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 December 31, 1999
Commission File No. 0-15360
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1099680
- -------------------------------------- -----------------------------
(Jurisdiction of incorporation) (I.R.S. identification no.)
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 December 31, 1999 there were 5,828,784 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"), an Oregon corporation, and its subsidiaries
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company's needle-free injector operations are conducted
by Bioject Inc. ("BI"), an Oregon corporation formed in February 1985, which is
a wholly owned subsidiary of BMTI. Its blood glucose monitoring system
operations are conducted by Marathon Medical Technologies Inc.("Marathon"), an
Oregon corporation formed in October 1997, which is wholly owned by BMTI.
The following 10-Q report reflects the consolidated results of operations,
cash flows and financial position for the third quarter of the year ending March
31, 2000. 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
December 31, 1999 and December 31, 1998
- Consolidated Statements of Operations for the nine months ended
December 31, 1999 and December 31, 1998
- Consolidated Balance Sheets dated December 31, 1999 and March
31, 1999
- Consolidated Statements of Cash Flows for the nine months ended
December 31, 1999 and December 31, 1998
1
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended
December 31,
1999 1998
----------- ----------
REVENUES:
Net sales of products $ 120,033 $ 51,476
Licensing/technology fees 150,000 887,283
----------- ---------
270,033 938,759
----------- ---------
EXPENSES:
Manufacturing 428,199 320,687
Research and development 287,999 239,711
Selling, general and administrative 604,362 560,609
----------- -----------
Total operating expenses 1,320,560 1,121,007
----------- -----------
Operating loss (1,050,527) (182,248)
Other income 55,154 34,815
----------- -----------
Loss from continuing operations
before taxes (995,373) (147,433)
Provision for income -- --
----------- -----------
Loss from continuing operations
Before preferred stock dividend (995,373) (147,433)
Preferred stock dividend (274,404) (361,234)
----------- -----------
Loss from continuing operations
Allocable to common shareholders (1,269,777) (508,667)
Loss from discontinued operations
Allocable to common shareholders -- (925,192)
----------- -----------
Net loss allocable to common
shareholders $(1,269,777) $(1,433,859)
=========== ===========
Basic and diluted net loss per
common share $ (.22) $ (.25)
=========== ===========
Shares used in per share calculation 5,805,515 5,781,653
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine-Months Ended
December 31,
1999 1998
------------ -----------
REVENUES:
Net sales of products $ 563,417 $ 505,288
Licensing/technology fees 500,000 1,912,842
----------- -----------
1,063,417 2,418,130
----------- -----------
EXPENSES:
Manufacturing 1,337,999 1,091,015
Research and development 856,240 720,621
Selling, general and administrative 1,895,219 1,926,303
----------- -----------
Total operating expenses 4,089,458 3,737,939
----------- -----------
Operating loss (3,026,041) (1,319,809)
Other income 122,971 91,977
----------- -----------
Loss from continuing operations
before taxes (2,903,070) (1,227,832)
Provision for income taxes -- --
----------- -----------
Loss from continuing operations
Before preferred stock dividend (2,903,070) (1,227,832)
Preferred stock dividend (913,745) (1,056,496)
----------- -----------
Loss from continuing operations
Allocable to common shareholders (3,816,815) (2,284,328)
Loss from discontinued operations
Allocable to common shareholders (449,786) (2,838,755)
Gain on sale of discontinued operations 2,852,666 --
----------- -----------
Net loss allocable to common
shareholders $(1,413,935) $(5,123,083)
=========== ===========
Basic and diluted net loss per common share $ (.24) $ (.91)
=========== ===========
Shares used in per share calculation 5,803,341 5,622,280
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, March 31,
1999 1999
----------- -----------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 3,146,022 $ 1,274,311
Accounts receivable, net 165,504 305,064
Stock subscription receivable -- 2,400,000
Inventories 892,439 1,251,186
Other current assets 51,890 53,599
Current assets of discontinued operations -- 597,000
------------ ------------
Total current assets 4,255,855 5,881,160
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,301,744 2,235,733
Production molds 2,056,667 2,051,697
Furniture and fixtures 179,376 170,436
Leasehold improvements 94,115 94,115
------------ ------------
4,631,902 4,551,981
Less - Accumulated depreciation (3,133,553) (2,615,536)
------------ ------------
1,498,349 1,936,445
OTHER ASSETS 540,734 535,092
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS -- 238,583
------------ ------------
$ 6,294,938 $ 8,591,280
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 193,966 $ 190,676
Accrued payroll 145,462 135,445
Other accrued liabilities 48,854 54,388
Deferred revenue 100,000 --
Current liabilities of
discontinued operations 417,742 2,462,906
------------ ------------
Total current liabilities 906,024 2,843,415
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000
shares authorized; no shares issued
and outstanding
Series A Convertible- 692,694 shares,
$15 stated value 12,054,761 9,163,025
Series B Convertible - 134,333 shares,
$15 stated value -- 1,566,762
Series C Convertible - 391,830 2,400,000 2,400,000
Common stock, no par, 100,000,000 shares
authorized; issued and outstanding
5,828,784 and 5,802,248 shares
at December 31, 1999 and
March 31, 1999, respectively 50,324,121 50,594,111
Accumulated deficit (59,389,968) (57,976,033)
------------ ------------
Total shareholders' equity 5,388,914 5,747,865
------------ ------------
$ 6,294,938 $ 8,591,280
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
BIOJECT MEDICAL TECHNOLOGIES INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine-Months Ended
December 31,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss allocable to common shareholders $ (1,413,935) $(5,123,083)
Adjustments to reconcile net loss
to net cash used in operating activities
from continuing operations:
Net loss from discontinued operations 449,786 2,838,755
Gain on sale of discontinued operations (2,852,666) --
Depreciation and amortization 547,243 537,131
Contributed capital for services 31,677 32,242
Preferred stock dividends 913,745 1,056,496
Net changes in assets and liabilities:
Accounts receivable 139,560 (179,539)
Inventories 358,747 (127,668)
Other current assets 1,709 12,827
Accounts payable 3,290 (261,751)
Accrued payroll 10,017 (49,046)
Other accrued liabilities (5,534) (96,467)
Deferred revenue 100,000 114,999
----------- -----------
Net cash used in operating activities
of continuing operations (1,716,361) (1,245,104)
Net cash provided by operating activities
of discontinued operations 1,524,752 (781,381)
----------- -----------
Net cash used in operating activities (191,609) (2,026,485)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Marathon Stock (331,456) --
Capital expenditures of
continuing operations (79,924) (69,533)
Capital expenditures of
discontinued operations -- (280,734)
Other assets (34,862) (78,664)
----------- -----------
Net cash used in investing activities (446,242) (428,931)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from the sale of Series C
Preferred stock 2,400,000 --
Cash proceeds from common stock 109,562 2,943,831
----------- -----------
Net cash provided by financing activities 2,509,562 2,943,831
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents 1,871,711 488,415
Cash and cash equivalents at beginning
of period 1,274,311 1,900,839
----------- ----------
Cash and cash equivalents at end
of period $ 3,146,022 $ 2,389,254
=========== ===========
The accompanying notes are an integral part of these consolidated financial
Statements.
5
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
The consolidated financial statements of Bioject Medical Technologies Inc. (the
"Company"), include the accounts of Bioject Medical Technologies Inc. ("BMTI"),
an Oregon Corporation, and its wholly owned subsidiaries, Bioject Inc., an
Oregon Corporation ("Bioject"), and Marathon Medical Technologies, Inc.
(formerly Bioject JV Subsidiary Inc.), an Oregon corporation ("Marathon"). All
significant intercompany transactions have been eliminated. Although Bioject
Inc. commenced operations in 1985, BMTI was formed in December 1992 for the
purpose of acquiring all of the capital stock of Bioject Medical Systems Ltd., a
Company organized under the laws of British Columbia, Canada, in a
stock-for-stock exchange in order to establish a U.S. domestic corporation as
the publicly traded parent company for Bioject Inc. and Bioject Medical Systems
Ltd. Bioject Medical Systems Ltd. was terminated in fiscal 1997. Marathon
Medical Technologies, Inc. was formed in October 1997. At that time, Marathon
acquired the license to certain continuous blood glucose monitoring technology
from Elan Corporation, plc. ("Elan") and entered into a joint venture
arrangement with Elan to develop and commercialize the blood glucose monitoring
technology. On June 30, 1999, Marathon completed the sale of its license to the
blood glucose monitoring technology. In connection with the sale of the license,
BMTI acquired Elan's 19.9% ownership of the stock of Marathon. BMTI now owns
100% of Marathon's stock. Marathon's operations are reported as "Discontinued
Operations" in the financial statements and other financial information included
as a part of this report. All references to the Company include Bioject Medical
Technologies Inc. and its subsidiaries, unless the context requires otherwise.
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 needle-free injection system. In June 1994, the Company
received clearance from the FDA under Section 510(k) to market a version of its
Biojector 2000 system in a configuration targeted at high volume injection
applications. In October 1996, the Company received 510(k) clearance for a
needle-free disposable vial access device. In March 1997, the Company received
additional 510(k) clearance for certain enhancements to its Biojector 2000
system. In January 1999, the Company received ISO9001 and EN46001 certification
and in November 1999, the Company received CE Mark certification for the
Company's jet injection systems which allows the products to be sold in the
European Union. On March 23,1998, the Company entered into a transaction with
Vitajet Corporation ("Vitajet") whereby the Company acquired, along with certain
other assets, the rights to the Vitajet(R), a spring-powered, needle-free
self-injection device which currently has regulatory clearance for administering
injections of insulin. On September 30, 1997, the Company entered into a joint
venture agreement with Elan for the development and commercialization of certain
blood glucose monitoring technology which the Company licensed from Elan. On
June 30, 1999, Marathon completed a sale of the license to the blood glucose
monitoring technology, along with certain fixed assets related to the
development of that technology.
6
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Since its inception the Company has incurred operating losses and at December
31, 1999, has an accumulated deficit of approximately $59.4 million. The
Company's revenues to date have been derived primarily from licensing and
technology fees for the jet injection technology and from limited product sales
of the Biojector 2000 system and Biojector syringes. The product sales were
principally sales to dealers to stock their inventories. More recently, the
Company has sold its products to end-users, primarily public health clinics for
vaccinations and to nursing organizations for flu immunization. Future revenues
will depend upon acceptance and use by healthcare providers and on the Company
successfully entering into license and supply agreements with major
pharmaceutical and biotechnology companies. 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 and
industry trends might have on its business. In the future the Company is likely
to require substantial 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:
December 31, March 31,
1999 1999
----------- -----------
Raw Materials $ 253,850 $ 289,214
Work in Process 3,363 --
Finished Goods 635,226 961,972
----------- -----------
$ 892,439 $ 1,251,186
=========== ===========
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's expenses to conform
to the current year's presentation.
7
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET LOSS PER SHARE
The following common stock equivalents are excluded from earnings per share
calculations as their effect would have been antidilutive:
Three Months Ended December 31, 1999 1998
--------- ---------
Warrants and stock options 2,581,305 1,707,191
Convertible preferred stock 2,377,053 1,759,545
--------- ---------
4,958,358 3,466,736
========= =========
3. CHANGES IN SHAREHOLDERS' EQUITY
On July 15, 1999, the Board of Directors approved, subject to the shareholder
approval, a proposal to amend the Articles of Incorporation to effect a reverse
stock split by exchanging five outstanding shares of the Company's common stock
for one new share of the Company's common stock. At the Company's annual meeting
in September, 1999, the shareholders approved the amendment to the Company's
Articles of Incorporation to effect a one-for-five reverse stock split. On
October 13, 1999, a one-for-five reverse stock split was effected. Prior to the
reverse split, 29,011,236 shares of Common Stock were outstanding, as well as
options, warrants and convertible preferred stock to acquire an additional
24,378,928 shares of common stock. The reverse stock split decreased the number
of outstanding shares of common stock to approximately 5.8 million shares and
approximately 4.8 million shares were reserved for issuance upon exercise of
outstanding options, warrants and the conversion of convertible preferred stock.
4. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying, unaudited consolidated financial statements do not include all
information and footnote disclosures normally included in audited financial
statements. However, in the opinion of management, all adjustments (which
include only normal, recurring adjustments) 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, 1999.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is placing primary sales and marketing emphasis on business
development efforts to seek relationships with major pharmaceutical and
biotechnology companies in key niche markets to market its needle-free injection
products for specific applications and to develop other application-specific
devices and companion syringes. At the same time, with a reduced direct sales
force, the Company continues to focus on maintaining its penetration into the
public health and flu immunization markets with its Biojector 2000 needle-free
injection system. The Company is also directing its sales efforts at creating
sales of the Biojector 2000 system to the U.S. military. See "Forward-Looking
Statements."
The Company's revenues to date have not been sufficient to cover manufacturing
and operating expenses. However, the Company believes that if its products
attain significantly greater general market acceptance and if the Company is
able to enter into large volume supply agreements with major pharmaceutical and
biotechnology companies, the Company's product sales volume would increase.
Significantly higher product sales volume should allow the Company to realize
volume-related manufacturing cost efficiencies. This, in turn, should result in
reduced costs of goods as a percentage of sales, which could eventually allow
the Company to achieve positive gross profit. The Company believes that positive
gross profit from product sales, together with licensing and technology revenues
from agreements entered into with large pharmaceutical and biotechnology
companies would eventually allow the Company to operate profitably. The level of
revenues required to generate net income will be affected by a number of factors
including the mix of revenues between product sales and licensing and technology
fees, pricing of the Company's products, its ability to attain volume-related
and automation-related manufacturing efficiencies, and the impact of inflation
on the Company's manufacturing and other operating costs. There can be no
assurance that the Company will achieve sufficient cost reductions or sell its
products at prices or in volumes sufficient to achieve profitability or offset
increases in its costs should they occur. Further, there can be no assurance
that, in the future, the Company will be able to interest major pharmaceutical
or biotechnology companies in entering licensing or supply agreements. See
"Forward-Looking Statements."
On June 30, 1999, the Company entered into a binding letter agreement with a
major biotechnology company that provided for an evaluation of Bioject's jet
injection technology for use with certain biopharmaceutical products. Terms of
the agreement provided for up to $500,000 in licensing and technology fees based
upon meeting certain milestones. Based upon achievement of the milestones per
the binding letter agreement, the Company has received $500,000 with revenue of
$100,000 recognized in the first quarter of fiscal 2000, $250,000 recognized in
the second quarter of fiscal 2000, and the final $150,000 in the current fiscal
quarter. The Company is currently in negotiation for a long-term licensing and
supply agreement. There can be no assurance that the Company will be successful
in its negotiations for a long-term licensing and supply agreement. See "Forward
Looking Statements."
Marathon Medical Technologies, Inc. was formed in October 1997. At that time,
Marathon acquired the license to certain continuous blood glucose monitoring
technology from Elan Corporation, plc. ("Elan") and entered into a joint venture
arrangement with Elan to develop and commercialize the blood glucose monitoring
technology. On June 30, 1999, Marathon completed the sale of its license to the
blood glucose monitoring technology. In connection with the sale of the license,
the Company acquired Elan's 19.9% ownership of the stock of Marathon. The
Company now owns 100% of Marathon's stock. Marathon's operations are reported as
"Discontinued Operations" in the financial statements and other financial
information included as a part of this report.
On October 19, 1999, Bioject announced a strategic alliance with AngioSense,
Inc. to jointly develop innovative delivery systems to treat cardiovascular
disease. Bioject's needle-free drug delivery systems will be modified for
delivering bio-therapeutic solutions as a surgical instrument for minimally
invasive surgical procedures with several proprietary catheters being developed
by AngioSense for catheter-based cardiology interventions.
9
The alliance grants AngioSense an exclusive license to Bioject's Biojector
2000(R) and Vitajet 3(R) jet injectors, as well as a customized version of
Bioject's Iject, a single-use disposable jet injector with a self-contained,
pre-filled medication cartridge to treat or diagnose cardiac or cardiovascular
diseases. According to the terms of the agreement, Bioject received an equity
position of approximately 10 percent in AngioSense upon completion of certain
product development milestones. Bioject has accomplished those milestones as of
December 31, 1999. Since Angiosense is a start-up company and in the research
and development phase and has not released a product on the market, the Company
has not recorded an asset on the balance sheet to account for the equity
interest. In addition to a long-term manufacturing and supply agreement with
AngioSense, Bioject will receive royalties on future product sales. Bioject will
also receive significant funding to support the development of the disposable
injector portion of the AngioSense delivery system. To date, the terms of the
funding have yet to be mutually determined by the joint development team. The
Iject will require FDA approval and clinical trials. The Company will assist
AngioSense to obtain such approval, although there can be no assurance that such
approval process can be completed on a timely basis or at all. There can be no
assurance that any developed product will receive regulatory approval or market
acceptance such that Bioject can expect to receive royalties from future product
sales. See "Forward Looking Statements."
In December 1999, Bioject and Serono Laboratories, Inc., the U.S. affiliate of
Ares-Serono, S.A., a leading biotechnology company headquartered in Geneva,
Switzerland, announced an exclusive license agreement in the U.S. and Canada to
deliver Serono's Saizen(R) recombinant human growth hormone with a customized
version of Bioject's Vitajet(TM) 3 needle-free delivery system. In connection
with the agreement, Serono paid an undisclosed license fee to Bioject and signed
a definitive supply agreement that commences upon FDA clearance. Clinical
studies evaluating the bioequivalence of Saizen(R) when delivered with the
Bioject needle-free delivery system have been completed. A 510(k) pre-market
notification has been submitted to the U.S. Food and Drug Administration (FDA).
There can be no assurance that the combined product will receive regulatory
approval or market acceptance such that Bioject can expect to receive future
product sales. See "Forward Looking Statements."
The Company's clinical research efforts are aimed primarily at clinical research
collaborations in the area of DNA-based vaccines and medications. Currently, the
B-2000 is being used in over 25 studies. Product development efforts are focused
primarily in three areas: i) developing low cost disposable "Iject" jet-injector
targeted for both clinical and home use markets; ii) developing pre-filled
syringes for use with the B-2000 and with other needle-free injectors presently
being developed; and iii) further developing the intradermal adapter for the
B-2000.
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) implementing cost reduction measures; iv) uncertainties and changes in
product sales due to third party payer policies and proposals relating to
healthcare cost containment; v) timing and amount of payments under licensing
and technology development agreements; and vii) timing of new product
introductions by the Company and its competition. The Company does not expect to
report net income from operations in fiscal 2000. See "Forward-Looking
Statements."
10
QUARTER ENDED DECEMBER 31, 1999 COMPARED TO QUARTER ENDED DECEMBER 31, 1998.
Product sales increased from $51,000 in the third quarter of fiscal 1999 to
$120,000 in the third quarter of fiscal 2000, a result of new customer sales and
flu season orders in the current quarter. License and technology fees decreased
from $887,000 in the third quarter of fiscal 1999 to $150,000 in the third
quarter of fiscal 2000. Fiscal 1999 license and technology fees were primarily a
result of $750,000 received from Merck. Fiscal 2000 fees are the result of fees
received from a major biotechnology company in connection with meeting certain
milestones.
Manufacturing expense increased from $321,000 in the third quarter of fiscal
1999 to $428,000 in the third quarter of fiscal 2000, as a result of adequate
existing supply inventories of B-2000 devices and Biojector syringes the Company
did not manufacture material quantities to absorb current manufacturing
overhead.
Research and development expenses increased from $240,000 in the third quarter
of fiscal 1999 to $288,000 in the third quarter of fiscal 2000. This increase is
primarily due to increased activity in the development of the disposable
injector, pre-filled syringes, and the intradermal spacer. Selling, general and
administrative expense increased from $561,000 in the third quarter of fiscal
1999 compared to $604,000 in the third quarter of fiscal 2000 primarily due to
costs associated with the one for five reverse split that occurred during the
current fiscal quarter.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998. Revenues for the nine months ended December 31, 1999 consisted of product
sales of $563,000 and licensing and technology revenues of $500,000. This
compares to $505,000 in product sales and $1.91 million in licensing and
technology revenues for the nine months ended December 31, 1999. The increase in
product sales was primarily due to increased new customer sales and sales
volumes attained during flu season. The $1.91 million in licensing and
technology revenues in fiscal 1999 was primarily due to receipt of $1.5 million
in payments under the agreement signed with Merck in July 1998. Licensing fees
for fiscal 2000 are from fees received from a major biotechnology company.
Manufacturing expense increased from $1.09 million for the first nine months of
fiscal 1999 to $1.34 million for the nine months ended December 31, 1999. The
increase was primarily due to a decrease of manufacturing overhead absorbed into
inventory during the current fiscal year. The Company will draw primarily on
current inventories to fill most of its product orders through the end of fiscal
2000. Accordingly, the Company anticipates that production levels for the
Biojector and syringe manufacturing, and related absorption of manufacturing
overhead, for the remainder of fiscal 2000 will remain relatively constant. See
"Forward-Looking Statements."
Research and development expense increased from $721,000 in the nine months
ended December 31, 1999 to $856,000 in the first nine months of fiscal 2000. The
increase was principally due to research and development cost related to the
development of the disposable injector, pre-filled syringes and the intradermal
spacer. Selling, general and administrative expense decreased from $1.93 million
in the nine months ended December 31, 1998 to $1.90 million in the nine months
ended December 31, 1999, primarily as a result of decreased selling expenses.
11
The preferred stock dividend decreased from $1.06 million for the first nine
months of 1998 to $914,000 for the nine months ended December 31, 1999. The
decrease in preferred stock dividend expense resulted from the conversion of the
Series B Preferred Stock to warrants in conjunction with the sale of the blood
glucose monitoring technology.
Other income consists of earnings on available cash balances and fluctuates
based on available cash balances.
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 and warrants, 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, revenues from
sales of products and proceeds from the sale of the blood glucose monitoring
technology. Net proceeds received from issuance of securities from inception
through December 31, 1999 totaled approximately $62 million.
Cash, cash equivalents and marketable securities totaled $3.15 million at
December 30, 1999 compared to $1.27 million at March 31, 1999. The increase
resulted from cash proceeds received from issuance of the Company's Series C
Preferred Stock of $2.4 million, a minority interest capital contribution to
Marathon Medical of $597,000, the sale of Marathon Medical with net proceeds of
approximately $2.9 million, licensing fees and the exercise of stock options and
warrants, offset by operating cash requirements and capital asset purchases.
The Company believes that its current cash position, combined with revenues,
other cash receipts, and net proceeds from the sale of the glucose monitoring
technology will be sufficient to fund the Company's operations through the
second quarter of fiscal 2001. In addition, the Company is considering other
potential financing alternatives. Even if the Company is successful in obtaining
additional financing, unforeseen costs and expenses or lower than anticipated
cash receipts from product sales or research and development activities could
accelerate or increase the financing requirements. The Company has been
successful in raising required financing in the past and believes that
sufficient funds will be available to fund future operations. However, there can
be no assurance that the Company's efforts will be successful and there can be
no assurance that such financing will be available on terms which are not
significantly dilutive to existing shareholders. Failure to obtain needed
additional capital on terms acceptable to the Company, or at all, would
significantly restrict the Company's operations and ability to continue product
development and growth and materially adversely affect the Company's business.
The Company has no banking line of credit or other established source of
borrowing. See "Forward Looking Statements."
YEAR 2000 ISSUES. At December 31, 1999, the Company completed the assessment of
and took all necessary remedial action to correct any deficiency of internal
systems with regard to potential Year 2000 ("Y2K") issues. The assessment
included steps to review and obtain vendor certification of Y2K compliance for
current systems, testing system compliance and implementing corrective action
where necessary. A Y2K team composed of manager-level members from
Manufacturing, Purchasing, Information Services and Finance continues to monitor
the results. Assessment of the compliance of all critical systems, plans for
remedial action, if any, and estimates of the cost of such remedial action were
completed. The estimated cost to address the Company's Y2K issues are immaterial
and normal maintenance and upgrade operating budgets are expected to adequately
cover current and future funding requirements.
12
PRODUCT. The Company's products do not incorporate either application or
embedded software and are therefore not subject to Y2K issues. The Company has
no knowledge that customers increased their on hand supply as a Y2K precaution.
INFORMATION SYSTEMS. The Company utilizes packaged application software for all
critical information systems functions, which have been certified by the vendors
as being Y2K compliant. This included financial software, operating and
networking systems, application and data servers, PC and communications hardware
and core office automation software. The company tested the reliability of the
application software and replaced systems where necessary and reasonably
believes it to be Y2K compliant. At January 1, 2000, all systems performed
without complications. See "Forward-Looking Statements."
MANUFACTURING SYSTEMS. The Company has received manufacturer certification of
Y2K compliance for all critical automated components used in manufacturing the
Company's products and at January 1, 2000, the manufacturing systems performed
without complications.
SUPPLIER BASE. The Company implemented a Y2K audit program of suppliers critical
to the Company's operations. These suppliers have certified Y2K compliance of
systems critical to maintaining a continuing source of supply to the Company. To
date the Company has seen no delay in delivery of product to manufacture its
products.
RISK. The Company did not experience any failures from external infrastructure
failures that could have arisen from Y2K failures, including failure of
electrical power and telecommunications.
Business risks to the Company of not successfully identifying Y2K issues and
undertaking effective remedial action included the inability to ship product,
delay or loss of revenue and delay in manufacturing operations. To date, the
Company believes that it successfully identified critical Y2K issues and
substantially completed required remedial action, and has not experienced any
business interruption that could cause the inability to ship product, delay or
loss of revenue or delay in the manufacturing process. Other than risks created
by infrastructure failures or by the Company's dealings with third parties,
where the actions of such third parties were beyond the Company's control, and
the Company believes that it will have no material business risk from Y2K
issues. There can be no assurance that infrastructure failures will not occur at
some later date or that third parties, over which the Company has no control
successfully addressed their own Y2K issues. See "Forward-Looking Statements."
FORWARD LOOKING STATEMENTS This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements concern, among other things, anticipated
revenues from product sales and licensing and technology fees, anticipated
funding from third parties for development projects, the Company's ability to
enter into long-term licensing and supply agreements, expected sufficiency of
capital resources to meet the Company's future requirements, future sources of
working capital, and Year 2000 issues. Paragraphs of this Report that include
forward-looking statements are often identified with a cross-reference to this
section. Forward-looking statements are based on expectations, assumptions
estimates and projections about the Company and the industry in which the
Company operates that involve risks and uncertainties. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that
13
may cause the Company's actual results or industry results to be materially
different from the results, performance, or achievements discussed or implied in
the forward-looking statements. These risks and uncertainties include the
uncertainty of market acceptance of the Company's jet injection products,
uncertain successful completion of research and development projects, the
Company's need to enter into additional strategic corporate licensing
arrangements, the Company's ability to enter into long term supply agreements,
the Company's history of losses and its accumulated deficit and need for
additional financing, the Company's limited manufacturing experience, the
Company's dependence on the performance of existing and future corporate
partners and other third parties, uncertainties related to regulation by the FDA
and the need to obtain approval of new products and their application to
additional drugs, the possibility of product liability claims, dependence on key
employees and the risks related to competition.
Forward-looking statements are based on the estimates and opinions of management
on the date the statements are made. The Company assumes no obligation to update
forward-looking statements if conditions or management's estimates or opinions
should change, even if new information becomes available or other events occur
in the future. For a more detailed description and discussion of such risks,
uncertainties and other factors, readers of this report are referred to the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the year ended March 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended December 31, 1999.
Item 2. Changes in Securities
On July 15, 1999, the Board of Directors approved, subject to the shareholder
approval, a proposal to amend the Articles of Incorporation to effect a reverse
stock split by exchanging five outstanding shares of the Company's common stock
for one new share of the Company's common stock. At the Company's annual meeting
in September, 1999, the shareholders approved the amendment to the Company's
Articles of Incorporation to effect a one-for-five reverse stock split. On
October 13, 1999, a one-for-five reverse stock split was effected. Prior to the
reverse split, 29,011,236 shares of Common Stock were outstanding, as well as
options, warrants and convertible preferred stock to acquire an additional
24,378,928 shares of common stock. The reverse stock split decreased the number
of outstanding shares of common stock to approximately 5.8 million shares and
approximately 4.8 million shares were reserved for issuance upon exercise of
outstanding options, warrants and the conversion of convertible preferred stock.
In December 1996, the Company completed two private placements of units, each
unit consisting of one share of Common Stock and one warrant to purchase one
share of Common Stock at an exercise price of $5.00. Preferred Technology, Inc.
acted as agent in connection with the first placement and in connection
therewith, received a placement fee and a warrant to acquire shares of Common
Stock at an exercise price per share of $4.140625. In December 1999, warrants to
purchase 20,286 shares of Common Stock were exercised at $5.00 per share.
The warrants and the shares issued upon exercise of the warrants have been
issued pursuant to an exemption from registration under Rule 506 of Regulation D
and Section 4(2) of the Securities Act. In relying upon such exemption (1) the
Company did not engage in any "general solicitation," (ii) the purchaser
represented and the Company reasonably believed that the purchaser was an
accredited investor and had such knowledge and experience in financial and
business matters such that it was capable of evaluating the merits and risks of
the prospective investment and was able to bear the economic risk of such
investment, (iii) the purchaser was provided access to all necessary and
adequate information to enable the purchaser to evaluate the financial risk
inherent in making an investment, and (iv) the purchaser represented that it was
acquiring the shares for itself and not for distribution.
Aggregate proceeds to the Company from the warrant exercises totaled
approximately $101,000. In December, 1999, stock option exercises of 3,250
shares of common stock were exercised for an aggregate of approximately $8,129.
Item 3. Defaults Upon Senior Securities
None during the quarter ended December 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter ended December 31, 1999.
Item 5. Other Information
On October 7, 1999, Michael Sember resigned from Bioject's Board of
Directors.
15
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
10.70 License and Distribution Agreement dated December 21, 1999
between Bioject, Inc. and Serono Laboratories, Inc. (An
application for confidential treatment has been submitted to
the SEC pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended. Confidential portions have been
omitted and filed separately with the SEC.)
27.1 Financial Data Schedule
REPORTS ON FORM 8K:
None during the quarter ended December 31, 1999
16
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: February 14, 2000 /S/ James O'Shea
---------------------------------
James O'Shea
Chairman, Chief Executive Officer
and President
/S/ Christine M. Farrell
---------------------------------
Christine M. Farrell
Controller and Secretary
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
10.70 License and Distribution Agreement dated December 21, 1999
between Bioject, Inc. and Serono Laboratories, Inc. (An
application for confidential treatment has been submitted to the
SEC pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended. Confidential portions have been omitted and
filed separately with the SEC.)
27.1 Financial Data Schedule