1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Mark
One
[X] AMENDMENT NUMBER 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-24128
BIO-PLEXUS, INC.
(Exact name of Registrant as specified in its Charter)
Connecticut 06-1211921
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
129 Reservoir Road, Vernon Connecticut 06066
(Address of principal executive offices including zip code)
(860) 870-6112
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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___.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class of Common Stock as of August 13, 1999
- --------------------- ---------------------
Common Stock, no par value 13,541,998
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BIO-PLEXUS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q/A
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at March 31, 1999 and
December 31, 1998 1
Condensed Statements of Operations for the three months
ended March 31, 1999 and 1998 2
Condensed Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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BIO-PLEXUS, INC.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 525,000 $ 535,000
Accounts receivable 362,000 564,000
Inventories:
Raw materials 970,000 1,164,000
Work-in-process 271,000 470,000
Finished goods 556,000 390,000
------------ ------------
1,797,000 2,024,000
------------ ------------
Other current assets 201,000 246,000
------------ ------------
Total current assets 2,885,000 3,369,000
------------ ------------
Investment in Jordan Pharmaceuticals (Note 3) -- 600,000
Fixed assets, net 4,522,000 4,661,000
Deferred debt financing expenses 8,000 10,000
Patents, net of amortization 264,000 252,000
Other assets 260,000 260,000
------------ ------------
$ 7,939,000 $ 9,152,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 941,000 $ 1,811,000
Note payable (Note 3) -- 250,000
Accounts payable and accrued expenses 554,000 528,000
Accrued interest payable 12,000 28,000
Accrued vacation 210,000 196,000
Other accrued employee costs 121,000 213,000
Product replacement costs 142,000 222,000
Deferred revenue (Note 6) -- 875,000
------------ ------------
Total current liabilities 1,980,000 4,123,000
------------ ------------
Other long-term debt, net 2,205,000 2,403,000
Redeemable Class A common stock -- --
Redeemable common stock warrants 149,000 149,000
Commitments and contingencies (Note 4) -- --
Shareholders' equity:
Convertible preferred stock, no par value, 3,000,000
authorized, no shares issued and outstanding -- --
Common stock, no par value, 18,000,000 authorized,
13,355,448 and 12,793,165 shares issued and outstanding 66,474,000 65,349,000
Accumulated deficit (62,869,000) (62,872,000)
------------ ------------
Total shareholders' equity 3,605,000 2,477,000
------------ ------------
$ 7,939,000 $ 9,152,000
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
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BIO-PLEXUS, INC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
------------ ------------
Revenue: $ $
Product 1,169,000 1,065,000
Services 1,145,000 477,000
------------ ------------
Total revenue 2,314,000 1,542,000
------------ ------------
Costs and expenses:
Product 830,000 1,118,000
Services 17,000 119,000
Research and development 304,000 108,000
Selling, general and administrative 1,104,000 1,243,000
------------ ------------
Total operating costs and expenses 2,255,000 2,588,000
------------ ------------
Operating income (loss) 59,000 (1,046,000)
Financing expenses:
Amortization of deferred debt financing 2,000 20,000
Interest expense 88,000 179,000
Other income (34,000) (40,000)
------------ ------------
Total financing expenses 56,000 159,000
------------ ------------
Net income (loss) $ 3,000 $ (1,205,000)
Per share of common stock:
Basic and diluted $ 0.00 $ (0.10)
============ ============
Weighted average common shares outstanding
Basic 13,289,361 12,145,954
Diluted 13,322,396 --
The accompanying notes are an integral part of these condensed financial
statements.
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BIO-PLEXUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,000 $(1,205,000)
Adjustments to reconcile net loss to cash used
by operating activities:
Depreciation and amortization 143,000 298,000
Writedown of equipment to net realizable value -- 113,000
Amortization of deferred debt financing expenses 2,000 20,000
Amortization of debt discount 4,000 15,000
Decrease (increase) in assets:
Accounts receivable 202,000 (247,000)
Inventories 227,000 90,000
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 26,000 315,000
Accrued interest payable (16,000) 14,000
Accrued vacation and other accrued employee costs (78,000) (142,000)
Accrued product replacement costs (80,000) --
Decrease in deferred revenue (Note 6) (875,000) (210,000)
Other 42,000 145,000
----------- -----------
Net cash used in operating activities (400,000) (794,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and construction of fixed assets -- (93,000)
Long-term investments (Note 3) 627,000 --
Cost of patents (16,000) (53,000)
----------- -----------
Net cash provided by (used in) investing activities 611,000 (146,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock (Note 3) 1,100,000 --
Proceeds from exercise of common stock options -- 23,000
Decrease in notes payable (Note 3) (250,000) --
Proceeds from sale and leaseback -- 109,000
Repayments of long-term debt (Note 3) (1,071,000) (434,000)
----------- -----------
Net cash used in financing activities (221,000) (302,000)
----------- -----------
Net decrease in cash and cash
equivalents (10,000) (1,242,000)
Cash and cash equivalents, beginning of period 535,000 1,502,000
----------- -----------
Cash and cash equivalents, end of period $ 525,000 $ 260,000
=========== ===========
Supplemental cash flow disclosures:
Cash payments of interest $ 100,000 $ 151,000
Cash payments of income taxes 3,000 --
The accompanying notes are an integral part of these condensed financial
statements.
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BIO-PLEXUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The interim condensed financial statements included herein are unaudited.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations and cash flows for the periods presented have been
included. The results of operations for the interim period is not necessarily
indicative of the results of operations to be expected for the full year. These
financial statements should be read in conjunction with the financial statements
and the notes included in the 1998 Annual Report to Shareholders of Bio-Plexus,
Inc.
Certain reclassifications have been made to the 1998 financial statements
to conform with the 1999 presentation.
NOTE 2 - EARNINGS PER SHARE
In February, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share", which established new
standards for the computation and disclosure of earnings per share ("EPS"). The
new statement requires dual presentation of "basic" EPS and "diluted" EPS. Basic
EPS is based on the weighted average number of common shares outstanding for the
period, excluding any dilutive common share equivalents. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted. The Company adopted SFAS 128 for
the periods presented. In determining net loss per common share at March 31,
1998, common stock equivalents are excluded from the computation as their effect
is anti-dilutive.
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------
NET PROFIT SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ---------- ----------
Net Profit $ 3,000
BASIC EPS
Income available to common stockholders 3,000 13,289,361 $ 0.00
EFFECT OF DILUTIVE SECURITIES
Warrants 23,895
Options 9,140
---------- ---------- ----------
DILUTED EPS
Income available to common stockholders
plus assumed conversions $ 3,000 13,322,396 $ 0.00
========== ========== ==========
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Warrants to purchase 761,272 shares of common stock at prices ranging from
$6.00 to $12.00 and options to purchase 404,900 shares of common stock at prices
ranging from $2.75 to $7.75 were outstanding at March 31, 1999 but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares.
NOTE 3 - OTHER SIGNIFICANT CAPITAL TRANSACTIONS
On December 31, 1998, the remaining principal balance of $710,000
associated with $4,230,000 of unsecured term notes issued in 1993 matured. In
January 1999, the Company repaid the outstanding principal balance plus accrued
interest thereon.
During the first quarter of 1999, a member of the Company's Board of
Directors and shareholder, Mr. David Himick, invested $1,000,000 in exchange for
502,500 shares of common stock and 75,000 warrants with a maturity date of
December 31, 2001 and an exercise price of $2.00 per share.
During the first quarter of 1999, a member of the Company's Board of
Directors and shareholder, Mr. Herman Gross, invested $100,000 in exchange for
47,058 shares of common stock.
On September 3, 1998, the Company loaned $600,000 to Jordan
Pharmaceuticals, Inc. ("Jordan"), a California corporation, in exchange for a
one-year promissory note. On October 31, 1998, the Company converted the
promissory note into 120,000 shares of Jordan Series A Preferred Stock. Pursuant
to stock option agreement dated October 31, 1998, Jordan had a right to
repurchase the shares of Series A Preferred Stock plus any paid-in-kind shares
owned by Bio-Plexus (in lieu of interest paid in cash) at a purchase price of
$5.00 per share. On March 31, 1999, Jordan exercised its option with respect to
all the shares for total consideration of $626,975.
On March 31, 1999, the Company paid the outstanding principal balance of
$250,000, and all accrued interest thereon, of a one-year promissory term note
to an officer of the Company.
NOTE 4 - COMMITMENTS
As of March 31, 1999, the Company had capital expenditure purchase
commitments outstanding of approximately $31,184, which primarily represent
tooling for its blood collection and holder product lines.
NOTE 5 - SEGMENT FINANCIAL DATA
The Company's operations consist of two worldwide business segments:
Safety Medical Products and Accessories and Joint Venture Design & Development.
The Safety Medical Products and Accessories segment includes blood collection
needles, needle holders and needle disposal containers. The Joint Venture Design
& Development segment includes revenue and costs associated with product design
and development, product licensing, and the design, development and construction
of machinery and tooling in connection with joint venture partners.
Information with respect to revenue, operating profit or loss and capital
expenditures attributable to each of the Company's business segments are as
follows:
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SEGMENT REVENUE
Three Months Ended March 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Safety Medical Products and Accessories $1,145,000 $ 891,000 $1,112,000
Joint Venture Design & Development 1,169,000 651,000 1,500,000
---------- ---------- ----------
Total Consolidated Revenue $2,314,000 $1,542,000 $2,612,000
========== ========== ==========
MAJOR CUSTOMERS
There was one customer, a domestic distributor of the Company's products,
Allegiance Healthcare, that exceeded 10% of the Company's Safety Medical
Products and Accessories segment revenue in the first quarter of 1999, 1998 and
1997 totaling $700,000, $799,000 and $927,000, respectively. In addition, the
Company had export sales of approximately $299,000 during the first quarter of
1999, $0 in 1998 and $161,000 in 1997 in this segment.
In the Joint Venture Design & Development segment, Johnson and Johnson
Medical, Inc. ("JJM") of Arlington, Texas, contributed to more than 10% of the
revenues in the first quarter of 1999, 1998 and 1997 totaling $1,095,000,
$651,000 and $1,500,000, respectively.
SEGMENT OPERATING PROFIT (LOSS)
Three Months Ended March 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
Safety Medical Products and Accessories $ 337,000 $ 61,000 $ (369,000)
Joint Venture Design & Development 826,000 251,000 1,075,000
----------- ----------- -----------
Total Consolidated Operating Profit 1,163,000 312,000 706,000
----------- ----------- -----------
Selling, General and Administrative Expenses (1,104,000) (1,243,000) (2,005,000)
Other -- (115,000) --
Financing Expenses (56,000) (159,000) (1,108,000)
----------- ----------- -----------
Net Profit (Loss) $ 3,000 ($1,205,000) ($2,407,000)
=========== =========== ===========
For the Safety Medical Products and Accessories segment, operating profit
consists of total revenues less cost and expenses. In the Joint Venture Design
and Development segment, operating profit consists of total revenues less costs
and expenses and research and development expenses.
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SEGMENT CAPITAL EXPENDITURES
Three Months Ended March 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Safety Medical Products and Accessories $ -- $ 93,000 $191,000
Joint Venture Design & Development -- -- --
-------- -------- --------
Total Consolidated Capital Expenditures $ -- $ 93,000 $191,000
======== ======== ========
There has been no material change in identifiable assets related to
reportable segments since the 1998 Annual Report.
NOTE 6 - LICENSING AGREEMENTS
During 1998, the Company amended its original Development and License
Agreement and canceled its Supply Agreement with JJM. The amended terms included
certain changes in the licensing and royalty agreements as well as the transfer
of manufacturing of safety needle assemblies to JJM, in exchange for an initial
milestone payment of $3,500,000, with additional payments totaling $500,000
payable upon the completion of certain milestones. The $3,500,000 was recorded
in 1998 as deferred revenue and $2,625,000 was recognized into income during
1998, and $875,000 was recognized during the first quarter of 1999. In addition,
$200,000 in milestone payments were received and recognized into income during
the first quarter of 1999.
NOTE 7 - SUBSEQUENT EVENTS
On March 24, 1999, the Company signed a commitment for a private placement
of up to $4,500,000 aggregate principal amount of 6% Convertible Debentures due
2004 ("the Debentures"). The initial purchase of $2,500,000 aggregate principal
amount of Debentures was made on April 27, 1999. The Debentures accrue interest
at the rate of 6% per annum, payable quarterly in arrears with interest payable
either in cash or in the issuance of additional Debentures, at the option of the
Company. The Debentures are convertible at any time at the option of the holders
into shares of the Company's common stock at an initial conversion price of
$3.06 per share. The Debentures may be wholly or partially redeemed at the
option of the Company for an amount not to exceed 130% of the face value plus
accrued and unpaid interest at any time after the date of issuance. The Company
and the Debenture holders have limited put and call options, respectively, for
additional Debentures. The financing also included a warrant to purchase 500,000
shares of common stock at an exercise price of $3.38.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussions set forth in this Management's Discussion and Analysis of
the Results of Operations and Financial Condition and elsewhere herein contain
certain statements which are not historical facts and are considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements can be identified by the use of such
forward-looking
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terminology as "believes," "expects," "may," "will," "should," or "anticipates"
or negative thereof or other derivations thereon or comparable terminology, or
discussions of strategy that involves risks and uncertainties. The Company's
actual results could differ materially from those projected in the
forward-looking statements as a result of, among other factors, the Company's
expectation regarding gross profit and operating income, general economic
conditions and growth in the safety medical products industry, competitive
factors and pricing pressures, changes in product mix, product demand, risk of
dependence on third party suppliers, ability to obtain financing, and other risk
factors and uncertainties detailed in this report, described from time to time
in the Company's other Securities and Exchange Commission filings, or discussed
in the Company's press releases. All forward-looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements.
OVERVIEW
Since its inception in September 1987 through March 31, 1999, Bio-Plexus
incurred cumulative losses totaling $62,869,000. During the same period, the
Company's principal focus has been the design, development, testing and
evaluation of its blood collection safety needle and the design and development
of the molds, needle assembly machines and production processes needed for
manufacturing the blood collection safety needle as well as the design and
development of new products. More recently, the Company has focused its efforts
on developing strategic partnerships with major healthcare companies in order to
assist with the development and expansion of its product lines.
With the addition of a new blood collection needle assembly and packaging
system in 1996, the Company believes it will have sufficient capacity to meet
its production needs for blood collection needles during 1999. The Company will
continue to review its cost of operations in order to reduce costs where
possible. For the Company to achieve profitability, further reductions in
manufacturing and administrative costs and increases in sales are necessary.
In January 1997, the Company entered into a Development and License
Agreement and a Supply Agreement with JJM. Pursuant to the original agreements,
Bio-Plexus would develop and manufacture safety needle assemblies for JJM, to
become part of a new safety I.V. catheter to be manufactured and sold by JJM,
utilizing the Company's patented self-blunting needle design.
In April 1998, the Company amended the original Development and License
Agreement and canceled its Supply Agreement with JJM. The amended terms included
certain changes in the licensing and royalty agreements as well as the transfer
of manufacturing of the safety needle assemblies to JJM, in exchange for an
initial milestone payment of $3,500,000, with an additional $500,000 payable
upon the completion of certain milestones.
On October 6, 1998 the Company entered into a non-exclusive supply and
distribution agreement for the United States and Canada with Graphic Controls
Corporation, a subsidiary of Tyco and a major supplier of sharps containers in
the United States. The agreement allows Graphic Controls to purchase and
distribute Bio-Plexus Drop-It(R) Needle Disposal Containers and Drop-It(R) Quick
Release Needle Holders. The agreement has an initial term of three years, and
shall be automatically renewed for an additional year, unless either party
notifies the other of its intent not to renew.
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On October 23, 1998 the Company entered into an exclusive License
Agreement and Design, Development and Asset Transfer Agreement for a PICC
Introducer Catheter with TFX Medical, a division of Teleflex Incorporated, the
industry's dominant supplier of PICC Introducers. The License Agreement includes
certain minimum annual volume requirements and ongoing royalties on the sale of
PICC Introducer Catheters featuring the Company's Punctur-Guard(R) technology.
Under the Design, Development and Asset Transfer Agreement, the Company will
design and develop safety needle assemblies to be used with the TFX Peelable
Catheter, and will modify existing manufacturing equipment to be transferred to
TFX pursuant to the terms and conditions of the agreement.
In October 1998, the Company entered into a distribution agreement with
Fisher HealthCare of Houston, Texas, the second largest operating unit of Fisher
Scientific. Fisher Scientific is one of the world leaders in serving science,
providing more than 245,000 products and services to research, health care,
industrial, educational and government customers in 145 countries. The
distribution agreement allows Fisher Healthcare to purchase and distribute all
of the Bio-Plexus blood collection products.
The Company believes that similar arrangements may be possible with one or
more major healthcare companies for its blood collection needle line, the winged
intravenous set and other future products, and intends to continue to pursue
this strategy during 1999. Such arrangements could assist the Company in raising
additional capital and help fund research and development of new products, as
well as accelerate the rate of sales growth. However, such arrangements could
also decrease the revenue per unit for the Company, as a result of sharing
revenue with strategic partners. The Company believes the overall benefits and
potential for greater market share outweigh the disadvantages that may result
from such arrangements.
THE YEAR 2000 READINESS DISCLOSURE
The "Year 2000 Issue" is the result of computer systems recognizing two
digits rather than four to define the applicable year. Any of the Company's
computer applications, computer hardware, or other systems that have
date-sensitive capabilities may recognize a date using "00" as the year 1900
rather than the year 2000.
The Company has designated a team of employees with management
representation, as well as representation from each functional area within the
Company to address the Year 2000 issue. The team has developed a project plan to
assess the impact of the Year 2000 on its internal systems, products and
facilities, as well as, its key suppliers and customers. The project plan
consists of the following: awareness of major areas affected, assessing the
degree of impact, remediation, and testing and contingency planning.
The Company has determined that its safety medical products are not
affected by the Year 2000 issue; and therefore, all on-hand inventories and
product at customer locations are not at risk.
The Company has completed the awareness phase and is 95% complete in its
assessment phase with respect to its internal systems and facilities, with
remediation efforts well under way. The following outlines the status of major
compliance concerns within the Company:
1. BUSINESS/ACCOUNTING/INVENTORY SYSTEMS: The Company's principal
business and accounting system is a standard product from a major
software company that is upgraded by the Company as new versions are
released by the software vendor. The Company has written evidence
from the vendor that the software is Year 2000 compliant. The
business and accounting software is currently running on a Windows
NT server, and the Company is currently investigating Year 2000
issues related to both the hardware and software residing on the
server.
2. OFFICE APPLICATIONS: Many desktop PC's have been recently replaced
and are using compliant operating systems and applications. Those
that have not been replaced may have to be manually reset after the
millennium change.
3. PHONE: Bio-Plexus' phone systems have been evaluated by a qualified
vendor and plans are in place to upgrade the program cards that are
in the Company's existing systems over the next few months.
4. ELECTRICAL POWER: Bio-Plexus is dependent on its electrical power
vendor to continue to deliver adequate supplies of power to the
plant. Contingency plans do not provide for power levels adequate to
maintain production. Interruptions in power delivery may result in
diminished production output during that time.
5. PRODUCTION EQUIPMENT: There are a number of
microprocessor-controlled devices designed into the Company's
production equipment. All but one of these has been found to be Year
2000 compliant. The non-compliant device is a printer that will be
replaced during the third quarter of 1999 as part of an unrelated
process improvement project. In addition, the Company has determined
that its manufacturing monitoring system is not compliant and has
begun remediation efforts, including training. The Company expects
that this system will be Year 2000 compliant before the millennium
change. This system, while an aid to monitoring manufacturing
efficiencies, could be supplanted by a manual system for an interim
period should Year 2000 problems occur.
6. SHIPPING AND RECEIVING: Order-picking at Bio-Plexus is performed in
a manual fashion based on sales orders generated by the
Business/Accounting/Inventory system (see discussion of this system
above). Packaging and Shipping are likewise predominately manual,
with the exception of an electronic shipping scale, the date
function of which is not currently used.
7. FIRE/SECURITY: The Company has determined that both the fire alarm
and the security system at its plant in Vernon, CT are not date
dependent. Both systems include standby power capability in the
event of power loss. The alarm monitoring company has also certified
that their notification system is compliant.
8. HVAC: The Company's mechanical contractor has determined that its
HVAC systems are compliant and will continue to maintain the office,
plant, and manufacturing environments through the year 2000.
The Company plans that all phases will be complete for its internal
systems and facilities by September 1999.
The Company has been assessing its Year 2000 risks related to significant
relationships with third parties via ongoing communication with its strategic
partners, distributors and customers, and critical suppliers. As part of the
process, the Company is requesting written assurances from these suppliers and
customers that they have Year 2000 readiness programs in place, as well as an
affirmation that they will be compliant when necessary. Responses to these
inquiries are currently being gathered and reviewed. The following summarizes
the Company's contacts with third parties:
Strategic Partners: The Company has received written communication from both of
its strategic partners regarding each of their Year 2000 efforts, and will
continue to monitor their level of compliance and the effect on Bio-Plexus.
Johnson & Johnson Medical, Inc. ("JJM"): In 1996, the Year 2000 issue was
identified by JJM as a critical business initiative with commitment of resources
and funding from senior management. In 1997, a formal structure to address Year
2000 issues was put into place, which included the appropriate resources from
the functional business areas along with resources from Information Management.
Policies, procedures and monitoring mechanisms have been implemented to provide
project management coordination. JJM has assessed the compliance of its
products, strategic business support systems, manufacturing equipment, and
facilities, and has determined the cost of remediating non-compliant components.
JJM has developed a comprehensive plan to cover critical information management,
non-information management, and suppliers and customers. In each of these areas,
they have completed inventories, assessments and made significant progress
toward completion of remediation and testing activities. It is anticipated that
this remediation will be substantially complete by the second quarter of 1999.
JJM is contacting business partners with whom they share data exchange to
develop a compliance interface-testing schedule, and they are communicating with
critical business partners for compliance assessment and validation, and to work
with them to achieve mutual Year 2000 readiness. JJM has a contingency plan to
deal with Year 2000 compliance failures. Contingency planning includes plans to
internally share resources, where appropriate, and to address critical issues in
areas of common interest. Contingency plans with critical customers and
suppliers will also be discussed, including the appropriate strategy of building
contingency inventory.
TFX Medical Inc. ("TFX"): Early in 1997, TFX's parent company, Teleflex,
Incorporated, initiated a directed program to deal with Year 2000 issues. A
full-time project manager was appointed, and a formal awareness and assessment
program was initiated corporate wide. With the assistance of an outside
professional firm, initial position documents were prepared by all business
units under the Teleflex Corporate umbrella, assessing initial status in
relation to business risks as posed by the millennium issue. TFX is currently
operating under a specific seven-phase audit/completion plan. The listed phases
are: Awareness, Inventory, Assessment, Analysis, Conversion, Implementation and
Post Implementation. Internal analysis and remediation for main business systems
and all peripheral hardware applications is substantially complete, with final
upgrades and required adjustments identified and under way. Assisted by a
professional third party, a formal program was initiated to identify and
remediate the recognized risk as posed by possible non-compliant business
partners. TFX's corporate goal of substantial conformance of primary internal
systems with Year 2000 compliance standards was attained at year-end 1998.
Teleflex is now operating in the final phase of its project "post
implementation."
Distributors and Customers: The Company has received written communication from
many of its major customers and distributors and will continue to monitor their
level of compliance and the effect on Bio-Plexus.
Suppliers: The Company monitors the status of its goods and service providers
with respect to the Year 2000 issue using a prioritized matrix. All current and
past suppliers of either goods or services are categorized from 1 (highest
priority) to 4 (lowest priority), as follows:
CATEGORY 1: These are vendors that Bio-Plexus relies heavily upon to
continue its operations. They might possess Bio-Plexus' custom
tooling or be uniquely qualified to supply a given product or to
perform a given service. Alternate suppliers would be costly to
secure.
CATEGORY 2: These are vendors that supply important goods and
services to Bio-Plexus, but whose goods and/or services are of a
less specialized nature and could be procured elsewhere.
CATEGORY 3: These are vendors who play an important role in
Bio-Plexus' business, but either in a support function or in a less
time-dependent manner. Impact on the vendor from Year 2000 problems
may or may not be felt by Bio-Plexus.
CATEGORY 4: These are vendors for which alternative sources are
known or could be located within a reasonable timeframe. Past, or
inactive, vendors will also be included in this category. Compliance
statistics are not tracked for this category.
The Company has designated a specific person to establish communications
regarding Year 2000 compliance with all of its vendors and suppliers. To date,
99% of the Company's Category 1, 2, and 3 suppliers have been contacted at least
once, with response rates from these suppliers of approximately 78%, 71%, and
52%, respectively. Specific status statistics for each category are outlined
below.
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Category 1 Category 2 Category 3
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Status Uncertain 2/9 6/23 24/50
In Process 4/9 8/23 9/50
Fully Compliant 3/9 9/23 17/50
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Activities related to third parties are expected to be completed by
September 1999. Despite these efforts, the Company can provide no assurance that
supplier and customer Year 2000 compliance plans will be successfully completed
in a timely manner.
Reasonably Likely Worst Case Scenario
One reasonably likely worst-case scenario might be that one or more of
the Company's Category 1 suppliers experiences a significant interruption in
operations directly affecting their supply of goods or services to Bio-Plexus.
The Company plans to maintain greater than normal inventory levels for those
goods supplied by vendors whose Year 2000 compliance is less than certain.
Additional inventory will also be carried for those vendors who, due to the
supply channels involved, might incur a greater than normal delay in delivering
goods in the event of a non-compliance problem. Despite these preparations, it
is possible that material shortages due to supplier non-compliance could result
in production interruptions to the Company's operations.
Another reasonably likely worst-case scenario is that a category 2
supplier is unable, due to Year 2000 non-compliance, to continue to provide
their respective service. If, for example, the company's principal parcel
shipper is unable to deliver the Company's products to its customers, then the
Company would be forced to use more expensive carriers, incurring additional
costs to its operations. Such shipping interruption may also cause delays in the
delivery of products to customers.
The Company is taking steps to prevent major interruptions in the
business due to Year 2000 problems using both internal and external resources to
identify and correct problems and test for readiness. The Company estimates that
the total costs to date are approximately $26,000 and that future costs of the
Year 2000 readiness project will not have a material adverse effect on its
financial position, results of operations or cash flows. The ultimate effects on
the Company of its suppliers and customers not being fully Year 2000 compliant
are not reasonably estimable. The Company, therefore, could be adversely
effected by such things as loss of revenue, production delays, lack of third
party readiness, and other business interruptions. Accordingly, the Company has
begun developing contingency plans to address potential issues that may arise.
However, the Company believes its Year 2000 remediation efforts, together with
the responses from primary suppliers and customers to date, reduces the
potential impact of non-compliance to levels which will not have a material
adverse effect on its financial position, results of operations or cash flows.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
The Company had product sales of $1,169,000 for the three months ended
March 31 1999, compared to $1,065,000 for the same period in the prior year. The
increase was attributable to the continued expansion of its domestic account
base, increased sales in Europe, and better pricing on its products.
The Company had revenues from services totaling $1,145,000 for the three
months ended March 31, 1999, compared to $477,000 for the same period in the
prior year. The increase was primarily attributable to the recognition of
$875,000 of deferred revenue and the recognition of $200,000 of milestone
payments related to the I.V. catheter development project.
Product costs were $830,000 for the three months ended March 31, 1999,
compared to $1,118,000 for the same period in the prior year. The decrease in
these costs resulted primarily from reduced costs associated with equipment
sales to JJM due to the completion of the capital equipment project in the
fourth quarter of 1998, as well as lower manufacturing costs associated with the
blood collection needle line.
Service costs were $17,000 for the three months ended March 31, 1999,
compared to $119,000 for the same period in 1998. These costs represent
engineering time billed for various development projects. The decrease in these
costs are the result of the I.V. catheter development project completion during
the fourth quarter of 1998.
Research and development expenses were $304,000 for the three months ended
March 31, 1999, compared to $108,000 for the same period a year ago. The
increase in these costs in 1999 resulted
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primarily from a decrease in deferred revenue that was amortized into income
during 1998 related to the development of the I.V. catheter for JJM.
Selling, general and administrative expenses were $1,104,000 for the three
months ended March 31, 1999, compared to $1,243,000 for the same period a year
ago. The decrease is primarily attributable to the Company's reduced work force
in 1999 as compared to 1998, as well as other administrative cost reductions.
Financing expenses were $56,000 for the three months ended March 31, 1999,
compared to $159,000 for the same period in 1998. The decrease in these costs
resulted from lower interest expense associated with equipment lease financing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for additional funds has continued from period to
period, as a result of its ongoing losses from operations, and its continued
efforts to develop new products. To date, the Company has financed its
operations primarily through borrowings and the sale of equity securities.
Through March 31, 1999, the Company has received net proceeds of approximately
$29,759,000 through borrowings and the sale of debt securities and $50,273,000
through the sale of equity securities. Of the net equity proceeds, $17,575,000
was received from its 1995 public offering, $14,191,000 was received from the
Company's initial public offering and the balance of $18,507,000 was received
through the private placement of equity securities.
The Company's primary cash requirement for the remainder of 1999 will be
for working capital to sustain ongoing operations for the blood collection
needle program, debt service, and, to a lesser extent, further research and
development on its winged intravenous set, PICC introducer, and other new
products. The Company believes it will need approximately $2.5 million in
working capital to fund operations for the balance of 1999, exclusive of funds
needed to develop and launch new products. Its overall strategy is to minimize
expenditures on new product research and development, as well as production
capacity for new products until such time that financing is secured or
additional strategic partnerships are feasible.
On March 24, 1999, the Company signed a commitment for a private placement
of up to $4,500,000 aggregate principal amount of 60 Convertible Debentures due
2004 ("the Debentures"). The initial purchase of $2,500,000 aggregate principal
amount of Debentures was made on April 27, 1999. The Debentures accrue interest
at the rate of 6% per annum, payable quarterly in arrears with interest payable
either in cash or in the issuance of additional Debentures, at the option of the
Company. The Debentures are convertible at any time at the option of the holders
into shares of the Company's common stock at an initial conversion price of
$3.06 per share. The Debentures may be wholly or partially redeemed at the
option of the Company for an amount not to exceed 130% of the face value plus
accrued and unpaid interest at any time after the date of issuance. The Company
and the Debenture holders have limited put and call options, respectively, for
additional Debentures. The financing also included a warrant to purchase 500,000
shares of common stock at an exercise price of $3.38.
Funds needed to support the Company's working capital requirements for the
balance of 1999 will come from current cash on-hand, cash generated from sales
of its products, and the Debenture financing as discussed above. In addition to
the Debenture financing arrangement and the development of additional strategic
partnerships, the Company is reviewing alternative financing strategies to raise
additional working capital in 1999 to fund the development and expansion of its
product lines. The Company is also continuing to review opportunities to further
reduce overhead costs and debt service. Short-term and long-term cash
requirements beyond 1999 will vary depending on sales levels and the cash
generated from operations, as well as funds that might be received from future
arrangements with strategic partners. Failure to raise needed capital could have
an adverse effect on the Company's operations, development plans and cash flow.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a) Reports on Form 8-K
No reports were filed on Form 8-K during the quarterly period ended March
31, 1999.
b) Exhibits
Exhibit No. Description Method of Filing
----------- ----------- ----------------
27 Financial Data Schedule Filed with the
original report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Bio-Plexus, Inc.
(Registrant)
August 24, 1999 /s/ Richard L. Higgins
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(Date) Richard L. Higgins
President and Chief Executive Officer
August 24, 1999 /s/ Kimberley A. Cady
- --------------------- -------------------------------
(Date) Kimberley A. Cady
Vice President of Finance and Chief
Financial Officer
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