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, 2002
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)
36,450,067 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 26, 2002)
Transitional Small Business Disclosure Format (check one) Yes | | No |X|
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, DECEMBER 31,
2002 2001
(UNAUDITED)
---------- -----------
Current assets:
Cash and cash equivalents $1,206,739 $ 4,287,101
Available-for-sale securities 2,473,870 --
Accounts receivable, net 186,006 561,129
Inventory 1,323,490 1,430,908
Prepaid expenses and other 166,787 268,445
---------- -----------
Total current assets 5,356,892 6,547,583
---------- -----------
Property and equipment 2,212,178 2,171,788
Less accumulated depreciation and amortization 1,606,895 1,502,676
---------- -----------
605,283 669,112
---------- -----------
Patents and trademarks 3,187,510 3,183,639
Non-compete agreements 603,880 603,880
Acquired technology 245,131 245,131
---------- -----------
4,036,521 4,032,650
Less accumulated amortization 267,386 122,697
---------- -----------
3,769,135 3,909,953
---------- -----------
Other assets 211,041 202,258
---------- -----------
Total assets $9,942,351 $11,328,906
========== ===========
CONTINUED
2
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, DECEMBER 31,
2002 2001
(UNAUDITED)
------------- -------------
Current liabilities:
Notes payable to finance company $ 95,325 $ 161,865
Capital lease obligations, current 13,335 12,914
Accrued liabilities 907,661 1,011,495
Accounts payable 286,209 489,688
Deferred license revenue, current 800,000 800,000
------------- -------------
Total current liabilities 2,102,530 2,475,962
------------- -------------
Capital lease obligations 16,515 20,011
Deferred license revenue 1,200,000 1,400,000
Contingent consideration for acquisition 429,776 453,602
Other liabilities 130,644 75,493
------------- -------------
Total liabilities 3,879,465 4,425,068
------------- -------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares
authorized at March 31, 2002 and December 31, 2001;
none issued and outstanding (500,000 shares designated
as Series A, $.001 par value, at March 31, 2002 and
and December 31, 2001; none outstanding) -- --
Common stock; $.001 par value; 50,000,000 shares
authorized; 36,449,067 shares issued and
outstanding at March 31, 2002; and at
December 31, 2001 36,449 36,449
Additional paid-in capital 124,592,341 124,581,800
Accumulated deficit (118,559,536) (117,714,411)
Unrealized loss on available-for-sale securities (6,368) --
------------- -------------
Total stockholders' equity 6,062,886 6,903,838
------------- -------------
Total liabilities and stockholders' equity $ 9,942,351 $ 11,328,906
============= =============
See accompanying notes to the financial statements
3
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2002 2001
------------ ------------
Revenues:
Net sales $ 735,304 $ 1,395,669
License revenue and other 325,000 350,000
------------ ------------
Total revenues 1,060,304 1,745,669
------------ ------------
Cost of goods sold 493,510 948,830
------------ ------------
Gross profit 566,794 796,839
------------ ------------
Operating expenses:
Research and development 539,756 199,791
Selling, general and administrative 874,807 570,109
------------ ------------
Total operating expenses 1,414,563 769,900
------------ ------------
(Loss) income from operations (847,769) 26,939
------------ ------------
Other income (expense):
Interest income 16,952 50,155
Interest expense (2,835) (3,134)
Other (11,473) 7,128
------------ ------------
Total other income 2,644 54,149
------------ ------------
Net (loss) income $ (845,125) $ 81,088
============ ============
(Loss) income per common share:
Basic $ (0.02) $ --
Diluted $ (0.02) $ --
Weighted average shares outstanding:
Basic 36,009,067 25,894,955
Diluted 36,009,067 26,086,569
See accompanying notes to the financial statements
4
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net (loss) income $ (845,125) $ 81,088
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 248,912 103,131
Change in operating assets and liabilities:
Accounts receivable 393,089 (123,556)
Inventory 100,229 (409,228)
Accounts payable (207,356) (381,975)
Deferred license revenue (200,000) (200,000)
Other assets and liabilities 50,316 114,103
------------ ------------
Net cash used in operating activities (459,935) (816,437)
------------ ------------
Cash flows from investing activities:
Purchases of available-for-sale securities (2,491,361) --
Purchases of property and equipment (29,328) (12,551)
Proceeds from sales of property and equipment -- 925
Patent and trademark costs (3,871) (8,842)
Subsidiary acquisition costs (23,826) --
------------ ------------
Net cash used in investing activities (2,548,386) (20,468)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- 834
Payment of offering costs (2,426) --
Payment of notes payable (66,540) (44,568)
Payments under capital leases (3,075) (2,704)
------------ ------------
Net cash used in financing activities (72,041) (46,438)
------------ ------------
Net decrease in cash and cash equivalents (3,080,362) (883,343)
Cash and cash equivalents, beginning of period 4,287,101 4,643,347
------------ ------------
Cash and cash equivalents, end of period $ 1,206,739 $ 3,760,004
============ ============
See accompanying notes to the financial statements
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information presented for March 31, 2002 and 2001, and for the periods
then ended is unaudited, but includes all adjustments (which consist only
of normal recurring adjustments) that the management of Neoprobe
Corporation (Neoprobe, we 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, 2001, which were included as part of the Company's
Annual Report on Form 10-KSB. Certain 2001 amounts have been reclassified
to conform with the 2002 presentation (see Note 10).
The consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiary, Cardiosonix Ltd.
(Cardiosonix) beginning December 31, 2001 (see Note 10). All significant
inter-company accounts were eliminated in consolidation.
2. COMPREHENSIVE INCOME (LOSS)
Due to the Company's net operating loss position, there are no income tax
effects on comprehensive income (loss) components for the three months
ended March 31, 2002.
THREE MONTHS
ENDED
MARCH 31, 2002
--------------
Net loss $845,125
Unrealized losses on securities 6,368
--------
Other comprehensive loss $851,493
========
The Company had no accumulated other comprehensive income (loss) activity
during the three-month period ended March 31, 2001.
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 THREE MONTHS ENDED
MARCH 31, 2002 MARCH 31, 2001
------------------------------- -----------------------------
BASIC DILUTED BASIC DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE
----------- ----------- ----------- -----------
Outstanding shares 36,449,067 36,449,067 26,265,770 26,265,770
Effect of weighting changes
in outstanding shares -- -- (815) (815)
Contingently issuable shares (440,000) (440,000) (370,000) (370,000)
Stock options -- -- -- 191,614
----------- ----------- ----------- -----------
Adjusted shares 36,009,067 36,009,067 25,894,955 26,086,569
=========== =========== =========== ===========
6
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, 2002. The net loss per
common share for this period excludes the number 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,
2002 2001
---------- ------------
Materials and component parts $ 804,811 $ 807,393
Work in process 147,572 --
Finished goods 371,107 623,515
---------- ----------
$1,323,490 $1,430,908
========== ==========
5. LINE OF CREDIT
During February 2002, the Company entered into a line of credit facility
with an investment management company. The facility provides for a maximum
line of credit of $2.0 million and is fully collateralized by pledged cash
and investments on deposit with the investment management company.
Availability under the facility is based on advance rates varying from 80%
to 92% of the underlying available collateral. Outstanding amounts under
the facility bear interest at LIBOR plus 175 basis points. The facility
expires in February 2007. There was no outstanding balance under the line
of credit as of March 31, 2002.
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. All of the Company's net deferred tax assets have
been fully offset by a valuation allowance.
7
7. STOCK OPTIONS
During the first quarter of 2002, the Board of Directors granted options
to employees and certain directors of the Company to purchase 890,000
shares of common stock, exercisable at an average price of $0.42 per
share, vesting over three years. As of March 31, 2002, the Company has 2.8
million options outstanding under two stock option plans. Of the
outstanding options, 1.0 million options have vested as of March 31, 2002,
at an average exercise price of $0.88 per share.
8. AGREEMENTS
During January 2002, the Company completed a license agreement with the
University of California, San Diego (UCSD) for a proprietary compound that
the Company believes could be used as a lymph node locating agent in
intraoperative lymphatic mapping (ILM) procedures. The license agreement
is effective until the later of the expiration date of the longest-lived
underlying patent or January 30, 2023. Under the terms of the license
agreement, UCSD has granted the Company the exclusive rights to make, use,
sell, offer for sale and import Licensed Products as defined in the
agreement and to practice the defined Licensed Methods during the term of
the agreement. The Company may also sublicense the Patent Rights, subject
to the approval of certain sublicense terms by UCSD. In consideration for
the license rights, the Company agreed to pay UCSD a license issue fee of
$25,000 and license maintenance fees of $25,000 per year. The Company also
agreed to pay UCSD milestone payments related to successful regulatory
clearance for marketing of the Licensed Products, a royalty on Net Sales
of Licensed Products subject to a $25,000 minimum annual royalty, fifty
percent of all sublicense fees and fifty percent of sublicense royalties.
The Company also agreed to reimburse UCSD for all patent-related costs.
UCSD also has the right to terminate the agreement or change the nature of
the agreement to a non-exclusive agreement if the Company is determined
not to have been diligent in developing and commercializing the covered
products, not marketing the products within six months of receiving
regulatory approval, reasonably filling market demand or obtaining all the
necessary government approvals.
9. SEGMENT AND SUBSIDIARY INFORMATION
The Company owns or has rights to intellectual property involving two
primary types of medical diagnostic products, including gamma detection
instruments currently used primarily in the application of ILM, and blood
flow measurement devices.
8
The information in the following table is derived directly from the
segment's internal financial reporting used for corporate management
purposes. Selling, general and administrative costs, including
amortization, interest and other costs that relate primarily to corporate
activity, are not currently allocated to the operating segments.
($ AMOUNTS IN THOUSANDS) GAMMA BLOOD
THREE MONTHS ENDED MARCH 31, 2002 DETECTION FLOW UNALLOCATED TOTAL
--------- ---- ----------- -----
Net sales:
United States(1) $ 676 $ -- $ -- $ 676
International 59 -- -- 59
License revenue and other 325 -- -- 325
Research and development expenses 283 256 -- 540
Selling, general and administrative expenses -- -- 875 875
Income (loss) from operations(2) 284 (256) (875) (848)
Other income -- -- 3 3
THREE MONTHS ENDED MARCH 31, 2001
Net sales:
United States(1) $1,328 $ -- $ -- $ 1,328
International 68 -- -- 68
License revenue and other 350 -- -- 350
Research and development expenses 200 -- -- 200
Selling, general and administrative expenses -- -- 570 570
Income (loss) from operations(2) 597 -- (570) 27
Other income -- -- 54 54
(1) All sales to Ethicon are made in the United States. Ethicon
distributes the product globally through its international
affiliates.
(2) Income (loss) from operations does not reflect the allocation of
selling, general and administrative costs to the operating segments.
10. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
Under SFAS 141, any business combination initiated after June 30, 2001
must be accounted for as a purchase. For purchase business combinations
that are consummated after June 30, 2001, goodwill and identifiable
intangibles should be recorded and amortized in accordance with SFAS 142,
i.e., goodwill and intangible assets with indefinite lives are not
amortized and other identified intangibles are amortized. For any purchase
business combination consummated on or before June 30, 2001, the
accounting under APB 16 and APB 17 still applies. Goodwill and separately
identifiable intangibles should be recorded and amortized until adopting
SFAS 142, which is required for fiscal years beginning after December 15,
2001. A calendar year-end company would continue to amortize goodwill and
all separately identifiable intangibles through December 31, 2001. Upon
adoption of SFAS 142, a company would cease amortizing goodwill and
separately identifiable intangibles with indefinite lives and amortize
other identifiable intangibles in accordance with the guidelines set forth
in the standard. The Company adopted SFAS 141 and SFAS 142 as of December
31, 2001 related to its acquisition of Cardiosonix. The adoption of these
pronouncements resulted in recording $3.5 million of acquired intangible
assets with a weighted average useful life of approximately 13 years.
During the first quarter of 2002, the Company recorded $90,000 in
amortization expense that is included in selling, general and
administrative expenses, and recorded a purchase price adjustment of
$24,000 to the contingent consideration liability related to net
acquisition costs in excess of initial estimates.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes both SFAS
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of and the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations--Reporting the
Effects
9
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business (as previously defined in that Opinion). SFAS 144
retains the fundamental provisions in SFAS 121 for recognizing and
measuring impairment losses on long-lived assets held for use and
long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS 121. For example,
SFAS 144 provides guidance on how a long-lived asset that is used as part
of a group should be evaluated for impairment, establishes criteria for
when a long-lived asset is held for sale, and prescribes the accounting
for a long-lived asset that will be disposed of other than by sale. SFAS
144 retains the basic provisions of APB 30 on how to present discontinued
operations in the income statement but broadens that presentation to
include a component of an entity (rather than a segment of a business).
Unlike SFAS 121, an impairment assessment under SFAS 144 will never result
in a write-down of goodwill. Rather, goodwill is evaluated for impairment
under SFAS 142, Goodwill and Other Intangible Assets.
The Company adopted the provisions of SFAS 144 for the quarter ended March
31, 2002. Management does not expect the adoption of SFAS 144 for
long-lived assets held for use to have a material impact on the Company's
financial statements because the impairment assessment under SFAS 144 is
largely unchanged from SFAS 121. The provisions of the Statement for
assets held for sale or other disposal generally are required to be
applied prospectively after the adoption date to newly initiated disposal
activities. The adoption of SFAS 144 did not have a material effect on the
Company's financial statements for the first quarter of 2002.
In November 2001, the Emerging Issues Task Force of the FASB issued Topic
D-103, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred. The FASB is requiring Topic D-103 be
applied in financial reporting periods beginning after December 15, 2001.
Topic D-103 requires companies to characterize reimbursements received for
out-of-pocket expenses as revenue. The adoption of Topic D-103
requirements resulted in the reclassification of the $125,000
reimbursement by Ethicon of certain research and development charges from
research and development expenses to license revenue and other for all
periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the first quarter of 2002 decreased $685,000 to $1.1 million from
$1.7 million for the same period in 2001. Research and development expenses
during the first quarter of 2002 were $540,000 or 38% of operating expenses for
the quarter. Selling, general and administrative expenses were $875,000 or 62%
of operating expenses for the quarter. Overall, operating expenses for the first
quarter of 2002 increased $645,000 or 84% over the same quarter in 2001. The
Company anticipates that total operating expenses for the remaining quarters of
2002 will be consistent with first quarter 2002 levels, except for research and
development expenses that are expected to increase as a result of efforts to
bring the first of the blood flow measurement devices to market.
Three months ended March 31, 2002 and 2001
Net Sales and Margins. Net product sales decreased $660,000 or 47% to $735,000
during the first quarter of 2002 from $1.4 million during the same period in
2001. Gross margins on product sales remained constant at 33% of net sales for
the first quarter of 2002 compared to 32% of net sales for the same period in
2001. The decline in net product sales was the result of lower unit sales in
the first quarter of 2002 as compared to the first quarter of 2001. The Company
did not ship all of the units originally committed to be purchased by our
primary marketing partner, Ethicon Endo-Surgery, Inc. (Ethicon) due to delays in
the transfer of manufacturing of the Company's neo2000(R) system to a new
contract manufacturer. The transfer delays, coupled with declines in demand
primarily associated with the Company's BlueTip(TM) probes from Ethicon and
Ethicon's overstock position, decreased revenue for the quarter below prior
years and current year expectations. Neoprobe initiated the manufacturing
transfer in the fourth quarter of 2001 in order to achieve cost reduction and
quality improvements. As a result of the technical delays in the transfer
process, Neoprobe agreed with Ethicon to spread the delivery of committed units
not shipped during the first quarter over the rest of the year.
10
License Revenue and Other. License revenue and other in the first quarters of
2002 and 2001 included $200,000 from the pro-rata recognition of license fees
related to the distribution agreement with Ethicon and $125,000 from the
reimbursement by Ethicon of certain product development costs.
Research and Development Expenses. Research and development expenses increased
$340,000 or 170% to $540,000 during the first quarter of 2002 from $200,000
during the same period in 2001. The increase is primarily due to the product
development efforts of Cardiosonix, additional Neoprobe headcount to support
Cardiosonix activities, and $55,000 in gamma detection drug development costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $305,000 or 53% to $875,000 during the first
quarter of 2002 from $570,000 during the same period in 2001. The increase was
primarily a result of the general and administrative costs incurred in the
operation of Cardiosonix, increased professional services incurred by the
Company related to Cardiosonix, the transfer of manufacturing of certain
components of the neo2000 gamma detection system to a new contract manufacturer,
and $45,000 in impairment of intellectual property that the Company did not
believe had ongoing value to the business.
Other Income. Other income decreased $52,000 or 95% to $3,000 during the first
quarter of 2002 from $54,000 during the same period in 2001. Other income during
the first quarters of 2002 and 2001 consisted primarily of interest income. The
Company's interest income decreased because the Company received a lower
interest rate on its cash and investments during the first quarter of 2002 as
compared to the same period in 2001, consistent with marketplace activity over
the two periods.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Cash used in operations decreased $357,000 to $460,000
during the first quarter of 2002 from $816,000 during the same period in 2001.
Working capital decreased $817,000 to $3.3 million at March 31, 2002 as compared
to $4.1 million at December 31, 2001. The current ratio decreased slightly to
2.5 at March 31, 2002 from 2.6 at December 31, 2001. The decrease in working
capital was primarily related to cash used to fund development activities,
coupled with lower levels of accounts receivable and other working capital
components at March 31, 2002 as compared to December 2001.
Cash and investment balances decreased to $3.7 million at March 31, 2002 from
$4.3 million at December 31, 2001, primarily due to the requirements of
supporting the operations of Cardiosonix and the decrease in net sales during
the first quarter of 2002.
Accounts receivable decreased to $186,000 at March 31, 2002 from $561,000 at
December 31, 2001. The Company expects receivable levels to fluctuate in 2002
depending on the timing of purchases and payments by Ethicon.
Inventory levels decreased to $1.3 million at March 31, 2002 as compared to $1.4
million at December 31, 2001 as control unit safety stock was used up due to the
manufacturing transfer. During 2002, we will continue to work through our
carryover stock of certain long-lead gamma device components that were built up
during 2001 in order to take advantage of significant quantity price breaks. We
expect inventory levels to remain relatively steady in the second and third
quarters as the use of these long-lead components is offset by the
re-establishment of our control unit safety stock. Later in 2002, we will also
start to build inventory of blood flow products in preparation for commercial
launch.
The Company continues to anticipate it will need to fund up to $3.5 million in
development and market support costs during 2002 related to preparing for the
commercial launch of its blood flow product line, while the gamma detection
product line is still expected to be break-even.
Investing Activities. Cash used in investing activities increased to $2.5
million during the first quarter of 2002 from $20,000 during the same period in
2001. During February and March 2002, the Company invested in $2.5 million of
available for sale securities. Capital expenditures in the first quarters of
2002
11
and 2001 were split between purchases of production tools and equipment and
technology infrastructure. Capital needs for 2002 are expected to increase over
2001 to support instrument development and manufacturing activities, although it
is our intent to initially outsource manufacturing of blood flow products as is
currently done for our gamma devices.
Financing Activities. Financing activities used $72,000 in cash in the first
quarter of 2002 versus $46,000 during the same period in 2001. Payments of notes
payable were 50% higher during the first quarter of 2002 as compared to the same
period in 2001, due to the increased cost of financed insurance.
On November 19, 2001, the Company entered into a common stock purchase agreement
with an investment fund, Fusion Capital Fund II, LLC (Fusion) for the issuance
and purchase of Neoprobe common stock. Under the stock purchase agreement,
Fusion committed to purchase up to $10 million of Neoprobe common stock over a
forty-month period that commences in May 2002. A registration statement
registering for resale of up to 5 million shares of Neoprobe common stock was
declared effective on April 15, 2002. The Company will be able to request daily
draw downs, subject to a daily base amount, currently set at $12,500. The number
of shares the Company is to issue to Fusion in return for that money will be
based on the lower of (a) the closing sale price for Neoprobe common stock on
the day of the draw request or (b) the average of the three lowest closing sales
prices during a twelve day period prior to the draw request. No shares may be
sold to Fusion at lower than a floor price currently set at $0.30, but in no
case below $0.20 without Fusion's prior consent. Upon execution of the common
stock purchase agreement, the Company issued 449,438 shares of Neoprobe common
stock to Fusion as a commitment fee. The Company intends to draw on the equity
line to fund development and commercialization activities as market conditions
permit and as considered appropriate.
During February 2002, the Company entered into a line of credit facility with an
investment management company. The facility provides for a maximum line of
credit of $2.0 million and is fully collateralized by pledged cash and
investments on deposit with the investment management company. Availability
under the facility is based on advance rates varying from 80% to 92% of the
underlying available collateral. Outstanding amounts under the facility bear
interest at LIBOR plus 175 basis points. The facility expires in February 2007.
There was no outstanding balance under the line of credit as of March 31, 2002.
The Company believes its current cash position, cash expected to be provided
through sales of its gamma detection products, cash available from Fusion and
the line of credit are adequate to sustain the Company's planned blood flow and
gamma detection development and operations through the fourth quarter of 2002.
However, the Company's ability to execute its plans into 2003 significantly
depends on its ability to raise additional funds from sources other than
operations. The Company's future liquidity and capital requirements will depend
on a number of factors, including its ability to raise additional capital in a
timely manner through additional investment, expanded market acceptance of its
current products, its ability to commercialize new products such as its blood
flow product line, its ability to monetize its investment in non-core
technologies, its ability to obtain milestone or development funds from
potential development and distribution partners, regulatory actions by the FDA
and other international regulatory bodies, and intellectual property protection.
There can be no assurance that the additional capital the Company may require to
finance operations beyond 2002 will be available on acceptable terms, if at all.
Any failure to secure additional financing will force the Company to modify its
business plan. There can be no assurance that the Company will be able to
achieve significant product revenues from its current or potential new products.
In addition, there can be no assurance that the Company will achieve
profitability again in the future.
FORWARD-LOOKING STATEMENTS
Our company and its representatives may from time to
12
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 that relate
to other than strictly historical facts, such as statements about our plans and
strategies, expectations for future financial performance, new and existing
products and technologies, and markets for our products are forward-looking
statements. 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 our
management's then-current views and assumptions regarding future events and
operating performance, and speak only as of their dates. Investors are cautioned
that such statements involve risks and uncertainties that could cause actual
results to differ materially from historical or anticipated results due to many
factors including, but not limited to, our company's limited revenues,
accumulated deficit, future capital needs, uncertainty of capital funding,
dependence on limited product line and exclusive distributor, uncertainty of
market acceptance, competition, limited marketing and manufacturing
experience, and other risks detailed in our company's most recent Annual Report
on Form 10-KSB and other Securities and Exchange Commission filings. We
undertake no obligation to publicly update or revise any forward-looking
statements.
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PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) LIST OF EXHIBITS
None.
(b) REPORTS ON FORM 8-K
The registrant filed a current report on Form 8-K on January 8, 2002,
reporting its acquisition of Cardiosonix Ltd. (formerly Biosonix Ltd.) on
December 31, 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 15, 2002
By: /s/ DAVID C. BUPP
--------------------------------------------------
David C. Bupp
President and Chief Executive Officer
(duly authorized officer; principal executive officer)
By: /s/ BRENT L. LARSON
--------------------------------------------------
Brent L. Larson
Vice President, Finance and Chief Financial Officer
(principal financial and accounting officer)
14