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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, 1998
-------------------------------------------
[ ] 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.
(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, SAN DIEGO, CALIFORNIA 92121-3719
(Address of principal executive offices) (zip code)
(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
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 10, 1998 Registrant had only one class of common stock of
which there were 83,367,112 shares outstanding.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
(UNAUDITED)
----------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 245 $ 1,229
Restricted cash and short-term investments 127 500
Accounts receivable, less allowance for
doubtful accounts of $10 952 398
Inventories 2,677 2,388
Prepaid expenses and other current assets 185 270
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Total current assets 4,186 4,785
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Net property and equipment 419 526
Investment in Magnesensors 160 160
Restricted cash 199 192
Other assets 332 339
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TOTAL ASSETS $ 5,296 $ 6,002
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable $1,107 $ 1,341
Accrued liabilities 963 934
Accrued salaries and employee benefits 375 512
Customer deposits 2,109 2,172
Deferred revenue 441 1,135
Note payable to shareholder 1,500 975
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Total current liabilities 6,495 7,069
Other long-term liabilities 172 219
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Total liabilities 6,667 7,288
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SHAREHOLDERS' DEFICIT
Common stock -- no par value, 100,000,000 shares
authorized; 53,367,112 and 47,720,887 shares
issued and outstanding in June and September,
respectively 84,392 81,569
Additional paid-in capital 3,000 3,000
Accumulated deficit (88,763) (85,855)
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Total shareholders' deficit (1,371) (1,286)
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 5,296 $ 6,002
------- -------
------- -------
</TABLE>
See notes to consolidated condensed financial statements.
2
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BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------ ------ -------- -------
<S> <C> <C> <C> <C>
REVENUES
Product $ 416 $ 5,198 $ 2,040 $ 6,733
Product services 127 91 467 278
Contract research 73 - 169 -
------- ------- ------- -------
616 5,289 2,676 7,011
COST OF REVENUES
Product 232 2,857 1,508 3,941
Product services 107 47 254 119
Contract research 74 - 165 -
------- ------- ------- -------
413 2,904 1,927 4,060
------- ------- ------- -------
GROSS MARGIN 203 2,385 749 2,951
------- ------- ------- -------
OPERATING EXPENSES
Research and development 501 819 1,177 2,706
Marketing, general and administrative 644 1,083 2,426 3,508
------- ------- ------- -------
1,145 1,902 3,603 6,214
------- ------- ------- -------
OPERATING INCOME (LOSS) (942) 483 (2,854) (3,263)
Interest expense (34) (7) (63) (2,327)
Interest income 16 36 46 214
Other income (expense), net (66) 254 (37) 349
------- ------- ------- -------
NET INCOME (LOSS) $(1,026) $766 $(2,908) $(5,027)
------- ------- ------- -------
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.02) $ 0.02 $ (0.06) $ (0.11)
------- ------- ------- -------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 53,367 47,692 51,508 45,119
------- ------- ------- -------
</TABLE>
See notes to consolidated condensed financial statements.
3
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BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,908) $(5,027)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 146 342
Gain on disposition of assets - (5)
Interest cost for conversion feature of note
payable to shareholder - 2,250
Changes in operating assets and liabilities:
Restricted cash 366 4,949
Prepaid expenses and other current assets 85 (100)
Accounts receivable (554) (421)
Inventories (289) 1,374
Accounts payable (15) (138)
Accrued liabilities (70) (848)
Customer deposits (63) (4,286)
Deferred revenue (694) 90
Changes in other operating assets and liabilities (40) (117)
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Net cash used in operating activities (4,036) (1,937)
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INVESTING ACTIVITIES
Investment in Magnesensors - (80)
Change in short-term investments - 744
Payments for property and equipment (39) (65)
Proceeds from sale of assets - 26
------- -------
Net cash provided by (used in) investing activities (39) 625
------- -------
FINANCING ACTIVITIES
Proceeds from note payable to shareholder 2,225 -
Proceeds from issuances of common stock 866 -
------- -------
Net cash provided by financing activities 3,091 -
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (984) (1,312)
------- -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,229 1,752
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 245 $ 440
------- -------
------- -------
</TABLE>
See notes to consolidated condensed financial statements.
4
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(CONTINUED)
BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
Note payable to shareholder exchanged
for common stock $ 1,700 $ 3,000
Accrued interest on note payable to shareholder
exchanged for common stock $ 38 $ 87
Accounts payable to shareholder
exchanged for common stock $ 219 $ -
Contribution of property and
equipment for investment
in Magnesensors $ - $ 80
</TABLE>
See notes to consolidated condensed financial statements.
5
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BIOMAGNETIC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements of Biomagnetic
Technologies, Inc. and its subsidiary (the "Company") 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, 1997.
As of October 1, 1997 the assets and liabilities of the Company's subsidiary,
Biomagnetic Technologies, GmbH, were acquired by Biomagnetic Technologies,
Inc. Niederlassung Germany, newly established as a branch office of
Biomagnetic Technologies, Inc. Biomagnetic Technologies, GmbH continues to
exist as a non-operating wholly owned entity.
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only of
normal recurring entries, necessary to present fairly its financial position
at June 30, 1998 and the results of its 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.
Certain prior period balances have been reclassified to conform to the
current period presentation.
2. FINANCING
On August 5, 1998 the Company received $15,000,000 from the sale of
30,000,000 shares of common stock to offshore investors (which amount is not
reflected in the accompanying balance sheet as of June 30, 1998), pursuant to
regulation S of the Security Act of 1933, as amended. Of the total 30,000,000
shares, 10,000,000 shares were sold for $5,000,000 to "La Caixa", Caja de
Ahorros y Pensiones de Barcelona, one of the leading financial institutions
of the Kingdom of Spain, 8,000,000 shares were sold for $5,000,000 to ON
Dassesta International S.A., a major shareholder of BTi, 2,000,000 shares
were sold to Swisspartners Investment Ltd., and the remaining 8,000,000
shares were sold to three European banks under the same terms and conditions.
As of June 30 1998, the Company had borrowed $1,500,000 from Dassesta
International, S.A. at an interest rate of 8%. In July 1998, Dassesta
granted the Company an increase of $500,000 in its loan commitment which the
Company borrowed. The loan was a 180 day unsecured loan bearing interest at
8%. In August 1998, the Company paid off total principal of $2,000,000 owed
to Dassesta plus $36,000 of related accrued interest using proceeds from the
August 5, 1998 financing of $15,000,000.
The Company intends to use the remaining proceeds of approximately
$13,000,000 to execute its plans and take steps to accelerate clinical
acceptance of Magnetic Source Imaging and to pursue system sales in the
current limited worldwide research and clinical markets.
In February 1998, the Company discounted two customer notes for a net amount
of $355,000 received from Dassesta International, S.A., a principal
shareholder. The face amount of these notes was 2,200,000 French Francs,
equal to approximately $366,000 at the then current exchange rate.
3. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Shares used in computing basic and diluted net income (loss) per share
include the weighted average number of common shares outstanding. Common
stock equivalents are antidilutive and are excluded from the computation of
basic and diluted net income (loss) per share.
6
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4. INVENTORIES
The composition of inventories is as follows:
June 30, September 30,
1998 1997
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Raw materials $ 236 $ 281
Work-in process 1,941 1,528
Finished goods 500 579
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$ 2,677 $ 2,388
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5. MAGNES-Registered Trademark- WHOLE HEAD SYSTEM PRODUCTION AND DELIVERY RISK
The Company's backlog at June 30, 1998 amounted to $3,395,000 and is composed
primarily of an order for a Magnes 2500 Whole Head Magnetic Source Imaging
System ("Magnes 2500 WH") which was shipped in the second quarter of 1998,
but is not yet installed and accepted by the customer, an order for an
expanded 248-channel sensor, and service revenues on certain systems shipped
since fiscal 1996. As of June 30, 1998 the Company has received related
advance payments from customers totaling approximately $3,000,000. As sales
of the Company's systems typically involve transactions of $1 million or
more, the backlog is expected to fluctuate significantly from fiscal period
to fiscal period depending upon timing of orders received, installations
completed, and customer acceptances received during the reporting period.
6. SEGMENT INFORMATION AND RECENT ACCOUNTING PRONOUNCEMENTS
The Company operates in one segment which includes developing, manufacturing
and selling magnetic source imaging products. The overall market for the
Company's operations can be further divided into three overlapping segments:
the basic research market, the clinical applications development market, and
the commercial clinical market. To date, substantially all of the Company's
revenues have been derived from, and substantially all of the Company's
assets have been devoted to, the basic research market.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
AICPA Statement of Position (SOP) 98-1, "Accounting for costs of computer
software developed or obtained for internal use." This statement provided
guidance on accounting for the costs of computer software developed or
obtained for internal use and identifies characteristics of internal-use
software and provides assistance in determining when computer software is for
internal use. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998, with earlier application permitted. The Company does not
anticipate the adoption of SOP 98-1 having a material impact on the Company's
financial position of results of operations.
In April 1998, AcSEC issued AICPA SOP 98-5, "Reporting on the costs of
start-up activities." This statement provides guidance on financial reporting
of start-up costs and organization costs and requires that such costs of
start-up activities be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998, which earlier application permitted.
The Company does not anticipate the adoption of SOP 98-5 having a material
impact on the Company's financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for the historical information contained herein, the following
discussion may contain (and the Notes to the Consolidated Condensed Financial
Statements may contain) forward-looking statements that involve risks and
uncertainties. The Company's future results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not specifically limited to, failure to satisfy
system performance obligations, timely product development, changes in
economic conditions in various markets the Company serves, ability to obtain
routine reimbursement for MSI procedures and uncertainty regarding the
Company's patents and propriety rights, as well as the other risks detailed
in this section. The Company does not undertake to update the results
discussed herein as a result of changes in risks or operating results.
OVERVIEW
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 pre-surgical
planning for neurosurgery, the diagnosis and surgical planning for treatment
of epilepsy and evaluation of the fetal heart, among others.
7
<PAGE>
However, to date the Company has developed only limited applications for its
systems, and there can be no assurance that any further applications may be
developed or accepted by the market, or that the Company will be able to
obtain any additional funds to pursue such new applications. (See "Additional
Risk Factors and Uncertainties")
Since 1984, the primary business of the Company has been the development of
magnetic source imaging ("MSI") systems that measure magnetic fields
generated by the human body and assist in the noninvasive diagnosis of a
broad range of medical disorders. The measurement of the body's magnetic
fields by MSI provides information about the normal and abnormal functions of
the brain, heart and other organs.
Additionally, since 1984, twenty-three (23) Magnes systems have been shipped
and twenty-two (22) systems have been installed in medical and research
institutions worldwide by the end of the third quarter 1998. To date, more
than 5,000 MSI examinations have been performed on patients and control
subjects at the Company's application development sites. Related findings by
BTi and its collaborators have been published in more than 80 scientific and
medical papers. Since the first reimbursement for MSI procedures was received
in September 1993, 123 insurance companies have approved reimbursement for
certain MSI procedures performed with the Company's Magnes MSI systems and
233 reimbursements have been received on a case-by case basis.
In fiscal 1995, BTi announced development of the Magnes 2500 WH, an expansion
of the existing Magnes I and Magnes II systems product line. Development of
the Magnes 2500 WH hardware was substantially completed in fiscal year 1996.
The Magnes 2500 WH allows simultaneous examination of the entire brain and is
designed for evaluating ambulatory or critically ill patients in a seated or
fully reclined position. As of June 30, 1998 the Company had shipped nine
Magnes 2500 WH systems and received eight final acceptances from customers.
The current price of BTi's MSI systems ranges from approximately $1.0 to $2.5
million, depending upon system configuration. A significant portion of the
Company's sales have been, and are expected to continue to be, in foreign
markets. The Company generally prices its European sales in the currency of
the country in which the product is sold and the prices of such products in
dollars will vary as the value of the dollar fluctuates against the quoted
foreign currency price. There can be no assurance that currency fluctuations
will not reduce the dollar return to the Company on such sales. The Company
has in the past, and may periodically enter into forward exchange contracts
to partially hedge such foreign currency exposure.
Due to substantial product research and development expenses and low unit
sales, the Company has incurred net losses every year since fiscal 1982.
Since concentrating on the development of its MSI systems in 1984, the
Company's corporate strategy and commitment of resources have focused on
long-term product applications and continued product development rather than
near-term operating performance. Since the development of the Magnes 2500 WH
system was substantially completed in fiscal year 1996, the Company has
significantly reduced product and applications development expenses and
expects that such expenditures will continue at comparatively reduced levels
in 1998.
The Company believes that the relatively small number of proven medical
applications for the Magnes systems, the lack of routine reimbursement for
MSI procedures and the uncertainty of product acceptance in the U.S. market
have limited system sales through June 30, 1998. Additionally, it is not
possible to reliably predict the timing and extent of future product sales
due to the uncertainties of medical applications, reimbursement and product
acceptance. The Company does not anticipate multiple sales to the same
end-user and at current sales volumes, the sale of one Magnes system may have
a significant impact on the Company's financial position and results of
operations during any reporting period. As a result, quarterly and annual
operating performance will continue to fluctuate significantly.
8
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RESULTS OF OPERATIONS
Total revenues for the third quarter of fiscal 1998 were $616,000 including
$127,000 of service revenues compared to $5,289,000 of total revenues
including $91,000 of service revenues for the third quarter of fiscal 1997.
Net loss in the third quarter of fiscal 1998 amounted to $1,026,000 compared
to net income of $766,000 for the comparable period in the prior fiscal
year. Decreased total revenues and net loss is attributed to the lack of
customer final acceptances of Magnes 2500 WH systems in the third quarter of
1998 compared to three final acceptances in the third quarter of 1997.
Revenues for the first nine months of fiscal 1998 amounted to $2,676,000
compared to $7,011,000 for the first nine months of fiscal 1997. The net
loss for the first nine months of 1998 was $2,908,000 compared to $5,027,000
for the first nine months of 1997. The revenues for the first nine months of
fiscal 1998 resulted from the sale and final customer acceptance of one
Magnes 2500 WH system, the sale of one Magnes I system and service contract
income for Magnes systems. The $5,207,000 loss in the first nine months of
fiscal 1997 included a $2,250,000 non-cash charge to interest expense in
connection with the conversion of a note payable to a shareholder.
Research and development expenses amounted to $501,000 and $1,177,000 for the
three and nine month periods ended June 30, 1998, respectively. In fiscal
year 1997 these expenses amounted to $819,000 and $2,706,000, respectively,
for the comparable periods. The decrease is due to reduction of research and
development expenses related to the Magnes 2500 WH system.
Marketing, general and administrative expenses, amounted to $644,000 in the
third quarter of fiscal 1998, compared to $1,083,000 during the comparable
period in fiscal 1997. For the first nine months of fiscal 1998 these
expenses amounted to $2,426,000 a decrease of $1,082,000 from the comparable
period of the prior year. The decrease in marketing, general and
administrative expenses, is primarily due to reduced employee headcount and
related payroll costs.
Interest expense totaled $66,000 during the nine months ended June 30, 1998
as compared to $2,327,000 during the comparable period in fiscal 1997. The
decrease is primarily the result of a $2,250,000 non-cash interest cost for
conversion of a note payable to a shareholder which was included in the first
quarter of fiscal 1997.
Order backlog for the Company's products at June 30, 1998 was $3,395,000, as
compared to $7,736,000 at June 30, 1997 and $4,763,000 at September 30, 1997
in the second quarter of fiscal year 1998. Receipt of final customer
acceptance of one Magnes 2500 WH system is the primary factor for the
reduction in backlog as of June 30, 1998 as compared to the September 30,
1997 backlog. In the second quarter of fiscal 1998 the Company received an
order for a Magnes 2500 WH system, which was shipped in the same quarter with
final customer acceptance pending installation at the customer site. This
order is included in the $3,395,000 backlog as of June 30, 1998 pending final
customer acceptance.
LIQUIDITY AND CAPITAL RESOURCES
On August 5, 1998 the Company received $15,000,000 from the sale of
30,000,000 shares of common stock to offshore investors pursuant to
Regulation S of the Security Act of 1933, as amended. Of the total 30,000,000
shares, 10,000,000 shares were sold for $5,000,000 to "La Caixa", Caja de
Ahorros y Pensiones de Barcelona, one of the leading financial institutions
of the Kingdom of Spain, 10,000,000 shares were sold for $5,000,000 to
Dassesta International S.A., a major shareholder of BTi, 2,000,000 shares
were sold to Swisspartners Investment Network Ltd., and the remaining
8,000,000 shares were sold to three European banks under the same terms and
conditions.
As of June 30 1998, the Company had borrowed $1,500,000 from Dassesta
International, S.A. at an interest rate of 8%. In July 1998, Dassesta
granted the Company an increase of $500,000 in its loan commitment which the
Company borrowed. The loan was a 180 day unsecured loan bearing interest at
8%. In August 1998, the Company paid off total principal of $2,000,000 owed
to Dassesta plus $36,000 of related accrued interest using proceeds from the
August 5, 1998 financing of $15,000,000.
The Company intends to use the remaining proceeds of approximately
$13,000,000 to execute its plans and take steps to accelerate clinical
acceptance of Magnetic Source Imaging and to pursue system sales in the
surrent limited worldwide research and clinical markets.
In February 1998, the Company discounted two customer notes for a net amount of
$355,000 received from Dassesta International, S.A., a principal shareholder.
The face amount of these notes was 2,200,000 French Francs, equal to
approximately $366,000 at the then current exchange rate.
At June 30, 1998 the Company had a net
9
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working capital deficit of $2,309,000, as compared to $2,284,000 at September
30, 1997. The deficit is primarily due to continued losses and negative cash
flows from operations.
Cash and cash equivalents, exclusive of any restricted cash, continued to
decline to $245,000 at June 30, 1998 from $1,229,000 as of September 30,
1997. The Company's operations during the first nine months of 1998 were
funded by existing cash resources, the sale of a Magnes I system, working
capital loans from Dassesta International, S.A. ("Dassesta"), a principal
shareholder of the Company, and equity placements to Dassesta and a foreign
investor.
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both
internal and external information systems. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant may be
material to the Company's financial position and results of operations.
Additional Risk Factors and Uncertainties
- -----------------------------------------
FORWARD-LOOKING STATEMENTS
The statements in this quarterly report that are not descriptions of
historical facts may be forward-looking statements that are subject to risks
and uncertainties without limitation. Actual results could differ materially
from those currently anticipated due to a number of factors including, but
not limited to, those identified below. The Company undertakes no obligation
to release publicly the results of any revisions to these forward-looking
statements to reflect events and circumstances arising after the dates hereof.
ONLY LOW VOLUME SALES TO DATE
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.
HISTORY OF LOSSES
The Company reported a net loss of $1,026,000 in the third quarter of fiscal
1998, and has reported losses every year since 1982. The Company also had
negative cash flows from operations of $4,036,000 for the first three
quarters of fiscal year 1998. At June 30, 1998 the Company has an accumulated
deficit of $88,763,000 and a working capital deficiency of $2,309,000.
Management anticipates that capital and working capital requirements in the
remainder of fiscal year 1998 will substantially exceed cash projected to be
generated by operations.
FEW DEMONSTRATED CLINICAL APPLICATIONS; UNCERTAINTY OF MARKET ACCEPTANCE
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
potential commercial clinical market. There can be no assurance that a
commercial clinical market will develop for diagnostic or monitoring uses of
the MSI system. A continued lack of clinical applications and commercial
market for the Company's Magnes 2500 WH system would have a material adverse
impact on the Company's financial position, results of operations, and cash
flows.
THIRD-PARTY REIMBURSEMENT
The Company's commercial success is highly dependent on the availability of
reimbursement for procedures using its MSI system. To date reimbursements
from third-party payors are on a case-by-case basis. As of June 30, 1998,
and since the initial payment in September 1993, there have been a total of
233 reimbursements from 123 different third party payors in the U.S. Although
the number of third party payors making reimbursements has increased, there
is no assurance that third party reimbursements 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. If widespread
availability of reimbursement from government and private insurers is not
achieved, the Company's financial position, results of operations and cash
flows would be materially adversely affected.
10
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NEW GOVERNMENT LEGISLATION; UNFAVORABLE MEDICAL INDUSTRY TRENDS
The Company 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 Company's financial position or results of operations.
Regardless of legislation, medical industry trends are not favorable for
generous third-party reimbursement of diagnostic procedures requiring
big-ticket equipment.
RISK OF TECHNOLOGICAL OBSOLESCENCE
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. Any such development could have a material adverse
effect on the Company's financial position, results of operations, and cash
flows.
SEVERE PRICE COMPETITION; LIMITED SYSTEMS BEING PURCHASED WORLDWIDE
Additionally, there has been recently, and continues to be, ongoing severe
price competition from the Company's competitors for the extremely limited
number of whole head magnetic source imaging systems currently being
purchased worldwide. This aggressive competition is likely to affect
potential profitability of the Company's whole head system, the extent of
which is not presently determinable.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both
internal and external information systems. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant may be
material to the Company's financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 5, 1998 the Company issued and sold an aggregate of 30,000,000
shares of Common Stock (the "Shares") of the Company to certain foreign
investors (the "Investors"), including 10,000,000 Shares issued to Dassesta,
a principal shareholder of the Company, 10,000,000 Shares issued to "La
Caixa", Caja de Ahorros y Pensiones de Barcelona, 2,000,000 Shares to
Swisspartners Investment Network Ltd., and the remaining 8,000,000 Shares
to other European Banks. The Shares were issued pursuant to Offshore
Stock Subscription Agreements, dated July 22 and July 31, 1998. In
consideration for the issuance and sale of the Shares, the Company
received $.50 per Share from each of the Investors, representing an
aggregate consideration of $15,000,000, all of which was paid in cash.
There were no underwriting discounts or commissions.
The offers and sales to the Investors, all non-U.S. entities, were made
pursuant to a claim of exemption under Regulation S promulgated by the
Securities and Exchange Commission or, alternatively, under Section 4 (2) of
the Securities Act of 1933, as amended. The sales of the Shares to the
Investors were made in "offshore transactions" (as defined in Regulation S)
and no "direct selling efforts" (as defined in Regulation S) were made by the
Company or any of its affiliates. The investors represented and warranted
among other things, that they were not "U.S. persons" (as defined in
Regulation S", that at the time the buy orders for the Shares were originated
they were located outside the United States, and that neither the Investors
nor any of their affiliates had engaged in any "direct selling efforts: (as
defined in Regulation S). Appropriate legends were affixed to the
certificates for the Shares. in addition, the Company did not use any general
advertisements or solicitation in connection with the offer or sale of the
Shares to the Investors and the Investors represented and warranted that they
were purchasing the Shares for Investment only and not with a view to
distribution.
11
<PAGE>
ITEM 6 . EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
b) Reports on Form 8-K
None.
12
<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.
Date August 12, 1998 /s/ D. SCOTT BUCHANAN
-------------------------------------
D. Scott Buchanan
President and Chief Executive Officer
Date August 12, 1998 /s/ HERMAN BERGMAN
-------------------------------------
Herman Bergman
Vice President of Finance, Chief
Financial Officer Secretary
13
<TABLE> <S> <C>
<PAGE>
<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 FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 245
<SECURITIES> 127
<RECEIVABLES> 952
<ALLOWANCES> 10
<INVENTORY> 2,677
<CURRENT-ASSETS> 4,186
<PP&E> 7,846
<DEPRECIATION> 7,427
<TOTAL-ASSETS> 5,296
<CURRENT-LIABILITIES> 6,495
<BONDS> 0
0
0
<COMMON> 84,392
<OTHER-SE> 3,000
<TOTAL-LIABILITY-AND-EQUITY> 5,296
<SALES> 2,040
<TOTAL-REVENUES> 2,676
<CGS> 1,508
<TOTAL-COSTS> 1,927
<OTHER-EXPENSES> 3,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (2,908)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,908)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
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