<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission File Number: 0 - 24836
VOXEL
(Exact name of registrant as specified in its charter)
California 33-0301060
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26081 Merit Circle, Suite 117, Laguna Hills, CA 92653
------------------------------------------------------
(Address of principal executive offices) (zip code)
(714) 348-3200
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
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.
Common Stock, no par value: 8,389,198 shares outstanding at November 7, 1996.
<PAGE> 2
VOXEL
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 3
1996 and December 31, 1995
Condensed Consolidated Statements of Operations 4
for the Three Months and Nine Months Ended September 30,
1996 and September 30, 1995; and for the Period from
April 15, 1988 (date of inception) to September 30, 1996
Condensed Consolidated Statements of Cash Flows for the 5
Nine Months Ended September 30, 1996 and September 30,
1995 and for the Period from April 15, 1988 (date of
inception) to September 30, 1996
Notes to Interim Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE> 3
VOXEL
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 790 $ 4,398
Short-term investments 7,983 --
Other current assets 134 34
--------- --------
TOTAL CURRENT ASSETS 8,907 4,432
Property and equipment:
Furniture and equipment 1,111 996
Leasehold improvements 224 201
--------- --------
1,335 1,197
Less accumulated depreciation and amortization (815) (671)
--------- --------
520 526
Other assets (net of accumulated amortization of $68 in
1996 and $66 in 1995) 15 22
--------- --------
TOTAL ASSETS $ 9,442 $ 4,980
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 607 $ 424
Short-term note payable -- 105
Current portion of lease obligation 32 81
--------- --------
TOTAL CURRENT LIABILITIES 639 610
Long-term lease obligation 8 28
SHAREHOLDERS' EQUITY:
Convertible Series C preferred stock, no par value:
Authorized shares - 4,000,000; Issued and outstanding
shares - none in 1996 and 4,000,000 in 1995 -- 3,600
Common stock, no par value:
Authorized shares - 15,000,000; Issued and outstanding
shares - 8,389,198 in 1996 and 4,228,869 in 1995 29,424 16,313
Deficit accumulated during the development stage (20,599) (15,541)
Notes receivable from shareholders (30) (30)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 8,795 4,342
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,442 $ 4,980
========= ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
VOXEL
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Period from
April 15, 1988
Three Months Ended Nine Months Ended (date of inception)
September 30, September 30, to September 30,
----------------------- -------------------------
1996 1995 1996 1995 1996
-------- --------- -------- --------- -------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ -- $ -- $ -- $ -- $ --
Costs and expenses:
Research and development 1,341 861 3,477 2,693 12,566
General and administrative 551 484 1,527 1,244 6,670
Depreciation and amortization 62 68 184 155 1,080
Interest expense 6 8 14 27 815
Interest income (78) (41) (144) (175) (532)
-------- -------- ------- -------- --------
1,882 1,380 5,058 3,944 20,599
-------- -------- ------- -------- --------
Net loss $ (1,882) $ (1,380) $(5,058) $ (3,944) $(20,599)
======== ========= ======= ======== ========
Net loss per share $ (0.27) $ (0.33) $ (0.96) $ (0.95)
======== ========= ======= ========
Average common and common
equivalent shares 7,071 4,224 5,281 4,171
======== ========= ======= ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
VOXEL
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Period from
Nine Months Ended April 15, 1988
September 30, (date of inception)
------------------------- to September 30,
1996 1995 1996
------- ------- -------------------
<S> <C> <C> <C>
Operating activities
- --------------------
Net loss $(5,058) $(3,944) $(20,599)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 151 142 822
Amortization 6 2 72
Amortization of deferred compensation 27 11 186
Gain on sale of property and equipment (5) -- (5)
Change in operating assets and liabilities
Other current assets (100) -- (161)
Accounts payable and accrued expenses 184 (35) 766
Short-term note payable (105) -- --
------- ------- --------
Net cash used in operating activities (4,900) (3,824) (18,919)
Investing activities
- --------------------
Purchases of property and equipment (152) (58) (1,190)
Proceeds from sale of property and equipment 12 -- 12
Decrease in other assets -- -- (33)
(Increase) decrease in short-term investments (7,983) 3,557 (7,983)
------- ------- --------
Net cash (used in) provided by investing activities (8,123) 3,499 (9,194)
Financing activities
- --------------------
Proceeds from issuance of common stock 9,485 306 18,745
Increase in notes payable -- -- 5,683
Payments on notes payable -- -- (2,151)
Proceeds from issuance of preferred stock -- -- 6,746
Proceeds from sale/leaseback transaction -- -- 406
Payments on capital lease obligation (70) (123) (526)
------- ------- --------
Net cash provided by financing activities 9,415 183 28,903
Net (decrease) increase in Cash and cash equivalents (3,608) (142) 790
Cash and cash equivalents at the beginning of period 4,398 613 --
------- ------- --------
Cash and cash equivalents at end of period $ 790 $ 471 $ 790
======= ======= ========
Cash paid for interest $ 14 $ 27 $ 204
======= ======= ========
Cash paid for income taxes $ 1 $ 1 $ 8
======= ======= ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
VOXEL
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. Summary of Significant Accounting Policies
- ---------------------------------------------
Basis of Presentation
- ---------------------
The interim financial information at September 30, 1996 and 1995, and
for the three-month and nine-month periods then ended, and for the period from
April 15, 1988 (date of inception) to September 30, 1996, which are unaudited,
include all adjustments (consisting only of normal recurring entries) which the
Company's management believes to be necessary for the fair presentation of the
financial position, results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, pursuant to the Securities and
Exchange Commission rules and regulations. Accordingly, the accompanying
interim financial statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 filed with the Securities and
Exchange Commission. Interim results of operations for the three-month and
nine-month periods ended September 30, 1996 are not necessarily indicative of
operating results to be expected for the full year.
Per Share Information
- ---------------------
Net loss per share has been calculated using the weighted average
number of common shares outstanding.
2. Convertible Preferred Stock
- ------------------------------
On December 29, 1995 the Company completed a $4.0 million ($3.6
million, net of offering expenses) financing by issuing 4,000,000 shares of
Series C convertible preferred stock (the "Series C Stock") to several
investors in a private financing. At December 31, 1995, the Company had
reserved up to 1,500,000 shares of common stock for the conversion of the
Series C Stock. As of September 30, 1996, all of the shares of Series C Stock
had been converted into an aggregate of 1,110,329 shares of common stock and no
shares of Series C Stock remained outstanding.
3. Public Offering
- ------------------
On August 6, 1996, the Company completed a public offering of
2,600,000 shares of common stock at a price per share of $3.50, yielding net
proceeds to the Company after underwriting commissions and offering expenses of
$8.1 million. The Company granted the underwriters of the offering an option,
valid through September 14, 1996, to purchase up to 390,000 shares of common
stock at the same price per share to cover underwriters' over-allotments. On
September 10, 1996, the underwriters exercised such option in full, causing the
Company to issue 390,000 shares and yielding net proceeds to the Company of
$1.2 million.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
- ---------------------
Since its inception in 1988, Voxel (the "Company") has been engaged in
the design, development, and medical evaluation of a sophisticated system that
yields film-based, hard copy images of the internal structure of the human body
(the "Digital Holography System" or the "System"). The Digital Holography(TM)
System consists of the Voxcam(R), an electro-optical instrument that
holographically images data from computed tomography and magnetic resonance
scans on film; Voxboxes(R), light boxes to view the film; and Voxfilm(TM),
special silver halide film to record the hologram.
The Company has not completed development of products for sale, has
not earned revenues, and has incurred substantial losses since inception. The
Company expects to continue to incur substantial operating losses through at
least the fourth quarter of 1997 as research, development, and marketing
activities expand. To achieve market acceptance of the System and meaningful
revenues, the Company will need to attain acceptance by health care providers,
payors, and patients. To achieve these objectives, the Company will need,
inter alia, to establish sales capabilities, a task which it has not previously
performed, and to address the highly competitive and rapidly changing
environment of the medical device industry. The comparison of the incremental
utility and marginal cost of the System may also be influenced by future health
care legislation and insurance reimbursement determinations.
Certain prerequisites need to be fulfilled prior to initial commercial
sales of the Digital Holography System. One of these prerequisites was
accomplished on September 29, 1995, when the Company received 510(k) clearance
from the FDA to sell the Digital Holography System. Another prerequisite was
achieved on October 3, 1996 with the shipment of the first pre-production
prototype ("beta unit") of the System. The remaining prerequisites to initial
commercial sales include completion and successful field testing of additional
beta units and manufacturing of production units. There can be no assurance
that, on a timely basis or at all, all of these remaining prerequisites will be
satisfied. The Company will rely upon its primary engineering partner, General
Scanning, Inc. ("GSI"), and other third parties for manufacture of beta and
initial production units of the System; there can be no assurance that these
parties will meet the quality, quantity, and timeliness requirements of the
Company.
The Company achieved significant milestones in July 1996 with respect
to product sourcing and intellectual property. The Company entered into a
Purchase and Supply Agreement with Konica Corporation of Tokyo, Japan,
pursuant to which Konica will supply Voxfilm to be used in the Digital
Holography System. Konica will manufacture Voxfilm to mutually agreed upon
specifications and Voxel will purchase the film for resale to its Digital
Holography customers. Later in that month, the Company received a Notice of
Allowability from the United States Patent Office. The 13 allowed claims
include five independent claims that cover the Company's method for making a
multiple exposure hologram -- the basis for the Digital Holography System. The
Company's receipt of the Notice of Allowability indicates that a patent
corresponding to the allowed claims will be forthcoming in accordance with
routine Patent Office procedures. Nonetheless, there can be no assurance that
such a patent, if issued, will not be challenged by any third parties, or that
such third parties will not design a competitive product around the patent.
The Company currently anticipates that initial production units of the
Digital Holography System will be available for commercial delivery no earlier
than the first quarter of 1997. The ongoing development and engineering
activities with respect to beta units of the Voxcam have required more time,
and hence more capital, than was originally anticipated by the Company and GSI.
Further delays in commercialization of the System will increase the Company's
capital requirements and may have a material adverse effect on the Company's
financial condition.
7
<PAGE> 8
There can be no assurance that additional financing will be available to the
Company when required.
The following discussion and analysis should be read in conjunction
with the unaudited Condensed Consolidated Financial Statements and notes
thereto appearing elsewhere in this report.
Results of Operations
- ---------------------
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
The Company had no revenues during the third quarter of 1996 and 1995.
Third quarter operating loss for 1996 increased by 36% to $1,882,000 from
$1,380,000 in 1995, primarily due to the purchase of parts needed for assembly
of beta units of the Digital Holography System. Also, a modest increase in
marketing costs occurred as the Company focused additional resources on
building product awareness.
Research and development expense ("R&D") for 1996 increased 56% to
$1,341,000 from $861,000 in 1995. The increase resulted from the cost of
acquiring parts for the beta units. The Company anticipates that GSI will
build up to six beta Voxcams for field testing prior to commencement of
commercial production. Beta unit parts costs are anticipated to continue,
albeit at reduced levels, through the fourth quarter of 1996. Beta units parts
cost may not be indicative of production unit parts cost because of differences
in purchasing quantities and other factors. The 1996 period also reflected a
higher level of engineering activity, focused on the completion and shipment of
the first beta unit. The costs of that activity were offset by a reduction in
payments to design firms for development and engineering activities, as the
design phase of the Voxcam development program moved towards completion.
General and administrative ("G&A") expense (which includes marketing
activities) increased 14% to $551,000 in 1996 from $484,000 in 1995. Increased
sales efforts (reflected in higher personnel levels, travel costs, and public
relations expenditures) accounted for the expense growth while administrative
costs remained unchanged.
Depreciation and amortization expense for 1996 was substantially
unchanged from the 1995 period. Likewise, interest expense for the two periods
was similar. Interest income for 1996 was $78,000 compared to $41,000 in 1995
because the receipt of proceeds from the Company's secondary public offering
(the "Secondary") in August 1996 made greater amounts available for investment
in interest-bearing securities. The Company invests idle funds in U.S.
government securities and top-rated commercial paper of varying maturities.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
The Company had no revenues during the first nine months of 1996 and
1995. Operating loss for 1996 increased by 28% to $5,058,000 from $3,944,000
in 1995. The increase is primarily attributable to growth in R&D expense
coupled with a lesser increase in G&A expense. Parts cost for the beta units
was the major factor in increased R&D expense. Intensified marketing efforts,
and to a smaller extent organizational support costs, contributed to the G&A
expense growth.
R&D expense for 1996 increased 29% to $3,477,000 from $2,693,000 in
1995. The increase resulted from the cost of acquiring parts for the beta
units, as the Voxcam engineering program transitioned from a design focus to an
assembly activity. This transition also accounted for the other material
changes in expenses, including (i) a substantial reduction in engineering
8
<PAGE> 9
service fees which offset a portion of the parts cost increase, (ii) higher
levels of technical personnel, travel, and product testing, and (iii) costs of
manufacturing Voxboxes for use in conjunction with the beta units.
G&A expense (which includes marketing activities) rose 23% to
$1,527,000 in 1996 from $1,244,000 in 1995. Most of the growth occurred in
marketing, arising from the allocation of resources to the initiation of sales
activities. Consequently, marketing personnel and related travel expense
increased. Administrative costs showed modest growth, reflecting the costs of
supporting a developing organization.
Depreciation and amortization expense for 1996 was $184,000 in
comparison with $155,000 in 1995 as a consequence of higher capital asset
levels. Interest expense for 1996 was $14,000 compared to $27,000 in 1995.
The decrease resulted from smaller principal balances on capital lease
obligations due to the maturity of certain leases in the intervening period.
Interest income for 1996 was $144,000 compared to $175,000 in 1995 because the
average level of idle funds available for investment was lower in 1996.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its operations primarily through private and
public sales of equity securities and the private placement of debt securities.
As of September 30, 1996, the Company has raised $9,300,000 net of underwriting
commissions and offering expenses from the Secondary, $9,000,000 net of
underwriting commissions and offering expenses from its initial public offering
(the "IPO"), $3,799,000 from the sale of convertible redeemable preferred
stock, $3,600,000 net of underwriting commissions and expenses from the sale of
Series C convertible preferred stock ("Series C Stock"), and $4,660,000 from
the sale of debt securities. The convertible redeemable preferred stock and
$2,460,000 of the debt (together with accrued interest thereon) were converted
to common stock at the closing of the IPO on November 1, 1994. The remaining
$2,200,000 of the debt securities (together with accrued interest thereon) was
repaid from the proceeds of the IPO.
The Secondary comprised the sale of 2,600,000 shares of common stock
at a price of $3.50 per share. The Company granted the underwriters of the
Secondary an option to purchase up to 390,000 additional shares to cover
underwriters' over-allotments. On September 10, 1996, the underwriters
exercised such option in full, causing the Company to issue 390,000 shares and
yielding net proceeds to the Company of $1,250,000.
The Company's net cash used in operating activities during the nine
month periods ended September 30, 1996 and 1995 was $4,900,000 and $3,824,000,
respectively. The increase in cash used in operations was due to higher
expenses for research and development and marketing activities. As of
September 30, 1996, the Company had cash and short-term investments totaling
$8,773,000. This compares with cash totaling $4,398,000 at December 31, 1995.
The increase in cash at September 30, 1996 was due to the receipt of proceeds
from the Secondary, which more than offset the use of cash for operations
during the first three quarters of 1996. As of September 30, 1996, the Company
had working capital of $8,268,000 as compared to working capital of $3,822,000
at December 31, 1995. The higher level of working capital at September 30,
1996 is the result of receipt of the net proceeds from the Secondary.
The Company has no material commitments for capital expenditures.
However, the Company has entered into agreements with design engineering firms
pursuant to which the Company will continue to pay a substantial portion of the
cost of developing a commercial version of the Digital Holography System.
These contracts include some fixed price provisions, as well as time and
materials payments. The Company anticipates that its aggregate future
expenditures under these agreements will exceed $500,000.
9
<PAGE> 10
The Company believes that available cash will be sufficient to meet
the Company's operating expenses and capital requirements for at least twelve
months from the date of this report. However, the Company may require
additional funding on one or more occasions in order to achieve its operating
objectives. The amount and timing of the Company's future capital requirements
will depend upon many factors, including progress of the Company's product
development and the extent and timing of acceptance of the Digital Holography
System. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all, when required by the
Company.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K:
o The Company filed a report on Form 8-K on August 6, 1996
reporting the closing of a public offering of 2,600,000 shares of
common stock and granting of an over-allotment option covering
390,000 shares to the underwriters of the offering.
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.
VOXEL
Date: November 6, 1996 By: /S/ Allan M. Wolfe
-------------------------------------
Allan M. Wolfe, MD
President and Chief Executive Officer
Date: November 6, 1996 By: /S/ Murray E. Rudin
-------------------------------------
Murray E. Rudin
Chief Financial Officer and
Principal Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 790
<SECURITIES> 7,983
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,907
<PP&E> 1,335
<DEPRECIATION> 815
<TOTAL-ASSETS> 9,442
<CURRENT-LIABILITIES> 639
<BONDS> 0
0
0
<COMMON> 8,795
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,442
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> (1,882)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,882)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
