<PAGE>
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, 2000
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from to
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Commission File Number 0-23678
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BIOSPHERE MEDICAL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-3216867
(State or Other Jurisdiction of (IRS Employer Identification Number)
Organization or Incorporation)
1050 HINGHAM ST. ROCKLAND, MASSACHUSETTS 02370
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(Address of Principal Executive Offices) (Zip Code)
(781) 681-7900
--------------
(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
----- -----
The number of shares outstanding of the registrants Common Stock as of May 1,
2000: 9,245,622 shares.
1
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BioSphere Medical, Inc.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of March 31, 2000 and December 31, 1999 (Unaudited)...3
Consolidated Condensed Statements of Operations for the Three Month Periods Ended
March 31, 2000 and 1999 (Unaudited).........................................................4
Consolidated Condensed Statements of Cash Flows for the Three Month Periods Ended
March 31, 2000 and 1999 (Unaudited).........................................................5
Notes to Consolidated Condensed Financial Statements...........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ....................................21
Part II - Other Information...........................................................................22
Item 2. Changes in Securities and Use of Proceeds......................................................22
Item 6. Exhibits and Reports on Form 8-K...............................................................22
Signatures..............................................................................................23
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BioSphere Medical, Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,892 $ 5,368
Accounts receivable 737 646
Inventories (Note 2) 507 389
Prepaids and other current assets 90 51
-------- --------
Total current assets 11,226 6,454
Property and equipment, net (Note 3) 407 322
Goodwill 694 713
Other assets 647 7
-------- --------
Total assets $ 12,974 $ 7,496
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 472 $ 616
Payable to Sepracor (Note 4) 41 68
Accrued expenses 1,916 1,279
Current portion of long-term debt 27 --
-------- --------
Total current liabilities 2,456 1,963
Long-term debt, net of current portion 120 --
-------- --------
Total liabilities 2,576 1,963
Minority interest in BioSphere Medical, S.A. 897 945
Stockholders' equity:
Common stock, $0.01 par value, 25,000 shares authorized; 92 84
Issued and outstanding 9,246 in 2000 and 8,456 in 1999
Additional paid-in capital 46,974 40,587
Accumulated deficit (37,544) (36,068)
Cumulative translation adjustment (21) (15)
-------- --------
Total stockholders' equity 9,501 4,588
-------- --------
Total liabilities and stockholders' equity $ 12,974 $ 7,496
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
3
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BioSphere Medical, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three month periods
Ended March 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Product revenue $ 774 $ 280
Costs and expenses:
Cost of product revenue 282 146
Research and development 549 17
Selling, general and administrative 1,550 603
------------ -----------
Total costs and expenses 2,381 766
------------ -----------
Loss from continuing operations (1,607) (486)
Other income/(expense), net 151 (21)
------------ -----------
Pretax loss from continuing operations (1,456) (507)
Income tax -- (18)
------------ -----------
Loss before minority interest (1,456) (525)
Minority interest (20) (14)
------------ -----------
Net loss from continuing operations (1,476) (539)
Loss from discontinued operations -- (436)
------------ -----------
Net loss $ (1,476) (975)
============ ===========
Basic and dilutive net loss per share from $ (0.16) $ (0.07)
continuing operations
Basic and dilutive net loss per share from $ -- $ (0.05)
discontinued operations
Basic and dilutive net loss per share $ (0.16) $ (0.12)
Weighted average number of common
shares outstanding 8,950 8,456
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
4
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BioSphere Medical, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three month periods
Ended March 31,
---------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,476) (975)
Less: Net loss from discontinued operations -- (436)
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Net loss from continuing operations (1,476) (539)
Adjustments to reconcile net loss from continuing operations
to net cash used in continuing operating activities:
Depreciation and amortization 47 8
Minority interest--BioSphere Medical, SA 20 14
Non-cash interest expense 15 --
Foreign currency translation gain (85) --
Stock-based compensation 270 --
Changes in operating assets and liabilities:
Accounts receivable (91) 9
Inventories (118) (28)
Prepaids and other current assets (39) 28
Accounts payable (143) 1
Payable to Sepracor (27) 88
Accrued expenses 637 151
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Net cash used in operating activities (990) (268)
------- -------
Cash flows from investing activities:
Additions to property and equipment (112) (10)
Change in other assets (140) 1
Cash from acquisition of Biosphere Medical S.A. 283
------- -------
Net cash (used in) provided by investing activities (252) 274
------- -------
Cash flows from financing activities:
Cash provided by the issuance of common stock in a 5,785 --
Cash provided by the exercise of stock options 340 --
Deferred financing costs (500) --
Repayments under line of credit agreement -- (27)
Long term borrowings 147 --
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Net cash provided by financing activities 5,772 (27)
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Effect of exchange rate changes on cash and cash equivalents (6) (5)
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Net increase/(decrease) in cash and cash equivalents 4,524 (26)
Net cash used in discontinued operations -- (793)
Cash and cash equivalents at beginning of period 5,368 2,235
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Cash and cash equivalents at end of period $ 9,892 $ 1,416
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Acquisition of 51% of BioSphere Medical, S.A:
Liabilities Assumed $ -- $(1,493)
Fair Value of Assets Acquired -- 1,493
Put Option of Minority Interest -- 771
------- -------
Goodwill $ -- $ 771
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
5
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BioSphere Medical, 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 BioSphere Medical, Inc.'s (the "Company") annual audited financial
statements included in the Company's Form 10-K. The consolidated
condensed financial statements include the accounts of the Company and
its subsidiary. All material intercompany balances and transactions
were 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, 2000 and 1999. 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, 1999.
On February 25, 1999, the Company acquired 51% of the outstanding
common stock of BioSphere Medical, S.A. ("BMSA"), a French societe
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 BMSA. The Company has the
option to acquire the remaining 49% of the outstanding common stock of
BMSA through December 31, 2004, pursuant to the terms of the
acquisition agreement. Additionally, the holder of the remaining 49% of
the outstanding common stock of BMSA 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 ($820,731 as of March
31, 2000). The Company will accrete the value of this put right over
the period ending December 31, 2003. On April 7, 2000, the Company
purchased an additional 34% of BMSA for approximately $920,000. The
results of operations of BioSphere have been included in the
consolidated condensed statements since the date of acquisition.
Certain prior period amounts have been reclassified to conform to
current reporting, including the impact of the operations of the
Company that were discontinued. On May 17, 1999, the Company completed
the sale of substantially all its assets and the business of BioSepra
Inc., other than assets relating to intracorporeal and "on-line"
extracorporeal therapies or any autologous treatment. Simultaneously
with the closing of this transaction, the Company changed its corporate
name from BioSepra Inc. to BioSphere Medical, Inc. Financial
information relative to BioSepra Inc. is included in the financial
statements as discontinued operations.
6
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2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Raw material $ 107 $ 119
Work in progress 35 25
Finished goods 365 245
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$ 507 $ 389
======= =========
</TABLE>
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Office Equipment $ 402 $ 289
Laboratory and manufacturing equipment 73 72
Leasehold improvements 43 45
------- ---------
518 406
Less: accumulated depreciation and amortization (111) (84)
------- ---------
Property and equipment, net $ 407 $ 322
======= =========
</TABLE>
4. Related party transactions
The related party payable represents amounts due for certain services
and facilities provided by Sepracor Inc., the Company's majority
stockholder.
5. Net Loss Per Share
Basic net loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period.
Diluted net loss per share is the same as basic net loss per share as
the effects of potential common stock equivalents are antidilutive
for all periods presented. Total dilutive shares of approximately
3,843,248 and 3,421,936 for the three months ended March 31, 2000 and
1999, 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 30, 2000
and 1999 were $0 and $46,512, respectively.
7. Comprehensive Income/ (Loss)
The Company applies Statement of Financial Account Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income" which 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, 2000 and 1999, comprehensive loss would be
approximately $6,000 and $1,000 greater than reported net loss, due
to foreign currency translation adjustments.
7
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8. Discontinued Operations
On May 17, 1999, the Company sold substantially all of its assets and
business, other than such assets and business relating to
intracorporeal and "on-line" extracorporeal therapies or any autologous
treatment, for approximately $11 million in cash, and the assumption of
certain liabilities. Upon the consummation of the sale, the Company
changed its name from BioSepra Inc. to BioSphere Medical, Inc. The
Company utilized a portion of the proceeds to pay approximately
$880,000 of transaction costs, to repay approximately $2.0 million of
outstanding bank debt, and to repay approximately $143,000 due to
Sepracor.
The net assets included in the sale had a net book value of
approximately $10.5 million on May 17, 1999, which was included in
calculating a net loss for the sale of approximately $70,000. The
operations, assets and liabilities of the business have been presented
in accordance with Accounting Principles Board (APB) Opinion No. 30,
REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL
OF a SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY
OCCURRING EVENTS AND TRANSACTIONS in the accompanying consolidated
financial statements. Accordingly, the operating results of the
discontinued business for the three months ended March 31, 1999 have
been segregated from the continuing operations and reported as a
separate line item on the consolidated condensed statements of income.
9. Common Stock Financing
On February 4, 2000, the Company completed a private equity placement
of common stock and warrants for net proceeds of approximately
$5,785,000. Investors purchased 653,887 shares of the Company's common
stock at a price of $9.00 per share, that included warrants to purchase
up to an additional 163,468 shares of common stock. The warrants have
an exercise price equal to $20.00 per share and expire on February 4,
2005. The Company intends to use the net proceeds from this private
placement for general corporate purposes, including research and
development, sales and marketing activities.
10. Long term Debt
In March 2000, BioSphere Medical S.A. entered into a term loan with
a bank for FF1,000,000 (approximately $147,000 at March 31, 2000).
The term loan is to be paid over 60 months with interest at a rate
of 5.49% per annum.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. For this
purpose, statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and
similar expressions are intended to identify forward-looking statements.
These forward-looking statements involve risks and uncertainties and are not
guarantees of future performance. Actual results may differ materially from
those indicated in such forward-looking statements as a result of certain
factors including, but not limited to, those set forth under the heading
"Factors Affecting Future Operating Results."
RESULTS OF OPERATIONS
OVERVIEW
During the three month period ended March 31, 2000, BioSphere Medical, Inc.
(referred to herein as the "Company", "we" or "us") continued the
implementation of our new strategic plan to develop our proprietary spherical
biocompatible beads for the treatment of hypervascularized tumors and
arteriovenous malformations which are abnormal connections in certain blood
vessels. Our revenue is currently generated from product sales of Embosphere
Microspheres in the European Union, Australia, and Canada and the sale of
barium and other ancillary products manufactured by us or by third parties.
We received approval of our Canadian Device Licensing Application, and
clearance from the Australian Theraputic Goods Administration for the sale of
our Embosphere Microspheres, and began taking orders in each of these
markets. In April 2000, we received marketing clearance from the United
States Food and Drug Administration ("FDA") for our Embosphere Microspheres
for embolization of hypervascularized tumors and arteriovenous malformations.
We have not received clearance from the FDA to market our Embosphere
Microspheres for use in treating uterine fibroids. Either a separate 510(k)
notification or a premarket approval will be required from the FDA with
respect to the marketing in the United States of Embosphere Microspheres for
use in the embolization of uterine fibroids. We have commenced clinical
testing under an Investigational Device Exemption to support an application
for clearance or approval from the FDA for the uterine fibroid indication.
The embolization of uterine fibroids is a minimally invasive procedure, known
as uterine artery embolization, or UAE, designed to occlude blood supply to
uterine fibroids to reduce their size and alleviate associated symptoms,
including bleeding, pain and disfigurement. In addition, on March 31, 2000
our application for re-listing on the NASDAQ National Market was approved for
trading commencing on April 3, 2000.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Product revenue increased to $774,000 for the three months ended March 31,
2000 from $280,000 for the same period in 1999. The increase is attributable
to our focus on developing markets in Australia, Canada, and Europe for our
Embosphere Microspheres product line and other ancillary products. In
addition we reported only one month of product sales in the quarter ending
March 31, 1999, due to the acquisition of Biosphere Medical, S.A. on February
25, 1999. The revenue from our non-strategic barium and other ancillary
devices business provided 71% of our revenue in the three months ended March
31, 2000. We do not expect that these non-strategic products will be a
significant part of future sales.
Cost of product revenue for the three month period ended March 31, 2000 was
$282,000 compared with $146,000 for the same period in 1999. The increase is
attributable to expenses incurred with the larger volume of sales of
Embosphere Microspheres.
Gross margin for the three month period ended March 31, 2000 was $492,000
(64%) compared with $134,000 (48%) for the same period in 1998. The increase
was attributable to lower raw material costs, and the consolidation of the
manufacturing process of Embosphere Microspheres at BioSphere Medical, Inc.
Research and development expenses increased to $549,000 for the three months
ended March 31, 2000 from $17,000 for the same period in 1999. This increase is
primarily attributable to regulatory expenses incurred relative to seeking
embosphere product approval in the United States.
Selling, general and administrative expenses increased to $1,550,000 for the
three months ended March 31, 2000 from $603,000 for the comparable period in
1999. The increase is primarily due to the acquisition of a 51% interest in
Biosphere Medical S.A. on February 25, 1999 and other expenses related to the
implementation of our new strategic plan, including personnel costs,
recruiting expenses and other expenses associated with developing a new
business. We also incurred non-cash expenses of $229,000 in the period ending
March 31, 2000 for the value of outstanding warrants granted to consultants
in accordance with "EITF 96-18".
Other income/(expense), net, was $151,000 for the three months ended March 31,
2000 as compared to other income/(expense), net, of $(21,000) for the comparable
period in 1999. This change is primarily due to interest earned on the funds
received from the sale of our discontinued operations to Life
Technologies on May 17,1999 and the sale of common stock in a private equity
placement on February 4, 2000.
Our net loss from continuing operations increased to $1,476,000 for the three
months ended March 31, 2000 compared with a net loss of $539,000 for the
three months ended March 31, 1999. The increase is primarily due to the ramp
up of expenses related to the implementation of our new strategic plan.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded our operations from product revenue, license
fees, net proceeds provided from our initial public offering, funds provided
by Sepracor, bank financing and equipment financing leases. As of March 31,
2000, we had $9,892,000 of cash and cash equivalents and $8,770,000 of
working capital. Cash and cash equivalents for the three months ended March
31, 2000 increased by $4,524,000 from $5,368,000 at December 31, 1999. For
the three months ended March 31, 2000, we utilized cash for operations of
$990,000 primarily to fund our operating losses, build inventory, and finance
our anticipated working capital requirements for product revenue in the
United States. In February 2000, we completed a private equity placement of
653,887 common shares at $9 per share including warrants to purchase an
additional 163,468 common shares at an exercise price of $20 per share for
net proceeds of $5,785,000. We also received an estimated $340,000 from the
sale of approximately 136,000 shares of common stock through the exercise of
options granted under our stock option plan. In March, 2000, our French
subsidiary, Biosphere Medical SA, entered into a FF1,000,000 ($147,000 on
March 31, 2000) term loan with a bank that is payable over five years, and
accrues interest at 5.4%. We purchased $112,000 of equipment during the three
months ended March 31, 2000. The fixed assets purchased were primarily
related to establishing full manufacturing capabilities in the French
subsidiary and office equipment for our new corporate headquarters in
Rockland, Massachusetts. We believe that our existing funds will be
sufficient to fund our operating expenses and capital requirements as
currently planned through 2000. However, cash requirements may vary
materially from those now planned because of the results of research and
development, the scope and results of pre-clinical and clinical testing,
changes in the focus and direction of our research and development programs,
competitive and technological advances, the FDA's regulatory process, the
market's acceptance of any approved products, and other factors.
We expect to incur substantial additional costs, including costs related to
ongoing research and development activities, pre-clinical studies, clinical
trials and the expansion of our laboratory and administrative activities. In
order to achieve commercialization of our potential future products, we will
need additional funds. We may also need additional funds for possible
strategic acquisitions of businesses, products or technologies. These
additional funds may be raised from time to time through public or private
sales of equity or through borrowings. There are no assurances that we will
be able to obtain any additional funding that we may require on acceptable
terms, if at all.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The following important factors, among other things, could cause our actual
operating results to differ materially from those indicated or suggested by
forward-looking statements made in this Form 10-Q or presented elsewhere by
management from time to time.
OUR IMMEDIATE PRODUCT COMMERCIALIZATION EFFORTS ARE FOCUSED ON OUR EMBOSPHERE
MICROSPHERES, FOR WHICH WE HAVE RECEIVED ONLY LIMITED REGULATORY APPROVALS TO
DATE; WE HAVE NOT RECEIVED REGULATORY APPROVAL OR CLEARANCE TO MARKET ANY OTHER
PRODUCTS
Our immediate product commercialization efforts are focused on our
Embosphere Microspheres. To date, this product has received regulatory
approval for marketing in the European Union, Australia and Canada for use in
the treatment of arteriovenous malformations, hypervascularized tumors and
control of presurgical blood loss. In April 2000, we obtained marketing
clearance from the United States Food and Drug Administration, or FDA, for
the use of our Embosphere Microspheres in the United States for the
embolization of hypervascularized tumors and arteriovenous malformations, but
not for the treatment of uterine fibroids. Either a separate 510(k)
notification or a premarket approval will be required from the FDA with
respect to the marketing in the United States of Embosphere Microspheres for
use in the embolization of uterine fibroids. In either case, clinical studies
will be required. The regulatory approval process can take years. We do not
have regulatory approvals or clearances to market any other product in any
country, other than approvals to market our Embosphere Microspheres in the
United States, the European Union, Australia and Canada, and certain
ancillary radiology products in France. If we do not receive required
regulatory approval or clearance to market our Embosphere Microspheres in the
United States for the treatment of uterine fibroids or for any other product,
or if required approvals or clearances are not received on a timely basis,
our business will be materially adversely affected.
IF THE MARKET IS NOT RECEPTIVE TO OUR EMBOSPHERE MICROSPHERES PRODUCT, WE WILL
BE MATERIALLY ADVERSELY AFFECTED
We only recently began selling our Embosphere Microspheres product in the
European Union and only recently received regulatory clearance for marketing our
Embosphere Microspheres in the United States, Canada and Australia. We cannot
predict whether our Embosphere Microspheres will be accepted in the market. The
commercial success of our Embosphere Microspheres product will depend upon its
acceptance by the medical community, patients and third party payors as
clinically useful, cost effective and safe. Our Embosphere Microspheres are
based upon new technologies and therapeutic approaches. As a result, it may be
difficult for us to achieve market acceptance of this product. In particular,
our success will depend upon obstetrics and gynecology physicians referring
patients to interventional radiologists to receive treatment using our products
in lieu of, or in addition to, receiving other forms of treatment which the
obstetrics and gynecology physicians can provide directly. However, unless and
until we receive the required regulatory approvals and clearances to market our
Embosphere Microspheres in the United States for uterine fibroids, we cannot
label or market our Embosphere Microspheres in the United States for uterine
fibroids. While we have begun clinical testing under an Investigational Device
Exemption in order to apply for clearance or approval from the FDA for this
specific indication, we cannot assure you that we will receive any required
approval or clearance on a timely basis, if at all. In addition, market
acceptance of our Embosphere Microspheres product may be adversely affected by
negative publicity associated with any adverse medical effects attributed to
embolization treatments generally or our product. If we fail to achieve market
acceptance of this product, we will be materially adversely affected.
10
<PAGE>
IF OUR EMBOSPHERE MICROSPHERES PRODUCT DOES NOT PROVE TO BE SAFE OR EFFECTIVE
THEN WE MAY BE REQUIRED TO WITHDRAW IT FROM THE MARKET
We may not discover all potential problems with our Embosphere Microspheres
product even after completing our testing or even after its use in the market.
For example, Embosphere Microspheres are designed to remain in the body
permanently. As a result, there may be some risk that some or all of the
Embosphere Microspheres used in a medical procedure may travel in the blood
system beyond the intended site of action and occlude, or block, other blood
vessels, resulting in significant adverse health effects on the patient or even
death. There is limited data concerning the long-term health effects on persons
resulting from embolotherapy using our Embosphere Microspheres. If our product
is found not to be safe or effective for any reason, we may be required to
withdraw it from the market or we could incur fines or other penalties, which
would have a material adverse effect on us.
OUR BUSINESS POTENTIALLY EXPOSES US TO SUBSTANTIAL PRODUCT LIABILITY CLAIMS,
WHICH MAY RESULT IN LARGE MONETARY AWARDS AGAINST US AND NEGATIVE PUBLICITY; IN
ADDITION, WE COULD BE SUBJECT TO PRODUCT RECALLS
Our business exposes us to the risk of product liability claims, product
recalls and fines or other penalties and associated adverse publicity that are
inherent in the testing, manufacturing, marketing and sale of medical device
products. We currently carry liability insurance with only limited coverage. We
cannot predict our ability to maintain our current insurance coverage or to
secure greater or broader product liability insurance coverage on acceptable
terms or at reasonable costs when we need it. A successful product liability
claim against us could require us to pay a substantial monetary award and
subject us to negative publicity. Even if we maintain insurance coverage, our
liability for damages could exceed the amount of coverage. In addition, a
product recall could generate substantial negative publicity about our products
and company and inhibit or prevent commercialization of other product
candidates.
SEASONAL TRENDS MAY CAUSE OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE, WHICH
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
We expect to experience seasonality in our business, particularly because
we do a significant percentage of our business in the European Union, which
typically experiences a slowdown in business during August. Accordingly, we
expect to generate lower revenue during the summer months and higher revenue
during the calendar year-end months. As a result, we expect our third quarter
revenue in 2000 to be lower than each of our first and second quarter revenue
in 2000. If we do experience these revenue fluctuations, market analysts and
investors may not be able to predict our quarterly or annual operating
results, and if we fail to meet expectations of market analysts and
investors, the price of our common stock could decline.
OUR HISTORY OF LOSSES AND THE UNCERTAINTY OF OUR FUTURE PROFITABILITY MAKES OUR
COMMON STOCK A HIGHLY SPECULATIVE INVESTMENT
We have incurred operating losses since our inception and, as of March 31,
2000, had an accumulated deficit of approximately $37.5 million. We expect to
spend substantial funds to continue research and product testing, to establish
sales, marketing, quality control, regulatory and administrative capabilities,
and for other general corporate purposes. We expect to incur increasing losses
over the next several years as we expand our commercialization efforts.
We cannot predict the size or duration of any future losses. We cannot be
certain that we will ever become profitable or that, if we do become profitable,
we will remain profitable on a continuing basis.
11
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Failure to become and remain profitable would depress the market price of our
common stock and impair our ability to raise capital and continue our
operations.
WE HAVE RECENTLY UNDERTAKEN A STRATEGIC REDIRECTION OF OUR BUSINESS AND THERE
CAN BE NO ASSURANCE THAT OUR STRATEGIC SHIFT WILL PROVE TO BE SUCCESSFUL
In early 1999, we decided to exit the chromatography business, which had
constituted our core business, to focus on the commercialization of
microspheres for use in embolotherapy and other medical applications.
Consistent with this decision, in February 1999 we acquired a 51% ownership
interest in Biosphere Medical S.A. In May 1999, we sold substantially all of
our assets relating to the chromatography business and changed our name to
BioSphere Medical, Inc. In April 2000, we increased our ownership interest in
Biosphere Medical S.A. to 85%. We have an option to acquire the remaining 15%
at a later date. We have restated our historical financial statements to
reflect the discontinuation of our chromatography business. In addition, 73%
of 1999 revenue and 71% of first quarter 2000 revenue included in our
restated financial statements was derived from the sale of products we
consider to be nonstrategic and which we do not expect to constitute a
significant portion of our revenue on an ongoing basis. We have no assurance
that our decision to exit the chromatography business and focus on the
commercialization of microspheres will prove to be successful.
WE MAY EXPERIENCE DELAYS, DIFFICULTIES OR UNANTICIPATED COSTS IN ESTABLISHING
THE SALES AND DISTRIBUTION CAPABILITIES NECESSARY TO GAIN MARKET ACCEPTANCE FOR
OUR PRODUCTS
We currently lack sales, distribution and marketing capabilities in the
United States and have only limited sales, distribution and marketing
capabilities in the European Union. To market our products directly, we must
develop an effective marketing and sales force with technical expertise and a
supporting distribution capability. Developing a marketing and sales force is
expensive and time-consuming and could delay a product launch. Moreover, we may
choose or find it necessary to enter into strategic partnerships to sell, market
and distribute our products. The terms of any partnership may not be favorable
to us. We currently rely on distributors to sell our products outside of France.
We may not be able to provide adequate incentive to these distributors to
promote our products. Our inability to successfully employ qualified marketing
and sales personnel and develop our sales and marketing capabilities, or the
failure of our distributors to promote our products would harm our business.
WE WILL INCUR SUBSTANTIAL COSTS TO EDUCATE PHYSICIANS ABOUT USING OUR PRODUCT
CORRECTLY
To use our Embosphere Microspheres correctly for a particular medical
procedure, physicians must select and use the proper size and quantity of
Embosphere Microspheres. A physician's selection and use of the wrong size or
quantity of Embosphere Microspheres could have significant adverse health
effects on the patient, including death. It will be necessary for us to incur
substantial costs to educate physicians about the selection and use of the
proper size and quantity of Embosphere Microspheres in patient therapy. This
will involve spending significant amounts of money and allocating management
resources to this effort. If we are not able to successfully educate physicians
to properly use our product then we could be subject to substantial product
liability claims and we will not achieve widespread market acceptance or
significant product revenue.
WE HAVE ONLY ONE MANUFACTURING FACILITY, AND IF WE EXPERIENCE MANUFACTURING
DELAYS OR INTERRUPTIONS IN PRODUCTION, OUR BUSINESS WOULD BE ADVERSELY AFFECTED
We currently produce all of our Embosphere Microsphere products in one
manufacturing facility in France. We would likely experience significant delays
or cessation in production of our products at this facility if a labor strike,
natural disaster, local or regional conflict or other supply disruption were to
occur. If we are unable to manufacture our products at our facility in France,
we may be required to
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enter into arrangements with one or more contract manufacturing companies. We
do not currently have contingency plans in place and, if alternate
arrangements are required, we could encounter delays or difficulties
establishing relationships with contract manufacturers or in establishing
agreements on terms that are favorable to us. Also, manufacturers, including
us, must adhere to FDA's current good manufacturing practices, or GMP
regulations, which are enforced by the FDA through its facilities inspection
program. We cannot assure you that we or third party manufacturers will be
able to comply or maintain compliance with GMP regulations. Any failure to
comply could significantly delay a 510(k) clearance or premarket approval.
For a premarket approval device, if we change our manufacturing facility or
switch to a third-party manufacturer we will be required to submit a
premarket approval application supplement. For a 510(k) product, a change in
our manufacturing location would require us to change our registration with
the FDA. If we fail to produce enough products at our own manufacturing
facility or at a third-party manufacturing facility, we may be unable to
deliver products to our customers on a timely basis, which could lead to
customer dissatisfaction and could harm our reputation and ability to
compete. In addition, if we are required to depend on third-party
manufacturers, our profit margins may be adversely affected.
BECAUSE WE HAVE LIMITED SOURCES OF PRODUCTION AND SUPPLY, OUR ABILITY TO PRODUCE
AND SUPPLY OUR PRODUCTS COULD BE IMPAIRED
Certain key components of our Embosphere Microspheres are currently
purchased from a limited number of outside sources and may only be available
through a few sources. We generally do not have long-term agreements with any of
our suppliers.
Our reliance on our suppliers exposes us to risks including:
- the possibility that one or more of our suppliers could terminate their
services at any time without penalty;
- the potential inability of our suppliers to obtain required components;
- the potential delays and expenses of seeking alternative sources of
supply;
- reduced control over pricing, quality and timely delivery due to the
difficulties in switching to alternative suppliers; and
- the possibility that one or more of our suppliers could fail to satisfy
any of the FDA's required current good manufacturing practices
regulations.
Consequently, in the event that components from our suppliers are delayed or
interrupted for any reason, our ability to produce and supply our products could
be impaired.
OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT ADEQUATELY PROTECT US FROM COMPETITION
BY THIRD PARTIES USING OUR TECHNOLOGY, OR VERY SIMILAR TECHNOLOGY
Although we own or license several patents and patent applications
relating to our microsphere technology, these patents and patent applications
may not afford meaningful protection for our technology and products. You
should not assume that these patents and patent applications will necessarily
prevent our competitors from designing products similar to or otherwise
competitive with our Embosphere Microspheres and other products
commercialized by us. Among other things, competitors may develop products
similar to ours which are not protected by our owned or licensed patents. A
United States patent licensed to us relating to the composition of our
Embosphere Microspheres expires in 2001. To the extent that our competitors
are able to design products competitive with ours without infringing our
intellectual property rights, we could be materially adversely affected. In
addition, others may challenge our patents and, as a result, our patents
could be
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narrowed, invalidated or rendered unenforceable. We cannot determine whether
competitors have similar United States patent applications on file, since under
the present United States patent laws, United States patent applications are
secret until issued. The United States Patent and Trademark Office could
initiate interference proceedings involving our United States patent
applications, issued patents or patents that we license from third parties.
Further, there is a substantial backlog of patent applications at the United
States Patent and Trademark Office, and the approval or rejection of patent
applications may take several years.
The patent position of companies like ours generally is highly uncertain,
involves complex legal and factual questions, and has recently been the subject
of much litigation. No consistent policy has emerged from the United States
Patent and Trademark Office or the courts regarding the breadth of claims
allowed or the degree of protection afforded under patents like those we own,
have licensed, may license or may file in the future. As a result, we may not
prevail in any patent-related proceeding. If we do not prevail in any
litigation, in addition to any damages we might have to pay, we could be
required to stop the infringing activity or obtain a license. Any required
license may not be available to us on acceptable terms, or at all. In addition,
some licenses may be nonexclusive, and therefore, our competitors may have
access to the same technology licensed to us. If we fail to obtain a required
license or are unable to design around a patent, we may be unable to sell some
of our products, which could have a material adverse affect on us.
We require our employees, consultants and advisors to execute
confidentiality agreements. However, we cannot guarantee that these agreements
will provide us with adequate protection against improper use or disclosure of
confidential information. In addition, in some situations, these agreements may
conflict with, or be subject to, the rights of third parties with whom our
employees, consultants or advisors have prior employment or consulting
relationships. Further, others may independently develop substantially
equivalent proprietary information and techniques, or otherwise gain access to
our trade secrets. Our failure to protect our proprietary information and
techniques may inhibit or limit our ability to exclude certain competitors from
the market.
WE MAY BE INVOLVED IN LAWSUITS TO PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS. IF WE LOSE, WE MAY LOSE THE BENEFIT OF SOME OF OUR INTELLECTUAL PROPERTY
RIGHTS, THE LOSS OF WHICH MAY INHIBIT OR ELIMINATE OUR ABILITY TO EXCLUDE
CERTAIN COMPETITORS FROM THE MARKET
In order to protect or enforce our patent rights, we may have to initiate
legal proceedings against third parties, such as infringement suits or
interference proceedings. By initiating legal proceedings to enforce our
intellectual property rights, we may also provoke these third parties to
assert claims against us. Furthermore, we may be sued for infringing on the
intellectual property rights of others, and we may find it necessary, if
threatened, to initiate a lawsuit seeking a declaration from a court
regarding the proprietary rights of others. For example, we were engaged in
patent litigation related to our discontinued business that was settled in
December 1997. Intellectual property litigation is costly, and, even if we
prevail, the cost of such litigation could adversely affect us. In addition,
litigation is time consuming and could divert management attention and
resources away from our business.
Our majority-owned French subsidiary, Biosphere Medical S.A., jointly owns
two United States patents and corresponding French and European patents relating
to microsphere technology for use in connection with embolotherapy with
L'Assistance Publique-Hopitaux De Paris, referred to as AP-HP, a French public
health establishment. Pursuant to the terms of a related license agreement with
AP-HP, Biosphere Medical S.A. may be required to seek AP-HP's participation in
any legal proceedings it initiates against third parties to protect or enforce
its rights under the jointly-owned patents. If Biosphere Medical S.A. is not
able to obtain the cooperation of AP-HP in any infringement suit against a third
party, then its ability to pursue such suit and enforce these patent rights
relating to the microspheres could be harmed, which could have a material
adverse effect on us.
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OUR RIGHT TO USE CERTAIN TECHNOLOGIES IS DEPENDENT ON LICENSES WHICH COULD BE
TERMINATED OR LOST
We are dependent on various license agreements relating to each of our
current and proposed products that give us rights under certain intellectual
property rights of third parties. These licenses impose various
commercialization, sublicensing, royalty, insurance and other obligations on us.
Our failure or any third party's failure to comply with the terms of any license
could have a material adverse effect on our business, financial condition and
results of operations. We are in the process of restating and clarifying the
terms of our agreement with Dr. Sinichi Hori granting us an exclusive
royalty-bearing license to a Japanese patent application relating to our
HepaSphere Microspheres product. Our failure to restate our license agreement
with Dr. Hori on terms acceptable to us could have a material adverse effect on
our business.
OUR BUSINESS IS SUBJECT TO AN EXTENSIVE AND POTENTIALLY COSTLY GOVERNMENTAL
APPROVAL PROCESS
The manufacture, packaging, labeling, advertising, promotion, distribution
and sale of our products are subject to governmental regulation by national and
local government agencies in the United States and abroad. Our products are
subject to approval or clearance by the FDA prior to marketing in the United
States for commercial use. Our inability to obtain required regulatory approval
or clearance on a timely or acceptable basis could harm our business. The
process of obtaining necessary FDA approvals and clearances can be
time-consuming, expensive and uncertain. Further, approval or clearance may
place substantial restrictions on the indications for which the product may be
marketed or to whom it may be marketed. In addition, we may be required by the
FDA to conduct a postmarket surveillance study on our embolotherapy device. If
such a study revealed an unexpected rate of adverse events, the FDA could place
further restrictions on the marketing of the device, or rescind its clearance.
Some changes to legally-marketed devices also require new regulatory
submissions, for example, a change in intended use or a change that affects
safety or effectiveness. We may in the future make certain enhancements to
our Embosphere Microspheres which we determine do not necessitate the filing
of a new 510(k) notification. However, if the FDA does not agree with our
determination, it will require us to make additional filings for the
modification and we could be prohibited from marketing the modified product
until we obtained FDA clearance or approval. The nature of marketing claims
we will be permitted to make in labeling or advertising regarding our
Embosphere Microspheres is limited to those specified in any FDA clearance or
approval and claims beyond those cleared or approved will constitute a
violation of the Federal Food, Drug, and Cosmetic Act.
Further, our embolotherapy device is classified into Class III by the
FDA, which means that even though we have obtained 510(k) clearance to market
the device, the FDA could promulgate a regulation requiring premarket
approval of the device to allow it to remain on the market. A requirement
for premarket approval will likely require us to conduct costly clinical
trials and there is no guarantee that we can provide the FDA sufficient data
for premarket approval in a timely fashion, if at all. Failure to obtain
premarket approval would result in removal of our product from the United
States market.
Legally marketed products are subject to continuing FDA requirements
relating to quality control and quality assurance, maintenance of records and
documentation and labeling and promotion of medical devices. We are also
required to submit medical device reports to the FDA to report device-related
deaths, serious injuries and malfunctions, the recurrence of which would be
likely to cause or contribute to a death or serious injury. These reports are
publicly available and, therefore, can become a basis for private tort suits,
including class actions.
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Medical device laws and regulations are also in effect in many countries
outside the United States. These range from comprehensive device approval
requirements for some or all of our medical device products to requests for
product data or certifications. The number and scope of these requirements are
increasing. Failure to comply with applicable federal, state and foreign medical
device laws and regulations may harm our business, financial condition and
results of operations.
WE ARE SUBJECT TO RULES REGARDING LABELING AND ADVERTISING AND VIOLATION OF
THOSE RULES COULD ADVERSELY AFFECT OUR BUSINESS
The federal, state and foreign laws and regulations regarding the
manufacture and sale of our products are subject to future changes, as are
administrative interpretations of regulatory agencies. If we fail to comply with
applicable federal, state or foreign laws or regulations, we could be subject to
enforcement actions, including product seizures, voluntary or mandatory recalls,
voluntary or mandatory patient or physician notification, seizure of our
products, withdrawal of product clearances or approvals, withdrawal of IDE
approval, restrictions on or injunctions against marketing our products, fines,
injunctions and civil and criminal penalties.
In addition, if we fail to comply with any applicable FDA requirements,
the FDA could withdraw premarket approval or rescind premarket notification
clearance. The FDA also has the authority to request repair, replacement or
refund of the purchase price of devices manufactured or sold by us. Any of
these sanctions may have a material adverse effect on our business, financial
condition and results of operations, and could materially adversely affect
our ability to successfully market our products.
IT MAY TAKE LONGER THAN WE EXPECT TO COMPLETE CLINICAL TRIALS, MAKE REGULATORY
SUBMISSIONS AND RECEIVE REGULATORY APPROVALS
Although for planning purposes we forecast the timing of completion of
clinical trials, regulatory submissions and regulatory approvals, the actual
timing of these events can vary dramatically due to factors such as delays,
scheduling conflicts with participating clinicians and clinical institutions,
the rate of patient accruals and the uncertainties inherent in the regulatory
approval process. Clinical trials involving our product candidates may not
commence or be completed and we may not make regulatory submissions or receive
regulatory approvals as forecasted, if at all.
We have limited experience in conducting clinical trials and in obtaining
regulatory approvals. In certain circumstances we rely on academic institutions
or clinical research organizations to conduct, supervise or monitor some or all
aspects of clinical trials involving our products. As a result, we will have
less control over the timing and other aspects of these clinical trials than if
we conducted them entirely on our own. However, we will remain responsible for
their regulatory compliance and the accuracy of the data. These trials may not
commence or be completed as we expect or be conducted successfully. The
uncertainties inherent in the regulatory approval process will affect our
products in development as well as our existing embolotherapy products. Products
that we are developing and intend to develop may not be successful in
preclinical testing, or clinical testing, which most, if not all, will require.
Moreover, these products may not obtain the necessary marketing clearances or
approvals in a timely fashion, if at all. Failure to commence or complete, or
delays in, any of our planned clinical trials, regulatory submissions or
regulatory approvals could undermine investors' confidence in our ability to
develop products, which could cause our stock price to decrease.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, WHICH COULD RESULT IN DECREASED
DEMAND FOR OUR PRODUCTS AND PRICE REDUCTIONS
Medical devices and therapeutics are rapidly evolving fields in which
scientific and technological developments are expected to continue at a rapid
pace. We have many competitors in the United States and abroad, including
medical device and therapeutics companies, universities and other private and
public research institutions. Our success depends upon our ability to develop
and maintain a
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competitive position in the product categories and technologies on which we
focus. Many of our competitors have greater capabilities, experience and
financial resources than we do. Competition is intense and is expected to
increase as new products enter the market and new technologies become available.
Our competitors may:
- develop technologies and products that are more effective than ours;
- develop technologies that render our products obsolete or otherwise
noncompetitive;
- obtain regulatory approval for products more rapidly or effectively than
we can;
- design around patents owned or licensed by us or otherwise develop
products similar to ours that do not infringe our intellectual property
rights; and/or
- obtain patent protection or other intellectual property rights that would
block our ability to develop competitive products.
We may not be able to improve our products or develop new products or
technologies quickly enough to maintain a competitive position in our market and
continue to grow our business. Moreover, we may not be able to compete
effectively, and competitive pressures may adversely affect demand for our
products or our profitability.
WE MAY NOT BE ABLE TO MEET THE OPERATIONAL, LEGAL AND FINANCIAL CHALLENGES THAT
WE WILL ENCOUNTER IN OUR INTERNATIONAL OPERATIONS, WHICH MAY LIMIT THE GROWTH OF
OUR BUSINESS
Our operations are currently conducted primarily through our French
subsidiary. Furthermore, we currently derive substantially all of our revenue
from the sale of our Embosphere Microspheres and other products in the European
Union. We are increasingly subject to a number of challenges which specifically
relate to our international business activities. These challenges include:
- failure of local laws to provide the same degree of protection against
infringement of our intellectual property;
- protectionist laws and business practices that favor local competitors,
which could slow our growth in international markets;
- potentially longer sales cycles to sell products, which could slow our
revenue growth from international sales; and
- potentially longer accounts receivable payment cycles and difficulties in
collecting accounts receivable.
Our international operations may not be successful if we are unable to meet
and overcome these challenges, which would limit the growth of our business.
WE MAY LOSE MONEY WHEN WE EXCHANGE FOREIGN CURRENCY RECEIVED FROM INTERNATIONAL
SALES INTO U.S. DOLLARS OR MAKE FOREIGN CURRENCY PAYMENTS
Most of our business is conducted in currencies other than the U.S.
dollar. We recognize foreign currency gains or losses arising from our
operations in the period incurred. As a result, currency fluctuations between
the U.S. dollar and the currencies in which we do business will cause foreign
currency translation gains and losses. We cannot predict the effects of
exchange rate fluctuations upon our future operating results because of the
number of currencies involved, the variability of currency exposure and the
potential volatility of currency exchange rates. We do not currently engage
in foreign exchange hedging transactions to manage our foreign currency
exposure.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS BY
THIRD PARTY PAYORS, THERE MAY BE NO COMMERCIALLY VIABLE MARKETS FOR OUR PRODUCTS
The availability and levels of reimbursement by governmental and other third
party payors affects the market for any medical device. These third party payors
continually attempt to contain or reduce
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the costs of healthcare by challenging the prices charged for medical products.
Additionally, in both the United States and certain foreign jurisdictions, there
have been a number of legislative and regulatory proposals to change the
healthcare system. Further proposals are likely. These proposals, if adopted,
could affect our ability to market our products. Also, in certain foreign
countries, particularly the countries of the European Union where our Embosphere
Microspheres product is currently marketed and sold, the pricing of medical
devices is subject to governmental control and the prices charged for our
products have in some instances been reduced as a result of these controls. We
may not be able to sell our products profitably if reimbursement is unavailable
or limited in scope or amount.
OUR PRODUCTS ARE TESTED IN LABORATORY ANIMALS, AND THIS FORM OF TESTING MAY BE
CURTAILED BY SOCIAL FACTORS AND REGULATORY CHANGES
Our research and development efforts often involve the controlled use of
laboratory animals. Opposition to this practice by activist groups may
interfere with the use of animal testing. Negative publicity generated by
activist groups may harm companies using this practice, including us. In
addition, physical force and demonstrations may occur against us which could
delay the testing of our products. Lobbying efforts by activist groups and
other groups and individuals against the use of animals in testing is
ongoing, and may result in changes in laws, regulations or accepted clinical
procedures that would restrict the use of animals in testing. In the event of
a change in laws, regulations or accepted clinical procedures, delays in our
product development will likely result until we find other methods for
effective testing. In addition, preclinical testing in animals and in vitro
is subject to Good Laboratory Practice regulations. Failure to comply with
Good Laboratory Practice regulations could result in the inability to rely on
data obtained in such testing to support proposed trials in humans and/or to
support applications for marketing clearances or approvals.
WE DEPEND GREATLY ON THE INTELLECTUAL CAPABILITIES AND EXPERIENCE OF OUR KEY
EXECUTIVES AND SCIENTISTS, AND THE LOSS OF ANY OF THEM COULD ADVERSELY AFFECT
OUR ABILITY TO DEVELOP OUR PRODUCT CANDIDATES
The loss of Jean-Marie Vogel, our Chairman, John M. Carnuccio, our President
and Chief Executive Officer, Jonathan McGrath, our Vice-President Worldwide
Research and Development or other key members of our staff could harm us. We
also depend on our scientific collaborators and advisors, all of whom have other
commitments that may limit their availability to us. In addition, we believe
that our future success will depend in large part upon our ability to attract
and retain highly skilled scientific, managerial and marketing personnel,
particularly as we expand our activities in clinical trials, the regulatory
approval process and sales and manufacturing. We face significant competition
for this type of personnel from other companies, research and academic
institutions, government entities and other organizations. We cannot predict our
success in hiring or retaining the personnel we require for continued growth.
OUR BUSINESS IS SUBJECT TO STRINGENT ENVIRONMENTAL REGULATIONS COMPLIANCE
WITH WHICH MAY BE COSTLY
We are subject to various United States, French, Canadian, Australian and
European Union laws, regulations and directives relating to the protection of
the environment, including those governing the discharge of pollutants into
the water or air, the management and disposal of hazardous materials and
wastes and the cleanup of contaminated sites. In the course of our business,
we are involved in the handling, storage and disposal of certain chemicals.
We could incur substantial costs, including cleanup costs, fines and
sanctions, as a result of violations of or liabilities under environmental
laws. Certain environmental laws can impose liability without regard to
negligence or fault or the legality of the original disposal activity. We
believe that our operations are in material compliance with applicable
environmental requirements and that, to date, the cost of compliance with
such requirements has not been material to our business. However, the
ultimate costs under environmental laws are difficult to predict, and
additional operating costs or capital expenditures could be incurred if
additional or more stringent requirements relevant to our operations are
promulgated.
IF WE MAKE ANY ACQUISITIONS, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER
REALIZE THE ANTICIPATED BENEFITS
If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. If we undertake this or any other acquisition, the
process of integrating an acquired business, technology, service or product may
result in operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, we may never realize the anticipated benefits of any
acquisition. Future acquisitions could result in potentially dilutive issuances
of equity securities, the incurrence of debt or a decrease in the cash available
for our operations, contingent liabilities and/or amortization expenses related
to goodwill and other intangible assets, which could adversely affect our
results of operations and financial condition.
We currently own 85% of the outstanding capital stock of Biosphere Medical
S.A. We have the right to acquire the remaining 15% of Biosphere Medical S.A.
from December 31, 2003 until December 31, 2004. The purchase price payable upon
exercise of this right is equal to 15% of the
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aggregate sales of Biosphere Medical S.A. and sales of our microspheres
subject to our license agreement with Biosphere Medical S.A. for the
twelve-month period prior to the exercise of our right. In addition, the
holder of the remaining 15% of Biosphere Medical S.A. has a "put" right to
require us to purchase the remaining 15% from December 31, 2003 until
December 31, 2004. The purchase price payable by us upon the exercise of this
"put" right is equal to 15% of the aggregate sales of Biosphere Medical S.A.
and sales of our microspheres subject to our license agreement with Biosphere
Medical S.A. for the nine-month period prior to the exercise of the "put"
right. In any event, the price payable by us upon the exercise of the "put"
right shall not be less than FF1,800,000 ($264,000 at March 31, 2000). If we
are compelled by the minority stockholder to acquire the minority interest at
a future date, we could be required to make a significant cash payment, which
could result in the incurrence of debt or a decrease in the cash available
for our operations.
IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS COULD BE IMPAIRED
We expect to experience growth in the number of our employees and the scope
of our operating and financial systems. This growth has resulted in an increase
in responsibilities for both existing and new management personnel. Our ability
to manage growth effectively will require us to continue to implement and
improve our operational, financial and management information systems and to
recruit, train, motivate and manage our employees. We may not be able to manage
our growth and expansion, which would impair our business.
WE WILL CONTINUE TO NEED SUBSTANTIAL ADDITIONAL FUNDS, AND IF ADDITIONAL CAPITAL
IS NOT AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS
We will need to raise additional funds to successfully develop and
commercialize our products. Other than a $2.0 million credit line with a bank,
we have no committed source of capital. If we cannot raise more funds, we could
be required to reduce our capital expenditures, scale back our product
development, reduce our workforce and license to others products or technologies
that we otherwise would seek to commercialize ourselves. We may not receive
additional funding on reasonable terms or at all. If we raise more money by
selling additional capital stock, these sales of our capital stock are likely to
dilute our existing stockholders. Further, if we issue additional equity
securities, the new equity securities may have rights, preferences or privileges
senior to those of existing holders of our common stock. Alternatively, we may
borrow money from commercial lenders, possibly at high interest rates, which
will increase the risk of your investment in us.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER, WHICH
COULD CAUSE A DECLINE IN OUR STOCK PRICE
Our operating results could fluctuate significantly from quarter to quarter.
We expect to continue to experience significant fluctuations as a result of a
variety of factors, many of which are outside of our control. The following
factors could affect our operating results:
- seasonality, since we expect our revenue to decline substantially in the
third quarter of each year from the first two quarters of each year;
- market acceptance of our products;
- the timing and scope of regulatory approvals or denials;
- the timing of revenue generated from product sales;
- the introduction and marketing of new products;
- changes in demand for our products;
- availability of the components used in our products; and
- general and medical device industry-specific business and economic
conditions.
In addition, a large portion of our expenses, including expenses for
facilities, equipment and personnel, are relatively fixed. Accordingly, if
revenue declines or does not grow as anticipated, we might
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not be able to improve our operating margins. In addition, we plan to
significantly increase operating expenses in the next several years. Failure to
achieve anticipated levels of revenue could therefore significantly harm our
operating results for a particular fiscal period.
Due to the possibility of fluctuations in our revenue and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline.
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YEAR 2000 COMPLIANCE
We have not experienced any material difficulties that we are aware of
related to the Year 2000 problem. Our operations have not, to date, been
materially affected by any such difficulties experienced by any of our
suppliers or customers in connection with the Year 2000 problem. We will
continue to monitor our systems for potential difficulties for the remainder
of the calendar year 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued interpretation No. 44, "ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION--AN INTERPRETATION OF APB OPINION
NO. 25." The interpretation clarifies the application of Opinion No. 25 in
certain situations, as defined. The interpretation will become effective on
July 1, 2000 and will be applicable to certain events having occurred after
December 15, 1998. To the extent that events covered by the interpretation
occur during the period after December 15, 1998, but before July 1, 2000, the
effects of applying the interpretation will be recognized on a prospective
basis from July 1, 2000. Accordingly, upon initial application, (a) no
adjustments would be made to the financial statements for periods before July
1, 2000 and (b) no expense would be recognized for any additional
compensation cost measured that is attributable to periods before July 1,
2000. We expect that the adoption of this interpretation will not have any
effect on the accompanying financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are subject to market risk in the form of interest rate risk and foreign
currency risk. Our investments in short-term cash equivalents are subject to
interest rate movements. We do not believe these exposures are material. We
sell and distrubute our products worldwide and the payables may be due in
French currency or other local currencies. Therefore we may experience gains,
or losses upon the payment of these account payable obligations.
21
<PAGE>
PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
C) Recent Sales of Unregistered Securities
On February 4, 2000, BioSphere sold an aggregate of 653,887 shares
of its Common Stock and warrants to purchase an aggregate of 163,468 shares
of its Common Stock to a group of institutional investors and directors of
the Company at a purchase price of $9.00 for each share of Common Stock and
warrant to purchase one quarter of one share of Common Stock. The warrant
exercise price per share is $20.00, and the warrants expire on February 4,
2005. The group of investors who participated in the financing included
Timothy J. Barberich, a director of BioSphere and the Chief Executive Officer
and President of Sepracor, David P. Southwell, a director of BioSphere and
the Executive Vice President and Chief Financial Officer of Sepracor,
Jean-Marie Vogel, a director and the Chairman of BioSphere, and John M.
Carnuccio, a director and the Chief Executive Officer and President of
BioSphere. Both the Common Stock and the warrants were issued in reliance
upon the exemptions from registration under Section 4(2) of the Securities
Act of 1933, as amended, relative to sales by an issuer not involving any
public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
27.1 Financial Data Schedule
27.2 Financial Data Schedule
10.1 Employment Agreement by and between the Company and Jean-Marie Vogel
dated as of May 14, 1999.
B) Reports on Form 8-K
On February 4, 2000 the Company filed a Current Report on form 8-K
relating to the Company's sale of 653,887 shares of the Company's common
stock, par value $0.01 per share) including warrants to purchase 163,468
shares of common stock, at an aggregate price of $9.00 for one share of
common stock and a warrant to acquire one quarter of one share of common
stock, in a private placement.
22
<PAGE>
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.
BIOSPHERE MEDICAL, INC.
Date: May 15, 2000 /s/ Robert M. Palladino
--------------------------------------
Robert M. Palladino
Chief Financial Officer
(Principal Financial & Accounting Officer)
23
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 14th day of
May, 1999, is entered into by BioSepra Inc., a Delaware corporation with its
principal place of business at 111 Locke Drive, Marlborough, Massachusetts
(the "Company"), and Jean-Marie Vogel, residing at 64 Cobleigh Road,
Boxborough, Massachusetts 01719 (the "Employee").
In consideration of the mutual covenants and promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to employ the Employee
in the capacity set forth herein, and the Employee hereby accepts such
employment with the Company, upon the terms set forth in this Agreement, for
the period commencing on May 18, 1999 (the "Commencement Date") and ending on
May 18, 2001 (such period, as it may be extended, the "Employment Period");
provided, however, that commencing on May 19, 2001 and each May 19
thereafter, the term shall automatically extend for one additional year
unless, not later than 90 days prior to May 19 of any such year, either party
elects not to extend the Agreement by giving written notice to the other
party; and further provided, that such Employment Period may be sooner
terminated in accordance with the provisions of Section 4.
2. TITLE; CAPACITY. The Employee shall serve as Chairman or in such
other position as in mutually agreeable to the Employee and the Board of
Directors (the "Board"). The Employee shall be based at the Company's
headquarters in such place in the continental United States as the Board
shall determine. The Employee shall be subject to the supervision of, and
shall have such authority as is delegated to him by, the Board.
<PAGE>
The Employee hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities commensurate with such position as the Board shall from time to
time reasonably assign to him. The Employee agrees to devote his entire business
time, attention and energies to the business and interests of the Company during
the Employment Period. The Employment agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any reasonable
changes therein which may be adopted from time to time by the Company. The
Employee acknowledges receipt of copies of all such rules and policies committed
to writing as of the date of this Agreement.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. The Company shall pay the Employee, in monthly
installments, an annual base salary of $200,000 for the one-year period
commencing on the Commencement Date. Such salary shall be subject to increase
based upon annual reviews.
3.2 FRINGE BENEFITS. The Employee shall be entitled to participate
in all bonus and benefit programs that the Company establishes and makes
available to its employees to the extent that Employee's position, tenure,
salary, age, health and other qualifications make him eligible to
participate. Employee shall be eligible to participate in a bonus program
based on quantitative and qualitative goals established by agreement between
the Board and the Employee.
3.3 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Employee for all reasonable travel, entertainment and other expenses incurred
or paid by the Employee in connection with, or related to, the performance of
his duties, responsibilities or services under this Agreement, upon
presentation by the Employee of documentation, expense
<PAGE>
statements, vouchers and/or such other supporting information as the Company
may request, PROVIDED, HOWEVER, that the amount available for such travel,
entertainment and other expenses may be fixed in advance by the Board.
4. EMPLOYMENT TERMINATION. The employment of the Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any
of the following:
4.1 EXPIRATION OF TERM. Expiration of the Employment Period in
accordance with Section 1;
4.2 CAUSE. At the election of the Company, for Cause, immediately
upon written notice by the Company to the Employee. For purposes of this
Agreement, "Cause" shall mean termination (A) upon Employee's willful and
continued failure to substantially perform his duties with the Company (other
than any such failure resulting from his incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a
notice of termination by the Employee for Good Reason), provided that a
written demand for substantial performance has been delivered to the Employee
by the Company specifically identifying the manner in which the Company
believes that the Employee has not substantially performed his duties and the
Employee has not cured such failure within thirty (30) days after such demand,
or (B) by reason of the Employee's willful engaging in conduct which is
demonstrably and materially injurious to the Company;
4.3 DEATH OR DISABILITY. Upon the death or Disability of the
Employee. For purposes of this Agreement, "Disability" means that as a result
of incapacity due to physical or mental illness, the Employee shall have been
absent from the full-time performance of his duties with the Company for six
(6) consecutive months and, within thirty (30) days after written notice
<PAGE>
of termination is given to the Employee, he shall not have returned to the
full-time performance of his duties.
4.4 GOOD REASON. At the election of the Employee for Good Reason,
ten days after written notice of such election is given by the Employee to the
Company. For purposes of this Agreement, "Good Reason" shall mean, without the
Employee's written consent, the occurrence of any of the following
circumstances unless such circumstances are fully corrected within thirty (30)
days of notice thereof:
(a) any significant diminution in Employee's position, duties,
responsibilities, power, title or office;
(b) any reduction in Employee's annual base salary as in effect
on the date of this Agreement or as the same may be increased from time to
time;
(c) the failure by the Company to continue to provide Employee
with benefits substantially similar to those enjoyed by Employee, under any
of the Company's life insurance, medical, health and accident, or disability
plans in which Employee is participating on the date of this Agreement, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits, or the failure by the Company to
provide Employee with the number of paid vacations days to which he is
entitled on the basis of years of service with the Company in accordance with
the Company's normal vacation policy in effect on the date of this Agreement;
(d) any requirement by the Company or of any person in control
of the Company that the location at which Employee performs his principal
duties for the Company be changed to a new location that is not at the United
States headquarters of the Company or the
<PAGE>
United States headquarters of the division of the Company in which Employee
performs his assigned duties;
(e) the failure of the Company to obtain a reasonably
satisfactory agreement from any successor to assume and agree to perform this
Agreement;
(f) the failure by the Company to make bonus programs available
to the Employee in the amount and in the manner substantially consistent with
the past practice in light of the Company's financial performance; or
(g) any purported termination of Employee's employment which is
not effected pursuant to a notice of termination satisfying the requirements
of this Agreement, which purported termination shall not be effective for
purposes of this Agreement.
4.5 ELECTION OF EITHER PARTY. At the election of either party, upon
not less than thirty (30) days' prior written notice of termination.
5. EFFECT OF TERMINATION.
5.1 TERMINATION FOR CAUSE OR AT ELECTION OF EMPLOYEE. In the event
the Employee's employment is terminated because Employee elects not to renew
the Employment Period pursuant to Section 1, for Cause pursuant to Section
4.2, or at the election of the Employee pursuant to Section 4.5, the Company
shall pay to the Employee the compensation and benefits otherwise payable to
him under Section 3 through the last day of his actual employment by the
Company.
5.2 TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or because of Disability pursuant to
Section 4.3, the Company shall pay to the estate of the Employee or to the
Employee as the case may be, the compensation which
<PAGE>
would otherwise be payable to the Employee up to the end of the month in
which the termination of his employment because of death or Disability occurs.
5.3 TERMINATION FOR CAUSE, GOOD REASON OR AT ELECTION OF COMPANY.
In the event the Employee's employment is terminated because the Company
elects not to renew the Employment Period pursuant to Section 1, for Good
Reason pursuant to Section 4.4, or at the election of the Company without
Cause pursuant to Section 4.5, then provided that the Employee is not in
violation of the provisions of Section 6 of this Agreement, the Employee
shall be entitled to receive the following:
(a) The Employee will be entitled to:
(i) an amount in cash equal to (x) 200% of the annual base
salary of the Employee in effect on the date of termination and (y) two times
the average cash bonus paid to or earned by the Employee in the twenty-four
(24) month period prior to the date of termination, such amount to be paid to
the Employee in twenty-four (24) equal monthly installments, beginning at the
end of the first full month subsequent to the date of termination;
(ii) for a twenty-four (24) month period after such
termination, the Company shall arrange to provide the Employee with life,
disability, dental, accident and group life insurance benefits substantially
similar to those such benefits which the Employee is receiving from the
Company immediately prior to the date of termination. Notwithstanding the
foregoing, the Company shall not provide to Employee any benefit otherwise
receivable by him pursuant to this paragraph (ii) if any substantially
equivalent benefit is actually received by the Employee from a third party
during the twenty-four (24) month period following such termination. The
Employee shall be obligated to promptly report to the Company any such
benefit actually received by him; and
<PAGE>
(iii) all vested stock options to purchase shares of the
Company's Common Stock held by the Employee on the date of termination shall
be exercisable for a period of thirty-six (36) months from the date of such
termination, notwithstanding anything to the contrary set forth in any
agreement(s) evidencing such stock option; provided, however, that no option
shall be exercisable after the final expiration date of such option.
(b) Payments under this Section 5.3 shall be made without
regard to whether the deductibility of such payments (or any other payments
to or for the Employee's benefit) would be limited or precluded by Section
280(G) of the Internal Revenue Code of 1986, as amended (the "Code") and
without regard to whether such payments (or any other payments) would subject
the Employee to the federal excise tax levied on certain "excise parachute
payments" under Section 4999 of the Code; provided, that if the total of all
payments to or for the Employee's benefit, after deduction of all federal
taxes (including the tax set forth in Section 4999 of the Code, if
applicable) with respect to such payments (the "total after-tax payments"),
would be increased by the limitation or elimination of any payment under this
Section 5.3, amounts payable under this Section 5.3 shall be reduced to the
extent, and only to the extent, necessary to maximize the total after-tax
payments. The determination as to whether and to what extent payments under
this Section 5.3 are required to be reduced in accordance with the preceding
sentence shall be made by agreement between the Employee and the independent
public accounting firm of the Company. To the extent that any elimination or
reduction of payments is made in accordance with this Section 5.3(b), the
determination as to which payments shall be eliminated or reduced shall be
made by the Employee.
5.4 SURVIVAL. The provisions of Sections 6 and 7 shall survive the
termination of this Agreement.
<PAGE>
6. NON-COMPETE.
(a) During the Employment Period and during any period after
the Employment Period during which the Employee is accepting payments or
benefits under Section 5.3(a)(i) and/or (ii) above, the Employee will not
directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, or in any
other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company),
engage in the business of developing, producing, marketing or selling
products of the kind or type developed or being developed, produced, marketed
or sold by the Company from and after May 18, 1999; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company or hire any person who
was an employee of the Company after May 18, 1999 and during the Employment
Period; or
(iii) solicit, divert or take away, or attempt to divert
or to take away, the business or patronage of any of the clients, customers
or accounts, or prospective clients, customers or accounts, of the Company
which were contacted, solicited or served by the Employee while employed by
the Company.
(b) If any restriction set forth in this Section 6 is found by
any court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities or in
too broad a geographic area, it shall be interpreted to
<PAGE>
extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
(c) The restrictions contained in this Section 6 are necessary
for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Section 6 will cause the Company substantial
and irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company shall
have the right to seek specific performance and injunctive relief.
7. PROPRIETARY INFORMATION AND DEVELOPMENTS. The Employee shall be bound
by the terms and conditions of the Nondisclosure and Assignment of Inventions
Agreement dated May 13, 1999 by and between the Employee and the Company, a
copy of which is annexed hereto as EXHIBIT A.
8. TERMINATION OF SENIOR MANAGEMENT RETENTION AGREEMENT. The Company
and the Employee hereby agree that upon their execution of this Employment
Agreement, the Senior Management Retention Agreement dated October 3, 1997 by
and between the Company and the Employee shall be terminated in its entirety
and shall have no further force or effect.
9. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or
upon deposit in the United States Post Office, by registered or certified
mail, postage prepaid, addressed to the other party at the address shown
above, or at such other address or addresses as either party shall designate
to the other in accordance with this Section 9.
<PAGE>
10. PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
12. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
13. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may
be merged or which may succeed to its assets or business, provided, however,
that the obligations of the Employee are personal and shall not be assigned
by him.
15. MISCELLANEOUS.
15.1 No delay or omission by the Company or the Employee in
exercising any right under this Agreement shall operate as a waiver of that
or any other right. A waiver or consent given by the Company or the Employee
on any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
<PAGE>
15.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope
or substance of any section of this Agreement.
15.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability
of the remaining provisions shall in no way be affected or impaired thereby.
(Rest of Page Intentionally Left Blank)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
BIOSEPRA, INC.
By: /s/ Timothy J. Barberich
-----------------------------
Name: Timothy J. Barberich
Title: Chairman of the Board
EMPLOYEE
/s/ Jean-Marie Vogel
---------------------------------
Jean-Marie Vogel
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