UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2004
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)
58,088,057 SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE
(Number of shares of issuer's common equity outstanding as of the
close of business on August 2, 2004)
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 JUNE 30, DECEMBER 31,
2004 2003
(UNAUDITED)
---------- ----------
Current assets:
Cash and cash equivalents $3,430,142 $1,588,760
Accounts receivable, net 571,292 1,107,800
Inventory 998,519 1,008,326
Prepaid expenses and other 265,713 346,449
---------- ----------
Total current assets 5,265,666 4,051,335
---------- ----------
Property and equipment 2,302,283 2,237,741
Less accumulated depreciation and amortization 1,946,189 1,875,028
---------- ----------
356,094 362,713
---------- ----------
Patents and trademarks 3,168,209 3,156,101
Non-compete agreements 584,516 584,516
Acquired technology 237,271 237,271
---------- ----------
3,989,996 3,977,888
Less accumulated amortization 1,257,124 1,042,373
---------- ----------
2,732,872 2,935,515
---------- ----------
Other assets 87,515 35,479
---------- ----------
Total assets $8,442,147 $7,385,042
========== ==========
CONTINUED
2
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30, DECEMBER 31,
2004 2003
(UNAUDITED)
------------- -------------
Current liabilities:
Note payable to CEO, net of discount of $135,360 $ 114,640 $ --
Notes payable to finance companies 33,728 192,272
Capital lease obligations, current 13,145 9,731
Accrued liabilities 307,836 227,306
Accounts payable 336,336 225,032
Deferred revenue, current 382,537 886,657
------------- -------------
Total current liabilities 1,188,222 1,540,998
------------- -------------
Note payable to CEO, net of discount of $12,702 -- 237,298
Note payable to investor, net of discount of $32,496 -- 217,504
Capital lease obligations 37,413 24,009
Deferred revenue 57,807 68,930
Other liabilities 45,175 37,358
------------- -------------
Total liabilities 1,328,617 2,126,097
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares authorized at June 30,
2004 and December 31, 2003; none issued and outstanding (500,000 shares
designated as Series A, $.001 par value, at June 30, 2004
and December 31, 2003; none outstanding) -- --
Common stock; $.001 par value; 75,000,000 shares
authorized; 58,087,057 shares issued and outstanding
at June 30, 2004; 51,520,723 shares issued and
outstanding at December 31, 2003 58,087 51,521
Additional paid-in capital 130,551,024 127,684,555
Accumulated deficit (123,495,581) (122,477,131)
------------- -------------
Total stockholders' equity 7,113,530 5,258,945
------------- -------------
Total liabilities and stockholders' equity $ 8,442,147 $ 7,385,042
============= =============
See accompanying notes to the consolidated financial statements.
3
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues:
Net sales $ 1,347,928 $ 1,637,060 $ 2,573,545 $ 2,940,706
License and other revenue 200,000 252,655 400,000 488,045
------------ ------------ ------------ ------------
Total revenues 1,547,928 1,889,715 2,973,545 3,428,751
------------ ------------ ------------ ------------
Cost of goods sold 508,639 775,727 1,048,781 1,614,789
------------ ------------ ------------ ------------
Gross profit 1,039,289 1,113,988 1,924,764 1,813,962
------------ ------------ ------------ ------------
Operating expenses:
Research and development 594,730 437,815 1,177,830 856,584
Selling, general and administrative 853,149 721,506 1,666,542 1,475,589
------------ ------------ ------------ ------------
Total operating expenses 1,447,879 1,159,321 2,844,372 2,332,173
------------ ------------ ------------ ------------
Loss from operations (408,590) (45,333) (919,608) (518,211)
------------ ------------ ------------ ------------
Other income (expenses):
Interest income 4,824 2,589 5,357 5,139
Interest expense (43,795) (36,026) (116,153) (40,662)
Other 17,688 (602) 11,954 (4,206)
------------ ------------ ------------ ------------
Total other expenses (21,283) (34,039) (98,842) (39,729)
------------ ------------ ------------ ------------
Net loss $ (429,873) $ (79,372) $ (1,018,450) $ (557,940)
============ ============ ============ ============
Net loss per common share:
Basic $ (0.01) $ 0.00 $ (0.02) $ (0.01)
Diluted $ (0.01) $ 0.00 $ (0.02) $ (0.01)
Weighted average shares outstanding:
Basic 57,727,298 38,458,009 55,388,205 38,403,202
Diluted 57,727,298 38,458,009 55,388,205 38,403,202
See accompanying notes to the consolidated financial statements.
4
NEOPROBE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2004 2003
----------- -----------
Cash flows from operating activities:
Net loss $(1,018,450) $ (557,940)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 296,520 389,908
Amortization of debt discount and offering costs 95,557 22,599
Other 79,896 40,825
Change in operating assets and liabilities:
Accounts receivable 536,508 (759,431)
Inventory 4,534 230,925
Prepaid expenses and other assets 108,472 91,992
Accrued and other liabilities 88,348 116,567
Accounts payable 111,304 122,202
Deferred revenue (515,242) (286,396)
----------- -----------
Net cash used in operating activities (212,553) (588,749)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (42,935) (15,720)
Proceeds from sales of property and equipment 375 --
Patent and trademark costs (12,108) (15,870)
----------- -----------
Net cash used in investing activities (54,668) (31,590)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,293,073 --
Payment of offering costs (16,423) (2,867)
Proceeds from notes payable, net of offering costs -- 458,489
Payment of notes payable (158,544) (159,999)
Payments under capital leases (9,503) (7,106)
----------- -----------
Net cash provided by financing activities 2,108,603 288,517
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,841,382 (331,822)
Cash and cash equivalents, beginning of period 1,588,760 700,525
----------- -----------
Cash and cash equivalents, end of period $ 3,430,142 $ 368,703
=========== ===========
See accompanying notes to the consolidated financial statements.
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information as of June 30, 2004 and 2003 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 accounting principles generally accepted in the United
States of America 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,
2003, which were included as part of our Annual Report on Form 10-KSB.
Our consolidated financial statements include the accounts of Neoprobe and
our wholly-owned subsidiary, Cardiosonix Ltd. (Cardiosonix). All
significant inter-company accounts were eliminated in consolidation.
2. COMPREHENSIVE INCOME (LOSS)
We had no accumulated other comprehensive income (loss) activity during the
three-month and six-month periods ended June 30, 2004 and 2003.
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
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
BASIC DILUTED BASIC DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE
--------- --------- --------- ---------
Outstanding shares 58,087,057 58,087,057 38,588,009 38,588,009
Effect of weighting changes
in outstanding shares (229,759) (229,759) -- --
Contingently issuable shares (130,000) (130,000) (130,000) (130,000)
----------- ----------- ----------- -----------
Adjusted shares 57,727,298 57,727,298 38,458,009 38,458,009
=========== =========== =========== ===========
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
BASIC DILUTED BASIC DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE
--------- --------- --------- ---------
Outstanding shares 58,087,057 58,087,057 38,588,009 38,588,009
Effect of weighting changes
in outstanding shares (2,568,852) (2,568,852) (54,807) (54,807)
Contingently issuable shares (130,000) (130,000) (130,000) (130,000)
----------- ----------- ----------- -----------
Adjusted shares 55,388,205 55,388,205 38,403,202 38,403,202
=========== =========== =========== ===========
6
There is no difference in basic and diluted loss per share related to the
three-month and six-month periods ended June 30, 2004 and 2003. 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. INVENTORY
The components of inventory are as follows:
JUNE 30, DECEMBER 31,
2004 2003
(UNAUDITED)
---------- ----------
Materials and component parts $ 669,020 $ 747,788
Finished goods 329,499 260,538
---------- ----------
$ 998,519 $1,008,326
========== ==========
5. INTANGIBLE ASSETS
The major classes of intangible assets are as follows:
JUNE 30, 2004 DECEMBER 31, 2003
(UNAUDITED)
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
Patents and trademarks $3,168,209 $ 803,796 $3,156,101 $ 678,160
Non-compete agreements 584,516 367,746 584,516 295,486
Acquired technology 237,271 85,582 237,271 68,727
---------- ---------- ---------- ----------
Total $3,989,996 $1,257,124 $3,977,888 $1,042,373
========== ========== ========== ==========
The estimated future amortization expenses for the next five fiscal years
are as follows:
ESTIMATED
AMORTIZATION
EXPENSE
-------
For the year ended 12/31/2004 $ 427,285
For the year ended 12/31/2005 427,285
For the year ended 12/31/2006 282,770
For the year ended 12/31/2007 214,545
For the year ended 12/31/2008 204,002
6. 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. Our primary marketing partner, Ethicon
Endo-Surgery, Inc. (EES), a Johnson and Johnson company, also reimburses us
for a portion of warranty expense incurred on our gamma detection devices
based on end customer sales they make during a given fiscal year. Payments
charged against the reserve are disclosed net of EES' reimbursement.
7
The activity in the warranty reserve account for the three-month and
six-month periods ended June 30, 2004 and 2003 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
-------- -------- -------- --------
Warranty reserve at
beginning of period $ 53,000 $ 65,000 $ 53,000 $ 35,000
Provision for warranty claims and
changes in reserve for
warranties (7,000) 958 (7,000) 36,529
Payments charged against the
reserve -- (7,958) -- (13,529)
-------- -------- -------- --------
Warranty reserve at end of period $ 46,000 $ 58,000 $ 46,000 $ 58,000
======== ======== ======== ========
7. NOTES PAYABLE
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. In consideration for the loan, we issued a note to Mr. Bupp in
the principal amount of $250,000. The note is secured by general assets of
the company, excluding accounts receivable. In addition, we issued Mr. Bupp
375,000 warrants to purchase common stock at an exercise price of $0.13 per
share, expiring in April 2008. The per share value of these warrants was
$0.10 on the date of issuance using the Black-Scholes option pricing model
with the following assumptions: an average risk-free interest rate of 2.9%,
volatility of 139% and no expected dividend rate. Interest accrues on the
note at 8.5% per annum, payable monthly, and the note was originally due on
June 30, 2004. On March 8, 2004, at the request of the Board of Directors,
Mr. Bupp agreed to extend the due date of the note to Mr. Bupp from June
30, 2004 to June 30, 2005. In exchange for extending the due date of the
note, we issued Mr. Bupp an additional 375,000 warrants to purchase our
common stock at an exercise price of $0.50 per share, expiring in March
2009. The per share value of these warrants was $0.46 on the date of
issuance using the Black-Scholes option pricing model with the following
assumptions: an average risk-free interest rate of 2.7%, volatility of 152%
and no expected dividend rate. The total estimated fair values for the
warrants issued to Mr. Bupp in April 2003 and March 2004 were $31,755 and
$171,801, respectively. These amounts were recorded as discounts on the
note and are being amortized over the period of the note. At June 30, 2004,
the unamortized discounts related to Mr. Bupp's note totaled $135,360.
During April 2003, we also completed a bridge loan agreement with an
outside investor for an additional $250,000. In consideration for the loan,
we issued a note to the investor in the principal amount of $250,000. The
note was secured by general assets of the company, excluding accounts
receivable. In addition, we issued the investor 500,000 warrants to
purchase common stock at an exercise price of $0.13 per share. The per
share value of these warrants was $0.10 on the date of issuance using the
Black-Scholes option pricing model with the following assumptions: an
average risk-free interest rate of 2.9%, volatility of 139% and no expected
dividend rate. The total estimated fair value for the warrants issued to
the outside investor was $40,620. Under the terms of the agreement, the
note bore interest at 9.5% per annum, payable monthly, was convertible into
common stock and was due on June 30, 2004. Fifty percent of the principal
and accrued interest of the note was convertible into common stock at a 15%
discount to the closing market price on the date of conversion, subject to
a floor conversion price of $0.10. The remaining 50% of the principal and
accrued interest was convertible into common stock based on a 15% discount
to the closing market price on the date of conversion, subject to a floor
conversion price of $0.10 and a ceiling conversion price of $0.20. The
intrinsic value of the conversion feature of the note to the outside
investor was estimated at $40,620 based on the effective conversion price
at the date of issuance and was recorded as an additional discount on the
note. The estimated fair value of the warrants and the intrinsic value of
the conversion feature were recorded as discounts on the note and were
amortized
8
over the term of the note. During January 2004, the outside investor
converted the entire balance of the note into 1.1 million shares of common
stock according to the conversion terms of the agreement. The total value
of the shares issued in conversion of the note was $378,955 based on the
closing market prices for our common stock on the dates of conversion. The
discount remaining at conversion totaling $27,604 was recorded as interest
expense.
8. STOCK OPTIONS AND RESTRICTED STOCK
During the first six months of 2004, the Board of Directors granted options
to consultants, employees and certain non-employee directors to purchase
1.2 million shares of common stock, exercisable at an average price of
$0.38 per share, vesting over three years. We recognized $79,000 of
research and development expense related to options granted to consultants
in the first six months of 2004. As of June 30, 2004, we have 4.0 million
options outstanding under three stock option plans. Of the outstanding
options, 2.0 million options have vested as of June 30, 2004, at an average
exercise price of $0.60 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 Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation:
THREE MONTHS ENDED
JUNE 30,
2004 2003
--------- ---------
Net loss, as reported $(429,873) $ (79,372)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards (54,325) (42,641)
--------- ---------
Pro forma net loss $(484,198) $(122,013)
========= =========
Loss per common share:
As reported (basic and diluted) $ (0.01) $ 0.00
Pro forma (basic and diluted) $ (0.01) $ 0.00
SIX MONTHS ENDED
JUNE 30,
2004 2003
----------- -----------
Net loss, as reported $(1,018,450) $ (557,940)
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 (120,326) (124,973)
----------- -----------
Pro forma net loss $(1,138,776) $ (642,923)
=========== ===========
Loss per common share:
As reported (basic and diluted) $ (0.02) $ (0.01)
Pro forma (basic and diluted) $ (0.02) $ (0.02)
9
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.
9. STOCK WARRANTS
In November 2003, we completed a $2.8 million placement of common stock and
warrants for net proceeds of $2.4 million. In the placement, 12.2 million
shares of common stock were issued at $0.23 per share, and Series R
warrants were issued to purchase an additional 6.1 million shares of common
stock at $0.28 per share. In addition, we paid $291,000 in cash and issued
1.4 million Series S warrants to purchase common stock at $0.28 per share
as fees to the placement agents. All warrants issued in connection with the
placement expire in October 2008. The per share value of these warrants was
$0.31 on the date of issuance using the Black-Scholes option pricing model
with the following assumptions: an average risk-free interest rate of 3.2%,
volatility of 151% and no expected dividend rate. A registration statement
registering for resale the common stock and warrants issued in the private
placement was declared effective on December 17, 2003. During the first six
months of 2004, 3,108,327 of these warrants were exercised and we realized
net proceeds of $812,764.
During 2003, an investment banking firm, Alberdale Capital LLC (Alberdale),
assisted us in arranging an accounts receivable financing transaction. In
exchange for Alberdale's services, we issued them warrants to purchase
78,261 shares of our common stock. During the first quarter of 2004,
Alberdale exercised these warrants on a cashless basis in exchange for
53,500 shares of common stock.
At June 30, 2004 there are 5.8 million warrants outstanding to purchase our
common stock. The warrants are exercisable at prices ranging from $0.13 to
$0.75 per share with a weighted average exercise price per share of $0.28.
10. COMMON STOCK PURCHASE AGREEMENT
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. During the
first six months of 2004, we sold Fusion a total of 2,350,000 shares of
common stock and realized net proceeds of $1,468,874. We also issued Fusion
66,129 shares of common stock for commitment fees related to the sales of
our common stock to them during the first six months of 2004.
11. SEGMENT AND SUBSIDIARY INFORMATION
We own or have rights to intellectual property related to gamma detection
drugs. We also own or have rights to intellectual property involving two
primary types of medical device products, including gamma detection
instruments currently used primarily in the application of intraoperative
lymphatic mapping (ILM), and blood flow measurement devices. Prior to 2004,
gamma detection drugs and devices were reported as one segment. Certain
2003 amounts have been reclassified to conform to the 2004 presentation.
10
The information in the following table is derived directly from each
segment's internal financial reporting used for corporate management
purposes. Selling, general and administrative costs and other income,
including amortization, interest and other costs that relate primarily to
corporate activity, are not currently allocated to the operating segments
for financial reporting purposes.
GAMMA GAMMA BLOOD
($ AMOUNTS IN THOUSANDS) DETECTION DETECTION FLOW
THREE MONTHS ENDED JUNE 30, 2004 DRUGS DEVICES DEVICES UNALLOCATED TOTAL
-------------------------------- ----- ------- ------- ----------- -----
Net sales:
United States(1) $ -- $ 1,321 $ -- $ -- $ 1,321
International -- 27 -- -- 27
License and other revenue -- 200 -- -- 200
Research and development expenses 120 140 335 -- 595
Selling, general and administrative
expenses -- -- -- 853 853
Income (loss) from operations(2) (120) 955 (391) (853) (409)
Other income (expenses) -- -- -- (21) (21)
THREE MONTHS ENDED JUNE 30, 2003
Net sales:
United States(1) $ -- $ 1,444 $ -- $ -- $ 1,444
International -- 3 190 -- 193
License and other revenue -- 253 -- -- 253
Research and development expenses 4 87 347 -- 438
Selling, general and administrative
expenses -- -- -- 722 722
Income (loss) from operations(2) (4) 866 (185) (722) (45)
Other income (expenses) -- -- -- (34) (34)
GAMMA GAMMA BLOOD
($ AMOUNTS IN THOUSANDS) DETECTION DETECTION FLOW
SIX MONTHS ENDED JUNE 30, 2004 DRUGS DEVICES DEVICES UNALLOCATED TOTAL
------------------------------ ----- ------- ------- ----------- -----
Net sales:
United States(1) $ -- $ 2,486 $ -- $ -- $ 2,486
International -- 50 38 -- 88
License and other revenue -- 400 -- -- 400
Research and development expenses 228 281 669 -- 1,178
Selling, general and administrative
expenses -- -- -- 1,667 1,667
Income (loss) from operations(2) (228) 1,675 (700) (1,667) (920)
Other income (expenses) -- -- -- (99) (99)
SIX MONTHS ENDED JUNE 30, 2003
Net sales:
United States(1) $ -- $ 2,698 $ -- $ -- $ 2,698
International -- 4 239 -- 243
License and other revenue -- 488 -- -- 488
Research and development expenses 7 179 671 -- 857
Selling, general and administrative
expenses -- -- -- 1,476 1,476
Income (loss) from operations(2) (7) 1,471 (506) (1,476) (518)
Other income (expenses) -- -- -- (40) (40)
(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
12. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
During the first six months of 2004, we purchased equipment under capital
leases totaling $27,000. During the first six months of 2004 and 2003, we
transferred $5,000 and $8,000, respectively, in inventory to fixed assets
related to the maintenance of a pool of service loaner equipment.
13. SUBSEQUENT EVENT
On July 27, 2004, our stockholders approved an increase in the number of
authorized shares of the company from 80,000,000 to 105,000,000, consisting
of 100,000,000 shares of common stock, $0.00(1) par value, and 5,000,000
shares of preferred stock, $0.001 par value.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Neoprobe Corporation is a biomedical technology company that provides innovative
surgical and diagnostic products that enhance patient care by meeting the
critical decision-making needs of physicians. The December 2001 acquisition
of Cardiosonix expanded our potential product offerings beyond the oncology
arena and into the area of blood flow measurement and cardiac care. Cardiosonix
is in the process of developing and commercializing a unique line of
proprietary blood flow monitoring devices for a variety of diagnostic and
surgical applications and has received marketing clearance for two of its
products, Quantix/ND(TM) and Quantix/OR(TM), in Europe and in the U.S. In
addition to our medical device products, we have two radiopharmaceutical
products, RIGScan(R) CR and Lymphoseek(TM), in the late stages of clinical
development.
Our overall operating results for the first six months of 2004 were below our
original expectations for the year. Revenue from our gamma detection device
product line was in line to slightly higher than our expectations; however,
sales of our blood flow measurement devices were below our expectations due,
we believe, to the need for certain product enhancements which we are in the
process of implementing. In addition, we incurred expenses during the first
six months of 2004 related to our RIGS(R) and Lymphoseek product development
initiatives in order to move the clinical development efforts forward in
preparation for Phase III clinical trials that we hope will lead to the
approval of these products. The combination of these events contributed to
a greater than expected operating loss for the first six months of 2004.
We anticipate we will need to continue to invest in marketing support for our
blood flow products during 2004 as we complete the product refinement efforts
initiated during the second quarter. In addition, we expect to incur additional
expenses during the remainder of 2004 in preparation for Phase III clinical
trials for RIGS and Lymphoseek; however, the bulk of expenses related to these
clinical trials will not be incurred until after the clinical trials commence,
currently expected to be sometime in the first half of 2005. We submitted a
Phase III protocol for RIGS at the end of June 2004 and are currently awaiting
feedback on the trial design. In addition, we are preparing a formal IND
submission to the FDA to propose the design of the pivotal evaluation of
Lymphoseek as a lymphatic tissue targeting agent. The timing of the submission
is currently expected to be late in the third quarter or early in the fourth
quarter of 2004. Preliminarily, we estimate the combined expenses to conduct
Phase III clinical trials for both drugs will total approximately $15 million.
However, until specific feedback is received from the FDA on the designs for
these Phase III clinical trials, it is difficult to estimate the total expenses
for these projects. In addition, although we are in preliminary discussions with
potential development partners, we have not made final decisions regarding
whether we will attempt to fund these trials internally or whether we will
pursue development through potential partnership relationships.
We anticipate generating a profit from the sale of our gamma detection
devices in 2004; however, we expect to continue to show a loss for our blood
flow device product line for 2004 due to continued development expenses and the
ongoing marketing and administrative support costs that are still required to
commercialize the product line. Currently, we expect sales to recommence for our
blood flow products by the end of 2004 at a rate similar to the first quarter of
2003 and for our overall loss for the year related to blood flow products to be
less than the loss incurred in 2003. However, this expectation is based to a
12
large degree on our anticipation that the identified product refinements will
receive timely regulatory clearances and will be received well by the medical
community and result in increased sales. Our overall operating results for 2004
will be significantly affected by the amount of development for RIGS and
Lymphoseek to be funded by development partners. If we are unsuccessful in
achieving significant commercial sales of the Quantix products in 2004, or if we
modify our business plan and decide to carry out significant portions of the
RIGS or Lymphoseek development internally, our estimates and our business plan
will likely need to be modified. Given the delays in revenue from our Quantix
product line and our expectation that we will fund at least some portion of the
preparation and/or clinical trial costs prior to the identification of a
development partner, we do not expect to achieve operating profitability before
the end of 2004. In addition, we cannot assure you that we will achieve or be
able to sustain profitability in the future.
RESULTS OF OPERATIONS
Revenue for the first six months of 2004 decreased $455,000, or 13%, to $3.0
million from $3.4 million for the same period in 2003. Major expense categories
as a percentage of net sales increased in the first six months of 2004 as
compared to the same period in 2003, due primarily to the increased development
and marketing expenses coupled with the decrease in net sales. Research and
development expenses, as a percentage of net sales, increased to 46% during the
first six months of 2004 from 29% during the same period in 2003. Selling,
general and administrative expenses, as a percentage of net sales, increased to
65% during the first six months of 2004 from 50% during the same period in 2003.
Due to the ongoing development activities of the company, research and
development expenses are expected to be higher as a percentage of sales in 2004
than they were in 2003. In addition, as we move forward with commercialization
activities related to the Quantix(R) product line, selling expenses are expected
to push our selling, general and administrative expenses as a percentage of
sales higher in 2004 than 2003.
Three Months Ended June 30, 2004 and 2003
Net Sales and Margins. Net sales, primarily comprised of our gamma detection
systems, decreased $289,000, or 18%, to $1.3 million during the second quarter
of 2004 from $1.6 million during the same period in 2003. Gross margins on net
sales increased to 62% of net sales for the second quarter of 2004 compared to
53% of net sales for the same period in 2003.
The decrease in net sales was primarily a result of the $190,000 decrease in
sales of our blood flow measurement devices. During the fourth quarter of 2003
and the first half of 2004, we identified a market need for certain product
enhancements that we are in the process of implementing.. As a result, our sales
efforts will be affected until the enhancements can be launched, which we expect
to occur in the fourth quarter of this year. In addition, sales of our gamma
devices decreased $99,000 as a result of the weighting of purchases by EES in
2003 toward the first half of the year. In 2004, EES has more evenly spread its
purchases to-date and firmly committed purchases for the remainder of the year.
As a result, we expect gamma device revenue for 2004 to be consistent with gamma
device sales for 2003. We also expect blood flow sales to begin to pick up in
the fourth quarter of this year.
The increase in gross margins was primarily due to decreases in the unit costs
to manufacture our neo2000(R) control unit resulting from internal design
changes and a lower cost structure at the new contract manufacturer. Excluding a
$60,000 charge for inventory obsolescence primarily related to design changes in
our Quantix product line, the gross margin percentage would have increased an
additional 5 percentage points.
License and Other Revenue. License and other revenue in the second quarters of
2004 and 2003 included $200,000 from the pro-rata recognition of license fees
related to the distribution agreement with EES and $53,000 in 2003 from the
reimbursement by EES of certain product development costs.
Research and Development Expenses. Research and development expenses increased
$157,000 or 36% to $595,000 during the second quarter of 2004 from $438,000
during the same period in 2003. Research and development expenses in the second
quarter of 2004 included approximately $120,000 in
13
gamma detection drug development costs, $140,000 related to our gamma detection
devices and $335,000 in development costs related to the Quantix products. This
compares to expenses of $4,000, $87,000 and $347,000 in these relative segment
categories in the same period in 2003. The changes within each segment were
primarily due to (i) efforts to support the re-initiation of our RIGS research
effort and to move our development of Lymphoseek forward, (ii) final development
activities related to an updated version of our neo2000 system, and (iii) the
costs of product refinement activities related to the Quantix/OR offsetting cost
savings from headcount reductions at our facility in Israel, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $132,000 or 18% to $853,000 during the second
quarter of 2004 from $722,000 during the same period in 2003. The increase was
primarily due to an increase of $88,000 in marketing expenses related to the
marketing activities in support of the launch of our Quantix line of blood flow
products and an increase of $61,000 in professional services and investor
relations services, offset by a decrease of $22,000 in depreciation and
amortization expenses.
Other Income (Expenses). Other expenses decreased $13,000 or 37% to $22,000
during the second quarter of 2004 from $34,000 during the same period in 2003.
The primary reason for the decrease was $17,000 in miscellaneous refunds, offset
by increased interest expense on debt financings entered into during 2003. Of
this interest expense, $35,000 and $23,000, respectively, was non-cash in nature
related to the amortization of debt discounts resulting from the warrants and
beneficial conversion feature issued in connection with these debt financings.
Six Months Ended June 30, 2004 and 2003
Net Sales and Margins. Net sales, primarily of our gamma detection systems,
decreased $367,000, or 12%, to $2.6 million during the first six months of 2004
from $2.9 million during the same period in 2003. Gross margins on net sales
increased to 59% of net sales for the first six months of 2004 compared to 45%
of net sales for the same period in 2003.
The decrease in net sales was primarily a result of the $201,000 decrease in
sales of our blood flow measurement devices. During the fourth quarter of 2003
and the first half of 2004, we identified a market need for certain product
enhancements that we are in the process of implementing. As a result, our sales
efforts will be affected until the enhancements can be launched, which we expect
to occur in the fourth quarter of this year. In addition, sales of our gamma
devices decreased $166,000 as a result of the weighting of purchases by EES in
2003 toward the first half of the year. In 2004, EES has more evenly spread its
purchases to-date and firmly committed purchases for the remainder of the year.
As a result, we expect gamma device revenue for 2004 to be consistent with gamma
device sales for 2003. We also expect blood flow sales to begin to pick up in
the fourth quarter of this year.
The increase in gross margins was primarily due to decreases in the unit costs
to manufacture our neo2000 control unit resulting from internal design changes
and a lower cost structure at the new contract manufacturer. Excluding a $60,000
charge for inventory obsolescence primarily related to design changes in our
Quantix product line, the gross margin percentage would have increased an
additional 3 percentage points.
License and Other Revenue. License and other revenue in the first six months of
2004 and 2003 included $400,000 from the pro-rata recognition of license fees
related to the distribution agreement with EES and $88,000 in 2003 from the
reimbursement by EES of certain product development costs.
Research and Development Expenses. Research and development expenses increased
$321,000 or 38% to $1.2 million during the first six months of 2004 from
$857,000 during the same period in 2003. Research and development expenses in
the first six months of 2004 included approximately $228,000 in gamma detection
drug development costs, $281,000 related to our gamma detection devices and
$669,000 related to the Quantix products. This compares to expenses of $7,000,
$178,000 and $671,000 in these relative segment categories in the same period in
2003. The changes in each segment were primarily due to (i) efforts to support
the re-initiation of our RIGS research effort and to move our
14
development of Lymphoseek forward, (ii) final development activities related to
an updated version of our neo2000 system, and (iii) the costs of product
refinement activities related to the Quantix/OR offsetting cost savings from
headcount reductions at our facility in Israel, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $191,000 or 13% to $1.7 million during the
first six months of 2004 from $1.5 million during the same period in 2003. The
increase was primarily due to an increase of $177,000 in marketing expenses
related to the marketing activities in support of the launch of our Quantix line
of blood flow products and an increase of $70,000 in professional services,
offset by a decrease of $93,000 in depreciation and amortization expenses.
Selling, general and administrative expenses in the first six months of 2003
included $30,000 in impairment of intellectual property that we did not believe
had ongoing value to the business.
Other Income (Expenses). Other expenses increased $59,000 to $99,000 of expenses
during the first six months of 2004 from $40,000 during the same period in 2003.
The primary reason for the increase was an increase in interest expense on debt
financings entered into during 2003. Of this interest expense, $97,000 and
$23,000, respectively, was non-cash in nature related to the amortization of
debt discounts resulting from the warrants and beneficial conversion feature
issued in connection with the underlying debt agreements.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Cash used in operations decreased $376,000 to $213,000
used during the first six months of 2004 from $589,000 used during the same
period in 2003. Working capital increased $1.6 million to $4.1 million at June
30, 2004 as compared to $2.5 million at December 31, 2003. The current ratio
increased to 4.4:1 at June 30, 2004 from 2.6:1 at December 31, 2003. The
increase in working capital was primarily related to cash generated from the
sale of our common stock and the exercise of warrants.
Cash balances increased to $3.4 million at June 30, 2004 from $1.6 million at
December 31, 2003, primarily due to the cash generated from the sale of our
common stock and the exercise of warrants, offset by increased operating
expenses during the first six months of 2004.
Accounts receivable decreased to $571,000 at June 30, 2004 from $1.1 million at
December 31, 2003. We expect receivable levels to increase over the remainder of
2004, however, the level of accounts receivable is greatly dependent on the
timing of purchases and payments by EES as well as the potential effect of sales
of blood flow products.
Inventory levels remained constant overall at $999,000 at June 30, 2004 as
compared to $1.0 million at December 31, 2003. We expect inventory levels to
increase over the remainder of 2004 as we re-establish our gamma device safety
stock and build finished units of our blood flow products in preparation for
broader distribution.
Investing Activities. Cash used in investing activities increased $23,000 to
$55,000 during the first six months of 2004 from $32,000 during the same period
in 2003. Capital expenditures in the first six months of 2004 were primarily
related to purchases of technology infrastructure. Capital expenditures in the
first six months of 2003 were split between purchases of production tools and
equipment and technology infrastructure. Capital needs for 2004 are expected to
increase over 2003 as we prepare for blood flow device production at our
contract manufacturer.
Financing Activities. Financing activities generated $2.1 million in cash in the
first six months of 2004 versus $289,000 provided during the same period in
2003.
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
15
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 is 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
second half of 2003, we sold Fusion a total of 473,869 shares of common stock
and realized net proceeds of $143,693. We issued Fusion 6,462 shares of common
stock for commitment fees related to the sales of our common stock to them
during 2003. During the first six months of 2004, we sold Fusion a total of
2,350,000 shares of common stock and realized net proceeds of $1,468,874. We
also issued Fusion 66,129 shares of common stock for commitment fees related to
the sales of our common stock to them during the first six months of 2004.
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. In consideration for the loan, we issued a note to Mr. Bupp in the
principal amount of $250,000. The note is secured by general assets of the
company, excluding accounts receivable. In addition, we issued Mr. Bupp 375,000
warrants to purchase shares of our common stock at an exercise price of $0.13
per share, expiring in April 2008. The per share value of these warrants was
$0.10 on the date of issuance using the Black-Scholes option pricing model with
the following assumptions: an average risk-free interest rate of 2.9%,
volatility of 139% and no expected dividend rate. Interest accrues on the note
at 8.5% per annum, payable monthly, and the note was originally due on June 30,
2004. On March 8, 2004, at the request of the Board of Directors, Mr. Bupp
agreed to extend the due date of the note to Mr. Bupp from June 30, 2004 to June
30, 2005. In exchange for extending the due date of the note, we issued Mr. Bupp
an additional 375,000 warrants to purchase our common stock at an exercise price
of $0.50 per share, expiring in March 2009. The per share value of these
warrants was $0.46 on the date of issuance using the Black-Scholes option
pricing model with the following assumptions: an average risk-free interest rate
of 2.7%, volatility of 152% and no expected dividend rate. Mr. Bupp's 750,000
warrants remain outstanding.
During April 2003, we also completed a convertible bridge loan agreement with an
investor for an additional $250,000. In consideration for the loan, we issued a
note to the investor in the principal amount of $250,000. The note was secured
by general assets of the company, excluding accounts receivable. In addition, we
issued the investor 500,000 warrants to purchase shares of our common stock at
an exercise price of $0.13 per share, expiring in April 2008. The per share
value of these warrants was $0.10 on the date of issuance using the
Black-Scholes option pricing model with the following assumptions: an average
risk-free interest rate of 2.9%, volatility of 139% and no expected dividend
rate. Under the terms of the agreement, the note bore interest at 9.5% per
annum, payable monthly, was convertible into common stock and was due on June
30, 2004. During January 2004, the investor converted the entire balance of the
note into 1.1 million shares of common stock according to the conversion terms
of the agreement. The investor's 500,000 warrants remain outstanding.
During 2003, an investment banking firm, Alberdale Capital, LLC (Alberdale),
assisted us in arranging an accounts receivable financing transaction. In
exchange for Alberdale's services, we issued them warrants to purchase 78,261
shares of our common stock. During the first quarter of 2004, Alberdale
exercised these warrants on a cashless basis in exchange for 53,500 shares of
common stock.
During October and November 2003, we executed common stock purchase agreements
with third parties introduced to us by another investment banking firm,
Rockwood, Inc., 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
agreed to issue the purchasers warrants to purchase 6,086,959 shares of common
stock at an exercise price of $0.28 per share and agreed to issue the placement
agents warrants to purchase 1,354,348 shares of our common stock on similar
terms. All warrants issued in connection with the transaction expire in October
2008. The per share value of these warrants was $0.31 on the date of issuance
using
16
the Black-Scholes option pricing model with the following assumptions: an
average risk-free interest rate of 3.2%, volatility of 151% and no expected
dividend rate. During the first six months of 2004, investors and placement
agents who participated in this placement exercised warrants representing a
total of 3,108,327 shares of common stock resulting in net proceeds of $812,764.
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, our
ability to obtain milestone or development funds from potential development and
distribution partners, regulatory actions by the FDA and other international
regulatory bodies, and intellectual property protection. We believe we have
adequate capital to assure that we can properly support our current business
goals and objectives through the end of 2004 and into 2005. Our near-term
priorities include preparation for Phase III clinical trials for two
radiopharmaceutical products in our pipeline, RIGS and Lymphoseek and the
identification of potential development partners. In addition, we are moving
forward with improvements to the Quantix products based on thought leader
feedback received in the U.S. and EU. We believe this will position us for
improved commercial viability of the Quantix products by the fourth quarter of
this year. The decision as to how much of the estimated total of $15 million in
RIGS and Lymphoseek development costs to fund internally may significantly
impact our liquidity. If we decide to fund significant portions of these
estimated development costs ourselves in 2005 and beyond in order to obtain a
better potential long-term investment return for Neoprobe, we will likely have
to raise additional capital. However, we cannot assure you that we will be able
to raise such capital on terms acceptable to us, or at all. We also cannot
assure you that we will be able to achieve significant product revenues from our
current or potential new products. In addition, we cannot assure you that we
will achieve profitability in 2004 or in the future.
CRITICAL ACCOUNTING POLICIES
THE FOLLOWING ACCOUNTING POLICIES ARE CONSIDERED BY US TO BE CRITICAL TO OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
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 1% of total revenues for the first six
months of 2004 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
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.
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
17
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 June 30, 2004, 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 the capitalized cost 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.
Inventory Reserves. We value our inventory at the lower of cost (first-in,
first-out method) or market. Reserves are estimated for 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.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts
receivable to cover estimated losses resulting from the inability of our
customers to make required payments. We determine the adequacy of this allowance
by regularly reviewing our accounts receivable aging and evaluating individual
customer receivables, considering customers' credit and financial condition,
payment history and relevant economic conditions. If the financial condition of
our customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances for doubtful accounts may be required.
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 oral
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 management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the
Chief Executive Officer, along with the Chief Financial Officer, concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information relating to our company (including our consolidated
subsidiary) required to be included in our periodic SEC filings. It should be
noted that the design of any system of controls is
18
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.
There were no changes in our internal controls over financial reporting that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
Since the date of our evaluation to the filing date of this quarterly report,
there have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
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 May 12, 2004, we furnished a Current Report on Form 8-K (dated May
12, 2004) with the Securities and Exchange Commission pursuant to Item
12 (under Item 9) in connection with our May 12, 2004 press release
announcing our consolidated financial results for the first quarter
ended March 31, 2004.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEOPROBE CORPORATION
(the Company)
Dated: August 16, 2004
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