 |
|
|
|
|
|
|
 |
|
 |
|
|||
 |
|
|||||
 |
 |
 |
 |
|
||
 |
|
|||||
|
||||||
 |
|
|||||
 
|
 |
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
|
|
 
|
|
April 12, 2001 Dear IRIS Stockholder: In this, my second annual letter to our stockholders, I am reporting to you with my first full year as CEO and President of IRIS under my belt. Let me begin by telling you how proud I am to be associated with IRIS and asking for your help getting the good news out to the investment community. IRIS is a 21st century company, not just in terms of upgraded internal management systems and improved manufacturing facilities, but also in terms of its new product efforts. We have substantially reduced our debt from a high of $10.6 million just three years ago, and anticipate further reductions to just $5.5 million by the end of 2001. Furthermore, with recent management additions and promotions, we have the leadership in place for present and future growth. IRIS has recorded five straight quarters of profitability. And, more importantly, 2000 was not just a very good year; it was the best year in the history of IRIS. One more important point -- we firmly believe that we have cleaned house and put all of those unusual charges behind us. One of the many reasons for our outstanding performance in 2000 was our Board of Directors. We placed tremendous demands on them in 2000 for both time and advice, and they responded without hesitancy by committing an extraordinary amount of time this past year to IRIS and sharing with management their expertise and wisdom on a wide range of issues. On behalf of IRIS management and its stockholders, I would like to publicly thank our Board members for their gracious and invaluable contributions in 2000. By name, they are Mr. Steve Besbeck, Dr. Thomas Kelly and Dr. Richard Nadeau. We were also fortunate to be able to strengthen and improve our management team by promoting from within and hiring very qualified individuals for select new positions. At Chatsworth, we promoted Mr. Achille Bigliardi to Corporate Vice President and President, Chatsworth Operations and Mr. Michael Hardy to Director, International Sales. We also hired Mr. Ronald Powell as Director, Information Technology, and Mr. William Souder as Project Director. At StatSpin, we hired Mr. Robert Mello as General Manager and Corporate Vice President and Mr. Victor Jones as Vice President of Marketing and Sales. These individuals and our existing management team, with the many contributions and support of the rest of our employees, set the pace in year 2000. Early this year, we hired Mr. Michael Rumbin as our Vice President of Global Marketing and promoted Ms. Ann Coviello to Assistant Vice President of Technical Services. As a result of this combined effort, year 2000 was the best year in IRIS' history, both in revenues and profits. In spite of this, our stock price, which closed in 1999 at $0.81 per share, closed in 2000 at a disappointing $1.31 per share. In my opinion, the stock price did not reflect the value of IRIS as established by earnings. Nevertheless, I remain optimistic that the stock price should begin to reflect both earnings and growth potential once we begin capitalizing on our renewed investment in product development. Next, a few comments on the goals I shared with you in last year's letter to stockholders: IRIS Goals
I am pleased that we made so much progress in 2000 toward accomplishing these goals, as you will see in the following paragraphs. Perceptive Scientific Instruments On July 7, 2000, IRIS announced that it had completed the sale of the U.S. assets of Perceptive Scientific Instruments, LLC to Applied Imaging Corporation for shares of their common stock, the assumption of certain liabilities and potential future cash payments based on the future performance of Applied Imaging's business. IRIS was unable to sell the international operations of the genetic analysis business and placed Perceptive Scientific International Limited into a voluntary liquidation under United Kingdom law on June 6, 2000. I was very pleased that IRIS was able to retain the personnel and assets of the Houston-based research group, including its federally funded research grants. IRIS is refocusing the direction of the research group's efforts, now called Advanced Digital Imaging Research (ADIR), as the group completes its current government projects. Present government research grants are expected to fund all ADIR expenditures beyond the end of year 2001. As a result of the divestiture of Perceptive Scientific Instruments, IRIS became a more profitable company while concurrently reducing its debt, substantially increasing its R&D investment and focusing once again on its core businesses in urinalysis and specimen processing. Investment in Product Development In 2000, excluding the government funded research expenditures of ADIR, we more than doubled our investment in product development to $2.8 million, concentrating efforts on major improvements to our urinalysis workstation product line. By focusing our R&D on these state-of-the-art improvements, we expect to maintain our competitive position in the urinalysis market and broaden IRIS' marketing footprint. We are committed to 21st century technology. In May, we received FDA approval for use of our enhanced automatic recognition technology in our Model 939UDx™ Urine Pathology System. This technology enables most microscopic results to be automatically released without further operator review while, at the same time, retaining images for review when human interpretation is required. Global Presence We now officially serve 27 countries outside North America through a network of 19 highly qualified distributors. This year we added nine distributors serving 14 additional countries. Our Turkish distributor continued its outstanding sales efforts by placing an additional 14 systems. In addition, we placed systems in Greece, The Netherlands, The United Kingdom, Hong Kong and Romania. I am also pleased to report that all distributors who purchased instruments have sent or made plans to send representatives at their expense to IRIS for complete training on our Models 500 and 939UDx™ Urine Pathology System. Balancing Our Obligations Shareholders: We made a concerted effort in 2000 to communicate with existing and potential shareholders. We participated in numerous formal and informal presentations to groups and individuals and issued over two dozen press releases during the year. We also appointed The Wall Street Group, Inc, as our new investor relations counsel to coordinate and enhance our communication effort. With their assistance, we have upgraded our investor kit, revised our corporate profile document, improved the quality and frequency of our press releases and introduced IRIS to a new set of potential investors. In November of last year, the Kon-Lin Letter initiated coverage of IRIS as the featured stock of the month with a "buy" recommendation. Customers: At StatSpin, we increased the size of our customer service staff. At Chatsworth, we improved the quality of our customer service with an advanced training program called Skillpath, a program that focuses on techniques for effective customer interaction. We also developed and tested an electronic customer service system to improve our response time and identify earlier developing problems. To better serve and train our customers, we upgraded our Training Room, Classroom and main Conference Room in Chatsworth to 21st Century levels, resulting in many favorable comments from our domestic and international trainees. We also installed new modern telephone systems in our Chatsworth (IRIS), Norwood (StatSpin), and League City (ADIR) facilities to facilitate direct communication and voice mail with customers. Our present project is revising, improving and integrating our websites for better customer interaction. Employees: Our Chatsworth and Norwood facilities have been given a new look. Since the Chatsworth facility was the most out of date, we concentrated on installing new floors and carpeting, ceilings, air conditioning, partitions and offices in all functional areas of the building. We have also incorporated functional improvements in the shipping, inventory, warehouse and chemistry production areas. At Norwood, we installed new offices, improved the conference and reception areas and painted the entire inside of the facility. Feedback from employees has been extremely positive. A 21st Century Company At Chatsworth and Norwood we installed MAS200 computer controlled systems, modernizing our financial and manufacturing processes. Also at Chatsworth, we installed a local area Windows NT based network system, permitting all administrative personnel to operate more effectively with modern software packages and to interact with remote copiers, faxes and scanners. The new network gives us high-speed access to the Internet and vastly improved email capabilities. Of equal importance, it allows our R&D personnel to interact rapidly with each other and to use the most modern and efficient technical software for graphical design and scientific calculations. At Chatsworth, we have begun the process to identify and select a fully automated marketing, sales and service management interactive database system. Our goal is to have this system operational in 2001. Operate Profitably While meeting the above goals, we increased profitability to $0.27 per share from continuing operations in 2000 from a loss of $0.15 per share from continuing operations in 1999. Details explaining this positive swing of $0.42 per share are given below. Performance of Continuing Operations. During 2000, revenues from our continuing operations increased 11 percent over those of a year earlier. Operating income before interest, taxes and discontinued operations was $5,151,618, up from $389,924 of a year earlier. I am happy to report that we did not have any unusual charges in 2000. IRIS recorded income from continuing operations of $2,793,511, compared to loss of $1,087,924 a year earlier. We have reversed the three-year trend of declining investments in product oriented technology. We invested $2,526,465 in research and development in 2000, a significant increase from the 1999 figure of $1,124,240. In 2001, we plan to continue this upward trend. Products coming out of this effort will reflect 21st century technology. We are restoring stockholder value. Revenue and earnings growth continued as we significantly increased our investment in R&D while reducing the debt, interest and amortization burden. Segment Performance of Continuing Operations. Below is a summary of 2000 results for our continuing operating segments:
Although the rest of this letter will highlight some of our progress and expectations, given the complexity of various financial and operational developments during 2000, and the many risks we face, I encourage you to carefully review our accompanying 2000 Annual Report on Form 10-K. Urinalysis Business Segment. Worldwide, we enjoyed nearly a 12% increase in the number of instruments sold in 2000 compared to the previous year. This includes 19 units sold outside the United States. The Company now has 19 distributors active in Europe, the Middle East, Asia and South America, selling to 27 countries outside the U.S. In addition, the Model 500, considered to be a workhorse in many laboratories, showed renewed strength in the domestic market with the sale of 35 units compared to 21 units in the prior year. As I mentioned last year, our customer base continues to demonstrate support for our proprietary imaging technology. When their systems approach the end of their useful life, many of our customers upgrade to either the Model 500 or Model 939UDx, our flagship products. Our Model 939UDx™ Urine Pathology System, incorporating our FDA-cleared enhanced automatic recognition technology, is the most sophisticated urinalysis product in the market today, setting new standards for quality-of-result and cost-effectiveness. Through 2000, we have sold eighty systems worldwide. Trailing revenues from its supplies and service are substantial and increasing. Our new Model 939UDx™ Urine Pathology System customers include Indiana University in Indianapolis, University of California in Irvine and Brooke Army Medical Center in San Antonio, TX. As mentioned last year, downward cost pressure due to ongoing healthcare reform continues to shift clinical diagnostic testing from small to very large laboratories in Europe and parts of Asia. In other parts of the world, a growing and more affluent middle class continues to spur demand for lab procedures, leading to dynamic growth of commercial and contract lab services. We expect these changes to create an ongoing opportunity for high-capacity systems that automate frequently ordered tests such as urinalysis. In 2000, sales efforts commenced in the U.K., Holland, Greece, Romania and Hong Kong. In addition, we have added distributors in Malaysia, Singapore, Thailand and Korea. As a result, we remain excited about the opportunities for growth in international sales. Small Laboratory Devices Business Segment. In 2000, StatSpin sales increased 17% over the prior year. Most of this growth was due to accelerated placement of new centrifuges by our primary veterinary OEM partner. This distributor placed 2,400 instruments in the domestic veterinary market in 2000. Our OEM business increased 55%, primarily attributable to this and one other major account. International sales for StatSpin were disappointing, down 13% overall. About 25% of this shortfall was due to a decrease in demand for CenSlide products in Turkey. As a result of intensive review of our distributor support infrastructure and system, we closed our UK office and consolidated worldwide operations at our Norwood facility, where we will better support and manage the business. With new marketing management, we are optimistic for renewed international growth at StatSpin in 2001. We successfully launched our new digital Hematocrit reader in July, and recently entered into a private label agreement with a major U.S. healthcare distributor on the plastic micro hematocrit tubes that work with the new digital reader. We also completed development on a new line of veterinary centrifuges which we expect to launch in 2001. Patents and Royalties. By the end of 2000, our intellectual property portfolio included 49 international patents and 44 U.S. patents, of which 24 patents relate to our Automated Intelligent Microscopy (AIM) technology. Presently, we have three pending U.S. and five pending foreign applications. Our proprietary technology was the basis for $601,511 of royalties received during 1999. Corporate Finance. Cash flow management and adequate debt service are crucial for IRIS. During 2000, we maintained positive cash flow and reduced our debt by another $1.2 million. In the first quarter of this year, we successfully refinanced our $7 million subordinated term loan which was originally due on July 31, 2001. We now expect to pay off this debt over the next three years with cash from operations. Goals for Year 2001 Except for the divestiture of Perceptive Scientific Instruments, which has been completed, last year goals continue through this year. In addition, we plan to substantially reduce our debt, effectively manage our increased investment in product development, improve our field service response time, implement a fully automated marketing, sales and service management interactive database system, and be well on our way toward obtaining ISO 9000 certification for both our Chatsworth and Norwood facilities. With ISO 9000 certification, IRIS will meet European Union regulatory guidelines for distribution of both equipment and consumable product lines. The Annual Meeting of Stockholders will be held at the Radisson Hotel (previously called the Chatsworth Hotel) located at 9777 Topanga Canyon Boulevard, Chatsworth, CA, about one mile north and one mile west of our facilities. The meeting is Friday, June 1, 2001, beginning 3:00 p.m. local time. The Board of Directors and management of IRIS invite and welcome your participation. Once again, please realize that this annual message represents my sincere and honest reflection on the past year at IRIS and some assessments of our future prospects. Of course, many of the statements are forward-looking in nature and as a result are inherently subject to the vagaries of future events, which, as you know, are often unpredictable. Again, I refer you to the more detailed Annual Report on Form 10-K for a fuller discussion of the opportunities, challenges and risks that confront us in 2001. Sincerely, JOHN A. O'MALLEY John A. O'Malley |
||||||||||||||||||||||||||||||
