<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 June 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
AUTOCYTE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1995728
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
780 Plantation Drive, Burlington, North Carolina 27215
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(336) 222-9707
- --------------------------------------------------------------------------------
(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 August 11, 1999
----- ------------------------------
Common Stock, $.01 par value 14,292,573
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AUTOCYTE, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited).......................................2
Condensed consolidated balance sheets
June 30, 1999 and December 31, 1998........................................................2
Condensed consolidated statements of operations
Three months ended June 30, 1999 and 1998; Six months
ended June 30, 1999 and 1998...............................................................3
Condensed consolidated statements of cash flows
Six months ended June 30, 1999 and 1998....................................................4
Notes to condensed consolidated financial statements
June 30, 1999..............................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........7
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds...................................................12
Item 4. Submission of Matters to a Vote of Security Holders.........................................12
Item 6. Exhibits and Reports on Form 8-K............................................................13
Signatures...........................................................................................14
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AUTOCYTE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,817,123 $ 19,986,107
Accounts receivable 980,642 919,211
Inventory 3,229,746 3,240,869
Other current assets 409,011 353,878
------------ ------------
Total current assets 16,436,522 24,500,065
Property and equipment 2,601,629 2,762,995
Intangible assets 13,348,886 2,763,075
------------ ------------
Total assets $ 32,387,037 $ 30,026,135
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,853,503 $ 1,028,788
Accrued expenses 655,517 534,197
Deferred revenue 415,693 630,185
Current portion of long-term debt 284,557 191,795
------------ ------------
Total current liabilities 3,209,270 2,384,965
Long-term debt, less current portion 833,300 689,782
Other long-term liabilities 87,240 104,514
Stockholders' equity:
Common stock, $0.01 par value; 20,650,000 shares
authorized; 14,286,392 and 12,729,925 shares issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively 142,864 127,299
Additional paid-in capital 59,068,268 49,598,025
Deferred compensation (1,449,134) (1,880,516)
Accumulated deficit (29,504,771) (20,997,934)
------------ ------------
Total stockholders' equity 28,257,227 26,846,874
------------ ------------
Total liabilities and stockholders' equity $ 32,387,037 $ 30,026,135
============ ============
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 1,186,608 $ 1,202,441 $ 2,349,410 $ 2,279,518
Cost of sales 990,411 804,393 1,811,473 1,481,306
------------ ------------ ------------ ------------
Gross profit 196,197 398,048 537,937 798,212
Operating expenses:
Research and development 1,117,068 1,229,050 2,285,589 2,273,333
Selling, general and administrative 1,878,344 1,839,932 3,628,373 3,841,632
Nonrecurring expenses 3,481,235 -- 3,481,235 --
------------ ------------ ------------ ------------
6,476,647 3,068,982 9,395,197 6,114,965
------------ ------------ ------------ ------------
Operating loss (6,280,450) (2,670,934) (8,857,260) (5,316,753)
Interest income 183,887 343,540 412,096 721,672
Interest expense (35,030) (3,224) (61,673) (7,831)
------------ ------------ ------------ ------------
Net loss $ (6,131,593) $ (2,330,618) $ (8,506,837) $ (4,602,912)
============ ============ ============ ============
Net loss per common share (basic and diluted) $ (0.45) $ (0.18) $ (0.65) $ (0.36)
============ ============ ============ ============
Weighted-average common
shares outstanding 13,557,131 12,670,210 13,163,406 12,637,903
============ ============ ============ ============
</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>
SIX MONTHS ENDED
JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
Net cash used in operating activities $ (3,822,040) $ (4,510,127)
Cash flows from investing activities:
Purchases of property and equipment (373,147) (816,179)
Additions to intangible assets (4,228,611) (42,737)
------------ ------------
Net cash used in investing activities (4,601,758) (858,916)
Cash flows from financing activities:
Proceeds from the issuance of stock 35,808 35,227
Reduction in long-term liabilities (17,274) (4,037)
Proceeds from long-term debt 388,505 --
Payments on long-term debt (152,225) --
------------ ------------
Net cash provided by financing activities 254,814 31,190
Net decrease in cash and cash equivalents (8,168,984) (5,337,853)
Cash and cash equivalents at beginning of period 19,986,107 28,655,082
------------ ------------
Cash and cash equivalents at end of period $ 11,817,123 $ 23,317,229
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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AUTOCYTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
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, 1998 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, 1998, included in the Company's Annual Report on Form
10-K (File No. 0-22885).
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 2,120,533 $ 1,685,495
Finished goods 1,109,213 1,555,374
------------ ------------
$ 3,229,746 $ 3,240,869
============ ============
</TABLE>
3. 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.
4. ACQUISITION OF INTELLECTUAL PROPERTY
On March 25, 1999, AutoCyte, Inc. ("AutoCyte") 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, AutoCyte
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.
5
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AUTOCYTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
4. ACQUISITION OF INTELLECTUAL PROPERTY (CONTINUED)
The purchase price consisted of:
Cash consideration and transaction costs $ 4,201,340
Common stock 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.
5. MERGER WITH NEOPATH
On June 4, 1999, AutoCyte entered into an agreement to merge with NeoPath, Inc.
("NeoPath") in a transaction expected to be accounted for as a pooling of
interests. Under the terms of the agreement, each outstanding share of NeoPath
common stock will be exchanged for 0.7903 shares of AutoCyte common stock. Based
on a total of approximately 17,440,000 shares of NeoPath common stock
outstanding on June 30, 1999, AutoCyte would issue approximately 13,783,000
shares of AutoCyte common stock. This transaction is expected to be completed in
the second half of 1999.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
OVERVIEW
AutoCyte, Inc. develops, manufactures and markets the only integrated automated
sample preparation and image analysis system to support professionals in
cervical cancer screening. AutoCyte's integrated system is comprised of two
separate products: the AutoCyte PREP System(TM) for sample preparation and the
AutoCyte SCREEN System(TM) for image analysis. On June 17, 1999, AutoCyte
received regulatory approval from the FDA to market PREP as a replacement for
the conventional Pap smear preparation. AutoCyte is currently seeking regulatory
approval of SCREEN for sale in the United States for cervical cancer screening.
AutoCyte began sales of PREP in the United States for non-gynecologic
applications in 1993 and with recent FDA approval has begun selling PREP in the
United States for gynecologic applications, its principal application. In
addition, AutoCyte's Pathology Workstation product line works with some of
AutoCyte's other product offerings to provide tools for data storage and
transmission of cellular and tissue images, and tools for diagnosis of disease
from cytology and pathology specimens.
PREP is a proprietary automated liquid-based sample preparation system that
prepares slides with a homogeneous layer, or "thin-layer," of cervical cells.
AutoCyte designed PREP to operate both as an independent sample preparation
system and with SCREEN as part of an integrated diagnostic system. AutoCyte
believes PREP will improve laboratory productivity and reduce interpretation
errors, as compared to conventional Pap smears, by producing cell samples that
are:
- -- clearer than conventional Pap smear samples;
- -- more uniform than conventional Pap smear samples; and
- -- easier to interpret than conventional Pap smear samples.
SCREEN is an automated image analysis system that combines AutoCyte's own
imaging technology and classification software with off-the-shelf computer
hardware to screen and classify slides prepared using PREP. AutoCyte designed
SCREEN to be an interactive support tool for the laboratory professional in the
primary screening of cervical cells. SCREEN may also serve quality control and
adjunctive testing purposes. By designing PREP and SCREEN to function together,
AutoCyte has developed a system which AutoCyte believes will operate at a higher
production level and with greater diagnostic sensitivity than the conventional
Pap smear test and other cervical cancer screening systems.
On June 17, 1999 AutoCyte received FDA approval to market PREP for cervical
cancer screening. AutoCyte cannot market SCREEN in the United States for use in
screening thin-layer slides for cervical cancer until it receives PMA approval
from the FDA. AutoCyte expects to generate a substantial majority of its future
revenues from PREP and SCREEN. AutoCyte's long-term revenues and future success
are partially dependent upon its ability to obtain regulatory approval for, and
market and commercialize SCREEN for, cervical cancer screening in the United
States and abroad.
AutoCyte 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, AutoCyte places the
PREP instrument at the customer's site and charges the customer for reagents and
other disposables at a price that includes a rental charge for the equipment.
The term of the PREP rental program is typically three years. For SCREEN
customers in the United States, AutoCyte intends to place instruments without
charge at customer locations and to charge customers on a per test, or
fee-per-use, basis. In foreign markets, AutoCyte plans to either sell or license
SCREEN. An important element of AutoCyte's business strategy is to obtain
third-party financing to support rentals of PREP and
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fee-per-use placements of SCREEN. Financing for rentals of PREP is currently in
place. AutoCyte cannot guarantee that it will be able to obtain sufficient
financing or, if so, on favorable terms. AutoCyte's failure to obtain sufficient
financing could have a material adverse effect on its business, financial
condition and results of operations.
AutoCyte's future revenues and the results of its operations may change
significantly from quarter to quarter and will depend on many factors,
including:
- -- the timing of FDA approval for SCREEN;
- -- the extent to which the AutoCyte'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
AutoCyte adopts.
Having received FDA approval to market PREP for gynecological uses, AutoCyte
expects its marketing and sales expenditures to increase significantly. AutoCyte
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. AutoCyte additionally
expects to incur compensation expense of $1.4 million as its deferred
compensation balance is amortized.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 and 1998
Revenues for the second quarter of 1999 remained flat at $1.2 million. The
Company's gross margin during the three months ended June 30, 1999 was 17%, a
decrease from 33% in the corresponding period of 1998. This decrease was due
primarily to a change in product mix, as a greater percentage of revenues in the
first half of 1999 were from the lower margin non-gynecologic applications of
PREP. With the recent FDA approval of PREP, we expect that our margins will
improve as sales volume increases and the product mix moves to a greater
concentration of the higher margin gynecologic applications of PREP.
Operating expenses for the second quarter of 1999 were $6.5 million, a 111%
increase from $3.1 million in the second quarter of 1998. The increase was due
primarily to $3.5 million of non-recurring expenses incurred in the second
quarter of 1999, consisting of $2.9 million of in-process research and
development acquired from Neuromedical Systems, Inc. and $600,000 of expenses
associated with the pending merger with NeoPath, Inc.
Interest income for the second quarter of 1999 was $184,000, a decrease of 46%
from $344,000 in the corresponding quarter of 1998, primarily attributable to
the lower average cash balance during 1999.
The net loss for the second quarter of 1999 was $6.1 million, an increase of
$3.8 million from the second quarter of 1998 loss of $2.3 million. This increase
was due primarily to the non-recurring expenses incurred in 1999. Net loss per
share was $0.45, an increase from a net loss per share of $0.18 in the second
quarter of 1998.
8
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Six Months Ended June 30, 1999 and 1998
Net sales for the six months ended June 30, 1999 were $2.3 million, consistent
with the corresponding period of 1998. The Company's gross margin during the six
months ended June 30, 1999 was 23%, a decrease from 35% in the corresponding
period of 1998. This decrease was due primarily to a change in product mix, as a
greater percentage of revenues in the first half of 1999 were from the lower
margin non-gynecologic applications of PREP. With the recent FDA approval of
PREP, we expect that our margins will improve as sales volume increases and the
product mix moves to a greater concentration of the higher margin gynecologic
applications of PREP.
Operating expenses increased 54% from $6.1 million in the first half of 1998 to
$9.4 million in the first half of 1999. This increase was due primarily to $3.5
million of non-recurring expenses incurred in the second quarter of 1999,
consisting of $2.9 million of in-process research and development acquired from
Neuromedical Systems, Inc. and $600,000 of expenses associated with the pending
merger with NeoPath.
Interest income decreased by 43% from $722,000 in the first half of 1998 to
$412,000 in the first half of 1999, due primarily to the lower average cash
balance during 1999.
Net loss increased 85% from $4.6 million in the first half of 1998 to $8.5
million in the first half of 1999, due primarily to the non-recurring expenses
incurred in 1999. Net loss per share was $0.65, an increase from a net loss per
share of $0.36 in the corresponding period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since AutoCyte's formation on October 24, 1996, its expenses have significantly
exceeded its revenues, resulting in an accumulated deficit of $29.5 million as
of June 30, 1999. AutoCyte has funded its operations primarily through the
private placement and public sale of equity securities, resulting in net
proceeds of $38.0 million, debt facilities and limited product sales. As of June
30, 1999, AutoCyte had cash and cash equivalents of $11.8 million.
On May 17, 1999 AutoCyte completed is acquisition of the intellectual property
estate of Neuromedical Systems, Inc. ("NSI") for $4.0 million in cash and the
issuance of 1.4 million shares of AutoCyte common stock. Concurrent with the
execution of an asset purchase agreement on March 25, 1999, NSI filed a
voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of
Delaware. AutoCyte's purchase of the intellectual property estate was completed
when the bankruptcy court subsequently approved the transaction.
Cash used in AutoCyte's operations was $3.8 million during the six months ended
June 30, 1999 and $4.5 million during the corresponding period of 1998. Negative
operating cash flow during both periods was caused primarily by operating
losses. AutoCyte's capital expenditures were $373,000 during the six months
ended June 30, 1999 and $816,000 during the corresponding period of 1998. A
significant portion of the capital expenditures were attributable to the
purchase of PREP units for rental and demonstration purposes. AutoCyte has no
material commitments for capital expenditures.
On June 4, 1999, AutoCyte entered into an agreement to merge with NeoPath, Inc.
("NeoPath") in a transaction expected to be accounted for as a pooling of
interests. Under the terms of the agreement, each outstanding share of NeoPath
common stock will be exchanged for 0.7903 shares of AutoCyte common stock. Based
on a total of approximately 17,440,000 shares of NeoPath common stock
outstanding on June 30, 1999, AutoCyte would issue approximately 13,783,000
shares of AutoCyte common stock. The closing of this transaction is dependent on
the satisfaction of certain conditions, including approval by
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the stockholders of both AutoCyte and NeoPath. This transaction is expected to
be completed in the second half of 1999.
AutoCyte believes that its existing cash and existing or anticipated additional
debt and lease financing for internal use assets, rental placements of PREP and
fee-per-use placements of SCREEN (if and when FDA approval for SCREEN is
received), will be sufficient to enable it to meet its future cash obligations
through mid 2000. AutoCyte's future liquidity and capital requirements will
depend upon numerous factors, including:
- -- the availability of financing for AutoCyte's anticipated equipment
lease and rental programs;
- -- the level of placements of rental PREP systems and fee-per-use SCREEN
systems;
- -- the resources required to further develop AutoCyte's marketing and
sales capabilities domestically and internationally;
- -- the resources required to expand manufacturing capacity and the extent
to which AutoCyte's products generate market acceptance and demand; and
- -- the timing and success of the merger with NeoPath.
In particular, AutoCyte 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. AutoCyte 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 AutoCyte needs it or on terms
AutoCyte finds acceptable. AutoCyte's failure to obtain funding would have a
material adverse effect on the its business, financial condition and results of
operations. Additionally, if the transaction with NeoPath is completed, AutoCyte
expects that it will incur substantial expenses integrating the two businesses
and that certain operating expenses will increase and remain higher for the
combined companies than their current levels. This may cause AutoCyte to need to
raise additional capital sooner than it might otherwise.
YEAR 2000 READINESS
AutoCyte 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 AutoCyte's core business operations and that transactions
with customers and suppliers are fully supported before, during and after
January 1, 2000. The status of AutoCyte's Year 2000 readiness is reported on a
regular basis to executive management and the board of directors. AutoCyte
anticipates achieving complete Year 2000 readiness, including the development of
a contingency plan, if necessary, by September 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.
All shipments of PREP units made subsequent to September 1, 1998 are Year 2000
compliant, and AutoCyte is upgrading non-compliant units in the field in
conjunction with routine preventative maintenance visits. Most of AutoCyte's
Pathology Workstation products are currently Year 2000 compliant, and AutoCyte
is determining an appropriate course of action to deal with non-compliant
products. AutoCyte expects to complete its assessment of SCREEN by September
1999. AutoCyte 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 Year 2000 compliant. AutoCyte also has
initiated correspondence with 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 AutoCyte's operations.
While AutoCyte believes its planning efforts are adequate to address our Year
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2000 concerns, there can be no guarantee that systems of other entities on which
AutoCyte 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 AutoCyte's operations. AutoCyte is dependent on
certain sole-source suppliers. Failure on the part of those suppliers to become
Year 2000 compliant could affect AutoCyte's ability to obtain product from those
suppliers and could adversely affect operations and financial results. To date,
AutoCyte 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
AutoCyte'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 one 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
AutoCyte'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. AutoCyte's current policies do not allow
it to use interest rate derivative instruments to manage exposure to interest
rate changes. AutoCyte does not expect its operating results or cash flows to be
affected to any significant degree by a sudden change in market interest rates.
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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
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 June 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 June 30, 1999, the amount
of net offering proceeds used by the Company was as follows: $2,630,393 for
purchases of machinery and equipment, $4,307,311 for the purchase of intangible
assets, $14,062,907 to fund current operations (of which $2,359,813 was paid to
officers of the Company), $283,231 for working capital purposes, and the
remaining $6,609,819 was invested in short-term securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders held on May 26, 1999, the Company's
stockholders voted as follows:
(a) To reelect Richard A. Charpie Ph.D. and Robert E. Curry Ph.D., to the
Board of Directors, for a three-year term.
Nominee Vote "FOR" Vote Withheld
Richard A. Charpie Ph.D. 10,209,684 315,190
Robert E. Curry Ph.D. 10,209,684 315,190
There were no broker non-votes or abstentions with respect to this matter.
The terms in office of James B. Powell, M.D., Thomas P. Mac Mahon and Susan E.
Whitehead continued after the meeting.
(b) To ratify the selection by the Board of Directors of Ernst & Young LLP
as the Company's independent auditors for the fiscal year ending December 31,
1999.
Total Vote For the Proposal: 10,518,784
Total Vote Against the Proposal: 4,690
Abstentions: 1,400
Broker Non-Votes: 134
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(c) To amend the Company's Amended and Restated 1996 Equity Incentive Plan
to increase the number of shares of Common Stock available for issuance pursuant
to awards under the plan by 900,000 shares from 2,086,325 to 2,986,325.
Total Vote For the Proposal: 8,774,094
Total Vote Against the Proposal: 338,732
Abstentions: 7,400
Broker Non-Votes: 134
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. None.
(b) Reports on Form 8-K.
On June 1, 1999, AutoCyte filed a Current Report on Form 8-K to
announce the completion of its acquisition of the intellectual
property estate of Neuromedical Systems, Inc.
On June 23, 1999, AutoCyte filed a Current Report on Form 8-K to
announce that it had entered into an Agreement and Plan of Merger
pursuant to which a wholly owned subsidiary of AutoCyte will be
merged with and into NeoPath, with NeoPath becoming a wholly owned
subsidiary of AutoCyte.
On August 6, 1999, AutoCyte filed an amendment to its June 1, 1999
Current Report on Form 8-K to include proforma financial
information of AutoCyte giving effect to its acquisition on May 17,
1999 of the intellectual property estate of Neuromedical Systems,
Inc.
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AUTOCYTE, INC.
FORM 10-Q
JUNE 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.
AUTOCYTE, INC.
DATE: August 13, 1999 BY: /s/ William O. Green
---------------------
William O. Green
Duly Authorized Officer and
Principal Financial Officer
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