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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______TO________
COMMISSION FILE NUMBER: 0-26520
NEOPROBE CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 31-1080091
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
425 METRO PLACE NORTH, SUITE 300, DUBLIN, OHIO 43017
(Address of principal executive offices)
614.793.7500
(Issuer's telephone number)
26,266,770 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE
(Number of shares of issuer's common equity outstanding as of
the close of business on April 30, 2001)
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOPROBE CORPORATION
BALANCE SHEETS
ASSETS MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED)
---------- ----------
Current assets:
Cash and cash equivalents $3,760,004 $4,643,347
Accounts receivable, net 488,617 365,061
Inventory 1,302,815 941,120
Prepaid expenses and other 129,494 234,232
---------- ----------
Total current assets 5,680,930 6,183,760
---------- ----------
Property and equipment 2,077,022 2,039,187
Less accumulated depreciation and amortization 1,250,103 1,174,167
---------- ----------
826,919 865,020
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Intangible assets, net 527,204 524,035
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Total assets $7,035,053 $7,572,815
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CONTINUED
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NEOPROBE CORPORATION
BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED)
------------- -------------
Current liabilities:
Notes payable to finance company $ 60,764 $ 105,332
Capital lease obligations, current 11,729 11,359
Accrued liabilities 735,238 725,674
Accounts payable 350,010 731,985
Deferred license revenue, current 800,000 800,000
------------- -------------
Total current liabilities 1,957,741 2,374,350
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Capital lease obligations 29,851 32,926
Deferred license revenue 2,000,000 2,200,000
------------- -------------
Total liabilities 3,987,592 4,607,276
------------- -------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares
authorized at March 31,2001 and December 31, 2000;
none issued and outstanding (500,000 shares
designated as Series A, $.001 par value, at March 31, 2001 and
and December 31, 2000; none outstanding) -- --
Common stock; $.001 par value; 50,000,000 shares
authorized; 26,265,770 shares issued and
outstanding at March 31, 2001; 26,264,103
shares issued and outstanding at December 31, 2000 26,266 26,264
Additional paid-in capital 120,669,471 120,668,639
Accumulated deficit (117,648,276) (117,729,364)
------------- -------------
Total stockholders' equity 3,047,461 2,965,539
------------- -------------
Total liabilities and stockholders' equity $ 7,035,053 $ 7,572,815
============= =============
See accompanying notes to the financial statements
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NEOPROBE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2001 2000
------------ ------------
Revenues:
Net sales $ 1,394,469 $ 1,605,811
License revenue 225,000 250,000
------------ ------------
Total revenues 1,619,469 1,855,811
------------ ------------
Cost of goods sold 948,247 837,614
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Gross profit 671,222 1,018,197
------------ ------------
Operating expenses:
Research and development 74,174 294,045
Marketing and selling -- 110,882
General and administrative 570,308 668,342
------------ ------------
Total operating expenses 644,482 1,073,269
------------ ------------
Income (loss) from operations 26,740 (55,072)
------------ ------------
Other income (expense):
Interest income 50,155 45,361
Interest expense (3,134) (10,056)
Other 7,327 (7,095)
------------ ------------
Total other income 54,348 28,210
------------ ------------
Net income (loss) 81,088 (26,862)
------------ ------------
Loss on retirement of preferred stock -- 764,668
------------ ------------
Income (loss) attributable to common stockholders $ 81,088 $ (791,530)
============ ============
Income (loss) per common share:
Basic $ -- $ (0.03)
Diluted $ -- $ (0.03)
Weighted average shares outstanding:
Basic 25,894,955 25,394,727
Diluted 26,086,569 25,394,727
See accompanying notes to the financial statements
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NEOPROBE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2001 2000
----------- ------------
Cash flows from operating activities:
Net income (loss) $ 81,088 $ (26,862)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 103,131 83,131
Change in operating assets and liabilities:
Accounts receivable (123,556) (778,805)
Inventory (409,228) 645,763
Accounts payable (381,975) (308,677)
Deferred license revenue (200,000) (200,000)
Other assets and liabilities 114,103 (127,090)
----------- -----------
Net cash used in operating activities (816,437) (712,540)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of investment in affiliate -- 1,500,000
Purchases of property and equipment (12,551) (12,055)
Proceeds from sales of property and equipment 925 820
Patent costs (8,842) (6,790)
----------- -----------
Net cash (used in) provided by investing activities (20,468) 1,481,975
----------- -----------
Cash flows from financing activities:
Settlement of obligation to preferred stockholder -- (2,500,000)
Proceeds from issuance of common stock, net 834 33,909
Payments under line of credit -- (380,000)
Payment of notes payable (44,568) (65,565)
Payments under capital leases (2,704) (25,347)
----------- -----------
Net cash used in financing activities (46,438) (2,937,003)
----------- -----------
Net decrease in cash and cash equivalents (883,343) (2,167,568)
Cash and cash equivalents, beginning of period 4,643,347 4,882,537
----------- -----------
Cash and cash equivalents, end of period $ 3,760,004 $ 2,714,969
=========== ===========
See accompanying notes to the financial statements
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NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The information presented for March 31, 2001 and 2000, and for the periods
then ended is unaudited, but includes all adjustments (which consist only
of normal recurring adjustments) which the management of Neoprobe
Corporation (Neoprobe or the Company) believes to be necessary for the fair
presentation of results for the periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission. The results for the interim period are
not necessarily indicative of results to be expected for the year. The
financial statements should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 2000, which
were included as part of the Company's Annual Report on Form 10-KSB.
2. COMPREHENSIVE INCOME (LOSS):
The Company had no accumulated other comprehensive income (loss) activity
during the three-month periods ended March 31, 2001 and 2000.
3. EARNINGS PER SHARE:
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the periods. Diluted earnings per share is
calculated using the weighted average number of common shares outstanding
during the periods, adjusted for the effects of convertible securities,
options and warrants, if dilutive.
THREE MONTHS ENDED
MARCH 31, 2001
--------------------------------
BASIC DILUTED
EARNINGS EARNINGS
PER SHARE PER SHARE
----------- -----------
Outstanding shares 26,265,770 26,265,770
Effect of weighting changes
in outstanding shares (815) (815)
Contingently issuable shares (370,000) (370,000)
Stock options -- 191,614
----------- -----------
Adjusted shares 25,894,955 26,086,569
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The following table summarizes options to purchase common stock of the
Company which were outstanding during the three-month period ended March
31, 2001, but which were not included in the computation of diluted income
per share because their effect was anti-dilutive.
THREE MONTHS ENDED
MARCH 31, 2001
--------------------------------
EXERCISE OPTIONS
PRICE OUTSTANDING
--------------- -----------
$0.41 - $1.25 405,972
$1.50 - $2.50 227,520
$3.25 - $6.00 269,700
$13.38 - $15.75 92,500
-------
995,692
========
There is no difference in basic and diluted earnings per share for the
Company related to the three months ended March 31, 2000. The net loss per
common share for this period excludes the number
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of common shares issuable upon exercise of outstanding stock options and
warrants into the Company's common stock since such inclusion would be
anti-dilutive.
4. INVENTORY:
The components of inventory are as follows:
MARCH 31, DECEMBER 31,
2001 2000
----------- ----------
Materials and component parts $ 779,331 $ 418,087
Finished goods 702,644 696,432
Less obsolescence reserve (179,160) (173,399)
----------- ----------
$1,302,815 $ 941,120
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5. LINE OF CREDIT:
On January 26, 2001, the Company entered into a revolving credit facility
with a bank. The facility provides for a maximum line of credit of $1.5
million. Availability under the facility is based on an advance formula of
eligible accounts receivable and eligible inventory. Borrowings under the
facility bear interest based on the bank's prime rate and are
collateralized by accounts receivable, inventory and property and equipment
of the Company. The facility contains financial covenants including, but
not limited to, current ratio and fixed charge coverage ratio. The Company
is required to maintain a compensating balance of $250,000 and to pay a
commitment fee of 0.25% per annum on the unused portion of the maximum
potential balance. The facility matures on January 26, 2002. There were no
borrowings outstanding under the facility as of March 31, 2001.
6. INCOME TAXES:
For the quarter ended March 31, 2001, the reversal of certain temporary
differences related to accrued expenses and deferred revenue resulted in
the generation of a loss for income tax purposes. As a result, no income
tax expense is reflected in the statement of operations for the quarter
ended March 31, 2001.
7. STOCK OPTIONS:
During the first quarter of 2001, the Board of Directors granted options to
employees and certain directors of the Company for 700,000 shares of common
stock, exercisable at an average price of $0.42 per share, vesting over
three years. As of March 31, 2001, the Company has 2.3 million options
outstanding under two stock option plans. Of the outstanding options,
874,000 options have vested as of March 31, 2001, at an average exercise
price of $3.85 per share.
8. SEGMENT INFORMATION:
The Company owns or has rights to intellectual property involving three
primary areas of cancer diagnosis and treatment including: hand-held gamma
detection instruments currently used primarily in the application of
intraoperative lymphatic mapping (ILM), diagnostic radiopharmaceutical
products to be used in the Company's proprietary RIGS(R) process, and
activated cellular therapy (ACT). During 1998, the Company's business plan
suspended ongoing research activities related to RIGS and ACT to allow the
Company to focus primarily on the hand-held gamma detection instruments
while efforts are carried out to find partners or licensing parties to fund
future RIGS and ACT research and development. The Company generated $25,000
and $50,000 in revenue during the first quarters of 2001 and 2000,
respectively, under an option agreement to license its RIGS technology, but
incurred no RIGS-related expenses during those periods. The Company had no
revenue or expenses in either
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the first quarter of 2001 or 2000 related to its ACT initiative. All other
revenue and costs included in the Company's financial statements for the
quarters ended March 31, 2001 and March 31, 2000 relate primarily to the
Company's ILM initiative.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the first quarter of 2001 decreased $236,000 to $1.6 million from
$1.9 million for the same period in 2000. Research and development expenses
during the first quarter of 2001 were $74,000 or 12% of operating expenses for
the quarter. General and administrative expenses were $570,000 or 88% of
operating expenses for the quarter. Overall, operating expenses for the first
quarter of 2001 decreased $429,000 or 40% over the same quarter in 2000. The
Company anticipates that total operating expenses for the remaining quarters of
2001 will be consistent with first quarter 2001 levels, except for research and
development expenses that are expected to increase as a result of efforts to
increase the product pipeline.
Three months ended March 31, 2001 and 2000
Revenues and Margins. Net product sales decreased $211,000 or 13% to $1.4
million during the first quarter of 2001 from $1.6 million during the same
period in 2000. Gross margins on product sales decreased to 32% of net sales for
the first quarter of 2001 from 48% of net sales for the same period in 2000. The
declines in net product sales and gross margin were the combined result of lower
sales volumes in the first quarter of 2001 and decreases in product transfer
prices as compared to the first quarter of 2000. The lower sales volumes in the
first quarter of 2001 are primarily attributable to delays in contract
manufacturer component deliveries that have since been corrected. The decline in
gross margin on net product sales is primarily attributable to decreases in the
transfer prices at which the Company sells its products to Ethicon.
The Company's transfer prices to Ethicon are determined based on a percentage of
the end customer average sales prices (ASP) on products sold by Ethicon, subject
to certain floor pricing terms. The Company's distribution agreement with
Ethicon provided for a lower percentage of ASP to be shared with the Company
following the first full commercial year of the distribution agreement that
ended December 31, 2000. The Company does not expect the percentage of ASP that
it receives to decline further; however, the ASP on which the percentage is
based may decline depending on end customer price erosion, if any, that may be
experienced by Ethicon. A decline in the ASP could negatively impact revenue and
gross margins on net product sales. In addition, the cost to manufacture the
Company's products also increased slightly from 2000 to 2001 due largely to
higher electronic and crystal component costs.
Revenues in the first quarters of 2001 and 2000 included $200,000 from the
pro-rata recognition of license fees related to the distribution agreement with
Ethicon and $25,000 and $50,000, respectively, from the recognition of milestone
fees related to an option agreement to license certain of the Company's RIGS
technology.
Research and Development Expenses. Research and development expenses decreased
$220,000 or 75% to $74,000 during the first quarter of 2001 from $294,000 during
the same period in 2000. The decrease is primarily due to the inclusion of
$40,000 in non-recurring severance costs and $150,000 in unreimbursed costs for
development of products in 2000.
Marketing and Selling Expenses. Marketing and selling expenses decreased 100%
during the first quarter of 2001 from $111,000 during the same period in 2000
due to entering into the distribution agreement with Ethicon. The first quarter
of 2000 also included approximately $40,000 in non-recurring severance charges
related to the separation of marketing personnel.
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General and Administrative Expenses. General and administrative expenses
decreased $98,000 or 15% to $570,000 during the first quarter of 2001 from
$668,000 during the same period in 2000. The decrease was primarily a result of
reductions in overhead costs such as space costs, taxes and insurance.
Other Income. Other income increased $26,000 or 93% to $54,000 during the first
quarter of 2001 from $28,000 during the same period in 2000. Other income during
the first quarters of 2001 and 2000 consisted primarily of interest income. The
Company's interest income increased due to increased overall average levels of
cash and investments during the first quarter of 2001 as compared to the same
period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Cash used in operations increased $104,000 to $816,000
during the first quarter of 2001 from $713,000 during the same period in 2000.
Working capital decreased to $3.7 million at March 31, 2001 as compared to $3.8
million at December 31, 2000. The current ratio increased to 2.9 at March 31,
2001 from 2.6 at December 31, 2000. The decrease in working capital was
primarily related to lower earnings in the first quarter of 2001 coupled with
higher overall working capital requirements.
Accounts receivable increased to $489,000 at March 31, 2001 from $365,000 at
December 31, 2000. Inventory levels increased to $1.3 million at March 31, 2001
as compared to $941,000 at December 31, 2000. Inventory at March 31, 2001 and
December 31, 2000 included safety stock of finished goods as well as critical
component and long lead-time raw materials to ensure uninterrupted product
supply to Ethicon. The Company expects receivables levels to fluctuate in 2001
depending on the timing of purchases by Ethicon. Inventory may increase slightly
as the Company continues to evaluate appropriate component and finished good
safety stock levels and endeavors to optimize production activities.
Investing Activities. Cash used in investing activities in the first quarter of
2001 totaled $20,000 versus $1.5 million provided by investing activities during
the same period in 2000. During January 2000, the Company sold an investment in
an Israeli biotechnology company for $1.5 million. Capital expenditures in the
first quarters of 2001 and 2000 were split between purchases of production tools
and equipment and technology infrastructure but were offset by the sale of
excess furniture and fixtures accumulated from prior year headcount reductions.
Capital needs for 2001 are expected to be consistent with those in 2000.
Financing Activities. Financing activities used $46,000 in cash in the first
quarter of 2001 versus $2.9 million during the same period in 2000. During the
first quarter of 2000, the Company paid holders of Series B preferred stock $2.5
million in cash and issued them 3 million each of common shares and warrants to
purchase common shares in exchange for retiring the outstanding preferred
shares.
During January 2001, the Company executed a revolving line of credit with a bank
that will provide the Company with access to up to $1.5 million to finance
general working capital needs, subject to certain terms and covenants. The
Company does not anticipate significant draws on the line of credit during 2001.
New Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
133, Accounting For Derivative Instruments and Hedging Activities. SFAS No. 133
was originally required to be adopted in years beginning after June 15, 1999;
however, SFAS No. 137 deferred the effective date to fiscal quarters of fiscal
years beginning after June 15, 2000. The Company adopted SFAS No. 133 and a
second related amendment, SFAS No. 138 effective January 1, 2001. The Statement
requires companies to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedge asset, liability or firm commitment through
earnings, or recognized in other comprehensive income until the hedge item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The adoption of this Statement
has had no significant impact on the Company's results of operations or
financial position.
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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward-looking statements made by or on behalf of our Company. Our
Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other Company filings with the Securities and Exchange Commission and in our
reports to shareholders. Statements which relate to other than strictly
historical facts, such as statements about the Company's plans and strategies,
expectations for future financial performance, new and existing products and
technologies, and markets for the Company's products are forward-looking
statements within the meaning of the Act. Generally, the words "believe,"
"expect," "intend," "estimate," "anticipate," "will" and other similar
expressions identify forward-looking statements. The forward-looking statements
are and will be based on management's then current views and assumptions
regarding future events and operating performance, and speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The following are some of the factors that could affect our financial
performance or could cause actual results to differ materially from estimates
contained in or underlying our Company's forward-looking statements:
o Neoprobe has suffered significant operating losses for several years in its
history and it may not be able to continue to achieve profitability.
o Neoprobe products may not achieve the broad market acceptance they need in
order to be a commercial success.
o Neoprobe relies on a third party for its worldwide marketing and
distribution, who may not be successful in selling Neoprobe's products.
o Neoprobe relies on third parties to manufacture its products and Neoprobe
will suffer if they do not perform.
o Neoprobe may have difficulty raising additional capital, which could
deprive it of necessary resources.
o Neoprobe may lose out to larger and better-established competitors.
o Neoprobe's products may be displaced by newer technology.
o Neoprobe is in a highly regulated business and it could face severe
problems if does not comply with all regulatory requirements in the global
markets in which Neoprobe's products are sold.
o Neoprobe's intellectual property may not have or provide sufficient legal
protections against infringement or loss of trade secrets.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) LIST OF EXHIBITS
10. MATERIAL CONTRACTS
Exhibit 10.4.46
Revolving Credit Loan Agreement between the Company and Firstar Bank,
N.A. dated January 26, 2001.
Page 13 in the manually signed original.
Exhibit 10.4.47
Revolving Credit Loan Note between the Company and Firstar Bank, N.A.
dated January 26, 2001.
Page 51 in the manually signed original.
Exhibit 10.4.48
Continuing Security Agreement between the Company and Firstar Bank,
N.A. dated January 26, 2001.
Page 53 in the manually signed original.
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11.1
Computation of Income (Loss) Per Share.
Page 70 in the manually signed original.
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(b) REPORTS ON FORM 8-K
No current report on Form 8-K was filed by the Company during the
first quarter of fiscal 2001.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEOPROBE CORPORATION
(the Company)
Dated: May 11, 2001
By: /s/ DAVID C. BUPP
-------------------
David C. Bupp
President and Chief Executive Officer
(duly authorized officer;
principal executive officer)
By: /s/ BRENT L. LARSON
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Brent L. Larson
Vice President, Finance and Chief
Financial Officer
(principal financial and accounting officer)
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