<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 September 30, 1999
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
TRIPATH IMAGING, 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 November 11, 1999
----- --------------------------------
Common Stock, $.01 par value 28,086,674
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TRIPATH IMAGING, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited).....................................2
Condensed consolidated balance sheets
September 30, 1999 and December 31, 1998.................................................2
Condensed consolidated statements of operations
Three months ended September 30, 1999 and 1998;
Nine months ended September 30, 1999 and 1998............................................3
Condensed consolidated statements of cash flows
Nine months ended September 30, 1999 and 1998............................................4
Notes to condensed consolidated financial statements
September 30, 1999.......................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......8
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................................13
Item 4. Submission of Matters to a Vote of Security Holders.......................................14
Item 6. Exhibits and Reports on Form 8-K..........................................................14
Signatures.........................................................................................15
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
TRIPATH IMAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,809,292 $ 25,565,974
Securities available-for-sale 1,056,566 3,374,549
Accounts receivable 4,706,353 3,930,289
Inventory 8,622,630 9,985,286
Other current assets 666,362 746,293
------------- -------------
Total current assets 29,861,203 43,602,391
Customer-use assets 16,522,236 15,504,888
Property and equipment 3,341,779 5,391,764
Deposits and other assets 328,172 913,850
Intangible assets 11,846,588 2,763,075
------------- -------------
Total assets $ 61,899,978 $ 68,175,968
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,981,745 $ 3,973,040
Accrued expenses 5,753,935 3,447,135
Deferred revenue 767,213 962,670
Current portion of long-term debt 2,296,315 2,666,795
------------- -------------
Total current liabilities 10,799,208 11,049,640
Long-term debt, less current portion 1,127,162 1,928,413
Other long-term liabilities 115,863 122,910
Stockholders' equity:
Common stock, $0.01 par value; 49,000,000 shares authorized;
28,085,056 and 24,192,928 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 280,851 241,929
Additional paid-in capital 214,849,491 191,540,956
Deferred compensation (946,712) (1,880,516)
Accumulated other comprehensive loss (1,581) (15,731)
Accumulated deficit (164,324,304) (134,811,633)
------------- -------------
Total stockholders' equity 49,857,745 55,075,005
------------- -------------
Total liabilities and stockholders' equity $ 61,899,978 $ 68,175,968
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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TRIPATH IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 4,771,547 $ 3,097,237 $ 12,086,245 $ 13,247,911
Cost of revenues 2,564,633 1,839,216 7,128,481 7,733,122
------------ ------------ ------------ ------------
Gross profit 2,206,914 1,258,021 4,957,764 5,514,789
Operating expenses:
Research and development 2,764,452 3,930,595 9,830,261 12,161,171
Selling, general and administrative 4,546,538 6,242,000 13,869,553 19,919,464
Transaction, integration and restructuring
costs 7,390,464 -- 8,445,343 --
In-process research and development -- -- 2,922,000 --
------------ ------------ ------------ ------------
14,701,454 10,172,595 35,067,157 32,080,635
------------ ------------ ------------ ------------
Operating loss (12,494,540) (8,914,574) (30,109,393) (26,565,846)
Interest income 214,588 513,730 927,645 1,868,478
Interest expense (108,362) (124,908) (330,923) (157,306)
------------ ------------ ------------ ------------
Net loss $(12,388,314) $ (8,525,752) $(29,512,671) $(24,854,674)
============ ============ ============ ============
Net loss per common share (basic and diluted) $ (0.44) $ (0.35) $ (1.09) $ (1.03)
============ ============ ============ ============
Weighted-average common
Shares outstanding 28,080,602 24,129,873 26,990,921 24,076,615
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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TRIPATH IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(29,512,671) $(24,854,674)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 6,219,263 5,619,845
Non-cash restructuring costs 4,239,489 --
Purchased in-process research and development 2,922,000 --
Other non-cash items 180,639 419,732
Change in operating assets and liabilities:
Accounts receivable (1,153,766) (118,815)
Inventory (4,832,315) (5,065,158)
Other current assets 79,931 (181,088)
Other assets 585,677 (568,255)
Accounts payable and other current liabilities (161,899) 431,834
------------ ------------
Net cash used in operations (21,433,652) (24,316,579)
INVESTING ACTIVITIES
Purchases of property and equipment (451,614) (1,303,675)
Purchases of securities available-for-sale (7,199,372) (792,721)
Maturities of securities available-for-sale 9,376,072 15,472,375
Additions to intangible assets (4,259,086) (83,204)
Other -- (3,778)
------------ ------------
Net cash (used in) provided by investing activities (2,534,000) 13,288,997
FINANCING ACTIVITIES
Issuance of common stock under employee stock purchase
plan 46,769 --
Exercise of options and warrants 115,150 134,039
Proceeds from private issuance of stock 14,411,255 --
Other (190,473) (763)
Proceeds from long-term debt 946,444 4,950,000
Payments on long-term debt (2,118,175) (617,619)
------------ ------------
Net cash provided by financing activities 13,210,970 4,465,657
Net decrease in cash and cash equivalents (10,756,682) (6,561,925)
Cash and cash equivalents at beginning of period 25,565,974 31,964,052
------------ ------------
Cash and cash equivalents at end of period $ 14,809,292 $ 25,402,127
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
applicable Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. It is presumed that users of this interim financial
information have read or have access to the audited financial statements for the
preceding fiscal year (refer to Note 2). 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.
2. MERGERS AND ACQUISITIONS
On September 30, 1999, AutoCyte, Inc. ("AutoCyte") merged with NeoPath, Inc.
("NeoPath") in exchange for approximately 13.8 million shares of AutoCyte common
stock. The transaction has been accounted for as a pooling of interests. In
conjunction with the merger, the Company changed its name from AutoCyte, Inc. to
TriPath Imaging, Inc. ("TriPath" or the "Company"). The accompanying unaudited
condensed consolidated financial statements include operations of the combined
companies for all periods presented. The results of operations for the
operations for the separate companies and the combined amounts presented in the
consolidated financial statements are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss:
AutoCyte $ (5,912,941) $ (2,134,137) $ (14,419,778) $ (6,737,049)
NeoPath (6,475,373) (6,391,615) (15,092,893) (18,117,625)
-------------- -------------- -------------- --------------
$ (12,388,314) $ (8,525,752) $ (29,512,671) $ (24,854,674)
============== ============== ============== ==============
Earnings (loss) per share:
AutoCyte $ (0.21) $ (0.09) $ (0.53) $ (0.28)
NeoPath (0.23) (0.26) (0.56) (0.75)
-------------- -------------- -------------- --------------
$ (0.44) $ (0.35) $ (1.09) $ (1.03)
============== ============== ============== ==============
</TABLE>
5
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TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. INVENTORY
Inventory consists of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------------- --------------------
Raw materials $ 3,721,841 $ 3,779,243
Work in process 1,540,502 2,365,472
Finished goods 3,360,287 3,840,571
-------------------- --------------------
$ 8,622,630 $ 9,985,286
==================== ====================
4. NET LOSS PER SHARE OF COMMON STOCK
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.
5. ACQUISITION OF INTELLECTUAL PROPERTY
On March 25, 1999, TriPath entered into a purchase and sale agreement to acquire
the intellectual property estate of Neuromedical Systems, Inc. ("NSI"), a
developer of interactive, neural net technology for the computer screening of
conventional Pap smears. Under the terms of the agreement, TriPath agreed to
acquire the entire patent estate (including the right to pursue any claims
relating to the patent estate), trademarks, regulatory applications, clinical
data and all other intellectual and intangible property rights relating to the
business of NSI, which, concurrent with the execution of the agreement, filed a
voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of
Delaware. The bankruptcy court approved this agreement and the transaction
closed on May 17, 1999.
The purchase price consisted of:
Cash consideration and transaction costs $ 4,201,340
Common stock (valued at $6.75 per share) 9,450,000
------------
$13,651,340
============
The purchase price was allocated as follows:
Patents $ 9,390,000
In-process research and development 2,922,000
Core technology 1,339,340
------------
$13,651,340
============
The Company charged to expense at the date of acquisition $2,922,000 relating to
the portion of the purchase price allocated to those in-process research and
development projects where technological feasibility had not yet been
established.
6
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TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. TRANSACTION, INTEGRATION AND RESTRUCTURING COSTS
In connection with the merger with NeoPath, certain expenses of the transaction,
costs to integrate the two organizations, and expenses associated with the
restructuring of the Company's business have been accrued and recorded as an
expense. The following table presents the components of the expense:
Transaction and professional fees $2,554,314
Personnel separation costs 1,098,540
Write-off of assets 4,239,489
Other costs 553,000
----------
$8,445,343
==========
Transaction costs are comprised of amounts owed to investment bankers and
advisors for services rendered in conjunction with the merger. Personnel
separation costs reflect severance payments to be made to employees terminated
as a result of the merger. The non-cash write-off of assets primarily relates to
property and equipment, inventory and the core technology acquired from NSI
deemed to have become redundant or obsolete as a result of the merger. Other
costs include integration costs directly related to the merger and other costs
resulting from actions taken to merge the operations.
7. PRIVATE EQUITY TRANSACTION
On February 9, 1999, the Company completed a $14.5 million private equity
transaction, issuing 2.3 million shares of common stock to investors at a price
of $6.33 per share. In connection with the financing, the Company issued to a
related party five-year warrants to purchase 79,030 shares of common stock at an
exercise price of $7.45 per share.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
OVERVIEW
TriPath develops, manufactures and markets products to improve cervical cancer
screening. Improved slide preparation technology is delivered through the
AutoCyte PREP System(TM) ("PREP"), a proprietary automated thin-layer cytology
sample preparation system that produces representative slides with a
homogeneous, thin-layer of cervical cells, and is one of only two sample
preparation systems approved by the FDA as a replacement for the conventional
Pap smear. TriPath also delivers visual intelligence technology to increase
accuracy and productivity in medical testing through the AutoPap(R) Primary
Screening System ("AutoPap"), which utilizes proprietary technology to
distinguish between normal Pap smears and those that have the highest likelihood
of abnormality. In May 1998, AutoPap was approved by the U.S. Food and Drug
Administration as the first and only fully automated device for primary
screening of Pap smear slides. On October 6, 1999, TriPath announced submission
of a supplement to the FDA for the screening of PREP slides by the AutoPap.
TriPath generates PREP revenue from the sale or rental of PREP systems and the
sale of the related test kits, comprised of proprietary reagents and other
disposables. For system sales, customers purchase the PREP instrument and make
separate purchases of test kits. For system rentals, customers pay a fixed
monthly fee for the equipment and make separate purchases of test kits. The
Company also has an Integrated Purchase Option ("IPO") program where the PREP
instrument is placed at the customer's site free of charge, and the customer
pays a higher per-test price for the reagents and disposables. Each PREP system
placed typically provides a recurring revenue stream as the customers process
the test kits sold by the Company.
TriPath generates AutoPap revenue from the sale of AutoPap systems or on a
fee-per-use basis. Fee-per-use revenue commences in the month a system is
initially placed in commercial use at a customer site and consists of per-slide
monthly billings, fixed rental billings, and minimum payments due on certain
fee-per-use contracts.
The Company's strategy is to maximize the number of instruments placed with
customers and thereby increase its ongoing, higher margin reagent and
fee-per-use revenue streams. As an important element of this strategy, the
Company has entered into an agreement with a finance company to support the
placement of PREP rental and IPO systems and AutoPap fee-per-use systems.
TriPath's future revenues and the results of operations may change significantly
from quarter to quarter and will depend on many factors, including:
- - the extent to which the Company's products gain market acceptance;
- - the timing and volume of system placements;
- - 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 we
adopt.
Having received FDA approval to market PREP for gynecological uses, TriPath
expects marketing and sales expenditures to increase significantly. TriPath also
anticipates that manufacturing expenses will increase as product
commercialization increases.
8
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues - Revenues for the third quarter of 1999 were $4.8 million, a 54%
increase over revenues of $3.1 million in the third quarter of 1998. The
increase was primarily due to a $1.3 million increase in AutoPap fee-per-use
revenue and a $792,000 increase in PREP revenue. The increase in AutoPap revenue
was due to an increase in the installed base of AutoPaps placed under
fee-per-use contracts. The increase in PREP revenue was primarily attributable
to $667,000 of domestic PREP revenue in the third quarter of 1999, consisting of
both instrument sales and the sale of test kits, following FDA approval of PREP
in late June 1999. These increases in revenues from the Company's primary
products were partially offset by decreases in revenues from the other Company's
other product lines, primarily Pathology Workstation products.
Gross Margin - Gross margin for the third quarter of 1999 was 46%, an increase
from 40% in the corresponding period of 1998. This increase was primarily
attributable to improved margins on AutoPap, as the Company increased its
installed base of AutoPaps placed under fee-per-use contracts.
Research and Development - Research and development expenses for the third
quarter of 1999 were $2.8 million, a 30% reduction from $3.9 million in the
third quarter of 1998. This decrease was primarily attributable to decreased net
development costs on additional AutoPap applications, elimination of Pathfinder
development expenses and an overall reduction in redundant research and
development efforts.
Selling, General and Administrative - Selling, general and administrative
expenses for the third quarter of 1999 were $4.5 million, a 27% reduction from
$6.2 million in the third quarter of 1998. This decrease is primarily due to
lower legal expenses as a result of the resolution of outstanding lawsuits and
an overall reduction in redundant general and administrative expenses.
Transaction, Integration and Restructuring Costs - During the third quarter of
1999, the Company incurred approximately $7.4 million of nonrecurring
transaction, integration and restructuring costs associated with its merger with
NeoPath, Inc. These costs consisted primarily of $2.6 million in write-offs of
inventory and property and equipment, $1.9 million of professional and
transaction fees, a $1.3 million write-off of intangible assets, and $1.1
million of severance costs.
Net Loss from Operations - Net loss from operations during the third quarter of
1999 was $12.5 million. Excluding the nonrecurring transaction, integration and
restructuring costs, net loss from operations was $5.1 million, a 43%
improvement from $8.9 million in the third quarter of 1998.
Interest Income - Interest income for the third quarter of 1999 was $215,000, a
58% decrease from $514,000 during the third quarter of 1998, primarily
attributable to the lower average cash balance during 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues - Revenues for the nine months ended September 30, 1999 were $12.1
million, a 9% decrease from revenues of $13.2 million for the same period in
1998. The decrease in revenues was primarily attributable to a $4.7 million
decrease in AutoPap product sales, offset by a $3.4 million increase in AutoPap
fee-per-use revenues. During 1999, AutoPap placements have consisted primarily
of fee-per-use contracts in the United States and sale contracts
internationally, whereas in prior years AutoPap placements consisted primarily
of sale contracts both domestically and internationally.
9
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Gross Margin - Gross margin for the nine months ended September 30, 1999
remained relatively consistent at 41%.
Research and Development - Research and development expenses for the nine months
ended September 30, 1999 were $9.8 million, a 19% reduction from $12.2 million
in the nine months ended September 30, 1998. This decrease was primarily
attributable to decreased net development costs on additional AutoPap
applications, elimination of Pathfinder development expenses and an overall
reduction in redundant research and development efforts.
Selling, General and Administrative - Selling, general and administrative
expenses for the nine months ended September 30, 1999 were $13.9 million, a 30%
reduction from $19.9 million in the nine months ended September 30, 1998. This
decrease is primarily due to lower legal expenses as a result of the resolution
of outstanding lawsuits and an overall reduction in redundant general and
administrative expenses.
Transaction, Integration and Restructuring Costs - During the nine months ended
September 30, 1999, the Company incurred approximately $8.4 million of
nonrecurring transaction, integration and restructuring costs associated with
the merger. These costs consisted primarily of $2.6 million of professional and
transaction fees, $2.6 million in write-offs of inventory and property and
equipment, a $1.3 million write-off of intangible assets, and $1.1 million of
severance costs.
In-process Research and Development Costs - During 1999, the Company acquired
the intellectual property estate of Neuromedical Systems, Inc. for total
consideration of $13.7 million. At the date of acquisition, the Company charged
to expense $2.9 million related to the portion of the purchase price allocated
to those in-process research and development projects where technological
feasibility had not yet been established.
Net Loss from Operations - Net loss from operations during the nine months ended
September 30, 1999 was $30.1 million. Excluding the nonrecurring transaction,
integration and restructuring costs and the write-off of in-process research and
development, net loss from operations was $18.7 million, a 29% improvement from
$26.6 million in the same period of 1998.
Interest Income and Expense - Interest income for the nine months ended
September 30, 1999 was $928,000, a 50% decrease from $1.9 million during the
same period of 1998, primarily attributable to the lower average cash balance
during 1999. Interest expense for the nine months ended September 30, 1999 was
$331,000, a 110% increase from $157,000 during the same period of 1998 as a
result of increased borrowing in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, TriPath had $15.9 million in cash, cash equivalents
and securities available-for-sale, compared with $28.9 million at December 31,
1998. Historically, TriPath's expenses have significantly exceeded its revenues,
resulting in an accumulated deficit of $164.3 million as of September 30, 1999.
TriPath has funded its operations primarily through the private placement and
public sale of equity securities, and through debt facilities and product
revenues.
Cash used in operations was $21.4 million during the nine months ended September
30, 1999 and $24.3 million during the corresponding period of 1998. Negative
operating cash flow during both periods was caused primarily by operating
losses. Capital expenditures were $452,000 during the nine months ended
September 30, 1999 and $1.3 million during the corresponding period of 1998.
TriPath has no material
10
<PAGE> 12
commitments for capital expenditures.
TriPath believes that its existing cash and existing debt and lease financing
for internal use assets, rental and IPO placements of PREP and fee-per-use
placements of AutoPap will be sufficient to enable it to meet its future cash
obligations at least through 2000. TriPath's future liquidity and capital
requirements will depend upon numerous factors, including:
- - the level of placements of PREP systems and AutoPap systems;
- - the resources required to further develop TriPath's marketing and sales
capabilities domestically and internationally; and
- - the resources required to expand manufacturing capacity and the extent
to which the Company's products generate market acceptance and demand.
In particular, TriPath anticipates that marketing and sales expenditures for the
PREP market launch for gynecological uses in the United States and expenditures
related to manufacturing and other administrative costs will increase
significantly. TriPath cannot guarantee that it 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 TriPath needs it or on terms TriPath finds
acceptable. TriPath's failure to obtain funding would have a material adverse
effect on the its business, financial condition and results of operations.
YEAR 2000 READINESS
TriPath has established a task force comprised of experienced personnel from all
functional areas 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 TriPath's core business operations and that transactions with
customers and suppliers are fully supported before, during and after January 1,
2000. The status of TriPath's Year 2000 readiness is reported on a regular basis
to executive management and the board of directors. TriPath anticipates
achieving complete Year 2000 readiness by November 30, 1999. The task force is
focusing its efforts on four key areas: products, information technology
systems, facilities, including non-information technology systems, and vendors
and service providers.
During 1999, TriPath evaluated its various products, and is currently in the
process of updating systems in the field to be Year 2000 compliant, which
management believes will be completed by November 30, 1999. TriPath has
conducted a review of its internal information technology systems and facilities
and believes that all of its internal information technology systems and
facilities are currently Year 2000 compliant. TriPath also has corresponded with
external agents such as significant suppliers, large customers and financial
institutions to ensure that those parties have appropriate plans to remedy Year
2000 issues where their systems could effect TriPath's operations.
TriPath currently has no contingency plans in place in the event it does not
complete all phases of its Year 2000 program, including if external agents are
not Year 2000 ready. TriPath evaluated its status during 1999 and determined
that no contingency plan is necessary. TriPath management believes it has an
effective program in place to resolve the Year 2000 issues within its control in
a timely manner. While TriPath believes its planning efforts are adequate to
address the Year 2000 concerns, there can be no guarantee that systems of other
external agents on which TriPath relies, including financial institutions,
customers, service providers, public utilities and governments, will be
converted on a timely basis and will not have a material effect on TriPath's
operations. TriPath is dependent on certain sole-source suppliers. Failure on
the part of those suppliers to become Year 2000 compliant could affect TriPath's
ability to obtain product from those suppliers and could adversely affect
operations and financial results. To date, TriPath has not incurred material
costs in addressing the Year 2000, and the
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remaining costs of the Year 2000 initiatives are not expected to be material to
TriPath's results of operations 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 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 the Company's Registration Statement on Form S-4 (File No.
333-86555) under the heading "Risk Factors." 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
TriPath's financial results and cash flows are subject to fluctuation due to
changes in interest rates primarily from its investment of available cash
balances in highly rated institutions. TriPath maintains a short-term investment
portfolio consisting of highly liquid investments with maturities of three
months or less, classified as cash equivalents, and interest bearing securities
with an average maturity of less than two years, classified as securities
available-for-sale. TriPath's current policies do not allow it to use interest
rate derivative instruments to manage exposure to interest rate changes. TriPath
does not expect its operating results, cash flows, or securities
available-for-sale to be affected to any significant degree by a sudden change
in market interest rates.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
Use of proceeds information is provided herewith in connection with the
Company's initial public offering (the "Offering") of shares of its common
stock. 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, 1999: underwriting discounts and commissions of $2,187,000
and other expenses of $1,169,339. After expenses, the Company's net proceeds
from the Offering were $27,893,661. From September 5, 1997 (the effective date
of the Company's Registration Statement on Form S-1) through September 30, 1999,
the amount of net offering proceeds used by the Company was as follows: $2.9
million for purchases of machinery and equipment, $4.3 million for the purchase
of intangible assets, $16.7 million to fund current operations (of which $2.8
million was paid to officers of the Company), $806,000 for working capital
purposes, and the remaining $3.2 million was invested in short-term securities.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a Special Meeting of Stockholders held on September 30, 1999, the Company's
stockholders voted as follows:
(a) To consider and vote on a proposal to amend the TriPath restated
certificate of incorporation to increase the authorized shares of common stock
from 20,650,000 shares to 49,000,000 shares.
Total Vote For the Proposal: 3,776,235
Total Vote Against the Proposal: 1,556,736
Abstentions: 2,300
Broker Non-Votes: -
(b) To consider and vote on a proposal to issue shares of TriPath
common stock in connection with the merger of a wholly-owned subsidiary of
TriPath with and into NeoPath, Inc.
Total Vote For the Proposal: 3,925,860
Total Vote Against the Proposal: 1,407,111
Abstentions: 2,300
Broker Non-Votes: -
(c) To consider and vote on a proposal to amend AutoCyte's restated
certificate of incorporation to change AutoCyte's name from "AutoCyte, Inc." to
"TriPath Imaging, Inc."
Total Vote For the Proposal: 3,806,785
Total Vote Against the Proposal: 1,409,436
Abstentions: 2,500
Broker Non-Votes: -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
Exhibit 27 Financial Data Schedule (for EDGAR filing purposes
only). Filed herewith.
(b) Reports on Form 8-K.
On August 6, 1999, TriPath filed an amendment to its Current Report on Form 8-K
filed on June 1, 1999 to include pro forma financial information of TriPath
giving effect to TriPath's acquisition on May 17, 1999 of the intellectual
property estate of Neuromedical Systems, Inc. ("NSI").
14
<PAGE> 16
TRIPATH IMAGING, INC.
FORM 10-Q
SEPTEMBER 30, 1999
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.
TRIPATH IMAGING, INC.
DATE: November 15, 1999 BY: /s/ Eric W. Linsley
--------------------
Eric W. Linsley
Duly Authorized Officer and
Principal Financial Officer
15
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