<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark
One
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to
Commission file number 0-24128
BIO-PLEXUS, INC.
(Exact name of Registrant as specified in its Charter)
Connecticut 06-1211921
----------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
129 Reservoir Road, Vernon Connecticut 06066
--------------------------------------------------------
(Address of principal executive offices including zip code)
(860) 870-6112
--------------
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares Outstanding
Class of Common Stock as of August 13, 1999
--------------------- ---------------------
<S> <C>
Common Stock, no par value 13,541,998
</TABLE>
<PAGE> 2
BIO-PLEXUS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at June 30, 1999 and
December 31, 1998 1
Condensed Statements of Operations for the three months
ended June 30, 1999 and 1998 2
Condensed Statements of Operations for the six months
ended June 30, 1999 and 1998 3
Condensed Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE> 3
BIO-PLEXUS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 833,000 $ 535,000
Accounts receivable 723,000 564,000
Inventories:
Raw materials 986,000 1,164,000
Work-in-process 573,000 470,000
Finished goods 599,000 390,000
------------ ------------
2,158,000 2,024,000
------------ ------------
Other current assets 160,000 246,000
------------ ------------
Total current assets 3,874,000 3,369,000
------------ ------------
Investment in Jordan Pharmaceuticals (Note 3) -- 600,000
Fixed assets, net 4,491,000 4,661,000
Deferred debt financing expenses 655,000 10,000
Patents, net of amortization 287,000 252,000
Other assets 252,000 260,000
------------ ------------
$ 9,559,000 $ 9,152,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 870,000 $ 1,811,000
Note payable (Note 3) -- 250,000
Accounts payable and accrued expenses 461,000 528,000
Accrued interest payable 39,000 28,000
Accrued vacation 212,000 196,000
Other accrued employee costs 166,000 213,000
Product replacement costs -- 222,000
Deferred revenue (Note 6) -- 875,000
------------ ------------
Total current liabilities 1,748,000 4,123,000
------------ ------------
Other long-term debt, net 2,365,000 2,403,000
Redeemable common stock warrants 149,000 149,000
Commitments and contingencies (Note 4) -- --
Shareholders' equity:
Convertible preferred stock, no par value, 3,000,000
authorized, no shares issued and outstanding -- --
Common stock, no par value, 18,000,000 authorized,
13,540,748 and 12,793,165 shares issued and outstanding 69,205,000 65,349,000
Accumulated deficit (63,908,000) (62,872,000)
------------ ------------
Total shareholders' equity 5,297,000 2,477,000
------------ ------------
$ 9,559,000 $ 9,152,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
1
<PAGE> 4
BIO-PLEXUS, INC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Product $ 1,401,000 $ 1,085,000
Services 32,000 1,254,000
------------ ------------
Total revenue 1,433,000 2,339,000
------------ ------------
Costs and expenses:
Product 705,000 946,000
Services 11,000 93,000
Research and development 294,000 112,000
Selling, general and administrative 1,157,000 1,188,000
------------ ------------
Total operating costs and expenses 2,167,000 2,339,000
------------ ------------
Operating loss (734,000) --
Financing expenses:
Amortization of deferred debt financing 24,000 20,000
Interest expense 297,000 163,000
Other income (16,000) (40,000)
------------ ------------
Total financing expenses 305,000 143,000
------------ ------------
Net loss $ (1,039,000) $ (143,000)
============ ============
Per share of common stock:
Basic and diluted $ (0.08) $ (0.01)
============ ============
Weighted average common shares outstanding (Note 2) 13,505,302 12,154,787
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
2
<PAGE> 5
BIO-PLEXUS, INC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Product $ 2,570,000 $ 2,150,000
Services 1,177,000 1,731,000
------------ ------------
Total revenue 3,747,000 3,881,000
------------ ------------
Costs and expenses:
Product 1,535,000 2,064,000
Services 28,000 212,000
Research and development 598,000 219,000
Selling, general and administrative 2,261,000 2,431,000
------------ ------------
Total operating costs and expenses 4,422,000 4,926,000
------------ ------------
Operating loss (675,000) (1,045,000)
Financing expenses:
Amortization of deferred debt financing 26,000 41,000
Interest expense 385,000 342,000
Other income (50,000) (80,000)
------------ ------------
Total financing expenses 361,000 303,000
------------ ------------
Net loss $ (1,036,000) $ (1,348,000)
============ ============
Per share of common stock:
Basic and diluted $ (0.08) $ (0.11)
============ ============
Weighted average common shares outstanding (Note 2) 13,397,928 12,150,395
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
<PAGE> 6
BIO-PLEXUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,036,000) $(1,348,000)
Adjustments to reconcile net loss to cash used
by operating activities:
Depreciation and amortization 282,000 565,000
Writedown of equipment to net realizable value -- 113,000
Amortization of deferred debt financing expenses 26,000 41,000
Amortization of debt discount 193,000 30,000
Increase in assets:
Accounts receivable (159,000) (198,000)
Inventories (134,000) (206,000)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (67,000) 425,000
Accrued interest payable 11,000 --
Accrued vacation and other accrued employee costs (31,000) (62,000)
Accrued product replacement costs (222,000) --
(Decrease) increase in deferred revenue (Note 6) (875,000) 2,205,000
Other 90,000 183,000
----------- -----------
Net cash (used in) provided by operating activities (1,922,000) 1,748,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and construction of fixed assets (104,000) (479,000)
Long-term investments (Note 3) 627,000 --
Cost of patents (44,000) (102,000)
----------- -----------
Net cash provided by (used in) investing activities 479,000 (581,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock (Note 3) 1,100,000 --
Proceeds from exercise of common stock options 87,000 23,000
Redemption of common stock -- (20,000)
Decrease in notes payable (Note 3) (250,000) --
Proceeds from long-term debt 2,154,000 --
Proceeds from sale and leaseback -- 109,000
Repayments of long-term debt (Note 3) (1,350,000) (838,000)
----------- -----------
Net cash provided by (used in) financing activities 1,741,000 (726,000)
----------- -----------
Net increase in cash and cash
equivalents 298,000 441,000
Cash and cash equivalents, beginning of
period 535,000 1,502,000
----------- -----------
Cash and cash equivalents, end of period $ 833,000 $ 1,943,000
=========== ===========
Supplemental cash flow disclosures:
Cash payments of interest $ 181,000 $ 313,000
Cash payments of income taxes 4,000 3,000
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
4
<PAGE> 7
BIO-PLEXUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, in the opinion of
the management of the Company, include all adjustments which are of a normal
recurring nature, necessary for a fair presentation of financial position and
the results of operations and cash flows for the periods presented. However, the
financial statements do not include all information and footnotes required for a
presentation in accordance with generally accepted accounting principles. These
condensed financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's 1998 Annual Report on
Form 10-K. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
Certain reclassifications have been made to the 1998 financial statements
to conform with the 1999 presentation.
NOTE 2 - EARNINGS PER SHARE
In February, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share", which established new
standards for the computation and disclosure of earnings per share ("EPS"). The
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 are excluded from the computation as their effect is anti-dilutive.
NOTE 3 - OTHER SIGNIFICANT CAPITAL TRANSACTIONS
On December 31, 1998, the remaining principal balance of $710,000
associated with $4,230,000 of unsecured term notes issued in 1993 matured. In
January 1999, the Company repaid the outstanding principal balance plus accrued
interest thereon.
During the first quarter of 1999, a member of the Company's Board of
Directors and shareholder, Mr. David Himick, invested $1,000,000 in exchange for
502,500 shares of common stock and 75,000 warrants with a maturity date of
December 31, 2001 and an exercise price of $2.00 per share.
During the first quarter of 1999, a member of the Company's Board of
Directors and shareholder, Mr. Herman Gross invested $100,000 in exchange for
47,058 shares of common stock.
On September 3, 1998, the Company loaned $600,000 to Jordan
Pharmaceuticals, Inc. ("Jordan"), a California corporation, in exchange for a
one-year promissory note. On October 31, 1998, the Company converted the
promissory note into 120,000 shares of Jordan Series A Preferred Stock.
5
<PAGE> 8
Pursuant to a stock option agreement dated October 31, 1998, Jordan had a right
to repurchase the shares of Series A Preferred Stock plus any paid-in-kind
shares owned by Bio-Plexus (in lieu of interest paid in cash), at a purchase
price of $5.00 per share. On March 31, 1999, Jordan exercised its option with
respect to all the shares for total consideration of $627,000.
On March 31, 1999, the Company paid the outstanding principal balance of
$250,000, and all accrued interest thereon, of a one-year promissory term note
to an officer of the Company.
On April 15, 1999, $300,000 of five-year term notes were converted into
153,633 shares of the Company's common stock.
On March 24, 1999, the Company signed a commitment for a private placement
of up to $4,500,000 aggregate principal amount of 6% Convertible Debentures due
2004 ("the Debentures"). The initial purchase of $2,500,000 aggregate principal
amount of Debentures was made on April 27, 1999. The Debentures accrue interest
at the rate of 6% per annum, payable quarterly in arrears with interest payable
either in cash or in the issuance of additional Debentures, at the option of the
Company. The Debentures are convertible at any time at the option of the holders
into shares of the Company's common stock at an initial conversion price of
$3.06 per share. The Debentures may be wholly or partially redeemed at the
option of the Company for an amount not to exceed 130% of the face value plus
accrued and unpaid interest at any time after the date of issuance. The Company
and the Debenture holders have limited put and call options, respectively, for
additional Debentures. Net proceeds from the financing were $2,154,000 after
deducting fees and expenses. Approximately $121,000 was allocated to common
stock during the second quarter to reflect the intrinsic value of the conversion
feature. This amount was calculated at the commitment date 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 interest expense.
The financing also included a warrant to purchase 500,000 shares of common stock
at an exercise price of $3.38. The fair value of the warrants at the date of
issuance was recorded as a discount on the debenture which will be amortized
over the term of the debenture.
On May 3, 1999, an officer of the Company exercised an option to purchase
30,000 shares of common stock at an exercise price of $2.75.
NOTE 4 - COMMITMENTS
As of June 30, 1999, the Company had capital expenditure purchase
commitments outstanding of approximately $82,000 which primarily represent
tooling for its blood collection and holder product lines.
NOTE 5 - SEGMENT FINANCIAL DATA
The Company's operations consist of two worldwide business segments:
Safety Medical Products and Accessories and Joint Venture Design & Development.
The Safety Medical Products and Accessories segment includes blood collection
needles, needle holders and needle disposal containers. The Joint Venture Design
& Development segment includes revenue and costs associated with product design
and development, product licensing, and the design, development and construction
of machinery and tooling in connection with joint venture partners.
6
<PAGE> 9
Information with respect to revenue, operating profit or loss and
capital expenditures attributable to each of the Company's business segments are
as follows:
SEGMENT REVENUE
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Safety Medical Products and Accessories $1,401,000 $ 790,000 $ 954,000 $2,546,000 $1,681,000 $2,066,000
Joint Venture Design & Development 32,000 1,549,000 -- 1,201,000 2,200,000 1,500,000
---------- ---------- ---------- ---------- ---------- ----------
Total Consolidated Revenue $1,433,000 $2,339,000 $ 954,000 $3,747,000 $3,881,000 $3,566,000
========== ========== ========== ========== ========== ==========
</TABLE>
MAJOR CUSTOMERS
There were two customers, domestic distributors of the Company's products,
Allegiance Healthcare and Fisher HealthCare, that exceeded 10% of the Company's
Safety Medical Products and Accessories segment revenue for the periods
presented. In the Joint Venture Design & Development segment, Johnson and
Johnson Medical, Inc. ("JJM") of Arlington, Texas contributed to more than 10%
of the revenues for the periods presented. The following table represents the
revenue associated with these major customers by segment:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE MAJOR CUSTOMERS:
Safety Medical Products and Accessories $1,111,000 $ 679,000 $631,000 $1,819,000 $1,501,000 $1,470,000
Joint Venture Design & Development 15,000 1,549,000 -- 1,110,000 2,200,000 1,500,000
OTHER DOMESTIC SALES 88,000 61,000 108,000 310,000 130,000 234,000
EXPORT SALES:
Safety Medical Products and Accessories 219,000 50,000 215,000 508,000 50,000 362,000
Joint Venture Design & Development -- -- -- -- -- --
---------- ---------- -------- ---------- ---------- ----------
TOTAL CONSOLIDATED REVENUE $1,433,000 $2,339,000 $954,000 $3,747,000 $3,881,000 $3,566,000
========== ========== ======== ========== ========== ==========
</TABLE>
During the periods presented, there were no material intersegment revenues.
SEGMENT OPERATING PROFIT (LOSS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30, 1999
--------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Safety Medical Products and Accessories $ 697,000 $ 132,000 ($ 504,000) $ 1,034,000 $ 193,000 ($ 873,000)
Joint Venture Design & Development 21,000 1,056,000 (234,000) 846,000 1,307,000 841,000
----------- ----------- ----------- ----------- ----------- -----------
Total Consolidated Operating Profit 718,000 1,188,000 (738,000) 1,880,000 1,500,000 (32,000)
----------- ----------- ----------- ----------- ----------- -----------
Selling, General and Administrative (1,157,000) (1,188,000) (1,828,000) (2,261,000) (2,431,000) (3,833,000)
Expenses
Other (295,000) -- -- (294,000) (114,000) --
Financing Expenses (305,000) (143,000) (2,042,000) (361,000) (303,000) (3,150,000)
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
7
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net Profit (Loss) ($1,039,000) ($ 143,000) ($4,608,000) ($1,036,000) ($1,348,000) ($7,015,000)
=========== =========== =========== =========== =========== ===========
</TABLE>
For the Safety Medical Products and Accessories segment, operating
profit consists of total revenues less product cost and expenses. In the Joint
Venture Design and Development segment, operating profit consists of total
revenues less costs and expenses and research and development expenses through
the first quarter of 1999, as the I.V. catheter project was completed at the end
of the first quarter. Subsequent to the first quarter of 1999, operating profit
for this segment consists of total revenues less costs and expenses. Interest
expense is not reported, as it is not included in the reporting of operating
income (loss) for use internally by the chief decision maker.
SEGMENT CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Safety Medical Products and Accessories $104,000 $386,000 $275,000 $104,000 $479,000 $466,000
Joint Venture Design & Development -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Consolidated Capital Expenditures $104,000 $386,000 $275,000 $104,000 $479,000 $466,000
======== ======== ======== ======== ======== ========
</TABLE>
There has been no material change in identifiable assets related to
reportable segments since the 1998 Annual Report.
NOTE 6 - LICENSING AGREEMENTS
During 1998, the Company amended its original Development and License
Agreement and canceled its Supply Agreement with JJM. The amended terms included
certain changes in the licensing and royalty agreements as well as the transfer
of manufacturing of safety needle assemblies to JJM, in exchange for an initial
milestone payment of $3,500,000, with additional payments totaling $500,000
payable upon the completion of certain milestones. The $3,500,000 was recorded
in 1998 as deferred revenue and $2,625,000 was recognized into income during
1998, and $875,000 was recognized during the first quarter of 1999. In addition,
$200,000 in milestone payments were received and recognized into income during
the first quarter of 1999.
NOTE 7 - SUBSEQUENT EVENTS
On July 19, 1999, at the Annual Meeting of Shareholders, the Company
amended its Certificate of Incorporation to increase the authorized number of
common shares from 18,000,000 to 25,000,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussions set forth in this Management's Discussion and Analysis of
the Results of Operations and Financial Condition and elsewhere herein contain
certain statements which are not historical facts and are considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements can be identified by the use of such
forward-looking terminology as "believes," "expects," "may," "will," "should,"
or "anticipates" or negative thereof or other derivations thereon or comparable
terminology, or discussions of strategy that involves risks and
8
<PAGE> 11
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements as a result of, among other factors,
the Company's expectation regarding gross profit and operating income, general
economic conditions and growth in the safety medical products industry,
competitive factors and pricing pressures, changes in product mix, product
demand, risk of dependence on third party suppliers, ability to obtain
financing, and other risk factors and uncertainties detailed in this report,
described from time to time in the Company's other Securities and Exchange
Commission filings, or discussed in the Company's press releases. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements.
OVERVIEW
Since its inception in September 1987 through June 30, 1999, Bio-Plexus
incurred cumulative losses totaling $63,908,000. During the same period, the
Company's principal focus has been the design, development, testing and
evaluation of its blood collection safety needle and accessory products, and the
design and development of the molds, needle assembly machines and production
processes needed for manufacturing the blood collection safety needle as well as
the design and development of new products. The Company has also focused its
efforts on developing strategic partnerships with major healthcare companies in
order to assist with the development and expansion of its product lines.
With the addition of a high-volume blood collection needle assembly and
packaging system in 1996, the Company believes it will have sufficient capacity
to meet its production needs for blood collection needles during 1999. The
Company will continue to review its cost of operations in order to reduce costs
where possible. For the Company to achieve profitability, further reductions in
manufacturing and administrative costs and increases in sales are necessary.
In January 1997, the Company entered into a Development and License
Agreement and a Supply Agreement with JJM. Pursuant to the original agreements,
Bio-Plexus would develop and manufacture safety needle assemblies for JJM, to
become part of a new safety I.V. catheter to be manufactured and sold by JJM,
utilizing the Company's patented self-blunting needle design.
In April 1998, the Company amended the original Development and License
Agreement and canceled its Supply Agreement with JJM. The amended terms included
certain changes in the licensing and royalty agreements as well as the transfer
of manufacturing of the safety needle assemblies to JJM, in exchange for an
initial milestone payment of $3,500,000, with an additional $500,000 payable
upon the completion of certain milestones. The revised agreement also provided
for an additional $300,000 payable to the Company for initial capital equipment
purchases during 1998.
In December of 1998, the Company completed the construction of an
automated assembly machine for JJM under the terms of the amended agreement, and
the equipment was transferred to JJM's manufacturing facility. During the first
quarter of 1999, the Company continued to perform services for JJM under the
terms of the agreement; however, by the end of the first quarter of 1999,
substantially all of the contractual obligations had been met by the Company.
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
9
<PAGE> 12
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 the Company's Punctur-Guard(R) technology.
Under the Design, Development and Asset Transfer Agreement, the Company will
design and develop safety needle assemblies to be used with the TFX Peelable
Catheter, and will modify existing manufacturing equipment to be transferred to
TFX pursuant to the terms and conditions of the agreement.
In October 1998, the Company entered into a distribution agreement with
Fisher HealthCare of Houston, Texas, the second largest operating unit of Fisher
Scientific. Fisher Scientific is one of the world leaders in serving science,
providing more than 245,000 products and services to research, health care,
industrial, educational and government customers in 145 countries. The
distribution agreement allows Fisher Healthcare to purchase and distribute all
of the Bio-Plexus blood collection products.
The Company believes that similar arrangements may be possible with one or
more major healthcare companies for its other products. Such arrangements could
assist the Company in raising additional capital and help fund research and
development of new products, as well as accelerate the rate of sales growth.
However, such arrangements could also decrease the revenue per unit for the
Company, as a result of sharing revenue with strategic partners. The Company
believes the overall benefits and potential for greater market share outweigh
the disadvantages that may result from such arrangements.
THE YEAR 2000 READINESS DISCLOSURE
The "Year 2000 Issue" is the result of computer systems recognizing two
digits rather than four to define the applicable year. Any of the Company's
computer applications, computer hardware, or other systems that have
date-sensitive capabilities may recognize a date using "00" as the year 1900
rather than the year 2000.
The Company has designated a team of employees with management
representation, as well as representation from each functional area within the
Company to address the Year 2000 issue. The team has developed a project plan to
assess the impact of the Year 2000 on its internal systems, products and
facilities, as well as, its key suppliers and customers. The project plan
consists of the following: awareness of major areas affected, assessing the
degree of impact, remediation, and testing and contingency planning.
The Company has determined that its safety medical products are not
affected by the Year 2000 issue; and therefore, all on-hand inventories and
product at customer locations are not at risk.
The Company has completed the awareness phase and is 95% complete in its
assessment phase with respect to its internal systems and facilities, with
remediation efforts well under way. The following outlines the status of major
compliance concerns within the Company:
10
<PAGE> 13
1. BUSINESS/ACCOUNTING/INVENTORY SYSTEMS: The Company's principal
business and accounting system is a standard product from a major
software company that is upgraded by the Company as new versions are
released by the software vendor. The Company has written evidence
from the vendor that the software is Year 2000 compliant. The
business and accounting software is currently running on a Windows
NT server, and the Company is currently investigating Year 2000
issues related to both the hardware and software residing on the
server.
2. OFFICE APPLICATIONS: Many desktop PC's have been recently replaced
and are using compliant operating systems and applications. Those
that have not been replaced may have to be manually reset after the
millennium change.
3. PHONE: Bio-Plexus' phone systems have been evaluated by a qualified
vendor and plans are in place to upgrade the program cards that are
in the Company's existing systems over the next few months.
4. ELECTRICAL POWER: Bio-Plexus is dependent on its electrical power
vendor to continue to deliver adequate supplies of power to the
plant. Contingency plans do not provide for power levels adequate to
maintain production. Interruptions in power delivery may result in
diminished production output during that time.
5. PRODUCTION EQUIPMENT: There are a number of
microprocessor-controlled devices designed into the Company's
production equipment. All but one of these has been found to be Year
2000 compliant. The non-compliant device is a printer that will be
replaced during the third quarter of 1999 as part of an unrelated
process improvement project. In addition, the Company has determined
that its manufacturing monitoring system is not compliant and has
begun remediation efforts, including training. The Company expects
that this system will be Year 2000 compliant before the millennium
change. This system, while an aid to monitoring manufacturing
efficiencies, could be supplanted by a manual system for an interim
period should Year 2000 problems occur.
6. SHIPPING AND RECEIVING: Order-picking at Bio-Plexus is performed in
a manual fashion based on sales orders generated by the
Business/Accounting/Inventory system (see discussion of this system
above). Packaging and Shipping are likewise predominately manual,
with the exception of an electronic shipping scale, the date
function of which is not currently used.
7. FIRE/SECURITY: The Company has determined that both the fire alarm
and the security system at its plant in Vernon, CT are not date
dependent. Both systems include standby power capability in the
event of power loss. The alarm monitoring company has also certified
that their notification system is compliant.
8. HVAC: The Company's mechanical contractor has determined that its
HVAC systems are compliant and will continue to maintain the office,
plant, and manufacturing environments through the year 2000.
The Company plans that all phases will be complete for its internal
systems and facilities by September 1999.
The Company has been assessing its Year 2000 risks related to significant
relationships with third parties via ongoing communication with its strategic
partners, distributors and customers, and critical suppliers. As part of the
process, the Company is requesting written assurances from these suppliers and
customers that they have Year 2000 readiness programs in place, as well as an
affirmation that they will be compliant when necessary. Responses to these
inquiries are currently being gathered and reviewed. The following summarizes
the Company's contacts with third parties:
11
<PAGE> 14
Strategic Partners: The Company has received written communication from both of
its strategic partners regarding each of their Year 2000 efforts, and will
continue to monitor their level of compliance and the effect on Bio-Plexus.
Johnson & Johnson Medical, Inc. ("JJM"): In 1996, the Year 2000 issue was
identified by JJM as a critical business initiative with commitment of resources
and funding from senior management. In 1997, a formal structure to address Year
2000 issues was put into place, which included the appropriate resources from
the functional business areas along with resources from Information Management.
Policies, procedures and monitoring mechanisms have been implemented to provide
project management coordination. JJM has assessed the compliance of its
products, strategic business support systems, manufacturing equipment, and
facilities, and has determined the cost of remediating non-compliant components.
JJM has developed a comprehensive plan to cover critical information management,
non-information management, and suppliers and customers. In each of these areas,
they have completed inventories, assessments and made significant progress
toward completion of remediation and testing activities. It is anticipated that
this remediation will be substantially complete by the second quarter of 1999.
JJM is contacting business partners with whom they share data exchange to
develop a compliance interface-testing schedule, and they are communicating with
critical business partners for compliance assessment and validation, and to work
with them to achieve mutual Year 2000 readiness. JJM has a contingency plan to
deal with Year 2000 compliance failures. Contingency planning includes plans to
internally share resources, where appropriate, and to address critical issues in
areas of common interest. Contingency plans with critical customers and
suppliers will also be discussed, including the appropriate strategy of building
contingency inventory.
TFX Medical Inc. ("TFX"): Early in 1997, TFX's parent company, Teleflex,
Incorporated, initiated a directed program to deal with Year 2000 issues. A
full-time project manager was appointed, and a formal awareness and assessment
program was initiated corporate wide. With the assistance of an outside
professional firm, initial position documents were prepared by all business
units under the Teleflex Corporate umbrella, assessing initial status in
relation to business risks as posed by the millennium issue. TFX is currently
operating under a specific seven-phase audit/completion plan. The listed phases
are: Awareness, Inventory, Assessment, Analysis, Conversion, Implementation and
Post Implementation. Internal analysis and remediation for main business systems
and all peripheral hardware applications is substantially complete, with final
upgrades and required adjustments identified and under way. Assisted by a
professional third party, a formal program was initiated to identify and
remediate the recognized risk as posed by possible non-compliant business
partners. TFX's corporate goal of substantial conformance of primary internal
systems with Year 2000 compliance standards was attained at year-end 1998.
Teleflex is now operating in the final phase of its project "post
implementation."
Distributors and Customers: The Company has received written communication from
many of its major customers and distributors and will continue to monitor their
level of compliance and the effect on Bio-Plexus.
Suppliers: The Company monitors the status of its goods and service providers
with respect to the Year 2000 issue using a prioritized matrix. All current and
past suppliers of either goods or services are categorized from 1 (highest
priority) to 4 (lowest priority), as follows:
CATEGORY 1: These are vendors that Bio-Plexus relies heavily upon to
continue its operations. They might possess Bio-Plexus' custom
tooling or be uniquely qualified to supply a given product or to
perform a given service. Alternate suppliers would be costly to
secure.
CATEGORY 2: These are vendors that supply important goods and
services to Bio-Plexus, but whose goods and/or services are of a
less specialized nature and could be procured elsewhere.
CATEGORY 3: These are vendors who play an important role in
Bio-Plexus' business, but either in a support function or in a less
time-dependent manner. Impact on the vendor from Year 2000 problems
may or may not be felt by Bio-Plexus.
CATEGORY 4: These are vendors for which alternative sources are
known or could be located within a reasonable timeframe. Past, or
inactive, vendors will also be included in this category. Compliance
statistics are not tracked for this category.
The Company has designated a specific person to establish communications
regarding Year 2000 compliance with all of its vendors and suppliers. To date,
99% of the Company's Category 1, 2, and 3 suppliers have been contacted at least
once, with response rates from these suppliers of approximately 78%, 71%, and
52%, respectively. Specific status statistics for each category are outlined
below.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Category 1 Category 2 Category 3
-----------------------------------------------------------------------
<S> <C> <C> <C>
Status Uncertain 2/9 6/23 24/50
In Process 4/9 8/23 9/50
Fully Compliant 3/9 9/23 17/50
-----------------------------------------------------------------------
</TABLE>
Activities related to third parties are expected to be completed by
September 1999. Despite these efforts, the Company can provide no assurance that
supplier and customer Year 2000 compliance plans will be successfully completed
in a timely manner.
Reasonably Likely Worst Case Scenario
One reasonably likely worst-case scenario might be that one or more of
the Company's Category 1 suppliers experiences a significant interruption in
operations directly affecting their supply of goods or services to Bio-Plexus.
The Company plans to maintain greater than normal inventory levels for those
goods supplied by vendors whose Year 2000 compliance is less than certain.
Additional inventory will also be carried for those vendors who, due to the
supply channels involved, might incur a greater than normal delay in delivering
goods in the event of a non-compliance problem. Despite these preparations, it
is possible that material shortages due to supplier non-compliance could result
in production interruptions to the Company's operations.
Another reasonably likely worst-case scenario is that a category 2
supplier is unable, due to Year 2000 non-compliance, to continue to provide
their respective service. If, for example, the company's principal parcel
shipper is unable to deliver the Company's products to its customers, then the
Company would be forced to use more expensive carriers, incurring additional
costs to its operations. Such shipping interruption may also cause delays in the
delivery of products to customers.
The Company is taking steps to prevent major interruptions in the
business due to Year 2000 problems using both internal and external resources to
identify and correct problems and test for readiness. The Company estimates that
the total costs to date are approximately $26,000 and that future costs of the
Year 2000 readiness project will not have a material adverse effect on its
financial position, results of operations or cash flows. The ultimate effects on
the Company of its suppliers and
12
<PAGE> 15
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
The Company had product sales of $1,401,000 for the three months ended
June 30 1999, compared to $1,085,000 for the same period in the prior year. The
increase was primarily attributable to an increase in sales of safety medical
devices of $612,000 due to the continued expansion of its domestic account base,
increased sales in Europe and better pricing on its products, partially offset
by a decrease of $295,000 in product sales associated with the I.V. catheter
project for JJM due to its completion in the first quarter of 1999.
The Company had revenues from services totaling $32,000 for the three
months ended June 30, 1999, compared to $1,254,000 for the same period in the
prior year. The decrease was primarily attributable to completion of the I.V.
catheter development project for JJM in the first quarter of 1999.
Product costs were $705,000 for the three months ended June 30, 1999,
compared to $946,000 for the same period in the prior year. The decrease in
these costs resulted primarily from lower costs associated with the I.V.
catheter project for JJM and lower manufacturing costs associated with the blood
collection needle product line.
Service costs were $11,000 for the three months ended June 30, 1999,
compared to $93,000 for the same period in 1998. These costs represent
engineering time billed for various development projects. The decrease in these
costs is the result of the completion of the I.V. catheter development project
during the first quarter of 1999.
Research and development expenses were $294,000 for the three months ended
June 30, 1999, compared to $112,000 for the same period a year ago. The increase
in these costs resulted primarily from a decrease of $211,000 in 1999 of
deferred revenue related to the development of the I.V. catheter for JJM that
was amortized into income as a reduction in research and development expenses
during 1998.
Selling, general and administrative expenses were $1,157,000 for the three
months ended June 30, 1999, compared to $1,188,000 for the same period a year
ago. The decrease is primarily attributable to administrative cost reductions in
the areas of accounting and human resources as well as reduced facility costs.
Financing expenses were $305,000 for the three months ended June 30, 1999,
compared to $143,000 for the same period in 1998. The increase in these costs
resulted primarily from the recording of the intrinsic value of the conversion
feature associated with the convertible debenture financing of $121,000 to
interest expense in the second quarter of 1999.
13
<PAGE> 16
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
The Company had product sales of $2,570,000 for the six months ended June
30 1999, compared to $2,150,000 for the same period in the prior year. The
increase was primarily attributable to an increase in sales of safety medical
devices of $866,000 due to the continued expansion of its domestic account base,
increased sales in Europe and better pricing on its products, partially offset
by a decrease of $449,000 in product sales associated with the I.V. catheter
project for JJM due to its completion in the first quarter of 1999.
The Company had revenues from services totaling $1,177,000 for the six
months ended June 30, 1999, compared to $1,731,000 for the same period in the
prior year. The decrease was primarily attributable to the completion of I.V.
catheter development project for JJM in the first quarter of 1999.
Product costs were $1,535,000 for the six months ended June 30, 1999,
compared to $2,064,000 for the same period in the prior year. The decrease in
these costs resulted primarily from lower costs associated with the I.V.
catheter project for JJM and lower manufacturing costs associated with the blood
collection needle product line.
Service costs were $28,000 for the six months ended June 30, 1999,
compared to $212,000 for the same period in 1998. These costs represent
engineering time billed for various development projects. The decrease in these
costs is the result of the completion of the I.V. catheter development project
during the first quarter of 1999.
Research and development expenses were $598,000 for the six months ended
June 30, 1999, compared to $219,000 for the same period a year ago. The increase
in these costs resulted primarily from a decrease of $420,000 in 1999 of
deferred revenue related to the development of the I.V. catheter for JJM that
was amortized into income as a reduction in research and development expenses
during 1998.
Selling, general and administrative expenses were $2,261,000 for the six
months ended June 30, 1999, compared to $2,431,000 for the same period a year
ago. The decrease is primarily attributable to administrative cost reductions in
the areas of accounting and human resources as well as reduced facility costs.
Financing expenses were $361,000 for the six months ended June 30, 1999,
compared to $303,000 for the same period in 1998. The increase in these costs
resulted primarily from the recording of the intrinsic value of the conversion
feature associated with the convertible debenture financing of $121,000 to
interest expense in the second quarter of 1999, partially offset by lower
interest expense related to equipment leases.
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 June 30, 1999, the Company has received net proceeds of approximately
$31,913,000 through
14
<PAGE> 17
borrowings and the sale of debt securities and $50,273,000 through the sale of
equity securities. Of the net equity proceeds, $17,575,000 was received from its
1995 public offering, $14,191,000 was received from the Company's initial public
offering and the balance of $18,507,000 was received through the private
placement of equity securities.
Cash used in operating activities for the six months ended June 30, 1999
totaled $1,922,000 and was primarily due to a net loss for the period of
$1,036,000. Also contributing were increases in inventory balances due to higher
anticipated sales volumes in the future, and higher accounts receivable due to
higher products sales of medical devices and accessories during the period. In
addition, there were decreases in accrued product replacement costs of $222,000
as a result of the near completion of the product recall in the fourth quarter
of 1998, and in deferred revenue resulting from the recognition into income of
$875,000 of development funds associated with the JJM I.V. catheter project
during the first quarter of 1999.
Net cash provided by investing activities amounted to $479,000 primarily
due to the Company's conversion of a loan to Jordan Pharmaceuticals, Inc. in the
amount of $600,000 into shares of Jordan Series A Preferred Stock. Pursuant to
the terms of the stock option agreement, Jordan exercised its option to
repurchase the shares for total consideration to the Company of $627,000.
Offsetting the receipt of cash from Jordan, was the purchase and construction of
fixed assets totalling $104,000 for the six month period.
Net cash provided by financing activities amounted to $1,741,000 for the
six months ended June 30, 1999. Proceeds from the sale of stock of $1,100,000
and proceeds from long-term debt of $2,154,000, offset by the repayment of debt
totalling $1,350,000 accounted for the net increase in cash for financing
activities.
The Company's primary cash requirement for the remainder of 1999 will be
for working capital to sustain ongoing operations for the blood collection
needle program, debt service, and, to a lesser extent, further research and
development on its winged intravenous set, PICC introducer, and other new
products. The Company believes it will need approximately $2.5 million in
working capital to fund operations for the balance of 1999, exclusive of funds
needed to develop and launch new products. Its overall strategy is to minimize
expenditures on new product research and development, as well as production
capacity for new products until such time that financing is secured or
additional strategic partnerships are feasible.
On March 24, 1999, the Company signed a commitment for a private placement
of up to $4,500,000 aggregate principal amount of 6% Convertible Debentures due
2004 ("the Debentures"). The initial purchase of $2,500,000 aggregate principal
amount of Debentures was made on April 27, 1999. The Debentures accrue interest
at the rate of 6% per annum, payable quarterly in arrears with interest payable
either in cash or in the issuance of additional Debentures, at the option of the
Company. The Debentures are convertible at any time at the option of the holders
into shares of the Company's common stock at an initial conversion price of
$3.06 per share. The Debentures may be wholly or partially redeemed at the
option of the Company for an amount not to exceed 130% of the face value plus
accrued and unpaid interest at any time after the date of issuance. The Company
and the Debenture holders have limited put and call options, respectively, for
additional Debentures. The financing also included a warrant to purchase 500,000
shares of common stock at an exercise price of $3.38. Net proceeds from the
financing were $2,154,000 after deducting fees and expenses.
15
<PAGE> 18
Funds needed to support the Company's working capital requirements for the
balance of 1999 will come from current cash on-hand, cash generated from sales
of its products, and the Debenture financing as discussed above. In addition to
the Debenture financing arrangement and the development of additional strategic
partnerships, the Company is reviewing alternative financing strategies to raise
additional working capital in 1999 to fund the development and expansion of its
product lines. The Company is also continuing to review opportunities to further
reduce overhead costs and debt service. Beyond 1999, the Company's liquidity
needs will vary depending on sales levels and the cash generated from
operations, as well as funds that might be received from future arrangements
with strategic partners. Failure to raise needed capital could have an adverse
effect on the Company's operations, development plans and cash flows.
To date the Company has not been adversely impacted by inflation.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On July 29, 1999, we increased the number of authorized shares of
common stock, no par value, from 18 million to 25 million. On said date, a
Certificate of Amendment to the Certificate of Incorporation was filed with the
Connecticut Secretary of State for the purpose of effecting the above-referenced
changes. The Amendment was approved by holders of a majority of the outstanding
shares of common stock entitled to vote at the Company's Annual Meeting of
Shareholders held July 19, 1999.
(c) The Company negotiated a private placement of up to $4,500,000
aggregate principal amount of 6% Convertible Debentures due 2004 (the form of
which is filed with the SEC as Exhibit 10.23 in connection with the Company's
registration statement on Form S-3 initially filed on May 28, 1999 (File No.
333-79671) pursuant to a Subscription Agreement dated as of April 21, 1999 by
and among the Company and certain accredited investors (filed as Exhibit 10.22
to the Form S-3).
The initial purchase of $2,500,000 aggregate principal amount of
debentures was made April 27, 1999. The debentures accrue interest at the rate
of 6.0% per annum, payable quarterly in arrears, and the interest is payable
either in cash or in the issuance of additional debentures, at the option of the
Company. They are equal or senior in right of payment to substantially all
future indebtedness of the Company. The debentures are convertible at any time
at the option of the holders into shares of the Company's common stock, at an
initial conversion rate of $3.06 per share. The debentures may be wholly or
partially redeemed at the option of the Company for an amount not to exceed 130%
of the face value plus accrued and unpaid interest at any time after the date of
issuance.
The Company and the debenture holders have limited put and call options,
respectively, for additional debentures. Beginning 9 months from the closing
date and ending 90 days thereafter, the Company may exercise its put option,
without the consent of the debenture holders, to obligate them to purchase up to
such principal amount of debentures which brings the aggregate principal amount
of the debentures to be sold by the Company to $2,500,000; provided, however,
that the debenture holders are not obligated to purchase such amount of "put
debentures" unless certain conditions are met, including that the aggregate
value of the put debentures are at least $500,000 and no more than $1,000,000.
16
<PAGE> 19
Beginning twelve (12) months from the closing date and ending 90 days
thereafter, each of the debenture holders may exercise its option, without the
consent of the Company, to obligate the Company to sell up to such amount of
debentures which brings the aggregate value of the debentures to $2,500,000;
provided, however, that the Company shall not be obligated to sell such amount
of "call debentures" unless certain conditions are met, including that the
aggregate value of the call debentures are at least $500,000 and no more than
$1,000,000.
The financing also included a warrant to purchase 500,000 shares of common
stock at an exercise price of $3.38 (the form of which is filed as Exhibit 10.24
to the Form S-3). The warrant was issued in consideration for the purchase of
the debentures.
The Company intends to use the proceeds from the purchase of the
debentures for general corporate purposes.
The securities were sold in a private placement in reliance upon Section
4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed with this report.
</TABLE>
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 30, 1999, reporting the sale of up
to $4.5 million aggregate principal amount of convertible debentures and a
warrant to purchase 500,000 shares of common stock.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Bio-Plexus, Inc.
(Registrant)
August 16, 1999 /s/ Richard L. Higgins
- --------------------- ------------------------------
(Date) Richard L. Higgins
President and Chief Executive Officer
August 16, 1999 /s/ Kimberley A. Cady
- --------------------- ------------------------------
(Date) Kimberley A. Cady
Vice President of Finance and Chief
Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 833,000
<SECURITIES> 0
<RECEIVABLES> 723,000
<ALLOWANCES> 0
<INVENTORY> 2,158,000
<CURRENT-ASSETS> 3,874,000
<PP&E> 4,491,000<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,559,000
<CURRENT-LIABILITIES> 1,748,000
<BONDS> 2,365,000
0
0
<COMMON> 69,205,000
<OTHER-SE> 149,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 9,559,000
<SALES> 3,747,000
<TOTAL-REVENUES> 3,747,000
<CGS> 0
<TOTAL-COSTS> 4,422,000
<OTHER-EXPENSES> (24,000)<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 385,000<F4>
<INCOME-PRETAX> (1,036,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,036,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,036,000)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
<FN>
F1-This value is net of depreciation.
F2-Value represents redeemable common stock warrants.
F3-Amount includes $50,000 of interest income.
F4-Amount is included in "Other-Expenses."
</FN>
</TABLE>
