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
For the quarterly period ended June 30, 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 June 30, 1999 there were 29,011,236 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. (BMTI), an Oregon Corporation, and its subsidiaries,
(together, unless the context otherwise requires, the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. The Company's needle-free operations are conducted by Bioject Inc.,
an Oregon corporation, which is a wholly owned subsidiary of BMTI. The Company's
blood glucose monitoring development operations, shown as Discontinued
Operations in the following financial statements, have been conducted by
Marathon Medical Technologies Inc. ("Marathon") (formerly Bioject JV Subsidiary
Inc.), an Oregon corporation and an 80.1% owned (wholly-owned as of June 30,
1999) subsidiary of BMTI.
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,
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
June 30, 1999 and June 30, 1998
- Consolidated Balance Sheets dated June 30, 1999 and March 31, 1999
- Consolidated Statements of Cash Flows for the quarters ended
June 30, 1999 and June 30, 1998
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
1999 1998
(Unaudited)
-------------------------
REVENUES:
Net sales of products $ 112,682 $ 142,411
Licensing/technology fees 100,000 138,001
----------- ---------
212,682 280,412
----------- -----------
OPERATING EXPENSES:
Manufacturing 361,445 271,014
Research and development 253,784 244,586
Selling, general and administrative 601,600 608,630
----------- -----------
Total operating expenses 1,216,829 1,124,230
----------- -----------
Operating loss (1,004,147) (843,818)
Other income 16,967 22,712
----------- ----------
Loss from continuing operations
before taxes (987,180) (821,106)
Provision for income taxes -- --
----------- -----------
Loss from continuing operations
before preferred stock dividend (987,180) (821,106)
Preferred stock dividend (374,836) (346,350)
----------- -----------
Loss from continuing operations
allocable to common shareholders (1,362,016) (1,167,456)
Loss from discontinued operations
allocable to common shareholders (449,786) (985,649)
Gain on sale of discontinued operations 2,852,666 --
----------- -----------
Net income/(loss) allocable to
common shareholders $1,040,864 ($2,153,105)
=========== ===========
Net income/(loss) per common share
Basic 0.04 ($0.08)
=========== ===========
Diluted 0.04 ($0.08)
=========== ===========
Shares used in per share calculation 29,011,236 26,912,231
=========== ===========
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,
1999 1999
(Unaudited)
--------------------------
ASSETS
- ------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,368,900 $ 1,274,311
Accounts receivable, net 127,619 305,064
Stock subscription receivable -- 2,400,000
Inventories 1,212,941 1,251,186
Other current assets 61,726 53,599
Current assets of discontinued operations 4,018,000 597,000
--------- -----------
Total current assets 6,789,186 5,881,160
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,187,774 2,235,733
Production molds 2,154,446 2,051,697
Furniture and fixtures 179,376 170,436
Leasehold improvements 94,115 94,115
----------- -----------
4,615,711 4,551,981
Less - Accumulated depreciation (2,791,405) (2,615,536)
----------- -----------
1,824,306 1,936,445
OTHER ASSETS 539,769 535,092
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS -- 238,583
----------- -----------
$ 9,153,261 $ 8,591,280
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 257,109 $ 190,676
Accrued payroll 135,507 135,445
Other accrued liabilities 44,524 54,388
Current liabilities of
discontinued operations 1,552,553 2,462,906
----------- -----------
Total current liabilities 1,989,693 2,843,415
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000 shares
authorized; issued and outstanding
Series A Convertible - 692,694 shares,
$15 stated value 11,515,852 9,163,025
Series B Convertible - 134,333 shares,
$15 stated value -- 1,566,762
Series C Convertible - 391,830 shares,
No stated value 2,400,000 2,400,000
Common stock, no par, 100,000,000
shares authorized; issued and
outstanding 29 011,236 shares at
June 30, 1999 and 29,011,236 at
March 31, 1999 50,182,885 50,594,111
Accumulated deficit (56,935,169) (57,976,033)
----------- -----------
Total shareholders' equity 7,163,568 5,747,865
----------- -----------
$ 9,153,261 $ 8,591,280
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
June 30,
1999 1998
(Unaudited)
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) applicable to common to
shareholders $1,040,864 ($2,153,105)
Adjustments to reconcile net income (loss)
to net cash used in operating
activities from continuing operations:
Net loss from discontinued operations 449,786 985,649
Gain on sale of discontinued operations (2,852,666) --
Depreciation and amortization 185,610 167,732
Contributed capital for services -- 13,818
Preferred stock dividends 374,836 346,350
Net changes in assets and liabilities:
Accounts receivable 177,445 59,815
Inventories 38,245 (177,864)
Other current assets (8,127) (7,747)
Accounts payable 66,434 (73,173)
Accrued payroll 62 (16,661)
Other accrued liabilities (9,862) (56,080)
Deferred revenue -- 114,999
------------ -----------
Net cash used in operating activities
of continuing operations (537,373) (796,260)
Net cash used in operating activities
of discontinued operations (1,415,177) (206,536)
------------ -----------
Net cash used in operating activities (1,952,550) (1,002,796)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Marathon Stock (331,456) --
Capital expenditures of
continuing operations (6,987) (18,591)
Capital expenditures of
discontinued operations -- (128,353)
Other assets (14,418) ( 22,175)
------------ -----------
Net cash used in investing activities (352,861) (169,119)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from common stock -- 1,849,865
Cash proceeds from the sale of Series C
preferred stock 2,400,000 --
------------ -----------
Net cash provided by financing activities: 2,400,000 1,849,865
------------ -----------
CASH AND CASH EQUIVALENTS:
Net increase in cash and
cash equivalents 94,589 677,950
Cash and cash equivalents at beginning
of period 1,274,311 1,900,839
------------ -----------
Cash and cash equivalents at end
of period $ 1,368,900 $ 2,578,789
============ ===========
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. (the
"Company"), include the accounts of Bioject Medical Technologies Inc. ("BMTI"),
an Oregon Corporation, and its wholly owned subsidiary, Bioject Inc., an Oregon
Corporation ("Bioject"), and its wholly owned subsidiary, Marathon Medical
Technologies, ("Marathon") (formerly Bioject JV Subsidiary Inc.), an Oregon
corporation. 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. 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.
Since its inception the Company has incurred operating losses and at June 30,
1999, has an accumulated deficit of approximately $57 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:
June 30, March 31,
1999 1999
---------- ----------
Raw Materials $ 303,233 $ 289,214
Work in Process 2,866 --
Finished Goods 906,842 961,972
---------- ----------
$1,212,941 $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.
NET LOSS PER SHARE
The following common stock equivalents are excluded from diluted income (loss)
per share calculations as their effect would have been antidilutive:
Three Months Ended June 30, 1999 1998
---------- ---------
Warrants and stock options 12,669,997 9,594,642
Convertible preferred stock 11,708,931 8,270,270
---------- ----------
24,378,928 17,864,912
========== ==========
3. DISCONTINUED OPERATIONS
In May 1999, rather than continue to fund the cost of its development, the
Company entered into negotiations to sell Marathon's blood glucose monitoring
technology, and certain fixed assets related to developing the technology, to a
third party. The sale was completed on June 30, 1999. The gross proceeds of the
sale was $4 million. The gain realized on the sale was approximately $2.9
million, net of associated expenses of the transaction and a $500,000 provision
for expenses to wind-up Marathon's operations. Accordingly Marathon's assets,
liabilities, loss from operations, gain on sale and cash flows are reported as
Discontinued Operations in the accompanying financial statements.
The terms of the sale of the blood glucose monitoring technology also provide
for the Company to receive a royalty on net sales of future products, if any,
which may be developed in the future from the licensed technology. The agreement
calls for a royalty of three percent of net sales until the Company has received
total royalty payments of $10 million. The agreement then calls for a royalty of
one percent of net sales thereafter. There can be no assurance that future
products will be successfully developed from the blood glucose monitoring
technology or that such products, if developed, will be commercially successful.
4. RELATED PARTY TRANSACTIONS
In connection with the sale of the blood glucose monitoring technology, the
company entered into an agreement with Elan to purchase its 19.9% common stock
interest in Marathon. The purchase price of Elan's minority interest was
$331,456 and has been accounted for by the purchase method of accounting. The
fair market value of the minority interest at June 30, 1999, was zero and
accordingly, the full amount of the purchase price has been expensed in the
current period.
5. CHANGES IN SHAREHOLDERS' EQUITY
In connection with the Company's purchase of Elan's interest in Marathon, the
Company and Elan agreed to certain changes in Elan's equity holdings in the
Company. Elan exchanged its Series B Convertible Preferred Stock ("Series B
Stock"), which would have been convertible into a minimum of 1.34 million shares
of the Company's common stock without additional cash payments, for a Warrant
that expires June 30, 2006 (the "Warrant"), to purchase 3.79 million shares of
Bioject's common stock for $1.50 per share. The Company has the right to redeem
the Warrant if it is exercised prior to June 30, 2004. Under the redemption
provisions, if Elan notifies the Company that it intends to exercise all or any
part of the Warrant to acquire stock in the Company, the Company has the right
to redeem the Warrant by paying Elan cash of $2.015 million, the original
issuance price of the Series B Stock, plus accrued interest at fifteen per cent,
compounded semi-annually from June 30, 1999. If Elan chooses to exercise less
than all of the shares covered by the Warrant, Bioject may exercise its
redemption right either for all of the shares covered by the warrant or for only
that portion being exercised, in which case the payment is prorated in
proportion to the portion of the warrant being exercised.
Also in connection with the Company's purchase of Elan's interest in Marathon,
the Company and Elan agreed to certain changes in the terms of Elan's Series A
Convertible Preferred Stock ("Series A Stock"). The modified terms fixed the
conversion price of the Series A Stock at $1.50, eliminating a prior provision
that, in certain circumstances, allowed the Series A Stock to be converted at
80% of the then current fair market value of the Company's stock, if such value
was less than $1.50. The terms were also modified to give the Company the right
to redeem the Series A Stock for cash within ninety days of receiving notice of
the intent to redeem all or part of the Series A Stock into common stock of the
Company. The redemption price is the original issuance price of the Series A
Stock being converted plus accumulated preferred stock dividends thereon from
the date of issuance of the Series A Stock.
As described above, under certain conditions the original terms of issuance of
the Series A Stock would have allowed the stock to be converted into common
stock of the Company at a price which would be at a 20% discount to the par
value of the Series A Stock. The same provisions applied to conversion of the
Series B Stock. The value of this inherent dividend was recorded as a discount
to preferred stock and an increase to common stock, originally totaling $3
million, and was to be accreted as additional preferred stock dividends on a
straight-line basis from March 2, 1998, until mandatory conversion on October
15, 2004. The combination of exchanging the Series B Stock for the Warrant and
fixing the conversion price of the Series A Stock at $1.50 has eliminated the
opportunity for either class of preferred stock to be converted into common
stock of the Company at a discount to its par value. Accordingly, the unaccreted
portion of the inherent dividend at June 30, 1999, in the amount of $2,396,225,
has been recorded as a decrease to common stock and an increase in the carrying
values of the Series A and B Stock. Modifying the terms of the Series A Stock
requires shareholder approval of an amendment to the Company's Articles of
Incorporation. Amended Articles of Incorporation, reflecting the modified terms,
are being referred to the Company's shareholders at the Company's annual meeting
in September, 1999. The accompanying consolidated financial statements reflect
the amended Series A Stock terms as if the amended Articles of Incorporation had
already been adopted.
After increasing the carrying value of the Series B Stock for the unaccreted
inherent dividend attributable to that stock, its carrying value was $1,985,000,
the original issuance price of the Series B Stock, net of costs of issuance. In
connection with the exchange of the Series B Stock for the Warrant, the carrying
value of the Series B stock was reduced to zero and common stock was increased
by $1,985,000.
6. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS 130
is to report a measure of all changes in the equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1998. Comprehensive loss did not differ from currently reported net
loss in the periods presented.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for all
derivative instruments. SFAS 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not have any derivative instruments and,
accordingly, the adoption of SFAS 133 will have no impact on the Company's
financial position or results of operations.
7. 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) 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is targeting its direct sales efforts toward: i) sales to existing
markets, specifically flu immunization providers, public health agencies and
public school systems; ii) sales in states such as California, where the Company
believes that needle-syringe safety legislation makes the Company's products
more price competitive; and iii) sales to the U.S. military. Sales through
distributors will target the home self-injection market. The Company will also
focus sales and marketing efforts on entering into licensing and supply
arrangements with leading pharmaceutical and biotechnology companies for whose
products the Biojector technology provides either increased medical
effectiveness or a higher degree of market acceptance. 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
a 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."
The Company's clinical research efforts are aimed primarily at clinical research
collaborations in the area of DNA-based vaccines and medications. Product
development efforts are focused primarily in three areas: i) developing
self-injectors targeted for the home use market; 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."
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
Product sales decreased from $142,000 in the first quarter of fiscal 1999 to
$113,000 in the first quarter of fiscal 2000 due to decreases in the unit sales
volumes of both B-2000 devices and syringes. License and technology revenues
decreased to $100,000 in the current quarter compared to $138,000 in the same
quarter a year ago. This is due to that fact that licensing and technology
revenues in the first quarter of fiscal 2000 result from different agreements,
containing different terms, with different parties than licensing and technology
revenues in the same quarter a year ago.
Manufacturing expense increased by $90,000 from the first quarter of fiscal 1999
to the first quarter of fiscal 2000. On account of excess inventories of B-2000
devices and Biojector syringes the Company did not manufacture material
quantities of new products in the quarter ended June 30, 1999. This resulted in
approximately $91,000 less manufacturing overhead being absorbed and accounted
for the increase in manufacturing cost for the first quarter of fiscal 2000
compared to the same quarter a year ago. The Company believes that inventory
on-hand of B-2000 devices and syringes will, in most product categories, be
sufficient to meet product demand through fiscal 2000. Accordingly, the Company
does not foresee a return to high manufacturing volumes of either the B-2000 or
related syringes during the current fiscal year. See "Forward-Looking
Statements."
Research and development expense increased from $245,000 in the first quarter of
fiscal 1999 to $254,000 in the first quarter of fiscal 2000. The increase
resulted from higher consulting expenses and increased costs related to
prototype development.
Selling, general and administrative expenses remained relatively constant,
decreasing slightly from $609,000 in the first quarter of fiscal 1999 to
$602,000 in the first quarter of fiscal 2000. Selling expense for the quarter
ended June 30, 1999 increased by $23,000 when compared with the same quarter a
year ago, primarily as a result of increased compensation and travel expenses.
General and administrative spending decreased by $30,000, primarily due to
decreased recruiting and investor relations expenses.
Other income consists of earnings on available cash balances and fluctuates
based on available cash balances.
Loss from discontinued operations is the operating loss from the Company's
former operations to develop and commercialize blood glucose monitoring
technology, the license to which was sold in June 1999. Expenses related to
discontinued operations declined from $986,000 in the quarter ended June 30,
1998 to $450,000 in the quarter ended June 30, 1999. The decline is a result of
decreased spending on research and development as the Company contemplated the
sale of the license.
Gain on sale of discontinued operations is the gain recognized from the sale of
the Company's blood glucose monitoring technology, and certain fixed assets
related to developing the technology, to a third party. The sale was completed
on June 30, 1999. The gross proceeds of the sale was $4 million. The gain
realized on the sale was approximately $2.9 million, net of associated expenses
of the transaction and a $500,000 provision for expenses to wind-up Marathon's
operations.
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 and revenues
from sales of products. Net proceeds received from issuance of securities from
inception through June 30, 1999 totaled approximately $62.1 million.
Cash, cash equivalents and marketable securities totaled $1.4 million at June
30, 1999 compared to $1.3 million at March 31, 1999. The increase resulted
primarily from cash proceeds received from issuance of the Company's Series C
Preferred Stock and a minority interest capital contribution to Marathon
Medical, offset by operating cash requirements, capital asset purchases,
increases in product inventories and reduction in certain short term
liabilities.
The Company had stock subscriptions receivable totaling approximately $3 million
at March 31, 1999. In April 1999, the Company received $2.4 million in payment
of a subscription to the Company's Series C Preferred Stock and $597,000 in
payment of a subscription to a minority interest in the common stock of Marathon
Medical. Both stock subscriptions were from Elan pursuant to the provisions of
the 1997 securities purchase agreement between the Company and Elan. The use of
the proceeds from both stock purchases was restricted to paying Marathon
Medical's obligations and operating expenses.
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 first
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 The Company is in the process of assessing and implementing
remedial action with regard to potential Year 2000 ("Y2K") issues. The
assessment includes steps to review and obtain vendor certification of Y2K
compliance of 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 is continuing
to conduct the assessment. Assessment of the compliance of all critical systems,
plans for remedial action, if any, and estimates of the cost of such remedial
action have been completed. The cost to address the Company's Y2K issues have
been estimated to be immaterial and funds expended are expected to be derived
from normal maintenance and upgrade operating budgets. See "Forward-Looking
Statements."
Products
The Company's products do not incorporate either application or embedded
software and are therefore not subject to Y2K issues.
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 includes financial software, operating and
networking systems, application and data servers, PC and communications hardware
and core office automation software. The company is in the process of testing
the reliability of the application software and expects this to be complete by
mid August. 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.
Supplier Base
The Company has 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.
Risk
The Company will be at risk from external infrastructure failures that could
arise from Y2K failures, including failure of electrical power and
telecommunications. Investigation and assessment of the risk of failure of such
infrastructure is beyond the scope and resources of the Company. The Company
intends to rely on vendor certification of Y2K compliance and does not plan to
audit vendor systems to test their compliance. The Company will be at risk with
respect to vendors who certify their systems as being Y2K compliant but who are
unable to deliver potentially critical supplies and services to the Company on
account of Y2K noncompliance.
Business risks to the Company of not successfully identifying Y2K issues and
undertaking effective remedial action include the inability to ship product,
delay or loss of revenue and delay in manufacturing operations. The Company
believes that it has successfully identified critical Y2K issues and has
substantially completed required remedial action. Other than risks created by
infrastructure failures or by the Company's dealings with third parties, where
the actions of such third parties are beyond the Company's control, 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 or that third
parties, over which the Company has no control will successfully address 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, 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 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 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended June 30, 1999.
Item 2. Changes in Securities
In May 1999, the Company issued to Petkevich & Partners L.L.C. a warrant to
purchase a total of 80,000 shares of Common Stock of the company at a price of
$0.625.
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) Petkevich & Partners
represented and the Company reasonably believed that it 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, and was
provided access to all necessary and adequate information to enable the
purchaser to evaluate the financial risk inherent in making an investments, and
(iii) Petkevich & Partners represented that it was acquiring the shares for
itself and not for distribution.
In June 1999 in connection with the Company's purchase of Elan's interest
in Marathon, the Company and Elan agreed to certain changes in Elan's equity
holdings in the Company. Elan exchanged its Series B preferred stock, which
would have been convertible into a minimum of 1.34 million shares of the
Company's common stock without any more cash payments, for a warrant that
expires June 30, 2006 (the "Warrant"), to purchase 3.79 million shares of
Bioject's common stock for $1.50 per share. The Company has the right to redeem
the Warrant if it is exercised prior to June 30, 2004. Under the redemption
provisions, if Elan notifies the Company that it intends to exercise all or any
part of the Warrant to acquire stock in the Company, the Company has the right
to redeem the Warrant by paying Elan cash of $2.015 million, the original
issuance price of the Series B preferred stock, plus accrued interest at fifteen
per cent, compounded semi-annually from June 30, 1999. If Elan chooses to
exercise less than all of the shares covered by the Warrant, Bioject may
exercise its redemption right either for all of the shares covered by the
warrant or for only that portion being exercised, in which case the payment is
prorated in proportion to the portion of the warrant being exercised.
Also in June 1999 the terms of Elan's Series A convertible preferred stock
("Series A Stock") were modified. The modified terms fixed the conversion price
of the Series A Stock at $1.50, eliminating a prior provision that, in certain
circumstances, allowed the Series A Stock to be converted at 80% of the then
current fair market value of the Company's stock, if such value was less than
$1.50. The terms were also modified to give the Company the right to redeem the
Series A Stock for cash within ninety days of receiving notice of the intent to
convert all or part of the Series A Stock into common stock of the Company. The
redemption price is the original issuance price of the Series A Stock being
converted plus accumulated preferred stock dividends thereon from the date of
issuance of the Series A Stock. Modifying the terms of the Series A Stock
requires shareholder approval of an amendment to the Company's Articles of
Incorporation. Amended Articles of Incorporation, reflecting the modified terms,
are being presented for approval to the Company's shareholders at the Company's
annual meeting in September, 1999. The accompanying consolidated financial
statements reflect the amended Series A Stock terms as if the amended Articles
of Incorporation had already been adopted.
Item 3. Defaults Upon Senior Securities
None during the quarter ended June 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter ended June 30, 1999.
Item 5. Other Information
TIMELY SUBMISSION OF SHAREHOLDER PROPOSALS
The Securities and Exchange Commission ("SEC") requires a registrant to
give shareholders notice of deadlines for timely submission of certain types of
shareholder proposals that shareholders wish to present for a vote on certain
SEC rules as they relate to the registrant's annual meeting date and relevant
provisions of its articles and by-laws. Set forth below are the deadlines
applicable to the Company's shareholders. The Company's Board has not yet acted
to set the annual meeting date; the following dates are based on an assumed
meeting date of September 14, 2000 for the Company's 2000 Annual Meeting.
In the event a shareholder does not notify the Company by April 14, 2000 of
an intent to be present at the 2000 Annual Meeting in order to present a
proposal for a vote (other than a proposal for the nomination of a director),
the Company will have the right to exercise its discretionary authority to vote
against the proposal, if presented, without including any information about the
proposal in its proxy materials.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
10.64 Agreement to Amend Securities Purchase Agreement and Certain Related
Securities among Bioject Medical Technologies Inc., Elan International
Services Ltd. and Marathon Medical Technologies Inc.
10.65 Assignment among Bioject Medical Technologies Inc., Elan
Corporation plc. and JV Co.
10.66 Form of Series "P" Common Stock Purchase Warrant.
27.1 Financial Data Schedule
REPORTS ON FORM 8-K:
Form 8-K filed on April 20, 1999, private placement with Elan
International Services, Ltd. with exhibits 3.1.2 and 3.1.3.
Form 8-K filed on June 25, 1999, press release announcing Hoffman-La
Roche withdrawal from joint marketing plan.
Form 8-K filed on July 12, 1999, press release announcing the sale of
Marathon's Medical's blood glucose monitoring technology to Medisys, plc.
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, 1999 /s/ James O'Shea
---------------------------------
James O'Shea
Chairman, Chief Executive Officer
and President
/s/ Michael A. Temple
---------------------------------
Michael A. Temple
Vice President and Chief Financial Officer