<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, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-22885
TRIPATH IMAGING, INC.
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(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 9, 2000
----- -------------------------------
Common Stock, $.01 par value 28,874,876
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TRIPATH IMAGING, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)...................................2
Condensed consolidated balance sheets
September 30, 2000 and December 31, 1999...............................................2
Condensed consolidated statements of operations Three months ended September
30, 2000 and 1999; nine months
ended September 30, 2000 and 1999......................................................3
Condensed consolidated statements of cash flows
Nine months ended September 30, 2000 and 1999..........................................4
Notes to condensed consolidated financial statements
September 30, 2000.....................................................................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 1. Legal Proceedings.......................................................................13
Item 6. Exhibits and Reports on Form 8-K........................................................13
Signature........................................................................................14
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
TRIPATH IMAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,306,744 $ 13,962,337
Accounts receivable 9,990,930 5,388,972
Inventory 7,586,246 7,802,907
Other current assets 493,582 916,126
------------- -------------
Total current assets 32,377,502 28,070,342
Customer-use assets 10,860,490 16,111,380
Property and equipment 2,051,895 2,754,812
Other assets 76,803 294,331
Intangible assets 11,048,334 11,643,113
------------- -------------
Total assets $ 56,415,024 $ 58,873,978
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,471,079 $ 2,536,180
Accrued expenses 4,921,765 4,602,252
Deferred revenue 1,074,135 1,676,180
Current portion of long-term debt 3,207,331 1,917,345
------------- -------------
Total current liabilities 11,674,310 10,731,957
Long-term debt, less current portion 3,599,911 1,020,030
Other long-term liabilities 60,191 96,643
Stockholders' equity:
Common stock, $0.01 par value; 49,000,000 shares authorized;
28,755,831 and 28,107,362 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 287,558 281,074
Additional paid-in capital 219,139,130 214,892,392
Deferred compensation (261,228) (779,645)
Accumulated deficit (178,084,848) (167,368,473)
------------- -------------
Total stockholders' equity 41,080,612 47,025,348
------------- -------------
Total liabilities and stockholders' equity $ 56,415,024 $ 58,873,978
============= =============
</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,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 8,092,645 $ 4,771,547 $ 23,640,069 $ 12,086,245
Cost of sales 3,655,177 2,564,633 11,596,057 7,128,481
------------ ------------ ------------ ------------
Gross profit 4,437,468 2,206,914 12,044,012 4,957,764
Operating expenses:
Research and development 2,240,446 2,764,452 6,696,680 9,830,261
Selling, general and administrative 4,859,670 4,546,538 15,505,532 13,869,553
Nonrecurring merger related expenses -- 7,390,464 -- 11,367,343
------------ ------------ ------------ ------------
7,100,116 14,701,454 22,202,212 35,067,157
------------ ------------ ------------ ------------
Operating loss (2,662,648) (12,494,540) (10,158,200) (30,109,393)
Interest income 267,352 214,588 679,261 927,645
Interest expense (470,654) (108,362) (1,237,436) (330,923)
------------ ------------ ------------ ------------
Net loss $ (2,865,950) $(12,388,314) $(10,716,375) $(29,512,671)
============ ============ ============ ============
Net loss per common share (basic and diluted)
$ (0.10) $ (0.44) $ (0.38) $ (1.09)
============ ============ ============ ============
Weighted-average common
shares outstanding 28,641,500 28,080,602 28,368,381 26,990,921
============ ============ ============ ============
</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,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(10,716,375) $(29,512,671)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 5,704,905 6,219,263
Non-cash interest expense 367,375 --
Stock based compensation 1,811,843 --
Loss on disposal of fixed assets 1,190 --
Non-cash restructuring costs -- 4,239,489
Purchased in-process research and development -- 2,922,000
Accrued interest on securities available-for-sale -- 180,639
Change in operating assets and liabilities:
Accounts receivable (4,601,958) (1,153,766)
Inventory 1,679,529 (4,832,315)
Accounts payable and other current liabilities (326,474) (161,899)
Other 640,072 665,608
------------ ------------
Net cash used in operating activities (5,439,893) (21,433,652)
INVESTING ACTIVITIES
Purchases of property and equipment (99,382) (451,614)
Purchases of securities available-for-sale -- (7,199,372)
Maturities of securities available-for-sale -- 9,376,072
Additions to intangible assets (17,780) (4,259,086)
------------ ------------
Net cash used in investing activities (117,162) (2,534,000)
FINANCING ACTIVITIES
Issuance of common stock under employee stock purchase
plan -- 46,769
Exercise of options and warrants 805,197 115,150
Proceeds from private issuance of stock -- 14,411,255
Proceeds from long-term debt 7,000,000 946,444
Payments on long-term debt (1,844,110) (2,118,175)
Other (59,625) (190,473)
------------ ------------
Net cash provided by financing activities 5,901,462 13,210,970
Net increase (decrease) in cash and cash equivalents 344,407 (10,756,682)
Cash and cash equivalents at beginning of period 13,962,337 25,565,974
------------ ------------
Cash and cash equivalents at end of period $ 14,306,744 $ 14,809,292
============ ============
</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, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by TriPath Imaging, Inc. ("TriPath" or the "Company") in accordance
with generally accepted accounting principles for interim financial information
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. The balance sheet at December 31, 1999 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 year ended December
31, 1999, included in the Company's Annual Report on Form 10-K (File No.
0-22885).
2. MERGER WITH NEOPATH, INC.
On September 30, 1999, AutoCyte, Inc. ("AutoCyte") completed its merger with
NeoPath, Inc. ("NeoPath") in exchange for approximately 13.8 million shares of
AutoCyte common stock. The transaction was structured as a merger (the "Merger")
of a wholly-owned subsidiary of AutoCyte with and into NeoPath. The Merger was a
tax-free reorganization and was accounted for as a pooling of interests in
accordance with Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations", and accordingly the Company has restated all historical financial
data to include historical financial data of NeoPath. In conjunction with the
Merger, AutoCyte changed its name to TriPath Imaging, Inc. On December 31, 1999,
NeoPath was merged with and into TriPath.
3. INVENTORY
Inventory consists of the following:
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------- --------------------
Raw materials $ 2,251,200 $ 2,371,531
Work in process 1,443,734 1,913,914
Finished goods 3,891,312 3,517,462
-------------------- --------------------
$ 7,586,246 $ 7,802,907
==================== ====================
For the nine months ended September 30, 2000 and 1999, respectively,
reclassifications of $1,462,868 and $6,194,971 occurred between Customer Use
Assets and Inventory.
5
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TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. TRANSACTION, INTEGRATION AND RESTRUCTURING COSTS
In connection with the Merger, 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 recorded and the amounts
paid through September 30, 2000:
<TABLE>
<CAPTION>
TOTAL EXPENSE PAID TO DATE
----------------------- -----------------------
<S> <C> <C>
Cash Expenses:
Transaction and professional fees $ 2,554,314 $ 1,903,107
Personnel separation costs 1,098,540 812,378
Other costs 553,000 471,772
----------------------- -----------------------
4,205,854 $ 3,187,257
=======================
Non-cash Expenses:
Write-off of assets 4,239,489
-----------------------
Total Expenses $ 8,445,343
=======================
</TABLE>
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 and the core technology acquired from Neuromedical
Systems, Inc. ("NSI") in May 1999 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.
6
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TRIPATH IMAGING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. LONG-TERM DEBT
In February 2000, the Company obtained a subordinated term loan from a syndicate
of lenders of up to $7,000,000 to finance operations. As of September 30, 2000,
the balance outstanding was $7,000,000, including a current portion of
$2,741,667 and a long-term portion of $4,258,333. The loan, which is
collateralized by substantially all of the assets of the Company, accrues
interest at a rate equal to the U.S. Treasury Note plus 8%. Accrued interest is
due monthly for the first six months of each draw, at which time the outstanding
principal balance becomes payable over a thirty month term. In connection with
this term loan, the Company issued to the lenders warrants to purchase 223,253
shares of the Company's Common Stock. Using a Black-Scholes pricing model, these
warrants were valued as of September 30, 2000 at $1,286,023 which represents
non-cash debt issuance costs. These warrants, which expire in 2007, were
recorded as additional paid-in capital and the resulting debt issuance costs are
being amortized to interest expense over the three-year term of the loan. These
warrants have a weighted average exercise price of $4.70 and were exercisable
upon issuance.
7. LINE OF CREDIT
In February 2000, the Company obtained a $5,000,000 working capital line of
credit. The outstanding balance is limited to an amount equal to 80% of eligible
accounts receivable. The line of credit commitment expires in January 2001. At
September 30, 2000, there was no outstanding balance on the line of credit. This
line bears interest at the bank's prime rate plus 1% and is collateralized by
substantially all of the assets of the Company. The line of credit carries
customary covenants, including the maintenance of a minimum modified current
ratio and other requirements.
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 U.S. Food and Drug Administration ("FDA") as
a replacement for the conventional Pap smear. TriPath also delivers visual
intelligence technology to increase accuracy and productivity in screening
cellular samples 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 FDA as the first and only fully automated device for primary
screening of conventional 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. The supplement is currently under review by the FDA.
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 whereby, upon
credit approval by a third party financial institution, 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. The financial institution is
repaid with part of the proceeds of the disposables sold. Each PREP system
placed typically provides a recurring revenue stream as customers use the test
kits sold by the Company.
TriPath generates AutoPap revenue from the sale of AutoPap systems (typically
internationally) or on a fee-per-use basis (typically domestically). Fee-per-use
revenue commences in the month a system initially processes slides 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 financial institution 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:
o the extent to which the Company's products gain market acceptance;
o the timing and volume of system placements;
o regulatory and reimbursement matters;
o introduction of alternative technologies by competitors;
o pricing of competitive products; and
o the cost and effect of promotional discounts and marketing programs we
adopt.
Having recently added to its field sales forces, TriPath expects marketing and
sales expenditures to increase significantly. TriPath also anticipates that
manufacturing expenses will increase to the extent that market acceptance of our
products increases.
8
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues - Revenues for the third quarter of 2000 were $8.1 million, a 70%
increase over revenues of $4.8 million in the third quarter of 1999. The
increase was primarily due to a $1.1 million increase in PREP revenue and a $2.1
million increase in AutoPap revenue. The increase in PREP revenue was
attributable to both domestic and international sales in the third quarter of
2000, consisting of both instrument sales and the sale of test kits. The
increase in AutoPap related revenue is due to a $1.3 million increase in sales
of AutoPap systems and a $0.8 million increase in fee-per-use revenue, including
contracts with guaranteed minimum payments. The remaining increase is
attributable to a $0.1 million increase in revenues from the Company's other
product lines, primarily Pathology Workstation products.
Gross Margin - Gross margin for the third quarter of 2000 was 55%, an increase
from 46% in the corresponding period of 1999. This increase was primarily
attributable to a greater portion of revenues consisting of higher margin PREP
sales and international AutoPap instrument sales than the corresponding quarter
in 1999.
Research and Development - Research and development expenses include salaries
and benefits of scientific, engineering and regulatory personnel, costs related
to clinical studies and submissions to the FDA, testing equipment, relevant
consulting services and components for prototypes. Research and development
expenses for the third quarter of 2000 were $2.2 million, a 19% reduction from
$2.8 million in the third quarter of 1999. This decrease was primarily
attributable to an overall reduction in redundant research and development
efforts that were eliminated as part of the Merger.
Selling, General and Administrative - Selling, general and administrative
expenses include salaries and benefits of sales, marketing, and administrative
personnel, legal expenses and certain facility costs. Selling, general and
administrative expenses for the third quarter of 2000 were $4.9 million, a 7%
increase from $4.5 million in the third quarter of 1999. This increase is
primarily due to increased legal fees related to current lawsuits. This increase
was partially offset by an overall reduction in redundant general and
administrative expenses.
Interest Income and Expense - Interest income for the third quarter of 2000 was
$267,000, a 25% increase from $215,000 during the third quarter of 1999,
primarily attributable to the higher average cash balance and to higher interest
rates during 2000. Interest expense increased 334% from $108,000 in the third
quarter of 1999 to $471,000 in the third quarter of 2000. This increase is due
to a higher balance of outstanding debt in the third quarter of 2000 as compared
to the third quarter of 1999. Also, in connection with the $7,000,000 term debt
obtained in the first quarter of 2000, the Company issued warrants to acquire
223,253 shares of Common Stock at a weighted average exercise price of $4.70 per
share as a commitment fee. The value of the warrants was recorded as debt
issuance costs and additional paid in capital and is being amortized to interest
expense over the term of the debt. The Company recognized $112,000 of this
commitment fee as a non-cash charge to interest expense in the third quarter of
2000.
9
<PAGE> 11
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues - Revenues for the first nine months of 2000 were $23.6 million, a 96%
increase over revenues of $12.1 million in the corresponding period in 1999. The
increase was primarily due to a $4.4 million increase in PREP revenue, a $3.2
million increase in AutoPap fee-per-use revenue, including the addition of
AutoPap usage contracts with guaranteed minimum payments and a $3.5 million
increase in revenue from AutoPap instrument sales. The increase in PREP revenue
was primarily attributable to domestic sales of PREP in the first nine months of
2000, consisting of both instrument sales and the sale of test kits, following
FDA approval of PREP in June 1999. The remaining increase of $0.4 million is
attributable to increased revenues from the Company's other product lines,
primarily Pathology Workstation products.
Gross Margin - Gross margin for the first nine months of 2000 was 51%, an
increase from 41% in the corresponding period of 1999. This increase was
primarily attributable to a greater portion of revenues consisting of higher
margin PREP sales and international AutoPap instrument sales than the
corresponding period in 1999.
Research and Development - Research and development expenses include salaries
and benefits of scientific, engineering and regulatory personnel, costs related
to clinical studies and submissions to the FDA, testing equipment, relevant
consulting services and components for prototypes. Research and development
expenses for the first nine months of 2000 were $6.7 million, a 32% reduction
from $9.8 million in the corresponding period of 1999. This decrease was
primarily attributable to decreased net development costs on additional AutoPap
applications, and an overall reduction in redundant research and development
efforts that were eliminated as part of the Merger. The first nine months of
1999 included severance related expenses of $275,000 resulting from a 33%
headcount reduction that occurred in June 1999.
Selling, General and Administrative - Selling, general and administrative
expenses include salaries and benefits of sales, marketing, and administrative
personnel, legal expenses and certain facility costs. Selling, general and
administrative expenses for the first nine months of 2000 were $15.5 million, a
12% increase from $13.9 million in the corresponding period of 1999. The change
is primarily due to non-cash compensation charges of $1.8 million related to
repricing of stock options and increased legal costs, partially offset by a 33%
reduction of personnel and elimination of other redundant functions and expenses
resulting from the Merger.
Interest Income and Expense - Interest income for the first nine months of 2000
was 679,000, a 27% decrease from $928,000 during the corresponding period of
1999, primarily attributable to the lower average cash balance during 2000.
Interest expense increased 274% from $331,000 in the first nine months of 1999
to $1.2 million in the first nine months of 2000. This increase is due to a
higher average balance of outstanding debt in 2000 as compared to the same
period of 1999, primarily attributable to the $7 million term loan the Company
secured in the first quarter of 2000. Also, in connection with this term debt,
the Company issued warrants to acquire 223,253 shares of Common Stock at a
weighted average exercise price of $4.70 per share as a commitment fee. The
value of the warrants was recorded as debt issuance costs and additional paid in
capital and is being amortized to interest expense over the term of the debt.
The Company recognized $367,000 of this commitment fee as a non-cash charge to
interest expense in the first nine months of 2000.
10
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, TriPath had $14.3 million in cash and cash
equivalents, compared with $14.0 million at December 31, 1999. Historically,
TriPath's expenses have significantly exceeded its revenues, resulting in an
accumulated deficit of $178.1 million as of September 30, 2000. 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 operating activities was $5.4 million during the nine months ended
September 30, 2000 and $21.4 million during the corresponding period of 1999.
Negative operating cash flow during both periods was caused primarily by
operating losses. Capital expenditures were $99,000 during the nine months ended
September 30, 2000 and $452,000 during the corresponding period of 1999. TriPath
has no material commitments for capital expenditures.
In February 2000, the Company closed on an agreement for a $7.0 million
subordinated debt facility. The loan, which is collateralized by substantially
all of the assets of the Company, accrues interest at a rate equal to the U.S.
Treasury Note plus 8%. As of September 30, 2000, the entire $7.0 million was
outstanding.
In February 2000, the Company obtained a $5.0 million working capital facility
from a bank. This line bears interest at the bank's prime rate plus 1% and is
collateralized by substantially all of the assets of the Company. At September
30, 2000, there was no outstanding balance on the line of credit.
In August 2000, the Company announced that a subsidiary of Hoffmann-La Roche
("Roche") would acquire 5.0 million shares of the Company's common stock for
$8.00 per share. Additionally, Roche would simultaneously acquire, for an
aggregate purchase price of $3.0 million, warrants to purchase up to an
additional 5.0 million shares at strike prices ranging from $10.00 to $15.00 per
share. At September 30, 2000, the transaction was pending clearance under the
"Hart Scott Rodino Improvement Act" and certain other conditions. Completion of
this transaction would provide the Company with an additional $43.0 million in
cash.
TriPath believes that its existing cash, its existing debt and lease financing
for internal use assets, its rental and IPO placements of PREP and fee-per-use
placements of AutoPap, coupled with the anticipated Roche investment discussed
above, will be sufficient to enable it to meet its future cash obligations at
least through the next twelve months. TriPath's future liquidity and capital
requirements will depend upon numerous factors, including:
o the level of placements of PREP systems and AutoPap systems;
o the success of the Company's recently expanded sales force;
o the resources required to further develop TriPath's marketing and sales
capabilities domestically and internationally; and
o 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
PREP 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 its business,
11
<PAGE> 13
financial condition and results of operations.
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: the risk of loss from the lawsuits
involving a competitor, the Company's early stage of development, uncertainties
regarding product regulatory clearance, FDA approval of and reimbursement for
the use of AutoPap with PREP, the ability to attain or maintain required
compliance with regulations governing manufacturing of medical diagnostic
devices, uncertainty of market acceptance of the Company's principal products,
competition and technological change, history of operating losses, accumulated
deficit 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,
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, dependence on single or limited-source suppliers, and ability to
retain key personnel. 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
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. 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 13, 1999, Cytyc Corporation ("Cytyc") filed suit against TriPath in
the United States District Court for the District of Delaware. The complaint
alleges that the Company's CytoRich(R) proprietary preservative fluid infringes
Cytyc's patent titled "Cell Preservative Solution." The complaint seeks a
determination that TriPath is infringing Cytyc's patent and an injunction
preliminarily and permanently enjoining and restraining TriPath from further
infringing Cytyc's patent. The complaint also seeks treble damages, plus
interest, in an amount to be determined, as well as costs and reasonable
attorneys fees. On October 18, 1999, TriPath filed its response denying Cytyc's
claims. On December 6, 1999, the Company demanded Cytyc withdraw its motion for
preliminary injunction. On December 7, 1999, Cytyc complied with this request
and withdrew their motion for preliminary injunction. On March 10, 2000, the
Company filed a motion for summary judgement. On May 15, 2000 the Company filed
a motion requesting to assert additional defenses and counterclaims including
anti-competitive conduct in violation of the antitrust and unfair competition
laws and the Lanham Act. On June 30, 2000, the Court denied the Company's motion
to assert new defenses and counterclaims. The parties continue to proceed with
discovery in this matter.
On May 12, 2000, Cytyc filed suit against TriPath in the United States District
Court for the District of Massachusetts. The complaint alleges that the Company
has distributed false and/or misleading information to current and potential
purchasers of Cytyc's products. The complaint seeks multiple damages, in an
amount to be determined, plus interest, injunctive relief, and attorneys' fees
and costs. TriPath has denied Cytyc's claims and asserted counterclaims alleging
that Cytyc has made false and/or misleading statements regarding both its own
product and TriPath's product and has violated the antitrust laws. TriPath seeks
treble and punitive damages, in an amount to be determined, plus interest,
injunctive relief and attorneys' fees and costs. Fact discovery is just
beginning.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. See exhibit index on page 15.
(b) Reports on Form 8-K. None.
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TRIPATH IMAGING, INC.
FORM 10-Q
SEPTEMBER 30, 2000
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 13, 2000 BY: /s/ James D. Everhart
--------------------------------
James D. Everhart
Duly Authorized Officer and
Principal Financial Officer
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EXHIBIT INDEX
Number Description
------ -----------
10.1* Severance Agreement between the Company and Ernest Knesel, dated May
11, 2000.
10.2* Option Repricing Agreement between the Company and Alan C. Nelson,
dated June 29, 2000.
27 Financial Data Schedule (for EDGAR filing purposes only). Filed
herewith.
--------------------------------------------------------------------------------
* - Denotes a contract with management
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