<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 June 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 No X
--- ---
The number of shares outstanding of the Registrant's common Stock, par value
$.01 per share, was 8,332,583 as of June 30, 2000.
<PAGE>
CARESIDE, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1. Financial Statements (unaudited)
--------------------------------
Consolidated Condensed Balance Sheets at December 31, 1999 and June 30, 2000........................ 3
Consolidated Condensed Statements of Operations for the three and six months ended
June 30, 1999 and 2000 and the period from inception (July 10, 1996) through June 30, 2000......... 4
Consolidated Condensed Statements of Cash Flows for the six months ended
June 30, 1999 and 2000 and the period from inception (July 10, 1996) through June 30, 2000......... 5
Notes to Consolidated Financial Statements.......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................................... 12
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds........................................................... 13
Item 6. Exhibits and Reports on Form 8-K.................................................................... 14
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 June 30, 2000
------------------ ---------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 4,905.4 $ 6,337.4
Inventories....................................................... 548.6 1,388.0
Accounts receivable, net.......................................... 78.0 151.4
Prepaid expenses and other........................................ 102.7 299.3
---------- ----------
Total current assets............................................ 5,634.7 8,176.1
PROPERTY AND EQUIPMENT, net......................................... 5,939.2 6,517.8
DEFERRED OFFERING COSTS............................................. 2.3 -
GOODWILL,net........................................................ 2,798.2 2,514.7
DEPOSITS............................................................ 15.0 24.0
---------- ----------
$ 14,389.4 $ 17,232.6
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt................................. $ 2,327.2 $ 2,550.5
Accounts payable................................................. 844.9 2,062.2
Accrued interest.................................................. 156.5 233.1
Accrued expenses.................................................. 886.3 420.4
---------- ----------
Total current liabilities...................................... 4,214.9 5,266.2
---------- ----------
LONG-TERM DEBT...................................................... 1,095.7 1,364.1
---------- ----------
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 June 30, 2000.............................. 1.6 1.6
Common stock, $.01 par value, 50,000,000 shares authorized;
7,609,581 and 8,807,112 issued and outstanding at
December 31, 1999 and June 30, 2000 respectively................. 76.1 88.1
Additional paid-in capital........................................ 37,497.0 47,038.8
Deficit accumulated during development stage...................... (28,495.9) (36,526.2)
---------- ----------
Total stockholders' equity.......................................... 9,078.8 10,602.3
---------- ----------
$ 14,389.4 $ 17,232.6
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
CARESIDE, INC.
(A development-stage company)
STATEMENTS OF OPERATIONS
(in thousands, except shares and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Period
From Inception
Three Months Ended Six Months Ended (July 10, 1996)
June 30, June 30, Through
------- -------
1999 2000 1999 2000 June 30, 2000
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
SALES, net $ - $ 245.0 $ - $ 527.7 $ 588.6
COST OF SALES.......................... - 108.9 - 251.4 282.0
---------- ---------- ---------- ---------- ----------
GROSS PROFIT........................... - 136.1 - 276.3 306.6
OPERATING EXPENSES:
Research and development............. 1,626.6 2,309.1 3,856.3 4,772.1 28,779.4
Sales and marketing.................. 117.7 998.1 269.2 1,941.8 3,480.7
General and administrative........... 277.1 633.1 535.0 1,354.5 4,014.6
---------- ---------- ---------- ---------- ----------
Operating Loss......................... (2,021.4) (3,804.2) (4,660.5) (7,792.1) (35,968.1)
INTEREST and OTHER INCOME, net......... 27.8 220.9 69.9 298.4 1,037.1
INTEREST EXPENSE....................... (381.1) (106.8) (782.8) (253.1) (1,275.1)
GOODWILL AMORTIZATION.................. - (141.7) - (283.5) (320.1)
---------- ---------- ---------- ---------- ----------
NET.................................... (2,374.7) (3,831.8) (5,373.4) (8,030.3) (36,526.2)
LOSS
DIVIDENDS ON SERIES A
PREFERRED STOCK...................... (2.8) (25.9) (2.8) (51.8) (107.0)
---------- ---------- ---------- ---------- ----------
NET LOSS TO COMMON
STOCKHOLDERS........................... $ (2,377.5) $ (3,857.7) $ (5,376.2) $ (8,082.1) $(36,633.2)
========== ========== ========== ========== ==========
BASIC AND DILUTED NET LOSS PER SHARE... $ (0.44) $ (0.44) $ (1.02) $ (0.97)
========== ========== ========== ==========
SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS PER SHARE... 5,414,010 8,797,815 5,250,086 8,332,583
========== ========== ========== ==========
</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
From Inception
Six Months Ended (July 10, 1996)
June 30, Through
----------
June 30,
1999 2000 2000
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............................................................... $(5,373.4) $(8,030.3) $(36,526.2)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization........................................ 514.5 1,356.0 3,238.9
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.......................................................... (112.7) (839.4) (1,311.5)
Accounts receivable.................................................. - (73.4) (146.8)
Prepaid expenses and other........................................... 96.0 (196.7) (299.4)
Deposits............................................................. - (9.0) (9.0)
Accounts payable..................................................... 498.9 1,217.3 2,514.3
Accrued interest..................................................... - 76.6 271.1
Accrued expenses..................................................... 109.9 (517.6) 333.1
--------- --------- ----------
Net cash used in operating activities.................................... (3,667.8) (7,016.5) (31,306.7)
--------- --------- ----------
INVESTING ACTIVITIES:
Cash acquired in purchase of Texas International Laboratories, Inc.... - - .1
Purchases of property and equipment.................................... (2,223.7) (1,651.1) (8,880.0)
--------- --------- ----------
Net cash used in investing activities.................................... (2,223.7) (1,651.1) (8,879.9)
--------- --------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............................... 1,500.0 795.4 6,389.3
Deferred offering costs................................................ - 2.3 (690.3)
Proceeds from the issuance of common stock............................. 12,978.4 9,605.6 41,201.0
Payments on long-term debt............................................. (90.2) (303.7) (527.6)
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................................ 14,388.2 10,099.6 46,524.0
--------- --------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................ 8,496.7 1,432.0 6,337.4
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 3,926.6 4,905.4 -
--------- --------- ----------
CASH & CASH EQUIVALENTS, END OF PERIOD................................... $12,423.3 $ 6,337.4 $ 6,337.4
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
CARESIDE, INC.
(a development -stage comapany)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for the three and
six months ended June 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 six months ended June 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 to 179,696 shares of common stock and 179,696 warants to
purchase share of common stock. The conversion had not taken place as of June
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 $9.6 million. These shares were
subsequently registered with the Securities and Exchange Commission in April
2000.
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 June 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.
6
<PAGE>
Note 6: REVENUE RECOGNITION
The company recognizes revenue upon shipment, except that revenue from analyzers
is not recognized until customer acceptance.
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 June 30, 2000 was
$2,000,000 and is due November 2000.
Note 8: STATEMENTS OF CASH FLOWS
During the six-month periods ended June 30, 2000 and 1999 cash paid for interest
was approximately $253,000 and $184,000 respectively. During the same periods
the company made no cash payments for income taxes.
During the six-month period ended June 30, 2000, the company accrued a dividend
of $51,787 on its Series A 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 no
non-cash investing and financing activities in the six-month period ending June
30, 1999.
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 June 30, 2000, the aggregate loss incurred was approximately $36.6 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 six months ended June 30, 2000 and
1999. It should be read in conjunction with the Interim Financial Statements of
the Company, the Notes thereto and other financial information included
elsewhere in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Sales and Cost of Sales. Sales increased to $245,000 in the second 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 $2.3 million for the three months ended June 30, 2000 from $1.6
million for the three months ended June 30, 1999. This increase of $0.7 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
$998,000 for the three months ended June 30, 2000 from $118,000 for the three
months ended June 30, 1999. This increase of $880,000 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 $633,000 for the three months ended June 30, 2000 from $277,000 for
the three months ended June 30, 1999. This increase of $356,000 is primarily
attributable to increases in information technology and legal costs.
8
<PAGE>
Interest and Other Income,net. Interest income increased to approximately
$121,000 for the three months ended June 30, 2000 compared to $28,000 for the
three months ended June 30, 1999. This increase of $93,000 is attributable to
higher average balances of cash and cash equivalents during 2000, given the
proceeds from the IPO completed in June 1999 were available for investment for a
limited portion of the second quarter ended June 30, 1999. Interest expense
decreased to $104,000 in 2000 from $381,000 in 1999 due the non-cash interest
charge incurred in 1999 associated with the costs of warrants granted to S.R.
One in connection with the conversion of outstanding debt into shares of Series
A Convertible Preferred Stock. Other income of $100,000 was recorded in the
second quarter of 2000 associated with the termination payment of the Quest
Distribution and Supply Agreement.
Goodwill. Goodwill amortization of $142,000 associated with the December 1999
acquisition of Texas International Laboratories, Inc. was recorded for the
second quarter of 2000. No such expense occurred in the prior year period.
Net Loss. Net loss increased $1.4 million to $3.8 million for the three months
ended June 30, 2000 from $2.4 million for the three months ended June 30, 1999.
This increase reflects the increase in all operating expenses.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Sales and Cost of Sales. Sales increased to $528,000 in the second quarter of
2000. 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 to $4.8 million for the first half of 2000 from $3.9 million
for the first half of 1999. This increase of $0.9 million was primarily
attributable to efforts to debug and revise the CareSide Analyzer in the first
quarter of 2000 and to support additional test submissions to the FDA.
Sales and Marketing Expenses. Sales and marketing expenses increased to $1.9
million for the first half of 2000 from $0.3 million for the first half of 1999.
This increase of $1.6 million is primarily attributable to preliminary 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 $1.4 million for the first half of 2000 from $535,000 for the first
half of 1999. This increase of $819,000 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 and other income,net increased to
approximately $198,000 for the six months ended June 30, 2000 from $70,000 for
the six months ended June 30, 1999. This increase of $128,000 is attributable
to higher average balances of cash and cash equivalents during 2000. Interest
expense decreased to approximately $253,000 for the six months ended June 30,
2000 from $783,000 for the six months ended June 30, 1999 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 $284,000 associated with the December 1999
acquisition of Texas International Laboratories, Inc. was recorded for the first
half of 2000. No such expense occurred in the prior year period.
Net Loss. The net loss increased $2.6 million to approximately $8.0 million for
the six months ended June 30, 2000 from $5.4 million during the six months ended
June 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.
9
<PAGE>
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
subsequently converted into equity securities. As of June 30, 2000, we have
received net proceeds aggregating approximately $46.5 million from these
transactions.
Net cash used in operating activities for the six months ended June 30, 2000 was
approximately $7.0 million. This amount included an increase in inventory of
$839,000, a net increase in accrued Interest and accounts payable of $1.3
million and operating losses of $7.8 million. Cash used for operations was
primarily related to funding expansion of as the expansion of marketing, sales
and administrative infrastructure. Net cash used in operating activities was
approximately $3.7 million for the six months ended June 30, 1999. For the six
months ended June 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 $1.7 million for the six months ended June 30, 2000 and $2.2
million six months ended June 30, 1999. The cash was used primarily for the
acquisition of automated manufacturing equipment and demonstration analyzers
used in marketing.
At June 30, 2000, our principal source of liquidity was approximately $6.3
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 adjusted for an index rate based on four-year
U.S. Treasury Notes at the time of borrowing.
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 to common stock. The conversion had not taken place as of June
30, 2000. All accrued and unpaid dividends with respect to shares of Series A
Convertible Preferred Stock that are being converted by S.R. One will also be
converted into share and warrant units at $7.50 per unit. The exercise price and
other terms of the warrant received on the conversion will be 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 has been reduced
from 10% to 8% as of May 1, 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 June 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.
10
<PAGE>
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. Based on the net proceeds from this
transaction, 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
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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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
12
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PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities; Changes in Securities
None
Use of Proceeds
On June 15, 1999, the Company's Registration Statement on Form S-1 (File No.
33-69207) (the "Registration Statement") was declared effective by the
Securities and Exchange Commission, which registration statement related to the
Company's initial public offering of up to 2,000,000 Units (not including the
over-allotment option granted to the underwriters). The Registration Statement
also related to the shares of Common Stock and Warrants included in such
2,000,000 Units, warrants to purchase up to 200,000 Units granted to the
representatives underwriters of the Company in the IPO, and 2,200,000 Shares of
Common Stock underlying the Warrants included in all of the Units. The managing
underwriters of the IPO were Paulson Investment Company, Inc., Millennium
Financial Group, Inc. and marion bass securities corporation. Two million Units
were sold at a public offering price of $7.50 per share, for an aggregate
offering price of $15.0 million. Expenses of the IPO were $2.6 million,
including an underwriting discount of $920,000 and other offering expenses of
$1.7, for net proceeds to the Company of $12.4 million. As of June 30, 2000,
all of the proceeds have been used for research and development and other
operating costs.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit.
(b) Reports on Form 8-K
A report on Form 8-K filed on April 20, 2000 reporting that the Company issued
press releases announcing that it had completed the equity private placement
previously discussed on January 28, 2000.
Exhibit No. Description
27.1 Financial Data Schedule
_________
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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: August 11, 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)
15
