<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, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26081 Merit Circle, Suite 117, Laguna Hills, CA 92653
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(Address of principal executive offices) (zip code)
(714) 348-3200
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(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: 8,422,744 shares outstanding at November 3, 1997.
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VOXEL
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1997 and 3
December 31, 1996
Condensed Consolidated Statements of Operations for the Three Months 4
and Nine Months Ended September 30, 1997 and September 30, 1996;
and for the Period from April 15, 1988 (date of inception) to
September 30, 1997
Condensed Consolidated Statements of Cash Flows for the Nine Months 5
Ended September 30, 1997 and September 30, 1996 and for the Period
from April 15, 1988 (date of inception) to September 30, 1997
Notes to Interim Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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VOXEL
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1997 1996
============= ============
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 1,110 $ 807
Short-term investments 2,165 6,112
Other current assets 45 118
-------- --------
TOTAL CURRENT ASSETS 3,320 7,037
Property and equipment:
Furniture and equipment 1,308 1,157
Leasehold improvements 254 224
-------- --------
1,562 1,381
Less accumulated depreciation and amortization (1,005) (867)
-------- --------
557 514
Other assets (net of accumulated amortization of $76 in
1997 and $70 in 1996) 67 74
-------- --------
TOTAL ASSETS $ 3,944 $ 7,625
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 410 $ 207
Current portion of lease obligation 3 5
-------- --------
TOTAL CURRENT LIABILITIES 413 212
Long-term lease obligation 11 7
Other long-term liabilities 20 --
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, no par value:
Authorized shares - 15,000,000; Issued and outstanding
shares - 8,422,744 in 1997 and 8,395,398 in 1996 29,484 29,417
Deficit accumulated during the development stage (25,954) (21,981)
Notes receivable from shareholders (30) (30)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 3,500 7,406
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,944 $ 7,625
======== ========
</TABLE>
See accompanying notes
3
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VOXEL
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended April 15, 1988
September 30, September 30, (date of inception)
========================= ========================= to September 30,
1997 1996 1997 1996 1997
========== ========= ========== ========== ===================
<S> <C> <C> <C> <C> <C>
Net revenues $ -- $ -- $ -- $ -- $ --
Costs and expenses:
Research and development 611 1,341 2,040 3,477 15,426
General and administrative 748 551 1,928 1,527 9,217
Depreciation and amortization 62 62 180 184 1,323
Interest expense -- 6 1 14 812
Interest income (36) (78) (176) (144) (824)
--------- --------- --------- --------- --------
1,385 1,882 3,973 5,058 25,954
--------- --------- --------- --------- --------
Net loss $(1,385) $(1,882) $(3,973) $(5,058) $(25,954)
========= ========= ========= ========= ========
Net loss per share $ (0.16) $ (0.27) $ (0.47) $ (0.96)
========= ========= ========= =========
Average common and common equivalent
shares 8,416,781 7,070,828 8,402,604 5,280,647
========= ========= ========= =========
</TABLE>
See accompanying notes.
4
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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,
1997 1996 1997
=========== =========== ===================
<S> <C> <C> <C>
Operating activities
- --------------------
Net loss $ (3,973) $ (5,058) $(25,954)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 153 157 1,101
Amortization of deferred compensation 27 27 222
Loss (gain) on sale of property and equipment 1 (5) (4)
Change in operating assets and liabilities
Other current assets 73 (100) (129)
Accounts payable and accrued expenses 203 184 569
Short-term note payable -- (105) --
Other liabilities 20 -- 20
======== ======== ========
Net cash used in operating activities (3,496) (4,900) (24,175)
Investing activities
- --------------------
Purchases of property and equipment (184) (152) (1,418)
Proceeds from sale of property and equipment 1 12 7
Increase in other assets -- -- (33)
Decrease (increase) in short-term investments 3,947 (7,983) (2,165)
======== ======== ========
Net cash provided by (used in) investing activities 3,764 (8,123) (3,609)
Financing activities
- --------------------
Proceeds from issuance of common stock 40 9,485 18,768
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 (5) (70) (558)
======== ======== ========
Net cash provided by financing activities 35 9,415 28,894
Net increase (decrease) in cash and cash equivalents 303 (3,608) 1,110
Cash and cash equivalents at the beginning
of period 807 4,398 --
======== ======== ========
Cash and cash equivalents at end of period $ 1,110 $ 790 $ 1,110
======== ======== ========
Cash paid for interest $ 1 $ 14 $ 201
======== ======== ========
Cash paid for income taxes $ 7 $ 1 $ 14
======== ======== ========
</TABLE>
See accompanying notes
5
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VOXEL
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. Summary of Significant Accounting Policies
- ---------------------------------------------
Basis of Presentation
- ---------------------
The interim financial information at September 30, 1997 and 1996, 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, 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 for the
year ended December 31, 1996 filed with the Securities and Exchange Commission.
Interim results of operations for the three-month and nine-month periods ended
September 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 shares 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
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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
Voxfilm(R) media 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 twelve
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 successfully recruited necessary professional personnel
and completed the primary design effort required to remedy the shortcomings of
the GSI-designed Voxcam. Also, the Company has initiated negotiations with
qualified firms to perform the detailed engineering effort needed before
commercial manufacture can begin. 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 within the next several months.
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 September 30, 1997 Compared to Three Months Ended September
30, 1996
The Company had no revenues during the third quarter of 1997 and 1996.
Third quarter operating loss for 1997 decreased by 26% to $1,385,000 from
$1,882,000 in 1996. The savings are primarily a consequence of the Company's
implementation in 1997 of an internal program to design and arrange for
production of the commercial version of the Voxcam imager in lieu of the prior
flawed GSI program, inclusive of design services and parts for beta units, for
that purpose.
Research and development expense ("R&D") for 1997 decreased 54% to
$611,000 from $1,341,000 in 1996. Savings achieved in 1997 from cessation of
payments to GSI for design services and parts accounted for the reduction in
expense levels. These savings more than offset modestly higher 1997 levels of
personnel and materials expense related to the internal development program for
the commercial Voxcam imager and to the retrofit of an existing GSI-built beta
prototype Voxcam in preparation for field testing.
General and administrative ("G&A") expense (which includes marketing
activities) increased 36% to $748,000 in 1997 from $551,000 in 1996. Marketing
expenses remained constant despite the intensified focus on the development of
close relationships with the Company's most qualified customer prospects. Costs
of a modest increase in the field sales organization were offset by savings in
other promotional activities. The growth in G&A expense arose in part from a
slight increase in the costs of corporate administration due to substantial
growth in headcount and in part from vigorous pursuit of the Company's claims in
the pending GSI arbitration proceeding.
Depreciation and amortization expense for 1997 was essentially
unchanged from the 1996 period. Interest income for 1997 was $36,000 compared to
$78,000 in 1996 because smaller cash balances were available for investment due
to the use during 1997 of proceeds from the Company's 1996 secondary public
offering (the "Secondary").
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
The Company had no revenues during the first nine months of 1997 and
1996. Operating loss for 1997 decreased by 21% to $3,973,000 from $5,058,000 in
1996. The decrease is primarily attributable to a reduction in R&D expense,
modestly offset by an increase in G&A expense.
R&D expense for 1997 decreased 41% to $2,040,000 from $3,477,000 in
1996 as a consequence of consistent year-over-year decreases in each of the
first three quarters. The year-to-date results are a result of the same factors
described above with respect to the third quarter -- the change in the character
of the Company's Voxcam engineering program. More specifically, the 1997 results
exhibit higher levels of internal engineering activity on the Voxcam redesign
and beta unit retrofit, greatly overshadowed by the savings from the
discontinuation of payments to GSI for parts for beta units and design services.
8
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G&A expense (which includes marketing activities) rose 26% to
$1,928,000 in 1997 from $1,527,000 in 1996. About one-half of the increase
occurred in marketing, arising in part from the allocation of resources to add
two field salespeople in early 1997. Sales efforts are concentrated on the
development of commitments to acquire the Digital Holography System from
pre-qualified prospective customers. The remainder of the growth in G&A was a
consequence of corporate administrative costs rising (albeit at a rate much less
than headcount growth) and the expenses associated with the GSI arbitration
proceeding.
Depreciation and amortization expense for 1997 remained approximately
the same as the year earlier level. Net interest income for 1997 was $175,000
compared to $130,000 in 1996, as a result of higher balances of invested cash
and reduced interest expense due to the maturity of certain capitalized leases.
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, 1997, the Company has 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 Series C 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. The Company had capital lease obligations of $14,000 as
of September 30, 1997.
The Company's net cash used in operating activities during the nine
month periods ended September 30, 1997 and 1996 was $3.5 million and $4.9
million, respectively. Cash used in operations decreased primarily because of
the Company's implementation of an internal Voxcam engineering program in lieu
of payments made to GSI for that purpose. As of September 30, 1997, the Company
had cash and short-term investments totaling $3.3 million. This compares with
cash and short-term investments totaling $6.9 million at December 31, 1996. The
decrease in cash at September 30, 1997 was due to the use of cash for operations
during the first three quarters of 1997. As of September 30, 1997, the Company
had working capital of $2.9 million as compared to working capital of $6.8
million at December 31, 1996. The reduced level of working capital at September
30, 1997 is the result of use in 1997 of the net proceeds from the Secondary to
fund 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.
9
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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.
10
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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:
There were no reports on Form 8-K filed during the third
quarter ended September 30, 1997.
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 3, 1997 By: /S/ Allan M. Wolfe
-------------------------------
Allan M. Wolfe, MD
President and Chief Executive
Officer
Date: November 3, 1997 By: /S/ Murray E. Rudin
-------------------------------
Murray E. Rudin
Chief Financial Officer and
Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,110
<SECURITIES> 2,165
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,320
<PP&E> 1,562
<DEPRECIATION> 1,005
<TOTAL-ASSETS> 3,944
<CURRENT-LIABILITIES> 413
<BONDS> 0
0
0
<COMMON> 3,500
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,944
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,385)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,385)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,385)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
