[DESCRIPTION] FORM 10-Q
<PAGE>
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 March 31, 1996
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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____________________
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)
California 95-2647755
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
9727 Pacific Heights Boulevard
San Diego, California 92121-3719
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(Address of principal executive offices) (zip code)
(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 April 1, 1996 Registrant had only one class of common stock of which
there were 39,936,939 shares outstanding.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1996 SEPTEMBER 30,
(UNAUDITED) 1995
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,059 $ 2,314
Short-term investments 6,447 10,516
Accounts receivable 667 775
Inventories 3,445 2,477
Prepaid expenses and other current assets 300 456
----------- ------------
Total current assets 11,918 16,538
Property and equipment 10,252 9,819
Less accumulated depreciation and amortization (8,189) (7,894)
----------- ------------
2,063 1,925
Restricted cash 1,100 1,100
Other assets 622 562
----------- ------------
Total assets $ 15,703 $ 20,125
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 648 $ 787
Accrued liabilities 780 1,000
Accrued salaries and employee benefits 672 611
Customer deposits 5,911 3,856
Income taxes payable 9 9
----------- ------------
Total current liabilities 8,020 6,263
Other liabilities 525 493
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Total liabilities 8,545 6,756
SHAREHOLDERS' EQUITY
Common stock -- no par value, 60,000,000 shares
authorized; 39,936,939 and 39,921,174 shares issued and
outstanding in March and September, respectively 78,427 78,416
Accumulated deficit (71,269) (65,048)
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Total shareholders' equity 7,158 13,368
----------- ------------
Total liabilities and shareholders' equity $ 15,703 $ 20,124
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES
Product sales $ 186 $ 1,367 $ 221 $ 4,086
Contract research 29 40 29 86
Interest income 125 44 285 75
-------- ------- ------- -------
Total revenues 340 1,451 535 4,247
EXPENSES
Cost of product sales 173 833 601 2,310
Contract research costs 30 43 32 91
Research and development 1,956 1,263 3,478 2,514
Marketing, general and
administrative 1,327 1,190 2,635 2,283
Interest expense 2 285 10 521
-------- ------- ------- -------
Total expenses 3,488 3,614 6,756 7,719
-------- ------- ------- -------
NET LOSS $(3,148) $(2,163) $(6,221) $(3,472)
======== ======= ======= =======
NET LOSS PER SHARE $ (0.08) $ (0.21) $ (0.16) $ (0.34)
======== ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 39,935 10,305 39,929 10,165
======== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(6,221) $(3,472)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 459 671
Interest expense 9 199
Changes in operating assets & liabilities:
Restricted cash 0 (2,753)
Prepaid and other current assets 156 47
Accounts receivable 108 (179)
Inventories (968) (332)
Accounts payable (139) (183)
Accrued liabilities (220) 720
Customer deposits 2,055 2,891
Changes in other operating assets and liabilities 24 64
-------- --------
Net cash used for operating activities (4,737) (2,327)
INVESTING ACTIVITIES
Change in short-term investments 4,069 (7,856)
Capital expenditures (598) (37)
-------- --------
Net cash (used for) provided by investing
activities 3,471 (7,893)
FINANCING ACTIVITIES
Principal repayments on short-term debt 0 (2,000)
Proceeds from short-term borrowing 0 2,318
Proceeds from sale of common stock 11 14,810
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Net cash provided by (used for)
financing activities 11 15,128
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,255) 4,908
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,314 754
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,059 $ 5,662
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
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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,
1995.
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 March 31, 1996 and the
results of operations and its cash flows for the periods presented.
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
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 is as follows:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
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<S> <C> <C>
Raw materials $ 457 $ 236
Work-in process 2,282 1,620
Finished goods 706 621
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$3,445 $2,477
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</TABLE>
4. Magnes(R) Whole Head System Production and Delivery Risk
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The Company's backlog at March 31, 1996 amounted to $11,959,000 and is composed
primarily of orders for the new Magnes 2500 Whole Head Magnetic Source Imaging
System ("Magnes 2500 WH"). As of March 31, 1996, the engineering development of
the Magnes 2500 WH was not complete, and therefore, no system shipments took
place in the second quarter. System shipments which were previously planned to
commence in the third quarter of the current fiscal year, may be further delayed
depending on completion of engineering development.
Although significant effort is being expended to complete the engineering
development so that shipments can commence in the third quarter of fiscal 1996,
there can be no assurance that this will be accomplished. In such event
shipments could be further delayed, which could have a material adverse effect
on the Company's cash flow and cash resources. The Company incurred a net loss
of $3,148,000 for the quarter ended March 31, 1996, and $6,221,000 for the first
six months of the fiscal year and has an accumulated loss of $71,252,000 as of
March 31, 1996. The Company anticipates that capital and working capital
expenditures in fiscal 1996 will substantially exceed cash generated from
operations. However, the Company anticipates that existing capital resources
together with its potential ability to borrow on a short-term basis will be
sufficient to complete development of the Magnes 2500 WH and to provide
operating capital required to meet its obligations in the normal course of
business through fiscal year 1996.
<PAGE>
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 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
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Total revenues for the second quarter of fiscal 1996 were $340,0000 compared to
$1,451,000 for the second quarter of fiscal 1995. Net loss in the second quarter
of fiscal 1996 amounted to $3,148,000 compared to a net loss of $2,163,000 for
the comparable period in the prior fiscal year. The lower revenues for the
quarter resulted from the lack of Magnes 2500 WH system shipments, whereas in
the prior year's second quarter the Company shipped a Magnes I system.
Revenues for the first six months of fiscal 1996 amounted to $535,000 compared
to $4,247,000 for the first six months of the prior fiscal year 1995. The net
loss for the same periods was $6,221,000, and $3,472,000, respectively. The
revenue for the first six months of fiscal 1996 resulted entirely of the sale of
Magnes components and service income whereas in the first six months of fiscal
1995 the Company's revenue included the shipment and sale of one Magnes I and
one Magnes II system as well as related components and service billings.
Research and development expenses amounted to $1,956,000 and $3,478,000 for the
three and six month periods ended March 31, 1996. In fiscal year 1995 these
expenses amounted to $1,263,000 and $2,514,000 respectively, for the comparable
periods. The increase is entirely due to acceleration of research and
development expenses required to complete the development of the Magnes 2500 WH
system.
Marketing, general and administrative expenses which amounted to $1,327,000 in
the second quarter of fiscal 1996, increased by $137,000 versus the comparable
period in fiscal 1995. For the six months of fiscal 1996 these expenses amounted
to $2,635,000 an increase of $352,000 versus the same period last year. The
current quarter and first half year increases resulted primarily from higher
sales support and marketing expense.
Order backlog for the Company's products at March 31, 1996 was $11,959,000, as
compared to $10,803,000 at March 31, 1995. Of the $11,959,000 backlog
consisting almost entirely of Magnes 2500WH systems, the Company had previously
anticipated shipping approximately $8,000,000 by September 30, 1996. However,
due to the fact that completion of engineering development of the Magnes 2500 WH
is delayed, it is currently more likely that a lower amount of backlog will be
liquidated through shipments by September 30, 1996, the end of the current
fiscal year. The amount which will be shipped can not be determined at this
time because it is entirely dependent on completion of development efforts for
the new Magnes 2500 WH system. As sales of the Company's products typically
involve transactions of $1.0 million or more, the backlog is expected to
fluctuate significantly from period to period depending upon orders received and
product installations completed during the reporting period.
<PAGE>
Liquidity, Capital Resources and Other Risk Factors
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At March 31, 1996 the Company had net working capital of $3,891,000, a decrease
of $3,308,000 from the end of the first quarter of the current fiscal year, and
a decrease of $6,383,000 from the September 30, 1995 net working capital postion
of $10,274,000. The decline primarily reflects the use of working capital to
fund operations during the development of the new Magnes 2500 WH system.
Current assets at March 31, 1996 include customer deposits totaling $5,910,000,
of which $3,226,000 is secured by standby letters of credit through a credit
facility with a bank.
Based on the Company's current operating plans, capital and working capital
expenditures necessary to support the completion of engineering development, and
production of the Company's products through September 30, 1996 are expected to
substantially exceed cash generated from operations and will result in a further
decline in the Company's liquidity. As of March 31, 1996 the development of the
Magnes 2500 WH was not complete. Therefore, the Company's prior anticipation
that production shipments would commence in the third quarter of the current
fiscal year may not materialize. The delay is the result of additional
engineering efforts and time required to complete the development for the
production and shipment of the new systems, for which the company has a backlog
of approximately $11,959,000 as of March 31, 1996.
The Company believes that the Magnes 2500 WH development will be completed in
fiscal year 1996. Although significant effort is being expended to complete the
engineering development so that production shipments can commence prior to the
end of fiscal 1996, there can be no assurance that this will be accomplished.
In the event such development is not completed as anticipated, shipments could
be further delayed with negative effects on the cash flow and cash resources of
the Company. This would necessitate the borrowing of working capital prior to
the end of the fiscal year, since $3,226,000 of customer deposits are secured
and are, therefore, not available to be used as working capital until such time
as system shipments take place, are installed and accepted by the customer, and
the customer deposit guarantees are released. The Company nevertheless,
anticipates that existing capital resources together with its potential ability
to borrow on a short-term basis will be sufficient to complete development of
the Magnes 2500WH and to provide operating capital required to meet its
obligations in the normal course of business through fiscal year 1996.
The Company's ability to meet its expected cash needs beyond fiscal 1996 will
depend on a number of factors, including the market's acceptance and sales of
the Magnes WH system, which cannot be accurately predicted at this time. The
Company may also attempt to obtain additional sources of funding through
government grants and strategic alliances with other entities. However, there
can be no assurance that additional funds will be available when needed and on
terms favorable to the Company, that grant applications will be approved or
funded, that applications of the Company's technology will be successfully
developed or that any agreements will be reached related to strategic alliances.
Should additional funding not be available, the Company would be required to
significantly reduce the scope of its operations.
To date the Company has been engaged principally in research and development
activities, and has made only low volume clinical/commecial sales to research
and medical institutions primarily in Europe and Japan, and has not made any
MSI system sales for commercial use in the U.S. Such sales require prior U.S.
Food and Drug Administration ("FDA") approval. The Company has secured FDA
approval for its Magnes I system, has applied for, but not yet received,
approval to market its Magnes II system in the U.S. and is planning to apply for
FDA approval for its Magnes 2500 WH System in the near future. There can,
however, be no assurance that the Company will receive such approval in the near
future or at all, which would permit the marketing of the Magnes II and the new
Magnes 2500 WH system in the United States for clinical use.
The Company is dependent on its Magnes systems as its principal product for
which there are currently few demonstrated clinical applications. Additional
clinical applications development needs to be conducted with the MSI system at
major medical centers before the Company can begin to penetrate the commercial
clinical market. There can be no assurance that a market will develop for
diagnostic or monitoring uses of the MSI system.
The Company's commercial success is highly dependent on the availability of
reimbursment for procedures using its MSI system. Reimbursement is not
currently provided for such procedures by the United States government, nor is
there any assurance that the U.S. government will authorize or budget for such
procedures in the future. To date reimbursements from third-party payors are on
a case-by-case basis. As of April 25, 1996, and since the initial payment in
September 1993, there have been a total of 115 reimbursements from 70 different
third party payors in the U.S. Although the increase in the number of third
party payors making reimbursements has
<PAGE>
increased by approximately 43% from the September 30, 1995 total of 49 payors,
there is no assurance that third party reimbusements will become more widely
available. The Company also cannot predict what legislation relating to its
business or the health care industry may be enacted in the future, including
legislation relating to third party reimbursement, or what effect such
legislation may have on the results of its operations.
The Company operates in an industry characterized by rapid technological change.
New products using other technologies or improvement of existing products may
reduce the size of the potential markets for the Company's products, and may
render them obsolete or non-competitive by competitors' development of new or
different products using technology or imaging modalities that may provide or be
perceived as providing greater value than the Company's products.
<PAGE>
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.
May 3, 1996 /S/ James V. Schumacher
Date __________________ ____________________________
James V. Schumacher
President and C.E.O. (Principal Executive Officer)
May 3, 1996 /S/ Herman Bergman
Date ___________________ ____________________________
Herman Bergman
Acting Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET & STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,059
<SECURITIES> 6,447
<RECEIVABLES> 667
<ALLOWANCES> 0
<INVENTORY> 3,445
<CURRENT-ASSETS> 11,918
<PP&E> 10,252
<DEPRECIATION> 8,189
<TOTAL-ASSETS> 15,703
<CURRENT-LIABILITIES> 8,020
<BONDS> 0
0
0
<COMMON> 78,427
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,703
<SALES> 221
<TOTAL-REVENUES> 535
<CGS> 601
<TOTAL-COSTS> 633
<OTHER-EXPENSES> 6,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (6,221)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,221)
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0
</TABLE>
