SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the quarterly period ended June 30, 1996
Commission File No. 0-15360
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1099680
(State of other jurisdiction of (I.R.S. identification no.)
employer incorporation or organization)
7620 SW Bridgeport Road
Portland, Oregon 97224
(Address of principal executive offices) (Zip code)
(503) 639-7221
(Registrant's telephone number, including areas code)
Indicate by check mark 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 [ ]
At June 30, 1996 there were 15,616,712 outstanding shares of common stock
of the registrant.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements of Bioject
Medical Technologies Inc. (BMT) and its subsidiaries, Bioject Medical Systems
Ltd. (BMSL) and Bioject Inc. (BI) (together, unless the context otherwise
requires, the "Company"), have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. BMT, BMSL and BI were
formed for the purpose of developing, manufacturing and distributing a new
drug delivery system, capable of injecting medications through the skin
without the traditional needle puncture. The following 10-Q report reflects
the consolidated results of operations, cash flows and financial position for
the first quarter of the year ending March 31, 1997. The results of
operations for interim periods are not necessarily indicative of the results
to be expected for the year.
- Consolidated Statements of Operations for the quarters ended
June 30, 1996 and June 30, 1995
- Consolidated Balance Sheets dated June 30, 1996 and March 31, 1996
- Consolidated Statements of Cash Flows for the quarters ended
June 30, 1996 and June 30, 1995
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Month Period Ended
June 30,
1996 1995
-------------------------
REVENUES:
Net sales of products $ 176,869 $ 703,444
Licensing/technology fees 314,900 225,000
----------- ---------
491,769 928,444
----------- -----------
EXPENSES:
Manufacturing 581,542 1,408,790
Research and development 408,368 367,806
Selling, general and administrative 747,427 866,309
Other (income) expense, net (21,672) (67,718)
----------- -----------
1,715,665 2,575,187
----------- -----------
INCOME (LOSS) BEFORE TAXES (1,223,896) (1,646,743)
PROVISION FOR INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $(1,223,896) $(1,646,743)
=========== ===========
EARNINGS (LOSS) PER SHARE $ (.08) $ (.12)
=========== ===========
SHARES USED IN PER SHARE CALCULATION 15,585,232 13,259,197
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1996 1996
--------------------------
(unaudited)
ASSETS
- ------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,753,489 $ 3,098,251
Securities available for sale - 993,056
Accounts receivable 72,710 424,859
Inventories 1,517,180 1,255,945
Prepaid and other current assets 47,782 45,714
----------- -----------
Total current assets 4,391,161 5,817,825
CASH - RESTRICTED 173,163 -
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 1,431,295 1,428,001
Production molds 780,980 777,353
Furniture and fixtures 163,116 163,116
Leasehold improvements 73,854 73,854
Equipment and molds under
construction, pledged 279,559 -
----------- -----------
2,728,804 2,442,324
Less - Accumulated depreciation (1,213,338) (1,048,638)
----------- -----------
1,515,466 1,393,686
OTHER ASSETS 301,394 307,105
----------- -----------
$ 6,381,184 $ 7,518,616
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 305,977 $ 550,174
Accrued payroll 136,158 158,225
Other accrued liabilities 225,702 216,924
Deferred revenue 300,600 566,000
----------- -----------
Total current liabilities 968,437 1,491,323
LONG-TERM DEBT 450,000 -
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000
shares authorized; no shares issued
and outstanding - -
Common stock, no par, 100,000,000
shares authorized; issued and
outstanding 15,616,712 shares at
June 30, 1996 and 15,585,232 at
March 31, 1996 36,160,508 36,001,158
Accumulated deficit (31,197,761) (29,973,865)
----------- -----------
Total shareholders' equity 4,962,747 6,027,293
----------- -----------
$ 6,381,184 $ 7,518,616
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three-Month Period Ended
June 30,
1996 1995
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,223,896) $(1,646,743)
Adjustments to net loss:
Depreciation and amortization 172,200 132,600
Common stock issued for services 159,350 16,768
Net changes in assets and liabilities:
Accounts receivable 352,149 (69,249)
Inventories (261,235) (267,876)
Prepaid and other current assets (2,068) 14,516
Accounts payable (244,197) 51,133
Accrued payroll (22,067) (49,808)
Other accrued liabilities 8,778 14,316
Deferred revenue (265,400) (75,000)
----------- -----------
Net Cash Used in Operating Activities (1,326,386) (1,879,343)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Transfers to restricted cash (173,163) -
Purchase of securities available for sale - (986,320)
Sale of securities available for sale 993,056 3,989,468
Capital expenditures (286,480) (467,298)
Other assets (1,789) (25,555)
----------- -----------
Net Cash Used in Investing Activities 531,624 2,510,295
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Insurance of long-term debt 450,000 -
Cash proceeds from common stock - -
----------- -----------
Net Cash Provided by Financing Activities 450,000 -
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents (344,762) 630,952
Cash and cash equivalents at beginning
of period 3,098,251 2,057,384
----------- -----------
Cash and cash equivalents at end
of period $ 2,753,489 $ 2,688,336
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
The consolidated financial statements of Bioject Medical Technologies
Inc. and its subsidiaries (the "Company"), include the accounts of Bioject
Medical Technologies Inc. ("BMT") and its wholly owned subsidiaries, Bioject
Medical Systems Ltd. ("BMSL") and Bioject Inc. ("BI"). All significant
intercompany transactions have been eliminated. BMT was incorporated on
December 17, 1992 under the laws of the State of Oregon for the purpose of
acquiring all of the outstanding common shares of BMSL in exchange for an
equivalent number of common shares of BMT stock under a plan of U.S.
reincorporation approved by the Company's shareholders on November 20, 1992.
BMSL was incorporated on February 14, 1985, under the laws of British
Columbia, and BI was incorporated on February 8, 1985, under the laws of the
State of Oregon.
The Company commenced operations in 1985 for the purpose of developing,
manufacturing and distributing a new drug delivery system. Since its
formation, the Company has been engaged principally in organizational,
financing, research and development, and marketing activities. In the last
quarter of fiscal 1993, the Company launched U.S. distribution of its
Biojector 2000 system primarily to the hospital and large clinic market.
The Company's products and manufacturing operations are subject to extensive
government regulation, both in the U.S. and abroad. In the U.S., the
development, manufacture, marketing and promotion of medical devices is
regulated by the Food and Drug Administration ("FDA") under the Federal Food,
Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company received clearance from
the FDA under Section 510(k) of the FFDCA to market a hand-held CO2-powered
jet injection system. In June 1994, the Company received clearance from the
FDA under 510(k) to market a version of its Biojector 2000 system in a
configuration targeted at high volume injection applications.
The Company's revenues to date have been derived primarily from licensing
and technology fees and more recently from sales of the Biojector 2000 system
and Biojector syringes to public health clinics and to Health Management Inc.
with whom the Company signed an two-year distribution agreement in fiscal
1995. Subsequent to year end this agreement was cancelled. Although not
obligated to do so, the Company agreed to repurchase a portion of the goods
sold (see Note 5). Future revenues will depend upon acceptance and use by
healthcare providers of the Company's jet injection technology. Uncertainties
over government regulation and competition in the healthcare industry may
impact healthcare provider expenditures and third party payer reimbursements
and, accordingly, the Company cannot predict what impact, if any, subsequent
healthcare reforms might have on its business. In the future the Company may
require additional financing. Failure to obtain such financing on favorable
terms could adversely affect the Company's business.
2. ACCOUNTING POLICIES:
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined in a
manner which approximates the first-in, first out (FIFO) method. Costs
utilized for inventory valuation purposes include labor, materials and
manufacturing overhead. Net inventories consist of the following:
June 30, March 31,
1996 1996
---------- ----------
Raw Materials $ 696,093 $ 697,694
Work in Process 12,467 12,467
Finished Goods 808,620 545,784
---------- ----------
$1,517,180 $1,255,945
========== ==========
During the first quarter, although not obligated to do so, the Company
committed to repurchase certain inventories from one customer. The purchase
price totalled $660,000 of which $322,000 has been satisfied and the balance
is to be acquired and paid in two equal installments in July and October 1996.
PROPERTY AND EQUIPMENT AND LONG-TERM DEBT
In the first quarter of fiscal 1997, the Company commenced acquiring tooling
and molds under a contract with Schering AG. Under the contract, Schering has
agreed to advance the Company up to $1.6 million on an agreed-upon schedule to
acquire this capital equipment which is pledged to Schering subject to
repayment of the loans. During the quarter, $450,000 of these loans were
received from Schering. Unexpended funds advanced to the Company must be held
in a separate account and are also pledged against repayment of the debt. The
loans bear interest at Wells Fargo Bank prime plus 2 1/2%. Interest only is
payable in annual installments until March 1998 at which time repayment of
principal and interest will commence and be amortized over a 24-36 month
period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying, unaudited consolidated financial statements do not
include all information and footnote disclosures normally included in an
audited financial statement. However, in the opinion of management, all
adjustments (which include only normal, recurring adjustments except as
described below) necessary to present fairly the financial position, cash
flows, and results of operations have been made. It is suggested that these
statements be read in conjunction with the financial statements included in
the Company's Annual Report on Form 10-K for the year ended March 31, 1996.
On June 3, 1996, the British Columbia Securities Commission informed the
Company that its Executive Director (formerly the Superintendent of Brokers)
consented to the release of all shares originally held in escrow pursuant to
an escrow agreement dated May 30, 1986. This means that the 1.5 million
shares of common stock which had been held under this escrow arrangement since
the Company's initial public offering in July 1986 are now held by the owners
of the shares without risk of cancellation and may be sold. As previously
disclosed, a non-cash charge to compensation expense is required to be
recorded for certain of the shares being released from the escrow account and
transferred to certain former employees and consultants of the Company.
Accordingly, a non-cash charge totalling $120,000 has been recorded in the
financial statements during the quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company has been developing a self-injection system for Schering AG,
Germany, under a multi-year contract signed in March 1994. On June 26, 1996,
the Company and Schering entered into a Supply Agreement which specifies the
terms under which the Company will manufacture and sell the self-injection
systems to Schering. Subject to Schering's satisfaction with certain product
test results and receipt of regulatory approval in the United States and
certain foreign countries, Bioject will manufacture the self-injection systems
exclusively for Schering AG which will distribute the systems on a worldwide
basis to multiple sclerosis patients using Betaseron. The agreement extends
for an initial term of eight years and provides for minimum amounts which must
be produced by Bioject and which must be purchased by Schering AG in order for
both parties to maintain their rights under the agreement. The Company has
commenced preparation to manufacture the self-injection systems, and initial
shipments under the agreement are scheduled to commence in the first quarter
of fiscal 1998.
The Company's revenues to date have not been sufficient to cover
operating expenses. However, the Company believes that if its products
achieve market acceptance and the volume of sales increases, and its product
costs are reduced, its costs of goods as a percentage of sales will decrease
and eventually the Company will generate net income. (See "Forward Looking
Statements") The level of sales required to generate net income will be
affected by a number of factors including the pricing of the Company's
products, its ability to attain efficiencies that can be attained through
volume and automated manufacturing, and the impact of inflation on the
Company's manufacturing and other operating costs. There can be no assurance
that the Company will be able to successfully implement its manufacturing cost
reduction program or sell its products at prices or in volumes sufficient to
achieve profitability or offset increases in its costs should they occur.
Revenues and results of operations have fluctuated and can be expected to
continue to fluctuate significantly from quarter to quarter and from year to
year. Various factors may affect quarterly and yearly operating results
including (i) length of time to close product sales, (ii) customer budget
cycles, (iii) implementation of cost reduction measures, (iv) uncertainties
and changes in purchasing due to third party payor policies and proposals
relating to national healthcare reform, (v) timing and amount of payments
under technology development agreements and (vi) timing of new product
introductions by the Company and its competition.
On June 3, 1996, the British Columbia Securities Commission informed the
Company that its Executive Director (formerly the Superintendent of Brokers)
consented to the release of all shares originally held in escrow pursuant to
an escrow agreement dated May 30, 1986. This means that the 1.5 million
shares of common stock which had been held under this escrow arrangement since
the Company's initial public offering in July 1986 are now held by the owners
of the shares without risk of cancellation and may be sold. As previously
disclosed, a non-cash charge to compensation expense is required to be
recorded for certain of the shares being released from the escrow account and
transferred to certain former employees and consultants of the Company.
Accordingly, a non-cash charge totalling $120,000 has been recorded in the
financial statements during the quarter.
During fiscal 1997, the Company will continue to focus its efforts on
expanding sales, reducing the cost of its products, developing injectors for
Schering and Hoffmann-La Roche, pursuing additional alliances with
pharmaceutical companies and conserving its fiscal resources. The Company
does not expect to report net income from options in fiscal 1997. (See
Forward Looking Statements).
RESULTS OF OPERATIONS
Product sales decreased from $703,000 in the first quarter of fiscal 1996
to $177,000 in the first quarter of fiscal 1997. Sales in the first quarter of
fiscal 1996 consisted of approximately $650,000 of sales to Health Management
Inc., and the remainder to hospitals, large clinics, and individual physician
offices. Sales in the first quarter of fiscal 1997 consisted primarily of
non-HMI sales to public health clinics.
License and technology fees increased from $225,000 in the first quarter
of fiscal 1996 to $315,000 in the first quarter of fiscal 1997. Both quarters
consisted of product development fees recognized for work performed to develop
a self injection device for the administration of Betaseron to multiple
sclerosis patients under an agreement with Schering, AG, and product
development fees for work to develop proprietary drug delivery systems under
an agreement with Hoffmann-La Roche. The increase in fees reflected an
increase in activity for the first quarter of fiscal 1997 compared to the
first quarter in the prior year.
Manufacturing expense decreased from the first quarter of fiscal 1996 to
the first quarter of fiscal 1997 by $827,000. This decrease was the result of
the decline in product sales and the elimination of certain excess materials
and labor costs incurred in installing and validating the automated syringe
assembly equipment and testing Biojector prototypes in the first quarter of
the prior year.
Research and development expenses were up from $368,000 in the first
quarter of fiscal 1996 to $408,000 in the first quarter of fiscal 1997 due to
a one-time non cash charge totalling $95,000 for past research and development
consulting services resulting from the release of certain escrowed shares
offset by a fluctuation in activity associated with the Schering and Hoffmann-
La Roche projects.
Selling, general and administrative expense decreased from $866,000 in
the first quarter of fiscal 1996 to $747,000 in the first quarter of fiscal
1997. The decrease was due primarily to a reduction in personnel from the
prior year's quarter offset by a one-time non cash charge totalling $25,000
for past selling and administrative employee services.
Other income consists of earnings on available cash balances and, in
fiscal 1997, such income is net of interest expense on a long-term debt due to
Schering AG. Other income decreased from $68,000 in the first quarter of
fiscal 1996 to $22,000 in the first quarter of fiscal 1997, as a result of
decreases in cash balances and the offsetting effect of interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1985, the Company has financed its operations,
working capital needs and capital expenditures primarily from private
placements of securities, exercises of stock options, proceeds received from
its initial public offering in 1986, proceeds received from a public offering
of Common Stock in November 1993, licensing and technology revenues and more
recently from sales of products and a private placement of common stock
completed in fiscal 1996 with net proceeds of approximately $3.5 million. Net
proceeds received upon issuance of securities from inception through June 30,
1996 totalled approximately $36.0 million.
Cash, cash equivalents and marketable securities totalled, $2.8 million
at June 30, 1996 and $4.1 million at March 31, 1996. The decrease resulted
primarily from operating losses and from reductions in certain short term
liabilities.
Inventories increased from $1.3 million at March 31, 1996 to $1.5 million
at June 30, 1996, due to the repurchase of certain inventories from HMI. The
Company has committed to repurchase an additional $338,000 in inventories in
July and October 1996. The repurchase of these inventories was optional and
was at a substantial discount to the original selling price to HMI.
The Company expects to expend approximately $2.0 million for capital
equipment in fiscal 1997. Substantially all of these expenditures are related
to ramp-up of manufacturing for the Schering product launch. Based on its
contract with Schering, the Company believes that up to $1.6 million of these
expenditures will be funded by interest bearing loans to be provided by
Schering with repayment by Bioject over a period of 4 to 5.5 years. During the
quarter, a total of $450,000 of these funds was advanced by Schering to the
Company. Of this total, $277,000 was used as deposits on molds and $173,000
was held in a restricted cash account for future mold expenditures.
The Company believes that its current cash position and loans from
Schering combined with revenues and other cash receipts will be adequate to
fund the Company's operations through fiscal 1997. (See "Forward Looking
Statements"). Thereafter, the Company is likely to require additional
financing. However, unforeseen costs and expenses or lower than anticipated
cash receipts from product sales or research and development activities could
accelerate the financing requirement. The Company has been successful in
raising additional financing in the past and believes that sufficient funds
will be available to fund future operations. (See "Forward Looking
Statements"). However, there can be no assurance that such financing will be
available on favorable terms or at all. Failure to obtain additional financing
when required would significantly restrict the Company's operations and
ability to continue product development, and materially adversely affect the
Company's business. The Company has no banking line of credit or other
established source of borrowing.
FORWARD LOOKING STATEMENTS
Certain statements in this report constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and factors are
described in more detail in the Company's Annual Report on Form 10-K and other
S.E.C. filings.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended June 30, 1997.
Item 2. Changes in Securities
None during the quarter ended June 30, 1997.
Item 3. Defaults Upon Senior Securities
None during the quarter ended June 30, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter ended June 30, 1997.
Item 5. Other Information
None during the quarter ended June 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
10.32.1 Security Agreement dated June 26, 1996 between
Bioject Inc. and Schering Aktiengesellschaft.
REPORTS ON FORM 8-K:
Form 8-K dated June 3, 1996 reporting the release of the
WAM Partnership Escrowed Shares by the British Columbia
Securities Commission.
Form 8-K dated June 26, 1996 reporting the signing of a supply
agreement between Schering Aktiengesellschaft and Bioject Inc.
Confidential treatment has been requested with respect to certain
portions of this agreement.
SIGNATURE
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 thereunto duly authorized.
BIOJECT MEDICAL TECHNOLOGIES INC.
(Registrant)
Date: August 12, 1996 /S/ James C. O'Shea
---------------------------------
James C. O'Shea
Chairman, Chief Executive Officer
and President
/S/ Peggy J. Miller
---------------------------------
Peggy J. Miller
Vice President and Chief Financial Officer