SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] 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: 0-22401
BIONX IMPLANTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3458598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1777 Sentry Parkway West
Gwynedd Hall, Suite 400
Blue Bell, Pennsylvania 19422
(Address of principal executive office, including zip code)
215-643-5000
(Registrant's telephone number, including area code)
_____________________________________________________________________
(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.
At May 10, 1999, there were 8,895,576 shares of Common Stock, par value
$.0019 per share, outstanding.
<PAGE>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1998
and March 31, 1999 (Unaudited) 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibits 15
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and March 31, 1999
(in thousands, except share amounts)
December 31, March 31,
1998 1999
(Unaudited)
Assets:
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 14,213 $ 9,300
Inventory, net 9,778 11,106
Trade accounts receivable, net of
allowance of $142 and $238 as of December 31,
1998 and March 31, 1999 4,643 4,273
Grants receivable 189 490
Related party receivables 239 252
Prepaid expenses and other current assets 726 403
Deferred tax assets 829 829
------ ------
Total current assets 30,617 26,653
Investments 87 87
Plant and equipment, net 2,561 3,195
Goodwill and intangibles, net 3,684 4,024
Total assets $ 36,949 33,959
====== =======
Liabilities and Stockholders" Equity
Current Liabilities:
Trade accounts payable $ 4,176 2,192
Long-term debt, current portion 41 2
Current income tax liability 578 471
Accrued and other current liabilities 1,839 1,878
----- -----
Total current liabilities 6,634 4,543
Long-term debt 75 75
Stockholders' equity:
Preferred stock, par value $0.001 per share
8,000,000 authorized and none issued - -
Common stock, par value, $0.0019 per share,
31,600,000 shares authorized, 8,922,076
and 8,922,076 shares issued and outstanding
as of December 31, 1998 and March 31, 1999,
respectively 17 17
Treasury stock, 20,500 and 26,500 shares as of December 31,
1998 and March 31, 1999 (128) (162)
Additional paid-in capital 35,642 35,642
Accumulated deficit (4,266) (5,131)
Foreign currency translation adjustment (1,025) (1,025)
------ -------
Total stockholders' equity 30,240 29,341
------ ------
Total liabilities and stockholders' equity $ 36,949 $ 33,959
======= =======
See accompanying notes to the unaudited Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
1998 1999
Revenues:
<S> <C> <C>
Product Sales $4,459 5,107
Grant and license revenues 54 177
----- -----
Total revenues 4,513 5,284
----- -----
Cost of goods sold 969 1,348
----- -----
Gross profit 3,544 3,936
----- -----
Selling, general and administrative 3,018 4,336
Research and development 301 750
----- -----
Total operating expenses 3,319 5,086
----- -----
Operating income (loss) 225 (1,150)
Other income and expense 281 285
----- ------
Income (Loss) before provision for
income taxes 506 (865)
Provision for income taxes 177 -
---- ----
Net income (loss) $ 329 (865)
==== =====
Earnings (Loss) per share:
Basic $ 0.04 (0.10)
Diluted $ 0.04 (0.10)
Shares used in computing earnings (loss) per share:
Basic 8,922 8,899
Diluted 9,278 8,899
See accompanying notes to the unaudited Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIONX IMPLANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
-------------------------------
1998 1999
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 329 (865)
Adjustments to reconcile net income
to net cash (used in) provided by (loss) operating activities:
Depreciation and amortization 109 152
Change in assets and liabilities:
(Increase) in inventory, net (390) (1,328)
(Increase) decrease in trade accounts receivable, net (128) 370
(Increase) decrease in grants receivable 68 (301)
(Increase) in related party receivables - (13)
Increase (decrease) in prepaid expense and other current assets (162) 323
Increase (decrease) in trade accounts payable 125 (1,984)
(Decrease) in current income tax liability (407) (107)
Increase in accrued and other current liabilities 68 39
----- -------
(717) (2,849)
----- -------
Net cash (used in) operating activities (388) (3,714)
------ ------
Cash flows from investing activities
Purchase of plant and equipment (490) (748)
Purchase of intangible assets - (378)
------ -----
Net cash used in investing activities (490) (1,126)
------ ------
Cash flows from financing activities:
Repayment of long-term debt - (39)
Proceeds from exercise of employee stock options 26 -
Purchase of treasury shares - (34)
Net cash provided by (used in) financing activities 26 (73)
Net decrease in cash and cash equivalents (852) (4,913)
Cash and cash equivalents at beginning of period 22,632 14,213
Cash and cash equivalents at end of period $ 21,780 $ 9,300
======= ======
Supplementary cashflow information:
Cash paid for taxes 584 155
</TABLE>
See accompanying notes to the unaudited Consolidated Financial Statements.
<PAGE>
BIONX IMPLANTS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared by Bionx Implants,
Inc. (the "Company") and are unaudited. In the opinion of the Company's
management, all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position as of
December 31, 1998 and March 31, 1999, and the Company's consolidated results of
operations and cash flows for the three months ended March 31, 1998 and 1999,
have been made. Certain information and footnote disclosures required under
generally accepted accounting principles have been condensed or omitted from the
consolidated financial statements and notes thereto presented herein pursuant to
the rules and regulations of the SEC. The consolidated financial statements and
notes thereto presented herein should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31, 1998
and notes thereto included in the Company's Annual Report on Form 10-K (SEC file
no. 0-22401) filed with the SEC. The results of operations and the cash flows
for the three months ended March 31, 1999 are not necessarily indicative of the
results to be expected for any other interim period or the entire fiscal year.
2. Inventory
Inventory consists of the following components (000's):
December 31, March 31,
1998 1999
Raw materials $1,782 $1,883
Finished goods - Implants 2,570 2,288
Instruments 2,457 4,066
Instruments on consignment 3,944 4,147
------ ------
10,753 12,384
Inventory Reserve (175) (175)
Accumulated amortization
- consigned instruments (800) (1,103)
------- ------
$ 9,778 $11,106
====== ======
3. Net Income (loss) Per Share
Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
is computed using the weighted average number of common and dilutive potential
common shares outstanding during the period. Potential common shares consist of
stock options and warrants using the treasury stock method and are excluded if
their effect is antidilutive.
The following table sets forth the calculation of the total number of
shares used in the computation of net earnings (loss) per common share for the
three months ended March 31, 1998 and 1999 (in thousands):
1998 1999
Shares used in computing basic
earnings per share 8,920 8,899
Incremental shares from assumed exercise of
dilutive options and warrants 358 -
----- -----
Shares used in computing diluted
earnings per share 9,278 8,899
===== =====
4. Reporting Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 Reporting Comprehensive Income (SFAS 130). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components. The adoption of SFAS 130 had no impact on the Company's net
income or stockholders' equity. SFAS 130 requires the Company's foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income.
Comprehensive income (loss) was the same as net income (loss) for the three
months ended March 31, 1998 and 1999.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business
Statements regarding future performance in this Quarterly Report on Form
10-Q constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. The Company's actual results could differ
materially from those anticipated by such forward-looking statements as a result
of certain factors, including those set forth in Exhibit 99.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
The Company was founded in 1984 to develop certain resorbable polymer
implants for orthopaedic uses. The Company had incurred substantial operating
losses from its inception through December 31, 1996, with an accumulated deficit
of approximately $5.1 million as of March 31, 1999. Such losses resulted
principally from expenses associated with the development, patenting and
clinical testing of the Company's Self-Reinforcing technologies and resorbable
implant designs, preparation of submissions to the U.S. Food and Drug
Administration (the "FDA") and foreign regulatory agencies, the development of
sales, marketing and distribution channels, the write-off of acquired in-process
research and development, and the development of its manufacturing capabilities.
Although the Company's revenues have grown significantly in certain recent
periods, no assurance can be given that this trend will continue or that
revenues of any magnitude will exceed expenses incurred in anticipation of
future growth. Accordingly, the Company may incur significant operating losses
in the future as it continues its product development efforts, expands its
marketing, sales and distribution activities and scales up its manufacturing
capabilities. There can be no assurance that the Company will be able to
continue to successfully commercialize its products or that continued
profitability will be achieved.
The Company first introduced its polyglycolic acid ("PGA") polymer pins in
1984 and its PGA screws in 1986. In 1987, the Company introduced its first
poly-l-lactic acid ("PLLA") polymer products, PLLA pins. PLLA screws were
introduced in 1989. Since the introduction of these products, the Company has
expanded its PGA and PLLA pin and screw product lines to address additional
clinical indications. The Company's PGA membrane product was introduced in 1992,
and, in 1995, the Company launched its Meniscus Arrow, PLLA tacks, and PGA and
PLLA urology stents. Prior to 1996, the Company derived substantially all of its
revenue from sales of its PLLA and PGA screws and pins. A substantial portion of
the Company's revenues in more recent periods has resulted from U.S. sales of
the Meniscus Arrow, which received FDA clearance in March 1996. To date, all
products sold by the Company have been launched first in international markets.
During the three months ended March 31, 1998 and 1999 international product
sales represented 17% of the Company's total product sales.
The Company typically sells or consigns implant grade, stainless steel
surgical instruments for use with each of its Self-Reinforced, resorbable
products. The sale of these instruments result in margins which are typically
lower than the margins applicable to the Company's implant products. However,
since orthopedic companies operating in the U.S. have traditionally loaned
rather than sold instruments to their customers, the Company anticipates that in
the future, it will be necessary for the Company to provide an increasing
proportion of its instrumentation in the U.S. on a loan basis. In most cases,
instrumentation is provided on a consignment basis to customers that commit to a
certain purchase level of implant products. The instruments are loaned on the
basis of a one year consignment policy. Similar practices are not common in
international markets. For financial statement purposes, revenues from the sale
of instrumentation systems are included within product sales and costs
associated with such systems are included within cost of goods sold. In the case
of consigned product, the Company amortizes the cost of the instrumentation over
a three to four year period as cost of goods sold. The Company's instrumentation
systems are reusable. Accordingly, sales and loans of such systems are likely to
be most pronounced in periods shortly after product launches and likely to be
less prevalent as penetration of the market increases over the long term.
The Company sells its products through managed networks of independent
sales agents, distributors and dealers. In the U.S., the Company handles all
shipping and invoicing functions directly and pays commissions to its sales
agents. Outside the U.S., the Company sells its products directly to
distributors and dealers at discounts that vary by product and by market.
Accordingly, the Company's U.S. sales result in higher gross margins than
international sales. The Company anticipates that during the next few years, the
relative percentage of its U.S. product sales to total product sales is likely
to continue to increase. Since the Company pays commissions on sales made
through its U.S. network, an increased percentage of U.S. sales in the future
will likely result in an increase in the percentage of selling, general and
administrative expenses to total sales. This increase will be partially offset
by the higher gross margins received on products sold in the U.S.
The Company has entered into agreements pursuant to which the Company is
obligated to pay royalties based on net sales of certain of the Company's
products, including the Meniscus Arrow. To the extent that sales of the Meniscus
Arrow products and other licensed products increase in future periods, the
Company's royalty obligations are expected to increase.
The Company currently manufactures its implant products solely at its
Tampere, Finland plant. The Company intends to establish a manufacturing
capability in the U.S. The Company plans to establish this capability either by
equipping and operating a leased facility or contracting with a third party to
provide a manufacturing capability to the Company. The Company believes that on
an interim basis, contract manufacturing may enable the Company to save certain
staffing costs and enable senior management to focus on other aspects of its
business. However, if the Company arranges for a third party to provide contract
manufacturing in the U.S., fees payable to such manufacturer may exceed any
savings in staffing costs and result in higher costs of goods sold and lower
gross profit. Ultimately, in operating a U.S. facility, the Company will incur
certain duplicative manufacturing costs which could result in higher costs of
goods sold and lower gross profit margins.
The Company invoices more than 85% of its consolidated revenues in U.S.
Dollars. Approximately 80% of the expenses incurred by the Company are
denominated in U.S. Dollars. The remaining portion of revenues and expenses are
denominated in European currencies, predominantly Finnish Markka. The Company
seeks to manage its foreign currency risk for these other currencies through the
purchase of foreign currency options and forward contracts. No assurances can be
given that such hedging techniques will protect the Company from exposure
resulting from relative changes in the economic strength of the foreign
currencies applicable to the Company. Foreign exchange transaction gains and
losses can vary significantly from period to period.
While the Company's operating losses have resulted in net operating loss
carryforwards of approximately $2.0 million for income tax reporting purposes,
the extent to which such carryforwards are available to offset future U.S.
taxable income is significantly limited as a result of various ownership changes
that have occurred in recent years. Additionally, because U.S. tax laws limit
the time during which these carryforwards may be applied against future taxes,
the Company may not be able to take full advantage of the U.S. carryforwards for
federal income tax purposes. Furthermore, income earned by a foreign subsidiary
may not be offset against operating losses of Bionx Implants, Inc. or its U.S.
subsidiaries. As a result, the Company may incur tax obligations during periods
when it reflects a consolidated net operating loss. The statutory tax rates
applicable to the Company and its foreign subsidiaries vary substantially,
presently ranging from approximately 40% in the U.S. to 28% in Finland. Tax
rates have fluctuated in the past and may do so in the future.
The Company's results of operations have fluctuated in the past on an
annual and quarterly basis and may fluctuate significantly from period to period
in the future, depending on several factors, many of which are outside of the
Company's control. Such factors include the timing of government approvals, the
medical community's acceptance of the Company's products, the success of
competitive products, the ability of the Company to enter into strategic
alliances with corporate partners, expenses associated with patent matters, the
results of regulatory inspections and the timing of expenses related to product
launches.
Effective January 1, 1998, the functional currency of the Company's foreign
subsidiaries was changed from the Finnish Marrka to the U.S. dollar. This change
was made because of the development of the Compan's business and the changes,
which that development created, in the economic conditions surrounding the
Finnish subsidiaries. The Company based its decision to change the functional
currency primarily on trends in sales and cash inflows noted in historical
financial data through December 1997. In particular, the amount of revenues
denominated in U.S. dollars increased from below 50% of total sales in the years
prior to 1997 to in excess of 90% of total sales during 1997. In addition, the
Company's initial public offering in April 1997 and the introduction of its
Meniscus Arrow dramatically altered the dollar cash inflows into the Finnish
subsidiaries from approximately 50% throughout 1997 to 93% by the first quarter
of 1998. Other gradual changes in the economic factors of the Finnish
subsidiaries include changes in the sales prices of the products being
manufactured, the sales markets for the products being manufactured, expenses
being incurred, sources of financing and intercompany transactions. All of the
changes in these economic factors are primarily due to the increased reliance of
the foreign subsidiaries on the U.S. marketplace for sales of products being
manufactured. It was not until late 1997 when these trends in sales and cash
inflows became clearer and stabilized. Based upon these facts and trends, the
Company believed that the functional currency of the Finnish operations should
be U.S. dollars not Finnish Markka.
Results of Operations
Product sales. The Company's product sales increased by 15% from $4.5
million during the quarter ended March 31, 1998 to $5.1 million during the
quarter ended March 31, 1999. Product sales are comprised of three specific
product categories, Meniscus Arrows, Other Implants (screws, pins, plates,
tacks, and stents) and Instruments and other product-related revenue.
Meniscus Arrow revenues worldwide were unchanged at $3.1 million during the
first quarters of 1998 and 1999. Meniscus Arrow performance in the U.S.
continues to be impacted by competitive pressures in the marketplace.
Other implant revenues increased by 81% worldwide from $893,000 during the
first quarter of 1998 to $1.6 million during the first quarter of 1999. The 1999
product sales increases reflect increased utilization of the Company's managed
network of independent sales agents in the U.S. and increased sales of the
Company's existing products in international markets.
Instruments and other product-related revenues declined from $433,000
during the first quarter of 1998 to $390,000, during the first quarter of 1999.
Grant and License revenues. Grant and license revenues totaled $177,000 for
the three months ended March 31, 1999, compared with revenue of $54,000 recorded
during the three month period ended March 31, 1998. This increase in revenue is
results from two license fees of $105,000 recorded in the first quarter of 1999,
which relate to one domestic and one international distribution agreement.
Gross profit; gross margin. The Company's gross profit increased from $3.5
million during the first quarter of 1998 to $3.9 million during the first
quarter of 1999. The increases in the Company's gross profit primarily resulted
from the general increase in product sales volume. Overall, the Company's gross
margin (including the effects of grant revenue) decreased from 78.5% during the
first quarter of 1998 to 74.5% during the first quarter of 1999. The decrease in
gross margin in 1999 is attributable to the increasing amortization of the
Company's consigned instrumentation.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 44% from $3.0 million during the first
quarter of 1998 to $4.3 million during the first quarter of 1999. Such expenses
were 68% of product sales during the first quarter of 1998, and 85% of product
sales during the first quarter of 1999. Selling, general and administrative
expenses consist primarily of distributor commissions paid on product sales in
the U.S., patent and license related expenses, costs incurred in connection with
the regulatory process, expenses associated with supporting the Company's
managed networks of independent sales agents, distributors and dealers and
amortization of goodwill and patents associated with the Company's September
1996 reorganization (such amortization and depreciation amounting to
approximately $65,000 per quarter and expected to be approximately $255,000 per
year through 2017). The increases in the dollar amount of selling, general and
administrative expenses were primarily attributable to increased commission
payment obligations reflecting the Company's increased product sales in the U.S.
and increased expenses associated with establishing and supporting a managed
network of independent sales agents, and direct representatives in the U.S. The
increase in the percentage relationship of such expenses to product sales for
the three month periods described herein reflects certain general and
administrative expenses incurred in anticipation of new product launches.
Additionally, the Company incurred in the first quarter of 1999, approximately
$385,000 in legal fees to initiate three separate patent infringement suits and
start up costs associated with the addition of certain direct sales
representatives.
Research and development. Research and development expenses increased by
149% from $301,000 during the first quarter of 1998 to $750,000 during the first
quarter of 1999. These increases reflected an increased volume of product
development work being performed by the Company and increased staffing levels in
this area.
Other income and expense. In the first quarter of 1999, the Company
generated interest income of $132,000, compared to interest income of $281,000
in the comparable period of 1998. Funds obtained from the proceeds of the IPO
generated the interest income in both the 1998 and 1999 periods. During the
first quarter of 1999, the Company incurred foreign exchange gains of $153,000.
Income taxes. The Company recorded no tax provision in the first quarter of
1999 compared to a tax provision of $177,000 in the comparable period of 1998.
The consolidated operating loss in the first quarter of 1999 was incurred by the
U.S. entity. As a result, no corresponding tax benefit was recognized due to the
net operating loss position in the U.S.
Net (loss) income. The Company reported a net loss of ($865,000) or ($.10)
per share (diluted) for the first quarter of 1999, as compared with net income
of $329,000 or $.04 per share for the comparable period in 1998.
Liquidity and Capital Resources
In September 1996, the Company completed a private placement of $5.0
million in preferred stock (all of which was converted into Common Stock upon
consummation of the Company's Initial Public Offering in April 1997 ("IPO")) and
warrants (all of which were exercised during April 1997). The net proceeds were
used to repay bank debt, to pay down trade debt, to fund manufacturing and
product development efforts and for other working capital purposes. During April
1997, the Company consummated its IPO. In May 1997, the Underwriters exercised
in full their over-allotment option granted in connection with the IPO. Net
proceeds from the IPO (including the exercise of the over-allotment option) and
the exercise of warrants during April 1997 were $21.7 million. In addition, the
Company made arrangements for a $2 million credit line, secured by the personal
property of the Company. and its Biostent, Inc. subsidiary. Amounts to be
advanced thereunder are subject to the lender's discretion and are limited to
specific percentages of certain domestic receivables and inventory. To date, no
amounts have been borrowed pursuant to this credit facility.
At December 31, 1998 and March 31, 1999, cash and cash equivalents totaled
$14.2 million and $9.3 million, respectively. The decrease in cash and cash
equivalents of approximately $4.9 million from December 31, 1998 is attributable
to investments of approximately $1.1 million in machinery and equipment and
intangibles, as well as a $ 1.3 million increase in inventory levels in
anticipation of new product launches and consignment of instrumentation, and a
pay down of trade accounts payable of $2.0 million.
As of March 31, 1999, the Company had working capital of $22.1 million,
compared with $24.0 million as of December 31, 1998. Long-term debt (including
the current portion) was reduced by $39,000, from the level at the beginning of
the year to $77,000 as of March 31, 1999. This debt represents loans obtained
from the Finnish government, and carries interest rates ranging from 1 - 3% per
annum.
The Company believes that existing capital resources from its IPO, its
September 1996 private placement and its $2.0 million credit line, together with
cash flow from operations (if, and to the extent, generated), will be sufficient
to fund its operations through 2000. However, the Company's future capital
requirements and the adequacy of available funds will depend on numerous
factors, including market acceptance of its existing and future products, the
successful commercialization of products in development, progress in its product
development efforts, the magnitude and scope of such efforts, progress with
preclinical studies, clinical trials and product clearances by the FDA and other
agencies, the cost and timing of its efforts to expand its manufacturing
capabilities, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, and the development of strategic alliances for the
marketing of certain of its products. The Company's operations did not produce
positive cash flows during 1994, 1995 and 1996 and 1998. To the extent that
funds generated from the Company's operations, together with its existing
capital resources (including its credit facility), and the net interest earned
thereon, are insufficient to meet current or planned operating requirements, the
Company will be required to obtain additional funds through equity or debt
financings, strategic alliances with corporate partners and others, or through
other sources. The terms of any equity financings may be dilutive to
stockholders and the terms of any debt financings may contain restrictive
covenants, which limit the Company's ability to pursue certain courses of
action. The Company does not have any committed sources of additional financing
beyond that described above, and there can be no assurance that additional
funding, if necessary, will be available on acceptable terms, if at all. If
adequate funds are not available, the Company may be required to delay,
scale-back or eliminate certain aspects of its operations or attempt to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets. If adequate funds are not available,
the Company's business, financial condition and results of operations could be
materially and adversely affected.
Year 2000 Compliance
Readiness
The Company's centralized corporate business and technical information
systems have been fully assessed as to year 2000 compliance and functionality.
Presently, these systems are nearly complete with respect to required software
changes, tests and migration to the production environment. The Company
anticipates that internal business and technical information system year 2000
compliance issues will be substantially remedied by the end of the second
quarter 1999. This expectation constitutes a Forward-Looking Statement. The
Company's non- technical information systems are currently being assessed as to
their year 2000 compliance and functionality and this assessment should be
completed in the second quarter of 1999.
The Company has satisfactorily completed the identification and review of
computer hardware and software suppliers and is in the process of verifying,
reviewing and logging year 2000 preparedness of general business partners,
suppliers, vendors, and/or service providers that the Company has identified as
critical.
Costs
The Company incurred costs of approximately $250,000 in fiscal 1998
associated with the purchase of and modifications to the Company's existing
systems to make them year 2000 ready. The Company expects to incur costs between
$100,000 and $200,000 in fiscal year 1999 for a total project cost of less than
$500,000 for year 2000 compliance. Most of these costs relate to the
implementation of a new internal business system, which will be depreciated over
its estimated life. Any other cost relating to this undertaking will be expensed
as incurred. Based on the estimates and information currently available, the
Company does not anticipate that the cost associated with year 2000 compliance
issues will be material to the Company's consolidated financial position or
results of operations.
Risks and Contingency Plans
Considering the substantial progress made to date, the Company does not
anticipate delays in finalizing internal year 2000 remediation within the
remaining time schedules. There can be no assurances, however, that the
Company's internal systems or those of a third party on which the Company relies
will be year 2000 compliant by the year 2000. An interruption of the Company's
ability to conduct its business due to a year 2000 readiness problem could have
a material adverse effect on the Company.
Anticipated completion of this review is estimated to be accomplished by
the end of the second quarter of 1999. Pending the results of the Company's
review of the year 2000 preparedness of its critical third parties, the Company
will then determine what course of action and contingencies will need to be
made, if any.
<PAGE>
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
The Company's initial public offering was effected pursuant to a
registration statement on Form S-1 (No. 333-22359) declared effective by the
Securities and Exchange Commission (the "SEC") on April 24, 1997. The offering
commenced on April 25, 1997 and terminated after all securities were sold.
From April 25, 1997 through March 31, 1999, the Company has used the
following amounts of the net proceeds from the initial public offering for the
following categories enumerated by the SEC:
Reasonable Estimated Amount
(in thousands)
Category
Construction of plant, building and facilities $1,933
Purchase and installation of machinery and equipment 1,652
Repayment of indebtedness 734
Working capital 8,100
Short term investments (Cash Equivalents) 9,300
Other purposes for which at least $100,000 has been used -
None of the above-mentioned uses of proceeds represented direct or indirect
payments to directors or officers of the Company or their associates, to persons
owning ten percent or more of any class of equity security of the Company or to
affiliates of the Company. Such uses do not represent a material change in the
use of proceeds described in the above-mentioned registration statement.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
No. 27.1 Financial Data Schedule
(b) The Registrant did not file any Current Reports on Form 8-K during the
quarter ended March 31, 1999.
<PAGE>
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.
BIONX IMPLANTS, INC.
By: /s/Gerard S. Carlozzi
Gerard S. Carlozzi,
Acting President and Chief
Operating Officer
By: /s/ Michael J. O'Brien
Michael J. O'Brien
Vice President, Chief Financial
Officer and Chief Accounting Officer
Dated: May 15, 1999
<PAGE>
EXHIBIT INDEX
Exhibit No.
Exhibit No. 27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001030418
<NAME> BIONX IMPLANTS,INC.
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 9,300
<SECURITIES> 0
<RECEIVABLES> 4,273
<ALLOWANCES> 238
<INVENTORY> 11,106
<CURRENT-ASSETS> 26,653
<PP&E> 3,195
<DEPRECIATION> 1,047
<TOTAL-ASSETS> 33,959
<CURRENT-LIABILITIES> 4,543
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 29,341
<TOTAL-LIABILITY-AND-EQUITY> 33,959
<SALES> 5,107
<TOTAL-REVENUES> 5,284
<CGS> 1,348
<TOTAL-COSTS> 5,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (285)
<INCOME-PRETAX> (865)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (865)
<EPS-PRIMARY> 0.1
<EPS-DILUTED> 0.1
</TABLE>
