UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
METRA BIOSYSTEMS, INC.
----------------------
(Exact Name of Registrant as specified in its charter)
0-26234
Commission File Number
California 33-0408436
- ------------------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
265 North Whisman Road, Mountain View, CA 94043-3911
-----------------------------------------------------
(Address of Registrant's principal executive offices)
(650) 903-9100
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No.
The number of shares of the Registrant's common stock outstanding as of
October 31, 1998 was 12,689,844.
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 3
Condensed Consolidated Balance Sheets
September 30, 1998 and June 30, 1998 3
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-12
PART II. OTHER INFORMATION 12
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
September 30, June 30,
1998 1998
------------ ------------
(Unaudited) (1)
Current assets:
Cash and cash equivalents $ 4,814 $ 6,976
Short-term investments 12,813 12,831
Accounts receivable, net 1,379 1,831
Interest receivable 337 275
Inventories 1,124 869
Prepaid expenses and other current assets 764 615
------------ ------------
Total current assets 21,231 23,397
Property and equipment, net 3,024 3,302
Long-Term investments 7,137 7,410
Other assets 591 454
------------ ------------
$ 31,983 $ 34,563
============ ============
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 876 $ 1,058
Accrued expenses 2,072 1,834
Current portion of capital lease
obligations 650 630
------------ ------------
Total current liabilities 3,598 3,522
Long-term portion of capital lease
obligations 773 944
Shareholders Equity:
Preferred stock -- --
Common stock and additional paid-in capital 95,343 95,342
Accumulated other comprehensive income
(loss) (123) (245)
Accumulated deficit and other equity (67,608) (65,000)
------------ ------------
Total shareholders' equity 27,612 30,097
------------ ------------
$ 31,983 $ 34,563
============ ============
(1) Derived from audited consolidated financial statements at June 30, 1998
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three months ended September 30,
--------------------------------
1998 1997
------------ ------------
Revenues:
Product sales $ 1,107 $ 1,521
Partner revenues 116 46
------------ ------------
Total revenues 1,223 1,567
Operating expenses:
Cost of product sales 525 557
Research and development 1,217 1,253
Sales and marketing 1,735 2,596
General and administrative 692 625
------------ ------------
Total operating expenses 4,169 5,031
------------ ------------
Loss from operations (2,946) (3,464)
Interest income, net 330 477
------------ ------------
Net loss $ (2,616) $ (2,987)
============ ============
Basic and diluted net loss per share $ (0.21) $ (0.24)
============ ============
Weighted average shares used to compute
net loss per share 12,687,803 12,619,517
============ ============
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended September 30,
--------------------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net cash used in operating activities $ (2,330) $ (3,009)
Cash flows from investing activities:
Purchases of investment securities (6,979) (3,189)
Maturities and sales of investment securities 7,352 10,929
Purchases of property and equipment (58) (57)
Proceeds from sale of property and equipment 3 5
--------- ---------
Net cash provided by investing activities 318 7,688
Cash flows from financing activities:
Repayment of capital lease obligations (150) (137)
Proceeds from sales of common stock 1 2
--------- ---------
Net cash used in financing activities (149) (135)
Net increase (decrease) in cash and cash
equivalents (2,162) 4,544
Cash and cash equivalents at beginning of period 6,976 11,709
--------- ---------
Cash and cash equivalents at end of period $ 4,814 $ 16,253
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 65 $ 56
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
METRA BIOSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Unaudited)
1. INTERIM FINANCIAL INFORMATION
(a) The Company
Metra Biosystems, Inc. ("Metra" or the "Company"), a California
corporation, is engaged in the development and commercialization of diagnostic
products for the detection and management of metabolic bone and joint diseases
and disorders. The Company primarily markets its products for clinical and
research use in the United States, Europe, and Pacific Rim countries.
(b ) Basis of Presentation
The accompanying interim consolidated condensed financial statements of
the Company have been prepared in conformity with generally accepted accounting
principles, consistent in all material respects with those applied in the Annual
Report on Form 10-K for the year ended June 30, 1998. The interim financial
information is unaudited, but reflects all normal adjustments which are, in the
opinion of management, necessary to provide a fair statement of results for the
interim periods presented. The interim financial statements should be read in
connection with the financial statements in the Company's Annual Report on Form
10-K for the year ended June 30, 1998.
2. INVENTORIES
Inventories consist of the following (net of reserves):
September 30, June 30,
1998 1998
----------- ------------
(in thousands)
Raw materials $ 327 $ 298
Work in process 133 275
Finished goods 664 296
----------- ------------
$ 1,124 $ 869
=========== ============
3. NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Number 128 ("SFAS 128"), Earnings
Per Share, which was adopted in the second quarter of fiscal 1998. Earnings per
share for the three month period ending September 30, 1997 have been restated in
accordance with SFAS 128. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options and warrants is
excluded.
6
<PAGE>
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per common share
incorporates the incremental shares issuable upon the assumed exercise of stock
options and warrants, if dilutive. Shares from stock options and warrants have
been excluded from the computation of diluted earnings per share for all periods
presented, as their effect is anti-dilutive.
The following table sets forth the computation of net loss per share:
1998 1997
---- ----
(in thousands)
Numerator for basic and diluted net loss per share:
Net loss $ (2,616) $ (2,987)
======== ========
Denominator:
Weighted average shares 12,689 12,633
Weighted average non-vested shares subject
to repurchase (1) (13)
-------- --------
Denominator for basic and diluted net loss
per share 12,688 12,620
-------- --------
Basic and diluted net loss per share $ (0.21) $ (0.24)
======== ========
4. COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income ("Statement 130") which the Company adopted as required in the first
quarter of fiscal 1999. Statement 130 establishes standards for reporting and
display of comprehensive income and its components. Components of comprehensive
income for the Company include items such as net income, changes in the value of
available-for-sale securities, and translation gains and losses.
The components of comprehensive income are as follows (in thousands):
Three Months Ended
------------------
September 30, 1998 September 30, 1997
------------------ ------------------
Net loss $ (2,616) $ (2,987)
Change in unrealized gain (loss)
on available-for-sale investments 81 204
Change in foreign currency translation 41 (5)
---------- ----------
Comprehensive Income (loss) $ (2,494) $ (2,788)
========== ==========
Accumulated other comprehensive income presented on the accompanying condensed
consolidated balance sheets consists of the accumulated net unrealized gain
(loss) on available-for-sale investments and the cumulative foreign currency
translation adjustment.
7
<PAGE>
5. YEAR 2000 COMPLIANCE
The Company is currently upgrading its financial and manufacturing
information system software to a Year 2000 compliant version. The Company has
completed the testing of this system upgrade and expects to be fully operational
by the end of fiscal year 1999. The Company has assessed the Year 2000
compliance of its other computer system software and manufacturing equipment and
expects to complete all necessary upgrades to be Year 2000 compliant no later
than June 30, 1999. In addition, the Company has contacted all vendors and
suppliers regarding Year 2000 compliance and has received no responses
indicating that any vendor or supplier will not be Year 2000 compliant. The
Company has also created a Year 2000 project team that periodically reviews
relevant issues regarding compliance. The costs of Year 2000 initiatives have
primarily been incurred and are not expected to be material to the Company's
results of operations or financial position in future periods. The Company has
incurred approximately $75,000 in Year 2000 costs as of September 30, 1998 and
has identified, to date, future expenditures approximating $5,000 in order to be
fully Year 2000 compliant. Failure to timely complete the Company's Year 2000
initiatives could result in the Company's software being rendered inoperative.
Although the Company has no formal contingency plans in place, in such event,
the Company would attempt to perform its MIS functions, and other functions
currently implemented by software, manually through the dedication of additional
personnel to performing such functions. While the Company believes its planning
efforts are adequate to address its Year 2000 concerns, there can be no
assurance that the systems and products of other companies on which the
Company's operations rely will be converted on a timely basis and will not have
a material adverse effect on the Company's results of operations.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's principal sources of revenue are product sales and partner
revenues. Product sales are principally derived from sales of the Company's
biochemical tests for research and clinical use, and beginning in fiscal year
1999, sales of its portable ultrasound device which was launched in Europe at
the end of the first quarter of fiscal 1999. Partner revenues result from
certain collaborative relationships and primarily consist of royalties received
from these partners, revenues from sales to these partners of proprietary
reagents for use with the test formats of these partners, and milestone payments
and licensing fees.
The Company commenced its clinical marketing efforts in the United States
upon receiving 510(k) clearance for several of its key products in late 1995,
and does not anticipate significant revenues from clinical sales of its products
in the United States unless and until the results of its medical education
efforts are realized. Achieving increased sales growth and improved product
margins depends upon increased awareness and acceptance of the Company's
products among clinicians, the success of the Company's programs with
pharmaceutical partners, adequate levels of third-party reimbursement for
clinical use of its diagnostic tests, the Company's ability to successfully
launch new products, sales growth of the Company's manual test formats, and
successful market penetration of automated test formats by the Company's
diagnostic partners to the extent that this substantially increases market
demand versus conversion of existing manual kit business. There can be no
assurance the Company can successfully achieve any of the above items in a
timely manner, or at all, and failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
RESULTS OF OPERATIONS
Three months Ended September 30, 1998 and 1997
Revenues
Product sales for the three months ended September 30, 1998 were
$1,107,000 as compared to product sales of $1,521,000 in the comparable period
of the prior fiscal year. The product sales decrease in the first quarter
resulted primarily from clinical market transitions from manual to automated
testing, weakened sales in the Asian markets due to economic conditions and
currency devaluations, and the variable stocking patterns of the Company's
European distributors. The Company's product sales in direct markets, which are
not affected by stocking patterns, saw only a 6% decrease in sales from the
comparable period of the prior year. The Company believes that with the
introduction of QUS(TM)-2 in the European marketplace, product sales levels will
increase in subsequent periods. However, there can be no assurance that product
sales will increase significantly, if at all.
9
<PAGE>
Partner revenues for the three months ended September 30, 1998 were
$116,000 as compared to $46,000 in the corresponding period of the prior fiscal
year. This increase is primarily comprised of the collection of royalties from
partners who sell the Company's Pyrilinks(R)-D technology on an automated
format.
Product Costs and Expenses
Product costs were $525,000 for the first quarter of fiscal 1999, as
compared to $557,000 in the corresponding period of fiscal 1998. The product
margin for the first quarter of fiscal 1999 was 53% compared to 63% in the first
quarter of fiscal 1998. This decrease in product costs and decrease in product
margins is primarily related to decreased sales volumes. The Company believes
that the product margin will fluctuate from quarter to quarter and will be
dependent upon future sales volume and product mix as well as the Company's
ability to continue to achieve efficiencies and improvements in the
manufacturing process.
Research and development expenses for the three months ended September 30,
1998 were $1,217,000, as compared to $1,253,000 in the corresponding period of
the prior fiscal year, representing a 3% decrease in research and development
expenditures. This decrease is due in part to reduced personnel and professional
costs, and is partially offset by QUS-2 clinical trial expenses. The Company
believes that research and development expenses will remain relatively flat
through at least the second quarter of fiscal 1999 in order to support ongoing
clinical trials and believes that research and development expenses will
decrease in subsequent periods.
Sales and marketing expenses were $1,735,000 in the first quarter of
fiscal 1999, as compared to $2,596,00 in the first quarter of fiscal 1998, a
decrease of 33%. This decrease is primarily related to reduced expenses
associated with the Company's Co-Promotion Agreement ("Co-Promotion Agreement")
with Berlex Laboratories, Inc. ("Berlex") and programs associated with physician
education of the Company's biochemical tests. The Company is currently in
negotiations with Berlex regarding the nature and scope of activities to be
performed by the parties under the Co-Promotion Agreement. Related to this, the
Company accrued a reserve of $445,000 in the first quarter of fiscal 1999. The
Company believes that sales and marketing expenses will decrease in subsequent
periods primarily due to reduced expenses associated with physician education
programs which will be partially offset by increased costs associated with the
worldwide launch of QUS-2.
General and administrative expenses were $692,000 for the three months
ended September 30, 1998, as compared to $625,000 for the corresponding period
in the prior fiscal year. This represents an 11% increase in general and
administrative costs on a year-to-year basis primarily related to increased
legal expenses incurred in the first quarter of fiscal 1999 which were partially
offset by reduced personnel costs. The Company believes that general and
administrative expenses should remain relatively stable through the remainder of
the fiscal year as reductions in all levels of general and administrative
expenses will be offset by increased costs associated with execution of the
Company's plans to expand through acquisitions of complementary businesses
and/or technologies.
10
<PAGE>
Net Interest Income
Net interest income for the first quarter of fiscal 1999 was $330,000, as
compared to $477,000 in the first quarter of fiscal 1998. The reduction in net
interest income is primarily the result of reduced cash resources available for
investment.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company had cash and investments of $24.8 million at September 30,
1998. The Company's use of cash in operating activities was $2.3 million in the
first quarter of fiscal 1999 compared to cash usage of $3.0 million in the first
quarter of fiscal 1998. This reduction in cash usage is primarily related to the
$862,000 reduction in operating expenses in the first quarter of fiscal 1999 as
compared to fiscal 1998. Net cash proceeds from investing activities was
$373,000 for the quarter ended September 30, 1998 which was primarily related to
the maturity of longer term investment securities which were converted to cash
equivalents and used for operations. Net cash used in financing activities in
the first quarter of fiscal 1999 was $149,000 which was substantially related to
the interest costs of the Company's capital leases.
Net capital expenditures for the first three months of fiscal 1999 were
$55,000, compared to $52,000 for the corresponding period of fiscal 1998. The
Company has significantly reduced its capital expenditures over the last two
years and expects that future capital expenditures will be at levels consistent
or below the net capital expenditures in the first quarter of fiscal 1999.
The Company's future capital requirements depend upon, among other things,
the pace of market acceptance of the Company's products, the costs of research
and development programs, the funding of clinical and regulatory related
studies, the expansion of marketing and selling activities associated with new
product launches, costs involved in filing, prosecuting, enforcing, and
defending patent claims, and the time and costs associated with obtaining
regulatory approvals for future products. Funds may also be used for investments
in, or acquisitions of, complementary businesses, products or technologies, in
expanding the Company's manufacturing capacity or in improving its existing
facilities. Although the Company believes its current cash, cash equivalents and
investment securities will be sufficient to meet the Company's operating
expenses and capital requirements through at least the remainder of fiscal 1999,
the Company's future liquidity and capital requirements will depend on the
factors noted above, among others. The Company may, however, seek additional
equity or debt financing to fund further expansion of its manufacturing
capacity, or to fund other projects or acquisitions. There can be no assurance
that if it becomes necessary to raise additional capital, that such capital will
be available on acceptable terms, if at all.
11
<PAGE>
DISCLOSURE PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the report on Form 10-Q that are not purely
historical are "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 including, without limitation, statements
regarding the Company's future product development and commercialization,
product sales and other revenues, market opportunities and acceptance, beliefs,
expectations, goals, financial performance, and future strategies, all of which
are dependent on certain risks and uncertainties that may cause actual results
to differ materially from those expressed in these or any other forward looking
statements made by or on behalf of the Company. These risks and uncertainties
include the uncertainty of realizing increased market awareness and acceptance
for the Company's products, the success of the Company's collaborative
relationships, the uncertainty of obtaining adequate levels of third-party
reimbursement for clinical use of the Company's products, and the uncertainty
and variability of continuing sales growth of the Company's products. For a more
detailed discussion of these risks, see the risk factors discussed in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.
PART II. - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
None.
ITEM 2. - CHANGES IN SECURITIES
None.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. - OTHER INFORMATION
None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
None.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ George W. Dunbar November 16, 1998
- -------------------------------------------- -----------------
George W. Dunbar
Chief Executive and Chief Financial Officer
(duly authorized and principal financial and
principal accounting officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE METRA
BIOSYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE PRRIOD ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,814
<SECURITIES> 19,950
<RECEIVABLES> 1,379
<ALLOWANCES> 0
<INVENTORY> 1,124
<CURRENT-ASSETS> 21,231
<PP&E> 3,024
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,983
<CURRENT-LIABILITIES> 3,598
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 27,599
<TOTAL-LIABILITY-AND-EQUITY> 31,983
<SALES> 1,107
<TOTAL-REVENUES> 1,223
<CGS> 525
<TOTAL-COSTS> 4,169
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (2,616)
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<EPS-PRIMARY> (.21)
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</TABLE>
