<PAGE> 1
UNITED STATES
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 September 30, 1998
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 0-22885
AUTOCYTE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1995728
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
780 Plantation Drive, Burlington, North Carolina 27215
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(Address of principal executive offices) (Zip Code)
(336) 222-9707
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(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
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at October 31, 1998
----- -------------------------------
Common Stock, $.01 par value 12,683,430
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AutoCyte, Inc.
Index
<TABLE>
Part I. Financial Information
<S> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)................................................2
Condensed consolidated balance sheets
September 30, 1998 and December 31, 1997..........................................................2
Condensed consolidated statements of operations
Three months ended September 30, 1998 and 1997; Nine months
ended September 30, 1998 and 1997.................................................................3
Condensed consolidated statements of cash flows
Nine months ended September 30, 1998 and 1997.....................................................4
Notes to condensed consolidated financial statements
September 30, 1998................................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................6
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds............................................................12
Item 6. Exhibits and Reports on Form 8-K.....................................................................12
Signatures....................................................................................................13
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
AutoCyte, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21,306,561 $ 28,655,082
Accounts receivable, net 1,211,941 906,154
Inventory 3,204,944 2,191,995
Other current assets 460,124 415,248
------------ ------------
Total current assets 26,183,570 32,168,479
Property and equipment, net 2,855,754 2,018,142
Goodwill 2,721,875 2,834,375
------------ ------------
Total assets $ 31,761,199 $ 37,020,996
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,084,348 $ 1,129,016
Accrued expenses 678,044 815,998
Deferred revenue 912,272 --
------------ ------------
Total current liabilities 2,674,664 1,945,014
Long-term liabilities 112,230 48,768
Stockholders' equity:
Common stock, $0.01 par value; 20,650,000 shares
authorized; 12,681,227 and 12,505,412 shares issued and
outstanding at September 30, 1998 and December 31, 1997,
respectively 126,812 125,054
Additional paid-in capital 49,588,610 49,553,302
Deferred compensation (2,096,207) (2,743,280)
Accumulated deficit (18,644,910) (11,907,862)
------------ ------------
Total stockholders' equity 28,974,305 35,027,214
------------ ------------
Total liabilities and stockholders' equity $ 31,761,199 $ 37,020,996
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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AutoCyte, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 1,223,387 $ 823,015 $ 3,502,905 $ 1,721,710
Cost of goods sold 684,812 621,379 2,166,118 1,389,244
------------ ----------- ------------ -----------
Gross Profit 538,575 201,636 1,336,787 332,466
Operating expenses:
Research and development 1,129,682 1,085,082 3,403,015 3,395,563
Selling, general and administrative 1,850,748 1,508,383 5,692,380 4,621,358
------------ ----------- ------------ -----------
2,980,430 2,593,465 9,095,395 8,016,921
------------ ----------- ------------ -----------
Operating loss (2,441,855) (2,391,829) (7,758,608) (7,684,455)
Interest income 311,623 141,149 1,033,295 344,808
Interest expense (3,905) (288) (11,736) (1,475,430)
------------ ----------- ------------ -----------
Net loss $ (2,134,137) $(2,250,968) $ (6,737,049) $(8,815,077)
============ =========== ============ ===========
Net loss per common share (basic and
diluted) $ (0.17) $ (0.34) $ (0.53) $ (1.75)
============ =========== ============ ===========
Weighted-average common
shares outstanding 12,681,092 6,535,154 12,651,204 5,039,573
============ =========== ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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AutoCyte, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
------------ ------------
<S> <C> <C>
Net cash used in operating activities $ (6,006,398) $ (5,839,449)
Cash flows from investing activities:
Purchases of property and equipment (1,442,647) (577,168)
------------ ------------
Net cash used in investing activities (1,442,647) (577,168)
Cash flows from financing activities:
Proceeds from the issuance of stock 37,062 27,840,461
Increase in long-term liabilities 63,462 --
------------ ------------
Net cash provided by financing activities 100,524 27,840,461
Net (decrease)/increase in cash and cash equivalents (7,348,521) 21,423,844
Cash and cash equivalents at beginning of period 28,655,082 9,517,274
------------ ------------
Cash and cash equivalents at end of period $ 21,306,561 $ 30,941,118
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AutoCyte, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1998
1. Basis of Presentation
The accompanying unaudited condensed consolidated 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. The balance sheet at December 31, 1997 has been derived
from the audited financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments (consisting of normal, recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods presented. The results of operations for such periods are not
necessarily indicative of the results expected for the full year or for any
future period. The accompanying financial statements should be read in
conjunction with the Company's audited consolidated financial statements for the
period ended December 31, 1997, included in the Company's Annual Report on Form
10-K (File No. 0-22885).
2. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials $1,530,715 $ 560,297
Finished goods 1,674,229 1,631,698
---------- ----------
$3,204,944 $2,191,995
========== ==========
</TABLE>
3. Net Loss Per Share of Common Stock
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No.
128, "Earnings Per Share" ("SFAS 128"). SFAS 128 is effective for fiscal years
ending after December 15, 1997 and replaces the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Upon
adoption, all prior period earnings per share amounts (including quarterly
information) are required to be restated. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities, and only reflects actual common shares outstanding. The
Company's calculation of earnings (loss) per share reflects the completion of
its initial public offering (the "Offering") and the simultaneous conversion of
its convertible preferred stock into common stock in September 1997. Prior to
the adoption of SFAS 128, approximately 4.9 million shares of convertible
preferred stock were assumed to be outstanding in calculating previously
reported loss per share amounts. Under SFAS 128, these shares are not included
as shares outstanding until their conversion at the time of the Offering.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. As the Company incurred losses during all periods
presented, the effect of options, warrants and convertible preferred stock is
anti-dilutive and accordingly, there is no difference between basic and diluted
loss per share.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Overview
AutoCyte, Inc. ("AutoCyte" or the "Company") develops, manufactures and markets
the only integrated automated sample preparation and image analysis system to
support cytology professionals in cervical cancer screening. The Company is
currently pursuing regulatory approval of its products for sale in the United
States and has begun sales in several foreign countries. The Company's
integrated system is comprised of the AutoCyte PREP ("PREP") sample preparation
system and the AutoCyte SCREEN ("SCREEN") image analysis system. The Company's
Pathology Workstation product line further integrates AutoCyte's product
offerings into tools for data handling of cytology and pathology images, and
tools for determining prognosis of disease from cytology and pathology
specimens.
PREP is a proprietary automated liquid-based preparation ("LBP") system that
produces slides with a homogeneous layer, or "monolayer," of cervical cells. The
Company believes PREP will improve laboratory productivity and significantly
reduce interpretation errors by producing cell samples that are clearer, more
uniform and easier to interpret than conventional Pap smear samples. PREP is
designed to operate both as an independent sample preparation system and in
conjunction with SCREEN as part of an integrated cervical cancer screening
system.
SCREEN is an automated image analysis system which combines proprietary imaging
technology and classification software with off-the-shelf computer hardware to
screen slides prepared using PREP. SCREEN is designed to be an interactive
support tool for the cytology professional in the primary screening of cervical
cells and may serve quality control and adjunctive testing purposes. By
designing PREP and SCREEN to function together, AutoCyte has developed a system
which the Company believes will operate with higher throughput and greater
diagnostic sensitivity than the conventional Pap smear test and other cervical
cancer screening systems.
AutoCyte was formed in October 1996 to acquire the cytology and pathology
automation business then owned by Roche Image Analysis Systems, Inc. ("RIAS"), a
wholly-owned subsidiary of Roche Holding Ltd. ("Roche"). Roche had previously
operated such business as part of Roche Biomedical Laboratories, Inc., ("RBL"),
a predecessor company to Laboratory Corporation of America, Inc. ("LabCorp"),
the largest clinical laboratory chain in the United States and formerly a
wholly-owned subsidiary of Roche. The business was acquired from RIAS in
November 1996 in exchange for 3.7 million shares of the Company's Common Stock.
Contemporaneously with this acquisition, Ampersand Ventures and the Sprout
Group, together with certain members of the Company's management and other
investors, purchased $9.8 million of redeemable convertible preferred stock of
the Company. Included in the management group making an equity investment in the
Company was Dr. James B. Powell, the Company's Chief Executive Officer and a
former President and Chief Executive Officer of LabCorp and RBL.
The PREP, SCREEN and Pathology Workstation technologies had been under
development by RIAS or other Roche affiliates for several years prior to the
acquisition. From 1990 to 1996, Roche invested more than $50 million in the
cytology and pathology automation business, including over $30 million since the
beginning of 1994. At the time of the acquisition in November 1996, clinical
trials for PREP were in progress and had recently begun for SCREEN.
In September 1997, the Company completed an initial public offering of 3.1
million shares of $0.01 par value Common Stock (the "Offering"). The Offering
price was $10 per common share resulting in
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proceeds to the Company, net of underwriters discount and offering expenses of
approximately $27.9 million.
The PREP clinical trials were jointly designed with the FDA to determine the
ability of PREP to separate patients with abnormal cervical conditions from
those with normal conditions. Following completion of clinical trials for
gynecological applications, the Company submitted a premarket approval
application ("PMA") for PREP to the United States Food and Drug Administration
("FDA") on May 12, 1997, which was accepted for substantive review by the FDA on
June 11, 1997. Upon accepting the PREP PMA for substantive review, the FDA
informed the Company that the PMA would not be submitted to its Medical Devices
Advisory Panel for review since information in the PMA substantially duplicated
information previously reviewed by the panel in a PMA submitted by a different
company relating to an alternative monolayer slide preparation product.
After reviewing the PREP PMA and receiving input on it from members of its
advisory panel, the FDA met with representatives from the Company in December
1997 to address certain of the FDA's questions relating to the PREP PMA. At the
meeting, the Company presented additional analyses of certain of the data from
the PREP PMA. The FDA advised the Company that it would need to amend the PREP
PMA to include this and other information, and indicated that it would notify
the Company in writing as to the scope of the required response to the agency's
questions.
In February 1998 the Company received a letter from the FDA providing detail on
additional information it needed to continue review of the PREP PMA. The FDA did
not request that the Company perform any additional clinical trials. The FDA
requested that the Company's response be in the form of an amendment to the PREP
PMA. After preparing the requested information, the Company submitted the
amendment to the FDA on March 4, 1998.
In September 1998, the FDA requested additional information to clarify PREP's
ability to differentiate various levels of cervical disease. The Company
believes this additional request is intended to address the concerns raised by a
series of citizen's petitions which were filed with the FDA relating to Cytyc
Corporation's ThinPrep product, a competing LBP. The Company is currently
preparing the additional information requested by the FDA, and expects to amend
the PREP PMA by approximately the end of November 1998.
Following the completion of clinical trials, the Company submitted a PMA for
SCREEN to the FDA on July 6, 1998. The SCREEN PMA was accepted for review on
August 31, 1998 and is currently under active review by the FDA.
The FDA typically seeks to complete its review period for a PMA or a PMA
amendment requested by the agency within 180 days from the date of submission.
While the FDA review of the PREP PMA amendment or the SCREEN PMA may be shorter
than 180 days, there can be no assurance that the FDA's review will not take 180
days or longer or that the PREP PMA or the SCREEN PMA will be approved within
that period or at all.
In the United States, the Company cannot market PREP for use in preparing
cervical cytology-related monolayer slides or SCREEN for screening monolayer
slides until the respective PMA approvals are received from the FDA. If such
approvals are obtained, the Company intends to focus its marketing efforts on
such products for cervical cytology applications. The Company expects to
generate a substantial majority of its future revenues from the PREP and SCREEN
systems. The Company's long-term revenues and future success are substantially
dependent upon its ability to obtain regulatory approval for, and market and
commercialize the PREP and SCREEN systems for, cervical cancer screening in the
United States and abroad.
7
<PAGE> 9
The Company generates PREP revenue from both system sales and rentals. For
system sales, customers purchase the PREP instrument and make separate purchases
of related reagents and other disposables. For system rentals, the Company
places the PREP instrument at the customer's site, and customers make monthly
payments that include rent and the purchase of a minimum monthly quantity of
reagents and other disposables. The term of the PREP rentals ranges from
month-to-month to three years. For SCREEN customers in the United States, the
Company intends to place instruments without charge at customer locations and to
charge customers on a per test, or Fee-Per-Use ("FPU"), basis. In foreign
markets, the Company plans to either sell or license SCREEN. As an important
element of its business strategy, the Company intends to seek third-party
financing to support rentals of PREP and FPU placements of SCREEN. There can be
no assurance that the Company will be able to obtain such financing or, if so,
on favorable terms. Failure to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Future revenues and results of operations may fluctuate significantly from
quarter to quarter and will depend upon, among other factors, the timing and
outcome of the FDA review of the PREP PMA submission and the SCREEN PMA
submission, the extent to which the Company's products gain market acceptance,
the timing and volume of sales and rental orders, regulatory and reimbursement
matters, introduction of alternative technologies by competitors, pricing of
competitive products, and the cost and effect of promotional discounts and
marketing programs adopted by the Company.
The Company anticipates that if FDA approval is received to market PREP for
gynecological uses, its marketing and sales expenditures will increase
significantly. The Company also anticipates that research and development
expenses, both in the areas of product enhancement and new product development,
and manufacturing expenses will also increase as product commercialization
increases. The Company additionally expects to incur compensation expense of
$2.1 million as its deferred compensation balance is amortized.
Results of Operations
Three Months Ended September 30, 1998 and 1997
Revenues for the third quarter of 1998 were $1.2 million, an increase of 49%
from $823,000 in the third quarter of 1997. The increased revenues were due to
an increase in Pathology Workstation related sales, partially offset by a
decrease in PREP and SCREEN sales. Included in Pathology Workstation revenues in
the third quarter of 1998 was $335,000 of revenue recognized pursuant to a
world-wide distribution agreement for ImageTiter(R), the Company's product which
enables the quantitative assessment of anti-nuclear antibodies in a patient's
blood specimen. The Company's gross margin during the three months ended
September 30, 1998 was 44%, an increase from 24% in the corresponding period of
1997. This increase was due to improved margins on Pathology Workstation
products which primarily resulted from the high margin on the ImageTiter(R)
distribution agreement revenue. The Company does not anticipate that Pathology
Workstation revenues will continue to increase at the rate experienced in the
third quarter of 1998.
Operating expenses for the third quarter of 1998 were $3.0 million, a 15%
increase from $2.6 million in the third quarter of 1997. Research and
development costs during the quarter remained flat at $1.1 million. Selling,
general, and administrative costs for the third quarter of 1998 were $1.9
million, a 23% increase from $1.5 million in the third quarter of 1997, due
primarily to higher costs as the Company increased staffing levels and other
expenditures to support product commercialization in anticipation of receipt of
FDA approval for PREP.
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Interest income for the third quarter of 1998 was $312,000, an increase of 121%
from $141,000 in the corresponding quarter of 1997, primarily attributable to
the investment of proceeds from the Company's initial public offering in
September 1997.
The net loss for the third quarter of 1998 was $2.1 million, a decrease from the
third quarter of 1997 loss of $2.3 million. Net loss per share was $0.17, a
decrease from a net loss per share of $0.34 in the third quarter of 1997. (See
Footnote 3 of the Condensed Consolidated Financial Statements with respect to
the effect of Financial Accounting Standards Board Statement No. 128, "Earnings
Per Share.")
Nine Months Ended September 30, 1998 and 1997
Revenues for the nine months ended September 30, 1998 were $3.5 million, an
increase of 104% from $1.7 million during the corresponding period of 1997. The
increase was due to an increase in sales volume of PREP units and related
consumables and an increase in Pathology Workstation related sales. The
Company's gross margin during the nine months ended September 30, 1998 was 38%,
an increase from 19% in the corresponding period of 1997. This increase was due
primarily to improved margins on PREP and Pathology Workstation products which
was caused by the effect of higher sales volume on fixed manufacturing costs,
lower raw material costs and the high margins on the ImageTiter(R) distribution
agreement revenue. The Company does not anticipate that Pathology Workstation
revenues will continue to increase at the rate experienced in the third quarter
of 1998.
Operating expenses for the nine months ended September 30, 1998 were $9.1
million, an increase of 14% from $8.0 million during the corresponding period of
1997. Research and development costs during the period remained flat at $3.4
million. Selling, general and administrative costs increased $1.1 million from
the corresponding period of 1997, due primarily to higher costs as the Company
increased staffing levels and other expenditures to support product
commercialization in anticipation of receipt of FDA approval for PREP.
Interest income for the nine months ended September 30, 1998 was $1.0 million,
an increase of 200% from $345,000 in the corresponding period of 1997, primarily
attributable to the investment of proceeds from the Company's initial public
offering in September 1997. Interest expense for the nine months ended September
30, 1998 was $12,000, a decrease from $1.5 million in the corresponding period
of 1997. The significant interest expense in 1997 was due to the one-time,
non-cash expense resulting from the issuance of warrants as a commitment fee for
a credit agreement between the Company and certain of its principal
stockholders.
The net loss for the nine months ended September 30, 1998 was $6.7 million, a
decrease of $2.1 million from $8.8 million in the corresponding period of 1997.
Net loss per share for the period was $0.53, a decrease from a net loss per
share of $1.75 in the corresponding period of 1997. (See Footnote 3 of the
Condensed Consolidated Financial Statements with respect to the effect of
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share.")
Liquidity and Capital Resources
Since its formation on October 24, 1996, the Company's expenses have
significantly exceeded its revenues, resulting in an accumulated deficit of
$18.6 million as of September 30, 1998. The Company has funded its operations
primarily through the private placement and public sale of equity securities,
resulting in net proceeds of $38.0 million, and limited product sales. As of
September 30, 1998, the Company had cash and cash equivalents of $21.3 million.
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Cash used in the Company's operations was $6.0 million during the nine months
ended September 30, 1998 and $5.8 million during the corresponding period of
1997. Negative operating cash flow during both periods was caused primarily by
operating losses. The Company's capital expenditures were $1,443,000 during the
nine months ended September 30, 1998 and $577,000 during the corresponding
period of 1997, with the increase primarily attributable to the purchase of PREP
units for rental and demonstration purposes. The Company has no material
commitments for capital expenditures.
The Company believes that existing cash and anticipated additional debt and
lease financing for internal use assets, rental placements of PREP and FPU
placements of SCREEN (if and when FDA approval is received) will be sufficient
to enable the Company to meet its future cash obligations through mid 2000. The
Company's future liquidity and capital requirements will depend upon numerous
factors, including the timing and outcome of the FDA review of the PREP PMA
submission and the SCREEN PMA submission, the availability of financing for the
Company's anticipated equipment lease and rental programs, the level of
placements of rental PREP systems and FPU SCREEN systems, the resources required
to further develop its marketing and sales capabilities domestically and
internationally, the resources required to expand manufacturing capacity and the
extent to which the Company's products generate market acceptance and demand. In
particular, if the FDA approves the PREP PMA, the Company anticipates that
marketing and sales expenditures for the PREP market launch for gynecological
uses in the United States, capital expenditures associated with placements of
PREP rental units, and expenditures related to manufacturing and other
administrative costs will increase significantly. There can be no assurance that
the Company will not require additional financing or will not in the future seek
to raise additional funds through bank facilities, debt or equity offerings or
other sources of capital. Additional funding may not be available when needed or
on terms acceptable to the Company, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
Year 2000 Readiness
The Company has established a task force comprised of experienced personnel from
all functional areas of the Company to determine the impact the Year 2000
problem will have on its operations. The task force's activities are designed to
ensure that there is no adverse effect on the Company's core business operations
and that transactions with customers and suppliers are fully supported before,
during and after January 1, 2000. The task force is focusing its efforts on five
key areas: products and customers, information technology ("IT") systems,
vendors and service providers, telecommunications, and facilities, including
non-IT systems. The Company is well underway with these efforts, and anticipates
achieving Year 2000 Readiness, including the development of a contingency plan,
by September 30, 1999.
All shipments of PREP units made subsequent to September 1, 1998 are Year 2000
compliant, and the Company is upgrading non-compliant units in the field in
conjunction with routine preventative maintenance visits. The Company is
currently evaluating its Pathology Workstation products and believes that these
products will be compliant by the end of 1998. The Company expects to complete
its assessment of SCREEN by the end of 1998. The Company believes that the
majority of its internal systems are Year 2000 compliant, and has initiated
correspondence with significant suppliers, large customers and financial
institutions to ensure that those parties have appropriate plans to remediate
Year 2000 issues where their systems could effect the Company's operations.
While the Company believes its planning efforts are adequate to address its Year
2000 concerns, there can be no guarantee that systems of other companies on
which the Company relies will be converted on a timely basis and will not have a
material effect on the Company, or that the Company will ever achieve Year 2000
Readiness. The Company is dependent on certain sole source suppliers. Failure on
the part of those suppliers to become Year 2000 compliant could affect the
ability of the Company to obtain product from those suppliers and
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could adversely affect operations and financial results. To-date, the Company
has not incurred material costs in addressing the Year 2000, and the remaining
costs of the Year 2000 initiatives are not expected to be material to the
Company's results of operation or financial position.
Certain Factors Which May Affect Future Results
This report contains forward looking statements which are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Company's operating results and financial condition have varied and may in the
future vary significantly depending on a number of factors. The statements
contained in this report which are not strictly historical information,
including, without limitation, statements regarding the receipt of regulatory
approvals, implementation of the Company's full-scale marketing and sales
activities, management's plans and objectives for future operations, product
plans and performance, management's assessment of market factors, as well as
statements regarding the strategy and plans of the Company, constitute forward
looking statements which involve risks and uncertainties. The following factors,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report and presented
elsewhere by management from time to time. These factors include the Company's
early stage of development and limited sales to date, uncertainty of FDA
approval of its principal products, uncertainty of market acceptance of the
Company's principal products, competition and technological change, history of
operating losses and uncertainty of future profitability, dependence on a
limited number of products, the possibility of future capital needs and the
uncertainty of availability of additional financing, dependence on patents,
copyrights, licenses and proprietary rights, risk of third-party claims of
infringement, extensive government regulation, dependence on third-party
reimbursement, international sales and operations risks, limited marketing and
sales resources, risk associated with product liability claims, limited number
of potential customers, limited manufacturing experience, and dependence on
single or limited-source suppliers. Such factors, among others, are described in
greater detail in Exhibit 99.1 to the Company's Annual Report on Form 10-K (File
No. 0-22885) under the heading "Important Factors Regarding Forward-Looking
Statements." These factors may have a material adverse effect upon the Company's
business, results of operations and financial conditions. Because of these and
other factors, past financial performance should not be considered an indication
of future performance.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds:
Use of proceeds information is provided herewith in connection with the
Offering. The Company's Registration Statement on Form S-1 (File No. 333-30227)
was declared effective by the Securities and Exchange Commission on September 4,
1997. The first closing for the Offering was held on September 10, 1997 and a
second overallotment closing was held on October 10, 1997. The Offering has
terminated.
In the aggregate the Company sold in its two closings 3,125,000 shares (with an
aggregate offering price to the public of $31,250,000) out of the 3,565,000
shares of Common Stock (with an aggregate offering price of $35,650,000)
registered in the Offering. The managing underwriters of the Offering were SBC
Warburg Dillon Read Inc. and UBS Securities.
In connection with the Offering, the Company incurred the following expenses
through September 30, 1998: underwriting discounts and commissions of $2,187,000
and other expenses of $1,169,339. After expenses incurred through September 30,
1998, the Company's net proceeds from the Offering were $27,893,661 as of
September 30, 1998. From September 5, 1997 (the effective date of the Company's
Registration Statement on Form S-1) through September 30, 1998, the amount of
net offering proceeds used by the Company was as follows: $2,097,712 for
purchases of machinery and equipment including customer rental assets,
$7,782,227 to fund current operations (of which $1,480,539 was paid to officers
of the Company), $775,887 for working capital purposes, and the remaining
$17,237,835 was invested in short-term securities.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits. See exhibit index on page 14
(b) Reports on Form 8-K. None
12
<PAGE> 14
AUTOCYTE, INC.
FORM 10-Q
September 30, 1998
SIGNATURE
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.
AUTOCYTE, INC.
DATE: November 9, 1998 BY: /s/ William O. Green
---------------------
William O. Green
Duly Authorized Officer and
Principal Financial Officer
13
<PAGE> 15
EXHIBIT INDEX
Number Description
- ------ -----------
10.1 Lease Agreement dated July 8, 1998 by and between Laboratory
Corporation of America (TM) Holdings and AutoCyte, Inc. Filed
herewith.
27 Financial Data Schedule (for EDGAR filing purposes only).
Filed herewith.
- --------------------------------------------------------------------------------
14
<PAGE> 1
EXHIBIT 10.1
LabCorp
Laboratory Corporation of America
Laboratory Corporation of America(TM) Holdings
348 South Main Street
Burlington, North Carolina 27215
Telephone: 800-222-7566, extension 6582
FAX: 336-229-4847
Michael K. Moore
AVP - Facilities Planning
July 8, 1998
Mr. William O. Green
AutoCyte
112 Orange Dr.
Elon College, NC 27244
Re: Lease between LabCorp & AutoCyte @ 112 Orange Drive, Elon College
Mr. Green:
Laboratory Corporation of America Holdings is willing to continue to lease to
AutoCyte, on a month to month basis, 1,529 square feet in the basement of Orange
Drive. The rate for this space will remain at $8.25 per square foot, to be paid
monthly in installments equal to $1,051.19. AutoCyte will give LabCorp a thirty
(30) days written notice of intent to vacate the site, which is expected to be
sometime in 1999. This reduction in space, and new rental amount, will be
effective August 1, 1998.
If this is agreeable to you, please acknowledge by signing below and returning
to me at the above address.
Sincerely,
/s/ Michael K. Moore
Michael K. Moore
AVP, Facilities Planning
Acknowledged and Agreed to: /s/ William O. Green Date 8/10/98
For AutoCyte, Inc.
cc: Gayle Page
MKM/spg
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,306,561
<SECURITIES> 0
<RECEIVABLES> 1,396,941
<ALLOWANCES> 185,000
<INVENTORY> 3,204,944
<CURRENT-ASSETS> 26,183,570
<PP&E> 3,901,364
<DEPRECIATION> 1,045,610
<TOTAL-ASSETS> 31,761,199
<CURRENT-LIABILITIES> 2,674,664
<BONDS> 0
0
0
<COMMON> 126,812
<OTHER-SE> 28,847,493
<TOTAL-LIABILITY-AND-EQUITY> 31,761,199
<SALES> 3,502,905
<TOTAL-REVENUES> 3,502,905
<CGS> 2,166,118
<TOTAL-COSTS> 2,166,118
<OTHER-EXPENSES> 8,908,395
<LOSS-PROVISION> 187,000
<INTEREST-EXPENSE> 11,736
<INCOME-PRETAX> (6,737,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,737,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,737,049)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
