<PAGE>
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 March 31, 2000.
--------------
[_] 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 0-24517.
-------
ORTHOVITA, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2694857
- ------------------------------ ----------------------
(State Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
45 Great Valley Parkway, Malvern, PA 19355
- ----------------------------------------- ----------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 640-1775
----------------------
Not Applicable
- --------------------------------------------------------------------------------
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 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
--- ---
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding as of March 31, 2000
- ---------------------------- --------------------------------
Common Stock, par value $.01 11,555,023 Shares
This Report Includes a Total of 15 Pages
<PAGE>
ORTHOVITA, INC. AND SUBSIDIARIES
INDEX
PART I -
FINANCIAL Page
INFORMATION Number
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 15
PART II -
OTHER
INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
2
<PAGE>
ORTHOVITA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------- ------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 2 and 6) $ 5,975,352 $ 2,487,343
Short-term investments (Notes 2 and 6) 3,341,471 6,386,202
Restricted cash (Note 3) 400,000 ---
Other current assets 439,620 303,236
------------ ------------
Total current assets 10,156,443 9,176,781
------------ ------------
PROPERTY AND EQUIPMENT, net 2,267,408 2,041,524
------------ ------------
OTHER ASSETS 109,040 103,141
------------ ------------
$ 12,532,891 $ 11,321,446
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank borrowings (Note 6) $ 2,000,000 $ 2,000,000
Note payable 137,702 137,702
Current portion of long-term capital lease obligations 636,938 530,126
Accounts payable 884,681 1,327,825
Deferred gain (Note 3) 400,000 ---
Accrued compensation and related expenses 550,689 605,507
Other accrued expenses 455,633 456,891
------------ ------------
Total current liabilities 5,065,643 5,058,051
------------ ------------
CAPITAL LEASE OBLIGATIONS 592,897 616,726
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Note 4):
Preferred Stock, $.01 par value, 20,000,000 shares authorized,
no shares issued and outstanding --- ---
Common Stock, $.01 par value, 50,000,000 shares authorized,
11,555,023 and 11,331,632 shares issued and outstanding
115,550 113,316
Additional paid-in capital 42,914,630 42,002,795
Accumulated deficit (36,168,592) (36,473,754)
Accumulated other comprehensive income 12,763 4,312
------------ ------------
Total shareholders' equity 6,874,351 5,646,669
------------ ------------
$ 12,532,891 $ 11,321,446
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
ORTHOVITA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
2000 1999
----------- -----------
(Unaudited)
NET REVENUES (Note 5) $ 532,967 $ 562,532
COST OF SALES 164,041 134,193
----------- -----------
Gross profit 368,926 428,339
----------- -----------
OPERATING EXPENSES:
General and administrative 966,589 758,093
Selling and marketing 828,751 439,543
Research and development 1,385,534 1,135,797
----------- -----------
Total operating expenses 3,180,874 2,333,433
----------- -----------
Operating loss (2,811,948) (1,905,094)
INTEREST EXPENSE (38,709) (28,013)
INTEREST INCOME 84,898 228,335
Net gain on sale of product line (Note 3) 3,070,921 ---
----------- -----------
NET PROFIT (LOSS) $ 305,162 $(1,704,772)
=========== ===========
NET PROFIT (LOSS) PER COMMON SHARE,
BASIC $ .03 $ .15
======== ========
DILUTED $ .03 $ .15
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING,
BASIC 11,389,434 11,391,288
=========== ===========
DILUTED 12,075,335 11,391,288
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ORTHOVITA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C>
Three Months Ended
March 31,
2000 1999
------ ------
OPERATING ACTIVITIES: (Unaudited)
Net profit (loss) $ 305,162 $(1,704,772)
Adjustments to reconcile net profit (loss) to net cash used in operating
activities -
Depreciation 165,195 138,330
Services provided for Common Stock options 195,501 4,750
Net gain on sale of product line (3,070,921) ---
(Increase) decrease in -
Other current assets (136,384) 403,516
Other assets (5,899) (11,577)
Increase (decrease) in -
Other liabilities --- (21,857)
Accounts payable (443,144) (104,961)
Accrued compensation and related expenses (157,818) 8,266
Other accrued expenses (190,813) (72,042)
----------- -----------
Net cash used in operating activities (3,339,121) (1,360,347)
----------- -----------
INVESTING ACTIVITIES:
Purchases of investments --- (5,225,742)
Proceeds from sale of investments 3,053,183 7,362,148
Proceeds from short term bank borrowings 2,000,000 ---
Repayments on short term bank borrowings (2,000,000) ---
Proceeds from sale of product line 3,900,000 ---
Increase in restricted cash (400,000) ---
Purchase of property and equipment (306,087) (171,730)
----------- -----------
Net cash provided by investing activities 6,247,096 1,964,676
----------- -----------
FINANCING ACTIVITIES:
Repayments of debt --- (26,150)
Repayments of capital lease obligations (138,534) (89,660)
Proceeds from exercise of Common Stock options and warrants 718,568 170,075
Proceeds from Employee Stock Purchase Plan --- 1,550
----------- -----------
Net cash provided by financing activities 580,034 55,815
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
--- 20,234
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,488,009 680,378
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,487,343 842,064
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,975,352 $ 1,522,442
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ORTHOVITA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Orthovita, Inc. (the "Company"), a Pennsylvania corporation, began operations
in November 1993. We seek to develop, manufacture and market synthetic bone
products for the orthopaedic industry based on novel materials and technologies.
Our operations are subject to certain risks including but not limited to the
need to successfully develop and commercialize our products, all of which are
currently in development, and our need for additional capital. We have incurred
losses each year since our inception in 1993 and expect to continue to incur
losses for at least the next couple of years. Our products under development may
never be commercialized or if commercialized, may never generate substantial
revenue. On March 22, 2000, we completed the sale of our BIOGRAN(R) dental
grafting product line to Implant Innovations, Inc. ("3i") for gross proceeds of
$3.9 million. BIOGRAN has generated all of our net product revenue (see Note 5).
Although we believe our existing cash, and short-term investments will be
sufficient to meet our currently estimated operating and cash requirements until
at least the end of this year, we will need to raise additional funds. If
adequate financing is not available, we may be required to delay, scale back or
eliminate certain operations.
Basis of Consolidation
Our consolidated financial statements include the accounts of Orthovita, Inc.,
our Belgian branch operations, and our wholly owned subsidiaries. We have
eliminated all material intercompany balances in consolidation.
Basis of Presentation
Our consolidated interim financial statements are unaudited and, in our
opinion, include all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of results for these interim
periods. The consolidated interim financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with United States generally accepted
accounting principles and should be read in conjunction with the consolidated
financial statements and notes thereto included in our Form 10-K filed with the
Securities and Exchange Commission (the "SEC"), which includes financial
statements as of December 31, 1999 and 1998 and for the years ended December 31,
1999, 1998 and 1997. The results of our operations for any interim period are
not necessarily indicative of the results of our operations for any other
interim period or for a full year.
Reclassifications
We have reclassified certain amounts in prior period's financial statements to
conform to the presentation for the current period.
6
<PAGE>
Per Share Data
We have presented per common share data pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic loss per
share excludes potentially dilutive securities and was computed by dividing net
loss applicable to common shareholders by the weighted average number of shares
of Common Stock outstanding for the period.
Diluted per share data is computed assuming the conversion or exercise of all
dilutive securities such as preferred stock, Common Stock options and warrants.
Preferred stock, Common Stock options and warrants outstanding are not included
in the calculation of diluted earnings per share when their impact would be
anti-dilutive.
The following table summarizes the differences between basic weighted average
shares outstanding and diluted weighted average shares outstanding used to
compute diluted per share data.
<TABLE>
<CAPTION>
Three Months Ended March 31,
<S> <C> <C>
2000 1999
---------- ----------
Basic weighted average number of shares outstanding 11,389,434 11,391,288
Incremental shares from assumed exercise or conversion of:
Stock options 297,648 ---
Common stock warrants 388,253 ---
---------- ----------
Diluted weighted average number of shares outstanding 12,075,335 11,391,288
========== ==========
</TABLE>
The number of incremental shares from the assumed exercise of Common Stock
options and Common Stock warrants is calculated applying the treasury stock
method. Common Stock options and warrants were excluded from the computation of
diluted earnings per share for the three months ended March 31, 1999 because
they were anti-dilutive.
2. CASH, CASH EQUIVALENTS AND INVESTMENTS:
We invest excess cash in highly liquid investment-grade marketable securities
including corporate commercial paper and U.S. government agency bonds. For
financial reporting purposes, we consider all highly liquid investment
instruments purchased with an original maturity of three months or less to be
cash equivalents. All investments are considered available-for-sale and,
accordingly, unrealized gains and losses are included in a separate component of
shareholders' equity.
As of March 31, 2000 cash, cash equivalents and investments at cost and fair
market value consisted of the following:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair Market
Original Cost Gains Losses Value
------------- ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,975,352 $ --- $ --- $5,975,352
Short-term investments 3,393,286 --- (51,815) 3,341,471
---------- -------------- -------- ----------
$9,368,638 $ --- $(51,815) $9,316,823
========== ============== ======== ==========
</TABLE>
7
<PAGE>
3. SALE OF BIOGRAN:
On March 22, 2000, we sold our BIOGRAN dental grafting product line to 3i for
$3.9 million. We received proceeds of $3.5 million, with an additional $400,000
held in an escrow account for one year. As a result, we realized a one-time net
gain on the transaction of approximately $3.1 million.
4. SHAREHOLDERS' EQUITY:
During the three months ended March 31, 2000, stock options and warrants to
purchase 223,391 shares of Common Stock were exercised for proceeds of $718,568.
Additionally during the first three months of 2000, we issued stock options for
the purchase of 55,000 shares of Common Stock with various exercise prices to
certain vendors in payment of services valued at $195,501.
5. NET PRODUCT REVENUE:
On April 29, 1998, we entered into a Global Distribution Agreement with 3i,
whereby 3i obtained the exclusive worldwide marketing, sales and distribution
rights for BIOGRAN for dental surgical applications. The arrangement provides
for 3i to pay us 45% and 40% of their BIOGRAN average selling price for 1999 and
2000, respectively. In 1999 and 2000, 3i accounted for 100% of our net revenue
(See Note 3).
6. BANK BORROWINGS:
We have a one-year $2 million line of credit arrangement with our commercial
bank that expires at the end of 2000. The line of credit requires us to maintain
a minimum aggregate level of cash and investments of $4 million, minimum working
capital of $4 million and other specific financial covenants. Interest on the
line of credit is payable at the prime rate plus 1.0%. As of March 31, 2000 and
December 31, 1999, $2 million was outstanding under the line, which was repaid
in April 2000 and January 2000, respectively.
7. COMMITMENTS AND CONTINGENCIES:
On July 23, 1994, U.S. Biomaterials Corporation filed with the U.S. Patent and
Trademark Office a Request for Reexamination of the FBFC U.S. Patent which
provides patent protection in the U.S. for BIOGRAN. FBFC filed a response in
this proceeding, establishing that the claims of the FBFC Patent were properly
allowed. As a result, a Certificate of Reexamination was issued by the U.S.
Patent and Trademark Office confirming the patentability of all claims of the
FBFC Patent without amendment. However, U.S. Biomaterials Corporation also
instituted a nullification proceeding against the European counterpart to the
FBFC U.S. Patent. The opposition division of the European Patent Office
tentatively decided in FBFC's favor, but the matter is still proceeding under an
appeal. This patent has now been assigned to 3i who purchased the BIOGRAN
product line in March 2000. In connection with the BIOGRAN sale to 3i, 3i has
assumed control of this matter and we have agreed to reimburse for the
associated legal costs and to provide them with certain indemnification with
respect to this matter.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Orthovita is a leading developer of biomaterials and orthobiologics focused on
synthetic bone substitute products for orthopaedic applications primarily in
spine. The spine market represents one of the fast growing markets in
orthopaedics. We are also developing products for use in trauma and joint
replacement applications. We believe that there is a particular application for
our products in patients suffering from osteoporosis. Osteoporosis, whereby bone
becomes less dense and more likely to break, afflicts 10 million Americans of
which more than 80% are women. Our six products under development are based on
two broad technology platforms. Our patented CORTOSS/TM/ biomaterial platform
consists of a bioactive glass and non-resorbable resin, which is used to form
synthetic cortical bone and can be delivered as either an injectable or a putty.
ORTHOCOMP/TM/ Injectable, CORTOSS/TM/ Injectable, and CORTOSS/TM/ Putty are
under development in this platform. Our VITOSS/TM/ orthobiologic platform
consists of a patented small particle resorbable calcium phosphate, which is
used to form osteoconductive synthetic cancellous bone and can be delivered as
an injectable or a scaffold. VITOSS/TM/ Injectable and VITOSS/TM/ Scaffold are
under development in this bone platform. Additionally, the two materials can be
combined to form our CORTOSS/TM/ Implant products that we believe can
incorporate the advantages of each platform. None of our CORTOSS or VITOSS
products has received regulatory approval and are not currently available for
sale.
We are developing the CORTOSS and VITOSS product lines independently and have
retained all of the commercial rights to these products. We have a worldwide
agreement for the joint development and commercialization of ORTHOCOMP
Injectable for use in joint implant procedures, such as hip replacements, with
Howmedica, a subsidiary of Stryker Corp., the market leader for joint implant
cements.
The first product we developed was BIOGRAN(R) for use in the dental market. In
order to better focus on the orthopaedic market in, March 2000 we sold our
BIOGRAN dental grafting product line to Implant Innovations Inc. ("3i"), a
Biomet Company, for $3.9 million. We received proceeds of $3.5 million, with an
additional $400,000 held in an escrow account for one year, and realized a one-
time net gain on the transaction of approximately $3.1 million.
Forward-Looking Statements
In addition to historical facts or statements of current conditions, this
report on Form 10-Q contains forward-looking statements. Forward-looking
statements provide our current expectations or forecasts of future events. These
may include statements regarding anticipated scientific progress in our research
programs, development of potential products, prospects for regulatory approval,
manufacturing capabilities, market prospects for our products, sales and
earnings projections and other statements regarding matters that are not
historical facts. Some of these forward-looking statements may be identified by
the use of words in the statements such as "anticipate", "estimate,''
''expect,'' ''project,'' ''intend,'' ''plan,'' ''believe,'' or other words and
terms similar in meaning. Our performance and financial results could differ
materially from those reflected in these forward-looking statements due to
general financial, economic, regulatory and political conditions affecting the
biotechnology, orthopaedic and medical device industries as well as more
specific risks and uncertainties such as set forth below. Given these risks and
uncertainties, any or all of these forward-looking statements may prove to be
incorrect.
9
<PAGE>
Therefore, you are cautioned not to place too much reliance on any such
forward-looking statements. Furthermore, we do not intend, and are not obligated
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. We claim the protections afforded by
the Private Securities Litigation Reform Act of 1995, as amended, for our
forward-looking statements. The use of the words ''Orthovita'', the ''Company'',
''we'', ''us'' or ''our'' herein refers to Orthovita, Inc., together with its
subsidiaries.
Certain Risks Related to Orthovita's Business
As further described above, our performance and financial results are subject to
risks and uncertainties including the following specific risks.
We have a history of operating losses and we will need additional funds that may
not be available in the future.
We have experienced negative operating cash flows since our inception. We plan
to continue to spend substantial funds for clinical trials in support of
regulatory and reimbursement approvals, for research and development, and for
the establishment of our commercial scale manufacturing capabilities and in
support of potential product launch. Factors which may cause our future capital
requirements to be greater than anticipated include the extent to which
unforeseen developments arise with our clinical trials, timing of regulatory
approval, research and development or manufacturing activities, market
acceptance of our products, the acquisition and defense of intellectual property
rights or the development of strategic alliances for the marketing of certain of
our products. We believe our existing cash as of March 31, 2000 will be
sufficient to meet our currently estimated operating and capital requirements
through at least December 31, 2000. We will need to obtain additional funds
through equity or debt financings, strategic alliances with third parties or
from other sources. Any such required financing may not be available on
satisfactory terms, if at all. The sale of additional equity or convertible debt
securities would result in additional dilution to our shareholders. If
additional funds are raised through the issuance of debt securities, these
securities could have certain rights senior to holders of Common Stock, and
could contain covenants that would restrict our operations. Any additional
financing may not be available in amounts or on terms acceptable to us, if at
all. If adequate financing is not available, we may be required to delay, scale
back or eliminate certain operations.
We have incurred substantial operating losses since our inception and, at
March 31, 2000, had an accumulated deficit of approximately $36.2 million. These
losses have resulted principally from expenses required to be incurred before we
can begin marketing our products, including the development and patenting of our
technologies, preclinical and clinical studies, preparation of submissions to
the FDA and foreign regulatory bodies, and the development of sales, marketing
and manufacturing capabilities. We expect to continue to incur significant
operating losses in the future as we continue our product development efforts,
expand our marketing and sales activities and further develop our manufacturing
capabilities.
We may never become profitable. Our future sales of product from our
synthetic cortical and cancellous bone technology platforms, if any, may not
grow, and we may not be able to achieve or maintain profitability in the future.
Our results of operations may fluctuate significantly in the future as a
result of a number of factors, many of which are outside of our control. These
factors include, but are not limited to, the timing of governmental approvals,
unanticipated events associated with clinical and preclinical trials, the
medical community's acceptance of our products, the success of
10
<PAGE>
competitive products, our ability to enter into strategic alliances with other
companies, expenses associated with development and protection of intellectual
property matters, establishment of commercial scale manufacturing capabilities,
and the timing of expenses related to commercialization of new products. The
results of our operations may fluctuate significantly from quarter to quarter
and may not meet expectations of securities analysts and investors.
Additional specific risks, to which our performance and financial results are
subject, are detailed in our Form 10-K dated December 31, 1999 and include:
We are dependent on the commercial success of CORTOSS Injectable and VITOSS
Scaffold, and our ability to achieve this is subject to certain risks,
including:
. the need to obtain their regulatory approval,
. the need to develop commercial scale manufacturing capability and capacity
for these products,
. the need to build an effective sales and distribution network,
. the uncertainty of operating in international markets, and
. the need for the market place to commercially accept VITOSS and CORTOSS.
Our success depends significantly on our ability to protect our proprietary
rights to the technologies used in our products.
The orthopaedic market is highly competitive.
We may be sued in a product liability action.
Our business could suffer if we cannot attract and retain the services of key
employees.
In addition, there are other risks, which are also detailed in the Form 10-K,
which you should read in its entirety, that relate principally to the securities
market and ownership of our securities, including:
Our executive officers and directors own a large percentage of our voting stock
and could exert significant influence over matters requiring shareholder
approval.
We have not and do not intend to pay any dividends.
Our stock price is highly volatile.
11
<PAGE>
Liquidity and Capital Resources
We have experienced negative operating cash flows since our inception, and we
have funded our operations primarily from the proceeds received from our initial
public offering. Cash, cash equivalents and short-term investments were $9.3
million at March 31, 2000 and $8.9 million at December 31, 1999, representing
74% and 78% of our total assets, respectively. Cash equivalents consist of
highly liquid, short-term investments with an original maturity of three months
or less.
The following is a summary of selected cash flow information for the three
months ended March 31:
Three Months Ended March 31,
2000 1999
---- ----
Net cash used in operating activities $(3,339,121) $(1,360,347)
Net cash provided by investing activities 6,247,096 1,964,676
Net cash provided by financing activities 580,034 55,815
Net cash used in operating activities
Operating Cash Inflows -
Operating cash inflows have been derived from BIOGRAN product sales realized
prior to the close of the sale of BIOGRAN dental grafting product line to 3i,
and we have received cash inflows from interest income on short-term
investments.
Operating Cash Outflows -
Our operating cash outflows were primarily used for development and pre-
clinical activities in preparation for regulatory filings of potential products.
In addition, funds have been used for the leasing and fit-up of expanded
facilities and the hiring and training of additional employees.
Operating Cash Flow Requirements Outlook -
We expect to continue to use cash in operating activities and expect this use
to increase due to efforts associated with the clinical trials as well as due
to pre-commercial launch activities in the U.S. and Europe. We expect our cash
flow from operating activities to continue to be negative until such time, if
ever, as regulatory clearances for our products are obtained and revenue
received from product sales exceeds funding of operating costs. The timing of
such events is dependent upon a number of variables outside of our control.
Net cash provided by investing activities
We received $3.9 million from the one-time net gain on the sale of the
BIOGRAN dental grafting product line to 3i on March 22, 2000. In addition, we
have invested $306,000 and $172,000 for the three months ended March 31, 2000
and 1999, respectively, primarily in the purchase of leasehold improvements for
the expansion of our product development and manufacturing capabilities. During
the three months ended March 31, 2000 and 1999, $3.1 million and $2.1 million,
respectively, were provided by the sale of investment grade marketable
securities.
12
<PAGE>
Investing Cash Outlook -
In order to provide funds for operations, we expect to continue to sell
marketable securities. We expect that our use of cash for the purchase of
property, equipment and leasehold improvements for 2000 may increase in
comparison to that of prior periods as we scale-up manufacturing capacity for
CORTOSS Injectable and VITOSS Scaffold. We have approximately $660,000 remaining
on an existing capital lease line for use in funding a portion of the equipment
necessary for the expansion of our development and manufacturing facilities. The
timing of such expansion is dependent upon a number of variables outside of our
control and include the timing of regulatory clearances for marketing of our
future products, the rate of market acceptance and growth of product sales, and
the lead times required to bring additional manufacturing capacity on line.
Net cash provided by financing activities
During the first three months of 2000, options and warrants to purchase
223,391 shares of Common Stock were exercised resulting in proceeds of $719,000.
In addition, $139,000 was used to repay capital lease obligations. In March
2000, we borrowed $2.0 million on a line of credit with our bank which was
repaid in April 2000.
Financing Requirements Outlook
We expect to continue to use cash and investments to fund operating and
investing activities. We plan to continue to spend substantial funds for
clinical trials in support of regulatory and reimbursement approvals, research
and development and establishment of commercial scale manufacturing
capabilities. We believe cash as of March 31, 2000 to be sufficient to meet our
currently estimated operating and capital requirements through at least December
31, 2000. Our future capital requirements will depend upon numerous factors,
including the extent to which unforeseen clinical, regulatory, manufacturing or
sales and marketing difficulties arise or to which our products gain market
acceptance, the acquisition and defense of intellectual property rights, the
development of strategic alliances for the marketing of certain of our products,
and other competitive developments. In addition, although we have no present
commitments or understandings, we may seek to expand our operations and product
line via acquisitions or joint ventures and any such acquisitions or joint
ventures may increase our capital requirements. We will need to obtain
additional funds through equity or debt financings, strategic alliances with
third parties or from other sources. These financing activities could result in
substantial dilution to the holders of Common Stock or significant financial or
operational restrictions to us. In addition, any such required financing may not
be available on satisfactory terms, if at all.
The extent and timing of proceeds from future stock option and warrant
exercises, if any, are primarily dependent upon our Common Stock's market price,
as well as, the exercise prices and expiration dates of the stock options and
warrants.
13
<PAGE>
Results of Operations
This section should be read in conjunction with the more detailed discussion
under ''Liquidity and Capital Resources.'' A summary of net revenues and
expenses for the three months ended March 31 is as follows:
<TABLE>
<CAPTION>
% Increase
Three Months Ended March 31, (Decrease)
<S> <C> <C> <C>
2000 1999 2000 vs. 1999
---- ---- -------------
Net Revenues $ 532,967 $ 562,532 ( 5)
Gross Profit 368,926 428,339 (14)
General and Administrative Expenses 966,589 758,093 28
Selling and Marketing Expenses 828,751 439,543 89
Research and Development Expenses 1,385,534 1,135,797 22
Other (Income) Expense (46,189) (200,322) (77)
Net gain on sale of product line 3,070,921 --- 100
Net Profit (Loss) 305,162 (1,704,772) 118
</TABLE>
Net Revenues Net revenues for the three months ended March 31, 2000 were
$533,000 in comparison to $563,000 for the same period in 1999. Net revenues
reflect sales of BIOGRAN product to 3i under a global distribution agreement
prior to the closing of the sale of our BIOGRAN dental grafting product line to
3i on March 22, 2000. As a result of this agreement, we will not generate
revenues from the BIOGRAN product line in the future.
Gross Profit Gross profit for the three months ended March 31, 2000 was
$369,000, or 69% of net revenues, compared to $428,000, or 76% of net revenues,
for the same period during 1999.
Operating Expenses Operating expenses for the three months ended March 31,
2000 were $3.2 million compared to $2.3 million during the same period a year
ago. The increase in general and administrative expenses from the first quarter
of 1999 to the first quarter of 2000 is primarily a result of an increase in the
number of employees in this area. Selling and marketing expenses increased from
the first quarter of 1999 to the first quarter of 2000 as a result of the
development of marketing materials and marketing-related consulting costs. The
increase from the first quarter of 1999 to the first quarter of 2000 in research
and development expenses is attributable to headcount additions related to the
expanded development of our product pipelines and pre-clinical and clinical
activities of VITOSS Scaffold and CORTOSS Injectable.
Other Income and Expenses Net other income and expenses decreased as a
result of lower interest income due to lower average cash balances during 2000
versus 1999.
Net gain on sale of product line In March 2000, we sold our BIOGRAN dental
grafting product line to 3i for $3.9 million. We received proceeds of $3.5
million, with an additional $400,000 held in an escrow account for one year, and
realized a one-time net gain on the transaction of approximately $3.1 million.
14
<PAGE>
Net Profit (Loss) As a result of the one-time net gain on the sale of BIOGRAN,
we had a net profit of $305,000 for the three months ended March 31, 2000
compared to a net loss of $1.7 million during the same period a year ago. We
expect to continue to incur significant operating losses in the future as we
continue our product development efforts, expand our marketing and sales
activities and further develop our manufacturing capabilities.
PART II
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OTHOVITA, INC.
(Registrant)
May 12, 2000 By: /s/ David S. Joseph
----------------------
David S. Joseph
Chairman and Chief Executive Officer
(Principal executive officer)
By: /s/ Joseph M. Paiva
----------------------
Joseph M. Paiva
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
DATED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,975,352
<SECURITIES> 3,341,471
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 839,620
<PP&E> 2,267,408
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,532,891
<CURRENT-LIABILITIES> 5,065,643
<BONDS> 592,897
0
0
<COMMON> 115,550
<OTHER-SE> 6,758,801
<TOTAL-LIABILITY-AND-EQUITY> 12,532,891
<SALES> 532,967
<TOTAL-REVENUES> 532,967
<CGS> 164,041
<TOTAL-COSTS> 164,041
<OTHER-EXPENSES> 3,180,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (46,189)
<INCOME-PRETAX> (2,765,759)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,765,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,070,921
<CHANGES> 0
<NET-INCOME> 305,162
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
