<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 333-69207
-----------------------------------
Careside, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2863507
-------- -----------
(State or other jurisdiction (IRS employer identification no.)
of incorporation or organization)
6100 Bristol Parkway, Culver City, CA 90230
--------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (310) 338-6767
--------------
Indicate by check 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 the Registrant's common Stock, par
value $.01 per share, was 9,143,657 as of November 6, 2000.
<PAGE>
CARESIDE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part 1. Financial Information
Item 1. Financial Statements (unaudited)
--------------------------------
Balance Sheets at December 31, 1999 and September 30, 2000................................... 3
Statements of Operations for the three months and nine months ended
September 30, 1999 and 2000.................................................................. 4
Statements of Cash Flows for the nine months ended
September 30, 1999 and 2000.................................................................. 5
Notes to Financial Statements................................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 8
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds................................................ 12
Item 6. Exhibits and Reports on Form 8-K......................................................... 13
Signatures............................................................................................. 15
</TABLE>
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CARESIDE, INC.
(a development-stage company)
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
------
December 31, 1999 September 30, 2000
----------------- ------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 4,905.4 $ 2,322.2
Inventories.................................................... 548.6 2,462.5
Accounts receivable, net....................................... 78.0 58.7
Prepaid expenses and other..................................... 102.7 304.9
---------- ----------
Total current assets......................................... 5,634.7 5,148.3
PROPERTY AND EQUIPMENT, net..................................... 5,939.2 6,107.1
DEFERRED OFFERING COSTS......................................... 2.3 -
GOODWILL, net................................................... 2,798.2 2,373.0
DEPOSITS........................................................ 15.0 24.0
---------- ----------
$ 14,389.4 $ 13,652.4
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt and obligation under
capital lease............................................... $ 2,327.2 $ 2,469.9
Accounts payable............................................... 844.9 1,969.1
Accrued interest............................................... 156.5 283.5
Accrued expenses............................................... 886.3 321.6
---------- ----------
Total current liabilities................................... 4,214.9 5,044.1
---------- ----------
LONG-TERM DEBT.................................................. 1,059.9 1,329.6
---------- ----------
Obligation Under Capital Lease, net of current portion.......... 35.8 26.5
---------- ----------
Mandatorily redeemable Series B convertible preferred stock..... - 84.0
---------- ----------
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, $.01 par value,
5,000,000 shares authorized; 162,914 issued and outstanding
at December 31, 1999 and No Shares Outstanding at
September 30, 2000............................................ 1.6 -
Common stock, $.01 par value, 50,000,000 shares authorized;
7,609,581 and 9,049,633 issued and outstanding at
December 31, 1999 and September 30, 2000 respectively......... 76.1 90.5
Additional paid-in capital..................................... 37,497.0 47,784.9
Deficit accumulated during development stage................... (28,495.9) (40,707.2)
---------- ----------
Total stockholders' equity...................................... 9,078.8 7,168.2
---------- ----------
$ 14,389.4 $ 13,652.4
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
CARESIDE, INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
(in thousands, except shares and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Period
Three Months Ended Nine Months Ended From Inception
September 30, September 30, (July 10, 1996)
--------------------------- ------------------------- Through
1999 2000 1999 2000 September 30, 2000
---------- ---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
SALES, net............................ $ - $ 108.4 $ - $ 636.1 $ 697.0
COST OF SALES......................... - 59.9 - 311.3 341.9
---------- ---------- ---------- ---------- ----------
GROSS PROFIT.......................... - 48.5 - 324.8 355.1
OPERATING EXPENSES:
Research and development............ 2,074.8 2,427.1 5,931.1 7,199.0 31,206.3
Sales and marketing................. 307.8 920.9 577.0 2,858.3 4,397.2
General and administrative.......... 422.2 594.5 957.1 1,949.0 4,609.1
---------- ---------- ---------- ---------- ----------
Operating Loss.................... (2,804.8) (3,894.0) (7,465.2) (11,681.5) (39,857.5)
INTEREST and OTHER INCOME, net........ 132.1 57.4 202.0 355.9 1,094.6
INTEREST EXPENSE...................... (73.1) (123.3) (856.0) (376.5) (1,398.4)
GOODWILL AMORTIZATION................. - (141.7) - (425.2) (461.8)
---------- ---------- ---------- ---------- ----------
NET LOSS.............................. (2,745.8) (4,101.6) (8,119.2) (12,127.3) (40,623.1)
DIVIDENDS ON SERIES A
PREFERRED STOCK..................... (26.2) - (29.0) (51.8) (107.0)
DIVIDENDS ON SERIES B
PREFERRED STOCK..................... - (1.8) - (1.8) (1.8)
---------- ---------- ---------- ---------- ----------
NET LOSS TO COMMON
STOCKHOLDERS.......................... $ (2,772.0) $ (4,103.4) $ (8,148.2) $(12,180.9) $(40,731.9)
========== ========== ========== ========== ==========
BASIC and DILUTED NET LOSS PER
SHARE................................. $ (0.39) $ (0.46) $ (1.39) $ (1.42)
========== ========== ========== ==========
SHARES USED IN COMPUTING
BASIC and DILUTED NET LOSS PER SHARE.. 7,084,340 8,988,069 5,868,223 8,553,329
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
CARESIDE, INC.
(a development-stage company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Period
Nine Months Ended From Inception
September 30, (July 10, 1996)
------------------------ Through
September 30,
1999 2000 2000
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............................................................... $(8,119.2) $(12,127.3) $(40,623.1)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization........................................ 873.3 2,139.5 4,022.4
Imputed interest on long-term debt................................... 289.8 - 8.3
Amortization of debt discount........................................ 309.2 - 330.1
Noncash interest expense............................................. - - 289.8
Change in assets and liabilities-
Inventories.......................................................... (121.8) (1,913.9) (2,386.0)
Accounts receivable, net............................................. - 19.3 (54.1)
Prepaid expenses and other........................................... (37.5) (202.3) (304.9)
Deposits............................................................. 2.7 (9.0) (9.0)
Accounts payable..................................................... (23.8) 1,124.3 2,421.1
Accrued interest..................................................... - 127.0 322.1
Accrued expenses..................................................... 199.4 (573.2) 277.5
--------- ---------- ----------
Net cash used in operating activities.................................... (6,627.9) (11,415.6) (35,705.8)
--------- ---------- ----------
INVESTING ACTIVITIES:
Cash acquired in purchase of Texas International Laboratories, Inc.... - - .1
Purchases of property and equipment.................................... (3,032.8) (1,829.3) (9,058.1)
--------- ---------- ----------
Net cash used in investing activities.................................... (3,032.8) (1,829.3) (9,058.0)
--------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............................... 2,021.8 795.5 6,395.3
Deferred offering costs................................................ - 2.3 (690.3)
Proceeds from the issuance of common/preferred stock................... 12,360.7 10,302.5 41,897.9
Payments on long-term debt............................................. (115.1) (418.8) (642.7)
Payment on capital lease obligation.................................... - (19.8) (25.9)
Payment of stock subscription.......................................... - - 99.0
Cash received from SmithKline Beecham Corporation in
connection with asset purchase...................................... - - 52.7
--------- ---------- ----------
Net cash provided by financing activities................................ 14,267.4 10,661.7 47,086.0
--------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................. 4,606.7 (2,583.2) 2,322.2
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 3,926.6 4,905.4 -
--------- ---------- ----------
CASH & CASH EQUIVALENTS, END OF PERIOD................................... $ 8,533.3 $ 2,322.2 $ 2,322.2
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
CARESIDE, INC.
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for the three and
nine months ended September 30, 2000 of Careside, Inc. (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In management's opinion, all adjustments, consisting of normal
recurring adjustments, which are necessary for a fair presentation of the
financial position and results of operations, have been made. The results of
operations for the three and nine months ended September 30, 2000 are not
necessarily indicative of the results expected for the entire year. These
financial statements should be read in conjunction with the financial statements
and notes related thereto included in the Company's annual report on Form 10-K
for the year ended December 31,1999. Certain prior period amounts have been
reclassified to conform to the current period presentation.
Note 2: STOCKHOLDERS' EQUITY
In June 1999, the Company completed its initial public offering (the "IPO") of
its units (the "Units"), each unit consisting of one share of the Company's
common stock, $.01 par value per share (the "Common Stock"), and one redeemable
common stock purchase warrant (the "Warrant") to purchase an additional share of
Common Stock. Two million Units were sold in the IPO at a price of $7.50 per
unit. The Company effected a 1 for 5.2 reverse stock split of the Common Stock
immediately prior to the IPO. All references in the accompanying consolidated
financial statements to the number of shares and per share amounts have been
restated to show the effect of this reverse stock split. Upon consummation of
the IPO, $1 million of debt plus accrued interest was converted into 162,914
shares of the Company's Series A Convertible Preferred Stock ("Series A
Preferred Stock"). On June 30, 2000, the company received notification that the
holder of the Series A Preferred Stock was exercising its right to convert the
preferred shares and accrued dividends into common stock. The conversion took
place prior to September 30, 2000.
In March 2000, the company sold 1,184,091 shares of common stock in a private
placement for $8.77 per share. Proceeds, net of approximately $840,000 of
offering costs, amounted to approximately $9.5 million. These shares were
subsequently registered with the Securities and Exchange Commission in April
2000. As part of this transaction, contingent warrants to purchase 154,247
shares of common stock were issued. During the third quarter, the conditions
triggering these warrants were met. A total of 53,160 of these warrants were
exercised prior to September 30, 2000.
In September 2000, the company raised an initial $615,000 of net proceeds in a
placement of 150 shares of Series B Convertible Preferred Stock and 75,000
warrants. That financing also included the placement of a warrant to purchase an
additional $1,000,000 of Series B Convertible Preferred Stock and of callable
two year warrants exercisable for up to 4,000,000 shares of common stock,
subject to conditions, in multiples of twenty shares of Common Stock at an
exercise price of $14.00 per share. The Common Stock warrants can be called by
the Company at a price equal to 95% of the average trading price over the two
days prior to the date of exercise in response to the call. The Series B
Convertible Preferred Stock is convertible into Careside Common Stock at 95% of
an average of the ten lowest trading prices during the thirty days before the
date of conversion. Further, in consideration for the investment, five year
warrants to purchase up to 75,000 shares of Common Stock were issued. At
present, the Company may only issue up to an aggregate of 1,797,361 shares of
common stock upon conversion of our Series B Convertible Preferred Stock and
exercise of outstanding warrants to purchase common stock issued in connection
with the purchase of our Series B Convertible Preferred Stock. The Company must
get our shareholders to approve the issuance of any of the additional 2,860,972
shares that may be issued in connection with the conversion of our Series B
Convertible Preferred Stock and the exercise of outstanding warrants to purchase
common stock issued in connection with the purchase of our Series B Convertible
Preferred Stock.
6
<PAGE>
Note 3: INCOME TAXES
As of December 31, 1999, the Company had approximately $17,769,000 and $759,000
of net operating loss and research and development credit carryforwards,
respectively, for federal income tax purposes, which begin to expire in 2011.
The availability of the net operating loss carryforward to reduce U.S. federal
taxable income is subject to various limitations under the Internal Revenue Code
of 1986 (the "Code"), as amended, in the event of an ownership change as defined
in Section 382 of the Code. The Company experienced a change in ownership
interest in excess of 50% as defined under the Code upon the consummation of the
IPO. The Company does not believe that this change in ownership significantly
impacts the Company's ability to utilize its net operating loss and tax credit
carryforwards as of December 31, 1999.
Note 4: INVENTORIES
At September 30, 2000, inventories consisted of raw materials to be utilized in
the manufacturing of disposable test cartridges and finished goods including
test cartridges and analyzers. Inventories are carried at the lower of cost or
market computed on a first-in, first-out (FIFO) basis.
Note 5: NET LOSS PER COMMON SHARE
Basic loss per share was computed by dividing net loss applicable to common
stockholders by the weighted average number of shares of Common Stock
outstanding during the period. Dilutive loss per share has not been presented,
since the impact on loss per share is anti-dilutive to the Company's loss per
share.
Note 6: REVENUE RECOGNITION
The company recognizes revenue upon shipment, except that revenue from analyzers
is not recognized until customer acceptance. Management believes the Company is
in compliance with Staff Accounting Bulletin (SAB) 101.
Note 7: LONG-TERM DEBT
The company's long-term debt consists of an obligation under a capital lease
agreement, equipment loans due to a finance company and bridge financing due to
a related party. The capital lease obligation carries monthly payments through
2003 and the equipment loans carry monthly payments through 2002 and 2003. The
amount due under the bridge financing arrangement at September 30, 2000 was
$2,000,000 and is due November 2000.
Note 8: STATEMENTS OF CASH FLOWS
During the nine-month periods ended September 30, 2000 and 1999 cash paid for
interest was approximately $376,000 and $257,000 respectively. During the same
periods the company made no cash payments for income taxes.
During the three-month period ended September 30, 2000, the company accrued a
dividend of $1,800 on its Series B convertible preferred stock. The impact of
this dividend on accrued liabilities and additional paid-in capital has been
excluded from the consolidated condensed statement of cash flows. The company
had $84,000 non-cash investing and financing activities in the nine-month period
ending September 30, 1999 associated with the value ascribed to the
mandatorily convertible preferred stock.
On July 1, 2000 the Company converted 162,914 shares of Series A convertible
preferred stock and $107,000 of accrued dividends into 179,696 shares of common
stock and 179,696 warrants to purchase shares of common stock.
NOTE 9 - MANDATORILY REDEEMABLE PREFERRED STOCK:
The Company issued 150 shares of mandatorily redeemable Series B Convertible
Preferred Stock. The stock has a par value of $.01 per share and a liquidation
preference of $5,000 per share; it is mandatorily redeemable at the option of
the holders on September 13, 2002 at a redemption price of $5,000 per share or
$750,000.
The difference in the fair value of the mandatorily redeemable Series B
convertible preferred stock at the date of issuance and the redemption amount is
being accreted, using the interest method, over the period from the issuance
date to the required redemption date as a charge to retained earnings.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q, including
statements regarding the anticipated development and expansion of the Company's
business and expenditures, the intent, belief or current expectations of the
Company, its directors or its officers, primarily with respect to the future
operating performance of the Company and other statements contained herein
regarding matters that are not historical facts, are "forward-looking
statements" (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. Factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements include, but
are not limited to, those discussed in other filings, including those contained
in the Company's Registration Statement on Form S-1 (File No. 333-69207), made
by the Company with the Securities and Exchange Commission.
OVERVIEW
Development of the point-of-care technology used in the Careside system began in
1994 at SmithKline Beecham Clinical Laboratories, Inc., a subsidiary of
SmithKline Beecham Corporation. In November 1996, we acquired the intellectual
property, equipment and other assets from SmithKline to continue the development
of point-of-care diagnostic technology and to create a commercial product. As
part of the consideration paid for the acquisition, SmithKline Beecham
Corporation became an equity owner in Careside. In December 1999, we expanded
the Careside system by acquiring Texas International Labs and the rights to
their hematology testing device.
Since November 1996, we have devoted substantially all of our resources to
research and development activities. We have incurred losses since inception. As
of September 30, 2000, the aggregate loss incurred was approximately $40.6
million. We expect to incur significant additional losses over at least the next
12 months as we continue product development activities, complete a pilot
marketing program and expand marketing efforts.
The following is a discussion of the financial condition and results of
operations for the Company for the three and nine months ended September 30,
2000 and 1999. The Condensed Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
as well as other information included in the Company's annual report on form
10-K for the year ended December 31, 1999 or other Company filings with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Sales and Cost of Sales. Sales increased to $108,000 in the third quarter of
2000 compared to zero in 1999. The sales were predominately sales of Careside H-
2000's, a product of the Company we acquired in December 1999. The cost of sales
represents the cost of instruments and reagents sold.
Research and Developments Expenses. Research and development expenses increased
to approximately $2.4 million for the three months ended September 30, 2000 from
$2.1 million for the three months ended September 30, 1999. This increase of
$0.3 million was primarily attributable to software debugging and hardware
revisions associated with producing the CareSide Analyzer.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$921,000 for the three months ended September 30, 2000 from $308,000 for the
three months ended September 30, 1999. This increase of $613,000 is primarily
attributable to increases in sales and marketing efforts associated with the
launch of the Careside Analyzer System and increases in sales and marketing
staff.
General and Administrative Expenses. General and administrative expenses
increased to $594,000 for the three months ended September 30, 2000 from
$422,000 for the three months ended September 30, 1999. This increase of
$172,000 is primarily attributable to increases in information technology costs.
8
<PAGE>
Interest and Other Income, net. Net interest expense increased to approximately
$66,000 for the three months ended September 30, 2000 compared to net interest
income of $59,000 for the three months ended September 30, 1999. This increase
of $125,000 is attributable to lower average balances of cash and cash
equivalents during 2000, given the proceeds from the IPO completed in June 1999
were available for investment in 1999.
Goodwill. Goodwill amortization of $142,000 associated with the December 1999
acquisition of Texas International Laboratories, Inc. was recorded for the
third quarter of 2000. No such expense occurred in the prior year period.
Net Loss. Net loss increased $1.4 million to $4.1 million for the three months
ended September 30, 2000 from $2.7 million for the three months ended September
30, 1999. This increase reflects the increase in all operating expenses.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Sales and Cost of Sales. Sales increased to $636,000 in the third quarter of
2000. The sales were predominately sales of Careside H-2000's, the product of
the Company we acquired in December 1999. The cost of sales represents the cost
of instruments and reagents sold.
Research and Developments Expenses. Research and development expenses increased
to approximately to $7.2 million for 2000 from $5.9 million for the first nine
months of 1999. This increase of $1.3 million was primarily attributable to
efforts to debug and revise the CareSide Analyzer in 2000 and to support
additional test submissions to the FDA in the first half of 2000.
Sales and Marketing Expenses. Sales and marketing expenses increased to $2.9
million for the first nine months of 2000 from $0.6 million for the same period
of 1999. This increase of $2.3 million is primarily attributable to sales and
marketing efforts to launch the Careside Analyzer System and increases in sales
and marketing staff.
General and Administrative Expenses. General and administrative expenses
increased to $1.9 million for the first nine months of 2000 from $957,000 for
the same period of 1999. This increase of $992,000 is primarily attributable to
increases in information technology staff and expenses and costs associated with
being a public company.
Interest and Other Income, net. Interest expense and other income, net decreased
to approximately $21,000 for the nine months ended September 30, 2000 from
$654,000 for the nine months ended September 30, 1999. This decrease of $633,000
is primarily attributable to decreased interest expense of approximately
$376,500 for the nine months ended September 30, 2000 compared to $856,000 for
the nine months ended September 30, 1999. This change was due to a non-cash
interest charge in 1999 associated with the Bridge Loan Warrants (as defined
herein) and imputed interest associated with the Bridge Loan. Other income of
$100,000 was recorded in 2000 associated with the termination payment of the
Quest distribution and Supply Agreement.
Goodwill. Goodwill amortization of $425,000 associated with the December 1999
acquisition of Texas International Laboratories, Inc. was recorded for the first
nine months of 2000. No such expense occurred in the prior year period.
Net Loss. The net loss increased $4.0 million to approximately $12.1 million
for the nine months ended September 30, 2000 from $8.1 million during the nine
months ended September 30, 1999. This increase was attributable to increases in
operating expenses and goodwill amortization offset by decreases in interest
expense.
The Company expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of revenues earned from sales, proceeds
from existing or future collaborative distribution relationships or joint
ventures, if any, the cost of preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights,
the status of competing products and technologies and the timing and
availability of financing for the Company. In the near term, the Company
believes that comparisons of its quarterly and annual historical results may not
be meaningful and should not be relied upon as an indication of future
performance.
Liquidity and Capital Resources
We have financed our operations since inception primarily through the net
proceeds generated from the issuance of common stock and preferred stock,
warrants, long-term debt and certain short-term borrowings that were
9
<PAGE>
subsequently converted into equity securities. As of September 30, 2000, we have
received net proceeds aggregating approximately $47.0 million from these
transactions.
Net cash used in operating activities for the nine months ended September 30,
2000 was approximately $11.4 million. This amount included an increase in
inventory of $1.9 million, a net increase in accrued expenses and accounts
payable of $551,000 and operating losses of $12.1 million. Cash used for
operations was primarily related to funding expansion of marketing, sales and
administrative infrastructure. Net cash used in operating activities was
approximately $6.6 million for the nine months ended September 30, 1999. For the
nine months ended September 30, 1999, cash used in operating activities
represents the net loss for the period offset by an increase in depreciation,
accounts payable and the non-cash amortization of imputed interest in the S.R.
One bridge loan and warrants.
Cash used in investing activities for the purchase of property and equipment was
approximately $1.8 million for the nine months ended September 30, 2000 and $3.0
million nine months ended September 30, 1999. The cash was used primarily for
the acquisition of automated manufacturing equipment and demonstration analyzers
used in marketing.
At September 30, 2000, our principal source of liquidity was approximately $2.3
million in cash and cash equivalents.
In December 1998, we entered into an agreement with an equipment lease financing
company regarding a $2.5 million facility secured by specific equipment. Each
draw will be a separate loan under the facility. Approximately $1.4 million of
this facility was drawn by December 1999 and was secured by our existing
equipment. We drew $0.8 million in the first quarter of 2000 secured by
manufacturing equipment for cartridge assembly which we have purchased
previously. Each equipment loan has a 48-month term and bears an interest rate
of approximately 14% per annum.
In addition, we entered into an agreement for bridge financing with S.R. One,
Limited in December 1998. Under this agreement, $1.5 million was funded in
December 1998 and $1.5 million was funded in January 1999. In June 1999, S.R.
One, Limited agreed to convert $1 million of the $3 million loan, together with
accrued interest at the rate of 8% on $1 million, into shares of Series A
Convertible Preferred Stock. The conversion price was $6.375, which was 85% of
the initial public offering price per unit. S.R. One received 162,914 shares of
Series A Convertible Preferred Stock. Each share of Series A Convertible
Preferred Stock may in turn be converted, at the option of the holder, into one
share of our common stock and one warrant to purchase an additional share of our
common stock. On June 30, 2000, the company received notification that the
holder of the Series A Preferred Stock was exercising its right to convert the
preferred shares and accrued dividends to common stock. The conversion took
place prior to September 30, 2000. The exercise price and other terms of the
warrant received at the conversion was the same as the warrants included in
units sold in the initial public offering. The remaining $2 million of the loan
matures in November 2000. At that time, we expect either to repay the $2 million
balance on the bridge financing with the proceeds of a new loan or to negotiate
to convert the balance of it into preferred or common equity. The annual
interest rate on the remaining $2 million was 10% for the quarter ended
September 30, 2000. S. R. One has the option to convert all or any portion of
the remaining loan, plus accrued interest thereon, into shares of Series A
Convertible Preferred Stock on the same basis as the previous $1 million
conversion discussed above.
We issued a bridge warrant to S.R. One, Limited in connection with the bridge
financing. The bridge warrant was initially exercisable for the number of shares
of common stock equal to $750,000 divided by 85% of our initial public offering
price of the common stock. The number of warrants doubled if the loan was not
repaid by September 30, 1999. As part of the conversion of a portion of the
bridge financing into shares of Series A Convertible Preferred Stock, the bridge
warrant was modified such that it will be exercisable in all events for the
number of shares of common stock which is equal to $1,500,000 divided by $6.375.
Upon completion of our initial public offering, the bridge warrant became
exercisable for 235,294 shares of common stock. The bridge warrant also has an
exercise price of 6.375 and became exercisable on December 31, 1999. It will
expire on June 16, 2003.
In March 2000, the Company completed the sale of an additional 1,184,091 shares
of common stock in a private placement to 9 institutional investors at a price
of $8.77 per share, raising a gross amount of $10.4 million. Expenses of the
transaction were approximately $840,000. In September 2000, the company raised
an initial $750,000 of gross proceeds in a placement of 150 shares of Series B
Convertible Preferred Stock and warrants. After the end of the third quarter
2000, the company received an additional $1,000,000 upon the exercise of the
warrant to purchase Series B Convertible Preferred Stock sold in the September
2000 transaction. Based on the net proceeds from the March 2000 and September
2000 transactions, plus existing sources of liquidity, which contemplate that $2
million of bridge financing will be converted to equity, we project adequate
cash to fund planned operations into 2001. However, until the $2 million of
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bridge financing will be converted to equity, we project adequate cash to fund
planned operations into the first quarter of 2001. However, until the $2 million
of bridge financing has been converted and the Company has successfully entered
its targeted markets, there are uncertainties that may impact the Company's
ability to fund its planned operations and meet its operational objectives. We
also expect that the development of additional tests will require research
expenditures at a level lower than past spending for test development. Sales and
marketing activities will require hiring and training of additional staff in
2000. This estimate of the period for which we expect our available sources of
cash to be sufficient to meet our funding needs is a forward looking statement
that involves risks and uncertainties. Unforeseen circumstances could occur
which impact our ability to meet our capital requirements for this period. In
the event our capital requirements are greater than estimated, we may need to
raise additional capital to fund our research and development activities, to
scale-up manufacturing activities and to expand our sales and marketing efforts.
Our future liquidity and capital funding requirements will depend on numerous
factors, including the extent to which our products under development gain
market acceptance, the exercise of outstanding warrants to purchase common
stock, the timing of regulatory actions regarding our products, the costs and
timing of expansions of sales, marketing and manufacturing activities,
procurement and enforcement of patents important to our business, and the impact
of competitors' products. There can be no assurance that such additional capital
will be available on terms acceptable to us, if at all. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may include restrictive covenants. If adequate funds are not
available, we may be forced to curtail our operations significantly or to obtain
funds through entering into collaborative agreements or other arrangements on
unfavorable terms. Our failure to raise capital on acceptable terms could have a
material adverse effect on our business, financial condition or results of
operations.
Income Taxes
As of December 31, 1999, we had approximately $17.8 million and $759,000 of net
operating loss and research and development credit carryforwards, respectively,
for federal income tax purposes, which expire on various dates between 2011 and
2014. These amounts reflect different treatment of expenses for tax reporting
than are used for financial reporting. The Tax Reform Act of 1986 contains
certain provisions that may limit our ability to utilize net operating loss and
tax credit carryforwards in any given year. We experienced a change in ownership
interest in excess of 50% as defined under the Tax Reform Act upon the first
closing of our 1997 equity financing. We do not believe that this change in
ownership will impact our ability to utilize our net operating loss and tax
credit carryforwards. There can be no assurance that ownership changes in future
periods will not significantly limit our use of existing or future net operating
loss and tax credit carryforwards.
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PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities; Changes in Securities
In March 2000, the company sold in a private placement 1,184,091 shares of
Common Stock. As part of this transaction, contingent warrants to purchase
154,247 shares of Common Stock were issued. During the third quarter, the
conditions triggering these warrants were met. A total of 53,160 of these
warrants were exercised and 53,160 shares of Common Stock were privately placed
with accredited investors prior to September 30, 2000.
In September 2000, the company raised an initial $750,000 of gross proceeds
in a private placement to an accredited investor of Series B Convertible
Preferred Stock and warrants. That financing also included the placement of a
warrant to purchase an additional $1,000,000 of Series B Convertible Preferred
Stock and of callable two year warrants exercisable for up to 4,000,000 shares
of common stock, subject to conditions, in multiples of twenty shares of Common
Stock at an exercise price of $14.00 per share. The Common Stock warrants can
be called by the Company at a price equal to 95% of the average trading price
over the two days prior to the date of exercise in response to the call. The
Series B Convertible Preferred Stock is convertible into Careside Common Stock
at 95% of an average of the ten lowest trading prices during the thirty days
before the date of conversion. Further, in consideration for the investment,
five year warrants to purchase up to 75,000 shares of Common Stock were issued.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
2.1* Agreement and Plan of Merger dated as of December 7, 1999 by and
among Careside, Inc., Careside Hematology, Inc., Texas
International Laboratories, Inc., Yves LeBihan and Jean-Yves
LeBihan.
3.1** Amended and Restated Certificate of Incorporation of Careside,
Inc.
3.2** Certificate of Designations of Series A Convertible Preferred
Stock
3.3** Amended and Restated Bylaws of Careside, Inc.
3.4 + Certificate of Designations of Series B Convertible Preferred
Stock
4.1*** Specimen Stock Certificate
4.1a** Specimen Warrant Certificate
4.1b** Specimen Unit Certificate
4.2*** Placement Agent Warrant Agreement dated as of January 31, 1997 by
and between Careside, Inc. and Spencer Trask Securities
Incorporated (including Form of Warrant)
4.3*** Placement Agent Warrant Agreement dated as of March 6, 1998 by
and between Careside, Inc. and Spencer Trask Securities
Incorporated (including Form of Warrant)
4.4*** Securities Purchase Agreement dated as of December 17, 1998 by
and between S.R. One, Limited and Careside, Inc. (including Form
of Note) (as amended)
4.5*** Warrant Issued to S.R. One, Limited on December 17, 1998
4.6** Warrant Agreement dated June 21, 2000, by and between Careside,
Inc. and Paulson Investment Company, Inc.
4.7** Warrant Agreement dated June 21, 2000, by and between Careside,
Inc. and American Stock Transfer & Trust Company, as Warrant
Agent
4.8** Warrant issued to S.R. One, Limited dated June 21, 1999
4.9** New Note issued to S.R. One, Limited dated as of June 21, 1999
4.11*** Securities Purchase and Subscription Agreement dated as of March
8, 2000 by and between Careside, Inc. and Purchasers
4.12*** Warrant Agreement dated as of March 8, 2000 by and between
Careside, Inc. and H. C. Wainwright & Co., Inc. (including
Warrant certificate)
4.13*** Contingent Warrant Agreement dated as of March 8, 2000 by and
between Careside, Inc. and Purchasers (including Form of Warrant)
4.14 + Securities Purchase Agreement dated as of September 13, 2000 by
and between RoyCap, Inc. and Careside, Inc.
4.15 + Series B Convertible Preferred Warrant issued to RoyCap, Inc. on
September 13, 2000
4.16 + Warrant Agreement by and between RoyCap, Inc. and Careside, Inc.
dated as of September 13, 2000 (including Warrant Certificate)
4.17 + Common Stock Purchase issued to RoyCap, Inc. on September 13,
2000
4.18 + Warrant Agreement By and between Brighton Capital, Ltd. and
Careside, Inc. dated as of September 13, 2000 (including Warrant
Certificate)
10.1*** Registration Rights Agreement dated as of November 7, 1996 by and
among SmithKline Beecham Diagnostic Systems Co., SmithKline
Beecham Corporation and Careside, Inc.
10.2*** Registration Rights Agreement dated as of December 4, 1996 by and
among Careside, Inc., Exigent Partners, L.P., W. Vickery
Stoughton, Thomas H. Grove, Kenneth B. Asarch, William S. Knight,
Donald S. Wong, Ashok K. Sawhney and Philip B. Smith
10.3*** Amendment No. 1 to Registration Rights Agreement dated as of
January 31, 1997 by and among Careside, Inc. Exigent Partners,
L.P., W. Vickery Stoughton, Thomas H. Grove, Kenneth B. Asarch,
William S. Knight, Donald S. Wong, Ashok K. Sawhney and Philip B.
Smith
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Exhibit No. Description
----------- -----------
10.4*** Registration Rights Agreement dated as of December 4, 1996 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.5*** Registration Rights Agreement dated as of January 31, 1997 by and
among Careside, Inc. and the Investors signatory thereto
10.6*** Stockholders Agreement dated as of December 4, 1996 by and among
the Careside, Inc., SmithKline Beecham Corporation, SmithKline
Beecham Diagnostic Systems Co., Spencer Trask Securities
Incorporated, Exigent Partners, L.P., W. Vickery Stoughton,
Thomas H. Grove, Kenneth B. Asarch, William S. Knight, Donald S.
Wong, Ashok K. Sawhney, Philip B. Smith and each Investor
signatory thereto
10.7**** Registration Rights Agreement dated as of December 7, 1999 by and
between Careside, Inc. and Yves LeBihan and Jean-Yves LeBihan.
10.8+ Registration Rights Agreement dated as of September 13, 2000, by
and between RoyCap, Inc., Brighton Capital, Inc. and Careside,
Inc.
10.9*** Registration Rights Agreement dated as of March 6, 1998 by and
among Careside, Inc. and the Investors signatory thereto
10.10*** Registration Rights Agreement dated as of March 6, 1998 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.11*** Registration Rights Agreement dated as of December 17, 1998 by
and between Careside, Inc. and S.R. One, Limited
10.37** Securities Conversion Agreement dated as of June 14, 1999 between
S.R. One, Limited and Careside, Inc.
10.38** Form of Amended and Restated Registration Rights Agreement dated
as of June 21, 1999 between S.R. One, Limited and Careside, Inc.
24.1 Power of Attorney (included on signature the signature page
hereof)
27.1 Financial Data Schedule
-----------------
* Incorporated herein by reference to Careside's current report on Form 8-K
filed on December 22, 1999.
** Incorporated herein by reference to Careside's Quarterly Report on Form 10-
Q for the quarterly period ended June 30, 1999 filed on August 13, 1999.
*** Incorporated herein by reference to the Registration Statement on Form S-1
of Careside, Inc., as amended. Registration No. 333-69207.
**** Incorporated herein by reference to Careside's Annual Report on Form 10-K/A
filed on March 31, 2000.
+ Incorporated herein by reference to the Registration Statement on Form S-3
of Careside, Inc. filed on September 27, 2000. Registration No. 333-46746.
----------
No reports on Form 8-K were filed during the quarter ended September 30, 2000.
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SIGNATURES
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 hereunto duly authorized.
CARESIDE, INC.
Date: November 14, 2000 By: /s/ W. Vickery Stoughton
----------------------------------------
W. Vickery Stoughton
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ James R. Koch
-----------------------------------------
James R. Koch
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
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