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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 December 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 February 9, 1999 Registrant had only one class of common stock of
which there were 83,367,112 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>
DECEMBER 31, SEPTEMBER 30,
1998 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 174 $ 2,282
Short-term investments 9,838 10,082
Restricted cash 137 138
Accounts receivable, less allowance for
doubtful accounts of $10 874 932
Interest receivable 126 -
Inventories 3,673 2,991
Prepaid expenses and other assets 324 271
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Total current assets 15,146 16,696
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Net property and equipment 335 304
Restricted cash 118 187
Other assets 155 156
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TOTAL ASSETS $ 15,754 $ 17,343
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 750 $ 783
Accrued liabilities 623 748
Accrued salaries and employee benefits 473 461
Customer deposits 3,305 2,909
Deferred revenue 667 657
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Total current liabilities 5,818 5,558
Other long-term liabilities 117 216
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Total liabilities 5,935 5,774
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Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common stock -- no par value, 100,000,000 shares
authorized; 83,367,112 shares issued and outstanding 99,392 99,392
Additional paid-in capital 3,000 3,000
Accumulated deficit (92,573) (90,823)
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Total shareholders' equity 9,819 11,569
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,754 $ 17,343
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</TABLE>
2
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BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
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<S> <C> <C>
REVENUES
Product $ 24 $ 104
Product services 92 167
Contract research 3 53
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119 324
COST OF REVENUES
Product 269 108
Product services 51 108
Contract research 3 50
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323 266
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GROSS MARGIN (204) 58
OPERATING EXPENSES
Research and development 509 409
Marketing, general and administrative 1,172 886
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1,681 1,295
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OPERATING LOSS (1,885) (1,237)
Interest expense - (27)
Interest income 121 15
Other income (expense), net 14 (36)
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NET LOSS $ (1,750) $ (1,285)
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BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.03)
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Weighted Average Number of
Shares Outstanding 83,367 47,871
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</TABLE>
See notes to consolidated condensed financial statements.
3
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BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,750) $ (1,285)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 52 38
Changes in operating assets and liabilities
Restricted cash 70 198
Accounts receivable 58 (122)
Inventories (682) (449)
Prepaid expenses and other assets (52) 136
Accounts payable (33) (35)
Accrued liabilities (125) 3
Accrued salaries and employee benefits 12 (77)
Customer deposits 396 -
Deferred revenue (89) (167)
Other liabilities _ (8)
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Net cash used in operating activities (2,143) (1,768)
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INVESTING ACTIVITIES
Change in short-term investments 244 -
Change in interest receivable (126) -
Payments for property and equipment (83) (13)
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Net cash provided by (used in) investing activities 35 (13)
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FINANCING ACTIVITIES
Proceeds from note payable to shareholder - 725
Proceeds from sale of common stock - 854
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Net cash provided by financing activities - 1,579
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,108) (202)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,282 1,229
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 174 $ 1,027
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</TABLE>
See notes to consolidated condensed financial statements.
4
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BIOMAGNETIC TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
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<S> <C> <C>
Note payable to shareholder exchanged
for common stock $ - $ 1,700
Accrued interest on note payable to shareholder
exchanged for common stock $ - $ 38
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, Biomagnetic Technologies, GmbH, an
inactive wholly owned German entity, (together, the "Company" or "BTI") 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. The Company suggests that these
financial statements be read in conjunction 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, 1998.
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 December 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. BUSINESS RISKS AND UNCERTAINTIES
Biomagnetic Technologies, Inc. (the "Company"), founded in 1970 as a
California corporation, is engaged primarily in the business of developing,
manufacturing and selling innovative medical imaging systems to medical
institutions located in the United States, Europe and Japan. The magnetic
source imaging ("MSI") systems developed by the Company measure magnetic
fields created by the human body for the noninvasive diagnosis of a broad
range of disorders.
To date, the Company has been engaged principally in research and development
activities, and has made only low volume sales to medical research
institutions. The Company is dependent on its current Magnes 2500 WH system
as its principal product for which there are currently limited 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 commercial 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.
The Company's commercial success is also highly dependent on the availability
of reimbursement for procedures using the MSI system. To date, reimbursements
from third party payors are on a case-by-case basis. As of December 31, 1998,
there have been limited reimbursements from third party payors in the US.
Although the number of third party payors making reimbursements has
increased, there is no assurance that third party reimbursements will become
widely available. Reimbursements are not currently provided for MSI
procedures by the United States government, nor is there any assurance that
the US government will authorize or budget for such procedures in the future.
If widespread availability of reimbursement from the government and private
insurers is not achieved, the Company's financial position, results of
operations and cash flows would be materially adversely affected. 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 its
financial position, results of operations and cash flows.
6
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The industry in which the Company operates is characterized by rapid
technological change. New products using other technologies or improvements
to existing products may reduce the size of the potential markets for the
Company's products, and may render them obsolete or non-competitive.
Competitors may develop 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 condition, results of operations and cash
flows.
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 aggressive competition is likely to affect potential future
profitability of the Company's Magnes 2500 WH system, the extent of which is
not presently determinable.
For the quarter ended December 31, 1998, the Company incurred a net loss of
$1,750,000 and had negative cash flows from operations of $2,143,000. At
December 31, 1998, the Company has an accumulated deficit of $92,573,000, net
capital of $9,819,000 and working capital of $9,328,000. The Company
anticipates that in fiscal 1999 operating and working capital requirements
will substantially exceed cash projected to be generated by product sales.
Based on its current operating plans, revenue expectations, capital
expenditures, expected working capital requirements and existing capital
resources, the Company anticipates that it will be able to fund its
operations through the second quarter of fiscal 2000. The realization of the
Company's operating plans is dependent upon its ability to successfully close
a number of Magnes 2500 WH system sales in the current highly competitive
market for the limited number of systems being purchased worldwide. There can
be no assurance that sufficient sales of the Company's Magnes systems will be
achieved in order to realize the current operating plans. If these revenues
are not achieved, the Company believes its existing capital resources as of
December 31, 1998 will be sufficient to meet its obligations through calendar
1999. In either case, the Company must continue to fund its operating needs,
and is currently considering a number of financial alternatives, such as
corporate partnerships and the sale of equity or debt securities. There can
be no assurance that such financing will be available on terms acceptable to
the Company, if at all.
3. FINANCING
In August 1998, the Company received total proceeds of $15,000,000 from the
sale of 30,000,000 unregistered shares of common stock at $.50 per share to
offshore investors pursuant to Regulation S. Dassesta International S.A., a
major shareholder of BTI since March 1995 purchased 10,000,000 shares. "La
Caixa", Caja de Ahorros y Pensiones de Barcelona, one of the leading
financial institutions of the Kingdom of Spain purchased 10,000,000 shares. A
total of 2,000,000 shares were sold to Swisspartners Investment Network LTD,
and the remaining 8,000,000 shares were purchased by two European banks under
the same terms and conditions.
As of July 1998, the Company had borrowed $2,000,000 from Dassesta
International, S.A. The loan was a 180 day unsecured loan bearing interest at
8%. In August 1998, the Company paid off the total principal of $2,000,000
owed to Dassesta plus $36,000 of related accrued interest using proceeds from
the August 1998 financing of $15,000,000.
7
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4. BASIC AND DILUTED NET LOSS PER SHARE
Shares used in computing basic and diluted 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
and diluted net loss per share.
5. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
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<S> <C> <C>
Raw materials $ 170 $ 163
Work-in process 3,003 2,328
Finished goods 500 500
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$ 3,673 $ 2,991
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</TABLE>
6. CUSTOMER BACKLOG AND DELIVERY RISK
The Company's backlog at December 31, 1998 amounted to $3,933,000 and is
composed primarily of orders for a 248 channel Magnes 3600 WH sensor, a
Magnes 2500 WH system and a Magnes 1300 C cardiac system . Future cash
payments to the Company pertaining to backlog beyond cash deposits already
received as of December 31, 1998 total approximately $1,194,000. 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.
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
sub-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. COMPREHENSIVE INCOME
The Company has no components of comprehensive income.
9. RECENT ACCOUNTING PRONOUNCEMENTS
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 provides
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,
8
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1998, with 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 those discussed in
"Risks and Uncertainties" below. The Company does not undertake to update the
statements discussed herein as a result of changes in risks or operating
results.
OVERVIEW
Since 1984, the primary business of the Company has been the development of
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.
The Company is focusing on the development of its technology for potential
commercial market applications such as mapping of functional cortex at risk
during surgery for tumors and other lesions, and the diagnosis and planning
for surgical treatment of epilepsy. The Company is continuing to investigate
the potential applications of its technology for problems of the heart,
spine, and gastrointestinal system, as well as for disorders of the brain
such as closed-head trauma, schizophrenia and other neuro-psychiatric
disorders. To date, the Company, its competitors and the market have
identified only a limited number of diagnostic applications for MSI systems.
Twenty one (21) Magnes systems were installed in medical and research
institutions worldwide as of December 31, 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 75 scientific and medical
papers. Since the first reimbursement for MSI procedures was received in
September 1993, more than 130 insurance companies have approved reimbursement
on a case-by-case basis for certain MSI procedures performed with the
Company's Magnes MSI systems.
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 seated or
fully reclined positions. As of December 31, 1998, the Company has shipped
ten Magnes 2500 WH systems and received nine 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 has previously priced certain of its European sales in
the currency of the country in which the product was sold and the prices of
such products in dollars varied as the value of the dollar fluctuated 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
if made in the future. At December 31, 1998 and September 30, 1998, the
Company did not have any open forward exchange contracts. The Company may in
the future enter into forward exchange contracts to partially hedge such
foreign currency exposure, if appropriate.
Due to substantial research and development expenses and low unit sales, the
Company has historically reported net losses. Research and development
expenditures have decreased significantly since completion of the Magnes 2500
WH system in fiscal 1996. Such expenditures may increase in the future as new
products enter into development.
9
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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 December 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 at current sales volumes, and 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.
RESULTS OF OPERATIONS
Total revenues for the first quarter of fiscal 1999 were $119,000, including
$92,000 of service revenues, compared to $324,000 of total revenues,
including $167,000 of service revenues, for the first quarter of fiscal 1998.
Net loss in the first quarter of fiscal 1999 amounted to $1,750,000 compared
to a net loss of $1,285,000 for the comparable period in the prior fiscal
year. Decreased total revenues is attributed to the lack of sales and
decreased service contracts in the first quarter of fiscal 1999, compared to
service contracts in effect in the first quarter of fiscal 1998.
Research and development expenses amounted to $509,000 and $409,000 for the
three months ended December 31, 1998 and 1997, respectively, an increase of
24%. The increase is due to development efforts for software and hardware
enhancements to the Magnes 2500 WH, and the development of the Magnes 3600 WH
system
Marketing, general and administrative expenses amounted to $1,172,000 in the
first quarter of fiscal 1999, compared to $886,000 during the comparable
period in fiscal 1998, a 32% increase. The increase in marketing, general and
administrative expenses is attributable to the implementation of the
Company's epilepsy clinical expansion program, increased marketing and
regulatory consulting costs and the addition of sales personnel and related
activities.
Interest income totaled $121,000 during the three months ended December 31,
1998 as compared to $15,000 during the comparable period in fiscal 1998. The
increase is the result of investing excess cash generated from the August
1998 financing, described below in "Liquidity and Capital Resources".
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 the Company has working capital of $9,328,00. At
September 30, 1998, the Company's working capital was $11,139,000. The net
decrease in working capital is due to the funding of current operations with
existing cash and short-term investments. Cash, cash equivalents and
short-term investments decreased $2,352,000 to $10,012,000 at December 31,
1998 compared to $12,364,000 at September 30, 1998.
Capital equipment expenditures totaled $83,000 for the first quarter of
fiscal 1999, compared with $13,000 for the same period in fiscal 1998. The
increase was due primarily to the purchase of computer equipment to replace
existing outdated equipment.
The Company anticipates that in fiscal 1999 operating and working capital
requirements will substantially exceed cash projected to be generated by
product sales. Historically, the Company has raised capital resources from
private placements of its common stock and debt offerings.
In August 1998 the Company received $15,000,000 in proceeds from the sale of
30,000,000 shares of unregistered common stock at $.50 per share to offshore
investors pursuant to Regulation S. Dassesta International S.A. ("Dassesta"),
a major shareholder of the Company since March 1995, purchased 10,000,000
shares, "La Caixa", Caja de Ahorras y Pensiones de Barcelona, one of the
leading financial institution of the Kingdom of Spain, purchased 10,000,000
shares. A total of 2,000,000 shares were sold to Swisspartners Investment
Network LTD, and the remaining 8,000,000 shares were purchased by two
European banks under the same terms and conditions.
10
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From January to July 1998 the Company had borrowed a total of $2,000,000 from
Dassesta for working capital requirements. In August 1998, out of the
proceeds received from the above offering, the Company paid off the Dassesta
principal, plus $36,000 of accrued interest.
In December 1997, the Company sold 4,000,000 unregistered shares of common
stock to Dassesta and an additional 1,500,000 unregistered shares of common
stock to Bank Leu under Regulation S at $.50 per share. Consideration
received by the Company for the sale consisted of cash totaling $793,000 and
cancellation of its then outstanding loan principal of $1,700,000, related
accrued interest of $38,000 and accounts payable of $219,000, all owed to
Dassesta.
Based on its current operating plans, revenue expectations, capital
expenditures, expected working capital requirements and existing capital
resources, the Company anticipates that it will be able to fund operations
through the second quarter of fiscal 2000. The realization of the Company's
operating plans is dependent upon its ability to successfully close a number
of Magnes 2500 WH system sales in the current highly competitive market for
the limited number of systems being purchased worldwide. There can be no
assurance that sufficient sales of the Company's Magnes systems will be
achieved in order to realize the current operating plans. If these revenues
are not achieved, the Company believes its existing capital resources as of
December 31, 1998 will be sufficient to meet its obligations through calendar
1999. In either case, the Company must continue to fund its operating needs,
and is currently considering a number of financial alternatives, such as
corporate partnerships and the sale of equity or debt securities. There can
be no assurance that such financing will be available on terms acceptable to
the Company, if at all. (See "Additional Risks and Uncertainties", below.)
YEAR 2000 ASSESSMENT
Many currently installed computer systems and software products are coded to
accept only 2 digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept 4 digit entries to
distinguish 21st century dates from the 20th century dates. Systems that do
not properly recognize such information could generate erroneous data or
cause a system to fail. As a result, in less than two years, computer systems
and/or software used by many companies may need to be upgraded to comply with
Year 2000 requirements.
We are utilizing both internal and external resources as applicable, to
identify, correct or reprogram, and test our internal systems for Year 2000
compliance. The total cost of compliance and its effect on our future results
of operations are being determined as part of the detailed conversion
process. We have preliminarily determined that it may be necessary to acquire
new Year 2000 compliant hardware and software systems for our accounting,
purchasing , production control and inventory management systems. Current
estimates indicate potential costs may amount to approximately $250,000 for
expenditures, including hardware, software and systems conversions, plus
additional, yet to be quantified internal and external labor costs for
systems conversions and implementation.
We are currently seeking to ensure that the software and operating systems
included in our Magnes 2500 WH are Year 2000 compliant. If such systems are
not compliant it could significantly adversely affect our sales. Year 2000
issues could cause potential customers to reevaluate their current system
needs and as a result consider deferring purchase of our Magnes systems.
Additionally, we could have potential warranty or other claims with existing
Magnes systems placed with customers if such systems are not year 2000
compliant. Any of the foregoing could result in a material adverse effect on
our business, operating results, and financial condition.
We are also in the process of requesting information and assurances from our
major vendors, service providers and customers about their state of Year 2000
compliance and readiness. In the event that significant Year 2000 issues are
identified with such parties, we will identify contingency plans such as the
use of alternate vendors or manual systems.
As of December 31, 1998, we have spent approximately $85,000 in addressing
Year 2000 issues including consultant and in-house labor costs.
11
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ADDITIONAL RISKS AND UNCERTAINTIES
WE EXPECT CONTINUED OPERATING LOSSES.
Our financial position reflects that we have been principally focused on
research and development with only low volume sales to medical research
institutions. In the first quarter of fiscal 1999, our net loss was
$1,750,000 and we had negative cash flows from operations of $2,143,000.
At December 31, 1998, our accumulated deficit was $92,573,000 with working
capital of $9,328,000. Our working capital at December 31, 1998 resulted
primarily from the sale of 30,000,000 shares of common stock for proceeds of
$15,000,000 during August 1998.
We anticipate that in fiscal 1999 we will incur a net loss from operations,
and cash usage will substantially exceed that projected to be received from
product sales.
OUR SUCCESS MAY BE LIMITED BY OUR ABILITY TO SATISFY CUSTOMER PERFORMANCE
REQUIREMENTS.
Our success may be limited by our ability to complete, in a timely fashion,
product developments and enhancements to satisfy customer requirements for
our systems.
OUR SUCCESS MAY BE LIMITED BY OUR DEPENDENCE UPON A SINGLE PRODUCT AND
UNCERTAINTY WITH RESPECT TO THE DEVELOPMENT OF ADDITIONAL PRODUCTS OR
APPLICATIONS.
Our success may be limited by our dependence on one product, our Magnes 2500
WH system, which currently has limited clinical applications. Before we can
more fully penetrate the research and commercial markets, we need to develop
additional products. Further, the market for additional clinical applications
for MSI systems must emerge. We cannot assure you that a commercial market
will develop for multiple uses of our MSI system. Our financial position will
be materially adversely affected if we do not develop additional clinical
applications or if we are not able to develop a commercial market for our
Magnes 2500 WH system.
OUR SUCCESS MAY BE LIMITED BY OUR DEPENDENCY ON AND UNCERTAINTY WITH RESPECT
TO THIRD PARTY REIMBURSEMENT AND HEALTHCARE REFORM.
Our commercial success is also highly dependent on reimbursement for
procedures using the MSI system. Currently, Medicare, insurance companies and
other healthcare providers approve payment for MSI procedures on a
case-by-case basis. As of December 31, 1998, these third party payors have
only approved limited reimbursements in the United States. Although third
party payors have increasingly approved reimbursements, we cannot assure you
that third party reimbursements will become widely available. The United
States government does not currently reimburse for MSI procedures. If
reimbursement does not become more widely available, our financial position
will be materially adversely affected. Further, if the Federal government or
any state legislature enacts legislation relating to our business or the
health care industry, including legislation relating to third party
reimbursement, our financial position could be negatively affected. In
addition, there is currently no reimbursement for MSI procedures outside of
the United States.
OUR PRODUCTS AND TECHNOLOGY MAY BECOME OBSOLETE.
Our industry is characterized by rapid technological change, which may also
impact our commercial success. Competitors may develop products using other
technologies or may improve existing products. This competition may reduce
the size of the potential market for our products or make them obsolete or
non-competitive. Competitors may also develop new or different products using
technology or imaging modalities that provide, or are perceived as providing,
greater value than the Company's products. Our financial position will be
materially adversely affected if such competitive developments occur.
12
<PAGE>
WE MAY BE NEGATIVELY IMPACTED BY AGGRESSIVE COMPETITION IN OUR INDUSTRY.
Our industry is characterized by ongoing significant price competition, due
to the existence of a number of competitors in a fledgling marketplace with a
limited number of MSI systems being purchased worldwide. The future
profitability of our systems may be negatively impacted by this aggressive
competition; we currently cannot predict how rapidly the market may expand to
provide MSI system manufacturers with appropriate shareholder returns.
NEW GOVERNMENT LEGISLATION AND UNFAVORABLE MEDICAL INDUSTRY TRENDS MAY
ADVERSELY IMPACT US.
We cannot predict what adverse effect, if any, future legislation or Food and
Drug Administration regulations may have on the MSI market and our financial
results. Medical industry cost containment trends may also impose
restrictions on sizeable third-party reimbursements for diagnostic
procedures, limiting the market opportunity.
OUR BUSINESS ACTIVITIES MAY INVOLVE FOREIGN EXCHANGE RELATED RISKS.
Because we sell in foreign markets, we are exposed to potential risks of
increases and decreases in foreign currency exchange rates. When appropriate,
we enter into forward exchange contracts to partially hedge (or protect)
against such foreign currency exchange fluctuations. Nonetheless, these
fluctuations may reduce the return in U.S. dollars that we actually receive
on our sales. These risks may become material as our sales increase or
dramatic currency fluctuations occur from outside events.
FAILURE TO BE YEAR 2000 COMPLIANT COULD HARM OUR BUSINESS.
For risks relative to Year 2000 issues, please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Year 2000
Assessment".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBIT NO. DESCRIPTION
3.1 (1) Articles of Incorporation of the Company, as amended.
3.2 (1) Bylaws of the Company, as amended.
3.3 (10) Certificate of Amendment of Fourth Restated Articles of
Incorporation (numbered originally as 10.73)
13
<PAGE>
27 Financial Data Schedule
(1) These exhibits were previously filed as part of, and are hereby
incorporated by reference to, the same numbered exhibits
(except as otherwise indicated) in the Registration Statement
filed pursuant to the Securities Act of 1933 on Form S-1,
Registration Statement No. 33-29095, filed June 7, 1989, as
amended by Amendment No. 1, filed June 13, 1989, Amendment No.
2, filed July 21, 1989 and Amendment No. 3, filed July 28,
1989.
(10) This exhibit was previously filed as part of, and is hereby
incorporated by reference to, the same numbered exhibits
(except as otherwise indicated) in form 8-K, filed April 14,
1995.
b) Reports on Form 8-K
None.
14
<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.
February 16, 1999 /s/ D. SCOTT BUCHANAN
------------------ ---------------------
Date D. Scott Buchanan
President and Chief Executive Officer
February 16, 1999 /s/ ARON P. STERN
------------------ ---------------------
Date Aron P. Stern
Vice President of Finance, Chief Financial Officer
Secretary
Principal Financial and Accounting Officer
15
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<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 REFEERNCE
TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 174
<SECURITIES> 9,975
<RECEIVABLES> 884
<ALLOWANCES> (10)
<INVENTORY> 3,673
<CURRENT-ASSETS> 15,146
<PP&E> 7,976
<DEPRECIATION> (7,641)
<TOTAL-ASSETS> 15,754
<CURRENT-LIABILITIES> 5,818
<BONDS> 0
0
0
<COMMON> 99,392
<OTHER-SE> 3,000
<TOTAL-LIABILITY-AND-EQUITY> 15,754
<SALES> 24
<TOTAL-REVENUES> 119
<CGS> 269
<TOTAL-COSTS> 323
<OTHER-EXPENSES> 1,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (121)
<INCOME-PRETAX> (1,750)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,750)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
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