<PAGE> 1
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: March 31, 1999
[ ] 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
BIOSEPRA INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3216867
- ------------------------------- ----------------------
(State or Other Jurisdiction of (IRS Employer
Organization or Incorporation) Identification Number)
111 LOCKE DRIVE, MARLBOROUGH, MASSACHUSETTS 01752
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(508) 357-7500
(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 8,456,059
- -------------------------------------- ---------------------------
Class Outstanding at May 10, 1999
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BioSepra Inc.
INDEX
Page
----
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1999 and December 31, 1998 ................................ 2
Consolidated Condensed Statements of Operations
for the Three Month Periods Ended March 31, 1999
and 1998 ............................................................ 3
Consolidated Condensed Statements of Cash Flows for the
Three Month Periods Ended March 31, 1999 and 1998 ................... 4
Notes to Consolidated Financial Statements .......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................. 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ......................................................... 9
Pan II - Other Information .................................................. 10
Signatures .................................................................. 11
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BioSepra Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
March 31, December 31,
1999 1998
-------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,416 $ 2,235
Accounts receivable 3,057 2,034
Inventories (Note 2) 3,709 3,572
Prepaid and other current assets 142 55
-------- --------
Total current assets 8,324 7,896
Property and equipment, net (Note 3) 1,392 1,416
Goodwill, net 4,798 4,896
Other assets 521 509
-------- --------
Total assets $ 15,035 $ 14,717
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt
and capital lease obligations $ 2,548 $ 2,458
Accounts payable 1,273 984
Related parties payable (Note 4) 518 430
Accrued expenses 2,318 1,432
Deferred contract revenue -- 40
-------- --------
Total current liabilities 6,657 5,344
Long-term debt and capital lease obligations,
net of current portion 496 276
-------- --------
Total liabilities 7,153 5,620
Minority Interest 131 --
Stockholders' equity:
Common stock 84 84
Additional paid-in capital 40,587 40,587
Accumulated deficit (32,510) (31,535)
Cumulative translation adjustment (410) (39)
-------- --------
Total stockholders' equity 7,751 9,097
-------- --------
Total liabilities and stockholders' equity $ 15,035 $ 14,717
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
2
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BioSepra Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three month periods
ended March 31,
-------------------
1999 1998
------ ------
<S> <C> <C>
Revenue:
Product sales $2,576 $1,890
Research and development 49 110
License fees 12 72
------ ------
Total revenue 2,637 2,072
Costs and expenses:
Cost of products sold 1,162 964
Selling, general and administrative 1,929 874
Research and development 321 336
Amortization expense 141 141
Restructuring costs -- (351)
------ ------
Total costs and expenses 3,553 1,964
(Loss) Income from operations (916) 108
Other (expenses) Income, net (27) 16
------ ------
Pretax (loss) income (943) 124
Income Tax (18) --
------ ------
(Loss) Income before Minority Interest (961) 124
Minority Interest (14) --
------ ------
Net (loss) income $ (975) $ 124
====== ======
Basic and diluted net (loss) income per share $(0.12) $ 0.01
====== ======
Weighted average number of common shares outstanding 8,437 8,431
====== ======
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
3
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BioSepra Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Three month periods
ended March 31,
--------------------
1999 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (975) $ 124
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization 228 267
Issuance of warrants -- 30
Provision for doubtful accounts (45) (13)
Minority Interest 14 --
Loss on disposition of long-term assets -- 1
Changes in operating assets and liabilities:
Accounts receivable (437) (134)
Inventories (29) (443)
Prepaid and other current assets (44) 8
Accounts payable 8 (310)
Related parties payable 101 (97)
Accrued expenses 439 92
Accrued restructuring -- (127)
Deferred revenue (40) 122
------ ------
Net cash used in operating activities (780) (480)
Cash flows from investing activities:
Additions to property and equipment (118) (144)
Proceeds from sales of equipment 0 3
Additions to cash from acquisition 288
Decrease in cash in escrow -- 143
Increase in other assets (15) (32)
------ ------
Net cash provided by (used in) investing activities 155 (30)
Cash flows from financing activities:
Net borrowings under line of credit agreements 6 2,000
Repayment of long-term borrowings (151) (119)
------ ------
Net cash (used in) provided by financing activities (145) 1,881
Effect of exchange rate changes on cash and cash equivalents (49) (30)
------ ------
Net increase in cash and cash equivalents (819) 1,341
Cash and cash equivalents at beginning of period 2,235 2,370
------ ------
Cash and cash equivalents at end of period $1,416 $3,711
====== ======
</TABLE>
The accompanying notes are an integral part of
the consolidated condensed financial statements.
4
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BioSepra Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated condensed financial statements are unaudited and
have been prepared on a basis substantially consistent with BioSepra Inc.'s (the
"Company") annual audited financial statements. The consolidated condensed
financial statements include the accounts of the Company and its wholly owned
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation.
Certain information and footnote disclosures normally included in the Company's
annual statements have been condensed or omitted. The consolidated condensed
financial statements, in the opinion of management, reflect all adjustments
(including normal recurring accruals) necessary for a fair statement of the
results for the three-month periods ended March 31, 1999 and 1998.
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
condensed 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, 1998.
The Company has funded its operations through equity issuances and a revolving
line of credit The Company's revolving line of credit expired on April 30, 1999;
however, the Company has signed a term sheet with the bank that, if fully
negotiated and executed, will provide the Company with a replacement line of
credit of $2,000,000. If the Company does not obtain additional financing, it
may not be able to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Raw material $1,162 $ 956
Work in progress 160 137
Finished goods 2,387 2,479
------ ------
$3,709 $3,572
====== ======
</TABLE>
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- -----------
<S> <C> <C>
Property and equipment $ 4,105 $ 4,424
Less accumulated depreciation and amortization (2,715) (3,008)
------- -------
Total Property & Equipment $ 1,392 $ 1,416
======= =======
</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 January 1996, the Company entered into a promissory note for $350,000 with
Sepracor. This amount is payable to Sepracor over sixty monthly installments and
does not bear interest. The Company utilized the funds for leasehold
improvements to the Company's facilities. As of March 31, 1999, $143,149 was
outstanding under the promissory note.
5. Net (Loss)/income Per Share
Basic (loss)/income per common share is computed by dividing net (loss) income
by the weighted average number of common shares outstanding during the period.
Diluted (loss) income per share is the same as basic (loss) income per share as
the effects of common stock equivalents are antidilutive for all periods
presented. Total antidilutive shares of approximately 3,421,936 and 615,000 for
the three months ended March 31, 1999 and 1998, respectively have been excluded
from the calculation of weighted average number of potentially diluted common
shares outstanding.
6. Statements of Cash Flows
Cash payments for interest for the three months ended March 31, 1999 and 1998
were $46,512 and $40,000, respectively.
7. Comprehensive Income/(Loss)
The Company adopted Statement of Financial Account Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income, effective January 1, 1998. SFAS 130
established standards for reporting and display of comprehensive income/loss and
its components in the financial statements. The Company's only item of other
comprehensive income/loss relates to foreign currency translation adjustments,
and is presented separately on the balance sheet as required. If presented on
the statement of operations for the three months ended March 31, 1999 and 1998,
comprehensive income/loss would be approximately $372,000 greater than and
$111,000 less than reported net income (loss), due to foreign currency
transaction adjustments.
8. Acquisition of BioSphere Medical, SA
On February 25, 1999, the Company acquired 51% of the outstanding common stock
of Biosphere Medical, S.A. ("BioSphere"), a French socicete anonyme. The Company
acquired the 51% ownership by granting an exclusive license pertaining to
certain patents and technology and the transfer of certain other technology to
Biosphere. The Company has the option to acquire the remaining 49% of the
outstanding common stock of Biosphere through December 31, 2004, as defined.
Additionally, the holder of the remaining 49% of the outstanding common stock
of Biosphere has an option to require the Company to purchase its shares from
December 31, 2003 until December 31, 2004 at a price of not less than FF
6,000,000 ($1,072,000 December 31, 1998). The results of operations of BioSphere
have been included in the consolidated statements since the date of acquisition.
However, such results are not material to the financial statements taken as a
whole.
9. Sale of assets and business to Life Technologies
On April 15, 1999, the Company signed a definitive purchase agreement with Life
Technologies, Inc, to sell substantially all its assets and the business of
BioSepra, Inc., other than assets relating to intracorporeal and "online"
extracorporeal therapies or any autologous treatment. Pursuant to the Purchase
Agreement, the purchase price to be paid by Life Technologies is $12.0 million
in cash, subject to adjustment based on the Closing Balance Sheet,
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which includes $1.0 million which will be deposited by Life Technologies into an
escrow account as an indemnification reserve amount to cover possible
indemnification claims by Life Technologies. The transaction is expected to
close in May, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
BioSepra Inc. and subsidiaries (the "Company") develop, manufacture and sell i)
chromatographic media for use by biopharmaceutical companies in the purification
and production of biopharmaceuticals and ii) spherical biocompatible beads for
blood vessel occlusion. At the end of February 1999, BioSepra completed its
acquisition of a 51% interest in BioSphere Medical, SA through which it sells
the biocompatible beads together with other medical devices.
On April 15, 1999, BioSepra signed a purchase agreement with Life Technologies
to sell its biopharmaceutical drug purification business and research consumable
business for $12 million in cash, subject to certain adjustments at closing.
Although there can be no assurance that the Company will successfully consummate
the sale of this business, if successful, the proceeds, after repayment of the
Company's borrowings under its line of credit, will be sufficient to fund the
Company's development of the medical device business for the foreseeable future.
Three months ended March 31, 1999 and 1998
Revenue increased to $2,637,000 for the three months ended March 31, 1999 from
$2,072,000 for the same period in 1998. The increase is primarily attributable
improved sales performance in Europe for the chromatography business and the
inclusion of the operations of BioSphere Medical SA for one month.
Cost of products sold increase to $1,162,000 for the quarter ended March 31,
1999 compared to $964,000 for the same period in 1998, representing 45% and 51%
of product revenue, respectively. The increase in profit margin on product sales
in 1999 compared to 1998 is primarily due to a favorable product mix. The
Company expects that its profit margin will continue to fluctuate in future
periods as a result of changes in product mix.
Selling, general and administrative expenses increased to $1,929,000 for the
three months ended March 31, 1999 from $874,000 for the three months ended March
31, 1998. The increase is primarily related to legal and other professional fees
incurred for the sale of the process media business and acquisition of BioSphere
Medical, SA.
The Company recorded the sale of the discontinued product line inventory,
approximately $351,000, as a reduction to the previously recorded restructuring
costs in the first quarter of 1998.
Other income (expense), net, changed to ($27,000) for the three months ended
March 31, 1999 as compared to Other income, net, of $16,000 for the comparable
period in 1998. This change is due to a reduction in interest income on excess
cash and an increase in Other expense of BioSepra SA.
The Company had a net loss of ($975,000) for the three months ended March 31,
1999 compared to net income of $124,000 for the three months ended March 3l,
1998. The change is primarily due to the legal and professional fees incurred
for the sale of The Company's biopharmaceutical drug purification business and
research consumable business and its acquisition of BioSphere Medical, SA.
7
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily from revenues from
product sales and license fees, net proceeds provided from the Company's initial
public offering funds provided by Sepracor, bank financing and equipment
financing leases. As of March 31, 1999, the Company had $1,416,000 of cash and
cash equivalents and $1,667,000 of working capital. Cash and cash equivalents
for the quarter ended March 31, 1999 decreased by $819,000 from $2,235,000 at
December 31, 1998. The Company utilized cash for operations of $780,000
primarily to fund its operations. The Company was provided cash from investing
activities of $155,000 primarily due to receiving cash from the acquisition of
BioSphere Medical. The Company used cash in financing activities of $145,000
primarily due to repayment of long-term borrowings.
The Company has access to a revolving line of credit under which the Company may
borrow up to $3,000,000. This revolving line of credit is guaranteed by
Sepracor. As of March 31, 1999, there was $2,000,000 outstanding under this
agreement. This line of credit expired on April 30, 1999; however, the Company
has signed a term sheet with the bank that, if fully negotiated and executed,
will provide the Company with a new line of credit of $2,000,000. This line of
credit will also be guaranteed by Sepracor, Inc.
As of March 31, 1999, there was $307,831 outstanding under a French loan, which
is guaranteed by Sepracor. In addition, Sepracor guarantees certain capital
lease obligations of the Company. The outstanding balance of the capital lease
obligation guaranteed by Sepracor was $295,144 as of March 31, 1999.
On April 15, 1999, BioSepra signed a purchase agreement with Life Technologies
to sell its biopharmaceutical drug purification business and research consumable
business for $12 million in cash, subject to certain adjustments at closing.
Although there can be no assurance that the Company will successfully consummate
the sale of this business, if successful, the proceeds, after repayment of the
Company's borrowings under its line of credit, will be sufficient to fund the
Company's development of the medical device business for at least the next
eighteen months.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report on Form 10-Q
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,
1998. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "intends," and similar expressions are intended to identify
forward-looking statements. There are a number of factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, the
following:
The completion of the transaction with Life Technologies for the sale of the
Company's biopharmaceutical drug purification business and research consumable
business. If the Company is unable to complete this transaction, it is likely
that the Company will require additional funds in 1999. As of March 31, 1999,
Sepracor had guaranteed $2,408,000 of outstanding bank borrowings and lease
financing obligations of the Company. There can be no assurance that such
financing will be available on favorable terms, if at all. If the Company
requires additional financing and such capital is not available on acceptable
terms from third parties, Sepracor may, but is not obligated to, guarantee or
provide such financing.
In February 1999, the Company completed its acquisition of a 51% interest in
Biosphere Medical, S.A. The principal purpose for the acquisition was to gain
access to product know-how and CE (European equivalent to the FDA) approval of
Biosphere's product Embospheres (TM) a spherical bead used in three medical
applications within the European medical community. Biosphere Medical commenced
operations in May 1998 as a result of purchasing several product lines from
Guerbet, S.A. There are numerous risks associated with this acquisition
including, among other things, potential exposure to unknown liabilities of
BioSphere Medical prior to the acquisition, risks associated with assimilating
its operations and personnel, risks related to the acquired technologies and
with the further development and commercialization of the technology, potential
disruptions in the Company's business resulting from the acquisition, diversion
of management time and attention, and the potential failure to achieve
anticipated financial, operating and strategic benefits from the acquisition.
The future success of the Company will depend largely on its ability to develop
the medical technology of microspheres for use in uterine fibroids in the United
States.
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Other factors that may adversely affect the Company's future operating results
include: intense competition from other companies selling or developing
bioseparation products, the loss of any significant customer, risks attendant to
the conduct of business in foreign countries, risks relating to the Company's
ability to maintain meaningful patent protection of its proprietary information
and the risk of product liability claims associated with the testing, marketing
and sale of the Company's media products.
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.
YEAR 2000 COMPLIANCE
The Company is currently working to negate any potential impact of the year 2000
on the processing of date-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculation or system failures. The Company has completed the assessment
of its requirements to become year 2000 compliant, the readiness of its
suppliers, and expects its compliance to be completed by June 30, 1999. In this
connection, the Company is upgrading certain of its computer hardware and
software, and does not believe it has any legacy systems that are non-Y2K
compliant. The Company estimates that expenditures to achieve compliance will be
less than $100,000, substantially all of which already has been incurred. In the
event that the Company encounters year 2000 problems, it has a contingency plan
in place to minimize the disruption to its ongoing business operations. For the
remainder of 1999, the Company will focus upon the review and status of its
suppliers' readiness; the Company will also test its contingency plan. However,
failure of the Company, its customer or vendors to resolve any compliance issues
in a timely manner, could have an adverse effect on the Company's business,
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to market risk in the form of interest rate risk and
foreign currency risk.
The Company's investments in short-term cash equivalents are subject to interest
rate movements, but the time to maturity is very short and therefore the Company
does not believe these exposures are material. The Company purchases product for
resale from its French wholly owned subsidiary, and resells that product to U.S.
customers. The payable is due in local French currency, and therefore the
Company may experience gains, and/or losses upon the payment of this account
payable obligation.
9
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PART II
OTHER INFORMATION
Items 1-3 None
Item 4. Submission of Matters to a Vote of Security Holders
On April 14, 1999, pursuant to a Written Action by Stockholders
Without a Meeting, Sepracor Inc., a holder of 5,369,758 shares of the
Company's Common Stock (representing approximately 63.5% of the
Company's outstanding common stock) voted in favor of the following
proposals:
1. A proposal to approve and adopt the proposed sale for cash, to
Life Technologies, Inc., a Delaware corporation, of substantially
all of the assets and the business of the Company (including any
business conducted through its subsidiaries) other than such
assets and business of BioSepra and its subsidiaries relating to
intercorporeal and "on line" extracorporeal therapies or any
autologous treatment.
2. A proposal to approve a change of BioSepra's name to "BioSphere
Medical Corp." or such other name as shall be determined by the
Board of Directors of BioSepra.
Because the action was taken by written consent in lieu of a meeting,
votes were not cast against, or withheld from such proposal, nor were
there any abstentions or broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
Current Report on Form S-K filed with the Securities and
Exchange Commission on April 29, 1999.
10
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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: May 14, 1999 /s/ Philip V Holberton
----------------------------------------
Philip V. Holberton
Chief Financial Officer
(Principal Financial & Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,416,000
<SECURITIES> 0
<RECEIVABLES> 3,057,000
<ALLOWANCES> 0
<INVENTORY> 3,709,000
<CURRENT-ASSETS> 8,324,000
<PP&E> 4,105,000
<DEPRECIATION> 2,713,000
<TOTAL-ASSETS> 15,035,000
<CURRENT-LIABILITIES> 6,657,000
<BONDS> 496,000
0
0
<COMMON> 84,000
<OTHER-SE> 7,666,000
<TOTAL-LIABILITY-AND-EQUITY> 15,035,000
<SALES> 2,576,000
<TOTAL-REVENUES> 2,637,000
<CGS> 1,162,000
<TOTAL-COSTS> 1,162,000
<OTHER-EXPENSES> 2,391,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,000
<INCOME-PRETAX> (943,000)
<INCOME-TAX> 14,000
<INCOME-CONTINUING> (975,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (975,000)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
