<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, 1997
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: 8,416,088 shares outstanding at July 28, 1997.
<PAGE> 2
VOXEL
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets at June 30, 1997 and December 31, 3
1996
Condensed Consolidated Statements of Operations for the Three Months Ended 4
June 30, 1997 and June 30, 1996; for the Six Months Ended June 30, 1997
and June 30, 1996; and for the Period from April 15, 1988 (date of
inception) to June 30, 1997
Condensed Consolidated Statements of Cash Flows for the Six Months Ended 5
June 30, 1997 and June 30, 1996 and for the Period from April 15, 1988
(date of inception) to June 30, 1997
Notes to Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 7
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
</TABLE>
2
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VOXEL
(A development stage company)
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
-------- --------
Assets (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,574 $ 807
Short-term investments 1,900 6,112
Other current assets 71 118
-------- --------
Total current assets 4,545 7,037
Property and equipment:
Furniture and equipment 1,268 1,157
Leasehold improvements 224 224
-------- --------
1,492 1,381
Less accumulated depreciation and amortization (954) (867)
-------- --------
538 514
Other assets (net of accumulated amortization of $74 in
1997 and $70 in 1996) 69 74
-------- --------
Total assets $ 5,152 $ 7,625
======== ========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 297 $ 207
Current portion of lease obligation 2 5
-------- --------
Total current liabilities 299 212
Long-term lease obligation 7 7
Other long-term liabilities 10 --
Commitments
Shareholders' equity:
Common stock, no par value:
Authorized shares - 15,000,000; Issued and outstanding
shares - 8,395,398 in 1997 and 1996 29,435 29,417
Deficit accumulated during the development stage (24,569) (21,981)
Notes receivable from shareholders (30) (30)
-------- --------
Total shareholders' equity 4,836 7,406
-------- --------
Total liabilities and shareholders' equity $ 5,152 $ 7,625
======== ========
</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,
1997 1996 1997 1996 1997
----------- ----------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ -- $ -- $ -- $ -- $ --
Costs and expenses:
Research and development 813 1,137 1,429 2,141 14,815
General and administrative 619 534 1,180 971 8,469
Depreciation and amortization 60 61 118 122 1,261
Interest expense -- 4 1 8 812
Interest income (57) (25) (140) (66) (788)
----------- ----------- --------- ----------- -----------
1,435 1,711 2,588 3,176 24,569
----------- ----------- --------- ----------- -----------
Net loss $ (1,435) $ (1,711) $(2,588) $ (3,176) $ (24,569)
=========== =========== ========= =========== ===========
Net loss per share $ (0.17) $ (0.33) $ (0.31) $ (0.65)
=========== =========== ========= ===========
Average common and common equivalent
shares 8,395,398 5,249,552 8,395,398 4,885,321
=========== =========== ========= ===========
</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,
1997 1996 1997
------- ------- --------
<S> <C> <C> <C>
Operating activities
Net loss $(2,588) $(3,176) $(24,569)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 100 104 1,048
Amortization of deferred compensation 18 18 213
Loss (gain) on sale of property and equipment 1 (5) (4)
Change in operating assets and liabilities:
Other current assets 47 (8) (155)
Accounts payable and accrued expenses 90 78 456
Short-term note payable -- (105) --
Other liabilities 10 -- 10
------- ------- --------
Net cash used in operating activities (2,322) (3,094) (23,001)
Investing activities
Purchases of property and equipment (121) (131) (1,355)
Proceeds from sale of property and equipment 1 6 7
Decrease (increase) in other assets -- -- (33)
Decrease (increase) in short-term investments 4,212 (1,235) (1,900)
------- ------- --------
Net cash provided by (used in) investing activities 4,092 (1,360) (3,281)
Financing activities
Sale of common stock -- 120 18,728
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 (3) (39) (556)
------- ------- --------
Net cash (used in) provided by financing activities (3) 81 28,856
Net increase (decrease) in cash and cash equivalents 1,767 (4,373) 2,574
Cash and cash equivalents at the beginning
of period 807 4,398 --
------- ------- --------
Cash and cash equivalents at end of period $ 2,574 $ 25 $ 2,574
======= ======= ========
Cash paid for interest $ 1 $ 8 $ 201
======= ======= ========
Cash paid for income taxes $ 7 $ 1 $ 14
======= ======= ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
VOXEL
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The interim financial information at June 30, 1997 and 1996, 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, 1997, 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 filed
with the Securities and Exchange Commission. Interim results of operations for
the three-month and six-month periods ended June 30, 1997 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 stock outstanding.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 redefines the standards for computing earnings per share
and is effective for the Company on December 31, 1997. The Company believes
adoption of SFAS No. 128 will not have a material impact on future earnings per
share calculations.
6
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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 the Digital Holography(TM)
System, a sophicated system that yields film-based, hard-copy images of the
internal structure of the human body. The Digital Holography System consists of
the Voxcam(R) imager, a camera to convert computed tomography and magnetic
resonance scans into holograms; Voxbox(R) light boxes to view the holograms; and
Voxgram(R) film on which the hologram is recorded.
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 for at least nine
months from the date of this report, as research, development, and marketing
activities expand.
In previous filings, the Company indicated that certain prerequisites
needed to be fulfilled prior to initial commercial sales of the Digital
Holography System. One of these prerequisites was accomplished on October 5,
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 previously relied upon General Scanning Inc. ("GSI") for
development and manufacturing of pre-production prototypes and commercial
versions of the Voxcam. The Company believes that GSI has failed to meet the
engineering specifications, product performance requirements, and scheduled
delivery dates called for in the Development Agreement between the companies. As
a consequence of GSI's actions, the schedule for commercialization of the Voxcam
has been delayed and the Company's requirements for capital have increased. See
"Liquidity and Capital Resources." The Company and GSI are currently engaged in
an arbitration proceeding with respect to the parties' obligations under that
Development Agreement.
Because the Company believes GSI is in breach of the Development
Agreement, the Company instituted in January 1997 an alternative in-house
program to complete development of a commercial version of the Voxcam and
arrange for its manufacture. On March 13, 1997, the Company announced its
decision to accelerate the alternative Voxcam development and manufacturing
program. The Company has identified and retained respected consultants and
vendors to assist with the engineering work required to remedy the shortcomings
of the GSI-designed Voxcam. The Company's Voxcam manufacturing program will
include securing sub-systems from qualifed vendors, performing final assembly
and in-house testing for a pilot production run and selecting a system
integrator for volume manufacturing.
The alternative Voxcam development program is well underway. The Voxcam
design incorporates requisite performance characteristics while avoiding the
serious limitations of the GSI effort. The delivery date for commercial Voxcams
depends on a variety of factors, including (i) timely achievement of engineering
and manufacturing objectives by subsystem vendors, (ii) on schedule completion
of system integration, and (iii) successful field testing of prototypes. The
Company expects that it will be better able to forecast end dates for these
milestones later this year.
7
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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 June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company had no revenues during the second quarter of 1997 and 1996.
Second quarter operating loss for 1997 decreased by 16% to $1,435,000 from
$1,711,000 for 1996. The savings are the result of termination of the Company's
relationship with GSI and the substitution of an in-house program to redesign
the commercial version of the Voxcam.
Research and development expense ("R&D") expense decreased 28% to
$813,000 from $1,137,000 in 1996 as a consequence of a change in the character
of the Company's engineering activities. 1997 engineering costs were related to
the Company's in-house program to complete development of the commercial version
of the Voxcam while 1996 expenses were, in substantial part, payments to GSI for
design services and parts for pre-production prototype units. Thus, 1997 results
included increased levels of salary and related expense, partially offsetting
the sizable savings garnered from cessation of payments to GSI.
General and administrative ("G&A") expense rose 16% to $619,000 from
$534,000 in 1996 as a result of expanded sales and marketing activities. These
activities focused on enhancing the Company's relationship with its most
qualified customer prospects, rather than increasing lead generation. As a
consequence, salary, travel and related costs for the sales force increased
while trade show expenses moderated. Administrative costs for the organization
remained constant despite a higher headcount in 1997 and the costs of the GSI
arbitration proceeding.
Depreciation and interest expense each remained essentially unchanged.
Interest income for 1997 was $57,000 compared to $25,000 in 1996 because a
larger balance of funds was available for investment in marketable securities
due to the Company's secondary public offering completed in August 1996 (the
"Secondary").
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
The Company had no revenues during the first six months of 1997 and
1996. Operating loss for 1997 decreased by 19% to $2,588,000 from $3,176,000 for
1996. These results arose from substantial savings in engineering costs,
modestly offset by an increase in marketing expense.
R&D expense decreased 33% to $1,429,000 from $2,141,000 in 1996,
reflecting the continuing impact throughout 1997 of the transition in the
Company's Voxcam engineering program described above. 1997 results reflect
higher levels of in-house engineering activity, dwarfed by the savings from the
elimination of payments to GSI for (i) parts for pre-production prototypes of
the Voxcam and (ii) to a lesser degree, engineering services related to those
prototypes.
G&A expense increased 22% to $1,180,000 from $971,000 in 1996 primarily
because of an increase in, and tighter focus to, the Company's sales and
marketing activities. Sales efforts focused on obtaining strong commitments from
already identified prospective customers, which entailed the addition of two
salespeople in 1997 and the accompanying costs. Resulting increases in salaries
and travel were partially offset by savings in broader industry awareness
8
<PAGE> 9
activities such as commercial exhibits at clinical meetings. Administrative
costs grew by 6% as a result of legal costs associated with the GSI arbitration
proceeding.
Depreciation and amortization expense was essentially constant during
1997 and 1996. Interest expense for 1997 was $1,000 compared to $8,000 in 1996.
The decrease resulted from smaller principal balances on capital lease
obligations due to the maturity of certain capital leases during the second half
of 1996. Interest income for 1997 was $140,000 compared to $66,000 in 1996, as
proceeds of the Secondary were invested in short-term 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 June 30,
1997, the Company had raised $9.3 million net of underwriting commissions and
offering expenses from the Secondary, $9.0 million net of underwriting
commissions and offering expenses from its initial public offering (the "IPO"),
$3.8 million from the sale of convertible redeemable preferred stock, $3.6
million net of underwriting commissions and expenses from the sale of
convertible preferred stock, and $4.7 million from the sale of debt securities.
The convertible redeemable preferred stock and $2.5 million 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 $2.2 million of the debt
securities (together with accrued interest thereon) was repaid from the proceeds
of the IPO on November 1, 1994. The Company had a capital lease obligation of
$9,000 as of June 30, 1997.
The Company's net cash used in operating activities during the periods
ended June 30, 1997 and 1996 was $2.3 million and $3.1 million, respectively.
The decrease in cash used in operations was due to lower expense levels as a
consequence of the significant transition underway in the Company's strategy for
developing a commercial version of the Voxcam. As of June 30, 1997, the Company
had cash and short-term investments totaling $4.5 million. This compares with
cash and short-term investments totaling $6.9 million at December 31, 1996. The
decrease in cash at June 30, 1997 was due to the use of cash for operations. As
of June 30, 1997, the Company had working capital of $4.2 million as compared to
working capital of $6.8 million at December 31, 1996. Working capital at June
30, 1997 and December 31, 1996 is primarily the result of the net proceeds
received from the Secondary, offset by cash used for operating activities.
The Company has no material commitments for capital expenditures.
However, the Company expects to incur substantial expense to (i) complete the
redesign of the Voxcam to remedy shortcomings of the GSI effort, (ii) make
alternative manufacturing arrangements, (iii) conduct field tests of
pre-production units of the redesigned Voxcam, and (iv) commence its production.
The Company believes that available cash will be sufficient to meet the
Company's operating expenses and capital requirements for at least the duration
of calendar year 1997. However, the Company will require additional funding on
one or more occasions in order to achieve its operating objectives. The delays
in the completion of engineering of the commercial Voxcam, field testing of
pre-production prototypes, and manufacturing of initial production units have
increased the Company's requirements for capital. The amount and timing of the
Company's future capital requirements will depend upon many factors, including
progress of the Voxcam engineering activities, the success and duration of field
testing of pre-production units, the timing of the transition from
pre-production to volume commercial production, and the extent and timing of
market 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
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PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders
On May 30, 1997, 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>
Alan S. Dishlip................................. 6,836,797 65,825
James C. Dreyfous............................... 6,836,797 65,825
John M. Holliman, III........................... 6,836,797 65,825
Allan M. Wolfe.................................. 6,835,797 66,825
</TABLE>
2. Ratification of Auditors. To ratify the appointment of Ernst &
Young, LLP as independent public accountants for the Company
for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For..................................................... 6,824,807
Against................................................. 41,150
Abstain................................................. 11,190
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K: No reports on Form 8-K have been filed by
the Registrant.
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 1, 1997 By: /S/ Allan M. Wolfe
----------------------------
Allan M. Wolfe, MD
President and Chief Executive
Officer
Date: August 1, 1997 By: /S/ Murray E. Rudin
--------------------------
Murray E. Rudin
Chief Financial Officer and
Principal Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,574
<SECURITIES> 1,900
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,545
<PP&E> 1,492
<DEPRECIATION> 954
<TOTAL-ASSETS> 5,152
<CURRENT-LIABILITIES> 299
<BONDS> 0
0
0
<COMMON> 4,836
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,152
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,435)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,435)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
