<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996 OR
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 0-19975
BIOCIRCUITS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3088884
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1324 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices) (Zip Code)
(408) 745-1961
(Registrant's telephone number, including area code)
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.
Yes X No
----- -----
At October 31, 1996, Registrant had 7,469,438 shares of Common Stock issued and
outstanding.
1
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BIOCIRCUITS CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements and Notes
Balance sheets (unaudited) - September 30, 1996 and
December 31, 1995 ............................................. 3
Statements of operations (unaudited) - three months ended
September 30, 1996 and 1995 and nine months ended September 30,
1996 and 1995 and the period from March 7, 1989 (inception)
through September 30, 1996 .................................... 4
Statements of cash flows (unaudited) - nine months ended
September 30, 1996 and 1995 and the period from March 7, 1989
(inception) through September 30, 1996 ........................ 5
Notes to Financial Statements (unaudited) .......................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................. 8
PART II: OTHER INFORMATION
ITEM 5. Other Information .................................................14
ITEM 6. Exhibits and Reports on Form 8-K ...................................14
Signatures ..................................................................15
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS (NOTE)
Current assets:
Cash and cash equivalents .................... $ 3,376 $ 6,028
Short-term investments ....................... --- 605
Prepaid expenses and other current assets .... 344 544
Inventory .................................... 638 ---
Prepaid inventory ............................ 436 418
Restricted cash .............................. 102 93
---------- ---------
Total current assets .............................. 4,896 7,688
Property and equipment, net of accumulated
depreciation and amortization of $1,567
($1,298 in 1995) ............................. 1,269 975
Restricted cash ................................... 376 479
Other assets ...................................... 137 125
---------- ----------
$ 6,678 $ 9,267
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 636 $ 547
Accrued liabilities .......................... 169 205
Accrued compensation and related expenses .... 168 198
Current portion of capital lease obligations . 212 547
-------- --------
Total current liabilities ......................... 1,185 1,497
Long-term portion of capital lease obligations .... 96 114
Long-term convertible debt ........................ 3,781 3,593
Stockholders' equity:
Preferred stock, $0.001 par value, 40,000,000
shares authorized, issuable in series: Series A
convertible, 30,000,000 shares designated,
12,480,137 shares issued and outstanding
(12,999,000 shares outstanding at December 31,
1995), aggregate liquidation preference of $.55
per share .................................... 9,904 6,320
Common stock, $0.001 par value, 70,000,000 shares
authorized, 5,532,726 shares issued and
outstanding (3,673,390 shares issued and
outstanding at December 31, 1995) ................ 39,773 35,172
Deficit accumulated during the development stage ... (47,991) (37,200)
Notes receivable secured by common stock ........... (15) (99)
Deferred compensation and other .................... (55) (130)
---------- -----------
Total stockholders' equity ............................ 1,616 4,063
---------- -----------
$ 6,678 $ 9,267
---------- -----------
---------- -----------
</TABLE>
Note: Derived from the audited balance sheet at December 31, 1995.
See accompanying notes
3
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BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30, SEPTEMBER 30, MARCH 7, 1989
------------------ ----------------- (INCEPTION) THROUGH
1996 1995 1996 1995 SEPTEMBER 30, 1996
------ -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product Sales.............. $ 50 $ --- $ 206 $ --- $ 206
OPERATING COSTS AND EXPENSES:
Cost of sales.............. 542 --- 1,591 --- 1,591
Research and development .. 1,564 1,139 5,579 3,456 32,855
Sales, general and
administrative........ 1,179 700 3,859 1,879 14,721
-------- ------- -------- -------- ---------
3,285 1,839 11,029 5,335 49,167
Loss from operations........... (3,235) (1,839) (10,823) (5,335) (48,961)
Interest and dividend
income ................... 81 130 277 204 2,280
Interest and other expense .... (74) (63) (245) (108) (1,310)
-------- -------- --------- ---------- ---------
Net loss ...................... $(3,228) $(1,772) $(10,791) $ (5,239) $(47,991)
-------- -------- --------- ---------- ---------
-------- -------- --------- ---------- ---------
Net loss per share............. $ (0.60) $ (0.63) $ (2.32) $ (2.01)
-------- -------- --------- ----------
-------- -------- --------- ----------
Shares used in computing
net loss per share......... 5,424 2,827 4,650 2,612
-------- -------- ---------- ----------
-------- -------- ---------- ----------
</TABLE>
See accompanying notes.
4
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BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 7, 1989
NINE MONTHS ENDED (INCEPTION) THROUGH
SEPTEMBER 30, SEPTEMBER 30, 1996
----------------- -------------------
1996 1995
-------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................ $ (10,791) $ (5,239) $ (47,991)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............... 352 278 3,410
Other ....................................... 286 --- 364
Changes in:
Prepaid Inventory ...................... (17) (543) (435)
Inventory .............................. (638) --- (638)
Other current assets ................... 190 (6) (424)
Other assets ........................... --- --- (69)
Other current liabilities .............. 22 (321) 970
--------- ---------- ----------
Net cash used in operating activities (10,596) (5,831) (44,813)
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ (466) 76 (1,719)
Short-term investments purchased .................. --- (2,965) (30,337)
Short-term investments sold/redeemed .............. 597 1,000 30,337
Restricted cash ................................... 91 627 (514)
-------- -------- ---------
Net cash provided by (used in) investing
activities .............................. 222 (1,262) (2,233)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net of issuance costs 7,916 8,530 26,993
Issuance of common stock, net of issuance costs ... 67 36 21,836
Issuance of long-term debt ........................ 187 3,531 5,136
Payments on long-term obligations ................. (448) (288) (3,543)
--------- -------- ----------
Net cash provided by (used in) financing
activities .............................. 7,722 11,809 50,422
--------- -------- ----------
Net increase (decrease) in cash and cash equivalents .. (2,652) 4,716 3,376
Cash and cash equivalents, beginning of period ........ 6,028 1,601 ---
---------- --------- -----------
Cash and cash equivalents, end of period .............. $ 3,376 $ 6,317 $ 3,376
---------- --------- -----------
---------- --------- -----------
</TABLE>
See accompanying notes
5
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BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. NATURE OF BUSINESS AND FINANCING
Biocircuits Corporation (a development stage company) (the
"Company") was incorporated in Delaware on March 7, 1989. The
Company is engaged in developing and commercializing new
immunodiagnostic testing systems.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company's
first sale and shipment of its IOS system occurred in March 1996.
The Company has incurred a loss in each period since its
inception. At September 30, 1996, the Company's accumulated
deficit was $48.0 million. Biocircuits expects to incur
additional losses over the next several years.
On October 21, 1996, the Company closed a private placement which
consisted of the sale of 965,231 units at $6.00 per unit (the
"October 1996 Financing"). Proceeds to the Company were approximately
$5.3 million, net of issuance costs. A unit consisted of two shares
of Common Stock and one warrant (the "Financing Warrants"), expiring
October 20, 1997, to purchase one share of Common Stock at $3.43 per
share. The Financing Warrants contain an automatic exercise provision
which occurs, upon notice from the Company, at any time beginning six
months prior to the expiration date when the average market value for
the Company's Common Stock equals or exceeds $5.25 per share for 10
consecutive trading days. If the Financing Warrants are exercised,
the Company will receive gross proceeds of up to an additional
$3.3 million.
The Company believes that its existing capital resources will be
adequate to satisfy its requirements into the second quarter of 1997,
assuming no exercise of outstanding warrants. If the remaining
warrants issued in June 1995, which expire on December 18, 1996, are
exercised in full for cash, the Company would receive an aggregate
amount of $2.1 million, which the Company estimates would satisfy the
Company's cash requirements until late second quarter 1997. If the
warrants from the October 1996 Financing are exercised prior to the
end of second quarter 1997, the Company believes its cash resources
will be adequate to satisfy its requirements into the fourth quarter
of 1997. However, since the warrants from the October 1996 Financing
expire in October 1997, there can be no assurance that they will be
exercised prior to the end of second quarter 1997. The Company has
the right to call these warrants in the second half of their one year
life if the Common Stock price equals or exceeds $5.25 per share. The
Company's ability to continue its planned operations will be dependent
upon its ability to obtain additional funds from existing investors,
new investors or corporate partners. The Company intends to pursue
all of these financing options, but there can be no assurance that the
Company will be successful. If not successful in obtaining financing,
the Company's business will be materially and adversely affected.
The Company believes that maintaining its listing on the Nasdaq
National Market System ("Nasdaq") is central to its ability to raise
additional funds as well as to provide liquidity to investors. As of
September 30, 1996, the Company failed to temporarily meet the Nasdaq
listing requirements. However, the proceeds from the sale of the
Common Stock issued by the Company in the October 1996 Financing
allowed the Company to meet Nasdaq listing requirements, on a proforma
basis, for the third quarter of 1996. If the warrants which expire in
December 1996 are exercised for cash, the Company believes it will
meet Nasdaq listing requirements through the end of first quarter
1997. If the Financing Warrants are exercised prior to the end of
second quarter 1997, the Company believes it will meet Nasdaq listing
requirements at the end of the second quarter of 1997. Thereafter,
the Company will be required to generate sufficient revenues or raise
additional capital to maintain Nasdaq listing requirements.
In future periods, the Company expects to incur substantial additional
costs, including costs related to ongoing research and development
activities, either alone or in collaboration with strategic partners,
clinical trials, expansion of manufacturing, development of
manufacturing capabilities, obtaining regulatory
6
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approvals and establishing sales, marketing and distribution
capabilities. The Company's longer-term capital requirements will
depend on numerous factors, including the success of the Company's
products and the rate of increase in product revenue, the progress
of the Company's research and development, the timing and cost of
obtaining regulatory approvals, the costs associated with patents
and other intellectual property rights, the levels of resources
devoted to the development of manufacturing and marketing
capabilities, and establishment of potential collaborative
partnerships. The rate of increase in product revenue will
significantly influence the financing requirements and cannot be
predicted nor can there be any assurance that it will occur
according to the Company's expectations. The Company intends to
seek additional funding through various means, including public or
private financings. Other methods of financing, including working
capital financing for accounts receivable and lease financing for
the acquisition of capital equipment, may be utilized if available
on attractive terms. The Company also will attempt to obtain funds
through arrangements with strategic partners or others that will
require the Company to relinquish additional rights to certain of
its technologies, products or marketing territories in exchange for
funding. If adequate funds are not available from these sources,
the Company will be required to curtail its operations
significantly. No assurance can be given that any additional
financing will be available or, if available, that it will be
available on acceptable terms.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended
September 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1995.
Net loss per share is computed on the basis of the weighted average
number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is anti-dilutive.
Following is supplemental proforma earnings per share, calculated
giving effect to the conversion of the outstanding convertible
preferred stock on an if converted basis (in thousands, except per
share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1996 1995 1996 1995
---------- -------- ------- --------
<S> <C> <C> <C> <C>
Net loss as reported ................ $ (3,228) $ (1,772) $ (10,791) $ (5,239)
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Shares used in computing net
loss per share as reported ..... 5,424 2,827 4,650 2,612
Adjustment to include outstanding
convertible preferred stock
previously excluded
as it is anti-dilutive ......... 3,186 4,035 3,392 1,536
---------- --------- ---------- ---------
Shares used in computing proforma net
loss per share ................. 8,610 6,862 8,042 4,148
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Pro forma net loss per share ........ $ (0.37) $ (0.26) $ (1.34) $ (1.26)
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THIS SECTION, IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995,
AND IN THE COMPANY'S REGISTRATION STATEMENT NO. 333-13673.
RESULTS OF OPERATIONS
The Company has incurred a loss in each period since its inception.
At September 30, 1996, the Company's accumulated deficit was $48.0
million. Biocircuits expects to incur additional losses over the next
several years. The Company expects that currently available funds will
be used primarily for the continued launch of the IOS point-of-care
system and development of additional tests for the IOS point-of-care
system. The losses may vary from period to period, including from
quarter to quarter, and are generally expected to increase, due to the
launch of the Company's IOS point-of-care system. Accordingly, the
Company believes that quarter-to-quarter results are not a useful
indicator of the Company's performance.
The Company's first sale and shipment of its IOS system occurred in
March 1996, with cartridges capable of performing the T4 and T Uptake
tests. The selling process typically requires the Company's sales
force to work closely with distributors, generate qualified physician
leads and perform demonstrations of the IOS system in physicians'
offices. The selling process can be time-consuming and there can be
no assurance that the Company will be successful in marketing the IOS
system, that the rate of sales growth will meet expectations or that
the marketing programs of the Company will achieve the desired
results.
To date, the number of instrument sales to distributors and placements
in physicians' offices have been significantly less than the Company's
expectations. The Company believes that if instrument sales continue
to be below expectations, the Company's revenue and financial
performance will be materially adversely affected. Certain design
changes to the IOS instrument were required since the first sale and
shipment of the IOS system. In April 1996, problems in some of the
instrument circuitry and software required certain parts and software
modifications. Further product shipments were suspended at that time
while the problems were diagnosed and corrected. All changes were
validated and documented, and shipments to distributors were resumed
in the middle of June. In addition, all instruments previously
shipped to customers were retrofitted. The requirements to make
certain design changes to the instrument and the suspension of product
shipments, together with the need to expand the menu to include the
TSH test (as described in the following paragraph), had an adverse
impact on third quarter 1996 revenue and overall financial
performance. There can be no assurance that additional design changes
may not be required in the future or that the system performance will
be reliable over time.
In order for the Company to have success in penetrating the
point-of-care immunodiagnostic market and to achieve significant
sales of IOS systems and test cartridges, the Company believes it
will need to expand its menu of tests beyond the T4 and T Uptake
tests. The Company's initial marketing efforts indicate that
offering a test for Thyroid Stimulating Hormone ("TSH") to diagnose
and manage thyroid function may be a key element in penetrating the
physicians' office market. In April 1996, the Company filed a
510(k) pre-market notification with the United States Food and Drug
Administration (the "FDA") for a TSH assay. The Company currently
anticipates that it will obtain FDA clearance for the TSH assay in
the fourth quarter of 1996, although FDA clearance may actually
take longer. In September 1996, the Company announced FDA
clearance to market a qualitative serum pregnancy assay, a test
designed to allow physicians to perform this common pregnancy test
in their office during the patient visit where they can provide
more immediate pre-natal care to patients. Also in September 1996,
the Company filed a 510(k) pre-market notification with the FDA for
a quantitative hCG assay, a test to track the progress of early
pregnancies. Biocircuits is currently developing three additional
assays: a
8
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prostate specific antigen ("PSA") test for management of
prostate cancer patients, a Digoxin test for monitoring the
therapeutic usage of this drug in the treatment of heart disease
and a Free T4 test for diagnosing true clinical thyroid status.
The Company plans to continue to develop additional
immunodiagnostic assays commonly requested by office-based
physicians. In the past, the Company has experienced delays in
completing the development of new tests. There can be no assurance
that the Company will be successful in expanding its menu of tests
and according to schedule, as well as obtaining regulatory
approvals for such tests.
The Company is in the process of developing and testing an improved
second generation cartridge for the new assays as well as existing
assays. The Company believes this modified design will be required
for the market launch of the TSH, qualitative serum pregnancy and
quantitative hCG tests. The Company currently expects the improved
cartridge to be available in the fourth quarter of 1996. Upon
completion of the second generation cartridge, the Company plans to
launch the TSH assay, upon receipt of FDA clearance, followed by the
serum pregnancy test. Consequently, even if the Company receives
timely clearance of the TSH test from the FDA, the Company does not
expect to realize any significant revenue from related instrument
sales until at least year-end 1996. There can be no assurance that
the Company will not encounter difficulties in finalizing cartridge
design which would result in a delay in the market launch of the new
tests, that the Company will be successful in completing the modified
cartridge design at all, that the test cartridges using the design will
perform as planned, or that Nalge Nunc International, Inc., the
Company's cartridge supplier, will be able to deliver the required
quantities of test cartridge components on schedule or at costs
acceptable to the Company.
The Company's other near term cartridge manufacturing milestones
include: improving manufacturing efficiencies, expanding mold and
cartridge manufacturing capacity as both the test menu and test
manufacturing volume expand, initiating manufacturing automation
efforts and manufacturing the cartridge at the Company's targeted
cost. There can be no assurance that the Company will be successful
in achieving these milestones or that these milestones will be
achieved on a timely basis.
In December 1992, the Company entered into an agreement with KMC
Systems, Inc. ("Kollsman") pursuant to which Kollsman was appointed
the exclusive North American supplier of the IOS instrument. The
agreement with Kollsman contained certain minimum purchase
requirements and would expire three years from the date of first
commercial production, subject to certain rights of earlier
termination. In April 1996, the Company and Kollsman executed a
letter agreement to amend the 1992 agreement (the "Letter Agreement"),
pursuant to which Kollsman will be the exclusive supplier of the IOS
instrument through 1997, the minimum purchase requirements were
eliminated and the Company and Kollsman agreed to an acceptable
transfer price to be paid through 1997, the revised term of the
agreement. Also pursuant to the Letter Agreement, the Company agreed
to issue Kollsman a warrant to purchase 250,000 shares of Common
Stock, subject to an increase of 50,000 shares under certain
circumstances. The warrant expires at year end 1997, subject to
certain extension rights, and has an exercise price of $7.00 per
share. In order to secure an adequate supply of IOS instruments, the
Company has established a standby letter of credit for the benefit of
Kollsman. The Company is entirely dependent on Kollsman as the sole
source of production of its IOS instruments. Kollsman, in turn,
relies upon sole-source suppliers for certain components. Failure of
Kollsman's suppliers to deliver the required quantities on a timely
basis and at commercially reasonable prices, or Kollsman's failure to
deliver the IOS instruments to the Company on a timely basis or at
commercially reasonable costs could materially adversely affect the
Company.
In June 1995, the Company closed a private placement of 17,399,000
units consisting of convertible Preferred Stock and Warrants at $0.50
per unit. Proceeds to the Company were approximately $8.5 million,
net of issuance costs. Each unit consisted of one share of Series A
Preferred Stock and one warrant to purchase approximately .60 shares
of Series A Preferred Stock at $0.60 per share (Common Stock
equivalent price of $2.40 per share and the "1995 Warrants"). Series
A Preferred Stock converts to .25 shares of Common Stock.
In January 1996, the Company amended outstanding 1995 Warrants to
purchase 2,666,514 shares of Series A Preferred Stock and closed a
private placement pursuant to which the Company issued new warrants
(the "1996 Warrants") to purchase 2,852,998 shares of Series A
Preferred Stock. One half of the amended 1995 Warrants and one half
of the 1996 Warrants were exercisable at a purchase price of 70% of
the current market price upon exercise and expired on May 31, 1996.
Ninety-six percent of the warrants expiring on May 31, 1996 were
exercised at an average purchase price of $1.18 per share (Common
Stock equivalent price of $4.72 per share).
9
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The remaining one half of the amended 1995 Warrants and 1996
Warrants were exercised pursuant to automatic exercise provisions
at a purchase price of $1.46 per share (Common Stock equivalent
price of $5.84 per share) upon the Company's shipment of the first
ten IOS instruments and accompanying cartridges, which occurred in
March 1996. 1995 Warrants to purchase approximately 3.5 million
shares of Series A Preferred Stock remained outstanding at a
purchase price of $0.60 per share (Common Stock equivalent price of
$2.40 per share), expiring on December 18, 1996.
On October 21, 1996, the Company closed a private placement which
consisted of the sale of 965,231 units at $6.00 per unit. Proceeds
to the Company were approximately $5.3 million, net of issuance
costs. A unit consisted of two shares of Common Stock and one
warrant, expiring October 20, 1997, to purchase one share of Common
Stock at $3.43 per share. The Financing Warrants contain an
automatic exercise provision which occurs, upon notice from the
Company, at any time beginning six months prior to the expiration
date when the average market value for the Company's Common Stock
equals or exceeds $5.25 per share for 10 consecutive trading days.
If the Financing Warrants are exercised, the Company will receive
gross proceeds of up to an additional $3.3 million.
In August 1995, the Company entered into an agreement with Beckman
(the "Agreement") and received $3,500,000 in the form of a note (the
"Note") in exchange for granting Beckman certain options for licensing
and marketing rights to testing applications using the Company's
proprietary lipid/polymer technology. Pursuant to the terms of the
Agreement, the Company retains rights to market products derived from
the technology to the blood banking, allergy, environmental and
veterinary testing markets, as well as for quantitative testing in
U.S. physicians' offices and to all other non-Beckman fields. Beckman
also was granted the right to commercialize the technology applicable
to immunoassays and nucleic acid-binding assays for the reference and
clinical laboratory markets, the cardiac market, qualitative testing
in U.S. physicians' offices, and the biological and industrial
research markets. Pursuant to the terms of the Agreement, the Company
completed a feasibility study in August 1996 (the "Completion Date").
Beckman has ninety days from the Completion Date to exercise its
development license option (the "Development Option"). If Beckman
elects to exercise its Development Option in order to retain its
rights to the technology, it is required to invest certain minimum
funds to develop the technology prior to commercialization. In
such event, upon the first commercial sale of any products derived
from such technology, the Note will automatically convert to a
royalty-bearing license fee. After exercising its Development
Option, should Beckman decide not to invest further funds to
develop the technology, it must convert the Note to Common Stock of
the Company at a specified premium rate based upon the then current
market price of the Company's Common Stock. In the event Beckman
fails to exercise its Development Option, it may, at its option,
convert the Note to Common Stock of the Company at a specified
premium rate based upon the then current market price of the
Company's Common Stock, or require the Company to repay the Note,
with interest, in August 2000. Should Beckman decline to exercise
its Development Option, the Company would regain full rights to the
technology, including all improvements made during the feasibility
study. There can be no assurance that Beckman will exercise its
Development Option or that Beckman or the Company will be
successful in developing or obtaining regulatory approval for or
marketing this technology alone or with third parties. The failure
of Beckman to exercise its Development Option may have an adverse
effect on the Company's ability to develop the lipid/polymer
technology.
THIRD QUARTER FY 1996 COMPARED TO THIRD QUARTER FY 1995
Revenue in the third quarter totaled $50,000, including the shipment of
the $49,000 backlog that existed at the end of the second quarter
1996 and a revenue reserve of $60,000.
Total operating costs and expenses increased from $1,839,000 in the
third quarter of 1995 to $3,285,000 in the third quarter of 1996, an
increase of $1,446,000 or 79%.
The Company recorded $542,000 of cost of sales in the third quarter of
1996. These costs consisted primarily of manufacturing overhead and
startup costs associated with the production of a revenue-generating
product.
Research and development expenses increased from $1,139,000 in the
third quarter of 1995 to $1,564,000 in the third quarter of 1996, an
increase of $425,000 or 37%. This increase was due primarily to
outside services,
10
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primarily non-recurring engineering charges from Kollsman, additional
staffing and increased general operating expenses.
Sales, general and administrative expenses increased from $700,000 in
the third quarter of 1995 to $1,179,000 in the third quarter of 1996,
an increase of $479,000 or 68%. This increase was due primarily to
the increased sales and marketing expenses resulting from the launch
of the IOS point-of-care system and general operating expenses.
Net other income and expense decreased from $67,000 in the
third quarter of 1995 to $7,000 in the third quarter of 1996, a
decrease of $60,000. Interest income decreased from $130,000 in the
third quarter of 1995 to $81,000 in the third quarter of 1996, a
decrease of $49,000 or 38%. The decrease was due to decreased cash
balances due to ongoing operating losses, purchases of property and
equipment and payments on long-term obligations offset by funds
received from the 1995 and 1996 private placements. Interest and
other expense increased from $63,000 in the third quarter of 1995
to $74,000 in the third quarter of 1996, an increase of $11,000 or
17%. Interest expense results from the Company's long-term debt
and capital leases related to its property and equipment.
Net loss increased from $1,772,000 or $0.63 per share in the third
quarter of 1995 to $3,228,000 or $0.60 per share in the third quarter
of 1996, an increase of $1,456,000 or 82%.
NINE MONTHS FY 1996 COMPARED TO NINE MONTHS FY 1995
Following the Company's March 1996 launch of the IOS system, the
Company recorded revenue of $206,000 for the nine months ended
September 30, 1996.
Total operating costs and expenses increased from $5,335,000 in the
first nine months of 1995 to $11,029,000 in the first nine months of
1996, an increase of $5,694,000 or 107%.
The Company recorded $1,591,000 of cost of sales in the first nine
months of 1996. These costs consisted primarily of manufacturing
overhead and startup costs associated with the production of revenue
generating product and the Kollsman warrant.
Research and development expenses increased from $3,456,000 in the
first nine months of 1995 to $5,579,000 in the first nine months of
1996, an increase of $2,123,000 or 61%. This increase was due
primarily to outside services, primarily non-recurring charges from
Kollsman, additional staffing and increased general operating
expenses.
Sales, general and administrative expenses increased from
$1,879,000 in the first nine months of 1995 to $3,859,000 in the
first nine months of 1996, an increase of $1,980,000 or 105%. This
increase was due primarily to the increased sales and marketing
expenses resulting from the launch of the IOS point-of-care system
and general operating expenses.
Net other income and expense decreased from $96,000 in the first nine
months of 1995 to $32,000 in the first nine months of 1996, a
decrease of $64,000 or 67%. Interest income increased from $204,000
in the first nine months of 1995 to $277,000 in the first nine months
of 1996, an increase of $73,000 or 36%. The increase was due to
increased cash balances arising from funds received from the 1995
and 1996 private placements and Beckman, offset by ongoing operating
losses, purchases of property and equipment and payments on long-term
obligations. Interest and other expense increased from $108,000 in
the first nine months of 1995 to $245,000 in the first nine months of
1996, an increase of $137,000 or 127%. Interest expense results from
the Company's long-term debt and capital leases related to its
property and equipment.
Net loss increased from $5,239,000 or $2.01 per share in the first
nine months of 1995 to $10,791,000 or $2.32 per share in the first
nine months of 1996, an increase of $5,552,000 or 106%.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations primarily through
sales of Common and Preferred Stock, interest income on the cash
balances available after such financings, long term debt and capital
asset lease financings. Since its inception through September 30,
1996, the Company raised a total of approximately $51.9 million in the
sale of Common and Preferred Stock.
The Company's cash and cash equivalents and short-term investments
were $3.4 million as of September 30, 1996, compared to $6.6 million
at the end of 1995. The decrease was due primarily to the receipt of
approximately $8.0 million in gross proceeds from the exercise of
warrants, including approximately $7.1 million from the exercise of
warrants to purchase Series A Preferred Stock which expired on either
March 31, 1996 or May 31, 1996 and approximately $0.9 million from the
early exercise of the remaining 1995 Warrants, offset by losses in the
first nine months of 1996. Additional funds will be required in 1997
to carry the Company beyond the initial sales of the IOS system and to
enable the Company to develop and obtain regulatory approval for
additional tests. The Company believes that its existing capital
resources will be adequate to satisfy its requirements into the second
quarter of 1997, assuming no exercise of outstanding warrants. If the
remaining warrants issued in June 1995, which expire on December 18,
1996, are exercised in full for cash, the Company would receive an
aggregate amount of $2.1 million, which the Company estimates would
satisfy the Company's cash requirements until late second quarter
1997. If the warrants from the October 1996 Financing are exercised
prior to the end of second quarter 1997, the Company believes its cash
resources will be adequate to satisfy its requirements into the fourth
quarter of 1997. However, since the warrants from the October 1996
Financing expire in October 1997, there can be no assurance that they
will be exercised prior to the end of second quarter 1997. The
Company has the right to call these warrants in the second half of
their one year life if the Common Stock price equals or exceeds $5.25
per share. The Company's ability to continue its planned operations
will be dependent upon its ability to obtain additional funds from
existing investors, new investors or corporate partners. The Company
intends to pursue all of these financing options, but there can be no
assurance that the Company will be successful. If not successful in
obtaining financing, the Company's business will be materially and
adversely affected.
The Company believes that maintaining its listing on the Nasdaq
National Market System ("Nasdaq") is central to its ability to raise
additional funds as well as to provide liquidity to investors. As of
September 30, 1996, the Company failed to temporarily meet the Nasdaq
listing requirements. However, the proceeds from the sale of the
Common Stock issued by the Company in the October 1996 Financing
allowed the Company to meet Nasdaq listing requirements, on a proforma
basis, for the third quarter of 1996. If the warrants which expire in
December 1996 are exercised for cash, the Company believes it will
meet Nasdaq listing requirements through the end of first quarter
1997. If the Financing Warrants are exercised prior to the end of
second quarter 1997, the Company believes it will meet Nasdaq listing
requirements at the end of the second quarter of 1997. Thereafter,
the Company will be required to generate sufficient revenues or raise
additional capital to maintain Nasdaq listing requirements.
In future periods, the Company expects to incur substantial additional
costs, including costs related to ongoing research and development
activities, either alone or in collaboration with strategic partners,
clinical trials, expansion of manufacturing, development of
manufacturing capabilities, obtaining regulatory approvals and
establishing sales, marketing and distribution capabilities. The
Company's longer-term capital requirements will depend on numerous
factors, including the success of the Company's products and the rate
of increase in product revenue, the progress of the Company's research
and development, the timing and cost of obtaining regulatory
approvals, the costs associated with patents and other intellectual
property rights, the levels of resources devoted to the development of
manufacturing and marketing capabilities, and establishment of
potential collaborative partnerships. The rate of increase in product
revenue will significantly influence the financing requirements and
cannot be predicted nor can there be any assurance that it will occur
according to the Company's expectations. The Company intends to seek
additional funding through various means, including public or private
financings. Other methods of financing, including working capital
financing for accounts receivable and lease financing for
12
<PAGE>
the acquisition of capital equipment, may be utilized if available on
attractive terms. The Company also will attempt to obtain funds
through arrangements with strategic partners or others that will
require the Company to relinquish additional rights to certain of its
technologies, products or marketing territories in exchange for
funding. If adequate funds are not available from these sources, the
Company will be required to curtail its operations significantly. No
assurance can be given that any additional financing will be available
or, if available, that it will be available on acceptable terms.
13
<PAGE>
BIOCIRCUITS CORPORATION
PART II: OTHER INFORMATION
ITEM 5. Other Information
On October 23, 1996, the Company issued a press release announcing that it
has received net proceeds of approximately $5.3 million in the October
1996 Financing, which proceeds allowed the Company to meet Nasdaq listing
requirements for the third quarter of 1996. A copy of the press release
announcing the October 1996 Financing is attached hereto as Exhibit 99.1
and incorporated by reference herein.
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27.1 Financial Data Schedule
99.1 Press Release dated October 23, 1996
99.2 Proforma September 30, 1996 Balance Sheets and Statements of
Operations assuming completion of a private placement and
receipt of net proceeds of $5.3 million therefrom
b) Reports on Form 8-K
None
14
<PAGE>
BIOCIRCUITS CORPORATION
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.
BIOCIRCUITS CORPORATION
Date: November 14, 1996
By: /s/ Donald Hawthorne
----------------------
Donald Hawthorne
Vice President, Chief
Financial Officer and
Secretary
(Duly Authorized Officer
and Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,376
<SECURITIES> 0
<RECEIVABLES> 53
<ALLOWANCES> 0
<INVENTORY> 638
<CURRENT-ASSETS> 4,896
<PP&E> 2,836
<DEPRECIATION> 1,567
<TOTAL-ASSETS> 6,678
<CURRENT-LIABILITIES> 1,185
<BONDS> 0
0
9,904
<COMMON> 39,773
<OTHER-SE> (48,061)
<TOTAL-LIABILITY-AND-EQUITY> 6,678
<SALES> 206
<TOTAL-REVENUES> 206
<CGS> 1,591
<TOTAL-COSTS> 1,591
<OTHER-EXPENSES> 5,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> (10,791)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,791)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,791)
<EPS-PRIMARY> (2.32)
<EPS-DILUTED> (2.32)
</TABLE>
<PAGE>
Contact: John Kaiser
Chief Executive Officer
Biocircuits Corporation
408/752-8706
Donald Hawthorne
Chief Financial Officer
Biocircuits Corporation
408/752-8705
FOR IMMEDIATE RELEASE
BIOCIRCUITS CORPORATION RECEIVES $5.8 MILLION IN
COMPLETION OF PRIVATE PLACEMENT
SUNNYVALE, CA, OCTOBER 23, 1996 -- Biocircuits Corporation (Nasdaq:
BIOC) today announced that it has received gross proceeds of $5.8 million
upon the completion of its private placement, which had been contingent upon
the effectiveness of the resale registration statement filed with the
Securities and Exchange Commission (the "Resale Registration Statement").
The financing consisted of common stock and warrants. If the warrants
are exercised, the Company would receive up to an additional $3.3 million.
Pacific Growth Equities acted as placement agent on the financing.
"We are grateful to our investors for their support," stated John Kaiser,
President and Chief Executive Officer of Biocircuits. "We will use these
funds to move forward with the further building of our IOS-TM- business."
In March 1996, Biocircuits began selling its IOS immunodiagnostic system
and initial tests in the United States. The IOS system incorporates a
low-cost, compact instrument and patented, disposable test cartridges and is
the first cost-effective, easy-to-use immunodiagnostic system available for
use in the physicians' office and other point-of-care sites. The initial
tests for IOS were a combined T4 and T Uptake assay to assess thyroid
function. In April 1996, the Company filed a 510(k) pre-market notification
with the United States Food and Drug Administration ("FDA") for a Thyroid
Stimulating Hormone ("TSH") assay. In September 1996, the Company announced
FDA clearance to market a qualitative serum pregnancy assay, a test designed
to allow physicians to perform this common pregnancy test in their office
during the patient visit where they can provide more immediate pre-natal care
to patients. The Company is in the process of developing an improved second
generation
- more -
<PAGE>
Biocircuits, Inc. October 23, 1996 Page Two
cartridge for the new assays as well as existing assays. The Company
currently expects the improved cartridge to be available in the fourth
quarter, after which it plans to launch TSH assay (once FDA clearance has
been received) and the serum pregnancy assay. Also in September 1996, the
Company filed a 510(k) pre-market notification with the FDA for a
quantitative hCG assay, a test to track the progress of early pregnancies.
Biocircuits is currently developing three additional assays: a PSA test
for management of prostate cancer patients, a Digoxin test for monitoring the
therapeutic usage of this drug in the treatment of heart disease and a Free
T4 test for diagnosing true clinical thyroid status. The Company plans to
continue to develop additional immunodiagnostic assays commonly requested by
office-based physicians.
Biocircuits is targeting the approximately 41,000 small- to medium-sized
physician office practices and free-standing alternate site laboratories
which are licensed under CLIA for high or moderate complexity testing. Most
of these sites do not currently have an immunodiagnostic testing capability.
The IOS system is approved for moderately complex testing.
Biocircuits Corporation, based in Sunnyvale, California, is focused on
the development and commercialization of innovative and cost-effective
immunodiagnostic products.
Actual results may differ materially from the above forward-looking
statements due to a number of important factors, and will be dependent upon
the timely development of the second generation cartridge, the timely
development and regulatory approval of additional products, including the TSH
assay, as well as the Company's ability, directly or through third parties,
to successfully manufacture and market its existing and proposed products.
These factors are more fully discussed in the Company's most recent Forms
10-K and 10-Q and the Resale Registration Statement.
# # #
<PAGE>
Exhibit 99.2
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PROFORMA BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 ADJUSTMENT PROFORMA
------------------ ---------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................... $ 3,376 $ 5,300 $ 8,676
Short-term investments ...................... --- --- ---
Prepaid expenses and other current assets ... 344 --- 344
Inventory ................................... 638 --- 638
Prepaid inventory ........................... 436 --- 436
Restricted cash ............................. 102 --- 102
------- -------- --------
Total current assets ............................. 4,896 5,300 10,196
Property and equipment, net of accumulated
depreciation and amortization of $1,567
($1,298 in 1995) ............................ 1,269 --- 1,269
Restricted cash .................................. 376 --- 376
Other assets ..................................... 137 --- 137
-------- -------- --------
$ 6,678 $ 5,300 $ 11,978
-------- -------- ---------
-------- -------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................ $ 636 --- 636
Accrued liabilities ......................... 169 --- 169
Accrued compensation and related expenses ... 168 --- 168
Current portion of capital lease obligations 212 --- 212
-------- -------- ---------
Total current liabilities ........................ 1,185 --- 1,185
Long-term portion of capital lease obligations ... 96 --- 96
Long-term convertible debt ....................... 3,781 --- 3,781
Stockholders' equity:
Preferred stock, $0.001 par value, 40,000,000
shares authorized, issuable in series:
Series A convertible, 30,000,000 shares
designated, 12,480,137 shares issued and
outstanding, aggregate liquidation
preference of $.55 per share ............ 9,904 --- 9,904
Common stock, $0.001 par value, 70,000,000 shares
authorized, 5,532,726 shares issued and
outstanding at September 30, 1996,
7,463,188 proforma shares issued
and outstanding ........................ 39,773 5,300 45,073
Deficit accumulated during the development stage (47,991) --- (47,991)
Notes receivable secured by common stock .... (15) --- (15)
Deferred compensation and other ............. (55) --- (55)
-------- -------- ---------
Total stockholders' equity ....................... 1,616 5,300 6,916
-------- -------- ---------
$ 6,678 $ 5,300 $ 11,978
-------- -------- ---------
-------- -------- ---------
</TABLE>
<PAGE>
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PROFORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30, SEPTEMBER 30, MARCH 7, 1989
------------------ ----------------- (INCEPTION) THROUGH
1996 1995 1996 1995 SEPTEMBER 30, 1996
------ -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product Sales ..................... $ 50 $ --- $ 206 $ --- $ 206
OPERATING COSTS AND EXPENSES:
Cost of sales ..................... 542 --- 1,591 --- 1,591
Research and development .......... 1,564 1,139 5,579 3,456 32,855
Sales, general and administrative . 1,179 700 3,859 1,879 14,721
-------- --------- --------- ---------- ---------
3,285 1,839 11,029 5,335 49,167
Loss from operations .................. (3,235) (1,839) (10,823) (5,335) (48,961)
Interest and dividend income .......... 81 130 277 204 2,280
Interest and other expense ............ (74) (63) (245) (108) (1,310)
-------- --------- --------- ---------- ---------
Net loss .............................. $(3,228) $(1,772) $(10,791) $ (5,239) $(47,991)
-------- --------- --------- ---------- ---------
-------- --------- --------- ---------- ---------
Historical Net loss per share ......... $ (0.60) $ (0.63) $ (2.32) $ (2.01)
-------- --------- --------- ----------
-------- --------- --------- ----------
Shares used in computing net loss
per share ........................ 5,424 2,827 4,650 2,612
-------- --------- --------- ----------
-------- --------- --------- ----------
Proforma net loss per share ........... $ (.44) $ (1.64)
-------- ---------
-------- ---------
Shares used in computing proforma
net loss per share ................. 7,354 6,580
-------- ---------
-------- ---------
</TABLE>
<PAGE>
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO PROFORMA FINANCIAL STATEMENTS
PROFORMA SEPTEMBER 30, 1996
(UNAUDITED)
1. PRIVATE PLACEMENT AND PROFORMA IMPACT
On October 21, 1996, the company closed a private placement which
consisted of the sale of 965,231 units at $6.00 per unit. Proceeds
to the Company were approximately $5.3 million, net of issuance
costs. A unit consisted of two shares of Common Stock and one
warrant, expiring October 20, 1997, to purchase one share of Common
Stock at $3.43 per share. The proceeds are reflected on the proforma
Balance Sheets and the private placement has no effect on the
Statements of Operations. The proforma net loss per share
calculations are based upon 1,930,462 additional shares of Common
Stock from the private placement as though they were outstanding as
of January 1, 1996.
