Filed Pursuant to Rule 424(b)(3)
Registration No. 333-84782
PROSPECTUS SUPPLEMENT
Number 8
to
Prospectus dated May 3, 2002 and Prospectus Supplements
dated May 15, 2002, September 10, 2002, November 21, 2002,
April 1, 2003, May 20, 2003, June 19, 2003 and August 20, 2003
of
NEOPROBE CORPORATION
5,898,876 SHARES OF COMMON STOCK
This Prospectus Supplement relates to the sale of up to 5,898,876 shares of
Neoprobe Corporation common stock (the "Shares"). The Shares are being
registered to permit public secondary trading of the shares that are being
offered by the selling shareholders named in the prospectus. We are not selling
any of the Shares in this offering and therefore will not receive any proceeds
from this offering.
This Prospectus Supplement No. 8 includes the attached Quarterly Report on Form
10-QSB (the "Form 10-QSB") of Neoprobe Corporation (the "Company"), for the
third quarter ended September 30, 2003, filed by the Company with the Securities
and Exchange Commission on November 14, 2003. The exhibits to the Form 10-QSB
are not included with this Prospectus Supplement No. 8 and are not incorporated
by reference herein. This Prospectus Supplement No. 8 should be read in
conjunction with the prospectus supplements dated May 15, 2002, September 10,
2002, November 21, 2002, April 1, 2003, May 20, 2003, June 19, 2003, and August
20, 2003.
Our common stock is traded on the Over-the-Counter Bulletin Board under the
symbol "NEOP".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement No. 8 is November 18, 2003
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: SEPTEMBER 30, 2003
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)
43,952,276 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 November 3, 2003)
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30, DECEMBER 31,
2003 2002
(UNAUDITED)
---------- ----------
Current assets:
Cash and cash equivalents $ 422,561 $ 700,525
Accounts receivable, net 1,133,553 746,107
Inventory 1,166,987 1,191,918
Prepaid expenses and other 266,981 451,537
---------- ----------
Total current assets 2,990,082 3,090,087
---------- ----------
Property and equipment 2,412,003 2,346,445
Less accumulated depreciation and amortization 2,074,648 1,883,797
---------- ----------
337,355 462,648
---------- ----------
Patents and trademarks 3,144,100 3,129,031
Non-compete agreements 584,516 584,516
Acquired technology 237,271 237,271
---------- ----------
3,965,887 3,950,818
Less accumulated amortization 935,065 584,490
---------- ----------
3,030,822 3,366,328
---------- ----------
Other assets 214,752 160,778
---------- ----------
Total assets $6,573,011 $7,079,841
========== ==========
CONTINUED
2
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 30, DECEMBER 31,
2003 2002
(UNAUDITED)
------------- -------------
Current liabilities:
Note payable to CEO, net of discount $ 230,948 $ --
Other notes payable, net of discount 201,256 172,381
Secured liabilities 319,853 --
Accrued liabilities and other 519,714 411,844
Accounts payable 551,771 432,140
Deferred revenue, current 1,087,265 933,860
------------- -------------
Total current liabilities 2,910,807 1,950,225
------------- -------------
Deferred revenue 81,665 703,625
Contingent consideration for acquisition -- 288,053
Other liabilities 207,092 177,802
------------- -------------
Total liabilities 3,199,564 3,119,705
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares
authorized at September 30, 2003 and December 31, 2002;
none issued and outstanding (500,000 shares designated
as Series A, $.001 par value, at September 30, 2003 and
and December 31, 2002; none outstanding) -- --
Common stock; $.001 par value; 75,000,000 shares
authorized; 39,148,426 shares issued and outstanding
at September 30, 2003; 36,502,183 shares issued and
outstanding at December 31, 2002 39,148 36,502
Additional paid-in capital 125,229,489 124,601,770
Accumulated deficit (121,895,190) (120,678,136)
------------- -------------
Total stockholders' equity 3,373,447 3,960,136
------------- -------------
Total liabilities and stockholders' equity $ 6,573,011 $ 7,079,841
============= =============
See accompanying notes to the consolidated financial statements
3
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Net sales $ 927,949 $ 575,138 $ 3,868,655 $ 2,216,383
License and other revenue 257,588 344,623 745,633 1,029,065
------------ ------------ ------------ ------------
Total revenues 1,185,537 919,761 4,614,288 3,245,448
------------ ------------ ------------ ------------
Cost of goods sold 497,458 620,086 2,112,247 1,864,914
------------ ------------ ------------ ------------
Gross profit 688,079 299,675 2,502,041 1,380,534
------------ ------------ ------------ ------------
Operating expenses:
Research and development 508,693 561,330 1,365,277 1,798,517
Selling, general and administrative 755,104 832,232 2,230,693 2,407,496
------------ ------------ ------------ ------------
Total operating expenses 1,263,797 1,393,562 3,595,970 4,206,013
------------ ------------ ------------ ------------
Loss from operations (575,718) (1,093,887) (1,093,929) (2,825,479)
------------ ------------ ------------ ------------
Other income (expenses):
Interest income 19,695 26,092 24,834 63,430
Interest expense (99,520) (11,734) (140,182) (19,786)
Other (3,571) (3,213) (7,777) (17,192)
------------ ------------ ------------ ------------
Total other (expenses) income (83,396) 11,145 (123,125) 26,452
------------ ------------ ------------ ------------
Net loss $ (659,114) $ (1,082,742) $ (1,217,054) $ (2,799,027)
============ ============ ============ ============
Net loss per common share:
Basic $ (0.02) $ (0.03) $ (0.03) $ (0.08)
Diluted $ (0.02) $ (0.03) $ (0.03) $ (0.08)
Weighted average shares outstanding:
Basic 38,555,261 36,062,183 38,454,446 36,031,831
Diluted 38,555,261 36,062,183 38,454,446 36,031,831
See accompanying notes to the consolidated financial statements.
4
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2003 2002
----------- -----------
Cash flows from operating activities:
Net loss $(1,217,054) $(2,799,027)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 555,388 740,749
Amortization of debt discount and offering costs 61,818 --
Change in operating assets and liabilities:
Accounts receivable (387,446) 155,971
Inventory 10,474 140,017
Accrued and other liabilities 138,036 (203,260)
Accounts payable 119,631 (325,625)
Deferred revenue (468,555) (466,683)
Other assets and liabilities 160,733 174,707
Other 107,599 45,678
----------- -----------
Net cash used in operating activities (919,376) (2,537,473)
----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale securities -- (2,491,361)
Sales of available-for-sale securities -- 200,000
Maturities of available-for-sale securities -- 805,000
Purchases of property and equipment (63,195) (240,638)
Patent and trademark costs (20,783) (19,336)
Subsidiary acquisition costs -- (24,028)
----------- -----------
Net cash used in investing activities (83,978) (1,770,363)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 138,430 --
Payment of common stock offering costs (7,972) (47,456)
Proceeds from line of credit -- 2,000,000
Proceeds from notes payable, net of offering costs 458,334 --
Payment of notes payable (172,381) (161,865)
Proceeds from secured financing 319,813 --
Payments under capital lease (10,834) (9,529)
----------- -----------
Net cash provided by financing activities 725,390 1,781,150
----------- -----------
Net decrease in cash and cash equivalents (277,964) (2,526,686)
Cash and cash equivalents, beginning of period 700,525 4,287,101
----------- -----------
Cash and cash equivalents, end of period $ 422,561 $ 1,760,415
=========== ===========
See accompanying notes to the consolidated financial statements.
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information as of September 30, 2003 and 2002 and for the periods then
ended is unaudited, but includes all adjustments (which consist only of
normal recurring adjustments) that the management of Neoprobe Corporation
(Neoprobe or we) 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 Neoprobe's audited
financial statements for the year ended December 31, 2002, which were
included as part of our Annual Report on Form 10-KSB. Certain 2002 amounts
have been reclassified to conform to the 2003 presentation.
Our consolidated financial statements include the accounts of Neoprobe and
our wholly-owned subsidiary, Cardiosonix Ltd. (Cardiosonix). All
significant intercompany accounts were eliminated in consolidation.
2. COMPREHENSIVE INCOME (LOSS)
We had no accumulated other comprehensive income (loss) activity during the
three-month and nine-month periods ended September 30, 2003.
Due to our net operating loss position, there are no income tax effects on
comprehensive income (loss) components for the three-month and nine-month
periods ended September 30, 2002.
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2002
------------------ ------------------
Net loss $ (1,082,742) $ (2,799,027)
Unrealized gains on securities 3,926 17,387
------------- -------------
Other comprehensive loss $ (1,078,816) $ (2,781,640)
============= =============
3. EARNINGS PER SHARE
Basic earnings (loss) per share is calculated using the weighted average
number of common shares outstanding during the periods. Diluted earnings
(loss) 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 THREE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
--------------------------------- ---------------------------------
BASIC DILUTED BASIC DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE
----------- ----------- ----------- -----------
Outstanding shares 39,148,426 39,148,426 36,502,183 36,502,183
Effect of weighting changes
in outstanding shares (463,165) (463,165) -- --
Contingently issuable shares (130,000) (130,000) (440,000) (440,000)
----------- ----------- ----------- -----------
Adjusted shares 38,555,261 38,555,261 36,062,183 36,062,183
=========== =========== =========== ===========
6
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
--------------------------------- ---------------------------------
BASIC DILUTED BASIC DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE
----------- ----------- ----------- -----------
Outstanding shares 39,148,426 39,148,426 36,502,183 36,502,183
Effect of weighting changes
in outstanding shares (563,980) (563,980) (30,352) (30,352)
Contingently issuable shares (130,000) (130,000) (440,000) (440,000)
----------- ----------- ----------- -----------
Adjusted shares 38,454,446 38,454,446 36,031,831 36,031,831
=========== =========== =========== ===========
There is no difference in basic and diluted loss per share related to the
three-month and nine-month periods ended September 30, 2003 and 2002. The
net loss per common share for these periods excludes the number of common
shares issuable upon exercise of outstanding stock options and warrants
into our common stock since such inclusion would be anti-dilutive.
4. ACCOUNTS RECEIVABLE
During the third quarter of 2003, we entered into an accounts receivable
financing facility under which certain of our U.S. accounts receivable are
factored at an advance rate of 80% and with recourse to a third party
financing company. We account for the sales of receivables in accordance
with the requirements of Statement of Financial Accounting Standards (SFAS)
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. Due to the financing company's ability to
require us to repurchase accounts sold to them in the event the account is
deemed uncollectible under the terms of the facility, we have classified
the amount advanced to us by the financing company as secured liabilities
in the balance sheet. At September 30, 2003 a total of $400,000 in U.S.
trade receivables had been factored and remained outstanding under this
facility. The agreement for the sale of accounts receivable provides for
the continuation of the program on a revolving basis and will expire under
its current terms during December 2003. As collections reduce previously
sold receivables, we may replenish these with new receivables. The risk we
bear from bad debt losses on U.S. trade receivables sold is retained by us
since we hold a retained interest in the sold receivables. We have
addressed this risk in our allowance for doubtful accounts. However, we do
not believe we will incur any financial loss for receivables sold under
this facility. Net discounts recognized on sales of receivables are
calculated at one percentage point per fifteen day period the factored
invoices are outstanding with the financing company and are included in
interest expense in the consolidated statements of operations. Such
discounts totaled $2,500 for the three months ended September 30, 2003.
5. INVENTORY
The components of net inventory are as follows:
SEPTEMBER 30, DECEMBER 31,
2003 2002
(UNAUDITED)
----------- -----------
Materials and component parts $ 677,450 $ 760,540
Work in process - 59,888
Finished goods 489,537 371,490
----------- -----------
$ 1,166,987 $ 1,191,918
=========== ===========
7
6. INTANGIBLE ASSETS
The major classes of intangible assets are as follows:
SEPTEMBER 30, 2003 DECEMBER 31, 2002
(UNAUDITED)
------------------------------- -------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
---------- ------------ ---------- ------------
Patents and trademarks $3,144,100 $ 615,408 $3,129,031 $ 398,501
Non-compete agreements 584,516 259,357 584,516 150,970
Acquired technology 237,271 60,300 237,271 35,019
---------- ---------- ---------- ----------
Total $3,965,887 $ 935,065 $3,950,818 $ 584,490
========== ========== ========== ==========
The estimated future amortization expenses for the next five fiscal years
are as follows:
ESTIMATED
AMORTIZATION
EXPENSE
------------
For the year ended 12/31/2004 $ 420,072
For the year ended 12/31/2005 416,432
For the year ended 12/31/2006 262,108
For the year ended 12/31/2007 230,928
For the year ended 12/31/2008 203,150
7. DEBT FINANCING
During April 2003, we completed a loan agreement with our President and
CEO, David Bupp. Under the terms of the agreement, Mr. Bupp advanced us
$250,000. Interest accrues on the note at 8.5% per annum, payable monthly,
and repayment of the note is due on June 30, 2004. In consideration for the
loan, we issued Mr. Bupp 375,000 warrants to purchase our common stock at
an exercise price of $0.13 per share. The warrants were recorded at their
estimated relative fair value of $32,000 along with a corresponding
discount to the face amount of the note. The discount is being amortized
into interest expense over the 15-month term of the note.
Also during April 2003, we completed a convertible loan agreement with an
outside investor for an additional $250,000. Under the terms of the
agreement, interest accrues on the note at 9.5% per annum, payable monthly,
and repayment of the note is due on June 30, 2004. In consideration for the
loan, we issued the investor 500,000 warrants to purchase our common stock
at an exercise price of $0.13 per share. Also, the outside investor's note
is convertible, at the option of the investor, into our common stock
beginning on July 1, 2003. Half of the principal is convertible into common
stock at a 15% discount to the 20-day average market price preceding the
conversion, but in no case greater than a $0.20 ceiling conversion price or
less than a $0.10 floor conversion price. The remaining half of the
principal is also convertible at a 15% discount to a 20-day average market
price preceding the conversion, subject only to the $0.10 floor conversion
price. The warrants were recorded at their estimated relative fair value of
$41,000 along with a corresponding discount to the face amount of the note.
In addition, the beneficial conversion feature of the note was recorded at
its estimated fair value of $41,000 along with an additional corresponding
discount to the face value of the note. The discounts are being amortized
into interest expense over the 15-month term of the note.
8
8. PRODUCT WARRANTY
We generally warrant our gamma detection products against defects in
design, materials, and workmanship for a period of one year from the date
of sale to the end customer. Our accrual for warranty expenses is adjusted
periodically to reflect actual experience. The primary marketing partner of
our gamma detection devices, Ethicon Endo-Surgery, Inc. (EES), a Johnson
and Johnson company, also reimburses us for a portion of warranty expense
incurred based on end customer sales they make during a given fiscal year.
We generally warrant our blood flow products, with the exception of
ultrasound probes, for one year from the date of sale to the end customer.
The activity in the warranty reserve account for the three-month and
nine-month periods ended September 30, 2003 and 2002 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Warranty reserve at
beginning of period $ 58,000 $ 70,000 $ 35,000 $ 90,000
Provision for warranty claims and
changes in reserve for
warranties (4,914) (8,669) 31,615 53,045
Costs charged against the
reserve, net (86) (21,331) (13,615) (103,045)
--------- --------- --------- ---------
Warranty reserve at end of period $ 53,000 $ 40,000 $ 53,000 $ 40,000
========= ========= ========= =========
9. EQUITY
A. STOCK OPTIONS AND RESTRICTED STOCK. During the first nine months of
2003, the Board of Directors granted options to employees and certain
non-employee directors to purchase 780,000 shares of common stock,
exercisable at an average price of $0.15 per share, vesting over three
years. As of September 30, 2003, we have 2.8 million options
outstanding under three stock option plans. Of the outstanding options,
1.4 million options have vested as of September 30, 2003, at an average
exercise price of $0.71 per share.
The following table illustrates the effect on net loss and net loss per
share if compensation cost for our stock-based compensation plans had
been determined based on the fair value at the grant dates for awards
under those plans consistent with SFAS No. 123, Accounting for
Stock-Based Compensation:
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2003 2002
----------- -----------
Net loss, as reported $ (659,114) $(1,082,742)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards (39,997) (63,750)
----------- -----------
Pro forma net loss $ (699,111) $(1,146,492)
=========== ===========
Net loss per common share:
As reported (basic and diluted) $ (0.02) $ (0.03)
Pro forma (basic and diluted) $ (0.02) $ (0.03)
9
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2003 2002
----------- -----------
Net loss, as reported $(1,217,054) $(2,799,027)
Add: Total stock-based employee
compensation expense included in
reported net loss 39,990 --
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards (164,970) (215,972)
----------- -----------
Pro forma net loss $(1,342,034) $(3,014,999)
=========== ===========
Net loss per common share:
As reported (basic and diluted) $ (0.03) $ (0.08)
Pro forma (basic and diluted) $ (0.03) $ (0.08)
During the first quarter of 2003, we vested 310,000 shares of
previously restricted stock related to new or amended employment
agreements of three of our officers. We recognized $39,990 of
compensation expense related to this in the first quarter of 2003.
B. SALES OF COMMON STOCK. In November of 2001, we entered into a common
stock purchase agreement with Fusion Capital Fund II, LLC (Fusion)
under which we may require Fusion to purchase common stock up to a
daily base amount of $12,500, subject to the sale and floor pricing
terms outlined in the agreement. During the third quarter, we sold
Fusion a total of 453,869 shares of common stock and realized proceeds
of $138,000. In addition, we issued Fusion another 6,221 shares of
common stock for commitment fees due to Fusion related to the sales of
our common stock to them during the third quarter.
10. SEGMENT AND SUBSIDIARY INFORMATION
We own or have rights to intellectual property involving two primary types
of medical device products, including gamma detection instruments currently
used primarily in the application of intraoperative lymphatic mapping
(ILM), and blood flow measurement devices.
10
The information in the following table is derived directly from each
segment's internal financial reporting used for corporate management
purposes. Selling, general and administrative costs and other income,
including amortization, interest and other costs that relate primarily to
corporate activity, are not currently allocated to the operating segments
for financial reporting purposes.
($ AMOUNTS IN THOUSANDS) GAMMA BLOOD
THREE MONTHS ENDED SEPTEMBER 30, 2003 DETECTION FLOW UNALLOCATED TOTAL
------------------------------------- --------- --------- ----------- -----
Net sales:
United States(1) $ 900 $ -- $ -- $ 900
International 4 24 -- 28
License and other revenue 258 -- -- 258
Research and development expenses 199 310 -- 509
Selling, general and administrative
expenses -- -- 755 755
Income (loss) from operations(2) 476 (297) (755) (576)
Other income -- -- (83) (83)
THREE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------
Net sales:
United States(1) $ 573 $ -- $ -- $ 573
International 2 -- -- 2
License and other revenue 345 -- -- 345
Research and development expenses 248 313 -- 561
Selling, general and administrative
expenses -- -- 832 832
Income (loss) from operations(2) 51 (313) (832) (1,094)
Other income -- -- 11 11
($ AMOUNTS IN THOUSANDS) GAMMA BLOOD
NINE MONTHS ENDED SEPTEMBER 30, 2003 DETECTION FLOW UNALLOCATED TOTAL
------------------------------------- --------- --------- ----------- -----
Net sales:
United States(1) $ 3,636 $ -- $ -- $ 3,636
International 8 225 -- 233
License and other revenue 746 -- -- 746
Research and development expenses 469 896 -- 1,365
Selling, general and administrative
expenses -- -- 2,231 2,231
Income (loss) from operations(2) 1,892 (755) (2,231) (1,094)
Other income -- -- (123) (123)
NINE MONTHS ENDED SEPTEMBER 30, 2002
------------------------------------
Net sales:
United States(1) $ 2,154 $ -- $ -- $ 2,154
International 62 -- -- 62
License and other revenue 1,029 -- -- 1,029
Research and development expenses 744 1,055 -- 1,799
Selling, general and administrative
Expenses -- -- 2,407 2,407
Income (loss) from operations(2) 637 (1,055) (2,407) (2,825)
Other income -- -- 26 26
(1) All sales to EES are made in the United States. EES distributes the
product globally through its international affiliates.
(2) Income (loss) from operations does not reflect the allocation of
selling, general and administrative costs to the operating segments.
11
11. SUBSEQUENT EVENTS
Subsequent to September 30, 2003, we executed common stock purchase
agreements with third parties for the purchase of 12.2 million shares of
our common stock at a price of $0.23 per share for net proceeds of $2.5
million. In addition, we agreed to issue the purchasers warrants to
purchase 6.1 million shares of common stock at an exercise price of $0.28
per share and agreed to issue the placement agents warrants to purchase
1.6 million shares of our common stock at similar terms. All warrants
to be issued in connection with the transaction expire five years from
the date of issuance.
12. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations. SFAS 143 requires us
to record the fair value of an asset retirement obligation as a liability
in the period in which we incur a legal obligation associated with the
retirement of tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. We are also
required to record a corresponding asset that is depreciated over the life
of the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to
reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. We adopted SFAS 143 on January 1, 2003. The
adoption of SFAS 143 did not have a material effect on our financial
statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 requires us to disclose
information about our exit and disposal activities, the related costs, and
changes in those costs in the notes to the interim and annual financial
statements that include the period in which an exit or disposal activity is
initiated. SFAS 146 requires us to disclose, for each reportable segment,
the exit or disposal activity costs incurred in the period and the
cumulative amount incurred, net of any changes in the liability, with an
explanation of the reasons for the changes. SFAS 146 also requires us to
disclose the total amount of costs expected to be incurred in connection
with the exit or disposal activity. The new requirements are effective
prospectively for exit and disposal activities initiated after December 31,
2002. The adoption of SFAS 146 did not have a material impact on our
financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statement
Nos. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the
fair value of the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation are applicable to guarantees
issued or modified after December 31, 2002, and did not have a material
effect on our financial statements. The disclosure requirements are
effective for financial statements of interim and annual periods ending
after December 15, 2002.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. The
Statement requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that
embody obligations for the issuer. Generally, the Statement is effective
for financial instruments entered into or modified after May 31, 2003 and
is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted the provisions of the Statement
on July 1, 2003. The adoption of SFAS No. 150 did not have a material
effect on our financial statements.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the first nine months of 2003 increased $1.4 million or 42% to $4.6
million from $3.2 million for the same period in 2002. Major expense categories
as a percentage of net sales decreased in the first nine months of 2003 as
compared to the same period in 2002, due primarily to the increase in net sales
coupled with a lower overall cost structure for our gamma business. Research and
development expenses, as a percentage of net sales, decreased to 35% during the
first nine months of 2003 from 81% during the same period in 2002. Selling,
general and administrative expenses, as a percentage of net sales, decreased to
58% during the first nine months of 2003 from 109% during the same period in
2002. Controlling our costs remains a high priority for us as we endeavor to
return to profitability. We expect these major expense categories, as a
percentage of net sales, to continue to be lower overall for 2003 as compared to
2002 consistent with results year-to-date; however, this decrease will depend on
our success in achieving additional commercial sales of our blood flow products
and continuing positive trends for our gamma detection products.
Three Months Ended September 30, 2003 and 2002
Net Sales and Margins. Net sales increased $353,000, or 61%, to $928,000 during
the third quarter of 2003 from $575,000 during the same period in 2002. Gross
margins on net sales increased to 46% of net sales for the third quarter of 2003
compared to a negative gross margin of 8% of net sales for the same period in
2002. During the third quarter of 2002, we recorded an inventory impairment
charge of $214,000 related to our BlueTip(R) probe product. This charge
adversely affected our gross margins for the quarter by 37 percentage points.
Approximately $329,000 of the increase in net sales was the result of increased
revenue related to our gamma detection products with the remaining $24,000
generated from our blood flow products. We had no revenues from blood flow
products during the same period in 2002. Of the increased revenue from gamma
detection products, approximately 33% was due to increased prices realized on
our neo2000(R) control unit and 14mm probes, with approximately 54% due to
increased sales volumes of these products. The remaining 13% was due to various
changes in other products and product mix. The price at which we sell our gamma
detection products to EES is based on a percentage of the global average sales
price (ASP) received by EES on sales of Neoprobe products to end customers,
subject to a minimum floor price. During the third quarter of 2002, we recorded
revenue at the floor sales prices per the distribution agreement due to
perceived weakness in the global ASP. However, beginning in the third quarter of
2002 we began to note a strengthening in global ASP. This trend in ASP, coupled
with the favorable effects of the Euro exchange rate on our sales prices to EES,
has continued through the third quarter of 2003 such that management believed it
was more appropriate to record revenue for the third quarter of 2003 at the
estimated 2003 sales price calculated consistently with prior periods per the
terms of the distribution agreement. The increase in gross margins was primarily
due to the higher recorded revenue per gamma detection system combined with
lower capitalized internal manufacturing costs as a result of headcount
reductions that contributed to lower average costs.
License and Other Revenue. License and other revenue in the third quarters of
2003 and 2002 included $200,000 from the pro-rata recognition of license fees
related to the distribution agreement with EES and $58,000 and $145,000,
respectively, from the reimbursement by EES of certain product development
costs.
Research and Development Expenses. Research and development expenses decreased
$53,000, or 9%, to $509,000 during the third quarter of 2003 from $561,000
during the same period in 2002. The decrease was primarily due to lower
compensation costs resulting from headcount reductions of gamma product line
personnel in the third and fourth quarters of 2002. The third quarter of 2003
also included $25,000 of license fees related to the Lymphoseek(TM) targeting
agent.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $77,000, or 9%, to $755,000 during the third
quarter of 2003 from $832,000 during the same period in
13
2002. The decrease was primarily due to $80,000 in impairment expense related
to production equipment and intellectual property that we did not believe had
ongoing value to our business recorded in the third quarter of 2002 and lower
compensation costs resulting from headcount reductions of gamma product $64,000
in line personnel in the third and fourth quarters of 2002, offset by increases
in certain overhead costs such as professional services and bad debts and
increased selling, general and administrative expenses incurred in the operation
and support of Cardiosonix.
Other Income (Expenses). Other income decreased $95,000 resulting in other
expenses of $83,000 during the third quarter of 2003 compared to other income of
$11,000 during the same period in 2002. Other expenses during the third quarter
of 2003 consisted primarily of interest expense, amortized discount on our
notes payable and interest expense related to the financing of our accounts
receivable. Other income during the third quarter of 2002 consisted primarily of
interest income. Our interest income decreased because we maintained a lower
balance of cash and investments during the third quarter of 2003 as compared to
the same period in 2002.
Nine Months Ended September 30, 2003 and 2002
Net Sales and Margins. Net sales increased $1.7 million, or 75%, to $3.9 million
during the first nine months of 2003 from $2.2 million during the same period in
2002. Gross margins on net sales increased to 45% of net sales for the first
nine months of 2003 compared to 16% of net sales for the same period in 2002.
During the third quarter of 2002, we recorded an inventory impairment charge of
$214,000 related to our BlueTip probe product. This charge adversely affected
our gross margins for the nine months ended September 30, 2002 by 29 percentage
points.
Approximately $1.4 million of the increase in net sales was the result of
increased revenue related to our gamma detection products with the remaining
$225,000 generated from our blood flow products. We had no revenues from blood
flow products during the same period in 2002. Of the increased revenue from
gamma detection products, approximately 35% was due to increased prices realized
on our neo2000 control unit and 14mm probes, with approximately 49% due to
increased sales volumes of these products. The remaining 16% was due to various
changes in other products and product mix. The price at which we sell our gamma
detection products to EES is based on a percentage of the global ASP received by
EES on sales of Neoprobe products to end customers, subject to a minimum floor
price. During the first nine months of 2002, we recorded revenue at the floor
sales prices per the distribution agreement due to perceived weakness in the
global ASP. However, beginning in the third quarter of 2002, we began to note a
strengthening in global ASP. This trend in ASP, coupled with the favorable
effects of the Euro exchange rate on our sales prices to EES, has continued
through the first nine months of 2003 such that management believed it was more
appropriate to record revenue for the first nine months of 2003 at the estimated
2003 sales price calculated consistently with prior periods per the terms of the
distribution agreement. The increase in gross margins was primarily due to the
higher recorded revenue per gamma detection system combined with lower
capitalized internal manufacturing costs as a result of headcount reductions
that contributed to lower average costs.
License and Other Revenue. License and other revenue in the first nine months of
2003 and 2002 included $600,000 from the pro-rata recognition of license fees
related to the distribution agreement with EES and $146,000 and $429,000,
respectively, from the reimbursement by EES of certain product development
costs.
Research and Development Expenses. Research and development expenses decreased
$433,000, or 24%, to $1.4 million during the first nine months of 2003 from $1.8
million during the same period in 2002. The decrease was primarily due to lower
compensation costs resulting from headcount reductions of gamma product line
personnel in the third and fourth quarters of 2002, coupled with decreased use
of external design consultants and decreased prototype expenses related to the
blood flow product line. The first nine months of 2003 and 2002 also included
$25,000 and $50,000, respectively, of license fees related to the Lymphoseek
targeting agent.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $177,000, or 7%, to $2.2 million during the
first nine months of 2003 from $2.4 million during the same
14
period in 2002. The decrease was primarily due to $193,000 in lower compensation
costs resulting from headcount reductions of gamma product line personnel in the
third and fourth quarters of 2002, offset by increases in certain overhead costs
such as bad debts and insurance and increased selling, general and
administrative expenses incurred in the operation and support of Cardiosonix.
Selling, general and administrative expenses in the first nine months of 2003
and 2002 included $30,000 and $125,000, respectively, in impairment expense
related to production equipment and intellectual property that we did not
believe had ongoing value to our business. Selling, general and administrative
expenses in the first nine months of 2002 also included $79,000 for the transfer
of manufacturing of certain components of the neo2000 gamma detection system to
a new contract manufacturer.
Other Income (Expenses). Other income decreased $150,000 resulting in other
expenses of $123,000 during the first nine months of 2003 compared to other
income of $26,000 during the same period in 2002. Other expenses during the
first nine months of 2003 consisted primarily of interest expense, amortized
discount on our notes payable and interest expense related to the financing of
our accounts receivable. Other income during the first nine months of 2002
consisted primarily of interest income. Our interest income decreased because we
maintained a lower balance of cash and investments during the first nine months
of 2003 as compared to the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Cash used in operations decreased $1.6 million to $919,000
during the first nine months of 2003 from $2.5 million during the same period in
2002. Working capital decreased $1.1 million to $79,000 at September 30, 2003 as
compared to $1.1 million at December 31, 2002. The current ratio decreased to
1:1.0 at September 30, 2003 from 1:1.6 at December 31, 2002. The decrease in
working capital was primarily related to cash used to fund blood flow
development activities offset slightly by net changes in other working capital
components.
Cash balances decreased to $423,000 at September 30, 2003 from $701,000 at
December 31, 2002, primarily due to the requirements of supporting the
operations of Cardiosonix, offset by the cash generated from the sale of
accounts receivable, debt financing arrangements, sales of common stock and the
increased net sales experienced during the first nine months of 2003.
Accounts receivable increased to $1.1 million at September 30, 2003 from
$746,000 at December 31, 2002 due primarily to greater sales in September 2003
than December 2002. During the third quarter of 2003, we entered into an
accounts receivable financing facility under which certain of our U.S. accounts
receivable are factored at an advance rate of 80% and with recourse to a third
party financing company. At September 30, 2003 U.S. trade receivables of
$400,000 had been factored and remained outstanding under this facility. As
such, the accounts receivable balance we have disclosed at September 30, 2003
includes the $400,000 in factored accounts receivable. The agreement for the
sale of accounts receivable provides for the continuation of the program on a
revolving basis and will expire under its current terms until December 2003. As
collections reduce previously sold receivables, we may replenish these with new
receivables. However, as the financing arrangement is being accounted for as a
secured financing, it does not affect the overall level of accounts receivable
disclosed on our balance sheet. As such, we expect overall receivable levels
will continue to fluctuate in 2003 depending on the timing of purchases and
payments by EES. However, on average, we expect accounts receivable balances
will start to increase commensurate with anticipated increases in sales of blood
flow products to our distributors, many of whom are foreign-domiciled entities
who typically pay at a slower rate than domestic companies. Such increases, if
any, will require the increased use of our cash resources over time.
Inventory levels remained constant at $1.2 million at September 30, 2003 and
December 31, 2002. Over the first nine months of 2003, finished goods of gamma
detection products have decreased due to greater than originally anticipated
demand from EES during the first three quarters of 2003. Gamma-related raw
materials have continued to decrease due to usage of certain long-lead gamma
detection device components that were built up in prior periods to take
advantage of quantity price breaks. These decreases were offset by the build-up
of raw material and finished goods inventory related to our blood flow products
as we continue market launch preparations. We expect inventory levels to
increase slightly during the remainder of 2003.
15
We estimate that the additional costs to complete planned development
activities, respond to initial customer feedback, and support initial marketing
efforts for our blood flow products for the year ended December 31, 2003 will
approach $2.0 million. We expect the development efforts will continue in 2004
as we respond to additional customer feedback and as we continue to refine the
blood flow products.
Investing Activities. Cash used in investing activities decreased to $84,000
during the first nine months of 2003 from $1.8 million during the same period in
2002. During February and March 2002, we invested in $2.5 million of
available-for-sale securities. Capital expenditures during the first nine months
of 2003 were primarily purchases of production tools and equipment related to
the manufacture of our Quantix line of blood flow measurement equipment. Capital
expenditures during the first nine months of 2002 were split between purchases
of production tools and equipment and technology infrastructure. Capital needs
for 2003 are expected to remain below 2002 as we have deferred the more
significant expenditures originally anticipated related to blood flow product
production until 2004 following the transfer of primary manufacturing activities
for the blood flow products to a contract manufacturer.
Financing Activities. Financing activities provided $725,000 in cash in the
first nine months of 2003 versus $1.8 million during the same period in 2002.
Proceeds from sales of accounts receivable were $320,000 during the first nine
months of 2003. Payments of notes payable were $11,000 higher during the first
nine months of 2003 as compared to the same period in 2002 due to the increased
cost of financed insurance.
On November 19, 2001, we entered into a common stock purchase agreement with an
investment fund, Fusion Capital Fund II, LLC (Fusion) for the issuance and
purchase of our common stock. Under the stock purchase agreement, Fusion
committed to purchase up to $10 million of our common stock over a forty-month
period that commenced in May 2002. A registration statement registering for
resale up to 5 million shares of our common stock became effective on April 15,
2002. Under the terms of the agreement, we can request daily drawdowns, subject
to a daily base amount currently set at $12,500. The number of shares we are to
issue to Fusion in return for that money will be based on the lower of (a) the
closing sale price for our common stock on the day of the draw request or (b)
the average of the three lowest closing sales prices for our common stock during
a twelve day period prior to the draw request. However, no shares may be sold to
Fusion at lower than a floor price currently set at $0.30, which may be reduced
by us, but in no case below $0.20 without Fusion's prior consent. Upon execution
of the common stock purchase agreement, we issued 449,438 shares of our common
stock to Fusion as a commitment fee. During the third quarter of 2003, we sold
Fusion a total of 453,869 shares of common stock and realized proceeds of
$138,000. In addition, we issued Fusion another 6,221 shares of common stock for
commitment fees due to Fusion related to the sales of our common stock to them
during the quarter.
During April 2003, we completed a bridge loan agreement with our President and
CEO, David Bupp. Under the terms of the agreement, Mr. Bupp advanced us
$250,000. Interest accrues on the note at 8.5% per annum, payable monthly, and
the note is due on June 30, 2004. In consideration for the loan, we issued Mr.
Bupp 375,000 warrants to purchase our common stock at an exercise price of $0.13
per share.
During April 2003, we also completed a convertible bridge loan agreement with an
outside investor for an additional $250,000. Under the terms of the agreement,
interest accrues on the note at 9.5% per annum, payable monthly, and the note is
due on June 30, 2004. In consideration for the loan, we issued the investor
500,000 warrants to purchase our common stock at an exercise price of $0.13 per
share. The outside investor's note is also convertible, at the option of the
investor, into our common stock beginning on July 1, 2003. Half of the principal
is convertible into common stock at a 15% discount to the 20-day average market
price preceding the conversion, but in no case greater than a $0.20 ceiling
conversion price or less than a $0.10 floor conversion price. The remaining half
of the principal is also convertible at a 15% discount to a 20-day average
market price preceding the conversion, subject only to the $0.10 floor
conversion price.
16
During the second quarter of 2003, we engaged the services of an investment
banking firm to assist us in raising capital. In exchange for their services, we
agreed to pay the firm a monthly retainer of $10,000, half payable in cash and
half payable in common stock, and we agreed to pay them a percentage of the
funds received, if any, as a success fee, on funds received from parties they
introduced us to. We terminated the agreement with the investment banking firm
effective September 23, 2003, and agreed to issue them 150,943 shares and
warrants to purchase 78,261 shares of common stock in full satisfaction of our
obligation under the agreement and in exchange for their assistance in arranging
the accounts receivable funding source. We will owe this firm a potential
success fee for a period of time if we complete an investment transaction with
any of the potential investors who were introduced to us by the firm.
To date in the fourth quarter of 2003, we have executed common stock purchase
agreements with third parties introduced to us by a different investment banking
firm for the purchase of 12.2 million shares of our common stock at a price of
$0.23 per share for net proceeds of $2.5 million. In addition, we agreed to
issue the purchasers warrants to purchase 6.1 million shares of common stock
at an exercise price of $0.28 per share and agreed to issue the placement
agents warrants to purchase 1.6 million shares of our common stock at similar
terms. All warrants to be issued in connection with the transaction expire
five years from the date of issuance.
Our future liquidity and capital requirements will depend on a number of
factors, including our ability to raise additional capital in a timely manner
through additional investment, expanded market acceptance of our current
products, our ability to complete the commercialization of new products such as
our blood flow product line, our ability to monetize our investment in non-core
technologies, our ability to obtain milestone or development funds from
potential development and distribution partners, regulatory actions by the U.S.
FDA and other international regulatory bodies, and intellectual property
protection.
Throughout 2002 and the first three quarters of 2003, we made modifications to
our operating plan and reduced or delayed planned development and market-support
expenditures due primarily to our delayed ability to secure additional sources
of financing. We believe our inability to raise financing did not significantly
impact our ability to meet the operational milestones we had set for the first
half of 2003; however, we believe the effects of the delay in raising financing,
coupled with the delay in receiving 510(k) marketing clearance for the
Quantix/OR until September 2003, began to hamper our marketing and
commercialization efforts for blood flow products during the third quarter.
Planned resources to support marketing and post-launch development activities
were delayed until the completion of the recent financing activities. We are now
in the process of re-assessing the timing of our goals and objectives for the
remainder of 2003 and for calendar year 2004 but believe we now have adequate
capital to assure that we can properly support our business goals and objectives
over that period. Our near-term priorities are the thought leader evaluation and
launch of the Quantix products in the U.S. and the continued support of such
activities ongoing in other markets. In addition, we are considering ways to
re-invigorate development of other products in our pipeline. We cannot assure
you that we will be able to achieve significant product revenues from our
current or potential new products. We also cannot assure you that we will
achieve profitability again in 2004.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition Related to Net Sales. We currently generate revenue
primarily from sales of our gamma detection products; however, sales of blood
flow products constituted approximately 6% of total revenues for the first nine
months of 2003 and are expected to increase in the future. We generally
recognize sales revenue related to sales of our products when the products are
shipped and the earnings process has been completed. Our customers have no right
to return products purchased in the ordinary course of business. However, in
cases where product is shipped but the earnings process is not yet completed,
revenue is deferred until it has been determined that the earnings process has
been completed. We also generate revenue from the service and repair of
out-of-warranty products. Fees charged for service and repair on products not
covered by an extended service agreement are recognized on completion of the
service process when the serviced or repaired product has been returned to the
customer. Fees charged for service or repair of products covered by an extended
17
warranty agreement are deferred and recognized as revenue ratably over the life
of the extended service agreement. The prices we charge our primary customer,
EES, related to sales of products are subject to retroactive annual adjustment
based on a fixed percentage of the actual sales prices achieved by EES on sales
to end customers made during each fiscal year. To the extent that we can
reasonably estimate the end-customer prices received by EES, we record sales to
EES based upon these estimates. If we are unable to reasonably estimate end
customer sales prices related to certain products sold to EES, we record revenue
related to these product sales at the minimum (i.e., floor) price provided for
under our distribution agreement with EES. During the first nine months of 2002,
we recorded revenue at the floor sales prices per the distribution agreement due
to perceived weakness in the global ASP. However, during the second half of
2002, we began to note a strengthening in global ASP. This trend in ASP has
continued in 2003, to the point that management believed it was more appropriate
to record revenue for the first nine months of 2003 at the estimated 2003 sales
price calculated consistently with prior periods per the terms of the
distribution agreement.
Impairment or Disposal of Long-Lived Assets. We account for long-lived assets in
accordance with the provisions of SFAS No. 144. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. As of
September 30, 2003, the most significant long-lived assets on our balance sheet
relate to assets recorded in connection with the acquisition of Cardiosonix and
gamma detection device patents related to ILM. The recoverability of these
assets is based on the financial projections and models related to future sales
of Cardiosonix' products which have yet to begin and the continuing success of
our gamma detection product line. As such, these assets could be subject to
significant adjustment should the Cardiosonix technology not be successfully
commercialized or the sales amounts in our current projections not be realized.
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. From
time to time, our representatives and we may make written or verbal
forward-looking statements, including statements contained in this report and
other company filings with the SEC and in our reports to stockholders.
Statements that relate to other than strictly historical facts, such as
statements about our plans and strategies, expectations for future financial
performance, new and existing products and technologies, and markets for our
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 our then-current views and
assumptions regarding future events and operating performance, and speak only as
of their dates. Investors are cautioned that such statements involve risks and
uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors including, but not limited
to, our limited revenues, accumulated deficit, future capital needs, uncertainty
of capital funding, dependence on limited product line and exclusive
distributor, uncertainty of market acceptance, competition, limited marketing
and manufacturing experience, and other risks detailed in our most recent Annual
Report on Form 10-KSB and other SEC filings. We undertake no obligation to
publicly update or revise any forward-looking statements.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and
18
procedures are effective to provide reasonable assurance that our disclosure
controls and procedures will timely alert them to material information required
to be included in our periodic SEC reports. It should be noted that the design
of any system of controls is based in part upon certain assumptions about the
likelihood of future events, and we cannot assure you that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.
As of the end of the period covered by this report, there has been no change in
our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Securities Exchange Act of 1934, as amended) during the quarter
to which this report relates that has materially affected or is reasonably
likely to materially affect, our internal control over financial reporting.
19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 Restated Certificate of Incorporation of Neoprobe Corporation,
as corrected February 18, 1994 and as amended June 27, 1994,
July 25, 1995, June 3, 1996, March 17, 1999, May 9, 2000 and
June 13, 2003.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer of Periodic Financial
Reports pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350.
(B) REPORTS ON FORM 8-K
On August 13, 2003, we filed a Current Report on Form 8-K (dated July
31, 2003) with the Securities and Exchange Commission pursuant to Item
12 (under Item 9) in connection with our July 31, 2003, press release
announcing our consolidated financial results for the second quarter
ended June 30, 2003.
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
Dated: November 14, 2003
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)
20