||||
| Long-term debt |
1,704,809 | 1,782,192 | ||||||
| Deferred revenue, long term |
193,464 | 238,498 | ||||||
| Total liabilities |
12,006,549 | 13,012,984 | ||||||
| Commitments and contingencies |
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| Shareholders’ equity: |
||||||||
| Common stock, $.01 par value, authorized: 50,000,000, shares issued and outstanding:12,185,078 and 11,901,461 |
121,849 | 119,013 | ||||||
| Additional paid-in capital |
45,141,029 | 44,717,090 | ||||||
| Unearned compensation |
(68,180 | ) | (44,843 | ) | ||||
| Accumulated other comprehensive income (loss) |
(169,738 | ) | (200,008 | ) | ||||
| Accumulated deficit |
(24,594,562 | ) | (25,123,806 | ) | ||||
| Total shareholders’ equity |
20,430,398 | 19,467,446 | ||||||
| Total liabilities and shareholders’ equity |
$ | 32,436,947 | $ | 32,480,430 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Sales of IVD instruments |
$ | 2,542,883 | $ | 584,292 | ||||
| Sales of IVD consumables and service |
4,672,555 | 4,130,216 | ||||||
| Sales of small laboratory devices and supplies |
1,973,918 | 1,290,029 | ||||||
| Royalty and license revenues |
186,081 | 129,603 | ||||||
| Net revenues |
9,375,437 | 6,134,140 | ||||||
| Cost of goods - IVD instruments |
1,864,359 | 806,241 | ||||||
| Cost of goods - IVD consumable and supplies |
1,800,180 | 1,474,596 | ||||||
| Cost of goods - small laboratory devices and supplies |
1,006,943 | 685,857 | ||||||
| Cost of goods sold |
4,671,482 | 2,966,694 | ||||||
| Gross margin |
4,703,955 | 3,167,446 | ||||||
| Marketing and selling |
1,490,437 | 968,918 | ||||||
| General and administrative |
1,192,676 | 1,777,000 | ||||||
| Research and development, net |
1,053,123 | 1,154,024 | ||||||
| Total operating expenses |
3,736,236 | 3,899,942 | ||||||
| Operating income (loss) |
967,719 | (732,496 | ) | |||||
| Other income (expense): |
||||||||
| Interest income |
11,053 | 13,032 | ||||||
| Interest expense |
(89,628 | ) | (94,649 | ) | ||||
| Other expense |
(7,070 | ) | — | |||||
| Income (loss) before income taxes (benefit) |
882,074 | (814,113 | ) | |||||
| Provision (benefit) for income taxes |
352,830 | (325,645 | ) | |||||
| Net income (loss) |
$ | 529,244 | $ | (488,468 | ) | |||
| Basic and diluted net income (loss) per share |
$ | 0.04 | $ | (0.04 | ) | |||
| Basic - average shares outstanding |
12,051,085 | 10,953,229 | ||||||
| Diluted – average shares outstanding |
13,845,652 | 10,953,229 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the three months ended March 31, |
||||||||
| 2004 |
2003 |
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| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 529,244 | $ | (488,468 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: |
||||||||
| Deferred taxes |
352,830 | (338,605 | ) | |||||
| Depreciation and amortization |
394,805 | 203,747 | ||||||
| Common stock and stock option compensation |
22,559 | 20,356 | ||||||
| Loss on sale of investment |
7,070 | — | ||||||
| Allowance for doubtful accounts |
— | (26,521 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
195,060 | 518,400 | ||||||
| Service contracts, net |
39,078 | 39,630 | ||||||
| Inventories, net |
76,868 | ) | (2,691 | ) | ||||
| Prepaid expenses and other current assets |
(107,797 | ) | (170,095 | ) | ||||
| Other assets |
(28,499 | ) | 13,496 | |||||
| Accounts payable |
(1,315,395 | ) | (263,670 | ) | ||||
| Accrued expenses |
(18,595 | ) | 276,870 | |||||
| Net cash provided by (used in) operating activities |
147,228 | (217,551 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Acquisition of property and equipment |
(338,668 | ) | (519,073 | ) | ||||
| Software development costs |
(13,457 | ) | (144,425 | ) | ||||
| Sale of investments held for sale |
197,204 | — | ||||||
| Net cash used in investing activities |
(154,921 | ) | (663,498 | ) | ||||
| Cash flows from financing activities: |
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| Issuance of common stock for cash |
380,878 | 199,172 | ||||||
| Borrowings under line of credit |
2,900,000 | 1,500,000 | ||||||
| Repayments of line of credit |
(2,400,000 | ) | (1,500,000 | ) | ||||
| Repayments of term loan |
(87,500 | ) | (66,667 | ) | ||||
| Repayments of notes payable |
— | (291,750 | ) | |||||
| Payments of capital lease obligations |
(13,742 | ) | (12,313 | ) | ||||
| Net cash provided by (used in) financing activities |
779,636 | (171,558 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
771,943 | (1,052,607 | ) | |||||
| Cash and cash equivalents at beginning of year |
2,443,995 | 2,336,973 | ||||||
| Cash and cash equivalents at end of year |
$ | 3,215,938 | $ | 1,284,366 | ||||
| Supplemental schedule of non-cash financing activities: |
||||||||
| Issuance of common stock and common stock warrants for services |
$ | 45,896 | $ | 70,400 | ||||
| Supplemental disclosure of cash flow information: |
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| Cash paid for income taxes |
$ | 20,772 | $ | $15,699 | ||||
| Cash paid for interest |
$ | 36,397 | $ | 60,288 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| For the three months ended March 31, |
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| 2004 |
2003 |
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| Net income (loss) |
$ | 529,244 | $ | (488,468 | ) | ||
| Unrealized gain (loss) on investments, net of taxes |
30,270 | (291,340 | ) | ||||
| Comprehensive income (loss) |
$ | 559,514 | $ | (779,808 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Company History
IRIS International, Inc., (collectively “IRIS” or the “Company”) was incorporated in California in 1979 and reincorporated during 1987 in Delaware under the name of International Remote Imaging Systems, Inc. The Company changed it name to IRIS International, Inc. in December 2003. The Company designs, develops, manufactures and markets in vitro diagnostic (“IVD”) equipment, including IVD imaging systems based on patented and proprietary automated intelligent microscopy (“AIM”) technology, as well as special purpose centrifuges and other small instruments for automating microscopic procedures performed in clinical laboratories.
2. Summary of Significant Accounting Policies
Basis of Presentation of Unaudited Interim Financial Statements:
In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position of the Company as of March 31, 2004 and 2003 and the results of its operations for the three-month periods then ended. These statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s latest annual report on Form 10-K. Interim results are not necessarily indicative of results for a full year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The significant estimates in the preparation of the consolidated financial statements relate to the assessment of the carrying value of accounts receivables, inventories, purchased intangibles, estimated provisions for warranty costs and deferred tax assets. Actual results could differ materially from those estimates.
Principles of Consolidation