-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O40TyOf4LxrswvbQgmrJRu5duqqFMfv6S/8TTASPlxBYzMZ//FKybuD7nuqjkR2C +Vdsd1qVEK4NyCZuSXdmJQ== 0000950123-01-509072.txt : 20020412 0000950123-01-509072.hdr.sgml : 20020412 ACCESSION NUMBER: 0000950123-01-509072 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20011207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: I STAT CORPORATION /DE/ CENTRAL INDEX KEY: 0000882365 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 222542664 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19841 FILM NUMBER: 1808988 BUSINESS ADDRESS: STREET 1: 104 WINDSOR CENTER DRIVE CITY: EAST WINDSOR STATE: NJ ZIP: 08520 BUSINESS PHONE: 6094439300 MAIL ADDRESS: STREET 1: 104 WINDSOR CENTER DRIVE CITY: EAST WINDSOR STATE: NJ ZIP: 08520 10-K/A 1 y55429a1e10-ka.txt AMENDMENT #1 TO FORM 10-K: I-STAT CORPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 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 (Exact name of Registrant as specified in its charter) DELAWARE 22-2542664 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 104 WINDSOR CENTER DRIVE, EAST WINDSOR, NJ 08520 (Address of principal executive offices) (Zip code) (609) 443-9300 (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 $0.15 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 November 30, 2001: 20,060,788 The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant as of November 30, 2001 is approximately $62,291,527. 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) Documents incorporated by reference are listed in the Exhibit Index. The following items are amended: Item 6. Selected Consolidated Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K For purposes of this Form 10-K/A, and in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, i-STAT Corporation has amended and restated in its entirety each item of its 2000 Form 10-K which has been affected by this Amendment, which is being filed to reflect the restatement of basic and diluted loss per share information, as described in Note 1 to the consolidated financial statements. There was no change in the net loss for the periods presented, and no other changes have been made. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below has been derived from the audited financial statements of the Company. The consolidated financial statements of the Company as of December 31, 2000 and 1999 and for each of the years in the three-year period ended December 31, 2000, together with the notes thereto and the related report of PricewaterhouseCoopers LLP, 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.
IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 Statement of Operations Data: Net revenues ............................................ $ 55,037 $ 45,225 $ 39,101 $ 37,840 $ 30,330 Cost of products sold ................................... 40,951 36,401 30,664 30,962 26,291 Research and development ................................ 7,944 7,506 7,281 6,721 5,780 General and administrative .............................. 6,983 7,264 7,152 5,761 5,778 Sales and marketing ..................................... 7,784 8,293 12,956 13,020 11,991 Litigation settlement ................................... 1,500 -- -- -- -- Consolidation of operations ............................. -- 70 1,115 -- -- Other income, net ....................................... 1,763 1,507 1,672 1,651 2,054 Loss before provision (benefit) for income taxes ........ (8,362) (12,802) (18,395) (16,973) (17,456) Provision (benefit) for income taxes .................... (867) -- -- -- -- Net loss ................................................ (7,495) (12,802) (18,395) (16,973) (17,456) Basic and diluted net loss per share, as restated ................................................ ($ 0.43) ($ 0.83) ($ 1.32) ($ 1.38) ($ 1.56) Shares used in computing basic and diluted net loss per share, as restated ......................... 17,512,083 15,475,893 13,912,175 12,358,828 11,182,901
IN THOUSANDS OF DOLLARS As of December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 Balance Sheet Data: Cash, cash equivalents and short-term investments .............................. $ 19,536 $ 25,575 $ 38,390 $ 32,914 $ 28,417 Working capital ......................................... 21,521 31,958 44,605 38,697 33,056 Total assets ............................................ 59,934 58,124 68,906 59,170 55,365 Accumulated deficit ..................................... (196,965) (189,470) (176,668) (158,273) (141,300) Total stockholders' equity .............................. $ 41,052 $ 44,663 $ 54,660 $ 53,045 $ 46,834
1 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND AND OVERVIEW 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 also 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. The i-STAT System currently performs blood tests for sodium, potassium, chloride, glucose, creatinine, urea nitrogen, hematocrit, ionized calcium, lactate, Celite(R) ACT (activated clotting time), arterial blood gases, and bicarbonate, and derives certain other values, such as total carbon dioxide, base excess, anion gap, hemoglobin and O2 saturation, by calculation from the tests performed. 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 three additional tests for the measurement of coagulation: kaolin ACT, partial thromboplastin time ("aPTT"), and prothombin time ("PT"). The Company is also studying the development of cardiac marker tests. In the fourth quarter of 2000, the Company introduced an analyzer and associated peripheral equipment, which, in addition to having the measurement capabilities possessed by the i-STAT System, incorporates the glucose measurement capabilities of an Abbott Laboratories ("Abbott") product. The new i-STAT 1(R) Analyzer permits a customer to run all i-STAT cartridges as well as Abbott MediSense(R) glucose strips on one integrated hand-held device. The new analyzer also incorporates a number of enhancements, including a bar code reader, an improved user interface, and an enhanced data management system which, in conjunction with a new central data management system, enhances the customer's ability to centrally manage a widely distributed point-of-care testing program. Prior to November 1, 1998, the Company marketed and distributed its products in the United States and Canada principally through its own direct sales and marketing organization, in Japan through Japanese marketing partners, in Europe through Hewlett-Packard Company ("HP") and in Mexico, South America, China, Australia, and certain other Asian and Pacific Rim countries, through selected distribution channels. Pursuant to a technology collaboration between the Company and HP, in November 1997 HP commenced selling a patient monitoring system (the "Integrated Analyzer"), which integrates all of the blood diagnostics capabilities of the i-STAT System. (As part of a spinoff of its measurement systems business in 1999, HP assigned its rights and obligations under its agreements with the Company to Agilent Technologies, Inc. ("Agilent").) On September 2, 1998, the Company entered into a long-term sales, marketing and research alliance with Abbott, which, among other things, has altered significantly the manner in which the Company markets and sells its products worldwide. The majority of the Company's revenues are now derived from Abbott. Please see "Alliance with Abbott Laboratories" for a description of the Company's agreements with Abbott. RESULTS OF OPERATIONS The Company generated revenues of approximately $55.0 million, $45.2 million and $39.1 million in 2000, 1999 and 1998, including international revenues (as a percentage of worldwide revenues) of $15.1 million (27.5%), $13.8 million (30.5%) and $9.8 million (25.1%), respectively. Revenues from Abbott represented approximately 83.5%, 78.5% and 11.7% of the Company's worldwide revenues for 2000, 1999 and 1998, respectively. The $9.8 million (21.7%) increase in revenues from 1999 to 2000 was primarily due to increased shipment volume of the Company's cartridges, reflecting higher cartridge consumption by existing hospital users and the addition of new hospital users. Cartridge shipments increased 23.8% to 9,829,225 units in 2000 from 7,941,115 units in 1999. Revenues from the increased cartridge shipments were partially offset by lower worldwide average selling prices per cartridge, which declined from approximately $3.84 to $3.69 per cartridge in the same periods. For the foreseeable future, cartridge average selling prices are expected to continue to decline because of the product pricing arrangements applicable under the strategic alliance between the Company and Abbott. See "Alliance with Abbott Laboratories". The increase in revenues in 2000 also includes approximately $3.6 million from Abbott to fund certain research and development and marketing expenses. The $6.1 million (15.7%) increase in revenues from 1998 to 1999 2 was primarily due to increased shipment volume of the Company's cartridges, reflecting higher cartridge consumption by existing hospital users and the addition of new hospital users. Cartridge shipments increased 31.3% to 7,941,115 units from 6,046,825 units for the twelve months ended December 31, 1999 and 1998, respectively. Revenues from the increased cartridge shipments were partially offset by lower average selling prices per cartridge, which declined from approximately $4.66 to $3.84 per cartridge in the same periods. The increase in revenues in the 1999 period also includes approximately $2.4 million from Abbott to fund certain research and development and marketing expenses. The manufacturing costs (as a percentage of product sales) associated with product sales in 2000, 1999 and 1998 were approximately $40.9 million (79.7%), $36.4 million (85.0%), and $30.7 million (78.6%), respectively. Cost of products sold, as a percentage of product sales, generally decreases with increased shipment volume of the Company's cartridges and improvements in manufacturing productivity and yields. Cost of products sold, as a percentage of product sales, increased in 1999 due to manufacturing process problems. The Company took a charge in the second and third quarters of 1999 totaling $2.1 million to write-off inventory caused by quality problems with tape gasket material supplied by a vendor. The Company generated higher than normal manufacturing efficiency gains in the third quarter of 1999 in rebuilding its inventory, which had a favorable, and partially offsetting impact on cost of products sold, as a percentage of product sales. The Company experienced a second problem in the fourth quarter of 1999, also caused by defective tape from its tape supplier, which resulted in a write-off of approximately $0.9 million of work-in-process inventory and a reduced level of production. Reduced levels of production and higher than normal scrap levels continued into the first quarter of 2000. Cost of products sold, as a percentage of product sales, subsequently improved due to the rebuilding of cartridge inventories, which caused fixed manufacturing costs to be spread over a larger number of product units and improvements in cartridge production yields. With the completion of the rebuilding of cartridge inventories, production volumes are expected to return to more normal levels in the first quarter of 2001. The Company incurred research and development costs (as a percentage of net revenues) of approximately $7.9 million (14.4%), $7.5 million (16.6%) and $7.3 million (18.6%) in 2000, 1999 and 1998, respectively, consisting of costs associated with the personnel, material, equipment and facilities necessary to conduct new product development. Research and development expenditures may increase 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. Revenues from Abbott of approximately $2.7 million, $1.8 million and $0.1 million for research and development activities are included in net revenues in 2000, 1999 and 1998, respectively. Abbott currently is not funding any of the Company's research and development programs. The Company incurred general and administrative expenses (as a percentage of net revenues) of approximately $7.0 million (12.7%), $7.3 million (16.1%) and $7.2 million (18.3%) in 2000, 1999 and 1998, respectively. General and administrative expenses consisted primarily of salaries and benefits of personnel, office costs, legal and other professional fees and other costs necessary to support the Company's infrastructure. The Company incurred sales and marketing expenses (as a percentage of net revenues) of approximately $7.8 million (14.1%), $8.3 million (18.3%) and $13.0 million (33.1%) in 2000, 1999 and 1998, respectively, consisting primarily of salaries, commissions, benefits, travel and other expenditures for sales representatives, implementation coordinators, international marketing support, order entry, distribution, technical services, clinical affairs, product literature, market research, and other sales infrastructure costs. Sales and marketing expenses in 1998 include approximately $483,000 for severance and retention bonus amounts payable to the Company's sales representatives and sales management personnel. The employment of the majority of the Company's sales representatives was terminated on December 31, 1998, in connection with the assumption by Abbott of principal responsibility for distribution of the Company's products. As a result, sales and marketing expenses decreased in 1999. Included in revenues are amounts billed to Abbott for services performed by the implementation coordinators, approximating $0.9 million, $0.7 million and $0.0 million in 2000, 1999 and 1998, respectively. See "Alliance with Abbott Laboratories". 3 The Company was 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, alleged infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964. The plaintiff sought injunctive relief and an accounting for i-STAT's profits and the damages to Customedix from such alleged infringement. The Company was prepared to contest the case vigorously, did not believe that it had infringed the Customedix patent and had obtained an opinion from recognized patent counsel to the effect that no infringement had occurred. However, management concluded that the uncertainty inherent in any litigation as well as the drain on management's time and the Company's resources merited an out-of-court resolution of this lawsuit. Accordingly, on June 14, 2000, the Company entered into a settlement agreement under which the Company paid the plaintiff $1.5 million and the plaintiff agreed to permanently withdraw the complaint and to release the Company from any and all claims of whatsoever nature that the plaintiff may have had against the Company, whether under the referenced Patent or otherwise. A charge in the amount of $1.5 million was recorded in the second quarter of 2000 in connection with the settlement of this litigation. In January 1998, the Company decided to consolidate all its cartridge assembly operations in its manufacturing facility in Ontario, Canada. In order to facilitate this move, the Company relocated its cartridge assembly operation from Plainsboro, New Jersey, to its manufacturing facility in Ontario, Canada. The relocation of cartridge assembly commenced in June 1998 and was completed in April 1999. As a result of this consolidation of operations, 66 employees in the cartridge assembly operations were notified during the first quarter of 1998 that their employment would be terminated. In addition, the Company's lease for its instrument operations, engineering, customer support, selected research and development, marketing and administrative facility in Princeton, New Jersey, expired in September 1998. The Company relocated these activities to a 37,474 square foot leased facility in East Windsor, New Jersey. The product distribution operations formerly located in the Company's Plainsboro, New Jersey facility were relocated to the Company's East Windsor, New Jersey facility in early 1999. The charge to earnings in 1998 for these relocations, including severance and retention payments to affected employees of $1.0 million, for the physical move of equipment, rent and utilities on the unoccupied Plainsboro facility until that lease expired in February 1999, and for miscellaneous costs was approximately $1.1 million. An additional charge to earnings of approximately $0.1 million occurred in 1999. Retention payments are charged to expense over the retention period. Investment income was approximately $1.6 million, $1.5 million and $1.7 million in 2000, 1999 and 1998, respectively. The changes in investment income primarily reflect changes in the level of cash and cash equivalent balances and interest rates. Interest income is expected to decline in the near future as cash and cash equivalent balances decline. In November 2000, the New Jersey Economic Development Authority approved the Company's application to sell New Jersey State income tax benefits under the New Jersey Technology Tax Transfer Program (the "Program"). During the fourth quarter of 2000, the Company received $867,000 from the sale of State of New Jersey income tax benefits expiring in 2000. The Program requires that the Company maintain certain employment levels in New Jersey and that the proceeds from the sale of the tax benefits be spent in New Jersey. The Company recognized the sale of this tax benefit in 2000 as all conditions stipulated in the Program have been met. Net loss in 2000 decreased to approximately $7.5 million or $0.43 per share (as restated), from $12.8 million or $0.83 per share (as restated) in 1999, and $18.4 million or $1.32 per share (as restated) in 1998. The weighted average number of shares used in computing basic and diluted net loss per share was 17.51 million (as restated), 15.48 million (as restated) and 13.91 million (as restated) in 2000, 1999 and 1998, respectively. The increases in the weighted average number of shares primarily reflect the issuance of 2 million shares of Common Stock to Abbott in September 1998, the conversion of 2,138,702 shares of Series B Preferred Stock into 2,138,702 shares of Common Stock in March 2000, and the exercise of employee stock options in each year. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, the Company had cash and cash equivalents of approximately $19.5 million, a decrease of approximately $6.1 million from the December 31, 1999 balance of approximately $25.6 million. The decrease primarily reflects approximately $13.0 million of cash used in operating activities (partially offset by the receipt of $10.8 million from Abbott in January 2000), equipment purchases of approximately $7.0 million and the receipt of approximately $3.6 million, net, from the proceeds of stock option exercises. The $10.8 million received from Abbott represents the third installment of prepayments for guaranteed future incremental cartridge sales (as defined in the Distribution Agreement with Abbott). (The fourth and final installment of Abbott prepayments of $5.2 million was received in January 2001.) Working capital decreased by approximately $10.5 million from $32.0 million to $21.5 4 million during 2000. Changes in working capital during the year primarily reflect the decrease in cash and cash equivalents, an increase of approximately $6.5 million in inventories, an increase of approximately $1.2 million in accounts payable and accrued expenses and an increase in deferred revenue of approximately $9.3 million. The increase in inventories reflects the build-up of cartridge inventories to meet increased sales demand and rebuild inventory from the production problems arising in 1999, and an increase in analyzer inventories in preparation for the launch of the new i-STAT 1(R) Analyzer. The deferred revenue reflects the receipt of the $10.8 million prepayment from Abbott, along with the reclassification of the first Abbott prepayment of $5.0 million from deferred revenue-long term to deferred revenue-current, partially offset by the amortization of such prepayments to income as incremental cartridge sales (as defined in the Distribution Agreement with Abbott) are generated. The Company expects its existing cash and cash equivalents 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. 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 marketing and sales activities, its new product development efforts, manufacturing efficiencies and manufacturing plant expansion plans, the outcome of ongoing litigation and competitive conditions. The Company currently anticipates that it will need to raise a significant amount of capital in order to fund long-term product development programs and manufacturing capacity needs. On March 16, 2000, Agilent converted and sold its holding of 2,138,702 shares of Series B Preferred Stock (formerly held by HP) into 2,138,702 shares of Common Stock and accordingly, is no longer a related party for financial statement purposes. At December 31, 2000, the Company had available for Federal income tax purposes net operating loss carry forwards of approximately $160 million, which expire in varying amounts through 2020. The timing and manner in which the operating loss carry forwards may be utilized in any year by the Company will be limited by Section 382 of the Internal Revenue Code. International sales are invoiced and settled in U.S. dollars. However, the cartridge price received from international partners, including Abbott, may be affected by changes in the value of the U.S. dollar relative to local currencies. This is because the international cartridge price is set based on the price paid by customers in local currencies. When the value of foreign currencies changes with respect to the U.S. dollar, the price changes due to the foreign exchange conversion of local currency prices. Price reductions are limited, however, by guaranteed minimum prices established for each cartridge. The Company's cartridge production is conducted through a wholly-owned subsidiary in Canada. Most manufacturing labor and overhead costs of this subsidiary are incurred in Canadian currency funded by U.S. dollar transfers from the United States each week, while most raw material purchases are in U.S. dollars. In 2000, the accumulated other comprehensive loss related to foreign currency translation increased by approximately ($0.6) million to approximately ($1.3) million, and reflects the adjustment to translate the Canadian subsidiary's balance sheet to U.S. dollars at the December 31, 2000 exchange rate. The impact of inflation on the Company's business has been minimal and is expected to be minimal for the near-term. ALLIANCE WITH ABBOTT LABORATORIES On September 2, 1998, the Company and Abbott entered into agreements (the "Alliance Agreements") providing for a long-term sales, marketing and research alliance. The Alliance Agreements comprise a Distribution Agreement, a Research Agreement, a Stock Purchase Agreement, a Standstill Agreement and a Registration Rights Agreement. The primary objective of the Abbott alliance is to strengthen the Company's product marketing and distribution capability and accelerate the development of new products. Under the Distribution Agreement, Abbott has become, subject to the then existing rights of the Company's other international distributors, the exclusive worldwide distributor of the Company's hand-held blood analyzer products (including cartridges) and any new products the Company may develop for use in the professionally attended human healthcare delivery market. Abbott has assumed the Company's product sales to U.S. customers that were in place as of the inception of the Distribution Agreement (the "Base Business") at no profit to Abbott, and the Company and 5 Abbott share in the incremental profits derived from product sales beyond the Base Business. Abbott agreed to prepay to the Company a total of $25,000,000 during the first three years of the Distribution Agreement as guaranteed future incremental product sales. Such prepayments are amortized to revenue as incremental cartridges are sold to Abbott over the first three years of the Agreement. Prepayments in amounts of $5,000,000, $4,000,000 and $10,800,000 were received in September 1998, January 1999 and January 2000, respectively. Unamortized revenue relating to these prepayments in the amounts of $10,606,000 and $1,012,000 are included in deferred revenues, current at December 31, 2000 and 1999, respectively, and $5,000,000 is included in deferred revenues from related party, non-current at December 31, 1999. The final prepayment of $5,200,000 was received in January 2001. Distribution under the Distribution Agreement commenced in the United States on November 1, 1998. A subsequent international rollout commenced in various countries during the second half of 1999. As a result of the Distribution Agreement, the majority of the Company's revenues are now derived from Abbott. The Distribution Agreement expires on December 31, 2003, subject to automatic extensions for additional one-year periods unless either party provides the other with at least 12 months prior written notice, except that the Company may terminate the Distribution Agreement after December 31, 2001 if Abbott fails to achieve a three-year milestone minimum growth rate in sales of the Company's products covered by the Distribution Agreement. If the Distribution Agreement is terminated, other than (i) by the Company for cause or for Abbott's failure to achieve the minimum growth rate; or (ii) by Abbott, if Abbott delivers the requisite notice terminating the Distribution Agreement after the initial term, then, the Company will be obligated to pay to Abbott a one-time termination fee calculated to compensate Abbott for a portion of its costs in undertaking the distribution relationship, and residual payments for five years following termination based on a percentage of Abbott's net sales of the Company's products during the final twelve months of the Distribution Agreement. In the event that such termination occurs within the first three years of the Distribution Agreement, the Company also must refund to Abbott any prepayments made and not yet credited to Abbott at the time of such termination. Under the terms of the Research Agreement, the Company will conduct research and will develop products primarily to be commercialized by Abbott. Such research and development will be funded by Abbott and Abbott will have exclusive worldwide commercialization rights to the products developed under the Research Agreement subject to certain limitations. The Company and Abbott will jointly own the intellectual property which is developed during the course of work performed under the Research Agreement. In connection with this agreement, revenues from Abbott of $2,697,000, $1,762,000 and $110,000 are included in net revenues in 2000, 1999 and 1998, respectively. Abbott currently is not funding any of the Company's research and development programs. The Research Agreement terminates upon expiration or termination of the Distribution Agreement, unless earlier terminated as provided therein. Upon such expiration or earlier termination, both the Company and Abbott will be permitted to distribute the products developed under the Research Agreement in the territory covered by the Distribution Agreement. Under the Stock Purchase Agreement, Abbott purchased 2,000,000 shares (the "Purchased Shares") of the Company's Common Stock, at a price of $11.35 per share, resulting in net proceeds of $20,641,000. The Stock Purchase Agreement, together with the Registration Rights Agreement, contains certain terms and conditions pertaining to the voting and transfer of the Purchased Shares. The Standstill Agreement provides for limitations on Abbott's ability to purchase the Company's Common Stock, or to propose any merger or business combination with the Company or purchase of a material portion of the Company's assets. THE FOREGOING DESCRIPTION OF THE ALLIANCE AGREEMENTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL TEXT OF SUCH AGREEMENTS, COPIES OF WHICH WERE FILED WITH THE COMMISSION AS EXHIBITS TO THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998. 6 RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company presently does not have any derivative instruments or hedging activities and, consequently, the adoption of SFAS No. 133 will not have an impact on the Company's consolidated results of operations, financial position or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which addresses the staff's views on the application of United States generally accepted accounting principles for revenue recognition. The Company adopted the guidance of this bulletin in the fourth quarter of 2000 with no impact on its financial condition or results of operations. ALL STATEMENTS CONTAINED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OTHER THAN STATEMENTS OF HISTORICAL FINANCIAL INFORMATION, ARE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, FUTURE EVENTS OR PERFORMANCE AND UNDERLYING ASSUMPTIONS AND OTHER STATEMENTS WHICH ARE OTHER THAN HISTORICAL FACTS. ALTHOUGH THE COMPANY BELIEVES THAT ITS EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS, 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, THOSE LISTED IN "FACTORS THAT MAY AFFECT FUTURE RESULTS", IN ITEM 1 OF THIS ANNUAL REPORT ON FORM 10-K, AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE RESULTS DISCUSSED HEREIN AS A RESULT OF CHANGES IN RISKS OR OPERATING RESULTS. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K LIST OF FINANCIAL STATEMENTS See page F-1 of this Report, which includes an index to consolidated financial statements. LIST OF FINANCIAL STATEMENT SCHEDULES None LIST OF EXHIBITS (numbered in accordance with Item 601 of Regulations S-K) (3.1) Restated Certificate of Incorporation (Form S-8/S-3 Registration Statement, File No. 33-48889)* (3.2) By-laws (Form 10-K for fiscal year ended December 31, 1996)* (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)* (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)* (10.4.2)** 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)* * 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). 7 (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)* (10.4.6)** Form of Non-Statutory Stock Option Agreement under 1985 Stock Option Plan (Ontario Resident Affiliate) (Form 10-Q for quarter ended September 30, 1996)* (10.11) 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)* (10.21) 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)* (10.25)** Letter Agreement, dated April 15, 1994, between Registrant and Noah Kroloff (Form 10-Q for quarter ended June 30, 1994)* (10.30) License Agreement between the Registrant and Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (10.33) 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 (Form 10-K for fiscal year ended December 31, 1996)* (10.36) Form of Director Indemnification Agreement (Form 10-K for fiscal year ended December 31, 1996)* (10.38)** 1985 Stock Option Plan, as amended (Form 10-K for fiscal year ended December 31, 1997)* (10.39)** Employment Agreement, dated January 23, 1998, between the Registrant and William P. Moffitt (Form 10-K for fiscal year ended December 31, 1997)* (10.40)** Non-Statutory Stock Option Agreement, dated January 23, 1998, between the Registrant and William P. Moffitt (Form 10-K for fiscal year ended December 31, 1997)* (10.41) Lease Agreement, dated July 16, 1998, between Brandywine Operating Partnership L.P. and Registration (Form 10-Q for fiscal quarter ended June 30, 1998)* * 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). 8 (10.42) Common Stock Purchase Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.43) Standstill Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.44) Form of Registration Rights Agreement entered into by Registrant and Abbott Laboratories on September 2, 1998 (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.45) Marketing and Distribution Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.46) Funded Research & Development and License Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.48)** Form of Director Non-Statutory Stock Option Agreement* (10.49) Lease Agreement dated August 27, 1998, between Urigold Holdings Ltd. and the Registrant (Form 10-K for the fiscal year ended December 31, 1998)* (10.50)** i-STAT Corporation Equity Incentive Plan, as amended* (10.51)** Form of Executive Officer Restricted Share Agreement under Equity Incentive Plan (Form 10-Q for fiscal quarter ended March 31, 1999)* (10.52)** Form of Restricted Share Award Agreement with President and Chief Executive Officer (Form 10-Q for fiscal quarter ended March 31, 1999)* (10.54)** Form of Director Restricted Share Award Agreement* (10.55) Form of Agreement Relating to State of New Jersey Technology Business Tax Certificate Program* (21) Subsidiaries of the Registrant (Form S-1 Registration Statement, File No. 33-44800)* (23) Consent of PricewaterhouseCoopers LLP, 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.* * 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). 9 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. i-STAT CORPORATION By: /s/ Roger J. Mason ---------------------------------- Roger J. Mason Vice President of Finance, Treasurer and Chief Financial Officer 10 i-STAT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DESCRIPTION PAGE Report of Independent Accountants................................................ F-2 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2000................................ F-3 Consolidated Balance Sheets as of December 31, 2000 and 1999..................... F-4 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 2000................ F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2000................................ F-6 Notes to Consolidated Financial Statements....................................... F-7 to F-21
F-1 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF i-STAT CORPORATION: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of i-STAT Corporation and its subsidiary (the "Company") at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, the Company has revised its 2000, 1999, and 1998 basic and diluted net loss per share amounts. PricewaterhouseCoopers LLP Florham Park, New Jersey February 6, 2001, except for Note 1 as to which the date is November 30, 2001 F-2 i-STAT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands of dollars, except share and per share data For the Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2000* 1999* 1998* Net revenues: Related party product sales .................................... $ 42,419 $ 35,456 $ 7,617 Third party product sales ...................................... 8,972 7,351 31,374 Other related party revenues ................................... 3,646 2,418 110 -------------------------------------------------------- Total net revenues ......................................... 55,037 45,225 39,101 -------------------------------------------------------- Cost of products sold ............................................... 40,951 36,401 30,664 Research and development ............................................ 7,944 7,506 7,281 General and administrative .......................................... 6,983 7,264 7,152 Sales and marketing ................................................. 7,784 8,293 12,956 Litigation settlement ............................................... 1,500 -- -- Consolidation of operations ......................................... -- 70 1,115 -------------------------------------------------------- Total operating cost and expenses .......................... 65,162 59,534 59,168 -------------------------------------------------------- Operating loss ....................................... (10,125) (14,309) (20,067) Other income (expense): Investment income .............................................. 1,636 1,507 1,694 Other .......................................................... 127 -- (22) -------------------------------------------------------- Other income (expense), net ................................ 1,763 1,507 1,672 Loss before provision (benefit) for income taxes ............... (8,362) (12,802) (18,395) Provision (benefit) for income taxes ........................... (867) -- -- -------------------------------------------------------- Net loss ............................................................ ($ 7,495) ($ 12,802) ($ 18,395) ======================================================== Basic and diluted net loss per share ................................ ($ 0.43)* ($ 0.83)* ($ 1.32)* ======================================================== Shares used in computing basic and diluted net loss per share .......................................... 17,512,083* 15,475,893* 13,912,175* ========================================================
The accompanying notes are an integral part of these consolidated financial statements. *As restated, see Note 1. F-3 i-STAT CORPORATION CONSOLIDATED BALANCE SHEETS
In thousands of dollars, except share and per share data December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 Assets Current assets: Cash and cash equivalents ................................................................. $ 19,536 $ 25,575 Accounts receivable, net of reserve for doubtful accounts of $28 in 2000 and $128 in 1999 .............................................................. 868 413 Accounts receivable from related parties .................................................. 3,607 4,185 Inventories (Note 2) ...................................................................... 15,402 8,886 Prepaid expenses and other current assets ................................................. 884 1,185 ---------------------------- Total current assets .................................................................. 40,297 40,244 Plant and equipment, net (Note 3) .............................................................. 17,766 15,936 Intangible assets, net (Note 4) ................................................................ 1,627 1,501 Other assets ................................................................................... 244 443 ---------------------------- Total assets .......................................................................... $ 59,934 $ 58,124 ============================ Liabilities and Stockholders' Equity Current liabilities: Accounts payable .......................................................................... $ 3,464 $ 2,269 Accrued expenses (Note 5) ................................................................. 4,488 4,453 Deferred revenue (inclusive of related party deferred revenue of $10,675 in 2000 and $1,545 in 1999) ................................................... 10,824 1,564 ---------------------------- Total current liabilities ............................................................. 18,776 8,286 ---------------------------- Deferred revenue from related party, non-current ............................................... 106 5,175 ---------------------------- Total liabilities ..................................................................... 18,882 13,461 ---------------------------- Commitments and Contingencies Stockholders' Equity: Preferred Stock, $0.10 par value, shares authorized 7,000,000: Series A Junior Participating Preferred Stock, $0.10 par value, 1,500,000 shares authorized; none issued at December 31, 2000 and December 31, 1999 ............................................................ -- -- Series B Preferred Stock, $0.10 par value, shares authorized, 2,138,702; shares issued and outstanding -0- at December 31, 2000 and 2,138,702 at December 31, 1999 ............................................... -- 214 Common Stock, $0.15 par value, shares authorized 25,000,000: shares issued 18,436,654 at December 31, 2000 and 15,761,630 at December 31, 1999 ................................................... 2,766 2,364 Treasury Stock, at cost, 40,817 shares at December 31, 2000 and -0- shares at December 31, 1999 ....................................................... (750) -- Additional paid-in capital ................................................................ 238,814 234,487 Unearned compensation ..................................................................... (764) (1,547) Loan to officer, net ...................................................................... (717) (716) Accumulated deficit ....................................................................... (196,965) (189,470) Accumulated other comprehensive loss ...................................................... (1,332) (669) ---------------------------- Total stockholders' equity ........................................................... 41,052 44,663 ---------------------------- Total liabilities and stockholders' equity ............................................ $ 59,934 $ 58,124 ============================
The accompanying notes are an integral part of these consolidated financial statements. F-4 i-STAT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Common Stock ----------------------------------------------------------------- Additional In thousands of dollars, Par Number of Par Paid-in Treasury Unearned except share and per share data Value Shares Value Capital Stock Compensation - --------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997................... $ 214 13,203,527 $ 1,981 $ 209,594 ($ 13) ($ 181) Net loss for 1998............................ Other comprehensive loss on foreign currency translation adjustments............ Total comprehensive loss............... Shares issued at $1.50 to $12.625 per share under the 1985 Stock Option Plan (Note 8)... 90,260 13 149 Private placement of Common Stock............ 2,000,000 300 20,341 Restricted Stock issued at $15.938 per share....................................... 750 12 (12) Restricted Stock issued at $16.438 per share....................................... 3,000 49 (49) Restricted Stock issued at $16.50 per share....................................... 12,000 2 196 (198) Amortization of unearned compensation related to Restricted Stock................. 271 Retirement of Treasury Stock................. (542) (13) 13 ---------------------------------------------------------------------------------- Balance, December 31, 1998................... 214 15,308,995 2,296 230,328 -- (169) Net loss for 1999............................ Other comprehensive gain on foreign currency translation adjustments............ Total comprehensive loss............... Shares issued at $1.50 to $10.50 per share under the 1985 Stock Option Plan (Note 8)... 125,132 19 857 Restricted Stock issued at $8.875 per share.. 310,000 47 2,704 (2,751) Restricted Stock issued at $9.25 per share... 14,412 2 131 (133) Restricted Stock issued at $9.75 per share... 3,091 30 (30) Compensation related to options issued....... 437 (479) Amortization of unearned compensation related to Restricted Stock................. 2,015 Loan to Officer.............................. ---------------------------------------------------------------------------------- Balance, December 31, 1999................... 214 15,761,630 2,364 234,487 -- (1,547) Net loss for 2000............................ Other comprehensive loss on foreign currency translation adjustments............ Total comprehensive loss............... Shares issued at $1.50 to $16.75 per share under the 1985 Stock Option Plan and the Equity Incentive Plan (Note 8).......... 526,066 79 4,303 Restricted Stock issued at $13.00 per share.. 10,256 2 131 (133) Conversion of Series B Preferred Stock to Common Stock............................. (214) 2,138,702 321 (107) Amortization of unearned compensation related to Restricted Stock................. 916 Purchase of Treasury Stock................... (750) Loan to Officer.............................. Forgiveness of Loan to Officer............... ---------------------------------------------------------------------------------- Balance, December 31, 2000................... $ -- 18,436,654 $ 2,766 $ 238,814 ($ 750) ($ 764) ==================================================================================
Accumulated Other Total In thousands of dollars, Loan to Comprehensive Accumulated Stockholders' except share and per share data Officer Loss Deficit Equity - --------------------------------------------------------------------------------------------------- Balance, December 31, 1997................... $ -- ($ 277) ($ 158,273) $ 53,045 Net loss for 1998............................ (18,395) Other comprehensive loss on foreign currency translation adjustments............ (1,064) ----------------------- Total comprehensive loss............... (19,459) Shares issued at $1.50 to $12.625 per share under the 1985 Stock Option Plan (Note 8)... 162 Private placement of Common Stock............ 20,641 Restricted Stock issued at $15.938 per share....................................... Restricted Stock issued at $16.438 per share....................................... Restricted Stock issued at $16.50 per share....................................... Amortization of unearned compensation related to Restricted Stock................. 271 Retirement of Treasury Stock................. ---------------------------------------------------- Balance, December 31, 1998................... -- (1,341) (176,668) 54,660 Net loss for 1999............................ (12,802) Other comprehensive gain on foreign currency translation adjustments............ 672 ----------------------- Total comprehensive loss............... (12,130) Shares issued at $1.50 to $10.50 per share under the 1985 Stock Option Plan (Note 8)... 876 Restricted Stock issued at $8.875 per share.. Restricted Stock issued at $9.25 per share... Restricted Stock issued at $9.75 per share... Compensation related to options issued....... (42) Amortization of unearned compensation related to Restricted Stock................. 2,015 Loan to Officer.............................. (716) (716) ---------------------------------------------------- Balance, December 31, 1999................... (716) (669) (189,470) 44,663 Net loss for 2000............................ (7,495) Other comprehensive loss on foreign currency translation adjustments............ (663) ----------------------- Total comprehensive loss............... (8,158) Shares issued at $1.50 to $16.75 per share under the 1985 Stock Option Plan and the Equity Incentive Plan (Note 8).......... 4,382 Restricted Stock issued at $13.00 per share.. Conversion of Series B Preferred Stock to Common Stock............................. Amortization of unearned compensation related to Restricted Stock................. 916 Purchase of Treasury Stock................... (750) Loan to Officer.............................. (257) (257) Forgiveness of Loan to Officer............... 256 256 ---------------------------------------------------- Balance, December 31, 2000................... ($ 717) ($ 1,332) ($ 196,965) $ 41,052 ====================================================
The accompanying notes are an integral part of these consolidated financial statements. F-5 i-STAT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of dollars, except share and per share data For the Years Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 Cash flows from operating activities: Net loss ............................................................................ ($ 7,495) ($12,802) ($18,395) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization ................................................... 4,790 4,362 4,591 Accounts receivable provision ................................................... -- -- 103 Gains on disposal of equipment .................................................. (86) (4) -- Amortization of deferred revenue ................................................ (6,887) (4,013) (218) Expense related to restricted stock ............................................. 1,172 2,015 271 Change in assets and liabilities: Accounts receivable ................................................................. (455) 2,436 1,875 Accounts receivable from related parties ............................................ 578 (1,342) (2,464) Inventories ......................................................................... (6,679) (325) (2,596) Prepaid expenses and other current assets ........................................... 292 98 (660) Accounts payable .................................................................... 1,245 (486) 568 Accrued expenses .................................................................... 78 (1,648) 2,321 Restricted cash, letter of credit ................................................... 199 147 (219) Deferred revenue .................................................................... 11,077 5,193 5,559 ------------------------------------- Net cash used in operating activities ........................................... (2,171) (6,369) (9,264) ------------------------------------- Cash flows from investing activities: Purchase of equipment ............................................................... (6,973) (6,250) (5,925) Cost of intangible assets ........................................................... (261) (294) (193) Proceeds from sale of equipment ..................................................... 99 20 -- ------------------------------------- Net cash used in investing activities ........................................... (7,135) (6,524) (6,118) ------------------------------------- Cash flows from financing activities: Proceeds from issuance of Common Stock .............................................. 4,382 834 162 Net proceeds from private placement of Common Stock ................................. -- -- 20,641 Retirement (purchase) of Treasury Stock ............................................. (750) -- 13 Loan to officer ..................................................................... (257) (716) -- Other ............................................................................... -- -- 29 ------------------------------------- Net cash provided by financing activities ....................................... 3,375 118 20,845 ------------------------------------- Effect of currency exchange rate changes on cash ......................................... (108) (40) 13 ------------------------------------- Net increase (decrease) in cash and cash equivalents ................................ (6,039) (12,815) 5,476 Cash and cash equivalents at beginning of year ...................................... 25,575 38,390 32,914 ------------------------------------- Cash and cash equivalents at end of year ............................................ $ 19,536 $ 25,575 $ 38,390 ===================================== Supplemental disclosure of cash flow information: Cash paid for income taxes .......................................................... $ -- $ -- $ -- ===================================== Supplemental disclosures of cash flow information and non cash investing and financing activities: Equipment purchases included in accounts payable at year end ........................ $ 143 $ 276 $ 181 ===================================== Conversion of Preferred Stock to Common Stock ....................................... $ (214) $ -- $ -- =====================================
The accompanying notes are an integral part of these consolidated financial statements. F-6 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 inter-company 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. Since November 1998, the Company's products are marketed and distributed principally to hospitals by Abbott Laboratories ("Abbott") in connection with the Company's alliance with Abbott (see Note 11). 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 AND CASH EQUIVALENTS Cash and cash equivalents include investments with original maturities of three months or less. FOREIGN CURRENCY TRANSLATION/TRANSACTIONS 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 accumulated other comprehensive loss as a separate component of Consolidated Stockholders' Equity. The Consolidated Statements of Operations has been translated using the average exchange rates in effect each year. The transaction gains and losses, which are not material, have been included in other income. 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 five 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 expenses 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. PATENTS, LICENSES AND TRADEMARKS Costs to obtain and maintain 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. VALUATION OF LONG-LIVED ASSETS In accordance with the Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets. The carrying value of long-lived assets is considered impaired when the anticipated undiscounted cash flows are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of long-lived assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. F-7 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) UNEARNED COMPENSATION Unearned compensation related to stock options and Restricted Stock awards is amortized over the period during which the options vest or Restricted Stock awards are earned. INCOME TAXES The Company accounts for income taxes in accordance with SFAS 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. SFAS No. 109 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. REVENUE RECOGNITION Revenues are recorded at the time of shipment of products and when title and risk of loss transfers or upon performance of services. Revenues from service contracts are recognized in earnings over the term of the contract. BASIC AND DILUTED LOSS PER SHARE (RESTATED) Basic loss per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company has not included potentially dilutive common shares in the diluted per-share computation for all periods presented, as the result is antidilutive due to the Company's net loss. The Company has restated its net loss per share for 2000, 1999, and 1998 to exclude the Series B Preferred Shares from the calculation of basic and diluted net loss per share. The impact of restating the basic and diluted net loss per share was to increase the 2000, 1999, and 1998 basic and diluted net loss per share by $0.01, $0.10, and $0.17, respectively. There was no change in the net loss for 2000, 1999 and 1998. In addition, as discussed in Note 7, the Series B Preferred shares were converted into Common Stock on March 16, 2000. Options to purchase 2,580,686 shares of Common Stock at $1.50 - $32.58 per share, which expire on various dates from March 2001 to November 2010, were outstanding at December 31, 2000. These shares were not included in the computation of diluted EPS because the effect would be antidilutive due to the net loss. COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income", requires foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive earnings. The only components of accumulated other comprehensive loss for the Company are foreign currency translation adjustments.
IN THOUSANDS OF DOLLARS 2000 1999 1998 - -------------------------------------------------------------------------------- Net loss ............................... ($7,495) ($12,802) ($18,395) Other comprehensive income (loss): Foreign currency translation ....... (663) 672 (1,064) -------------------------------- Comprehensive loss ..................... ($8,158) ($12,130) ($19,459) ================================
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 and cash equivalents and accounts receivable. Substantially all the Company's cash and cash equivalents at December 31, 2000 were invested in the securities of a single U.S. Government Agency. Accounts receivable are generally with distributors such as Abbott, Hewlett-Packard Company ("HP"), FUSO, Inc., and Heska. The Company provides credit to its customers on an unsecured basis after evaluating their credit status. F-8 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SEGMENT INFORMATION The Company operates within one business segment comprising the i-STAT(R) System. The i-STAT System consists of a portable handheld analyzer and single-use, disposable cartridges, which are interdependent on one another in the functionality of the system. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company presently does not have any derivative instruments or hedging activities and, consequently, the adoption of SFAS No. 133 will not have an impact on the Company's consolidated results of operations, financial position or cash flow. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") which addresses the staff's views on the application of United States generally accepted accounting principles for revenue recognition. The Company adopted the guidance of this bulletin in the fourth quarter of 2000 with no impact on its financial condition or results of operations. 2. INVENTORIES Inventories consist of the following:
IN THOUSANDS OF DOLLARS December 31, - -------------------------------------------------------------------------------- 2000 1999 Raw materials ............................. $ 5,696 $3,402 Work-in-process ........................... 3,700 2,764 Finished goods ............................ 6,006 2,720 ------------------------- $15,402 $8,886 =========================
3. PLANT AND EQUIPMENT Plant and equipment, net, consists of the following:
IN THOUSANDS OF DOLLARS December 31, - -------------------------------------------------------------------------------- 2000 1999 Equipment loaned to customers ........................ $ 2,052 $ 2,418 Manufacturing equipment .............................. 37,364 33,100 Furniture and fixtures ............................... 1,318 1,092 Leasehold improvements ............................... 4,378 4,087 ---------------------- 45,112 40,697 Less accumulated depreciation and amortization ....... (27,346) (24,761) ---------------------- $ 17,766 $ 15,936 ======================
Depreciation expense was approximately $4,644,000, $4,224,000 and $4,412,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Accumulated depreciation and amortization includes accumulated depreciation on loaned equipment of approximately $1,947,000 and $2,033,000 for the years ended December 31, 2000 and 1999, respectively. Maintenance and repairs expense for the years ended December 31, 2000, 1999 and 1998 was approximately $1,026,000, $938,000 and $865,000, respectively. F-9 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. INTANGIBLE ASSETS Intangible assets, net, consist of the following:
IN THOUSANDS OF DOLLARS December 31, - -------------------------------------------------------------------------------- 2000 1999 Patents, licenses and trademarks ............... $ 2,448 $ 2,187 Less accumulated amortization .................. (821) (686) ------------------------ $ 1,627 $ 1,501 ========================
Amortization expense was approximately $135,000, $138,000 and $179,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 5. ACCRUED EXPENSES Accrued expenses consist of the following:
IN THOUSANDS OF DOLLARS December 31, - -------------------------------------------------------------------------------- 2000 1999 Accrued employee incentive awards .................. $ 861 $ 601 Payroll and withholding taxes ...................... 1,038 880 Professional fees .................................. 484 383 Accrued commissions ................................ 273 276 Other .............................................. 1,832 2,313 -------------------- $4,488 $4,453 ====================
6. LEASING TRANSACTIONS The Company's leases for its manufacturing facilities in Ontario, Canada expire in February 2004, subject to, at the Company's option, renewal for one five-year term in the lease of 42,454 square feet of space. Rent expense for these facilities was approximately $667,000, $456,000 and $368,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The Company's lease for its administrative, marketing and selected research and development facility in Princeton, New Jersey, expired on September 30, 1998. Rent expense for this facility was approximately $379,000 for the year ended December 31, 1998. The Company relocated these activities to a 37,474 square foot leased facility in East Windsor, New Jersey. The lease expires on September 30, 2003, subject, at the Company's option, to one five-year option to renew. Rent expense for this facility was approximately $708,000, $656,000 and $164,000 for 2000, 1999 and 1998, respectively. At December 31, 2000, other assets include $187,000 in restricted cash which acts as collateral for the leasehold improvements made in the facility. The Company's lease for its assembly facility in Plainsboro, New Jersey expired in February 1999 (the assembly operation was relocated to the Ontario, Canada, location). Rent expense for this facility was approximately $56,000 and $492,000 for the years ended December 31, 1999 and 1998, respectively. As of December 31, 2000, future minimum lease payments are as follows:
Year Ending December 31: IN THOUSANDS OF DOLLARS Operating Leases - -------------------------------------------------------------------------------- 2001......................................................... $ 1,580 2002......................................................... 1,543 2003......................................................... 1,342 2004......................................................... 129 Thereafter................................................... -- ---------- Total minimum lease payments................................. $ 4,594 ==========
F-10 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 at the time of issuance. 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 was issued to HP at $28.50 per share in July 1995 for net proceeds of approximately $59.2 million. There were 2,138,702 shares of Series B Stock issued and outstanding at December 31, 1999. During 1999, HP transferred its holding of Series B Stock to its then subsidiary, Agilent Technologies, Inc. ("Agilent"). On March 16, 2000, Agilent converted its holding of 2,138,702 shares of Series B Preferred Stock into 2,138,702 shares of Common Stock, and sold its holding. 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. The Rights are not exercisable until the occurrence of certain events enumerated in the Stockholder Protection Agreement between the Company and First Union National Bank, 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), including, without limitation, the right to vote or to receive dividends. F-11 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. STOCK OPTIONS AND RESTRICTED STOCK 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. Most options are granted under the 1985 Stock Option Plan or Equity Incentive Plan ("the Plans"). The maximum number of issuable shares of Common Stock is 5,300,000 of which 1,279,489 are available for grant at December 31, 2000. Options under the 1985 Stock Option Plan can be issued until November 26, 2005, and options under the Equity Incentive Plan can be issued until March 31, 2008. The option price generally is based upon the fair market value of the Company's Common Stock at the time of the grant. Unexercised options issued under the Plans expire five to ten years from the date of grant or three months following termination of the optionee's employment, whichever occurs first. On December 14, 1998, upon unanimous consent of the Board of Directors, 824,277 previously issued and outstanding stock options with an exercise price greater than $6.125 were cancelled, except for outstanding options held by outside Board members, the Medical Advisory Board and executive officers of the Company. Stock options were reissued to the holders of the cancelled options to purchase 824,277 shares at $6.125, the market value on the date of grant. The table below is a summary of stock option activity for the years 1998, 1999, and 2000.
Weighted Options Average Weighted Granted Exercise Average Options and Price per Fair Value Exercisable Exercisable Share per Option - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1997...................................... 937,322 $ 14.69 Balance December 31, 1997...................................... 1,637,704 $ 16.10 Options granted................................................ 778,559 $ 15.44 $ 15.27 Options exercised.............................................. (90,260) $ 1.75 Options forfeited.............................................. (184,138) $ 17.91 Options cancelled.............................................. (824,277) $ 16.57 Options granted................................................ 824,277 $ 6.12 ----------------------------------------------------------------- Balance December 31, 1998...................................... 1,087,030 $ 12.71 Balance December 31, 1998...................................... 2,141,865 $ 12.30 Options granted................................................ 1,070,063 $ 9.30 $ 9.21 Options exercised.............................................. (125,132) $ 6.99 Options forfeited.............................................. (227,299) $ 11.77 ----------------------------------------------------------------- Balance December 31, 1999...................................... 1,349,002 $ 12.19 Balance December 31, 1999...................................... 2,859,497 $ 11.45 Options granted................................................ 474,047 $ 13.16 $ 13.28 Options exercised.............................................. (526,066) $ 8.33 Options forfeited.............................................. (226,792) $ 14.29 ----------------------------------------------------------------- Balance December 31, 2000...................................... 1,167,008 $ 12.49 Balance December 31, 2000...................................... 2,580,686 $ 12.15 =================================================================
The weighted average remaining contractual lives of outstanding options at December 31, 2000 was approximately 6.53 years. F-12 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 SFAS 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:
IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA 2000 1999 1998 - ----------------------------------------------------------------------------------------------- Pro forma net loss ........................................ ($ 11,914) ($ 17,125) ($ 22,035) Pro forma basic and diluted net loss per share, as restated ($ 0.68) ($ 1.11) ($ 1.58)
As options vest over a varying number of years, and awards are generally made each year, the pro forma impacts shown here may not be representative of future pro forma expense amounts due to the annual grant of options by the Company. The pro forma additional compensation expense of approximately $4,419,000, $4,323,000 and $3,640,000 for 2000, 1999 and 1998, 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:
2000 1999 1998 - -------------------------------------------------------------------------------- Dividend yield......................... 0% 0% 0% Expected volatility.................... 71.29 62.00 60.00 Risk free interest rate................ 6.71% 5.44% 5.49% Expected option lives.................. 5 years 5 years 5 years
The following table summarizes information about stock options outstanding at December 31, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE Number Weighted Weighted Number Weighted Range of Outstanding Average Average Exercisable Average Exercise Price at 12/31/00 Remaining Life Exercise Price at 12/31/00 Exercise Price - -------------------------------------------------------------------------------------------------------------------------------- $ 1.50 - $ 2.25 1,000 0.20 $ 1.50 1,000 $ 1.50 $ 6.13 - $ 9.06 743,523 6.60 $ 7.22 411,146 $ 6.88 $ 9.25 - $ 13.00 1,132,165 7.11 $ 11.18 365,301 $ 10.48 $ 14.10 - $ 21.00 509,127 5.84 $ 16.62 210,690 $ 16.28 $ 22.56 - $ 32.58 194,871 4.68 $ 24.97 178,871 $ 25.09 - -------------------------------------------------------------------------------------------------------------------------------- $ 1.50 - $ 32.58 2,580,686 6.53 $ 12.15 1,167,008 $ 12.49 - --------------------------------------------------------------------------------------------------------------------------------
F-13 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On February 5, 1999, the Board of Directors awarded 310,000 shares of restricted Common Stock to four executive officers of the Company. The restricted Common Stock had a fair value at the date of grant of approximately $2,751,250. One executive officer was awarded 250,000 shares of restricted Common Stock, 50,000 shares of which immediately vested on February 5, 1999, and the remaining 200,000 shares cliff vest on February 5, 2002. The 60,000 shares awarded to the other three executive officers vest over a three year period. In connection with the award of 250,000 shares to one executive officer, on June 30, 1999, the Company loaned the executive officer approximately $716,000 to pay withholding taxes. The promissory note for the withholding tax amount carries an interest rate of 5.37%, payable annually, and the principal amount of the loan is repayable three years from the date of the execution of a second promissory note for the remaining taxes. The second promissory note, executed in April 2000 of approximately $257,000 carries an interest rate of 6.36%, payable annually. One third of the principal amount of these loans will be forgiven on each anniversary date of the loan for the remaining taxes if the executive officer remains in the employment of the Company. The Company will also make a "tax gross-up" payment to the executive officer in connection with any taxes that may be due as result of the forgiveness of these loans. Compensation expense in the amount of approximately $1,180,000 and $1,379,000 was recorded in connection with these awards, the loan forgiveness and the associated tax gross-up payment during the years ended December 31, 2000 and 1999 respectively. During 2000, 10,256 shares of restricted Common Stock were awarded to outside directors of the Board of Directors as part of their annual compensation. The restricted Common Stock had a fair value of $133,000 at the date of grant, which was recorded as compensation expense in 2000. During 1999, 17,503 shares of restricted Common Stock were awarded to outside directors of the Board of Directors as part of their annual compensation. The restricted Common Stock had a fair value of $163,000 at the date of grant, which was recorded as compensation expense in 1999. The Company has a restricted stock plan whereby the Company can award shares of Common Stock to employees, other than its executive officers. The sale or transfer of the shares is limited during the restricted period, not exceeding four years. For the year ended December 31, 2000 and 1999, no shares of restricted Common Stock were awarded. For the year ended December 31, 1998, the Company awarded 15,750 shares of restricted Common Stock which had a fair value at the date of grant of approximately $259,000. Compensation under the plan is charged to earnings over the restriction period and amounted to approximately $22,000, $141,000, and $271,000 in 2000, 1999, and 1998, respectively. 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 $5,243,000, $3,900,000 and $3,794,000 for the years ended December 31, 2000, 1999 and 1998, respectively, including deferred revenue of $129,000, $0 and $0, respectively. The Company also has other license and distribution agreements, including agreements with HP and Abbott (see Notes 10 & 11). F-14 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. RELATED PARTY TRANSACTIONS One director of the Company has provided consulting services to the Company. Consulting fees incurred totaled approximately $0, $15,000 and $30,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The Company had the following activity with Abbott and HP, primarily related to license and distribution agreements.
ABBOTT LABORATORIES IN THOUSANDS OF DOLLARS 2000 1999 1998 - -------------------------------------------------------------------------------- Revenues ....................................... $45,927 $35,499 $4,515 Receivable at year end ......................... $ 3,607 $ 4,069 $2,439 Deferred revenue at year end ................... $10,781 $ 6,474 $5,407
HEWLETT-PACKARD COMPANY IN THOUSANDS OF DOLLARS 2000 1999 1998 - -------------------------------------------------------------------------------- Revenues ....................................... $ 138 $ 2,375 $3,212 Purchases ...................................... $ 41 $ 816 $ 728 Receivable at year end ......................... $ -- $ 116 $ 404
HP has assigned its license agreement with the Company and its holding of Series B Stock to Agilent. On March 16, 2000, Agilent converted its holding of 2,138,702 shares of Series B Stock into 2,138,702 shares of Common Stock and sold its holding to two financial institutions and is no longer a related party. 11. ALLIANCE WITH ABBOTT LABORATORIES On September 2, 1998, the Company and Abbott entered into agreements (the "Alliance Agreements") providing for a long-term sales, marketing and research alliance. The Alliance Agreements comprise a Distribution Agreement, a Research Agreement, a Stock Purchase Agreement, a Standstill Agreement and a Registration Rights Agreement. The primary objective of the Abbott alliance is to strengthen the Company's product marketing and distribution capability and accelerate the development of new products. Under the Distribution Agreement, Abbott has become, subject to the then existing rights of the Company's other international distributors, the exclusive worldwide distributor of the Company's hand-held blood analyzer products (including cartridges) and any new products the Company may develop for use in the professionally attended human healthcare delivery market. Abbott has assumed the Company's product sales to U.S. customers that were in place as of the inception of the Distribution Agreement (the "Base Business") at no profit to Abbott, and the Company and Abbott share in the incremental profits derived from product sales beyond the Base Business. Abbott agreed to prepay to the Company a total of $25,000,000 during the first three years of the Distribution Agreement as guaranteed future incremental product sales. Such prepayments are amortized to revenue as incremental cartridges are sold to Abbott over the first three years of the Agreement. Prepayments in amounts of $5,000,000, $4,000,000 and $10,800,000 were received in September 1998, January 1999 and January 2000, respectively. Unamortized revenue relating to these prepayments in the amounts of $10,606,000 and $1,012,000 are included in deferred revenue, current at December 31, 2000 and 1999, respectively, and $5,000,000 is included in deferred revenues from related party, non-current at December 31, 1999. The final prepayment of $5,200,000 was received in January 2001. Distribution under the Distribution Agreement commenced in the United States on November 1, 1998. A subsequent international rollout commenced in various countries during the second half of 1999. As a result of the Distribution Agreement, the majority of the Company's revenues are now derived from Abbott. F-15 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Distribution Agreement expires on December 31, 2003, subject to automatic extensions for additional one-year periods unless either party provides the other with at least 12 months prior written notice, except that the Company may terminate the Distribution Agreement after December 31, 2001 if Abbott fails to achieve a three-year milestone minimum growth rate in sales of the Company's products covered by the Distribution Agreement. If the Distribution Agreement is terminated, other than (i) by the Company for cause or for Abbott's failure to achieve the minimum growth rate; or (ii) by Abbott, if Abbott delivers the requisite notice terminating the Distribution Agreement after the initial term, then, the Company will be obligated to pay to Abbott a one-time termination fee calculated to compensate Abbott for a portion of its costs in undertaking the distribution relationship, and residual payments for five years following termination based on a percentage of Abbott's net sales of the Company's products during the final twelve months of the Distribution Agreement. In the event that such termination occurs within the first three years of the Distribution Agreement, the Company also must refund to Abbott any prepayments made and not yet credited to Abbott at the time of such termination. Under the terms of the Research Agreement, the Company will conduct research and will develop products primarily to be commercialized by Abbott. Such research and development will be funded by Abbott and Abbott will have exclusive worldwide commercialization rights to the products developed under the Research Agreement subject to certain limitations. The Company and Abbott will jointly own the intellectual property which is developed during the course of work performed under the Research Agreement. In connection with this agreement, revenues from Abbott of $2,697,000, $1,762,000 and $110,000 are included in net revenues in 2000, 1999 and 1998, respectively. Abbott currently is not funding any of the Company's research and development programs. The Research Agreement terminates upon expiration or termination of the Distribution Agreement, unless earlier terminated as provided therein. Upon such expiration or earlier termination, both the Company and Abbott will be permitted to distribute the products developed under the Research Agreement in the territory covered by the Distribution Agreement. Under the Stock Purchase Agreement, Abbott purchased 2,000,000 shares (the "Purchased Shares") of the Company's Common Stock, at a price of $11.35 per share, resulting in net proceeds of $20,641,000. The Stock Purchase Agreement, together with the Registration Rights Agreement, contains certain terms and conditions pertaining to the voting and transfer of the Purchased Shares. The Standstill Agreement provides for limitations on Abbott's ability to purchase the Company's Common Stock, or to propose any merger or business combination with the Company or purchase of a material portion of the Company's assets. THE FOREGOING DESCRIPTION OF THE ALLIANCE AGREEMENTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL TEXT OF SUCH AGREEMENTS, COPIES OF WHICH WERE FILED WITH THE COMMISSION AS EXHIBITS TO THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998. F-16 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. INCOME TAXES The difference between income tax expense and the expected tax which would result from the use of the Federal Statutory income tax rate is as follows:
2000 1999 1998 - -------------------------------------------------------------------------------- Computed tax at statutory Federal rate .... (34.0%) (34.0%) (34.0%) State income taxes, net of Federal benefits (6.8%) 0.0% 0.0% Foreign (income)/loss not subject to United States tax ...................... (4.5%) 8.1% 5.9% Change in valuation allowance ............. 32.1% 24.6% 27.8% Other ..................................... 2.9% 1.3% 0.3% -------------------------------- Income tax (benefit)/expense .............. (10.3%) 0.0% 0.0% ================================
In November 2000, the New Jersey Economic Development Authority approved the Company's application to sell New Jersey State income tax benefits under the New Jersey Technology Tax Transfer Program (the "Program"). During the fourth quarter of 2000, the Company received $867,000 from the sale of State of New Jersey income tax benefits expiring in 2000. The Program requires that the Company maintain certain employment levels in New Jersey and that the proceeds from the sale of the tax benefits be spent in New Jersey. The Company recognized the sale of this tax benefit in 2000 as all conditions stipulated in the Program have been met. At December 31, 2000, the Company had a net operating loss carry forward of approximately $159,611,000 for United States Federal income tax purposes which expires in varying amounts through 2020. The Company also has unused research and development tax credits of approximately $1,463,000 for United States Federal income tax purposes which expire in varying amounts through 2020. The timing and manner in which the United States Federal operating loss carry forwards and credits may be utilized in any year by the Company will be limited by Internal Revenue Code Section 382. The Company has unused Canadian net operating loss carry forward of approximately $14,320,000 which expire in varying amounts through 2004. Additionally, the Company has unused Canadian investment tax credits of approximately $2,529,000 which expire in varying amounts through 2010. The Company accounts for income taxes in accordance with the provisions of SFAS No. 109. SFAS No. 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 assets due to the uncertainty of realization. The increase in the valuation allowance for the years ended December 31, 2000 and 1999 was approximately $4,303,000 and $ 3,544,000 respectively. F-17 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Temporary differences and carry forwards, which give rise to the deferred tax assets and liabilities at December 31, 2000 and 1999, are as follows:
2000 1999 Deferred Tax Deferred Tax IN THOUSANDS OF DOLLARS Assets (Liabilities) Assets (Liabilities) - ----------------------------------------------------------------------------------------------- Net Operating Loss -- United States .............. $ 54,268 $ 51,498 Net Operating Loss -- Canada ..................... 3,168 4,113 Net Operating Loss -- Province (Canada) .......... 1,737 2,232 State Taxes ...................................... 10,787 8,225 Deferred Revenue ................................. 3,740 2,291 Tax Credits -- United States ..................... 1,463 1,414 Tax Credits -- Canada ............................ 2,529 3,594 Intangibles ...................................... (58) (405) Depreciation -- United States .................... (276) (495) Depreciation -- Canada ........................... 158 602 Depreciation -- Province (Canada) ................ 218 816 Other ............................................ 2,000 1,546 ------------------------------------------- 79,734 75,431 ------------------------------------------- Valuation Allowance -- United States ............. (61,137) (55,849) Valuation Allowance -- Canada .................... (5,855) (8,309) Valuation Allowance -- Province (Canada) ......... (1,955) (3,048) Valuation Allowance -- State ..................... (10,787) (8,225) ------------------------------------------- Total Net Deferred Taxes ......................... $ -- $ -- ===========================================
Given that significant uncertainty exists regarding the realizability of the Company's deferred tax assets, a full valuation allowance is recorded. 13. SAVINGS AND INVESTMENT RETIREMENT PLAN The Company has a defined contribution savings and investment retirement plan under section 401(k) of the Internal Revenue Code, as amended, whereby substantially all U.S. employees are eligible to participate, ("U.S. Plan"), and a deferred profit sharing plan for substantially all Canadian employees. In June 1999 the Company started to make matching contributions to these plans, and compensation expense in the amount of approximately $103,000 and $101,000 was recorded for the years ended December 31, 2000 and 1999, respectively. The trustee for the U.S. Plan is Fidelity Management Trust Company, which is affiliated with a stockholder of the Company. 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. In February 1998, the Court entered summary judgment in favor of the Company on the issue of patent infringement. The plaintiff appealed the dismissal to the Federal Circuit which affirmed two of the grounds of the dismissal (proper interpretation of the Patent and the fact that the Company does not literally infringe), but remanded the case to the District Court with instructions to reconsider whether the Company's device performs a certain measurement in a substantially equivalent way to a method covered by the Patent, and therefore infringes under the "doctrine of equivalents." A jury trial was initially scheduled to commence on November 6, 2000, but was postponed in order to allow the Company to present argument that certain evidence pertaining to the plaintiff's interpretation of the Patent should serve as the basis for dismissal of the case. On February 23, 2001, the District Court decided not to dismiss the case and accordingly, the case is expected to be tried in late Spring or early Summer 2001. Should the plaintiff prevail in this case, it could have a material and adverse impact on the financial position, results of operations and cash flows of the Company. F-18 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company was 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, alleged infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964. The plaintiff sought injunctive relief and an accounting for i-STAT's profits and the damages to Customedix from such alleged infringement. The Company was prepared to contest the case vigorously, did not believe that it had infringed the Customedix patent and had obtained an opinion from recognized patent counsel to the effect that no infringement had occurred. However, management concluded that the uncertainty inherent in any litigation as well as the drain on management's time and the Company's resources merited an out-of-court resolution of this lawsuit. Accordingly, on June 14, 2000, the Company entered into a settlement agreement under which the Company paid the plaintiff $1.5 million and the plaintiff agreed to permanently withdraw the complaint and to release the Company from any and all claims of whatsoever nature that the plaintiff may have had against the Company, whether under the referenced Patent or otherwise. A charge in the amount of $1.5 million was recorded in the second quarter of 2000 in connection with the settlement of this litigation. 15. CONSOLIDATION OF OPERATIONS In January 1998, the Company decided to consolidate all its cartridge assembly operations in its manufacturing facility in Ontario, Canada. In order to facilitate this move, the Company relocated its cartridge assembly operation from Plainsboro, New Jersey to its manufacturing facility in Ontario, Canada. The relocation of cartridge assembly commenced in June 1998, with the transfer of one assembly line to Canada, and the Company completed the relocation by April 1999. As a result of this consolidation of operations, 66 employees in the cartridge assembly operations were notified during the first quarter of 1998 that their employment would be terminated. The Company's lease for its instrument operations, engineering, customer support, selected research and development, marketing and administrative facility in Princeton, New Jersey, expired in September 1998. The Company relocated these activities to a 37,474 square foot leased facility in East Windsor, New Jersey. The product distribution operations formerly located in the Company's Plainsboro, New Jersey facility were relocated to the Company's East Windsor, New Jersey facility in early 1999. The charge to earnings in 1999 was $70,000. The charge to earnings in 1998 for these relocations, including severance and retention payments to affected employees, the physical move of equipment, rent and utilities on the unoccupied Plainsboro facility until that lease expired in February 1999, and miscellaneous costs was approximately $1.1 million. The charge to earnings in 1998 comprises approximately $1.0 million for severance and retention payments, and approximately $0.1 million for lease costs in respect to the unoccupied Plainsboro facility and other expenses associated with the move to the East Windsor facility. Retention payments are charged to expense over the retention period. F-19 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. 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:
IN THOUSANDS OF DOLLARS Year Ended December 31, - -------------------------------------------------------------------------------- 2000 1999 1998 Net revenues: Domestic......................... $ 39,973 $ 31,437 $ 29,270 Canada........................... 302 271 344 Japan............................ 6,621 4,610 3,794 Other International.............. 8,141 8,907 5,693 -------------------------------------------- Total............................ $ 55,037 $ 45,225 $ 39,101 ============================================
IN THOUSANDS OF DOLLARS Year Ended December 31, - -------------------------------------------------------------- 2000 1999 Long-lived assets: Domestic......................... $ 3,991 $ 3,839 Canada........................... 15,646 14,041 -------------------------- Total............................ $ 19,637 $ 17,880 ==========================
The Company's net revenues from Abbott were approximately $45,927,000, $35,499,000 and $4,515,000 for the years ended December 31, 2000, 1999 and 1998, respectively. F-20 i-STAT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000 First Second Third Fourth IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------ Net revenues ............................................... $ 11,154 $ 14,809 $ 13,453 $ 15,621 Operating loss ............................................. ($ 5,175) ($ 3,930) ($ 575) ($ 445) Net income (loss) .......................................... ($ 4,669) ($ 3,491) ($ 114) $ 779 Basic and diluted net income (loss) per share, as restated . ($ 0.29) ($ 0.19) ($ 0.01) $ 0.04 Weighted average shares used in computing basic net income (loss) per share, as restated ........ 15,871,683 18,004,095 18,060,265 18,104,346 Weighted average shares used in computing diluted net income (loss) per share, as restated ......................... 15,871,683 18,004,095 18,060,265 19,305,728
1999 First Second Third Fourth IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------ Net revenues ............................................... $ 10,337 $ 11,426 $ 11,377 $ 12,085 Operating loss ............................................. ($ 4,937) ($ 4,860) ($ 1,836) ($ 2,676) Net loss ................................................... ($ 4,491) ($ 4,492) ($ 1,478) ($ 2,341) Basic and diluted net loss per share, as restated .......... ($ 0.29) ($ 0.29) ($ 0.10) ($ 0.15) Weighted average shares used in computing basic and diluted net loss per share, as restated ..... 15,335,263 15,379,326 15,427,361 15,478,403
Basic and diluted 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 basic and diluted net loss per common share amounts. F-21 EX-23 3 y55429a1ex23.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP: REVISED Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8/S-3 (File No. 33-48889), Form S-8 (File Nos. 33-67456, 33-86152, 33-96114, and 33-65357), and Form S-3 (File Nos. 33-92796 and 333-68770) of i-STAT Corporation of our report dated February 6, 2001, except for Note 1 as to which the date is December 6, 2001, relating to the consolidated financial statements, which appears in this Form 10-K/A. We also consent to the incorporation by reference of our report dated February 6, 2001 relating to the financial statement schedule, which also appears on this Form 10-K/A. /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey December 6, 2001 -----END PRIVACY-ENHANCED MESSAGE-----