SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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FORM 10-Q
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
--or--
/ / TRANSITION REPORT
FOR THE TRANSITION PERIOD FROM __ TO__
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OSTEX INTERNATIONAL, INC.
Name of Registrant as Specified in Its Charter
0-25250
Commission File Number
STATE OF WASHINGTON
State or Other Jurisdiction ofIncorporation or Organization
91-1450247
I.R.S. Employer Identification Number
2203 AIRPORT WAY SOUTH, SUITE 400, SEATTLE, WASHINGTON 98134
206-292-8082
Address and Telephone Number of Principal Executive Offices
[N/A]
Former name, address and fiscal year, if changed since last report
Indicate by checkmark 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
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THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF
MAY 7, 1996 WAS 12,441,367.
OSTEX INTERNATIONAL, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
ITEM 1 - FINANCIAL STATEMENTS....................................2
Condensed Balance Sheets.........................................F-1
Condensed Statements of Operations...............................F-2
Condensed Statements of Cash Flows...............................F-3
Notes to Condensed Financial Statements..........................F-4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............2
PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.......................................4
ITEM 2 - CHANGES IN SECURITIES...................................4
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.........................4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....4
ITEM 5 - OTHER INFORMATION.......................................4
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K........................5
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached hereto are the Registrant's unaudited condensed balance sheet as
of March 31, 1996, the audited condensed balance sheet as of December 31, 1995,
and the unaudited condensed statements of operations and cash flows for the
three month period ended March 31, 1996 and 1995. Also attached are notes to
the unaudited financial statements.
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
It is suggested that this management's discussion be read in conjunction
with the management discussion included in the Registrant's Annual Report to
shareholders for the fiscal year ended December 31, 1995, previously filed
with the Securities and Exchange Commission.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
Ostex International, Inc. (the Company ) had revenues of $587,000 for
the three month period ended March 31, 1996, compared to $380,000 for the
three month period ended March 31, 1995. On May 8, 1995 the Food and Drug
Administration (FDA) cleared the Company's Osteomark-Registered Trademark
immunoassay for commercial sale in the United States. The Company
anticipates that in light of the FDA's product clearance, sales to
laboratories and physicians in the U.S. may increase in ensuing quarters. The
Company expects to incur significant expense to stimulate product sales in the
U.S. and Europe. Prior to receiving clearance from the FDA, the Osteomark test
was not available in the U.S. except for research purposes only.
Product sales for the three month period ended March 31, 1996 were
$587,000 compared to $366,000 for the three month period ended March 31, 1995.
The increase in 1996 is attributable to higher volumes of kits sold in the
U.S., Europe, and Canada during the quarter. During the first quarter of 1996,
domestic and European sales were $587,000 compared to $291,000 in the same
period of 1995 and research testing decreased from $75,000 in 1995 to zero in
1996. There were no research testing services sales during the quarter due to
the completion of an existing contract in December 1995, and the continuing
trend to sell kits rather than contract testing services which is consistent
with the Company's marketing plan.
The Company's product costs totaled $168,000 for the three month period
ended March 31, 1996 compared to $134,000 for the same period of 1995. Product
costs have increased 25% while production volume has increased 173%. Cost per
unit of output for the quarter ended March 31, 1996 decreased 54% compared to
the first quarter 1995 largely as a result of increased volume as well as
continued efficiency gains made in the production process during the first
quarter of 1996 compared to the first quarter of 1995.
The Company's research and development expenditures totaled $745,000 for
the three month period ended March 31, 1996, compared to $834,000 for the
three month period ended March 31, 1995. The decrease is due primarily to a
decline in expenses associated with the Company's clinical trials in the first
quarter of 1996 compared to the same period of 1995, while research and
development activities associated with the Osteomark immunoassay and research
and development expenses associated with the Company's monoclonal antibody
laboratory have remained constant. The Company intends to expand its research
and development activities during the next several years.
Selling, general and administrative expenses totaled $1,855,000 for the
three month period ended March 31, 1996, compared to $1,109,000 for the same
period ended March 31, 1995. The higher expense level during the three months
ended March 31, 1996 was due to the implementation of marketing programs to
support the launch of Osteomark in the U.S., and the addition of sales
personnel to support in these efforts. The Company intends to continue its
marketing efforts during the next several years.
Interest income totaled $412,000 for the three month period ended
March 31, 1996, compared to $318,000 for the three month period ended
March 31, 1995. The increase is the result of the cash available for
investment from the initial public offering of Company common stock, completed
on January 25, 1995, being invested for a longer period during the first
quarter of 1996 than during the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations from inception primarily through
an initial public offering of 3,645,642 shares of common stock, which
generated net proceeds of approximately $32,000,000, and three private
placements of preferred stock aggregating approximately $12,800,000. Additional
funds of approximately $9,200,000 have been generated through collaborative
research and licensing agreements, sales of the Osteomark immunoassay kits and
research testing services. As of March 31, 1996, the Company had $25,752,000 in
cash and cash equivalents and short-term investments, working capital of
$26,451,000 and total stockholders' equity of $29,641,000.
During the three month period ended March 31, 1996 the Company used
$1,772,000 of cash for operating activities as compared to $1,785,000 during
the three month period ended March 31, 1995. The primary reason for the change
was the increased net loss partially being offset by collections of significant
trade receivable balances during the three month period ended March 31, 1996.
Total cash provided by investing activities was $210,000 for the three months
ended March 31, 1996 compared to $13,261,000 used in the same period of 1995.
The proceeds provided by investing activities in the three month period ended
March 31, 1996 were primarily the result of more short-term investments
maturing during the period than were purchased. During the same period ended
March 31, 1995, most investing activities focused on using cash made available
by the Company's initial public offering to purchase shortterm investments.
The Company expects its cash requirements to increase in future periods. The
Company's future capital requirements depend upon many factors, including
effective commercialization activities and arrangements, continued scientific
progress in its research and development programs, progress toward development
of the O-CSF technology, which potentially has therapeutic uses, the costs
involved in filing, prosecuting and enforcing patent claims, the costs involved
in enforcing and arbitrating distribution agreements and the time and costs
involved in obtaining regulatory approvals.
The Company intends to seek additional collaborative or license agreements
with suitable corporate partners. There can be no assurance, however, that the
Company will be able to enter into such agreements or that the amounts received
under such agreements will materially reduce the Company's funding
requirements. Additional equity or debt financing may be required. There can
be no assurance that such additional funds will be available on favorable
terms, if at all. Because of the Company's significant long-term cash
requirements, it may seek to raise additional capital if conditions in the
public equity markets are favorable, even if the Company does not have an
immediate need for additional cash at that time. If additional financing is
not available, the company anticipates that its existing available cash, its
future license and research revenues from existing collaboration agreements,
product sales and interest income from short-term investments will be adequate
to satisfy its capital requirements and to fund operations through at least
1998.
Forward looking statements in this Form 10-Q involve a number of risks and
uncertainties including, but not limited to, product demand, pricing, market
acceptance, changing economic conditions, risks in product and technology
development, the effect of the Company's accounting policies and other risk
factors detailed in the Company's SEC filings.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1994, the Company and Boehringer Mannheim, a division of
Corange International, Ltd, executed a license agreement which granted to
Boehringer Mannheim a co-exclusive, 10-year license for worldwide distribution
of Osteomark kits in the existing microtiter plate (MTP) format, except in
countries where the Company has prior exclusive distribution agreements.
Additionally, Boehringer Mannheim was granted a co-exclusive, 10-year license
to adapt the Osteomark test for use on automated systems and to manufacture
and market it worldwide, except in Japan.
On August 25, 1995, the Company filed an action in the United States
District Court for the Western District of Washington (the District Court ) to
compel Boehringer Mannheim to participate in arbitration and to enforce any
arbital award of damages or other relief. The Company believes that Boehringer
Mannheim concentrated its efforts on adapting the Company's Osteomark test for
use on Boehringer Mannheim's proprietary, automated instruments, but has failed
to meet its marketing and other obligations under the agreement for the
distribution of the Osteomark test in the existing, Company manufactured MTP
format. On October 26, 1995, Boehringer Mannheim filed an answer in the
District Court, denying that requisites to arbitration under the
agreement have been met, counterclaiming for damages against the Company for
breach of contract, and requesting that the Company's motion to compel
arbitration be denied, or, in the alternative, that the parties be compelled to
mediate their disputes as a prerequisite to arbitration.
On December 5, 1995 a United States district court judge ruled against
Boehringer Mannheim and ordered it to proceed with the arbitration. The federal
court retained jurisdiction over the dispute to enforce any award issued by the
arbitrators. At the present time management cannot estimate the amount of
damages, if any, which may be awarded to either party.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibit is filed herewith:
3.1* Articles of Incorporation, as amended and in effect
3.2* Bylaws, as amended and in effect
10.31** Agreement with Laboratory Corporation of America-TM-
Holdings (LabCorp), dated January 11, 1996
27.1 Financial Data Schedule
* Incorporated herein by reference from Item 16(a) of Registrant's Form S-1
Registration Statement as declared effective January 24, 195, (No. 33-86118)
** Confidential treatment requested.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for
which this Form 10-Q is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OSTEX INTERNATIONAL, INC.
DATE: May 13, 1996 By /s/ H. Raymond Cairncross
H. Raymond Cairncross Chairman of
the Board of
Directors and Chief Executive
Officer (principal executive
officer)
DATE: May 13, 1996 By /s/ John M. Brenneman
John M. Brenneman Secretary
and Treasurer
Director of Finance and Operations
(principal financial and principal accounting
officer)
OSTEX INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
December 31, March 31,
1996 1995
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(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 6,241 $ 4,712
Short-term investments 21,553 21,040
Trade receivables and other current assets 1,654 999
Inventory, at cost 236 280
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Total current assets 29,684 27,031
NET FURNITURE AND EQUIPMENT, at cost 2,481 2,514
OTHER ASSETS 676 676
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Total assets $ 32,841 $ 30,221
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CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,323 $ 580
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000
authorized; 12,432,667 and 12,440,742
issued and outstanding 125 125
Additional paid-in capital 45,187 45,079
Accumulated deficit (13,794) (15,563)
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Total shareholders' equity 31,518 29,641
Total liabilities and shareholders' equity $ 32,841 $ 30,221
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The accompanying notes are an integral part of these condensed balance sheets
OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
Quarter Ended
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March 31, March 31,
1995 1996
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(unaudited) (unaudited)
REVENUE:
Research testing services and product sales $ 366 $ 587
Research and development fees 14 -
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Total revenues 380 587
OPERATING EXPENSES:
Product costs 134 168
Research and development 834 745
Selling, general and administrative 1,109 1,855
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Total operating expenses (1) 2,077 2,768
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Loss from operations (1,697) (2,181)
OTHER INCOME:
Interest income 318 412
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Net loss $ (1,379) $ (1,769)
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NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE $ (0.12) $ (0.14)
Shares used in calculation 11,311 12,440
<FN>
(1) Includes legal and consulting fees for services provided by a related
party totaling $64,512 and $18,076 for the quarters ended March 1995 and 1996,
respectively.
</FN>
The accompanying notes are an integral part of these condensed financial
statements.
OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
Quarter Ended
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March 31, March 31,
1995 1996
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(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES $ (1,785) $ (1,772)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (15,060) (10,734)
Proceeds from sales of short-term investments 1,952 11,098
Purchase of furniture and equipment (153) (154)
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Net cash provided by (used in) investing activities (13,261) 210
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and
exercise of options on common stock 31,789 33
Proceeds from stock subscription receivable 165 -
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Net cash provided by (used in) financing activities 31,954 33
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 16,908 (1,529)
CASH AND CASH EQUIVALENTS, beginning of period 1,706 6,241
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CASH AND CASH EQUIVALENTS, end of period $ 18,614 $ 4,712
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The accompanying notes are an integral part of these condensed financial statements.
OSTEX INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The unaudited condensed financial statements include the
accounts of Ostex International, Inc. (a Washington
corporation) (the Company). The accompanying unaudited
condensed financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial reporting and pursuant to the rules and
regulations of the Securities and Exchange Commission.
While these statements reflect all normal recurring
adjustments which are, in the opinion of management,
necessary for fair presentation of the results of the
interim period, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. For further
information, refer to the financial statements and footnotes
thereto included in the Company's annual report filed on
Form 10-K for the year ended December 31, 1995.
Net Loss per Common and Common Equivalent Share
For the three months ended March 31, 1996, net loss per
common and common equivalent share was based on the weighted
average number of common shares outstanding during each
period. Common stock equivalents include shares issuable
upon the exercise of outstanding stock options or warrants.
These shares are not included in the computation of net loss
per share because the effect of including such shares would
be antidilutive.
2. SHAREHOLDERS' EQUITY:
Initial Public Offering
On January 25, 1995, the Company successfully completed its
initial public offering of 3,645,642 shares of common stock
at $9.50 per share for proceeds of $34,634,000, less
underwriting discounts, commissions and other offering costs
of $3,085,000. In addition, at closing of the offering, the
outstanding convertible preferred stock was automatically
converted into 5,293,260 shares of common stock and 213,204
additional shares of common stock were issued to the Series
C preferred shareholder pursuant to certain anti-dilution
provisions.
3. CONTINGENCIES
Legal
Refer to Part II, Item 1 for Legal Proceedings