<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1999 Commission File Number 0-19373
-----------------------------------------
BIOMATRIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3058261
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
65 Railroad Avenue, Ridgefield, N.J. 07657
(Address of principal executive offices) (Zip Code)
(201) 945-9550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares outstanding of the issuer's common stock as of the latest
practicable date:
Class September 30, 1999
----- ------------------
Common stock, $ 0.0001 par value 22,999,892
<PAGE>
BIOMATRIX, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 (Unaudited)............ 3
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1999 and 1998 (Unaudited)... 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 (Unaudited)....... 5
Notes to Condensed Consolidated Financial Statements............ 6-8
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 9-12
PART II. OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K................................ 13
Signatures...................................................... 14
2
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions, except share and par value data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 27.7 $ 16.5
Accounts receivable, less allowance for doubtful accounts.......... 12.4 8.9
Inventory.......................................................... 8.3 6.8
License fees receivable............................................ - 7.6
Prepaid expenses and other current assets.......................... 2.2 1.5
------- ------
Total current assets........................................ 50.6 41.3
Property, plant and equipment, net.................................... 42.0 37.7
Other assets.......................................................... 3.7 4.3
------- ------
Total assets................................................ $ 96.3 $ 83.3
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 1.6 $ 3.5
Accrued expenses................................................... 10.3 5.6
Notes payable and capital lease obligations - current.............. 0.6 5.2
------- ------
Total current liabilities.................................. 12.5 14.3
Notes payable and capital lease obligations - long term............... 17.1 17.6
------- ------
Total liabilities.......................................... 29.6 31.9
------- ------
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, 3,000 shares authorized; none issued.............. - -
Common stock, $.0001 par value; 60,000,000 shares authorized;
23,092,186 and 22,848,358 issued and 22,999,892 and
22,756,064 outstanding in 1999 and 1998, respectively............ 0.0 0.0
Additional paid-in capital......................................... 76.4 72.8
Notes receivable - related parties................................. (13.6) (10.6)
Retained earnings (accumulated deficit)............................ 6.6 (7.7)
Accumulated other comprehensive loss............................... (1.8) (2.2)
Treasury stock, 92,294 shares of common stock at cost.............. (0.9) (0.9)
------- ------
Total shareholders' equity ................................ 66.7 51.4
------- ------
Total liabilities and shareholders' equity.................. $ 96.3 $ 83.3
======= ======
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
3
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net product sales.............................. $ 18.1 $ 11.4 $ 52.7 $ 25.2
Income from licenses, royalties
and research contracts....................... 0.2 0.2 7.4 3.6
------- ------ ------ ------
Total revenues........................ 18.3 11.6 60.1 28.8
------- ------ ------ ------
Costs and expenses:
Cost of goods sold............................. 5.5 2.7 15.6 6.3
Research and development expenses.............. 2.4 2.7 6.6 7.5
Selling, general and administrative expenses... 4.8 4.1 13.3 10.5
------- ------ ------ ------
Total costs and expenses.............. 12.7 9.5 35.5 24.3
------- ------ ------ ------
Income from operations......................... 5.6 2.1 24.6 4.5
Interest expense............................... (0.3) (0.3) (1.2) (0.5)
Interest and miscellaneous income.............. 0.5 0.6 1.1 1.2
------- ------ ------ ------
Income before taxes............................ 5.8 2.4 24.5 5.2
Provision for (benefit from) income taxes...... 2.5 (0.4) 10.2 0.5
------- ------ ------ ------
Net income..................................... $ 3.3 $ 2.8 $ 14.3 $ 4.7
======= ====== ====== ======
Net income per share:
Basic..................................... $ 0.14 $ 0.12 $ 0.63 $ 0.21
====== ====== ====== ======
Weighted average shares outstanding....... 22,977,604 22,728,686 22,901,096 22,350,856
========== ========== ========== ==========
Diluted................................... $ 0.14 $ 0.11 $ 0.59 $ 0.20
====== ====== ====== ======
Weighted average shares outstanding....... 24,211,895 24,188,600 24,387,890 23,568,338
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
4
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 14.3 $ 4.7
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization.................................. 2.6 0.9
Change in assets and liabilities:
Accounts receivable............................................ (3.4) (5.3)
Inventory .................................................... (1.4) (1.6)
Prepaid expenses, license fees receivable and other
current assets .............................................. 7.0 (0.1)
Other assets .................................................. 0.6 (2.3)
Accounts payable and accrued expenses.......................... 4.2 2.9
------ ------
Net cash provided by (used for) operating activities.... 23.9 (0.8)
------ ------
Cash flows from investing activities:
Capital expenditures............................................. (8.4) (15.6)
------ ------
Net cash used for investing activities.................. (8.4) (15.6)
------ ------
Cash flows from financing activities:
Payments of notes payable and capital lease obligations.......... (5.1) (0.2)
Proceeds from issuance of convertible debt, net.................. - 14.3
Repayment of note receivable by an officer....................... - 2.5
Stock options exercised.......................................... 0.8 0.3
------ ------
Net cash (used for) provided by financing activities.... (4.3) 16.9
------ ------
Effect of exchange rate changes on cash............................... 0.0 (0.1)
------ ------
Net increase in cash and cash equivalents............................. 11.2 0.4
Cash and cash equivalents at beginning of period...................... 16.5 17.4
------ ------
Cash and cash equivalents at end of period............................ $ 27.7 $ 17.8
====== ======
Non-cash financing activities:
Sale of common stock financed with notes receivable.............. $ 2.6 $ 9.8
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
5
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - Basis of Presentation
The condensed consolidated financial statements at September 30, 1999
and December 31, 1998 and for the three and nine months ended September 30, 1999
and 1998 are unaudited, but include all adjustments which the Company considers
necessary for a fair presentation of the financial position at such dates and
the operating results and cash flows for those periods. These condensed
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 1998, which were included as part of the Company's Form 10-K, filed with the
Securities and Exchange Commission. Results for interim periods are not
necessarily indicative of results for the entire year.
Certain amounts in the condensed consolidated financial statements for
the three and nine month periods ended September 30, 1998 have been reclassified
in order to conform to the 1999 presentation.
NOTE 2 - Inventories
Inventories at September 30, 1999 and December 31, 1998 consisted of
(in millions):
September 30, December 31,
1999 1998
---- ----
Raw Materials..................... $ 1.2 $ 1.5
Work-in-Process................... 6.0 4.8
Finished Goods.................... 1.1 0.5
----- -----
$ 8.3 $ 6.8
===== =====
NOTE 3 - Stock Split
On April 6, 1999 the Company announced a two-for-one common stock split
to be distributed in the form of a 100% stock dividend (the "Stock Split"). As a
result of this action, on April 23, 1999, an additional 11,503,408 shares were
distributed to the shareholders of record on April 16, 1999, of which 46,147
shares represented treasury stock of the Company. The shares issued, outstanding
and in treasury of 11,424,179, 11,378,032 and 46,147 at December 31, 1998 have
been restated to 22,848,358, 22,756,064, and 92,294 to reflect the Stock Split.
Par value remains at $0.0001 per share. The par value of the additional shares
resulting from the Stock Split have been reclassified from additional paid-in
capital to common stock. All historical share and per share amounts in the
accompanying statements have been restated to reflect the Stock Split.
NOTE 4 - Convertible Debt
In May 1998, the Company issued $15.0 million of subordinated
convertible debt to a third party. The debt has a five-year term and a coupon
rate of 6.9% with interest payable on a semi-annual basis. The debt contains a
conversion feature that allows the third party to convert the debt into common
shares at $20 per share. In addition, the Company can call the debt at par after
May 2001 or after May 2000 if certain conditions are satisfied. Debt fees are
included in other assets and are being amortized on a straight-line basis over
the five-year term of the debt.
NOTE 5 - Capital Lease Obligation
In June 1999, the Company exercised its option to acquire a 93,000
square foot building in New Jersey in which its U.S. manufacturing operations
reside. The cost of such purchase was approximately $4.6 million. The Company no
longer has a lease agreement for this facility and, therefore, the related
capital lease obligation has been retired.
6
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
NOTE 6 - Comprehensive Income
Components of comprehensive income are net income and all other
non-owner changes in equity, such as the change in the cumulative translation
adjustment. The following table shows comprehensive income for the three and
nine months ended September 30, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
Three months ended Nine months ended
Septemer 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income...................................... $ 3.3 $ 2.7 $ 14.3 $ 4.7
Change in cumulative translation adjustment..... (0.1) (0.3) 0.4 (0.7)
----- ----- ----- ------
Comprehensive income............................ $ 3.2 $ 2.4 $ 14.7 $ 4.0
===== ===== ====== ======
</TABLE>
NOTE 7 - Net Income Per Common Share
Basic net income per share is computed by dividing net income by the
weighted-average common shares outstanding for the period. Diluted net income
per share is reflective of all common share equivalents. The Company has
convertible debt which converts into 750,000 shares of common stock (see Note
4). This instrument has not been included in diluted earnings per share for the
three and nine months ended September 30, 1999 and 1998 because its effect would
be anti-dilutive. A reconciliation of weighted-average shares outstanding from
basic to diluted for the three and nine months ended September 30, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average shares outstanding - Basic..... 22,977,604 22,728,686 22,901,096 22,350,856
Dilutive effect of stock options................ 1,234,291 1,459,914 1,486,794 1,217,482
---------- ----------- ---------- ----------
Weighted-average shares outstanding - Diluted... 24,211,895 24,188,600 24,387,890 23,568,338
========== ========== ========== ==========
</TABLE>
NOTE 8 - Notes Receivable - Related Parties
Notes receivable - related parties relate to the acquisition of common
stock of the Company at fair market value by certain officers and directors of
the Company pursuant to the Company's 1997 Restricted Stock Plan. The notes are
with full recourse and are payable with simple interest upon maturity. The
balance of the notes including accrued interest at September 30, 1999 and
December 31, 1998 was $13.6 million and $10.6 million, respectively. The notes
mature over a range of dates from May 2007 to March 2009.
7
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
NOTE 9 - Segment Data
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131 "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 requires a new basis of determining the reportable business
segments using the management reporting approach. The following data is utilized
by the Company's Executive Committee (the chief operating decision makers) when
analyzing the performance of the Company. The following table presents the
segment data for the three months and nine months ended September 30, 1999 and
1998 (in millions):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product sales:
Synvisc(R):
United States.......................... $13.4 $ 8.9 $39.3 $18.5
Rest of the world...................... 3.8 1.7 10.8 3.7
All other products.......................... 0.9 0.9 2.6 3.0
----- ----- ----- -----
Total product sales......................... $18.1 $11.5 $52.7 $25.2
===== ===== ===== =====
September 30, December 31,
1999 1998
---- ----
Identifiable assets (in millions):
United States................................................. $ 86.6 $ 73.9
Rest of the world............................................. 9.7 9.4
------ ------
Total assets.................................................. $ 96.3 $ 83.3
====== ======
</TABLE>
NOTE 10 - Contingencies
In October 1996, Michael Jarcho ("Jarcho") filed suit in the United
States District Court for the Southern District of California seeking to recover
damages and declaratory judgment for the alleged breach by the Company of
Jarcho's consulting agreement. A consulting agreement had been entered into
between the Company and Jarcho on December 2, 1988. The agreement contains
certain royalty provisions for products that result from Jarcho's consultancy.
Jarcho contends, inaccurately in the Company's view, that Hylaform(R) resulted
from his consultancy. Jarcho seeks compensatory damages of $0.3 million plus a
royalty on the Company's past and future net sales of Hylaform as well as
punitive damages and recovery of attorneys' fees. The Company believes that no
royalties are owed Jarcho as a result of Hylaform sales. Jarcho's case was
dismissed on January 10, 1997, on the grounds that the agreement requires such
disputes to be brought exclusively in New Jersey state court. Jarcho moved for a
partial reconsideration of the decision, the Company opposed that request, and
the request was denied. On June 16, 1997 Jarcho filed suit in New Jersey state
court. The Company intends to defend this matter vigorously. In accordance with
the Company's policy on contingencies, a liability has been recorded in the
accompanying condensed consolidated financial statements for estimated legal
fees expected to be incurred in defending the matter vigorously. The Company has
not made any provisions for any liability that might result from the claims made
by Jarcho.
8
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Biomatrix, Inc., together with its subsidiaries Biomatrix Medical
Canada Inc. ("BMC"), Biomatrix Svenska AB ("Biomatrix Svenska"), Biomatrix
(U.K.) Limited ("Biomatrix UK"), Biomatrix Limited ("Biomatrix Hong Kong"),
Biomatrix France SARL ("Biomatrix France"), Biomatrix Switzerland GmbH
("Biomatrix Switzerland"), Biomatrix Germany GmbH ("Biomatrix Germany"), and
Biomatrix Belgium (together, "Biomatrix" or the "Company") develops,
manufactures, markets and sells a series of proprietary viscoelastic products
made of biological polymers called hylans for use in therapeutic medical
applications and skin care. Hylans are chemically modified forms of the
naturally occurring hyaluronan (also known as hyaluronic acid or sodium
hyaluronate). Hylans are the second generation of viscoelastics used in
medicine, and are characterized by significantly enhanced physical (rheological)
properties (elasticity, viscosity and pseudoplasticity) as compared to naturally
occurring hyaluronan, from which the first generation viscoelastics are made.
The discovery of hylans has allowed the Company to develop a range of patented
products with superior viscoelastic properties in the forms of fluids, gels and
solids.
The Company's business is subject to significant risks. Certain
statements contained in this Form 10-Q are forward-looking within the meaning of
Section 27A of the Securities Act of 1933 and involve risks and uncertainties,
including, but not limited to, governmental regulation, reimbursement,
dependence on distribution relationships, patents, competition, manufacturing,
rapid growth, dependence upon key personnel, fluctuation in operating results,
product liability, stock price volatility, Year 2000 matters, and other risks
detailed in the Company's reports filed under the Securities and Exchange Act,
including the Company's Form 10-K for the year ended December 31, 1998. As a
portion of the Company's future revenues may be based on payments from corporate
license and distribution agreements, the Company's total revenues and net income
will fluctuate from quarter to quarter. Some of these fluctuations may be
significant and, as a result, quarter to quarter comparisons may not be
meaningful.
Results of Operations for the three months ended September 30, 1999 and 1998
Revenues. Total revenues for the three months ended September 30,
1999 were $18.3 million, representing an increase of $6.7 million or 58% over
the same period of the prior year. Net product sales for the three months ended
September 30, 1999 were $18.1 million, representing an increase of $6.7 million
or 59% over the same period of 1998. These increases were due to greater sales
of Synvisc(R) to the Company's marketing partners in the United States, Europe
and recently launched international markets. Income from licenses, royalties and
research contracts for the three months ended September 30, 1999 and 1998 was
$0.2 million.
Costs and Expenses. Total costs and expenses were $12.7 million for
the three months ended September 30, 1999, representing an increase of $3.2
million or 34% over the same period of the prior year. Cost of goods sold for
the third quarter of 1999 and 1998 was $5.5 million and $2.7 million,
respectively, resulting in gross margins of 70% and 77%, respectively. This
decrease in gross margin percentage is a result of shipments from the Company's
new U.S. manufacturing facility which has higher unit costs because it is
operating below capacity. Research and development expenses were $2.4 million
for the third quarter of 1999, representing a decrease of $0.3 million or 11%
over the third quarter of 1998. The decrease in research and development
expenses is primarily related to the inclusion of non-recurring process
development costs associated with the Company's new U.S. manufacturing facility
in the 1998 period. Selling, general and administrative expenses for the third
quarter of 1999 were $4.8 million, representing an increase of $0.7 million or
17%, over the third quarter of 1998. This increase is a result of higher market
development costs related to Synvisc and higher legal fees related to general
corporate matters.
9
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations for the nine months ended September 30, 1999 and 1998
Revenues. Total revenues for the nine months ended September 30, 1999
were $60.1 million, representing an increase of $31.3 million or 109% over the
same period of the prior year. Net product sales for the nine months ended
September 30, 1999 were $52.7 million, representing an increase of $27.5 million
or 109% over the same period of 1998. These increases were due to greater sales
of Synvisc to the Company's marketing partners in the United States, Europe and
recently launched international markets. Income from licenses, royalties and
research contracts for the nine months ended September 30, 1999 and 1998 was
$7.4 million and $3.6 million, respectively. The 1999 results include a
non-refundable sales-related milestone payment of $7.0 million from Wyeth-Ayerst
Laboratories while the 1998 results include a $3.1 million license fee from
Novartis Pharma AG.
Costs and Expenses. Total costs and expenses were $35.5 million for the
nine months ended September 30, 1999, representing an increase of $11.2 million
or 46% over the same period of the prior year. Cost of goods sold for the nine
months ended September 30, 1999 and 1998 was $15.6 million and $6.3 million,
respectively, resulting in gross margins of 70% and 75%, respectively. This
decrease in gross margin percentage is a result of shipments from the Company's
new U.S. manufacturing facility which has higher unit costs because it is
operating below capacity. Research and development expenses were $6.6 million
for the first nine months of 1999, representing a decrease of $0.9 million or
12% over the comparable period in 1998. The decrease in research and development
expenses is primarily related to process development costs associated with the
Company's new U.S. manufacturing facility which were incurred during 1998.
Selling, general and administrative expenses for the first nine months of 1999
were $13.3 million, representing an increase of $2.8 million or 27% over the
first nine months of 1998. This increase is primarily due to increased staffing
needed to support the scope of the Company's growing global activities.
Income Taxes
The Company recorded federal and state tax provisions totaling $10.2
million and $0.5 million for the nine months ended September 30, 1999 and 1998,
respectively. The consolidated effective tax rate for the first nine months of
1999 was 42% as compared to 10% for the first nine months of 1998. The
consolidated effective tax rate of 10% in 1998 reflects the utilization of net
operating loss carryforwards and the recognition of a $1.0 million benefit
related to the recognition of certain net deferred tax assets. Excluding the
benefit related to recognizing these net deferred tax assets, the effective rate
for the nine months ended September 30, 1998 would have been approximately 29%.
The Company expects its consolidated effective tax rate for 1999 to exceed the
combined statutory federal and state rate due to the amount of certain
non-deductible foreign losses.
As of September 30, 1999 the Company had $2.8 million of net deferred
U.S. tax assets included in other long term assets on its balance sheet, as it
is more likely than not that the Company will realize the benefit of these
assets. The Company has provided a full valuation allowance on certain
foreign-related deferred tax assets due to their uncertainty of realization.
10
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
The Company had cash and cash equivalents of $27.7 million at September
30, 1999. Overall, the Company's cash position increased by $11.2 million during
the nine months ended September 30, 1999.
The Company's operations and capital growth over the past several years
have been financed by up-front non-refundable license fees and milestone
payments from corporate partners, the utilization of the Company's cash, the
private placement of debt and equity securities and cash generated from product
sales. Since January 1, 1996, the Company has received funding of $46.4 million
from non-refundable license fee payments and $21.0 million from the private
placement of equity and debt securities.
For the nine months ended September 30, 1999 the Company had positive
cash flows from operations of $23.9 million resulting principally from the
receipt of two milestone payments totaling $13.0 million, from its operating
income and from an increase in accrued expenses. During the nine months ended
September 30, 1999, the Company invested $8.4 million in property, plant, and
equipment, primarily associated with the construction of certain research and
development laboratories. In June 1999, the Company exercised its option to
acquire a 93,000 square foot building in New Jersey in which its U.S.
manufacturing operations reside. The cost of such purchase was approximately
$4.6 million. The Company no longer has a lease agreement for this facility and,
therefore, the related capital lease obligation has been retired.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Some
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including a
temporary inability to process transactions, send invoices, or engage in normal
business and operating activities.
The Company believes that all of its major computer systems are Year
2000 compliant. The Company utilized a program to assess its internal software
and systems and bring them into Year 2000 compliance in order to minimize any
significant detrimental effects on operations. The program focused on three main
functional areas:
i) Information technology which addresses data, phone and
administrative systems, including personal computers,
telecommunications, local area networks, wide area networks and
business applications. These systems are computer devices and software
that the company wrote or purchased which are not supported by external
vendors. The software systems include applications developed or
purchased by corporate departments and operated by departmental
personnel. The computer devices are desktop personal computers and
server computer equipment including system hardware, firmware, and
installed commercial application software.
ii) Embedded chip technology which addresses manufacturing systems,
laboratory instruments and plant maintenance systems with programmable
logic controllers with date functions. The Process Control and
Environmental Monitoring and Control Systems are used in the Company's
manufacturing and research and development processes, among other
operations. These generally are systems, devices and instruments which
utilize date functionality and generate, send, receive or manipulate
date-stamped data and signals. These systems may be found in data
acquisition/processing software, laboratory instrumentation, and other
equipment with embedded code.
11
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 (continued)
iii) Material suppliers and marketing partners which address third
parties that are critical to the Company's manufacturing process and
distribution of product. The Company has identified critical providers
of information, goods and services in order to assess their Year 2000
compliance/readiness. The Company has sent letters to all critical and
regular suppliers and marketing partners. The Company has received
approximately 78% of all critical responses. The Company cannot control
the response time to its letters. A contingency plan has been developed
and executed for those critical vendors that have not responded. The
Company recognizes that to a certain degree it is relying on
information provided by such third parties regarding their Year 2000
compliance readiness. While the Company has evaluated the information
provided by these third parties, there can be no assurance that in all
instances accurate information is being provided. Failure of these
third parties' systems to be Year 2000 compliant could have a material
adverse effect on the Company's financial position, results of
operations and cash flows.
The Company divided the project into four phases including awareness,
assessment, validation, and implementation along the functional departments of
the Company. The Company has completed all of the phases for all of the
functional areas. Full implementation and compliance for all functional areas
was completed by September 30, 1999.
The Company utilized both internal and external resources to identify,
correct/reprogram, and test its computer systems, equipment and software for
Year 2000 compliance.
The Company estimates that it spent approximately $0.3 million
replacing, upgrading, or repairing systems or equipment. The aggregate
additional costs of the Company's Year 2000 program cannot be known at this time
due to the fact that a failure to properly correct a material Year 2000 problem
could result in an interruption in certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The Company believes
that, with the completion of its Year 2000 program, the possibility of
significant interruptions of normal operations have been reduced.
The Company has developed and adopted a contingency plan to address a
situation in which Year 2000 problems do cause an interruption in normal
business activities. The contingency plan has identified alternative suppliers
for the Company's critical operating supplies. In addition, the contingency plan
has quantified back-up supply levels that will be established by year end. The
Company adopted the contingency plan effective September 30, 1999.
There can be no assurance that unanticipated events will not occur or
that the Company will be able to identify all Year 2000 issues before problems
arise. Therefore, there can be no assurance that the Year 2000 issue will not a
have a material adverse effect on the Company's financial position, results of
operations and cash flows.
The statements set forth herein concerning the Year 2000 problem which
are not historical facts are forward-looking statements that involve risk and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. There can be no guarantee that any estimates or
other forward-looking statements will be achieved and actual results could
differ significantly from those planned or contemplated. The Company plans to
update the status of its Year 2000 program as necessary in its periodic filings
and in accordance with applicable securities laws.
12
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
None
13
<PAGE>
BIOMATRIX, INC. AND SUBSIDIARIES
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.
DATE: November 15, 1999 BIOMATRIX, INC.
By: /s/Endre A. Balazs
-----------------------------------------
Endre A. Balazs
Chief Executive Officer and
Chief Scientific Officer
By: /s/Maxine Seifert
-----------------------------------------
Maxine Seifert
Vice President, Finance and Chief
Financial Officer
14
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<NAME> BIOMATRIX, INC.
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