UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005
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 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) |
(818) 709-1244
(Registrant’s Telephone Number, Including Area Code)
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 x No ¨
The registrant had 16,416,391 shares of common stock issued and outstanding as of April 26, 2005.
INDEX TO FORM 10-Q
| Page | ||||
| PART I | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | 3 | ||
| Consolidated Balance Sheet as of March 31, 2005 (unaudited) and December 31, 2004 |
3 | |||
| Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited) |
4 | |||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited) |
5 | |||
| 6 | ||||
| 7 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 | ||
| Item 4. | Controls and Procedures | 26 | ||
| PART II | OTHER INFORMATION | |||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 28 | ||
| Item 6. | Exhibits | 28 | ||
| Signature | 29 | |||
2
FINANCIAL INFORMATION
| Item 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
(in thousands)
| March 31, 2005 |
December 31, 2004 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 13,428 | $ | 12,839 | ||||
| Accounts receivable, net of allowance for doubtful accounts and sales returns of $326 and $336 |
10,290 | 8,847 | ||||||
| Inventories, net |
7,012 | 7,834 | ||||||
| Prepaid expenses and other current assets |
447 | 381 | ||||||
| Investment available for sale |
121 | 198 | ||||||
| Deferred tax asset |
3,650 | 3,650 | ||||||
| Total current assets |
34,948 | 33,749 | ||||||
| Property and equipment, at cost, net |
3,896 | 3,880 | ||||||
| Goodwill |
189 | 189 | ||||||
| Software development costs, net |
1,760 | 1,930 | ||||||
| Deferred tax asset |
4,824 | 5,665 | ||||||
| Inventories – long term portion |
489 | 290 | ||||||
| Other assets |
3,111 | 2,433 | ||||||
| Total assets |
$ | 49,217 | $ | 48,136 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,287 | $ | 4,258 | ||||
| Accrued expenses |
2,661 | 3,398 | ||||||
| Deferred service contract revenue |
1,269 | 1,134 | ||||||
| Total current liabilities |
7,217 | 8,790 | ||||||
| Deferred service contract revenue, long term |
139 | 173 | ||||||
| Total liabilities |
7,356 | 8,963 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity: |
||||||||
| Common stock, $.01 par value – authorized: 50 million shares; issued and outstanding: 16,322 shares and 15,962 shares |
163 | 159 | ||||||
| Additional paid-in capital |
63,545 | 61,972 | ||||||
| Unearned compensation |
(274 | ) | (125 | ) | ||||
| Accumulated other comprehensive income |
— | 11 | ||||||
| Accumulated deficit |
(21,573 | ) | (22,844 | ) | ||||
| Total shareholders’ equity |
41,861 | 39,173 | ||||||
| Total liabilities and shareholders’ equity |
$ | 49,217 | $ | 48,136 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
IRIS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited – in thousands)
| For the three months ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Sales of IVD instruments |
$ | 5,939 | $ | 2,543 | ||||
| Sales of IVD consumables and service |
5,699 | 4,672 | ||||||
| Sales of small laboratory devices and supplies |
2,326 | 1,974 | ||||||
| Royalty and license revenues |
— | 186 | ||||||
| Net revenues |
13,964 | 9,375 | ||||||
| Cost of goods - IVD instruments |
3,593 | 1,864 | ||||||
| Cost of goods - IVD consumables and service |
2,315 | 1,800 | ||||||
| Cost of goods - small laboratory devices and supplies |
1,162 | 1,007 | ||||||
| Cost of goods sold |
7,070 | 4,671 | ||||||
| Gross margin |
6,894 | 4,704 | ||||||
| Marketing and selling expenses |
2,391 | 1,490 | ||||||
| General and administrative expenses |
1,394 | 1,193 | ||||||
| Research and development, net |
1,083 | 1,053 | ||||||
| Total operating expenses |
4,868 | 3,736 | ||||||
| Operating income |
2,026 | 968 | ||||||
| Other income (expense): |
||||||||
| Interest income |
53 | 11 | ||||||
| Interest expense |
(5 | ) | (90 | ) | ||||
| Other (expense) income |
44 | (7 | ) | |||||
| Income before income taxes |
2,118 | 882 | ||||||
| Provision for income taxes |
847 | 353 | ||||||
| Net income |
$ | 1,271 | $ | 529 | ||||
| Basic net income per share |
0.08 | 0.04 | ||||||
| Diluted net income per share |
$ | 0.07 | $ | 0.04 | ||||
| Basic - average shares outstanding |
16,218 | 12,051 | ||||||
| Diluted - average shares outstanding |
17,294 | 13,846 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited – in thousands)
| For the three months ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,271 | $ | 529 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operations: |
||||||||
| Deferred taxes, net |
847 | 353 | ||||||
| Depreciation and amortization |
492 | 395 | ||||||
| Common stock and stock option compensation |
79 | 22 | ||||||
| Loss (gain) on sale of investment |
(43 | ) | 7 | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(1,443 | ) | 195 | |||||
| Deferred service contract revenue |
102 | 39 | ||||||
| Inventories, net |
623 | 77 | ||||||
| Prepaid expenses and other current assets |
(66 | ) | (108 | ) | ||||
| Other assets |
(702 | ) | (28 | ) | ||||
| Accounts payable |
(970 | ) | (1,315 | ) | ||||
| Accrued expenses |
(728 | ) | (19 | ) | ||||
| Net cash provided by (used in) operating activities |
(538 | ) | 147 | |||||
| Cash flows from investing activities: |
||||||||
| Acquisition of property and equipment |
(314 | ) | (339 | ) | ||||
| Software development costs |
— | (13 | ) | |||||
| Sale of investments held for sale |
102 | 197 | ||||||
| Net cash used in investing activities |
(212 | ) | (155 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock for cash |
1,349 | 381 | ||||||
| Borrowings under line of credit |
— | 2,900 | ||||||
| Repayments of line of credit |
— | (2,400 | ) | |||||
| Repayments of term loan |
— | (87 | ) | |||||
| Payments of capital lease obligations |
(10 | ) | (14 | ) | ||||
| Net cash provided by financing activities |
1,339 | 780 | ||||||
| Net increase in cash and cash equivalents |
589 | 772 | ||||||
| Cash and cash equivalents at beginning of period |
12,839 | 2,444 | ||||||
| Cash and cash equivalents at end of period |
$ | 13,428 | $ | 3,216 | ||||
| Supplemental schedule of non-cash financing activities: |
||||||||
| Issuance of common stock and common stock warrants for services |
$ | 228 | $ | 46 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for income taxes |
$ | 17 | $ | 21 | ||||
| Cash paid for interest |
$ | — | $ | 36 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited – in thousands)
| For the three months ended March 31, | |||||||
| 2005 |
2004 | ||||||
| Net income |
$ | 1,271 | $ | 529 | |||
| Unrealized gain on investments, net of taxes |
(11 | ) | 30 | ||||
| Comprehensive income |
$ | 1,260 | $ | 559 | |||
The accompanying notes are an integral part of these consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Company History |
IRIS International, Inc., (“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 its 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. On April 27, 2005 the Company signed an agreement to acquire the assets of the urinalysis business segment of Quidel Corporation. We expect to consummate the transaction on or before May 31, 2005.
| 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, 2005 and the results of its operations for the three-month periods then ended. These consolidated financial 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 consolidated 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
The consolidated financial statements include the accounts of IRIS International, Inc. and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in the consolidated financial statements.
Cash Equivalents and Short-Term Investments
Short-term investments principally include certificates of deposit with maturities greater than three months and less than one year. For purposes of the statement of cash flows, IRIS considers all highly liquid debt instruments purchased with a remaining maturity of three months or less when purchased to be cash equivalents. IRIS places its cash and investments with high credit quality financial institutions. At times, these deposits may be in excess of the federally insured limit.