<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
__X__ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 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 July 31, 1996: 9,982,690
<PAGE> 2
CHEMTRAK INCORPORATED
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
NO.
----
<S> <C>
Item 1: Financial Statements
Condensed Balance Sheets as of June 30, 1996 and December 31, 1995 3
Condensed Statements of Operations for the three and six months ended
June 30, 1996 and 1995 4
Condensed Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security-Holders 10
Item 6: Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBITS 13
</TABLE>
2
<PAGE> 3
CHEMTRAK INCORPORATED
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,989,000 $ 4,251,000
Short-term investments 1,489,000 2,003,000
Accounts receivable, net 500,000 136,000
Inventories 700,000 434,000
Prepaid expenses and other current assets 78,000 245,000
------------ ------------
Total current assets 8,756,000 7,069,000
Property and equipment, net 3,009,000 3,248,000
Other assets 66,000 66,000
------------ ------------
Total assets $ 11,831,000 $ 10,383,000
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable $ 449,000 $ 632,000
Accrued payroll and benefits 157,000 121,000
Other accrued liabilities 560,000 258,000
Accrued royalties 161,000 114,000
------------ ------------
Total current liabilities 1,327,000 1,125,000
Accrued rent 268,000 240,000
Convertible debentures 5,319,000 0
Stockholders' equity:
Common stock 10,000 10,000
Additional paid-in capital 37,733,000 37,528,000
Deferred compensation (59,000) (38,000)
Accumulated deficit (32,767,000) (28,482,000)
------------ ------------
Total stockholders' equity 4,917,000 9,018,000
------------ ------------
Total liabilities and stockholders' equity $ 11,831,000 $ 10,383,000
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
CHEMTRAK INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Product sales $ 581,000 $ 238,000 $ 1,437,000 $ 1,664,000
Funded research and other revenues 25,000 520,000 175,000 910,000
----------- ----------- ----------- -----------
Total net revenues 606,000 758,000 1,612,000 2,574,000
Cost and expenses:
Cost of product sales 824,000 640,000 1,555,000 2,037,000
Research and development 729,000 658,000 1,473,000 1,250,000
Marketing, general and administrative 1,179,000 650,000 2,273,000 1,427,000
Purchase of in-process research and development -- -- -- 1,500,000
----------- ----------- ----------- -----------
Total costs and expenses 2,732,000 1,948,000 5,301,000 6,214,000
----------- ----------- ----------- -----------
Operating loss (2,126,000) (1,190,000) (3,689,000) (3,640,000)
Net interest income and expense (663,000) 75,000 (596,000) 158,000
----------- ----------- ----------- -----------
Net Income (loss) $(2,789,000) $(1,115,000) $(4,285,000) $(3,482,000)
=========== =========== =========== ===========
Net income (loss) per share $ (0.29) $ (0.12) $ (0.44) $ (0.36)
=========== =========== =========== ===========
Shares used in calculating per share amounts 9,773,000 9,660,000 9,743,000 9,587,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
CHEMTRAK INCORPORATED
CONDENSED STATEMENTS 0F CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(4,285,000) $(3,482,000)
Adjustment to reconcile net loss to net cash and
cash equivalents used in operating activities:
Depreciation and amortization 430,000 423,000
Non cash interest expense and financing costs
associated with convertible debentures 619,000 ------
Accrued rent 27,000 27,000
Stock option compensation and other 2,000 (48,000)
Purchase of in-process research and development for
common stock 0 900,000
Changes in operating assets and liabilities:
Accounts receivable (364,000) 436,000
Inventories (266,000) 563,000
Prepaid expenses and other current assets 167,000 160,000
Accounts payable (183,000) (434,000)
Accrued payroll and benefits 36,000 (411,000)
Other accrued liabilities 349,000 (140,000)
----------- -----------
Net cash and cash equivalents provided
by (used in) operating activities (3,468,000) (2,006,000)
----------- -----------
Investing activities:
Proceeds from available-for-sale securities 514,000 3,000,000
Aquisition of property and equipment, net (190,000) (85,000)
----------- -----------
Net cash and cash equivalents provided
by (used in) investing activities 324,000 2,915,000
----------- -----------
Financing activities:
Net proceeds from issuance of convertible debentures 4,700,000 0
Issuance of common stock 182,000 119,000
----------- -----------
Net cash and cash equivalents provided
by financing activities 4,882,000 119,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,738,000 1,028,000
Cash and cash equivalents at beginning of period 4,251,000 2,280,000
----------- -----------
Cash and cash equivalents at end of period $ 5,989,000 $ 3,308,000
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
CHEMTRAK INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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 June 30, 1996, and the results of operations for the three and six months
ended June 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"), and the 1995 Annual Report to Stockholders (the "Annual Report").
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. Recent SEC Interpretation
In March 1997, the Company determined that its previously reported
operating results and balance sheet data for the three-month periods ended June
30, 1996, September 30, 1996 and December 31, 1996 required restatement. The
revisions to these quarters were made to reflect recent guidance that appeared
in a December 1996 speech outline from a member of the Division of Corporate
Finance of the Securities and Exchange Commission ("SEC") as it related to debt
that is convertible to equity at a discount to market. As a result of the
SEC's recent statement, the Company restated quarters subsequent to the
completion of their May 1996 private placement of $5,000,000 in convertible
debentures that are convertible into common stock at a conversion price equal
to 82.5% of the average closing price of the common stock for the five
business days immediately preceding such time as the debentures are converted.
In accordance with the December 1996 guidance, the Company has recognized
additional non-cash interest expense of $875,000 ($656,250 and $218,750 in the
quarters ended June 30, 1996 and September 30, 1996, respectively) associated
with the embedded conversion feature which allows the debenture holders to
convert their debentures into common stock at a discount to the then market
price of the common stock.
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.
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>
June 30, 1996 December 31,1995
------------- ----------------
<S> <C> <C>
Raw materials............. $153,000 $145,000
Work in process........... 64,000 41,000
Finished goods............ 483,000 248,000
-------- --------
Total..................... $700,000 $434,000
======== ========
</TABLE>
6
<PAGE> 7
CHEMTRAK INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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"). The
Company's position in this market was solidified earlier in 1995 when the FDA
cleared our High Density Lipoprotein, or so called "good cholesterol", test for
professional use.
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. Helena Laboratoris (Canada) has been marketing
ColoCARE, a unique and patented home test for colorectal cancer and has created
a new category in Canadian retail pharmacies.
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. a major pharmaceutical company.
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.
7
<PAGE> 8
As of June 30, 1996 the Company had an accumulated deficit of
$32,767,000. 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 decreased to $606,000 for the three months ended June
30, 1996 from $758,000 for the three months ended June 30, 1995. Product sales
increased to $581,000 in the three months ended June 30, 1996 from $238,000 in
the three months ended June 30, 1995, due to the relaunch of the Company's
AccuMeter Cholesterol Self-Test under the trade name CholesTrak. Funded research
decreased to $25,000 for the three months ended June 30, 1996 from $520,000 for
the three months ended June 30, 1995. The funded research of $520,000 for the
second quarter of 1995 included a $200,000 milestone payment from DAD for
completion of the third phase of a second generation total cholesterol test and
a $250,000 milestone payment received from Astra Merck Inc. for work completed
on the development stage test for detecting the presence of H. Pylori. For the
six months ended June 30, 1996, net revenue was $1,612,000 as compared to
$2,574,000 for the six months ended June 30, 1995. During the six months ended
June 30, 1996, product sales were $1,437,000 as compared to $1,664,000 for the
six months ended June 30, 1995. Funded research was $175,000 for the six months
ended June 30, 1996, compared with $910,000 for the six months ended June 30,
1995. This decrease was due to reduced milestone payments from Astra Merck and
DAD.
COST OF PRODUCT SALES
For the three months ended June 30, 1996, the cost of product sales
increased to $824,000 from $640,000 for the three months ended June 30, 1995.
The increase was due to the increase in product sales volume. The decrease in
cost of product sales for the six months ended June 30, 1996 to $1,555,000 from
$2,037,000 for the same period last year is primarily due to improved
manufacturing effiencies.
Product gross margin as a percentage of product sales increased to a
negative 42% on the three months ending June 30, 1996 from a negative 169% for
the same period in 1995. Product gross margin as a percentage of sales increased
to a negative 8% for the six months ended June 30, 1996 from a negative 22% for
the six months ended June 30, 1995. These increases were due to efforts made by
the company to decrease manufacturing costs.
8
<PAGE> 9
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $729,000 in the three
months ended June 30, 1996 from $658,000 for the three months ended June 30,
1995. For the six months ended June 30, 1996, research and development expenses
increased to $1,473,000 from $1,250,000 for the six months period ended June 30,
1995. These increases were primarily due to increased research spending
associated with the Company's H. pylori test.
MARKETING, GENERAL AND ADMINISTRATIVE
Marketing, general and administrative expenses increased to $1,179,000
for the three months ended June 30, 1996 from $650,000 for the three months
ended June 30, 1995. For the six months ended June 30, 1996, marketing, general
and administration expenses were $2,273,000 as compared to $1,427,000 for the
six months ended June 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 increased to $663,000 net expense in the
three months ended June 30, 1996 from $75,000 income for the three months ended
June 30, 1995, and decreased to $596,000 expense for the six months ended June
30, 1996 from $158,000 income for the six months ended June 30, 1995. These
decreases were due to reduced levels of short term investments and interest
expense attributable to the conversion feature of convertible debentures which
allows holders to convert their debentures into common stock at a discount to
market and stated interest on the convertible debentures that the Company
issued during May 1996.
LIQUIDITY AND CAPITAL RESOURCES
From August 1985 through January 1992 the Company was financed through
private placements of equity securities. In February 1992, the Company completed
its initial public offering, raising approximately $23,500,000 net of issuance
costs. In May 1996, the Company completed an issuance of convertible debentures,
raising approximately $4,700,000 net of issuance costs.
At June 30, 1996, the Company had approximately $7,478,000 in cash and
short-term investments.
During the three months ended June 30, 1996, the Company issued
$5,000,000 of convertible debentures. Prior to this issuance, the Company had no
long-term debt.
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.
9
<PAGE> 10
CHEMTRAK INCORPORATED
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Stockholders of ChemTrak Incorporated was held
on May 16, 1996.
b) David Rubinfien was elected to the board of directors to hold office
until the 1999 Annual Meeting of Stockholders.
Following is a list of persons whose term of office as directors of
the Company continued after the meeting:
Director Term Expires
-------- ------------
Jerry B. Gin 1997
Malcolm Jozoff 1997
Gordon Russell 1998
Prithipal Singh, Ph.D. 1998
c) The matters voted upon at the meeting and the voting of the
stockholders with respect thereto are as follows:
The election of David Rubenfien as a director to hold office until
the 1999 Annual Meeting of Stockholders:
For: 8,279,369 Withheld: 73,729
Ratification of the selection of Ernst & Young LLP as independent
public accountants of the Company for its fiscal year ending
December 31, 1996:
For: 8,312,891 Against:21,576 Abstain: 18,631 Broker Non-votes: 0
10
<PAGE> 11
CHEMTRAK INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K Page
-------------------------------- ----
a) Exhibits
11.1 Statement re: computation of income (loss) per share 14
b) Reports on Form 8-K
A Current Report on Form 8-K (File No. 0-19749) dated May 13, 1996,
announcing the closing of the convertible debenture transaction, was
filed on June 6, 1996.
11
<PAGE> 12
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: August 6, 1996 CHEMTRAK INCORPORATED
____________________________________________
Prithipal Singh, Ph.D.
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
____________________________________________
Edward F. Covell
President and Chief Operating Officer
(Principal Financial Officer)
____________________________________________
Douglas W. Lange
Principal Accounting Officer
12
<PAGE> 13
CHEMTRAK INCORPORATED
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
11.1 Calculation of Earnings Per Share
27.1 Financial Data Schedule
18
<PAGE> 1
EXHIBIT 11.1
CHEMTRAK INCORPORATED
COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 9,773,000 9,660,000 9,743,000 9,587,000
=========== =========== =========== ===========
Net Income (loss) $(2,789,000) $(1,115,000) $(4,285,000) $(3,482,000)
=========== =========== =========== ===========
Net Income (loss) per share $ (0.24) $ (0.12) $ (0.44) $ (0.36)
=========== =========== =========== ===========
</TABLE>
<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 June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,989,000
<SECURITIES> 1,489,000
<RECEIVABLES> 500,000
<ALLOWANCES> 0
<INVENTORY> 700,000
<CURRENT-ASSETS> 78,000
<PP&E> 3,009,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,831,000
<CURRENT-LIABILITIES> 1,327,000
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 4,907,000
<TOTAL-LIABILITY-AND-EQUITY> 11,831,000
<SALES> 581,000
<TOTAL-REVENUES> 606,000
<CGS> 824,000
<TOTAL-COSTS> 824,000
<OTHER-EXPENSES> 1,908,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,133,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,133,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,133,000)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
