SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _____________ to ________________
Commission file number 0-18109
CELLMETRIX, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3228375
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1800 Walt Whitman Road, Melville, New York 11747
(Address of principal executive offices)
(516) 752-3550
(Issuer's telephone number)
BCAM International, Inc.
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: May 19, 2000: 38,904,975
Transitional Small Business Disclosure Format (check one): Yes ____ No X
<PAGE>
CellMetrix, Inc. and Subsidiaries
(Formerly BCAM International, Inc. and Subsidiaries)
<TABLE>
<S> <C>
PAGE
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
March 31, 2000 (Unaudited) F-2
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended March 31, 2000 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements (Unaudited) F-6/15
Item 2. Management's Discussion and Analysis or Plan of Operation F-16/17
Part II - Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20/21
Item 3. Defaults Upon Senior Securities 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Index of Exhibits 24
</TABLE>
<PAGE>
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2000
(Unaudited)
Assets
<TABLE>
<S> <C>
Current assets:
Cash $ 816,000
Accounts receivable, less allowance for contractual discounts
and doubtful accounts of $22,000 13,000
Other current assets 52,000
-------------
Total current assets 881,000
Equipment, net of accumulated depreciation of $12,000 17,000
Technology costs, net of accumulated amortization of $378,000 799,000
Debt issuance costs, net of accumulated amortization of $376,000 1,807,000
Other assets 55,000
-------------
Total $ 3,559,000
=============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable (including obligations in default) $ 887,000
Accounts payable 334,000
Accrued expenses 389,000
-------------
Total current liabilities 1,610,000
Note payable 350,000
Other liabilities 50,000
-------------
Total liabilities 2,010,000
-------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized:
Series A Acquisition Convertible Preferred Stock, par value $.01
per share; 750,000 shares authorized; 262,884 shares
issued and outstanding; liquidation preference $4,521,605
($17.20 per share) 3,000
Series C Convertible Preferred Stock, par value $.01 per share;
120,000 shares authorized; 103,763 shares issued and
outstanding; liquidation preference $10,376,300 ($100 per share) 1,000
Series D Convertible Preferred Stock, par value $.01 per share;
150,000 shares authorized; 121,200 shares issued and
outstanding; liquidation preference $1,212,000 ($10 per share) 1,000
Common stock, par value $.01 per share; 200,000,000 shares
authorized; 10,886,317 shares issued 1,633,000
Additional paid-in capital 11,452,000
Unearned compensation (668,000)
Accumulated deficit (9,974,000)
Less treasury stock - 50,879 shares of common stock at cost (899,000)
-------------
Total stockholders' equity 1,549,000
-------------
Total $ 3,559,000
=============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<S> <C> <C>
2000 1999
----------- -----------
Net revenues $ 10,000 $ 8,000
----------- -----------
Operating expenses:
Cost of revenues 8,000 41,000
Selling, general and administrative expenses 798,000 346,000
---------- -----------
Totals 806,000 387,000
---------- -----------
Loss from operations (796,000) (379,000)
Interest expense 202,000 250,000
---------- -----------
Net loss $(998,000) $(629,000)
========== ===========
Basic net loss per common share $(.09) $(.64)
===== ======
Basic weighted average number of common shares outstanding 10,835,431 988,740
========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Series A Series B
Acquisition Acquisition Series C Series D
Convertible Convertible Convertible Convertible
Preferred Preferred Preferred Preferred Common Stock
Stock Stock Stock Stock Shares Amount
----- ----- ----- ----- ------ ------
Balance, January 1, 2000 $3,000 $1,000 40,680,153 $ 407,000
Proceeds from issuance of
103,763 shares of Series
C and 121,200 shares of
Series D Preferred Stock
through private placements,
net of expenses $1,000 $1,000
Issuance of stock options and
warrants to directors, con-
sultants and noteholders
Adjustment to unearned com-
pensation related to issu-
ance of stock options to
director in 1999
Amortization of unearned
compensation
Conversion of 81,743 shares
of Series B Preferred Stock
into common stock (1,000) 122,614,595 1,226,000
Effect of 1 for 15 reverse
split (152,408,431)
Net loss ______ _______ ______ ______ _____________ __________
Balance, March 31, 2000 $3,000 $ - $1,000 $1,000 10,886,317 $1,633,000
====== ======= ====== ====== ---========== -=========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Additional Unearned Accum-
Paid-in Compen- ulated Treasury Stock
Capital sation Deficit Shares Amount Total
------- ------ ------- ------ ------ -----
Balance, January 1, 2000 $13,229,000 $(2,818,000) $ (8,976,000) 763,182 $(899,000) $ 947,000
Proceeds from issuance of
103,763 shares of Series
C and 121,200 shares of
Series D Preferred Stock
through private placements,
net of expenses 1,488,000 1,490,000
Issuance of stock options and
warrants to directors, con-
sultants and noteholders 184,000 184,000
Adjustment to unearned com-
pensation related to issu-
ance of stock options to
director in 1999 (2,224,000) 2,113,000 (111,000)
Amortization of unearned
compensation 37,000 37,000
Conversion of 81,743 shares
of Series B Preferred Stock
into common stock (1,225,000)
Effect of 1 for 15 reverse
split (712,303)
Net loss (998,000) (998,000)
____________ __________ ____________ _________ __________ ___________
Balance, March 31, 2000 $11,452,000 $(668,000) $(9,974,000) 50,879 $(899,000) $1,549,000
=========== ========== ============ ========= =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
CellMetrix, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<S> <C> <C>
2000 1999
---------- --------
Operating activities:
Net loss $ (998,000) $(629,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of equipment 4,000 7,000
Amortization of technology costs 42,000 42,000
Amortization of debt issuance costs and debt discount 164,000
Net reversal of amortization of unearned compensation (74,000)
Deferred interest expense 9,000 212,000
Service and interest expense paid through issuances
of stock options and warrants 184,000
Provision for bad debts 7,000
Changes in operating assets and liabilities:
Accounts receivable (2,000) 18,000
Other current assets (5,000)
Accounts payable 43,000 326,000
Accrued expenses 238,000 (305,000)
Other liabilities (20,000)
--------- ---------
Net cash used in operating activities (408,000) (329,000)
--------- ---------
Investing activities:
Increase in other assets (55,000)
Payments of capital lease obligations (5,000)
-------- ---------
Net cash used in operating activities (55,000) (5,000)
-------- ---------
Financing activities:
Proceeds from issuances of notes payable 400,000
Repayments of notes payable (59,000)
Payments received for preferred stock prior to issuance (220,000)
Proceeds from issuances of preferred stock, net of
expenses of $20,000 1,490,000
---------- -------
Net cash provided by financing activities 1,211,000 400,000
---------- -------
Net increase in cash 748,000 66,000
Cash, beginning of period 68,000 -
---------- -------
Cash, end of period $ 816,000 $66,000
========== =======
Supplemental disclosures of cash flow data:
Interest paid $ 18,000 $28,000
========== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CellMetrix International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation:
Interim financial statements:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of CellMetrix, Inc. (formerly BCAM
International, Inc.) and its subsidiaries reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly their financial position
as of March 31, 2000, results of operations and cash flows for the three months
ended March 31, 2000 and 1999 and changes in stockholders' equity for the three
months ended March 31, 2000. Pursuant to rules and regulations of the Securities
and Exchange Commission (the "SEC"), certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from these
condensed consolidated financial statements unless significant changes have
taken place since the end of the most recent fiscal year. Accordingly, these
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements, notes to consolidated
financial statements and the other information in the Annual Report on Form
10-KSB for the year ended December 31, 1999 (the "10-KSB") previously filed by
CellMetrix, Inc. ("CellMetrix ") with the SEC.
Business and certain transactions:
As one of the results of a series of transactions consummated effective as
of September 22, 1999 that are further explained in Note 1 of the notes to the
consolidated financial statements in the 10-KSB, CellMetrix became an inactive
holding company when it transferred its software, technology and consulting
operations to, and spun off its interest in its 90%-owned subsidiary, ISTX, Inc.
("ISTX"). CellMetrix also became the legal acquirer of LungCheck Inc.
("LungCheck") through a merger (the "Merger") in which it exchanged shares of
preferred and common stock for 100% of the outstanding common stock of its
principal operating subsidiary, LungCheck. LungCheck is in the business of
enhancing and marketing LungCheck(R)technology which is used to provide cytology
laboratory services that include a quantitative assessment of the pulmonary
health of lung cells, as well as the early identification of cancer and other
abnormal cells.
As a result of the exchange of shares, the former stockholders of LungCheck
became the owners of approximately 80% of the voting shares of CellMetrix that
were outstanding on the date the Merger was consummated. Since CellMetrix had no
business operations immediately prior to the Merger as a result of the spinoff
described above, and since the former stockholders of LungCheck owned 80% of the
voting stock of CellMetrix, the Merger was treated effective as of September 23,
1999 as a "purchase" business combination and a "reverse acquisition" for
accounting purposes in which CellMetrix was the legal acquirer and LungCheck was
the accounting acquirer. Pursuant to the purchase method of accounting, the
assets and liabilities of the accounting acquirer continue to be recorded at
their historical values, and financial statements for periods prior to the date
of acquisition only include the results of operations of the accounting
acquirer. Accordingly, the accompanying condensed consolidated financial
statements for the three months ended March 31, 1999 only reflect the results of
operations and cash flows of LungCheck.
CellMetrix International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation
(continued):
Business and certain transactions (concluded):
As used herein, the "Company" refers to CellMetrix and its subsidiaries.
Since CellMetrix spun off its commercial operations prior to the date it was
acquired, the accompanying condensed consolidated financial statements reflect,
in substance, the operations of LungCheck.
Basis of presentation:
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has not generated significant revenues on a sustained basis from the
LungCheck(R) technology that is its principal operating asset, and its
operations have generated losses and cash flow deficiencies from its inception
on January 30, 1997. Although the losses reflect substantial noncash charges
resulting from the issuance of shares of preferred and common stock, stock
options and warrants to pay for service, compensation and interest expense, the
Company had a substantial working capital deficiency and was in violation of
certain of its covenants in its loan agreement as of March 31, 2000. Management
expects that such losses and cash flow deficiencies will continue through at
least March 31, 2001 while the Company continues to develop its technology and
the markets for its services. Such matters raise substantial doubts about the
Company's ability to continue as a going concern and realize the carrying value
of its technology and other assets unless the Company is able to obtain
additional financing and, ultimately, increase revenues and generate sufficient
profits and cash flows to sustain its operations.
From its inception through March 31, 2000, the Company obtained financing
primarily from loans from InterEquity Capital Partners ("InterEquity"), a small
business investment company; loans from stockholders and other related parties;
the private placement of convertible bridge notes (which were subsequently
converted into preferred and common stock) and secured promissory notes; and the
private placement of shares and units of shares of preferred stock and warrants
to purchase preferred and common stock.
In April 2000, the Company received $250,000 as a deposit related to the
proposed sale of preferred stock through a subsequent private placement and
entered into a patent and license agreement for certain technology whereby it
will be required to pay a license fee of $1,000,000 in various installments
through December 1, 2000. Management anticipates that the Company will need to
raise approximately $3,000,000 to satisfy its cash requirements through March
31, 2001. Management is continuing its efforts to obtain additional debt and/or
equity financing for the Company from financial institutions, other private
investors and potential strategic partnerships. On February 1, 2000, the Company
entered into an agreement with an investment banking institution which is acting
as its investment advisor with respect to its efforts to raise capital. However,
there is no assurance that the Company will be able to obtain the financing it
will require for its operations through March 31, 2001.
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Business and reverse acquisition and basis of presentation (concluded):
Basis of presentation (concluded):
During the year ended December 31, 1999, the Company consummated the Merger
and management began to reorganize the Company's operations. The Company has
engaged a consulting firm specializing in medical sales and marketing strategies
to prepare a business plan and explore strategic alternatives which include,
among other things, potential business combinations, strategic alliances and
other potential sources of financing. Cash payments for expenses have been
reduced through the outsourcing of certain laboratory, sales and marketing
positions. The Company has also reduced expenses by eliminating certain internal
personnel costs and other costs of services through an agreement whereby a
medical diagnostic company is processing LungCheck(R) tests and reporting on
their results.
In addition, management believes the Company has developed a more viable
marketing strategy. This strategy focuses on providing healthcare professionals
with systems that allow for the early detection, diagnosis, treatment and
monitoring of significant human diseases utilizing advances in molecular
diagnostics coupled with automatic quantitative screening technologies. The
Company plans to direct its initial focus towards developing products for the
early detection and characterization of lung cancer with the goal of improving
disease management and patient outcomes.
In order to implement its new marketing strategy and enable the Company to
become commercially successful, the Company has commenced negotiations with
several parties which, if successful, would add key technologies for development
of the aforementioned laboratory systems.
Management cannot assure that the Company will be able to develop a successful
marketing strategy or obtain the financing needed to develop commercially
successful operations through any other means. The accompanying condensed
consolidated financial statements do not include any adjustments related to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue its
operations as a going concern.
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Stockholders' equity:
The information that follows relates primarily to the Company's capital
stock and stockholders' equity at March 31, 2000 and the changes in its capital
stock and stockholders' equity during the three months then ended. Such
information should be read in conjunction with the consolidated financial
statements and the notes to the consolidated financial statements included in
the 10-KSB, particularly Notes 1, 2, 6, 7, 8 and 11.
On April 18, 2000, the Company's stockholders approved, among other matters, (i)
an increase in the number of authorized shares of the Company's preferred stock
from 2,000,000 shares to 5,000,000 shares, (ii) an increase in the number of
authorized shares of the Company's common stock from 65,000,000 shares to
200,000,000 shares and (iii) a 1 for 15 reverse split of the Company's common
stock. All references to shares of common stock and prices per share of common
stock have been retroactively adjusted herein for the effects of the 1 for 15
reverse split.
As of December 31, 1999, the Company was authorized to issue up to 750,000
shares of preferred stock as Series A Acquisition Convertible Preferred Stock
(the "Series A Stock") and 750,000 shares of preferred stock as Series B
Acquisition Convertible Preferred Stock (the "Series B Stock"), both of which
had a par value of $.01 per share. A total of 262,884 shares of Series A Stock,
81,743 shares of Series B Stock and 2,661,131 shares of common stock were,
effectively, issued and outstanding as of December 31, 1999.
Each share of Series A Stock is convertible into ten shares of common stock at
the option of the holder, subject to certain conditions, and has a preference in
liquidation of $17.20 per share. Holders of Series A Stock are entitled to cast
that number of votes equal to the number of shares of common stock into which a
share of Series A Stock is convertible. There were no changes in the number of
shares of Series A Stock outstanding during the three months ended March 31,
2000 and, accordingly, a total of 2,628,840 shares of common stock were reserved
for issuance upon their conversion.
Each share of Series B Stock was convertible into 100 shares of common stock at
the option of the holder, but had no preference in liquidation. In addition, the
holders of Series B Stock were also entitled to cast that number of votes equal
to the number of shares of common stock into which a share of Series B Stock was
convertible. The 81,743 shares of Series B Stock outstanding as of December 31,
1999 were automatically converted into 8,174,300 shares of common stock as a
result of the approval of the 1 for 15 reverse split on April 18, 2000 and the
conversion has been retroactively reflected in the accompanying condensed
consolidated financial statements and these notes.
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Stockholders' equity (concluded):
As further explained in Note 11 in the 10-KSB, subsequent to December 31,
1999, the Company became authorized to issue up to 120,000 shares of Series C
Convertible Preferred Stock (the "Series C Stock") and 150,000 shares of Series
D Convertible Preferred Stock (the "Series D Stock"), both of which have a par
value of $.01 per share. Each share of Series C Stock is convertible into 6.67
shares of common stock at the option of the holder, subject to certain
conditions, and has a preference in liquidation of $100 per share. Each share of
Series D Stock is convertible into 16.67 shares of common stock at the option of
the holder, subject to certain conditions, and has a preference in liquidation
of $10 per share. In addition, the holders of Series C Stock and Series D Stock
are entitled to cast that number of votes equal to the number of shares of
common stock into which a share of Series C Stock and a share of Series D Stock
is convertible.
During January 2000, the Company sold 103,330 shares of Series C Stock and
688,867 warrants to purchase shares of common stock pursuant to a private
placement intended to be exempt from registration under the Securities Act of
1933 (the "Act"). Each warrant is exercisable for the purchase of one share of
common stock at $.495 per share through January 12, 2005. The Company received
proceeds from this private placement of $310,000, net of related costs and
expenses of $8,000. The Company also issued 4,333 shares of Series C Stock and
57,773 warrants, each of which is exercisable for the purchase of one share of
common stock at $.45 to $.495 per share, to an investment banker in connection
with this private placement. Accordingly, a total of 717,753 shares of common
stock were reserved for issuance upon the conversion of Series C Stock at March
31, 2000.
During February 2000, the Company sold 120,000 shares of Series D Stock and
2,000,000 warrants to purchase shares of common stock pursuant to a private
placement intended to be exempt from registration under the Act. Each warrant is
exercisable for the purchase of one share of common stock at $1.20 per share
through March 2005. The Company received proceeds from this private placement of
$1,200,000, net of related costs and expenses of $12,000. The Company also
issued 12,000 shares of Series D Stock and 400,000 warrants, each of which is
exercisable for the purchase of one share of common stock at $.60 to $1.20 per
share, to an investment banker in connection with this private placement.
Accordingly, a total of 2,200,000 shares of common stock were reserved for
issuance upon the conversion of Series D Stock at March 31, 2000.
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Warrants and options:
In addition to the warrants issued in connection with the private
placements of preferred stock described in Note 2 herein, the Company issued
warrants to purchase a total of 86,079 shares of common stock to pay for various
services and interest expense during the three months ended March 31, 2000. The
warrants are exercisable at prices ranging from $.60 to $1.65 per share and
expire at various dates through February 1, 2006.
As of December 31, 1999, the Company had warrants to purchase 3,233,496 shares
of common stock outstanding at prices ranging from $.75 to $1.65 per share, as
adjusted for the 1 for 15 reverse split in April 2000 (see Note 7 in the
10-KSB). No warrants were exercised or cancelled during the three months ended
March 31, 2000. As a result, of the issuances of warrants during the three
months ended March 31, 2000, the Company had warrants to purchase 6,466,211
shares of common stock outstanding at March 31, 2000 with exercise prices and
expiration dates as shown in the table below:
<TABLE>
<S> <C> <C> <C>
Shares Subject
to Warrants Exercise Price Expiration Date
749,100 $ .83 August 14, 2002
1,064,928 1.65 December 29, 2002
473,222 .75 December 29, 2002
538,000 1.65 December 31, 2002
68,242 1.65 March 22, 2003
340,000 .75 September 15, 2004
16,479 .75 January 1, 2005
717,753 .495 January 10, 2005
28,887 .45 January 10, 2005
66,667 .60 January 31, 2005
2,200,000 1.20 February 18, 2005
200,000 .60 February 18, 2005
2,933 1.65 February 1, 2006
---------
6,466,211
=========
</TABLE>
As of December 31, 1999, the Company had options to purchase 3,963,297 shares of
common stock outstanding at prices ranging from $.003 to $25.35 per share, as
adjusted for the 1 for 15 reverse split in April 2000 (see Note 8 in the
10-KSB). The table that follows summarizes the status of the shares of the
Company's common stock that are subject to issuance upon the exercise of stock
options outstanding as of March 31, 2000 and changes in outstanding options
during the three months then ended:
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Warrants and options (concluded):
<TABLE>
<S> <C> <C>
Number of Range of
Shares Exercise Prices
---------- ----------------
Outstanding, at beginning of period 3,963,297 $.003-$25.35
Adjustments to options outstanding at beginning
of period (1,483,110) .45
----------
Outstanding, at beginning of period as adjusted 2,480,187 .003-25.35
Granted 16,479 .45
----------
Outstanding, at end of period 2,496,666 .003-25.35
==========
Options exercisable at end of period 2,057,927
==========
</TABLE>
The Company initially reported that it had granted options to purchase 1,977,480
shares of common stock to an executive officer during 1999 at an exercise price
of $.45 per share which was less than the fair market value of the shares on the
date of grant. The Company had charged $2,966,000 to unearned compensation and
additional paid-in capital in 1999 based on the number of shares that were
subject to the options and the excess of the fair market value over the exercise
price for each share. A total of $148,000 of the unearned compensation had been
amortized in 1999. However, the Company actually granted options to purchase
494,370 shares to the executive officer during 1999. As a result, the initial
charge to unearned compensation should have been $742,000 of which $37,000
should have been amortized in 1999. Accordingly, in addition to reducing the
number of shares subject to options outstanding by 1,483,110 shares as shown in
the table above, the Company reduced total unearned compensation by $2,113,000
and reduced amortization expense by $111,000 during the three months ended March
31, 2000.
The Company also issued options to purchase a total of 16,479 shares of common
stock to pay for various services during the three months ended March 31, 2000.
The options are exercisable at $.45 per share and expire at various dates
through September 2004.
The Company valued the costs of the services and interest expense paid through
issuances of warrants to purchase 86,079 shares of common stock and options to
purchase 16,479 shares of common stock during the three months ended March 31,
2000 described above at $184,000 based on the estimated fair value of the
options determined using methods required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Net earnings (loss) per common share:
The Company presents "basic" earnings (loss) per common share and, if
applicable, "diluted" earnings per common share pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic
earnings (loss) per common share is calculated by dividing net income or loss
applicable to common stock (net income or loss adjusted for preferred dividend
requirements, if any) by the weighted average number of common shares
outstanding during each period. The calculation of diluted earnings per common
share is similar to that of basic earnings per common share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common shares, such as
those issuable upon the exercise of stock options and warrants and the
conversion of preferred stock, were issued during the period.
As explained in Note 2 herein and/or Note 6 in the 10-KSB, shares of SEries B
Stock had no preference in liquidation and their holders had conversion, voting
and other rights that made each share the equivalent of 100 shares of common
stock. Accordingly, the 10,835,431 weighted average common shares outstanding
used in 2000 was comprised of the 2,661,131 shares of hte Company's common stock
actually outstanding during that period, adjusted retroactively to include the
8,174,300 shares of common stock that were issued upon the conversion of the
Series B Stock in April 2000. The 988,740 weighted average common shares
outstanding used in coputing basic net loss per common share of the three months
ended March 31, 1999 was comprised of the number of shares of common stock of
LungCheck (the accounting acquirer in the reverse acquisition) actually
outstanding durin that period, adjusted retroactively for the effects of their
conversion into shares of Series B Stock in connection with the Merger and their
conversion into shares of the Company's common stock in April 2000.
No diluted per share amounts have been presented in the accompanying
condensed consolidated statements of operations because the Company had a net
loss for the three months ended March 31, 2000 and 1999 and, accordingly, the
assumed effects of the conversion of convertible preferred shares that were not
equivalent to common shares and the exercise of options and warrants would have
been anti-dilutive.
Note 5 - Income taxes:
As of March 31, 2000, the Company had net operating loss carryforwards of
approximately $8,491,000 available to reduce future Federal taxable income
which, if not used, will expire at various dates through 2019. Due to the
uncertainties related to, among other things, the extent and timing of its
future taxable income, the Company offset the deferred tax assets attributable
to the potential benefits of approximately $2,887,000 from the utilization of
those net operating loss carryforwards by an equivalent valuation allowance as
of March 31, 2000.
The Company had also offset the potential benefits from its deferred tax
assets by an equivalent valuation allowance during 1999. As a result of the
increases in the valuation allowance of $978,000 and $214,000 during the three
months ended March 31, 2000 and 1999, respectively, no credits for income taxes
are included in the accompanying condensed consolidated statements of
operations.
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
<TABLE>
<S> <C>
Note 5 - Income taxes (concluded):
The Company's deferred tax assets as of March 31, 2000 consisted of the
effects of temporary differences attributable to the following:
Services, compensation and interest expense paid
through the issuance of preferred and common
stock and stock options and warrants $ 614,000
Unearned compensation 25,000
Net operating loss carryforwards 2,887,000
-----------
3,526,000
Less valuation allowance (3,526,000)
-----------
Totals $ -
===========
</TABLE>
Note 6 - Commitments and contingencies:
Litigation:
On or about February 22, 1999, a purported stockholder derivative action
was filed in United States District Court for the Eastern District of New York
in connection with certain transactions prior to the Merger culminating in the
sale by CellMetrix of its interest in one of its former subsidiaries, Drew Shoe
Corporation ("Drew") to Impleo, LLC ("Impleo"). The complaint named all of
CellMetrix's then current directors and several former directors as defendants
(the "CellMetrix Defendants") as well as Impleo and certain related entities and
individuals (collectively, the "Defendants"). The complaint alleged violations
of the Federal securities laws and state law and challenged the Defendants'
actions in connection with certain transactions including but not limited to (i)
the April 14, 1998 restructuring of certain convertible notes; (ii) the October
1998 sale of a 56.7% interest in Drew to Impleo and (iii) the sale of
CellMetrix's remaining 33.3% interest in Drew to Impleo on March 4, 1999. In
addition to seeking recovery on behalf of CellMetrix for certain allegedly
wrongful acts on the part of the Defendants, the complaint sought, among other
things, to enjoin or set aside any stockholder vote in connection with a proxy
statement filed with the SEC on or about February 1, 1999 (pursuant to which
CellMetrix received approval of over 66.7% of its stockholders to sell its
remaining 33.3% interest in Drew) and to block or rescind the sale of any
interests in Drew to Impleo. CellMetrix's directors denied the allegations
concerning any allegedly wrongful actions.
In May 1999, the Defendants filed motions to dismiss the complaint. Instead
of responding to these motions, plaintiff filed and served an amended complaint
in July 1999. The amended complaint dropped certain parties as Defendants and
raised several new allegations, including, but not limited to, the alleged
failure to make adequate disclosure of the advice rendered by a consultant to
CellMetrix and the alleged failure to seek separate stockholder approval for the
October 1998 sale. The Company and its directors denied that they engaged in
wrongful conduct and on September 13, 1999 the Defendants served motions to
dismiss the amended complaint.
CellMetrix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6 - Commitments and contingencies (concluded):
Litigation (concluded):
After further motions, the parties agreed to settle the case and, on
February 19, 2000, executed a settlement agreement which requires court
approval. The court has scheduled a hearing to approve the settlement on June
16, 2000. The principal terms of the settlement require the CellMetrix
Defendants to pay $229,500 plus legal fees not to exceed $85,000, and the
remaining Defendants to pay $25,000 plus legal fees not to exceed $7,500. The
Company's insurer has agreed to pay the obligations of the CellMetrix Defendants
arising from the settlement.
Reserve for loss on contingent liabilities:
In connection with the spin off on September 22, 1999 (see Note 1 in the
10-KSB), ISTX assumed all of the liabilities arising from CellMetrix's software,
technology and consulting operations. However, the liabilities were assumed with
"recourse" and, accordingly, the Company is contingently liable for their
payment. The management of the Company has determined that ISTX does not have
the resources to pay all of its remaining liabilities and, as a result, the
Company recorded a reserve for the payment of those liabilities and a charge of
$193,000 that is included in general and administrative expenses in the
accompanying condensed consolidated statement of operations for the three months
ended March 31, 2000. The Company did not make any payments related to the
liabilities assumed and the entire amount reserved is included in accrued
expenses in the accompanying condensed consolidated balance sheet as of March
31, 2000.
Note 7 - Subsequent events:
License agreement:
On April 4, 2000, the Company entered into a patent and license agreement
with AccuMed International, Inc. ("AccuMed") for AccuMed's technology in the
field of morphological, cytochemical, cytogenetic and quantitative sputum
cytology which is used in laboratory analyses for early lung cancer detection,
screening, diagnosis, prognosis or therapeutic monitoring. The Company will be
required to pay AccuMed a license fee of $1,000,000 in various installments
through December 1, 2000; royalty fees based on specified terms; and either
$1,000,000 in cash, or shares of the Company's common stock with an equivalent
value, on the first anniversary of the agreement based on an election made by
AccuMed. The agreement will expire on April 4, 2020 except under certain
conditions.
Investment in debentures:
During April 2000, the Company purchased secured claims against Intelligent
Medical Imaging, Inc. ("IMI") with a principal balance of $500,000 from one of
IMI's creditors for $370,000. IMI is a manufacturer of automated microscopy
systems used worldwide in hospitals and large clinical laboratories that filed
for Chapter 11 Bankruptcy Protection in November 1999.
* * *
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT AND THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW IN FACTORS THAT MAY AFFECT FUTURE RESULTS.
Overview:
CellMetrix, Inc. and Subsidiaries (formerly BCAM International, Inc. and
Subsidiaries) (the "Company") has been primarily a technology pioneer in the
field of Intelligent Surface Technology blending biomechanics and ergonomics
with innovative electronic systems and software. On September 23, 1999, the
Company completed a merger and recapitalization and acquired LungCheck, Inc.
("LungCheck") (see Item 1, Description of Business). Since CellMetrix had no
business operations immediately prior to the merger, a new medical diagnostics
business model has been created using LungCheck and additional technologies that
have been licensed by the Company. The merger has been treated as a "purchase
business combination" and a "reverse acquisition" for accounting purposes in
which BCAM is the legal acquirer and LungCheck is the accounting acquirer.
CellMetrix is currently engaged in the development sales of clinical testing
applications and automated laboratory systems that together allow for the early
detection, diagnosis, characterization, treatment and monitoring of significant
human diseases. The Company is currently focused on developing clinical testing
applications for lung cancer and has already fully developed and begun marketing
its first clinical application called LungCheck(R) to targeted healthcare
providers who treat people that are `at-risk' for lung disease.
The LungCheck business is based on one product that identifies the presence of
the most common forms of lung irritants and monitor cellular abnormalities in
the lungs thereby assisting physicians with the early detection of disease.
LungCheck provides innovative pathology services in conjunction with its primary
product called LungCheck(R), a quantitative sputum cytology test. The
LungCheck(R) product utilizes a patented collection device whereby the patient
with the aid of a physician collects a sputum specimen and then mails the
specimen container to the Company's contracted laboratories for processing,
evaluation and interpretation. The contracted laboratories provide services that
include a comprehensive review of several cellular and noncellular indicators,
as well as pre-cancerous and cancerous cells found in the sputum fluid of the
lungs. The technical results of the pathology assessment are communicated to the
physician in a cytology report by the contracted laboratories. This report is
made possible by using a cyto-pathology database and specialized computer
software developed by the Company and placed into each of the contracted
laboratories. This software enables the pathology information of an individual
to be compared and benchmarked against a larger population of patients along
with the accompanying demographic and disease specific information. The Company
maintains that it is not in the business of practicing medicine. CellMetrix
products are used solely by the laboratories that work with the Company to
assist medical providers in their customary medical practices.
The Company markets its products and services to specialty medical providers,
and the Company has been seeking to market to large companies within the
occupational health market that are compelled (by governmental or self-imposed
standards) to screen and monitor their employee populations for lung disease.
CellMetrix also offers its products to large corporations and non-corporate
organizations such as unions and the military that are part of the occupational
health market. To date, sales have not been significant.
The Company plans to fully develop laboratory systems that provide highly
sensitive (using genetic and molecular marker technology) testing capabilities
through automated screening technology and to simultaneously develop numerous
clinical applications that test for various forms of cancer or other serious
medical conditions and are able to be run on the CellMetrix laboratory systems.
The Company will market through various channels, the use of its testing
applications to medical providers who in turn will order the tests that are then
run on the laboratory systems that the Company provides to certain large
reference and hospital laboratories. The Company believes that the placement of
its systems coupled with the increased utilization of its testing applications
by providers will result in significant recurring revenue to the laboratories
that use its systems as well as to the Company and the physicians that collect
specimens for testing. The Company plans to charge the laboratory on a per-test
or per-user basis and it is contemplated that the Company will place its systems
and receive on-going leasing revenue from these systems as well as from fees
associated with sales of its proprietary testing kits and proprietary testing
reagents.
The Company fully anticipates that its program for building and testing these
medical applications and systems will continue on an on-going basis for the
foreseeable future. At this time, there are no revenues associated with the sale
of any medical testing instruments and/or testing products to date other than
those from the LungCheck(R) Test.
Results of Operations
Results of operations for the three months ended March 31, 2000 and 1999 were
impacted by limitations on resources, primarily financial, which inhibited
marketing activities. In particular, the Company was in negotiations to raise
additional capital from approximately June 1998 through March 2000. In September
1999 it consummated a series of transactions resulting in a recapitalization and
merger. Through September 1999, the Company was periodically advanced funds by a
major stockholder, a portion of which was converted into capital stock in
connection with the recapitalization. The Company raised $1,510,000 from January
1, through March 31, 2000 through private placements.
Revenues increased from $8,000 to $10,000 for the three months ended March 31,
1999 and 2000. The Company's limited cash resources did not allow for aggressive
marketing and sales activities.
Costs of revenues declined from $41,000 to $8,000 for the three months ended
March 31, 1999 and 2000 due to the closing, in March 1999, of the Company's
laboratory facility. In conjunction with the laboratory's closure, the Company
entered into an agreement whereby a medical diagnostic company is processing
LungCheck(R) tests and reporting on their results, thereby reducing the high
fixed costs of lab personnel and other lab expenditures.
Selling, general and administrative expenses increased from $346,000 to $798,000
for the three months ended March 31, 1999 and 2000. This increase is mainly due
to consulting and compensation charges related to the issuance of stock options,
offset by reductions in certain medical, sales and marketing expenses.
LIQUIDITY AND CAPITAL RESOURCES
As indicated in the accompanying condensed consolidated financial statements, as
of March 31, 2000, the Company had not generated any significant revenues from
the LungCheck(R) diagnostic test technology that is its principal asset, and its
operations have generated losses and cash flow deficiencies from its inception
on January 30, 1997. Management expects that losses and cash flow deficiencies
will continue through at least March 31, 2001 while the Company continues to
develop markets for its services. Such matters raise substantial doubt about the
Company's ability to continue as a going concern and realize the carrying value
of its technology unless the Company is able to obtain additional financing and,
ultimately, increase revenues and generate sufficient profits and cash flows to
sustain its operations.
In April 2000, the Company received $250,000 as a deposit related to the
proposed sale of preferred stock through a subsequent private placement. The
Company anticipates that it will need to raise $3,000,000 to satisfy its cash
requirements for the next twelve months. Management is continuing its efforts to
obtain additional debt and/or equity financing for the Company from financial
institutions, other private investors and potential strategic partnerships, it
has no current arrangements with respect to, or resources of, additional
financing. Accordingly, there can be no assurance that additional financing will
be available to the Company when needed, on commercially reasonable terms, or at
all, which could have a material adverse effect on the Company's long-term
viability, and thus, as to the continuance of the Company.
The Company signed a multi-year patent and technology license agreement with
AccuMed International, Inc. ("AccuMed") on April 4, 2000. This agreement enables
the Company to gain exclusive use of AccuMed automated and quantitative
microscope technologies, products and patent rights in the field of early lung
cancer detection, and will speed the Company's efforts to become the industry
leader. The agreement requires a license fee of $1,000,000 payable in various
installments through December 1, 2000, royalty fees based on specified terms and
$1,000,000 in cash or shares of the Company's common stock on the first
anniversary of the agreement.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal proceedings
On or about February 22, 1999, a purported shareholder derivative
action was filed in United States District Court for the Eastern District of New
York in connection with certain transactions culminating in the sale by the
Company to Impleo, LLC of the Company's interest in Drew. The complaint named
all of the Company's current directors and several former directors as
defendants as well as Impleo, LLC and certain related entities and individuals
(collectively, the "Defendants"). The complaint alleged violations of the
federal securities laws and state law and challenge the Defendants' actions in
connection with certain transactions, including but not limited to, (i) the
April 14, 1998 restructuring of certain convertible notes; (ii) the October 1998
sale of 56.7% of Drew to Impleo, LLC; and (iii) the sale on March 4, 1999 to
Impleo, LLC of the Company's remaining 33.3% interest in the Drew. In addition
to seeking recovery on behalf of the Company for certain allegedly wrongful acts
on the part of the Defendants, the complaint seeks, among other things, to
enjoin or set aside any shareholder vote in connection with a proxy statement
filed with the SEC on or about February 1, 1999 pursuant to which the Company
received approval of over 67% of its shareholders to sell its remaining 33.3%
interest in Drew and to block or rescind the sale of any interests in Drew to
Impleo, LLC. The current Directors deny the allegations concerning any allegedly
wrongful actions. In May 1999, all defendants filed motions to dismiss the
complaint. Instead of responding to these motions, plaintiff filed and served an
amended complaint in July 1999. The amended complaint dropped certain parties as
defendants and raised several new allegations, including, but not limited to,
the alleged failure to make adequate disclosure of the advice rendered by Mesa
Partners to the Company and the alleged failure to seek separate shareholder
approval for the October 1998 sale. The Company and its directors deny that they
engaged in wrongful conduct and intend to file motions to dismiss the amended
complaint. On September 13, 1999, the Defendants refiled the motion to dismiss
the complaint. The Plaintiffs opposition papers must be served by November 22,
1999 and Defendants' reply papers must be served by December 14, 1999.
In October 1998, the Company's HumanCAD Systems Inc. subsidiary filed
an assignment in bankruptcy under the laws of the Province of Ontario, Canada
and Fuller Landau Ltd., 151 Bloor St. West, Toronto, Canada, was appointed
receiver and trustee. Certain creditors of the HumanCAD operations have filed or
threatened to file claims against the Company for the debts of HumanCAD. One
such action was filed by Miller Freeman, Inc. in the Civil Court of City of New
York in the amount of approximately $18,000. The Company intends to vigorously
defend itself in such action, however its ability to do so may be limited by its
financial resources which are currently inadequate (See Form 10-KSB for the year
ended December 31, 1998 including; Consolidated Financial Statements, Report of
Independent Public Accountants and Management's Discussion and Analysis or Plan
of Operations).
Item 2. Changes in Securities and Use of Proceeds
On September 23, 1999, BCAM International, Inc., through its
wholly-owned subsidiary, LungCheck Health, Inc., a Delaware corporation,
("BCAM," or the "Company"), pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") dated September 15, 1999, acquired LungCheck, Inc.
("LungCheck"), a Delaware corporation, in a statutory merger of LungCheck, Inc.
into LungCheck Health, Inc. (the "Merger").
The terms of the Merger Agreement provide that each
outstanding share of LungCheck common stock, par value $.001, immediately prior
to the Merger shall be converted into 0.0032958 of a share of BCAM Series B
convertible acquisition preferred stock, par value $.01 per share ("BCAM Series
B Preferred"), and that each share of LungCheck preferred stock, par value $.001
per share shall be converted into 0.098884 of a share of BCAM Series A
convertible acquisition preferred stock, par value $.01 per share ("BCAM Series
A Preferred"). The Company issued 262,884.229 shares of BCAM Series A Preferred
Stock and 79,891.425 shares of BCAM Series B Preferred Stock for this purpose.
For a detailed description of the terms, conditions and preferences of the BCAM
Series A Preferred Stock and BCAM Series B Preferred Stock, see the Company's
Report on Form 8-K and exhibits thereto, filed with the Securities and Exchange
Commission on October 8, 1999. After the completion of the exchange by the
LungCheck stockholders and upon conversion and of the BCAM Series A and B
preferred stock into common stock of the Company, the stockholders of LungCheck
will become the holders of approximately 80% of the total issued and outstanding
common stock of the Company. In addition, the holders of certain options and
warrants to purchase LungCheck common stock will be issued options to purchase
up to an aggregate of 48,332 shares of BCAM Series B Preferred Stock. The
securities described in the above transaction were issued under the exemption
from registration provided by Rule 506 promulgated under the Securities Act of
1933.
Elimination of Repricing Rights
In a transaction related to the Merger, the Company issued 13,125,000
shares of its common stock to the holders of certain shares of common stock (the
"Investors") acquired in a 1997 private placement (as amended in December 1998)
who were granted certain "repricing rights" based upon the market value of the
Company's common stock. Such issuance was in full satisfaction of the "repricing
rights."
New Investment into BCAM
In another transaction with the Investors which was related to the
Merger, the Company issued an aggregate of 10,986 shares of the Company's Series
B Preferred Stock and 1,666,667 shares of the Company's common stock to the
Investors. The price paid by the Investors for each share of the Company's
Series B Preferred Stock was $45.50 and the price per share paid by such
investors for the Company's common stock was $.1499 per share, for an aggregate
consideration of $750,000. The securities described above were issued pursuant
to the exemption from registration provided by Rule 506 as promulgated under the
Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
The Company was in violation of certain loan covenants contained in its
loan agreement dated as of December 1997, as amended, with Interequity Capital
Partners, L.P. ("Interequity") (the "Loan Agreement"). The Company's obligations
under the Loan Agreement are secured by a first priority lien in favor of
Interequity on substantially all of the Company's assets. See Note 4 to
Condensed Consolidated Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter covered by this Report, the Company has not filed any reports
on Form 8-K. See, however, Form 8-K filed by the Company on October 8, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BCAM INTERNATIONAL, INC.
Dated: May 22, 2000 By: /s/ Michael Strauss
------------------------
Michael Strauss
Chairman of the Board of Directors,
President and Chief Executive Officer
(principal executive officer and acting
principal financial and accounting officer)
<PAGE>
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