<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30, 1996.
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: 0-19749
CHEMTRAK INCORPORATED
Delaware 77-0295388
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
929 E. Arques Avenue, Sunnyvale, CA 94086
------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 773-8156
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
----------------------------
(Title of Class)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class: Common Stock $.001 par value Outstanding at October 31, 1996: 10,786,063
<PAGE> 2
CHEMTRAK INCORPORATED
INDEX
<TABLE>
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
----
NO.
---
Item 1: Financial Statements
Condensed Balance Sheets as of September 30, 1996 and December 31, 1995 3
Condensed Statements of Operations for the three and nine months ended
September 30, 1996 and 1995 4
Condensed Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBITS 13-14
</TABLE>
<PAGE> 3
CHEMTRAK INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, 1996 December 30, 1996
------------------ ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,672,000 $ 4,251,000
Short-term investments 1,489,000 2,003,000
Accounts receivable, net 457,000 136,000
Inventories 382,000 434,000
Prepaid expenses and other current assets 375,000 245,000
------------- -------------
Total current assets 7,375,000 7,069,000
Property and equipment, net 2,894,000 3,248,000
Other assets 66,000 66,000
------------- -------------
Total assets $ 10,335,000 $ 10,383,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 321,000 $ 632,000
Accrued payroll and benefits 215,000 121,000
Other accrued liabilities 600,000 258,000
Accrued royalties 131,000 114,000
------------- -------------
Total current liabilities 1,267,000 1,125,000
Accrued rent 281,000 240,000
Convertible debentures 3,387,000 0
Stockholders' equity:
Common stock 11,000 10,000
Additional paid-in capital 39,422,000 37,528,000
Deferred compensation (54,000) (38,000)
Accumulated deficit (33,979,000) (28,482,000)
------------- -------------
Total stockholders' equity 5,400,000 9,018,000
------------- -------------
Total liabilities and stockholders' equity $ 10,335,000 $ 10,383,000
============= =============
</TABLE>
See accompanying notes.
<PAGE> 4
CHEMTRAK INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenues:
Product sales $ 583,000 $ 271,000 $ 2,020,000 $ 1,935,000
Funded research and other revenues ---- 215,000 175,000 1,125,000
------------- ------------- ------------- -------------
Total net revenues 583,000 486,000 2,195,000 3,060,000
Cost and expenses:
Cost of product sales 920,000 518,000 2,475,000 2,555,000
Research and development 447,000 807,000 1,920,000 2,057,000
Marketing, general and administrative 1,064,000 465,000 3,337,000 1,892,000
Purchase of in-process research and development ---- ---- ---- 1,500,000
------------- ------------- ------------- -------------
Total costs and expenses 2,431,000 1,790,000 7,732,000 8,004,000
------------- ------------- ------------- -------------
Operating loss (1,848,000) (1,304,000) (5,537,000) (4,944,000)
Net other income and expense (20,000) 63,000 40,000 221,000
------------- ------------- ------------- -------------
Net Income (loss) $ (1,868,000) $ (1,241,000) $ (5,497,000) $ (4,723,000)
============= ============= ============= =============
Net income (loss) per share $ (0.18) $ (0.13) $ (0.56) $ (0.49)
============= ============= ============= =============
Shares used in calculating per share amounts 10,192,000 9,699,000 9,808,000 9,624,000
============= ============= ============= =============
</TABLE>
See accompanying notes.
4
<PAGE> 5
CHEMTRAK INCORPORATED
CONDENSED STATEMENTS 0F CASH FLOWS
Increase (decrease) in cash and cash equivalents
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Operating activities:
Net loss $ (5,497,000) $ (4,723,000)
Adjustment to reconcile net loss to net cash and
cash equivalents used in operating activities:
Depreciation and amortization 641,000 639,000
Accrued rent 41,000 41,000
Stock option compensation and other 2,000 (29,000)
Purchase of in-process research and development for
common stock 0 900,000
Changes in operating assets and liabilities:
Accounts receivable (321,000) 417,000
Inventories 52,000 412,000
Prepaid expenses and other current assets (130,000) 156,000
Accounts payable (311,000) (258,000)
Accrued payroll and benefits 94,000 (365,000)
Other accrued liabilities 359,000 (14,000)
----------------- -----------------
Net cash and cash equivalents provided
by (used in) operating activities (5,070,000) (2,824,000)
----------------- -----------------
Investing activities:
Proceeds from available-for-sale securities 514,000 2,492,000
Aquisition of property and equipment, net (287,000) (347,000)
----------------- -----------------
Net cash and cash equivalents provided
by (used in) investing activities 227,000 2,145,000
----------------- -----------------
Financing activities:
Issuance of Convertible Debentures 5,000,000 0
Proceeds from issuance of common stock 264,000 145,000
----------------- -----------------
Net cash and cash equivalents provided
by financing activities 5,264,000 145,000
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 421,000 (534,000)
Cash and cash equivalents at beginning of period 4,251,000 2,280,000
----------------- -----------------
Cash and cash equivalents at end of period $ 4,672,000 $ 1,746,000
================= =================
</TABLE>
See accompanying notes.
5
<PAGE> 6
CHEMTRAK INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements include all
adjustments consisting of normal recurring adjustments which the Company's
management believes to be necessary to fairly present the Company's financial
position as of September 30, 1996, and the results of operations for the three
and nine month periods ended September 30, 1996 and 1995.
The operating results of the interim periods presented are not
necessarily indicative of the results for the full year. The accompanying
financial statements should be read in conjunction with the financial
statements for the year ended December 31, 1995, included in the ChemTrak
Incorporated Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "Form 10-K"). The information set forth in the accompanying balance
sheet as of December 31, 1995, has been derived from the audited balance sheet
included in the above-referenced Form 10-K and Annual Report.
Note 2. Convertible Debentures
In May 1996 the Company issued $5,000,000 principal amount of
Convertible Debentures due May 1998. These debentures are convertible into the
Common Stock of the Company according to a formula based on the market price of
the shares at the time of conversion. As of September 30, 1996, 758,710
shares of Common Stock had been issued upon conversion of the debentures. As
of October 31, 1996, an additional 156,347 shares had been issued in respect of
conversions. As of October 31, 1996, a total of 45,923 shares of Common Stock
were issued in lieu of interest to the holders of the Debentures.
Note 3. Net Loss Per Share
Net loss per share is computed using the weighted number of shares
outstanding. Common equivalent shares from stock options are excluded in the
computation as their effect is antidilutive.
6
<PAGE> 7
Note 4. Inventories
Inventories are stated at the lower of standard cost (which
approximates actual costs on a first-in, first-out basis) or market.
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31,1995
------------------ ------------------
<S> <C> <C>
Raw materials...................................... $ 100,000 $ 145,000
Work in process.................................... 61,000 41,000
Finished goods..................................... 221,000 248,000
----------------- -----------------
Total...................................... $ 382,000 $ 434,000
================= =================
</TABLE>
7
<PAGE> 8
CHEMTRAK INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
the Company's Form 10-K for the year ended December 31, 1995.
OVERVIEW
In December 1995 ChemTrak regained the exclusive rights to market its
AccuMeter Cholesterol Self-Test in the United States retail market. Previously
sold as the Advanced Care Cholesterol Test by Direct Access Diagnostics
("DAD"), a Johnson & Johnson company, it has been relaunched under the trade
name CholesTrak. CholesTrak is the first and only over-the-counter cholesterol
test to be cleared by the U.S. Food and Drug Administration (the "FDA").
On April 29, 1996, the Company announced it had signed a multi-year
distribution agreement with Helena Laboratories (Canada) Ltd. for its
CholesTrak home cholesterol test. This agreement will result in the launch of
CholesTrak for the first time in Canada. The Company began shipping to Helena
Laboratories on September 30, 1996.
On July 2, 1996, the Company announced it had received marketing
clearance from the U.S. FDA for its H. pylori test for use in physicians
offices. In March 1995, ChemTrak entered into an exclusive distribution and
supply agreement for its H. pylori test in the U.S. market with Astra Merck,
Inc. ("Astra Merck") a major pharmaceutical company. The Company expects to
begin shipping H. pylori tests in the fourth quarter, 1996.
The Company has several products currently in development, some of
which are based on the AccuMeter technology. Other product applications have
only reached the laboratory feasibility stage. Factors that affect the
Company's success include ChemTrak's ability to develop future products, its
ability to manufacture its products, obtain regulatory clearance for marketing
its products, and have its products marketed successfully, all on a timely
basis. There can be no assurance that the Company's current product
development efforts will be successfully completed, that products will be
manufactured in the required commercial quantities, that timely required
clearances will be obtained for the Company's future products on a timely
basis, if at all, or that the Company's products will be marketed successfully.
8
<PAGE> 9
As of September 30, 1996 the Company had an accumulated deficit of
$33,979,000. Profitability is highly dependent upon numerous factors
including, but not limited to, the Company's ability to provide product in
sufficient, cost effective quantities and the ultimate success of its products
in the U.S. over-the-counter market. Due to the uncertainty of these factors,
it is difficult to reliably predict when such profitability may occur, if at
all.
The Company has historically experienced significant fluctuations in
its operating results and anticipates that these fluctuations may continue.
The market price of the shares of the Company's common stock, like those of
other emerging medical technology companies, has been highly volatile. Various
factors, including but not limited to fluctuations in the Company's operating
results, technical and regulatory developments, general market and economic
factors, may have a significant effect on the market price of the Company's
common stock.
RESULTS OF OPERATIONS
NET REVENUES
Total net revenues increased to $583,000 for the three months ended
September 30, 1996 from $486,000 for the three months ended September 30, 1995.
Product sales increased to $583,000 in the three months ended September 30,
1996 from $271,000 in the three months ended September 30, 1995, due to the
relaunch of the Company's AccuMeter Cholesterol Self-Test under the trade name
CholesTrak. The Company did not have any funded research for the three months
ended September 30, 1996 compared to $215,000 for the three months ended
September 30, 1995. The funded research of $215,000 for the third quarter of
1995 was a milestone payment from DAD for completion of the fourth phase of a
second generation total cholesterol test. For the nine months ended September
30, 1996, net revenue decreased to $2,195,000 as compared to $3,060,000 for the
nine months ended September 30, 1995. During the nine months ended September
30, 1996, product sales were $2,020,000 as compared to $1,935,000 for the nine
months ended September 30, 1995. Funded research was $175,000 for the nine
months ended September 30, 1996, compared with $1,125,000 for the nine months
ended September 30, 1995. This decrease was due to reduced milestone payments
from Astra Merck and DAD.
COST OF PRODUCT SALES
For the three months ended September 30, 1996, the cost of product
sales increased to $920,000 from $518,000 for the three months ended September
30, 1995. The increase was due to the increase in product sales volume. The
decrease in cost of product sales for the nine months ended September 30, 1996
to $2,475,000 from $2,555,000 for the same period last year is primarily due to
improved manufacturing efficiencies.
Product gross margin as a percentage of product sales increased to a
negative 58% for the three months ended September 30, 1996 from a negative 91%
for the same period in 1995. Product gross margin as a percentage of sales
increased to a negative 23% for the nine months ended September 30, 1996 from a
negative 32% for the nine months ended September 30, 1995. These improvements
were due to successful efforts made by the company to decrease manufacturing
costs.
9
<PAGE> 10
RESEARCH AND DEVELOPMENT
Research and development expenses decreased to $447,000 in the three
months ended September 30, 1996 from $807,000 for the three months ended
September 30, 1995. For the nine months ended September 30, 1996, research and
development expenses decreased to $1,920,000 from $2,057,000 for the nine
months ended September 30, 1995. These decreases were primarily due to
decreased research spending associated with the Company's H. Pylori test, which
received FDA approval early in the third quarter of 1996.
MARKETING, GENERAL AND ADMINISTRATIVE
Marketing, general and administrative expenses increased to $1,064,000
for the three months ended September 30, 1996 from $465,000 for the three
months ended September 30, 1995. For the nine months ended September 30, 1996,
marketing, general and administration expenses were $3,337,000 as compared to
$1,892,000 for the nine months ended September 30, 1995. These increases were
primarily due to selling and advertising expenses associated with the relaunch
of the Company's CholesTrak total cholesterol test.
INTEREST INCOME AND EXPENSE
Interest income and expense decreased to $20,000 net expense in the
three months ended September 30, 1996 from $63,000 income for the three months
ended September 30, 1995, and decreased to $40,000 income for the nine months
ended September 30, 1996 from $221,000 income for the nine months ended
September 30, 1995. These decreases were due to reduced levels of short term
investments and interest expense on convertible debentures that the Company
issued during May 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had approximately $6,161,000 in
cash and short-term investments.
In May 1996, the Company issued $5,000,000 principal amount of
Convertible Debentures due May 1998, raising approximately $4,700,000 net of
issuance costs. Prior to this issuance, the Company had no long-term debt.
The debentures bear interest at an annual rate of 7.5% which is payable in cash
or the Company's Common Stock, at the option of the Company. The debentures
are convertible into the Company's Common Stock according to a formula based on
the market price at the time of conversion. As a result of conversions through
September 30, 1996 the principal amount of debentures outstanding has been
reduced to $3,387,000.
The Company believes that its existing capital resources, together
with internally generated funds, will be sufficient to meet its operating needs
as well as its purchase requirements for property, plant and equipment for at
least the next twelve months.
10
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CHEMTRAK INCORPORATED
PART II. OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 6. Exhibits and Reports on Form 8-K Page
a) Exhibits
11.1 Statement re: computation of income
(loss) per share 13
27.1 Financial Data Schedule 14
b) Reports on Form 8-K
None
</TABLE>
11
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CHEMTRAK INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: November 12, 1996 CHEMTRAK INCORPORATED
/s/ Prithipal Singh, Ph.D.
-------------------------------------
Prithipal Singh, Ph.D.
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
/s/ Edward F. Covell
-------------------------------------
Edward F. Covell
President and Chief Operating Officer
(Principal Financial Officer)
/s/ Douglas W. Lange
------------------------------------
Douglas W. Lange
Principal Accounting Officer
12
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Exhibit Index
11.1 Statement re: computation of income
(loss) per share
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
CHEMTRAK INCORPORATED
COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------ ---------------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,192,000 9,699,000 9,808,000 9,624,000
============ ============ ============ ============
Net Income (loss) $ (1,868,000) $ (1,241,000) $ (5,497,000) $ (4,723,000)
============ ============ ============ ============
Net Income (loss) per share $ (0.18) $ (0.13) $ (0.56) $ (0.49)
============ ============ ============ ============
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF CHEMTRAK
INCORPORATED FOR THE QUARTER ENDED SEPTEMBER 30, 1996 ANDIS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,672,000
<SECURITIES> 1,489,000
<RECEIVABLES> 457,000
<ALLOWANCES> 0
<INVENTORY> 382,000
<CURRENT-ASSETS> 375,000
<PP&E> 2,894,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,335,000
<CURRENT-LIABILITIES> 1,267,000
<BONDS> 0
0
0
<COMMON> 11,000
<OTHER-SE> 5,389,000
<TOTAL-LIABILITY-AND-EQUITY> 10,335,000
<SALES> 583,000
<TOTAL-REVENUES> 583,000
<CGS> 920,000
<TOTAL-COSTS> 920,000
<OTHER-EXPENSES> 1,511,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,868,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,868,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,868,000)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
