|
NEOPROBE
CORPORATION
|
|
(Name
of Small Business Issuer in Its
Charter)
|
|
Delaware
|
31-1080091
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
425
Metro Place North, Suite 300, Dublin, Ohio
|
43017-1367
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
|
Common
Stock, par value $.001 per share
|
||
|
(Title
of Class)
|
| · |
real-time
monitoring;
|
| · |
intra-operative
quantification;
|
| · |
non-invasive
diagnostics; and
|
| · |
evaluation
of cardiac function.
|
|
Indication
|
Number
of Patients
|
Status
|
||
|
Breast
(peritumoral injection)
|
24
|
Completed
|
||
|
Melanoma
|
24
|
Completed
|
||
|
Breast
(intradermal injection, next day surgery)
|
60
|
Completed
|
||
|
Prostate
|
20
|
Ongoing
|
||
|
Colon
|
20
|
Ongoing
|
| · |
intraoperative
blood flow assessment (Quantix/OR);
and
|
| · |
non-invasive
diagnostic blood flow assessment (Quantix/ND).
|
| · |
ineffectiveness
of the product candidate;
|
| · |
discovery
of unacceptable toxicities or side effects;
|
| · |
development
of disease resistance or other physiological factors;
|
| · |
delays
in patient enrollment; or
|
| · |
other
reasons that are internal to the businesses of our potential collaborative
partners, which reasons they may not share with us.
|
| · |
generate
cash flow and revenue;
|
| · |
offset
some of the costs associated with our internal research and development,
preclinical testing, clinical trials and manufacturing;
|
| · |
seek
and obtain regulatory approvals faster than we could on our own;
and
|
| · |
successfully
commercialize existing and future product candidates.
|
| · |
delay
marketing of potential products for a considerable period of time;
|
| · |
limit
the indicated uses for which potential products may be marketed;
|
| · |
impose
costly requirements on our activities; and
|
| · |
provide
competitive advantage to other pharmaceutical and biotechnology companies.
|
| · |
restrictions
on the products, manufacturers or manufacturing processes;
|
| · |
warning
letters;
|
| · |
civil
or criminal penalties;
|
| · |
fines;
|
| · |
injunctions;
|
| · |
product
seizures or detentions;
|
| · |
import
bans;
|
| · |
voluntary
or mandatory product recalls and publicity requirements;
|
| · |
suspension
or withdrawal of regulatory approvals;
|
| · |
total
or partial suspension of production; and
|
| · |
refusal
to approve pending applications for marketing approval of new drugs
or
supplements to approved
applications.
|
| · |
we
pay all principal ($500,000 paid January 8, 2007, $1,250,000 due
July 9,
2007, $1,750,000 due January 7, 2008, $2,000,000 due July 7, 2008,
and
$2,600,000 due January 7, 2009), interest (12% per annum, payable
on March
31, June 30, September 30, and December 31 of each year) and other
charges
on the Notes when due;
|
| · |
we
use the proceeds from the sale of the Notes only for permitted purposes,
such as Lymphoseek
development and general corporate purposes;
|
| · |
we
nominate and recommend for election as a director a person designated
by
the holders of the Notes (as of February 28, 2007, the holders of
the
Notes have not designated a potential board
member);
|
| · |
we
keep reserved out of our authorized shares of common stock sufficient
shares to satisfy our obligation to issue shares on conversion of
the
Notes and the exercise of the warrants issued in connection with
the sale
of the Notes;
|
| · |
we
indemnify the purchasers of the Notes against certain liabilities;
and
|
| · |
we
use our best efforts to offer and sell equity securities with gross
proceeds of up to $10 million and apply not less than 50% of the
net
proceeds of such sales to the repayment of principal on the
Notes.
|
| · |
amending
our organizational or governing agreements and documents, entering
into
any merger or consolidation, dissolving the company or liquidating
its
assets, or acquiring all or any substantial part of the business
or assets
of any other person;
|
| · |
engaging
in transactions with any affiliate;
|
| · |
entering
into any agreement inconsistent with our obligations under the Notes
and
related agreements;
|
| · |
incurring
any indebtedness, capital leases, or contingent obligations outside
the
ordinary course of business;
|
| · |
granting
or permitting liens against or security interests in our assets;
|
| · |
making
any material dispositions of our assets outside the ordinary course
of
business;
|
| · |
declaring
or paying any dividends or making any other restricted payments;
or
|
| · |
making
any loans to or investments in other persons outside of the ordinary
course of business.
|
| · |
price
and volume fluctuations in the stock market at large which do not
relate
to our operating performance;
|
| · |
financing
arrangements we may enter that require the issuance of a significant
number of shares in relation to the number of shares currently
outstanding;
|
| · |
public
concern as to the safety of products that we or others develop;
and
|
| · |
fluctuations
in market demand for and supply of our
products.
|
| · |
general
economic and business conditions, both nationally and in our
markets,
|
| · |
our
history of losses, negative net worth and uncertainty of future
profitability;
|
| · |
our
expectations and estimates concerning future financial performance,
financing plans and the impact of
competition;
|
| · |
our
ability to implement our growth
strategy;
|
| · |
anticipated
trends in our business;
|
| · |
advances
in technologies; and
|
| · |
other
risk factors set forth under “Risk Factors” in this
report.
|
|
High
|
Low
|
Close
|
||||||||
|
Fiscal
Year 2006:
|
||||||||||
|
First
Quarter
|
$
|
0.36
|
$
|
0.25
|
$
|
0.29
|
||||
|
Second
Quarter
|
0.30
|
0.23
|
0.26
|
|||||||
|
Third
Quarter
|
0.33
|
0.23
|
0.33
|
|||||||
|
Fourth
Quarter
|
0.34
|
0.22
|
0.24
|
|||||||
|
Fiscal
Year 2005:
|
||||||||||
|
First
Quarter
|
$
|
0.72
|
$
|
0.37
|
$
|
0.46
|
||||
|
Second
Quarter
|
0.46
|
0.30
|
0.35
|
|||||||
|
Third
Quarter
|
0.40
|
0.25
|
0.30
|
|||||||
|
Fourth
Quarter
|
0.32
|
0.20
|
0.25
|
|||||||
| · |
Stock-Based
Compensation. Effective
January 1, 2006, we adopted SFAS No. 123(R), Share-Based
Payment,
which is a revision of SFAS No. 123, Accounting
for Stock-Based Compensation.
SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees,
and amends SFAS No. 95, Statement
of Cash Flows.
SFAS No. 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income
statement
based on their estimated fair values. Compensation cost arising from
stock-based awards is recognized as expense using the straight-line
method
over the vesting period. We used the modified prospective application
method in adopting SFAS No. 123 (R). We use the Black-Scholes option
pricing model to value share-based payments. The valuation assumptions
used have not changed from those used under SFAS No. 123. Prior to
the
adoption of SFAS No. 123(R), we followed the guidance in APB No.
25 and
SFAS No. 123, which resulted in disclosure only of the pro forma
financial
impact of stock options. Financial statements of the Company for
periods
prior to January 1, 2006 do not reflect any recorded stock-based
compensation expense. In adopting SFAS No. 123(R), we made no
modifications to outstanding stock options, nor do we have any other
outstanding share-based payment instruments subject to SFAS No. 123(R).
Based in part on the anticipated adoption of SFAS No. 123(R), the
Company
generally reduced the number of stock options issued to employees
in 2005
and shortened the vesting periods, with a portion of the options
vesting
immediately and the remainder vesting over a two-year period as compared
to our previous practice of issuing stock options that vested over
a
three-year period. In 2006, we returned to the practice of vesting
options
over a three-year period. We will continue to evaluate compensation
trends
and may further revise our option granting practices in future
years.
|
| · |
Inventory
Valuation.
We
value our inventory at the lower of cost (first-in, first-out method)
or
market. Our valuation reflects our estimates of excess, slow moving
and
obsolete inventory as well as inventory with a carrying value in
excess of
its net realizable value. Write-offs are recorded when product is
removed
from saleable inventory. We review inventory on hand at least quarterly
and record provisions for excess and obsolete inventory based on
several
factors, including current assessment of future product demand,
anticipated release of new products into the market, historical experience
and product expiration. Our industry is characterized by rapid product
development and frequent new product introductions. Uncertain timing
of
product approvals, variability in product launch strategies, product
recalls and variation in product utilization all impact the estimates
related to excess and obsolete
inventory.
|
| · |
Impairment
or Disposal of Long-Lived Assets.
We
account for long-lived assets in accordance with the provisions of
SFAS
No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.
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
December 31, 2006, 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 SLNB. The
recoverability of these assets is based on the financial projections
and
models related to the future sales success of Cardiosonix’ products 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.
|
| · |
Product
Warranty.
We
warrant our products against defects in design, materials, and workmanship
generally 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. EES also reimburses us for a portion of
warranty expense incurred based on end customer sales they make during
a
given fiscal year.
|
| · |
Fair
Value of Warrant Liability.
U.S. generally accepted accounting principles required us to classify
the
warrants issued in connection with our December 2004 placement of
convertible promissory notes as a liability due to penalty provisions
contained in the underlying securities purchase agreement. The penalty
provisions could have required us to pay a penalty of 0.0667% per
day of
the total debt amount if we failed to meet certain registration deadlines,
or if our stock was suspended from trading for more than 30 days.
As a
liability, the warrants were considered derivative instruments that
were
required to be periodically “marked to market” on our balance sheet. We
estimated the fair value of the warrants at December 31, 2004 using
the
Black-Scholes option pricing model. On February 16, 2005, Neoprobe
and the
investors confirmed in writing their intention that the penalty provisions
which led to this accounting treatment were intended to apply only
to the
$8.1 million principal balance of the promissory notes and underlying
conversion shares and not to the warrant shares. The value of our
stock
increased $0.02 per share from $0.59 at December 31, 2004 to $0.61
per
share at February 16, 2005, such that marking the warrant liability
to
“market” at February 16, 2005 resulted in an increase in the estimated
fair value of the warrant liability of $142,427 which was recorded
as
non-cash expense during the first quarter of 2005. The estimated
fair
value of the warrant liability was then reclassified to additional
paid-in
capital during the first quarter of
2005.
|
|
Item
9.
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance with
Section
16(a) of the Exchange Act
|
|
Name
|
Age
|
Position
|
||
|
Anthony
K. Blair
|
46
|
Vice
President, Manufacturing Operations
|
||
|
Carl
M. Bosch
|
50
|
Vice
President, Research and Development
|
||
|
Rodger
A. Brown
|
56
|
Vice
President, Regulatory Affairs and
Quality
Assurance
|
||
|
Brent
L. Larson
|
43
|
Vice
President, Finance; Chief Financial
Officer;
Treasurer and Secretary
|
||
|
Douglas
L. Rash
|
63
|
Vice
President, Marketing
|
|
(b)
|
(c)
|
||||||||||||||||||
|
(a)
|
Option
|
All
Other
|
Total
|
||||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Awards
|
Compensation
|
Compensation
|
|||||||||||||
|
Carl
M. Bosch
Vice
President,
Research
and Development
|
2006
2005
|
$
|
160,000
149,000
|
$
|
6,000
7,500
|
$
|
16,175
-
|
$
|
4,558
4,107
|
$
|
186,733
160,607
|
||||||||
|
David
C. Bupp
President
and
Chief
Executive Officer
|
2006
2005
|
$
|
305,000
290,000
|
$
|
20,000
45,000
|
$
|
60,006
-
|
$
|
8,099
7,789
|
$
|
393,105
342,789
|
||||||||
|
Brent
L. Larson
Vice
President, Finance and
Chief
Financial Officer
|
2006
2005
|
$
|
160,000
149,000
|
$
|
5,000
7,500
|
$
|
16,175
-
|
$
|
4,576
4,113
|
$
|
185,751
160,613
|
||||||||
|
(a)
|
Bonuses,
if any, have been disclosed for the year in which they were earned
(i.e.,
the year to which the service relates).
|
|
(b)
|
Amount
represents the dollar amount recognized for financial statement reporting
purposes in accordance with SFAS 123(R). Assumptions made in the
valuation
of stock option awards are disclosed in Item 1(l) of the Notes to
the
Consolidated Financial Statements in this Form 10-KSB. Prior to 2006,
the
Company accounted for stock option awards under APB Opinion No. 25’s
intrinsic value method and, as such, generally recognized no compensation
cost for employee stock options.
|
|
(c)
|
Amount
represents life insurance premiums paid during the fiscal year for
the
benefit of the Named Executives and matching contributions under
the
Neoprobe Corporation 401(k) Plan (the Plan). Eligible employees may
make
voluntary contributions and we may, but are not obligated to, make
matching contributions based on 40 percent of the employee’s contribution,
up to five percent of the employee’s salary. Employee contributions are
invested in mutual funds administered by an independent plan
administrator. Company contributions, if any, are made in the form
of
shares of common stock. The Plan qualifies under section 401 of the
Internal Revenue Code, which provides that employee and company
contributions and income earned on contributions are not taxable
to the
employee until withdrawn from the Plan, and that we may deduct our
contributions when made.
|
| · |
by
our company without cause (cause is defined as any willful breach
of a
material duty by Mr. Bupp in the course of his employment or willful
and
continued neglect of his duty as an
employee);
|
| · |
by
the expiration of the term of Mr. Bupp’s employment agreement; or
|
| · |
by
the resignation of Mr. Bupp because his title, authority, responsibilities
or compensation have materially diminished, a material adverse change
occurs in his working conditions or we breach the
agreement;
|
| · |
the
acquisition, directly or indirectly, by a person (other than our
company
or an employee benefit plan established by the Board of Directors)
of
beneficial ownership of thirty percent (30%) or more of our securities
with voting power in the next meeting of holders of voting securities
to
elect the directors;
|
| · |
a
majority of the Directors elected at any meeting of the holders of
our
voting securities are persons who were not nominated by our then
current
Board of Directors or an authorized committee
thereof;
|
| · |
our
stockholders approve a merger or consolidation of our company with
another
person, other than a merger or consolidation in which the holders
of our
voting securities outstanding immediately before such merger or
consolidation continue to hold voting securities in the surviving
or
resulting corporation (in the same relative proportions to each other
as
existed before such event) comprising eighty percent (80%) or more
of the
voting power for all purposes of the surviving or resulting corporation;
or
|
| · |
our
stockholders approve a transfer of substantially all of our assets
to
another person other than a transfer to a transferee, eighty percent
(80%)
or more of the voting power of which is owned or controlled by us
or by
the holders of our voting securities outstanding immediately before
such
transfer in the same relative proportions to each other as existed
before
such event.
|
| · |
by
our company without cause (cause is defined as any willful breach
of a
material duty by Mr. Bosch in the course of his employment or willful
and
continued neglect of his duty as an
employee);
|
| · |
by
the expiration of the term of Mr. Bosch’s employment agreement; or
|
| · |
by
the resignation of Mr. Bosch because his title, authority,
responsibilities or compensation have materially diminished, a material
adverse change occurs in his working conditions or we breach the
agreement;
|
| · |
the
acquisition, directly or indirectly, by a person (other than our
company
or an employee benefit plan established by the Board of Directors)
of
beneficial ownership of thirty percent (30%) or more of our securities
with voting power in the next meeting of holders of voting securities
to
elect the directors;
|
| · |
a
majority of the directors elected at any meeting of the holders of
our
voting securities are persons who were not nominated by our then
current
Board of Directors or an authorized committee
thereof;
|
| · |
our
stockholders approve a merger or consolidation of our company with
another
person, other than a merger or consolidation in which the holders
of our
voting securities outstanding immediately before such merger or
consolidation continue to hold voting securities in the surviving
or
resulting corporation (in the same relative proportions to each other
as
existed before such event) comprising eighty percent (80%) or more
of the
voting power for all purposes of the surviving or resulting corporation;
or
|
| · |
our
stockholders approve a transfer of substantially all of the assets
of our
company to another person other than a transfer to a transferee,
eighty
percent (80%) or more of the voting power of which is owned or controlled
by us or by the holders of our voting securities outstanding immediately
before such transfer in the same relative proportions to each other
as
existed before such event.
|
|
Number
of Securities Underlying Unexercised Options (#)
|
Option
Exercise
|
Option
Expiration
|
||||||||||||||
|
Name
|
Exercisable
|
Unexercisable
|
Price
|
Date
|
Note
|
|||||||||||
|
Carl
M. Bosch
|
10,000
20,000
45,000
45,000
50,000
40,000
30,000
46,667
33,333
33,333
26,667
-
|
-
-
-
-
-
-
-
23,333
16,667
16,667
13,333
50,000
|
$
$
$
$
$
$
$
$
$
$
$
$
|
1.50
1.25
0.50
0.41
0.42
0.14
0.13
0.30
0.49
0.39
0.26
0.27
|
9/28/2008
2/11/2009
1/4/2010
1/3/2011
1/7/2012
1/15/2013
2/15/2013
1/7/2014
7/28/2014
12/10/2014
12/27/2015
12/15/2016
|
(b
(c
(d
(e
(f
(g
(h
(i
(j
(k
(l
(m
|
)
)
)
)
)
)
)
)
)
)
)
)
|
|||||||||
|
David
C. Bupp
|
180,000
180,000
180,000
100,000
70,000
100,000
100,000
133,333
133,333
-
|
-
-
-
-
-
50,000
50,000
66,667
66,667
300,000
|
$
$
$
$
$
$
$
$
$
$
|
0.50
0.41
0.42
0.14
0.13
0.30
0.49
0.39
0.26
0.27
|
1/4/2010
1/3/2011
1/7/2012
1/15/2013
2/15/2013
1/7/2014
7/28/2014
12/10/2014
12/27/2015
12/15/2016
|
(d
(e
(f
(g
(h
(i
(j
(k
(l
(m
|
)
)
)
)
)
)
)
)
)
)
|
|||||||||
|
Brent
L. Larson
|
7,200
25,000
25,000
60,000
60,000
50,000
40,000
30,000
46,667
33,333
33,333
26,667
-
|
-
-
-
-
-
-
-
-
23,333
16,667
16,667
13,333
50,000
|
$
$
$
$
$
$
$
$
$
$
$
$
$
|
5.63
1.50
1.25
0.50
0.41
0.42
0.14
0.13
0.30
0.49
0.39
0.26
0.27
|
1/28/2008
9/28/2008
2/11/2009
1/4/2010
1/3/2011
1/7/2012
1/15/2013
2/15/2013
1/7/2014
7/28/2014
12/10/2014
12/27/2015
12/15/2016
|
(a
(b
(c
(d
(e
(f
(g
(h
(i
(j
(k
(l
(m
|
)
)
)
)
)
)
)
)
)
)
)
)
)
|
|||||||||
| (a) |
Options
were granted 1/28/1998 and vested as to one-third immediately and
on each
of the first two anniversaries of the date of
grant.
|
| (b) |
Options
were granted 9/28/1998 and vested as to one-thirtieth (1/30) per
month for
thirty (30) months after the date of
grant.
|
| (c) |
Options
were granted 2/11/1999 and vested as to one-third immediately and
on each
of the first two anniversaries of the date of
grant.
|
| (d) |
Options
were granted 1/4/2000 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
| (e) |
Options
were granted 1/3/2001 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
| (f) |
Options
were granted 1/7/2002 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
| (g) |
Options
were granted 1/15/2003 and vested as to one-third on each of the
first
three anniversaries of the date of grant.
|
|
(h)
|
Options
were granted 2/15/2003 and vested as to one-third on each of the
first
three anniversaries of the date of
grant.
|
| (i) |
Options
were granted 1/7/2004 and vest as to one-third on each of the first
three
anniversaries of the date of grant.
|
| (j) |
Options
were granted 7/28/2004 and vest as to one-third on each of the first
three
anniversaries of the date of grant.
|
| (k) |
Options
were granted 12/10/2004 and vest as to one-third on each of the first
three anniversaries of the date of
grant.
|
| (l) |
Options
were granted 12/27/2005 and vest as to one-third immediately and
on each
of the first two anniversaries of the date of
grant.
|
| (m) |
Options
were granted 12/15/2006 and vest as to one-third on each of the first
three anniversaries of the date of
grant.
|
|
Name
|
|
(a)
Fees
Earned
or
Paid in
Cash
|
|
(b)
Option
Awards
|
|
Total
Compensation
|
||||
|
Carl
J. Aschinger, Jr.
|
$
|
19,750
|
$
|
9,099
|
$
|
28,849
|
||||
|
Reuven
Avital
|
20,250
|
9,099
|
29,349
|
|||||||
|
Kirby
I. Bland, M.D.
|
17,000
|
9,988
|
26,988
|
|||||||
|
Julius
R. Krevans, M.D.
|
21,500
|
10,366
|
31,866
|
|||||||
|
Fred
B. Miller
|
23,500
|
10,366
|
33,866
|
|||||||
|
J.
Frank Whitley, Jr.
|
20,250
|
9,099
|
29,349
|
|||||||
| (a) |
Amount
represents fees earned during the fiscal year ended December 31,
2006
(i.e., the year to which the service relates). Quarterly retainers
are
paid during the quarter in which they are earned. Meeting attendance
fees
are paid during the quarter following the quarter in which they are
earned.
|
| (b) |
Amount
represents the dollar amount recognized for financial statement reporting
purposes in accordance with SFAS 123(R). Assumptions made in the
valuation
of stock option awards are disclosed in Item 1(l) of the Notes to
the
Consolidated Financial Statements in this Form 10-KSB. Prior to 2006,
the
Company accounted for stock option awards under APB Opinion No. 25’s
intrinsic value method and, as such, generally recognized no compensation
cost for employee stock options.
|
|
(a)
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
|
(b)
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
(c)
Number
of Securities Remaining Available for Issuance Under Equity Compensation
Plans (Excluding Securities Reflected in Column
(a))
|
||||||||
|
Equity
compensation plans
approved
by security holders
|
5,975,473
|
$
|
0.42
|
1,007,500
|
||||||
|
Equity
compensation plans not
approved
by security holders
|
-
|
-
|
-
|
|||||||
|
Total
|
5,975,473
|
$
|
0.42
|
1,007,500
|
||||||
|
Beneficial
Owner
|
Number
of Shares
Beneficially
Owned (*)
|
|
Percent
of
Class (**)
|
|||||||
|
Carl
J. Aschinger, Jr.
|
180,000
|
(a
|
)
|
(l
|
)
|
|||||
|
Reuven
Avital
|
294,256
|
(b
|
)
|
(l
|
)
|
|||||
|
Kirby
I. Bland
|
140,000
|
(c
|
)
|
(l
|
)
|
|||||
|
Carl
M. Bosch
|
507,178
|
(d
|
)
|
(l
|
)
|
|||||
|
David
C. Bupp
|
3,056,934
|
(e
|
)
|
4.9
|
%
|
|||||
|
Julius
R. Krevans
|
392,000
|
(f
|
)
|
(l
|
)
|
|||||
|
Brent
L. Larson
|
627,762
|
(g
|
)
|
(l
|
)
|
|||||
|
Fred
B. Miller
|
266,000
|
(h
|
)
|
(l
|
)
|
|||||
|
J.
Frank Whitley, Jr.
|
246,000
|
(i
|
)
|
(l
|
)
|
|||||
|
All
directors and officers as a group
|
6,326,295
|
(j)(m
|
)
|
9.7
|
%
|
|||||
|
(12
persons)
|
||||||||||
|
Great
Point Partners, L.P.
2
Pickwick Plaza, Suite 450
Greenwich,
CT 06830
|
28,750,000
|
(k
|
)
|
32.4
|
%
|
|||||
|
(*)
|
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission which generally attribute beneficial ownership
of
securities to persons who possess sole or shared voting power and/or
investment power with respect to those securities. Unless otherwise
indicated, voting and investment power are exercised solely by the
person
named above or shared with members of such person’s
household.
|
|
(**)
|
Percent
of class is calculated on the basis of the number of shares outstanding
on
February 28, 2007, plus the number of shares the person has the right
to
acquire within 60 days of February 28, 2007.
|
|
(a)
|
This
amount includes 80,000 shares issuable upon exercise of options which
are
exercisable within 60 days, but does not include 30,000 shares issuable
upon exercise of options which are not exercisable within 60
days.
|
|
(b)
|
This
amount consists of 139,256 shares of our common stock owned by Mittai
Investments Ltd. (Mittai), an investment fund under the management
and
control of Mr. Avital, and 155,000 shares issuable upon exercise
of
options which are exercisable within 60 days but does not include
20,000
shares issuable upon exercise of options which are not exercisable
within
60 days. The shares held by Mittai were obtained through a distribution
of
2,785,123 shares previously held by Ma’Aragim Enterprise Ltd. (Ma’Aragim),
another investment fund under the management and control of Mr. Avital.
On
February 28, 2005, Ma’Aragim distributed its shares to the partners in the
fund. Mr. Avital is not an affiliate of the other fund to which the
remaining 2,645,867 shares were distributed. Of the 2,785,123 shares
previously held by Ma’Aragim, 2,286,712 were acquired in exchange for
surrendering its shares in Cardiosonix Ltd. on December 31, 2001,
in
connection with our acquisition of Cardiosonix, and 498,411 were
acquired
by Ma’Aragim based on the satisfaction of certain developmental milestones
on December 30, 2002, associated with our acquisition of
Cardiosonix.
|
|
(c)
|
This
amount includes 140,000 shares issuable upon exercise of options
which are
exercisable within 60 days but does not include 20,000 shares issuable
upon exercise of options which are not exercisable within 60
days.
|
|
(d)
|
This
amount includes 403,333 shares issuable upon exercise of options
which are
exercisable within 60 days and 63,845 shares in Mr. Bosch’s account in the
401(k) Plan, but does not include 96,667 shares issuable upon exercise
of
options which are not exercisable within 60
days.
|
|
(e)
|
This
amount includes 1,226,666 shares issuable upon exercise of options
which
are exercisable within 60 days, 875,000 warrants which are exercisable
within 60 days, a promissory note convertible into 250,000 shares
of our
common stock,
175,511 shares that are held by Mr. Bupp’s wife for which he disclaims
beneficial ownership and 91,257 shares in Mr. Bupp’s account in the 401(k)
Plan, but it does not include 483,334 shares issuable upon exercise
of
options which are not exercisable within 60
days.
|
|
(f)
|
This
amount includes 390,000 shares issuable upon exercise of options
which are
exercisable within 60 days, but does not include 20,000 shares issuable
upon the exercise of options which are not exercisable within 60
days.
|
|
(g)
|
This
amount includes 460,533 shares issuable upon exercise of options
which are
exercisable within 60 days and 64,229 shares in Mr. Larson’s account in
the 401(k) Plan, but it does not include 96,667 shares issuable upon
exercise of options which are not exercisable within 60
days.
|
|
(h)
|
This
amount includes 215,000 shares issuable upon exercise of options
which are
exercisable within 60 days and 31,000 shares held by Mr. Miller’s wife for
which he disclaims beneficial ownership, but does not include 20,000
shares issuable upon the exercise of options which are not exercisable
within 60 days.
|
|
(i)
|
This
amount includes 245,000 shares issuable upon exercise of options
which are
exercisable within 60 days, but does not include 20,000 shares issuable
upon exercise of options which are not exercisable within 60
days.
|
|
(j)
|
This
amount includes 3,893,365 shares issuable upon exercise of options
which
are exercisable within 60 days and 240,663 shares held in the 401(k)
Plan
on behalf of certain officers, but it does not include 963,335 shares
issuable upon the exercise of options which are not exercisable within
60
days. The Company itself is the trustee of the Neoprobe 401(k) Plan
and
may, as such, share investment power over common stock held in such
plan.
The trustee disclaims any beneficial ownership of shares held by
the
401(k) Plan. The 401(k) Plan holds an aggregate total of 444,536
shares of
common stock.
|
|
(k)
|
This
amount includes 10,278,125 shares issuable upon conversion
of promissory
notes in the principal amount of $4,111,250 held by Biomedical
Value Fund,
L.P. (BVF) that are convertible within 60 days, 8,409,375 shares
issuable
upon conversion of promissory notes in the original principal
amount of
$3,363,750 held by Biomedical Offshore Value Fund, Ltd. (BOVF)
that are
convertible within 60 days, 5,500,000 warrants held by BVF
that are
exercisable within 60 days and 4,500,000 warrants held by BOVF
that are
exercisable within 60 days. BVF and BOVF are investment funds
managed by
Great Point Partners,
LLP.
|
|
(l)
|
Less
than one percent.
|
| (m) |
The
address of all directors and executive offices is c/o Neoprobe
Corporation, 425 Metro Place North, Suite 300, Dublin, Ohio
43017-1367.
|
|
Exhibit
Number
|
Exhibit
Description
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Neoprobe Corporation
as
corrected February 18, 1994 and amended June 27, 1994, June 3,
1996, March
17, 1999, May 9, 2000, June 13, 2003, July 27, 2004, June 22, 2005,
and
November 20, 2006 (incorporated by reference to Exhibit 3.1 to
the
Company’s Registration Statement on Form SB-2 filed December 7,
2006).
|
|
|
3.2
|
Amended
and Restated By-Laws dated July 21, 1993, as amended July 18, 1995
and May
30, 1996 (filed as Exhibit 99.4 to the Company’s Current Report on Form
8-K dated June 20, 1996, and incorporated herein by
reference).
|
|
|
10.1
|
Amended
and Restated Stock Option and Restricted Stock Purchase Plan dated
March
3, 1994 (incorporated by reference to Exhibit 10.2.26 to the Company’s
December 31, 1993 Form 10-K).
|
|
|
10.2
|
1996
Stock Incentive Plan dated January 18, 1996 as amended March 13, 1997
(incorporated by reference to Exhibit 10.2.37 to the Company’s December
31, 1997 Form 10-K).
|
|
|
10.3
|
Neoprobe
Corporation Amended and Restated 2002 Stock Incentive Plan (incorporated
by reference to Appendix A to the Company’s Definitive Proxy Statement
(File No. 000-26520), filed with the Securities and Exchange Commission
on
April 29, 2005).
|
|
|
10.4
|
Form
of Stock Option Agreement under the Neoprobe Corporation Amended
and
Restated 2002 Stock Incentive Plan (incorporated by reference to
Exhibit
10.1 to the Company’s Current Report on Form 8-K filed December 21,
2006).
|
|
|
10.5
|
Employment
Agreement, dated January 1, 2007, between the Company and David
C.
Bupp.
(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed January 5, 2007. This is one of three substantially
identical employment agreements. A schedule identifying the other
agreements and setting forth the material details in which such
agreements
differ from the one that is incorporated by reference herein is
filed as
Exhibit 10.6 to this Annual Report on Form 10-KSB).
|
|
|
10.6
|
Schedule
identifying material differences between the employment agreement
incorporated by reference as Exhibit 10.5 to this Annual Report
on Form
10-KSB and other substantially identical employment agreements
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed January 5, 2007).
|
|
|
10.7
|
Technology
Transfer Agreement dated July 29, 1992 between the Company and
The Dow
Chemical Corporation (portions of this Exhibit have been omitted
pursuant
to a request for confidential treatment and have been filed separately
with the Commission) (incorporated by reference to Exhibit 10.10
to the
Company’s Form S-1 filed October 15, 1992).
|
|
|
10.8
|
Cooperative
Research and Development Agreement between the Company and the
National
Cancer Institute (incorporated by reference to Exhibit 10.3.31
to the
Company’s September 30, 1995 Form 10-QSB).
|
|
|
10.9
|
License
dated May 1, 1996 between the Company and The Dow Chemical Company
(incorporated by reference to Exhibit 10.3.45 to the Company’s June 30,
1996 Form 10-QSB).
|
|
10.10
|
License
Agreement dated May 1, 1996 between the Company and The Dow Chemical
Company (portions of this Exhibit have been omitted pursuant to
a request
for confidential treatment and have been filed separately with
the
Commission) (incorporated by reference to Exhibit 10.3.46 to the
Company’s
June 30, 1996 Form 10-QSB).
|
|
|
10.11
|
License
Agreement dated January 30, 2002 between the Company and the Regents
of
the University of California, San Diego, as amended on May 27,
2003 and
February 1, 2006 (portions of this Exhibit have been omitted pursuant
to a
request for confidential treatment and have been filed separately
with the
Commission) (incorporated by reference to Exhibit 10.11 to the
Company’s
Annual Report on Form 10-KSB filed March 31, 2006).
|
|
|
10.12
|
Evaluation
License Agreement dated March 31, 2005 between the Company and
the Regents
of the University of California, San Diego (portions of this Exhibit
have
been omitted pursuant to a request for confidential treatment and
have
been filed separately with the Commission) (incorporated by reference
to
Exhibit 10.12 to the Company’s Annual Report on Form 10-KSB filed March
31, 2006).
|
|
|
10.13
|
Distribution
Agreement between the Company and Ethicon Endo-Surgery, Inc. dated
October
1, 1999 (portions of this Exhibit have been omitted pursuant to
a request
for confidential treatment and have been filed separately with
the
Commission).*
|
|
|
10.14
|
Product
Supply Agreement between the Company and TriVirix International,
Inc.,
dated February 5, 2004 (portions of this Exhibit have been omitted
pursuant to a request for confidential treatment and have been
filed
separately with the Commission) (incorporated by reference to Exhibit
10.17 to the Company’s December 31, 2004 Form 10-KSB).
|
|
|
10.15
|
Warrant
to Purchase Common Stock of Neoprobe Corporation dated March 8,
2004
between the Company and David C. Bupp (incorporated by reference
to
Exhibit 10.28 to the Company’s December 31, 2003 Form
10-KSB).
|
|
|
10.16
|
Warrant
to Purchase Common Stock of Neoprobe Corporation dated April 2,
2003
between the Company and Donald E. Garlikov (incorporated by reference
to
Exhibit 99(g) to the Company’s Current Report on Form 8-K filed April 2,
2003).
|
|
|
10.17
|
Warrant
to Purchase Common Stock of Neoprobe Corporation dated April 2,
2003
between the Company and David C. Bupp (incorporated by reference
to
Exhibit 99(h) to the Company’s Current Report on Form 8-K filed April 2,
2003).
|
|
|
10.18
|
Registration
Rights Agreement dated April 2, 2003 between the Company, David
C. Bupp
and Donald E. Garlikov (incorporated by reference to Exhibit 99(i)
to the
Company’s Current Report on Form 8-K filed April 2,
2003).
|
|
|
10.19
|
Stock
Purchase Agreement dated October 22, 2003 between the Company and
Bridges
& Pipes, LLC (incorporated by reference to Exhibit 10.32 to the
Company’s registration statement on Form SB-2 filed December 2,
2003).
|
|
|
10.20
|
Registration
Rights Agreement dated October 22, 2003 between the Company and
Bridges
& Pipes, LLC (incorporated by reference to Exhibit 10.33 to the
Company’s registration statement on Form SB-2 filed December 2,
2003).
|
|
|
10.21
|
Series
R Warrant Agreement dated October 22, 2003 between the Company
and Bridges
& Pipes, LLC (incorporated by reference to Exhibit 10.34 to the
Company’s registration statement on Form SB-2 filed December 2,
2003).
|
|
|
10.22
|
Series
S Warrant Agreement dated November 21, 2003 between the Company
and
Alberdale Capital, LLC (incorporated by reference to Exhibit 10.35
to the
Company’s registration statement on Form SB-2 filed December 2,
2003).
|
|
10.23
|
Securities
Purchase Agreement, dated as of December 13, 2004, among Neoprobe
Corporation, Biomedical Value Fund, L.P., Biomedical Offshore Value
Fund,
Ltd. and David C. Bupp (incorporated by reference to Exhibit 10.1
to the
Company’s Current Report on Form 8-K filed December 16,
2004).
|
|
|
10.24
|
Amendment,
dated November 30, 2006, to the Securities Purchase Agreement,
dated as of
December 13, 2004, among Neoprobe Corporation, Biomedical Value
Fund,
L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed December 4, 2006).
|
|
|
10.25
|
Form
of Neoprobe Corporation Replacement Series A Convertible Promissory
Note
issued by the Company in connection with the Amendment, dated November
30,
2006, to the Securities Purchase Agreement, dated as of December
13, 2004,
by and among Neoprobe Corporation, Biomedical Value Fund, L.P.,
Biomedical
Offshore Value Fund, Ltd. and David C. Bupp (Incorporated by reference
to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 4,
2006. This is the form of three substantially identical agreements.
A
schedule identifying the agreements and setting forth the material
details
in which such agreements differ from the form that is incorporated
by
reference herein is filed as Exhibit 10.26 to this Annual Report
on Form
10-KSB).
|
|
|
10.26
|
Schedule
identifying material differences between the form of Replacement
Series A
Convertible Promissory Note incorporated by reference as Exhibit
10.25 to
this Annual Report on Form 10-KSB and the substantially identical
Replacement Series A Convertible Promissory Notes (incorporated
by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
filed December 4, 2006).
|
|
|
10.27
|
Form
of Series T Neoprobe Corporation Replacement Common Stock Purchase
Warrant
issued by the Company in connection with the Amendment, dated November
30,
2006, to the Securities Purchase Agreement, dated as of December
13, 2004,
by and among Neoprobe Corporation, Biomedical Value Fund, L.P.,
Biomedical
Offshore Value Fund, Ltd. and David C. Bupp (Incorporated by reference
to
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed December 4,
2006. This is the form of three substantially identical warrants.
A
schedule identifying the warrants and setting forth the material
details
in which such agreements differ from the form that is incorporated
by
reference herein is filed as Exhibit 10.28 to this Annual Report
on Form
10-KSB).
|
|
|
10.28
|
Schedule
identifying material differences between the Form of Series T Neoprobe
Corporation Replacement Common Stock Purchase Warrant incorporated
by
reference as Exhibit 10.27 to this Annual Report on Form 10-KSB
and the
substantially identical Series T Neoprobe Corporation Replacement
Common
Stock Purchase Warrants (incorporated by reference to Exhibit 10.4
to the
Company’s Current Report on Form 8-K filed December 4,
2006).
|
|
|
10.29
|
Security
Agreement, dated as of December 13, 2004, made by Neoprobe Corporation
in
favor of Biomedical Value Fund, L.P., Biomedical Offshore Value
Fund, Ltd.
and David C. Bupp (incorporated by reference to Exhibit 10.1 to
the
Company’s Current Report on Form 8-K filed December 16, 2004).
|
|
|
10.30
|
Form
of Series U Warrant Agreement, dated December 13, 2004, between
the
Company and the placement agents for the Series A Convertible Promissory
Notes and Series T Warrants. (Incorporated by reference to Exhibit
10.35
to the Company’s December 31, 2004 Form 10-KSB. This is the form of six
substantially identical agreements. A schedule identifying the
other
agreements and setting forth the material details in which such
agreements
differ from the one that is incorporated by reference herein was
filed as
Exhibit 10.36 to the Company’s December 31, 2004 Form
10-KSB.)
|
|
10.31
|
Common
Stock Purchase Agreement between the Company and Fusion Capital
Fund II,
LLC dated December 1, 2006 (incorporated by reference to Exhibit
10.5 to
the Company’s Current Report on Form 8-K filed December 4,
2006).
|
|
|
10.32
|
Registration
Rights Agreement dated December 1, 2006, between the Company and
Fusion
Capital Fund II, LLC (incorporated by reference to Exhibit 10.6
to the
Company’s Current Report on Form 8-K filed December 4,
2006).
|
|
|
21.1
|
Subsidiaries
of the registrant.*
|
|
|
23.1
|
Consent
of BDO Seidman, LLP.*
|
|
|
24.1
|
Powers
of Attorney.*
|
|
|
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.*
|
|
Dated:
March 16, 2007
|
NEOPROBE
CORPORATION
(the
Company)
|
|
| |
|
|
| By: | /s/ David C. Bupp | |
|
David
C. Bupp, President and
Chief
Executive Officer
|
||
|
Signature
|
Title
|
Date
|
||
|
/s/David
C. Bupp
|
Director,
President and
Chief
Executive Officer
(principal
executive officer)
|
March
1, 2007
|
||
|
David
C. Bupp
|
||||
|
/s/
Brent L. Larson*
|
Vice
President, Finance and
Chief
Financial Officer
(principal
financial officer)
|
March
1, 2007
|
||
|
Brent
L. Larson
|
||||
|
/s/
Carl J. Aschinger, Jr.*
|
Director
|
March
1, 2007
|
||
|
Carl
J. Aschinger, Jr.
|
||||
|
/s/
Reuven Avital*
|
Director
|
March
1, 2007
|
||
|
Reuven
Avital
|
||||
|
/s/
Kirby I. Bland*
|
Director
|
March
1, 2007
|
||
|
Kirby
I. Bland
|
||||
|
/s/
Julius R. Krevans*
|
Chairman,
Director
|
March
1, 2007
|
||
|
Julius
R. Krevans
|
||||
|
/s/
Fred B. Miller*
|
Director
|
March
1, 2007
|
||
|
Fred
B. Miller
|
||||
|
/s/
J. Frank Whitley, Jr.*
|
Director
|
March
1, 2007
|
||
|
J.
Frank Whitley, Jr.
|
|
*By: /s/
David C. Bupp
|
|||
|
David
C. Bupp, Attorney-in-fact
|
|
Consolidated
Financial Statements of Neoprobe Corporation
|
||||
|
Report
of Independent Registered Public Accounting Firm
|
||||
|
BDO
Seidman, LLP
|
F-2
|
|||
|
Consolidated
Balance Sheets as of
|
||||
|
December
31, 2006 and December
31, 2005
|
F-3
|
|||
|
Consolidated
Statements of Operations for the years ended
|
||||
|
December
31, 2006 and December 31, 2005
|
F-5
|
|||
|
Consolidated
Statements of Stockholders’ Equity for the years ended
|
||||
|
December
31, 2006 and December 31, 2005
|
F-6
|
|||
|
Consolidated
Statements of Cash Flows for the years ended
|
||||
|
December
31, 2006 and December 31, 2005
|
F-7
|
|||
|
Notes
to the Consolidated Financial Statements
|
F-8
|
|||
|
/s/
BDO Seidman, LLP
|
||
| |
|
|
|
Chicago,
Illinois
March
14, 2007
|
||
|
2006
|
2005
|
||||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
|
$
|
2,502,655
|
$
|
4,940,946
|
|||
|
Available-for-sale
securities
|
-
|
1,529,259
|
|||||
|
Accounts
receivable, net
|
1,246,089
|
673,008
|
|||||
|
Inventory
|
1,154,376
|
803,703
|
|||||
|
Prepaid
expenses and other
|
430,623
|
501,557
|
|||||
|
Total
current assets
|
5,333,743
|
8,448,473
|
|||||
|
Property
and equipment
|
2,238,050
|
2,051,793
|
|||||
|
Less
accumulated depreciation and amortization
|
1,882,371
|
1,768,558
|
|||||
|
355,679
|
283,235
|
||||||
|
Patents
and trademarks
|
3,131,391
|
3,162,547
|
|||||
|
Acquired
technology
|
237,271
|
237,271
|
|||||
|
3,368,662
|
3,399,818
|
||||||
|
Less
accumulated amortization
|
1,540,145
|
1,300,908
|
|||||
|
1,828,517
|
2,098,910
|
||||||
|
Other
assets
|
515,593
|
739,823
|
|||||
|
Total
assets
|
$
|
8,033,532
|
$
|
11,570,441
|
|||
|
2006
|
2005
|
||||||
|
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
668,288
|
$
|
207,824
|
|||
|
Accrued
liabilities and other
|
544,215
|
821,781
|
|||||
|
Capital
lease obligations
|
14,841
|
19,530
|
|||||
|
Deferred
revenue
|
348,568
|
252,494
|
|||||
|
Notes
payable to finance companies
|
136,925
|
200,054
|
|||||
|
Notes
payable to investors, current portion, net of discount of
$53,585
|
1,696,415
|
-
|
|||||
|
Total
current liabilities
|
3,409,252
|
1,501,683
|
|||||
|
Capital
lease obligations
|
17,014
|
31,855
|
|||||
|
Deferred
revenue
|
40,495
|
41,132
|
|||||
|
Notes
payable to CEO, net of discounts of $19,030
and
$26,249, respectively
|
80,970
|
73,751
|
|||||
|
Notes
payable to investors, net of discounts of $1,468,845
and
$2,099,898, respectively
|
4,781,155
|
5,900,102
|
|||||
|
Other
liabilities
|
2,673
|
5,122
|
|||||
|
|
|||||||
|
Total
liabilities
|
8,331,559
|
7,553,645
|
|||||
|
Commitments
and contingencies
|
|||||||
|
Stockholders’
(deficit) equity:
|
|||||||
|
Preferred
stock; $.001 par value; 5,000,000 shares authorized
at
December 31, 2006 and 2005; none issued and outstanding
|
-
|
-
|
|||||
|
Common
stock; $.001 par value; 150,000,000 shares authorized;
59,624,379
and 58,622,059 shares issued and outstanding at
December
31, 2006 and 2005, respectively
|
59,624
|
58,622
|
|||||
|
Additional
paid-in capital
|
135,330,668
|
134,903,259
|
|||||
|
Accumulated
deficit
|
(135,688,319
|
)
|
(130,947,103
|
)
|
|||
|
Accumulated
other comprehensive income
|
-
|
2,018
|
|||||
|
Total
stockholders’ (deficit) equity
|
(298,027
|
)
|
4,016,796
|
||||
|
Total
liabilities and stockholders’ (deficit) equity
|
$
|
8,033,532
|
$
|
11,570,441
|
|||
|
Years
Ended December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
Net
sales
|
$
|
6,051,071
|
$
|
5,919,473
|
|||
|
Cost
of goods sold
|
2,632,131
|
2,376,211
|
|||||
|
Gross
profit
|
3,418,940
|
3,543,262
|
|||||
|
Operating
expenses:
|
|||||||
|
Research
and development
|
3,803,060
|
4,031,790
|
|||||
|
Selling,
general and administrative
|
3,076,379
|
3,155,674
|
|||||
|
Total
operating expenses
|
6,879,439
|
7,187,464
|
|||||
|
Loss
from operations
|
(3,460,499
|
)
|
(3,644,202
|
)
|
|||
|
Other
income (expense):
|
|||||||
|
Interest
income
|
225,468
|
226,663
|
|||||
|
Interest
expense
|
(1,496,332
|
)
|
(1,350,592
|
)
|
|||
|
Increase
in warrant liability
|
-
|
(142,427
|
)
|
||||
|
Other
|
(9,853
|
)
|
(18,392
|
)
|
|||
|
Total
other expenses
|
(1,280,717
|
)
|
(1,284,748
|
)
|
|||
|
Net
loss
|
$
|
(4,741,216
|
)
|
$
|
(4,928,950
|
)
|
|
|
Net
loss per common share:
|
|||||||
|
Basic
|
$
|
(0.08
|
)
|
$
|
(0.08
|
)
|
|
|
Diluted
|
$
|
(0.08
|
)
|
$
|
(0.08
|
)
|
|
|
Weighted
average shares outstanding:
|
|||||||
|
Basic
|
58,586,593
|
58,433,895
|
|||||
|
Diluted
|
58,586,593
|
58,433,895
|
|||||
|
Common
Stock
|
Additional
Paid-in
|
Accumulated
|
Accumulated
Other
Comprehensive
|
||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income
|
Total
|
||||||||||||||
|
Balance,
December 31, 2004
|
58,378,143
|
$
|
58,378
|
$
|
132,123,605
|
$
|
(126,018,153
|
)
|
$
|
-
|
$
|
6,163,830
|
|||||||
|
Issued
stock upon exercise of warrants
|
206,865
|
207
|
57,715
|
-
|
-
|
57,922
|
|||||||||||||
|
Issued
stock to 401(k) plan at $0.39
|
37,051
|
37
|
19,205
|
-
|
-
|
19,242
|
|||||||||||||
|
Reclassified
liability related to warrants
to
purchase common stock
|
-
|
-
|
2,702,734
|
-
|
-
|
2,702,734
|
|||||||||||||
|
Comprehensive
income (loss):
|
|||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(4,928,950
|
)
|
-
|
(4,928,950
|
)
|
|||||||||||
|
Unrealized
gain on available-for-sale
securities
|
-
|
-
|
-
|
-
|
2,018
|
2,018
|
|||||||||||||
|
Total
comprehensive loss
|
(4,926,932
|
)
|
|||||||||||||||||
|
Balance,
December 31, 2005
|
58,622,059
|
58,622
|
134,903,259
|
(130,947,103
|
)
|
2,018
|
4,016,796
|
||||||||||||
|
Issued
stock to 401(k) plan at $0.39
|
67,987
|
68
|
26,545
|
-
|
-
|
26,613
|
|||||||||||||
|
Issued
stock as a commitment fee in
connection
with stock purchase
agreement
|
720,000
|
720
|
179,280
|
-
|
-
|
180,000
|
|||||||||||||
|
Issued
stock in connection with stock
purchase
agreement, net of costs
|
214,333
|
214
|
-
|
-
|
-
|
214
|
|||||||||||||
|
Stock
option expense
|
-
|
-
|
221,584
|
-
|
-
|
221,584
|
|||||||||||||
|
Comprehensive
income (loss):
|
|||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(4,741,216
|
)
|
-
|
(4,741,216
|
)
|
|||||||||||
|
Realized gain
on available-for-sale
securities
|
-
|
-
|
-
|
-
|
(2,018
|
)
|
(2,018
|
)
|
|||||||||||
|
Total
comprehensive loss
|
(4,743,234
|
)
|
|||||||||||||||||
|
Balance,
December 31, 2006
|
59,624,379
|
$
|
59,624
|
$
|
135,330,668
|
$
|
(135,688,319
|
)
|
$
|
-
|
$
|
(298,027
|
)
|
||||||
|
Years
Ended December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(4,741,216
|
)
|
$
|
(4,928,950
|
)
|
|
|
Adjustments
to reconcile net loss to net cash
used
in operating activities:
|
|||||||
|
Depreciation
of property and equipment
|
148,934
|
163,121
|
|||||
|
Amortization
of intangible assets
|
262,802
|
440,629
|
|||||
|
Loss
on disposal and abandonment of assets
|
39,031
|
6,650
|
|||||
|
Amortization
of debt discount and debt offering costs
|
808,916
|
687,370
|
|||||
|
Stock
compensation expense
|
221,584
|
-
|
|||||
|
Increase
in warrant liability
|
-
|
142,427
|
|||||
|
Other
|
22,854
|
(8,199
|
)
|
||||
|
Change
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(573,081
|
)
|
(261,152
|
)
|
|||
|
Inventory
|
(428,202
|
)
|
34,163
|
||||
|
Prepaid
expenses and other assets
|
408,918
|
257,005
|
|||||
|
Accounts
payable
|
460,463
|
8,912
|
|||||
|
Accrued
liabilities and other liabilities
|
(284,212
|
)
|
396,201
|
||||
|
Deferred
revenue
|
95,437
|
59,843
|
|||||
|
Net
cash used in operating activities
|
(3,557,772
|
)
|
(3,001,980
|
)
|
|||
|
Cash
flows from investing activities:
|
|||||||
|
Purchases
of available-for-sale securities
|
-
|
(5,480,787
|
)
|
||||
|
Maturities
of available-for-sale securities
|
1,531,000
|
3,950,000
|
|||||
|
Purchases
of property and equipment
|
(144,022
|
)
|
(86,004
|
)
|
|||
|
Proceeds
from sales of property and equipment
|
4,097
|
11,092
|
|||||
|
Patent
and trademark costs
|
(31,163
|
)
|
(20,625
|
)
|
|||
|
|
|||||||
|
Net
cash provided by (used in) investing activities
|
1,359,912
|
(1,626,324
|
)
|
||||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from issuance of common stock
|
50,000
|
57,922
|
|||||
|
Payment
of stock offering costs
|
(35,570
|
)
|
-
|
||||
|
Payment
of debt issuance costs
|
-
|
(29,635
|
)
|
||||
|
Payment
of notes payable
|
(235,330
|
)
|
(286,035
|
)
|
|||
|
Payments
under capital leases
|
(19,530
|
)
|
(15,680
|
)
|
|||
|
Other
|
-
|
20
|
|||||
|
Net
cash used in financing activities
|
(240,430
|
)
|
(273,408
|
)
|
|||
|
Net
decrease in cash
|
(2,438,290
|
)
|
(4,901,712
|
)
|
|||
|
Cash,
beginning of year
|
4,940,946
|
9,842,658
|
|||||
|
Cash,
end of year
|
$
|
2,502,656
|
$
|
4,940,946
|
|||
| 1. |
Organization
and Summary of Significant Accounting
Policies:
|
|
b.
|
Principles
of Consolidation:
Our consolidated financial statements include the accounts of Neoprobe,
our wholly-owned subsidiary, Cardiosonix, and our majority-owned
subsidiary, Cira Bio. All significant inter-company accounts were
eliminated in consolidation.
|
|
c.
|
Fair
Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair
value
of each class of financial
instruments:
|
|
(2)
|
Available-for-sale
securities: Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect,
on
available-for-sale securities are excluded from earnings and are
reported
as a separate component of other comprehensive income (loss) until
realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification
basis.
|
|
A
decline in the market value of any available-for-sale security below
cost
that is deemed to be other than temporary results in a reduction
in
carrying amount to fair value. The impairment is charged to earnings
and a
new cost basis for the security is established. Premiums and discounts
are
amortized or accreted over the life of the related available-for-sale
security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when
earned.
|
|
Available-for-sale
securities are classified as current based on our intent to use them
to
fund short-term working capital
needs.
|
| (3) |
Notes
payable to finance companies: The fair value of our debt is estimated
by
discounting the future cash flows at rates currently offered to
us for
similar debt instruments of comparable maturities by banks or finance
companies. At December 31, 2006 and 2005, the carrying values of
these
instruments approximate fair
value.
|
| (4) |
Note
payable to CEO: The carrying value of our debt is presented as
the face
amount of the notes less the unamortized discounts related to the
value of
the beneficial conversion features and the initial estimated fair
value of
the warrants to purchase common stock issued in connection with
the notes.
At December 31, 2006 and 2005, the carrying value of the note payable
to
our CEO approximates fair
value.
|
| (5) |
Note
payable to outside investors: The carrying value of our debt is presented
as the face amount of the notes less the unamortized discounts related
to
the value of the beneficial conversion features and the initial estimated
fair value of the warrants to purchase common stock issued in connection
with the notes. At December 31, 2006 and 2005, the carrying value
of the
note payable to outside investors approximates fair
value.
|
|
d.
|
Cash
and Cash Equivalents:
There were no cash equivalents at December 31, 2006 or 2005. No cash
was
restricted as of December 31, 2006. As of December 31, 2005, $8,000
was
restricted to secure bank guarantees related to sub-lease agreements
for
Cardiosonix’ office space.
|
|
e.
|
Inventory:
All components of inventory are valued at the lower of cost (first-in,
first-out) or market. We adjust inventory to market value when the
net
realizable value is lower than the carrying cost of the inventory.
Market
value is determined based on recent sales activity and margins achieved.
During 2006 and 2005, we wrote off $129,000 and $58,000, respectively,
of
excess and obsolete materials, primarily due to design changes to
our
Quantix®
product line and reduced demand for our laparoscopic
probes.
|
|
2006
|
2005
|
||||||
|
Materials
and component parts
|
$
|
522,225
|
$
|
461,218
|
|||
|
Work-in-process
|
167,188
|
-
|
|||||
|
Finished
goods
|
464,963
|
324,485
|
|||||
|
$
|
1,154,376
|
$
|
803,703
|
||||
|
f.
|
Property
and Equipment:
Property and equipment are stated at cost. Property and equipment
under
capital leases are stated at the present value of minimum lease payments.
Depreciation is computed using the straight-line method over the
estimated
useful lives of the depreciable assets ranging from 2 to 7 years,
and
includes amortization related to equipment under capital leases.
Maintenance and repairs are charged to expense as incurred, while
renewals
and improvements are capitalized. Property and equipment includes
$78,000
of equipment under capital leases with accumulated amortization of
$53,000
and $33,000 at December 31, 2006 and 2005, respectively. During 2006
and
2005, we recorded losses of $2,000 and $7,000, respectively, on the
disposal of property and equipment.
|
|
Useful
Life
|
2006
|
2005
|
||||||||
|
Production
machinery and equipment
|
5
years
|
$
|
1,107,278
|
$
|
999,106
|
|||||
|
Other
machinery and equipment, primarily
computers
and research equipment
|
2
- 5 years
|
598,555
|
543,313
|
|||||||
|
Furniture
and fixtures
|
7
years
|
336,537
|
334,275
|
|||||||
|
Leasehold
improvements
|
Life
of Lease1
|
74,682
|
74,682
|
|||||||
|
Software
|
3
years
|
120,998
|
100,417
|
|||||||
|
$
|
2,238,050
|
$
|
2,051,793
|
|||||||
|
g.
|
Intangible
Assets: Intangible
assets consist primarily of patents and other acquired intangible
assets.
Intangible assets are stated at cost, less accumulated amortization.
Patent costs are amortized using the straight-line method over the
estimated useful lives of the patents of 5 to 15 years. Patent application
costs are deferred pending the outcome of patent applications. Costs
associated with unsuccessful patent applications and abandoned
intellectual property are expensed when determined to have no recoverable
value. Acquired technology costs are amortized using the straight-line
method over the estimated useful life of seven years. We evaluate
the
potential alternative uses of all intangible assets, as well as the
recoverability of the carrying values of intangible assets on a recurring
basis.
|
|
December
31, 2006
|
December
31, 2005
|
|||||||||||||||
|
Wtd
Avg Life
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
||||||||||||
|
Patents
and trademarks
|
9.7
yrs
|
$
|
3,131,391
|
$
|
1,370,291
|
$
|
3,162,547
|
$
|
1,164,763
|
|||||||
|
Acquired
technology
|
2.0
yrs
|
237,271
|
169,854
|
237,271
|
136,145
|
|||||||||||
|
Total
|
$
|
3,368,662
|
$
|
1,540,145
|
$
|
3,399,818
|
$
|
1,300,908
|
||||||||
|
Estimated
Amortization Expense
|
||||
|
For
the year ended 12/31/2007
|
$
|
222,709
|
||
|
For
the year ended 12/31/2008
|
216,116
|
|||
|
For
the year ended 12/31/2009
|
170,852
|
|||
|
For
the year ended 12/31/2010
|
170,033
|
|||
|
For
the year ended 12/31/2011
|
168,581
|
|||
|
h.
|
Other
Assets:
|
|
i.
|
Revenue
Recognition:
|
|
(1)
|
Product
Sales: We
derive revenues primarily from sales of our medical devices. Our
standard
shipping terms are FOB shipping point, and title and risk of loss
passes
to the customer upon delivery to a common carrier. We generally recognize
sales revenue when the products are shipped and the earnings process
has
been completed. 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. Our
customers generally have no right to return products purchased in
the
ordinary course of business.
|
|
(2)
|
Extended
Warranty Revenue: We
derive revenues from the sale of extended warranties covering our
medical
devices over periods of one to four years. We recognize revenue from
extended warranty sales on a pro-rata basis over the period covered
by the
extended warranty. Expenses related to the extended warranty are
recorded
when incurred.
|
| (3) |
Service
Revenue: We
derive revenues from the repair and service of our medical devices
that
are in use beyond the term of the original warranty and that are
not
covered by an extended warranty. We recognize revenue from repair
and
service activities once the activities are complete and the repaired
or
serviced device has been shipped back to the
customer.
|
|
j.
|
Research
and Development Costs:
All costs related to research and development are expensed as
incurred.
|
|
k.
|
Income
Taxes:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases, and operating loss and tax credit carryforwards. Deferred
tax
assets and liabilities are measured using enacted tax rates expected
to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets
and liabilities of a change in tax rates is recognized in income
in the
period that includes the enactment date. Due to the uncertainty
surrounding the realization of the deferred tax assets in future
tax
returns, all of the deferred tax assets have been fully offset by
a
valuation allowance at December 31, 2006 and
2005.
|
|
l.
|
Stock-Based
Compensation: At
December 31, 2006, we have three stock-based compensation plans.
Under the
Amended and Restated Stock Option and Restricted Stock Purchase Plan
(the
Amended Plan), the 1996 Stock Incentive Plan (the 1996 Plan), and
the 2002
Stock Incentive Plan (the 2002 Plan), we may grant incentive stock
options, nonqualified stock options, and restricted stock awards
to
full-time employees, and nonqualified stock options and restricted
awards
may be granted to our consultants and agents. Total shares authorized
under each plan are 2 million shares, 1.5 million shares and 5 million
shares, respectively. The Amended Plan was approved by the stockholders
in
1994, and although options are still outstanding under this plan,
the
Amended Plan is considered expired and no new grants may be made
from it.
Under all three plans, the exercise price of each option is greater
than
or equal to the closing market price of our common stock on the day
prior
to the date of the grant.
|
|
Year
Ended
December
31,
2005
|
||||
|
Net
loss, as reported
|
$
|
(4,928,950
|
)
|
|
|
Deduct:
Total stock-based employee compensation expense
determined
under fair value based method for all awards
|
(511,712
|
)
|
||
|
Pro
forma net loss
|
$
|
(5,440,662
|
)
|
|
|
Loss
per common share:
|
||||
|
As
reported (basic and diluted)
|
$
|
(0.08
|
)
|
|
|
Pro
forma (basic and diluted)
|
$
|
(0.09
|
)
|
|
|
2006
|
2005
|
||||||
|
Expected
term
|
5.9
years
|
10
years
|
|||||
|
Expected
volatility
|
105%
|
79%
|
|||||
|
Expected
dividends
|
-
|
-
|
|||||
|
Risk-free
rate
|
4.7%
|
4.3%
|
|||||
|
Year
Ended December 31, 2006
|
|||||||||||||
|
Number
of Options
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
||||||||||
|
Outstanding,
January 1, 2006
|
5,523,974
|
$
|
0.44
|
||||||||||
|
Granted
|
620,000
|
$
|
0.27
|
||||||||||
|
Exercised
|
-
|
-
|
|||||||||||
|
Forfeited
|
(168,501
|
)
|
$
|
0.32
|
|||||||||
|
Expired
|
-
|
-
|
|||||||||||
|
Outstanding,
December 31, 2006
|
5,975,473
|
$
|
0.42
|
6.1
years
|
-
|
||||||||
|
Exercisable,
December 31, 2006
|
4,643,640
|
$
|
0.45
|
5.6
years
|
-
|
||||||||
|
Year
Ended
December
31, 2006
|
|||||||
|
Number
of Shares
|
Weighted
Average Grant-Date Fair Value
|
||||||
|
Outstanding,
January 1, 2006
|
130,000
|
$
|
7.84
|
||||
|
Granted
|
-
|
-
|
|||||
|
Exercised
|
-
|
-
|
|||||
|
Forfeited
|
-
|
-
|
|||||
|
Expired
|
-
|
-
|
|||||
|
Outstanding,
December 31, 2006
|
130,000
|
$
|
7.84
|
||||
|
m.
|
Use
of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those
estimates.
|
|
n.
|
Impairment
or Disposal of Long-Lived Assets:
We
account for long-lived assets in accordance with the provisions of
SFAS
No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.
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. 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 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.
|
|
o.
|
Recent
Accounting Developments:
In
February 2006, the Financial Accounting Standards Board (FASB) issued
SFAS
No. 155, Accounting
for Certain Hybrid Financial Instruments - An Amendment of FASB Statements
No. 133 and 140
(SFAS No. 155). SFAS No. 155 amends SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
and SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of
Liabilities.
SFAS No. 155 (a) permits fair value remeasurement for any hybrid
financial
instrument that contains an embedded derivative that otherwise would
require bifurcation, (b) clarifies which interest-only strips and
principal-only strips are not subject to the requirements of SFAS
No. 133,
(c) establishes a requirement to evaluate interests in securitized
financial assets to identify interests that are freestanding derivatives
or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, (d) clarifies that concentrations
of
credit risk in the form of subordination are not embedded derivatives,
and
(e) amends SFAS No. 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument
that
pertains to a beneficial interest other than another derivative financial
instrument. SFAS No. 155 is effective for all financial instruments
acquired or issued after the beginning of an entity’s first fiscal year
that begins after September 15, 2006 and is required to be adopted
by
Neoprobe beginning January 1, 2007. We do not expect the adoption
of SFAS
No. 155 to have a material impact on our consolidated results of
operations or financial condition.
|
| 2. |
Earnings
Per Share:
|
|
Year
Ended
December
31, 2006
|
Year
Ended
December
31, 2005
|
||||||||||||
|
Basic
Earnings
Per
Share
|
Diluted
Earnings
Per
Share
|
Basic
Earnings
Per
Share
|
Diluted
Earnings
Per
Share
|
||||||||||
|
Outstanding
shares
|
59,624,379
|
59,624,379
|
58,622,059
|
58,622,059
|
|||||||||
|
Effect
of weighting changes
in
outstanding shares
|
(907,786
|
)
|
(907,786
|
)
|
(58,164
|
)
|
(58,164
|
)
|
|||||
|
Contingently
issuable shares
|
(130,000
|
)
|
(130,000
|
)
|
(130,000
|
)
|
(130,000
|
)
|
|||||
|
Adjusted
shares
|
58,586,593
|
58,586,593
|
58,433,895
|
58,433,895
|
|||||||||
| 3. |
Accounts
Receivable and Concentrations of Credit
Risk:
|
|
2006
|
2005
|
||||||
|
Trade
|
$
|
1,243,114
|
$
|
663,898
|
|||
|
Other
|
2,975
|
9,110
|
|||||
|
$
|
1,246,089
|
$
|
673,008
|
||||
| 4. |
Accrued
Liabilities:
|
|
2006
|
2005
|
||||||
|
Contracted
services and other
|
$
|
401,224
|
$
|
540,932
|
|||
|
Compensation
|
91,167
|
204,421
|
|||||
|
Warranty
reserve
|
44,858
|
41,185
|
|||||
|
Inventory
purchases
|
6,966
|
35,243
|
|||||
|
$
|
544,215
|
$
|
821,781
|
||||
| 5. |
Product
Warranty:
|
|
2006
|
2005
|
||||||
|
Warranty
reserve at beginning of year
|
$
|
41,185
|
$
|
66,000
|
|||
|
Provision
for warranty claims and
changes
in reserve for warranties
|
40,103
|
24,539
|
|||||
|
Payments
charged against the reserve
|
(36,430
|
)
|
(49,354
|
)
|
|||
|
Warranty
reserve at end of year
|
$
|
44,858
|
$
|
41,185
|
|||
| 6. |
Notes
Payable:
|
| 7. |
Income
Taxes:
|
|
As
of December 31,
|
|||||||
|
2006
|
2005
|
||||||
|
Deferred
tax assets:
|
|||||||
|
Federal
net operating loss carryforwards
|
$
|
32,227,107
|
$
|
32,247,897
|
|||
|
State
net operating loss carryforwards
|
2,273,948
|
2,304,919
|
|||||
|
R&D
credit carryforwards
|
4,722,457
|
4,418,656
|
|||||
|
Temporary
differences
|
354,340
|
325,077
|
|||||
|
Deferred
tax assets before valuation allowance
|
39,577,852
|
39,296,549
|
|||||
|
Valuation
allowance
|
(39,577,852
|
)
|
(39,296,549
|
)
|
|||
|
Net
deferred tax assets
|
$
|
-
|
$
|
-
|
|||
|
Years
Ended December 31,
|
|||||||||||||
|
2006
|
2005
|
||||||||||||
|
Amount
|
%
|
Amount
|
%
|
||||||||||
|
Benefit
at statutory rate
|
$
|
(1,612,013
|
)
|
(34.0
|
%)
|
$
|
(1,675,843
|
)
|
(34.0
|
%)
|
|||
|
Adjustments
to valuation allowance
|
1,462,443
|
30.8
|
%
|
1,442,711
|
29.3
|
%
|
|||||||
|
Other
|
149,570
|
3.2
|
%
|
233,132
|
4.7
|
%
|
|||||||
|
Benefit
per financial statements
|
$
|
-
|
-
|
$
|
-
|
-
|
|||||||
| 8. |
Equity:
|
|
a.
|
Stock
Warrants:
At
December 31, 2006, there are 17.0 million warrants outstanding to
purchase
our common stock. The warrants are exercisable at prices ranging
from
$0.13 to $0.50 per share with a weighted average exercise price per
share
of $0.40.
|
|
Exercise
Price
|
Number
of Warrants
|
Expiration
Date
|
||||||||
|
Series
Q
|
$
|
0.13
|
875,000
|
April
2008
|
||||||
|
Series
Q
|
$
|
0.50
|
375,000
|
March
2009
|
||||||
|
Series
R
|
$
|
0.28
|
2,808,898
|
October
2008
|
||||||
|
Series
S
|
$
|
0.28
|
1,195,478
|
October
2008
|
||||||
|
Series
T
|
$
|
0.46
|
10,125,000
|
December
2009
|
||||||
|
Series
U
|
$
|
0.46
|
1,600,000
|
December
2009
|
||||||
|
$
|
0.40
|
16,979,376
|
||||||||
| b. |
Private
Placement:
In
November 2003, we executed common stock purchase agreements with
certain
investors for the purchase of 12,173,914 shares of our common stock
at a
price of $0.23 per share for net proceeds of $2.4 million. In addition,
we
issued the purchasers 6,086,959 Series R warrants to purchase our
common
stock at an exercise price of $0.28 per share, expiring in October
2008,
and issued the placement agents 1,354,348 Series S warrants to purchase
our common stock on similar terms. During 2005, certain investors
and
placement agents exercised a total of 206,865 warrants related to
this
placement, resulting in the issuance of 206,865 shares of our common
stock
and we realized net proceeds of $57,922. No warrants were exercised
during
2006.
|
|
c.
|
Common
Stock Purchase Agreement:
In
December 2006, we entered into a common stock purchase agreement
with
Fusion Capital Fund II, LLC (Fusion). A registration statement registering
for resale up to 12,000,000 shares of our common stock became effective
on
December 28, 2006. We have authorized up to 12,000,000 shares of
our
common stock for sale to Fusion under the agreement. Under the terms
of
the agreement, in December 2006, we issued 720,000 shares of common
stock
as an initial commitment fee. We are also required to issue to Fusion
up
to an additional 720,000 shares of our common stock as an additional
commitment fee in connection with future purchases made by Fusion.
The
additional 720,000 shares will be issued pro rata as we sell our
common
stock to Fusion under the agreement, resulting in a total commitment
fee
of 1,440,000 shares of our common stock if the entire $6.0 million
in
value of stock is sold. Under the terms of the agreement, generally
we
have the right but not the obligation from time to time to sell our
shares
to Fusion in amounts between $50,000 and $1.0 million depending on
certain
conditions set forth in the agreement. We have the right to control
the
timing and amount of any sales of our shares to Fusion. The price
of
shares sold to Fusion will generally be based on market prices for
purchases that are not subject to the floor price of $0.20 per share.
The
common stock purchase agreement may be terminated by us at any time
at our
discretion without any cost to us. During 2006, we sold a total of
208,333
shares of our common stock under the agreement, realized gross proceeds
of
$50,000 from such sales, and issued Fusion 6,000 shares of our common
stock as additional commitment fees related to such
sales.
|
|
d.
|
Common
Stock Reserved:
We
have reserved 43,204,849 shares of authorized common stock for the
exercise of all outstanding options, warrants, and convertible
debt.
|
| 9. |
Shareholder
Rights Plan:
|
| 10. |
Segments
and Subsidiary
Information:
|
|
a.
|
Segments:
We
report information about our operating segments using the “management
approach” in accordance with SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. This
information is based on the way management organizes and reports
the
segments within the enterprise for making operating decisions and
assessing performance. Our reportable segments are identified based
on
differences in products, services and markets served. There were
no
inter-segment sales. We own or have rights to intellectual property
involving two primary types of medical device products, including
gamma
detection instruments currently used primarily in the application
of SLNB,
and blood flow measurement devices. We also own or have rights to
intellectual property related to several drug and therapy
products.
|
|
($
amounts in thousands)
|
Gamma
Detection
Devices
|
Blood
Flow Devices
|
Drug
and Therapy Products
|
Corporate
|
Total
|
|||||||||||
|
2006
|
||||||||||||||||
|
Net
sales:
|
||||||||||||||||
|
United
States1
|
$
|
5,214
|
$
|
80
|
$
|
-
|
$
|
-
|
$
|
5,294
|
||||||
|
International
|
231
|
526
|
-
|
-
|
757
|
|||||||||||
|
Research
and development expenses
|
952
|
708
|
2,143
|
-
|
3,803
|
|||||||||||
|
Selling,
general and administrative expenses,
excluding depreciation and
amortization2
|
-
|
-
|
-
|
2,664
|
2,664
|
|||||||||||
|
Depreciation
and amortization
|
103
|
250
|
-
|
59
|
412
|
|||||||||||
|
Income
(loss) from operations3
|
2,237
|
(831
|
)
|
(2,143
|
)
|
(2,723
|
)
|
(3,460
|
)
|
|||||||
|
Other
income (expense)4
|
-
|
-
|
-
|
(1,281
|
)
|
(1,281
|
)
|
|||||||||
|
Total
assets, net of depreciation and amortization:
|
||||||||||||||||
|
United
States operations
|
1,961
|
612
|
57
|
3,510
|
6,140
|
|||||||||||
|
Israeli
operations (Cardiosonix Ltd.)
|
-
|
1,894
|
-
|
-
|
1,894
|
|||||||||||
|
Capital
expenditures
|
102
|
7
|
-
|
35
|
144
|
|||||||||||
|
2005
|
||||||||||||||||
|
Net
sales
|
||||||||||||||||
|
United
States1
|
$
|
5,459
|
$
|
58
|
$
|
-
|
$
|
-
|
$
|
5,517
|
||||||
|
International
|
120
|
282
|
-
|
-
|
402
|
|||||||||||
|
Research
and development expenses
|
276
|
1,414
|
2,342
|
-
|
4,032
|
|||||||||||
|
Selling,
general and administrative expenses,
excluding depreciation and
amortization2
|
-
|
-
|
-
|
2,552
|
2,552
|
|||||||||||
|
Depreciation
and amortization
|
137
|
408
|
1
|
58
|
604
|
|||||||||||
|
Income
(loss) from operations3
|
2,943
|
(1,634
|
)
|
(2,343
|
)
|
(2,610
|
)
|
(3,644
|
)
|
|||||||
|
Other
income (expense)
4
|
-
|
-
|
-
|
(1,285
|
)
|
(1,285
|
)
|
|||||||||
|
Total
assets, net of depreciation and amortization:
|
||||||||||||||||
|
United
States operations
|
1,171
|
318
|
28
|
7,734
|
9,251
|
|||||||||||
|
Israeli
operations (Cardiosonix Ltd.)
|
-
|
2,319
|
-
|
-
|
2,319
|
|||||||||||
|
Capital
expenditures
|
-
|
64
|
1
|
21
|
86
|
|||||||||||
|
1
All
sales to EES are made in the United States. EES distributes the product
globally through its international affiliates.
|
||||||||||||||||
|
2.
Selling,
general and administrative costs, excluding depreciation and amortization,
represent costs that relate to the general administration of the
Company
and as such are not currently allocated to our individual reportable
segments.
|
||||||||||||||||
|
3 Income
(loss) from operations does not reflect the allocation of selling,
general
and administrative costs to our individual reportable
segments.
|
||||||||||||||||
|
4.
Amounts
consist primarily of interest income and interest expense which are
currently not allocated to our individual reportable
segments.
|
|
b.
|
Subsidiary:
On
December 31, 2001, we acquired 100 percent of the outstanding common
shares of Cardiosonix, an Israeli company. We accounted for the
acquisition under SFAS No. 141, Business
Combinations,
and certain provisions of SFAS No. 142, Goodwill
and Other Intangible Assets.
The results of Cardiosonix’ operations have been included in our
consolidated results from the date of
acquisition.
|
| 11. |
Agreements:
|
| a. |
Supply
Agreements:
In
December 1997, we entered into an exclusive supply agreement with
eV
Products (eV), a division of II-VI Incorporated, for the supply of
certain
crystals and associated electronics to be used in the manufacture
of our
proprietary line of hand-held gamma detection instruments. The original
term of the agreement expired on December 31, 2002 and was automatically
extended during 2002 through December 31, 2005; however, the agreement
was
no longer exclusive throughout the extended period. Total purchases
were
$770,000 and $430,000 for the years ended December 31, 2006 and 2005,
respectively. We have issued purchase orders under the same terms
as the
original agreement for $409,000 of crystal modules for delivery of
product
through December 2007.
|
|
In
February 2004, we entered into a product supply agreement with TriVirix
International (TriVirix) for the manufacture of the neo2000 control
unit,
14mm probe, Bluetooth®
wireless probes, 11mm laparoscopic probe, Quantix/ORTM
control unit and Quantix/NDTM
control unit. The initial term of the agreement expires in January
2007,
but may be automatically extended for successive one-year periods.
Either
party has the right to terminate the agreement at any time upon one
hundred eighty (180) days prior written notice, or may terminate
the
agreement upon a material breach or repeated non-material breaches
by the
other. Total purchases under the product supply agreement were $1.1
million for the years ended December 31, 2006 and 2005. We have issued
purchase orders under the agreement for $1.4 million of our products
for
delivery through May 2008.
|
|
b.
|
Marketing
and Distribution Agreement:
During 1999, we entered into a distribution agreement with EES covering
our gamma detection devices used in SLNB. The initial five-year term
expired December 31, 2004, with options to extend for two successive
two-year terms. In March 2006, EES exercised its option for a second
two-year term extension of the distribution agreement covering our
gamma
detection devices, thus extending the distribution agreement through
the
end of 2008. Under the agreement, we manufacture and sell our current
line
of SLNB products exclusively to EES, who distributes the products
globally, except in Japan. EES agreed to purchase minimum quantities
of
our products over the first three years of the term of the agreement
and
to reimburse us for certain research and development costs and a
portion
of our warranty costs. We are obligated to continue certain product
maintenance activities and to provide ongoing regulatory support
for the
products.
|
|
c.
|
Research
and Development Agreements:
Cardiosonix’ research and development efforts have been partially financed
through grants from the Office of the Chief Scientist of the Israeli
Ministry of Industry and Trade (the OCS). Through the end of 2004,
Cardiosonix received a total $775,000 in grants from the OCS. In
return
for the OCS’s participation, Cardiosonix is committed to pay royalties to
the Israeli Government at a rate of 3% to 5% of the sales if its
products,
up to 300% of the total grants received, depending on the portion
of
manufacturing activity that takes place in Israel. There are no future
performance obligations related to the grants received from the OCS.
However, under certain limited circumstances, the OCS may withdraw
its
approval of a research program or amend the terms of its approval.
Upon
withdrawal of approval, Cardiosonix may be required to refund the
grant,
in whole or in part, with or without interest, as the OCS determines.
In
January 2006, the OCS consented to the transfer of manufacturing
as long
as we comply with the terms of the OCS statutes under Israeli law.
As long
as we maintain at least 10% Israeli content in our blood flow devices,
we
will pay a royalty rate of 4% on sales of applicable blood flow devices
and must repay the OCS a total of $1.2 million in royalties. However,
should the amount of Israeli content of our blood flow device products
decrease below 10%, the royalty rate could increase to 5% and the
total
royalty payments due could increase to $2.3 million. As such, the
total
amount we will have to repay the OCS will likely be 150% to 300%
of the
amounts of the original grants. Through December 2006, we have paid
the
OCS a total of $36,000 in royalties related to sales of products
developed
under this program. As of December 31, 2006, we have accrued obligations
for royalties totaling $10,000.
|
|
d.
|
Employment
Agreements: We
maintain employment agreements with six of our officers. The employment
agreements contain change in control provisions that would entitle
each of
the officers to one to two times their current annual salaries, vest
outstanding restricted stock and options to purchase common stock,
and
continue certain benefits if there is a change in control of our
company
(as defined) and their employment terminates. Our maximum contingent
liability under these agreements in such an event is approximately
$1.9
million. The employment agreements also provide for severance, disability
and death benefits. See Note 16(a).
|
| 12. |
Leases:
|
|
Capital
Leases
|
Operating
Leases
|
||||||
|
2007
|
$
|
18,008
|
$
|
100,129
|
|||
|
2008
|
15,889
|
8,561
|
|||||
|
2009
|
2,485
|
-
|
|||||
|
2010
|
-
|
-
|
|||||
|
2011
|
-
|
-
|
|||||
|
36,382
|
$
|
108,690
|
|||||
|
Less
amount representing interest
|
4,527
|
||||||
|
Present
value of net minimum
lease
payments
|
31,855
|
||||||
|
Less
current portion
|
14,841
|
||||||
|
Capital
lease obligations,
excluding
current portion
|
$
|
17,014
|
|||||
| 13. |
Employee
Benefit Plan:
|
| 14. |
Supplemental
Disclosure for Statements of Cash Flows:
|
| 15. |
Contingencies:
|
| 16. |
Subsequent
Event:
|
|
|
Effective
January 1, 2007, we entered into new employment agreements with six
executive officers. The new agreements have substantially similar
terms to
the previous agreements. See Note
11(d).
|
| 17. |
Supplemental
Information (Unaudited):
|
|
Years
Ended December 31,
|
||||||||||||||||
|
(Amounts
in thousands, except per share data)
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||
|
Net
sales
|
$
|
6,051
|
$
|
5,919
|
$
|
5,353
|
$
|
5,564
|
$
|
3,383
|
||||||
|
License
and other revenue
|
-
|
-
|
600
|
946
|
1,538
|
|||||||||||
|
Gross
profit
|
3,419
|
3,543
|
3,608
|
3,385
|
2,570
|
|||||||||||
|
Research
and development expenses
|
3,803
|
4,032
|
2,454
|
1,894
|
2,324
|
|||||||||||
|
Selling,
general and administrative expenses
|
3,076
|
3,156
|
3,153
|
3,103
|
3,267
|
|||||||||||
|
Acquired
in-process research and development
|
-
|
-
|
-
|
-
|
(28
|
)
|
||||||||||
|
Loss
from operations
|
(3,460
|
)
|
(3,644
|
)
|
(1,999
|
)
|
(1,611
|
)
|
(2,993
|
)
|
||||||
|
Other
(expenses) income
|
(1,281
|
)
|
(1,285
|
)
|
(1,542
|
)
|
(188
|
)
|
29
|
|||||||
|
Net
loss
|
$
|
(4,741
|
)
|
$
|
(4,929
|
)
|
$
|
(3,541
|
)
|
$
|
(1,799
|
)
|
$
|
(2,964
|
)
|
|
|
Loss
per common share:
|
||||||||||||||||
|
Basic
|
$
|
(0.08
|
)
|
$
|
(0.08
|
)
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.08
|
)
|
|
|
Diluted
|
$
|
(0.08
|
)
|
$
|
(0.08
|
)
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.08
|
)
|
|
|
Shares
used in computing loss per
common
share: (1)
|
||||||||||||||||
|
Basic
|
58,587
|
58,434
|
56,764
|
40,338
|
36,045
|
|||||||||||
|
Diluted
|
58,587
|
58,434
|
56,764
|
40,338
|
36,045
|
|||||||||||
|
As
of December 31,
|
||||||||||||||||
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
||||||||
|
Balance
Sheet Data:
|
||||||||||||||||
|
Total
assets
|
$
|
8,034
|
$
|
11,570
|
$
|
15,366
|
$
|
7,385
|
$
|
7,080
|
||||||
|
Long-term
obligations
|
4,922
|
6,052
|
8,192
|
585
|
1,169
|
|||||||||||
|
Accumulated
deficit
|
(135,688
|
)
|
(130,947
|
)
|
(126,018
|
)
|
(122,477
|
)
|
(120,678
|
)
|
||||||
|
(1)
|
Basic
earnings (loss) per share are 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.
|