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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
(MARK ONE)
[X] AMENDMENT NUMBER 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS:
Common stock, no par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of voting stock held by non-affiliates of the
registrant at August 13, 1999, was $40,593,791.
On August 13, 1999, there were 13,541,998 outstanding shares of the registrant's
common stock.
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FORWARD LOOKING STATEMENTS
The discussions set forth below 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. The
Company's actual results could differ materially from those projected in the
forward-looking statements as a result of, among other factors, 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, and other risk factors 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.
AMENDMENT
The registrant is amending its Annual Report on Form 10-K to include
amendments to Items 1, 3, 5, 7 & 8 and to file updated exhibits under Part IV of
its Report.
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BIO-PLEXUS, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K/A
YEAR ENDED DECEMBER 31, 1998
<TABLE>
PART I
<S> <C>
Item 1. Business .................................................................................. 1
Item 3. Legal Proceedings and Other Matters ....................................................... 11
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters ................. 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 13
Item 8. Financial Statements and Supplementary Data ............................................... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................... 27
</TABLE>
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PART I
ITEM 1. BUSINESS
General Development of Business
Bio-Plexus, Inc. was incorporated under the laws of the State of
Connnecticut in September 1987 for the purpose of designing, developing,
manufacturing and selling safety medical products. Its executive offices and
manufacturing facility are located at 129 Reservoir Road, Vernon, Connecticut
06066, and its telephone number is (860) 870-6112. All references herein to the
"Company" refer to Bio-Plexus, Inc. unless otherwise indicated by context.
The Company is engaged principally in the design, development and
manufacture of safety medical products used by healthcare professionals. The
Company's initial products have been safety blood collection needles and
related accessory products that are marketed under the Punctur-Guard(R) and
Drop-It(R) trade names. The safety blood collection needle utilizes a patented
technology that greatly reduces the risk of accidental needlesticks by
internally blunting the needle prior to removal from the patient. The Company's
primary focus has been the design, development, testing and evaluation of its
safety blood collection needle, and the design and development of the molds,
machinery and systems used to manufacture the blood collection needle. 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.
In June 1993, the Company completed its clinical tests of the
Punctur-Guard(R) blood collection needle and began selling the needle to
hospitals, medical centers and other large volume users on a limited basis. In
June 1994, the Company completed an initial public offering of 1,638,750 shares
of common stock at $10 per share. Net proceeds to the Company were $14,191,000.
From June 1994 through December 1996, the Company concentrated on improving and
expanding its overall manufacturing, sales and marketing operations. This
included the acquisition of a production facility, improvements to and the
expansion of its production tooling and the installation of a new needle
assembly and packaging system. During this period, the Company also established
a marketing and distribution agreement with one of the leading national
distributors of medical products, and began to market its products in Europe
under separate distribution agreements with certain European distributors.
In September 1995, the Company completed a secondary public offering of
securities involving the sale of 1,725,000 shares of common stock at $11.25 per
share. The net proceeds totaled $17,575,000, of which the Company utilized
$4,000,000 to repay outstanding debt obligations. The balance was used for
working capital to sustain ongoing operations, to purchase additional machinery
and equipment, and to continue to improve and expand its manufacturing and
marketing operations, as well as to support research and development.
From the latter part of 1996 to present, the Company has focused its
efforts on establishing joint venture agreements on one or more of its major
product lines, and on January 28, 1997, the Company entered into a Development
and License Agreement and a Supply Agreement with Johnson & Johnson Medical
("JJM") of Arlington, Texas. Under the terms of the original agreements, the
Company would develop and manufacture safety needle assemblies for JJM utilizing
its self-blunting technology, which
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will be used by JJM, under an exclusive worldwide license granted by the
Company, to manufacture and sell a new safety intravenous catheter ("I.V.
catheter"). The Company received licensing fees and funding to complete the
development of the safety needle assemblies and for the development of
manufacturing equipment and tooling. JJM agreed to acquire initial production
equipment, purchase certain minimum quantities of safety needle assemblies
annually, and to pay certain minimum annual royalties.
On April 9, 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 completion of certain additional milestones. The revised agreement
also provided for an additional $300,000 payable to the Company for initial
capital equipment purchases and the payment of certain minimum annual royalties.
During 1998, the Company completed the design and development phase of
this project. In addition, production machinery was constructed and transferred
to JJM during the fourth quarter of 1998 for validation and testing at their
facility.
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, healthcare,
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.
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.
On October 23, 1998, the Company entered into an exclusive License
Agreement and Design, Development and Asset Transfer Agreement for a safety
Peripherally Inserted Central Catheter ("PICC") introducer with TFX Medical
("TFX"), 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 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.
During 1997 and 1998, the Company continued to review its cost of
operations. The Company effected a cost reduction program which has resulted in
a total work force reduction of forty-seven in
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the areas of manufacturing and general administration, as well as the
consolidation of its facilities during 1997. These reductions are part of an
ongoing cost reduction program which will continue in 1999.
In June of 1998 the Company received ISO 9002 and EN 46002
certifications. ISO 9002 is a general international standard for quality
assurance in production, installation and servicing. EN 46002 provides
particular quality system requirements for suppliers of medical devices that are
more specific than the general requirements specified in ISO 9002. The Company
also began labeling its products with the CE Mark during 1998, which indicates
that the Company is following Medical Device Directives in Europe which include
the standards set forth under ISO 9002 and EN 46002. These certifications will
better enable the Company to sell its products internationally.
The Company also has continued its research and development of new
products. In June 1996, pursuant to Section 510(k) of the Food, Drug and
Cosmetics Act (21 U.S.C. 360(k)) and the regulations promulgated thereunder, the
Company received approval ("510(k) approval") from the Food and Drug
Administration for its winged intravenous set. The Company has also developed a
new needle holder which the Company believes will have a positive impact on
product sales. In addition, the Company currently has also identified several
other potential applications for its patented self-blunting technology, which it
believes may be of interest to potential joint venture partners.
Product sales increased by $1,544,000 to $5,086,000 in 1998, compared
to $3,542,000 in the prior year, and the Company anticipates continued sales
growth in 1999 due, in part, to legislation passed in California requiring the
use of safety products by July 1, 1999. However, continued losses from
operations could occur until additional increases in revenues and further
reductions in manufacturing and other costs are achieved.
During 1999, the Company will need to raise additional capital to fund
its ongoing operations, debt service and research and development activities.
The Company continues to explore additional sources of debt and equity
financing, and has received commitments from certain outside sources, which are
currently under review. The Company is also considering the development of a
strategic partnership with one or more major healthcare companies to assist with
the development and expansion of its product line, in addition to the agreements
it already has in place with JJM on the I.V. catheter and TFX on the PICC
introducer. The Company is also continuing to review opportunities to reduce
overhead costs and debt service.
Failure to raise the needed capital would have an unfavorable effect on
the Company's results of operations, cash flows and financial position. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Financial Information About Industry Segments
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information" effective for periods beginning after December 15, 1997.
The Statement requires that a public enterprise report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. In
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fiscal 1998, with the onset of the development contract with JJM, the Company
began internally reporting two distinct segments: Safety Medical Products and
accessories and Joint Venture Design and Development. Distinct reporting by such
segments was deemed necessary by management based on the significance of
reported revenues and expenses and the Company's intention to focus operating
resources in both of these areas.
The Safety Medical Products and Accessories segment includes operations
associated with the manufacture of blood collection needles, needle holders and
needle disposal containers. The Joint Venture Design & Development segment
includes operations 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 each of the Company's business segments is
as follows:
SEGMENT REVENUE
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Safety Medical Products and Accessories $3,636,000 $3,542,000 $2,743,000
Joint Venture Design & Development 5,671,000 1,500,000 ---
--------------------------------------------------------
Total Consolidated Revenue $9,307,000 $5,042,000 $2,743,000
========================================================
</TABLE>
SEGMENT OPERATING PROFIT (LOSS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Safety Medical Products and Accessories $ 435,000 $(1,441,000) $(2,026,000)
Joint Venture Design & Development 3,361,000 173,000 ---
-----------------------------------------------------
Total Consolidated Operating Profit (Loss) 3,796,000 (1,268,000) (2,026,000)
-----------------------------------------------------
Selling, General and Administrative Expenses (4,310,000) (6,500,000) (6,949,000)
Other (1,857,000) (758,000) (2,398,000)
Financing Expenses (589,000) (3,786,000) (1,497,000)
-----------------------------------------------------
Net Loss $(2,960,000) $(12,312,000) $(12,870,000)
=====================================================
</TABLE>
For the Safety Medical Products and Accessories segment, operating
profit (loss) consists of total revenues less costs and expenses. In the Joint
Venture Design and Development segment operating profit (loss) consists of total
revenues less costs and expenses and research and development expenses.
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SEGMENT CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Safety Medical Products and Accessories $ 82,000 $ 718,000 $ 2,066,000
Joint Venture Design & Development --- --- ---
--------------------------------------------------------
Total Consolidated Capital Expenditures $ 82,000 $ 718,000 $ 2,066,000
========================================================
</TABLE>
Net identifiable assets related to Safety Medical Products and
Accessories were $2,343,000, $4,321,000 and $5,646,000 at December 31, 1998,
1997 and 1996, respectively. Depreciation expense related to these assets was
$729,000, $1,091,000 and $1,106,000 for the periods ended December 31, 1998,
1997 and 1996, respectively. Due to the "service" nature of the Joint Venture
Design and Development segment, identifiable assets were not material for the
periods presented.
Description of Business
The Company designs, develops, manufactures and sells safety medical
products and accessories marketed under the Punctur-Guard(R) and Drop-It(R)
brand names. The Company's Punctur-Guard(R) blood collection needle is a
patented safety needle which reduces the risk of accidental needle sticks
through a self-blunting mechanism. The Punctur-Guard(R) needle is the only
safety needle on the market which is activated prior to its removal from the
patient, eliminating exposure time to a contaminated sharp.
The Company's first Punctur-Guard(R) product was a safety blood
collection needle. The Company manufactures and sells three varieties of safety
blood collection needles, two types of needle holders and a needle disposal
container. The blood collection needle is similar in appearance, size,
performance and general operation to standard blood collection needles, and
works with substantially all standard blood collection accessories. Hospitals,
doctors and other health care professionals use blood collection needles to
obtain blood for a variety of diagnostic procedures.
The blood collection needle assembly consists of a mechanically
activated, hollow, internal cannula with a blunt end, called a blunting member,
placed within a blood collection needle. The blunting member advances through
the needle by applied mechanical pressure. When the needle is inserted into the
patient, the blunting member is in its retracted position. Prior to removing the
needle from the patient, the operator applies slight additional forward force to
the blood collection tube, allowing the blunting member to advance forward and
lock into place beyond the needle's tip. The blunting member does not cause any
additional patient discomfort, and because it is hollow, fluids flow through the
needle in the same manner as through standard blood collection needles.
The Company assembles the purchased components of its Punctur-Guard(R)
blood collection needles on automated assembly machines. During 1996, the
Company purchased additional assembly and packaging equipment, allowing for
increased capacity and efficiencies in its manufacturing processes.
In addition to its blood collection needles, the Company manufactures
needle holders and needle disposal containers. The Drop-It(R) product line
consists of the Drop-It(R) Quick Release Needle Holder and Drop-It(R) Needle
Disposal Container. These products are designed to work in conjunction with the
blood collection needle to increase the ease-of-use for the healthcare
professional. The needle holder features simple one-handed disposal of a needle,
with a push button for quick release. The needle can also be automatically
released when used with the Drop-It(R) Needle Disposal Container.
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The Drop-It(R) Needle Disposal Container is a one-quart, tray-mountable
container. The container offers fast, one handed needle disposal with push
button or automatic release when used with a Drop-It(R) Quick Release Needle
Holder. It offers temporary and permanent locking tabs, is injection molded for
uniform thickness, and meets OSHA Standards for needle disposal containers.
The Company also developed and manufactures a standard needle holder
which can be used with both Punctur-Guard(R) and standard blood collection
needles.
The Company continued to focus on the design and development of new
products during 1998. The design and development of the safety needle assembly
and related production molds and machinery for the I.V. catheter project as
detailed under the JJM Development and License Agreement was substantially
completed during 1998. The Company also began its development on the PICC
introducer catheter under the agreement with TFX, and has redesigned its safety
winged intravenous set. The Company has also identified several other potential
applications of its self-blunting technology to other needle products.
In addition, the Company developed a needle holder, which will allow for
greater ease-of-use with its safety blood collection needle devices. The Company
has filed patent applications and is seeking 510(k) approval with the Food and
Drug Administration in order to begin sales of this product. The Company is
considering establishing joint venture agreements on one or more of its new
products, which could assist the Company in raising additional capital and help
fund the research and development costs related to these products.
Revenues and Distribution
The Company's products are marketed and sold in the United States both
through independent distribution channels and directly to end-users. The
Company's products are marketed and sold outside of the United States primarily
through independent distributors. Order backlog is not material to the Company's
business, as orders for the Company's products are received and filled on a
current basis. Product sales revenue is recognized when products are shipped to
customers.
The Company's strategic partnerships with JJM and TFX resulted in the
recognition of development contract or "service" revenue during 1998. Pursuant
to the terms of the agreements with these strategic partners, product and
process development services were progress billed as performed, and revenue was
recognized over the estimated project period.
Products under Development
A late-stage development product featuring Punctur-Guard(R) internal
blunt technology is the I.V. catheter . An I.V. catheter is a flexible tube that
is used to inject or continuously-flow fluids into a patient. I.V. catheters are
inserted into a patient by a needle within the flexible catheter tube. As the
Punctur-Guard(R) portion of the catheter is removed, the needle is automatically
blunted and then discarded.
In January 1997, the Company entered into a Development and Licensing
Agreement with JJM. Under this agreement and its subsequent amendment in April
1998, the Company has designed and
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developed safety needle assemblies for JJM which will 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. JJM anticipates that it will launch its
new safety I.V. catheter product line, incorporating the Punctur-Guard(R)
needle, in the second quarter of 1999.
Another late-stage development product is the winged intravenous set.
Prototypes for the safety winged intravenous set utilizing the Company's
self-blunting needle technology have been constructed. A winged intravenous set
is a small needle with a pair of plastic wings which gives the healthcare worker
the ability to control the needle for very precise vein insertion. Its primary
purpose is to draw blood from patients whose veins are more difficult to access,
such as geriatric and pediatric patients. The Company's product offers a unique
third wing for easy insertion and safety blunt activation. It also features a
conventional design and appearance for easy handling, storage and disposal. The
blunt is activated with movement of the third wing to the right, rendering the
needle safe prior to removal from the patient. The Company's strategy is to
minimize significant capital expenditures and limit research and development on
this product line until additional financing or strategic partnerships can be
secured.
Another product in development is the PICC introducer. PICC introducers
represent the fastest growing segment of the central venous catheter market. The
Company has completed the design of the product and, in October 1998, entered
into a Development and Sales Agreement for this product with TFX. Pursuant to
the terms of agreement, the Company will receive design, development, and
licensing fees as well as royalties from future product sales.
A new Drop-It(R) Holder is under development and is scheduled for launch in
the first half of 1999. This holder will allow the Company's safety blood
collection needles to be blunted with the holder itself rather than with a blood
collection vacuum tube, potentially reducing the need for end-user training of
its Punctur-Guard(R) blood collection needles.
The Company has also developed initial prototype designs for a number of
other applications of its self-blunting technology and intends to explore
opportunities during 1999 to establish additional joint ventures on one or more
of these new products. The Company also intends to continue its efforts to
improve production processes and reduce manufacturing costs of its safety
medical products.
The Company incurred $463,000 in research and development expenses during
the fiscal year ended December 31, 1998, and $1,044,000 and $1,511,000,
respectively, during the two immediately preceding fiscal years.
Raw Materials
The Company's Punctur-Guard(R) blood collection needle has seven
components. The component parts are purchased from outside suppliers which
manufacture the components according to drawings and specifications provided by
the Company. The majority of the materials used in the components are plastics,
rubber and stainless steel and are available from a number of sources.
The Company owns or otherwise controls all production molds and tooling
used by its suppliers to manufacture critical plastic and rubber parts. Rubber
parts are currently manufactured by a single major supplier. Subgroups of
plastic parts are manufactured by separate single major suppliers. The Company
currently has one supplier of cannula which is located in a foreign country and
has multiple
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manufacturing sources. Lead times on cannula orders are several months. While
alternative manufacturers are available, changes in the Company's suppliers
could disrupt production schedules and adversely affect the Company.
Competition
The blood collection needle market is highly competitive. The Company's
primary challenge is the continued widespread use of non-safety, standard blood
collection needles. Today approximately 85% of the standard blood collection
needle market is still non-safety with one major medical device manufacturer,
Becton, Dickinson and Company, holding the largest share of the market.
In the safety blood collection needle market, the Company is one of the
major players. The Company believes that the Punctur-Guard(R) blood collection
needle and accessory products are superior in design, quality and
convenience-of-use to all other safety needles on the market today and can
compete effectively against other safety products, particularly given the recent
regulatory actions mandating safety needle use.
On September 30, 1998, California became the first state to pass a law
requiring the use of safety needles. The measure directs the Cal/OSHA Standards
Board to adopt emergency regulations to minimize the hazards faced by healthcare
workers from exposure to needles that carry bloodborne pathogens. The emergency
regulations were to be implemented by January 15, 1999, and are to be fully
adopted by July 1,1999. The Company is optimistic that other states and federal
agencies will propose similar regulations.
Given this important shift toward the use of safety devices, the Company
believes it will increase its share of the national blood collection needle
market that today is dominated by Becton, Dickinson and Company. However, many
of the Company's competitors have longer operating histories, are substantially
larger, and are better financed than the Company. Some of these larger
competitors have multiple products which are sold to the Company's current
and/or targeted customers, giving them a potential marketing advantage.
Patents, Proprietary Rights and Trademark
The Company holds a United States utility patent for a self-blunting
needle using an internal cannula design, which expires in May 2006. The patent
is broad enough to include a number of product applications including blood
collection needles, winged intravenous sets, and I.V. catheters and has been
granted in a number of foreign countries as well, which expire on various dates
ranging from September 2003 to September 2008. In addition to its original
utility patent for its self-blunting needle design, the Company was granted a
patent for its self-blunting needle design specific to a catheter in April 1991,
which expires in April 2008. There are also patent applications pending which
the Company believes will lengthen its product protection once the patents are
granted. The applications have been filed in a number of foreign countries as
well as in the United States. There can be no assurance, however, that patents
will be issued from any pending patent application. In May 1997, the Company was
granted patent protection on its Drop-It(R) holder through May 2018 and, in
1998, filed additional patent applications on its needle disposal container,
holders, and other blood collection and infusion devices.
The Company considers the design of its needle assembly machines and
certain other features of its manufacturing systems to be proprietary
information. The Company protects such information through employee
confidentiality agreements and limited access to its facilities.
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"Punctur-Guard(R)", "Drop-It(R)", "Bio-Plexus(R)", "Safeguarding The
Future of Healthcare Workers(R)" and a Company logo are all trademarks
registered with the United States Patent and Trademark Office. The Company
considers these marks, its patents, and other proprietary information to be
valuable assets to its business.
Seasonality of Business
Sales of the Company's products are not subject to material seasonal
variations.
Regulation
The Company's medical products and operations are subjected to
regulations by the federal Food and Drug Administration (the "FDA") and various
other federal and state agencies, as well as by a number of foreign governmental
agencies. Among other things, the FDA requires the Company to adhere to certain
"Good Manufacturing Practices" ("GMP") regulations which include validation
testing, quality assurance, quality control and documentation procedures. The
Company's facilities are also subject to periodic inspections. In addition,
performance standards may be adopted for the blood collection needle product
which the Company would then be required to meet.
In June 1998, the Company received ISO 9002 and EN 46002
certifications. ISO 9002 is a general international standard for quality
assurance in production, installation and servicing. EN 46002 provides
particular quality system requirements for suppliers of medical devices that are
more specific than the general requirements specified in ISO 9002. The Company
also began labeling its products with the CE Mark during 1998, which indicates
that the Company is following Medical Device Directives in Europe which include
the standards set forth under ISO 9002 and EN 46002.
The Company believes it is in compliance in all material respects with
the regulations promulgated by these agencies, and that such compliance has not
had, and is not expected to have, a material adverse effect on its business.
The Company also believes that its operations comply in all material
respects with applicable environmental laws and regulations. Such compliance has
not had, and is not expected to have, a material adverse effect on the Company's
business.
Employees
As of December 31, 1998, Bio-Plexus employed 60 people including 16
research and development employees, 14 production employees and 30 sales,
marketing and administrative employees. The Company's employees are not
represented by a labor union, and the Company believes its employee relations
are satisfactory.
Year 2000 Costs
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
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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 substantially completed the awareness phase and is in the
process of the assessment phase with respect to its internal systems and
facilities. The Company is in the process of remediation in some areas and plans
to conduct testing in other areas when appropriate. 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 critical
suppliers, distributors and customers. 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. Further analysis, including personal meetings will be
conducted as necessary. 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.
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 internal costs, represented primarily by payroll 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.
10
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS AND OTHER MATTERS
The Company is not party to any litigation or legal proceedings material
to its business.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is traded on The Nasdaq Stock Market(R)
under the symbol BPLX. The following table shows the quarterly high and low
closing price on NASDAQ for a share of the Company's common stock for each
quarter in the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1998
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 8.75 $ 4.62 $ 5.06 $ 3.18
Second Quarter $ 6.18 $ 3.00 $ 4.87 $ 2.62
Third Quarter $ 6.50 $ 2.62 $ 3.25 $ 1.62
Fourth Quarter $ 6.93 $ 3.87 $ 3.93 $ 2.00
</TABLE>
As of March 15, 1999 there were approximately 582 holders of record of
the Company's common stock.
The Company has not paid any dividends on its common stock since its
inception and does not intend to pay any dividends in the foreseeable future.
11
<PAGE> 15
On July 20, 1998, at the Annual Meeting of Shareholders, the Company
increased the authorized number of common shares from 15,000,000 to 18,000,000.
Additionally, the Company amended its Certification of Incorporation to include
the elimination of the Class A common stock and the elimination of the Series A
preferred stock.
On September 11, 1998, a member of the Company's Board of Directors and
shareholder, Mr. David Himick, invested $250,000 in exchange for 124,378 shares
of common stock issued at $2.01 per share.
During the fourth quarter of 1998, a member of the Company's Board of
Directors, Mr. Herman Gross, invested $1,000,000 in exchange for 510,000 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.
12
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in September 1987 through December 31, 1998, the
Company incurred cumulative ongoing losses totaling $62,872,000. During this
period, the Company's principal focus has been the design, development, testing
and evaluation of its safety blood collection needle, and the design and
development of the molds, machinery and systems used to manufacture the blood
collection 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 health care companies in order to assist with the
development and expansion of its product lines.
Total revenues increased by $4,265,000 in 1998 to $9,307,000, while
operating costs and expenses decreased by $1,890,000 to $11,678,000. During
1998, the Company continued to review its cost of operations in order to reduce
costs where possible.
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 for 1999. The Company
will continue to review its cost of operations during 1999. In order 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 Licensing
Agreement and a Supply Agreement with Johnson & Johnson Medical ("JJM").
Pursuant to the original agreements, the Company 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.
13
<PAGE> 17
In April 1998, the Company amended the original Development and License
Agreement and canceled the Supply Agreement with JJM. The amended terms include
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. The revised agreement also provides for an
additional $300,000 payable to the Company for initial capital equipment
purchases during 1998.
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.
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 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, healthcare,
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.
During the fourth quarter of 1998, the Company recalled certain of its
blood collection needle products due to mislabeling pertaining to the shelf-life
of certain product manufactured during the latter part of 1996 and in 1997. The
number of units was estimated to be approximately 1,600,000 units, of which
1,333,000 units were located at a foreign distributor. Domestically, replacement
product was shipped to customers, or credit was granted towards future product
shipments. These costs were recorded in cost of goods sold during the fourth
quarter of 1998. The Company is currently in discussions with its foreign
distributor regarding the product in Europe. The total estimated cost of the
product in Europe is approximately $222,000, and was recorded as cost of goods
sold expense in the fourth quarter with a corresponding short-term liability
recorded on the Company's balance sheet. Any future product replacement or
credit given towards future purchases will be offset against this liability in
future periods.
YEARS ENDED DECEMBER 31, 1998 AND 1997
The Company had product sales of $5,086,000 for the year ended December
31, 1998, compared with revenues of $3,542,000 for the prior year. The increase
of $1,544,000 included approximately $93,000 attributable to the expansion of
its domestic account base and better pricing on its products, and $1,451,000 in
sales of equipment to JJM on the I.V. catheter development project.
14
<PAGE> 18
The Company had revenues from services totaling $4,171,000 for the year
ended December 31, 1998 as compared to $0 in the prior year. Of this amount,
$1,313,000 resulted from progress payments by JJM for engineering time on the
I.V. catheter capital equipment development project, and $2,625,000 from the
recognition of deferred revenue related to the I.V. catheter development
project.
Product costs were $4,781,000 for the year ended December 31, 1998,
compared to $4,971,000 for the prior year. The 1998 amount includes the cost of
equipment sales to JJM, as well as cost of goods sold related to safety medical
products. The decrease in product costs for safety medical products is primarily
the result of lower manufacturing costs associated with the blood collection
needle line.
Service costs for 1998 were $267,000 for the year ended December 31,
1998. These costs represent engineering time billed on the I.V. catheter
development project with JJM.
Research and development expenses were $463,000 for the year ended
December 31, 1998, compared to $1,044,000 for the prior year. The decrease in
these costs in 1998 resulted primarily from engineering costs billed to JJM on
the capital equipment project and recognized under costs of goods sold, and the
recognition of $841,000 of deferred revenue related to the development of the
I.V. catheter for JJM recorded as a reduction in research and development
expenses during 1998.
Other operating and engineering costs were $1,857,000 for the year
ended December 31, 1998, compared with $1,053,000 for the prior year. The
increase of $804,000 in these costs represents the net increase between the
write-off of obsolete capital equipment totaling $1,359,000 in 1998 compared to
$512,000 in the prior year.
Selling, general and administrative expenses were $4,310,000 for the
year ended December 31, 1998, compared with $6,500,000 for the prior year. This
decrease resulted from decreases of approximately $1,448,000 associated with
workforce reductions in sales and marketing and general management, $595,000
associated with legal and accounting fees, professional fees and insurance
expenses, and $100,000 associated with the consolidation of its facilities into
one location.
Financing expenses for the year ended December 31, 1998 were $589,000
compared to $3,786,000 for the prior year. The decrease resulted from lower
interest expense associated with equipment lease financing, and, in the prior
year, a one-time charge of $640,000 related to the conversion of warrants to
common stock and a charge of $1,665,000 related to the amortization of the debt
discount.
YEARS ENDED DECEMBER 31, 1997 AND 1996
The Company had product sales of $3,542,000 for the year ended December
31, 1997, compared with revenues of $2,743,000 for the prior year. The increase
in sales was attributable to the expansion of its domestic account base, as well
as sales overseas through certain European distributors. The Company also
recognized licensing fees of $1,500,000 and received $1,400,000 for the
development of safety needle assemblies associated with the development of the
safety I.V. catheter which was recorded as deferred revenue during the first
quarter of 1997.
Product costs were $4,971,000 for the year ended December 31, 1997,
compared to $4,760,000 for the prior year. The increase in product costs is
attributable to higher cost of goods sold due to higher product sales volumes in
1997, partially offset by lower manufacturing costs associated with its blood
collection needle line.
15
<PAGE> 19
Research and development expenses were $1,044,000 for the year ended
December 31, 1997, compared to $1,511,000 for the prior year. The Company's
efforts in each of these periods reflected the continued focus on improving the
design and continuing development of needle assembly systems and production
molds for the blood collection needle, and its efforts to develop new products
such as the winged intravenous set and I.V. catheter. The decrease in these
costs in 1997 resulted primarily from the recognition of $559,000 of deferred
revenue related to the development of the I.V. catheter for JJM under the
Development and License Agreement. The deferred revenue recognition of $559,000
was recorded as a reduction in research and development expenses during 1997.
The balance of the total $1,400,000 payment from JJM referred to above, was
recognized during 1998.
Other operating and engineering costs were $1,053,000 for the year
ended December 31, 1997, compared with $896,000 for the prior year. The increase
in these costs was primarily attributable to higher costs associated with
increased production and the implementation of the new needle and packaging
system late in 1996.
Selling, general and administrative expenses were $6,500,000 for the
year ended December 31, 1997, compared with $6,949,000 for the prior year. This
decrease resulted primarily from the Company's reduction in its direct sales
force during the second quarter of 1997 as well as other administrative cost
reductions recognized during the third quarter of 1997.
Financing expenses for the year ended December 31, 1997 were $3,786,000
compared to $1,497,000 for the prior year. The increase resulted primarily from
an increase in deferred debt financing expenses and other financing expenses
including other interest expense less interest income, and, in the first
quarter, a one time charge of $640,000 related to the conversion of warrants to
common stock and a charge of $1,665,000 related to the amortization of the
January 1997 Debenture debt discount. The $640,000 charge consisted of $491,000
of inducement expense directly related to the reduction of the exercise price on
the debt conversion from $9.00 to $7.00, and $149,000 of cash payments made in
1997 in lieu of future interest. Of the total of $3,786,000 in financing
expenses, $2,841,000 were non-cash expenses.
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 December 31, 1998, the Company had received net proceeds of
approximately $29,759,000 through borrowings and the sale of debt securities and
$49,173,000 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 $17,407,000 was
received through the private placement of equity securities.
As of December 31, 1998, the Company's principal source of liquidity
was cash and short-term investments totaling $535,000. The Company invests its
excess cash with a local bank in a short-term investment account backed by
Treasury obligations and other federal agency obligations.
16
<PAGE> 20
The Company's primary cash requirement for 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 is
considering the development of a strategic partnership with one or more major
healthcare companies to assist with the development and expansion of its product
line, in addition to the agreements it already has in place with JJM on the I.V.
catheter and TFX on the PICC. Its overall strategy is to minimize
expenditures on new product research and development, as well as production
capacity for new products until such time as it determines that additional
strategic partnerships are feasible.
During the first quarter of 1999, a member of the Company's Board of
Directors and shareholder invested $1,000,000 in exchange for 502,500 shares of
common stock and 75,000 warrants.
The Company continues to explore additional sources of debt and equity
financing, and has received commitments from certain outside sources, which are
currently under review. The Company is also continuing to review opportunities
to reduce overhead costs and debt service.
The Company believes that these proceeds and other anticipated sources of
funds, together with funds generated from sales of its products, will be
sufficient to fund its cash requirements for 1999. These estimated cash
requirements do not include significant expenditures in new product areas and
amounts needed could vary based on the actual growth of sales and other factors.
In addition to considering strategic partnerships, the Company is reviewing
alternative financing strategies to raise additional funds in 1999, and is also
continuing to review opportunities to reduce overhead costs and debt service.
Failure to raise needed capital would have an adverse effect on the Company's
operations, development plans and cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to financial statements and financial statement schedules as
Item 14.
17
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS
Listed on page F-1 of the Financial Statements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the fourth quarter
ended December 31, 1998. A report on Form 8-K was filed on January 5, 1998
reporting a change in registrant's certifying accountants.
(c) Exhibits
The table of exhibits is amended by the update of Exhibits 23 and 23a and
restated to read as follows:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION METHOD OF FILING
- ------------- --------------------------------------- ------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement between
Advest, Inc. and the Company................ Incorporated by reference to Exhibit 1.1
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
1.2 Form of Advest, Inc. Warrant................ Incorporated by reference to Exhibit 1.2
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
1.3 Form of Advest, Inc. Registration Rights
Agreement................................... Incorporated by reference to Exhibit 1.3
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
1.4 Form of Underwriting Agreement among
Advest, Inc. as representative of the
several underwriters named therein and the
Company..................................... Incorporated by reference to Exhibit 1.1
to the Registrant's Amendment No. 2 to the
registration statement on Form S-1 filed
on September 15, 1995 (File No.
33-95554).
3.1 Certificate of Incorporation of the
Company, as amended......................... Incorporated by reference to Exhibit 3.1
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1998 (File No. 0-24128).
3.2 Bylaws of the Company, as amended........... Incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K filed on
April 13, 1998 (File No. 0-24128).
4.1 Loan Agreement, dated January 7, 1992,
between the Company and CII................. Incorporated by reference to Exhibit 4.1
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
4.2 Loan Agreement dated July 27, 1993.
</TABLE>
27
<PAGE> 22
<TABLE>
<S> <C> <C>
between the Company and the CDA............. Incorporated by reference to Exhibit 4.2
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
4.3 Form of Unsecured Term Notes with
Detachable Warrants to Purchase Common
Stock....................................... Incorporated by reference to Exhibit 10.4
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
4.4 Loan Agreement, dated March 7, 1995,
between the Company and the CDA............. Incorporated by reference to Exhibit 4.4
to the Registrant's Annual Report on Form
10-K filed on March 30, 1995 (File No.
0-24128).
4.4a Letter agreement dated March 31, 1997
between the Company and CDA................. Incorporated by reference to Exhibit 4.4a
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on March
31, 1997 (File No. 0-24128).
4.5 Promissory Note, dated October 28, 1994,
between the Company and Victor and
Margaret DeMattia........................... Incorporated by reference to Exhibit 4.5
to the Registrant's Annual Report on Form
10-K filed on March 30, 1995 (File No.
0-24128).
4.6 Offshore Convertible Securities
Subscription Agreement dated January 30,
1997 between the Company and Shepherd
Investments International Ltd., as amended
by Letter agreement dated March 25, 1997,
and as further amended by Letter agreement
dated April 16, 1997........................ Incorporated by reference to Exhibit 4.6
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on March
31, 1997 (File No. 0-24128).
4.6a Letter agreement between the Company and
Ronald A. Haverl and Carl R. Sahi
regarding voting of Class A Common
Stock....................................... Incorporated by reference to Exhibit 4.6
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1997 (File No. 0-24128).
10.1 Lease, dated March 7, 1989, between the
Company and T&S Limited Partnership, as
amended..................................... Incorporated by reference to Exhibit 10.1
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.2 Royalty Agreement, dated November 6, 1989,
between the Company and CII, as amended..... Incorporated by reference to Exhibit 10.2
</TABLE>
28
<PAGE> 23
<TABLE>
<S> <C> <C>
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.3 Master Lease Agreement, dated April 30,
1993, between the Company and Aberlyn
Capital Management and its Affiliate,
Aberlyn..................................... Incorporated by reference to Exhibit 10.3
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.4 Purchase and Sale Agreement, as amended,
for 129 Reservoir Road, Vernon,
Connecticut, dated October 28, 1994,
between the Company and Victor and
Margaret DeMattia........................... Incorporated by reference to Exhibit 10.4
to the Registrant's Annual Report on Form
10-K filed on March 30, 1995 (File No.
0-24128).
10.5 Lease, dated March 11, 1994, between the
Company and Thomas D. Buccino d/b/a The
Mill Works.................................. Incorporated by reference to Exhibit 10.5
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.6 Marketing and Distribution Agreement dated
March 16, 1995, between the Company and
Allegiance.................................. Incorporated by reference to Exhibit 10.6
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.7 1991 Long-Term Incentive Plan............... Incorporated by reference to Exhibit 10.7
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.8 Stock Warrant granted by the Company to
Ronald A. Haverl............................ Incorporated by reference to Exhibit 10.8
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.9 Stock Warrant granted by the Company to
Carl R. Sahi................................ Incorporated by reference to Exhibit 10.9
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.10 Stock Warrant granted by the Company to
Ronald A. Haverl............................ Incorporated by reference to Exhibit 10.10
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.11 Stock Warrant granted by the Company to
Carl R. Sahi................................ Incorporated by reference to Exhibit 10.11
</TABLE>
29
<PAGE> 24
<TABLE>
<S> <C> <C>
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.12 Master Equipment Lease Agreement dated as
of March 8, 1995, between the Company and
Financing for Science International, Inc.... Incorporated by reference to Exhibit 10.12
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24128).
10.13 1995 Non-Employee Directors' Stock Option
Plan........................................ Incorporated by reference to Exhibit 10.13
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24118).
10.14 Note and Warrant Purchase Agreement, Form
of Private Placement Note, Security
Agreement, and Form of Warrant.............. Incorporated by reference to Exhibit 10.14
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24128).
10.15 Letter Agreement with Aberlyn Capital
Management Limited Partnership.............. Incorporated by reference to Exhibit 10.15
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24128).
10.16 Employment Agreement dated January 13,
1997 between the Company and Lucio
Improta..................................... Incorporated by reference to Exhibit 10.15
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on March
31, 1997 (File No. 0-24128).
10.17 Term Sheet dated August 1, 1997
describing arrangement between the Company
and Ronald Haverl........................... Incorporated by reference to Exhibit 10.17
to the Registrant's Annual Report on
Form 10-K/A filed on April 30, 1998
(File No. 0-24128).
10.18 Development and License Agreement dated
January 28, 1997 by and between the Company
and Johnson & Johnson Medical, Inc.......... Incorporated by reference to Exhibit 10.18
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.19 Supply Agreement dated January 28, 1997 by
and between the Company and Johnson &
Johnson Medical, Inc........................ Incorporated by reference to Exhibit 10.18
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.20 Term Promissory Note issued to
Carl R. Sahi............................... Incorporated by reference to Exhibit 10.20
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.21 Warrant for shares of common stock
issued to Carl R. Sahi...................... Incorporated by reference to Exhibit 10.21
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.22 Distribution Agreement dated October 6,
1998 by and between the Company and Graphic
Controls Corporation........................ Filed with the original report.
10.23 Design, Development and Asset Transfer
Agreement dated October 23, 1998 by and
between the Company and TFX Medical......... Filed with the original report.
10.24 License Agreement dated October 23, 1998
by and between the Company and TFX Medical.. Filed with the original report.
23 Consent of Mahoney, Sabol & Company,
LLP......................................... Filed with this amendment.
23a Consent of Price Waterhouse LLP............. Filed with this amendment.
27 Financial Data Schedule..................... Filed with the original report.
</TABLE>
30
<PAGE> 25
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)
By: /s/ Richard L. Higgins
--------------------------------
Richard L. Higgins
President, Chief Executive Officer
and Director
By: /s/ Kimberley A. Cady
--------------------------------
Kimberley A. Cady
Chief Financial Officer
Dated: August 24, 1999
31
<PAGE> 26
BIO-PLEXUS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: PAGE
<S> <C>
Report of Independent Accountants........................................................F-2, F-3
Balance Sheets at December 31, 1998 and 1997.................................................F-4
Statements of Operations for the years ended December 31, 1998, 1997 and 1996................F-5
Statements of Changes in Shareholders' Equity (Deficit) for the years ended
December 31, 1998, 1997 and 1996...........................................................F-6
Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996..............F-7
Notes to Financial Statements................................................................F-8
</TABLE>
All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or Notes thereto.
F-1
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Bio-Plexus, Inc.
We have audited the balance sheets of Bio-Plexus, Inc. as of December 31,
1998 and 1997 and the related statements of operations, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bio-Plexus, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Mahoney Sabol & Company, LLP
Hartford, CT
March 5, 1999
F-2
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Bio-Plexus, Inc.
In our opinion, the statements of operations, of cash flows and of changes
in shareholders' deficit for the year ended December 31, 1996 present fairly, in
all material respects, the results of operations and cash flows of Bio-Plexus,
Inc. for the year ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
financial statements of Bio-Plexus for any period subsequent to December 31,
1996.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a net working capital deficit and
shareholders' deficit due to recurring net losses from operations raising
substantial doubt about the Company's ability to continue as a going concern
through December 31, 1997. Management's plans in regards to these matters are
also described in Note 1 of the financial statements in the 1996 Annual Report,
and include raising additional capital (through strategic partnerships or
otherwise), increasing sales volume and reducing costs in 1997. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PricewaterhouseCoopers LLP
Hartford, CT
April 11, 1997
F-3
<PAGE> 29
BIO-PLEXUS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 535,000 $ 1,502,000
Accounts receivable 564,000 395,000
Inventories:
Raw materials 1,164,000 985,000
Work-in-process 470,000 625,000
Finished goods 390,000 297,000
------------ ------------
2,024,000 1,907,000
------------ ------------
Notes receivable -- 152,000
Other current assets 246,000 168,000
------------ ------------
Total current assets 3,369,000 4,124,000
------------ ------------
Investment in Jordan Pharmaceuticals (Note 3) 600,000 --
Fixed assets, net (Note 4) 4,661,000 7,087,000
Deferred debt financing expenses 10,000 73,000
Patents, net of amortization 252,000 152,000
Other assets 260,000 252,000
------------ ------------
$ 9,152,000 $ 11,688,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5) $ 1,811,000 $ 2,219,000
Note payable (Note 5) 250,000 --
Accounts payable and accrued expenses 528,000 619,000
Accrued interest payable 28,000 26,000
Accrued vacation 196,000 248,000
Other accrued employee costs 213,000 204,000
Product replacement costs 222,000 --
Deferred revenue (Note 12) 875,000 841,000
------------ ------------
Total current liabilities 4,123,000 4,157,000
------------ ------------
Other long-term debt, net (Note 5) 2,403,000 3,204,000
Redeemable Class A common stock -- 20,000
Redeemable common stock warrants (Note 7) 149,000 149,000
Commitments and contingencies (Note 10) -- --
Shareholders' equity (Note 7):
Convertible preferred stock, no par value, 3,000,000
authorized, no shares issued and outstanding -- --
Common stock, no par value, 18,000,000 authorized,
12,793,165 and 12,137,787 shares issued and outstanding 65,349,000 64,070,000
Accumulated deficit (62,872,000) (59,912,000)
------------ ------------
Total shareholders' equity 2,477,000 4,158,000
------------ ------------
$ 9,152,000 $ 11,688,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 30
BIO-PLEXUS, INC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue: $ 5,086,000 $ 3,542,000 $ 2,743,000
Product
Services 4,171,000 -- --
Licensing fees (Note 12) 50,000 1,500,000 --
------------ ------------ ------------
Total revenue 9,307,000 5,042,000 2,743,000
------------ ------------ ------------
Costs and expenses:
Product 4,781,000 4,971,000 4,760,000
Services 267,000 -- --
Research and development 463,000 1,044,000 1,511,000
Other operating and engineering costs 1,857,000 1,053,000 896,000
Selling, general and administrative 4,310,000 6,500,000 6,949,000
------------ ------------ ------------
Total operating costs and expenses 11,678,000 13,568,000 14,116,000
------------ ------------ ------------
Financing expenses:
CII debt:
Interest expense -- -- 28,000
Amortization of deferred debt financing 63,000 382,000 96,000
Other financing expenses (Note 5) 633,000 3,551,000 1,745,000
Less: Interest income (107,000) (147,000) (372,000)
------------ ------------ ------------
Total financing expenses 589,000 3,786,000 1,497,000
------------ ------------ ------------
Net loss (2,960,000) (12,312,000) (12,870,000)
Less: Imputed dividend on preferred stock (Note 7) -- (500,000) --
------------ ------------ ------------
Net loss applicable to common stock $ (2,960,000) $(12,812,000) $(12,870,000)
============ ============ ============
Net loss (basic and diluted) per common share $ (0.24) $ (1.37) $ (1.89)
============ ============ ============
Weighted average common shares outstanding 12,263,870 9,320,800 6,815,936
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 31
BIO-PLEXUS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK ACCUMULATED
---------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------------ ------------ ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 6,568,938 $ 45,481,000 $ (34,730,000) $ 10,751,000
Exercise of stock options 103,000 142,000 142,000
Exercise of warrants 250,000 345,000 345,000
Conversion of warrants 124,614 850,000 850,000
Warrants issued with debt 69,000 69,000
Net loss (12,870,000) (12,870,000)
------------ ------------ ---------- ----------- ------------- ------------
Balance - December 31, 1996 7,046,552 46,887,000 (47,600,000) (713,000)
Exercise of stock options 36,000 50,000 50,000
Cash proceeds from sale 997,000 2,493,000 1,250,000 5,000,000 7,493,000
Conversion of preferred stock 1,931,291 4,929,000 (1,250,000) (5,000,000) (71,000)
Conversion of notes payable 1,791,627 7,145,000 7,145,000
Conversion of warrants 335,317 2,566,000 2,566,000
Net loss before imputed dividend (12,312,000) (12,312,000)
------------ ------------ ---------- ----------- ------------- ------------
Balance - December 31, 1997 12,137,787 64,070,000 -- -- (59,912,000) 4,158,000
Exercise of stock options 21,000 29,000 29,000
Cash proceeds from sale 634,378 1,250,000 1,250,000
Net loss (2,960,000) (2,960,000)
------------ ------------ ---------- ----------- ------------- ------------
Balance - December 31, 1998 12,793,165 $ 65,349,000 -- $ -- $ (62,872,000) $ 2,477,000
============ ============ ========== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 32
BIO-PLEXUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (2,960,000) $(12,812,000) $(12,870,000)
Adjustments to reconcile net loss to cash used
by operating activities:
Depreciation and amortization 923,000 1,343,000 1,317,000
Inducement expense on conversion 640,000
Imputed dividend 500,000
Writedown of equipment to net realizable value 1,359,000 512,000 550,000
Amortization of deferred debt financing
expenses 63,000 382,000 96,000
Amortization of debt discount 59,000 1,819,000 454,000
Decrease (increase) in assets:
Accounts receivable (169,000) (9,000) (248,000)
Inventories (117,000) (51,000) 773,000
Notes receivable 152,000
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (91,000) (1,074,000) 1,008,000
Accrued interest payable 2,000 (1,000) (2,000)
Accrued vacation and other accrued employee costs (43,000) (10,000) 19,000
Accrued product replacement costs 222,000
Increase in deferred revenue (Note 12) 34,000 841,000
Other 155,000 164,000 (345,000)
------------ ------------ ------------
Net cash used in operating activities (411,000) (7,756,000) (9,248,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and construction of fixed assets (82,000) (409,000) (2,066,000)
Long-term investments (Note 3) (600,000)
Cost of patents (115,000) (108,000) (29,000)
------------ ------------ ------------
Net cash used in investing activities (797,000) (517,000) (2,095,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of convertible preferred stock 5,000,000
Proceeds from sale of common stock (Note 7) 1,250,000 2,493,000
Proceeds from exercise of common stock warrants 282,000 345,000
Proceeds from exercise of common stock options 29,000 50,000 142,000
Redemption of common stock (Note 7) (20,000)
Proceeds from long-term debt (Note 5) 300,000 4,700,000
Increase in notes payable (Note 5) 250,000
Proceeds from sale and leaseback 369,000 2,228,000
Repayments of long-term debt (1,568,000) (4,441,000) (1,892,000)
------------ ------------ ------------
Net cash provided by financing activities 241,000 8,453,000 823,000
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (967,000) 180,000 (10,520,000)
Cash and cash equivalents, beginning of
period 1,502,000 1,322,000 11,842,000
------------ ------------ ------------
Cash and cash equivalents, end of period $ 535,000 $ 1,502,000 $ 1,322,000
============ ============ ============
Supplemental cash flow disclosures:
Cash payments of interest $ 572,000 $ 1,093,000 $ 1,276,000
Cash payments of income taxes 4,000 9,000 15,000
Surrender of debt upon warrant exercise 2,265,000 1,110,000
Surrender of debt upon conversion to equity 5,787,000
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-7
<PAGE> 33
BIO-PLEXUS, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND OPERATIONS OF THE COMPANY
Bio-Plexus, Inc. (the "Company") was incorporated in
Connecticut on September 4, 1987. The Company was formed for the
purpose of the design, development, manufacture and sale of medical
products. The Company's operations consist of two business segments:
Safety Medical Products and Accessories and Joint Venture Design and
Development.
The products included in the Company's Safety Medical Products
and Accessories segment include safety blood collection needles, needle
holders, and needle disposal containers. The Company sells its products
to hospitals, medical centers, and certain distributors both
domestically and internationally. Since inception, the Company has
devoted substantially all of its efforts to the development and
marketing of a series of safety blood collection needles marketed under
the Punctur-Guard(R) trademark and the development and construction of
needle assembly systems used to manufacture the Punctur-Guard(R)
needles. The Company has funded its operating losses since inception
through loans and the sale of debt and equity securities.
The Joint Venture Design and Development segment includes all
contract design and development revenue and associated costs resulting
from joint ventures and strategic partnerships with other healthcare
companies. The primary source of these revenues to date has been the
development contract with Johnson & Johnson Medical ("JJM") for the
design and development of a new safety I.V. catheter to be manufactured
and sold by JJM. (See Note 12).
Product sales growth continued to expand in 1998 and the
Company achieved increased manufacturing capacity and reduced costs
which will enable the Company to meet the expected increased demand for
its products in 1999. The Company also plans to pursue new
opportunities for additional strategic partnerships to assist with the
funding and development costs of other new products. However, in order
to generate adequate cash flows to fund operations, the Company will
need to achieve significant revenue growth and continue to reduce
manufacturing and administrative costs. Accordingly, the Company will
require additional capital in 1999 to fund operations.
The Company continues to explore additonal sources of debt and
equity financing and has received commitments from certain outside
sources which are currently under review. Funds from these sources,
together with cash from product sales, are expected to be sufficient to
fund operations and debt service for 1999; however, the Company is
exploring alternative sources of funds as well as the possibility of
entering into additional
F-8
<PAGE> 34
strategic partnerships so that it can reduce its current debt service.
The Company is also reviewing opportunities to further reduce operating
costs and expenses.
There are risks and uncertainties surrounding management's
plans. The Company's failure to successfully implement its plan,
including raising sufficient capital, through a strategic partnership
or otherwise, would have an unfavorable effect on the Company's
financial condition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased
with an initial maturity of three months or less to be cash
equivalents.
Short-Term Investments
The Company may invest its excess cash with a local bank in a
short-term investment account backed by either US Treasury bonds or
federal agency obligations.
Inventories
All inventories are stated at cost using the weighted average
valuation method. Included in inventory totals were allowance for
obsolescence of $56,000 and $182,000 at December 31, 1998 and 1997,
respectively.
Revenue Recognition
Product sales and related costs are recorded by the Company
upon shipment of product to the customer in years 1996 and prior and to
the customer or distributor in 1997 to present.
Equipment sales in 1998, as a result of strategic
partnerships, were progress billed and revenue was recognized in the
billing period.
The Company's strategic partnerships resulted in the
recognition of development contract or "service" revenue during 1998.
Pursuant to the terms of the agreements with these strategic partners,
product and process development services were progress billed as
performed and revenue was recognized over the estimated project period.
F-9
<PAGE> 35
Long-Term Investments
The company is utilizing the cost method in connection with
the valuation of its long-term investment (see Note 3).
Fixed Assets
Fixed assets are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets,
which range from 3-30 years. Maintenance and repair expenditures are
charged to expense as incurred.
Deferred Debt Financing Expenses and Debt Discount
Financing expenses and debt discount incurred in connection
with the issuance of long-term debt are amortized using the interest
method over the term of the debt.
Income Taxes
The Company uses the liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under this method, deferred tax
liabilities and assets are recognized for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax basis of assets and liabilities.
Patents
Patent costs are capitalized as incurred and amortized on a
straight-line basis over the shorter of the legal term or estimated
economic life of the patent.
Effect of New Accounting Standards
In October 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation" effective in
1996 for calendar year-end companies. The Company adopted the
provisions of SFAS 123 for the periods presented (see Note 8).
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", which
establishes 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, common stock equivalents (see Note 8) are
excluded from the computation as their effect is anti-dilutive.
F-10
<PAGE> 36
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information" effective for periods
beginning December 15, 1997. The Statement requires that a public
enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. In
fiscal 1998, with the onset of the development contract with JJM, the
Company began internally reporting two distinct segments: Safety
Medical Products and Joint Venture Design and Development. The Company
adopted SFAS 131 for the periods presented (see Note 13).
Reclassification
Certain reclassifications have been made to the 1996 and 1997
financial statements to conform to the 1998 presentation.
3. LONG-TERM INVESTMENT
On September 2, 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. Interest that had accrued on the note from September
2, 1998 until the date of conversion was paid in 526 shares of Jordan
Series A Preferred Stock. For the period September 30, 1998 through
December 31, 1998, the Company received a dividend in the amount of
2,411 shares of Jordan Series A Preferred Stock. The investment is
valued in the financial statements using the cost method, as the
percentage of the voting stock held as an investment by the Company is
insufficient to exercise significant influence over Jordan.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
Fixed assets under capital lease:
<S> <C> <C>
Machinery and equipment $ 2,580,000 $ 3,053,000
Production molds 1,892,000 1,892,000
Office furniture and equipment 472,000 472,000
------------ ------------
Total under capital lease 4,944,000 5,417,000
Land and building 2,438,000 2,437,000
Machinery and equipment 155,000 295,000
</TABLE>
F-11
<PAGE> 37
<TABLE>
<S> <C> <C>
Construction-in-progress 336,000 1,313,000
Production molds 779,000 1,001,000
Office furniture and equipment 191,000 182,000
Leasehold improvements 169,000 162,000
------------ ------------
9,012,000 10,807,000
Less: accumulated depreciation (4,351,000) (3,720,000)
------------ ------------
$ 4,661,000 $ 7,087,000
============ ============
</TABLE>
At December 31, 1998 and 1997, the Company had approximately
$4,944,000 and $5,417,000, respectively, of fixed assets subject to a
sale-leaseback arrangement with third party lessors (see Note 5).
Depreciation expense was $909,000 in 1998, $1,333,000 in 1997,
and $1,313,000 in 1996.
Beginning in 1996 and continuing into 1998, certain of the
Company's fixed assets were written down to net realizable value and
were subsequently written off, as the manner in which these assets were
used by the Company had changed. These fixed assets consisted of the
Company's first generation production machinery and equipment used to
manufacture its blood collection needle product line. This machinery
and equipment was internally constructed, lower volume equipment that
was phased out over this time period in favor of higher volume, more
automated, more efficient production machinery and equipment. Total
losses resulting from these write-downs and subsequent write-offs
amounted to $1,359,000 in 1998, $512,000 in 1997 and $550,000 in 1996,
and such losses were reported in other operating and engineering costs
on the statements of operations in those years.
5. DEBT
Unsecured Term Notes
During 1993, the Company sold $4,230,000 of unsecured term
notes with detachable warrants to purchase 469,996 shares of common
stock at $9 per share. Subsequent to December 31, 1993 and through
February 15, 1994, the Company sold an additional $628,000 of unsecured
term notes with warrants to purchase 69,814 shares of common stock at
$9 per share. The term notes bear interest at 8%. One-third of the
principal amount of the notes matured on December 31, 1997 and the
remainder matured on December 31, 1998. The warrants were exercisable
until December 31, 1998.
During 1996, certain warrant holders exercised warrants for
shares of common stock, simultaneously surrendering $1,109,500 of
unsecured term notes, with a net book value of $849,500 in lieu of
paying cash.
On January 16, 1997, the Company advised certain holders of
warrants that it was reducing the exercise price from $9.00 to $7.00 on
warrants issued with the unsecured term notes. At the same time, the
Company advised the warrant holders that if the warrants were exercised
into shares of common stock by simultaneously surrendering the related
unsecured term notes, the Company would make payments in lieu of
interest through 1997 at a rate of 8%. As a result of the transaction,
warrant holders surrendered approximately $2,184,000 of the term notes,
and exercised warrants for 311,967 shares of common stock. A one time
1997 charge of $640,000 resulted due to the reduction in the warrant
exercise price and cash payments in lieu of interest through 1997.
In January 1999, the principal balance remaining of $710,000
was paid to retire the debt. All outstanding warrants expired on
December 31, 1998, and none were exercised during the year.
F-12
<PAGE> 38
Lease Financing -- Machinery and Equipment and Molds
On April 1, 1994, the Company and a lessor agreed to a
$2,000,000 expansion to a previous sale-leaseback agreement for certain
machinery and molds. The lease term is 42 months from the date specific
equipment is leased with interest at a rate of 15%. As an inducement,
the Company issued the lessor and its affiliate warrants to purchase
47,500 shares of common stock at $9 per share. The warrants are
exercisable through April 30, 2001. The fair value of the warrants on
the date of issuance was recorded as a deferred financing expense.
On March 8, 1995, the Company entered a five-year
sale-leaseback financing agreement in amounts up to $2,000,000 with an
equipment lessor on certain machinery and molds. Monthly rent expense
equals 2.14% of the equipment leased and is payable monthly in advance.
The Company has the option to purchase all but not less than all of the
leased equipment at the end of the lease term for the then current
market value of the equipment, which shall not be less than 10% or more
than 15% of the equipment cost. In June 1995, the Company utilized
approximately $1,000,000 of the commitment, and as an inducement, the
Company issued the lessor warrants to purchase 6,355 shares of Common
Stock at an exercise price of $13.63 per share with an exercise period
of five years. The fair value of the warrants at the date of issuance
was recorded as a discount on the lease obligation.
On June 28, 1996, the Company and the lessor agreed to a
$2,000,000 expansion of the sale-leaseback financing agreement to
finance the purchase of a new needle production machine. The lease term
was four years and monthly rent payments equal 2.50% of the equipment
leased and is payable monthly in advance. The Company has the option to
purchase all but not less than all of the leased equipment at the end
of the lease term for the then current market value of the equipment,
which shall not be less than 15% or more than 20% of the equipment
cost. At December 31,1998, the Company had approximately $1,077,000
outstanding under the expanded $2,000,000 financing agreement. As an
inducement, the Company issued the lessor warrants to purchase 16,851
shares of common stock at an exercise price of $11.28 per share with an
exercise period of five years. The fair value of the warrants at the
date of issuance was recorded as a discount on the lease obligation.
In addition, the Company entered into a Reserve Pledge and
Security Agreement with the lessor requiring the Company to establish a
Security Reserve of $250,000, as additional collateral for the lessor
which was recorded within other assets in the Company's financial
statements.
On September 19, 1996, the Company entered a three-year
sale-leaseback financing agreement for amounts up to $150,000 with an
equipment lessor for certain machinery and equipment. Monthly rent
expense equals 3.32% of the equipment leased and is payable monthly in
advance. The Company has the option to purchase all but not less than
all of the leased equipment at the end of the lease term for the then
current
F-13
<PAGE> 39
market value of the equipment, which shall not be less than 10% of the
original equipment cost.
Facility Mortgage
On October 28, 1994, the Company acquired a manufacturing and
warehouse facility for $1,500,000. Financing of $1,350,000 of the
purchase price was provided by the seller in the form of a note which
bears interest at 9% per annum. Interest only was payable for the first
two years of the note. Principal and interest payments began in
October, 1996, and are based on a twenty year amortization schedule
with a balloon payment due on November 1, 2009. The note is secured by
a first mortgage on the facility.
Convertible Debenture Financing
On January 30, 1997, pursuant to Regulation S of the
Securities Act of 1933, the Company issued 5% Convertible Debentures
(the "Debentures") due February 4, 1999 in the aggregate principal sum
of $5,000,000. Of the Debenture proceeds, approximately $1,665,000 was
allocated to common stock during the first quarter to reflect the
intrinsic value of the conversion feature. This amount was calculated
at the date of the issue as the difference between the most beneficial
conversion price and the then fair value of the common stock. The
corresponding debt discount was charged to other financing expenses. At
December 31, 1997, all outstanding Debentures had been converted into
shares of common stock. Under the terms of the Debentures, if the
conversions resulted in total shares issued greater than 1,350,000
shares in aggregate, then the Company would redeem any remaining
Debentures at the price paid plus accrued interest thereon. Based upon
the total debenture conversions, the number of shares exceeded
1,350,000. Upon reaching the limit of 1,350,000 shares, the Company
satisfied the remaining outstanding Debentures balance of $1,537,000 by
issuing 100,000 shares at a value of $2.73 per share and a cash payment
of $1,264,000.
Term Notes
On September 8, 1998, the Company received $250,000 from an
officer of the Company in exchange for a one-year promissory term note
with warrants. The term note bears interest at 8% per annum and is
payable quarterly in arrears commencing on December 8, 1998. If not
paid sooner, the principal amount of this note shall be paid on
September 8, 1999. With the note, there were 30,000 common stock
warrants issued with a three-year life and an exercise price of $2.09
per share.
In December 1998, the Company received $300,000 in exchange
for five-year term notes with warrants. The term notes bear interest at
a rate of 8% per annum, and interest is payable quarterly in arrears.
The balance of long-term debt is as follows:
F-14
<PAGE> 40
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Unsecured Term Notes, net of unamortized
discount of $0 and $37,000 $ 710,000 $ 673,000
Capital lease obligations, net of unamortized
discount of $35,000 and $113,000 1,909,000 3,427,000
Facility mortgage payable 1,295,000 1,323,000
Term notes 300,000 --
---------- ----------
4,214,000 5,423,000
Less: current portion 1,811,000 2,219,000
---------- ----------
$2,403,000 $3,204,000
========== ==========
</TABLE>
The aggregate maturities of long-term debt, including capital
lease obligations, over the next five years are as follows: 1999 -
$1,811,000; 2000 - $893,000; 2001 - $59,000; 2002 - $64,000; 2003 -
$275,000.
6. INCOME TAXES
Deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Costs capitalized for tax purposes $ 133,000 $ 202,000
Research tax credits 612,000 558,000
Net operating losses 24,965,000 25,009,000
----------- -----------
Gross deferred tax assets 25,710,000 25,769,000
Less: valuation allowance 25,710,000 25,769,000
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
The Company has provided a valuation allowance for the full
amount of deferred tax assets since the realization of these future
benefits cannot be reasonably assured as of the end of each related
year. If the Company achieves profitability, the deferred tax assets
would be available to offset future income taxes.
At December 31, 1998, the Company has available federal net
operating loss carryforwards of $62,569,000 and research and
development tax credit carryforwards of $612,000. The Federal
carryforwards expire in years 2002 through 2018. State of Connecticut
net operating loss carryforwards of $58,876,000, expire in years 1997
through 2003.
As defined in the Internal Revenue Code, certain substantial
ownership changes limit the utilization of the available net operating
loss and tax credit carry forwards. The Company has experienced a
number of substantial ownership changes, which limit the
F-15
<PAGE> 41
amount of pre-change loss carry forwards that can be utilized in any
one taxable year as follows:
Date NOL Federal Loss
was generated Carry forward Annual Limitation
9/87 - 12/89 $ 333,000 $ 32,000
1/90 - 12/91 1,807,000 386,000
1/92 - 06/94 11,749,000 1,437,000
The remaining $48,680,000 of Federal net operating loss carry
forwards is not limited unless a substantial ownership change occurs in
the future.
7. SHAREHOLDERS' EQUITY
Capital Stock Transactions
On July 30, 1997, the Company initiated a private offering of
up to 250 units of its Series A convertible preferred stock and common
stock. Each unit consisted of 5,000 shares of Series A preferred stock
and 1,000 shares of common stock. Under the terms of the offering, each
unit had a purchase price of $20,000, and, if fully subscribed, would
raise $5,000,000 before offering expenses. The preferred shares were
convertible to common stock at any time at the option of the holder, at
the greater of $2.50, or 85% of the average closing bid price of the
common stock for the ten days prior to the date the Company received a
conversion notice. Of the offering proceeds, $500,000 was recorded as a
dividend to reflect the intrinsic value of the preferred shares'
conversion feature. As of December 31, 1997, the initial private
placement offering was fully subscribed at $5,000,000, and 1,250,000
shares of Series A preferred stock were issued and immediately
converted into 1,931,291 shares of common stock.
On July 20, 1998, at the Annual Meeting of Shareholders, the
Company increased the authorized number of common shares from
15,000,000 to 18,000,000. Additionally, the Company amended its
Certification of Incorporation to include the elimination of the Class
A Common Stock and the elimination of the Series A Preferred Stock.
On September 11, 1998, a member of the Company's board of
directors and shareholder invested $250,000 in exchange for 124,378
shares of common stock issued at $2.01 per share.
During the fourth quarter of 1998, a member of the Company's
board of directors invested $1,000,000 in exchange for 510,000 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.
Class A Common
During 1992, 10,000 shares each of Class A common stock was
awarded to two principal officers of the Company and entitled them to
500 votes for each share of Class
F-16
<PAGE> 42
A common stock held on any matter submitted to the shareholders of the
Company for action. The Class A Common Stock was manditorily redeemable
by the Company on January 1, 1998, and cash payments in the amounts of
$10,000 were made to each of two individuals during the second quarter
of 1998.
Warrants
In September 1992, the Company granted warrants to purchase
125,000 shares of common stock at $6 per share to each of its two
principal officers. These warrants are exercisable for a period of five
years from the date of grant. On July 24, 1997, the warrant exercise
period was extended to September 19, 1999. On September 1, 1998, one of
the two principal officers exercised the warrant in a cashless exercise
in exchange for 78,559 shares of common stock.
On April 30, 1993, the Company entered into a $2,000,000
sale-leaseback agreement with a lessor primarily to finance the
purchase and construction of needle assembly machines and production
molds. As an inducement, the Company issued the lessor and its
affiliate warrants to purchase up to 47,500 shares of common stock at
$9 per share. The warrants are exercisable through April 30, 2000.
On July 27, 1993, the Company and the Connecticut Development
Authority ("CDA"), an instrumentality of the State of Connecticut,
entered into a $1,000,000 loan agreement, of which $600,000 was
advanced in 1993. As an inducement, the Company issued the CDA a
warrant to purchase 100,200 shares of common stock at $9 per share. The
warrant is exercisable through August 1, 2000. The CDA may require the
Company to purchase the warrant at any time between July 27, 1998 and
August 1, 2000 at a price of $3.40 per share.
On October 28, 1993, the Company and a lessor agreed to a
$575,000 increase in a sale-leaseback agreement for certain machinery
and molds. As an inducement, the Company issued the lessor and its
affiliate warrants to purchase 11,876 shares of common stock at $9 per
share. The warrants are exercisable through December 1, 2000.
In connection with the sale of $4,858,000 of unsecured term
notes in 1993 through February 15, 1994 (see Note 5), the Company
issued warrants to purchase 539,810 shares of common stock at $9 per
share. On January 16, 1997, the Company advised certain holders of
warrants that it was reducing the exercise price from $9.00 to $7.00 on
warrants issued with the unsecured term notes. At the same time, the
Company advised the warrant holders that if the warrants were exercised
into shares of common stock by simultaneously surrendering the related
unsecured term notes, the Company would make payments in lieu of
interest through 1997 at a rate of 8%. As a result of the transaction,
warrant holders surrendered approximately $2,184,000 of the term notes,
and exercised warrants for 311,967 shares of common stock. A one time
charge of $640,000 resulted in 1997 due to the reduction in the warrant
exercise price and cash payments in lieu of interest through 1997. The
warrants were exercisable until December 31, 1998.
F-17
<PAGE> 43
No warrants were exercised during 1998, and on December 31, 1998, the
balance of the warrants expired.
In March 1994, the Company granted warrants to purchase 16,667
shares of common stock at $9 per share to a financing company. The
warrants were granted in consideration for a commitment by the
financing company to purchase any shares which may have been returned
by investors if the Company had been required to make a rescission
offer to certain investors of its common stock and convertible
preferred stock. The warrants are exercisable at any time until April
30, 2001.
On April 1, 1994, the Company and a lessor agreed to a
$2,000,000 expansion of a sale-leaseback agreement for certain
machinery and molds. As an inducement, the Company issued the lessor
and its affiliate warrants to purchase 47,500 shares of common stock at
$9 per share. The warrants are exercisable through April 30, 2001.
In June 1994, the Company granted warrants to purchase 75,000
shares of common stock at $12 per share to the underwriter of its
initial public offering. The warrants are exercisable at any time
through June 20, 1999, which is five years from the date of the initial
public offering.
On March 7, 1995, the Company issued the Connecticut
Development Authority (CDA) warrants to purchase 40,000 shares of
common stock at $14.66 per share in connection with a $2.5 million loan
from the CDA (See Note 5). The fair value of the warrants on the date
of issuance of $204,000 was recorded as a discount on the debt and a
corresponding increase to common stock. The warrants are exercisable
through March 6, 2002.
In June 1995, as an inducement for a sale-leaseback commitment
with an equipment leasing company (see Note 5), the Company issued
warrants to purchase 6,355 shares of common stock at an exercise price
of $13.63 per share with an exercise period of five years.
On June 15, 1995 the Company and the CDA entered into a
Warrant Modification Agreement pursuant to which: (i) each of the CDA
Warrants may be exercised by surrender of the instruments evidencing
the Company's indebtedness incurred in connection with the issuance of
such warrant; (ii) the Company agreed to permit the CDA's net exercise
of the CDA Warrants based upon the difference between the fair market
value (as defined) of the Company's common stock on the date of such
exercise and the respective exercise price; provided, however, that the
CDA shall exercise its warrants first by surrender of debt, as
described above; (iii) the CDA waived the right to redeem the 1995 CDA
Warrant; and (iv) the CDA agreed to partially exercise the 1993 CDA
Warrant by surrendering the CDA Notes in exchange for shares of common
stock and agreed to receive a replacement redeemable warrant
exercisable at $9.00 per share for the balance of the shares subject to
the 1993 CDA Warrant. The warrants are exercisable at any time between
July 27, 1998 and August 1, 2000. Effective July 1, 1995, the CDA
partially exercised the 1993 CDA Warrant for 57,531 shares of common
stock and
F-18
<PAGE> 44
received a replacement warrant for the unexercised portion of the 1993
CDA Warrant or 42,669 shares of common stock.
On August 4, 1995 the Company sold to certain investors in a
private placement $4.0 million of notes with detachable warrants for
common stock. The 161,551 Private Placement Warrants are exercisable at
$12.38 per share. They are not exercisable until the first anniversary
of issuance and expire on the fifth anniversary of issuance. On January
29, 1997, certain warrants related to these Private Placement Notes
were exercised for 35,714 shares of common stock at an exercise price
of $7 per common share. Net proceeds to the Company as a result of the
exercise were $250,000.
On August 7, 1995, the Company received a commitment to
provide $1.0 million of additional financing from one of its equipment
lenders (see Note 5). As an inducement to obtain the commitment, the
Company granted warrants to purchase 12,255 shares of Common Stock at
an exercise price of $12.24 per share. The warrants are exercisable
from August 7, 1996 through August 6, 2003.
In June 1996, as an inducement for a sale-leaseback commitment
with an equipment leasing company (see Note 5), the Company issued
warrants to purchase 16,851 shares of common stock at an exercise price
of $11.28 per share with an exercise period of five years.
On September 8, 1998, the Company received $250,000 from an
officer of the company in exchange for a one-year promissory term note
with warrants. With the note, there were 30,000 common stock warrants
issued with a three-year life and an exercise price of $2.09 per share.
On November 10, 1998, a member of the Company's board of
directors and existing shareholder invested $1,000,000 in exchange for
510,000 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.
Pursuant to the provisions of certain of the warrant
documents, the Company must recalculate the number of shares and
exercises prices of the warrants if the Company subsequently issues
shares of stock at prices lower than the original exercise prices of
the warrants. Because the Company has issued shares below the warrant
exercises prices of certain of the above warrants, the recalculation
was performed as of December 31, 1998. This recalculation resulted in
155,520 additional of warrants outstanding with exercise prices ranging
from $6.35 to $9.68.
The Company has reserved shares of common stock as follows:
F-19
<PAGE> 45
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Warrants 850,693 900,444
Stock Options 842,000 1,237,000
--------- ---------
1,692,693 2,137,444
========= =========
</TABLE>
8. STOCK PLAN
The Company established the 1991 Long Term Incentive Plan (the
"Plan") under which the Board of Directors may grant awards to
employees and directors of the Company. Awards will be granted at the
fair value of the common stock at the time of grant, as determined by
the Board of Directors. Awards under the Plan may be made in a variety
of forms, including stock options, incentive stock options (within the
meaning of Section 422A of the Internal Revenue Code of 1986) and
restricted stock. Stock options may be accompanied by stock
appreciation rights, and restricted stock may be accompanied by grants
of performance shares. All awards under the Plan have been stock
options. Such options generally vest over a period of three to five
years and are exercisable over a period of ten years from the date of
grant.
On July 17, 1996 at the Annual Meeting of Shareholders, an
amendment to the 1991 Long-Term Incentive Plan was adopted which
increased the number of shares of common stock subject to the Incentive
Plan from 750,000 to 1,000,000. A committee of outside directors
administers the Incentive Plan; imposes limits on awards to executives;
eliminates sequential exercise of outstanding options; imposes
restrictions on the cash exercise of stock appreciation rights in
certain circumstances; and effects certain other technical and
conforming changes.
A summary of stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
Number of Exercise
Options Price
<S> <C> <C>
Outstanding at December 31, 1995 494,850
Canceled - 1996 (65,750) 1.38-9.25
Exercised - 1996 (103,000) 1.38-6.00
---------
Outstanding at December 31, 1996 326,100
Granted - 1997 189,800 4.00-9.50
Canceled - 1997 (53,750) 9.25
Exercised - 1997 (36,000) 1.38
---------
Outstanding at December 31, 1997 426,150
Granted - 1998 192,500 4.00-4.75
</TABLE>
F-20
<PAGE> 46
<TABLE>
<S> <C> <C>
Canceled - 1998 (168,750) 4.00-9.25
Exercised - 1998 (21,000) 1.38
------------
Outstanding at December 31, 1998 428,900
=============
</TABLE>
There are 194,633 stock options exercisable under the Plan at
December 31, 1998.
The following summarizes additional information about stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
---------------- -----------------
Weighted Number
Number Average Weighted Exercisable at Weighted
Exercise Outstanding at remaining Average December 31, Average
Price December 31, Contractual Exercise Price 1998 Exercise Price
1998 Life
------------ -------------- ------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1.38 23,000 2.42 1.38 23,000 1.38
4.00 17,000 6.83 4.00 17,000 4.00
4.00 800 7.25 4.00 800 4.00
4.00 33,500 9.17 4.00 --- 4.00
4.75 100,000 9.00 4.75 --- 4.75
4.75 52,500 9.25 4.75 --- 4.75
6.00 28,100 3.75 6.00 28,100 6.00
6.25 55,000 8.08 6.25 18,333 6.25
7.75 30,000 7.67 7.75 20,000 7.75
9.25 85,000 6.83 9.25 85,000 9.25
9.50 4,000 7.25 9.50 2,400 9.50
------------- -------------
428,900 194,633
============= =============
</TABLE>
The Company follows Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under
APB 25, because the exercise price of the Company employee stock
options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Had compensation expense been recognized based on the fair
value of the options at their grant dates, as prescribed in Financial
Accounting Standard No. 123, the Company's net loss and net loss per
share would have been as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31,1997
----------------- ----------------
Net loss:
<S> <C> <C>
As reported $(2,960,000) $(12,812,000)
Pro forma under FAS 123 $(3,137,000) $(13,663,000)
Net loss per share:
As reported (.24) (1.37)
Pro forma under FAS 123 (.26) (1.47)
</TABLE>
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following assumptions for options granted from 1995 to 1998: dividend
yield of 0%, risk free interest rate ranged from 5.41% to 6.61%,
expected volatility factor ranged from 66% to 115%, and an expected
option term of ten years.
F-21
<PAGE> 47
On January 20, 1999 at a meeting of the Board of Directors, a
decision was made to reduce the exercise prices on existing employee
stock options awarded under the 1991 Long Term Incentive Plan to $2.75
per share. This reduction was made in an effort to more appropriately
value the options given the decline in the Company's stock price since
the original grant dates.
At the Annual Meeting of Shareholders in 1997, the
shareholders approved the adoption of the 1995 Non-Employee Director's
Stock Option Plan (the "Directors" Plan). The Directors' Plan includes
50,000 shares of common stock reserved for issuance to non-employee
directors. Eligible directors will receive options for 1,000 shares of
common stock upon their election and subsequent reelection. Current
non-employee directors received an option for 1,000 shares for each
calendar year they served as a director prior to the adoption of the
Directors' Plan. All options granted vest one year after the grant and
have an exercise price equal to the fair market value of the shares at
the time of the grant.
A summary of the stock option activity under the Plan is as
follows:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price
----------------- ------------------
<S> <C> <C>
Outstanding at December 31, 1995 16,000
Granted - 1996 4,000 6.50-9.75
Canceled - 1996 (2,000) 9.75-11.75
-----------------
Outstanding at December 31, 1996 18,000
Granted - 1997 5,000 3.00
-----------------
Outstanding at December 31, 1997 23,000
Granted - 1998 5,000 3.00-3.25
Canceled - 1998 (7,000) 3.00-11.75
-----------------
Outstanding at December 31, 1998 21,000
=================
</TABLE>
9. LEASES
At December 31, 1998, the Company was committed under
operating leases. Minimum lease payments under these noncancelable
leases in the next five years are: 1999 - $173,000; 2000 - $30,000 ;
2001 - $2,000 ; 2002 - $0; 2003 - $0. Rent expense was $340,000 in
1994, $384,000 in 1995, $394,000 in 1996, $306,000 in 1997, and
$191,000 in 1998.
F-22
<PAGE> 48
10. COMMITMENTS AND CONTINGENCIES
As of December 31, 1998 the Company had capital expenditure
purchase commitments outstanding of approximately $10,000, which
represents primarily tooling for its blood collection and holder
product lines.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash and cash equivalents approximates
fair value because of the short-term nature of these instruments. The
carrying amount for accounts and notes receivable, note payable (see
Note 5), accounts payable, accrued expenses, product replacement costs
and deferred revenues are deemed reasonable because of the short-term
nature of these items.
It was not practicable to estimate the fair value of the
equity investment in Jordan Pharmaceuticals (see Note 3). Jordan is a
non-public entity for which no quoted market price is currently
available. Accordingly, a reasonable estimate of fair value could not
be made without incurring excessive cost.
The following table represents the fair value of the Company's
long-term debt. Such values are estimated based upon the current rates
that would be offered to the Company on similar debt.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------- -------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
$ 2,305,000 $ 1,963,000 $ 1,996,000 $ 1,624,000
</TABLE>
12. LICENSING AND DISTRIBUTION AGREEMENTS
On January 28, 1997 the Company entered into a Development and
License Agreement and a Supply Agreement with Johnson & Johnson
Medical, Inc. ("JJM") of Arlington, Texas. Under the terms of the
agreements, Bio-Plexus, Inc. would develop and manufacture safety
needle assemblies for JJM utilizing its self-blunting technology, which
would be used by JJM, under an exclusive world-wide license granted by
the Company, to manufacture and sell a new safety I.V. catheter. The
Company received
F-23
<PAGE> 49
$2,900,000 in licensing fees and funding to complete the development of
the safety needle assemblies and for the development of the
manufacturing equipment and tooling. JJM agreed to acquire initial
production equipment and tooling which was completed in 1998. During
the first quarter of 1997, $1,500,000 in licensing fee revenue was
recognized. In the remainder of 1997 and in 1998, $559,000 and $841,000
of the $1,400,000 in development funding was recognized as a reduction
in research and development expenses.
On April 9, 1998, the Company amended the original development
and license Agreement and canceled its supply agreement with JJM. The
amended terms include 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. The $3,500,000 payment was recorded as deferred
revenue and $2,625,000 was recognized into income beginning in the
second quarter of 1998. The revised agreement also provided for an
additional $300,000 payable to the Company for initial capital
equipment purchases and the payment of certain minimum annual
royalties.
On October 23, 1998, the Company entered into an exclusive
License Agreement and Design, Development and Asset Transfer Agreement
for a safety Peripherally Inserted Central Venous Catheter ("PICC")
with TFX Medical ("TFX"), 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
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.
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 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.
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, healthcare, 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.
F-24
<PAGE> 50
13. 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 operations associated with the manufacture of blood
collection needles, needle holders and needle disposal containers. The
Joint Venture Design & Development segment includes operations
associated with product design and development, product licensing, and
the design, development and construction for machinery and tooling in
connection with joint venture partners.
Distinct reporting by such segments was deemed necessary by
management based on the significance of reported revenues and expenses
and the Company's intention to focus operating resources in both of
these areas.
Information with respect to each of the Company's business
segments are as follows:
SEGMENT REVENUE
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Safety Medical Products and Accessories $ 3,636,000 $ 3,542,000 $ 2,743,000
Joint Venture Design & Development 5,671,000 1,500,000 ---
------------------------------------------------
Total Consolidated Revenue $ 9,307,000 $ 5,042,000 $ 2,743,000
================================================
</TABLE>
MAJOR CUSTOMERS
There was one customer, the Company's domestic distributor of
product, Allegiance Healthcare, that exceeded 10% of the Company's
Safety Medical Products and Accessories segment revenue in 1998 and
1997 totaling $2,857,000 and $2,396,000, respectively. There were no
customers exceeding 10% of this segment's revenue in 1996. The Company
had export sales of approximately $260,000 in 1998, $385,000 in 1997
and $566,000 in 1996 in this segment.
In the Joint Venture Design & Development segment, Johnson and
Johnson Medical, contributed to more than 10% of the revenues in 1998
and 1997 totaling $5,564,000 and $1,500,000, respectively. There were
no revenues in this segment in 1996.
SEGMENT OPERATING PROFIT (LOSS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Safety Medical Products and Accessories $ 435,000 ($1,441,000) ($2,026,000)
Joint Venture Design & Development 3,361,000 173,000 ---
-----------------------------------------------------
Total Consolidated Operating Profit (Loss) 3,796,000 (1,268,000) (2,026,000)
-----------------------------------------------------
</TABLE>
F-25
<PAGE> 51
<TABLE>
<S> <C> <C> <C>
Selling, General and Administrative Expenses (4,310,000) (6,500,000) (6,949,000)
Other (1,857,000) (758,000) (2,398,000)
Financing Expenses (589,000) (3,786,000) (1,497,000)
-----------------------------------------------------
Net Loss ($2,960,000) ($12,312,000) ($12,870,000)
=====================================================
</TABLE>
For the Safety Medical Products and Accessories segment,
operating profit (loss) consists of total revenues less cost and
expenses. In the Joint Venture Design and Development segment,
operating profit (loss) consists of total revenues less costs and
expenses and research and development expenses.
SEGMENT CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Safety Medical Products and Accessories $ 82,000 $ 718,000 $ 2,066,000
Joint Venture Design & Development --- --- ---
------------------------------------------------
Total Consolidated Capital Expenditures $ 82,000 $ 718,000 $ 2,066,000
================================================
</TABLE>
Net identifiable assets related to Safety Medical Products and
Accessories were $2,343,000, $4,321,000 and $5,646,000 at December 31,
1998, 1997 and 1996, respectively. Depreciation expense related to
these assets was $729,000, $1,091,000 and $1,106,000 for the periods
ended December 31, 1998, 1997 and 1996, respectively. Due to the
"service" nature of the Joint Venture Design and Development segment,
identifiable assets were not material for the periods presented.
14. PRODUCT RECALL
During the fourth quarter of 1998, the Company
recalled certain of its blood collection needle products due to
mislabeling pertaining to the shelf-life of certain product
manufactured during the latter part of 1996 and in 1997. The number of
units was estimated to be approximately 1,600,000 units, of which
1,333,000 units were located at a foreign distributor. Domestically,
replacement product was shipped to customers, or credit was granted
towards future product shipments. These costs were recorded in cost of
goods sold during the fourth quarter of 1998. The Company is currently
in discussions with its foreign distributor regarding the product in
Europe. The total estimated cost of the product in Europe is
approximately $222,000, and was recorded as cost of goods sold expense
in the fourth quarter with a corresponding short-term liability
recorded on the Company's balance sheet. Any future product replacement
or credit given towards future purchases will be offset against this
liability in future periods.
F-26
<PAGE> 52
15. SUBSEQUENT EVENTS
During the first quarter of 1999, a member of the Company's
Board of Directors 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.
In February 1999, the Company initiated a private offering of
notes in an amount up to $4,000,000 offered in 160 units. Each unit
consists of a five-year, 8% convertible secured term note in the
principal amount of $25,000 and a detachable warrant for 1,500 shares
of common stock without par value. The exercise of the warrants are
fixed at $2.00 per share of common stock from the date of issuance
until June 30, 1999; at $2.50 from July 1, 1999 to December 31, 1999;
and at $3.50 from January 1, 2000 to December 31, 2001. If the offering
is fully subscribed, the Company would receive gross proceeds of
$4,000,000 and net proceeds of approximately $3,950,000, after
deducting fees and expenses. The Company will offer the units until
June 30, 1999, the planned closing date, subject to earlier termination
or extension by the Company. In no event will the offer extend beyond
July 31, 1999.
F-27
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<TABLE>
<CAPTION>
NO. DESCRIPTION METHOD OF FILING
EXHIBIT
INDEX
- ------------- --------------------------------------- ------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement between
Advest, Inc. and the Company................ Incorporated by reference to Exhibit 1.1
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
1.2 Form of Advest, Inc. Warrant................ Incorporated by reference to Exhibit 1.2
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
1.3 Form of Advest, Inc. Registration Rights
Agreement................................... Incorporated by reference to Exhibit 1.3
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
1.4 Form of Underwriting Agreement among
Advest, Inc. as representative of the
several underwriters named therein and the
Company..................................... Incorporated by reference to Exhibit 1.1
to the Registrant's Amendment No. 2 to the
registration statement on Form S-1 filed
on September 15, 1995 (File No.
33-95554).
3.1 Certificate of Incorporation of the
Company, as amended......................... Incorporated by reference to Exhibit 3.1
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30,
1998 (File No. 0-24128).
3.2 Bylaws of the Company, as amended........... Incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K filed on
April 13, 1998 (File No. 0-24128).
4.1 Loan Agreement, dated January 7, 1992,
between the Company and CII................. Incorporated by reference to Exhibit 4.1
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
4.2 Loan Agreement dated July 27, 1993,
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<PAGE> 54
<TABLE>
<S> <C> <C>
between the Company and the CDA............. Incorporated by reference to Exhibit 4.2
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
4.3 Form of Unsecured Term Notes with
Detachable Warrants to Purchase Common
Stock....................................... Incorporated by reference to Exhibit 10.4
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
4.4 Loan Agreement, dated March 7, 1995,
between the Company and the CDA............. Incorporated by reference to Exhibit 4.4
to the Registrant's Annual Report on Form
10-K filed on March 30, 1995 (File No.
0-24128).
4.4a Letter agreement dated March 31, 1997
between the Company and CDA................. Incorporated by reference to Exhibit 4.4a
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on March
31, 1997 (File No. 0-24128).
4.5 Promissory Note, dated October 28, 1994,
between the Company and Victor and
Margaret DeMattia........................... Incorporated by reference to Exhibit 4.5
to the Registrant's Annual Report on Form
10-K filed on March 30, 1995 (File No.
0-24128).
4.6 Offshore Convertible Securities
Subscription Agreement dated January 30,
1997 between the Company and Shepherd
Investments International Ltd., as amended
by Letter agreement dated March 25, 1997,
and as further amended by Letter agreement
dated April 16, 1997........................ Incorporated by reference to Exhibit 4.6
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on March
31, 1997 (File No. 0-24128).
4.6a Letter agreement between the Company and
Ronald A. Haverl and Carl R. Sahi
regarding voting of Class A Common
Stock....................................... Incorporated by reference to Exhibit 4.6
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1997 (File No. 0-24128).
10.1 Lease, dated March 7, 1989, between the
Company and T&S Limited Partnership, as
amended..................................... Incorporated by reference to Exhibit 10.1
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.2 Royalty Agreement, dated November 6, 1989,
between the Company and CII, as amended..... Incorporated by reference to Exhibit 10.2
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<PAGE> 55
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<S> <C> <C>
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.3 Master Lease Agreement, dated April 30,
1993, between the Company and Aberlyn
Capital Management and its Affiliate,
Aberlyn..................................... Incorporated by reference to Exhibit 10.3
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.4 Purchase and Sale Agreement, as amended,
for 129 Reservoir Road, Vernon,
Connecticut, dated October 28, 1994,
between the Company and Victor and
Margaret DeMattia........................... Incorporated by reference to Exhibit 10.4
to the Registrant's Annual Report on Form
10-K filed on March 30, 1995 (File No.
0-24128).
10.5 Lease, dated March 11, 1994, between the
Company and Thomas D. Buccino d/b/a The
Mill Works.................................. Incorporated by reference to Exhibit 10.5
to the Registrant's registration statement
on Form S-1 filed on April 1, 1994 (File
No. 33-77202).
10.6 Marketing and Distribution Agreement dated
March 16, 1995, between the Company and
Allegiance.................................. Incorporated by reference to Exhibit 10.6
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.7 1991 Long-Term Incentive Plan............... Incorporated by reference to Exhibit 10.7
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.8 Stock Warrant granted by the Company to
Ronald A. Haverl............................ Incorporated by reference to Exhibit 10.8
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.9 Stock Warrant granted by the Company to
Carl R. Sahi................................ Incorporated by reference to Exhibit 10.9
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.10 Stock Warrant granted by the Company to
Ronald A. Haverl............................ Incorporated by reference to Exhibit 10.10
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.11 Stock Warrant granted by the Company to
Carl R. Sahi................................ Incorporated by reference to Exhibit 10.11
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<PAGE> 56
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<S> <C> <C>
to the Registrant's Amendment No. 2 to
Annual Report on Form 10-K filed on June
30, 1995 (File No. 0-24128).
10.12 Master Equipment Lease Agreement dated as
of March 8, 1995, between the Company and
Financing for Science International, Inc.... Incorporated by reference to Exhibit 10.12
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24128).
10.13 1995 Non-Employee Directors' Stock Option
Plan........................................ Incorporated by reference to Exhibit 10.13
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24118).
10.14 Note and Warrant Purchase Agreement, Form
of Private Placement Note, Security
Agreement, and Form of Warrant.............. Incorporated by reference to Exhibit 10.14
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24128).
10.15 Letter Agreement with Aberlyn Capital
Management Limited Partnership.............. Incorporated by reference to Exhibit 10.15
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on June
30, 1995 (File No. 0-24128).
10.16 Employment Agreement dated January 13,
1997 between the Company and Lucio
Improta..................................... Incorporated by reference to Exhibit 10.15
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on March
31, 1997 (File No. 0-24128).
10.17 Term Sheet dated August 1, 1997
describing arrangement between the Company
and Ronald Haverl........................... Incorporated by reference to Exhibit 10.17
to the Registrant's Annual Report on
Form 10-K/A filed on April 30, 1998
(File No. 0-24128).
10.18 Development and License Agreement dated
January 28, 1997 by and between the Company
and Johnson & Johnson Medical, Inc.......... Incorporated by reference to Exhibit 10.18
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.19 Supply Agreement dated January 28, 1997 by
and between the Company and Johnson &
Johnson Medical, Inc........................ Incorporated by reference to Exhibit 10.18
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.20 Term Promissory Note issued to
Carl R. Sahi............................... Incorporated by reference to Exhibit 10.20
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.21 Warrant for shares of common stock
issued to Carl R. Sahi...................... Incorporated by reference to Exhibit 10.21
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended on September
30, 1998 (File No. 0-24128).
10.22 Distribution Agreement dated October 6,
1998 by and between the Company and Graphic
Controls Corporation........................ Filed with the original report.
10.23 Design, Development and Asset Transfer
Agreement dated October 23, 1998 by and
between the Company and TFX Medical......... Filed with the original report.
10.24 License Agreement dated October 23, 1998
by and between the Company and TFX Medical.. Filed with the original report.
23 Consent of Mahoney, Sabol & Company,
LLP......................................... Filed with this amendment.
23a Consent of Price Waterhouse LLP............. Filed with this amendment.
27 Financial Data Schedule..................... Filed with the original report.
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<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-80921) of Bio-Plexus, Inc. of our report
dated March 5, 1999 appearing on page F-2 of the Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31, 1999.
Mahoney Sabol & Company, LLP
Hartford, Connecticut
August 24, 1999
<PAGE> 1
Exhibit 23a
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-80921) of Bio-Plexus, Inc. of our report dated
April 11, 1997 appearing on page F-3 of the Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
August 24, 1999
