<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______TO________
COMMISSION FILE NUMBER: 0-26520
NEOPROBE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-1080091
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
425 METRO PLACE NORTH, SUITE 300, DUBLIN, OHIO 43017
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 614.793.7500
Indicate by check 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.
Yes X No
----- -----
23,047,644 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE
(Number of shares of issuer's common equity outstanding as of
the close of business on August 11, 1999)
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1999 1998
------------------- --------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,967,067 $ 3,054,936
Available-for-sale securities - 448,563
Accounts receivable, net 1,725,346 2,069,633
Inventory 1,492,499 1,578,912
Prepaid expenses 391,636 720,420
Other current assets 41,833 147,008
------------------- --------------------
Total current assets 6,618,381 8,019,472
------------------- --------------------
Investment in affiliates 1,500,000 1,500,000
Property and equipment 3,077,052 3,073,931
Less accumulated depreciation and amortization 1,793,046 1,654,661
------------------- --------------------
1,284,006 1,419,270
------------------- --------------------
Intangible assets, net 779,453 773,863
Other assets 800 281,594
------------------- --------------------
Total assets $ 10,182,640 $ 11,994,199
=================== ====================
</TABLE>
CONTINUED
2
<PAGE> 3
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30, DECEMBER 31,
1999 1998
------------------- --------------------
<S> <C> <C>
Current liabilities:
Line of credit $ 1,000,000 $ 1,000,000
Notes payable to finance company 81,868 242,163
Capital lease obligations, current 101,018 99,539
Accounts payable 2,151,564 2,857,717
Accrued liabilities 1,836,342 2,813,321
------------------- --------------------
Total current liabilities 5,170,792 7,012,740
------------------- --------------------
Capital lease obligations 104,934 155,816
------------------- --------------------
Total liabilities 5,275,726 7,168,556
------------------- --------------------
Commitments and contingencies
Redeemable convertible preferred stock:
Series B; $.001 par value; 63,000 shares and 0 shares
authorized at June 30, 1999 and December 31, 1998,
respectively; 30,000 shares and 0 shares issued and
outstanding at June 30, 1999 and December 31, 1998,
respectively 1,852,025 -
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares
authorized at June 30, 1999 and December 31, 1998;
none issued and outstanding (500,000 shares designated
as Series A, $.001 par value, at June 30, 1999 and
and December 31, 1998; none outstanding) - -
Common stock; $.001 par value; 50,000,000 shares
authorized; 23,032,910 shares issued and
outstanding at June 30, 1999; 22,887,910
shares issued and outstanding at December 31, 1998 23,033 22,888
Additional paid-in capital 121,241,613 120,272,899
Accumulated deficit (118,133,473) (115,395,283)
Accumulated other comprehensive loss (76,284) (74,861)
------------------- --------------------
Total stockholders' equity 3,054,889 4,825,643
------------------- --------------------
Total liabilities and stockholders' equity $ 10,182,640 $ 11,994,199
=================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
NEOPROBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 1,914,650 $ 1,255,033 $ 3,825,621 $ 2,118,924
Cost of goods sold 657,270 340,584 1,276,923 565,057
---------------- --------------- ---------------- ------------------
Gross profit 1,257,380 914,449 2,548,698 1,553,867
---------------- --------------- ---------------- ------------------
Operating expenses:
Research and development 351,961 3,172,738 814,296 7,926,727
Marketing and selling 1,134,620 1,122,537 2,257,422 2,218,514
General and administrative 810,999 1,325,814 1,816,225 2,751,654
Losses related to subsidiaries in liquidation 388,406 678,851 475,231 1,330,320
---------------- --------------- ---------------- ------------------
Total operating expenses 2,685,986 6,299,940 5,363,174 14,227,215
---------------- --------------- ---------------- ------------------
Loss from operations (1,428,606) (5,385,491) (2,814,476) (12,673,348)
---------------- --------------- ---------------- ------------------
Other income (expense):
Interest income 21,331 195,365 47,990 449,456
Interest expense (26,419) (41,473) (42,945) (52,096)
Other 251 (29,457) 71,241 (48,680)
---------------- --------------- ---------------- ------------------
Total other income (expense) (4,837) 124,435 76,286 348,680
---------------- --------------- ---------------- ------------------
Net loss (1,433,443) (5,261,056) (2,738,190) (12,324,668)
---------------- --------------- ---------------- ------------------
Conversion discount on preferred stock - - 1,795,775 -
Preferred stock dividend requirements 37,500 - 56,250 -
---------------- --------------- ---------------- ------------------
Loss attributable to common stockholders $ (1,470,943) $ (5,261,056) $ (4,590,215) $ (12,324,668)
================ =============== ================ ==================
Loss per common share
(basic and diluted) $ (0.06) $ (0.23) $ (0.20) $ (0.54)
================ =============== ================ ==================
Weighted average shares
outstanding during the period
(basic and diluted) 22,972,910 22,824,342 22,960,700 22,793,243
================ =============== ================ ==================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
NEOPROBE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
------------------- --------------------
<S> <C> <C>
Net cash used in operating activities $ (3,089,235) $ (14,559,929)
Cash flows from investing activities:
Purchases of available-for-sale securities - (1,738,512)
Proceeds from sales of available-for-sale securities 443,729 2,121,775
Maturities of available-for-sale securities 4,467 9,300,000
Purchases of property and equipment (58,259) (1,641,658)
Proceeds from sales of property and equipment 23,440 -
Patent costs (17,767) (314,102)
------------------- --------------------
Net cash provided by investing activities 395,610 7,727,503
------------------- --------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 145 196,298
Proceeds from issuance of redeemable convertible
preferred stock, net 2,820,739 -
Proceeds from line of credit - 700,000
Payments under line of credit - (275,750)
Payments under notes payable (160,295) (134,053)
Payments under capital leases (49,403) (80,836)
Proceeds from long-term debt - 2,532,012
------------------- --------------------
Net cash provided by financing activities 2,611,186 2,937,671
------------------- --------------------
Effect of exchange rate changes on cash (5,430) (7,392)
------------------- --------------------
Net decrease in cash and cash equivalents (87,869) (3,902,147)
Cash and cash equivalents at beginning of period 3,054,936 9,921,025
------------------- --------------------
Cash and cash equivalents at end of period $ 2,967,067 $ 6,018,878
=================== ====================
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The information presented for June 30, 1999 and 1998, and for the
periods then ended is unaudited, but includes all adjustments (which
consist only of normal recurring adjustments) which the management of
Neoprobe Corporation (the "Company") believes to be necessary for the
fair presentation of results for the periods presented. 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 the rules and
regulations of the Securities and Exchange Commission. The results for
the interim period are not necessarily indicative of results to be
expected for the year. The financial statements should be read in
conjunction with the Company's audited financial statements for the
year ended December 31, 1998, which were included as part of the
Company's Annual Report on Form 10-K, as amended. Certain 1998 amounts
have been reclassified to conform with the 1999 presentation.
2. COMPREHENSIVE INCOME (LOSS): Other comprehensive income (loss) consists
of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $1,433,443 $5,261,056 $2,738,190 $12,324,668
Foreign currency translation adjustment 440 (2,397) 1,204 10,022
Unrealized (gains) losses on securities - (8,202) 219 (11,432)
-------------- -------------- ------------- ---------------
Other comprehensive loss $1,433,883 $5,250,457 $2,739,613 $12,323,258
============== ============== ============= ===============
</TABLE>
3. INVENTORY:
The components of inventory are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------- -----------------
<S> <C> <C>
Materials and component parts $ 275,073 $ 277,505
Finished goods 1,217,426 1,301,407
--------------- -----------------
$1,492,499 $ 1,578,912
=============== =================
</TABLE>
4. EQUITY:
a. PRIVATE PLACEMENT: On February 16, 1999, the Company executed a
Preferred Stock and Warrant Purchase Agreement (the "Purchase
Agreement") to complete the private placement of 30,000 shares of
5% Series B Convertible preferred stock (the "Series B") for gross
proceeds of $3 million ($2.8 million, net of transaction costs).
The Series B have a $100 per share stated value and are
convertible into common stock of the Company. In connection with
the private placement, the Company also
6
<PAGE> 7
issued 2.9 million shares of warrants to purchase common stock of
the Company at an initial exercise price of $1.03 per share.
The Company is required to pay a cumulative 5% annual dividend on
the Series B. Dividends accrue daily and are payable on each
six-month and one-year anniversary of the initial closing.
Neoprobe has the option of paying these dividends in cash or in
shares of common stock. On any day the common stock trades below
$0.55 per share, the annual dividend rate will be 10%. The
dividends are recorded as incremental yield to the preferred
stockholders in the Company's loss per share calculation and are
included in the carrying value of the Series B at June 30, 1999.
Generally, each share of the Series B may be converted, at the
option of the owner, into the number of shares of common stock
calculated by dividing the sum of $100 and any unpaid dividends on
the share of Series B by the conversion price. The initial
conversion price of the Series B sold is $1.03 per share of common
stock. If, on February 16, 2000, the market value of common stock
is less than $1.03, the conversion price will be reset to the
market value of a share of common stock on February 16, 2000, but
not less than $0.515. If the market value of common stock is less
than $1.03, the conversion price will be the average of the three
lowest closing bid prices for a share of common stock during the
previous 10 trading days. The Company may refuse to convert a
share of Series B that the Company sold if its conversion price is
less than $0.55. However, if the conversion price of a share is
less than $0.55 for more than 60 trading days in any 12-month
period, then the Company must either convert a share at the
share's conversion price or pay the owner cash based on the
highest closing price for common stock during the period from the
date of the owner's conversion request until the payment. The
conversion price may also be adjusted to prevent dilution of the
economic interests of the owners of Series B in the event certain
other equity transactions are consummated by the Company. The
exercise price of the warrants is also subject to adjustment based
on terms defined in the Agreement, subject to a floor price of
$0.62 per share.
Holders of the Series B have certain liquidation preferences over
other stockholders under certain provisions as defined in the
Purchase Agreement and have the right to cast the same number of
votes as if the owner had converted on the record date.
Under certain conditions, the Company may be obligated to redeem
outstanding shares of Series B for $120 per share. Conditions
under which redemption may be required include: failure to meet
filing deadlines for a registration statement for common stock
into which the Series B may be converted, a material breach of the
Purchase Agreement, delisting from the NASDAQ Stock Market, a
material qualification of the audit opinion on the consolidated
financial statements, or the liquidation or merger of the Company
or the sale of substantially all of the Company's assets.
The Company obtained a waiver from the holders of the Series B of
the redemption requirements associated with the issuance by the
Company's auditors of a going concern opinion on the Company's
consolidated financial statements for the year ended December 31,
1998. However, on July 28, 1999, the NASDAQ Stock Market, Inc.
delisted the Company's common stock from the NASDAQ National
Market System ("NASDAQ NMS"). Management believes that as a result
of events which occurred subsequent to June 30, 1999, the holders
of the Series B Preferred Stock (the "Series B holders") have the
option to request
7
<PAGE> 8
redemption of the Series B. If the Series B holders decide to
request redemption, the Purchase Agreement would appear to require
that the Company pay the Series B holders approximately $3.6
million.
Pursuant to the private placement, the Company signed a financial
advisory agreement with the placement agent providing the agent
with the right to purchase 1,500 shares of Series B convertible
into common stock, initially at $1.03 per share, and warrants to
purchase 145,631 shares of common stock of the Company initially
exercisable at $1.03 per share. Both the Series B and the warrants
issuable under the financial advisory agreement are subject to
repricing features similar to the outstanding Series B and related
warrants. In addition, the Company agreed to pay the agent a
monthly financial advisory fee and success fees based on certain
investment transactions consummated during the 24-month term of
the agreement, if any.
The Series B and the related warrants issued were recorded at the
amount of gross proceeds less the costs of the financing based
upon their relative fair values. The preferred stock, due to its
redemption provisions, is classified as mezzanine financing above
the stockholders' equity section on the balance sheet. The
calculated conversion price at February 16, 1999, the first
available conversion date, was $1.03 per share. In accordance with
the FASB's Emerging Issues Task Force Topic D-60, the difference
between this conversion price and the closing market price of
$1.81 on February 16, 1999, not to exceed the amount allocated to
the preferred stock, was reflected as incremental yield to the
preferred stockholders in the Company's loss per common share
calculation for the quarter ended March 31, 1999. Additional
amounts will be accreted to the preferred stock, up to redemption
value, in the event that an event of redemption is assessed as
probable on the balance sheet date. If required to redeem the
Series B, the Company would record a charge of approximately $1.8
million (or approximately $0.08 per share). Management of the
Company does not believe an event was probable as of June 30, 1999
to require the accretion of additional amounts up to the
redemption value (See Note 7(a).).
b. STOCK OPTIONS: During the first quarter of 1999, the Board granted
options to employees and certain directors of the Company under
the 1996 Stock Incentive Plan (the "Plan") for 412,500 shares of
common stock, exercisable at $1.25 per share, vesting over three
to four years. During the second quarter of 1999, the Board of
Directors granted 105,000 options to non-employee directors under
the Plan, exercisable at $0.72 per share, in lieu of waived cash
compensation. As of June 30, 1999, the Company has 1.4 million
options outstanding under two stock option plans. Of the
outstanding options, 599,000 options have vested as of June 30,
1999, at an average exercise price of $6.56 per share.
5. SEGMENTS AND SUBSIDIARIES INFORMATION:
Prior to the changes in the Company's business plan made starting in
early 1998 and continuing through June 30, 1999, the Company's business
was operated based on product development initiatives started under the
Company's prior business plan. These strategic initiatives originally
included development and commercialization of: hand-held gamma
detection instruments currently used primarily in the application of
Intraoperative Lymphatic Mapping ("ILM"), diagnostic
radiopharmaceutical products to be used in the Company's proprietary
RIGS(R) (radioimmunoguided surgery) process, and Activated Cellular
Therapy ("ACT"). The Company's current business plan focuses primarily
on the hand-held gamma detection
8
<PAGE> 9
instruments while efforts are carried out to find partners or licensing
parties to fund RIGS and ACT research and development.
The Company's United States operations included activities for 1998 and
prior years that benefited all three strategic initiatives. The
suspended RIGS initiative included the operations of the Company's two
subsidiaries, Neoprobe Europe AB ("Neoprobe Europe") and Neoprobe
Israel. Neoprobe Europe was acquired in 1993 primarily to perform a
portion of the manufacturing process of the monoclonal antibody used in
the first RIGS product to be used for colorectal cancer, RIGScan CR49.
Neoprobe Israel was founded to radiolabel RIGScan CR49. Neoprobe Europe
and Neoprobe Israel also both performed limited research and
development activities related to the Company's RIGS process on behalf
of the Company. Under SFAS No. 131, neither subsidiary has
been considered a segment. Both Neoprobe Europe and Neoprobe Israel
have been accounted for under the liquidation method of accounting as
of December 31, 1998. The results of the operations of Neoprobe Europe
and Neoprobe Israel for 1998, as well as the effects of adjustment of
their related assets in conformity with the liquidation basis of
accounting, have been reclassified from prior year presentations to be
presented as losses relating to subsidiaries in liquidation in the
consolidated statements of operations. Accordingly, the consolidated
balance sheet at June 30, 1999, includes $96,000 in current assets of
Neoprobe Israel at their net realizable value and $893,000 in
liabilities at the amounts expected to settle the obligations due.
The information in the following table is derived directly from the
segments' internal financial reporting used for corporate management
purposes. The expenses attributable to corporate activity, including
amortization and interest, and other general and administrative costs
are not allocated to the individual segments.
Three months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
($ AMOUNTS IN THOUSANDS) THREE MONTHS ENDED JUNE 30, 1999
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ - $ 1,557 $ - $ - $ 1,557
International customers - 358 - - 358
Research and development expenses - 352 - - 352
Marketing and selling expenses - 1,135 - - 1,135
General and administrative expenses - - - 811 811
Losses related to subsidiaries in liquidation 388 - - - 388
Other income - - - (5) (5)
THREE MONTHS ENDED JUNE 30, 1998
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
Revenue
U.S. customers $ - $ 1,255 $ - $ - $ 1,255
International customers - - - - -
Research and development expenses 2,427 243 503 - 3,173
Marketing and selling expenses - 1,123 - - 1,123
General and administrative expenses - - - 1,326 1,326
Losses related to subsidiaries in liquidation 679 - - - 679
Other income - - - 124 124
</TABLE>
9
<PAGE> 10
Six months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
($ AMOUNTS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 1999
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
<S> <C> <C> <C> <C> <C>
Revenue
U.S. customers $ - $2,878 $ - $ - $2,878
International customers - 948 - - 948
Research and development expenses - 814 - - 814
Marketing and selling expenses - 2,257 - - 2,257
General and administrative expenses - - - 1,816 1,816
Losses related to subsidiaries in liquidation 475 - - - 475
Other income - - - 76 76
SIX MONTHS ENDED JUNE 30, 1998
RIGS ILM ACT UNALLOCATED TOTAL
---- --- --- ----------- -----
Revenue
U.S. customers $ - $1,960 $ - $ - $1,960
International customers - 159 - - 159
Research and development expenses 5,018 2,020 889 - 7,927
Marketing and selling expenses - - - 2,219 2,219
General and administrative expenses - - - 2,752 2,752
Losses related to subsidiaries in liquidation 1,330 - - - 1,330
Other income - - - 349 349
</TABLE>
6. AGREEMENTS:
In April 1998, the Company executed a non-exclusive Sales and Marketing
Agreement with Ethicon Endo-Surgery, Inc. ("EES"), a Johnson & Johnson
company, to market and promote certain of the Company's line of
hand-held gamma detection instruments. On January 29, 1999, the Company
provided EES with notice of the Company's intent to terminate the
Agreement effective March 1, 1999.
Effective February 1, 1999, the Company executed a Sales and Marketing
Agreement with KOL BioMedical Instruments, Inc. ("KOL") to market the
Company's current and future gamma guided surgery products in the U.S.
In exchange for marketing and selling the products and providing
customer training, KOL will receive commissions on net sales of
applicable products and milestone payments on the achievement of
certain levels of product sales. The term of the agreement is
indefinite with provisions for both parties to terminate with a minimum
of six months notice under certain conditions such as non-performance
or without cause. However, if terminated by the Company without cause
or because of a change of control of the Company, KOL is entitled to
receive a termination fee of 15% based on monthly net sales for a
maximum of twenty-four months, and the Company is required to buy back,
at a discount, demonstration units purchased by KOL during the
nine-month period preceding termination.
7. CONTINGENCIES:
a. POTENTIAL REDEMPTION OF SERIES B: On July 28, 1999, the NASDAQ
Stock Market, Inc. delisted the Company's common stock from the
NASDAQ NMS. Management believes that as a result of events which
occurred subsequent to June 30, 1999, the holders of the Series B
have the option to request redemption of the Series B. If the
Series B holders decide to request redemption, the Purchase
Agreement appears to require that the Company pay the Series B
holders approximately $3.6 million.
10
<PAGE> 11
Management of the Company has approached the holders of the Series
B in an attempt to restructure the Series B transaction.
Management of the Company does not believe an event was probable
as of June 30, 1999 to require the accretion of additional amounts
above the currently recorded book value of the Series B of $1.8
million. Based on events subsequent to June 30, 1999, including
management's attempt to restructure the Series B transaction,
management believes that the Company is likely to either redeem,
convert or restructure the Series B in such a fashion that would
result in the Company recording a charge of up to $1.8 million (or
approximately $0.08 per share)to bring the recorded book value of
the Series B up to a potential settlement value. However, there
can be no assurances that the Company will be able to restructure
the Series B transaction at terms acceptable to the Company or at
all. Management's believes the best estimate of the potential
settlement value to be an amount consistent with the $3.6 million
redemption value stipulated in the Purchase Agreement.
b. NEOPROBE ISRAEL: Pursuant to the Company's decision to liquidate
Neoprobe Israel, management of the Company believes Neoprobe
Israel may be subject to claims from the State of Israel, a bank,
and various vendors (collectively, the "Creditors"). The Company
continues to negotiate with the aforementioned parties and
continues to believe its only contractual obligation related to
Neoprobe Israel relates to the limited amount guarantee which is
fully secured through restricted cash and investments. However, it
is possible that the Creditors would seek to pursue claims against
the Company related to potential defaults on the part of Neoprobe
Israel under a judicial doctrine generally referred to as
"piercing the corporate veil." In the event the Creditors were
successful in making a claim under this judicial doctrine, the
Company may be required to pay liabilities of Neoprobe Israel of
approximately $6 million. Payment of such an amount would deplete
the Company's cash, and the Company might not be able to continue
operations. Management believes, based on advice from counsel,
that it is unlikely that parties would prevail if such claims were
brought against the Company. As such, no provision for such a
contingent loss has been recorded at June 30, 1999.
8. LIQUIDITY:
The Company has experienced significant operating losses in each year
since inception, and has an accumulated deficit of approximately $118
million as of June 30, 1999. Over the past twelve to eighteen months,
the Company has made significant changes to its business plan as a
result of unfavorable feedback from regulatory authorities regarding
marketing applications for RIGScan CR49. The Company's previous
business plan involved the expenditure of significant amounts of funds
to finance research and development for the Company's RIGS and ACT
initiatives. These expenditures severely depleted the Company's cash
position. As of June 30, 1999, the Company had cash and cash
equivalents of $2.9 million. Of this amount, approximately $1.0 million
is pledged as security associated with the Company's revolving line of
credit, and $1.0 million is restricted related to the debt outstanding
under the financing program for the construction of Neoprobe Israel's
radiolabeling facility. At June 30, 1999, the Company had access to
approximately $900,000 in unrestricted funds to finance its operating
activities for the remainder of 1999.
Management of the Company expects, based on the execution of a letter
of intent (the "LOI") signed with a major multi-national corporation to
distribute the Company's line of gamma guided surgery products (See
Note 9.), that the Company's liquidity position will be significantly
improved and the Company will be able to achieve its previously stated
goal of quarterly profitability by the fourth quarter of 1999.
However, there can be no assurance that the Company will be able to
satisfactorily complete a definitive agreement on terms consistent with
the LOI, on a timely basis, or at all, or if completed that the
definitive agreement will result in profitable operations. The Company
has also significantly reduced operating expenses under the current
business plan as compared to the previous plan which was heavily
focused on radiopharmaceutical research and development activities. The
Company is actively pursuing other sources of improving its projected
liquidity position. Potential sources of capital include, but are not
limited to, the sale of non-strategic assets. However, there can be no
assurances that the Company will be able to obtain additional capital
on a timely basis, in the amounts required, at terms acceptable to the
Company, or at all.
11
<PAGE> 12
9. SUBSEQUENT EVENT:
On August 10, 1999, the Company executed a non-binding letter of intent
(the "LOI") with a major multi-national corporation (the
"Counterparty") to market and distribute the Company's line of gamma
guided surgical products into certain global markets. The Company hopes
to complete a definitive agreement within 60 days of the execution of
the LOI. If a definitive agreement is reached on terms consistent with
the LOI, the Company will receive an upfront payment and the
Counterparty will be required to purchase minimum quantities of the
Company's products over the anticipated multi-year term of the
agreement. However, a definitive agreement is contingent upon the
Counterparty's due diligence. There can be no assurance that the
Company will be able to satisfactorily complete a definitive agreement
on terms consistent with the LOI, on a timely basis, or at all, or if
completed that the definitive agreement will affect the Company's
financial position and results of operations as positively as
anticipated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this Management Discussion and Analysis of Financial
Condition and Results of Operations and other parts of this Report that are not
purely historical or which might be considered an opinion or projection
concerning the Company or its business, whether express or implied, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements may include statements regarding
the Company's expectations, intentions, plans or strategies regarding the future
which involve risks and uncertainties. All forward-looking statements included
in this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward looking
statements. It is important to note that the Company's actual results in 1999
and future periods may differ significantly from the prospects discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, limited revenues, continuing net
losses, accumulated deficit, future capital needs, uncertainty of capital
funding, competition, limited marketing experience, limited manufacturing
experience, dependence on principal product line, uncertainty of market
acceptance, patents, proprietary technology and trade secrets, government
regulation, risk of technological obsolescence, limited third party
reimbursement, product liability, need to manage a changing business, possible
volatility of stock, anti-takeover provisions, dependence on key personnel, and
no dividends.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Through June 30, 1999, the Company's activities have
resulted in an accumulated deficit of $118 million. Substantially all of the
Company's efforts and resources to-date have been devoted to research and
clinical development of innovative systems for the intraoperative diagnosis and
treatment of cancers. These efforts were principally related to the Company's
proprietary RIGS system; however, efforts since 1997 also included activities
related to development of ILM-related products. Over the past eighteen months,
the Company has significantly reduced operating expenses under the current
business plan as compared to the previous plan which was heavily focused on
radiopharmaceutical research and development activities. To-date, the Company's
activities have been financed primarily through the public and private sale of
equity securities.
During the first half of 1999, the Company has continued to reduce operating
expenses in order to support the Company's goals of achieving operating
profitability. During the first half of 1999, inventory and receivable levels
remained relatively consistent with the end of 1998 based primarily on the
consistent level of sales achieved over the last three quarters. Should the
Company be successful in consummating a definitive agreement with a strategic
partner for the global
12
<PAGE> 13
distribution of its gamma guided surgery products, the Company expects inventory
and receivables levels to decline over time as the strategic relationship
progresses.
Investing Activities. The Company's investing activities during the first half
of 1999 involved primarily the sale of certain available-for-sale securities to
fund operations. The Company engaged in similar activities in 1998. However, in
the first half of 1998, the Company made significant capital expenditures on
construction at Neoprobe Israel. Neoprobe Israel was founded by the Company and
Rotem Industries Ltd. ("Rotem") in 1994 to construct and operate a radiolabeling
facility near Dimona, Israel. Rotem, the private arm of the Israeli atomic
energy authority, currently has a 5% equity interest in Neoprobe Israel and has
the right to acquire an additional 4% under certain conditions related to the
completion of the facility. Based on the status of the Company's marketing
applications in the U.S. and Europe, and the Company's inability to find a
development partner for its RIGS products, the Company decided during 1998 to
suspend construction and validation activities at Neoprobe Israel. Following
suspension of RIGS development activities at Neoprobe Israel and unsuccessful
attempts to market the facility, the Company initiated actions during the fourth
quarter of 1998 to liquidate Neoprobe Israel. The Company, therefore, adopted
the liquidation basis of accounting for Neoprobe Israel as of December 31, 1998.
As the Company may relinquish ownership of the facility to the bank if a
suitable buyer cannot be found on a timely basis, the Company has written down
the value of the fixed assets of the facility and reduced the recorded balance
of the related debt to zero on the basis that the bank would assume ownership of
the facility under the collateralization terms of the debt agreement.
Accordingly, the consolidated balance sheet at June 30, 1999 includes $96,000 in
current assets of Neoprobe Israel at their net realizable value and $893,000 in
liabilities at the amounts expected to settle the obligations due.
Financing Activities. On February 16, 1999, the Company completed the private
placement of $3.0 million of convertible preferred stock (i.e., the Series B).
Under certain conditions, the Company may be obligated to redeem outstanding
shares of Series B for $120 per share or a total of $3.6 million. Conditions
under which redemption may be required include: failure to meet filing deadlines
for a registration statement for common stock into which the Series B may be
converted, a material breach of the purchase agreement, delisting from the
NASDAQ Stock Market, a material qualification of the audit opinion on the
consolidated financial statements, or the liquidation or merger of the Company
or the sale of substantially all of the assets of the Company.
The Company obtained a waiver from the holders of the Series B of the redemption
requirements associated with the issuance by the Company's auditors of a going
concern opinion on the Company's consolidated financial statements for the year
ended December 31, 1998. However, on July 28, 1999, the NASDAQ Stock Market,
Inc. delisted the Company's common stock from the NASDAQ NMS. As a result of
events which occurred subsequent to June 30, 1999, the holders of the Series B
have the option to request redemption of the Series B. If the Series B holders
decide to request redemption, the Company would be required to pay the Series B
holders approximately $3.6 million. As of June 30, 1999, the Company does not
have adequate funds to repay the redemption amount, if requested. Management of
the Company has approached the holders of the Series B in an attempt to
restructure the Series B transaction. Management of the Company does not believe
an event was probable as of June 30, 1999 to require the accretion of additional
amounts above the currently recorded book value of the Series B of $1.8 million.
Based on events subsequent to June 30, 1999, including management's attempt to
restructure the Series B transaction, management believes that the Company is
likely to either redeem, convert or restructure the Series B in such a fashion
that would result in the Company recording a charge of approximately $1.8
million (or approximately $0.08 per share) to bring the recorded book value of
the Series B up to a potential settlement value.
13
<PAGE> 14
Management's believes the best estimate of the potential settlement value to be
an amount consistent with the $3.6 million redemption value stipulated in the
Purchase Agreement.
Operational Outlook. The Company's only approved products are instruments and
related products used in gamma guided surgery. The Company does not currently
have a RIGS drug or ACT product approved for commercial sale in any major
market. On August 10, 1999, the Company executed a non-binding letter of intent
(the "LOI") with a major multi-national corporation (the "Counterparty") to
market and distribute the Company's line of gamma guided surgical products into
certain global markets. The Company hopes to complete of a definitive agreement
within 60 days of the execution of the LOI. If a definitive agreement is reached
on terms consistent with the LOI, the Company will receive an upfront payment
and the Counterparty will be required to purchase minimum quantities of the
Company's products over the anticipated multi-year term of the agreement.
However, there can be no assurance that the Company will be able to
satisfactorily complete a definitive agreement on terms consistent with the LOI,
on a timely basis, or at all, or if completed that the definitive agreement will
affect the Company's financial position and results of operations as positively
as anticipated.
Based on the Company's current business plan that focuses Company resources on
ILM through its relationship with the Counterparty, the Company currently
anticipates sales activities may begin to generate positive cash flow from
operations during the fourth quarter of 1999. However, there can be no assurance
that the Company will be able to satisfactorily complete a definitive agreement
on terms consistent with the LOI, on a timely basis, or at all, or if completed
that the definitive agreement will affect the Company's financial position and
results of operations as positively as anticipated.
As of June 30, 1999, the Company had cash and cash equivalents of $2.9 million.
Of this amount, approximately $1.0 million is pledged as security associated
with the Company's revolving line of credit and $1.0 million is restricted
related to the debt outstanding under the financing program for the construction
of Neoprobe Israel's radiolabeling facility. At June 30, 1999, the Company had
access to approximately $900,000 in unrestricted funds to finance its operating
activities for the remainder of 1999. The Company expects to continue to
experience cost savings during the remainder 1999 as a result of modifications
to its business plan during 1998 regarding RIGS and ACT. The Company is also
attempting to sell approximately $1.5 million in non-strategic assets. However,
there can be no assurance that these assets will be sold during 1999, on terms
acceptable to the Company, or at all. If the Company does not receive adequate
funds from the aforementioned sources, it may need to further modify its
business plan and seek other financing alternatives. Such alternatives may
include asset dispositions that could force the Company to further change its
business plan.
At December 31, 1998, the Company had U.S. net operating tax loss carryforwards
of approximately $95.5 million to offset future taxable income through 2018.
Additionally, the Company has U.S. tax credit carryforwards of approximately
$3.3 million available to reduce future income tax liability through 2018. Under
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, use of
prior tax loss and credit carryforwards is limited after an ownership change. As
a result of ownership changes as defined by Sections 382 and 383, which have
occurred at various points in the Company's history, management believes
utilization of the Company's tax loss carryforwards and tax credit carryforwards
may be limited. The Company's international subsidiaries also have net operating
operating tax loss carryforwards in their respective foreign jurisdictions.
However, as the Company is in the process of liquidating its interests in both
foreign subsidiaries as of December 31, 1998, the Company does not anticipate
that the foreign loss carryforwards will ever be utilized.
Impact of Recent Accounting Pronouncements. In June 1998, the Financial
Accounting Standard Board issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 was originally required to be adopted in years beginning after June
15, 1999; however SFAS No. 137 deferred the effective date to fiscal quarters
beginning after June 15, 2000. The Company expects to adopt SFAS No. 133
effective July 1, 2000. The Statement will require companies to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If
14
<PAGE> 15
a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedge asset, liability or firm commitment through earnings, or
recognized in other comprehensive income until the hedge item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
Y2K. As many computer systems and other equipment with embedded chips or
processors (collectively, "Business Systems") use only two digits to represent
the year, they may be unable to process accurately certain data before, during
or after the year 2000. As a result, business and governmental entities are at
risk for possible miscalculations or system failures causing disruptions in
their business operations. This is commonly known as the Year 2000 ("Y2K")
issue. The Y2K issue can arise at any point in the Company's supply,
manufacturing, distribution, and financial chains. The Company is in the process
of implementing an assessment and readiness plan with the objective of having
all its significant internal Business Systems functioning properly with respect
to the Y2K issue before January 1, 2000, and minimizing the possible disruptions
to the Company's business which could result from the Y2K problem.
As part of its readiness plan, the Company has conducted a company-wide
assessment of its Business Systems to identify elements that are not Y2K
compliant. Based on the results of the assessment, the Company continues to
believe that the majority of its critical Business Systems, most of which have
been purchased and installed in recent years, are Y2K compliant. The Company's
internal Business Systems do not have internally generated programmed software
coding to correct, as substantially all of the software utilized by the Company
has been recently purchased or licensed from external vendors. The Company
intends to complete ongoing comprehensive testing of its Business Systems during
the third quarter of 1999.
Those Business Systems that are not presently Y2K compliant are anticipated to
be replaced, upgraded or modified in the normal replacement cycle prior to 2000.
The Company estimates the total cost to the Company of completing any required
modifications, upgrades, or replacements of its internal systems to be
approximately $20,000, the majority of which has been incurred as of June 30,
1999. The Company does not believe the costs incurred to-date or remaining
anticipated costs associated with its Y2K readiness plan have had or will have a
material adverse effect on the Company's business. This estimate is being
monitored and will be revised, as additional information becomes available.
The Company also continues communications with third parties whose Business
Systems functionality could impact the Company. These communications will
facilitate coordination of Y2K solutions and will permit the Company to
determine the extent of which it may be vulnerable to failures of third parties
to address their own Y2K issues. Because the manufacturing and distribution of
the Company's products are almost entirely outsourced to other entities, the
failure of these third parties to achieve Y2K compliance could have a material
impact on the Company's business, financial position, results of operations and
cash flows. The Company has attempted, where possible, to establish contractual
requirements or request certification or other assurances regarding Y2K
compliance by such third parties. However, the Company has limited control over
the actions of these third parties on which the Company directly or indirectly
places reliance. There can be no guarantee that such systems that are not now
Y2K compliant will be timely converted to Y2K compliance.
The Company has also assessed the potential Y2K related exposure it may have
with respect to gamma detection instrumentation which it has delivered to
customers. The Company does not believe products it has distributed, to date or
that may be distributed in the future, face any significant Y2K problems which
will affect their functionality or utility by the customer. The Company provides
assurances of the Y2K compliance of its products to customers at the time of
sale.
The Company is in the process of developing a contingency plan with respect to
the Y2K issue and intends to complete such a plan during the third quarter 1999
as part of its ongoing Y2K compliance effort.
The foregoing assessment of the impact of the Y2K problem on the Company is
based on management's best estimates at the present time and could change
substantially. The assessment is based on numerous assumptions as to future
events. There can be no guarantee that these estimates will prove accurate, and
actual results could differ from those estimates if these assumptions prove
inaccurate.
15
<PAGE> 16
RESULTS OF OPERATIONS
Since inception, the Company has dedicated substantially all of its resources to
research and development of its RIGS technology for the intraoperative diagnosis
and treatment of cancer. Until the appropriate regulatory approvals are
received, the Company is limited in its ability to generate revenue from these
sources.
Research and development expenses during the first half of 1999 were $814,000,
or 15% of operating expenses. Marketing and selling expenses were $2.3 million,
or 42% of operating expenses, and general and administrative expenses were $1.8
million, or 34% of operating expenses. Overall, operating expenses for the first
half of 1999 decreased $8.9 million or 62% over the same period in 1998. The
Company anticipates that total operating expenses for the remainder of 1999 will
also decrease from 1998 levels. The Company expects research and development and
general and administrative expenses to decrease from 1998 levels as a result of
the modifications to the business plan adopted during 1998. Marketing expenses,
as a percentage of sales, decreased to 59% of sales for the first half of 1999
from 105% of sales for the same period in 1998. The Company expects marketing
and selling expenses for the remainder of 1999 to increase from 1998 levels
although such expenses are expected to continue to decrease as a percentage of
sales.
Three months ended June 30, 1999 and 1998
Revenues and Margins. Net sales increased $660,000 or 53% to $1.9 million during
the second quarter of 1999 from $1.3 million during the same period in 1998.
Sales during both periods were comprised almost entirely of sales of the
Company's hand-held gamma detection instruments. Instrument sales increased as a
result of the introduction during the fourth quarter of 1998 of the neo2000(TM)
system and the continuing growth of the lymphatic mapping technique. Gross
margins decreased to 66% of net sales in the second quarter of 1999 from 73%
during the same period in 1998 due to a higher proportion of sales made in 1999
under various distributor arrangements which were not in place in 1998.
Research and Development Expenses. Research and development expenses decreased
$2.8 million or 89% to $352,000 during the second quarter of 1999 from $3.2
million during the same period in 1998. Over $2.4 million of the decrease can be
primarily attributed to changes to the Company's business plan implemented
during 1998 which suspended substantially all research and development
activities related to the Company's RIGS and ACT initiatives. Expenses during
the second quarter of 1999 did include a non-cash write-off of approximately
$218,000 in capitalized pre-production written off as a result of recent
accounting recommendations issued by the EITF.
Marketing and Selling Expenses. Marketing and selling expenses were consistent
between the periods increasing only $12,000 or 1% during the second quarter of
1999 compared to the same period in 1998. However, marketing expenses, as a
percentage of sales, decreased to 59% of sales for the second quarter of 1999
from 89% of sales for the same period in 1998. These results reflect lower
internal marketing expense levels during the second quarter of 1999 as compared
to the same period in 1998 offset by increases in marketing partner commissions
over the same periods.
General and Administrative Expenses. General and administrative expenses
decreased $515,000 or 39% to $811,000 during the second quarter of 1999 from
$1.3 million during the same period in 1998. The decrease was primarily a result
reductions in headcount and other overhead costs such as space costs, taxes and
insurance.
Other Income. Other income decreased $129,000 or 104% to a loss of $5,000 during
the second quarter of 1999 compared to other income of $124,000 during the same
period in 1998. Other loss during the second quarter of 1999 consisted primarily
of net interest expense in excess of interest income, while other income during
the second half of 1998 consisted primarily of interest income. The Company's
interest income declined due to overall average levels of investments during the
second quarter of 1999 as compared to the same period of 1998.
Losses related to subsidiaries in liquidation. The costs decreased $290,000 or
43% to $388,000 during the second quarter of 1999 from $679,000 during the same
period in 1998. During 1999, the charges relate to interest and other overhead
costs incurred during the wind-down process. Costs in 1998 represent the
reclassified costs of operating the Company's two international subsidiaries
prior to the decision to shutdown and liquidate the two companies.
16
<PAGE> 17
Six months ended June 30, 1999 and 1998
Revenues and Margins. Net sales increased $1.7 million or 81% to $3.8 million
during the first half of 1999 from $2.1 million during the same period in 1998.
Sales during both periods were comprised almost entirely of sales of the
Company's hand-held gamma detection instruments. Instrument sales increased as a
result of the introduction during the fourth quarter of 1998 of the neo2000(TM)
system and the continuing growth of the lymphatic mapping technique. Gross
margins decreased to 67% of net sales in the first half of 1999 from 73% during
the same period in 1998 due to a higher proportion of sales made in 1999 under
various distributor arrangements which were not in place in 1998.
Research and Development Expenses. Research and development expenses decreased
$7.1 million or 90% to $814,000 during the first half of 1999 from $7.9 million
during the same period in 1998. Approximately $5.9 million of the decrease is
primarily a result of changes to the Company's business plan implemented during
1998 which suspended substantially all research and development activities
related to the Company's RIGS and ACT initiatives. An additional $1.2 million of
the decrease is due to expenses incurred during the first half of 1998 related
to the neo2000 system and related devices which were commercially launched
during the fourth quarter of 1998. Expenses during the first half of 1999 did
include a non-cash write-off of approximately $218,000 in capitalized
pre-production written off as a result of recent accounting recommendations
issued by the EITF.
Marketing and Selling Expenses. Marketing and selling expenses increased $39,000
or 2% during the first half of 1999 compared to the same period in 1998.
However, marketing expenses, as a percentage of sales, decreased to 59% of sales
for the first half of 1999 from 105% of sales for the same period in 1998. These
results reflect lower internal marketing expense levels during the first half of
1999 as compared to the same period in 1998 offset by increases in marketing
partner commissions over the same periods.
General and Administrative Expenses. General and administrative expenses
decreased $935,000 or 34% to $1.8 million during the first half of 1999 from
$2.8 million during the same period in 1998. The decrease was primarily a result
reductions in headcount and other overhead costs such as space costs, taxes and
insurance.
Other Income. Other income decreased $272,000 or 78% to $76,000 during the first
half of 1999 from $349,000 during the same period in 1998. Other income during
the first half of 1999 consisted primarily of gains from settlement of
liabilities at less than their face value, while other income during the first
half of 1998 consisted primarily of interest income. The Company's interest
income declined due to overall average levels of investments during the first
half of 1999 as compared to the same period of 1998.
Losses related to subsidiaries in liquidation. The costs decreased $855,000 or
64% to $475,000 from $1.3 million during the same period in 1998. During 1999,
the charges relate to interest and other overhead costs incurred during the
wind-down process. Costs in 1998 represent the reclassified costs of operating
the Company's two international subsidiaries prior to the decision to shutdown
and liquidate the two companies.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not currently use derivative financial instruments, such as
interest rate swaps, to manage its exposure to changes in interest rates for its
debt instruments or investment securities. As of June 30, 1999 and December 31,
1998, the Company had, excluding convertible preferred stock, outstanding debt
securities of $1.3 million and $1.5 million respectively. These debt securities
consisted primarily of a variable rate line of credit and fixed rate financing
instruments, with average interest rates of 7.5% and 7% at June 30, 1999,
respectively. At June 30, 1999 and December 31, 1998, the fair market values of
these debt instruments approximated their carrying values. A hypothetical
100-basis point change in interest rates would not have a material effect on
cash flows, income or market values.
The Company has maintained investment portfolios of available-for-sale corporate
and U.S. government debt securities purchased with proceeds from the Company's
public and private placements of equity securities. At December 31, 1998, the
Company held $449,000 of these available-for-sale securities; however, all such
securities were sold during the six months ended June 30, 1999.
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
On February 16, 1999, the Registrant entered into a Preferred Stock and
Warrant Purchase Agreement ("Preferred Stock Agreement") with The Aries Master
Fund, a Cayman Island exempted company, and The Aries Domestic Fund, L.P.
(collectively "Aries") under which the Registrant sold 30,000 shares of Series B
Preferred Stock and Warrants to purchase 2,912,621 shares of Common Stock to
Aries for $3,000,000. A Certificate of Designations of Series B Preferred Stock
("Certificate") of the Registrant dated February 16, 1999 is the legal
instrument that states the terms of the Series B Preferred Stock.
While the Registrant does not believe that any event has occurred
necessitating disclosures under this Item 3, certain events have occurred, or
are likely to occur, which may be deemed defaults under the Preferred Stock
Agreement and the Certificate as discussed in more detail in Management's
Discussion and Analysis contained in Part I of this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
An annual meeting of the stockholders of the Registrant was held on May
19, 1999, adjourned and reconvened on June 17, 1999. The matters voted
upon at the annual meeting and the final results of the votes are set
forth below.
(i) Michael P. Moore was elected a director to serve for
a term of three years; 22,212,109 shares were voted
for his election and 267,472 shares withheld
authority.
(ii) The issuance of securities which are convertible
into, or which are exercisable for, shares of Common
Stock representing more than 20% of the Registrant's
outstanding common Stock was approved; 7,429,782
shares were voted for approval, 469,306 shares were
voted against approval, 111,266 shares abstained, and
14,469,227 shares were not voted.
(iii) An insufficient number of votes were cast for the
approval of alternative proposals to amend the
Registrant's Restated Certificate of Incorporation to
combine shares of Common Stock in order to give such
approval; 10,042,019 shares were voted for approval,
321,515 shares were voted against approval, 103,621
shares abstained, and 12,062,247 shares were not
voted.
ITEM 5. OTHER INFORMATION.
None.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS
3. ARTICLES OF INCORPORATION AND BY-LAWS
Exhibit 3.1
Complete Restated Certificate of Incorporation of Neoprobe
Corporation, as corrected February 18, 1994 and as amended
June 27, 1994, July 25, 1995, June 3, 1996 and March 17, 1999
(incorporated by reference to Exhibit 3.1 to Amendment Number
1 to the Registrant's Annual Report on Form 10-K for the year
ending December 31, 1998 (Commission File No. 0-26520; (the
"1998 Form 10-K/A")).
Exhibit 3.2
Amended and Restated By-Laws dated July 21, 1993 as amended
July 18, 1995 and May 30, 1996 (incorporated by reference to
Exhibit 99.4 to the Registrant's Current Report on Form 8-K
dated June 20, 1996; Commission File No. 0-26520).
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
Exhibit 4.1
See Articles FOUR, FIVE, SIX and SEVEN of the Restated
Certificate of Incorporation of the Registrant (see Exhibit
3.1).
Exhibit 4.2
See Articles II and VI and Section 2 of Article III and
Section 4 of Article VII of the Amended and Restated By-Laws
of the Registrant (see Exhibit 3.2).
Exhibit 4.3
Rights Agreement dated as of July 18, 1995 between the
Registrant and Continental Stock Transfer & Trust Company
(incorporated by reference to Exhibit 1 of the registration
statement on Form 8-A; Commission File No. 0-26520).
Exhibit 4.4
Amendment Number 1 to the Rights Agreement between the
Registrant and Continental Stock Transfer and Trust Company
dated February 16, 1999 (incorporated by reference to Exhibit
4.4 of the 1998 Form 10-K/A).
20
<PAGE> 21
10. MATERIAL CONTRACTS
Exhibit 10.2.50
Restricted Stock Agreement dated April 30, 1999 between the
Registrant and David C. Bupp. This Agreement is one of three
substantially identical agreements and is accompanied by a
schedule identifying the other agreements omitted and setting
forth the material details in which such agreements differ
from the one that is filed herewith.
Page 25 in the manually signed original.
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11.1
Computation of Net Loss Per Share.
Page 30 in the manually signed original.
27. FINANCIAL DATE SCHEDULE
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC
information only).
(b) REPORTS ON FORM 8-K.
No current report on Form 8-K was filed by the Registrant
during the second quarter of fiscal 1999.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NEOPROBE CORPORATION
(the "Registrant")
Dated: August 14, 1999
By: /s/ David C. Bupp
------------------------------------
David C. Bupp,
President and Chief Executive Officer
(duly authorized officer; principal
executive officer)
By: /s/ Brent Larson
------------------------------------
Brent Larson
Vice President, Finance and Administration
(principal financial and accounting
officer)
22
<PAGE> 23
INDEX
Exhibit 4.1
See Articles FOUR, FIVE, SIX and SEVEN of the Restated Certificate of
Incorporation of the Registrant (see Exhibit 3.1).
Exhibit 4.2
See Articles II and VI and Section 2 of Article III and Section 4 of Article VII
of the Amended and Restated By-Laws of the Registrant (see Exhibit 3.2).
Exhibit 4.3
Rights Agreement dated as of July 18, 1995 between the Registrant and
Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit
1 of the registration statement on Form 8-A; Commission File No. 0-26520).
Exhibit 4.4
Amendment Number 1 to the Rights Agreement between the Registrant and
Continental Stock Transfer and Trust Company dated February 16, 1999
(incorporated by reference to Exhibit 4.4 of the 1998 Form 10-K/A).
Exhibit 10.2.50
Restricted Stock Agreement dated April 30, 1999 between the Registrant and David
C. Bupp. This Agreement is one of three substantially identical agreements and
is accompanied by a schedule identifying the other agreements omitted and
setting forth the material details in which such agreements differ from the one
that is filed herewith.
Exhibit 11.1
Computation of Net Loss Per Share.
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC information only).
<PAGE> 24
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
NEOPROBE CORPORATION
------------------------------
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
JUNE 30, 1999
------------------------------
EXHIBITS
------------------------------
<PAGE> 1
Exhibit 10.2.50
SCHEDULE IDENTIFYING OMITTED DOCUMENTS
The only particulars in which the attached agreement differs frm the
omitted agreements is the name of the officer who is a party to the agreements
and the number of restricted shares subject to the agreements.
<TABLE>
<CAPTION>
Name Number of Restricted Shares
<S> <C>
Matthew F. Bowman 20,000
Brent L. Larson 10,000
</TABLE>
<PAGE> 2
NEOPROBE CORPORATION
SUITE 400
425 METRO PLACE NORTH
DUBLIN, OHIO 43017-1367
April 30, 1999
David C. Bupp
5747 Rushwood Drive
Dublin, Ohio 43017-8817
Congratulations. You have been granted a right to purchase Restricted
Stock under Neoprobe's 1996 Stock Incentive Plan (the "Plan") on the following
terms:
1. PURCHASE AND SALE. On the terms and subject to the conditions set
forth in this Agreement, you hereby subscribe for and agree to purchase 35,000
shares of Common Stock (the "Restricted Stock") for and in consideration of a
payment by you to Neoprobe of $0.001 per share.
2. TRANSFER RESTRICTIONS. The fair market value of Common Stock is
demonstrated by the closing price on the Nasdaq National Market of such
securities on the business day before the date first set forth above which was
$0.75 per share. In consideration of the difference between the purchase price
of the Restricted Stock set forth in paragraph 1 above and its fair market value
without the restrictions and risk of forfeiture set forth herein, you agree
that, unless and until any of the Restricted Stock vests and becomes
transferable as provided in paragraph 4 below, you will neither transfer, sell,
assign nor pledge any of the Restricted Stock. Any certificate representing any
Restricted Stock issued hereunder will bear the following legend in larger or
other contrasting type or color: "The transfer of these securities is restricted
by, and such securities are subject to a risk of forfeiture, under a Restricted
Stock Purchase Agreement between the registered owner hereof and the Issuer
dated April 30, 1999."
3. FORFEITURE. You will forfeit any portion of the Restricted Stock
purchased under this Agreement that has not vested and become transferable on
the earliest of: (a) the expiration of 10 years from the date of this Agreement,
or (b) (except as otherwise provided in the last sentence of this paragraph 3)
immediately upon the termination of your employment by Neoprobe under the
Employment Agreement, whether for cause or without cause, or because of your
death or disability, or by your resignation. If such a forfeiture occurs, all of
your right, title and interest in and to any shares of Restricted Stock which
have not previously vested and became transferable will be terminated, the
certificates representing the forfeited shares will be canceled or transferred
free and clear of all restrictions to Neoprobe's treasury and we will pay you
$0.001 per share for each share of Restricted Stock so forfeited.
Notwithstanding clause (b) of this paragraph 3 no forfeiture will occur upon the
termination of your employment by Neoprobe under the Employment Agreement
without cause, or because of your death or disability, if at the time of such
termination Neoprobe is engaged in active negotiations that could reasonably be
expected to result in a change in control.
4. VESTING PROVISIONS. Any Restricted Stock that has not previously
been forfeited under
<PAGE> 3
Section 3 above will vest and become transferable if and when a Change in
Control (as defined below in Section 5) of Neoprobe occurs or upon the
termination of your employment by Neoprobe under the Employment Agreement
without cause, or because of your death or disability, if at the time of such
termination Neoprobe is engaged in active negotiations that could reasonably be
expected to result in a Change in Control; provided the Committee certifies such
occurrence in its minutes or another writing promptly thereafter.
Notwithstanding any provision of this Agreement or any provision of the Plan,
including, but not limited to, the last sentence of Section 7.1 thereof and
Section 8.3 thereof, the provisions of which are hereby waived by you, the
Committee may, if it determines in its sole discretion that your actions in
connection with any Change in Control which results in the vesting of any shares
of Restricted Stock hereunder were not in accordance with your duties to
Neoprobe and its stockholders as a director, officer or employee of Neoprobe or
your actions did not fully support the determinations of the Board of Directors
of Neoprobe in connection therewith, reduce the number of shares of Restricted
Stock which vest under this Agreement or eliminate such vesting entirely. When
any portion of the Restricted Stock vests and becomes transferable, Neoprobe
will, subject to the provision of Section 6 below, promptly deliver a
certificate (free of all adverse claims and transfer) representing the number of
shares constituting the vested and transferable portion of the Restricted Stock
to you at your address given above and such shares will no longer be deemed to
be Restricted Stock subject to the terms and conditions of this Agreement.
5. CHANGE IN CONTROL. For the purpose of this Agreement, a Change in
Control of Neoprobe has occurred when: (a) any person (defined for the purposes
of this Section 3 to mean any person within the meaning of Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), other than Neoprobe or an
employee benefit plan created by its Board of Directors for the benefit of its
employees, either directly or indirectly, acquires beneficial ownership
(determined under Rule 13d-3 of the Regulations promulgated by the Securities
and Exchange Commission under Section 13(d) of the Exchange Act) of securities
issued by Neoprobe having thirty percent (30%) or more of the voting power of
all the voting securities issued by Neoprobe in the election of Directors at the
next meeting of the holders of voting securities to be held for such purpose;
(b) a majority of the Directors elected at any meeting of the holders of voting
securities of Neoprobe are persons who were not nominated for such election by
the Board of Directors or a duly constituted committee of the Board of Directors
having authority in such matters; (c) the stockholders of Neoprobe approve a
merger or consolidation of Neoprobe with another person, other than a merger or
consolidation in which the holders of Neoprobe's voting securities issued and
outstanding immediately before such merger or consolidation continue to hold
voting securities in the surviving or resulting corporation (in the same
relative proportions to each other as existed before such event) comprising
eighty percent (80%) or more of the voting power for all purposes of the
surviving or resulting corporation; or (d) the stockholders of Neoprobe approve
a transfer of substantially all of the assets of Neoprobe to another person
other than a transfer to a transferee, eighty percent (80%) or more of the
voting power of which is owned or controlled by Neoprobe or by the holders of
Neoprobe's voting securities issued and outstanding immediately before such
transfer in the same relative proportions to each other as existed before such
event.
6. RIGHTS; STOCK DIVIDENDS. Except for the restrictions on transfer set
forth in Section 2 and the possibility of forfeiture set forth in Section 3,
upon the issuance of a certificate representing shares of Restricted Stock, you
will have all other rights in such shares, including the right to vote such
shares and receive dividends other than dividends on or distributions of shares
of any class of stock issued by Neoprobe which dividends or distributions will
be delivered to Neoprobe under the same restrictions on transfer and possibility
of forfeitures as the shares of
<PAGE> 4
Restricted Stock from which they derive.
7. TAXATION. Both you and we intend that the transactions provided for
in this Agreement will be governed by the provisions of Section 83(a) of the
Internal Revenue Code of 1986. You will have taxable income upon the vesting of
Restricted Stock. At that time, you must pay to Neoprobe an amount equal to the
required federal, state, and local tax withholding less any withholding
otherwise made from your salary or bonus. You must satisfy any relevant
withholding requirements before Neoprobe issues certificates representing vested
shares of Restricted Stock to you.
8. EMPLOYMENT AGREEMENT. This Agreement is not an employment agreement
and nothing contained herein gives you any right to continue to be employed by
or provide services to Neoprobe or affects the right of Neoprobe to terminate
your employment or other relationship with you.
9. PLAN CONTROLS. This Agreement is a Restricted Stock Purchase
Agreement (as such term is defined in the Plan) under Article 7 of the Plan. The
terms of this Agreement are subject to, and controlled by, the terms of the
Plan, as it is now in effect or may be amended from time to time hereafter,
which are incorporated herein as if they were set forth in full. Except as
otherwise expressly set forth herein, any words or phrases defined in the Plan
have the same meanings in this Agreement. Neoprobe will provide you with a copy
of the Plan promptly upon your written or oral request made to its principal
financial officer.
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement will be settled exclusively by arbitration in
Columbus, Ohio, in accordance with the nonunion employment arbitration rules of
the American Arbitration Association ("AAA") then in effect. If specific
nonunion employment dispute rules are not in effect, then AAA commercial
arbitration rules will govern the dispute. If the amount claimed exceeds
$100,000, the arbitration will be before a panel of three arbitrators. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
Neoprobe will indemnify you against, and hold you harmless from, any attorney's
fees, court costs and other expenses incurred by you in connection with the
preparation, commencement, prosecution, defense or enforcement of any
arbitration, award, confirmation or judgment in order to assert or defend any
right or obtain any payment hereunder after the occurrence of a Change in
Control of Neoprobe or under this sentence; without regard to the success of you
or your attorney in any such arbitration or proceeding.
11. MISCELLANEOUS. This Agreement sets forth the entire agreement of
the parties with respect to the subject matter hereof and it supersedes and
discharges all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter. This Agreement
may not be amended or terminated except by a writing signed by the party against
whom any such amendment or termination is sought. If any one or more provisions
of this Agreement are found to be illegal or unenforceable in any respect, the
validity and enforceability of the remaining provisions hereof will not in any
way be affected or impaired thereby. This Agreement will be governed by the laws
of the State of Delaware.
<PAGE> 5
Please acknowledge your acceptance of this Agreement by signing the
enclosed copy in the space provided below and returning it promptly to Neoprobe.
NEOPROBE CORPORATION
By: /s/ Julius R. Krevans
----------------------------------------
Julius R. Krevans, Chairman of the Board
Accepted and Agreed to as of
the date first set forth above:
/s/ David C. Bupp
- ----------------------------------
David C. Bupp
<PAGE> 1
Exhibit 11.1
NEOPROBE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loss attributable to common stockholders ($ 1,470,943) ($ 5,261,056) ($ 4,590,215) ($12,324,668)
Weighted average number of shares outstanding:
Weighted average common shares
outstanding beginning of period 22,967,910 22,807,055 22,887,910 22,763,430
Weighted average common shares
issued during period 5,000 17,287 72,790 29,813
------------ ------------ ------------ ------------
Weighted average number of shares outstanding
used in computing basic net loss per share 22,972,910 22,824,342 22,960,700 22,793,243
============ ============ ============ ============
Weighted average number of shares used in
computing diluted net loss per share 22,972,910 22,824,342 22,960,700 22,793,243
============ ============ ============ ============
Earnings (Net Loss) Per Share:
Basic ($ 0.06) ($ 0.23) ($ 0.20) ($ 0.54)
============ ============ ============ ============
Diluted ($ 0.06) ($ 0.23) ($ 0.20) ($ 0.54)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,967,067
<SECURITIES> 0
<RECEIVABLES> 1,817,346
<ALLOWANCES> 92,000
<INVENTORY> 1,492,499
<CURRENT-ASSETS> 6,618,381
<PP&E> 3,077,052
<DEPRECIATION> 1,793,046
<TOTAL-ASSETS> 10,182,640
<CURRENT-LIABILITIES> 5,170,792
<BONDS> 104,934
1,852,025
0
<COMMON> 23,033
<OTHER-SE> 3,031,856
<TOTAL-LIABILITY-AND-EQUITY> 10,182,640
<SALES> 3,825,621
<TOTAL-REVENUES> 3,825,621
<CGS> 1,276,923
<TOTAL-COSTS> 1,276,923
<OTHER-EXPENSES> 1,289,527
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,945
<INCOME-PRETAX> (2,738,190)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,738,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,738,190)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
