<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 June 30, 1996
-----------------------------------------------
[_] 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
------------------------------------------------------
BIOMAGNETIC TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-2647755
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9727 Pacific Heights Boulevard, 92121-3719
San Diego, California
- ------------------------------------------------------------------------------
(Address of principal (zip code)
executive offices)
(619) 453-6300
Registrant's telephone number, including area code)
(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
As of July 1, 1996 Registrant had only one class of common stock of which
there were 39,963,222 shares outstanding.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1996 SEPTEMBER 30,
(UNAUDITED) 1995
------------ -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,887 $ 2,314
Short-term investments 4,116 $ 10,516
Accounts receivable 14 775
Inventories 4,707 2,477
Prepaid expenses and other current assets 346 456
------------ -------------
Total current assets 11,070 16,538
Property and equipment 10,339 9,819
Less accumulated depreciation and amortization (8,436) (7,894)
------------ -------------
1,903 1,925
Restricted cash 1,100 1,100
Other assets 537 562
------------ -------------
Total assets $ 14,610 $ 20,125
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,407 $ 787
Accrued liabilities 603 1,000
Accrued salaries and employee benefits 640 611
Customer deposits 7,177 3,856
Income taxes payable 9 9
------------ -------------
Total current liabilities 9,836 6,263
Other liabilities 534 493
------------ -------------
Total liabilities 10,370 6,756
SHAREHOLDERS' EQUITY
Common stock -- no par value, 60,000,000 shares
authorized; 39,963,222 and 39,921,174 shares issued and
outstanding in June and September, respectively 78,030 78,416
Purchase option 431
Accumulated deficit (74,221) (65,048)
------------ -------------
Total shareholders' equity 4,240 13,368
------------ -------------
Total liabilities and shareholders' equity $ 14,610 $ 20,124
============ =============
</TABLE>
See notes to financial statements.
2
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENDSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Product sales $ 224 $ 1,581 $ 445 $ 5,667
Contract research 0 3 29 89
Interest income 106 244 391 319
---------- ---------- ---------- ----------
Total revenues 330 1,828 865 6,075
EXPENSES
Cost of product sales 358 851 959 3,161
Contract research costs 0 6 32 97
Research and development 1,570 1,435 5,048 3,949
Marketing, general and
administrative 1,353 1,145 3,988 3,428
Interest expense 0 45 10 566
---------- ---------- ---------- ----------
Total expenses 3,281 3,482 10,037 11,201
NET LOSS BEFORE EXTRAORDINARY LOSS (2,951) (1,654) (9,172) (5,126)
EXTRAORDINARY LOSS FROM
EXTINGUISHMENT OF SHORT TERM DEBT 595 0 595
Provision for income taxes 1 1
---------- ---------- ---------- ----------
NET LOSS $ (2,952) $ (2,249) $ (9,173) $ (5,721)
========== ========== ========== ==========
NET LOSS PER SHARE
Loss before extraordinary loss $ (0.07) $ (0.04) $ (0.23) $ (0.26)
Extraordinary loss 0.00 (0.02) 0.00 (0.03)
Net loss $ (0.07) $ (0.06) $ (0.23) $ (0.29)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 39,944 38,998 39,963 19,684
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (9,173) $ (5,721)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 733 970
Extraordinary loss 0 595
Interest expense (381) 215
Loss on asset retirements 229 42
Changes in operating assets & liabilities:
Restricted cash 0 (3,115)
Prepaid and other current assets 110 (248)
Accounts receivable 761 (677)
Inventories (2,230) (930)
Accounts payable 620 (28)
Accrued liabilities (397) 519
Customer deposits 3,321 4,889
Changes in other operating assets and liabilities 66 2
---------- ----------
Net cash used for operating activities (6,341) (3,487)
INVESTING ACTIVITIES
Change in short-term investments 6,400 (8,355)
Capital expenditures (520) (151)
---------- ----------
Net cash (used for) provided by investing activities 5,880 (8,506)
FINANCING ACTIVITIES
Principal repayments on short-term debt 0 (2,818)
Proceeds from short-term borrowing 0 2,318
Proceeds from sale of common stock 34 14,805
---------- ----------
Net cash provided by (used for ) financing activities 34 14,305
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (427) 2,312
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,314 754
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,887 $ 3,066
---------- ----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
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,
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 June 30, 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>
June 30, September 30,
1996 1995
-------- -------------
<S> <C> <C>
Raw materials $ 677 $ 236
Work-in process 3,307 1,620
Finished goods 723 621
------ ------
$4,707 $2,477
====== ======
</TABLE>
4. Magnes(R) Whole Head System Production and Delivery Risk
--------------------------------------------------------
The Company's backlog at June 30, 1996 amounted to $14,345,000 and is composed
primarily of orders for the new Magnes 2500 Whole Head Magnetic Source Imaging
System ("Magnes 2500 WH"). Included in this June 30, 1996 backlog is a Magnes
2500 WH system for the Texas Center for Neurosurgery at Hermann Hospital in
Houston, Texas ("Hermann Hospital"), a major epilepsy center in the United
States for both research and clinical applications. The Company's receipt of
United States Food and Drug Administration ("FDA") clearance of its pending
510(k) premarket notification is required prior to shipment. The Hermann
Hospital contract requires that such FDA clearance be obtained prior to December
1, 1996, and that Hermann Hospital make a significant cash downpayment into an
escrow account prior to September 30, 1996. The escrow funds are required to
be released to the Company upon completion of installation of the system at
Hermann Hospital. Also included in the $14,345,000 backlog as of June 30, 1996
is an order for a new magnetic source imaging system to be installed at the
EFMT-Research and Development Center for Microtherapy in Bochum, Germany. This
is the Company's first order for a system specifically designed for Cardiac
applications.
5
<PAGE>
The Company has recently obtained clearance of a 510(k) premarket notification
for its Magnes II systems from the FDA and has applied for clearance of a 510(k)
premarket notification for its Magnes 2500 WH system. Although the Hermann
Hospital contract is cancellable if FDA clearance of the Company's 510(k)
premarket notification for the Company's Magnes 2500 WH system is not obtained
by December 1, 1996, and although there can be no assurance that such clearance
will be obtained by the Company by December 1, 1996, this date may be extended,
if necessay, solely at the option of the Hermann Hospital, to enable the Company
to complete this contract with Hermann Hospital. There is, however, no
assurance that such extension will be granted by Hermann Hospital.
As of June 30, 1996, engineering development of the Magnes 2500 WH was not
complete, and therefore, no production system shipments took place in the third
quarter. System shipments to customers' which were previously planned to
commence in the third quarter of the current fiscal year, have been further
delayed pending completion of engineering development. The Company is
currently planning to commence shipments of the Magnes 2500WH in its current
backlog prior to the end of the fourth quarter. As the Company generally
recognizes revenues on a contract only after customer acceptance of the system,
there is a delay varying typically from one month to three or more months from
the time shipment takes place and the system is installed at the customer site,
tested and adjusted and acceptance is obtained from the customer before revenue
is recognized by the Company.
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
- ---------------------
Total revenues for the third quarter of fiscal 1996 were $330,000, including
$106,000 of interest income compared to $1,828,000 including $244,000 of
interest income for the third quarter of fiscal 1995. Net loss in the third
quarter of fiscal 1996 amounted to $2,952,000 compared to a net loss of
$2,249,000 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 third quarter the Company shipped a
complete Magnes II system, plus additional Magnes II system components.
Total revenues for the first nine months of fiscal 1996 amounted to $865,000
including $391,000 of interest income compared to $6,075,000 including $319,000
of interest income for the first nine months of the prior fiscal year 1995. The
net loss for the same periods was $9,173,000, and $5,721,000, respectively.
Revenue for the first nine months of fiscal 1996 resulted from the sale of
Magnes components and service income plus interest income whereas in the first
nine months of fiscal 1995 revenues included the shipment and sale of two Magnes
II systems, one Magnes I system, as well as related Magnes II components, and
service billings and interest income.
Research and development expenses amounted to $1,570,000 and $5,048,000 for the
three and nine month periods ended June 30, 1996. In fiscal year 1995 these
expenses amounted to $1,435,000 and $3,949,000 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.
6
<PAGE>
Marketing, general and administrative expenses increased by $208,000 to
$1,353,000 in the third quarter of fiscal 1996, versus $1,145,000 in the
comparable period in fiscal 1995. For the first nine months of fiscal 1996 these
expenses amounted to $3,988,000 an increase of $560,000, versus $3,428,000 in
the same period last year. The current quarter and first nine months increases
resulted primarily from higher sales support and marketing expense.
Order backlog for the Company's products at June 30, 1996 was $14,345,000 as
compared to $9,263,000 at June 30, 1995. The Company had previously anticipated
shipping approximately $8,000,000 of the current backlog by September 30, 1996.
However, due to the fact that completion of engineering development of the
Magnes 2500 WH is delayed, it is currently anticipated that a significantly
lower, amount of backlog, if any, will be liquidated through shipments and
customer acceptance by September 30, 1996, the end of the current fiscal year.
The amount which will be shipped and accepted by customers so that the Company
can recognize revenue 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 as well as customer acceptances obtained during the reporting period.
During the third week of June, and prior to the end of the third fiscal quarter,
the Company installed its prototype Magnes 2500 WH at Scripps Clinic and
Research Foundation ("Scripps") which replaced a Magnes II system previously
located at this site. Scripps serves as a site both for testing of this new
system prior to commencement of shipment to customers as well as a site for
application development. The prototype Magnes 2500 WH, although not a
production system, is currently in experimental use at Scripps for research and
brain mapping of epilepsy patients. Based on the first studies using the
prototype, the Magnes 2500 WH is able to eliminate multiple probe placements,
thereby reducing the exam time by as much as 75%. Accordingly, although
sufficient consistent data type have not been accumulated to date, there is
indication that the use of the new Magnes 2500 WH may potentially speed up
patient through-put as compared to the Magnes II system and therefore, this new
Magnes 2500 WH could be more economical to operate in a clinical environment.
However, there can be no assurance at this time that this will be the case.
The Company incurred a net loss of $2,952,000 for the quarter ended June 30,
1996, and $9,174,000 for the first nine months of the fiscal year and has an
accumulated loss of $74,221,000 as of June 30, 1996. The Company anticipates
that capital and working capital expenditures in fiscal year 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 both 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. See-
Liquidity, Capital Resouces and other Risk Factors.
Liquidity, Capital Resources and Other Risk Factors
- ---------------------------------------------------
At June 30, 1996 the Company had net working capital of $1,234,000, a decrease
of $2,657,000 from net working capital of $3,891,000 at the end of the second
quarter of the current fiscal year, and a decrease of $9,041,000 from the
September 30, 1995 net working capital position of $10,275,000. The declines
primarily reflect the use of working capital to fund operations during the
development of the new Magnes 2500 WH system.
Current liabilities at June 30, 1996 of $9,836,000 include customer deposits
totaling $7,177,000, of which $3,140,000 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 June 30, 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 has not materialized. The delay is the result of additional
engineering effort 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 $14,345,000 as of June 30, 1996.
7
<PAGE>
During July 1996, the Company completed negotiations with a principal
shareholder, Dassesta International S.A., for an unsecured working capital loan
of $3,000,000. This advance loan, which matures six months after execution of
the note, which is anticipated to take place prior to August 15, 1996, bears
interest at 9% per annum. The principal amount of the loan, and any accrued
interest thereon , is convertible at the option of the Company into common stock
at any time during the six months at $.40 per share, and is convertible at the
option of the Note holder at the end of the six months or upon default under the
note at the same rate of $.40 per share. Dassesta also has the right to convert
the principal amount of the loan and any accrued interest thereon, into common
stock at $.40 per share if there is a change in the control of the Company
during the term of the loan. The Company, however, has presently no reason to
anticipate that a change in control of the Company will take place during this
six months period.
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 2500 WH system, as well as the Company's ability to raise working
capital, as may be needed, all of 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.
Risk Factors
- ------------
The Company believes that the Magnes 2500 WH development will be completed in
fiscal year 1996. Although significant effort continues to be expended to
complete the engineering development so that production shipments can commence
prior to the end of fiscal 1996, and that such shipments will be accepted by any
customer prior to the end of fiscal year 1996, there can be no assurance that
this will be accomplished. In the event such development is not completed as
anticipated, shipments and customer acceptances could be further delayed, which
could have a material adverse effect on the cash flow and cash resources.
Furthermore, the Company generally recognizes revenues on a contract only after
customer acceptance of the system. Thus, there is a delay varying typically
from one month to three or more months from the time shipment takes place and
the system is installed at the customer site, tested and adjusted and acceptance
is obtained from the customer before revenue is recognized by the Company.
This would necessitate the borrowing of working capital prior to the end of the
fiscal year, since $3,140,000 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.
To date the Company has been engaged principally in research and development
activities, and has made only low volume sales to research and medical
institutions primarily in Europe and Japan, and has not made any MSI system
sales for commercial/clinical use in the U.S. Such sales require prior FDA
approval. The Company has secured FDA approval for its Magnes I System, has
received 510(k) clearance to market its Magnes II System in the U.S., and has
recently applied for 510(k) clearance for its Magnes 2500 WH system. There can,
however, be no assurance that the Company will receive such approval in the near
future or at all.
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.
8
<PAGE>
The Company's commercial success is highly dependent on the availability of
reimbursment for procedures using its MSI system. in the future. To date
reimbursements from third-party payors are on a case-by-case basis. As of June
30, 1996, and since the initial payment in September 1993, there have been a
total of 131 reimbursements from 73 different third party payors in the U.S.
Although the number of third party payors making reimbursements has increased
by approximately 49% from the September 30, 1995 total of 49 payors, there is no
assurance that third party reimbusements will become more widely available.
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. 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.
Additionally, there has been recently, and continues to be, ongoing significant
price competition from the Company's competitors for the currently limited
number of whole head systems being purchased worldwide. This aggessive
competition is likely to affect potential profitability of the Company's whole
head system, the extent to which is not presently determinable.
9
<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.
/s/ JAMES V. SCHUMACHER
Date August 5, 1996
-----------------------------
James V. Schumacher
President and C.E.O.
(Principal Executive Officer)
/s/ HERMAN BERGMAN
Date August 5, 1996
-----------------------------
Herman Bergman
Vice President Finance,
Chief Financial Officer
(Principal Financial Officer)
10
<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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,887
<SECURITIES> 4,116
<RECEIVABLES> 14
<ALLOWANCES> 0
<INVENTORY> 4,707
<CURRENT-ASSETS> 11,070
<PP&E> 10,339
<DEPRECIATION> 8,436
<TOTAL-ASSETS> 14,610
<CURRENT-LIABILITIES> 9,836
<BONDS> 0
0
0
<COMMON> 78,461
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,610
<SALES> 445
<TOTAL-REVENUES> 865
<CGS> 959
<TOTAL-COSTS> 991
<OTHER-EXPENSES> 9,036
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (9,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,172)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
</TABLE>
