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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 1996
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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 0-23678
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BIOSEPRA INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3216867
- ------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Organization or Incorporation)
111 LOCKE DRIVE, MARLBOROUGH, MASSACHUSETTS 01752
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(Address of Principal Executive Offices) (Zip Code)
(508) 481-6802
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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.
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.
Common Stock, par value $.01 per share 8,399,946
-------------------------------------- ------------------------------
Class Outstanding at August 13, 1996
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BioSepra Inc.
<TABLE>
INDEX
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<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Operations for the
Three and Six Month Periods Ended June 30, 1996
and 1995 4
Consolidated Condensed Statements of Cash Flows for the
Periods Ended June 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION 15
SIGNATURES 17
</TABLE>
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BioSepra Inc.
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
(In thousands)
June 30, December 31,
ASSETS 1996 1995
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,824 $ 2,079
Cash in escrow -- 1,614
Accounts receivable 3,322 3,495
Inventories (Note 2) 3,058 3,120
Prepaid and other current assets 449 25
-------- --------
Total current assets 11,653 10,333
Property and equipment, net (Note 3) 2,275 2,139
Goodwill, net 9,573 9,892
Other assets 1,297 1,460
-------- --------
Total assets $ 24,798 $ 23,824
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,320 $ 966
Related parties payable (Note 4) 421 812
Accrued expenses 1,828 1,758
Accrued expenses relating to acquisition -- 1,614
Accrued restructuring (Note 9) 15 171
Deferred revenue (Note 8) 3,962 3,500
Notes payable, current portion of long-term debt
and capital lease obligations 489 2,781
-------- --------
Total current liabilities 8,035 11,602
Long-term debt and capital lease obligations 1,105 1,308
Long-term debt payable to related party (Note 4) 286 --
-------- --------
Total liabilities 9,426 12,910
Stockholders' equity:
Common stock 84 70
Additional paid-in capital 40,654 35,085
Unearned compensation (574) (685)
Accumulated deficit (24,938) (23,798)
Cumulative translation adjustment 146 242
-------- --------
Total stockholders' equity 15,372 10,914
-------- --------
Total liabilities and stockholders' equity $ 24,798 $ 23,824
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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BioSepra Inc.
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
(In thousands, except per share data)
Three-month periods Six-month periods
ended June 30, ended June 30,
----------------------- ------------------------
1996 1995 1996 1995
------ ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Product sales $3,676 $ 3,669 $ 6,482 $ 6,485
License fees 600 -- 600 --
Related party research and development -- 44 -- 85
------ ------- ------- -------
Total revenue 4,276 3,713 7,082 6,570
Costs and expenses:
Cost of products sold 1,785 2,464 2,968 4,976
Research and development 646 865 1,243 1,779
Restructuring and impairment costs (Note 9) -- 4,144 -- 4,144
Selling, general and administrative 1,708 2,788 3,869 5,378
------ ------- ------- -------
Total costs and expenses 4,139 10,261 8,080 16,277
------ ------- ------- -------
Income (loss) from operations 137 (6,548) (998) (9,707)
Other income (expenses), net (84) (24) (142) (26)
------ ------- ------- -------
Net income (loss) $ 53 $(6,572) $(1,140) $(9,733)
====== ======= ======= =======
Net income (loss) per share $ 0.01 $ (0.94) $ (0.16) $ (1.39)
Weighted average number of common and
common equivalent shares outstanding 7,479 7,000 7,251 7,000
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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BioSepra Inc.
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
(In thousands)
Six-month periods
ended June 30,
---------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,140) $(9,733)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 975 1,246
Provision for doubtful accounts 142 205
Restructuring and impairment costs -- 2,559
Loss on disposition of long-term assets 10 --
Changes in operating assets and liabilities:
Accounts receivable (55) 156
Inventories (26) 698
Prepaid and other current assets (424) 15
Accounts payable 390 (1,271)
Related parties payable (444) (123)
Accrued expenses 116 (409)
Accrued expenses relating to acquisition (3) --
Accrued restructuring (204) 1,310
Deferred revenue 463 2,735
------- -------
Net cash used in operating activities (200) (2,612)
Cash flows from investing activities:
Additions to property and equipment (583) (572)
Proceeds from sales of equipment 90 3
Increase in notes receivable from employees (10) --
Increase in other assets (35) (83)
------- -------
Net cash used in investing activities (538) (652)
Cash flows from financing activities:
Proceeds from issuance of common stock to parent 5,548 --
Proceeds from issuance of common stock to minority stockholders 35 --
Borrowings(repayments) under line of credit agreements (2,255) (1,340)
Long-term borrowings 350 1,480
Repayment of long-term borrowings (230) (132)
------- -------
Net cash provided by financing activities 3,448 8
Effect of exchange rate changes on cash
and cash equivalents 35 (12)
------- -------
Net increase (decrease) in cash and cash equivalents 2,745 (3,268)
Cash and cash equivalents at beginning of period 2,079 7,983
------- -------
Cash and cash equivalents at end of period $ 4,824 $ 4,715
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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BioSepra Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited and
have been prepared on a basis substantially consistent with the
Company's annual audited financial statements. The consolidated
financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Certain information and footnote disclosures normally included in the
Company's annual statements have been condensed or omitted. The
consolidated financial statements, in the opinion of management, reflect
all adjustments (including normal recurring accruals) necessary for a
fair statement of the results for the periods ended June 30, 1996 and
1995.
The results of operations for the periods are not necessarily indicative
of the results of operations to be expected for the fiscal year. These
consolidated financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
2. Inventories
<TABLE>
Inventories consist of the following:
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials $ 693 $ 998
Work in progress 462 240
Finished goods 1,903 1,882
------ ------
$3,058 $3,120
====== ======
</TABLE>
3. Property and Equipment
<TABLE>
Property and equipment consists of the following:
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Property and equipment $ 5,538 $ 4,452
Less accumulated depreciation
and amortization (3,655) (2,348)
-------- --------
1,883 2,104
Construction in progress 392 35
------- -------
$ 2,275 $ 2,139
======= =======
</TABLE>
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4. Related party transactions
The payable to related party represents amounts due for certain services
and facilities provided by Sepracor Inc. ("Sepracor"), the Company's
majority stockholder.
In March 1996, Sepracor agreed to loan $3,500,000 to the Company and
agreed to loan up to an additional $2,000,000 to the Company until March
1997 (the "loans"). The loans bore interest at prime plus 3/4% and were
repayable in March 2000. On June 10, 1996, Sepracor loaned the
additional $2,000,000 to the Company. On June 10, 1996, at the request
of Sepracor, the outstanding principal amount of $5,500,000 plus accrued
interest of $47,639 was converted into 1,369,788 shares of the Company's
common stock. After the conversion Sepracor owns approximately 64% of
the common stock of the Company.
In January 1996, the Company signed a promissory note for $350,000, or
such sum as shall have been advanced by Sepracor. This amount is payable
over 60 monthly installments and does not bear interest. The Company
used the funds for leasehold improvements to the Company's facilities.
As of June 30, 1996, there has been $350,000 borrowed against the
promissory note.
5. Net Income (loss) Per Share
The net income (loss) per common share is computed based upon the
weighted average number of common shares outstanding and common
equivalent shares. Common equivalent shares are not included in the per
share calculations where the effect of their inclusion would be
antidilutive.
6. Statements of Cash Flows
Cash payments for interest for the six months ended June 30,1996 and
1995 were $141,000 and $208,000, respectively.
7. Litigation
BioSepra and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc. ("PerSeptive"), a competitor of BioSepra, in
the United States District Court for the District of Massachusetts. In
actions commenced in October 1993 and January 1995, PerSeptive has
alleged that BioSepra's and Sepracor's manufacture and sale of
HyperD[Trademark] chromatography media infringe four of PerSeptive's
United States patents. PerSeptive is seeking unspecified monetary
damages as well as injunctive relief. In a separate action, PerSeptive
has alleged that certain statements made by BioSepra and Sepracor with
respect to the performance of HyperD media, performance of PerSeptive's
POROS[Registered Trademark] media, and the internal structures of POROS
and HyperD media, including statements made in BioSepra's Prospectus
dated March 24, 1994, constitute false advertising.
The Company has received an opinion of its patent counsel, Pennie &
Edmonds, to the effect that a properly informed court should conclude
the manufacture, use and/or sale by BioSepra or its customers of the
present HyperD products do not infringe any valid claims of the three
U.S. patents held by PerSeptive relating to "perfusion chromatography."
Allegations have also been made that another U.S. patent which relates
to the chemistry of certain coatings applied during the manufacture of
HyperD (the "coatings patent"), is infringed by the manufacture, sale or
use of HyperD. BioSepra and Sepracor have asserted a counterclaim
charging PerSeptive with unfair competition.
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On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted BioSepra's and Sepracor's request for
summary judgment with respect to three of PerSeptive's patents
concerning "Perfusion Chromatography" (the "January 9 Order"). The Court
ruled that persons in addition to those named in the "perfusion" patents
were inventors of the alleged inventions claimed in those patents. This
ruling may ultimately dispose of PerSeptive's claims concerning the
"perfusion" patents, depending on the Court's resolution of PerSeptive's
effort to correct the patents and the outcome on appeal by PerSeptive of
the January 9 Order or appeal by any party of any ruling regarding
correction of inventorship.
In its January 9 Order, the Court ruled that PerSeptive's claims related
to the three "perfusion" patents would be dismissed on January 19, 1996,
if PerSeptive had not requested correction of inventorship by that date.
The Court postponed this deadline pending its ruling on PerSeptive's
request for certification of an immediate appeal of the January 9 Order
to the United States Court of Appeals for the Federal Circuit. On March
12, 1996, the Court denied PerSeptive's motion for immediate appeal and
scheduled a hearing on deceptive intent on the part of PerSeptive, if
PerSeptive moved to correct inventorship (the "March 12 Order"). The
Court required PerSeptive to make any motion to correct by March 31,
1996. In response, PerSeptive requested that the Court vacate its
January 9 and March 12 Orders, or in the alternative, correct the
patents in such a way that the presently unnamed inventors obtained no
rights to license the patents. The Court denied PerSeptive's motion to
vacate and scheduled a hearing on PerSeptive's motion to correct the
patents for May 1996.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial
designation of inventors was done without deceptive intent. PerSeptive
has asserted that no motion to correct need be filed, and that BioSepra
and Sepracor bear the burden of proving deceptive intent. PerSeptive
also asserts that the unnamed inventors should not be added to the
patents or given any right to license the patents, and that as a matter
of law they did not err in not naming the two unnamed inventors, and did
not name inventors with deceptive intent. BioSepra and Sepracor contend
that if PerSeptive is able to correct inventorship, the presently
unnamed inventors would have independent rights to license the
"perfusion" patents unless the Court ruled that the unnamed inventors
are not entitled to such rights. If inventorship could not be corrected,
the "perfusion" patents would be held invalid, subject to appeal by
PerSeptive. A decision by the District Court to correct inventorship, or
preventing the unnamed inventors from licensing the "perfusion" patents,
would be subject to appeal by any party. PerSeptive could appeal any
decision invalidating the patents for willful misdesignation of
inventors. The hearing on deceptive intent is expected to be completed
on August 8, 1996. PerSeptive also asserts that an additional perfusion
chromatography patent has been allowed but has not yet been issued, and
that another patent related to perfusion chromatography has been issued.
BioSepra and Sepracor do not know what is claimed in either patent.
There can be no assurance that BioSepra and Sepracor will prevail in the
pending litigation, and an adverse outcome in any of the patent
infringement actions on any of the chromatography patents would have a
materially adverse effect on the Company's future business and
operations. The Company is required to repay to Beckman Instruments,
Inc. ("Beckman") all or part of certain payments if the Company
terminates Beckman's right to use and sell HyperD media because a court
finds HyperD media infringes any third party patents.
Substantial funds have been and continue to be expended in connection
with the defense of the litigation. Sepracor has agreed to control the
defense of the litigation, and Sepracor and BioSepra share equally in
expenses, net of insurance payments. In addition, in the event of any
settlement or judgment adverse to BioSepra, Sepracor has agreed to
indemnify BioSepra from and against any damages that BioSepra is
required to pay with respect to its manufacture, use or sale of HyperD
media products occurring prior to March 24, 1994.
8. Agreements
On March 14, 1995, BioSepra and Beckman entered into a joint
distribution and development agreement. The agreement allows Beckman to
market on a worldwide (except Japan) exclusive basis for a period of
three years certain HyperD chromatographic columns and provides for the
development (in accordance with certain milestones) and manufacture by
BioSepra of chromatographic systems for Beckman.
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Under the agreement, Beckman made a one-time payment to BioSepra of
$3,000,000 and is obligated to make future payments to BioSepra of up to
$2,000,000 based on the accomplishment by BioSepra of such milestones
for the development of chromatographic systems. The Company may be
required to return to Beckman all or part of such payments made by
Beckman under the agreement if BioSepra fails to meet such milestones.
In July, 1996, BioSepra and Beckman modified the distribution arragement
to include Japan.
9. Restructuring and Impairment:
On June 5, 1995, BioSepra announced a major cost-reduction program that
involved the consolidation of its facilities and a significant reduction
in the number of employees. The purpose of the program was to enable
BioSepra to focus on the process development and process segments of the
biopharmaceutical market. In connection with this program, on July 20,
1995, BioSepra completed the sale of Biopass, one of its French
subsidiaries. As part of the cost-reduction program, BioSepra recorded
restructuring and impairment charges totaling $4,144,000 in the second
quarter of 1995. Of this amount $1,180,000 represents severance and
benefits related to the reduction in workforce in the U.S. and France,
and $2,964,000 relates to impairment of intangibles and loss on sale of
Biopass. BioSepra has terminated 55 employees as part of the cost
reduction program consisting of research and development,
administrative, production and marketing/sales personnel. BioSepra has
paid $1,165,000 of the costs relating to this reduction as of June 30,
1996 and expects the remaining severance and benefits payments to be
completed by the third quarter of this year. There can no assurance that
this program will not result in a loss of customers or temporary sales
or production disruptions that could have a materially adverse effect on
BioSepra's operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
BioSepra Inc. ("BioSepra") develops, manufactures and sells chromatographic
media and instruments for use by biopharmaceutical companies in the purification
and production of biopharmaceuticals. BioSepra's products enable
biopharmaceutical companies to reduce the time and cost required to develop and
manufacture biopharmaceuticals. The Company offers a line of chromatographic
products (media, hardware, software and instruments). The media products are
based on both its recently developed HyperD[Trademark] media and established
technologies.
BioSepra was incorporated in December 1993 as a wholly-owned subsidiary of
Sepracor Inc. ("Sepracor"). Effective January 1, 1994, in exchange for 4,000,000
shares of common stock, Sepracor transferred to BioSepra the chromatography
business of Sepracor, including all the outstanding shares of Sepracor S.A.,
formerly called IBF S.A., which is based in France.
In March 1994, BioSepra completed an initial public offering of 3,000,000 shares
of its common stock, yielding net proceeds of approximately $17,924,000. At the
close of this offering Sepracor owned approximately 57% of the outstanding
Common Stock of the Company.
In March 1995, BioSepra and Beckman Instruments, Inc. ("Beckman") entered into a
joint distribution and development agreement. The agreement allows Beckman to
market on a worldwide (except Japan) exclusive basis for a period of three years
certain HyperD chromatographic columns and provides for the development (in
accordance with certain milestones) and manufacture by BioSepra of
chromatographic systems for Beckman. Under the agreement, Beckman made a
one-time payment to BioSepra of $3,000,000 and agreed to make future payments to
BioSepra of up to $2,000,000 based on the accomplishment by BioSepra of such
milestones for the development of chromatographic systems. As of August 2, 1996,
BioSepra had received the one time payment of $3,000,000 and $1,900,000 for the
completion of certain milestones in the development of such systems. The Company
may be required to return to Beckman all or part of such payments made by
Beckman under the agreement if BioSepra fails to meet such milestones or if
BioSepra terminates Beckman's right to use and sell licensed products, including
HyperD media, because a court finds that any such licensed products infringe any
third party patents. In July 1996, BioSepra and Beckman modified the
distribution arrangement to include Japan.
In June 1995, BioSepra announced a major cost-reduction program that involved
the consolidation of its facilities and a significant reduction in the number of
employees. The purpose of the program was to enable BioSepra to focus on the
process development and process segments of the biopharmaceutical market. In
connection with this program in July 1995, BioSepra completed the sale of
Biopass S.A. ("Biopass"), one of its French subsidiaries. Under the terms of the
sale of Biopass, BioSepra received a renewable royalty free technology license.
As part of the cost-reduction program, BioSepra recorded restructuring and
impairment charges totaling $4,144,000 in the second quarter of 1995. Of this
amount $1,180,000 represents severance and benefits related to the reduction in
workforce in the U.S. and France, and $2,964,000 relates to impairment of assets
and intangibles to net realizable value. BioSepra has completed its reduction in
workforce related to this cost-reduction program resulting in the termination of
55 employees consisting of research and development, administrative, production
and marketing/sales personnel. BioSepra has paid $1,165,000 of the costs
relating to this reduction as of June 30, 1996 and expects the remaining
severance and benefits payments to be completed by the third quarter of this
year. There can be no assurances that this program will not result in a loss of
customers, temporary sales or production disruptions that could have a material
adverse effect on BioSepra's operations.
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In March 1996, Sepracor agreed to loan $3,500,000 to the Company and agreed to
loan up to an additional $2,000,000 to the Company until March 1997 (the
"loans"). The loans bore interest at prime plus 3/4% and were repayable in March
2000. On June 10, 1996, Sepracor loaned the additional $2,000,000 to the
Company. On June 10, 1996, at the request of Sepracor, the outstanding principal
amount of $5,500,000 plus accrued interest of $47,639 was converted into
1,369,788 shares of the Company's common stock. After the conversion Sepracor
owns approximately 64% of the common stock of the Company.
Three and six months ended June 30, 1996 and 1995
Revenues increased to $4,276,000 for the three months ended June 30, 1996 from
$3,713,000 for the same period in 1995. Revenues for the six months ended June
30, 1996 increased to $7,082,000 compared to $6,570,000 for the same period in
1995. Revenues for the periods ended June 30, 1996 include $600,000 of licensing
revenue recognized as part of the Beckman distribution agreement, as discussed
above. Excluding sales of production-scale systems, a product line that was
discontinued as part of the cost-reduction program implemented in June 1995,
product revenues from continuing operations were $2,793,000 and $4,445,000 for
the three and six months ended June 30, 1995, respectively. The increase in
revenues from continuing operations, for the three and six month periods, are
primarily attributable to increased media product sales and new product sales
to Beckman for HyperD media and chromatographic systems as part of the joint
distribution and development agreement, as described above.
Cost of products sold as a percentage of product sales was 49% for the three
months ended June 30, 1996 compared to 67% for the same period in 1995. For the
six months ended June 30, 1996 and 1995 the cost of products sold as a
percentage of product sales was 46% and 77%, respectively. The improved product
margins are due to favorable product mix, including the discontinuation of the
lower product margin production-scale systems. Also contributing to the lower
product costs were the reduced overall manufacturing costs as a result of the
cost-reduction program implemented in June 1995. Management expects fluctuations
in cost of products sold as a percentage of product sales as product mix changes
occur period to period and new products are introduced.
Research and development expenses decreased to $646,000 in the second quarter of
1996 from $865,000 in the second quarter of 1995. For the first six months of
1996, research and development expenses decreased to $1,243,000 from $1,779,000
for the comparable period in 1995. These decreases are primarily the result of
the cost-reduction program implemented in June 1995. Research and development
expenses related to discontinued production-scale systems were $94,000 and
$208,000 for the three and six months ended June 30, 1995, respectively.
Selling, general and administrative expenses decreased to $1,708,000 in the
three months ended June 30, 1996 from $2,788,000 in the three months ended June
30, 1995. For the first six months of 1996, selling, general and administrative
expenses decreased to $3,869,000 from $5,378,000 in the comparable period of
1995. The primary reason for the decrease in expenditures is related to the
cost-reduction program implemented in June 1995. Selling, general and
administrative expenses related to discontinued production-scale systems were
$353,000 and $631,000 for the three and six months ended June 30, 1995,
respectively.
Other expense, net was $84,000 for the three months ended June 30, 1996 as
compared to other expense, net of $24,000 for the comparable period in 1995. For
the first six months of 1996 other expense, net was $142,000 as compared to
other expense, net of $26,000 for the first six months of 1995. These changes
are attributable to lower interest income earned, increased interest expense
paid and unfavorable foreign currency translation losses.
The Company had a net profit of $53,000 in the three months ended June 30, 1996
compared to a net loss, excluding the $4,144,000 charge for restructuring and
impairment, of $2,428,000 in the three months ended June 30, 1995. For the six
months ended June 30, 1996 the Company had a net loss of $1,140,000 compared to
a net loss of $5,589,000, excluding the $4,144,000 charge for restructuring and
impairment, for the six months ended June 30, 1995. The decreased losses for the
comparable three and six month periods are primarily attributable to higher
overall product gross margin, and reduced expenses in research, development,
sales, marketing and administration associated with the cost-reduction program
implemented in June 1995.
11
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Litigation
BioSepra and Sepracor are defendants in three lawsuits brought by PerSeptive
Biosystems, Inc. ("PerSeptive"), a competitor of BioSepra, in the United States
District Court for the District of Massachusetts. In actions commenced in
October 1993 and January 1995, PerSeptive has alleged that BioSepra's and
Sepracor's manufacture and sale of HyperD chromatography media infringe four of
PerSeptive's United States patents. PerSeptive is seeking unspecified monetary
damages as well as injunctive relief. In a separate action, PerSeptive has
alleged that certain statements made by BioSepra and Sepracor with respect to
the performance of HyperD media, performance of PerSeptive's POROS[Registered
Trademark] media, and the internal structures of POROS and HyperD media,
including statements made in BioSepra's Prospectus dated March 24, 1994,
constitute false advertising.
The Company has received an opinion of its patent counsel, Pennie & Edmonds, to
the effect that a properly informed court should conclude the manufacture, use
and/or sale by BioSepra or its customers of the present HyperD products do not
infringe any valid claims of the three U.S. patents held by PerSeptive relating
to "perfusion chromatography." Allegations have also been made that another U.S.
patent which relates to the chemistry of certain coatings applied during the
manufacture of HyperD (the "coatings patent"), is infringed by the manufacture,
sale or use of HyperD. BioSepra and Sepracor have asserted a counterclaim
charging PerSeptive with unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted BioSepra's and Sepracor's request for summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography" (the "January 9 Order"). The Court ruled that persons in
addition to those named in the "perfusion" patents were inventors of the alleged
inventions claimed in those patents. This ruling may ultimately dispose of
PerSeptive's claims concerning the "perfusion" patents, depending on the Court's
resolution of PerSeptive's effort to correct the patents and the outcome on
appeal by PerSeptive of the January 9 Order or appeal by any party of any ruling
regarding correction of inventorship.
In its January 9 Order, the Court ruled that PerSeptive's claims related to the
three "perfusion" patents would be dismissed on January 19, 1996, if PerSeptive
had not requested correction of inventorship by that date. The Court postponed
this deadline pending its ruling on PerSeptive's request for certification of an
immediate appeal of the January 9 Order to the United States Court of Appeals
for the Federal Circuit. On March 12, 1996, the Court denied PerSeptive's motion
for immediate appeal and scheduled a hearing on deceptive intent on the part of
PerSeptive, if PerSeptive moved to correct inventorship (the "March 12 Order").
The Court required PerSeptive to make any motion to correct by March 31, 1996.
In response, PerSeptive requested that the Court vacate its January 9 and March
12 Orders, or in the alternative, correct the patents in such a way that the
presently unnamed inventors obtained no rights to license the patents. The Court
denied PerSeptive's motion to vacate and scheduled a hearing on PerSeptive's
motion to correct the patents for May 1996.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial designation of
inventors was done without deceptive intent. PerSeptive has asserted that no
motion to correct need be filed, and that BioSepra and Sepracor bear the burden
of proving deceptive intent. PerSeptive also asserts that the unnamed inventors
should not be added to the patents or given any right to license the patents,
and that as a matter of law they did not err in not naming the two unnamed
inventors, and did not name inventors with deceptive intent. BioSepra and
Sepracor contend that if PerSeptive is able to correct inventorship, the
presently unnamed inventors would have independent rights to license the
"perfusion" patents unless the Court ruled that the unnamed inventors are not
entitled to such rights. If inventorship could not be corrected, the "perfusion"
patents would be held invalid, subject to appeal by PerSeptive. A decision by
the District Court to correct inventorship, or preventing the unnamed inventors
from licensing the "perfusion" patents, would be subject to appeal by any party.
PerSeptive could appeal any decision invalidating the patents for willful
misdesignation of inventors. The hearing on deceptive intent is expected to be
completed on August 8, 1996. PerSeptive also asserts that an additional
perfusion chromatography patent has been allowed but has not yet been issued,
and that another patent related to perfusion chromatography has been issued.
BioSepra and Sepracor do not know what is claimed in either patent.
12
<PAGE> 13
There can be no assurance that BioSepra and Sepracor will prevail in the pending
litigation, and an adverse outcome in any of the patent infringement actions on
any of the chromatography patents would have a materially adverse effect on the
Company's future business and operations. The Company is required to repay to
Beckman Instruments, Inc. ("Beckman") all or part of certain payments if the
Company terminates Beckman's right to use and sell HyperD media because a court
finds HyperD media infringes any third party patents.
Substantial funds have been and continue to be expended in connection with the
defense of the litigation. Sepracor has agreed to control the defense of the
litigation, and Sepracor and BioSepra share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to BioSepra, Sepracor has agreed to indemnify BioSepra from and against
any damages that BioSepra is required to pay with respect to its manufacture,
use or sale of HyperD media products occurring prior to March 24, 1994.
LIQUIDITY AND CAPITAL RESOURCES
In March 1996, Sepracor agreed to loan $3,500,000 to the Company and agreed to
loan up to an additional $2,000,000 to the Company until March 1997 (the
"loans"). The loans bore interest at prime plus 3/4% and were repayable in March
2000. On June 10, 1996, Sepracor loaned the additional $2,000,000 to the
Company. On June 10, 1996, at the request of Sepracor, the outstanding principal
amount of $5,500,000 plus accrued interest of $47,639 was converted into
1,369,788 shares of the Company's common stock. After the conversion Sepracor
owns approximately 64% of the common stock of the Company.
In January 1996, the Company signed a promissory note for $350,000, or such sum
as shall have been advanced by Sepracor. This amount is payable over 60 monthly
installments and does not bear interest. The Company used the funds for
leasehold improvements to the Company's facilities. As of June 30, 1996, there
has been $350,000 borrowed against the promissory note.
Cash and cash equivalents totaled $4,824,000 at June 30, 1996. The net increase
in cash and cash equivalents for the six months ended June 30, 1996 was
$2,745,000. This increase was attributable primarily to the issuance of common
stock to Sepracor of $5,548,000 and $350,000 in notes payable as described
above, offset in part by the net repayments of $2,485,000 in borrowings and net
cash used in operating activities of $200,000. The net cash used in operating
activities was comprised of the net loss of $1,140,000 and the increase of other
assets and working capital of $424,000 and $81,000, respectively, and a decrease
of $204,000 and $54,000 in accrued restructuring and payables respectively. This
was offset by increases in deferred revenue and accrued expenses of $463,000 and
$113,000, respectively. Also offsetting the net cash used in operating
activities were non-cash adjustments of $975,000 for depreciation and
amortization and $142,000 for the provision for doubtful accounts. Net cash used
in investing activities was $538,000 which included the increase in property and
equipment of $583,000, offset by proceeds from the sales of equipment of
$90,000. At June 30, 1996, there was $1,518,000 outstanding under available
credit facilities from four commercial banks totaling $3,850,000. These
borrowings are currently guaranteed by Sepracor while a portion are also
collateralized by certain accounts receivable balances.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report on Form 10-Q,
including information with respect to the ability of BioSepra to obtain
additional financing within the next twelve months, the success of BioSepra's
HyperD media and the ProSys workstation, and information with respect to the
Company's other plans and strategy for its business consist of forward-looking
statements. Important factors that could cause actual results to differ
materially from the forward-looking statements are described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. In addition,
based upon the Company's current operating plan, the Company believes that its
current cash balance is sufficient to fund the Company's operations into early
1997. The Company's cash requirements may vary materially from those now planned
because of factors such as the timing of significant product orders, commercial
acceptance of new products, patent developments, the introduction of competitive
products, the outcome of pending litigation and acquisitions. Accordingly, the
Company may be required to raise additional financing within the next twelve
months, and there can be no assurance that such financing will be available on
favorable terms, if at all.
13
<PAGE> 14
Because of the foregoing factors, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and it
expects that its results of operations may continue to fluctuate from period to
period in the future.
14
<PAGE> 15
PART II.
OTHER INFORMATION
Item 1. Legal proceedings
BioSepra and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc. ("PerSeptive"), a competitor of BioSepra, in
the United States District Court for the District of Massachusetts. In
actions commenced in October 1993 and January 1995, PerSeptive has
alleged that BioSepra's and Sepracor's manufacture and sale of
HyperD[Trademark] chromatography media infringe four of PerSeptive's
United States patents. PerSeptive is seeking unspecified monetary
damages as well as injunctive relief. In a separate action, PerSeptive
has alleged that certain statements made by BioSepra and Sepracor with
respect to the performance of HyperD media, performance of PerSeptive's
POROS[Registered Trademark] media, and the internal structures of POROS
and HyperD media, including statements made in BioSepra's Prospectus
dated March 24, 1994, constitute false advertising.
The Company has received an opinion of its patent counsel, Pennie &
Edmonds, to the effect that a properly informed court should conclude
the manufacture, use and/or sale by BioSepra or its customers of the
present HyperD products do not infringe any valid claims of the three
U.S. patents held by PerSeptive relating to "perfusion chromatography."
Allegations have also been made that another U.S. patent which relates
to the chemistry of certain coatings applied during the manufacture of
HyperD (the "coatings patent"), is infringed by the manufacture, sale or
use of HyperD. BioSepra and Sepracor have asserted a counterclaim
charging PerSeptive with unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted BioSepra's and Sepracor's request for
summary judgment with respect to three of PerSeptive's patents
concerning "Perfusion Chromatography" (the "January 9 Order"). The Court
ruled that persons in addition to those named in the "perfusion" patents
were inventors of the alleged inventions claimed in those patents. This
ruling may ultimately dispose of PerSeptive's claims concerning the
"perfusion" patents, depending on the Court's resolution of PerSeptive's
effort to correct the patents and the outcome on appeal by PerSeptive of
the January 9 Order or appeal by any party of any ruling regarding
correction of inventorship.
In its January 9 Order, the Court ruled that PerSeptive's claims related
to the three "perfusion" patents would be dismissed on January 19, 1996,
if PerSeptive had not requested correction of inventorship by that date.
The Court postponed this deadline pending its ruling on PerSeptive's
request for certification of an immediate appeal of the January 9 Order
to the United States Court of Appeals for the Federal Circuit. On March
12, 1996, the Court denied PerSeptive's motion for immediate appeal and
scheduled a hearing on deceptive intent on the part of PerSeptive, if
PerSeptive moved to correct inventorship (the "March 12 Order"). The
Court required PerSeptive to make any motion to correct by March 31,
1996. In response, PerSeptive requested that the Court vacate its
January 9 and March 12 Orders, or in the alternative, correct the
patents in such a way that the presently unnamed inventors obtained no
rights to license the patents. The Court denied PerSeptive's motion to
vacate and scheduled a hearing on PerSeptive's motion to correct the
patents for May 1996.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial
designation of inventors was done without deceptive intent. PerSeptive
has asserted that no motion to correct need be filed, and that BioSepra
and Sepracor bear the burden of proving deceptive intent. PerSeptive
also asserts that the unnamed inventors should not be added to the
patents or given any right to license the patents, and that as a matter
of law they did not err in not naming the two unnamed inventors, and did
not name inventors with deceptive intent. BioSepra and Sepracor contend
that if PerSeptive is able to correct inventorship, the presently
unnamed inventors would have independent rights to license the
"perfusion" patents unless the Court ruled that the unnamed inventors
are not entitled to such rights. If inventorship could not be corrected,
the "perfusion" patents would be held invalid, subject to appeal by
PerSeptive. A decision by the District Court to correct inventorship, or
preventing the unnamed inventors from licensing the "perfusion" patents,
would be subject to appeal by any party. PerSeptive could appeal any
decision invalidating the patents for willful misdesignation of
inventors. The hearing on deceptive intent is expected to be completed
on August 8,
15
<PAGE> 16
1996. PerSeptive also asserts that an additional perfusion
chromatography patent has been allowed but has not yet been issued, and
that another patent related to perfusion chromatography has been issued.
BioSepra and Sepracor do not know what is claimed in either patent.
There can be no assurance that BioSepra and Sepracor will prevail in the
pending litigation, and an adverse outcome in any of the patent
infringement actions on any of the chromatography patents would have a
materially adverse effect on the Company's future business and
operations. The Company is required to repay to Beckman Instruments,
Inc. ("Beckman") all or part of certain payments if the Company
terminates Beckman's right to use and sell HyperD media because a court
finds HyperD media infringes any third party patents.
Substantial funds have been and continue to be expended in connection
with the defense of the litigation. Sepracor has agreed to control the
defense of the litigation, and Sepracor and BioSepra share equally in
expenses, net of insurance payments. In addition, in the event of any
settlement or judgment adverse to BioSepra, Sepracor has agreed to
indemnify BioSepra from and against any damages that BioSepra is
required to pay with respect to its manufacture, use or sale of HyperD
media products occurring prior to March 24, 1994.
Items 2 - 3. None
Item 4. Submission of Matters to a Vote of Security Holders
<TABLE>
At the Company's Annual Meeting of Stockholders held on May 15, 1996,
the following proposals were adopted by the vote specified below:
<CAPTION>
Proposal For Against Abstain Unvoted
-------- --- ------- ------- -------
<S> <C> <C> <C> <C>
1. Election of Directors
Jean-Marie Vogel 6,712,868 13,099 0
Timothy J. Barberich 6,712,868 13,099 0
Robert L. Bratzler, Ph.D. 6,712,868 13,099 0
William M. Cousins, Jr 6,712,868 13,099 0
Alexander M. Klibanov, Ph.D. 6,712,868 13,099 0
Paul A. Looney 6,712,868 13,099 0
Riccardo Pigliucci 6,712,868 13,099 0
William E. Rich, Ph.D. 6,712,868 13,099 0
2. Amendment to the Company's
1994 Director Option Plan increasing
from 120,000 to 150,000 the number
of shares of Common Stock reserved
for issuance under the plan 6,573,964 56,459 3,935 91,609
</TABLE>
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
10.1 1994 Director Stock Option Plan, as amended, of BioSepra
Inc.
27.1 Financial Data Schedule
b) Reports on Form 8-K
On June 12, 1996, the Company filed a Current Report on Form 8-K
reporting under Item 5 thereof information with respect to the
conversion by Sepracor Inc. of the outstanding principal, plus
accrued interest, of certain loans due from the Company to
Sepracor and aggregating $5,547,639 into 1,369,788 shares of the
Company's common stock. Included therewith is the unaudited Pro
Forma consolidated balance sheet of the Company as of April 30,
1996
16
<PAGE> 17
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.
BIOSEPRA INC.
Date: August 13, 1996 /s/ Jean-Marie Vogel
-------------------------------------------
Jean-Marie Vogel
President, Chief Executive
Officer and Director
(Principal Executive and Financial Officer)
Date: August 13, 1996 /s/ Peter M. Castellanos
------------------------------------
Peter M. Castellanos
Director, Finance and Administration
(Chief Accounting Officer)
17
<PAGE> 1
Exhibit 10.1
AMENDMENT TO
1994 DIRECTOR OPTION PLAN
OF
BIOSEPRA INC.
The 1994 Director Option Plan (the "Plan") be and hereby is amended as
follows:
1. The number 120,000 in the second line of Section 4(a) of the Plan
shall be deleted and the number of 150,000 shall be inserted in lieu
thereof.
Adopted by the Board of Directors on March 29, 1996
Approved by the Stockholders on May 15, 1996
<PAGE> 2
BIOSEPRA INC.
1994 DIRECTOR STOCK OPTION PLAN
1. Purpose.
--------
The purpose of this 1994 Director Stock Option Plan (the "Plan") of
BioSepra Inc. (the "Company") is to encourage ownership in the Company by
outside directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. Administration.
---------------
The Board of Directors shall supervise and administer the Plan. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. Participation in the Plan.
--------------------------
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. Stock Subject to the Plan.
--------------------------
(a) The maximum number of shares which may be issued under the
Plan shall be 120,000 shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), subject to adjustment as provided in Section 9 of the
Plan.
(b) If any outstanding option under the Plan for any reason
expires or is terminated without having been exercised in full, the shares
allocable to the unexercised portion of such option shall again become available
for grant pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory
options not entitled to special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended to date and as it may be amended from time to
time (the "Code").
<PAGE> 3
5. Terms, Conditions and Form of Options.
--------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) OPTION GRANT DATES. Options shall be granted (i) on the
effective date of the Plan, to all eligible directors who are directors
as of such date, and to all other eligible directors upon his or her initial
election as a director, and (ii) on each subsequent date that he or she is
re-elected as a director after the year ending December 31, 1994. An option
granted pursuant to subsection (i) herein shall be referred to herein as an
"Initial Option" and an option granted pursuant to subsection (ii) herein shall
be referred to herein as a "Reelection Option."
(b) SHARES SUBJECT TO OPTION. Each Initial Option granted under
the Plan shall be for the purchase of 10,000 shares of Common Stock, PROVIDED,
HOWEVER, that the Initial Option granted to Timothy J. Barberich shall be for
the purchase of 40,000 shares of Common Stock and the Initial Option granted to
Robert L. Bratzler shall be for the purchase of 20,000 shares of Common Stock.
Each Reelection Option granted under the Plan shall be exercisable for 2,000
shares of Common Stock.
(c) OPTION EXERCISE PRICE. The option exercise price per share
for each option granted under the Plan shall equal (i) the last reported sales
price per share of the Company's Common Stock on the Nasdaq National Market
(or, if the Company is traded on a nationally recognized securities exchange on
the date of grant, the reported closing sales price per share of the Company's
Common Stock by such exchange) on the date of grant (or if no such price if
reported on such date such price as reported on the nearest preceding day) or
(ii) if the Common Stock is not traded on the Nasdaq National Market or any
exchange the fair market value per share on the date of grant as determined by
the Board of Directors. Notwithstanding the above, the option exercise price
for any Initial Options granted prior to January 15, 1994, shall equal $2.00
per share.
(d) OPTIONS NON-TRANSFERABLE. Each option granted under the
Plan by its terms shall not be transferable by the optionee otherwise
than by will, or by the laws of descent and distribution, and shall be exercised
during the lifetime of the optionee only by him. No option or interest therein
may be transferred, assigned, pledged or hypothecated by the optionee during
his lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
<PAGE> 4
(e) EXERCISE PERIOD.
(i) INITIAL OPTION. Each Initial Option may be exercised
on a cumulative basis as to one-fifth of the shares subject to the option on
each of the first, second, third, fourth and fifth anniversaries of the date of
grant of such option; and
(ii) REELECTION OPTION. Each Reelection Option may be
exercised on a cumulative basis as to one-half of the shares subject to the
option on each of the first and second anniversaries of the date of grant of
such Option; PROVIDED that, subject to the provisions of Section 5(f), no option
may be exercised more than 90 days after the optionee ceases to serve as a
director of the Company. No option shall be exercisable after the expiration of
ten years from the date of grant.
(f) EXERCISE PERIOD UPON DISABILITY OR DEATH. Notwithstanding
the provisions of Section 5(e), an option granted under the Plan may be
exercised, to the extent then exercisable, by an optionee who becomes disabled
(within the meaning of Section 22(e)(3) of the Code or any successor provisions
thereto) while acting as a director of the Company, or may be exercised, to the
extant then exercisable, upon the death of such optionee while a director of the
company by the person to whom it is transferred by will, by the laws of descent
and distribution, or by written notice filed pursuant to Section 5(h), in each
case within the period of one year after the date the optionee ceases to be such
a director by reason of such disability or death; provided that, no option shall
be exercisable after the expiration of ten years from the date of grant.
(g) EXERCISE PROCEDURE. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment in cash or
the full consideration for the shares as to which they are exercised.
(h) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR, A
director, by written notice to the Company, may designate one or more persons
(and from time to time change such designation) including his legal
representative, who, by reason of the director's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. Assignments.
------------
The rights and benefits under the Plan may not be assigned except
for the designation of a beneficiary as provided in Section 5.
<PAGE> 5
7. Effective Date and Time for Granting Options.
---------------------------------------------
(a) The Plan shall become effective on January 5, 1994.
(b) All options for shares subject to the Plan shall be granted,
if at all, not later than six (6) years after the approval of the Plan by the
Company's stockholders.
8. Limitation Rights.
------------------
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor
the granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have
no rights as a stockholder with respect to the shares covered by his options
until the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 9) for which the record date is prior to the date such certificate is
issued.
9. Changes in Common Stock.
------------------------
(a) If the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other distribution with
respect so such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment will be made in (i) the maximum number and kind or
shares reserved for issuance under the Plan, (ii) the number and kind or shares
or other securities subject to then outstanding options under the Plan and (iii)
the price for each share subject to any then outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable. No fractional shares will be issued under the Plan on account of
any such adjustments.
(b) In the event that the Company is merged or consolidated into
or with another corporation (in which consolidation or merger the stockholders
of the Company receive distributions of cash or securities of another issuer as
a result thereof), or in the event that all or substantially all of the assets
of the Company are acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or
<PAGE> 6
equivalent options shall be substituted, by the acquiring or successor
corporation (or an affiliate thereof), or (ii) upon written notice to the
optionees, provide that all unexercised options will terminate immediately prior
to the consummation of such merger, consolidation, acquisition, reorganization
or liquidations unless exercised by the Optionee within a specified number of
days following the date of such notice.
10. Amendment of the Plan.
----------------------
The Board of Directors may suspend or discontinue the Plan or review or
amend it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company no revision or amendment shall change the
designation of the class of directors eligible to receive options, or
materially increase the benefits accruing to participants under the Plan. The
Plan may not be amended more than once in any six-month period.
11. Notice.
-------
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. Governing Law.
--------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors on
January 5, 1994
Approved by the Stockholders on
January 28, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,824,000
<SECURITIES> 0
<RECEIVABLES> 3,322,000
<ALLOWANCES> 0
<INVENTORY> 3,058,000
<CURRENT-ASSETS> 11,653,000
<PP&E> 2,275,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,798,000
<CURRENT-LIABILITIES> 8,035,000
<BONDS> 1,391,000
<COMMON> 84,000
0
0
<OTHER-SE> 15,288,000
<TOTAL-LIABILITY-AND-EQUITY> 24,798,000
<SALES> 6,482,000
<TOTAL-REVENUES> 7,082,000
<CGS> 2,968,000
<TOTAL-COSTS> 2,968,000
<OTHER-EXPENSES> 5,112,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158,000
<INCOME-PRETAX> (1,140,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,140,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,140,000)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
