<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended March 31, 2000
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 0-1000
------
CHROMAVISION MEDICAL SYSTEMS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2649072
-------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
33171 PASEO CERVEZA
SAN JUAN CAPISTRANO, CA 92675
- ---------------------------------------- ------
(Address of principal executive offices) (Zip code)
(949) 443-3355
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of May 2, 2000 there were 19,503,948 shares outstanding of the Issuer's
Common Stock, $.01 par value.
<PAGE> 2
CHROMAVISION MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 9
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE> 3
PART I - ITEM 1
CHROMAVISION MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 9,852,973 $ 11,802,668
Short-term investments .............................................. 3,905,862 5,822,451
Other ............................................................... 510,494 257,577
------------ ------------
Total current assets .......................................... 14,269,329 17,882,696
Other .................................................................. 300,243 207,268
Property and equipment, net ............................................ 4,460,915 4,344,891
------------ ------------
Total assets .................................................. $ 19,030,487 $ 22,434,855
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 435,974 $ 578,961
Accrued liabilities ................................................. 708,108 735,836
------------ ------------
Total current liabilities ...................................... 1,144,082 1,314,797
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.01 par value, authorized
7,246,000 shares, none issued and outstanding .................... -0- -0-
Series B convertible preferred stock, $.01 par value, authorized
221,850 shares, none issued and outstanding ...................... -0- -0-
Common stock $.01 par value, authorized 50,000,000 shares, issued and
outstanding 19,503,948 shares in 2000 and 19,488,629 in 1999 ..... 195,039 194,886
Additional paid-in capital .......................................... 55,686,202 55,742,904
Accumulated deficit ................................................. (37,980,158) (34,789,102)
Accumulated other comprehensive loss .............................. (14,678) (28,630)
------------ ------------
Total stockholders' equity ..................................... 17,886,405 21,120,058
------------ ------------
Total liabilities and stockholders' equity ............................. $ 19,030,487 $ 22,434,855
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
CHROMAVISION MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenue ............................................ $ 203,896 $ 15,785
Cost of revenue .................................... 67,275 8,994
------------ ------------
Gross profit .................................... 136,621 6,791
------------ ------------
Operating expenses:
Selling, general and administrative ............. 1,956,280 1,235,050
Research and development ........................ 1,619,481 1,248,935
------------ ------------
Total operating expenses ..................... 3,575,761 2,483,985
------------ ------------
Loss from operations ......................... (3,439,140) (2,447,194)
------------ ------------
Other income:
Interest income, net ............................ 232,727 137,647
Other income .................................... 15,357 -0-
------------ ------------
Total other income ........................... 248,084 137,647
------------ ------------
Loss before income taxes ..................... (3,191,056) (2,339,547)
Income taxes ....................................... -0- -0-
------------ ------------
Net loss ..................................... $ (3,191,056) $ (2,339,547)
============ ============
Basic and diluted net loss per common share ........ $ (.16) $ (.13)
============ ============
Weighted average number of common shares outstanding 19,495,226 17,483,423
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
CHROMAVISION MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $ (3,191,056) $(2,339,547)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................ 427,597 285,245
Changes in operating assets and liabilities:
Other assets ......................................... (346,815) (377,752)
Accounts payable ..................................... (142,644) 171,216
Accrued liabilities .................................. (25,384) (270,174)
------------ -----------
Net cash used in operating activities ................ (3,278,302) (2,531,012)
------------ -----------
Cash flows from investing activities:
Purchases of investments ................................... (971,642) -0-
Maturities of investments .................................. 2,888,231 2,707,054
Additions to property and equipment ........................ (543,733) (314,239)
------------ -----------
Net cash provided by investing activities .......... 1,372,856 2,392,815
------------ -----------
Cash flows from financing activities:
Proceeds from exercise of stock options .................... 74,251 221,850
Offering costs ............................................. (130,800) -0-
------------ -----------
Net cash provided by (used in) financing activities (56,549) 221,850
------------ -----------
Effect of exchange rates changes on cash and cash
equivalents ..................................... 12,300 -0-
------------ -----------
Net increase (decrease) in cash and cash equivalents (1,949,695) 83,653
Cash and cash equivalents beginning of period .............. 11,802,668 2,853,546
------------ -----------
Cash and cash equivalents end of period .................... $ 9,852,973 $ 2,937,199
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CHROMAVISION MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1999 annual report filed on Form 10-K with the
Securities and Exchange Commission.
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the financial position and the results of operations for
the interim periods presented. All such adjustments are of a normal, recurring
nature. Certain amounts have been reclassified to conform to the current period
presentation. The results of the Company's operations for any interim period are
not necessarily indicative of the results to be obtained for a full fiscal year.
(2) NET LOSS PER SHARE
Options to purchase 2,279,881 and 1,922,325 shares of common stock were
outstanding at March 31, 2000 and 1999, respectively, and were excluded from the
computation of diluted net loss per share as the effect would be antidilutive.
(3) CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are generally determined using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
exchange rate in effect at each quarter-end. Income statement accounts are
translated at the average rate of exchange prevailing during the period.
(4) COMPREHENSIVE LOSS
The Company's total comprehensive loss is summarized as follows:
Three Months Ended March 31,
---------------------------------
2000 1999
----------- -----------
Net loss $(3,191,056) $(2,339,547)
Foreign currency translation gain 13,952 -0-
----------- -----------
Comprehensive loss $(3,177,104) $(2,339,547)
=========== ===========
6
<PAGE> 7
(5) BUSINESS SEGMENTS
The Company operates primarily in one business segment engaged in the
development, manufacture and marketing of an automated cellular imaging system
(ACIS TM) designed to assist in the detection, diagnosis and treatment of
cellular disease.
The following table represents the Company's business segment information by
geographic area:
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
----------- -----------
Net sales
United States $ 73,735 $ 15,785
Europe (a) 130,161 -0-
----------- -----------
Total net sales $ 203,896 $ 15,785
=========== ===========
Operating loss
United States $(3,388,575) $(2,447,194)
Europe (a) (50,565) --
----------- -----------
Total operating loss $(3,439,140) $(2,447,194)
=========== ===========
Identifiable assets
United States $18,865,869 $12,414,300
Europe (a) 164,618 --
----------- -----------
Total assets $19,030,487 $12,414,300
=========== ===========
(a) European operations represent business activities conducted primarily in
France, Germany, Italy and Great Britain.
(6) NEW ACCOUNTING STANDARDS
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 101-"Revenue Recognition in Financial
Statements," as amended, which for the Company is effective April 1, 2000.
SAB No. 101 summarizes certain of the staff's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company believes that implementation of SAB No. 101 will have no material
impact on its financial statements.
7
<PAGE> 8
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements in this report describing the plans, goals, strategies,
intentions, and expectations of the Company and anticipated events are
forward-looking statements. Important factors which could cause actual results
to differ materially from those described in such forward-looking statements
include the following: an inadequate supply of biological samples could delay
completion of the clinical trials; the clinical trials could fail to demonstrate
the efficacy of the ChromaVision Automated Cellular Imaging System ("ACIS")
tests; new tests may not be successfully developed; the ability to commercialize
new tests may be dependent on obtaining appropriate U.S. Food and Drug
Administration (the "FDA") and foreign regulatory approvals, which may not be
obtained when anticipated or at all; manufacture of the ACIS is subject to FDA
regulation; and commercialization of the Company's products is dependent on
acceptance by the medical community and medical insurance industry, which could
be delayed or not obtained.
OVERVIEW
ChromaVision Medical Systems, Inc. (the "Company"), formerly MicroVision
Medical Systems, Inc., is a Delaware corporation formed on March 28, 1996. Prior
to the formation of the Company on March 28, 1996, the Company's business was
conducted as the MicroVision Medical Systems Division (the "Division") of XL
Vision, Inc. ("XL Vision").
ChromaVision develops, manufactures and markets an automated cellular
imaging system, referred to as the ACIS(TM), which is designed to assist in the
detection, diagnosis and treatment of cellular diseases such as cancer and
infectious disease. ChromaVision has designed the ACIS to serve as a tool to
assist, rather than replace, the pathologist in generating accurate,
quantitative and reproducible results, reducing the subjectivity associated with
current manual methods. On July 28, 1999, the U.S. Food and Drug Administration
granted clearance for the use of the ACIS to perform tests using a particular
staining method based upon a master validation protocol. The FDA clearance
allows ChromaVision to introduce tests for the ACIS using that staining method
without having to apply for additional FDA clearance. ChromaVision's current
test menu for the ACIS includes seven tests currently released with additional
tests in various stages of development.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Revenue. Revenue increased approximately $188,000 or 1,200% over the
comparable period in 1999 primarily due to the sale of an ACIS and an increase
in revenue generated from monthly rental charges for usage of other ACIS.
Management anticipates continued revenue growth in 2000 as the Company
accelerates its commercialization activities.
Selling, general and administrative expenses. Expenses increased
approximately $721,000 or 58% over the comparable period in 1999. The increase
is primarily due to increases in the Company's sales and marketing costs related
to staffing and commercial launch activities for the ACIS in both the European
and U.S. markets. The Company anticipates selling, general and administrative
expenses to continue to increase as the Company accelerates the
commercialization of its ACIS.
Research and development expenses. Expenses increased approximately $371,000
or 30% over the comparable period in 1999. The increase is primarily
attributable to the addition of technical personnel to further develop and
release the Company's menu of tests. The Company anticipates that research and
development expenses will continue to increase in the near future due to costs
related to the development of new tests, additional clinical trials and the
continuation of technological advances to the ACIS.
Other income. Other income increased approximately $110,000 or 80% over the
comparable period in 1999. This is attributable to the investment of the
Company's $18.5 million of net proceeds received from the Company's private
placement of 1,775,000 newly issued shares of common stock in October 1999. For
the comparable period in 1999, other income was lower due to lower cash
balances.
UNCERTAINTIES AS TO FUTURE OPERATIONS
During 1999, the Company began the transition from being focused almost
entirely on the development of the ACIS to focusing more on marketing and sales
of the system as tests performed with the ACIS became available for commercial
distribution. The Company faces significant uncertainties in this regard,
including its ability to achieve market acceptance of the ACIS, manufacture of
the system in commercial quantities and achievement of satisfactory
reimbursement from third-party payers for tests performed using the ACIS. The
8
<PAGE> 9
Company also faces uncertainties with respect to its ability to complete
development of additional tests for the ACIS. In order to mitigate the risk that
any one test will not be successfully developed, the Company maintains a
prioritized pipeline of tests so that if any one test is not successfully
developed, or market feedback on the pipeline suggests that a test should be
given a lower priority, ChromaVision can move other tests up in priority.
Other uncertainties affecting the Company include its ability to collaborate
successfully with other companies in the development of new tests, initiate and
complete clinical trials of new products and obtain governmental approvals for
the products. Lack of success in these efforts could have a material adverse
effect on the future results of the Company's operations and its ability to
generate sufficient cash flow to reduce its dependence on additional financing.
LIQUIDITY AND CAPITAL RESOURCES
On October 7, 1999, the Company completed a private placement of 1,775,000
shares of Common Stock to selected institutional and other accredited investors.
The net proceeds to the Company from the sale of the shares were approximately
$18.5 million.
The Company has an agreement with its principal bank for a $5,000,000
revolving line of credit. The Company extended the expiration of the line an
additional two years to May 30, 2002. The Company may seek to extend or
renegotiate its line of credit. At the Company's option, the interest rate is
prime less .25% or LIBOR plus 1.75%. There were no borrowings outstanding under
the line of credit during the period. Any borrowings outstanding under the line
of credit will be collateralized by the Company's investment in securities held
by the principal bank having a market value equal to 111% of the principal
balance of the loans. At March 31, 2000 the Company had approximately $13.8
million of cash and cash equivalents, investments and working capital of
approximately $13.1 million and no long-term debt. Capital expenditures for the
quarter ended March 31, 2000 were approximately $544,000 and related primarily
to the manufacture of the ACIS placed with customers under rental agreements.
Capital expenditures are expected to total approximately $3.5 million in 2000,
and are expected to be primarily related to the manufacture of the ACIS for
placement with customers, although the Company's present plans could change and
this amount could be materially different. The Company's business plan
anticipates placing these instruments with users and charging a "per-click" fee
for each use of the instrument. The manufacture of these instruments will
require a significant outlay of cash for which revenues will be recognized over
the lease term. The Company intends to fund these expenditures with its current
cash resources, which may be partially supplemented by third-party asset based
financing for these instruments. The Company presently has an agreement for such
financing totaling $1 million.
The Company anticipates that existing cash resources and investments will be
sufficient to satisfy its operating cash needs through the year 2000. Management
expects that losses from operations and increases in working capital
requirements will produce significant negative cash flows from operations at
least through the year 2000. In addition, to support the Company's future cash
needs, it intends to consider additional debt or equity financing. However there
can be no assurance that any such financing will be available to the Company or
that adequate funds for the Company's operations will be available when needed
or on terms attractive to the Company. If the Company is unable to obtain
sufficient additional funds, the Company may have to delay, scale back or
eliminate some or all of its development activities, clinical studies and/or
regulatory activities or cease operations entirely.
YEAR 2000 PROBLEM
The Company has experienced no material disruption in the operation of its
business as a result of the transition from 1999 to 2000 and continues to
monitor the Year 2000 issue. It is possible that Year 2000 problems may become
evident as the year progresses. Such issues could have a material adverse impact
on the Company's results of operations, financial condition and cash flows if
the Company is unable to conduct its business in the ordinary course.
ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company invests excess cash in short-term debt securities that are
intended to be held to maturity. These short-term investments have various
maturity dates, which do not exceed one year.
Two of the main risks associated with these investments are interest rate
risk and credit risk. Typically, when interest rates rise, there is a
corresponding decline in the market value of debt securities. Fluctuations in
interest rates would not have a material effect on the Company's financial
statements because of the short-term nature of the securities in which the
Company invests. Credit risk refers to the possibility that the issuer of the
debt securities will not be able to make principal and interest payments. The
Company has limited its investments to investment grade or comparable securities
and has not experienced any losses on its investments to date due to credit
risk.
Changes in foreign exchange rates, and in particular a strengthening of the
U.S. dollar, may negatively affect the Company's consolidated sales and gross
margins as expressed in U.S. dollars. To date, the Company has not entered into
any foreign exchange
9
<PAGE> 10
contracts to hedge its exposure to foreign exchange rate fluctuations. However,
as its international operations grow, the Company may enter into foreign
exchange contracts to manage its foreign exchange risk.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company (as amended)**
3.2 By-laws of the Company, as amended**
27 Financial Data Schedule*
(b) Report on Form 8-k
None.
- ----------------
* Filed herewith.
** Filed on April 30, 1997 as an exhibit to the Company's Registration
Statement on Form S-1 (No. 333-26129) and incorporated by reference
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHROMAVISION MEDICAL SYSTEMS, INC.
DATE: May 15, 2000 By: /s/ Douglas S. Harrington, M.D.
------------ -------------------------------------
Douglas S. Harrington, M.D.
Chief Executive Officer and President
DATE: May 15, 2000 By: /s/ Kevin C. O'Boyle
------------ -------------------------------------
Kevin C. O'Boyle
Senior Vice President of Operations
and Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of the Company (as
amended)**
3.2 By-laws of the Company, as amended**
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,852,973
<SECURITIES> 3,905,862
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,269,329
<PP&E> 7,054,112
<DEPRECIATION> 2,593,197
<TOTAL-ASSETS> 19,030,497
<CURRENT-LIABILITIES> 1,144,082
<BONDS> 0
0
0
<COMMON> 195,039
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,030,487
<SALES> 203,896
<TOTAL-REVENUES> 203,896
<CGS> 67,275
<TOTAL-COSTS> 67,275
<OTHER-EXPENSES> 3,575,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,191,056)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,191,056)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
