<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: June 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: 7,999,198 shares outstanding at August 7, 1996.
<PAGE> 2
VOXEL
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1996 and 3
December 31, 1995
Condensed Consolidated Statements of Operations for the 4
Three Months and Six Months Ended June 30, 1996 and June
30, 1995; and for the Period from April 15, 1988 (date of
inception) to June 30, 1996
Condensed Consolidated Statements of Cash Flows for the 5
Six Months Ended June 30, 1996 and June 30, 1995 and for
the Period from April 15, 1988 (date of inception) to June 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 4. Submission of Matters to a Vote of Security-Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
2
<PAGE> 3
VOXEL
(A development stage company)
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
----------- ------------
Assets (UNAUDITED)
<S> <C> <C>
Currents assets:
Cash and cash equivalents $ 25 $ 4,398
Short-term investments 1,235 --
Other current assets 42 34
-------- --------
Total current assets 1,302 4,432
Property and equipment:
Furniture and equipment 1,098 996
Leasehold improvements 222 201
-------- --------
1,320 1,197
Less accumulated depreciation and amortization (764) (671)
-------- --------
556 526
Other assets (net of accumulated amortization of $70 in
1996 and $66 in 1995) 18 22
-------- --------
Total assets $ 1,876 $ 4,980
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 502 $ 424
Short-term note payable -- 105
Current portion of lease obligation 63 81
-------- --------
Total current liabilities 565 610
Long-term lease obligation 7 28
Commitments
Shareholders' equity:
Convertible Series C preferred stock, no par value:
Authorized shares - 4,000,000; Issued and outstanding
shares - 4,000,000 in 1995 and none in 1996 -- 3,600
Common stock, no par value:
Authorized shares - 15,000,000; Issued and outstanding
shares - 4,228,869 in 1995 and 5,399,198 in 1996 20,051 16,313
Deficit accumulated during the development stage (18,717) (15,541)
Notes receivable from shareholders (30) (30)
-------- --------
Total shareholders' equity 1,304 4,342
-------- --------
Total liabilities and shareholders' equity $ 1,876 $ 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
THREE MONTHS ENDED SIX MONTHS ENDED APRIL 15, 1988 (DATE
JUNE 30, JUNE 30, OF INCEPTION) TO
------------------------- ---------------------- June 30,
1996 1995 1996 1995 1996
-------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues $ -- $ -- $ -- $ -- $ --
-------- -------- -------- --------
Costs and expenses:
Research and development 1,137 860 2,141 1,833 11,270
General and administrative 595 433 1,093 846 7,092
Interest expense 4 9 8 20 809
Interest income (25) (59) (66) (135) (454)
-------- -------- -------- -------- --------
1,711 1,243 3,176 2,564 18,717
-------- -------- -------- -------- --------
Net loss $ (1,711) $ (1,243) $ (3,176) $ (2,564) $(18,717)
======== ======== ======== ======== ========
Net loss per share $ (0.33) $ (0.30) $ (0.65) $ (0.62)
======== ======== ======== ========
Average common and common
equivalent shares 5,250 4,179 4,885 4,144
======== ======== ======== ========
</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
SIX MONTHS ENDED APRIL 15, 1988
JUNE 30, (DATE OF INCEPTION)
------------------------ To June 30,
1996 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net loss $ (3,176) $ (2,564) $(18,717)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 100 83 771
Amortization 4 2 70
Amortization of deferred compensation 18 2 177
Gain on sale of property and equipment (5) (5)
Change in operating assets and liabilities:
Other current assets (8) (6) (70)
Accounts payable and accrued expenses 78 (33) 661
Short-term note payable (105) -- --
-------- -------- --------
Net cash used in operating activities (3,094) (2,516) (17,113)
Investing activities
Purchases of property and equipment (131) (46) (1,169)
Proceeds from sale of property and equipment 6 -- 6
Decrease in other assets -- -- (33)
Decrease (increase) in short-term investments (1,235) 2,409 (1,235)
-------- -------- --------
Net cash provided by (used in) investing activities (1,360) 2,363 (2,431)
Financing activities
Sale of common stock 120 302 9,380
Increase in notes payable -- -- 5,683
Payments on notes payable -- -- (2,151)
Proceed from issuance of preferred stock -- -- 6,746
Proceeds from sale/leaseback transaction -- -- 406
Payments on capital lease obligation (39) (94) (495)
-------- -------- --------
Net cash provided by financing activities 81 208 19,569
Net increase (decrease) in cash and cash equivalents (4,373) 55 25
Cash and cash equivalents at the beginning
of period 4,398 613 --
-------- -------- --------
Cash and cash equivalents at end of period $ 25 $ 668 $ 25
======== ======== ========
Cash paid for interest $ 8 $ 20 $ 175
======== ======== ========
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
JUNE 30, 1996 (UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The interim financial information at June 30, 1996 and 1995, and for
the three-month and six-month periods then ended, and for the period from April
15, 1988 (date of inception) to June 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 six-month periods ended
June 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
June 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 $8,100,000.
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, if any.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Since its inception in 1988, 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"). 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 yet developed 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
third quarter of 1997 as research, development, and marketing activities expand.
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. The remaining prerequisites
to initial commercial sales include completion of pre-production prototypes,
manufacturing of production units, and achievement of market acceptance for the
Digital Holography System. There can be no assurance that, on a timely basis or
at all, any or all of the remaining prerequisites will be satisfied.
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
the 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.
The Company currently anticipates that initial production units of the
Digital Holography System will be available for commercial sale no earlier than
the fourth quarter of 1996. The ongoing development and engineering activities
with respect to pre-production prototypes of the Voxcam have required more time
than was originally anticipated by the Company and its primary engineering
partner, General Scanning, Inc. This delay in manufacturing of initial
production units has increased the Company's requirements for capital. See
"Liquidity and Capital Resources."
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.
7
<PAGE> 8
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
The Company had no revenues during the second quarter of 1996 and 1995.
Second quarter operating loss for 1996 increased by 38% to $1,711,000 from
$1,243,000 for 1995, primarily as a consequence of increased costs of
development of pre-production prototypes of the Digital Holography System. Also,
an increase was recognized in marketing costs as the Company maintained higher
levels of promotion in the clinical community and office activity grew modestly
to support a larger organization.
Research and development expense ("R&D") expense increased 32% to
$1,137,000 from $860,000 in 1995. This change was attributable to more intense
efforts in many areas focused toward completion of pre-production units of the
Digital Holography System. The single largest expense increase occurred in
component purchases with respect to pre-production prototypes of the Voxcam,
which more than offset a reduction in payments to design firms for development
and engineering activities. Other costs associated with the growth and maturity
of the engineering program (such as testing activities and Voxbox production)
also contributed to the increase in R&D expense.
General and administrative ("G&A") expense (which includes marketing
activities) increased 37% to $595,000 from $433,000 in 1995. Increased trade
show presence and headcount were the primary reasons for the growth in the
marketing portion while administrative costs rose modestly in proportion to
overall organizational size.
Interest expense for 1996 was $4,000 compared to $9,000 in 1995. The
decrease resulted from smaller principal balances on capital lease obligations
due to the maturity of certain capital leases during 1995. Interest income for
1996 was $25,000 compared to $59,000 in 1995 because a smaller balance of funds
was available for investment in marketable securities.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
The Company had no revenues during the first six months of 1996 and
1995. Operating loss for 1996 increased by 24% to $3,176,000 from $2,564,000 for
1995. The increase is attributable to growth in both R&D expense and G &A
expense. Growth in the pace and intensity of activities related to the
construction of pre-production prototypes of the VOXCAM was the major factor in
increased R&D costs. These increased costs are consistent with the Company's
primary near-term objective of commercializing the Digital Holography System.
Increased marketing efforts, and to a lesser extent organizational support
costs, contributed to the G&A expense growth.
R&D expense increased 17% to $2,141,000 from $1,833,000 in 1995. The
rise is primarily a consequence of parts purchases for the pre-production Voxcam
units, which reflects the maturing of the Voxcam engineering program over the
intervening 12 months and a change in the expense focus from design services to
materials. Higher activity levels yielded modestly increased costs in several
other categories, including Voxbox production, travel, and testing.
G&A expense (which includes marketing activities) increased 29% to
$1,093,000 from $846,000 in 1995. Most of the growth occurred in marketing,
arising from higher headcount and increased trade show and promotional
activities.
Interest expense for 1996 was $8,000 compared to $20,000 in 1995. The
decrease resulted from smaller principal balances on capital lease obligations
due to the maturity of certain
8
<PAGE> 9
capital leases during 1995. Interest income for 1996 was $66,000 compared to
$135,000 in 1995 because a smaller balance of funds was available for investment
in marketable securities.
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
and, to a far lesser extent, through equipment lease financing. As of August 7,
1996 the Company had raised $8,100,000 net of underwriting commissions and
offering expenses from its just-concluded secondary public offering (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 Company had a capital lease obligation of $70,000 as of June 30, 1996.
The Secondary, which closed on August 6, 1996, 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, valid through September 14,
1996, to purchase up to 390,000 additional shares to cover underwriters'
over-allotments, if any.
The Company's net cash used in operating activities during the six
month periods ended June 30, 1996 and 1995 was $3,094,000 and $2,516,000,
respectively. The increase in cash used in operations was due primarily to an
increase in research and development and marketing activities. As of June 30,
1996, the Company had cash and short-term investments totaling $1,260,000. This
compares with cash totaling $4,398,000 at December 31, 1995. The decrease in
cash at June 30, 1996 was due to the use of cash for operations. As of June 30,
1996, the Company had working capital of $737,000 as compared to working capital
of $3,822,000 at December 31, 1995. Working capital at June 30, 1996 is
primarily the result of the net proceeds received from the Series C Stock,
offset by cash used for operating activities since the closing of the Series C
financing. Working capital at December 31, 1995 is primarily the result of the
net proceeds received from the sale of the Series C Stock.
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 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.
The Company believes that, after giving effect to the closing of the
Secondary, available cash will be sufficient to meet the Company's operating
expenses and capital requirements for 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.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders
On May 31, 1996, the Company held its Annual Meeting of Shareholders.
The results of the proposals submitted for vote were as follows:
1. Election of Directors.
<TABLE>
<CAPTION>
Number of Shares
---------------------
For Against
--- -------
<S> <C> <C>
James B. Anderson................ 4,658,684 10,115
Alan S. Dishlip.................. 4,093,246 575,553
James C. Dreyfous................ 4,664,084 4,715
John M. Holliman, III............ 4,664,084 4,715
Allan M. Wolfe................... 4,664,084 4,715
</TABLE>
2. Amendment of Option Plan. To Consider and act upon a proposal
to approve an amendment to the Company's 1992 Stock Plan (the
"Plan") to reinstate the eligibility of Directors for awards
under the Plan.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For...................................... 3,841,244
Against.................................. 814,750
</TABLE>
3. Ratification of Auditors. To ratify the appointment of Ernst
& Young, LLP as independent public accountants for the Company
for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For....................................... 4,640,404
Against................................... 24,140
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K: None.
10
<PAGE> 11
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: August 12, 1996 By: /S/ Allan M. Wolfe
------------------
Allan M. Wolfe, MD
President and Chief Executive Officer
Date: August 12, 1996 By: /S/ Murray E. Rudin
-------------------
Murray E. Rudin
Chief Financial Officer and
Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US 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> 25
<SECURITIES> 1235
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1302
<PP&E> 1320
<DEPRECIATION> 764
<TOTAL-ASSETS> 1876
<CURRENT-LIABILITIES> 565
<BONDS> 0
0
0
<COMMON> 1,304
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1876
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (1,711)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,711)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,711)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
