U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
/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
EXCHANGE ACT
For the transition period from ______ to______
COMMISSION FILE NUMBER: 0-20676
NEOPROBE CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 31-1080091
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
425 METRO PLACE NORTH, SUITE 400, DUBLIN, OHIO 43017
(Address of principal executive offices)
614-793-7500
(Issuer's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 / /
20,117,937 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE
(Number of shares of issuer's common equity
outstanding as of the close of business on August 8, 1996)
Transitional Small Business Disclosure Format (check one): YES / / NO /X/
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, JUNE 30,
ASSETS 1995 1996
---- ----
Current assets:
Cash and cash equivalents $10,032,973 $29,596,610
Available-for-sale securities 7,279,659 13,329,875
Stock subscriptions receivable 1,262,513 0
Accounts receivable:
Trade 176,434 128,397
Related parties 7,896 0
Inventory 473,004 331,693
Prepaid expenses and other current assets 784,016 1,435,118
----------- -----------
Total current assets 20,016,495 44,821,693
----------- -----------
Long term investment 0 1,500,078
Property and equipment, at cost, net of accumulated
depreciation and amortization 3,565,272 4,336,409
Intangible assets, net of accumulated amortization 523,249 2,555,400
Other assets 40,314 52,290
----------- -----------
Total assets $24,145,330 $53,265,870
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
1
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 1,558,916 $ 1,286,390
Related parties 25,838 0
Accrued expenses 957,049 1,048,977
Notes payable to finance company 128,487 31,777
Capital lease obligation, current 244,348 174,777
------------ ------------
Total current liabilities 2,914,638 2,541,921
------------ ------------
Long term debt 1,100,000 550,000
Capital lease obligation 82,043 22,450
------------ ------------
Total liabilities 4,096,681 3,114,371
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares authorized at December 31,
1995 and June 30, 1996; none outstanding (500,000 shares designated as
Series A, $.001 par value, at June 30, 1996; none
outstanding) -- --
Common stock; $.001 par value; 50,000,000 shares authorized,
17,534,800 and 20,057,125 shares issued; 17,334,800 and 19,957,125
shares outstanding at December 31, 1995 and
June 30, 1996, respectively 17,335 19,957
Additional paid in capital 62,964,787 101,127,897
Deficit accumulated during development stage (43,146,860) (51,095,677)
Unrealized gain (loss) on available-for-sale securities 46,480 (77,311)
Cumulative foreign currency translation adjustment 166,907 176,633
------------ ------------
Total stockholders' equity 20,048,649 50,151,499
------------ ------------
Total liabilities and stockholders' equity $ 24,145,330 $ 53,265,870
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
2
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
NOVEMBER 16,
1983
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
1995 1996 1995 1996 1996
---- ---- ---- ---- ----
Net sales $ 277,985 $ 159,419 $ 551,008 $ 355,816 $ 3,243,627
Cost of goods sold 165,504 79,233 322,897 229,974 1,681,498
----------- ----------- ----------- ------------ ------------
Gross profit 112,481 80,186 228,111 125,842 1,562,129
----------- ----------- ----------- ------------ ------------
Operating expenses:
Research and development expenses:
Wages and benefits 699,014 979,290 1,480,778 1,839,252 11,010,210
Contracted services 227,480 674,149 589,138 1,325,896 5,863,343
Clinical trials 578,967 1,849,775 1,268,058 2,655,676 15,488,868
Other 197,056 270,420 318,785 505,556 2,780,532
----------- ----------- ----------- ------------ ------------
Total research and development 1,702,517 3,773,634 3,656,759 6,326,380 35,142,953
----------- ----------- ----------- ------------ ------------
General and administrative expenses:
Wages and benefits 235,459 393,181 487,734 716,692 5,955,887
Contracted services 70,695 153,478 135,201 298,626 2,450,610
Professional services 113,155 173,618 232,480 338,767 3,051,858
Depreciation and amortization 134,468 166,110 271,015 303,576 1,844,178
Other 416,369 602,120 758,513 1,103,818 7,463,297
----------- ----------- ----------- ------------ ------------
Total general and administrative 970,146 1,488,507 1,884,943 2,761,479 20,765,830
----------- ----------- ----------- ------------ ------------
Loss from operations (2,560,182) (5,181,955) (5,313,591) (8,962,017) (54,346,654)
----------- ----------- ----------- ------------ ------------
Other income (expense):
Interest income 99,568 568,495 148,732 803,323 2,389,363
Interest expense (26,552) (11,075) (40,425) (21,287) (443,891)
Gain (loss) on foreign currency
transactions 4,214 (8,905) 4,495 (18,402) (19,606)
Other (100) 234,822 176,439 249,566 1,245,758
Minority interest 0 0 0 0 79,353
----------- ----------- ----------- ------------ ------------
Total other income 77,130 783,337 289,241 1,013,200 3,250,977
----------- ----------- ----------- ------------ ------------
Net loss $(2,483,052) $(4,398,618) $(5,024,350) $ (7,948,817) $(51,095,677)
=========== =========== =========== ============ ============
Earnings per share data:
Net loss per share of common stock $ (0.18) $ (0.22) $ (0.39) $ (0.43)
----------- ----------- ----------- ------------
Shares used in computing net loss
per share 14,023,086 19,740,705 12,939,885 18,580,659
----------- ----------- ----------- ------------
The accompanying notes are an integral part of the consolidated financial
statements.
3
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
NOVEMBER 16,
1983
SIX MONTHS ENDED (INCEPTION)
JUNE 30, TO JUNE 30,
1995 1996 1996
----------- ----------- -------------
Net cash used in operating activities $(4,335,467) $(7,234,086) $(47,354,798)
Cash flows from investing activities:
Purchase of available-for-sale securities (7,800,000) (35,393,239) (80,005,511)
Proceeds from sale of available-for-sale securities 1,147,428 25,726,484 44,108,641
Maturities of available-for-sale securities 6,763,965 3,500,000 22,482,742
Other (364,025) (1,088,590) (4,704,082)
----------- ----------- ------------
Net cash used in investing activities (252,632) (7,255,345) (18,118,210)
----------- ----------- ------------
Cash flows from financing activities:
Issuance of common stock, net 13,632,895 34,286,997 85,988,717
Other (179,558) (226,064) 9,087,691
----------- ----------- ------------
Net cash provided by financing activities 13,453,337 34,060,933 95,076,408
----------- ----------- ------------
Effect of exchange rate changes on cash 2,074 (7,865) (6,790)
----------- ----------- ------------
Net increase in cash and cash equivalents 8,867,312 19,563,637 29,596,610
Cash and cash equivalents at beginning of period 500,775 10,032,973 0
----------- ----------- ------------
Cash and cash equivalents at end of period $ 9,368,087 $29,596,610 $ 29,596,610
=========== =========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
4
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information presented for June 30, 1995 and 1996, and for the periods
then ended is unaudited, but includes all adjustments (which consist only
of normal recurring adjustments) which the Company's management believes to
be necessary for the fair presentation of results 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 rules
and regulations of the Securities and Exchange Commission. The results for
the interim period are not necessarily indicative of results to be expected
for the year. The financial statements should be read in conjunction with
the Company's audited financial statements for the year ended December 31,
1995, which were included as part of the Company's Annual Report on Form
10-KSB (file no. 0-20676).
The Company is a development stage enterprise engaged in the development
and commercialization of technologies for the diagnosis and treatment of
cancers. There can be no assurance that the Company will be able to
commercialize its proposed products. There can also be no assurance that
adequate financing will be available when needed or on terms attractive to
the Company.
2. INVENTORY
The components of inventory are as follows:
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
Materials and component parts $101,886 $109,727
Work-in-process 107,786 0
Finished goods 263,332 221,966
------- -------
$473,004 $331,693
======== ========
3. LONG-TERM DEBT
In 1995, Neoprobe (Israel) Ltd. ("Neoprobe (Israel)"), a subsidiary of the
Company, and the Company issued convertible debentures in the amount of
$1,100,000 due February 10, 1997. The debentures are convertible into
preferred shares of Neoprobe (Israel) or into shares of the Company's
common stock at a conversion price of $5.50 per share. The interest rate on
the debentures is at three percentage points above the 12-month LIBOR rate,
or approximately 9%. In March 1996, debentures in the amount of $550,000
were converted into 100,000 shares of the Company's common stock.
Certificates for an additional 100,000 shares of the Company's common stock
are being held in escrow.
4. STOCK OPTIONS
In January 1996, the Compensation Committee granted options to certain
directors, officers, and employees of the Company under the Neoprobe
Corporation Incentive Stock Option and Restricted Stock Purchase Plan (the
"Plan") for 295,200 shares of common stock, exercisable at $15.75 per
share, 50,000 vesting upon the meeting of certain milestones. Currently,
the Company has 1,938,192 options outstanding under the Plan, and 1,021,680
options have vested as of June 30, 1996.
5
5. EQUITY
In April 1996, the Company completed the sale of 1,750,000 shares of common
stock in a public secondary offering at an offering price to the public of
$18.50. Proceeds to the Company from this offering, net of the
underwriters' discount, was approximately $30.5 million.
During April 1996, in exchange for exclusive license to certain technology,
the Company issued 124,805 shares of common stock to The Dow Chemical
Company ("Dow", Note 6).
During June 1996, Enzon, Inc. ("Enzon") exercised warrants to purchase
50,000 shares and 100,000 shares of common stock of the Company at prices
of $6.30 per share and $12.60 per share, respectively, which had been
granted under the License Agreement and Development Agreement (Note 6).
6. AGREEMENTS
In February 1996, the Company and XTL Biopharmaceuticals Ltd. ("XTL")
executed a series of agreements, including an Investment Agreement and a
Research and Development Agreement whereby XTL will perform specific
research activities using XTL's proprietary technology for the development
of future products for the Company. The Company purchased $1.5 million of
convertible debentures of XTL, convertible into approximately a 15% equity
interest in XTL as of the date of purchase. The Company also acquired a
warrant affording Neoprobe the option to purchase an additional 10% equity
interest in XTL. Neoprobe issued 125,000 shares of common stock to XTL in
exchange for the convertible debentures, warrant, and product development
activities.
In March 1996, the Company and Enzon executed an Amendment to the License
Agreement and Development Agreement. Pursuant to the Amendment, a
Development Agreement executed between the parties on August 15, 1992 has
been terminated in all respects.
In March 1996, the Company executed a Subscription and Option Agreement
with Cira Technologies, Inc. ("Cira"), under which the Company received a
10 percent equity interest in Cira and an option to increase its interest
in Cira to 25 percent at a price to be determined based on the future value
of Cira subject to a cap and a floor. Currently, the Company's Chairman and
CEO is a director of and a principal shareholder in Cira. Additionally, a
partner of a law firm, who is a director of the Company which provides
various legal services to the Company, is a shareholder of Cira. The
Company and Cira also entered into an agreement under which the Company
will provide financial, clinical, and technical support to Cira for Cira
to conduct a clinical study using Cira's technology, and the Company will
have an option to acquire an exclusive global license for Cira's
technology. The Company's financial commitment for this clinical study
is capped at $500,000, and the Company has the right to terminate the
Agreement upon review of interim results of the clinical study.
In May 1996, the Company executed two License Agreements with Dow whereby
the Company was granted exclusive licenses to several technologies covered
by patents held by Dow for use in the Company's development and
commercialization of detective and therapeutic products. In exchange, the
Company issued Dow 124,805 shares of common stock valued at approximately
$2 million. In addition, the Company agreed to make lump sum payments to
Dow following marketing approval of certain initial products and on
achieving certain sales milestones. Dow will also be paid royalties based
on continuing net sales. The initial cost of the License Agreements was
recorded as an intangible asset as of June 30, 1996. The Company is in the
process of evaluating the various technologies covered by the License
Agreements for purposes of allocating costs to each patented technology.
The Company evaluates the recoverability of carrying values of intangible
assets on a recurring basis. Management believes that no significant
impairment of the intangible asset associated with the License Agreements
has occurred.
6
7. CONTINGENCIES
During June 1996, the Company and other additional parties were granted
their motion to dismiss as defendants in the In re Blech Securities
litigation pending in the United States District Court for the Southern
District of New York. The Company is not involved in any other substantial
litigation.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Report contain forward-looking statements
that involve risks and uncertainties. The Company's actual results in 1996 and
future periods may differ significantly from the prospects discussed in the
forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has devoted substantially all of its efforts and resources to
research and clinical development of innovative systems for the intraoperative
diagnosis and treatment of cancers. The RIGS system integrates radiolabeled
targeting agents and a radiation detection instrument. The Company is developing
both the radiolabeled targeting agents and radiation-detection instrument
components of the RIGS technology. The Company has completed testing in pivotal
Phase III clinical trials in both the U.S. and Europe for the detection of
metastatic colorectal cancer. In addition, the Company has completed testing in
a separate Phase III clinical trial for primary colorectal cancer in the U.S.
However, the Company must obtain regulatory approval to market its products
before commercial revenue can be generated. During July 1996, European
regulatory agencies announced they had agreed to review a dossier (i.e.
marketing application) submitted by the Company in May 1996 for its RIGS product
for the detection of metastatic colorectal cancer. The Company plans to submit a
similar Biologic License Application ("BLA") to the U.S. Food and Drug
Administration ("FDA") during the second half of 1996. In addition, the Company
is studying the safety and efficacy of RIGS products for detecting breast,
ovarian, and neuroendocrine cancers, and the safety and efficacy of certain
cancer therapy products (RIGS/ACT) for colorectal cancers. There can be no
assurance that the Company's RIGS products will be approved for marketing by the
FDA or any foreign government agency, or that any such products will be
successfully introduced or achieve market acceptance.
For the period from inception to June 30, 1996, the Company has incurred
cumulative net losses of approximately $51.1 million. The Company does not
currently have a RIGS product approved for commercial sale, and does not
anticipate commercial sales of sufficient volume to generate positive cash flow
until 1998, at the earliest. The Company has incurred, and will continue to
incur, substantial expenditures for research and development activities related
to bringing its products to the commercial market. The Company intends to devote
significant additional funds to clinical testing, manufacturing validation, and
other activities required for regulatory review of RIGS products. The amount
required to complete such testing will depend upon the outcome of regulatory
reviews. The regulatory bodies may require more testing than is currently
planned by the Company. There can be no assurance that the Company's RIGS
products will be approved for marketing by the FDA or any foreign government
agency, or that any such products will be successfully introduced or achieve
market acceptance.
Since inception, the Company has financed its operations primarily through
private and public offerings of its equity securities, from which it has raised
gross proceeds of approximately $102.0 million. In April, 1996, the Company
completed the sale of 1,750,000 shares of Common Stock at a price of $18.50 per
share in a secondary offering. Gross proceeds from this offering were $32.4
million and proceeds net of underwriting discounts were $30.5 million. As of
June 30, 1996, the Company had cash, cash equivalents, and available-for-sale
securities of $42.9 million.
New MonoCarb AB ("MonoCarb") is a wholly-owned subsidiary of the Company,
located in Lund, Sweden, where it operates a biological manufacturing and
purification facility. The Company intends to use the production capability of
MonoCarb to produce future RIGScan products. MonoCarb purchased and installed
vial filling equipment during 1995. This equipment will be used to prepare the
CC49 monoclonal antibody, produced by Bio-Intermediair BV under a manufacturing
and supply agreement with the Company, for final radiolabeling. The Company
advanced MonoCarb funds during the first half of 1996 to cover capital
expenditures of approximately $490,000 and operating expenses of approximately
$570,000. The Company anticipates advancing an additional $425,000 during the
second half of 1996 to cover operating expenses.
In 1994, the Company formed Neoprobe (Israel) Ltd. ("Neoprobe (Israel)") to
construct and operate a radiolabeling facility for the Company's targeting
agents. The Company owns 95 percent of Neoprobe (Israel), with Rotem Industries
Ltd., the private arm of the Israeli atomic energy authority ("Rotem") owning
the balance and managing the facility. In January 1995, the Company completed
negotiations with the Ministry of Finance and the Office of
8
the Chief Scientist in Israel to provide up to $2.5 million in the form of
Israeli-government guaranteed non-recourse loans and research grants to Neoprobe
(Israel). On August 10, 1995, the Company and Neoprobe (Israel) raised $1.1
million for Neoprobe (Israel) through the issuance of convertible debentures.
Costs associated with construction of the facility and operations at Neoprobe
(Israel) during 1996 will be financed primarily with government grants and loans
guaranteed by the Israeli government.
In 1996, regulatory activities related to the RIGScan CR49 product continued to
increase as the Company submitted an application to begin marketing a colorectal
product in Europe and prepared to submit a similar application in the United
States. Consolidated research and development expenses during the second quarter
of 1996 were approximately $3.8 million, or 72 percent of total expenses for the
quarter. Consolidated general and administrative expenses were approximately
$1.5 million, or 28 percent of total expenses for the period.
The Company anticipates that 1996 research and development expenses and general
and administrative expenses will increase significantly over 1995 expenditures.
During 1996, the Company expects to complete enrollment of patients in the Phase
III clinical study for primary colorectal cancer in Europe. The Company will
also continue to focus on validating its manufacturing processes for the
production of RIGS products and completing the compilation of the applications
for colorectal cancer for submission in the United States. Additionally, during
1996, the Company anticipates opening new clinical trials for additional cancer
types and developing an activated cell therapy application of its RIGS
technology (RIGS/ACT). A significant portion of the increased general and
administrative expenses will be associated with marketing activities in
preparation for the commercial launch of the first RIGS product. The Company's
estimate of its allocation of cash resources is based on the current state of
its business operations and current business plan and current industry and
economic conditions, and is subject to revisions due to a variety of factors
including without limitation, additional expenses related to regulatory
licensing and research and development, and to reallocation among categories and
to new categories. Neoprobe may need to supplement its funding sources from time
to time.
In November 1992 and December 1993, the Company issued a total of approximately
2.3 million Class E Redeemable Common Stock Purchase Warrants ("Class E
Warrants"). These warrants are exercisable over a three-year period beginning
November 10, 1993 and expire on November 12, 1996. The Class E Warrants entitle
the holder to purchase one share of Common Stock for $6.50 per share. As of June
30, 1996, approximately 2,298,000 of the Class E Warrants were outstanding. To
the extent that these warrants are exercised, the proceeds from the exercise of
all the Class E Warrants would be approximately $15 million. However, there can
be no assurance that these warrants will be exercised, due to a variety of
factors, including the possible volatility of the price of the Company's Common
Stock.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $39.2 million to offset future taxable income through 2010.
Additionally, the Company has tax credit carryforwards of approximately $1.6
million available to reduce future income tax liability through 2010. Under
Section 382 of the Internal Revenue Code of 1986, as amended, use of prior net
operating loss carryforwards is limited after an ownership change. As a result
of ownership changes which occurred in March 1989 and in September 1994, the
Company*s net operating tax loss carryforwards and tax credit carryforwards are
subject to the limitations described by Section 382.
RESULTS OF OPERATIONS
From inception through 1993, the Company's revenue had been primarily from the
sale of radiation detection instruments to clinical and collaborative sites and
interest earned on investments. MonoCarb generated sales of serology products of
approximately $850,000 and $803,000 during the years ended December 31, 1994 and
1995, respectively. All remaining sales during these periods were from the sale
of instruments. The Company does not anticipate having significant revenue from
the sale of its RIGS products for at least the next 21 months.
Three months ended June 30, 1995 and 1996. For the three-month period ended June
30, 1995, the Company had net sales of approximately $277,000 consisting of
sales by MonoCarb of blood serology products of $225,000 and sales of
radiation-detection instruments of $52,000. Interest income generated during
this same period from investment of net proceeds from the company's financing
activities was approximately $100,000. For the three-month period ended June 30,
1996, the Company had net sales of approximately $159,000 consisting sales of
blood serology products by MonoCarb of approximately $104,000 and sales of
radiation-detection instruments of
9
approximately $55,000. Interest income and other income were approximately
$568,000 and $234,000, respectively, for this period. The increase in interest
income over the same quarter of the prior year is due to the increase in cash,
cash equivalents and available-for-sale securities. Other income for the quarter
included approximately $250,000 related to fees from a potential marketing
partner for continuation of their option to market the Company's products in
parts of Asia offset by approximately $20,000 in other expenses. There were no
sales of radiation-detection instruments to investigational sites nor under
clinical trial agreements for either period.
Research and development expenses increased from $1.7 million in 1995 to $3.8
million in 1996. These expenses reflect the activities associated with
conducting clinical trials, including patient enrollment, training, compliance
with all regulatory concerns of the FDA and European regulatory authorities and
manufacturing validation testing of the Company's production facilities. Also
included in these expenses are other costs such as consulting services of
experts, and product development costs. The increase in research and development
expenses from 1995 to 1996 is the combined result of an increase in clinical
trial expenses from approximately $579,000 in 1995 to $1.8 million in 1996
related to preparation of marketing applications and an increase in contracted
services from approximately $227,000 in 1995 to approximately $674,000 in 1996
related to manufacturing validation testing. The Company expects these expenses
to continue during the third quarter of 1996.
General and administrative expenses increased from $1.0 million in 1995 to $1.5
million in 1996. These expenses reflect the activities associated with business
development and corporate administration. The increase in general and
administrative expenses from 1995 to 1996 is primarily from wages and benefits,
contracted and professional services, and other expenses. Wages and benefits
increased as a result of additional staff added during the second quarter.
Contracted services increased primarily as a result of fees associated with
consulting on various agreements and ventures the Company has considered or
entered into. Other expense has increased primarily related to depreciation on
fixed asset additions, leasing costs, recruiting, travel and taxes.
Six months ended June 30, 1995 and 1996. During the six-month period ended June
30, 1995 the Company had net sales of approximately $551,000 and interest and
other income of approximately $148,000 and $176,000, respectively. Product
revenue was primarily from the sale of blood group serology products by
MonoCarb, interest income was from the investment of the net proceeds from the
Company's financing activities and other income included the recovery of a
$150,000 advance to a former underwriter and principal stockholder. During the
same period in 1996, the Company had net sales of approximately $356,000 and
interest and other income of approximately $803,000 and $250,000, respectively.
The increase in interest income over the same period of the prior year is due to
the increase in cash, cash equivalents and available-for-sale securities. Other
income included approximately $230,000 related to fees from a potential
marketing partner for continuation of their option to market the Company's
product in parts of Asia. There were no sales of radiation-detection instruments
to investigational sites nor under clinical trial agreements for either period.
Research and development expenses increased from $3.7 million in the first half
of 1995 to $6.3 million in the first half of 1996. These expenses reflect the
activities associated with conducting clinical trials, including patient
enrollment, training, compliance with all regulatory concerns of the FDA and
European regulatory authorities and manufacturing validation testing of the
Company's production facilities. Also included in these expenses are other costs
such as consulting services of experts, and product development costs. This
increase in research and development expenses was the combined result of
increases in contracted services from approximately $589,000 in 1995 to $1.3
million in 1996 related to manufacturing validation testing and increases in
clinical trial expenses from $1.3 million in 1995 to $2.7 million in 1996
related to preparing the U.S. and European marketing applications.
General and administrative expenses increased from $1.9 million in the first
half of 1995 to $2.8 million in the first half of 1996. The 1996 increase was
primarily a result of increased wages and benefits, contracted services and
other expenses. Wages and benefits increased as a result of additional staff
added during the first half of the year. Contracted services increased primarily
as a result of fees associated with consulting on various agreements and
ventures the Company has considered or entered into and costs associated with
the Company's annual report. Other expense has increased primarily related to
depreciation on fixed asset additions, leasing costs, recruiting, travel and
taxes.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1996 a lawsuit against the Registrant was terminated by
dismissal. The Registrant was named as an additional party defendant in the In
Re Blech Securities litigation pending in the United States District Court for
the Southern District of New York before Judge Robert Sweet in March 1995. The
plaintiffs were eight named individuals who were alleged to be representatives
of a class of securities purchasers. The defendants included David Blech, who
was a principal stockholder of the Registrant until September 1994, Mark
Germain, who was a director of the Registrant until September 1994, D. Blech &
Co., a registered broker-dealer owned by Mr. Blech, trustees of certain trusts
established by Mr. Blech, Bear Stearns & Co., Baird Patrick & Co., Parag Saxena
and Chancellor Capital Corp., as well as the Registrant and 10 other
corporations of which Mr. Blech was a principal stockholder (the "Corporate
Defendants"). The complaint alleged that David Blech and D. Blech & Co.
conducted a scheme intended to artificially inflate the prices of securities
issued by corporations Mr. Blech controlled; that Mr. Blech, D. Blech & Co. and
corporations controlled by Mr. Blech gave or sold cheap stock to fund managers
in order to induce them to participate in this scheme; and that David Blech, his
trusts, D. Blech & Co., Baird Patrick, Bear Stearns, the Corporate Defendants
and unnamed other persons engaged in sham transactions, including "round trip"
sales, for the purpose of artificially inflating trading volumes and securities
of corporations controlled by Mr. Blech and maintaining their trading prices.
The complaint alleged that David Blech was the controlling person and Mark
Germain was a director of the Corporate Defendants and that the knowledge and
participation of Messrs. Blech and Germain in the alleged scheme were the
responsibility of the Corporate Defendants. The complaint also alleged that the
Corporate Defendants actively engaged in the alleged scheme and benefited from
it. The complaint further alleged that all of the defendants engaged in a
conspiracy to manipulate the market and failed to disclose truthful information
about the true value of securities issued by corporations controlled by Mr.
Blech. The complaint alleged violations of Securities and Exchange Commission
Rule 10b-5 and common law fraud by all defendants, violations of the Racketeer
Influenced Corrupt Organizations Act (RICO) by defendants other than the
Corporate Defendants and liability under Securities Exchange Act Section 20(a),
as the liability of controlling persons, by Messrs. Blech and Germain and D.
Blech & Co., Baird Patrick and Bear Stearns. The amount of damages requested was
not specified in the complaint. In June 1996, Judge Sweet dismissed the
allegations against the Registrant and the other Corporate Defendants because
the plaintiffs had failed to identify the alleged fraudulent acts of the
Registrant and the other Corporate Defendants with the specificity required by
federal law. The dismissal terminated the action against the Registrant without
any findings of liability against Registrant in July 1996. The Judge's Order can
still be appealed.
ITEM 2. CHANGES IN SECURITIES
Information in response to this item was previously reported by Registrant
in a current report on Form 8-K dated June 20, 1996.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information in response to this item was previously reported by Registrant
in a current report on Form 8-K dated June 20, 1996.
ITEM 5. OTHER INFORMATION
None
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS AND FINANCIAL STATEMENTS INCORPORATED BY REFERENCE
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1. Restated Certificate of Incorporation of Neoprobe
Corporation, as corrected February 18, 1994 and as amended
June 27, 1994, July 25, 1995 and June 3, 1996 (incorporated
by reference to Exhibit 99.2 to the Registrant's Current
Report on Form 8-K dated June 20, 1996; Commission File No.
0-20676).
3.2. Amended and Restated By-Laws dated July 21, 1993 (as amended
July 18, 1995 and May 30, 1996) (incorporated by reference
to Exhibit 99.4 to the Registrant's Current Report on Form
8-K dated June 20, 1996; Commission File No. 0-20676).
(4) INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS, INCLUDING
INDENTURES
4.1. See Articles FOUR, FIVE, SIX and SEVEN of the Restated
Certificate of Incorporation of the Registrant (see Exhibit
3.1).
4.2. See Articles II and VI and Section 2 of Article III and
Section 4 of Article VII of the Amended and Restated By-Laws
of the Registrant (see Exhibit 3.2).
4.3. Specimen of Class E Redeemable Common Stock Purchase Warrant
certificate (incorporated by reference to Exhibit 4.9 to the
registration statement on Form S-1; No. 33-51446).
4.4. Warrant Agreement dated November 10, 1992 between Registrant
and Continental Stock Transfer & Trust Company (incorporated
by reference to Exhibit 4.4 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1992; Commission File No. 0-20676).
4.5. Supplemental Warrant Agreement dated November 12, 1993
between the Registrant and Continental Stock Transfer &
Trust Company (incorporated by reference to Exhibit 4.5 of
registration statement on Form S-3, No. 33-72658).
4.6. Rights Agreement dated as of July 18, 1995 between the
Registrant and Continental Stock Transfer & Trust Company
(incorporated by reference to Exhibit 1 of the registration
statement on Form 8-A; Commission File No. 0-20676).
(10) MATERIAL CONTRACTS.
10.1.1. - 10.1.25. Reserved.
10.1.26. Underwriting Agreement dated April 2, 1996 with Montgomery
Securities and Raymond James & Associates, Inc.
(incorporated by reference to Exhibit 1.1 to Registrant's
Current Report on Form 8-K dated April 2, 1996; Commission
File No. 0-20676).
10.2.1. - 10.2.30. Reserved.
10.2.31. Employment Agreement dated as of January 1, 1996 with John
L. Ridihalgh.
10.2.32. Employment Agreement dated as of January 1, 1996 with David
C. Bupp.
10.2.33. 1996 Stock Incentive Plan.
10.3.1. - 10.3.41. Reserved.
12
10.3.42. Supply Agreement dated April 1, 1996 beween Neoprobe-Peptor
JV L.L.C. and Peptor Ltd. (filed pursuant to Rule 24b-2
under which the Registrant has requested confidential
treatment of certain portions of this exhibit).
10.3.43. Supply Agreement dated April 1, 1996 between Neoprobe-Peptor
JV L.L.C. and Neoprobe (Israel) Ltd. (filed pursuant to Rule
24b-2 under which the Registrant has requested confidential
treatment of certain portions of this exhibit).
10.3.44. Technology Option Agreement dated as of March 14, 1996
between CIRA Technologies, Inc. and Registrant (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of certain portions of this
exhibit).
10.3.45. License dated May 1, 1996 between Registrant and The Dow
Chemical Company.
10.3.46. License Agreement dated May 1, 1996 between Registrant and
The Dow Chemical Company (filed pursuant to Rule 24b-2 under
which the Registrant has requested confidential treatment of
certain portions of this exhibit).
10.4.1 - 10.4.16. Reserved.
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS.
11.1. Computation of Net Loss Per Share.
(27) FINANCIAL DATA SCHEDULE.
27.1. Financial Data Schedule (submitted electronically for SEC
information only).
(B) REPORTS ON FORM 8-K.
A current report on Form 8-K dated April 2, 1996 was filed by the
Registrant reporting under Item 7 (Financial Statements and Exhibits) for the
purpose of incorporating by reference the Underwriting Agreement and Master
Agreement among Underwriters to the Registration Statement on Form S-3, No.
333-2146 (see Exhibit 10.1.26 above).
A current report on Form 8-K dated June 20, 1996 was filed by the
Registrant reporting under Item 5 (Other Events) the results of submission of
matters to a vote of security holders and changes in securities resulting
therefrom.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEOPROBE CORPORATION
(Registrant)
By: /s/ David C. Bupp
----------------------------------------
David C. Bupp, President and Chief
Operating Officer
Dated: August 14, 1996
By: /s/ John Schroepfer
----------------------------------------
John Schroepfer, Vice President
Finance & Administration
(Principal Financial and Accounting
Officer)
EXHIBIT INDEX
EXHIBIT PAGE IN MANUALLY
NUMBER DESCRIPTION SIGNED ORIGINAL
3.1. Restated Certificate of Incorporation of Neoprobe
Corporation, as corrected February 18, 1994 and as *
amended June 27, 1994, July 25, 1995 and June 3, 1996
3.2. Amended and Restated By-Laws dated July 21, 1993 (as *
amended July 18, 1995 and May 30, 1996)
4.1. See Articles FOUR, FIVE, SIX and SEVEN of the
Restated Certificate of Incorporation of Registrant *
4.2. See Articles II and VI and Section 2 of Article III
and Section 4 of Article VII of the Amended and
Restated By-Laws of Registrant *
4.3. Specimen of Class E Redeemable Common Stock Purchase
Warrant *
4.4. Warrant Agreement dated November 10, 1992 *
4.5. Supplemental Warrant Agreement dated November 12, 1993 *
4.6. Rights Agreement between the Registrant and
Continental Stock Transfer & Trust Company dated
July 18, 1995 *
10.1.1.-10.1.25 Reserved
10.1.26. Underwriting Agreement dated April 2, 1996 with
Montgomery Securities and Raymond James & Associates,
Inc. *
10.2.1.-10.2.30. Reserved
10.2.31. Employment Agreement dated as of January 1, 1996 with
John L. Ridihalgh 18
10.2.32. Employment Agreement dated as of January 1, 1996 with
David C. Bupp 26
10.2.33. 1996 Stock Incentive Plan 34
10.3.1.-10.3.41. Reserved
10.3.42. Supply Agreement dated April 1, 1996 beween
Neoprobe-Peptor JV L.L.C. and Peptor Ltd. (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of certain portions
of this exhibit). 56
10.3.43. Supply Agreement dated April 1, 1996 between
Neoprobe-Peptor JV L.L.C. and Neoprobe (Israel) Ltd.
(filed pursuant to Rule 24b-2 under which the
Registrant has requested confidential treatment of
certain portions of this exhibit). 68
10.3.44. Technology Option Agreement dated as of March 14, 1996
between CIRA Technologies, Inc. and Registrant (filed
pursuant to Rule 24b-2 under which the Registrant has
requested confidential treatment of certain portions
of this exhibit). 79
10.3.45. License dated May 1, 1996 between Registrant and The
Dow Chemical Company. 91
10.3.46. License Agreement dated May 1, 1996 between Registrant and
The Dow Chemical Company (filed pursuant to Rule 24b-2 under
which the Registrant has requested confidential treatment of
certain portions of this exhibit). 100
10.4.1.-10.4.16. Reserved
11.1. Computation of Net Loss Per Share 127
27.1. Financial Data Schedule (submitted electronically for
SEC information only).
* Incorporated by reference