UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2001
or
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
- ----- EXCHANGE ACT
For the transition period from _______to________
COMMISSION FILE NUMBER: 0-26520
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 300, Dublin, Ohio 43017
(Address of principal executive offices)
614.793.7500
(Issuer's telephone number)
26,266,770 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 9, 2001)
Transitional Small Business Disclosure Format (check one) Yes |_| No |X|
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOPROBE CORPORATION
BALANCE SHEETS
ASSETS JUNE 30, DECEMBER 31,
2001 2000
(UNAUDITED)
------------------- ------------------
Current assets:
Cash and cash equivalents $ 4,466,868 $ 4,643,347
Accounts receivable, net 136,265 365,061
Inventory 1,096,845 941,120
Prepaid expenses and other 79,499 234,232
------------------- ------------------
Total current assets 5,779,477 6,183,760
------------------- ------------------
Property and equipment 2,114,144 2,039,187
Less accumulated depreciation and amortization 1,346,700 1,174,167
------------------- ------------------
767,444 865,020
------------------- ------------------
Intangible assets, net 527,854 524,035
------------------- ------------------
Total assets $ 7,074,775 $ 7,572,815
=================== ==================
Continued
2
NEOPROBE CORPORATION
BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
2001 2000
(UNAUDITED)
------------------ ------------------
Current liabilities:
Notes payable to finance company $ 15,336 $ 105,332
Capital lease obligations, current 12,112 11,359
Accrued liabilities 580,134 725,674
Accounts payable 615,672 731,985
Deferred license revenue, current 800,000 800,000
------------------ ------------------
Total current liabilities 2,023,254 2,374,350
------------------ ------------------
Capital lease obligations 26,676 32,926
Deferred license revenue 1,800,000 2,200,000
------------------ ------------------
Total liabilities 3,849,930 4,607,276
------------------ ------------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares authorized at June 30,
2001 and December 31, 2000; none issued and outstanding (500,000 shares
designated as Series A, $.001 par value, at June 30, 2001 and
and December 31, 2000; none outstanding) - -
Common stock; $.001 par value; 50,000,000 shares
authorized; 26,265,770 shares issued and
outstanding at June 30, 2001; 26,264,103
shares issued and outstanding at December 31, 2000 26,266 26,264
Additional paid-in capital 120,669,471 120,668,639
Accumulated deficit (117,470,892) (117,729,364)
------------------ ------------------
Total stockholders' equity 3,224,845 2,965,539
------------------ ------------------
Total liabilities and stockholders' equity $7,074,775 $7,572,815
================== ==================
See accompanying notes to the financial statements
3
NEOPROBE CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- --------------------------------------
2001 2000 2001 2000
---------------- ----------------- ----------------- -----------------
Revenues:
Net sales $ 2,077,499 $ 2,511,659 $ 3,471,968 $ 4,117,470
License revenue 200,000 200,000 425,000 450,000
---------------- ----------------- ----------------- -----------------
Total revenues 2,277,499 2,711,659 3,896,968 4,567,470
---------------- ----------------- ----------------- -----------------
Cost of goods sold 1,441,330 1,444,411 2,389,577 2,282,025
---------------- ----------------- ----------------- -----------------
Gross profit 836,169 1,267,248 1,507,391 2,285,445
---------------- ----------------- ----------------- -----------------
Operating expenses:
Research and development 96,993 81,309 171,167 375,354
Marketing and selling - 52,094 - 162,976
General and administrative 592,521 568,550 1,162,829 1,236,892
---------------- ----------------- ----------------- -----------------
Total operating expenses 689,514 701,953 1,333,996 1,775,222
---------------- ----------------- ----------------- -----------------
Income from operations 146,655 565,295 173,395 510,223
---------------- ----------------- ----------------- -----------------
Other income (expenses):
Interest income 32,838 43,065 82,993 88,426
Interest expense (3,541) (5,911) (6,675) (15,967)
Other 1,432 36,864 8,759 29,769
---------------- ----------------- ----------------- -----------------
Total other income 30,729 74,018 85,077 102,228
---------------- ----------------- ----------------- -----------------
Net income 177,384 639,313 258,472 612,451
---------------- ----------------- ----------------- -----------------
Loss on retirement of preferred stock - - - 764,668
---------------- ----------------- ----------------- -----------------
Income (loss) attributable to common
stockholders $ 177,384 $ 639,313 $ 258,472 $ (152,217)
================ ================= ================= =================
Income (loss) per common share:
Basic $ 0.01 $ 0.02 $ 0.01 $ (0.01)
Diluted $ 0.01 $ 0.02 $ 0.01 $ (0.01)
Weighted average shares outstanding:
Basic 25,895,770 25,850,777 25,895,365 25,513,614
Diluted 26,111,063 26,734,898 26,122,631 25,513,614
See accompanying notes to the financial statements
4
NEOPROBE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------------------------
2001 2000
-------------------- -------------------
Cash flows from operating activities:
Net income $ 258,472 $ 612,451
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 200,565 178,876
Change in operating assets and liabilities:
Accounts receivable 228,796 (1,669,976)
Inventory (213,813) 713,900
Accounts payable (116,313) 251,282
Deferred license revenue (400,000) (400,000)
Other assets and liabilities 9,923 (309,994)
-------------------- -------------------
Net cash used in operating activities (32,370) (623,461)
-------------------- -------------------
Cash flows from investing activities:
Proceeds from sale of investment in affiliate - 1,500,000
Purchases of property and equipment (42,133) (32,386)
Proceeds from sales of property and equipment 2,175 41,120
Patent costs (9,492) (12,253)
-------------------- -------------------
Net cash (used in) provided by investing activities (49,450) 1,496,481
-------------------- -------------------
Cash flows from financing activities:
Settlement of obligation to preferred stockholder - (2,500,000)
Proceeds from issuance of common stock, net 834 15,750
Payments under line of credit - (380,000)
Payment of notes payable (89,996) (132,183)
Payments under capital leases (5,497) (52,528)
-------------------- -------------------
Net cash used in financing activities (94,659) (3,048,961)
-------------------- -------------------
Net decrease in cash and cash equivalents (176,479) (2,175,941)
Cash and cash equivalents, beginning of period 4,643,347 4,882,537
-------------------- -------------------
Cash and cash equivalents, end of period $ 4,466,868 $ 2,706,596
==================== ===================
See accompanying notes to the financial statements
5
1. BASIS OF PRESENTATION:
The information presented for June 30, 2001 and 2000, and for the periods
then ended is unaudited, but includes all adjustments (which consist only
of normal recurring adjustments) which the management of Neoprobe
Corporation (Neoprobe or the Company) 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 U.S.
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, 2000, which
were included as part of the Company's Annual Report on Form 10-KSB.
2. COMPREHENSIVE INCOME (LOSS):
The Company had no accumulated other comprehensive income (loss) activity
during the three-month and six-month periods ended June 30, 2001 and 2000.
3. EARNINGS PER SHARE:
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the periods. Diluted earnings per share is
calculated using the weighted average number of common shares outstanding
during the periods, adjusted for the effects of convertible securities,
options and warrants, if dilutive.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2001
--------------- --- --------------- --------------- -- ---------------
BASIC DILUTED BASIC DILUTED
EARNINGS PER EARNINGS PER EARNINGS PER EARNINGS PER
SHARE SHARE SHARE SHARE
--------------- --------------- --------------- ---------------
Outstanding shares 26,265,770 26,265,770 26,265,770 26,265,770
Effect of weighting changes
in outstanding shares - - (405) (405)
Contingently issuable shares (370,000) (370,000) (370,000) (370,000)
Stock options - 215,293 - 227,266
--------------- --------------- --------------- ---------------
Adjusted shares 25,895,770 26,111,063 25,895,365 26,122,631
=============== =============== =============== ===============
THREE MONTHS ENDED
JUNE 30, 2000
-----------------------------------
BASIC DILUTED
EARNINGS PER EARNINGS PER
SHARE SHARE
--------------- ---------------
Outstanding shares 26,240,777 26,240,777
Effect of weighting changes
in outstanding shares (20,000) (20,000)
Contingently issuable shares (370,000) (370,000)
Stock options - 331,211
Warrants - 552,910
--------------- ---------------
Adjusted shares 25,850,777 26,734,898
=============== ===============
There is no difference in basic and diluted earnings per share for the
Company related to the six months ended June 30, 2000. The net loss per
common share for this period excludes the number of
6
common shares issuable upon exercise of outstanding stock options and
warrants into the Company's common stock since such inclusion would be
anti-dilutive.
The following table summarizes options to purchase common stock of the
Company which were outstanding during the three-month periods ended June
30, 2001 and 2000, and the six-month period ended June 30, 2001, but which
were not included in the computation of diluted income per share because
their effect was anti-dilutive.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2001
------------------------ --- ------------------- --------------------- -- --------------------
EXERCISE OPTIONS EXERCISE OPTIONS
PRICE OUTSTANDING PRICE OUTSTANDING
------------------------ ------------------- --------------------- --------------------
$ 0.60 - $ 1.25 407,000 $ 0.60 - $ 1.25 405,494
$ 1.50 - $ 2.50 227,373 $ 1.50 - $ 2.50 227,446
$ 3.25 - $ 6.00 269,700 $ 3.25 - $ 6.00 269,700
$ 13.38 - $ 15.75 92,500 $ 13.38 - $ 15.75 92,500
------------------- ---------------------
996,573 995,140
=================== ====================
THREE MONTHS ENDED
JUNE 30, 2000
------------------------------------------------
EXERCISE OPTIONS
PRICE OUTSTANDING
------------------------ -------------------
$ 1.03 - $ 2.50 597,669
$ 3.00 - $ 6.00 463,367
$ 13.38 - $ 17.44 144,700
-------------------
1,205,736
===================
4. INVENTORY:
The components of inventory are as follows:
JUNE 30, DECEMBER 31,
2001 2000
---------------------- ----------------------
Materials and component parts $ 787,668 $ 418,087
Finished goods 600,730 696,432
Less obsolescence reserve (291,553) (173,399)
---------------------- ----------------------
$ 1,096,845 $ 941,120
====================== ======================
5. LINE OF CREDIT:
On January 26, 2001, the Company entered into a revolving credit facility
with a bank. The facility provides for a maximum line of credit of $1.5
million. Availability under the facility is based on an advance formula of
eligible accounts receivable and eligible inventory. Borrowings under the
facility bear interest based on the bank's prime rate and are
collateralized by accounts receivable, inventory and property and equipment
of the Company. The facility contains financial covenants including, but
not limited to, current ratio and fixed charge coverage ratio. The Company
is required to maintain a compensating balance of $250,000 and to pay a
commitment fee of 0.25% per annum on the unused portion of the maximum
potential balance. The facility matures on January 26, 2002. There were no
borrowings outstanding under the facility as of June 30, 2001.
7
6. INCOME TAXES:
For the six months ended June 30, 2001, the reversal of certain temporary
differences related to accrued expenses and deferred revenue resulted in
the generation of a loss for income tax purposes. As a result, no income
tax expense is reflected in the statement of operations for the six months
ended June 30, 2001. The Company has provided a full valuation allowance
against net deferred tax assets at June 30, 2001 and December 31, 2000.
7. STOCK OPTIONS:
During the first half of 2001, the Board of Directors granted options to
employees and certain directors of the Company for 715,000 shares of common
stock, exercisable at an average price of $0.42 per share, vesting over
three years. As of June 30, 2001, the Company has 2.3 million options
outstanding under two stock option plans. Of the outstanding options,
916,000 options have vested as of June 30, 2001, at an average exercise
price of $3.72 per share. On July 5, 2001, the Directors cancelled 337,500
options, all of which were priced above $3.00 per share.
8. SEGMENT INFORMATION:
The Company owns or has rights to intellectual property involving three
primary areas of cancer diagnosis and treatment including: hand-held gamma
detection instruments currently used primarily in the application of
intraoperative lymphatic mapping (ILM), diagnostic radiopharmaceutical
products to be used in the Company's proprietary RIGS(R) process, and
activated cellular therapy (ACT). The Company generated $25,000 and $50,000
in revenue during the first quarters of 2001 and 2000, respectively, under
an option agreement to license its RIGS technology, but incurred no
RIGS-related expenses during those periods. The Company had no revenue or
expenses in either the first quarter of 2001 or 2000 related to its ACT
initiative. All other revenue and costs included in the Company's financial
statements for the quarters ended March 31, 2001 and March 31, 2000 relate
primarily to the Company's ILM initiative.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS AND DEVELOPMENT ACTIVITIES
During the first half of 2001, the Company continued development work on
enhancements to its current gamma detection instrument product line. In
addition, non-instrument-related research activities increased significantly in
2001 over the first half of 2000. A significant portion of these
non-instrument-related activities are currently being funded by outside sources.
The Company has an option to license a lymphatic targeting agent currently being
studied by a Phase I clinical trial being sponsored and conducted by researchers
at the University of California at San Diego (UCSD). UCSD's Phase I trial is
being funded through a grant from the Susan G. Komen Breast Cancer Foundation.
Researchers began enrollment in this forty-patient study during the second
quarter of 2001. The Company expects the trial to be completed in late 2001 or
early 2002. There can be no assurance that the clinical trial will be completed
within the stated time frame, or ever, or that results from the trial will
support further research or ultimately result in a marketable product.
In addition, the Company was notified during the third quarter of 2001 that
researchers had received clearance from the U.S. Food and Drug Administration to
begin patient enrollment in a Phase I clinical trial involving a second
generation of the RIGScan CR antibody for colorectal cancer. This research is
being sponsored and funded by OncoSurg, Inc. (formerly NuRigs, Ltd.), a Delaware
company to whom the Company has optioned the development rights for RIGScan
CR. Although the option initially required periodic payments to be made to the
Company, because the preclinical activities performed by OncoSurg over the past
year cost significantly more than had been originally estimated, the Company
agreed to
8
defer the quarterly option payments due the Company during 2001 so that OncoSurg
may use these funds for clinical trial purposes. OncoSurg has begun enrollment
in the trial and hopes to complete enrollment by the end of 2001. There can be
no assurance that the clinical trial will be completed within the stated time
frame, or ever, or that results from the trial will support further research or
ultimately result in a marketable product.
During the second quarter of 2001, the Company also announced a research
collaboration with Aastrom Biosciences (Aastrom). This research is intended to
determine whether Aastrom's Replicell(TM) system is able to duplicate cell
expansion results experienced in previous Phase I clinical testing of Neoprobe's
ACT technology for oncology. The Company and Aastrom are collaborating in the
preparation of a protocol for the evaluation of the Replicell system in the ACT
process. The Company anticipates that preparations will not be complete until
later in 2001 and that the evaluation studies will not begin until the fourth
quarter of 2001 at the earliest. The Company believes that positive results from
this evaluation, if they occur, would provide a more effective and efficient
delivery mechanism for ACT and potentially reinvigorate interest in the
underlying ACT technology platform. There can be no assurance that the
evaluation will be completed within the stated time frame, or ever, or that
results from the evaluation will support further research or ultimately result
in a marketable product.
RESULTS OF OPERATIONS
Revenue for the first half of 2001 decreased $671,000 to $3.9 million from $4.6
million for the same period in 2000. The primary reason for the decrease in
revenue relates to scheduled changes in the Company's transfer pricing to
Ethicon Endo-Surgery, Inc. (Ethicon) that occurred following the end of the
first commercial year of the distribution agreement that ended December 31,
2000. Despite the change in pricing, sales volumes for the first half of 2001
remain roughly equivalent to the same period of the prior year after giving
effect to changes in product mix. Research and development expenses during the
first half of 2001 were $171,000 or 13% of operating expenses as compared to 10%
of operating expenses for the first half of 2000, excluding $190,000 in
severance and non-recurring unreimbursed development costs incurred in 2000.
General and administrative expenses were $1.2 million or 87% of operating
expenses. Overall, operating expenses for the first half of 2001 decreased
$441,000 or 25% over the same period in 2000. The Company anticipates that total
operating expenses for the remaining quarters of 2001 will be consistent with
first half 2001 levels, except for research and development expenses that may
increase as a result of efforts to expand the Company's product pipeline.
Three months ended June 30, 2001 and 2000
Revenues and Margins. Net product sales decreased $434,000 or 17% to $2.1
million during the second quarter of 2001 from $2.5 million during the same
period in 2000. Gross margins on product sales decreased to 31% of net sales for
the second quarter of 2001 from 42% of net sales for the same period in 2000.
The declines in net product sales and gross margin in the second quarter of 2001
as compared to the same period in 2000 are primarily attributable to decreases
in the transfer prices at which the Company sells its products to Ethicon.
The Company's distribution agreement with Ethicon provides for transfer prices
based on a percentage of the end customer average sales prices (ASP) received by
Ethicon, subject to certain floor transfer pricing terms. The distribution
agreement provided for a lower percentage of ASP to be shared with the Company
following the first full commercial year of the distribution agreement that
ended December 31, 2000. Due primarily to the lower percentage of ASP, the
Company's calculated share of ASP fell below the floor price for substantially
all products during the second quarter of 2001. As a result, revenue during the
second quarter was recorded based on the floor transfer prices for substantially
all products. In addition, the cost to manufacture the Company's products also
increased slightly from 2000 to 2001 due largely to higher electronic and
crystal component costs. Revenues in the second quarters of 2001 and 2000 also
included $200,000 from the pro-rata recognition of license fees related to the
distribution agreement with Ethicon.
9
Research and Development Expenses. Research and development expenses increased
$16,000 or 19% to $97,000 during the second quarter of 2001 from $81,000 during
the same period in 2000. The increase is related to additional headcount
dedicated to research and development activities associated with the Company's
gamma detection instrument product line.
Marketing and Selling Expenses. Marketing and selling expenses decreased 100%
during the second quarter of 2001 from $52,000 during the same period in 2000
due to decreases in headcount following the commencement of the Company's
distribution agreement with Ethicon in the fourth quarter of 1999.
General and Administrative Expenses. General and administrative expenses
increased $24,000 or 4% to $593,000 during the second quarter of 2001 from
$569,000 during the same period in 2000. The increase was primarily a result of
increased warranty costs and the set-up of an allowance for doubtful accounts
related to option payments due from OncoSurg, offset by reductions in
overhead costs such as space costs, taxes and insurance.
Other Income. Other income decreased $43,000 or 58% to $31,000 during the second
quarter of 2001 from $74,000 during the same period in 2000. Other income during
the second quarters of 2001 and 2000 consisted primarily of interest income. The
Company received a lower interest rate on its invested cash during the second
quarter of 2001 as compared to the same period in 2000, consistent with
marketplace activity over the two periods; however, the primary reason for the
decrease in other income was due to gains on the sale of certain property and
equipment included in 2000 results.
Six months ended June 30, 2001 and 2000
Revenues and Margins. Net product sales decreased $646,000 or 16% to $3.5
million during the first half of 2001 from $4.1 million during the same period
in 2000. Gross margins on product sales decreased to 31% of net sales for the
first half of 2001 from 45% of net sales for the same period in 2000. The
declines in net product sales and gross margin were primarily the result of
decreases in product transfer prices for the first half of 2001 as compared to
the first half of 2000.
The Company's distribution agreement with Ethicon provides for transfer prices
based on a percentage of the end customer average sales prices (ASP) received by
Ethicon, subject to certain floor transfer pricing terms. The distribution
agreement provided for a lower percentage of ASP to be shared with the Company
following the first full commercial year of the distribution agreement that
ended December 31, 2000. Due primarily to the lower percentage of ASP, the
Company's calculated share of ASP fell below the floor price for substantially
all products beginning in the second quarter of 2001. As a result, revenue
during the second quarter was recorded based on the floor transfer prices for
substantially all products and thus affected year-to-date revenue and margins
for the first half of 2001. In addition, the cost to manufacture the Company's
products also increased slightly from 2000 to 2001 due largely to higher
electronic and crystal component costs. Revenues in the first half of 2001 and
2000 also included $400,000 from the pro-rata recognition of license fees
related to the distribution agreement with Ethicon and $25,000 and $50,000,
respectively, from the recognition of milestone fees related to an option
agreement to license certain of the Company's RIGS technology.
Research and Development Expenses. Research and development expenses decreased
$204,000 or 54% to $171,000 during the first half of 2001 from $375,000 during
the same period in 2000. The decrease is primarily due to the inclusion of
$40,000 in non-recurring severance costs and $150,000 in unreimbursed costs for
development of products in the first half of 2000.
Marketing and Selling Expenses. Marketing and selling expenses decreased 100%
during the first half of 2001 from $163,000 during the same period in 2000
primarily due to decreases in headcount and $40,000 of related severance charges
incurred during the first quarter of 2000 following the commencement of the
Company's distribution agreement with Ethicon in the fourth quarter of 1999.
General and Administrative Expenses. General and administrative expenses
decreased $74,000 or 6% to $1.2 million during the first half of 2001 from $1.2
million during the same period in 2000. The decrease was primarily a result of
reductions in overhead costs such as professional services, space
10
costs, taxes and insurance. The decrease in overhead costs was offset by
increased warranty costs and a $25,000 allowance for doubtful accounts set up
related to the Company's license fee receivable from OncoSurg.
Other Income. Other income decreased $17,000 or 17% to $85,000 during the first
half of 2001 from $102,000 during the same period in 2000. Other income during
the first half of 2001 and 2000 consisted primarily of interest income. The
Company received a lower interest rate on its invested cash during the first
half of 2001 as compared to the same period in 2000, consistent with marketplace
activity during the two periods; however, the primary reason for the decrease in
other income was due to gains on the sale of certain property and equipment
included in 2000 results.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Cash used in operations decreased $591,000 to $32,000
during the first half of 2001 from $623,000 during the same period in 2000.
Working capital remained constant at $3.8 million at June 30, 2001 and December
31, 2000. The current ratio increased to 2.9 at June 30, 2001 from 2.6 at
December 31, 2000.
Accounts receivable decreased to $136,000 at June 30, 2001 from $365,000 at
December 31, 2000. Inventory levels increased to $1.1 million at June 30, 2001
as compared to $941,000 at December 31, 2000. Inventory at June 30, 2001 and
December 31, 2000 included safety stock of finished goods as well as critical
component and long lead-time raw materials to ensure uninterrupted product
supply to Ethicon. The Company expects receivables levels to fluctuate in 2001
depending on the timing of purchases and payments by Ethicon. Inventory may
increase slightly as the Company continues to evaluate appropriate component and
finished good safety stock levels and endeavors to optimize production
activities.
Investing Activities. Cash used in investing activities in the first half of
2001 totaled $49,000 versus $1.5 million provided by investing activities during
the same period in 2000. During January 2000, the Company sold an investment in
an Israeli biotechnology company for $1.5 million. Capital expenditures in the
first half of 2001 consisted primarily of technology infrastructure and loaner
device upgrades. Capital expenditures in the first half of 2000 were split
between purchases of production tools and equipment and technology
infrastructure but were offset by the sale of excess furniture and fixtures
accumulated from prior year headcount reductions. Capital needs to support
instrument development and manufacturing activities for the remainder of 2001
are expected to be consistent with those in 2000.
Financing Activities. Financing activities used $95,000 in cash in the first
half of 2001 versus $3.0 million during the same period in 2000. During the
first half of 2000, the Company paid holders of Series B preferred stock $2.5
million in cash and issued them 3 million each of common shares and warrants to
purchase common shares in exchange for retiring the outstanding preferred
shares.
During January 2001, the Company executed a revolving line of credit with a bank
that will provide the Company with access to up to $1.5 million to finance
general working capital needs, subject to certain terms and covenants. The
Company does not anticipate significant draws on the line of credit during 2001.
In the event the Company significantly expands its product development efforts,
either through the addition of incremental internal research or through the
acquisition or licensing of complementary products, it may need to seek
additional financing. Such financing may have a dilutive effect on current
stockholders.
New Accounting Pronouncements. In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 was
originally required to be adopted in years beginning after June 15, 1999;
however, SFAS No. 137 deferred the effective date to fiscal quarters of fiscal
years beginning after June 15, 2000. The Company adopted SFAS No. 133 and a
second related amendment, SFAS No. 138 effective January 1, 2001. The Statement
requires companies to recognize
11
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If a derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedge
asset, liability or firm commitment through earnings, or recognized in other
comprehensive income until the hedge item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The adoption of this Statement has had no significant
impact on the Company's results of operations or financial position.
In July 2001, the FASB issued SFAS No. 141 Business Combinations and SFAS No.
142 Goodwill and Other Intangible Assets. Under SFAS 141 any business
combination initiated after June 30, 2001 must be accounted for as a purchase.
For purchase business combinations that are consummated after June 30, 2001,
goodwill and identifiable intangibles should be recorded and amortized in
accordance with SFAS 142, i.e., goodwill and intangible assets with indefinite
lives are not amortized and other identified intangibles are amortized. For any
purchase business combination consummated on or before June 30, 2001, the
accounting under APB 16 and APB 17 still applies. Goodwill and separately
identifiable intangibles should be recorded and amortized until adopting SFAS
142, which is required for fiscal years beginning after December 15, 2001. For a
calendar year end company, it would continue to amortize goodwill and all
separately identifiable intangibles through December 31, 2001. Upon adoption of
SFAS 142, the company will cease amortizing goodwill and separately identifiable
intangibles with indefinite lives and amortize other identifiable intangibles in
accordance with the guidelines set forth in the standard. The Company intends to
adopt SFAS 141 and 142 according to their prescribed deadlines but does not
believe that adoption will have a material impact on the Company's financial
position or results of operations.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward-looking statements made by or on behalf of our Company. Our
Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other Company filings with the Securities and Exchange Commission and in our
reports to shareholders. Statements which relate to other than strictly
historical facts, such as statements about the Company's plans and strategies,
expectations for future financial performance, new and existing products and
technologies, and markets for the Company's products are forward-looking
statements within the meaning of the Act. Generally, the words "believe,"
"expect," "intend," "estimate," "anticipate," "will" and other similar
expressions identify forward-looking statements. The forward-looking statements
are and will be based on management's then current views and assumptions
regarding future events and operating performance, and speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The following are some of the factors that could affect our financial
performance or could cause actual results to differ materially from estimates
contained in or underlying our Company's forward-looking statements:
- - Neoprobe has suffered significant operating losses for several years in its
history and it may not be able to continue to achieve profitability.
- - Neoprobe products may not achieve the broad market acceptance they need in
order to be a commercial success.
- - Neoprobe relies on a third party for its worldwide marketing and
distribution, who may not be successful in selling Neoprobe's products.
- - Neoprobe relies on third parties to manufacture its products and Neoprobe
will suffer if they do not perform.
- - Neoprobe may have difficulty raising additional capital, which could
deprive it of necessary resources.
- - Neoprobe may lose out to larger and better-established competitors.
- - Neoprobe's products may be displaced by newer technology.
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- - Neoprobe is in a highly regulated business and it could face severe
problems if does not comply with all regulatory requirements in the global
markets in which Neoprobe's products are sold.
- - Neoprobe's intellectual property may not have or provide sufficient legal
protections against infringement or loss of trade secrets.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) LIST OF EXHIBITS
11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11.1
Computation of Income (Loss) Per Share.
Page 15 in the manually signed original.
(b) REPORTS ON FORM 8-K
No current report on Form 8-K was filed by the Company during the
first half of fiscal 2001.
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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
(the Company)
Dated: August 14, 2001
By: /s/ DAVID C. BUPP
------------------------------------------
David C. Bupp
President and Chief Executive Officer
(duly authorized officer; principal executive officer)
By: /s/ BRENT L. LARSON
---------------------------------
Brent L. Larson
Vice President, Finance and Chief Financial Officer
(principal financial and accounting officer)
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