SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________
FORM 10-Q/A
Amendment No.1
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2001
_______________
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934.
For the transition period from ___________ to ___________.
Commission file number 333-69207
___________________________________
Careside, Inc.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 23-2863507
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(State or other jurisdiction (IRS employer identification no.)
of incorporation or organization)
6100 Bristol Parkway, Culver City, CA 90230
_____________________________________________
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (310) 338-6767
--------------
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days
Yes X No
--- ---
The number of shares outstanding of the Registrant's common Stock, par value
$.01 per share, was 11,415,331 as of May 7, 2001.
CARESIDE, INC.
INDEX
Page
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Part I - Financial Information
Item 1. Financial Statements
--------------------
Balance Sheets at December 31, 2000 and March 31, 2001 (unaudited)................................., 3
Statements of Operations for the three months ended March 31, 2000 and 2001(unaudited).............. 4
Statements of Cash Flows for the three months ended March 31, 2000 and 2001(unaudited).............. 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 12
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds........................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 14
Item 6. Exhibits and Reports on Form 8-K................................................................. 15
Signatures.................................................................................................... 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CARESIDE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Assets
------
December 31, March 31,
2000 2001
------------ ---------
(unaudited)
Current Assets:
Cash and cash equivalents $ 1,789 $ 1,036
Accounts receivable, net of allowance of $53 in 2000 and $87 in 2001 104 116
Inventory 2,698 2,844
Prepaid expenses and other 174 208
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Total current assets 4,765 4,204
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Property and Equipment, net of accumulated depreciation of $4,212 in
2000 and $4,754 in 2001 5,643 5,214
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Deposits and Other 24 24
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Goodwill, net of accumulated amortization of $566 in 2000,
and $708 in 2001 2,231 2,089
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$ 12,663 $ 11,531
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilties:
Current portion of long-term debt $ 2,520 $ 2,539
Current portion of obligation under capital lease 13 13
Accounts payable 1,457 1,556
Accrued expenses 420 514
Accrued interest 334 383
-------- --------
Total current liabilties 4,744 5,005
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Long-Term Debt, net of current portion 1,192 1,050
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Obligation Under Capital Lease, net of current portion 23 20
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Commitments
Manditorily Redeemable Series B Convertible Preferred Stock
290 and 180 shares issued and outstanding at
December 31, 2000 and March 31, 2001, respectively
Manditorily Redeemable Series C Convertible Preferred Stock 1,054 858
0 and 77.6805 shares issued and outstanding at
December 31, 2000 and March 31, 2001, respectively - 201
Stockholders' Equity:
Common stock, $.01 par value:
50,000,000 shares authorized-
10,590,191 and 11,275,302 shares issued and outstanding at
December 31, 2000 and March 31, 2001 106 113
Additional paid-in capital 50,743 52,809
Accumulated Deficit (45,199) (48,525)
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Total stockholders' equity 5,650 4,397
-------- --------
$ 12,663 $ 11,531
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
CARESIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)(unaudited)
For the Three Months
Ended March 31,
2000 2001
---------- -----------
Net Sales $ 283 $ 184
Cost of Sales 143 1,002
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Gross Profit (Loss) 140 (818)
Operating Expenses:
Research and development - products 2,464 806
Research and development - software 55 203
Selling and marketing 944 853
General and administrative 667 404
Goodwill amortization 142 142
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Operating Loss (4,132) (3,226)
Other income (expense):
Interest income 78 10
Interest expense (146) (109)
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Net Loss (4,200) (3,325)
Preferred stock dividends on Series A & B (26) (13)
Accreted dividend on Series B & C - (34)
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Net loss available to common stockholders $ (4,226) $ (3,372)
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Basic and Diluted Net Loss per Common Share $(0.54) $(0.30)
---------- -----------
Shares used in Computing Basic and Diluted 7,867,350 11,092,483
========== ===========
Net Loss per Common Share
The accompanying notes are an integral part of these consolidated financial
statements.
4
CARESIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited)
Three Months Ended March 31,
2000 2001
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Operating Activities:
Net loss $(4,200) $(3,325)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 644 684
Changes in operating assets and liabilties:
Accounts receivable (73) (12)
Inventory (530) (194)
Prepaid expenses and other (155) (34)
Accounts payable 1,843 99
Accrued expenses (465) 99
Accrued interest 50 49
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Net cash used in operating activities (2,886) (2,634)
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Investing Activities:
Purchases of property and equipment (969) (65)
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Net cash used in investing activities (969) (65)
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Financing Activities:
Proceeds from borrowings under long-term debt 795 -
Payments on long-term debt (149) (123)
Payments on capital lease obligation (3) (3)
Net proceeds from the issuance of preferred and common stock 9,568 2,072
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Net cash provided by financing activities 10,211 1,946
Net Increase (Decrease) in Cash and Cash Equivalents 6,356 (753)
Cash and Cash Equivalents, beginning of period 4,905 1,789
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Cash and Cash Equivalents, end of period $11,261 $ 1,036
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
CARESIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for the three
months ended March 31, 2001 of Careside, Inc. (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Management believes that the Company's existing sources of
liquidity fund its planned operation into 2001. However, there are
uncertainties that may impact the Company's ability to fund its planned
operations and meet its operating objectives. In management's opinion, all
adjustments, consisting of normal recurring adjustments, which are necessary for
a fair presentation of the financial position and results of operations, have
been made. The results of operations for the three months ended March 31, 2001
are not necessarily indicative of the results expected for the entire year.
These financial statements should be read in conjunction with the Auditors
Report on the Company's financial statements and notes related thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 2000
and other areas included herein including Liquidity and Capital Resources.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
The financial statements as of and for the quarter ended March 31, 2000 were
prepared under a development stage presentation. The Company exited the
development stage in the fourth quarter of 2000. As such, certain costs and
expenses for the quarter ended March 31, 2001 have been reallocated accordingly.
Note 2: INVENTORIES
At March 31, 2001, inventories consisted of raw materials to be utilized in the
manufacturing of disposable test cartridges and finished goods including test
cartridges and analyzers. Inventories are carried at the lower of cost or
market computed on a first-in, first-out (FIFO) basis.
As of
December 31, 2000 March 31, 2001
Raw materials $1,164,000 $1,134,000
Work in process 126,000 223,000
Finished goods 2,036,000 2,115,000
Reserve for Excess and obsolescence (628,000) (628,000)
------------- -------------
Total $2,698,000 $2,844,000
============= =============
Note 3: NET LOSS PER COMMON SHARE
Basic and diluted loss per share was computed by dividing net loss applicable to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Dilutive loss per share is the same as basic as
the impact of stock options, warrants, and convertible preferred stock is
excluded because the impact is anti-dilutive to the Company's loss per share.
Note 4: REVENUE RECOGNITION
The Company applies the provisions of Staff Accounting Bulletin No. 101 (SAB
101) when recognizing revenue. SAB 101 states that the revenue generally is
realized or realizable and earned when all of the following criteria are met: a)
persuasive evidence of an arrangement exists, b) delivery has occurred or the
services have been rendered, c) the seller's price to the buyer is fixed or
determinable and d) collectibility is reasonably assured.
The Company recognizes revenue from the sale of analyzers upon customer
acceptance. The Company recognizes revenue on the sale of test cartridges,
supplies and hematology solutions once shipment has occurred and all of the
conditions of SAB 101 have been met.
The Company's distributions do not have rights of return or cancellation or any
price protection provisions. Revenue from distributors that does not meet all of
the requirements of SAB 101 are deferred and recognized upon the sale or
acceptance, if applicable, of the product to the end user.
The Company has entered into sales agreements with leasing companies whereby the
Company sells its products directly to the leasing company, who then leases the
products to the end user. Sales to the leasing company are on a non-recourse
basis and are recognized at the later of shipment date or customer acceptance,
when applicable.
Note 5: STATEMENTS OF CASH FLOWS
During the three-month periods ended March 31, 2001 and 2000 cash paid for
interest was approximately $109,000 and $106,000 respectively. During the same
periods the Company made no cash payments for income taxes.
The Company had the following non-cash investing and financing activities which
have been excluded from the consolidated statement of cashflows:
6
For the three
months ended
March 31,
---------------------
2000 2001
-------- --------
Accrued Dividends - $ 13,000
Accreted Dividends - 34,000
Conversion of Series C
to common stock - 223,000
Transfer of Analyzers - 48,000
Note 6: MANDATORILY REDEEMABLE PREFERRED STOCK
In September and November 2000 the Company issued 350 shares of mandatorily
redeemable Series B Convertible Preferred Stock. At March 31, 2001, 170 of
Series B shares had been converted and 180 shares remained outstanding. The
stock has a par value of $.01 per share and a liquidation preference of $5,000
per share; it is mandatorily redeemable at the option of the holders on
September 13, 2002 at a redemption price of $5,000 per share or $900,000 for the
remaining shares.
In March 2001, at a first closing of the private placement of Series C
Convertible Preferred Stock ("Series C Preferred") pursuant to Section 4(2) of
the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder, the Company sold 77.6805 shares of Series C Preferred to eleven
accredited investors, together with five-year warrants to purchase 776,805
shares of Common Stock at an exercise price of $2.55 per common share ("2001
Investors' Warrants"). The gross proceeds of this first closing were
$1,507,000. A second closing of this offering occurred in May with gross
proceeds of $6.5 million. The placement agent in the transaction Dougherty &
Company LLC, earned warrants to purchase 412,447.3 shares of Common Stock at an
exercise price per share of $1.94, and total cash compensation of $560,000, in
connection with these closings.
Each share of Series C Preferred is convertible into a number of shares of
Common Stock which is equal to $19,400 divided by a conversion price that is
equal to 80% of the five day average trading price prior to conversion, but not
less than $1.55. If the average closing price of the Company's Common Stock
during the five trading days prior to the conversion date is at least $2.43,
then the conversion price will be equal to $1.94 (80% of $2.43). If the average
closing price during the five trading days prior to the conversion date is less
than $2.43 then the conversion price will be the greater of (x) 80% of such
-------
average closing price or (y) $1.55 (64% of $2.43). The effect of this formula is
that the conversion price can never be less than $1.55 (64% of the five-day
average trading price prior to the first closing in the private placement) or
more than $1.94. As soon as practicable, the Company intends to file a
registration statement registering for resale under the Securities Act of 1933
all of the shares of Common Stock issuable upon conversion of the Series C
Preferred or exercise of the 2001 Investors' Warrants and the warrant earned by
the placement agent. The Series C Preferred will automatically convert into
Common Stock on the day prior to the date of effectiveness of that registration
statement.
The Company is seeking stockholder approval at its Annual Meeting scheduled on
May 24, 2001 for the sale and issuance of up to 13,774,130 shares of Common
Stock upon conversion or exercise of the Series C Preferred, the 2001 Investors'
Warrants and the warrants issued to the placement agent that have an exercise
price below the market price of the Common Stock on the date of issuance. The
Series C Preferred is not convertible unless such stockholder approval is
obtained.
If, at Careside's Annual Meeting, stockholder approval is not obtained, the
Company will be required to redeem, within six months after the Annual Meeting,
all of the Series C Preferred sold for $24,250 per share of Series C Preferred
(125% of the $19,400 purchase price) plus any dividends which have accrued
thereon prior to the redemption. Dividends will accrue at 10% if stockholder
approval is not obtained. Any 2001 Investors' Warrants and placement agent
warrants issued prior to the date of the Annual Meeting would remain outstanding
following any such redemption of Series C Preferred. The Company has issued
$8,000,000 of Series C Preferred in two closings. Net proceeds from the sale of
the Series C Preferred in excess of $3,000,000 will remain in an escrow account
until such time as stockholder approval is obtained.
Proceeds from the sale of Series C Preferred are being and will be used to fund
our working capital needs and in particular our increasing sales and marketing
efforts.
7
The difference in the carrying value of the mandatorily redeemable Series B & C
Convertible Preferred Stock at the date of issuance and the redemption amount is
being accreted, using the interest method, over the period from the issuance
date to the required redemption date as a charge to additional paid-in capital.
Note 7: ISSUANCE OF SECURITIES
In a series of related transactions in November 2000, December 2000 and January
2001, the Company raised $3,942,000 of net proceeds in a private placement of
1,742,951 shares of Common Stock and 87,148 warrants to purchase Common Stock.
In March 2001, at a first closing of the private placement of its Series C
Convertible Preferred Stock ("Series C Preferred"), the Company sold 77.6805
shares of Series C Preferred to eleven accredited investors, together with five-
year warrants to purchase 776,805 shares of Common Stock at an exercise price of
$2.55 per common share ("2001 Investors' Warrants"). The gross proceeds of this
first closing were $1,507,000. The placement agent in the transaction earned
warrants to purchase 77,681 shares of Common Stock at an exercise price per
share of $1.94, and cash compensation of $105,490, in connection with this
closing.
Note 8: SUBSEQUENT EVENTS
In May 2001, at a second closing of the private placement of its Series C
Convertible Preferred Stock ("Series C Preferred"), the Company sold 334.7663
shares of Series C Preferred to accredited investors, together with five-year
warrants to purchase 3,347,663 shares of Common Stock at an exercise price of
$2.55 per common share. The gross proceeds of this second closing were $6.5
million. The placement agent in the transaction earned warrants to purchase
334,766 shares of Common Stock at an exercise price per share of $1.94 in
connection with the second closing.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q/A, including
statements regarding the anticipated development and expansion of the Company's
business and expenditures, the intent, belief or current expectations of the
Company, its directors or its officers, primarily with respect to the future
operating performance of the Company and other statements contained herein
regarding matters that are not historical facts, are "forward-looking
statements" (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. Factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements include, but
are not limited to, those discussed in other filings, including those contained
in the Company's Form 10-K for the year ended December 31, 2000.
GENERAL
The Company markets the Careside System, a proprietary blood testing system. It
is designed to decentralize laboratory operations and provides a solution to the
limitations of central blood testing laboratories. The Careside System consists
of a desktop testing instrument called the Careside Analyzer(R), disposable test
cartridges, an optional hematology device, the Careside H-2000 Hematology
Analyzer (the "H-2000") and a data management device, the Careside Connect. The
Careside System performs blood tests at the same location as the patient, or
what is commonly called point-of-care. It provides rapid test results within 10
to 15 minutes from the time the blood is drawn from the patient, in contrast to
the traditional method of sending blood samples to hospital or commercial
laboratories and waiting between 4 and 24 hours to obtain test results. Such
centralized laboratories are burdened by transportation time and volume
processing steps. In addition, the Careside System is cost competitive and
offers a comprehensive test menu, which the Company believes represents more
than 80% of all routine blood tests ordered on an out-patient basis. These
include all of the most commonly ordered blood tests, as well as blood tests
required for critical care testing, including chemistry, electrochemistry, and
coagulation tests within a single testing instrument and hematology testing in a
separate but integrated instrument. As of March 31, 2001, the Careside Analyzer
and 41 tests were cleared for marketing by the FDA or are exempt and can be
marketed for professional laboratory use. An additional 18 FDA approved
hematology tests are on the H-2000. The Company believes that no other product
for decentralized blood testing currently in the market offers nearly as broad a
menu of tests or combines these test categories.
The Company initiated commercial sales in the fourth quarter of 2000. The
Company has incurred losses and expects to incur increasing losses for the
foreseeable future as the Company launches its products and its marketing
expenditures increase. The Company's revenue for the immediate future will be
dependent on market acceptance and the speed of unit placements with physicians
and clinics.
The following is a discussion of the financial condition and results of
operations for the Company for the three months ended March 31, 2001 and 2000.
It should be read in conjunction with the Financial Statements included on the
Company's form 10-K filed on March 29, 2001, as amended, and the Notes thereto
and other financial information included elsewhere in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Sales. Sales decreased to $184,000 in the first quarter of 2001 compared to
$283,000 in 2000. Sales in 2001 were both Careside Analyzers and Careside H-
2000's. Sales in 2000 were predominately sales of Careside H-2000's, a product
the Company acquired in December 1999. The reduction in sales versus prior year
was caused by a shift in focus from the veterinary to the human market in order
to align our H-2000 sales efforts with the marketing efforts of our sales staff,
which are directed to customers who might use all of your products. Our increase
in Accounts Receivable, while our sales decrease, is due to the timing of
payment for our products as we undertake this shift. In general, foreign sales
generate cash payments earlier than domestic sales. The cost of sales represents
the cost of instruments and reagents sold and the fixed costs associated with
manufacturing efforts. In 2000, the Company was a development stage company. As
a result, these fixed costs were recognized as product development expense. In
2001, this represented $917,000 of cost of goods. A like amount was recorded as
development expense for the quarter ended December 31, 2000.
Research and Development Expenses - Product. Research and development expenses
decreased to approximately $806,000 for the three months ended March 31, 2001
from $2.5 million for the three months ended March 31, 2000. This decrease of
$1.6 million, was primarily attributable to completion of third party contract
development work associated with producing the Careside Analyzer and the
allocation of certain fixed costs including depreciation and facility related
expenses to cost of sales.
9
Research and Development Expenses - Software. Research and development
expenses increased to approximately $203,000 for the three months ended March
31, 2001 from $55,000 for the three months ended March 31, 2000. This increase
of $148,000 was primarily attributable to software development associated with
the launch of the Careside Connect.
Selling and Marketing Expenses. Sales and marketing expenses decreased to
$853,000 for the three months ended March 31, 2001 from $944,000 for the three
months ended March 31, 2000. This decrease of $91,000 is primarily attributable
to cost control efforts in 2001 and reduced commissions based on revenues.
General and Administrative Expenses. General and administrative expenses
decreased to $404,000 for the three months ended March 31, 2001 from $667,000
for the three months ended March 31, 2000. This decrease of $263,000 is
primarily attributable to reduced outside services and administrative expenses.
Goodwill. Goodwill amortization of $142,000 was recorded in both 2001 and 2000
and is associated with goodwill recorded from the December 1999 acquisition of
Texas International Laboratories, Inc.
Interest Income and Expense. Interest income decreased to approximately $10,000
for the three months ended March 31, 2001 compared to $77,000 for the three
months ended March 31, 2000. This decrease of $67,000 is attributable to lower
cash balances in 2001 than in 2000. Interest expense decreased to $109,000 in
2001 from $146,000 in 2000 due to lower remaining balances on the equipment
leases in 2001.
Net Loss. Net loss to common stockholders decreased $854,000 to $3.4 million
for the three months ended March 31, 2001 from $4.2 million for the three months
ended March 31, 2000. This decrease reflects the decrease in R&D,
administrative, selling and marketing and interest expenses offset by increases
in cost of goods sold.
The Company expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of revenues earned from sales, proceeds
from existing or future collaborative distribution relationships or joint
ventures, if any, the cost of preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights,
the status of competing products and technologies and the timing and
availability of financing for the Company. In the near term, the Company
believes that comparisons of its quarterly and annual historical results may not
be meaningful and should not be relied upon as an indication of future
performance.
INCOME TAXES
As of December 31, 2000, we had approximately $33.6 million and $1.0 million of
net operating loss and research and development credit carryforwards,
respectively, for federal income tax purposes, which begin to expire in 2011.
These amounts reflect different treatment of expenses for tax reporting than are
used for financial reporting. The Tax Reform Act of 1986 contains certain
provisions that may limit our ability to utilize net operating loss and tax
credit carryforwards in any given year. We experienced a change in ownership
interest in excess of 50% as defined under the Tax Reform Act upon the first
closing of our 1997 equity financing and by means of the private placements in
2000. We do not believe that these changes in ownership will have a significant
impact on our ability to utilize our net operating loss and tax credit
carryforwards. There can be no assurance that ownership changes in future
periods will not significantly limit our use of existing or future net operating
loss and tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through the net
proceeds generated from the issuance of common stock, long-term debt and certain
short-term borrowings that were subsequently converted into equity securities.
As of March 31, 2001, we have received net proceeds aggregating approximately
$53.9 million from these transactions.
Net cash used in operating activities for the three months ended March 31, 2001
was approximately $2.6 million. For the period ended March 31, 2001, cash used
in operating activities primarily represents the net loss for the period and
increases in inventory offset by increases in depreciation and amortization, and
accounts payable. Net cash used in operating activities was approximately $2.9
million for the three months ended March 31, 2000. This represents the net loss
for the year offset by depreciation and amortization and increases in accounts
payable partially offset by decreases in inventory, accounts receivable and
accrued expenses. We provide reserves for doubtful accounts based on our
specific review of aged accounts receivable. As of March 31, 2001 allowance for
doubtful accounts related primarily to reserves required in connection with TIL,
which we acquired in December 1999.
10
Cash used in investing activities for the purchase of property and equipment was
approximately $113,000 and $969,000 for the three months ended March 31, 2001
and 2000, respectively. The cash used in 2000 and 2001 was primarily for the
acquisition of manufacturing equipment and laboratory equipment used in research
and development.
Cash provided by financing activities was approximately $1.9 million for the
three months ended March 31, 2001, net of payments made on long-term
obligations. Net each provided by financing was a result of a first closing of a
private placement of our Series C convertible Preferred Stock ("Series C
Preferred") as of March 31, 2001.
At March 31, 2001, our principal source of liquidity was approximately $1.0
million in cash and cash equivalents.
In December 1998, we entered into an agreement with an equipment lease financing
company regarding a $2.5 million facility secured by specific equipment. Each
draw was a separate loan under the facility. We drew the remaining amount in
early 2000 secured by manufacturing equipment for cartridge assembly that we had
previously purchased. Approximately $2.4 million of this facility was drawn as
of March 31, 2001 and was secured by our existing equipment. Each equipment
loan has a 48-month term and bears an interest rate of approximately 14%-15% per
annum adjusted for an index rate based on four-year U.S. Treasury Notes at the
time of borrowing.
We entered into an agreement for bridge financing with S.R. One, Limited in
December 1998. Under this agreement, $1.5 million was funded in December 1998
and $1.5 million was funded in January 1999. All of this funding was used to
fund research and development activities and for working capital. In June 1999,
S.R. One agreed to convert $1.0 million of the $3.0 million loan, together with
accrued interest at the rate of 8% on $1.0 million, into shares of Series A
Convertible Preferred Stock. The conversion price was $6.375, which was 85% of
the initial public offering price per unit. S.R. One received 162,914 shares of
Series A Convertible Preferred Stock. Each share of Series A Convertible
Preferred Stock was in turn converted on July 1, 2000, at the option of the
holder, into units comprised of one share of Common Stock and one warrant to
purchase an additional share of Common Stock. All accrued and unpaid dividends
with respect to shares of Series A Convertible Preferred Stock converted by S.R.
One were also converted into units at $7.50 per unit. The exercise price and
other terms of the warrant received on the conversion were the same as the
warrants included in the Units. The remaining $2.0 million of the loan matures
in June 2001. At that time, we expect either to repay the $2.0 million balance
on the bridge financing with the proceeds of a new loan or to negotiate to
extend the term or convert the balance of it into preferred or common equity.
The annual interest rate on the remaining $2.0 million increased to 10% on July
1, 2000. S. R. One has the option to convert all or any portion of the remaining
loan, plus accrued interest thereon, into shares of Series A Convertible
Preferred Stock. This Series A Convertible Preferred Stock would be issued to
S.R. One on the same basis as the Series A Convertible Preferred Stock that was
issued to S. R. One in connection with the $1.0 million conversion discussed
above.
We issued a bridge warrant to S.R. One in connection with the bridge financing.
The bridge warrant was exercisable for the number of shares of Common Stock
equal to $750,000 divided by $6.375, which was 85% of the initial public
offering price or our Common Stock. The number of warrants doubled if the loan
was not repaid by June 30, 1999. As part of the conversion of a portion of the
bridge financing into shares of Series A Convertible Preferred Stock, the bridge
warrant was modified such that it will be exercisable in all events for the
number of shares of Common Stock which is equal to $1,500,000 divided by $6.375.
Following completion of our initial public offering, the bridge warrant became
exercisable for 235,294 shares of Common Stock, at $6.375 each. It will expire
on June 16, 2004.
In March 2000, we sold 1,184,091 shares of Common Stock in a private placement
for $8.77 per share. Proceeds, net of approximately $840,000 of offering costs,
amounted to approximately $9.5 million. These shares were subsequently
registered with the SEC in April 2000. As part of this transaction, warrants to
purchase 101,305 shares of Common Stock were issued to the placement agent and
contingent warrants to purchase 154,247 shares of Common Stock were issued.
During the third quarter, the conditions triggering exercisability of these
contingent warrants were met. A total of 130,092 of these contingent warrants
were exercised prior to their expiration on December 15, 2000 and the remainder
expired. We used the proceeds from this financing to expand our sales and
marketing effort and to fund research and development costs associated with the
Careside Analyzer. In addition, our demand for devices was increasing at that
time. The proceeds were also used to purchase Analyzers and H-2000s from our
manufacturers.
In September 2000, we raised $615,000 of net proceeds in a private placement of
150 shares of Series B Convertible Preferred Stock and 75,000 five-year warrants
to purchase Common Stock. That financing also included the placement of a
warrant to purchase an additional $1,000,000 of Series B Convertible Preferred
Stock. The Company used the proceeds of this financing to expand our sales and
marketing effort as well as remaining research and development costs prior to
the re-launch of the Careside Analyzer. It was also used to build our cartridge
inventory. In addition, our manufacturing costs were increasing at that time and
the proceeds were used to purchase Analyzers and H-2000s from our manufacturers.
In addition, the financing included the placement of callable two year warrants
exercisable for up to 4,000,000 shares of Common Stock, subject to conditions,
in multiples of twenty shares of Common Stock at an exercise price of $14.00 per
share ("Callable Common Warrants"). We can call the Callable Common Warrants at
a price equal to 95% of the average trading price over the two days prior to the
date of delivery of our call notice. As of March 31, 2001, none of the Callable
Common Warrants had been called. The Series B Convertible Preferred Stock is
convertible into Common Stock at 95% of an average of the ten lowest trading
prices during the thirty days before the date of conversion. At present, the
Company may only issue up to an aggregate of 1,797,361 shares of Common Stock
upon conversion of our Series B Convertible Preferred Stock and exercise of the
Callable Common Warrant. The Company is seeking at its May 2001 Annual Meeting
stockholder approval of the issuance of any of the additional 2,860,972 shares
that may be issued in connection with the conversion of Series B Convertible
Preferred Stock and the exercise of the Callable Common Warrant.
11
In a series of related transactions in November 2000, December 2000 and January
2001, the Company raised $3,942,000 of net proceeds in a private placement of
1,742,951 shares of Common Stock and 87,148 warrants to purchase Common Stock.
The Company used the proceeds of this financing primarily to expand our sales
and marketing effort and to fund purchases from our manufacturers of Careside
Analyzers and H-2000s.
At March 31, 2001, our current liquidity and sales revenue expected in 2001 are
projected to be sufficient to fund our operating expenses and capital
requirements for at least 1.5 months. The Company has worked with Dougherty &
Company LLC to arrange an equity financing transaction. As a result of that work
in March 2001, a first closing of a private placement of our Series C
Convertible Preferred Stock ("Series C Preferred"), we sold 77.6805 shares of
Series C Preferred to eleven accredited investors, together with five-year
warrants to purchase 776,805 shares of Common Stock at an exercise price of
$2.55 per common share ("2001 Investors' Warrants"). The gross proceeds of this
first closing were $1,507,000. A second closing of this offering occurred in May
with gross proceeds of $6.5 million. The placement agent in the total
transaction earned warrants to purchase 412,447.3 shares of Common Stock at an
exercise price per share of $1.94, and total cash compensation of $560,000, in
connection with these closings.
To the extent that we need additional funds in connection with generating our
commercial product sales, we expect to borrow funds to build sufficient
cartridge inventory to meet the needs that would result from anticipated sales.
We also expect that the development of additional tests will require research
expenditures at a level lower than past spending for test development. Sales
and marketing activities will require hiring and training additional staff in
2001. The estimate of the period for which we expect our available sources of
cash to be sufficient to meet our funding needs is a forward looking statement
that involves risks and uncertainties. There can be no assurance that we will be
able to meet our capital requirements for this period as a result of certain
factors set forth under "Risk Factors--Additional Funding May Not Be Available"
and elsewhere in our registration statement on Form S-3 on file with the SEC
dated September 27, 2000. In the event our capital requirements are greater than
estimated, we may need to raise additional capital to fund our research and
development activities, to scale-up manufacturing activities and to expand our
sales and marketing efforts. Our future liquidity and capital funding
requirements will depend on numerous factors, including the extent to which our
products gain market acceptance, the exercise of outstanding warrants to
purchase common stock, the timing of regulatory actions regarding our products,
the costs and timing of expansions of sales, marketing and manufacturing
activities, procurement and enforcement of patents important to our business,
and the impact of competitors' products. There can be no assurance that such
additional capital will be available on terms acceptable to us, if at all.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may include restrictive covenants. If
adequate funds are not available, we may be forced to curtail our operations
significantly or to obtain funds through entering into collaborative agreements
or other arrangements on unfavorable terms. Our failure to raise capital on
acceptable terms could have a material adverse effect on our business, financial
condition or results of operations and our ability to continue as a going
concern.
Our independent public accountant's report for the year ending December 31, 2000
has an explanatory paragraph raising substantial doubt about our ability to
continue as a going concern.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
12
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities; Changes in Securities
In March 2001, at a first closing of the private placement of Series C
Convertible Preferred Stock ("Series C Preferred") pursuant to Section 4(2) of
the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder, the Company sold 77.6805 shares of Series C Preferred to eleven
accredited investors, together with five-year warrants to purchase 776,805
shares of Common Stock at an exercise price of $2.55 per common share ("2001
Investors' Warrants"). The gross proceeds of this first closing were $1,507,000.
A second closing of this offering occurred in May with gross proceeds of $6.5
million. The placement agent in the transaction Dougherty & Company LLC, earned
warrants to purchase 412,447.3 shares of Common Stock at an exercise price per
share of $1.94, and total cash compensation of $560,000, in connection with this
these closings.
Each share of Series C Preferred Stock is convertible into a number of shares of
Common Stock which is equal to $19,400 divided by a conversion price that is
equal to 80% of the five day average trading price prior to conversion, but not
less than $1.55. If the average closing price of the Company's Common Stock
during the five trading days prior to the conversion date is at least $2.43,
then the conversion price will be equal to $1.94 (80% of $2.43). If the average
closing price during the five trading days prior to the conversion date is less
than $2.43 then the conversion price will be the greater of (x) 80% of such
-------
average closing price or (y) $1.55 (64% of $2.43). The effect of this formula is
that the conversion price can never be less than $1.55 (64% of the five-day
average trading price prior to the first closing in the private placement) or
more than $1.94. As soon as practicable, the Company intends to file a
registration statement registering for resale under the Securities Act of 1933
all of the shares of Common Stock issuable upon conversion of the Series C
Preferred or exercise of the 2001 Investors' Warrants and the warrant earned by
the placement agent. The Series C Preferred Stock will automatically convert
into Common Stock on the day prior to the date of effectiveness of that
registration statement.
The Company is seeking stockholder approval at its Annual Meeting scheduled on
May 24, 2001 for the sale and issuance of up to 13,774,130 shares of Common
Stock upon conversion or exercise of the Series C Preferred Stock, the 2001
Investors' Warrants and the warrants issued to the placement agent that have an
exercise price below the market price of the Common Stock on the date of
issuance. The Series C Preferred is not convertible unless such stockholder
approval is obtained.
If, at Careside's Annual Meeting, stockholder approval is not obtained, the
Company will be required to redeem, within six months after the Annual Meeting,
all of the Series C Preferred sold for $24,250 per share of Series C Preferred
(125% of the $19,400 purchase price) plus any dividends which have accrued
thereon prior to the redemption. Dividends will accrue at 10% if stockholder
approval is not obtained. Any 2001 Investors' Warrants and placement agent
warrants issued prior to the date of the Annual Meeting would remain outstanding
following any such redemption of Series C Preferred. The Company has issued
$8,000,000 of Series C Preferred in two closings. Net proceeds from the sale of
the Series C Preferred in excess of $3,000,000 will remain in an escrow account
until such time as stockholder approval is obtained.
Proceeds from the sale of Series C Preferred are being and will be used to fund
our working capital needs and in particular our increasing sales and marketing
efforts.
13
Item 4. Submission of Matters to a Vote of Security Holders
The first closing of the sale of our Series C Preferred Stock occurred on March
29, 2001. Pursuant to the terms of the Series C Preferred, the conversion
feature of the Series C Preferred was submitted for approval of our
stockholders. The meeting at which such matter will be considered is our Annual
Meeting, scheduled for May 24, 2001.
14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit.
Exhibit No. Description
4.1 Certificate of Designations of Series C Convertible
Preferred Stock.
4.2 Form of Securities Purchase and Subscription Agreement dated
as of March 29, 2001 by and between Careside, Inc. and
Purchasers.
4.3 Form of Warrant Agreement dated as of March 29, 2001
executed by Careside, Inc. and addressed to Purchasers
(including Warrant Certificate).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 2001.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARESIDE, INC.
Date: July____, 2001 By: /s/ W. Vickery Stoughton
------------------------
W. Vickery Stoughton
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ James R. Koch
-----------------
James R. Koch
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
16