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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 March 31, 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.
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(Exact name of registrant as specified in its charter)
California 95-2647755
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
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, 1998 Registrant had only one class of common stock of
which there were 53,367,112 shares outstanding.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1997
----------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 384 $ 1,229
Restricted cash and short-term investments 126 500
Accounts receivable, less allowance for
doubtful accounts of $10 742 398
Inventories 2,222 2,388
Prepaid expenses and other current assets 207 270
------- --------
Total current assets 3,681 4,785
------- --------
Net property and equipment 462 526
Investment in Magnesensors 160 160
Restricted cash 195 192
Other assets 335 339
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TOTAL ASSETS $ 4,833 $ 6,002
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------- --------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Accounts payable $ 977 $ 1,341
Accrued liabilities 719 934
Accrued salaries and employee benefits 306 512
Customer deposits 2,109 2,172
Deferred revenue 722 1,135
Note payable to shareholder 145 975
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Total current liabilities 4,978 7,069
Other long-term liabilities 200 219
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Total liabilities 5,178 7,288
------- --------
------- --------
SHAREHOLDERS' DEFICIT
Common stock -- no par value,100,000,000 shares
authorized; 53,367,112 and 47,720,887 shares
issued and outstanding in March and September,
respectively 84,392 81,569
Additional paid-in capital 3,000 3,000
Accumulated deficit (87,737) (85,855)
------- --------
Total shareholders' deficit (345) (1,286)
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 4,833 $ 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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
(Restated Note 6) (Restated Note 6)
----------------------- --------------------------
<S> <C> <C> <C> <C>
REVENUES
Product $ 1,520 $ 1,503 $ 1,624 $ 1,536
Product services 173 52 340 186
Contract research 43 - 96 -
------- ------- ------- -------
1,736 1,555 2,060 1,722
COST OF REVENUES
Product 1,168 999 1,276 1,084
Product services 39 57 147 72
Contract research 41 - 91 -
------- ------- ------- -------
1,248 1,056 1,514 1,156
GROSS MARGIN 488 499 546 566
OPERATING EXPENSES
Research and development 267 888 676 1,888
Marketing, general and administrative 896 911 1,782 2,425
------- ------- ------- -------
1,163 1,799 2,458 4,313
------- ------- ------- -------
OPERATING LOSS (675) (1,300) (1,912) (3,747)
Interest expense (2) (2) (29) (2,320)
Interest income 15 90 30 178
Other income, net 65 34 29 95
------- ------- ------- -------
NET LOSS $ (597) $(1,178) $(1,882) $(5,794)
------- ------- ------- -------
------- ------- ------- -------
BASIC NET LOSS PER SHARE $ (0.01) $ (0.02) $ (0.04) $ (0.13)
------- ------- ------- -------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 50,522 47,692 50,522 43,833
------- ------- ------- -------
------- ------- ------- -------
</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>
SIX MONTHS ENDED
MARCH 31,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,882) $(5,794)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 87 236
Loss on disposition of assets 19 -
Interest cost for conversion feature of note payable to shareholder - 2,250
Changes in operating assets and liabilities:
Restricted cash and short term investments 371 6,405
Prepaid expenses and other current assets 63 300
Accounts receivable (344) (531)
Inventories 166 (299)
Accounts payable (145) (426)
Accrued liabilities (383) (1,076)
Customer deposits (63) (108)
Deferred revenue (413) -
Changes in other operating assets and liabilities (15) 111
-------- -------
Net cash (used in) provided by operating activities (2,539) 1,068
INVESTING ACTIVITIES
Change in short-term investments - (1,951)
Payments for property and equipment (42) (44)
Net cash used in investing activities (42) (1,995)
FINANCING ACTIVITIES
Proceeds from notes payable to shareholder 870 -
Proceeds from issuances of common stock 866 -
-------- -------
Net cash provided by financing activities 1,736 -
-------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (845) (927)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,229 1,752
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 384 $ 825
-------- -------
-------- -------
</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 FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
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 $ -
</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 subsidiary 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 March
31, 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. RISK FACTORS AND GOING CONCERN
The Company's current financial condition, the uncertainty regarding its
ability to raise additional capital, and the uncertainty and risks associated
with future operations raise substantial doubt about the Company's ability to
operate as a going concern. The Company currently anticipates that its
existing capital resources will be sufficient to provide operating capital
required to meet its obligations in the normal course of business only
through June 1998. See Note 8 -"Financing".
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties, and asset and liability carrying
amounts do not purport to represent realizable settlement values. See Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
3. BASIC NET LOSS PER SHARE
Shares used in computing basic net 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 net loss per share.
4. INVENTORIES
The composition of inventories is as follows:
6
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<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 208 $ 281
Work-in process 1,583 1,528
Finished goods 431 579
------- -------
$ 2,222 $ 2,388
------- -------
------- -------
</TABLE>
5. MAGNES-Registered Trademark- WHOLE HEAD SYSTEM PRODUCTION AND DELIVERY RISK
The Company's backlog at March 31, 1998 amounted to $3,444,000 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 March 31, 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. RESTATEMENT OF CERTAIN PRIOR PERIOD BALANCES
The accompanying unaudited consolidated condensed financial statements for the
three month period ended March 31, 1997 have been restated to reverse $220,000
of gain on sale of assets to a related party previously reported in the second
quarter of 1997.
The effect of the restatement is as follows:
<TABLE>
<CAPTION>
As Previously
Three month period ended March 31, 1997: Reported As Restated
------------- -----------
(In thousands, except per share amounts)
Statement of Operations:
<S> <C> <C>
Other income, net 315 95
Net loss (958) (1,178)
Basic net loss per share (0.02) (0.02)
</TABLE>
7. SEGMENT INFORMATION
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.
8. FINANCING
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. In
addition, the Company simultaneously received a 180 day unsecured loan,
bearing interest at 10% from Dassesta in the amount of $145,000, for a total
cash influx of $500,000. Interest on this loan was reduced retroactively to
8% in April 1998 by Dassesta. In addition, the Company
7
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received an additional loan commitment for $1,355,000 from Dassesta
International, S.A. a principal shareholder in April 1998. The Company
borrowed $750,000 against this additional loan commitment in April 1998,
leaving a remaining balance of $605,000 available for additional borrowing.
The loan is a 180 day unsecured loan bearing interest at 8%. The Company is
obligated to repay to Dassesta all amounts borrowed under this loan
commitment prior to maturity upon receipt of a minimum of $7,000,000 of
equity financing. However, there can be no assurance that the Company will
be able to obtain such additional financing on terms acceptable to the
Company.
The Company's current operating plans and anticipated capital and working
capital expenditures necessary to support the on-going development and
commercialization of the Company's products through September 30, 1998 are
expected to substantially exceed cash projected to be generated from
operations. Therefore, management is currently negotiating with Dassesta and
members of the Company's Board of Directors to obtain further equity
financing. The Company hopes to raise such additional equity financing which
would be required to meet its obligations in the normal course of business
through fiscal 1998. However, there can be no assurance that the Company
will be able to obtain such additional financing on terms acceptable to the
Company, if at all. Without such additional financing, there is substantial
doubt concerning the Company's ability to operate as a going concern.
The Company believes that its current cash and future utilization of the
available balance of the Dassesta unsecured loan totaling $605,000 is
sufficient to support the Company's operating needs only through June 1998.
The consolidated condensed financial statements do not include any
adjustments that might result from the outcome of the uncertainty about the
Company's ability to raise additional equity financing, and asset and
liability carrying amounts do not purport to represent realizable settlement
values. (See "Additional Risk Factors and Uncertainties")
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, the Company's
ability to obtain additional financing, failure to satisfy system performance
obligations, timely product development, changes in economic conditions in
various markets the Company serves, 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. However, to date
the Company has developed only limited applications for its systems, and
there can be 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-two (22) Magnes systems have been shipped and
twenty-one (21) systems were installed in medical and research institutions
worldwide by the end of the second quarter 1998. To date, more than 5,000
MSI examinations
8
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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, 114
insurance companies have approved reimbursement for certain MSI procedures
performed with the Company's Magnes MSI systems and 224 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 March 31, 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 March 31, 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.
The Company believes that its current cash and future utilization of the
available balance of the Dassesta unsecured loan totaling $605,000 is
sufficient to support the Company's operating needs only through June 1998.
The consolidated condensed financial statements do not include any
adjustments that might result from the outcome of the uncertainty about the
Company's ability to raise additional equity financing, and asset and
liability carrying amounts do not purport to represent realizable settlement
values. (See "Additional Risk Factors and Uncertainties")
RESULTS OF OPERATIONS
Total revenues for the second quarter of fiscal 1998 were $1,736,000
including $173,000 of service revenues compared to $1,555,000 of total
revenues and $52,000 of service revenues for the second quarter of fiscal
1997. Net loss in the second quarter of fiscal 1998 amounted to $597,000
compared to a restated net loss of $1,178,000 for the comparable period in
the prior fiscal year.
Revenues for the first six months of fiscal 1998 amounted to $2,060,000
compared to $1,722,000 for the first six months of the prior fiscal year
1997. The net loss for the first six months of 1998 was $1,882,000 compared
to $5,794,000 for the first six months of 1997. The revenues for the first
six months of fiscal 1998 resulted from the sale and final customer
acceptance of one Magnes 2500 WH system and service contract income for
Magnes systems. The $5,794,000 loss in the same period of fiscal 1997
included a $2,250,000 non-cash charge to interest expense in connection with
the conversion of a note payable to shareholder.
Research and development expenses amounted to $267,000 and $676,000 for the
three and six month periods ended March 31, 1998, respectively. In fiscal
year 1997 these expenses amounted to $888,000 and $1,888,000,
9
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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 $896,000 in the
second quarter of fiscal 1998, compared to $911,000 during the comparable
period in fiscal 1997. For the first six months of fiscal 1998 these expenses
amounted to $1,782,000 a decrease of $643,000 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 $29,000 during the six months ended March 31, 1998
as compared to $2,320,000 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 shareholder in the first quarter of fiscal
1997.
Order backlog for the Company's products at March 31, 1998 was $3,444,000, as
compared to $14,149,000 at March 31, 1997 and $4,763,000 at September 30,
1997. In the second quarter of fiscal year 1998 the receipt of final customer
acceptance of one Magnes 2500 WH system is the primary factor for the
reduction in backlog as of March 31, 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 $3,444,000 backlog as of March 31, 1998 pending
final customer acceptance.
LIQUIDITY, CAPITAL RESOURCES
At March 31, 1998 the Company had a net working capital deficit of
$1,297,000, as compared to $743,000 at December 31, 1997 and $2,284,000 at
September 30, 1997. The increase in the working capital deficit since
December 31, 1997 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 $384,000 at March 31, 1998 from $1,027,000 as of December 31, 1997
and $1,229,000 as of September 30, 1997, the end of fiscal year 1997. The
Company's operations during the second quarter were funded by existing cash
resources, the release by customers of restricted cash, a working capital
loan from Dassesta International, S.A. ("Dassesta"), a principal shareholder
of the Company, and equity placements to Dassesta and a foreign investor.
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. In
addition, the Company simultaneously received a 180 day unsecured loan,
bearing interest at 10% from Dassesta in the amount of $145,000, for a total
cash influx of $500,000. Interest on this loan was reduced retroactively to
8% in April 1998 by Dassesta. In addition, the Company received an additional
loan commitment for $1,355,000 from Dassesta International, S.A. a principal
shareholder in April 1998. The Company borrowed $750,000 against this
additional loan commitment in April 1998, leaving a remaining balance of
$605,000 available for additional borrowing. The loan is a 180 day unsecured
loan bearing interest at 8%. The Company is obligated to repay to Dassesta
all amounts borrowed under this loan commitment prior to maturity upon
receipt of a minimum of $7,000,000 of equity financing. However, there can be
no assurance that the Company will be able to obtain such additional
financing on terms acceptable to the Company.
Based on the Company's current operating plans, anticipated capital and
working capital expenditures necessary to support the on-going development
and commercialization of the Company's products through September 30, 1998
are expected to substantially exceed cash projected to be generated from
operations and will result in a further decline in the Company's liquidity.
The Company believes that its current cash and future utilization of the
available balance of the Dassesta unsecured loan totaling $605,000 is
sufficient to support the Company's operating needs only through June 1998. The
consolidated condensed financial statements do not include any adjustments
that might result from the outcome of this uncertainty and asset and
liability carrying amounts do not purport to represent realizable settlement
values. (See "Additional Risk Factors and Uncertainties")
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 those
identified below. The Company undertakes no obligation to release publicly
the results of any revisions to these forward-looking statement 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.
LOSSES IN EVERY YEAR SINCE 1982
The Company incurred a net loss of $597,000 in the second quarter of fiscal
1998, and has reported losses every year since 1982. The Company also had
negative cash flows from operations of $2,539,000 in the first two quarters
of fiscal year 1998. At March 31, 1998 the Company has an accumulated deficit
of $87,737,000 and a working capital deficiency of $1,297,000. 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.
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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 March 31, 1998,
and since the initial payment in September 1993, there have been a total of
224 reimbursements from 114 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.
NEW GOVERNMENT LEGISLATION; UNFAVORABLE MEDICAL INDUSTRY TRENDS
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. 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 to which is not
presently determinable.
INSUFFICIENT FUNDS; NEED FOR ADDITIONAL FINANCING
The above risk factors, along with those described elsewhere herein and in
Note 2 to the consolidated condensed financial statements raise substantial
doubt about the Company's ability to continue as a going concern. The
Company believes that its current cash and future utilization of the
available balance of the Dassesta unsecured loan totaling $605,000 is
sufficient to support the Company's operating needs through June 1998. In
order to continue beyond June 1998, the Company would need to raise
additional financing. No assurance can be given that any such financing can
be obtained. The consolidated condensed financial statements do not include
any adjustments that might result from the outcome of this uncertainty and
asset and liability carrying amounts do not purport to represent realizable
settlement values.
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 an 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 consolidated financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
11
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on March 25, 1998 and
proxies for such meeting were solicited pursuant to Regulation 14. There was
no solicitation in opposition to the Company's nominees for directors as
listed in the proxy statement and all such nominees were elected. In
addition, the following matters were adopted by the Shareholders at the
Annual Meeting.
(a) To ratify the selection of Arthur Andersen LLP as independent accountants
for the fiscal year ending September 30, 1998
For - 47,527,266 Against - 45,660 Abstain - 25,836
(b) For the election of Nominees to the Board of Directors for the fiscal
year ending September 30, 1998.
<TABLE>
<CAPTION>
For Against
--- -------
<S> <C> <C>
D. Scott Buchanan 47,448,803 149,959
Martin P. Egli 47,448,954 149,808
Enrique Maso 47,448,854 149,908
Herman Bergman 47,448,854 149,908
Rodolfo Llinas 47,448,954 149,808
</TABLE>
There were 5,745,361 broker nonvotes for the election of directors and item
(a) above.
ITEM 6 . EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
b) Reports on Form 8-K
A Form 8-K dated December 16, 1997 was filed with the
Securities and Exchange Commission on December 24, 1997,
regarding the Sale of Equity Securities Pursuant to
Regulation S.
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.
April 30, 1998 /s/ D. SCOTT BUCHANAN
Date ------------------------------------
D. Scott Buchanan
President and Chief Executive Officer
April 30, 1998 /s/ HERMAN BERGMAN
Date ------------------------------------
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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 384
<SECURITIES> 126
<RECEIVABLES> 742
<ALLOWANCES> 10
<INVENTORY> 2,222
<CURRENT-ASSETS> 3,681
<PP&E> 7,831
<DEPRECIATION> 7,369
<TOTAL-ASSETS> 4,833
<CURRENT-LIABILITIES> 4,978
<BONDS> 0
0
0
<COMMON> 84,392
<OTHER-SE> 3,000
<TOTAL-LIABILITY-AND-EQUITY> 4,833
<SALES> 1,520
<TOTAL-REVENUES> 1,736
<CGS> 1,168
<TOTAL-COSTS> 1,248
<OTHER-EXPENSES> 1,163
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2)
<INCOME-PRETAX> (597)
<INCOME-TAX> 0
<INCOME-CONTINUING> (597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (597)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
