<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 JUNE 30, 1997 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 July 31, 1997, Registrant had 17,377,153 shares of Common Stock
issued and outstanding.
<PAGE>
BIOCIRCUITS CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements and Notes
Condensed balance sheets (unaudited) - June 30, 1997 and
December 31, 1996. . . . . . . . . . . . . . . . . . . . . . 3
Condensed statements of operations (unaudited) - three
months ended June 30, 1997 and 1996 and six months
ended June 30, 1997 and 1996 and the period from
March 7, 1989 (inception) through June 30, 1997. . . . . . . 4
Condensed statements of cash flows (unaudited) - six months
ended March 31, 1997 and 1996 and the period from March 7,
1989 (inception) through June 30, 1997 . . . . . . . . . . . 5
Notes to Condensed Financial Statements (unaudited). . . . . . 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 9
PART II: OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . 13
ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 87 $ 4,944
Accounts receivable, net of allowance for
doubtful accounts of $27, ($43 on
December 31, 1996) . . . . . . . . . . . . . . 228 201
Inventory . . . . . . . . . . . . . . . . . . . 1,175 928
Prepaid inventory . . . . . . . . . . . . . . . 682 375
Prepaid expenses and other current assets . . . 114 381
Restricted cash . . . . . . . . . . . . . . . . 113 102
------- --------
Total current assets. . . . . . . . . . . . . . . . 2,399 6,931
Property and equipment, net of accumulated
depreciation and amortization of $1,861
($1,671 in 1996). . . . . . . . . . . . . . . . 1,349 1,375
Restricted cash . . . . . . . . . . . . . . . . . . 255 376
Other assets. . . . . . . . . . . . . . . . . . . . 52 44
------- --------
$ 4,055 $ 8,726
------- --------
------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . $ 852 $ 1,108
Accrued liabilities . . . . . . . . . . . . . . 146 208
Accrued compensation and related expenses . . . 157 142
Current portion of capital lease obligations. . 103 118
------- --------
Total current liabilities . . . . . . . . . . . . . 1,258 1,576
Long-term portion of capital lease obligations. . . --- 72
Stockholders' equity:
Preferred stock, $0.001 par value,
40,000,000 shares authorized, issuable in
series: Series A convertible, 30,000,000
shares designated, 11,643,237 shares
issued and outstanding (12,455,137 shares
outstanding at December 31, 1996),
aggregate liquidation preference of $.55
per share . . . . . . . . . . . . . . . . . . 9,497 9,903
Common stock, $0.001 par value, 70,000,000
shares authorized, 10,482,038 shares issued
and outstanding (8,589,930 shares issued
and outstanding at December 31, 1996) . . . . 50,762 48,784
Deficit accumulated during the development
stage . . . . . . . . . . . . . . . . . . . . (57,409) (51,548)
Notes receivable secured by common stock. . . . (15) (15)
Deferred compensation and other . . . . . . . . (38) (46)
------- --------
Total stockholders' equity. . . . . . . . . . . . . 2,797 7,078
------- --------
$ 4,055 $ 8,726
------- --------
------- --------
</TABLE>
Note: Derived from the audited balance sheet at December 31, 1996.
See accompanying notes
3
<PAGE>
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED PERIOD FROM
JUNE 30, JUNE 30, MARCH 7, 1989
-------------------- --------------------- (INCEPTION) THROUGH
1997 1996 1997 1996 JUNE 30, 1997
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product Sales . . . . . . . . . . . . . . . . $ 205 $ 111 $ 438 $ 156 $ 859
OPERATING COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . 583 742 1,617 1,049 3,927
Research and development .. . . . . . . . . . 1,027 1,662 2,507 4,015 36,864
Sales, general and administrative . . . . . . 921 1,430 2,237 2,680 18,515
------- ------- ------- ------- --------
2,531 3,834 6,361 7,744 59,306
Loss from operations . . . . . . . . . . . . . . . (2,326) (3,723) (5,923) (7,588) (58,447)
Interest and dividend income . . . . . . . . . . . 24 104 88 196 2,436
Interest and other expense . . . . . . . . . . . . (10) (82) (26) (171) (1,398)
------- ------- ------- ------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . $(2,312) $(3,701) $(5,861) $(7,563) $(57,409)
------- ------- ------- ------- --------
------- ------- ------- ------- --------
Deemed dividend on preferred stock . . . . . . . . --- (578) --- (1,180) (1,180)
------- ------- ------- ------- --------
Net loss after deemed dividend.. . . . . . . . . . $(2,312) $(4,279) $(5,861) $(8,743) $(58,589)
------- ------- ------- ------- --------
------- ------- ------- ------- --------
Net loss per share . . . . . . . . . . . . . . . . $ (0.23) $ (0.80) $ (0.63) $ (1.77)
------- ------- ------- -------
------- ------- ------- -------
Net loss per share to common
shareholders. . . . . . . . . . . . . . . . . $ (0.23) $ (0.92) $ (0.63) $ (2.05)
------- ------- ------- -------
------- ------- ------- -------
Shares used in computing net loss per share. . . . 10,048 4,626 9,320 4,264
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes.
4
<PAGE>
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED MARCH 7, 1989
JUNE 30, (INCEPTION) THROUGH
1997 1996 JUNE 30, 1997
-------- -------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . $(5,861) $(7,563) $(57,409)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . 197 232 3,728
Other . . . . . . . . . . . . . . . . . . . . . . 124 241 490
Changes in:
Accounts receivable. . . . . . . . . . . . . . (27) (118) (228)
Prepaid inventory. . . . . . . . . . . . . . . (307) (71) (682)
Inventory. . . . . . . . . . . . . . . . . . . (247) (332) (1,175)
Other current assets . . . . . . . . . . . . . 267 171 (184)
Other assets . . . . . . . . . . . . . . . . . (8) -- 4
Other current liabilities. . . . . . . . . . . (303) 260 1,153
------- ------- --------
Net cash used in operating activities. . . (6,165) (7,180) (54,303)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . (163) (293) (2,091)
Short-term investments purchased. . . . . . . . . . . --- --- (30,337)
Short-term investments sold/redeemed. . . . . . . . . --- 597 30,337
Restricted cash . . . . . . . . . . . . . . . . . . . 110 91 (401)
------- ------- --------
Net cash provided by (used in)
investing activities. . . . . . . . . . . . . . . (53) 395 (2,492)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net of issuance costs. . 1,448 7,575 28,381
Issuance of common stock, net of issuance costs . . . --- 65 27,301
Issuance of long-term debt. . . . . . . . . . . . . . --- 125 4,949
Payments on long-term obligations . . . . . . . . . . (87) (308) (3,749)
------- ------- --------
Net cash provided by (used in) financing activities 1,361 7,457 56,882
------- ------- --------
Net increase (decrease) in cash and cash equivalents . (4,857) 672 87
Cash and cash equivalents, beginning of period . . . . 4,944 6,028 ---
------- ------- --------
Cash and cash equivalents, end of period . . . . . . . $ 87 $ 6,700 $ 87
------- ------- --------
------- ------- --------
</TABLE>
See accompanying notes
5
<PAGE>
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. NATURE OF BUSINESS AND FINANCINGS
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 June 30, 1997, the Company's accumulated deficit
was $57.4 million. Biocircuits expects to incur additional losses
over the next several years.
On April 15, 1997, the Company closed the first tranches in two private
placements (collectively the "April 1997 Financings") in which the
Company sold its common stock and issued warrants to purchase common
stock. The first private placement (the "April Common Stock Financing")
consisted of the sale of an aggregate of 2,500,000 shares of common stock
at $1.00 per share, to be issued in three tranches. The second private
placement (the "April Units Financing") consisted of the sale of an
aggregate of 5,447,000 units at $1.00 per unit, each unit consisting of
one share of common stock and one warrant to purchase one share of common
stock (the "April Financing Warrants"), to be issued in two tranches.
Upon closing the first tranches of the April 1997 Financings, the Company
issued 531,250 shares of its common stock in the first tranche of the
April Common Stock Financing and 1,157,488 units in the first tranche of
the April Units Financing. The April Financing Warrants have an exercise
price of $0.75 per share and expire eighteen months after April 15, 1997,
subject to certain adjustments. At the Company's option, the Company may
shorten the exercise period of the April Financing Warrants in which case
they may become redeemable by the Company at $0.01 per share if the
closing prices for the Company's common stock is greater than or equal to
$2.00 per share for ten days. The first tranches of the April 1997
Financings resulted in gross proceeds to the Company of approximately
$1.7 million. With these funds, the Company's cash resources were
adequate to satisfy its requirements through the end of the second
quarter 1997. The closing of the second and third tranches of the April
1997 Financings were conditional upon the Company meeting certain
milestones. The milestone required for the second tranches to close were
not met and the investors in the April Common Stock Financing elected not
to fund the Company in the third tranche.
On July 3, 1997, the Company closed a financing (the "July Financing")
in which the Company sold 6,853,567 units at $0.75 per unit, each unit
consisting of one share of common stock and one warrant to purchase one
share of common stock (the "July Financing Warrants"). The July
Financing Warrants have an exercise price of $0.75 per share and expire
eighteen months after July 3, 1997, subject to certain adjustments. At
the Company's option, the Company may shorten the exercise period of the
July Financing Warrants in which case they may become redeemable by the
Company at $0.01 per share if the closing prices for the Company's common
stock is greater than or equal to $2.00 per share for ten days. The July
Financing resulted in gross proceeds to the Company of approximately $5.1
million. With these funds, the Company believes its cash resources will
be adequate to satisfy its requirements through the second quarter 1998.
Obtaining additional funds, either from generating sufficient revenue or
raising additional capital, will be critical to the Company's ability to
maintain operations through 1998. The Company will therefore continue to
seek funding from various equity financing sources. Raising additional
funds from public or private sources will result in significant dilution
to then existing shareholders. If adequate funding is not available on a
timely basis, the Company will be required to curtail its operations
significantly or to cease operations. There can be no assurance that the
Company will be successful in obtaining additional financing during 1997
or 1998.
6
<PAGE>
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
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 six month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K/A-3 for the
year ended December 31, 1996.
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss to common shareholders
as reported . . . . . . . . . . . . . . . . . $(2,312) $(4,279) $(5,861) $(8,743)
------- ------- ------- -------
------- ------- ------- -------
Shares used in computing net
loss per share as reported. . . . . . . . . . 10,048 4,626 9,320 4,264
Adjustment to include outstanding convertible
preferred stock previously excluded
as it is anti-dilutive. . . . . . . . . . . . 2,937 3,623 3,025 3,494
------- ------- ------- -------
Shares used in computing proforma net
loss per share. . . . . . . . . . . . . . . . 12,985 8,249 12,345 7,758
------- ------- ------- -------
------- ------- ------- -------
Pro forma net loss per share. . . . . . . . . . . $ (0.18) $ (0.52) $ (0.47) $ (1.13)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be
excluded. The Company expects no impact from the implementation of FASB
128 as common equivalent shares are excluded from the computation as
their effect is anti-dilutive. In June of 1997, the Financial
Accounting Standards Board issued Statements No. 130, Reporting
Comprehensive Income, and No. 131, Disclosures about Segments of an
Enterprise and Related Information, which are required to be adopted
in the year ended December 31, 1998. The Company does not expect any
significant impact from the implementation of FASB 130 or FASB 131.
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/A FOR THE YEAR ENDED DECEMBER 31, 1996.
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
Part 1-Item 1 of this quarterly report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
1996 contained in the Company's 1996 annual report to stockholders. The results
for the three and six month periods ending June 30, 1997 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 1997.
OVERVIEW
Since its inception in 1989, the Company has been engaged in research
and development and marketing of immunodiagnostic medical applications of its
technologies. Immunodiagnostic tests, or "assays," are performed on samples
of bodily fluids to diagnose a variety of infectious diseases and other
conditions such as endocrine dysfunctions, and to conduct therapeutic drug
monitoring. Immunodiagnostic tests utilize biological reagents, such as
antibodies, and an instrument to detect the presence of a substance of
interest, or "analyte," such as a virus or hormone.
On June 27, 1997, the Company entered into a letter of intent (the
"Letter of Intent") with the Becton-Dickinson Microbiology Systems Division
of Becton, Dickenson and Company ("Becton") to enter into an agreement (the
"Agreement") that would give Becton exclusive worldwide marketing rights to
the IOS system and all cartridges currently available as well as those that
will be developed in the future. It is also anticipated that Becton may
assume responsibility for manufacturing the IOS instrument in 1998. The
company currently plans to continue to manufacture cartridges for transfer to
Becton as well as develop new cartridges. The Letter of Intent is not
legally binding and the Agreement, which is currently being negotiated by the
parties, may never be finalized and executed. If the Agreement is executed,
the Company's operations will be materially affected and the Company's
results could differ materially from those anticipated in these
forward-looking statements.
The Company has incurred a loss in each period since its inception.
At June 30, 1997, the Company's accumulated deficit was $57.4 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 development of additional assays for the IOS point-of-care system, the
production of the Company's cartridges and in such case that the Agreement
with Becton is not executed, the sales and marketing programs for its IOS
point-of-care system. The losses may vary from period to period, including
from quarter to quarter, and may increase, due to the uncertainty of whether
the sales and marketing programs of the Company or Becton will achieve the
desired results. Accordingly, the Company believes that quarter-to-quarter
results are not a useful indicator of the Company's performance.
RESULTS OF OPERATIONS-THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Revenue in the second quarter totaled $205,000, an increase of $94,000
or 85% from the $111,000 reported in the second quarter of 1996.
Total operating costs and expenses decreased from $3,834,000 in the
second quarter of 1996 to $2,531,000 in the second quarter of 1997, a
decrease of $1,303,000 or 34%.
8
<PAGE>
Cost of sales decreased from $742,000 in the second quarter of 1996 to
$583,000 in the second quarter of 1997, a decrease of $159,000 or 21%. The
decrease in cost of sales results primarily from a reduction in manufacturing
overhead due to the reduction in force which occurred in early April 1997
offset by higher direct labor and material costs associated with the
increased sales. In addition, the second quarter 1996 cost of sales included
a $241,000 charge for a warrant issued to KMC Systems, Inc. ("Kollsman").
Research and development expenses decreased from $1,662,000 in the
second quarter of 1996 to $1,027,000 in the second quarter of 1997, a
decrease of $635,000 or 38%. This decrease was due primarily to the
reduction in force which occurred in early April 1997 and a reduction in
outside services, primarily non-recurring engineering charges from Kollsman.
Sales, general and administrative expenses decreased from $1,430,000
in the second quarter of 1996 to $921,000 in the second quarter of 1997, a
decrease of $509,000 or 36%. This decrease was due primarily to the
Company's reduction in force which occurred in early April and decreased
sales and marketing expenses.
Interest income decreased from $104,000 in the second quarter of 1996
to $24,000 in the second quarter of 1997, a decrease of $80,000 or 77%. The
decrease was due to decreased cash balances from ongoing operating losses,
purchases of property and equipment and payments on long-term obligations.
Interest and other expense decreased from $82,000 in the second quarter of
1996 to $10,000 in the second quarter of 1997, a decrease of $72,000 or 88%.
Interest expense results from the Company's long-term debt and capital leases
related to its property and equipment.
Net loss decreased from $3,701,000 or $0.80 per share in the second
quarter of 1996 to $2,312,000 or $0.23 per share in the second quarter of
1997, a decrease of $1,389,000 or 38%. Alternatively, after the deemed
preferred stock dividend, net loss to common shareholders decreased from
$4,279,000 or $0.92 per share to $2,312,000 or $0.23 per share, a decrease of
$1,967,000 or 46%.
In late March 1997, the Company and Kollsman, the Company's exclusive
North American supplier of the IOS instrument, agreed to reduce the amount of
the standby letter of credit by $249,000 in exchange for reducing the
exercise price of a warrant issued to Kollsman to $2.00 per share. Such
warrant and standby letter of credit was established in order to secure an
adequate supply of IOS Instruments. Also in late March 1997, the Company and
Kollsman agreed to issue Kollsman a warrant to purchase 50,000 shares of
common stock in exchange for a one month shutdown of instrument production.
In the quarter ended March 31, 1997, the Company recorded a $124,000 expense
as manufacturing overhead, $60,000 for the warrant price reduction from $7.00
to $2.00 and $64,000 for the issuance of the warrant to purchase 50,000
shares of common stock. In early May 1997, the Company subsequently agreed
with Kollsman to extend the instrument production line shutdown until August
1997. The Company has further agreed to and has paid Kollsman $436,000 to
cover the cost of raw material and work in process currently at, or to be
delivered to, Kollsman. Such prepaid inventory will be credited back against
future deliveries of IOS instruments to Biocircuits. In return, Kollsman
canceled the $700,000 standby letter of credit and the associated funds
collateralized by the Company's bank have been released back to the Company.
The Company is entirely dependent on Kollsman as the sole source of
production of its IOS instruments through the end of 1997 and an undetermined
duration thereafter should the Agreement with Becton not be executed.
Kollsman or Becton, in the event that the Agreement is executed, relies upon
sole-source suppliers for certain components. Failure of these suppliers to
deliver the required quantities on a timely basis and at commercially
reasonable prices, or failure to deliver the IOS instruments on a timely
basis or at commercially reasonable costs could materially adversely affect
the Company.
The Company's inventory, including prepaid inventory, increased to
approximately $1,857,000 as of June 30, 1997. Of this amount, a major
portion is associated with the instrument: approximately $682,000 of prepaid
instrument inventory; $545,000 of IOS instrument finished goods; and $195,000
of instrument raw materials. The instrument production shutdown, which is
expected to last at least through August 1997, is designed to reduce the
inventory of instrument finished goods and, with the expected builds for the
balance of 1997 and early 1998, the Company expects that the instrument
prepaid inventory and raw materials will be significantly reduced.
Therefore, based on the Company's build rates for the balance of 1997 and
early 1998, the Company does not expect to encounter any major obsolete or
excess inventory issues which may require writedowns other than issues that
would be expected in the course of normal operations for which the Company
has $90,000 of reserves recorded. There can
9
<PAGE>
be no assurances that the build rates required to support IOS instrument
sales will be adequate to significantly reduce instrument related inventory
nor that the Company's established reserves will be adequate to cover any
unexpected obsolete or excess inventory issues.
On April 3, 1997, in order to reduce its losses and conserve
approximately $250,000 per month, the Company reduced its work force from 92
employees to 54 employees. The Company is highly dependent upon the
principal members of its management and scientific staff and key individuals
in all areas of the Company. Although the Company believes it has retained
sufficient employees to achieve its near-term business objectives after its
reduction in force on April 3, 1997, there can be no assurance that the loss
of services of such employees might not impede the achievement of the
Company's business objectives. Furthermore, there can be no assurance that
the reduction in force will not adversely affect the Company's ability to
retain its remaining employees, however, the Company has implemented certain
programs which it believes may help in retaining the key employees. The
Company faces competition for qualified individuals from numerous manufacturers
of medical products and other high technology products, as well as universities
and academic institutions. There can be no assurance that the Company will be
able to attract qualified new personnel on acceptable terms.
On April 15, 1997, the Company closed the first tranches in two
private placements (collectively the "April 1997 Financings") in which the
Company sold its common stock and issued warrants to purchase common stock.
The first private placement (the "April Common Stock Financing") was to
consist of the sale of an aggregate of 2,500,000 shares of common stock at
$1.00 per share, to be issued in three tranches. The second private placement
(the "April Units Financing") was to consist of the sale of an aggregate of
5,447,000 units at $1.00 per unit, each unit consisting of one share of
common stock and one warrant to purchase one share of common stock (the
"April Financing Warrants"), to be issued in two tranches.
The closing of the second tranches of the April 1997 Financings were
conditional upon the Company installing a minimum of eighty-eight (88) Good
Manufacturing Practices ("GMP") units of the IOS system during the three
month period ended June 30, 1997 that were sold directly or indirectly by the
Company. Although the Company implemented various sales and marketing
programs, including evaluation programs targeted to physicians and incentive
programs for its sales representatives and distributor sales representatives
in order to reach this milestone, the milestone was not met by the Company
and the second tranches of the April 1997 Financings did not close. The
closing of the third tranche of the April Common Stock Financing was
conditional upon the Company installing a minimum of two hundred thirty-five
(235) GMP units of the IOS system that are sold directly or indirectly by the
Company. Investors in the April Common Stock Financing have elected not to
fund the Company in the third tranche.
The Company issued 531,250 shares of its common stock in the first
tranche of the April Common Stock Financing and 1,157,488 units in the first
tranche of the April Units Financing. The April Financing Warrants have an
exercise price of $0.75 per share and expire eighteen months after April 15,
1997, subject to certain adjustments. At the Company's option, the Company
may shorten the exercise period of the April Financing Warrants in which case
they may become redeemable by the Company at $0.01 per share if the closing
prices for the Company's common stock is greater than or equal to $2.00 per
share for ten days. The first tranches of the April 1997 Financings resulted
in gross proceeds to the Company of approximately $1.7 million. With these
funds, the Company's cash resources were adequate to satisfy its requirements
through the end of the second quarter.
On July 3, 1997, the Company closed a financing (the "July Financing")
in which the Company sold 6,853,567 units at $0.75 per unit, each unit
consisting of one share of common stock and one warrant to purchase one share
of common stock (the "July Financing Warrants"). The July Financing Warrants
have an exercise price of $0.75 per share and expire eighteen months after
July 3, 1997, subject to certain adjustments. At the Company's option, the
Company may shorten the exercise period of the July Financing Warrants in
which case they become redeemable by the Company at $0.01 per share if the
closing prices for the Company's common stock is greater than or equal to
$2.00 per share for ten days. The July Financing resulted in gross proceeds
to the Company of approximately $5.1 million. With these funds, the Company
believes its cash resources will be adequate to satisfy its requirements
until the end of the second quarter of 1998.
10
<PAGE>
RESULTS OF OPERATIONS-SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenue in the first six months totaled $438,000, an increase of
$282,000 from the $156,000 reported in the first six months of 1996 when the
Company initially launched its IOS system.
Total operating costs and expenses decreased from $7,744,000 in the
first six months of 1996 to $6,361,000 in the first six months of 1997, a
decrease of $1,383,000 or 18%.
Cost of sales increased from $1,049,000 in the first six months of
1996 to $1,617,000 in the first six months 1997, an increase of $568,000 or
54%. The increase in cost of sales results primarily from reporting cost of
sales for a full six month period for 1997 while the cost of sales for the
first six months of 1996 reflects a partial period due to the Company
launching its IOS system in March 1996. These costs consist primarily of
manufacturing overhead and startup costs associated with the production of
revenue generating product.
Research and development expenses decreased from $4,015,000 in the
first six months of 1996 to $2,507,000 in the first six months of 1997, a
decrease of $1,508,000 or 38%. This decrease was due primarily to outside
services, primarily non-recurring charges from Kollsman, and the Company's
cost reduction efforts, including the reduction in force in April 1997.
Sales, general and administrative expenses decreased from $2,680,000
in the first six months of 1996 to $2,237,000 in the first six months of
1997, a decrease of $443,000 or 17%. This decrease was due primarily to the
Company's reduction in force in April 1997 and reduced sales and marketing
expenses.
Interest income decreased from $196,000 in the first six months of
1996 to $88,000 in the first six months of 1997, a decrease of $108,000 or
55%. The decrease was due to decreased cash balances from ongoing operating
losses, purchases of property and equipment and payments on long-term
obligations. Interest and other expense decreased from $171,000 in the first
six months of 1996 to $26,000 in the first six months of 1997, a decrease of
$145,000 or 85%. Interest expense results from the Company's long-term debt
and capital leases related to its property and equipment.
Net loss decreased from $7,563,000 or $1.77 per share in the first
six months of 1996 to $5,861,000 or $0.63 per share in the first six months
of 1997, a decrease of $1,702,000 or 23%. Alternatively, after the deemed
preferred stock dividend, net loss to common shareholders decreased from
$8,743,000 or $2.05 per share to $5,861,000 or $0.63 per share, a decrease of
$2,882,000 or 33%.
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 June 30, 1997, the Company raised a
total of approximately $55.9 million in the sale of common and preferred
stock.
The Company's cash and cash equivalents and short-term investments
were $87,000 as of June 30, 1997, compared to $4.9 million at the end of
1996. The decrease was due primarily to operating losses in the first six
months of 1997 offset by the funds raised in the April 1997 Financings.
On April 15, 1997, the Company closed the April 1997 Financings which
consisted of the sale of common stock and warrants to purchase common stock.
With the receipt of funds from the April 1997 Financings, the Company
received adequate cash resources to satisfy its requirements through the end
of the second quarter of 1997. With the proceeds from the July Financing,
which closed on July 3, 1997, the Company believes its cash resources will be
adequate to satisfy its requirements through second quarter 1998.
Obtaining additional funds, either from generating sufficient revenue
or raising additional capital, will be critical to the Company's ability to
maintain operations through 1998. The Company will therefore continue to seek
funding from various equity financing sources. Raising additional funds from
public or private sources will result in
11
<PAGE>
significant dilution to then existing shareholders. If adequate funding is
not available on a timely basis, the Company will be required to curtail its
operations significantly or to cease operations. There can be no assurance
that the Company will be successful in obtaining additional financing during
1997 or 1998.
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. The conversion
of the Beckman Note resulted in the Company meeting Nasdaq listing
requirements at year end 1996. The Company failed temporarily to meet Nasdaq
net tangible assets listing requirements at the end of both the first and
second quarters of 1997. However, the proceeds from the April 1997 Financings
allowed the Company to meet Nasdaq listing requirements, on a proforma basis,
for the first quarter of 1997 and proceeds from the July Financing allowed
the Company to meet Nasdaq listing requirements, on a proforma basis, for the
second quarter of 1997. In addition, the Company believes the receipt of
proceeds from the July 1997 Financing should result in it meeting Nasdaq
listing requirements through year end 1997. Thereafter, the Company will be
required to generate sufficient revenue or raise additional capital to
maintain Nasdaq listing requirements.
Nasdaq Marketplace Rule 4450(a)(5) currently provides that in order
to remain eligible for continued inclusion in the Nasdaq National Market, a
security must have a bid price of at least $1.00 per share, or in the
alternative (i) the aggregate market value of publicly held shares, excluding
shares held by officers, directors and greater than 10% beneficial owners
must be at least $3,000,000 (the "Public Float Test") and (ii) a company's
net tangible assets must be at least $4,000,000 (the "Net Tangible Asset
Test", and, together with the Public Float Test, the "Alternative Test"). If
the bid price of the Company's common stock is below $1.00 per share for ten
consecutive days, under current Nasdaq Rules, the Company must meet the
Alternative Test in order to maintain its Nasdaq listing. Although the bid
price of the Company's common stock is currently above $1.00 per share and
the Company does not rely on the Alternative Test in order to maintain its
Nasdaq listing, there can be no assurance that the bid price will remain
above $1.00 per share in the future. In addition, although the Company
currently meets the Alternative Test and is therefore in compliance with
Nasdaq's listing requirements, there can be no assurance that the Company
will continue to meet the Alternative Test in the future. Nasdaq has
proposed new rules for consideration by the Securities and Exchange
Commission that would eliminate the Alternative Test. If the rules are
approved by the Securities and Exchange Commission, the bid price of the
Company's common stock must remain at or above $1.00 per share in order to
maintain its Nasdaq listing. The Company's shareholders have authorized the
Board of Directors to effect a 1-for-2.5 reverse stock split at any time
prior to the Company's 1998 Annual Meeting. Therefore, if the bid price of
the Company's common stock is below $1.00 per share for ten consecutive days,
the Company may effect the reverse stock split to increase the common stock
price.
The Company believes its cash requirements may increase in future
periods due to higher expenses. 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, research and development and
administrative facilities, development of manufacturing capabilities,
obtaining regulatory approvals and establishing sales, marketing and
distribution capabilities in such event the Agreement with Becton is not
executed. The Company's long-term capital requirements will depend on
numerous factors, including the progress of the Company's research and
product 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 potential collaborative partnerships. The Company intends
to seek additional funding through collaborative relationships and public or
private financings. Other methods of financing the acquisition of capital
equipment, including lease financing, may be utilized if available on
attractive terms. Raising additional funds from public or private financings
may result in further dilution to then-existing shareholders. The Company
also may attempt to obtain funds through arrangements with strategic partners
or others that may require the Company to relinquish 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.
12
<PAGE>
BIOCIRCUITS CORPORATION
PART II: OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
a) The Company's Annual Meeting of Stockholders was held on June 5,
1997.
b) The following individuals were elected to the Company's Board of
Directors for a three-year term expiring at the 2000
Annual Meeting and received the number of votes in favor and
votes withheld indicated:
Robert Curry, Ph.D.
Common Votes in favor: 6,998,891 Common Votes withheld: 71,992
Preferred Votes in favor: 2,987,061 Preferred Votes withheld: 0
David Rubinfien
Common Votes in favor: 6,998,191 Common Votes withheld: 72,692
Preferred Votes in favor: 2,987,061 Preferred Votes withheld: 0
The following individual was elected to the Company's Board of
Directors for a two-year term expiring at the 1999 Annual Meeting
and received the number of votes in favor and votes withheld
indicated:
John Kaiser
Common Votes in favor: 6,998,534 Common Votes withheld: 72,349
Preferred Votes in favor: 2,961,112 Preferred Votes withheld: 25,949
The following individual's term of office as a director continued
after the meeting:
Patrick Latterell
c) In addition to the election of directors, the following matters were
voted upon at the meeting and received the number of affirmative
votes, negative votes, abstentions and broker non-votes indicated:
(i) Ratify the sale and issuance of the Company's securities in two
private financings.
Common Votes:
In favor: 3,715,944 Against: 57,560
Abstentions: 25,241 Broker non-votes: 3,272,138
Preferred Votes:
In favor: 2,987,061 Against: 0
Abstentions: 0 Broker non-votes: 0
13
<PAGE>
(ii) Authorize amendment to the Company's Amended and Restated
Certificate of Incorporation to effect a 1-for-2.5 reverse split of
the outstanding shares of the Company's common stock upon the
filing of an Amendment to the Company's Amended and Restated
Certificate of Incorporation by the Board of Directors at any
time on or prior to the Company's 1998 Annual Meeting of
Shareholders .
Common Votes:
In favor: 6,908,786 Against: 104,918
Abstentions: 27,644 Broker non-votes: 29,535
Preferred Votes:
In favor: 2,977,586 Against: 9,475
Abstentions: 0 Broker non-votes: 0
(iii) Ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31,
1997.
Common Votes:
In favor: 7,040,903 Against: 18,055
Abstentions: 11,925 Broker non-votes: 0
Preferred Votes:
In favor: 2,987,061 Against: 0
Abstentions: 0 Broker non-votes: 0
ITEM 5. Other Information
On July 7, 1997, the Company closed a private placement in which it
received net proceeds of approximately $4.8 million, which proceeds
allowed the Company to meet Nasdaq listing requirements for the second
quarter of 1997 on a proforma basis.
On June 27, 1997, the Company entered into a letter of intent (the
"Letter of Intent") with the Becton-Dickinson Microbiology Systems
Division of Becton, Dickenson and Company ("Becton") to enter into an
agreement (the "Agreement") that would give Becton exclusive worldwide
marketing rights to the IOS system and all cartridges currently
available as well as those that will be developed in the future. It is
also anticipated that Becton may assume responsibility for manufacturing
the IOS instrument in 1998. The company currently plans to continue to
manufacture cartridges for transfer to Becton as well as develop new
cartridges. The Letter of Intent is not legally binding and the
Agreement, which is currently being negotiated by the parties, may never
be finalized and executed.
14
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27.1 Financial Data Schedule
99.1 Proforma June 30, 1997 Balance Sheets and Statements
of Operations assuming completion of a private
placement and receipt of net proceeds of $4.8
million therefrom.
b) Reports on Form 8-K
Form 8-K filed July 18, 1997
15
<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: August 13, 1997
By: /s/ John Kaiser
------------------------------------------
John Kaiser
President and Chief Executive Officer
By: /s/ James Welch
------------------------------------------
James Welch
Vice President and Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 255
<ALLOWANCES> (27)
<INVENTORY> 1,175
<CURRENT-ASSETS> 2,399
<PP&E> 3,210
<DEPRECIATION> (1,861)
<TOTAL-ASSETS> 4,055
<CURRENT-LIABILITIES> 1,258
<BONDS> 0
0
9,497
<COMMON> 50,762
<OTHER-SE> (57,462)
<TOTAL-LIABILITY-AND-EQUITY> 4,055
<SALES> 438
<TOTAL-REVENUES> 438
<CGS> 1,617
<TOTAL-COSTS> 1,617
<OTHER-EXPENSES> 2,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> (5,861)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,861)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
<PAGE>
Exhibit 99.1
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PROFORMA CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997 ADJUSTMENT PROFORMA
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 87 $4,800 $ 4,887
Accounts receivable, net of allowance for doubtful accounts
of $27, ($43 on December 31, 1996). . . . . . . . . . . . . . . . 228 --- 228
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,175 --- 1,175
Prepaid inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 682 --- 682
Prepaid expenses and other current assets . . . . . . . . . . . . . . 114 --- 114
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 --- 113
-------- ------ --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,399 4,800 7,199
Property and equipment, net of accumulated depreciation and
amortization of $1,763 ($1,671 in 1996) . . . . . . . . . . . . . . . 1,349 --- 1,349
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 --- 255
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 --- 52
-------- ------ --------
$ 4,055 $4,800 $ 8,855
-------- ------ --------
-------- ------ --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 852 --- $ 852
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 146 --- 146
Accrued compensation and related expenses . . . . . . . . . . . . . . 157 --- 157
Current portion of capital lease obligations. . . . . . . . . . . . . 103 --- 103
-------- ------ --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 1,258 --- 1,258
Long-term portion of capital lease obligations . . . . . . . . . . . . . .. --- --- ---
Stockholders' equity:
Preferred stock, $0.001 par value, 40,000,000 shares authorized,
issuable in series: Series A convertible, 30,000,000
shares designated, 11,643,237 shares issued and
aggregate liquidation preference of $.55 per share. . . . . . . . . 9,497 --- 9,497
Common stock, $0.001 par value, 70,000,000 shares authorized,
10,482,038 shares issued and outstanding at June 30, 1997,
17,335,605 proforma shares issued and outstanding . . . . . . . . . 50,762 4,800 55,562
Deficit accumulated during the development stage. . . . . . . . . . . (57,409) --- (57,409)
Notes receivable secured by common stock. . . . . . . . . . . . . . . (15) --- (15)
Deferred compensation and other . . . . . . . . . . . . . . . . . . . (38) --- (38)
-------- ------ --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 2,797 4,800 7,597
-------- ------ --------
$ 4,055 $4,800 $ 8,855
-------- ------ --------
-------- ------ --------
</TABLE>
See accompanying note
<PAGE>
Exhibit 99.1
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
PROFORMA CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED PERIOD FROM
JUNE 30, JUNE 30, MARCH 7, 1989
---------------------- --------------------- (INCEPTION) THROUGH
1997 1996 1997 1996 JUNE 30, 1997
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product Sales . . . . . . . . . . . . . . . $ 205 $ 111 $ 438 $ 156 $ 859
OPERATING COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . 583 742 1,617 1,049 3,927
Research and development .. . . . . . . . . 1,027 1,662 2,507 4,015 36,864
Sales, general and administrative . . . . . 921 1,430 2,237 2,680 18,515
------- ------- ------- ------- --------
2,531 3,834 6,361 7,744 59,306
Loss from operations . . . . . . . . . . . . . . (2,326) (3,723) (5,923) (7,588) (58,447)
Interest and dividend income . . . . . . . . . . 24 104 88 196 2,436
Interest and other expense . . . . . . . . . . . (10) (82) (26) (171) (1,398)
------- ------- ------- ------- --------
Net loss . . . . . . . . . . . . . . . . . . . . $(2,312) $(3,701) $(5,861) $(7,563) $(57,409)
------- ------- ------- ------- --------
------- ------- ------- ------- --------
Net loss per share . . . . . . . . . . . . . . . $ (0.23) $ (0.80) $ (0.63) $ (1.77)
------- ------- ------- -------
------- ------- ------- -------
Shares used in computing net loss per share. . . 10,048 4,626 9,320 4,264
------- ------- ------- -------
------- ------- ------- -------
Proforma net loss per share. . . . . . . . . . . $ (0.14) $ (0.80) $ (0.46) $ (1.77)
------- ------- ------- -------
------- ------- ------- -------
Shares used in computing proforma
net loss per share. . . . . . . . . . . . . 16,902 4,626 12,747 4,264
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying note
<PAGE>
Exhibit 99.1
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO PROFORMA FINANCIAL STATEMENTS
PROFORMA JUNE 30, 1997
(UNAUDITED)
1. PRIVATE PLACEMENT AND PROFORMA IMPACT
On July 3, 1997, the Company closed the July Financing in which the Company
sold 6,853,567 units at $0.75 per unit, each unit consisting of one share
of common stock and one warrant to purchase one share of common stock at
$0.75 per share. The July Financing resulted in net proceeds to the
Company of approximately $4.8 million. The warrants expire on January 3,
1999 and are subject to certain adjustments. At the Company's option, the
Company may shorten the exercise period of the July Financing warrants in
which case they may become redeemable by the Company at $0.01 per share if
the closing price for the Company's common stock is greater than or equal
to $2.00 per share for ten days.
The proceeds from the July Financing are reflected on the proforma
Balance Sheet and the private placement has no effect on the proforma
Statement of Operations. The proforma net loss per share calculations
are based upon 6,853,567 additional shares of Common Stock from the
private placement as though they were outstanding as of April 1, 1997.
