UNDER
THE SECURITIES ACT OF 1933
(Post effective Amendment No. 1)
Delaware | 2835 | 31-1080091 | ||
(State or other jurisdiction of | (Primary standard industrial | (IRS employer | ||
incorporation or organization) | classification number) | identification number) |
Dublin, Ohio 43017-1367
(614) 793-7500
(Address and telephone number of principal executive offices)
Dublin, Ohio 43017-1367
(Address of principal place of business)
Chief Financial Officer
Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin, Ohio 43017-1367
(614) 793-7500
(Name, address and telephone number of agent for service)
Porter, Wright, Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215
Telephone No. (614) 227-2000
Telecopier No. (614) 227-2100
wjkelly@porterwright.com
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
PROSPECTUS
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• | ineffectiveness of the product candidate; |
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• | discovery of unacceptable toxicities or side effects; | ||
• | development of disease resistance or other physiological factors; | ||
• | delays in patient enrollment; or | ||
• | other reasons that are internal to the businesses of our potential collaborative partners, which reasons they may not share with us. |
• | generate cash flow and revenue; | ||
• | offset some of the costs associated with our internal research and development, preclinical testing, clinical trials and manufacturing; | ||
• | seek and obtain regulatory approvals faster than we could on our own; and, | ||
• | successfully commercialize existing and future product candidates. |
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• | delay marketing of potential products for a considerable period of time; | ||
• | limit the indicated uses for which potential products may be marketed; | ||
• | impose costly requirements on our activities; and | ||
• | provide competitive advantage to other pharmaceutical and biotechnology companies. |
We may encounter delays or rejections in the regulatory approval process because of additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. Failure to comply with applicable FDA or other regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our product candidates or us. Outside the United States, our ability to market a product is contingent upon receiving clearances from the appropriate regulatory authorities. This foreign regulatory approval process includes risks similar to those associated with FDA approval process. | ||
Our radiopharmaceutical product candidates will remain subject to ongoing regulatory review even if they receive marketing approval. If we fail to comply with continuing regulations, we could lose these approvals and the sale of our products could be suspended. | ||
Even if we receive regulatory clearance to market a particular product candidate, the approval could be conditioned on us conducting additional costly post-approval studies or could limit the indicated uses included in our labeling. Moreover, the product may later cause adverse effects that limit or prevent its widespread use, force us to withdraw it from the market or impede or delay our ability to obtain regulatory approvals in additional countries. In addition, the manufacturer of the product and its facilities will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving marketing clearance, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping related to the product will remain subject to extensive regulatory requirements. We may be slow to adapt, or we may never adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements. | ||
If we fail to comply with the regulatory requirements of FDA and other applicable U.S. and foreign regulatory authorities or previously unknown problems with our products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions, including: |
• | restrictions on the products, manufacturers or manufacturing processes; | ||
• | warning letters; |
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• | civil or criminal penalties; | ||
• | fines; | ||
• | injunctions; | ||
• | product seizures or detentions; | ||
• | import bans; | ||
• | voluntary or mandatory product recalls and publicity requirements; | ||
• | suspension or withdrawal of regulatory approvals; | ||
• | total or partial suspension of production; and | ||
• | refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications. |
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• | we pay all principal (as of August 31, 2007: $1,500,000 due January 7, 2008, $2,000,000 due July 7, 2008, $1 million due July 8, 2008 and $2,600,000 due January 7, 2009), interest (10 -12% per annum, payable on March 31, June 30, September 30, and December 31 of each year) and other charges on the Notes when due; |
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• | we use the proceeds from the sale of the Notes only for permitted purposes, such asLymphoseekdevelopment and general corporate purposes; | ||
• | we nominate and recommend for election as a director a person designated by the holders of the Series A Notes (as of August 31, 2007, the holders of the Series A Notes have not designated a potential board member); | ||
• | we keep reserved out of our authorized shares of common stock sufficient shares to satisfy our obligation to issue shares on conversion of the Notes and the exercise of the warrants issued in connection with the sale of the Notes; | ||
• | we indemnify the purchasers of the Notes against certain liabilities; and | ||
• | we use our best efforts to offer and sell equity securities with gross proceeds of up to $10 million and apply not less than 50% of the net proceeds of such sales to the repayment of principal on the Series A Notes. |
• | amending our organizational or governing agreements and documents, entering into any merger or consolidation, dissolving the company or liquidating its assets, or acquiring all or any substantial part of the business or assets of any other person; | ||
• | engaging in transactions with any affiliate; | ||
• | entering into any agreement inconsistent with our obligations under the Notes and related agreements; | ||
• | incurring any indebtedness, capital leases, or contingent obligations outside the ordinary course of business; | ||
• | granting or permitting liens against or security interests in our assets; | ||
• | making any material dispositions of our assets outside the ordinary course of business; | ||
• | declaring or paying any dividends or making any other restricted payments; or | ||
• | making any loans to or investments in other persons outside of the ordinary course of business. |
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• | price and volume fluctuations in the stock market at large which do not relate to our operating performance; | ||
• | financing arrangements we may enter that require the issuance of a significant number of shares in relation to the number of shares currently outstanding; | ||
• | public concern as to the safety of products that we or others develop; and | ||
• | fluctuations in market demand for and supply of our products. |
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High | Low | Close | ||||||||||
Fiscal Year 2007 | ||||||||||||
First Quarter | $ | 0.28 | $ | 0.20 | $ | 0.24 | ||||||
Second Quarter | 0.32 | 0.19 | 0.27 | |||||||||
Third Quarter through September 14, 2007 | 0.50 | 0.20 | 0.31 | |||||||||
Fiscal Year 2006: | ||||||||||||
First Quarter | $ | 0.36 | $ | 0.25 | $ | 0.29 | ||||||
Second Quarter | 0.30 | 0.23 | 0.26 | |||||||||
Third Quarter | 0.33 | 0.23 | 0.33 | |||||||||
Fourth Quarter | 0.34 | 0.22 | 0.24 | |||||||||
Fiscal Year 2005: | ||||||||||||
First Quarter | $ | 0.72 | $ | 0.37 | $ | 0.46 | ||||||
Second Quarter | 0.46 | 0.30 | 0.35 | |||||||||
Third Quarter | 0.40 | 0.25 | 0.30 | |||||||||
Fourth Quarter | 0.32 | 0.20 | 0.25 |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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• | Granted authorization by the U.S. Food and Drug Administration (FDA) to commence patient enrollment in two Phase 1 clinical studies to evaluate the safety and efficacy of Lymphoseek in prostate and colon cancers. | ||
• | Achieved and reported positive preliminary results from the Phase 2 Lymphoseek trial in breast cancer and melanoma. Based on pathology confirmed results, Lymphoseek identified lymphatic tissue in over 94% of the surgically treated patients, which exceeded the trial’s objective of 90% efficacy. | ||
• | Extended the company’s option agreement with the University of California, San Diego covering the potential use of Lymphoseek as an optical or ultrasound agent. |
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• | Filed an updated chemistry, manufacturing and control (CMC) amendment on Lymphoseek and an expanded non-clinical study package with FDA in preparation for the next phase of Lymphoseek clinical development program. | ||
• | Commenced development activities for the Phase 3 clinical studies of Lymphoseek, including holding a successful preliminary meeting with FDA. | ||
• | Completed the second of three current Good Manufacturing Practices (cGMP) production runs of Lymphoseek. | ||
• | Closed on a $1.0 million investment in the company led by our President and CEO, David Bupp. | ||
• | Executed a term sheet for the marketing and distribution of Lymphoseek in the United States with the nuclear pharmacy division of Cardinal Health, Inc. |
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• | Stock-Based Compensation.Effective January 1, 2006, we adopted SFAS No. 123(R),Share-Based Payment, which is a revision of SFAS No. 123,Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and amends SFAS No. 95,Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their estimated fair values. Compensation cost arising from stock-based awards is recognized as expense using the straight-line method over the vesting period. We used the modified prospective application method in adopting SFAS No. 123 (R). We use the Black-Scholes option pricing model to value share-based payments. The valuation assumptions used have not changed from those used under SFAS No. 123. Prior to the adoption of SFAS No. 123(R), we followed the guidance in APB No. 25 which resulted in disclosure only of the financial impact of stock options. Financial statements of the company for periods prior to January 1, 2006 do not reflect any recorded stock-based compensation expense. In adopting SFAS No. 123(R), we made no modifications to outstanding stock options, nor do we have any other outstanding share-based payment instruments subject to SFAS No. 123(R). Based in part on the anticipated adoption of SFAS No. 123(R), the company generally reduced number of stock options issued by individual in 2005 and shortened the vesting periods, with a portion of the options vesting immediately and the remainder vesting over a two-year period as compared to our previous practice of issuing stock options that vested over a three-year period. We will continue to evaluate compensation trends and may further revise our option granting practices in future years. |
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• | Inventory Valuation.We value our inventory at the lower of cost (first-in, first-out method) or market. Our valuation reflects our estimates of excess, slow moving and obsolete inventory as well as inventory with a carrying value in excess of its net realizable value. Write-offs are recorded when product is removed from saleable inventory. We review inventory on hand at least quarterly and record provisions for excess and obsolete inventory based on several factors, including current assessment of future product demand, anticipated release of new products into the market, historical experience and product expiration. Our industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of product approvals, variability in product launch strategies, product recalls and variation in product utilization all impact the estimates related to excess and obsolete inventory. | ||
• | Impairment or Disposal of Long-Lived Assets.We account for long-lived assets in accordance with the provisions of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of June 30, 2007, the most significant long-lived assets on our balance sheet relate to assets recorded in connection with the acquisition of Cardiosonix and gamma detection device patents related to ILM. The recoverability of these assets is based on the financial projections and models related to the future sales success of Cardiosonix’ products and the continuing success of our gamma detection product line. As such, these assets could be subject to significant adjustment should the Cardiosonix technology not be successfully commercialized or the sales amounts in our current projections not be realized. | ||
• | Product Warranty.We warrant our products against defects in design, materials, and workmanship generally for a period of one year from the date of sale to the end customer. Our accrual for warranty expenses is adjusted periodically to reflect actual experience. EES also reimburses us for a portion of warranty expense incurred based on end customer sales they make during a given fiscal year. |
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• | real-time monitoring; | ||
• | intra-operative quantification; | ||
• | non-invasive diagnostics; and | ||
• | evaluation of cardiac function. |
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Indication | Number of Patients | Status | ||||
Breast (peritumoral injection) | 24 | Completed | ||||
Melanoma | 24 | Completed | ||||
Breast (intradermal injection, next day surgery) | 60 | Completed | ||||
Prostate | 20 | Ongoing | ||||
Colon | 20 | Ongoing |
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• | intraoperative blood flow assessment (Quantix/OR); and | ||
• | non-invasive diagnostic blood flow assessment (Quantix/ND). |
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Name | Age | Position | ||||
Anthony K. Blair | 47 | Vice President, Manufacturing Operations | ||||
Rodger A. Brown | 56 | Vice President, Regulatory Affairs and Quality Assurance | ||||
Brent L. Larson | 44 | Vice President, Finance; Chief Financial Officer; Treasurer and Secretary | ||||
Douglas L. Rash | 64 | Vice President, Marketing |
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(b) | (c) | |||||||||||||||||||||||
(a) | Option | All Other | Total | |||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Awards | Compensation | Compensation | ||||||||||||||||||
Carl M. Bosch (d) | 2006 | $ | 160,000 | $ | 6,000 | $ | 16,175 | $ | 4,558 | $ | 186,733 | |||||||||||||
Vice President, | 2005 | 149,000 | 7,500 | — | 4,107 | 160,607 | ||||||||||||||||||
Research and Development | ||||||||||||||||||||||||
David C. Bupp | 2006 | $ | 305,000 | $ | 20,000 | $ | 60,006 | $ | 8,099 | $ | 393,105 | |||||||||||||
President and | 2005 | 290,000 | 45,000 | — | 7,789 | 342,789 | ||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||
Brent L. Larson | 2006 | $ | 160,000 | $ | 5,000 | $ | 16,175 | $ | 4,576 | $ | 185,751 | |||||||||||||
Vice President, Finance and | 2005 | 149,000 | 7,500 | — | 4,113 | 160,613 | ||||||||||||||||||
Chief Financial Officer |
(a) | Bonuses, if any, have been disclosed for the year in which they were earned (i.e., the year to which the service relates). | |
(b) | Amount represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS 123(R). Assumptions made in the valuation of stock option awards are disclosed in Item 1(l) of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006. Prior to 2006, the company accounted for stock option awards under APB Opinion No. 25’s intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. | |
(c) | Amount represents life insurance premiums paid during the fiscal year for the benefit of the Named Executive Officers and matching contributions under the Neoprobe Corporation 401(k) Plan (the Plan). Eligible employees may make voluntary contributions and we may, but are not obligated to, make matching contributions based on 40 percent of the employee’s contribution, up to five percent of the employee’s salary. Employee contributions are invested in mutual funds administered by an independent plan administrator. Company contributions, if any, are made in the form of shares of common stock. The Plan qualifies under section 401 of the Internal Revenue Code, which provides that employee and company contributions and income earned on contributions are not taxable to the employee until withdrawn from the Plan, and that we may deduct our contributions when made. | |
(d) | On April 25, 2007, Carl M. Bosch resigned as an officer of the company. |
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Number of Securities | ||||||||||||||||||||
Underlying Unexercised | Option | Option | ||||||||||||||||||
Options (#) | Exercise | Expiration | ||||||||||||||||||
Name | Exercisable | Unexercisable | Price | Date | Note | |||||||||||||||
Carl M. Bosch | 10,000 | — | $ | 1.50 | 9/28/2008 | (b), | (n) | |||||||||||||
20,000 | — | $ | 1.25 | 2/11/2009 | (c), | (n) | ||||||||||||||
45,000 | — | $ | 0.50 | 1/4/2010 | (d), | (n) | ||||||||||||||
45,000 | — | $ | 0.41 | 1/3/2011 | (e), | (n) | ||||||||||||||
50,000 | — | $ | 0.42 | 1/7/2012 | (f), | (n) | ||||||||||||||
40,000 | — | $ | 0.14 | 1/15/2013 | (g), | (n) | ||||||||||||||
30,000 | — | $ | 0.13 | 2/15/2013 | (h), | (n) | ||||||||||||||
46,667 | 23,333 | $ | 0.30 | 1/7/2014 | (i), | (n) | ||||||||||||||
33,333 | 16,667 | $ | 0.49 | 7/28/2014 | (j), | (n) | ||||||||||||||
33,333 | 16,667 | $ | 0.39 | 12/10/2014 | (k), | (n) | ||||||||||||||
26,667 | 13,333 | $ | 0.26 | 12/27/2015 | (l), | (n) | ||||||||||||||
— | 50,000 | $ | 0.27 | 12/15/2016 | (m), | (n) | ||||||||||||||
David C. Bupp | 180,000 | — | $ | 0.50 | 1/4/2010 | (d | ) | |||||||||||||
180,000 | — | $ | 0.41 | 1/3/2011 | (e | ) | ||||||||||||||
180,000 | — | $ | 0.42 | 1/7/2012 | (f | ) | ||||||||||||||
100,000 | — | $ | 0.14 | 1/15/2013 | (g | ) | ||||||||||||||
70,000 | — | $ | 0.13 | 2/15/2013 | (h | ) | ||||||||||||||
100,000 | 50,000 | $ | 0.30 | 1/7/2014 | (i | ) | ||||||||||||||
100,000 | 50,000 | $ | 0.49 | 7/28/2014 | (j | ) | ||||||||||||||
133,333 | 66,667 | $ | 0.39 | 12/10/2014 | (k | ) | ||||||||||||||
133,333 | 66,667 | $ | 0.26 | 12/27/2015 | (l | ) | ||||||||||||||
— | 300,000 | $ | 0.27 | 12/15/2016 | (m | ) | ||||||||||||||
Brent L. Larson | 7,200 | — | $ | 5.63 | 1/28/2008 | (a | ) | |||||||||||||
25,000 | — | $ | 1.50 | 9/28/2008 | (b | ) | ||||||||||||||
25,000 | — | $ | 1.25 | 2/11/2009 | (c | ) | ||||||||||||||
60,000 | — | $ | 0.50 | 1/4/2010 | (d | ) | ||||||||||||||
60,000 | — | $ | 0.41 | 1/3/2011 | (e | ) | ||||||||||||||
50,000 | — | $ | 0.42 | 1/7/2012 | (f | ) | ||||||||||||||
40,000 | — | $ | 0.14 | 1/15/2013 | (g | ) | ||||||||||||||
30,000 | — | $ | 0.13 | 2/15/2013 | (h | ) | ||||||||||||||
46,667 | 23,333 | $ | 0.30 | 1/7/2014 | (i | ) | ||||||||||||||
33,333 | 16,667 | $ | 0.49 | 7/28/2014 | (j | ) | ||||||||||||||
33,333 | 16,667 | $ | 0.39 | 12/10/2014 | (k | ) | ||||||||||||||
26,667 | 13,333 | $ | 0.26 | 12/27/2015 | (l | ) | ||||||||||||||
— | 50,000 | $ | 0.27 | 12/15/2016 | (m | ) |
(a) | Options were granted 1/28/1998 and vested as to one-third immediately and on each of the first two anniversaries of the date of grant. | |
(b) | Options were granted 9/28/1998 and vested as to one-thirtieth (1/30) per month for thirty (30) months after the date of grant. | |
(c) | Options were granted 2/11/1999 and vested as to one-third immediately and on each of the first two anniversaries of the date of grant. | |
(d) | Options were granted 1/4/2000 and vested as to one-third on each of the first three anniversaries of the date of grant. | |
(e) | Options were granted 1/3/2001 and vested as to one-third on each of the first three anniversaries of the date of grant. | |
(f) | Options were granted 1/7/2002 and vested as to one-third on each of the first three anniversaries of the date of grant. | |
(g) | Options were granted 1/15/2003 and vested as to one-third on each of the first three anniversaries of the date of grant. | |
(h) | Options were granted 2/15/2003 and vested as to one-third on each of the first three anniversaries of the date of grant. | |
(i) | Options were granted 1/7/2004 and vest as to one-third on each of the first three anniversaries of the date of grant. | |
(j) | Options were granted 7/28/2004 and vest as to one-third on each of the first three anniversaries of the date of grant. | |
(k) | Options were granted 12/10/2004 and vest as to one-third on each of the first three anniversaries of the date of grant. | |
(l) | Options were granted 12/27/2005 and vest as to one-third immediately and on each of the first two anniversaries of the date of grant. | |
(m) | Options were granted 12/15/2006 and vest as to one-third on each of the first three anniversaries of the date of grant. | |
(n) | On April 25, 2007, Carl M. Bosch submitted his resignation as an officer of the company, to be effective May 10, 2007. Under the terms of the Plans, all unexercised options are forfeited as of the date of termination. All of these options have therefore expired. |
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• | by our company without cause (cause is defined as any willful breach of a material duty by Mr. Bupp in the course of his employment or willful and continued neglect of his duty as an employee); | ||
• | by the expiration of the term of Mr. Bupp’s employment agreement; or | ||
• | by the resignation of Mr. Bupp because his title, authority, responsibilities or compensation have materially diminished, a material adverse change occurs in his working conditions or we breach the agreement; |
• | the acquisition, directly or indirectly, by a person (other than our company or an employee benefit plan established by the Board of Directors) of beneficial ownership of thirty percent (30%) or more of our securities with voting power in the next meeting of holders of voting securities to elect the directors; | ||
• | a majority of the Directors elected at any meeting of the holders of our voting securities are persons who were not nominated by our then current Board of Directors or an authorized committee thereof; | ||
• | our stockholders approve a merger or consolidation of our company with another person, other than a merger or consolidation in which the holders of our voting securities outstanding immediately before such merger or consolidation continue to hold voting securities in the surviving or resulting corporation (in the same relative proportions to each other as existed before such event) comprising eighty percent (80%) or more of the voting power for all purposes of the surviving or resulting corporation; or |
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• | our stockholders approve a transfer of substantially all of our assets to another person other than a transfer to a transferee, eighty percent (80%) or more of the voting power of which is owned or controlled by us or by the holders of our voting securities outstanding immediately before such transfer in the same relative proportions to each other as existed before such event. |
• | by our company without cause (cause is defined as any willful breach of a material duty by Mr. Larson in the course of his employment or willful and continued neglect of his duty as an employee); | ||
• | by the expiration of the term of Mr. Larson’s employment agreement; or | ||
• | by the resignation of Mr. Larson because his title, authority, responsibilities or compensation have materially diminished, a material adverse change occurs in his working conditions or we breach the agreement; |
• | the acquisition, directly or indirectly, by a person (other than our company or an employee benefit plan established by the Board of Directors) of beneficial ownership of thirty percent (30%) or more of our securities with voting power in the next meeting of holders of voting securities to elect the directors; | ||
• | a majority of the directors elected at any meeting of the holders of our voting securities are persons who were not nominated by our then current Board of Directors or an authorized committee thereof; | ||
• | our stockholders approve a merger or consolidation of our company with another person, other than a merger or consolidation in which the holders of our voting securities outstanding immediately before such merger or consolidation continue to hold voting securities in the surviving or resulting corporation (in the same relative proportions to each other as existed before such event) comprising eighty percent (80%) or more of the voting power for all purposes of the surviving or resulting corporation; or |
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• | our stockholders approve a transfer of substantially all of the assets of our company to another person other than a transfer to a transferee, eighty percent (80%) or more of the voting power of which is owned or controlled by us or by the holders of our voting securities outstanding immediately before such transfer in the same relative proportions to each other as existed before such event. |
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(a) | ||||||||||||
Fees Earned or Paid | (b) | |||||||||||
Name | in Cash | Option Awards | Total Compensation | |||||||||
Carl J. Aschinger, Jr. (c) | $ | 19,750 | $ | 9,099 | $ | 28,849 | ||||||
Reuven Avital (d) | 20,250 | 9,099 | 29,349 | |||||||||
Kirby I. Bland, M.D. (e) | 17,000 | 9,988 | 26,988 | |||||||||
Julius R. Krevans, M.D. (f) | 21,500 | 10,366 | 31,866 | |||||||||
Fred B. Miller (g) | 23,500 | 10,366 | 33,866 | |||||||||
J. Frank Whitley, Jr. (h) | 20,250 | 9,099 | 29,349 |
(a) | Amount represents fees earned during the fiscal year ended December 31, 2006 (i.e., the year to which the service relates). Quarterly retainers are paid during the quarter in which they are earned. Meeting attendance fees are paid during the quarter following the quarter in which they are earned. | |
(b) | Amount represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS 123(R). Assumptions made in the valuation of stock option awards are disclosed in Item 1(l) of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006. Prior to 2006, the company accounted for stock option awards under APB Opinion No. 25’s intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. | |
(c) | As of December 31, 2006, Mr. Aschinger held options to purchase a total of 130,000 shares of our common stock. | |
(d) | As of December 31, 2006, Mr. Avital held options to purchase a total of 175,000 shares of our common stock. | |
(e) | As of December 31, 2006, Dr. Bland held options to purchase a total of 160,000 shares of our common stock. | |
(f) | Effective July 26, 2007, Dr. Krevans retired from his position as Chairman and as a director of the company. As of December 31, 2006, Dr. Krevans held options to purchase a total of 410,000 shares of our common stock. | |
(g) | As of December 31, 2006, Mr. Miller held options to purchase a total of 235,000 shares of our common stock. | |
(h) | As of December 31, 2006, Mr. Whitley held options to purchase a total of 265,000 shares of our common stock. |
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Number of | ||||||||
Shares Beneficially | Percent | |||||||
Beneficial Owner | Owned(*) | of Class(**) | ||||||
Carl J. Aschinger, Jr. | 236,200 | (a) | (m | ) | ||||
Reuven Avital | 294,256 | (b) | (m | ) | ||||
Kirby I. Bland | 140,000 | (c) | (m | ) | ||||
Carl M. Bosch | 103,845 | (d) | (m | ) | ||||
David C. Bupp | 6,672,740 | (e) | 9.5 | % | ||||
Owen E. Johnson | — | (f) | (m | ) | ||||
Brent L. Larson | 641,429 | (g) | 1.0 | % | ||||
Fred B. Miller | 296,000 | (h) | (m | ) | ||||
J. Frank Whitley, Jr. | 246,000 | (i) | (m | ) | ||||
All directors and officers as a group (12 persons) | 9,289,969 | (j)(k) | 12.9 | % | ||||
Great Point Partners, L.P. | 25,309,005 | (l) | 29.0 | % | ||||
2 Pickwick Plaza, Suite 450 | ||||||||
Greenwich, CT 06830 |
(*) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities. Unless otherwise indicated, voting and investment power are exercised solely by the person named above or shared with members of such person’s household. | |
(**) | Percent of class is calculated on the basis of the number of shares outstanding on August 31, 2007, plus the number of shares the person has the right to acquire within 60 days of August 31, 2007. | |
(a) | This amount includes 110,000 shares issuable upon exercise of options which are exercisable within 60 days, but does not include 20,000 shares issuable upon exercise of options which are not exercisable within 60 days. |
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(b) | This amount consists of 139,256 shares of our common stock owned by Mittai Investments Ltd. (Mittai), an investment fund under the management and control of Mr. Avital, and 155,000 shares issuable upon exercise of options which are exercisable within 60 days but does not include 20,000 shares issuable upon exercise of options which are not exercisable within 60 days. The shares held by Mittai were obtained through a distribution of 2,785,123 shares previously held by Ma’Aragim Enterprise Ltd. (Ma’Aragim), another investment fund under the management and control of Mr. Avital. On February 28, 2005, Ma’Aragim distributed its shares to the partners in the fund. Mr. Avital is not an affiliate of the other fund to which the remaining 2,645,867 shares were distributed. Of the 2,785,123 shares previously held by Ma’Aragim, 2,286,712 were acquired in exchange for surrendering its shares in Cardiosonix Ltd. on December 31, 2001, in connection with our acquisition of Cardiosonix, and 498,411 were acquired by Ma’Aragim based on the satisfaction of certain developmental milestones on December 30, 2002, associated with our acquisition of Cardiosonix. | |
(c) | This amount includes 140,000 shares issuable upon exercise of options which are exercisable within 60 days but does not include 20,000 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(d) | On April 25, 2007, Carl M. Bosch submitted his resignation as an officer of the company. This amount includes 63,845 shares remaining in Mr. Bosch’s account in the 401(k) Plan. | |
(e) | This amount includes 1,276,666 shares issuable upon exercise of options which are exercisable within 60 days, 1,195,000 warrants held by Mr. Bupp which are exercisable within 60 days, a promissory note convertible into 250,000 shares of our common stock, a promissory note convertible into 3,225,806 shares of our common stock, 175,511 shares that are held by Mr. Bupp’s wife for which he disclaims beneficial ownership, 20,000 warrants held by Mr. Bupp’s wife for which he disclaims beneficial ownership which are exercisable within 60 days and 91,257 shares in Mr. Bupp’s account in the 401(k) Plan, but it does not include 483,334 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(f) | This amount does not include 20,000 shares issuable upon the exercise of options which are not exercisable within 60 days. | |
(g) | This amount includes 472,200 shares issuable upon exercise of options which are exercisable within 60 days and 64,229 shares in Mr. Larson’s account in the 401(k) Plan, but it does not include 96,667 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(h) | This amount includes 215,000 shares issuable upon exercise of options which are exercisable within 60 days and 31,000 shares held by Mr. Miller’s wife for which he disclaims beneficial ownership, but does not include 20,000 shares issuable upon the exercise of options which are not exercisable within 60 days. | |
(i) | This amount includes 245,000 shares issuable upon exercise of options which are exercisable within 60 days, but does not include 20,000 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(j) | This amount includes 3,200,033 shares issuable upon exercise of options which are exercisable within 60 days and 240,663 shares held in the 401(k) Plan on behalf of certain officers and former officers, but it does not include 890,001 shares issuable upon the exercise of options which are not exercisable within 60 days. The company itself is the administrator of the Neoprobe 401(k) Plan and may, as such, share investment power over common stock held in such plan. The administrator disclaims any beneficial ownership of shares held by the 401(k) Plan. The 401(k) Plan holds an aggregate total of 444,536 shares of common stock. | |
(k) | The address of all directors and executive offices is c/o Neoprobe Corporation, 425 Metro Place North, Suite 300, Dublin, Ohio 43017-1367. | |
(l) | This amount includes 8,387,500 shares issuable upon conversion of promissory notes in the principal amount of $3,355,000 held by Biomedical Value Fund, L.P. (BVF) that are convertible within 60 days, 6,862,500 shares issuable upon conversion of promissory notes in the original principal amount of $2,745,000 held by Biomedical Offshore Value Fund, Ltd. (BOVF) that are convertible within 60 days, 5,500,000 warrants held by BVF that are exercisable within 60 days and 4,500,000 warrants held by BOVF that are exercisable within 60 days. BVF and BOVF are investment funds managed by Great Point Partners, LLP. | |
(m) | Less than one percent. |
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Number of Shares at August 31, 2007 | ||||||||||||
Title of Class | Authorized | Outstanding | Reserved | |||||||||
Common Stock, $0.001 par value per share | 150,000,000 | 64,779,458 | 41,470,655 | |||||||||
Preferred Stock, $0.001 par value per share | 5,000,000 | 0 | 5,000,000 |
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• | the corporation’s board of directors approved in advance either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; | ||
• | the interested stockholder owned at least 85 percent of the corporation’s voting stock at the time the transaction commenced; or | ||
• | the business combination is approved by the corporation’s board of directors and the affirmative vote of at least two-thirds of the voting stock which is not owned by the interested stockholder. |
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• | the lowest sale price of our common stock on the purchase date; or | ||
• | the average of the three (3) lowest closing sale prices of our common stock during the twelve (12) consecutive business days prior to the date of a purchase by Fusion Capital. |
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• | the effectiveness of the registration statement of which this prospectus is a part of lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to Fusion Capital for sale of our common stock offered hereby and such lapse or unavailability continues for a period of ten (10) consecutive business days or for more than an aggregate of thirty (30) business days in any 365-day period; | ||
• | suspension by our principal market of our common stock from trading for a period of three (3) consecutive business days; | ||
• | the de-listing of our common stock from our principal market provided our common stock is not immediately thereafter trading on the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange or the American Stock Exchange; | ||
• | the transfer agent’s failure for five (5) business days to issue to Fusion Capital shares of our common stock which Fusion Capital is entitled to under the common stock purchase agreement; | ||
• | any material breach of the representations or warranties or covenants contained in the common stock purchase agreement or any related agreements which has or which could have a material adverse effect on us subject to a cure period of ten (10) business days; | ||
• | any participation or threatened participation in insolvency or bankruptcy proceedings by or against us; or | ||
• | any change in our business properties, operations, financial condition or results of operations of the Company and its Subsidiaries that could reasonably be expected to have a material adverse effect. |
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Percentage of | Proceeds from the | |||||
Outstanding Shares | Sale of Shares to | |||||
After Giving Effect | Fusion Capital | |||||
Number of Shares to | to the Issuance | Under the Common | ||||
Assumed Average | be Issued if Full | to Fusion | Stock Purchase | |||
Purchase Price | Purchase | Capital(1) | Agreement | |||
$0.20 | 12,000,000 | [18.0]% | $2,400,000 | |||
$ .27(2) | 12,000,000 | [18.1]% | $3,240,000 | |||
$0.50 | 12,000,000 | [18.4]% | $6,000,000 | |||
$0.75 | 8,000,000 | [13.7]% | $6,000,000 | |||
$1.00 | 6,000,000 | [11.1]% | $6,000,000 |
(1) | Based on 64,779,458 shares outstanding as of August 31, 2007. Includes the applicable portion of the 1,440,000 shares issued and issuable to Fusion Capital as a commitment fee and the number of shares issuable under the agreement at the corresponding assumed purchase price set forth in the adjacent column. | |
(2) | Closing sale price of our shares on August 31, 2007. |
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Shares | Percentage of | Shares to | Percentage of | |||||||||||||
Owned | Outstanding Shares | be Sold | Outstanding Shares | |||||||||||||
Before | Owned Before | in the | Owned After | |||||||||||||
Selling Stockholder | Offering | Offering (1) | Offering | Offering (1) | ||||||||||||
Fusion Capital Fund II, LLC (1)(2) | 970,832 | 1.6 | % | 13,440,000 | [0.3] | % |
(1) | As of the date of the common stock purchase agreement Fusion Capital beneficially owned 250,832 shares of our common stock. As of August 31, 2007, there were 64,779,458 shares outstanding which includes 870,000 shares issued to Fusion Capital as a commitment fee and the 5,112,099 shares acquired by Fusion Capital pursuant to the stock purchase agreement. Percentage of outstanding shares beneficially owned after offering is based on72,237,359 shares which includes the 13,440,000 shares to be sold in the offering. | |
(2) | Steven G. Martin and Joshua B. Scheinfeld, the principals of Fusion Capital, are deemed to be beneficial owners of all of the shares of common stock owned by Fusion Capital. Messrs. Martin and Scheinfeld have shared voting and disposition power over the shares being offered under this prospectus. |
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• | ordinary brokers’ transactions; | ||
• | transactions involving cross or block trades; | ||
• | through brokers, dealers, or underwriters who may act solely as agents; | ||
• | “at the market” into an existing market for the common stock; | ||
• | in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents; | ||
• | in privately negotiated transactions; or | ||
• | any combination of the foregoing. |
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SECURITIES ACT LIABILITIES
72
73
Consolidated Financial Statements of Neoprobe Corporation | ||||
Consolidated Financial Statements of Neoprobe Corporation | ||||
F-2 | ||||
F-3 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
Unaudited Consolidated Financial Statements of Neoprobe Corporation | ||||
F-28 | ||||
F-30 | ||||
F-31 | ||||
F-32 |
F-1
Neoprobe Corporation
Dublin, Ohio
March 14, 2007
F-2
2006 | 2005 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 2,502,655 | $ | 4,940,946 | ||||
Available-for-sale securities | — | 1,529,259 | ||||||
Accounts receivable, net | 1,246,089 | 673,008 | ||||||
Inventory | 1,154,376 | 803,703 | ||||||
Prepaid expenses and other | 430,623 | 501,557 | ||||||
Total current assets | 5,333,743 | 8,448,473 | ||||||
Property and equipment | 2,238,050 | 2,051,793 | ||||||
Less accumulated depreciation and amortization | 1,882,371 | 1,768,558 | ||||||
355,679 | 283,235 | |||||||
Patents and trademarks | 3,131,391 | 3,162,547 | ||||||
Acquired technology | 237,271 | 237,271 | ||||||
3,368,662 | 3,399,818 | |||||||
Less accumulated amortization | 1,540,145 | 1,300,908 | ||||||
1,828,517 | 2,098,910 | |||||||
Other assets | 515,593 | 739,823 | ||||||
Total assets | $ | 8,033,532 | $ | 11,570,441 | ||||
F-3
2006 | 2005 | |||||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 668,288 | $ | 207,824 | ||||
Accrued liabilities and other | 544,215 | 821,781 | ||||||
Capital lease obligations | 14,841 | 19,530 | ||||||
Deferred revenue | 348,568 | 252,494 | ||||||
Notes payable to finance companies | 136,925 | 200,054 | ||||||
Notes payable to investors, current portion, net of discount of $53,585 | 1,696,415 | — | ||||||
Total current liabilities | 3,409,252 | 1,501,683 | ||||||
Capital lease obligations | 17,014 | 31,855 | ||||||
Deferred revenue | 40,495 | 41,132 | ||||||
Notes payable to CEO, net of discounts of $19,030 and $26,249, respectively | 80,970 | 73,751 | ||||||
Notes payable to investors, net of discounts of $1,468,845 and $2,099,898, respectively | 4,781,155 | 5,900,102 | ||||||
Other liabilities | 2,673 | 5,122 | ||||||
Total liabilities | 8,331,559 | 7,553,645 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ (deficit) equity: | ||||||||
Preferred stock; $.001 par value; 5,000,000 shares authorized at December 31, 2006 and 2005; none issued and outstanding | — | — | ||||||
Common stock; $.001 par value; 150,000,000 shares authorized; 59,624,379 and 58,622,059 shares issued and outstanding at December 31, 2006 and 2005, respectively | 59,624 | 58,622 | ||||||
Additional paid-in capital | 135,330,668 | 134,903,259 | ||||||
Accumulated deficit | (135,688,319 | ) | (130,947,103 | ) | ||||
Accumulated other comprehensive income | — | 2,018 | ||||||
Total stockholders’ (deficit) equity | (298,027 | ) | 4,016,796 | |||||
Total liabilities and stockholders’ (deficit) equity | $ | 8,033,532 | $ | 11,570,441 | ||||
F-4
Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
Net sales | $ | 6,051,071 | $ | 5,919,473 | ||||
Cost of goods sold | 2,632,131 | 2,376,211 | ||||||
Gross profit | 3,418,940 | 3,543,262 | ||||||
Operating expenses: | ||||||||
Research and development | 3,803,060 | 4,031,790 | ||||||
Selling, general and administrative | 3,076,379 | 3,155,674 | ||||||
Total operating expenses | 6,879,439 | 7,187,464 | ||||||
Loss from operations | (3,460,499 | ) | (3,644,202 | ) | ||||
Other income (expense): | ||||||||
Interest income | 225,468 | 226,663 | ||||||
Interest expense | (1,496,332 | ) | (1,350,592 | ) | ||||
Increase in warrant liability | — | (142,427 | ) | |||||
Other | (9,853 | ) | (18,392 | ) | ||||
Total other expenses | (1,280,717 | ) | (1,284,748 | ) | ||||
Net loss | $ | (4,741,216 | ) | $ | (4,928,950 | ) | ||
Net loss per common share: | ||||||||
Basic | $ | (0.08 | ) | $ | (0.08 | ) | ||
Diluted | $ | (0.08 | ) | $ | (0.08 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic | 58,586,593 | 58,433,895 | ||||||
Diluted | 58,586,593 | 58,433,895 |
F-5
Consolidated Statements of Stockholders’ Equity (Deficit)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
Balance, December 31, 2004 | 58,378,143 | $ | 58,378 | $ | 132,123,605 | $ | (126,018,153 | ) | $ | — | $ | 6,163,830 | ||||||||||||
Issued stock upon exercise of warrants | 206,865 | 207 | 57,715 | — | — | 57,922 | ||||||||||||||||||
Issued stock to 401(k) plan at $0.39 | 37,051 | 37 | 19,205 | — | — | 19,242 | ||||||||||||||||||
Reclassified liability related to warrants to purchase common stock | — | — | 2,702,734 | — | — | 2,702,734 | ||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net loss | — | — | — | (4,928,950 | ) | — | (4,928,950 | ) | ||||||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | — | 2,018 | 2,018 | ||||||||||||||||||
Total comprehensive loss | (4,926,932 | ) | ||||||||||||||||||||||
Balance, December 31, 2005 | 58,622,059 | 58,622 | 134,903,259 | (130,947,103 | ) | 2,018 | 4,016,796 | |||||||||||||||||
Issued stock to 401(k) plan at $0.39 | 67,987 | 68 | 26,545 | — | — | 26,613 | ||||||||||||||||||
Issued stock as a commitment fee in connection with stock purchase agreement | 720,000 | 720 | 179,280 | — | — | 180,000 | ||||||||||||||||||
Issued stock in connection with stock purchase agreement, net of costs | 214,333 | 214 | — | — | — | 214 | ||||||||||||||||||
Stock option expense | — | — | 221,584 | — | — | 221,584 | ||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net loss | — | — | — | (4,741,216 | ) | — | (4,741,216 | ) | ||||||||||||||||
Realized gain on available-for-sale securities | — | — | — | — | (2,018 | ) | (2,018 | ) | ||||||||||||||||
Total comprehensive loss | (4,743,234 | ) | ||||||||||||||||||||||
Balance, December 31, 2006 | 59,624,379 | $ | 59,624 | $ | 135,330,668 | $ | (135,688,319 | ) | $ | — | $ | (298,027 | ) | |||||||||||
F-6
Consolidated Statements of Cash Flows
Years Ended December 31, | ||||||||
2006 | 2005 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,741,216 | ) | $ | (4,928,950 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 148,934 | 163,121 | ||||||
Amortization of intangible assets | 262,802 | 440,629 | ||||||
Loss on disposal and abandonment of assets | 39,031 | 6,650 | ||||||
Amortization of debt discount and debt offering costs | 808,916 | 687,370 | ||||||
Stock compensation expense | 221,584 | — | ||||||
Increase in warrant liability | — | 142,427 | ||||||
Other | 22,854 | (8,199 | ) | |||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (573,081 | ) | (261,152 | ) | ||||
Inventory | (428,202 | ) | 34,163 | |||||
Prepaid expenses and other assets | 408,918 | 257,005 | ||||||
Accounts payable | 460,463 | 8,912 | ||||||
Accrued liabilities and other liabilities | (284,212 | ) | 396,201 | |||||
Deferred revenue | 95,437 | 59,843 | ||||||
Net cash used in operating activities | (3,557,772 | ) | (3,001,980 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of available-for-sale securities | — | (5,480,787 | ) | |||||
Maturities of available-for-sale securities | 1,531,000 | 3,950,000 | ||||||
Purchases of property and equipment | (144,022 | ) | (86,004 | ) | ||||
Proceeds from sales of property and equipment | 4,097 | 11,092 | ||||||
Patent and trademark costs | (31,163 | ) | (20,625 | ) | ||||
Net cash provided by (used in) investing activities | 1,359,912 | (1,626,324 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 50,000 | 57,922 | ||||||
Payment of stock offering costs | (35,570 | ) | — | |||||
Payment of debt issuance costs | — | (29,635 | ) | |||||
Payment of notes payable | (235,330 | ) | (286,035 | ) | ||||
Payments under capital leases | (19,530 | ) | (15,680 | ) | ||||
Other | — | 20 | ||||||
Net cash used in financing activities | (240,430 | ) | (273,408 | ) | ||||
Net decrease in cash | (2,438,290 | ) | (4,901,712 | ) | ||||
Cash, beginning of year | 4,940,946 | 9,842,658 | ||||||
Cash, end of year | $ | 2,502,656 | $ | 4,940,946 | ||||
F-7
1. | Organization and Summary of Significant Accounting Policies: |
a. | Organization and Nature of Operations:Neoprobe Corporation (Neoprobe, the company, or we), a Delaware corporation, is engaged in the development and commercialization of innovative surgical and diagnostic products that enhance patient care by meeting the critical decision making needs of physicians. We currently manufacture two lines of medical devices: the first is a line of gamma radiation detection equipment used in the application of sentinel lymph node biopsy (SLNB), and the second is a line of blood flow monitoring devices for a variety of diagnostic and surgical applications. | ||
Our gamma detection device products are marketed throughout most of the world through a distribution arrangement with Ethicon Endo-Surgery, Inc. (EES), a Johnson & Johnson company. For the years ended December 31, 2006 and 2005, 84% and 92% of net sales, respectively, were made to EES. The loss of this customer would have a significant adverse effect on our operating results. | |||
Our blood flow measurement device product line is in the early stages of commercialization. Our activity with this product line was initiated with our acquisition of Cardiosonix Ltd. (Cardiosonix, formerly Biosonix Ltd.) on December 31, 2001. | |||
We also have developmental and/or intellectual property rights related to two drugs that might be used in connection with gamma detection devices in cancer surgeries. The first, Lymphoseek®, is intended to be used in tracing the spread of certain solid tumor cancers. The second, RIGScan® CR, is intended to be used to help surgeons locate cancerous tissue during colorectal cancer surgeries. Both of these drug products are still in development and must be cleared for marketing by the appropriate regulatory bodies before they can be sold in any markets. | |||
In addition, in January 2005 we formed a new corporation, Cira Biosciences, Inc. (Cira Bio), to explore the development of patient-specific cellular therapies that have shown positive patient responses in a variety of clinical settings. Cira Bio is combining our activated cellular therapy (ACT) technology for patient-specific oncology treatment with similar technology licensed from Cira LLC, a privately held company, for treating viral and autoimmune diseases. Neoprobe owns approximately 90% of the outstanding shares of Cira Bio with the remaining shares being held by the principals of Cira LLC. | |||
b. | Principles of Consolidation:Our consolidated financial statements include the accounts of Neoprobe, our wholly-owned subsidiary, Cardiosonix, and our majority-owned subsidiary, Cira Bio. All significant inter-company accounts were eliminated in consolidation. | ||
c. | Fair Value of Financial Instruments:The following methods and assumptions were used to estimate the fair value of each class of financial instruments: |
(1) | Cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities: The carrying amounts approximate fair value because of the short maturity of these instruments. | ||
(2) | Available-for-sale securities: Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. | ||
A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. |
F-8
Available-for-sale securities are classified as current based on our intent to use them to fund short-term working capital needs. | |||
(3) | Notes payable to finance companies: The fair value of our debt is estimated by discounting the future cash flows at rates currently offered to us for similar debt instruments of comparable maturities by banks or finance companies. At December 31, 2006 and 2005, the carrying values of these instruments approximate fair value. | ||
(4) | Note payable to CEO: The carrying value of our debt is presented as the face amount of the notes less the unamortized discounts related to the value of the beneficial conversion features and the initial estimated fair value of the warrants to purchase common stock issued in connection with the notes. At December 31, 2006 and 2005, the carrying value of the note payable to our CEO approximates fair value. | ||
(5) | Note payable to outside investors: The carrying value of our debt is presented as the face amount of the notes less the unamortized discounts related to the value of the beneficial conversion features and the initial estimated fair value of the warrants to purchase common stock issued in connection with the notes. At December 31, 2006 and 2005, the carrying value of the note payable to outside investors approximates fair value. |
d. | Cash and Cash Equivalents:There were no cash equivalents at December 31, 2006 or 2005. No cash was restricted as of December 31, 2006. As of December 31, 2005, $8,000 was restricted to secure bank guarantees related to sub-lease agreements for Cardiosonix’ office space. | ||
e. | Inventory:All components of inventory are valued at the lower of cost (first-in, first-out) or market. We adjust inventory to market value when the net realizable value is lower than the carrying cost of the inventory. Market value is determined based on recent sales activity and margins achieved. During 2006 and 2005, we wrote off $129,000 and $58,000, respectively, of excess and obsolete materials, primarily due to design changes to our Quantix® product line and reduced demand for our laparoscopic probes. | ||
We capitalize certain inventory costs associated with our Lymphoseek® product prior to regulatory approval and product launch, based on management’s judgment of probable future commercial use and net realizable value. We could be required to permanently write down previously capitalized costs related to pre-approval or pre-launch inventory upon a change in such judgment, due to a denial or delay of approval by regulatory bodies, a delay in commercialization, or other potential factors. Conversely, our gross margins may be favorably impacted if some or all of the inventory previously written down becomes available and is used for commercial sale. During 2006, we capitalized $48,000 in inventory costs associated with our Lymphoseek product. | |||
The components of net inventory at December 31, 2006 and 2005 are as follows: |
2006 | 2005 | |||||||
Materials and component parts | $ | 522,225 | $ | 461,218 | ||||
Work-in-process | 167,188 | — | ||||||
Finished goods | 464,963 | 324,485 | ||||||
$ | 1,154,376 | $ | 803,703 | |||||
f. | Property and Equipment:Property and equipment are stated at cost. Property and equipment under capital leases are stated at the present value of minimum lease payments. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets ranging from 2 to 7 years, and includes amortization related to equipment under capital leases. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. Property and equipment includes $78,000 of equipment under capital leases with accumulated amortization of $53,000 and $33,000 at December 31, 2006 and 2005, respectively. |
F-9
Useful Life | 2006 | 2005 | ||||||||||
Production machinery and equipment | 5 years | $ | 1,107,278 | $ | 999,106 | |||||||
Other machinery and equipment, primarily computers and research equipment | 2 - 5 years | 598,555 | 543,313 | |||||||||
Furniture and fixtures | 7 years | 336,537 | 334,275 | |||||||||
Leasehold improvements | Life of Lease1 | 74,682 | 74,682 | |||||||||
Software | 3 years | 120,998 | 100,417 | |||||||||
$ | 2,238,050 | $ | 2,051,793 | |||||||||
1 | We amortize leasehold improvements over the life of the lease, which in all cases is shorter than the estimated useful life of the asset. |
g. | Intangible Assets:Intangible assets consist primarily of patents and other acquired intangible assets. Intangible assets are stated at cost, less accumulated amortization. Patent costs are amortized using the straight-line method over the estimated useful lives of the patents of 5 to 15 years. Patent application costs are deferred pending the outcome of patent applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no recoverable value. Acquired technology costs are amortized using the straight-line method over the estimated useful life of seven years. We evaluate the potential alternative uses of all intangible assets, as well as the recoverability of the carrying values of intangible assets on a recurring basis. | ||
The major classes of intangible assets are as follows: |
December 31, 2006 | December 31, 2005 | |||||||||||||||||||||||
Wtd | Gross Carrying | Accumulated | Gross Carrying | Accumulated | ||||||||||||||||||||
Avg Life | Amount | Amortization | Amount | Amortization | ||||||||||||||||||||
Patents and trademarks | 9.7 yrs | $ | 3,131,391 | $ | 1,370,291 | $ | 3,162,547 | $ | 1,164,763 | |||||||||||||||
Acquired technology | 2.0 yrs | 237,271 | 169,854 | 237,271 | 136,145 | |||||||||||||||||||
Total | $ | 3,368,662 | $ | 1,540,145 | $ | 3,399,818 | $ | 1,300,908 | ||||||||||||||||
Estimated | ||||
Amortization | ||||
Expense | ||||
For the year ended 12/31/2007 | $ | 222,709 | ||
For the year ended 12/31/2008 | 216,116 | |||
For the year ended 12/31/2009 | 170,852 | |||
For the year ended 12/31/2010 | 170,033 | |||
For the year ended 12/31/2011 | 168,581 |
F-10
h. | Other Assets: | ||
Other assets consist primarily of deferred debt issuance costs. We defer costs associated with the issuance of notes payable and amortize those costs over the period of the notes using the effective interest method. In 2005, we incurred $10,000 of debt issuance costs related to notes payable. See Note 6. | |||
i. | Revenue Recognition: |
(1) | Product Sales:We derive revenues primarily from sales of our medical devices. Our standard shipping terms are FOB shipping point, and title and risk of loss passes to the customer upon delivery to a common carrier. We generally recognize sales revenue when the products are shipped and the earnings process has been completed. However, in cases where product is shipped but the earnings process is not yet completed, revenue is deferred until it has been determined that the earnings process has been completed. Our customers generally have no right to return products purchased in the ordinary course of business. | ||
Sales prices on gamma detection products sold to EES are subject to retroactive annual adjustment based on a fixed percentage of the actual sales prices achieved by EES on sales to end customers made during each fiscal year, subject to a minimum (i.e., floor) price. To the extent that we can reasonably estimate the end customer prices received by EES, we record sales to EES based upon these estimates. To the extent that we are not able to reasonably estimate end customer sales prices related to certain products sold to EES, we record revenue related to these product sales at the floor price provided for under our distribution agreement with EES. | |||
We recognize revenue related to the sales of products to be used for demonstration units when products are shipped and the earnings process has been completed. Our distribution agreements do not permit return of purchased demonstration units in the ordinary course of business nor do we have any performance obligations other than normal product warranty obligations. To the extent that the earnings process has not been completed, revenue is deferred. To the extent we enter into multiple-element arrangements, we allocate revenue based on the relative fair value of the elements. | |||
(2) | Extended Warranty Revenue:We derive revenues from the sale of extended warranties covering our medical devices over periods of one to four years. We recognize revenue from extended warranty sales on a pro-rata basis over the period covered by the extended warranty. Expenses related to the extended warranty are recorded when incurred. | ||
(3) | Service Revenue:We derive revenues from the repair and service of our medical devices that are in use beyond the term of the original warranty and that are not covered by an extended warranty. We recognize revenue from repair and service activities once the activities are complete and the repaired or serviced device has been shipped back to the customer. |
j. | Research and Development Costs:All costs related to research and development are expensed as incurred. | ||
k. | Income Taxes:Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Due to the uncertainty surrounding the realization of the deferred tax assets in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at December 31, 2006 and 2005. |
F-11
l. | Stock-Based Compensation:At December 31, 2006, we have three stock-based compensation plans. Under the Amended and Restated Stock Option and Restricted Stock Purchase Plan (the Amended Plan), the 1996 Stock Incentive Plan (the 1996 Plan), and the 2002 Stock Incentive Plan (the 2002 Plan), we may grant incentive stock options, nonqualified stock options, and restricted stock awards to full-time employees, and nonqualified stock options and restricted awards may be granted to our consultants and agents. Total shares authorized under each plan are 2 million shares, 1.5 million shares and 5 million shares, respectively. The Amended Plan was approved by the stockholders in 1994, and although options are still outstanding under this plan, the Amended Plan is considered expired and no new grants may be made from it. Under all three plans, the exercise price of each option is greater than or equal to the closing market price of our common stock on the day prior to the date of the grant. | ||
Options granted under the Amended Plan, the 1996 Plan and the 2002 Plan generally vest on an annual basis over one to three years. Outstanding options under the plans, if not exercised, generally expire ten years from their date of grant or 90 days from the date of an optionee’s separation from employment with us. | |||
Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123(R),Share-Based Payment, which is a revision of SFAS No. 123,Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and amends SFAS No. 95,Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their estimated fair values. | |||
We are applying the modified prospective method for recognizing the expense over the remaining vesting period for awards that were outstanding but unvested as of January 1, 2006. Under the modified prospective method, we have not adjusted the financial statements for periods ending prior to January 1, 2006. Under the modified prospective method, the adoption of SFAS No. 123(R) applies to new awards and to awards modified, repurchased, or cancelled after December 31, 2005, as well as to the unvested portion of awards outstanding as of January 1, 2006. | |||
Compensation cost arising from stock-based awards is recognized as expense using the straight-line method over the vesting period. As of December 31, 2006, there was approximately $160,000 of total unrecognized compensation cost related to unvested stock-based awards, which we expect to recognize over remaining weighted average vesting terms of 1.4 years. For the year ended December 31, 2006, our total stock-based compensation expense was approximately $222,000. We have not recorded any income tax benefit related to stock-based compensation for the year ended December 31, 2006. | |||
As permitted by SFAS No. 123, prior to 2006 Neoprobe accounted for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. The following table illustrates the effect on net loss and net loss per share for the year ended December 31, 2005 as if compensation cost for our stock-based compensation plans had been determined based on the fair value at the grant dates for awards under those plans consistent with SFAS No. 123. |
F-12
Year Ended | ||||
December 31, 2005 | ||||
Net loss, as reported | $ | (4,928,950 | ) | |
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards | (511,712 | ) | ||
Pro forma net loss | $ | (5,440,662 | ) | |
Loss per common share: | ||||
As reported (basic and diluted) | $ | (0.08 | ) | |
Pro forma (basic and diluted) | $ | (0.09 | ) |
2006 | 2005 | |||||||
Expected term | 5.9 years | 10 years | ||||||
Expected volatility | 105 | % | 79 | % | ||||
Expected dividends | — | — | ||||||
Risk-free rate | 4.7 | % | 4.3 | % |
Year Ended December 31, 2006 | ||||||||||||||||
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Options | Price | Life | Value | |||||||||||||
Outstanding, January 1, 2006 | 5,523,974 | $ | 0.44 | |||||||||||||
Granted | 620,000 | $ | 0.27 | |||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | (168,501 | ) | $ | 0.32 | ||||||||||||
Expired | — | — | ||||||||||||||
Outstanding, December 31, 2006 | 5,975,473 | $ | 0.42 | 6.1 years | — | |||||||||||
Exercisable, December 31, 2006 | 4,643,640 | $ | 0.45 | 5.6 years | — | |||||||||||
F-13
Year Ended | ||||||||
December 31, 2006 | ||||||||
Weighted Average | ||||||||
Grant-Date Fair | ||||||||
Number of Shares | Value | |||||||
Outstanding, January 1, 2006 | 130,000 | $ | 7.84 | |||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Forfeited | — | — | ||||||
Expired | — | — | ||||||
Outstanding, December 31, 2006 | 130,000 | $ | 7.84 | |||||
m. | Use of Estimates:The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
n. | Impairment or Disposal of Long-Lived Assets:We account for long-lived assets in accordance with the provisions of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. | ||
o. | Recent Accounting Developments:In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments — An Amendment of FASB Statements No. 133 and 140(SFAS No. 155). SFAS No. 155 amends SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and (e) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006 and is required to be adopted by Neoprobe beginning January 1, 2007. We do not expect the adoption of SFAS No. 155 to have a material impact on our consolidated results of operations or financial condition. |
F-14
F-15
2. | Earnings Per Share: |
Year Ended | Year Ended | |||||||||||||||
December 31, 2006 | December 31, 2005 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
Earnings | Earnings | Earnings | Earnings | |||||||||||||
Per Share | Per Share | Per Share | Per Share | |||||||||||||
Outstanding shares | 59,624,379 | 59,624,379 | 58,622,059 | 58,622,059 | ||||||||||||
Effect of weighting changes in outstanding shares | (907,786 | ) | (907,786 | ) | (58,164 | ) | (58,164 | ) | ||||||||
Contingently issuable shares | (130,000 | ) | (130,000 | ) | (130,000 | ) | (130,000 | ) | ||||||||
Adjusted shares | 58,586,593 | 58,586,593 | 58,433,895 | 58,433,895 | ||||||||||||
3. | Accounts Receivable and Concentrations of Credit Risk: |
2006 | 2005 | |||||||
Trade | $ | 1,243,114 | $ | 663,898 | ||||
Other | 2,975 | 9,110 | ||||||
$ | 1,246,089 | $ | 673,008 | |||||
F-16
4. | Accrued Liabilities: |
2006 | 2005 | |||||||
Contracted services and other | $ | 401,224 | $ | 540,932 | ||||
Compensation | 91,167 | 204,421 | ||||||
Warranty reserve | 44,858 | 41,185 | ||||||
Inventory purchases | 6,966 | 35,243 | ||||||
$ | 544,215 | $ | 821,781 | |||||
5. | Product Warranty: |
2006 | 2005 | |||||||
Warranty reserve at beginning of year | $ | 41,185 | $ | 66,000 | ||||
Provision for warranty claims and changes in reserve for warranties | 40,103 | 24,539 | ||||||
Payments charged against the reserve | (36,430 | ) | (49,354 | ) | ||||
Warranty reserve at end of year | $ | 44,858 | $ | 41,185 | ||||
6. | Notes Payable: |
F-17
F-18
7. | Income Taxes: |
As of December 31, | ||||||||
2006 | 2005 | |||||||
Deferred tax assets: | ||||||||
Federal net operating loss carryforwards | $ | 32,227,107 | $ | 32,247,897 | ||||
State net operating loss carryforwards | 2,273,948 | 2,304,919 | ||||||
R&D credit carryforwards | 4,722,457 | 4,418,656 | ||||||
Temporary differences | 354,340 | 325,077 | ||||||
Deferred tax assets before valuation allowance | 39,577,852 | 39,296,549 | ||||||
Valuation allowance | (39,577,852 | ) | (39,296,549 | ) | ||||
Net deferred tax assets | $ | — | $ | — | ||||
F-19
Years Ended December 31, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Benefit at statutory rate | $ | (1,612,013 | ) | (34.0 | %) | $ | (1,675,843 | ) | (34.0 | %) | ||||||
Adjustments to valuation allowance | 1,462,443 | 30.8 | % | 1,442,711 | 29.3 | % | ||||||||||
Other | 149,570 | 3.2 | % | 233,132 | 4.7 | % | ||||||||||
Benefit per financial statements | $ | — | — | $ | — | — | ||||||||||
8. | Equity: |
a. | Stock Warrants:At December 31, 2006, there are 17.0 million warrants outstanding to purchase our common stock. The warrants are exercisable at prices ranging from $0.13 to $0.50 per share with a weighted average exercise price per share of $0.40. | ||
The following table summarizes information about our outstanding warrants at December 31, 2006: |
Exercise | Number of | |||||||||||
Price | Warrants | Expiration Date | ||||||||||
Series Q | $ | 0.13 | 875,000 | April 2008 | ||||||||
Series Q | $ | 0.50 | 375,000 | March 2009 | ||||||||
Series R | $ | 0.28 | 2,808,898 | October 2008 | ||||||||
Series S | $ | 0.28 | 1,195,478 | October 2008 | ||||||||
Series T | $ | 0.46 | 10,125,000 | December 2009 | ||||||||
Series U | $ | 0.46 | 1,600,000 | December 2009 | ||||||||
$ | 0.40 | 16,979,376 | ||||||||||
b. | Private Placement:In November 2003, we executed common stock purchase agreements with certain investors for the purchase of 12,173,914 shares of our common stock at a price of $0.23 per share for net proceeds of $2.4 million. In addition, we issued the purchasers 6,086,959 Series R warrants to purchase our common stock at an exercise price of $0.28 per share, expiring in October 2008, and issued the placement agents 1,354,348 Series S warrants to purchase our common stock on similar terms. During 2005, certain investors and placement agents exercised a total of 206,865 warrants related to this placement, resulting in the issuance of 206,865 shares of our common stock and we realized net proceeds of $57,922. No warrants were exercised during 2006. | ||
c. | Common Stock Purchase Agreement:In December 2006, we entered into a common stock purchase agreement with Fusion Capital Fund II, LLC (Fusion). A registration statement |
F-20
d. | Common Stock Reserved:We have reserved 43,204,849 shares of authorized common stock for the exercise of all outstanding options, warrants, and convertible debt. |
9. | Shareholder Rights Plan: |
10. | Segments and Subsidiary Information: |
a. | Segments:We report information about our operating segments using the “management approach” in accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information.This information is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. Our reportable segments are identified based on differences in products, services and markets served. There were no inter-segment sales. We own or have rights to intellectual property involving two primary types of medical device products, including gamma detection instruments currently used primarily in the application of SLNB, and blood flow measurement devices. We also own or have rights to intellectual property related to several drug and therapy products. |
F-21
Gamma | Blood | Drug and | ||||||||||||||||||
Detection | Flow | Therapy | ||||||||||||||||||
($ amounts in thousands) | Devices | Devices | Products | Corporate | Total | |||||||||||||||
2006 | ||||||||||||||||||||
Net sales: | ||||||||||||||||||||
United States1 | $ | 5,214 | $ | 80 | $ | — | $ | — | $ | 5,294 | ||||||||||
International | 231 | 526 | — | — | 757 | |||||||||||||||
Research and development expenses | 952 | 708 | 2,143 | — | 3,803 | |||||||||||||||
Selling, general and administrative expenses, excluding depreciation and amortization2 | — | — | — | 2,664 | 2,664 | |||||||||||||||
Depreciation and amortization | 103 | 250 | — | 59 | 412 | |||||||||||||||
Income (loss) from operations3 | 2,237 | (831 | ) | (2,143 | ) | (2,723 | ) | (3,460 | ) | |||||||||||
Other income (expense)4 | — | — | — | (1,281 | ) | (1,281 | ) | |||||||||||||
Total assets, net of depreciation and amortization: | ||||||||||||||||||||
United States operations | 1,961 | 612 | 57 | 3,510 | 6,140 | |||||||||||||||
Israeli operations (Cardiosonix Ltd.) | — | 1,894 | — | — | 1,894 | |||||||||||||||
Capital expenditures | 102 | 7 | — | 35 | 144 | |||||||||||||||
2005 | ||||||||||||||||||||
Net sales | ||||||||||||||||||||
United States1 | $ | 5,459 | $ | 58 | $ | — | $ | — | $ | 5,517 | ||||||||||
International | 120 | 282 | — | — | 402 | |||||||||||||||
Research and development expenses | 276 | 1,414 | 2,342 | — | 4,032 | |||||||||||||||
Selling, general and administrative expenses, excluding depreciation and amortization2 | — | — | — | 2,552 | 2,552 | |||||||||||||||
Depreciation and amortization | 137 | 408 | 1 | 58 | 604 | |||||||||||||||
Income (loss) from operations3 | 2,943 | (1,634 | ) | (2,343 | ) | (2,610 | ) | (3,644 | ) | |||||||||||
Other income (expense) 4 | — | — | — | (1,285 | ) | (1,285 | ) | |||||||||||||
Total assets, net of depreciation and amortization: | ||||||||||||||||||||
United States operations | 1,171 | 318 | 28 | 7,734 | 9,251 | |||||||||||||||
Israeli operations (Cardiosonix Ltd.) | — | 2,319 | — | — | 2,319 | |||||||||||||||
Capital expenditures | — | 64 | 1 | 21 | 86 |
1 | All sales to EES are made in the United States. EES distributes the product globally through its international affiliates. | |
2. | Selling, general and administrative costs, excluding depreciation and amortization, represent costs that relate to the general administration of the company and as such are not currently allocated to our individual reportable segments. | |
3 | Income (loss) from operations does not reflect the allocation of selling, general and administrative costs to our individual reportable segments. | |
4. | Amounts consist primarily of interest income and interest expense which are currently not allocated to our individual reportable segments. |
F-22
b. | Subsidiary:On December 31, 2001, we acquired 100 percent of the outstanding common shares of Cardiosonix, an Israeli company. We accounted for the acquisition under SFAS No. 141,Business Combinations, and certain provisions of SFAS No. 142,Goodwill and Other Intangible Assets.The results of Cardiosonix’ operations have been included in our consolidated results from the date of acquisition. | ||
As a part of the acquisition, we also entered into a royalty agreement with the three founders of Cardiosonix. Under the terms of the royalty agreement, which expired December 31, 2006, we are obligated to pay the founders an aggregate one percent royalty on up to $120 million in net revenue generated by the sale of Cardiosonix blood flow products through 2006. As of December 31, 2006, approximately $2,000 of founders’ royalties were accrued under the royalty agreement. |
11. | Agreements: |
a. | Supply Agreements:In December 1997, we entered into an exclusive supply agreement with eV Products (eV), a division of II-VI Incorporated, for the supply of certain crystals and associated electronics to be used in the manufacture of our proprietary line of hand-held gamma detection instruments. The original term of the agreement expired on December 31, 2002 and was automatically extended during 2002 through December 31, 2005; however, the agreement was no longer exclusive throughout the extended period. Total purchases were $770,000 and $430,000 for the years ended December 31, 2006 and 2005, respectively. We have issued purchase orders under the same terms as the original agreement for $409,000 of crystal modules for delivery of product through December 2007. | ||
In February 2004, we entered into a product supply agreement with TriVirix International (TriVirix) for the manufacture of the neo2000 control unit, 14mm probe, Bluetooth® wireless probes, 11mm laparoscopic probe, Quantix/ORTM control unit and Quantix/NDTM control unit. The initial term of the agreement expires in January 2007, but may be automatically extended for successive one-year periods. Either party has the right to terminate the agreement at any time upon one hundred eighty (180) days prior written notice, or may terminate the agreement upon a material breach or repeated non-material breaches by the other. Total purchases under the product supply agreement were $1.1 million for the years ended December 31, 2006 and 2005. We have issued purchase orders under the agreement for $1.4 million of our products for delivery through May 2008. | |||
b. | Marketing and Distribution Agreement:During 1999, we entered into a distribution agreement with EES covering our gamma detection devices used in SLNB. The initial five-year term expired December 31, 2004, with options to extend for two successive two-year terms. In March 2006, EES exercised its option for a second two-year term extension of the distribution agreement covering our gamma detection devices, thus extending the distribution agreement through the end of 2008. Under the agreement, we manufacture and sell our current line of SLNB products exclusively to EES, who distributes the products globally, except in Japan. EES agreed to purchase minimum quantities of our products over the first three years of the term of the agreement and to reimburse us for certain research and development costs and a portion of our warranty costs. We are obligated to continue certain product maintenance activities and to provide ongoing regulatory support for the products. | ||
EES may terminate the agreement if we fail to supply products for specified periods, commit a material breach of the agreement, suffer a change of control to a competitor of EES, or become insolvent. If termination were due to failure to supply or a material breach by us, EES would have the right to use our intellectual property and regulatory information to manufacture and sell the products exclusively on a global basis for the remaining term of the agreement with no additional financial obligation to us. If termination is due to insolvency or a change of control that does not affect supply of the products, EES has the right to continue to sell the products on an exclusive global basis for a period of six months or require us to repurchase any unsold products in its inventory. |
F-23
c. | Research and Development Agreements:Cardiosonix’ research and development efforts have been partially financed through grants from the Office of the Chief Scientist of the Israeli Ministry of Industry and Trade (the OCS). Through the end of 2004, Cardiosonix received a total $775,000 in grants from the OCS. In return for the OCS’s participation, Cardiosonix is committed to pay royalties to the Israeli Government at a rate of 3% to 5% of the sales if its products, up to 300% of the total grants received, depending on the portion of manufacturing activity that takes place in Israel. There are no future performance obligations related to the grants received from the OCS. However, under certain limited circumstances, the OCS may withdraw its approval of a research program or amend the terms of its approval. Upon withdrawal of approval, Cardiosonix may be required to refund the grant, in whole or in part, with or without interest, as the OCS determines. In January 2006, the OCS consented to the transfer of manufacturing as long as we comply with the terms of the OCS statutes under Israeli law. As long as we maintain at least 10% Israeli content in our blood flow devices, we will pay a royalty rate of 4% on sales of applicable blood flow devices and must repay the OCS a total of $1.2 million in royalties. However, should the amount of Israeli content of our blood flow device products decrease below 10%, the royalty rate could increase to 5% and the total royalty payments due could increase to $2.3 million. As such, the total amount we will have to repay the OCS will likely be 150% to 300% of the amounts of the original grants. Through December 2006, we have paid the OCS a total of $36,000 in royalties related to sales of products developed under this program. As of December 31, 2006, we have accrued obligations for royalties totaling $10,000. | ||
During January 2002, we completed a license agreement with the University of California, San Diego (UCSD) for a proprietary compound that we believe could be used as a lymph node locating agent in SLNB 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 us 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. We may also sublicense the patent rights, subject to the approval of certain sublicense terms by UCSD. In consideration for the license rights, we agreed to pay UCSD a license issue fee of $25,000 and license maintenance fees of $25,000 per year. We 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. We also agreed to reimburse UCSD for all patent-related costs. Total costs related to the UCSD license agreement were $91,000 and $44,000 in 2006 and 2005, respectively, and were recorded in research and development expenses. | |||
UCSD has the right to terminate the agreement or change the nature of the agreement to a non-exclusive agreement if it is determined that we have not been diligent in developing and commercializing the covered products, marketing the products within six months of receiving regulatory approval, reasonably filling market demand or obtaining all the necessary government approvals. | |||
During April 2005, we completed an evaluation license agreement with UCSD expanding the field of use for the proprietary compound developed by UCSD researchers. The expanded field of use will allow Lymphoseek to be developed as an optical or ultrasound agent. The evaluation license agreement is effective until March 31, 2007. Under the terms of the agreement, UCSD has granted us limited rights to make and use licensed products as defined in the agreement and to |
F-24
d. | Employment Agreements:We maintain employment agreements with six of our officers. The employment agreements contain change in control provisions that would entitle each of the officers to one to two times their current annual salaries, vest outstanding restricted stock and options to purchase common stock, and continue certain benefits if there is a change in control of our company (as defined) and their employment terminates. Our maximum contingent liability under these agreements in such an event is approximately $1.9 million. The employment agreements also provide for severance, disability and death benefits. See Note 16(a). |
12. | Leases: |
F-25
Capital | Operating | |||||||
Leases | Leases | |||||||
2007 | $ | 18,008 | $ | 100,129 | ||||
2008 | 15,889 | 8,561 | ||||||
2009 | 2,485 | — | ||||||
2010 | — | — | ||||||
2011 | — | — | ||||||
36,382 | $ | 108,690 | ||||||
Less amount representing interest | 4,527 | |||||||
Present value of net minimum lease payments | 31,855 | |||||||
Less current portion | 14,841 | |||||||
Capital lease obligations, excluding current portion | $ | 17,014 | ||||||
13. | Employee Benefit Plan: |
14. | Supplemental Disclosure for Statements of Cash Flows: |
15. | Contingencies: |
16. | Subsequent Events: |
F-26
17. | Supplemental Information (Unaudited): |
Years Ended December 31, | ||||||||||||||||||||
(Amounts in thousands, except per share data) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Net sales | $ | 6,051 | $ | 5,919 | $ | 5,353 | $ | 5,564 | $ | 3,383 | ||||||||||
License and other revenue | — | — | 600 | 946 | 1,538 | |||||||||||||||
Gross profit | 3,419 | 3,543 | 3,608 | 3,385 | 2,570 | |||||||||||||||
Research and development expenses | 3,803 | 4,032 | 2,454 | 1,894 | 2,324 | |||||||||||||||
Selling, general and administrative expenses | 3,076 | 3,156 | 3,153 | 3,103 | 3,267 | |||||||||||||||
Acquired in-process research and development | — | — | — | — | (28 | ) | ||||||||||||||
Loss from operations | (3,460 | ) | (3,644 | ) | (1,999 | ) | (1,611 | ) | (2,993 | ) | ||||||||||
Other (expenses) income | (1,281 | ) | (1,285 | ) | �� | (1,542 | ) | (188 | ) | 29 | ||||||||||
Net loss | $ | (4,741 | ) | $ | (4,929 | ) | $ | (3,541 | ) | $ | (1,799 | ) | $ | (2,964 | ) | |||||
Loss per common share: | ||||||||||||||||||||
Basic | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.08 | ) | |||||
Diluted | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.08 | ) | |||||
Shares used in computing loss per common share:(1) | ||||||||||||||||||||
Basic | 58,587 | 58,434 | 56,764 | 40,338 | 36,045 | |||||||||||||||
Diluted | 58,587 | 58,434 | 56,764 | 40,338 | 36,045 |
As of December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Total assets | $ | 8,034 | $ | 11,570 | $ | 15,366 | $ | 7,385 | $ | 7,080 | ||||||||||
Long-term obligations | 4,922 | 6,052 | 8,192 | 585 | 1,169 | |||||||||||||||
Accumulated deficit | (135,688 | ) | (130,947 | ) | (126,018 | ) | (122,477 | ) | (120,678 | ) |
(1) | Basic earnings (loss) per share are calculated using the weighted average number of common shares outstanding during the periods. Diluted earnings (loss) 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. |
F-27
ASSETS | June 30, | December 31, | ||||||
2007 | 2006 | |||||||
(unaudited) | ||||||||
Current assets: | ||||||||
Cash | $ | 1,207,011 | $ | 2,502,655 | ||||
Accounts receivable, net | 1,143,268 | 1,246,089 | ||||||
Inventory | 1,138,892 | 1,154,376 | ||||||
Prepaid expenses and other | 141,490 | 430,623 | ||||||
Total current assets | 3,630,661 | 5,333,743 | ||||||
Property and equipment | 2,310,700 | 2,238,050 | ||||||
Less accumulated depreciation and amortization | 1,967,741 | 1,882,371 | ||||||
342,959 | 355,679 | |||||||
Patents and trademarks | 3,124,296 | 3,131,391 | ||||||
Acquired technology | 237,271 | 237,271 | ||||||
3,361,567 | 3,368,662 | |||||||
Less accumulated amortization | 1,650,343 | 1,540,145 | ||||||
1,711,224 | 1,828,517 | |||||||
Other assets | 398,829 | 515,593 | ||||||
Total assets | $ | 6,083,673 | $ | 8,033,532 | ||||
F-28
LIABILITIES AND STOCKHOLDERS’ DEFICIT | June 30, | December 31, | ||||||
2007 | 2006 | |||||||
(unaudited) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 820,772 | $ | 668,288 | ||||
Accrued liabilities and other | 870,382 | 544,215 | ||||||
Capital lease obligations | 14,400 | 14,841 | ||||||
Deferred revenue | 232,470 | 348,568 | ||||||
Notes payable to finance companies | 19,847 | 136,925 | ||||||
Notes payable to investors, current portion, net of discounts of $102,480 and $53,585, respectively | 2,572,520 | 1,696,415 | ||||||
Total current liabilities | 4,530,391 | 3,409,252 | ||||||
Capital lease obligations | 9,582 | 17,014 | ||||||
Deferred revenue | 43,655 | 40,495 | ||||||
Notes payable to CEO, net of discounts of $15,167 and $19,030, respectively | 84,833 | 80,970 | ||||||
Notes payable to investors, net of discounts of $1,109,506 and $1,468,845, respectively | 3,390,494 | 4,781,155 | ||||||
Other liabilities | 7,484 | 2,673 | ||||||
Total liabilities | 8,066,439 | 8,331,559 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Preferred stock; $.001 par value; 5,000,000 shares authorized at June 30, 2007 and December 31, 2006; none issued and outstanding | — | — | ||||||
Common stock; $.001 par value; 150,000,000 shares authorized, 62,739,731 and 59,624,379 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively | 62,740 | 59,624 | ||||||
Additional paid-in capital | 135,888,352 | 135,330,668 | ||||||
Accumulated deficit | (137,933,858 | ) | (135,688,319 | ) | ||||
Total stockholders’ deficit | (1,982,766 | ) | (298,027 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 6,083,673 | $ | 8,033,532 | ||||
F-29
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Net sales | $ | 1,517,430 | $ | 1,433,991 | $ | 3,260,750 | $ | 3,221,909 | ||||||||
Cost of goods sold | 699,844 | 600,762 | 1,489,336 | 1,337,982 | ||||||||||||
Gross profit | 817,586 | 833,229 | 1,771,414 | 1,883,927 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 875,304 | 642,573 | 1,739,145 | 1,476,756 | ||||||||||||
Selling, general and administrative | 650,293 | 753,812 | 1,432,869 | 1,606,295 | ||||||||||||
Total operating expenses | 1,525,597 | 1,396,385 | 3,172,014 | 3,083,051 | ||||||||||||
Loss from operations | (708,011 | ) | (563,156 | ) | (1,400,600 | ) | (1,199,124 | ) | ||||||||
Other income (expenses): | ||||||||||||||||
Interest income | 19,199 | 61,788 | 44,257 | 127,991 | ||||||||||||
Interest expense | (444,702 | ) | (363,426 | ) | (886,847 | ) | (719,960 | ) | ||||||||
Other | (1,128 | ) | 3,325 | (2,349 | ) | 2,022 | ||||||||||
Total other expenses | (426,631 | ) | (298,313 | ) | (844,939 | ) | (589,947 | ) | ||||||||
Net loss | $ | (1,134,642 | ) | $ | (861,469 | ) | $ | (2,245,539 | ) | $ | (1,789,071 | ) | ||||
Net loss per common share: | ||||||||||||||||
Basic | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||
Diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 61,608,782 | 58,560,046 | 60,635,448 | 58,535,631 | ||||||||||||
Diluted | 61,608,782 | 58,560,046 | 60,635,448 | 58,535,631 |
F-30
Six Months Ended | ||||||||
June 30, | ||||||||
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,245,539 | ) | $ | (1,789,071 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 207,508 | 196,668 | ||||||
Amortization of debt discount and debt offering costs | 431,071 | 388,627 | ||||||
Stock compensation expense | 67,224 | 138,526 | ||||||
Other | 34,020 | 21,019 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 102,821 | (238,235 | ) | |||||
Inventory | (28,544 | ) | (64,773 | ) | ||||
Prepaid expenses and other assets | 123,349 | 261,208 | ||||||
Accounts payable | 152,484 | 74,099 | ||||||
Accrued liabilities and other liabilities | 330,978 | (534,451 | ) | |||||
Deferred revenue | (112,938 | ) | (14,107 | ) | ||||
Net cash used in operating activities | (937,566 | ) | (1,560,490 | ) | ||||
Cash flows from investing activities: | ||||||||
Maturities of available-for-sale securities | — | 1,531,000 | ||||||
Purchases of property and equipment | (36,202 | ) | (23,057 | ) | ||||
Proceeds from sales of property and equipment | — | 4,097 | ||||||
Patent and trademark costs | (1,885 | ) | (20,846 | ) | ||||
Net cash (used in) provided by investing activities | (38,087 | ) | 1,491,194 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 650,000 | — | ||||||
Payment of stock offering costs | (20,040 | ) | — | |||||
Payment of debt issuance costs | — | (5,000 | ) | |||||
Payment of notes payable | (942,078 | ) | (130,435 | ) | ||||
Payments under capital leases | (7,873 | ) | (9,496 | ) | ||||
Net cash used in financing activities | (319,991 | ) | (144,931 | ) | ||||
Net decrease in cash | (1,295,644 | ) | (214,227 | ) | ||||
Cash, beginning of period | 2,502,655 | 4,940,946 | ||||||
Cash, end of period | $ | 1,207,011 | $ | 4,726,719 | ||||
F-31
(unaudited)
1. | Basis of Presentation |
2. | Stock-Based Compensation |
F-32
(unaudited)
Six Months Ended June 30, 2007 | ||||||||||||||||
Weighted Average | Aggregate | |||||||||||||||
Weighted Average | Remaining | Intrinsic | ||||||||||||||
Number of Options | Exercise Price | Contractual Life | Value | |||||||||||||
Outstanding, January 1, 2007 | 5,975,473 | $ | 0.42 | |||||||||||||
Granted | — | — | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | (96,667 | ) | $ | 0.32 | ||||||||||||
Expired | — | — | ||||||||||||||
Outstanding, June 30, 2007 | 5,878,806 | $ | 0.42 | 5.2 years | — | |||||||||||
Exercisable, June 30, 2007 | 4,888,806 | $ | 0.44 | 4.8 years | — | |||||||||||
3. | Comprehensive Income (Loss) |
Three Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, 2006 | June 30, 2006 | |||||||
Net loss | $ | (861,469 | ) | $ | (1,789,071 | ) | ||
Unrealized gains (losses) on securities | 55 | (2,018 | ) | |||||
Other comprehensive loss | $ | (861,414 | ) | $ | (1,791,089 | ) | ||
4. | Earnings Per Share |
Three Months Ended | Three Months Ended | |||||||||||||||
June 30, 2007 | June 30, 2006 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
Earnings | Earnings | Earnings | Earnings | |||||||||||||
Per Share | Per Share | Per Share | Per Share | |||||||||||||
Outstanding shares | 62,739,731 | 62,739,731 | 58,690,046 | 58,690,046 | ||||||||||||
Effect of weighting changes in outstanding shares | (1,130,949 | ) | (1,130,949 | ) | — | — | ||||||||||
Contingently issuable shares | — | — | (130,000 | ) | (130,000 | ) | ||||||||||
Adjusted shares | 61,608,782 | 61,608,782 | 58,560,046 | 58,560,046 | ||||||||||||
F-33
(unaudited)
Six Months Ended | Six Months Ended | |||||||||||||||
June 30, 2007 | June 30, 2006 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
Earnings | Earnings | Earnings | Earnings | |||||||||||||
Per Share | Per Share | Per Share | Per Share | |||||||||||||
Outstanding shares | 62,739,731 | 62,739,731 | 58,690,046 | 58,690,046 | ||||||||||||
Effect of weighting changes in outstanding shares | (2,104,283 | ) | (2,104,283 | ) | (24,415 | ) | (24,415 | ) | ||||||||
Contingently issuable shares | — | — | (130,000 | ) | (130,000 | ) | ||||||||||
Adjusted shares | 60,635,448 | 60,635,448 | 58,535,631 | 58,535,631 | ||||||||||||
5. | Inventory |
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(unaudited) | ||||||||
Materials and component parts | $ | 404,186 | $ | 522,225 | ||||
Work-in-process | 151,741 | 167,188 | ||||||
Finished goods | 582,965 | 464,963 | ||||||
Total | $ | 1,138,892 | $ | 1,154,376 | ||||
F-34
(unaudited)
6. | Intangible Assets | |
The major classes of intangible assets are as follows: |
June 30, 2007 | December 31, 2006 | |||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||||||
Wtd Avg Life | Amount | Amortization | Amount | Amortization | ||||||||||||||||
Patents and trademarks | 9.2 yrs | $ | 3,124,296 | $ | 1,463,635 | $ | 3,131,391 | $ | 1,370,291 | |||||||||||
Acquired technology | 1.5 yrs | 237,271 | 186,708 | 237,271 | 169,854 | |||||||||||||||
Total | $ | 3,361,567 | $ | 1,650,343 | $ | 3,368,662 | $ | 1,540,145 | ||||||||||||
Estimated | ||||
Amortization | ||||
Expense | ||||
For the year ended 12/31/2007 | $ | 222,709 | ||
For the year ended 12/31/2008 | 216,116 | |||
For the year ended 12/31/2009 | 170,852 | |||
For the year ended 12/31/2010 | 170,033 | |||
For the year ended 12/31/2011 | 168,581 |
7. | Product Warranty | |
We warrant our products against defects in design, materials, and workmanship generally for a period of one year from the date of sale to the end customer, except in cases where the product has a limited use as designed. Our accrual for warranty expenses is adjusted periodically to reflect actual experience. Our primary marketing partner, Ethicon Endo-Surgery, Inc. (EES), a Johnson & Johnson company, also reimburses us for a portion of warranty expense incurred based on end customer sales they make during a given fiscal year. Payments charged against the reserve are disclosed net of EES’ estimated reimbursement. | ||
The activity in the warranty reserve account for the three-month and six-month periods ended June 30, 2007 and 2006 is as follows: |
Three Months Ended | Six Months Ended | ||||||||||||||||
June 30, | June 30, | ||||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||
Warranty reserve at beginning of period | $ | 67,401 | $ | 43,725 | $ | 44,858 | $ | 41,185 | |||||||||
Provision for warranty claims and changes in reserve for warranties | 39,153 | 9,823 | 71,905 | 23,274 | |||||||||||||
Payments charged against the reserve | (16,378 | ) | (10,883 | ) | (26,587 | ) | (21,794 | ) | |||||||||
Warranty reserve at end of period | $ | 90,176 | $ | 42,665 | $ | 90,176 | $ | 42,665 | |||||||||
F-35
(unaudited)
8. | Notes Payable | |
In December 2004, we completed a private placement of four-year convertible promissory notes in an aggregate principal amount of $8.1 million under a Securities Purchase Agreement with Biomedical Value Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (our President and CEO). Biomedical Value Fund, L.P. and Biomedical Offshore Value Fund, Ltd. are funds managed by Great Point Partners, LLC (collectively, the Great Point Funds). The notes originally bore interest at 8% per annum and were originally due on December 13, 2008. | ||
All of our material assets, except the intellectual property associated with our Lymphoseek and RIGS® products under development, have been pledged as collateral for these notes. In addition to the security interest in our assets, the notes carry substantial covenants that impose significant requirements on us, including, among others, requirements that: we pay all principal, interest and other charges on the notes when due; we use the proceeds from the sale of the notes only for permitted purposes such as Lymphoseek development and general corporate purposes; we nominate and recommend for election as a director a person designated by the holders of the notes (as of June 30, 2007, the holders of the notes have not designated a potential board member); we keep reserved out of our authorized shares of common stock sufficient shares to satisfy our obligation to issue shares on conversion of the notes and the exercise of the warrants issued in connection with the sale of the notes; and we indemnify the purchasers of the notes against certain liabilities. Additionally, with certain exceptions, the notes prohibit us from: amending our organizational or governing agreements and documents; entering into any merger or consolidation; dissolving the company or liquidating its assets; or acquiring all or any substantial part of the business or assets of any other person; engaging in transactions with any affiliate; entering into any agreement inconsistent with our obligations under the notes and related agreements; incurring any indebtedness, capital leases, or contingent obligations outside the ordinary course of business; granting or permitting liens against or security interests in our assets; making any material dispositions of our assets outside the ordinary course of business; declaring or paying any dividends or making any other restricted payments; or making any loans to or investments in other persons outside of the ordinary course of business. | ||
As part of the original transaction, we issued the investors 10,125,000 Series T warrants to purchase our common stock at an exercise price of $0.46 per share, expiring in December 2009. The fair value of the warrants issued to the investors was $1,315,000 on the date of issuance and was determined by a third-party valuation expert using the Black-Scholes option pricing model with the following assumptions: an average risk-free interest rate of 3.4%, volatility of 50% and no expected dividend rate. In connection with this financing, we also issued 1,600,000 Series U warrants to purchase our common stock to the placement agents, containing substantially the same terms as the warrants issued to the investors. The fair value of the warrants issued to the placement agents was $208,014 using the Black-Scholes option pricing model with the same assumptions used to determine the fair value of the warrants issued to the investors. The value of the beneficial conversion feature of the notes was estimated at $1,315,000 based on the effective conversion price at the date of issuance. The fair value of the warrants issued to the investors and the value of the beneficial conversion feature were recorded as discounts on the note and were being amortized over the term of the notes using an effective interest rate of 19.8%. The fair value of the warrants issued to the placement agents was recorded as a deferred debt issuance cost and was being amortized over the term of the notes. | ||
In November 2006, we amended the Agreement and modified several of the key terms in the related notes. The original notes were thereby cancelled and replacement notes were issued to the noteholders which bear interest at 12% per annum, payable on March 31, June 30, September 30 and December 31 of each year. The maturity of the notes was modified as follows: $500,000 due January 8, 2007; $1,250,000 due July 9, 2007; $1,750,000 due January 7, 2008; $2,000,000 due July 7, 2008 and the remaining $2,600,000 due January 7, 2009. Neoprobe is also required to make mandatory repayments of principal to the Great Point Funds under certain circumstances such as asset dispositions, partnering transactions and sales of equity. Such mandatory repayments are applied against future scheduled principal payments. In exchange for the increased interest rate and accelerated principal repayment schedule, the noteholders eliminated the financial covenants under |
F-36
(unaudited)
9. | Stock Warrants | |
At June 30, 2007 there are 17.0 million warrants outstanding to purchase our common stock. The warrants are exercisable at prices ranging from $0.13 to $0.50 per share with a weighted average exercise price $0.40 per share. | ||
10. | Income Taxes | |
Effective January 1, 2007, we adopted Financial Interpretation (FIN) No. 48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,Accounting for Income Taxes. FIN 48 outlines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The adoption of FIN 48 had no effect on our results of operations and financial condition. | ||
11. | Segment and Subsidiary Information | |
We report information about our operating segments using the “management approach” in accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information.This information is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. Our reportable segments are identified based on differences in products, services and markets served. There were no inter-segment sales. We own or have rights to intellectual property involving two primary types of medical device products, including oncology instruments currently used primarily in the application of sentinel lymph node biopsy (SLNB), and blood flow measurement devices. We also own or have rights to intellectual property related to several drug and therapy products. |
F-37
(unaudited)
Blood | Drug and | |||||||||||||||||||
Oncology | Flow | Therapy | ||||||||||||||||||
($ amounts in thousands) | Devices | Devices | Products | Corporate | Total | |||||||||||||||
Three Months Ended June 30, 2007 | ||||||||||||||||||||
Net sales: | ||||||||||||||||||||
United States1 | $ | 1,338 | $ | 115 | $ | — | $ | — | $ | 1,453 | ||||||||||
International | 40 | 24 | — | — | 64 | |||||||||||||||
Research and development expenses | 163 | 101 | 611 | — | 875 | |||||||||||||||
Selling, general and administrative expenses, excluding depreciation and amortization2 | — | — | — | 548 | 548 | |||||||||||||||
Depreciation and amortization | 25 | 66 | — | 11 | 102 | |||||||||||||||
Income (loss) from operations3 | 576 | (114 | ) | (611 | ) | (559 | ) | (708 | ) | |||||||||||
Other income (expenses)4 | — | — | — | (427 | ) | (427 | ) | |||||||||||||
Total assets, net of depreciation and amortization: | ||||||||||||||||||||
United States operations | 1,759 | 698 | 161 | 1,804 | 4,422 | |||||||||||||||
Israeli operations (Cardiosonix Ltd.) | — | 1,662 | — | — | 1,662 | |||||||||||||||
Capital expenditures | 6 | — | — | 1 | 7 | |||||||||||||||
Three Months Ended June 30, 2006 | ||||||||||||||||||||
Net sales: | ||||||||||||||||||||
United States1 | $ | 1,252 | $ | 17 | $ | — | $ | — | $ | 1,269 | ||||||||||
International | 33 | 132 | — | — | 165 | |||||||||||||||
Research and development expenses | 235 | 201 | 207 | — | 643 | |||||||||||||||
Selling, general and administrative expenses, excluding depreciation and amortization2 | — | — | — | 658 | 658 | |||||||||||||||
Depreciation and amortization | 22 | 59 | — | 15 | 96 | |||||||||||||||
Income (loss) from operations3 | 513 | (196 | ) | (207 | ) | (673 | ) | (563 | ) | |||||||||||
Other income (expenses)4 | — | — | — | (298 | ) | (298 | ) | |||||||||||||
Total assets, net of depreciation and amortization: | ||||||||||||||||||||
United States operations | 1,285 | 523 | 35 | 5,658 | 7,501 | |||||||||||||||
Israeli operations (Cardiosonix Ltd.) | — | 2,105 | — | — | 2,105 | |||||||||||||||
Capital expenditures | — | 1 | — | 5 | 6 |
F-38
(unaudited)
Blood | Drug and | |||||||||||||||||||
Oncology | Flow | Therapy | ||||||||||||||||||
($ amounts in thousands) | Devices | Devices | Products | Corporate | Total | |||||||||||||||
Six Months Ended June 30, 2007 | ||||||||||||||||||||
Net sales: | ||||||||||||||||||||
United States1 | $ | 2,890 | $ | 160 | $ | — | $ | — | $ | 3,050 | ||||||||||
International | 125 | 86 | — | — | 211 | |||||||||||||||
Research and development expenses | 377 | 207 | 1,155 | — | 1,739 | |||||||||||||||
Selling, general and administrative expenses, excluding depreciation and amortization2 | — | — | — | 1,225 | 1,225 | |||||||||||||||
Depreciation and amortization | 51 | 132 | — | 25 | 208 | |||||||||||||||
Income (loss) from operations3 | 1,251 | (247 | ) | (1,155 | ) | (1,250 | ) | (1,401 | ) | |||||||||||
Other income (expenses) 4 | — | — | — | (845 | ) | (845 | ) | |||||||||||||
Total assets, net of depreciation and amortization: | ||||||||||||||||||||
United States operations | 1,759 | 698 | 161 | 1,804 | 4,422 | |||||||||||||||
Israeli operations (Cardiosonix Ltd.) | — | 1,662 | — | — | 1,662 | |||||||||||||||
Capital expenditures | 16 | 9 | — | 11 | 36 | |||||||||||||||
Six Months Ended June 30, 2006 | ||||||||||||||||||||
Net sales: | ||||||||||||||||||||
United States1 | $ | 2,731 | $ | 52 | $ | — | $ | — | $ | 2,783 | ||||||||||
International | 128 | 311 | — | — | 439 | |||||||||||||||
Research and development expenses | 347 | 458 | 672 | — | 1,477 | |||||||||||||||
Selling, general and administrative expenses, excluding depreciation and amortization2 | — | — | — | 1,409 | 1,409 | |||||||||||||||
Depreciation and amortization | 50 | 118 | — | 29 | 197 | |||||||||||||||
Income (loss) from operations3 | 1,306 | (395 | ) | (672 | ) | (1,438 | ) | (1,199 | ) | |||||||||||
Other income (expenses) 4 | — | — | — | (590 | ) | (590 | ) | |||||||||||||
Total assets, net of depreciation and amortization: | ||||||||||||||||||||
United States operations | 1,285 | 523 | 35 | 5,658 | 7,501 | |||||||||||||||
Israeli operations (Cardiosonix Ltd.) | — | 2,105 | — | — | 2,105 | |||||||||||||||
Capital expenditures | — | 2 | — | 21 | 23 |
1 | All sales to EES are made in the United States. EES distributes the product globally through its international affiliates. | |
2 | Selling, general and administrative expenses, excluding depreciation and amortization, represent expenses that relate to the general administration of the company and as such are not currently allocated to our individual reportable segments. | |
3 | Income (loss) from operations does not reflect the allocation of selling, general and administrative expenses to the operating segments. | |
4 | Amounts consist primarily of interest income and interest expense which are not currently allocated to our individual reportable segments. |
12. | Supplemental Disclosure for Statements of Cash Flows | |
During the six-month periods ended June 30, 2007 and 2006, we paid interest aggregating $234,000 and $331,000, respectively. During the six-month periods ended June 30, 2007 and 2006, we transferred $44,000 and $73,000, respectively, in inventory to fixed assets related to the creation and maintenance of a pool of service loaner equipment. During the six-month period ended June 30, 2007, we netted $166,000 of stock offering costs that were paid in 2006 against proceeds from issuance of common stock. Also during the six-month period ended June 30, 2007, we amortized |
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(unaudited)
13. | Subsequent Event | |
In July 2007, David C. Bupp (our President and CEO) and certain members of his family purchased a $1.0 million convertible note and warrants. The note bears interest at 10% per annum during its one-year term and is repayable in whole or in part with no penalty. The note is convertible into shares of our common stock at a price of $0.31 per share, a 25% premium to the average closing market price of our common stock for the 5 days preceding the closing of the transaction. As part of this transaction, we issued the purchasers 500,000 Series V warrants to purchase our common stock at an exercise price of $0.31 per share, expiring in July 2012. |
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SEC Registration | $ | 388.29 | ||
Legal Fees and Expenses* | $ | 25,000.00 | ||
Accounting Fees* | $ | 20,000.00 | ||
Miscellaneous* | $ | 2,500.00 | ||
Total | $ | 47,888,29 |
* | Estimated |
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Exhibit | ||
Number | Exhibit Description | |
3.1 | Amended and Restated Certificate of Incorporation of Neoprobe Corporation as corrected February 18, 1994 and amended June 27, 1994, June 3, 1996, March 17, 1999, May 9, 2000, June 13, 2003, July 27, 2004, June 22, 2005, and November 20, 2006 (incorporated by reference to Exhibit 3.1 to the company’s Registration Statement on Form SB-2 filed December 7, 2006). | |
3.2 | Amended and Restated By-Laws of Neoprobe Corporation, as adopted July 26, 2007 (incorporated by reference to Exhibit 3.2 to the company’s Current Report on Form 8-K filed August 3, 2007). | |
5.1 | Opinion of Porter, Wright, Morris & Arthur LLP.** | |
10.1 | Amended and Restated Stock Option and Restricted Stock Purchase Plan dated March 3, 1994 (incorporated by reference to Exhibit 10.2.26 to the company’s December 31, 1993 Form 10-K). | |
10.2 | 1996 Stock Incentive Plan dated January 18, 1996 as amended March 13, 1997 (incorporated by reference to Exhibit 10.2.37 to the company’s December 31, 1997 Form 10-K). | |
10.3 | Neoprobe Corporation Amended and Restated 2002 Stock Incentive Plan (incorporated by reference to Appendix A to the company’s Definitive Proxy Statement (File No. 000-26520), filed with the Securities and Exchange Commission on April 29, 2005). | |
10.4 | Form of Stock Option Agreement under the Neoprobe Corporation Amended and Restated 2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed December 21, 2006). | |
10.5 | Employment Agreement, dated January 1, 2007, between the company and David C. Bupp. (Incorporated by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed January 5, 2007. This is one of three substantially identical employment agreements. A schedule identifying the other agreements and setting forth the material details in which such agreements differ from the one that is incorporated by reference herein is filed as Exhibit 10.2 to the company’s Current Report on Form 8-K filed January 5, 2007). | |
10.6 | Technology Transfer Agreement dated July 29, 1992 between the company and The Dow Chemical Corporation (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Commission) (incorporated by reference to Exhibit 10.10 to the company’s Form S-1 filed October 15, 1992). | |
10.7 | Cooperative Research and Development Agreement between the company and the National Cancer Institute (incorporated by reference to Exhibit 10.3.31 to the company’s September 30, 1995 Form 10-QSB). |
II-3
Exhibit | ||
Number | Exhibit Description | |
10.8 | License dated May 1, 1996 between the company and The Dow Chemical Company (incorporated by reference to Exhibit 10.3.45 to the company’s June 30, 1996 Form 10-QSB). | |
10.9 | License Agreement dated May 1, 1996 between the company and The Dow Chemical company (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Commission) (incorporated by reference to Exhibit 10.3.46 to the company’s June 30, 1996 Form 10-QSB). | |
10.10 | License Agreement dated January 30, 2002 between the company and the Regents of the University of California, San Diego, as amended on May 27, 2003 and February 1, 2006 (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Commission) (incorporated by reference to Exhibit 10.11 to the company’s Annual Report on Form 10-KSB filed March 31, 2006). | |
10.11 | Evaluation License Agreement dated March 31, 2005, between the company and the Regents of the University of California, San Diego (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Commission) (incorporated by reference to Exhibit 10.12 to the company’s Annual Report on Form 10-KSB filed March 31, 2006). | |
10.12 | Distribution Agreement between the company and Ethicon Endo-Surgery, Inc. dated October 1, 1999 (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Commission)(incorporated by reference to Exhibit 10.13 to the company’s December 31, 2006 Form 10-KSB). | |
10.13 | Product Supply Agreement between the company and TriVirix International, Inc., dated February 5, 2004 (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Commission) (incorporated by reference to Exhibit 10.17 to the company’s December 31, 2004 Form 10-KSB). | |
10.14 | Warrant to Purchase Common Stock of Neoprobe Corporation dated March 8, 2004 between the company and David C. Bupp (incorporated by reference to Exhibit 10.28 to the company’s December 31, 2003 Form 10-KSB). | |
10.15 | Warrant to Purchase Common Stock of Neoprobe Corporation dated April 2, 2003 between the company and Donald E. Garlikov (incorporated by reference to Exhibit 99(g) to the company’s Current Report on Form 8-K filed April 2, 2003). | |
10.16 | Warrant to Purchase Common Stock of Neoprobe Corporation dated April 2, 2003 between the company and David C. Bupp (incorporated by reference to Exhibit 99(h) to the company’s Current Report on Form 8-K filed April 2, 2003). | |
10.17 | Registration Rights Agreement dated April 2, 2003 between the company, David C. Bupp and Donald E. Garlikov (incorporated by reference to Exhibit 99(i) to the company’s Current Report on Form 8-K filed April 2, 2003). | |
10.18 | Stock Purchase Agreement dated October 22, 2003 between the company and Bridges & Pipes, LLC (incorporated by reference to Exhibit 10.32 to the company’s Registration Statement on Form SB-2 filed December 2, 2003. This agreement is one of 21 substantially identical agreements and is accompanied by a schedule identifying the other agreements omitted and setting forth the material details in which such documents differ from the one that is filed as Exhibit 10.32 to the company’s Registration Statement on Form SB-2 filed December 2, 2003). |
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Exhibit | ||
Number | Exhibit Description | |
10.19 | Registration Rights Agreement dated October 22, 2003 between the company and Bridges & Pipes, LLC (incorporated by reference to Exhibit 10.33 to the company’s Registration Statement on Form SB-2 filed December 2, 2003. This agreement is one of 21 substantially identical agreements and is accompanied by a schedule identifying the other agreements omitted and setting forth the material details in which such documents differ from the one that is filed as Exhibit 10.33 to the company’s Registration Statement on Form SB-2 filed December 2, 2003). | |
10.20 | Series R Warrant Agreement dated October 22, 2003 between the company and Bridges & Pipes, LLC (incorporated by reference to Exhibit 10.34 to the company’s Registration Statement on Form SB-2 filed December 2, 2003. This agreement is one of 21 substantially identical agreements and the material differences in which such documents differ from the one that is filed herewith are identified on the schedule filed with Exhibit 10.33 to the company’s Registration Statement on Form SB-2 filed December 2, 2003). | |
10.21 | Series S Warrant Agreement dated November 21, 2003 between the company and Alberdale Capital, LLC (incorporated by reference to Exhibit 10.35 to the company’s registration statement on Form SB-2 filed December 2, 2003. This agreement is one of 7 substantially identical agreements and is accompanied by a schedule identifying the other agreements omitted and setting forth the material details in which such documents differ from the one that is filed as Exhibit 10.35 to the company’s Registration Statement on Form SB-2 filed December 2, 2003). | |
10.22 | Securities Purchase Agreement, dated as of December 13, 2004, among Neoprobe Corporation, Biomedical Value Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 16, 2004). | |
10.23 | Amendment, dated November 30, 2006, to the Securities Purchase Agreement, dated as of December 13, 2004, among Neoprobe Corporation, Biomedical Value Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 4, 2006). | |
10.24 | Form of Neoprobe Corporation Replacement Series A Convertible Promissory Note issued by the Company in connection with the Amendment, dated November 30, 2006, to the Securities Purchase Agreement, dated as of December 13, 2004, by and among Neoprobe Corporation, Biomedical Value Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 4, 2006. This is the form of three substantially identical agreements. A schedule identifying the agreements and setting forth the material details in which such agreements differ from the form that is incorporated by reference herein is filed as Exhibit 10.4 to the company’s Current Report on Form 8-K filed December 4, 2006). | |
10.25 | Form of Series T Neoprobe Corporation Replacement Common Stock Purchase Warrant issued by the Company in connection with the Amendment, dated November 30, 2006, to the Securities Purchase Agreement, dated as of December 13, 2004, by and among Neoprobe Corporation, Biomedical Value Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (Incorporated by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed December 4, 2006. This is the form of three substantially identical warrants. A schedule identifying the warrants and setting forth the material details in which such agreements differ from the form that is incorporated by reference herein is filed as Exhibit 10.4 to the company’s Current Report on Form 8-K filed December 4, 2006). | |
10.26 | Security Agreement, dated as of December 13, 2004, made by Neoprobe Corporation in favor of Biomedical Value Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (incorporated by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed December 16, 2004). |
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Exhibit | ||
Number | Exhibit Description | |
10.27 | Form of Series U Warrant Agreement, dated December 13, 2004, between the Company and the placement agents for the Series A Convertible Promissory Notes and Series T Warrants. (Incorporated by reference to Exhibit 10.35 to the company’s December 31, 2004 Form 10-KSB. This is the form of six substantially identical agreements. A schedule identifying the other agreements and setting forth the material details in which such agreements differ from the one that is incorporated by reference herein was filed as Exhibit 10.36 to the company’s December 31, 2004 Form 10-KSB.) | |
10.28 | Common Stock Purchase Agreement between the company and Fusion Capital Fund II, LLC dated December 1, 2006 (incorporated by reference to Exhibit 10.5 to the company’s Current Report on Form 8-K filed December 4, 2006). | |
10.29 | Registration Rights Agreement dated December 1, 2006, between the company and Fusion Capital Fund II, LLC (incorporated by reference to Exhibit 10.6 to the company’s Current Report on Form 8-K filed December 4, 2006). | |
10.30 | 10% Convertible Note Purchase Agreement, dated July 3, 2007, between Neoprobe Corporation and David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with right of survivorship (incorporated by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed July 9, 2007). | |
10.31 | Neoprobe Corporation 10% Convertible Promissory Note Due July 8, 2008, executed in favor of David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with right of survivorship (incorporated by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K filed July 9, 2007). | |
10.32 | Warrant to Purchase Common Stock of Neoprobe Corporation issued to David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with right of survivorship (incorporated by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed July 9, 2007). | |
10.33 | Registration Rights Agreement, dated July 3, 2007, by and among Neoprobe Corporation and David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with right of survivorship (incorporated by reference to Exhibit 10.4 to the company’s Current Report on Form 8-K filed July 9, 2007). | |
21.1 | Subsidiaries of the registrant.* | |
23.1 | Consent of BDO Seidman, LLP.* | |
23.2 | Consent of Porter, Wright, Morris & Arthur LLP (included in Exhibit 5.1 herein). | |
24.1 | Powers of Attorney (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed with the Commission December 7, 2006, Registration No. 139185, with the exception of the Powers of Attorney for Drs. Bland and Johnson, which are filed herewith).* |
* | Filed herewith. | |
** | Previously filed. |
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(1) | to file, during any period in which offers or sells securities, a post-effective amendment to this Registration Statement to: |
(i) | include any prospectus required by section 10(a)(3) of the Securities Act of 1933; | ||
(ii) | reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and | ||
(iii) | include any additional or changed material information on the plan of distribution. |
(2) | that for determining liability under the Securities Act, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. |
(3) | to file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. |
(4) | that for determining liability of the undersigned small business issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned small business issuer undertakes that in a primary offering of securities of the undersigned small business issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned small business issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
i. | Any preliminary prospectus or prospectus of the undersigned small business issuer relating to the offering required to be filed pursuant to Rule 424; | ||
ii. | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned small business issuer or used or referred to by the undersigned small business issuer; | ||
iii. | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned small business issuer or its securities provided by or on behalf of the undersigned small business issuer; and | ||
iv. | Any other communication that is an offer in the offering made by the undersigned small business issuer to the purchaser. |
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II-8
Neoprobe Corporation | ||||
By: | /s/ David C. Bupp | |||
David C. Bupp, President and Chief Executive Officer | ||||
Signature | Title | Date | ||
/s/ David C. Bupp | President, Chief Executive Officer and Director (principal executive officer) | September 20, 2007 | ||
/s/ Brent L. Larson* | Vice President, Finance and Chief Financial Officer (principal financial officer and principal accounting officer) | September 20, 2007 | ||
/s/ Carl J. Aschinger, Jr.* | Chairman of the Board of Directors | September 20, 2007 | ||
/s/ Reuven Avital* | Director | September 20, 2007 | ||
/s/ Kirby I. Bland* | Director | September 20, 2007 | ||
/s/ Owen E. Johnson* | Director | September 20, 2007 | ||
/s/ Fred B. Miller* | Director | September 20, 2007 | ||
/s/ Frank Whitley, Jr.* | Director | September 20, 2007 |
*By: | /s/ David C. Bupp | |||
David C. Bupp, Attorney-in fact | ||||
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