<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-22501
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SPECTRUMEDIX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 25-1686354
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2124 Old Gatesburg Road, State College, Pennsylvania 16803
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(Address of principle executive offices)
(814) 867-8600
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 4,266,560 shares of common
stock, par value $.001 per share, outstanding as of October 30, 2000.
<PAGE>
SPECTRUMEDIX CORPORATION
QUARTERLY REPORT
QUARTER ENDED September 30, 2000
CONTENTS
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements (unaudited)
Condensed Balance Sheets - September 30, 2000 and March 31, 2000...................................... 1
Condensed Statements of Operations - Six and Three Months Ended September 30, 2000 and
September 30, 1999.................................................................................... 2
Condensed Statements of Cash Flows - Six and Three Months Ended September 30, 2000 and
September 30, 1999.................................................................................... 3
Notes to condensed Financial Statements............................................................... 4-6
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 10
Item 2. Changes in Securities and Use of Proceeds...................................................... 10
Item 3. Defaults Upon Senior Securities................................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders............................................ 10-11
Item 5. Other Information.............................................................................. 11
Item 6. Exhibits and Reports on Form 8-K............................................................... 11
(a) Exhibits................................................................................... 11
(b) Reports on Form 8-K........................................................................ 11
</TABLE>
<PAGE>
SPECTRUMEDIX CORPORATION
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
---------- ----------
(Unaudited) (Note 1)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 621,341 $2,183,458
Accounts receivable 251,026 181,137
Inventories 1,041,351 617,191
Prepaid expenses 32,662 14,642
---------- ----------
TOTAL CURRENT ASSETS 1,946,380 2,996,428
---------- ----------
Property and equipment, net 576,555 475,855
Patent fees 588,593 490,902
License and license options, net of accumulated
amortization of $138,177 and $121,675 respectively 4,024 20,525
Security deposit 8,479 8,479
---------- ----------
TOTAL ASSETS $3,124,031 $3,992,189
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 2,104,367 $ 1,719,278
Current portion of long-term capital lease obligations 59,250 37,915
Current portion of deferred revenue 666,667 1,238,096
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TOTAL CURRENT LIABILITIES 2,830,284 2,995,289
------------ ------------
Long-term capital lease obligations, net of current portion 161,188 83,222
Deferred revenue, net current portion 555,556 888,889
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.00115 par value, 2,000,000 shares
authorized at September 30, 2000 and March 31, 2000
Series A Preferred stock, 2,000 shares issued and outstanding in
September 30 and March 31, 2000, (liquidation preference of
$2,000,000) 2 2
Series B Preferred stock, 103.125 shares issued and outstanding
in September 30 and March 31, 2000, (liquidation preference of
$103,125) - -
Common stock, $.00115 par value, 23,000,000 shares
authorized 4,265,256 and 4,241,989 shares issued and
outstanding, respectively 4,904 4,877
Note receivable arising from issuance of common stock (37,500) (37,500)
Additional paid-in capital 12,683,200 12,498,434
Accumulated deficit (13,073,603) (12,441,024)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (422,997) 24,789
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,124,031 $ 3,992,189
============ ============
</TABLE>
See notes to condensed financial statements
1
<PAGE>
SPECTRUMEDIX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES $ 301,639 $ 95,720 $ 253,033 $ 45,353
SUBLICENSE AND CONSULTING 1,071,429 111,111 476,191 111,111
REVENUE ---------- ---------- ---------- ----------
1,373,068 206,831 729,224 156,464
COST OF SALES 526,975 157,262 336,598 27,805
---------- ---------- ---------- ----------
GROSS PROFIT 846,093 49,569 392,626 128,659
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Research and development costs, net 503,144 359,869 250,632 155,251
General and administrative expenses 1,012,975 461,720 479,476 215,234
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 1,516,119 821,589 730,108 370,485
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (670,026) (772,020) (337,482) (241,826)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 43,030 25,324 16,111 25,228
Interest expense (5,583) (23,796) (3,574) (11,514)
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSE) 37,447 1,528 12,537 13,714
---------- ---------- ---------- ----------
NET LOSS $ (632,579) $ (770,492) $ (324,945) $ (228,112)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING USED FOR
BASIC AND DILUTED LOSS PER SHARE 4,251,064 3,640,288 4,259,369 3,658,041
========== ========== ========== ==========
BASIC AND DILUTED LOSS PER
SHARE $ (.15) $ (.21) $ (.08) $ (.06)
========== ========== ========== ==========
</TABLE>
2
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SPECTRUMEDIX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended September 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (632,579) $ (770,492)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and Amortization 77,574 64,465
Non-cash compensation expense 183,379 80,906
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (69,889) 15,151
(Increase) decrease in inventories (424,160) (36,576)
(Increase) decrease in prepaid expenses (18,020) -
(Increase) in other assets - (9,943)
Increase in accounts payable and accrued expenses 385,089 (851,206)
Increase (decrease) in deferred revenue (904,762) 2,888,889
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,403,368) 1,381,194
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (137,219) (41,968)
Increase in Certificates of deposit - (2,015,928)
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NET CASH USED IN INVESTING ACTIVITIES (137,219) (2,057,896)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long term obligations (22,944) -
Proceeds from officer's notes - 222,031
Repayment of officer's notes - (300,000)
Repayment of note payable- others - (13,668)
Proceeds from sale of Preferred stock - 1,995,000
Stock options exercised 1,414 -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (21,530) 1,903,363
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,562,117) 1,226,661
CASH AND CASH EQUIVALENTS - beginning of period 2,183,458 20,318
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 621,341 $ 1,246,979
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Stock options exercised in lieu of payment on promissory note - 147
Issuance of common stock in lieu of cash payment for Board of Directors 9 -
Capital lease obligations incurred for acquisition of equipment 122,245 -
</TABLE>
See notes to condensed financial statements
3
<PAGE>
SPECTRUMEDIX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of SpectruMedix
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-QSB. Accordingly, they do not contain all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly (a) the financial position as of September 30, 2000, (b) the
results of operations for the six and three months ended September 30, 2000
and 1999 and (c) changes in cash flows for the six months ended September
30, 2000 and 1999. Financial results for the interim period ended September
30, 2000 may not be indicative of the financial results for the fiscal year
ending March 31, 2001.
The balance sheet at March 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For more information, refer to the audited financial statements for the
fiscal year ended March 31, 2000, which were included in the Company's
Annual Report on Form 10-KSB.
Certain reclassifications have been made to the 1999 financial statements
to conform to the 2000 presentation. These reclassifications had no effect
on net income as previously reported.
NOTE 2 - GENERAL
The Company is commercializing, manufacturing and marketing high-speed
DNA/gene sequencing instrumentation (the "DNA Sequencer") and a high
throughput screening, massive parallel capillary electrophoresis system
(the "HTS-MPCE system"). The DNA Sequencer is an instrument for the
acquisition, analysis and management of complex genetic information, and
the HTS-MPCE system is a high throughput screener primarily used by the
pharmaceutical industry for drug discovery.
NOTE 3 - ECONOMIC DEPENDENCY
On March 31, 2000, the Company sold its first HTS-MPCE system and the first
DNA Sequencer was sold in September, 2000. In addition, the Company has
leased two DNA Sequencers. The Company expects that sales of the DNA
Sequencer and HTS-MPCE system will be characterized by sales to a limited
number of customers during any accounting period, with each sale being
material to the Company's results of operations and financial condition.
The Company's DNA Sequencer and HTS-MPCE system require high quality raw
materials and components that the Company purchases from third-party
suppliers. Certain raw materials or components may, however, from time to
time, be difficult to obtain, which difficulties may result in production
delays or require the Company to find alternate means of production. In
particular, both the lasers and capillaries used in the DNA Sequencer and
HTS-MPCE system are each purchased from one manufacturer who only produces
a limited number of units. Such manufacturers may not be able to supply all
of the Company's needs. Thus, the Company's ability to manufacture its
products will depend on its ability to establish and maintain commercial
relationships with at least certain of such suppliers. The Company does not
currently maintain supply agreements with any of its suppliers. The Company
believes adequate sources of supply exist for all raw materials and
components it will need, and that such items are available on commercially
reasonable terms.
4
<PAGE>
NOTE 4 - LEGAL PROCEEDINGS
Rubin Matter
On April 21, 1997, a complaint was filed in the Supreme Court of the State
of New York alleging breach of contract. Specifically, the plaintiff
alleges that the Company defaulted under a promissory note issued to
plaintiff on May 16, 1996 in the amount of $175,000 (the "Rubin Note")
while such Note was outstanding and therefore that the Company is liable
and indebted to plaintiff in the principal amount of $175,000, together
with interest and expenses. The Company, on May 2, 1997, paid the
principal and interest due under the Rubin Note.
The main remaining issue asserted by the plaintiff is whether, pursuant to
an alleged related agreement, the plaintiff is entitled to 152,174 shares
(adjusted to reflect stock splits) of common stock of the Company (the
"Common Stock") or, alternatively, $875,000. Plaintiff alleges that the
Company undertook to enter into a securities purchase agreement pursuant to
which he should have received the aforementioned shares of Common Stock.
The Company contends that such securities purchase agreement was never
discussed and therefore that no agreement was reached with respect to the
terms thereof. Such securities purchase agreement was not signed by either
of the parties to the Rubin Note. The Company believes that it has
meritorious defenses to the above-described claims and it intends to defend
the litigation vigorously. However, due to the nature of litigation and
because the lawsuit is in the initial stages, the Company cannot determine
the total expense or possible loss, if any, that may ultimately be incurred
either in the context of a trial or as a result of a negotiated settlement.
While management believes that the resolution of this matter will not have
a material adverse effect on the Company's business, financial condition
and results of operations, the results of these proceedings are uncertain
and there can be no assurance to that effect.
NOTE 5 - STOCK OPTIONS
During the three months ended September 30, 2000, options to purchase 1,043
shares of Common Stock under the Company's stock incentive plan were
exercised.
NOTE 6 - LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
Six months ended September 30,
------------------------------------
2000 1999
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<S> <C> <C>
Numerator:
Net loss $ (632,579) $ (770,492)
============ ===========
Denominator:
Weighted-average shares 4,251,064 3,640,288
============ ===========
Net loss per share, basic and diluted $ (0.15) $ (0.21)
============ ===========
Antidilutive options, warrants, and convertible preferred stock
not included in loss per share calculation 4,666,541 3,495,408
============ ===========
</TABLE>
5
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<TABLE>
<CAPTION>
Three months ended September 30,
------------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Numerator:
Net loss $ (324,945) $ (228,112)
============ ===========
Denominator:
Weighted-average shares 4,259,369 3,658,041
============ ===========
Net loss per share, basic and diluted $ (0.08) $ (0.06)
============ ===========
Antidilutive options, warrants, and convertible preferred stock
not included in loss per share calculation 4,666,541 3,495,408
============ ===========
</TABLE>
Note 7 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the
basic criteria that must be met in order to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. In June
2000, the SEC issued SAB 101B, "Second Amendment: Revenue Recognition in
Financial Statements," which extends the effective date of SAB 101 to the
fourth fiscal quarter of fiscal years commencing after December 15, 1999.
Although we have not fully assessed the implications of SAB 101, management
does not believe the adoption of the statement will have a significant
impact on our financial position, results of operations, or cash flows.
Note 8 - STOCK OPTION REPRICING
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," and interpretation of
APB No. 25, "Accounting for Stock Issued to Employees," which, among other
things, requires variable-award accounting for repriced options from the
date the options are repriced until the date of exercise. This
interpretation became effective on July 1, 2000 to cover specific events
that occur after December 15, 1998. In May 1999, the Company repriced
certain employee stock options covering 237,008 shares with a weighted
average exercise price of $4.60 to a new exercise price of $0.0938 through
cancellation of existing options and issuance of new options at current
market prices. This repricing resulted in the recognition of $33,000 of
compensation expense upon the adoption of the interpretation of APB No. 25
during the quarter ended September 30, 2000, which will be recognized over
the remaining vesting period for those options through May 2002.
Subsequent to the adoption of the interpretation of APB No. 25, the Company
will be required to record the effects of any further changes in its stock
price on the corresponding intrinsic value recognized on July 1, 2000 of
the repriced options in its results of operations as compensation expense
until the repriced options either are exercised or expire.
NOTE 9 - SUBSEQUENT EVENTS
On October 1, 2000, the National Human Genome Research Institute at the
National Institutes of Health awarded the Company a grant to further
develop and test a 384-capillary DNA sequencing instrument. The twelve-
month grant provides for the reimbursement of $700,000 of direct research
and developments cost and an additional amount for indirect costs.
The Company leased a DNA Sequencer to a major university pursuant to a
short-term lease, which expires December 15, 2000. Pursuant to the lease,
the university has an option to buy the DNA Sequencer.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
SpectruMedix Corporation's (the "Company") Consolidated Financial Statements and
Notes thereto included elsewhere in this Quarterly Report on Form 10-QSB.
Except for the historical information contained herein, the discussion in this
Quarterly Report contains certain forward-looking statements, within the meaning
of Section 27A of the Securities Act and Section 27E of the Exchange Act, that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. Forward-looking statements are based
on management's current expectations and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from expected
results. The cautionary statements made in this Quarterly Report should be read
as being applicable to all related forward-looking statements wherever they
appear in this Quarterly Report. Factors that could cause or contribute to such
differences include, the ability of the Company to commercialize and market the
DNA sequencer and the high throughput screening, massive parallel capillary
electrophoresis system, the availability of the necessary capital to fund the
Company's plans, and the availability of specialized components necessary to
manufacture the DNA Sequencer, as well as those factors discussed under the
heading "Risk Factors" and elsewhere herein.
Overview
The Company devotes substantially all of its resources and efforts to the
commercialization, marketing and sale of its two principal products, its high-
speed DNA/gene sequencing instrumentation (the "DNA Sequencer") and its high
throughput screening, massive parallel capillary electrophoresis system (the
"HTS-MPCE system"). The DNA Sequencer is an instrument for the acquisition,
analysis and management of complex genetic information, and the HTS-MPCE system
is a high throughput screening instrument primarily used by the pharmaceutical
industry for drug discovery. The DNA Sequencer was developed in part from
research efforts conducted at the United States Department of Energy's Ames
Laboratory, which is operated by Iowa State University's Institute for Physical
Research and Technology, and the HTS-MPCE system is based on the technologies
developed for the DNA Sequencer.
In the Fall of 1999, the Company completed the development and commercialization
of its DNA Sequencer and began a directed marketing effort, and the Company
developed and commercialized the HTS-MPCE system. On March 31, 2000, Procter &
Gamble Pharmaceuticals purchased an HTS-MPCE system for use in pharmaceutical
screening. In September 2000, the Company sold a DNA Sequencer to Svalof
Weibull AB, an international plant breeding company engaged in varietal
development, production and marketing of canola, peas, cereals, forage crops and
potatoes. In addition, the Company also has leased two DNA Sequencers to
others. One lease has expired and the instrument has been returned to the
Company. The second lease will expire on December 15, 2000, and the lessee has
an option to buy the instrument.
History
In May 1995, the Company entered into an agreement with Iowa State University
Research Foundation ("ISURF"), an affiliate of Ames Laboratories. Under that
agreement the Company received an option to acquire an exclusive worldwide
license to technology for the commercial development of the DNA Sequencer
developed at ISURF. The Company believes its DNA Sequencer is capable of
substantially increasing the rate of sequencing over the other commercially
available sequencing instruments on the market today and providing reliable
results at a lower cost.
In June 1997, the Company exercised its option for the ISURF technology and
entered into an exclusive, worldwide licensing agreement. Due to the Company's
financial condition during the 1999 fiscal year and through the end of July
1999, however, the Company was not able to make certain required payments under
the licensing agreement. On July 30, 1999, the Company amended the license
agreement to require the Company to pay $500,000 to ISURF, in exchange for which
ISURF waived any defaults for the Company's past failure to make required
payments. The amended agreement also provided for a revised schedule of minimum
royalties. In addition, ISURF allowed the Company to grant a sublicense to The
Perkin-Elmer Corporation, now known as PE Biosystems, in exchange for a portion
of the royalties the Company receives from PE Biosystems and a phantom stock
award equal to 150,000 shares of the Company's common stock.
7
<PAGE>
Concurrently with the restructuring of the license agreement, the Company
granted PE Biosystems an exclusive sublicense to use certain patents for DNA
sequencing machines, with the sublicense limited to machines using 30 or fewer
capillaries and side entry illumination. The Company also granted PE Biosystems
a right of first refusal to sublicense this technology to develop DNA sequencing
machines using more than 30 capillaries. On July 30, 1999, PE Biosystems paid
the Company a non-refundable sublicense issue fee of $1,000,000, and agreed to
pay the Company certain minimum annual royalties commencing with the twelve-
month period beginning August 1, 2000. The minimum royalties are non-refundable,
but are credited against the earned royalties payable pursuant to the sublicense
agreement.
In connection with the sublicense agreement, PE Corporation, the parent company
of PE Biosystems, purchased 2,000 shares of the Company's Series A Preferred
Stock for $1,000 per share. The Company will pay dividends on the series A
preferred stock only if the Company pays dividends on its common stock. The
Series A Preferred Sock may be converted into shares of the Company's common
stock at a conversion price of $2.50 per share, subject to adjustment in the
event of a consolidation, merger, reorganization or sale of substantially all of
the Company's assets. In addition, the Company entered into a multi-year
consulting agreement with PE Biosystems pursuant to which the Company will
provide consulting services to PE Biosystems. Upon execution of the consulting
agreement, the Company received a lump sum consulting fee of $2,000,000.
Results of Operations - Six Months Ended September 30, 2000 and 1999
The Company had total sales of $301,639 and $95,720 for the six months ended
September 30, 2000 and 1999, respectively. The increase in sales of $205,919, or
approximately 215%, was due primarily to the sale of a DNA Sequencer. Sales for
1999 reflect sales of mass spectrometer components, Luminoscopes and other
products, and the Company is no longer devoting its resources to the development
and marketing of such products.
In addition to its sales revenue, the Company recorded sublicense and consulting
revenue of $1,071,429 and $111,111 for the six months ending September 30, 2000
and 1999, respectively, relating to the sublicense and consulting agreements
that the Company entered into in July 1999 with PE Biosystems.
Research and development expenses increased $143,275 or 40% in 2000 to $503,144
from $359,869 in 1999. The Company's research and development expenses in 1999
were offset by the receipt of a Small Business Innovative Research grant.
General and administrative expenses were $1,012,975 and $461,720 during the six
months ended September 30, 2000 and 1999, respectively, an increase of $551,255,
or approximately 119%. Approximately 59% and 56% of general and administrative
expenses for the six months ended September 30, 2000 and 1999, respectively,
were attributable to payroll, payroll taxes, employee benefits and professional
and consulting services. The increase was due primarily to the hiring of a
national sales director and an increase in legal and accounting expenses.
Interest expense of $5,583 and $23,796 for the six months ended September 30,
2000 and 1999, respectively, resulted from borrowings. Interest expense
decreased primarily as a result of repayment of the majority of such borrowings
in September 1999.
Interest income increased $17,706 to $43,030 in 2000 from $25,324 in 1999 as a
result of the increase in cash deposits primarily as a result of the proceeds
from the transactions with PE Biosystems.
Results of Operations - Three Months Ended September 30, 2000 and 1999
The Company had total sales of $253,033 and $45,353 for the three months ended
September 30, 2000 and 1999, respectively. The increase in sales of $207,680,
or approximately 458%, was due primarily to the sale of a DNA Sequencer. Sales
for 1999 reflect sales of mass spectrometer components, Luminoscopes and other
products, and the Company is no longer devoting its resources to the development
and marketing of such products.
In addition to its sales revenue, the Company recorded sublicense and consulting
revenue of $476,191 and $111,111 for the three months ending September 30, 2000
and 1999, respectively, relating to the sublicense and consulting agreements
that the Company entered into in July 1999 with PE Biosystems.
8
<PAGE>
Research and development expenses increased $95,381 or 61% in 2000 to $250,632
from $155,251 in 1999, The Company's research and development expenses in 1999
were offset by the receipt of a Small Business Innovative Research grant.
General and administrative expenses were $479,476 and $215,234 during the three
months ended September 30, 2000 and 1999, respectively, an increase of $264,242,
or approximately 123%. Approximately 57% and 47% of general and administrative
expenses for the three months ended September 30, 2000 and 1999, respectively,
were attributable to payroll, payroll taxes, employee benefits and professional
and consulting services. The increase was due primarily to the hiring of a
national sales director and an increase in legal and accounting expenses.
Interest expense of $3,574 and $11,514 for the three months ended September 30,
2000 and 1999, respectively, resulted from borrowings. Interest expense
decreased primarily as a result of repayment of the majority of such borrowings
in September 1999.
Interest income decreased $9,117 to $16,111 in 2000 from $25,228 in 1999 as a
result of the decrease in cash deposits.
Liquidity and Capital Resources
On July 30, 1999, the Company restructured its license agreement with ISURF for
technology used to develop the Company's DNA Sequencer and entered into a
sublicense agreement relating to certain of such technology with PE Biosystems.
In connection with the sublicense agreement, PE Biosystems made an investment in
the Company. PE Biosystems also retained the Company as a consultant.
The Company has funded its operations from the aggregate $5,000,000 in gross
proceeds received July 30, 1999 from the sublicense and sale of preferred stock
with PE Biosystems, and other agreements, as well as the revenues from its
products. Such funds have been used to pay amounts owing under its agreements
with ISURF and to begin marketing and manufacturing the DNA Sequencer and HTS-
MPCE system.
The Company believes that the amounts payable to the Company by PE Biosystems
will be sufficient to pay amounts payable to ISURF under the license agreements
and meet certain other obligations, but the Company must generate significantly
more product sales or obtain additional capital in order to fund its operations
past March 31, 2001.
In addition to its immediate cash needs, in order to further develop and expand
the business in accordance with its plans, the Company anticipates that it will
need significant additional capital in the near term year to expand its
manufacturing capabilities, launch a substantial sales and marketing program,
pay various required license and milestone fees, establish third-party
collaborations and pursue additional research and development. If the Company is
unable to generate significant sales of its core products, it must obtain
additional debt or equity financing. There can be no assurance, however, that
the Company will be able to obtain such financing on terms acceptable to it.
In September 2000, the Company was awarded a Phase II Small Business Innovation
Research (SBIR) grant from the National Heart, Lung, and Blood Institute at the
National Institutes of Health. The $750,000 grant was awarded to support the
development of a "Rapid, Automated Method for MIGET by Mass Spectrometry." In
addition, in October 2000, the National Human Genome Research Institute at the
National Institutes of Health awarded the Company a grant to further develop and
test a 384-capillary DNA sequencing instrument. The twelve-month grant provides
for the reimbursement of $700,000 of direct research and development costs and
an additional amount for indirect costs. These grants will be used to offset
research and development costs incurred by the Company.
The Company's capital requirements depend on many factors, including the status
of the development of its products, obtaining manufacturing capabilities to
produce its products in volume, prosecuting and enforcing its intellectual
property rights, completing technological and market developments, and the
ability of the Company to develop new collaborative and licensing arrangements.
9
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Robert M. Rubin v. SpectruMedix Corporation et. al. On April 21, 1997, a
complaint was filed in the Supreme Court of the State of New York alleging
breach of contract. Specifically, the plaintiff alleges that the Company
defaulted under a promissory note issued to plaintiff on May 16, 1996 in the
amount of $175,000 (the "Rubin Note") while such Note was outstanding and
therefore that the Company is liable and indebted to plaintiff in the principal
amount of $175,000, together with interest and expenses. The Company, on May
2,1997, paid the principal and interest due under the Rubin Note. The main
remaining issue asserted by the plaintiff is whether, pursuant to an alleged
related agreement, the plaintiff is entitled to 152,174 shares (adjusted to
reflect stock splits) of Common Stock or, alternatively, $875,000. Plaintiff
alleges that the Company undertook to enter into a securities purchase agreement
pursuant to which he should have received the aforementioned shares of Common
Stock. The Company contends that such securities purchase agreement was never
discussed and therefore that no agreement was reached with respect to the terms
thereof. Such securities purchase agreement was not signed by either of the
parties to the Rubin Note. The Company believes that it has meritorious defenses
to the above-described claims and it intends to defend the litigation
vigorously. However, due to the nature of litigation and because the lawsuit is
in the initial stages, the Company cannot determine the total expense or
possible loss, if any, that may ultimately be incurred either in the context of
a trial or as a result of a negotiated settlement. While management believes
that the resolution of this matter will not have a material adverse effect on
the Company's business financial condition and results of operations, the
results of these proceedings are uncertain and there can be no assurance to that
effect. Regardless of the ultimate outcome of the litigation, it could result in
significant diversion of time by the Company's personnel.
Other than the foregoing, the Company is not a party to any other material
legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
On July 30, 1999, PE Bio, the Company's sublicensee for technology
relating to the DNA Sequencer, purchased 2,000 shares of the Company's Series A
Preferred Stock ("Series A Preferred") at $1,000 per share, providing gross
proceeds of $2,000,000 and net proceeds, after expenses paid by the Company, of
$1,995,000.
The Company used a portion of the proceeds from the sale of the Series A
Preferred to pay amounts payable to ISURF pursuant to the amended license
agreement. The balance of the proceeds has and will be devoted to the
commercialization, marketing and manufacture of the DNA Sequencer.
Item 3. Defaults Upon Senior Securities. None.
--------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
On September 26, 2000, the Company held its annual meeting of stockholders,
at which the stockholders voted for the election of the members of the board of
directors of the Company, for the ratification of the selection of Ernst & Young
LLP as the company's independent accountants and for an amendment to the
Company's stock option plan to increase the number of shares of common stock
underlying stock options issuable under the plan to 2,000,000. At the meeting,
holders of the Company's Series A and Series B Convertible Preferred Stock voted
together with the holders of the Company's Common Stock on as converted basis.
The following nominees for election to the Company's Board of Directors,
which nominees constitute the entire board of directors, received the
following votes:
For Withhold
--- --------
Joseph Adlerstein 12,442,134 20,450
Judy K. Mencher 12,441,634 20,950
Stephen Wertheimer 12,440,934 21,650
10
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With respect to the proposal to ratify the selection of Ernst & Young LLP
to serve as the Company's independent public accountants, 12,452,434 votes were
cast in favor of the proposal and 8,800 votes were cast against the proposal,
and there were 1,350 abstention and no broker non-votes.
With respect to the proposal to amend the Company's stock option plan,
10,604,938 votes were cast in favor of the proposal, 37,400 votes were cast
against the proposal, and there were 2,950 abstention and 1,817,296 broker non-
votes.
Item 5. Other Information. None.
------------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
--------
The following documents are referenced or included in this
report:
Exhibit No.
----------
27 Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
No Current Reports on Form 8-K were filed with the Commission
during the quarter ended September 30, 2000.
11
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed in its
behalf by the undersigned thereunto duly authorized.
SPECTRUMEDIX CORPORATION
DATED: November 14, 2000 By: /s/ Joseph K. Adlerstein
--------------------------------------
Joseph K. Adlerstein
President, Chief Executive Officer
and Chairman of the Board (Principal
Executive and Accounting Officer)
12
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INDEX TO EXHIBITS
Exhibit No. Description
---------- -----------
27 Financial Data Schedule.
