SECURITIES AND EXCHANGE COMMISSION
to Form SB-2 on
Delaware | 2835 | 31-1080091 | ||
(State or other jurisdiction of incorporation or organization) | (Primary standard industrial classification code number) | (IRS employer identification number) |
425 Metro Place North, Suite 300
Dublin, Ohio 43017-1367
(614) 793-7500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Brent L. Larson, Vice President, Finance and
Chief Financial Officer
Neoprobe Corporation
425 Metro Place North, Suite 300
Dublin, Ohio 43017-1367
(614) 793-7500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Porter, Wright, Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215
Telephone No. (614) 227-2136
Telecopier No. (614) 227-2100
wjkelly@porterwright.com
Large accelerated filero | Accelerated filero | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyþ |
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
Prospectus Summary | 2 | |||
Risk Factors | 4 | |||
Cautionary Note Regarding Forward-Looking Statements | 15 | |||
Use of Proceeds | 16 | |||
Capitalization | 16 | |||
Market for Common Equity and Related Stockholder Matters | 17 | |||
Description of Business | 18 | |||
Description of Property | 36 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37 | |||
Our Management | 50 | |||
Security Ownership of Certain Beneficial Owners and Management | 59 | |||
Certain Relationships and Related Transactions | 61 | |||
Description of Capital Stock | 62 | |||
Acquisition of Common Stock by Selling Stockholders | 66 | |||
Selling Stockholders | 67 | |||
Plan of Distribution | 72 | |||
Disclosure of Commission Position on Indemnification for Securities Act Liabilities | 73 | |||
Legal Opinion | 74 | |||
Experts | 74 | |||
Additional Information | 74 | |||
Index to Financial Statements | F-1 |
1
2
3
4
5
• | ineffectiveness of the product candidate; | ||
• | 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; |
6
• | seek and obtain regulatory approvals faster than we could on our own; and, | ||
• | successfully commercialize existing and future product candidates. |
• | 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. |
7
• | restrictions on the products, manufacturers or manufacturing processes; | ||
• | warning letters; | ||
• | 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. |
8
9
10
11
12
• | we pay all principal by December 26, 2011; | ||
• | we use the proceeds from the sale of the Notes only for permitted purposes, such asLymphoseekdevelopment and general corporate purposes; | ||
• | 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. |
• | 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. |
13
• | 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. |
14
• | general economic and business conditions, both nationally and in our markets; | ||
• | our history of losses, negative net worth and uncertainty of future profitability; | ||
• | our expectations and estimates concerning future financial performance, financing plans and the impact of competition; | ||
• | our ability to implement our growth strategy; | ||
• | anticipated trends in our business; | ||
• | advances in technologies; and | ||
• | other risk factors set forth under “Risk Factors” in this prospectus. |
15
• | on an actual basis; and | ||
• | on pro forma bases to give effect to certain material financing activities that occurred subsequent to December 31, 2007 related to our financing transaction with Platinum-Montaur Life Sciences, LLC (Montaur). Specifically, the adjustments relate to amendments to the Montaur Series A Note and the Montaur Series W Warrant which were issued in connection with the first closing for $7 million which closed on December 26, 2007, and to the Montaur Series B Note and the Montaur Series X Warrant which were issued in connection with the second closing for $3 million on April 16, 2008. |
December 31, 2007 | December 31, 2007 | |||||||||||||||
Actual | Adjustments | Pro Forma | ||||||||||||||
Cash | $ | 1,540,220 | 2,820,000 | (1 | ) | $ | 4,360,220 | |||||||||
Other assets | 527,634 | 180,000 | (1 | ) | 707,634 | |||||||||||
Current liabilities | 2,170,908 | — | 2,170,908 | |||||||||||||
Long-term liabilities | 8,835,633 | (2,094,552 | ) | (1 | )(2) | 6,741,081 | ||||||||||
Stockholders’ deficit: | ||||||||||||||||
Preferred stock | — | — | — | |||||||||||||
Common stock | 67,240 | — | 67,240 | |||||||||||||
Additional paid-in capital | 136,765,697 | 5,481,299 | (1 | )(2) | 142,246,996 | |||||||||||
Accumulated deficit | (140,776,531 | ) | (386,747 | ) | (2 | ) | (141,163,278 | ) | ||||||||
Total stockholders’ (deficit) equity | (3,943,594 | ) | 5,094,552 | 1,150,958 | ||||||||||||
Total capitalization | $ | 7,062,947 | $ | 10,062,947 |
(1) | As a result of issuance of the Series B Note with the Series X Warrant in April 2008, the Company increased cash by $2,820,000, other assets by $180,000, long term liabilities by $443,695, and additional paid-in capital related to the beneficial conversion feature and the warrant by $2,556,305. | |
(2) | As a result of the amendment of the Series A Note and the Series W Warrant in March 2008, the Company decreased liabilities by $2,538,247, increased additional paid-in capital by $2,924,994, and increased accumulated deficit by $386,747 due to mark-to-market adjustments of derivative instruments recorded through March 31, 2008. |
16
High | Low | Close | ||||||||||
Fiscal Year 2008 | ||||||||||||
First Quarter | $ | 0.42 | $ | 0.29 | $ | 0.35 | ||||||
Second Quarter through April 25, 2008 | 0.52 | 0.34 | 0.52 | |||||||||
Fiscal Year 2007: | ||||||||||||
First Quarter | $ | 0.27 | $ | 0.20 | $ | 0.24 | ||||||
Second Quarter | 0.32 | 0.19 | 0.31 | |||||||||
Third Quarter | 0.50 | 0.23 | 0.31 | |||||||||
Fourth Quarter | 0.35 | 0.25 | 0.29 | |||||||||
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 |
17
18
19
• | real-time monitoring; | ||
• | intra-operative quantification; | ||
• | non-invasive diagnostics; and | ||
• | evaluation of cardiac function. |
20
Number of | ||||||||
Indication | Patients | Status | ||||||
Breast (peritumoral injection) | 24 | Completed | ||||||
Melanoma | 24 | Completed | ||||||
Breast (intradermal injection, next day surgery) | 60 | Ongoing | ||||||
Prostate | 20 | Ongoing | ||||||
Colon | 20 | Ongoing |
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
SFAS No. 141(R) retains the fundamental requirements of the original pronouncement requiring that the acquisition method (formerly called the purchase method) of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141 defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets and liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. SFAS No. 141(R) requires, among other things, that the acquisition-related costs be recognized separately from the acquisition. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and is required to be adopted by Neoprobe beginning January 1, 2009. The effect the adoption of SFAS No. 141(R) will have on us will depend on the nature and size of acquisitions we complete after we adopt SFAS No. 141(R), if any.
47
• | 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 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. In adopting SFAS No. 123(R), we made no modifications to outstanding stock options, nor did we have any other outstanding share-based payment instruments subject to SFAS No. 123(R) at the time of our adoption. We will continue to evaluate compensation trends and may further revise our option granting practices in future years. | ||
• | 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 December 31, 2007, the most significant long-lived assets on our balance sheet relate to assets recorded in connection with the |
48
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. | ||
• | Fair Value of Derivative Liabilities. We account for derivatives in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, which provides accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Derivative instruments embedded in contracts, to the extent not already a free-standing contract, are required to be bifurcated from the debt instrument and accounted for separately. All derivatives are recorded on the consolidated balance sheet at fair value. In accordance with SFAS No. 133, the conversion option and two put options embedded in the Series A Note issued in December 2007 are considered derivative instruments and are required to be bifurcated from the debt instrument and accounted for separately. In addition, in accordance with SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, the Series W warrants issued in connection with the Series A Note are accounted for as a liability due to the existence of certain provisions in the instrument. As a result, we recorded a total aggregate derivative liability of $2.6 million on the date of issuance of the note. The fair value of the Series W warrants was determined using the Black-Scholes option pricing model. Changes in the fair value of the derivative liabilities are recorded in the consolidated statement of operations. As of December 31, 2007, the derivative liabilities had a fair value of $1.60 million and $1.25 million for the conversion and put options and the warrants, respectively. Because the value of our stock increased $0.02 per share from $0.27 per share at the closing date of the financing on December 26, 2007 to $0.29 per share at December 31, 2007, our year end, the effect of marking the derivative liabilities to market at December 31, 2007 resulted in an increase in the estimated fair value of the warrant liability of $248,000 which was recorded as non-cash expense during the fourth quarter of 2007. |
49
50
Name | Age | Position | ||||
Anthony K. Blair | 47 | Vice President, Manufacturing Operations | ||||
Rodger A. Brown | 57 | Vice President, Regulatory Affairs and Quality Assurance | ||||
Brent L. Larson | 45 | Vice President, Finance; Chief Financial Officer; Treasurer and Secretary | ||||
Douglas L. Rash | 64 | Vice President, Marketing |
51
52
(b) | (c) | |||||||||||||||||||||||
(a) | Option | All Other | Total | |||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Awards | Compensation | Compensation | ||||||||||||||||||
Anthony K. Blair | 2007 | $ | 134,000 | $ | 19,125 | $ | 8,550 | $ | 3,887 | $ | 165,562 | |||||||||||||
Vice President, | 2006 | 122,000 | 4,575 | 12,324 | 3,444 | 142,343 | ||||||||||||||||||
Manufacturing Operations | ||||||||||||||||||||||||
David C. Bupp | 2007 | $ | 305,000 | $ | 60,000 | $ | 51,808 | $ | 8,398 | $ | 425,206 | |||||||||||||
President and | 2006 | 305,000 | 20,000 | 60,006 | 8,099 | 393,105 | ||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||
Brent L. Larson | 2007 | $ | 170,000 | $ | 19,125 | $ | 10,184 | $ | 4,896 | $ | 204,205 | |||||||||||||
Vice President, Finance and | 2006 | 160,000 | 5,000 | 16,175 | 4,576 | 185,751 | ||||||||||||||||||
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 No. 123(R). Assumptions made in the valuation of stock option awards are disclosed in Item 1(n) of the Notes to the Consolidated Financial Statements in this prospectus. |
(c) | Amount represents life insurance premiums paid during the fiscal year for the benefit of the Named Executives 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. |
53
• | 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, salary, bonus opportunities or benefits have materially diminished, a material adverse change in his working conditions has occurred, his services are no longer required in light of the company’s business plan, 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 | ||
• | 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. |
54
• | by our company without cause (cause is defined as any willful breach of a material duty by Mr. Blair 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. Blair’s employment agreement; or | ||
• | by the resignation of Mr. Blair because his title, authority, responsibilities, salary, bonus opportunities or benefits have materially diminished, a material adverse change in his working conditions has occurred, his services are no longer required in light of the company’s business plan, 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 |
55
• | 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. |
• | If a change in control occurs with respect to our company and the employment of Mr. Larson is concurrently or subsequently terminated, then Mr. Larson will be paid a severance payment of $340,000; and | ||
• | Mr. Larson will be paid a severance amount of $170,000 if his employment is terminated at the end of his employment agreement or without cause. |
56
Number of Securities | ||||||||||||||||||||
Underlying Unexercised | Option | Option | ||||||||||||||||||
Options (#) | Exercise | Expiration | ||||||||||||||||||
Name | Exercisable | Unexercisable | Price | Date | Note | |||||||||||||||
Anthony K. Blair | 50,000 | — | $ | 0.60 | 7/1/2014 | (j) | ||||||||||||||
40,000 | — | $ | 0.39 | 12/10/2014 | (l) | |||||||||||||||
30,000 | — | $ | 0.26 | 12/27/2015 | (m) | |||||||||||||||
10,000 | 20,000 | $ | 0.27 | 12/15/2016 | (n) | |||||||||||||||
— | 20,000 | $ | 0.35 | 7/27/2017 | (o) | |||||||||||||||
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) | |||||||||||||||
150,000 | — | $ | 0.30 | 1/7/2014 | (i) | |||||||||||||||
150,000 | — | $ | 0.49 | 7/28/2014 | (k) | |||||||||||||||
200,000 | — | $ | 0.39 | 12/10/2014 | (l) | |||||||||||||||
200,000 | — | $ | 0.26 | 12/27/2015 | (m) | |||||||||||||||
100,000 | 200,000 | $ | 0.27 | 12/15/2016 | (n) | |||||||||||||||
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) | |||||||||||||||
70,000 | — | $ | 0.30 | 1/7/2014 | (i) | |||||||||||||||
50,000 | — | $ | 0.49 | 7/28/2014 | (k) | |||||||||||||||
50,000 | — | $ | 0.39 | 12/10/2014 | (l) | |||||||||||||||
40,000 | — | $ | 0.26 | 12/27/2015 | (m) | |||||||||||||||
16,667 | 33,333 | $ | 0.27 | 12/15/2016 | (n) |
(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 7/1/2004 and vest as to one-third on each of the first three anniversaries of the date of grant. |
(k) | Options were granted 7/28/2004 and vest as to one-third on each of the first three anniversaries of the date of grant. |
(l) | Options were granted 12/10/2004 and vest as to one-third on each of the first three anniversaries of the date of grant. |
(m) | 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. |
(n) | Options were granted 12/15/2006 and vest as to one-third on each of the first three anniversaries of the date of grant. |
(o) | Options were granted 7/27/2007 and vest as to one-third on each of the first three anniversaries of the date of grant. |
57
(a) | ||||||||||||
Fees Earned | (b) | |||||||||||
or Paid in | Option | Total | ||||||||||
Name | Cash | Awards | Compensation | |||||||||
Carl J. Aschinger, Jr. | $ | 24,321 | $ | 3,510 | $ | 27,831 | ||||||
Reuven Avital | 18,500 | 3,510 | 22,010 | |||||||||
Kirby I. Bland, M.D. | 18,500 | 3,510 | 22,010 | |||||||||
Owen E. Johnson, M.D. | 8,000 | 2,018 | 10,018 | |||||||||
Julius R. Krevans, M.D. (c) | 16,207 | (171 | ) | 16,036 | ||||||||
Fred B. Miller | 30,000 | 3,510 | 33,510 | |||||||||
J. Frank Whitley, Jr. | 20,000 | 3,510 | 23,510 |
(a) | Amount represents fees earned during the fiscal year ended December 31, 2007 (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 No. 123(R). Assumptions made in the valuation of stock option awards are disclosed in Item 1(n) of the Notes to the Consolidated Financial Statements included in this prospectus. | |
(c) | Dr. Krevans ceased to be a director of the Company in July 2007. As a result, previously recorded expenses related to option awards that were forfeited upon his departure were reversed in accordance with SFAS No. 123(R). |
58
Number of Shares | Percent | |||||||||||
Beneficial Owner | Beneficially Owned (*) | of Class (**) | ||||||||||
Carl J. Aschinger, Jr. | 266,200 | (a | ) | (l | ) | |||||||
Reuven Avital | 314,256 | (b | ) | (l | ) | |||||||
Anthony K. Blair | 205,272 | (c | ) | (l | ) | |||||||
Kirby I. Bland, M.D. | 160,000 | (d | ) | (l | ) | |||||||
David C. Bupp | 7,042,746 | (e | ) | 9.4 | % | |||||||
Owen E. Johnson, M.D. | — | (f | ) | (l | ) | |||||||
Brent L. Larson | 694,299 | (g | ) | 1.0 | % | |||||||
Fred B. Miller | 316,000 | (h | ) | (l | ) | |||||||
J. Frank Whitley, Jr. | 266,500 | (i | ) | (l | ) | |||||||
All directors and officers as a group (11 persons) | 9,833,476 | (j | )(m) | 12.7 | % | |||||||
Platinum-Montaur Life Sciences, LLC | 3,625,170 | (k | ) | 4.99 | % |
(*) | 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 April 30, 2008, plus the number of shares the person has the right to acquire within 60 days of April 30, 2008. | |
(a) | This amount includes 130,000 shares issuable upon exercise of options which are exercisable within 60 days, but does not include 10,000 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(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 175,000 shares issuable upon exercise of options which are exercisable within 60 days but does not include 10,000 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 130,000 shares issuable upon exercise of options which are exercisable within 60 days and 25,272 shares in Mr. Blair’s account in the 401(k) Plan, but it does not include 50,000 shares of unvested restricted stock and 90,000 shares issuable upon exercise of options which are not exercisable within 60 days. |
59
(d) | This amount includes 160,000 shares issuable upon exercise of options which are exercisable within 60 days but does not include 10,000 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(e) | This amount includes 1,510,000 shares issuable upon exercise of options which are exercisable within 60 days, 1,145,000 warrants which are exercisable within 60 days, a promissory note convertible into 3,225,806 shares of our common stock, 210,511 shares that are held by Mr. Bupp’s wife for which he disclaims beneficial ownership and 108,429 shares in Mr. Bupp’s account in the 401(k) Plan, but it does not include 300,000 shares of unvested restricted stock and 400,000 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(f) | This amount does not include 30,000 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(g) | This amount includes 516,667 shares issuable upon exercise of options which are exercisable within 60 days and 77,632 shares in Mr. Larson’s account in the 401(k) Plan, but it does not include 50,000 shares of unvested restricted stock and 83,333 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(h) | This amount includes 235,000 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 10,000 shares issuable upon the exercise of options which are not exercisable within 60 days. | |
(i) | This amount includes 265,000 shares issuable upon exercise of options which are exercisable within 60 days, but does not include 10,000 shares issuable upon exercise of options which are not exercisable within 60 days. | |
(j) | This amount includes 3,659,501 shares issuable upon exercise of options which are exercisable within 60 days, 1,145,000 warrants which are exercisable within 60 days, a promissory note convertible into 3,225,806 shares of our common stock, 241,511 shares that are held by spouses of our Directors and Officers for which they disclaim beneficial ownership and 221,702 shares held in the 401(k) Plan on behalf of certain officers, but it does not include 420,000 shares of unvested restricted stock and 719,999 shares issuable upon the exercise of options which are not exercisable within 60 days. The Company itself is the trustee of the Neoprobe 401(k) Plan and may, as such, share investment power over common stock held in such plan. The trustee disclaims any beneficial ownership of shares held by the 401(k) Plan. The 401(k) Plan holds an aggregate total of 494,467 shares of common stock. | |
(k) | Platinum-Montaur Life Sciences, LLC (Montaur), 152 W. 57th Street, 54th Floor, New York, NY 10019, holds promissory notes in the principal amount of $10,000,000 convertible into 21,794,871 shares of our common stock and warrants to purchase 14,333,333 shares of our common stock. Each of our convertible promissory notes held by Montaur and warrants held by Montaur provide that those instruments are not convertible or exercisable if, after such conversion or exercise, Montaur would beneficially own more than 4.99% of our outstanding common stock. This provision may be waived by Montaur giving us at least 61 days prior written notice. Similarly, each of our convertible promissory notes and warrants held by Montaur provides that those instruments are not convertible or exercisable if, after such conversion or exercise, Montaur would beneficially own more than 9.99% of our outstanding common stock, subject to Montaur’s right to request a waiver of this restriction in writing at least 61 days prior to the effective date of that waiver. | |
(l) | Less than one percent. | |
(m) | The address of all directors and executive offices is c/o Neoprobe Corporation, 425 Metro Place North, Suite 300, Dublin, Ohio 43017-1367. |
60
61
Number of Shares at April 30, 2008 | ||||||||||||
Title of Class | Authorized | Outstanding | Reserved | |||||||||
Common Stock, $0.001 par value per share | 150,000,000 | 68,950,821 | 50,977,311 | |||||||||
Preferred Stock, $0.001 par value per share | 5,000,000 | 0 | 5,000,000 |
62
63
• | 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. |
64
65
66
Percentage | ||||||||||||||||
of | ||||||||||||||||
Percentage of | Outstanding | |||||||||||||||
Shares Owned | Outstanding | Shares to be | Shares | |||||||||||||
Selling | Before | Shares Owned | Sold in the | Owned After | ||||||||||||
Stockholders | Offering | Before Offering (1) | Offering | Offering (1) | ||||||||||||
David C. Bupp (2) | 2,674,542 | 4.4 | % | 315,000 | 9.1 | % | ||||||||||
Donald E. Garlikov (3) | 1,598,851 | 2.7 | % | 1,598,851 | 0 | % | ||||||||||
Alberdale Capital, LLC (4) | 240,117 | * | 240,117 | 0 | % | |||||||||||
Trautman Wasserman & Company, Inc. (5) | 17,669 | * | 17,669 | 0 | % | |||||||||||
Dan & Edna Purjes (6) | 1,304,348 | 1.7 | % | 1,304,348 | 0 | % | ||||||||||
MFW Associates LLC (7) | 652,174 | 1.1 | % | 652,174 | 0 | % | ||||||||||
Bridges and PIPES, LLC (8) | 2,119,566 | 3.5 | % | 2,119,566 | 0 | % | ||||||||||
Sands Brothers Venture Capital I LLC (9) | 326,087 | * | 326,087 | 0 | % | |||||||||||
Sands Brothers Venture Capital II LLC (10) | 326,087 | * | 326,087 | 0 | % | |||||||||||
Sands Brothers Venture Capital III LLC (11) | 1,956,522 | 3.2 | % | 1,956,522 | 0 | % | ||||||||||
Sands Brothers Venture Capital IV LLC (12) | 652,174 | 1.1 | % | 652,174 | 0 | % | ||||||||||
Rodman & Renshaw (13) | 1,630,435 | 2.7 | % | 1,630,435 | 0 | % | ||||||||||
Y Securities Management, Ltd.(14) | 326,087 | * | 326,087 | 0 | % | |||||||||||
ALKI Capital Management and affiliates (15) | 652,174 | 1.1 | % | 652,174 | 0 | % | ||||||||||
West End Convertible Fund, L.P. (16) | 163,044 | * | 163,044 | 0 | % | |||||||||||
WEC Partners LLC (17) | 489,130 | * | 489,130 | 0 | % | |||||||||||
Aspatuck Holdings, Ltd. (18) | 163,044 | * | 163,044 | 0 | % | |||||||||||
Myles F. Wittenstein (19) | 326,087 | * | 326,087 | 0 | % | |||||||||||
Bristol Investment Fund, Ltd. (20) | 1,956,522 | 3.3 | % | 1,956,522 | 0 | % | ||||||||||
Dan Purjes IRA (21) | 1,304,348 | 1.7 | % | 1,304,348 | 0 | % |
67
Percentage | ||||||||||||||||
of | ||||||||||||||||
Percentage of | Outstanding | |||||||||||||||
Shares Owned | Outstanding | Shares to be | Shares | |||||||||||||
Selling | Before | Shares Owned | Sold in the | Owned After | ||||||||||||
Stockholders | Offering | Before Offering (1) | Offering | Offering (1) | ||||||||||||
Gary Gelman(22) | 326,087 | * | 326,087 | 0 | % | |||||||||||
Gamma Opportunity Capital Partners LP(23) | 1,304,348 | 1.7 | % | 1,304,348 | 0 | % | ||||||||||
Alpha Capital AG(24) | 1,956,522 | 3.3 | % | 1,956,522 | 0 | % | ||||||||||
The Purjes Foundation(25) | 326,087 | * | 326,087 | 0 | % | |||||||||||
Rockwood Group, LLC(26) | 550,913 | * | 550,913 | 0 | % | |||||||||||
Ronald S. Dagar(27) | 43,769 | * | 43,769 | 0 | % | |||||||||||
Duncan Capital, LLC(28) | 391,304 | * | 391,304 | 0 | % | |||||||||||
David Fuchs(29) | 228,261 | * | 228,261 | 0 | % | |||||||||||
Matthew L. Norton(30) | 25,000 | * | 25,000 | 0 | % | |||||||||||
Sol Lax(31) | 21,913 | * | 21,913 | 0 | % | |||||||||||
TW Private Equity (32) | 63,587 | * | 63,587 | 0 | % |
* | Represents beneficial ownership of less than 1% of our outstanding common stock. | |
(1) | The number of shares listed in these columns include all shares beneficially owned and all options or warrants to purchase shares held, whether or not deemed to be beneficially owned, by each selling stockholder. The ownership percentages listed in these columns include only shares beneficially owned by the listed selling stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the percentage of shares beneficially owned by a selling stockholder, shares of common stock subject to options or warrants held by that selling stockholder that were exercisable on or within 60 days after April 30, 2008, were deemed outstanding for the purpose of computing the percentage ownership of that selling stockholder. The ownership percentages are calculated assuming that that 68,950,821 shares of common stock were outstanding on April 30, 2008. Subsequent to the commencement of the offering Mr. Bupp acquired beneficial ownership of an additional 4,857,693 shares of the Company’s common stock including exercising warrants to purchase 375,000 shares of common stock covered by this offering. Following the exercise of the warrants, Mr. Bupp gifted 60,000 shares of common stock covered by this offering to members of his family who are not included as selling stockholders for purposes of this prospectus. The percentage of outstanding shares owned after the offering by Mr. Bupp reflected in this column was calculated based on the total number of shares beneficially owned by Mr. Bupp as of April 30, 2008. | |
(2) | Mr. Bupp is a director of the company, and also serves as our President and Chief Executive Officer. Prior to giving effect to the offering, Mr. Bupp held 1,510,000 shares issuable upon exercise of options which are exercisable within 60 days, 1,520,000 warrants which are exercisable within 60 days, a promissory note convertible into 3,225,806 shares of our common stock, 195,511 shares that are held by Mr. Bupp’s wife for which he disclaims beneficial ownership, and 108,429 shares in Mr. Bupp’s account in the 401(k) Plan. After giving effect to the offering and stock activity since the date of grant, Mr. Bupp will hold 1,910,000 shares issuable upon exercise of options which are exercisable within 60 days, 1,145,000 warrants which are exercisable within 60 days, a promissory note convertible into 3,225,806 shares of our common stock, 210,511 shares that are held by Mr. Bupp’s wife for which he disclaims beneficial ownership, and 108,429 shares in Mr. Bupp’s account in the 401(k) Plan. As of April 30, 2008, Mr. Bupp had sold none of the shares of our common stock that he may sell pursuant to this prospectus, but had gifted 60,000 of those shares to members of his family. | |
(3) | Prior to giving effect to the offering, Mr. Garlikov held 1,098,851 shares of our common stock and exercisable Series R warrants to purchase 500,000 shares of our common stock. Following the offering Mr. Garlikov will not hold any shares of our common stock, and will not hold any warrants to purchase shares of common stock. As of April 30, 2008, Mr. Garlikov had sold none of the shares of our common stock that he may sell pursuant to this prospectus. In connection with the filing of Post-effective Amendment No. 2 to the Registration Statement on Form SB-2 of which this prospectus forms a part we revised the Selling Stockholders table to reallocate 28,218 shares of our common stock for sale by Mr. Garlikov, which shares we originally allocated for sale by Alberdale Capital, LLC. The total number of shares of our common stock offered by all selling stockholders pursuant to the Prospectus remains unchanged. |
68
(4) | Prior to giving effect to the offering, Alberdale Capital, LLC held 150,943 shares of our common stock and exercisable Series S warrants to purchase 78,261 shares of our commons stock. Following the offering Alberdale Capital, LLC will not hold any shares of common stock or warrants to purchase shares of common stock. See also footnote (3) above. As of April 30, 2008, Alberdale Capital, LLC had sold all of the shares of our common stock that it may sell pursuant to this prospectus. | |
(5) | Prior to giving effect to the offering, Trautman Wasserman & Company, Inc. held 17,669 shares of our common stock. Following the offering Trautman Wasserman & Company, Inc. will not hold any shares of common stock. As of April 30, 2008, Trautman Wasserman & Company, Inc. had sold none of the shares of our common stock that it may sell pursuant to this prospectus. | |
(6) | Prior to giving effect to the offering, the Purjes held 869,565 shares of common stock and exercisable Series R warrants to purchase 434,783 shares of our common stock. Following the offering the Purjes will not hold any shares of common stock or warrants to purchase shares of common stock. During February 2008, Mr. Purjes exercised the warrants he held to purchase 434,783 shares of our common stock on a cashless basis and received 96,957 shares of our common stock in exchange. As of April 30, 2008, the Purjes had sold 869,565 of the shares of our common stock that they may sell pursuant to this prospectus. | |
(7) | Prior to giving effect to the offering, MFW Associates LLC (MFW) held 434,783 shares of common stock and exercisable Series R warrants to purchase 217,391 shares of our common stock. Following the offering MFW will not hold any shares of common stock or warrants to purchase shares of common stock. During February 2008, MFW exercised the warrants it held to purchase 217,391 shares of our common stock on a cashless basis and received 43,478 shares of our common stock in exchange. As of April 30, 2008, MFW had sold 434,783 of the shares of our common stock that it may sell pursuant to this prospectus. | |
(8) | Prior to giving effect to the offering, Bridges and PIPES, LLC held 1,413,044 shares of common stock and exercisable Series R warrants to purchase 706,522 shares of our common stock. Following the offering Bridges and PIPES, LLC will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Bridges and PIPES, LLC had sold all 2,119,566 shares of our common stock that it may sell pursuant to this prospectus. | |
(9) | Prior to giving effect to the offering, Sands Brothers Venture Capital I, LLC held 217,391 shares of common stock and exercisable Series R warrants to purchase 108,696 shares of our common stock. Following the offering Sands Brothers Venture Capital I, LLC will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Sands Brothers Venture Capital I, LLC had sold 217,391 of the shares of our common stock that it may sell pursuant to this prospectus. | |
(10) | Prior to giving effect to the offering, Sands Brothers Venture Capital II, LLC held 217,391 shares of common stock and exercisable Series R warrants to purchase 108,696 shares of our common stock. Following the offering Sands Brothers Venture Capital II, LLC will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Sands Brothers Venture Capital II, LLC had sold 217,391 of the shares of our common stock that it may sell pursuant to this prospectus. | |
(11) | Prior to giving effect to the offering, Sands Brothers Venture Capital III, LLC held 1,304,348 shares of common stock and exercisable Series R warrants to purchase 652,174 shares of our common stock. Following the offering Sands Brothers Venture Capital III, LLC will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Sands Brothers Venture Capital III, LLC had sold 1,304,348 of the shares of our common stock that it may sell pursuant to this prospectus. | |
(12) | Prior to giving effect to the offering, Sands Brothers Venture Capital IV, LLC held 434,783 shares of common stock and exercisable Series R warrants to purchase 217,391 shares of our common stock. Following the offering Sands Brothers Venture Capital IV, LLC will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Sands Brothers Venture Capital IV, LLC had sold 434,783 of the shares of our common stock that it may sell pursuant to this prospectus. | |
(13) | Prior to giving effect to the offering, Rodman & Renshaw held 1,086,957 shares of common stock and exercisable Series R warrants to purchase 543,478 shares of our common stock. Following the offering , Rodman & Renshaw will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Rodman & Renshaw had sold 1,286,957 of the shares of our common stock that it may sell pursuant to this prospectus. |
69
(14) | Prior to giving effect to the offering, Y Securities Management, Ltd. held 217,391 shares of common stock and exercisable Series R warrants to purchase 108,696 shares of our common stock. Following the offering Y Securities Management, Ltd. will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Y Securities Management, Ltd. had sold 217,391 of the shares of our common stock that it may sell pursuant to this prospectus. | |
(15) | Prior to giving effect to the offering, ALKI Capital Management and its affiliates held 434,783 shares of common stock and exercisable Series R warrants to purchase 217,391 shares of our common stock. Following the offering ALKI Capital Management and its affiliates will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, ALKI Capital Management had sold all 652,174 shares of our common stock that it may sell pursuant to this prospectus. | |
(16) | Prior to giving effect to the offering, West End Convertible Fund L.P. held 108,696 shares of common stock and exercisable Series R warrants to purchase 54,348 shares of our common stock. Following the offering West End Convertible Fund L.P. will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, West End Convertible Fund L.P. had sold all 163,044 shares of our common stock that it may sell pursuant to this prospectus. | |
(17) | Prior to giving effect to the offering, WEC Partners LLC held 326,087 shares of common stock and exercisable Series R warrants to purchase 163,043 shares of our common stock. Following the offering WEC Partners LLC will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, WEC Partners LLC had sold all 489,130 shares of our common stock that it may sell pursuant to this prospectus. | |
(18) | Prior to giving effect to the offering, Aspatuck Holdings, Ltd. held 108,696 shares of common stock and exercisable Series R warrants to purchase 54,348 shares of our common stock. Following the offering Aspatuck Holdings, Ltd. will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Aspatuck Holdings, Ltd. had sold all 163,044 shares of our common stock that it may sell pursuant to this prospectus. | |
(19) | Prior to giving effect to the offering, Mr. Wittenstein held 217,391 shares of common stock and exercisable Series R warrants to purchase 108,696 shares of our common stock. Following the offering Mr. Wittenstein will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Mr. Wittenstein had sold 217,391 of the shares of our common stock that he may sell pursuant to this prospectus. | |
(20) | Prior to giving effect to the offering, Bristol Investment Fund, Ltd. held 1,304,348 shares of common stock and exercisable Series R warrants to purchase 652,174 shares of our common stock. Following the offering Bristol Investment Fund, Ltd. will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Bristol Investment Fund, Ltd. had sold all 1,956,522 shares of our common stock that it may sell pursuant to this prospectus. | |
(21) | Prior to giving effect to the offering, Dan Purjes IRA held 869,565 shares of common stock and exercisable Series R warrants to purchase 434,783 shares of our common stock. Following the offering Dan Purjes IRA will not hold any shares of common stock or warrants to purchase shares of common stock. During February 2008, Dan Purjes IRA exercised the warrants it held to purchase 434,783 shares of our common stock on a cashless basis and received 86,957 shares of our common stock in exchange. As of April 30, 2008, Dan Purjes IRA had sold 869,565 of the shares of our common stock that it may sell pursuant to this prospectus. | |
(22) | Prior to giving effect to the offering, Mr. Gelman held 217,391 shares of common stock and exercisable Series R warrants to purchase 108,696 shares of our common stock. Following the offering Mr. Gelman will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Mr. Gelman had sold 217,391 of the shares of our common stock that he may sell pursuant to this prospectus. | |
(23) | Prior to giving effect to the offering, Gamma Opportunity Capital Partners LP held 869,565 shares of common stock and exercisable Series R warrants to purchase 434,783 shares of our common stock. Following the offering Gamma Opportunity Capital Partners, L.P. will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Gamma Opportunity Capital Partners LP had sold all 1,304,348 shares of our common stock that it may sell pursuant to this prospectus. | |
(24) | Prior to giving effect to the offering, Alpha Capital AG held 1,304,348 shares of common stock and exercisable Series R warrants to purchase 652,174 shares of our common stock. Following the offering Alpha Capital AG will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Alpha Capital AG had sold all 1,956,522 shares of our common stock that it may sell pursuant to this prospectus. | |
(25) | Prior to giving effect to the offering, The Purjes Foundation held 217,391 shares of common stock and exercisable Series R warrants to purchase 108,696 shares of our common stock. Following the offering The |
70
Purjes Foundation will not hold any shares of common stock or warrants to purchase shares of common stock. During February 2008, The Purjes Foundation exercised the warrants it held to purchase 108,696 shares of our common stock on a cashless basis and received 21,739 shares of our common stock in exchange. As of April 30, 2008, The Purjes Foundation had sold 217,391 of the shares of our common stock that it may sell pursuant to this prospectus. | ||
(26) | Prior to giving effect to the offering, Rockwood Group, LLC held exercisable Series S warrants to purchase 550,913 shares of our common stock. Following the offering Rockwood, Inc. will not hold any warrants to purchase shares of common stock. As of April 30, 2008, Rockwood Group, LLC had sold none of the shares of our common stock that it may sell pursuant to this prospectus. | |
(27) | Prior to giving effect to the offering, Ronald S. Dagar held 9,530 shares of our common stock and exercisable Series S warrants to purchase 34,239 shares of our common stock. Following the offering Mr. Dagar will not hold any shares of common stock or warrants to purchase shares of common stock. As of April 30, 2008, Ronald S. Dagar had sold all 43,769 shares of our common stock that he may sell pursuant to this prospectus. | |
(28) | Prior to giving effect to the offering, Duncan Capital, LLC held exercisable Series S warrants to purchase 391,304 shares of our common stock. Following the offering Duncan Capital, LLC will not hold any warrants to purchase shares of common stock. As of April 30, 2008, Duncan Capital, LLC had sold none of the shares of our common stock that it may sell pursuant to this prospectus. | |
(29) | Prior to giving effect to the offering, David Fuchs held exercisable Series S warrants to purchase 228,261 shares of our common stock. Following the offering Mr. Fuchs will not hold any warrants to purchase shares of common stock. As of April 30, 2008, Mr. Fuchs had sold none of the shares of our common stock that he may sell pursuant to this prospectus. | |
(30) | Prior to giving effect to the offering, Matthew L. Norton held exercisable Series S warrants to purchase 25,000 shares of our common stock. Following the offering Mr. Norton will not hold any warrants to purchase shares of common stock. As of April 30, 2008, Mr. Norton had sold none of the shares of our common stock that he may sell pursuant to this prospectus. | |
(31) | Prior to giving effect to the offering, Sol Lax held exercisable Series S warrants to purchase 21,913 shares of our common stock. Following the offering Mr. Lax will not hold any warrants to purchase shares of common stock. As of April 30, 2008, Mr. Lax had sold all 21,913 shares of our common stock that he may sell pursuant to this prospectus. | |
(32) | Prior to giving effect to the offering TW Private Equity held exercisable Series S warrants to purchase 63,587 shares of our common stock. Following the offering TW Private Equity will not hold any warrants to purchase shares of common stock. As of April 30, 2008, TW Private Equity had sold none of the shares of our common stock that it may sell pursuant to this prospectus. |
71
• | ordinary brokerage transactions and transactions in which the broker-dealer solicits investors; | ||
• | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | ||
• | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | ||
• | an exchange distribution in accordance with the rules of the applicable exchange; | ||
• | privately negotiated transactions; | ||
• | to cover short sales made after the date that this Registration Statement is declared effective by the Commission; | ||
• | broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; | ||
• | a combination of any such methods of sale; and | ||
• | any other method permitted pursuant to applicable law. |
72
SECURITIES ACT LIABILITIES
73
74
Consolidated Financial Statements of Neoprobe Corporation | ||||
F-2 | ||||
F-3 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 |
F-1
Neoprobe Corporation
Dublin, Ohio
March 28, 2008
F-2
Consolidated Balance Sheets
2007 | 2006 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 1,540,220 | $ | 2,502,655 | ||||
Accounts receivable, net | 1,621,910 | 1,246,089 | ||||||
Inventory | 1,237,403 | 1,154,376 | ||||||
Prepaid expenses and other | 247,035 | 430,623 | ||||||
Total current assets | 4,646,568 | 5,333,743 | ||||||
Property and equipment | 1,918,343 | 2,238,050 | ||||||
Less accumulated depreciation and amortization | 1,630,740 | 1,882,371 | ||||||
287,603 | 355,679 | |||||||
Patents and trademarks | 3,016,783 | 3,131,391 | ||||||
Acquired technology | 237,271 | 237,271 | ||||||
3,254,054 | 3,368,662 | |||||||
Less accumulated amortization | 1,652,912 | 1,540,145 | ||||||
1,601,142 | 1,828,517 | |||||||
Other assets | 527,634 | 515,593 | ||||||
Total assets | $ | 7,062,947 | $ | 8,033,532 | ||||
F-3
Neoprobe Corporation and Subsidiaries
Consolidated Balance Sheets, continued
2007 | 2006 | |||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 778,085 | $ | 668,288 | ||||
Accrued liabilities and other | 801,949 | 544,215 | ||||||
Capital lease obligations | 14,592 | 14,841 | ||||||
Deferred revenue | 451,512 | 348,568 | ||||||
Notes payable to finance companies | 124,770 | 136,925 | ||||||
Notes payable to investors, current portion, net of discount of $53,585 | — | 1,696,415 | ||||||
Total current liabilities | 2,170,908 | 3,409,252 | ||||||
Capital lease obligations | 2,422 | 17,014 | ||||||
Deferred revenue | 623,640 | 40,495 | ||||||
Notes payable to CEO, net of discounts of $95,786 and $19,030, respectively | 904,214 | 80,970 | ||||||
Notes payable to investors, net of discounts of $2,600,392 and $1,468,845, respectively | 4,399,608 | 4,781,155 | ||||||
Derivative liabilities | 2,853,476 | — | ||||||
Other liabilities | 52,273 | 2,673 | ||||||
Total liabilities | 11,006,541 | 8,331,559 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit: | ||||||||
Preferred stock; $.001 par value; 5,000,000 shares authorized at December 31, 2007 and 2006; none issued and outstanding | — | — | ||||||
Common stock; $.001 par value; 150,000,000 shares authorized; 67,240,030 and 59,624,379 shares issued and outstanding at December 31, 2007 and 2006, respectively | 67,240 | 59,624 | ||||||
Additional paid-in capital | 136,765,697 | 135,330,668 | ||||||
Accumulated deficit | (140,776,531 | ) | (135,688,319 | ) | ||||
Total stockholders’ deficit | (3,943,594 | ) | (298,027 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 7,062,947 | $ | 8,033,532 | ||||
F-4
Years Ended December 31, | ||||||||
2007 | 2006 | |||||||
Net sales | $ | 7,124,811 | $ | 6,051,071 | ||||
Cost of goods sold | 3,184,706 | 2,632,131 | ||||||
Gross profit | 3,940,105 | 3,418,940 | ||||||
Operating expenses: | ||||||||
Research and development | 2,865,539 | 3,803,060 | ||||||
Selling, general and administrative | 2,837,344 | 3,076,379 | ||||||
Total operating expenses | 5,702,883 | 6,879,439 | ||||||
Loss from operations | (1,762,778 | ) | (3,460,499 | ) | ||||
Other income (expense): | ||||||||
Interest income | 70,976 | 225,468 | ||||||
Interest expense | (2,284,135 | ) | (1,496,332 | ) | ||||
Loss on extinguishment of debt | (859,955 | ) | — | |||||
Change in derivative liabilities | (247,876 | ) | — | |||||
Other | (4,444 | ) | (9,853 | ) | ||||
Total other expenses | (3,325,434 | ) | (1,280,717 | ) | ||||
Net loss | $ | (5,088,212 | ) | $ | (4,741,216 | ) | ||
Net loss per common share: | ||||||||
Basic | $ | (0.08 | ) | $ | (0.08 | ) | ||
Diluted | $ | (0.08 | ) | $ | (0.08 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic | 62,921,491 | 58,586,593 | ||||||
Diluted | 62,921,491 | 58,586,593 |
F-5
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||
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 compensation 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 | ) | ||||||||||||||||
Cancelled restricted stock that did not vest | (130,000 | ) | (130 | ) | — | — | — | (130 | ) | |||||||||||||||
Issued stock to 401(k) plan at $0.28 | 107,313 | 108 | 29,423 | — | — | 29,531 | ||||||||||||||||||
Issued stock in connection with stock purchase agreement, net of costs | 7,588,338 | 7,588 | 1,703,953 | — | — | 1,711,541 | ||||||||||||||||||
Issued stock as fees to an investment banking firm | 50,000 | 50 | 11,950 | — | — | 12,000 | ||||||||||||||||||
Effect of beneficial conversion feature of convertible promissory note | — | — | 86,587 | — | — | 86,587 | ||||||||||||||||||
Issued warrants to purchase common stock | — | — | 175,719 | — | — | 175,719 | ||||||||||||||||||
Repurchased warrants related to extinguishment of debt | — | — | (675,000 | ) | — | — | (675,000 | ) | ||||||||||||||||
Stock compensation expense | — | — | 102,397 | — | — | 102,397 | ||||||||||||||||||
Net loss | — | — | — | (5,088,212 | ) | — | (5,088,212 | ) | ||||||||||||||||
Balance, December 31, 2007 | 67,240,030 | $ | 67,240 | $ | 136,765,697 | $ | (140,776,531 | ) | $ | — | $ | (3,943,594 | ) | |||||||||||
F-6
Years Ended December 31, | ||||||||
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (5,088,212 | ) | $ | (4,741,216 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property and equipment | 171,713 | 148,934 | ||||||
Amortization of intangible assets | 233,006 | 262,802 | ||||||
Loss on disposal and abandonment of assets | 22,551 | 39,031 | ||||||
Amortization of debt discount and debt offering costs | 1,406,195 | 808,916 | ||||||
Provision for bad debts | 1,000 | — | ||||||
Stock compensation expense | 102,397 | 221,584 | ||||||
Loss on extinguishment of debt | 859,955 | — | ||||||
Change in derivative liabilities | 247,876 | — | ||||||
Other | 29,400 | 22,854 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (376,821 | ) | (573,081 | ) | ||||
Inventory | (166,838 | ) | (428,202 | ) | ||||
Prepaid expenses and other assets | 177,351 | 408,918 | ||||||
Accounts payable | 109,797 | 460,463 | ||||||
Accrued liabilities and other liabilities | 319,337 | (284,213 | ) | |||||
Deferred revenue | 686,089 | 95,437 | ||||||
Net cash used in operating activities | (1,265,204 | ) | (3,557,773 | ) | ||||
Cash flows from investing activities: | ||||||||
Maturities of available-for-sale securities | — | 1,531,000 | ||||||
Purchases of property and equipment | (41,274 | ) | (144,022 | ) | ||||
Proceeds from sales of property and equipment | — | 4,097 | ||||||
Patent and trademark costs | (6,736 | ) | (31,163 | ) | ||||
Net cash (used in) provided by investing activities | (48,010 | ) | 1,359,912 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 1,900,000 | 50,000 | ||||||
Payment of stock offering costs | (22,674 | ) | (35,570 | ) | ||||
Proceeds from notes payable | 8,000,000 | — | ||||||
Payment of debt issuance costs | (565,004 | ) | — | |||||
Payment of notes payable | (8,271,702 | ) | (235,330 | ) | ||||
Payments under capital leases | (14,841 | ) | (19,530 | ) | ||||
Payment for repurchase of warrants | (675,000 | ) | — | |||||
Net cash provided by (used in) financing activities | 350,779 | (240,430 | ) | |||||
Net decrease in cash | (962,435 | ) | (2,438,291 | ) | ||||
Cash, beginning of year | 2,502,655 | 4,940,946 | ||||||
Cash, end of year | $ | 1,540,220 | $ | 2,502,655 | ||||
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, 2007 and 2006, 91% and 84% 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 determining the spread of certain solid tumor cancers into the lymphatic system. The second, RIGScan® CR, is intended to be used to help surgeons locate cancerous or disease involved 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. During the third quarter of 2007, we executed an option agreement with Cira Ltd., the sole minority shareholder in Cira Bio, whereby Neoprobe may acquire Cira Ltd.’s 10% interest in Cira Bio for $250,000. The option to acquire Cira Ltd.’s interest in Cira Bio expires June 30, 2008. | |||
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. | 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. | ||
d. | 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, accounts receivable, accounts payable, and accrued liabilities: The carrying amounts approximate fair value because of the short maturity of these instruments. |
F-8
(2) | 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, 2007 and 2006, the carrying values of these instruments approximate fair value. | ||
(3) | 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, 2007 and 2006, the carrying value of the notes payable to our CEO approximates fair value. | ||
(4) | Note payable to outside investors: The carrying value of our debt at December 31, 2007 is presented as the face amount of the notes less the unamortized discounts related to initial fair value of the conversion option and put options embedded in the note and the warrants to purchase common stock issued in connection with the notes. The carrying value of our debt at December 31, 2006 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, 2007 and 2006, the carrying value of the notes payable to outside investors approximates fair value. |
e. | Cash and Cash Equivalents:There were no cash equivalents at December 31, 2007 or 2006. No cash was restricted as of December 31, 2007 or 2006. | ||
f. | 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 2007 and 2006, we wrote off $142,000 and $129,000, respectively, of excess and obsolete materials, primarily due to design changes to our Quantix® product line. | ||
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 2007 and 2006, we capitalized $150,000 and $48,000, respectively, in inventory costs associated with our Lymphoseek product. | |||
The components of net inventory at December 31, 2007 and 2006 are as follows: |
2007 | 2006 | |||||||
Materials and component parts | $ | 471,753 | $ | 522,225 | ||||
Work-in-process | 151,741 | 167,188 | ||||||
Finished goods | 613,909 | 464,963 | ||||||
$ | 1,237,403 | $ | 1,154,376 | |||||
g. | 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 $57,000 and $78,000 of equipment under |
F-9
capital leases with accumulated amortization of $47,000 and $53,000 at December 31, 2007 and 2006, respectively. During 2007 and 2006, we recorded losses of $21,000 and $2,000, respectively, on the disposal of property and equipment. | |||
The major classes of property and equipment are as follows: |
Useful Life | 2007 | 2006 | ||||||||||
Production machinery and equipment | 5 years | $ | 720,225 | $ | 1,107,278 | |||||||
Other machinery and equipment, primarily research equipment, loaners and computers | 2 – 5 years | 655,609 | 598,555 | |||||||||
Furniture and fixtures | 7 years | 340,007 | 336,537 | |||||||||
Leasehold improvements | Life of Lease1 | 74,682 | 74,682 | |||||||||
Software | 3 years | 127,820 | 120,998 | |||||||||
$ | 1,918,343 | $ | 2,238,050 | |||||||||
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. |
h. | 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, 2007 | December 31, 2006 | |||||||||||||||||||
Wtd | Gross | Gross | ||||||||||||||||||
Avg | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
Life | Amount | Amortization | Amount | Amortization | ||||||||||||||||
Patents and trademarks | 8.8 yrs | $ | 3,016,783 | $ | 1,449,350 | $ | 3,131,391 | $ | 1,370,291 | |||||||||||
Acquired technology | 1.0 yrs | 237,271 | 203,562 | 237,271 | 169,854 | |||||||||||||||
Total | $ | 3,254,054 | $ | 1,652,912 | $ | 3,368,662 | $ | 1,540,145 | ||||||||||||
During 2007 and 2006, we recorded $233,000 and $263,000, respectively, of intangible asset amortization in general and administrative expenses. During 2006, $2,000 of the total amortization was related to the abandonment of gamma detection patents and patent applications that were deemed no longer recoverable or part of our ongoing business. | |||
The estimated future amortization expenses for the next five fiscal years are as follows: |
Estimated | ||||
Amortization | ||||
Expense | ||||
For the year ended 12/31/2008 | $ | 212,148 | ||
For the year ended 12/31/2009 | 170,136 | |||
For the year ended 12/31/2010 | 169,414 | |||
For the year ended 12/31/2011 | 168,310 | |||
For the year ended 12/31/2012 | 168,267 |
F-10
i. | Impairment or Disposal of Long-Lived Assets:We account for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (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. | ||
j. | 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 2007, we incurred $565,000 of debt issuance costs related to notes payable and expensed $209,000 of deferred debt issuance costs related to debt refinancing activities. Other assets include deferred debt issuance costs of $496,000 and $509,000 at December 31, 2007 and 2006, respectively. See Note 6. | |||
k. | Deferred Revenue: | ||
Deferred revenue as of December 31, 2007 consists primarily of $500,000 in non-refundable license fees and reimbursement of past research and development expenses which EES paid us as consideration for extending our distribution agreement with them. We intend to recognize the $500,000 payment as license revenue on a straight-line basis over the extended term of the agreement, or January 2009 through December 2013. In addition, deferred revenue as of December 31, 2007 and 2006 includes 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. | |||
l. | Derivatives: | ||
We account for derivatives in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, which provides accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts. Derivative instruments embedded in contracts, to the extent not already a free-standing contract, are required to be bifurcated from the debt instrument and accounted for separately. All derivatives are recorded on the consolidated balance sheet at fair value. See Note 6. | |||
m. | 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 |
F-11
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. |
n. | Research and Development Costs:All costs related to research and development are expensed as incurred. | ||
o. | Stock-Based Compensation:At December 31, 2007, 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. Although options are still outstanding under the Amended Plan and the 1996 Plan, these plans are considered expired and no new grants may be made from them. 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 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, 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. |
F-12
Compensation cost arising from stock-based awards is recognized as expense using the straight-line method over the vesting period. As of December 31, 2007, there was approximately $149,000 of total unrecognized compensation cost related to unvested stock-based awards, which we expect to recognize over remaining weighted average vesting terms of 0.9 years. For the years ended December 31, 2007 and 2006, our total stock-based compensation expense was approximately $102,000 and $222,000, respectively. We have not recorded any income tax benefit related to stock-based compensation for the years ended December 31, 2007 and 2006. | |||
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model to value share-based payments. Expected volatilities are based on the company’s historical volatility, which management believes represents the most accurate basis for estimating expected volatility under the current circumstances. Neoprobe uses historical data to estimate forfeiture rates. The expected term of options granted is based on the vesting period and the contractual life of the options. The risk-free rate is based on the U.S. Treasury yield in effect at the time of the grant. The assumptions used for the years ended December 31, 2007 and 2006 are noted in the following table: |
2007 | 2006 | |||||||
Expected term | 5.8 years | 5.9 years | ||||||
Expected volatility | 103 | % | 105 | % | ||||
Expected dividends | — | — | ||||||
Risk-free rate | 4.6 | % | 4.7 | % |
A summary of stock option activity under our stock option plans as of December 31, 2007, and changes during the year then ended is presented below: |
Year Ended December 31, 2007 | ||||||||||||||||
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractua | Intrinsic | |||||||||||||
Options | Price | l Life | Value | |||||||||||||
Outstanding at beginning of period | 5,975,473 | $ | 0.42 | |||||||||||||
Granted | 40,000 | $ | 0.35 | |||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | (116,667 | ) | $ | 0.32 | ||||||||||||
Expired | (403,333 | ) | $ | 0.42 | ||||||||||||
Outstanding at end of period | 5,495,473 | $ | 0.42 | 5.5 years | — | |||||||||||
Exercisable at end of period | 5,149,473 | $ | 0.43 | 5.2 years | — | |||||||||||
The weighted average grant-date fair value of options granted in 2007 and 2006 was $0.28 and $0.19, respectively. No options were exercised during 2007 or 2006. |
F-13
A summary of the status of our restricted stock as of December 31, 2007, and changes during the year then ended is presented below: |
Year Ended | ||||||||
December 31, 2007 | ||||||||
Weighted | ||||||||
Average | ||||||||
Number of | Grant-Date | |||||||
Shares | Fair Value | |||||||
Outstanding at beginning of period | 130,000 | $ | 7.84 | |||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Forfeited | — | — | ||||||
Expired | (130,000 | ) | $ | 7.84 | ||||
Outstanding at end of period | — | — | ||||||
During 2007, all of our outstanding restricted shares were effectively cancelled due to failure to vest under the terms of issuance of these shares. Restricted shares, if any, generally vest on a specific event or achievement of goals as defined in the grant agreements. As a result, we have not recorded any compensation expense related to past grants of restricted stock due to the inability to assess the probability of the vesting event. See Note 15(a). | |||
p. | 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, 2007 and 2006. | ||
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109(FIN 48). We adopted the provisions of FIN 48 on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109. FIN 48 also prescribes a recognition threshold and measurement model for the financial statement recognition of a tax position taken, or expected to be taken, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. No adjustment was made to the beginning retained earnings balance as the ultimate deductibility of all tax positions is highly certain, although there is uncertainty about the timing of such deductibility. As a result, no liability for uncertain tax positions was recorded as of December 31, 2007. Should the Company need to accrue interest or penalties on uncertain tax positions, it would recognize the interest as interest expense and the penalties as a selling, general and administrative expense. | |||
q. | Recent Accounting Developments:In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 was initially |
F-14
effective for Neoprobe beginning January 1, 2008. In February 2008, the FASB approved the issuance of FASB Staff Position (FSP) FAS 157-2. FSP FAS 157-2 defers the effective date of SFAS No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on at least an annual basis. We do not expect the adoption of SFAS No. 157 to have a material impact on our consolidated results of operations or financial condition. | |||
In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115(SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115,Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method, is irrevocable (unless a new election date occurs), and is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption was permitted as of the beginning of a fiscal year that began on or before November 15, 2007, provided the entity also elected to apply the provisions of SFAS No. 157,Fair Value Measurements. We plan to adopt SFAS No. 159 as required on January 1, 2008; however, we do not plan to elect to measure any of our currently outstanding financial instruments using the fair value option outlined in SFAS No. 159. As such, we do not expect the adoption of SFAS No. 159 to have a material impact on our consolidated results of operations or financial condition. | |||
In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue 07-3,Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities(EITF 07-3). The scope of EITF 07-3 is focused on the accounting for non-refundable advance payments for goods that will be used or services that will be performed in future research and development activities. The FASB concluded that these types of payments should be deferred and capitalized until the goods have been delivered or the related services have been rendered. EITF 07-3 is effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. We do not expect EITF 07-3 to have a material effect on our consolidated results of operations or financial condition. | |||
In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations(SFAS No. 141(R)). SFAS No. 141(R) retains the fundamental requirements of the original pronouncement requiring that the acquisition method (formerly called the purchase method) of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141 defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets and liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. SFAS No. 141(R) requires, among other things, that the acquisition-related costs be recognized separately from the acquisition. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and is required to be adopted by Neoprobe beginning January 1, 2009. The effect the adoption of SFAS No. 141(R) will have on us will depend on the nature and size of acquisitions we complete after we adopt SFAS No. 141(R), if any. | |||
Also in December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51(SFAS No. 160). SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling |
F-15
interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141(R),Business Combinations. SFAS No. 160 is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008, and is required to be adopted by Neoprobe beginning January 1, 2009. Earlier adoption is prohibited. SFAS No. 160 shall be applied prospectively as of the beginning of the fiscal year in which it is adopted, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. We do not expect the adoption of SFAS No. 160 to have a material effect on our consolidated results of operations or financial condition. | |||
In December 2007, the FASB ratified the consensus reached by the EITF on EITF Issue 07-1,Accounting for Collaborative Arrangements. EITF 07-1 focuses on defining a collaborative arrangement as well as the accounting for transactions between participants in a collaborative arrangement and between the participants in the arrangement and third parties. The EITF concluded that both types of transactions should be reported in each participant’s respective income statement. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and should be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. We do not expect EITF 07-1 to have a material effect on our consolidated results of operations or financial condition. |
2. | Earnings Per Share: | |
Basic earnings (loss) per share is 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. |
Year Ended | Year Ended | |||||||||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
Earnings | Earnings | Earnings | Earnings | |||||||||||||
Per Share | Per Share | Per Share | Per Share | |||||||||||||
Outstanding shares | 67,240,030 | 67,240,030 | 59,624,379 | 59,624,379 | ||||||||||||
Effect of weighting changes in outstanding shares | (4,318,539 | ) | (4,318,539 | ) | (907,786 | ) | (907,786 | ) | ||||||||
Contingently issuable shares | — | — | (130,000 | ) | (130,000 | ) | ||||||||||
Adjusted shares | 62,921,491 | 62,921,491 | 58,586,593 | 58,586,593 | ||||||||||||
There is no difference in basic and diluted loss per share related to 2007 or 2006. The net loss per common share for these periods excludes the effects of 35,691,194 and 41,873,016, respectively, common shares issuable upon exercise of outstanding stock options and warrants into our common stock or upon the conversion of convertible debt since such inclusion would be anti-dilutive. | ||
3. | Accounts Receivable and Concentrations of Credit Risk: | |
Accounts receivable at December 31, 2007 and 2006, net of allowance for doubtful accounts of $1,000 and $0, respectively, consist of the following: |
2007 | 2006 | |||||||
Trade | $ | 1,609,690 | $ | 1,243,114 | ||||
Other | 12,220 | 2,975 | ||||||
$ | 1,621,910 | $ | 1,246,089 | |||||
F-16
At December 31, 2007 and 2006, approximately 94% and 86%, respectively, of net accounts receivable were due from EES. We do not believe we are exposed to significant credit risk related to EES based on the overall financial strength and credit worthiness of the customer and its parent company. We believe that we have adequately addressed other credit risks in estimating the allowance for doubtful accounts. | ||
We estimate an allowance for doubtful accounts based on a review and assessment of specific accounts receivable and write off accounts when deemed uncollectible. | ||
4. | Accrued Liabilities: | |
Accrued liabilities at December 31, 2007 and 2006 consist of the following: |
2007 | 2006 | |||||||
Contracted services and other | $ | 446,037 | $ | 401,224 | ||||
Compensation | 207,904 | 91,167 | ||||||
Warranty reserve | 115,395 | 44,858 | ||||||
Inventory purchases | 23,204 | — | ||||||
Interest | 9,409 | 6,966 | ||||||
$ | 801,949 | $ | 544,215 | |||||
5. | 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. EES 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 years ended December 31, 2007 and 2006 is as follows: |
2007 | 2006 | |||||||
Warranty reserve at beginning of year | $ | 44,858 | $ | 41,185 | ||||
Provision for warranty claims and changes in reserve for warranties | 121,996 | 40,103 | ||||||
Payments charged against the reserve | (51,459 | ) | (36,430 | ) | ||||
Warranty reserve at end of year | $ | 115,395 | $ | 44,858 | ||||
6. | 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 due on December 13, 2008. | ||
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 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 |
F-17
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 the effective interest method. The fair value of the warrants issued to the placement agents was recorded as a deferred debt issuance cost and was also being amortized over the term of the notes using the effective interest method. | ||
In November 2006, we amended the Agreement and modified several of the key terms in the related notes. The modified notes bore 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. We were 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. During 2007, we made $625,000 of such mandatory repayments that were applied against future scheduled principal payments. In exchange for the increased interest rate and accelerated principal repayment schedule, the note holders eliminated the financial covenants under the original notes and eliminated certain conversion price adjustments from the original notes related to sales of equity securities by Neoprobe. In addition, Neoprobe was allowed to make optional prepayments to the Great Point Funds by giving them 10 business days notice during which time the note holders could decide to convert the notes into our common stock. The new notes remained freely convertible into shares of our common stock at a price of $0.40 per share. We could force conversion of the notes prior to their stated maturity under certain circumstances. We treated the amendment to the Agreement as a modification for accounting purposes. | ||
As a result of the November 2006 modification of the payment terms of the notes, the amortization of debt discount and issuance costs using the effective interest method was revised. During the third quarter of 2007, management determined that we had, from the date of the modification of the notes payable on November 30, 2006, through June 30, 2007, incorrectly applied the effective interest method in calculating the amortization of the debt discount and issuance costs related to the notes. As a result of the error in calculation, we recorded a total adjustment of $286,000 in non-cash interest expense related to the seven months ended June 30, 2007 in our results of operations for the third quarter of 2007. We have determined that the net effect of this adjustment was not material, either quantitatively or qualitatively, to our results of operations and would not have resulted in changes to net loss per share, as reported, for the year ended December 31, 2006 or for the quarters ended March 31, 2007 and June 30, 2007. Recording the adjustment did not require amendment of the previously filed reports for the periods affected. | ||
In July 2007, David C. Bupp, our President and CEO, and certain members of his family (the Bupp Investors) purchased a $1.0 million convertible note (the Bupp Note) and warrants. The note bears interest at 10% per annum, had an original term of one year 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 investors 500,000 Series V warrants to purchase our common stock at an exercise price of $0.31 per share, expiring in July 2012. The fair value of the warrants issued to the investors was approximately $80,000 on the date of issuance and was determined using the Black-Scholes option pricing model with the following assumptions: an average risk-free interest rate of 4.95%, volatility of 105% and no expected dividend rate. The value of the beneficial conversion feature of the note was estimated at $86,000 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. We incurred $43,000 of costs related to completing the Bupp financing, which were recorded in other |
F-18
assets. The discounts and the deferred debt issuance costs were being amortized over the term of the note using the effective interest method. | ||
In December 2007, we executed a Securities Purchase Agreement (the Montaur Purchase Agreement) with Platinum Montaur Life Sciences, LLC (Montaur), pursuant to which we issued Montaur: (1) a 10% Series A Convertible Senior Secured Promissory Note in the principal amount of $7,000,000, due December 26, 2011 (the Series A Note); and (2) 6,000,000 Series W warrants to purchase our common stock at an exercise price of $0.32 per share, expiring in December 2012 (the Series W warrants). Additionally, pursuant to the terms of the Montaur Purchase Agreement: (1) upon commencement of the Phase 3 clinical studies of Lymphoseek, we will issue to Montaur a 10% Series B Convertible Senior Secured Promissory Note, due December 26, 2011 (the Series B Note, and hereinafter referred to collectively with the Series A Note as the Montaur Notes), and five-year warrants to purchase an amount of common stock equal to the number of shares into which Montaur may convert the Series B Note, at an exercise price of 115% of the conversion price of the Series B Note (the Series X warrants), for an aggregate purchase price of $3,000,000; and (2) upon completion of enrollment of 200 patients in the Phase 3 clinical studies of Lymphoseek, we will issue to Montaur 3,000 shares of our 8% Series A Cumulative Convertible Preferred Stock (the Preferred Stock) and five-year warrants to purchase an amount of common stock equal to the number of shares into which Montaur may convert the Preferred Stock, at an exercise price of 115% of the conversion price of the Preferred Stock (the Series Y warrants, and hereinafter referred to collectively with the Series W warrants and Series X warrants as the Montaur warrants), also for an aggregate purchase price of $3,000,000. | ||
The Series A Note bears interest at 10% per annum and is partially convertible at the option of Montaur into common stock at a price of $0.26 per share. Interest is payable monthly, in arrears, beginning February 2008 until the earlier of the maturity date or the date of conversion. At our discretion, we may pay the monthly interest payments in cash, common stock, or a combination of cash and common stock, subject to certain limitations set forth in the Series A Note. Upon issuance, the Series B Note will also bear interest at 10% per annum, and Montaur will have the right to convert the Series B Note into common stock at a price equal to the lesser of $0.40 or the closing price of the common stock on the issuance date of the Series B Note. According to the provisions of the Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series A 8% Cumulative Convertible Preferred Stock (the Certificate of Designations), Montaur may convert all or any portion of the shares of Preferred Stock into a number of shares of common stock equal to the quotient of: (1) the Liquidation Preference Amount of the shares of Preferred Stock by (2) the Conversion Price then in effect for the Preferred Stock. Per the Certificate of Designations, the Liquidation Preference Amount is equal to $1,000 per share of Preferred Stock, and the Conversion Price is equal to the lesser of $0.50 or the closing price of the common stock on the issuance date of the Preferred Stock, subject to adjustment as described in the Certificate of Designations. | ||
Under the terms of a Registration Rights Agreement, dated December 26, 2007, between Neoprobe and Montaur (the Rights Agreement), we agreed to file a registration statement with the Securities and Exchange Commission registering the shares of common stock underlying the Notes, the Preferred Stock and the Warrants, no later than 60 days following the closing, which deadline has since been extended to April 15, 2008. Additionally, in connection with the Purchase Agreement, we entered into: (1) a Security Agreement, dated December 26, 2007, between Neoprobe and Montaur (the Montaur Security Agreement); and (2) a Patent, Trademark, and Copyright Security Agreement, dated December 26, 2007, by and among Neoprobe, Cardiosonix Ltd., Cira Biosciences, Inc. and Montaur (the IP Security Agreement), pursuant to which we have granted Montaur a security interest in all of our property and assets and our subsidiaries to secure our obligations under the Montaur Notes and all other transaction agreements. The Security Agreement and IP Security Agreement contain covenants, remedies and other provisions as are customary for agreements of such type. In accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, the conversion option and two put options are considered derivative instruments and are required to be bifurcated from the debt instrument and accounted for separately. In addition, in accordance with SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities |
F-19
and Equity, the Series W warrants are accounted for as a liability due to the existence of certain provisions in the instrument. As a result, we recorded a total aggregate derivative liability of $2.6 million on the date of issuance of the note. The fair value of the bifurcated conversion option and put options was approximately $1.45 million on the date of issuance. The fair value of the Series W warrants was approximately $1.15 million on the date of issuance and was determined using the Black-Scholes option pricing model with the following assumptions: an average risk-free interest rate of 3.7%, volatility of 94% and no expected dividend rate. Changes in the fair value of the derivative liabilities are recorded in the consolidated statement of operations. As of December 31, 2007, the derivative liabilities had a fair value of $1.60 and $1.25 million for the conversion and put options and the warrants, respectively. Because the value of our stock increased between the closing date of the financing and December 31, 2007, our year end, the effect of marking the derivative liabilities to “market” at December 31, 2007 resulted in an increase in the estimated fair value of the derivative liabilities of $248,000 which was recorded as non-cash expense during the fourth quarter of 2007. See Note 15(b). | ||
The aggregate fair value of the conversion option, the put options, and the warrants of $2.6 million was recorded as a discount on the note and is being amortized over the term of the note using the effective interest method. During 2007, we recorded interest expense of $15,000 related to the amortization of the debt discount. We incurred $497,000 of costs related to completing the Montaur financing, which were recorded in other assets on the consolidated balance sheet. The deferred financing costs are being amortized using the effective interest method over the term of the note. During 2007, we recorded interest expense of $1,000 related to the amortization of the deferred financing costs. At December 31, 2007, $9,000 of accrued interest related to the notes was included in accrued liabilities on the consolidated balance sheet. | ||
In connection with the Montaur Purchase Agreement, Montaur requested that the term of the $1.0 million Bupp Note be extended until at least one day following the maturity date of the Montaur Notes. In consideration for the Bupp Investors’ agreement to extend the term of the Bupp Note pursuant to an Amendment to the Bupp Purchase Agreement, dated December 26, 2007, we agreed to provide security for the obligations evidenced by the Amended 10% Convertible Note in the principal amount of $1,000,000, due December 31, 2011, executed by Neoprobe in favor of the Bupp Investors (the Amended Bupp Note), under the terms of a Security Agreement, dated December 26, 2007, by and between Neoprobe and the Bupp Investors (the Bupp Security Agreement). As further consideration for extending the term of the Bupp Note, we issued the Bupp Investors 500,000 Series V warrants to purchase our common stock at an exercise price of $0.32 per share, expiring in December 2012. The fair value of the warrants issued to the Bupp Investors was approximately $96,000 on the date of issuance and was determined using the Black-Scholes option pricing model with the following assumptions: an average risk-free interest rate of 3.72%, volatility of 94% and no expected dividend rate. The fair value of the warrants was recorded as a discount on the note and is being amortized over the term of the note using the effective interest method. We treated the amendment to the Bupp Note as an extinguishment of debt for accounting purposes. As such, the remaining discount resulting from the fair value of the warrants and the value of the beneficial conversion feature and the remaining unamortized deferred financing costs associated with the original note were written off as a loss on extinguishment of debt. | ||
We applied $5,725,000 from the proceeds of our issuance of the Series A Note and Series W warrants to the complete and total satisfaction of our outstanding obligations under the Replacement Series A Convertible Promissory Notes issued to the Great Point Funds and David C. Bupp as of November 30, 2006, pursuant to the Securities Purchase Agreement, dated as of December 13, 2004, by and among Neoprobe, the Great Point Funds and Mr. Bupp, as amended by the Amendment dated as of November 30, 2006 (the Amended GPP Purchase Agreement). We treated the early repayment of the notes as an extinguishment of debt for accounting purposes. As such, the remaining discount resulting from the fair value of the warrants and the value of the beneficial conversion feature associated with the original notes was written off as a loss on extinguishment of debt. We applied an additional $675,000 from the proceeds of our issuance of the Series A Note and Series W warrants to the redemption of 10,000,000 Series T warrants to purchase our common stock at an exercise price of $0.46 per share, issued to the Great Point Funds pursuant to the Amended |
F-20
GPP Purchase Agreement. In connection with the consummation of the Montaur Purchase Agreement and amendment of the Bupp Purchase Agreement, Mr. Bupp agreed to the cancellation of 125,000 Series T warrants to purchase our common stock at an exercise price of $0.46 per share, issued to Mr. Bupp pursuant to the Amended GPP Purchase Agreement. | ||
7. | Income Taxes: | |
As of December 31, 2007 and 2006, our deferred tax assets in the U.S. were approximately $40.1 million and $39.6 million, respectively. The components of our deferred tax assets, pursuant to SFAS No. 109,Accounting for Income Taxes, are summarized as follows: |
As of December 31, | ||||||||
2007 | 2006 | |||||||
Deferred tax assets: | ||||||||
Federal net operating loss carryforwards | $ | 32,428,173 | $ | 32,227,107 | ||||
State net operating loss carryforwards | 2,229,635 | 2,273,948 | ||||||
R&D credit carryforwards | 4,906,697 | 4,722,457 | ||||||
Temporary differences | 552,981 | 354,340 | ||||||
Deferred tax assets before valuation allowance | 40,117,486 | 39,577,852 | ||||||
Valuation allowance | (40,117,486 | ) | (39,577,852 | ) | ||||
Net deferred tax assets | $ | — | $ | — | ||||
SFAS No. 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets may not be realized. Due to the uncertainty surrounding the realization of these deferred tax assets in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at December 31, 2007 and 2006. | ||
As of December 31, 2007 and 2006, Cardiosonix had deferred tax assets in Israel of approximately $2 million, primarily related to net operating loss carryforwards available to offset future taxable income, if any. Under current Israeli tax law, net operating loss carryforwards do not expire. Due to the uncertainty surrounding the realization of these deferred tax assets in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at December 31, 2007 and 2006. Since a valuation allowance was recognized for the deferred tax asset for Cardiosonix’ deductible temporary differences and operating loss carryforwards at the acquisition date, the tax benefits for those items that are first recognized (i.e., by elimination of the valuation allowance) in financial statements after the acquisition date shall be applied (a) first to reduce to zero other noncurrent intangible assets related to the acquisition and (b) second to reduce income tax expense. | ||
Under Sections 382 and 383 of the Internal Revenue Code (IRC) of 1986, as amended, the utilization of U.S. net operating loss and tax credit carryforwards may be limited under the change in stock ownership rules of the IRC. As a result of ownership changes as defined by Sections 382 and 383, which have occurred at various points in our history, we believe utilization of our net operating loss carryfowards and tax credit carryforwards will likely be significantly limited under certain circumstances. |
F-21
Reconciliations between the statutory federal income tax rate and our effective tax rate are as follows: |
Years Ended December 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Benefit at statutory rate | $ | (1,729,992 | ) | (34.0 | %) | $ | (1,612,013 | ) | (34.0 | %) | ||||||
Adjustments to valuation allowance | 1,502,950 | 29.5 | % | 1,462,443 | 30.8 | % | ||||||||||
Other | 227,042 | 4.5 | % | 149,570 | 3.2 | % | ||||||||||
Benefit per financial statements | $ | — | — | $ | — | — | ||||||||||
Deferred tax assets of $1.0 million related to net operating loss carryforwards and $133,000 related to R&D credit carryforwards expired during 2007. | ||
8. | Equity: |
a. | Stock Warrants:At December 31, 2007, there are 13.9 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 $0.31. | ||
The following table summarizes information about our outstanding warrants at December 31, 2007: |
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 U | $ | 0.44 | 1,600,000 | December 2009 | ||||||||
Series V | $ | 0.31 | 500,000 | July 2012 | ||||||||
Series V | $ | 0.32 | 500,000 | December 2012 | ||||||||
Series W | $ | 0.32 | 6,000,000 | December 2012 | ||||||||
$ | 0.31 | 13,854,376 | ||||||||||
In April 2003, we completed bridge loans with our President and CEO, David Bupp, and an outside investor. In connection with these loans, we issued a total of 875,000 Series Q warrants to purchase our common stock at an exercise price of $0.13 per share, expiring in April 2008. In March 2004, at the request of our Board of Directors, Mr. Bupp agreed to extend the due date of his loan. In exchange for extending the due date of his loan, we issued Mr. Bupp an additional 375,000 Series Q warrants to purchase our common stock at an exercise price of $0.50 per share, expiring in March 2009. All 1,250,000 Series Q warrants related to the bridge loans remain outstanding at December 31, 2007. See Note 15(c). | |||
In November 2003, we executed common stock purchase agreements with certain investors. In connection with these agreements, 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. No Series R or Series S warrants were exercised during 2007 or 2006. At December 31, 2007, 2,808,898 Series R and 1,195,478 Series S warrants remain outstanding. See Note 15(c). See Note 6 for a discussion of Series U, V and W warrants. |
F-22
b. | 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 registering for resale up to 12,000,000 shares of our common stock became effective on December 28, 2006. We have authorized up to 12,000,000 shares of our common stock for sale to Fusion under the agreement. Under the terms of the agreement, in December 2006, we issued 720,000 shares of common stock as an initial commitment fee. We are also required to issue to Fusion up to an additional 720,000 shares of our common stock as an additional commitment fee in connection with future purchases made by Fusion. The additional 720,000 shares will be issued pro rata as we sell our common stock to Fusion under the agreement, resulting in a total commitment fee of 1,440,000 shares of our common stock if the entire $6.0 million in value of stock is sold. Under the terms of the agreement, generally we have the right but not the obligation from time to time to sell our shares to Fusion in amounts between $50,000 and $1.0 million depending on certain conditions set forth in the agreement. We have the right to control the timing and amount of any sales of our shares to Fusion. The price of shares sold to Fusion will generally be based on market prices for purchases that are not subject to the floor price of $0.20 per share. The common stock purchase agreement may be terminated by us at any time at our discretion without any cost to us. During 2007, we sold a total of 7,360,338 shares of our common stock under the agreement, realized gross proceeds of $1,900,000 from such sales, and issued Fusion 228,000 shares of our common stock as additional commitment fees related to such sales. During 2006, we sold a total of 208,333 shares of our common stock under the agreement, realized gross proceeds of $50,000 from such sales, and issued Fusion 6,000 shares of our common stock as additional commitment fees related to such sales. | ||
c. | Common Stock Reserved:As of December 31, 2007, we have reserved 35,691,194 shares of authorized common stock for the exercise of all outstanding options, warrants, and convertible debt. |
9. | Segments and Subsidiary Information: |
a. | Segments:We report information about our operating segments using the “management approach” in accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information.This information is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. Our reportable segments are identified based on differences in products, services and markets served. There were no inter-segment sales. We own or have rights to intellectual property involving two primary types of medical device products, including gamma detection instruments currently used primarily in the application of SLNB, and blood flow measurement devices. We also own or have rights to intellectual property related to several drug and therapy products. |
F-23
The information in the following table is derived directly from each reportable segment’s financial reporting. |
Gamma | Blood | Drug and | ||||||||||||||||||
($ amounts in thousands) | Detection | Flow | Therapy | |||||||||||||||||
2007 | Devices | Devices | Products | Corporate | Total | |||||||||||||||
Net sales: | ||||||||||||||||||||
United States1 | $ | 6,577 | $ | 166 | $ | — | $ | — | $ | 6,743 | ||||||||||
International | 197 | 185 | — | — | 382 | |||||||||||||||
Research and development expenses | 680 | 359 | 1,827 | — | 2,866 | |||||||||||||||
Selling, general and administrative expenses, excluding depreciation and amortization2 | — | — | — | 2,432 | 2,432 | |||||||||||||||
Depreciation and amortization | 99 | 262 | — | 44 | 405 | |||||||||||||||
Income (loss) from operations3 | 3,093 | (552 | ) | (1,827 | ) | (2,477 | ) | (1,763 | ) | |||||||||||
Other income (expense)4 | — | — | — | (3,325 | ) | (3,325 | ) | |||||||||||||
Total assets, net of depreciation and amortization: | ||||||||||||||||||||
United States operations | 2,280 | 703 | 186 | 2,334 | 5,503 | |||||||||||||||
Israeli operations (Cardiosonix Ltd.) | — | 1,560 | — | — | 1,560 | |||||||||||||||
Capital expenditures | 16 | 9 | — | 16 | 41 | |||||||||||||||
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 |
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. |
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 were 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. Through December 2006, we paid the founders a total of $14,000 in royalties related to sales of Cardiosonix products. No founders royalties were accrued as of December 31, 2007. |
F-24
10. | 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 $811,000 and $770,000 for the years ended December 31, 2007 and 2006, respectively. We have issued purchase orders under the same terms as the original agreement for $328,000 of crystal modules for delivery of product through September 2008. | ||
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® technology wireless probes, 11mm laparoscopic probe, and Quantix/ORTM control unit. The initial term of the agreement expired in January 2007, but was automatically extended through January 2008, and may continue to 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 $1.2 million and $1.1 million for the years ended December 31, 2007 and 2006, respectively. We have issued purchase orders under the agreement for $1.3 million of our products for delivery through December 2009. | |||
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. In December 2007, Neoprobe and EES executed an amendment to the distribution agreement which extended the agreement through the end of 2013. 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. | |||
Under the agreement, EES received a non-exclusive worldwide license to our SLNB intellectual property to make and sell other products that may be developed using our SLNB intellectual property. The term of the license is the same as that of the agreement. EES paid us a non-refundable license fee of $4 million. We recognized the license fee as revenue on a straight-line basis over the five-year initial term of the agreement, and the license fee was fully amortized into income as of the end of September 2004. As consideration for extending the distribution agreement through the end of 2013, EES paid us $500,000 in December 2007, representing a non-refundable license fee and reimbursement of past research and development expenses. We intend to recognize the $500,000 payment as revenue on a straight-line basis over the extended |
F-25
term of the agreement, or January 2009 through December 2013. If we terminate the agreement as a result of a material breach by EES, they would be required to pay us a royalty on all products developed and sold by EES using our SLNB intellectual property. In addition, we are entitled to a royalty on any SLNB product commercialized by EES that does not infringe any of our existing intellectual property. | |||
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 2007, we have paid the OCS a total of $57,000 in royalties related to sales of products developed under this program. As of December 31, 2007, we have accrued obligations for royalties totaling $4,000. | ||
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 $45,000 and $91,000 in 2007 and 2006, 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 was effective until March 31, 2007. Under the terms of the agreement, UCSD granted us limited rights to make and use licensed products as defined in the agreement and to practice the defined licensed methods during the term of the agreement for the sole purpose of evaluating our interest in negotiating a commercial license. 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 an initial evaluation license fee of $36,000 and evaluation license maintenance fees of $9,000 payable on the first year anniversary of the effective date, $9,000 payable on the eighteen-month anniversary of the effective date, and $18,000 payable prior to termination. We also agreed to pay UCSD fifty percent of any sublicense fees and to reimburse UCSD for all patent-related costs. In March 2007, we executed a second evaluation license agreement which will be effective until March 31, 2008. In consideration for the license |
F-26
rights, we agreed to pay UCSD an initial evaluation license fee of $20,000 and evaluation license maintenance fees of $10,000 payable on the six-month anniversary of the effective date and $10,000 payable on the twelve-month anniversary of the effective date. We also agreed to pay UCSD fifty percent of any sublicense fees and to reimburse UCSD for all patent-related costs. Total costs related to the UCSD evaluation license agreement were $53,000 and $18,000 in 2007 and 2006, respectively, and were recorded in research and development expenses. | |||
During January 2005, we executed a license agreement with The Ohio State University (OSU), Cira LLC, and Cira Bio for certain technology relating to activated cellular therapy. The license agreement is effective until the expiration date of the longest-lived underlying patent. Under the terms of the license agreement, OSU has granted the licensees the exclusive rights to make, have made, use, lease, sell and import licensed products as defined in the agreement and to utilize the defined licensed practices. We may also sublicense the patent rights. In consideration for the license rights, we agreed to pay OSU a license fee of $5,000 on January 31, 2006. We also agreed to pay OSU additional license fees related to initiation of Phase 2 and Phase 3 clinical trials, a royalty on net sales of licensed products subject to a minimum annual royalty of $100,000 beginning in 2012, and a percentage of any non-royalty license income. Also during January 2005, we completed a business venture agreement with Cira LLC that defines each party’s responsibilities and commitments with respect to Cira Bio and the license agreement with OSU. In connection with the execution of the option, Cira Ltd. also agreed to assign all interests in the ACT technology in the event of the closing of such a financing transaction. Total costs related to the OSU license agreement were $9,000 in 2006 and were recorded as research and development expenses. | |||
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. As of December 31, 2007, 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 15(d). |
11. | Leases: | |
We lease certain office equipment under capital leases which expire from 2007 to 2009. In August 2003, we entered into an operating lease agreement for office space, which originally expired in September 2006. In February 2005, we entered into another operating lease agreement for additional office space expiring in January 2008. The February 2005 lease agreement also extended the term of the original lease through January 2008. In June 2007, we executed an amendment to the operating lease for office space, which extended the agreement through January 2013. | ||
In June 2004, Cardiosonix entered into an operating sublease agreement for office space that expired in June 2005. In July 2004, Cardiosonix entered into a sublease agreement for parking space that expired in June 2005, and automatically renewed until either party terminated the agreement. The Cardiosonix office space and parking space subleases expired in January 2006. |
F-27
The future minimum lease payments for the years ending December 31 are as follows: |
Capital | Operating | |||||||
Leases | Leases | |||||||
2008 | $ | 15,889 | $ | 88,138 | ||||
2009 | 2,485 | 98,465 | ||||||
2010 | — | 101,285 | ||||||
2011 | — | 104,105 | ||||||
2012 | — | 106,925 | ||||||
18,374 | $ | 498,918 | ||||||
Less amount representing interest | 1,360 | |||||||
Present value of net minimum lease payments | 17,014 | |||||||
Less current portion | 14,592 | |||||||
Capital lease obligations, excluding current portion | $ | 2,422 | ||||||
Total rental expense was $153,000 and $163,000 for the years ended December 31, 2007 and 2006, respectively. | ||
12. | Employee Benefit Plan: | |
We maintain an employee benefit plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to make contributions and we may, but are not obligated to, match a portion of the employee’s contribution with our common stock, up to a defined maximum. We accrued expenses of $30,000 during 2007 and 2006 related to common stock to be subsequently contributed to the plan. | ||
13. | Supplemental Disclosure for Statements of Cash Flows: | |
We paid interest aggregating $869,000 and $687,000 for the years ended December 31, 2007 and 2006, respectively. During 2007 and 2006, we transferred $84,000 and $96,000, respectively, in inventory to fixed assets related to the creation and maintenance of a pool of service loaner equipment. Also during 2007 and 2006, we prepaid $160,000 and $175,000, respectively, in insurance through the issuance of notes payable to finance companies with weighted average interest rates of 6.6% and 5.8%, respectively. The note payable to a finance company issued in 2007 matures in July 2008. No new equipment was leased during 2007 or 2006. | ||
14. | Contingencies: | |
We are subject to legal proceedings and claims that arise in the ordinary course of business. In our opinion, the amount of ultimate liability, if any, with respect to these actions will not materially affect our financial position. | ||
15. | Subsequent Events: |
a. | Stock-Based Compensation:On January 3, 2008, the Compensation, Nominating and Governance (CNG) Committee of the Board of Directors granted 460,000 stock options with an exercise price of $0.36 to employees and directors. Also on January 3, 2008, the CNG Committee granted 450,000 shares of restricted stock that will vest based on a defined performance objective to certain executives. See Note 1(n). | ||
b. | Derivative Liabilities:Subsequent to December 31, 2007, Neoprobe and Montaur executed amendments to the Series A Note and the Series W warrants. The amendments eliminate certain minor cash-based penalty provisions in the Series A Note and Series W warrants which entitled the holders to different compensation than our common shareholders under certain |
F-28
circumstances and qualifying Triggering Events. The provisions being modified and/or eliminated are the provisions that led to the derivative accounting treatment for the embedded conversion feature in the Series A Note and the Series W warrants. As such, based on the elimination/modification of those provisions, we intend to reclassify the estimated fair value of the conversion option and the warrant liabilities to additional paid-in capital during the first quarter of 2008. See Note 6. | |||
c. | Warrant Exercises:During the first quarter of 2008, David C. Bupp, our President and CEO, exercised 375,000 Series Q warrants in exchange for issuance of 375,000 shares of our common stock, resulting in gross proceeds of $48,750. In addition, an outside investor exercised 500,000 Series Q warrants in exchange for issuance of 500,000 shares of our common stock, resulting in gross proceeds of $65,000. Also during the first quarter of 2008, certain investors exercised a total of 1,354,349 Series R warrants on a cashless basis in exchange for issuance of 270,870 shares of our common stock. See Note 8(a). | ||
d. | Employment Agreements:Effective January 1, 2008, we entered into a new employment agreement with one officer. The new agreement has substantially similar terms to the officer’s previous agreement. See Note 10(d). |
16. | Supplemental Information (Unaudited): | |
The following summary financial data are derived from our consolidated financial statements that have been audited by our independent registered public accounting firm. These data are qualified in their entirety by, and should be read in conjunction with, our Consolidated Financial Statements and Notes thereto included herein. |
Years Ended December 31, | ||||||||||||||||||||
(Amounts in thousands, except per share data) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Net sales | $ | 7,125 | $ | 6,051 | $ | 5,919 | $ | 5,353 | $ | 5,564 | ||||||||||
License and other revenue | — | — | — | 600 | 946 | |||||||||||||||
Gross profit | 3,940 | 3,419 | 3,543 | 3,608 | 3,385 | |||||||||||||||
Research and development expenses | 2,866 | 3,803 | 4,032 | 2,454 | 1,894 | |||||||||||||||
Selling, general and administrative expenses | 2,837 | 3,076 | 3,156 | 3,153 | 3,103 | |||||||||||||||
Loss from operations | (1,763 | ) | (3,460 | ) | (3,644 | ) | (1,999 | ) | (1,611 | ) | ||||||||||
Other expenses | (3,325 | ) | (1,281 | ) | (1,285 | ) | (1,542 | ) | (188 | ) | ||||||||||
Net loss | $ | (5,088 | ) | $ | (4,741 | ) | $ | (4,929 | ) | $ | (3,541 | ) | $ | (1,799 | ) | |||||
Loss per common share: | ||||||||||||||||||||
Basic | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.06 | ) | $ | (0.04 | ) | |||||
Diluted | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.06 | ) | $ | (0.04 | ) | |||||
Shares used in computing loss per common share:(1) | ||||||||||||||||||||
Basic | 62,921 | 58,587 | 58,434 | 56,764 | 40,338 | |||||||||||||||
Diluted | 62,921 | 58,587 | 58,434 | 56,764 | 40,338 | |||||||||||||||
As of December 31, | ||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Total assets | $ | 7,063 | $ | 8,034 | $ | 11,570 | $ | 15,366 | $ | 7,385 | ||||||||||
Long-term obligations | 8,836 | 4,922 | 6,052 | 8,192 | 585 | |||||||||||||||
Accumulated deficit | (140,777 | ) | (135,688 | ) | (130,947 | ) | (126,018 | ) | (122,477 | ) |
(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-29
SEC Registration | $ | 548 | |
Legal Fees and Expenses* | $ | 15,000 | |
Accounting Fees* | $ | 10,000 | |
Miscellaneous* | $ | 452 | |
Total | $ | 26,000 |
* | Estimated |
II-1
II-2
II-3
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 dated July 21, 1993, as amended July 18, 1995, May 30, 1996 and July 26, 2007 (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K dated August 3, 2007, and incorporated herein by reference). | |
4.1 | Neoprobe Corporation Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series A 8% Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
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 | Form of Restricted Stock Award and Agreement under the Neoprobe Corporation Amended and Restated 2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 9, 2008). | |
10.6 | Form of Employment Agreement between the Company and certain named executive officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 9, 2008). This Agreement is one of three substantially identical employment agreements and is accompanied by a schedule which identifies material details in which each agreement differs from the form filed herewith. | |
10.7 | Schedule identifying material differences between the employment agreements incorporated by reference as Exhibit 10.5 to this Annual Report on Form 10-K (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 9, 2008). | |
10.8 | 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). |
II-4
Exhibit | ||
Number | Exhibit Description | |
10.9 | 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). | |
10.10 | 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). | |
10.11 | 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). | |
10.12 | 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). | |
10.13 | 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). | |
10.14 | 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 Annual Report on Form 10-KSB filed March 16, 2007). | |
10.15 | First Amendment to Distribution Agreement, dated December 14, 2007, by and between the Company and Ethicon Endo-Surgery, Inc. (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 10.1 to the Company’s Current Report on Form 8-K filed December 20, 2007). | |
10.16 | 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). | |
10.17 | Supply and Distribution Agreement, dated November 15, 2007, by and between the Company and Cardinal Health 414, LLC (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 10.1 to the Company’s Current Report on Form 8-K filed November 21, 2007). | |
10.18 | 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). | |
10.19 | 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). |
II-5
Exhibit | ||
Number | Exhibit Description | |
10.20 | 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). | |
10.21 | 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). | |
10.22 | Stock Purchase Agreement dated October 22, 2003 between the Company and Bridges & Pipes, LLC. 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 herewith (incorporated by reference to Exhibit 10.32 to the Company’s registration statement on Form SB-2 filed December 2, 2003). | |
10.23 | Registration Rights Agreement dated October 22, 2003 between the Company and Bridges & Pipes, LLC. 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 herewith (incorporated by reference to Exhibit 10.33 to the Company’s registration statement on Form SB-2 filed December 2, 2003). | |
10.24 | Series R Warrant Agreement dated October 22, 2003 between the Company and Bridges & Pipes, LLC. 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 herewith (incorporated by reference to Exhibit 10.34 to the Company’s registration statement on Form SB-2 filed December 2, 2003). | |
10.25 | Series S Warrant Agreement dated November 21, 2003 between the Company and Alberdale Capital, LLC. 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 herewith (incorporated by reference to Exhibit 10.35 to the Company’s registration statement on Form SB-2 filed December 2, 2003). | |
10.26 | 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). | |
10.27 | 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). | |
10.28 | 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 10.29 to this Annual Report on Form 10-K). |
II-6
Exhibit | ||
Number | Exhibit Description | |
10.29 | Schedule identifying material differences between the form of Replacement Series A Convertible Promissory Note incorporated by reference as Exhibit 10.28 to this Annual Report on Form 10-K and the substantially identical Replacement Series A Convertible Promissory Notes (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed December 4, 2006). | |
10.30 | 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 10.30 to this Annual Report on Form 10-K). | |
10.31 | Schedule identifying material differences between the Form of Series T Neoprobe Corporation Replacement Common Stock Purchase Warrant incorporated by reference as Exhibit 10.30 to this Annual Report on Form 10-K and the substantially identical Series T Neoprobe Corporation Replacement Common Stock Purchase Warrants (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed December 4, 2006). | |
10.32 | 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). | |
10.33 | 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 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 10.34 to this Annual Report on Form 10-K). | |
10.34 | Schedule identifying material differences between the Form of Series U Warrant Agreement incorporated by reference as Exhibit 10.33 to this Annual Report on Form 10-K and the substantially identical Series U Warrant Agreements (incorporated by reference to Exhibit 10.36 to the Company’s December 31, 2004 Form 10-KSB). | |
10.35 | 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). | |
10.36 | 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). | |
10.37 | 10% Convertible Note Purchase Agreement, dated July 3, 2007, between the Company 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). |
II-7
Exhibit | ||
Number | Exhibit Description | |
10.38 | Amendment to Convertible Note Purchase Agreement, dated December 26, 2007, between the Company and David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with right of survivorship (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.39 | 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). | |
10.40 | Neoprobe Corporation Amended 10% Convertible Promissory Note Due December 31, 2011, 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 10.11 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.41 | Security Agreement, dated December 26, 2007, by and between the Company and David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with right of survivorship (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.42 | Series V 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 10.13 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.43 | Series V 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). | |
10.44 | 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). | |
10.45 | Securities Purchase Agreement, dated as of December 26, 2007, by and between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.46 | Amendment and Waiver for Securities Purchase Agreement, dated April 16, 2008, between Neoprobe Corporation and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 18, 2008). | |
10.47 | Neoprobe Corporation 10% Series A Convertible Senior Secured Promissory Note in the principal amount of $7,000,000, due December 26, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.48 | Second Amendment to 10% Series A Senior Secured Convertible Promissory Note, dated April 16, 2008, between Neoprobe Corporation and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed April 18, 2008). | |
10.49 | Neoprobe Corporation 10% Series B Convertible Senior Secured Promissory Note in the principal amount of $3,000,000, due December 26, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed April 18, 2008). |
II-8
Exhibit | ||
Number | Exhibit Description | |
10.50 | Series W Warrant to Purchase Shares of Common Stock of Neoprobe Corporation (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.51 | Series X Warrant to Purchase Shares of Common Stock of Neoprobe Corporation (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed April 18, 2008). | |
10.52 | Form of Series Y Warrant to Purchase Shares of Common Stock of Neoprobe Corporation (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.53 | Registration Rights Agreement, dated December 26, 2007, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.54 | Second Amendment to Registration Rights Agreement, dated April 16, 2008, between Neoprobe Corporation and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 18, 2008). | |
10.55 | Security Agreement, dated December 26, 2007, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
10.56 | Patent, Trademark, and Copyright Security Agreement, dated December 25, 2007, by and among Neoprobe Corporation, Cardiosonix Ltd., Cira Biosciences, Inc. and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed January 2, 2008). | |
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 2, 2003 (Registration No. 110858), with the exception of the Powers of Attorney for Mr. Aschinger, and Drs. Bland and Johnson, which were filed as Exhibit 24.1 to Post-effective Amendment No. 3 to the Company’s Registration Statement on Form SB-2 filed with the Commission September 20, 2007).** |
* | Filed herewith. | |
** | Previously filed. |
II-9
(1) | to file, during any period in which offers or sales are being made, 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. |
II-10
II-11
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 | May 5, 2008 | ||
David C. Bupp | and Director | |||
(principal executive officer) | ||||
/s/ Brent L. Larson* | Vice President, Finance and Chief | May 5, 2008 | ||
Brent L. Larson | Financial Officer | |||
(principal financial officer and | ||||
principal accounting officer) | ||||
/s/ Carl J. Aschinger, Jr.* | Chairman of the Board of | May 5, 2008 | ||
Carl J. Aschinger, Jr. | Directors | |||
/s/ Reuven Avital* | Director | May 5, 2008 | ||
Reuven Avital | ||||
/s/ Kirby I. Bland* | Director | May 5, 2008 | ||
Kirby I. Bland | ||||
/s/ Owen E. Johnson* | Director | May 5, 2008 | ||
Owen E. Johnson | ||||
/s/ Fred B. Miller* | Director | May 5, 2008 | ||
Fred B. Miller | ||||
/s/ Frank Whitley, Jr.* | Director | May 5, 2008 | ||
J. Frank Whitley, Jr. |
David C. Bupp, Attorney-in fact
II-12