<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-10285
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BIOMAGNETIC TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-2647755
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
9727 Pacific Heights Boulevard, San Diego, California 92121-3719
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(Address of principal executive offices) (zip code)
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(619) 453-6300
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(Registrant's telephone number, including area code)
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(Former name, former address and formal fiscal year,
if changed since last report)
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. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of August 4, 1995, Registrant had only one class of common stock of
which there were 39,910,174 shares outstanding.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
<TABLE>
<CAPTION>
June 30,
1995 September 30,
(Unaudited) 1994
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,066 $ 754
Short-term investments 8,355
Restricted cash 4,632 1,195
Accounts receivable 800 123
Inventories 3,144 2,023
Prepaid expenses and other current assets 716 468
-------- --------
Total current assets 20,713 4,563
Property and equipment 9,533 11,239
Less accumulated depreciation and amortization (7,662) (8,316)
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1,871 2,923
Restricted cash 1,100 1,422
Other assets 539 511
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Total assets $ 24,223 $ 9,419
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,062 $ 1,090
Accrued liabilities 1,382 1,057
Accrued salaries and employee benefits 540 529
Customer deposits 6,445 1,556
Notes payable to related parties 767
Short-term debt 1,678
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Total current liabilities 9,429 6,677
Other liabilities 478 459
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Total liabilities 9,907 7,136
Shareholders' Equity
Common stock -- no par value, 60,000,000 shares
authorized; 39,910,174 and 10,027,697 shares issued and
outstanding in June and September, respectively 78,412 60,658
Accumulated deficit (64,096) (58,375)
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Total shareholders' equity 14,316 2,283
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Total liabilities and shareholders' equity $ 24,223 $ 9,419
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</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
REVENUES
Product sales $ 1,581 $ 2,477 $ 5,667 $ 3,022
Contract research 3 89
Interest income 244 50 319 142
------- ------- ------ -------
Total revenues 1,828 2,527 6,075 3,164
EXPENSES
Cost of product sales 851 1,497 3,161 1,886
Contract research costs 6 97
Research and development 1,435 1,628 3,949 4,830
Marketing, general and administrative 1,145 806 3,428 2,673
Interest expense 45 20 566 50
------- ------- ------ -------
Total expenses 3,482 3,951 11,201 9,439
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NET LOSS BEFORE EXTRAORDINARY LOSS (1,654) (1,424) (5,126) (6,275)
EXTRAORDINARY LOSS FROM EXTINGUISHMENT
OF SHORT-TERM DEBT 595 595
------- ------- ------ -------
NET LOSS $(2,249) $(1,424) $(5,721) $(6,275)
======= ======= ======= =======
NET LOSS PER SHARE
Loss before extraordinary loss $(0.04) $(0.14) $(0.26) $(0.63)
Extraordinary loss (0.02) (0.03)
------- ------- ------ -------
Net loss $(0.06) $(0.14) $(0.29) $(0.63)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 38,998 10,028 19,684 9,960
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
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<CAPTION>
Nine Months Ended
June 30,
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(5,721) $(6,275)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 970 1,463
Extraordinary loss 595
Interest expense 215
Loss on asset retirements 42
Changes in operating assets & liabilities:
Restricted cash (3,115) (1,524)
Prepaid and other current assets (248) (447)
Accounts receivable (677) (725)
Inventories (930) 1,271
Accounts payable (28) 398
Accrued liabilities 519 134
Customer deposits 4,889 1,467
Changes in other operating assets and liabilities 2 (124)
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Net cash used for operating activities (3,487) (4,362)
INVESTING ACTIVITIES
Change in short-term investments (8,355) 2,633
Capital expenditures (151) (908)
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Net cash (used for) provided by investing activities (8,506) 1,725
FINANCING ACTIVITIES
Principal repayments on short-term debt (2,818) (46)
Proceeds from issuance of short-term debt 2,318 2,710
Net proceeds from sale of common stock 14,805 226
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Net cash provided by financing activities 14,305 2,890
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NET INCREASE IN CASH AND CASH EQUIVALENTS 2,312 253
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 754 541
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,066 $ 794
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</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
BIOMAGNETIC TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The unaudited condensed consolidated financial statements included herein
include the accounts of Biomagnetic Technologies, Inc. and its subsidiary (the
"Company") and have been prepared in accordance with 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. Although the Company believes that the
disclosures made in this report are adequate to make the information not
misleading, it is suggested that these financial statements be read in
connection with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended September 30,
1994.
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments, consisting only of normal recurring accruals,
necessary to present fairly its financial position at June 30, 1995 and the
results of operations and its cash flows for the periods presented.
2. Net Loss per Share
Shares used in computing net loss per share include the weighted average of
common stock outstanding. Common stock equivalents are antidilutive and are
excluded from the computation of net loss per share.
3. Inventories
The composition of inventories was as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
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<S> <C> <C>
Raw Materials $ 256,000 $ 211,000
Work-In-Process 1,695,000 1,544,000
Finished Goods 1,193,000 268,000
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$3,144,000 $2,023,000
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4. Sale of Common Stock
At the Company's Annual Meeting of Shareholders held March 24, 1995, the
shareholders approved the proposed sale of common stock to a foreign
investment group, Dassesta International S.A. ("Dassesta"). On March 31, 1995,
the Company completed the private sale of 25 million shares of newly issued
common stock to Dassesta for $15 million. At the closing of the financing
transaction the Company repaid a $1.5 million short-term loan provided by
Dassesta and $500,000 of other short-term debt.
5. Extraordinary Loss - Extinguishment of Short-Term Debt and Issuance
of Common Stock
In March and April 1995, the Company executed agreements with the holders of
$2,210,000 of short-term notes providing for the conversion of the note
principal plus accrued interest to common stock in connection with the
completion of the sale of common stock to Dassesta (See Note 4). The
conversion agreements contained similar terms to non-binding term sheets
previously negotiated with certain noteholders in November, 1994. The
conversion agreements provide for i) a 10% increase in the principal balance of
the notes for purposes of conversion to common stock, ii) issuance of common
stock at a price per share utilized in the Dassesta financing less 10% and iii)
a 10% increase in the number of shares of common stock subject to purchase
under previously issued option agreements. On April 17, 1995 the Company
issued 4,882,477 shares of common stock in accordance with the conversion
agreements. The Company recorded an extraordinary loss in April, 1995 of
approximately $595,000, representing the excess of the fair value of common
stock and additional options issued in connection with the conversion over the
net carrying value of the notes at conversion.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Biomagnetic Technologies, Inc. ("BTi") is a leader in magnetic source imaging
("MSI") and has developed the Magnes(R) system, an instrument designed to
assist in the noninvasive diagnosis of a broad range of medical disorders. The
Magnes system developed by the Company uses advanced superconductor technology
to measure and locate the source of magnetic fields created by the human body.
While traditional medical imaging methods provide anatomical detail, the
measurement of the body's magnetic fields by MSI provides information about
normal and abnormal functions of the brain, heart and other organs. The
Company is focusing the development of its technology on potentially large
commercial market applications such as brain surgery, the diagnosis and
surgical planning for treatment of epilepsy and life-threatening cardiac
arrhythmias.
Results of Operations
Revenues for the third quarter of fiscal 1995 were $1,828,0000 compared to
$2,527,000 for the third quarter of fiscal 1994, and the net loss was
$2,249,000 compared to a net loss of $1,424,000 for the comparable period last
fiscal year. Revenues for the quarter were lower primarily due to the reduced
price associated with the sale of a Magnes system previously used for research
purposes versus the sale of a new Magnes system in the comparable quarter in
fiscal 1994. The increase in the net loss resulted primarily from lower
revenues and the $595,000 extraordinary loss resulting from the extinguishment
of short-term debt and conversion to equity during the quarter (See Note 5 of
the Notes to Condensed Consolidated Financial Statements). Also contributing
to the increase in net loss for the quarter were higher administrative expenses
and higher sales and marketing expenses, the later primarily a result of the
transfer of several people from research and development projects to sales
support and marketing activities.
Revenues for the first nine months of fiscal 1995 were $6,075,000 compared to
$3,164,000 for the first nine months of fiscal 1994. The net loss for the same
periods was $5,721,000 and $6,275,000, respectively. The increase in revenues
resulted primarily from Magnes system and Magnes component sales compared to a
smaller volume of such sales in first three quarters of fiscal 1994. The
decline in net loss for the nine-month period was primarily due to higher
product sales and lower research and development expenses, offset by
non-recurring interest expense from short-term debt financing and the
extraordinary loss from the extinguishment of short- term debt and conversion
to equity discussed above.
The gross margin on product sales was 46% for the third quarter and 44% for the
first nine months of fiscal 1995 compared to 40% and 38%, respectively, for the
corresponding periods in fiscal 1994. Margins overall were improved from
volume related manufacturing efficiencies and reductions in product costs.
Research and development expenses were $1,435,000 and $3,949,000 for the
three-month and nine-month periods ended June 30, 1995. These amounts
represent a 12% decrease for the quarter and a 18% decrease for the nine-month
period compared to the same periods in the prior fiscal year. The decline for
both periods was primarily due to lower overhead costs associated with research
and development activities and the transfer of several people from research
and development projects to sales support and marketing activities. The decline
in research and development expenses for the quarter and nine-month period was
partially offset by increases in materials spending.
Marketing and general and administrative expenses increased by $339,000 for the
third quarter of fiscal 1995 compared to the third quarter of fiscal 1994. The
increase for the first nine months of fiscal 1995 was $755,000 versus the same
period last year. The current quarter and nine-month combined increase in
marketing and general and administrative expenses resulted primarily from the
transfer of personnel noted above, increased expenditures for sales support and
marketing activities and increases in administrative personnel expenses.
Order backlog for the Company's products at June 30, 1995 was $9,263,000, of
which $2,775,000 is expected to be recognized as revenue in fiscal 1995 based
upon expected installation completion. Order backlog was $3,345,000 at June
30, 1994. The increase in backlog is primarily attributable to an increase in
orders for Magnes systems.
6
<PAGE> 7
Liquidity and Capital Resources
As of June 30, 1995 the Company had available working capital of $11,284,000,
an increase of 13,398,000 from September 30, 1994. Cash, cash equivalents
and investments totaled $11,421,000 at June 30, 1995. The increase in working
capital, cash and cash equivalents and investments primarily reflects the
completion of the $15 million private sale of newly issued common stock to
Dassesta International S.A. and was partially offset by the use of working
capital to fund operations. Additionally, the conversion of $2.2 million of
short-term debt to common stock completed in April resulted in an addition to
working capital during the quarter (See Note 5 of the Notes to Condensed
Consolidated Financial Statements). At June 30, 1995 customer deposits
totaling $4,632,000 were used to secure bank guarantees issued to customers and
were therefore classified as restricted cash.
Based on the Company's current operating plans, capital and working capital
expenditures necessary to support the further development and commercialization
of the Company's products are expected to exceed cash generated from operations
and to result in a decline in the Company's liquidity. The Company anticipates
that the net proceeds from the Dassesta financing together with existing
working capital and gross margins realized from product sales will be adequate
to finance its operations and working capital needs through at least fiscal
1996.
7
<PAGE> 8
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
The Company issued 4,882,477 shares of newly issued shares of common stock to
certain holders of short-term debt on April 17, 1995. See Notes 4 & 5 of the
Notes to Condensed Consolidated Financial Statements in Part I.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K.
A Form 8-K report was filed on April 5, 1995 regarding the shareholder approval
of the increase in the number of authorized shares of common stock of the
Company and approval of the sale of 25,000,000 shares of common stock to a
foreign investment group. On April 14, 1995 the Company filed a Form 8-K
report noting the completion of the sale of 25,000,000 shares to a foreign
investment group for $15,000,000.
8
<PAGE> 9
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 thereunto duly authorized.
BIOMAGNETIC TECHNOLOGIES, INC.
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<S> <C>
Date August 11, 1995 /S/ James V. Schumacher
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James V. Schumacher
President and C.E.O. (Principal Executive Officer)
Date August 11, 1995 /S/ Herman Bergman
------------------------- ---------------------------------------------------
Herman Bergman
Acting Chief Financial Officer
(Principal Financial Officer)
</TABLE>
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 3,066
<SECURITIES> 8,355
<RECEIVABLES> 800
<ALLOWANCES> 0
<INVENTORY> 3,144
<CURRENT-ASSETS> 20,713
<PP&E> 9,533
<DEPRECIATION> 7,662
<TOTAL-ASSETS> 24,223
<CURRENT-LIABILITIES> 9,429
<BONDS> 0
<COMMON> 78,412
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,223
<SALES> 5,667
<TOTAL-REVENUES> 6,075
<CGS> 3,161
<TOTAL-COSTS> 3,258
<OTHER-EXPENSES> 7,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 566
<INCOME-PRETAX> (5,126)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,126)
<DISCONTINUED> 0
<EXTRAORDINARY> 595
<CHANGES> 0
<NET-INCOME> (5,721)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
