SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM __________________ TO _____________________.
COMMISSION FILE NUMBER 0-19975
BIOCIRCUITS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3088884
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1324 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices) (Zip Code)
(408) 745-1961
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
At April 30, 1997, Registrant had 10, 281,321 shares of Common Stock issued and
outstanding.
BIOCIRCUITS CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements and Notes
Condensed balance sheets (unaudited) - March 31, 1997 and
December 31, 1996.............................................. 3
Condensed statements of operations (unaudited) - three months
ended March 31, 1997 and 1996 and the period from
March 7, 1989 (inception) through March 31, 1997 ........ 4
Condensed statements of cash flows (unaudited) - three months
ended March 31, 1997 and 1996 and the period from
March 7, 1989 (inception) through March 31, 1997 ......... 5
Notes to Condensed Financial Statements (unaudited)............ 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8
PART II: OTHER INFORMATION
ITEM 5. Other Information.............................................. 13
ITEM 6. Exhibits and Reports on Form 8-K............................... 13
Signatures .............................................................. 14
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(NOTE)
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 593 $ 4,944
Accounts receivable, net of allowance for doubtful accounts of $54, ($43
on December 31, 1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 201
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,225 928
Prepaid inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 375
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . 199 381
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813 102
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,374 6,931
Property and equipment, net of accumulated depreciation and
amortization of $1,763 ($1,671 in 1996). . . . . . . . . . . . . . . . . . . . 1,441 1,375
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 376
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 44
--------- ---------
$ 5,122 $ 8,726
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 957 $ 1,108
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 208
Accrued compensation and related expenses. . . . . . . . . . . . . . . . . . . 155 142
Current portion of capital lease obligations . . . . . . . . . . . . . . . . . 121 118
--------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,453 1,576
Long-term portion of capital lease obligations . . . . . . . . . . . . . . . . . 13 72
Stockholders' equity:
Preferred stock, $0.001 par value, 40,000,000 shares authorized, issuable
in series: Series A convertible, 30,000,000 shares designated,
12,446,103 shares issued and outstanding (12,455,137 shares
outstanding at December 31, 1996), aggregate liquidation preference
of $.55 per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,903 9,903
Common stock, $0001 par value, 70,000,000 shares authorized,
8,592,584 shares issued and outstanding (8,589,930 shares issued
and outstanding at December 31, 1996). . . . . . . . . . . . . . . . . . . . 48,905 48,784
Deficit accumulated during the development stage . . . . . . . . . . . . . . . (55,096) (51,548)
Notes receivable secured by common stock . . . . . . . . . . . . . . . . . . . (15) (15)
Deferred compensation and other. . . . . . . . . . . . . . . . . . . . . . . . (41) (46)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,656 7,078
--------- ---------
$ 5,122 $ 8,726
--------- ---------
--------- ---------
Note: Derived from the audited balance sheet at December 31, 1996
See accompanying notes
3
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED PERIOD FROM
MARCH 31, MARCH 7, 1989
------------------------- (INCEPTION) THROUGH
1997 1996 MARCH 31, 1997
------------ ---------- ------------------
REVENUES:
Product Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 234 $ 45 $ 655
OPERATING COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034 307 3,344
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,480 2,353 35,837
Sales, general and administrative. . . . . . . . . . . . . . . . . . . . . . . 1,316 1,250 17,594
--------- --------- --------
3,830 3,910 56,775
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,596) (3,865) (56,120)
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 92 2,412
Interest and other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (16) (89) (1,388)
--------- --------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,548) $ (3,862) $(55,096)
--------- --------- --------
--------- --------- --------
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.41) $ (0.99)
--------- ---------
--------- ---------
Shares used in computing net loss per share. . . . . . . . . . . . . . . . . . . 8,592 3,902
--------- ---------
--------- ---------
See accompanying notes
4
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED PERIOD FROM
MARCH 31, MARCH 7, 1989
------------------------- (INCEPTION) THROUGH
1997 1996 MARCH 31, 1997
------------ ---------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,548) $ (3,862) $ (55,096)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 95 114 3,626
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 --- 488
Changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) (45) (257)
Prepaid Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 (179) (263)
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (297) (69) (1,225)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 178 (293)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- -- 12
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . (150) 544 1,306
--------- --------- ----------
Net cash used in operating activities . . . . . . . . . . . . . . . . (3,564) (3,319) (51,702)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . (133) (92) (2,061)
Short-term investments purchased . . . . . . . . . . . . . . . . . . . . . . . --- --- (30,337)
Short-term investments sold/redeemed . . . . . . . . . . . . . . . . . . . . . --- 602 30,337
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (598) 93 (1,109)
--------- --------- ----------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . (731) 603 (3,170)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net of issuance costs . . . . . . . . . . . . . . --- 5,938 26,933
Issuance of common stock, net of issuance costs. . . . . . . . . . . . . . . . --- 4 27,301
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . --- 6 4,949
Payments on long-term obligations. . . . . . . . . . . . . . . . . . . . . . . (56) (164) (3,718)
--------- --------- ----------
Net cash provided by (used in) financing activities. . . . . . . . . . . . . (56) 5,840 55,465
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . (4,351) 3,124 593
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 4,944 6,028 ---
--------- --------- ----------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . $ 593 $ 9,152 $ 593
--------- --------- ----------
--------- --------- ----------
See accompanying notes
5
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. NATURE OF BUSINESS AND FINANCING
Biocircuits Corporation (a development stage company) (the "Company")
was incorporated in Delaware on March 7, 1989. The Company is engaged
in developing and commercializing new immunodiagnostic testing systems.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company's first sale
and shipment of its IOS system occurred in March 1996. The Company
has incurred a loss in each period since its inception. At March 31,
1997, the Company's accumulated deficit was $55.1 million.
Biocircuits expects to incur additional losses over the next several
years.
The Company's bank informed it in late March 1997 that the Company was
no longer in compliance with the bank's terms for the Kollsman standby
letter of credit. As a result, the bank collateralized the full amount
of the standby letter of credit, resulting in a $949,000 reduction in
available cash to the Company. Subsequently, also in late March 1997,
the Company and Kollsman reached an agreement to reduce the current
amount of the standby letter of credit to $700,000, resulting in an
increase of available cash of $249,000. The collateralization of the
standby letter of credit meant that the Company's remaining available
cash would satisfy its requirements until only mid-April 1997. In
early May 1997, the Company subsequently agreed with Kollsman to
extend the instrument production line shutdown until approximately
August 1997. The Company has further agreed to pay Kollsman $436,000
to cover the cost of raw material and work in process currently at, or
to be delivered to Kollsman. Such prepaid inventory funds will be
credited back against future deliveries of IOS instruments to
Biocircuits. In return, Kollsman has agreed to cancel the $700,000
standby letter of credit and the associated funds collateralized by
the Company's bank will be released back to the Company.
On April 15, 1997, the Company closed the April 1997 Financings which
consisted of the sale of common stock in three tranches. With the
receipt of funds from the first tranche of the April 1997 Financings,
the Company believes its cash resources will be adequate to satisfy
its requirements until the end of the second quarter of 1997. If the
Company receives funding from the second tranche of the April 1997
Financings, the Company believes its cash resources will be adequate
to satisfy its requirements into the second quarter of 1998. If the
Company receives funding from the third tranche of the April 1997
Financings, the Company believes its cash resources will be adequate
to satisfy its requirements into the third quarter of 1998. There can
be no assurance that the Company will meet the milestones that are
necessary to receive the funds from the second and third tranches. If
these funds are not available, the Company will be required to
significantly curtail or cease its operations and no assurance can be
given that any additional financing will be available, or if
available, that it would be on acceptable terms.
Obtaining additional funds will be critical to the Company's ability
to maintain operations during 1997. The Company will therefore
continue to seek funding from various equity financing sources.
Raising additional funds from public or private sources will result in
significant dilution to then existing shareholders. If adequate
funding is not available on a timely basis, the Company will be
required to curtail its operations significantly or to cease
operations. There can be no assurance that the Company will be
successful in obtaining additional financing during 1997.
6
2. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended
March 31, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form
10-K/A for the year ended December 31, 1996.
Net loss per share is computed on the basis of the weighted average
number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is anti-dilutive.
Following is supplemental proforma earnings per share, calculated
giving effect to the conversion of the outstanding convertible
preferred stock on an if converted basis (in thousands, except per
share data):
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
Net loss as reported............................ $ (3,548) $ (3,862)
--------- ---------
--------- ---------
Shares used in computing net
loss per share as reported................. 8,592 3,902
Adjustment to include outstanding convertible
preferred stock previously excluded
as it is anti-dilutive..................... 3,113 3,366
--------- ---------
Shares used in computing proforma net
loss per share............................. 11,705 7,268
--------- ---------
--------- ---------
Proforma net loss per share..................... $ (0.30) $ (0.53)
--------- ---------
--------- ---------
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will
be excluded. The Company expects no impact from the implementation of
FASB 128 as common equivalent shares are excluded from the computation
as their effect is anti-dilutive.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION,
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31,
1996.
RESULTS OF OPERATIONS
Since its inception in 1989, the Company has been engaged in
research and development and marketing of medical diagnostic applications of
its technologies.
The Company has incurred a loss in each period since its inception.
At March 31, 1997, the Company's accumulated deficit was $55.1 million.
Biocircuits expects to incur additional losses over the next several years.
The Company expects that currently available funds will be used primarily for
sales and marketing programs for its IOS point-of-care system and development
of additional assays for the IOS point-of-care system. The losses may vary
from period to period, including from quarter to quarter, and may increase,
due to the uncertainty of whether the sales and marketing programs of the
Company will achieve the desired results. Accordingly, the Company believes
that quarter-to-quarter results are not a useful indicator of the Company's
performance.
The Company's first sale and shipment of its IOS system occurred in
March 1996, with cartridges capable of performing the T4 and T Uptake tests.
The selling process typically requires the Company's sales force to work
closely with distributors, generate qualified physician leads and perform
demonstrations of the IOS system in physicians' offices. The selling process
can be time-consuming. To date, the number of instrument sales to
distributors and placements in physicians' offices have been, and continues
to be, significantly less than the Company's expectations. As a result, the
Company has incurred significant losses. There can be no assurance that the
Company will be successful in marketing the IOS system, that the rate of
sales growth will ever meet expectations or that the marketing programs of
the Company will achieve the desired results.
Certain design changes to the IOS instrument were required since
the first sale and shipment of the IOS system. In April 1996, problems in
some of the instrument circuitry and software required certain parts and
software modifications. Further product shipments were suspended at that time
while the problems were diagnosed and corrected and shipments resumed in the
middle of June. The requirements to make the design changes to the
instrument and the suspension of product shipments had an adverse impact on
1996 revenue and overall financial performance. There can be no assurance
that additional design changes may not be required in the future or that the
system performance will be reliable over time.
On April 3, 1997, in order to reduce its losses and conserve cash,
the Company reduced its work force from 92 employees to 54 employees. The
Company is highly dependent upon the principal members of its management and
scientific staff and key individuals in all areas of the Company. Although
the Company believes it has retained sufficient employees to achieve its
near-term business objectives after its reduction in force on April 3, 1997,
there can be no assurance that the loss of services of such employees might
not impede the achievement of the Company's business objectives. Furthermore,
there can be no assurance that the reduction in force will not adversely
affect the Company's ability to retain its remaining employees, however, the
Company has implemented certain programs which it believes may help in
retaining the key employees. The Company faces competition for qualified
individuals from numerous manufacturers of medical products and other high
technology products, as well as universities and academic institutions. There
can be no assurance that the Company will be able to attract qualified new
personnel on acceptable terms.
In order for the Company to have success in penetrating the
point-of-care immunodiagnostic market and to achieve significant sales of IOS
systems and test cartridges, the Company believes it will need to continue to
expand its menu of tests. In September 1996, the Company received FDA
clearance to market a qualitative serum
8
pregnancy assay. The Company also received clearances from the FDA for a TSH
assay in November 1996 and a quantitative hCG assay in December 1996. During
1996, the Company developed an improved second generation cartridge for its
new assays as well as existing assays. In December 1996, the Company
launched its TSH assay on the second generation cartridge and in March 1997,
the Company began shipping the T4 and T Uptake tests on the second generation
cartridge. The second generation cartridge will be utilized for the market
launch of all new assays, including the FDA cleared assays as well as those
in development. Biocircuits is currently developing three additional assays:
a PSA test for management of prostate cancer patients, a Digoxin test for
monitoring the therapeutic usage of this drug in the treatment of heart
disease and a Free T4 test for diagnosing true clinical thyroid status. In
the past, the Company has experienced delays in completing the development of
new tests. Furthermore, the April 1997 reduction in force reduced the number
of product development employees, and there can be no assurance that the
reduction will not result in further delays in completing the development of
these new tests or that any expansion of the test menu will not be delayed.
Biocircuits has developed its initial proprietary manufacturing
process for producing the test cartridges for its IOS point-of-care system.
Various plastic components and other materials for the cartridges are and
will be obtained from contract manufacturers. The Company has experienced
cartridge backlogs at various times since the March 1996 launch of the IOS
point-of-care system and there can be no assurance that the Company will be
able to meet customer demand for cartridges in the future, or that any order
backlog will not materially adversely affect the Company's sales and
marketing efforts. The Company's cartridge manufacturing milestones include
improving manufacturing efficiencies, expanding mold and cartridge
manufacturing capacity as both the test menu and test manufacturing volume
expand, initiating manufacturing automation efforts and manufacturing the
cartridge at the Company's targeted cost. The cartridge manufacturing
scale-up process will require the Company to develop advanced manufacturing
techniques and rigorous process controls. The automation effort will be
critical to meeting the Company's longer-term cartridge manufacturing demands
and cost targets. There can be no assurance that the Company will be
successful in these efforts or that such efforts will result in the Company
meeting expected cartridge demand or achieving the Company's longer-term
cartridge manufacturing cost targets.
In August and December 1995, the Company entered into agreements
with Nunc to manufacture the plastic components of its disposable test
cartridges. Under the terms of the agreement, Nunc has the exclusive right to
supply the plastic components for the test cartridges for all sales in North
America. The Company will be entirely dependent on Nunc as the sole source
for the plastic components and treatment thereof. There can be no assurance
that Nunc will be able to deliver the required quantities of test cartridge
components on schedule or at costs acceptable to the Company.
In December 1992, the Company entered into an agreement with
Kollsman pursuant to which Kollsman was appointed the exclusive North
American supplier of the IOS instrument. The agreement with Kollsman
contained certain minimum purchase requirements and expired three years from
the date of first commercial production, subject to certain rights of earlier
termination. In April 1996, the Company and Kollsman executed a letter
agreement to amend the 1992 agreement (the "Letter Agreement"), pursuant to
which Kollsman will be the exclusive supplier of the IOS instrument through
1997, the minimum purchase requirements were eliminated and the Company and
Kollsman agreed to an acceptable fixed transfer price to be paid through
1997, the revised term of the agreement. Also pursuant to the Letter
Agreement, the Company agreed to issue Kollsman a warrant to purchase 250,000
shares of Common Stock at an exercise price of $7.00 per share, subject to an
increase of 50,000 shares under certain circumstances. The warrant expires
at year end 1997, subject to certain extension rights. In November 1996, the
Company and Kollsman amended the Letter Agreement to extend the expiration
date of the warrant to June 1998, subject to certain extension rights. In
order to secure an adequate supply of IOS instruments, the Company
established a standby letter of credit for the benefit of Kollsman. In late
March 1997, the Company and Kollsman agreed to reduce the amount of the
standby letter of credit by $249,000 in exchange for reducing the exercise
price of the warrant to $2.00 per share. Also in late March 1997, the
Company and Kollsman agreed to issue Kollsman a warrant to purchase 50,000
shares of Common Stock in exchange for a one month shutdown of instrument
production. In early May 1997, the Company subsequently agreed with Kollsman
to extend the instrument production line shutdown until approximately August
1997. The Company has further agreed to pay Kollsman $436,000 to cover the
cost of raw material and work in process currently at, or to be delivered to,
Kollsman. Such prepaid inventory funds will be credited back against future
deliveries of IOS instruments to Biocircuits. In return, Kollsman will
cancel the $700,000 standby letter of credit and the associated funds
collateralized by the Company's bank will be released back to the Company.
The Company is entirely dependent on Kollsman as the sole source
9
of production of its IOS instruments. Kollsman, in turn, relies upon
sole-source suppliers for certain components. Failure of Kollsman's suppliers
to deliver the required quantities on a timely basis and at commercially
reasonable prices, or Kollsman's failure to deliver the IOS instruments to
the Company on a timely basis or at commercially reasonable costs could
materially adversely affect the Company.
On October 21, 1996, the Company closed a private placement which
consisted of the sale of 965,231 units at $6.00 per unit. Proceeds to the
Company were approximately $5.2 million, net of issuance costs. A unit
consisted of two shares of Common Stock and a Financing Warrant expiring
October 20, 1997, to purchase one share of Common Stock at $3.43 per share.
The Financing Warrants contain an automatic exercise provision which occurs,
upon notice from the Company, at any time beginning six months prior to the
expiration date when the average market value for the Company's Common Stock
equals or exceeds $5.25 per share for 10 consecutive trading days. If the
Financing Warrants are exercised, the Company will receive gross proceeds of
up to an additional $3.3 million.
In August 1995, Biocircuits entered into an agreement with Beckman
and received $3,500,000 in the form of a Note in exchange for granting
Beckman options for licensing and marketing rights to certain testing
applications using the Company's lipid/polymer technology. Pursuant to the
terms of the agreement, Biocircuits completed a feasibility study in August
1996. Because Beckman subsequently elected not to exercise its development
license option, Biocircuits regained full rights to the lipid/polymer
technology in December 1996, including all improvements made during the
feasibility study. In connection with their decision, Beckman also elected
to convert the Note into the Company's Common Stock and a warrant to purchase
the Company's Common Stock.
On April 15, 1997, the Company closed a private placement which
consisted of the sale of 2,500,000 shares of its common stock (the "April
1997 Common Stock Financing") to be issued in three tranches. The first
tranche resulted in gross proceeds of approximately $530,000 to the Company,
the second tranche, conditional upon the Company's satisfaction of certain
milestones for the second quarter of 1997 and stockholder approval of the
issuance of the shares, will result in gross proceeds of approximately
$1,190,000 to the Company and the third tranche, conditional upon the
Company's satisfaction of certain milestones by the end of fiscal 1997 and
stockholder approval of the issuance of the shares, will result in gross
proceeds to the Company of approximately $780,000. In addition, on April 15,
1997, the Company closed a private placement which consisted of the sale of
5,447,000 units, consisting of one share of common stock and one warrant to
purchase one share of common stock to be issued in two tranches (the "April
1997 Unit Financing"). The first tranche resulted in gross proceeds to the
Company of approximately $1,160,000, and the second tranche, conditional upon
the Company's satisfaction of certain milestones for the second quarter 1997
and stockholder approval of the issuance of the shares, will result in gross
proceeds of approximately $4,290,000 to the Company. The warrants in the
April 1997 Unit Financing (the "April 1997 Warrants"), which expire eighteen
months after they become exerciseable, have an exercise price of $0.75 per
share and cannot be exercised until after stockholder approval which will not
occur before the Company's 1997 Annual Meeting to be held on June 5, 1997. At
the Company's option, the Company may shorten the exercise period of the
April 1997 Warrants in which case the Warrants may become redeemable by the
Company at $0.01 per share, if the closing price for the Company's common
stock is greater than or equal to $2.00 per share for ten days. The April
1997 Common Stock Financing and the April 1997 Unit Financing are referred to
herein collectively as the "April 1997 Financings."
FIRST QUARTER FY 1997 COMPARED TO FIRST QUARTER FY 1996
Revenue in the first quarter totaled $234,000, an increase of $189,000
or 420% from the $45,000 reported in the first quarter of 1996 when the
Company initially launched its IOS system.
Total operating costs and expenses decreased from $3,910,000 in the
first quarter of 1996 to $3,830,000 in the first quarter of 1997, a decrease
of $80,000 or 2%.
Cost of sales expenses increased from $307,000 in the first quarter of
1996 to $1,034,000 in the first quarter of 1997, an increase $727,000 or
236%. The increase in cost of sales results primarily from a full quarter of
production activity and expenses in 1997 compared to expenses incurred during
a partial period in first quarter 1996 as the Company launched its IOS system
in March 1996. These costs consist primarily of manufacturing overhead,
startup costs and material costs associated with the production of a
revenue-generating product.
10
Research and development expenses decreased from $2,353,000 in the first
quarter of 1996 to $1,480,000 in the first quarter of 1997, a decrease of
$873,000 or 37%. This decrease was due primarily to a reduction in outside
services, primarily non-recurring engineering charges from Kollsman.
Sales, general and administrative expenses increased from $1,250,000 in
the first quarter of 1996 to $1,316,000 in the first quarter of 1997, an
increase of $66,000 or 5%. This increase was due primarily to the increased
sales and marketing expenses resulting from the preparation for and marketing
of the IOS point-of-care system.
Interest income decreased from $92,000 in the first quarter of 1996 to
$64,000 in the first quarter of 1997, a decrease of $28,000 or 30%. The
decrease was due to decreased cash balances from ongoing operating losses,
purchases of property and equipment and payments on long-term obligations.
Interest and other expense decreased from $89,000 in the first quarter of
1996 to $16,000 in the first quarter of 1997, a decrease of $73,000.
Interest expense results from the Company's long-term debt and capital leases
related to its property and equipment.
Net loss decreased from $3,862,000 or $0.99 per share in the first
quarter of 1996 to $3,548,000 or $0.41 per share in the first quarter of
1997, a decrease of $314,000 or 8%.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations primarily
through sales of common and preferred stock, interest income on the cash
balances available after such financings, long term debt and capital asset
lease financings. Since its inception through March 31, 1997, the Company
raised a total of approximately $54.2 million in the sale of common and
preferred stock.
The Company's cash and cash equivalents and short-term investments
were $0.6 million as of March 31, 1997, compared to $4.9 million at the end
of 1996. The decrease was due primarily to operating losses in the first
quarter 1997.
The Company's bank informed it in late March 1997 that the Company
was no longer in compliance with the bank's terms for the Kollsman standby
letter of credit. As a result, the bank collateralized the full amount of the
standby letter of credit, resulting in a $949,000 reduction in available cash
to the Company. Subsequently, also in late March 1997, the Company and
Kollsman reached an agreement to reduce the current amount of the standby
letter of credit to $700,000, resulting in an increase of available cash of
$249,000. The collateralization of the standby letter of credit meant that
the Company's remaining available cash would satisfy its requirements until
only mid-April 1997. In early May 1997, the Company subsequently agreed with
Kollsman to extend the instrument production line shutdown until
approximately August 1997. The Company has further agreed to pay Kollsman
$436,000 to cover the cost of raw material and work in process currently at,
or to be delivered to, Kollsman. Such prepaid inventory funds will be
credited back against future deliveries of IOS instruments to Biocircuits.
In return, Kollsman has agreed to cancel the $700,000 standby letter of
credit and the associated funds collateralized by the Company's bank will be
released back to the Company.
On April 15, 1997, the Company closed the April 1997 Financings
which consisted of the sale of common stock in three tranches. With the
receipt of funds from the first tranche of the April 1997 Financings, the
Company believes its cash resources will be adequate to satisfy its
requirements until the end of the second quarter of 1997. If the Company
receives funding from the second tranche of the April 1997 Financings, the
Company believes its cash resources will be adequate to satisfy its
requirements into the second quarter of 1998. If the Company receives funding
from the third tranche of the April 1997 Financings, the Company believes its
cash resources will be adequate to satisfy its requirements into the third
quarter of 1998. There can be no assurances that the Company will meet the
milestones that are necessary to receive the funds from the second and third
tranches. If these funds are not available, the Company will be required to
significantly curtail or cease its operations and no assurance can be given
that any additional financing will be available, or if available, that it
would be on acceptable terms.
11
Obtaining additional funds will be critical to the Company's
ability to maintain operations during 1997. The Company will therefore
continue to seek funding from various equity financing sources. Raising
additional funds from public or private sources will result in significant
dilution to then existing shareholders. If adequate funding is not available
on a timely basis, the Company will be required to curtail its operations
significantly or to cease operations. There can be no assurance that the
Company will be successful in obtaining additional financing during 1997.
The Company believes that maintaining its listing on the Nasdaq
National Market System ("Nasdaq") is central to its ability to raise
additional funds as well as to provide liquidity to investors. The conversion
of the Beckman Note resulted in the Company meeting Nasdaq listing
requirements at year end 1996. The Company failed temporarily to meet Nasdaq
net tangible assets listing requirements at the end of the first quarter of
1997. However, the proceeds from the first tranche of the April 1997
Financings allowed the Company to meet Nasdaq listing requirements, on a
proforma basis, for the first quarter of 1997. The Company also expects not
to be in compliance with Nasdaq listing requirements at the end of the second
quarter of 1997. However, if the Company receives proceeds from the second
tranche of the April 1997 Financings in July 1997, the Company believes it
would meet Nasdaq listing requirements, on a proforma basis, for the second
quarter in 1997. In addition, the Company believes the receipt of proceeds
from the second tranche of the April 1997 Financings would result in it
meeting Nasdaq listing requirements through year end 1997. If the Company
receives proceeds from the third tranche of the April 1997 Financings, the
Company believes it will meet Nasdaq listing requirements through the first
quarter of 1998. Thereafter, the Company will be required to generate
sufficient revenue or raise additional capital to maintain Nasdaq listing
requirements. There can be no assurance that the Company will meet the
milestones that are necessary to receive the funds from the second and third
tranches.
The Company believes its cash requirements may increase in future
periods due to higher expenses. The Company expects to incur substantial
additional costs, including costs related to ongoing research and development
activities, either alone or in collaboration with strategic partners,
clinical trials, expansion of manufacturing, research and development and
administrative facilities, development of manufacturing capabilities,
obtaining regulatory approvals and establishing sales, marketing and
distribution capabilities. The Company's long-term capital requirements will
depend on numerous factors, including the progress of the Company's research
and product development, the timing and cost of obtaining regulatory
approvals, the costs associated with patents and other intellectual property
rights, the levels of resources devoted to the development of manufacturing
and marketing capabilities and potential collaborative partnerships. The
Company intends to seek additional funding through collaborative
relationships and public or private financings. Other methods of financing
the acquisition of capital equipment, including lease financing, may be
utilized if available on attractive terms. Raising additional funds from
public or private financings may result in further dilution to then-existing
shareholders. The Company also may attempt to obtain funds through
arrangements with strategic partners or others that may require the Company
to relinquish rights to certain of its technologies, products or marketing
territories in exchange for funding. If adequate funds are not available
from these sources, the Company will be required to curtail its operations
significantly. No assurance can be given that any additional financing will
be available, or, if available, that it will be available on acceptable
terms.
12
BIOCIRCUITS CORPORATION
PART II: OTHER INFORMATION
ITEM 5. Other Information
On April 16, 1997, the Company issued a press release announcing
that it had closed a private placement and had received net
proceeds of approximately $1.5 million in the first tranche of the
April 1997 Financings, which proceeds allowed the Company to meet
Nasdaq listing requirements for the first quarter of 1997 on a
proforma basis. A copy of the press release announcing the April
1997 Financings is attached hereto as Exhibit 99.1 and incorporated
by reference herein.
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27.1 Financial Data Schedule
99.1 Press Release dated April 16, 1997
99.2 Proforma March 31, 1997 Balance Sheets and
Statements of Operations assuming completion
of a private placement and receipt of net proceeds
of $1.5 million therefrom.
b) Reports on Form 8-K
None
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BIOCIRCUITS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOCIRCUITS CORPORATION
Date: May 13, 1997
By: /s/ John Kaiser
------------------------------------
John Kaiser
President, Chief Executive Officer
and Acting Secretary (Principal
Executive officer)
By: /s/ Donald Hawthorne
------------------------------------
Donald Hawthorne
Vice President and Chief Financial
Officer (Duly Authorized Officer and
Principal Financial and Accounting
Officer)
14