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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
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(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
OR
[ ] 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
BIOSPHERE MEDICAL, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 04-3216867
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Organization or Incorporation)
1050 Hingham St. Rockland, Massachusetts 02370
(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
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The number of shares outstanding of the registrants Common Stock as of
July 28, 2000: 10,470,922 shares.
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BioSphere Medical, Inc.
Part I - Financial Information
BioSphere Medical, Inc. is filing this Quarterly Report on Form 10-Q/A
solely for the purpose of revising footnote 6 of the Notes to Consolidated
Financial Statements set forth in Part I, Item 1 - Consolidated Financial
Statements.
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BIOSPHERE MEDICAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,929 $ 5,368
Accounts receivable, net of allowance for
doubtful accounts of $43 and $0 as of
June 30, 2000 and December 31, 1999,
respectively 672 645
Inventories 639 389
Prepaid and other current assets 151 51
------------ ------------
Total current assets 8,391 6,453
Property and equipment, net 551 322
Goodwill, net 1,108 713
Other assets 646 8
------------ ------------
Total assets $ 10,696 $ 7,496
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 692 $ 616
Payable to Sepracor 6 68
Accrued expenses 2,028 1,279
Current portion of long-term debt 27 --
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Total current liabilities 2,753 1,963
Minority interest acquisition obligation 406 945
Long-term debt 111 --
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Total liabilities 3,270 2,908
Stockholders' equity:
Common stock, $0.01 par value, 25,000
shares authorized; issued and
outstanding: 9,256 as of June 30, 2000
and 8,456 as of December 31, 1999 93 84
Additional paid-in capital 46,983 40,587
Accumulated deficit (39,691) (36,068)
Cumulative translation adjustment 41 (15)
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Total stockholders' equity 7,426 4,588
============ ============
Total liabilities and stockholders' equity $ 10,696 $ 7,496
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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BIOSPHERE MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Product revenue $ 815 $ 713 $ 1,589 $ 993
Costs and expenses:
Cost of product revenue 404 428 686 574
Research and development 564 182 1,113 199
Selling, general and administrative 2,118 1,141 3,668 1,744
--------- --------- --------- ---------
Total costs and expenses 3,086 1,751 5,467 2,517
--------- --------- --------- ---------
Loss from continuing operations (2,271) (1,038) (3,878) (1,524)
Other income/ (expense) 104 16 255 (5)
--------- --------- --------- ---------
Loss before taxes and minority interest (2,167) (1,022) (3,623) (1,529)
Income tax -- (2) -- (20)
--------- --------- --------- ---------
Loss before minority interest (2,167) (1,024) (3,623) (1,549)
Minority interest 20 (1) -- (15)
--------- --------- --------- ---------
Net loss from continuing operation (2,147) (1,025) (3,623) (1,564)
Loss from discontinued operations -- (103) -- (539)
--------- --------- --------- ---------
Net loss $ (2,147) $ (1,128) $ (3,623) $ (2,103)
========= ========= ========= =========
Basic and diluted net loss per share from
continuing operations $ (0.23) $ (0.12) $ (0.40) $ (0.19)
Basic and diluted net loss per share from
discontinued operations -- (0.01) -- (0.06)
--------- --------- --------- ---------
Basic and diluted net loss per share $ (0.23) $ (0.13) $ (0.40) $ (0.25)
========= ========= ========= =========
Weighted average common shares outstanding
Basic and diluted 9,250 8,456 9,087 8,456
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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BIOSPHERE MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ (3,623) $ (2,103)
Net loss
Less: Net loss from discontinued operations -- 539
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Net loss from continuing operations (3,623) (1,564)
Adjustments to reconcile net loss from continuing
operations to net cash used in continuing
operating activities:
Provision for doubtful accounts 43 --
Depreciation and amortization 118 20
Minority interest- BioSphere Medical, S.A. -- 15
Non-cash interest expense 20 --
Foreign currency translation gain (85) --
Stock-based compensation 270 --
Changes in operating assets and liabilities:
Accounts receivable (70) 40
Inventories (250) (20)
Prepaid and other current assets (100) (24)
Accounts payable 76 (72)
Payable to Sepracor (62) (384)
Accrued expenses 736 9
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Net cash used in operating activities (2,927) (1,980)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (296) (64)
Increase in restricted cash -- (1,000)
Change in other assets (138) 1
Cash paid for 34% interest of Biosphere Medical, S.A. (920) --
Proceeds from acquisition of Biosphere Medical, S.A. -- 283
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Net cash used in investing activities (1,354) (780)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash provided by the issuance of common stock in a
private placement 5,785 --
Cash provided by the exercise of stock options 350 --
Deferred financing costs (500) --
Net proceeds from long-term borrowings 138 --
Net Proceeds/(payments) under line of credit agreement 13 (2,000)
Payments made on capital lease obligations -- (180)
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Net cash provided by financing activities 5,786 (2,180)
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Effect of exchange rate changes on cash
and cash equivalents 56 (5)
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NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,561 (4,945)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS -- 9,655
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,368 2,235
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,929 $ 6,945
========= =========
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
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Goodwill $ -- $ 771
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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BIOSPHERE MEDICAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Nature of Business
BioSphere Medical, Inc. (the "Company") was incorporated in Delaware in
December 1993. During 1999, the Company strategically refocused its business on
the development and commercialization of its proprietary microspheres for
medical applications. In February 1999, the Company acquired a 51% ownership
interest in Biosphere Medical S.A., ("BMSA") a French societe anonyme (See Note
3). BMSA has the license to the embolotherapy device that is the main focus of
the Company's business. In May 1999, the Company sold substantially all of its
assets relating to its former core business, chromatography, and changed its
name to BioSphere Medical, Inc. In April 2000, the Company increased its
ownership interest in Biosphere Medical, S.A. to 85%. The Company has an option
to acquire the remaining 15% at a later date. The Company expects to spend
substantial funds and to experience increasing losses for the foreseeable future
in connection with this refocus of its business and execution of its business
plan. As of August 1, 2000, Sepracor Inc., a specialty pharmaceutical company,
beneficially owned approximately 56% of our outstanding common stock.
B) Basis of Presentation
The accompanying consolidated condensed financial statements are unaudited
and have been prepared on a basis substantially consistent with Company's 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, BMSA. 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 and
six-month periods ended June 30, 2000 and 1999. The results of operations for
the periods are not necessarily indicative of the results of operations to be
expected for the entire 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.
Certain prior period amounts have been reclassified to conform to current
reporting, including the impact of the operations of the Company that were
discontinued.
C) New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. The effective date of this
bulletin was deferred until the fourth fiscal quarter beginning after December
15, 1999. SAB 101 requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation in accordance with Accounting Principles Board Opinion No. 20,
"Accounting Changes." Adoption of SAB 101 is not expected to have a material
impact on the Company's financial position and results of operations.
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In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
D) Comprehensive Income /(Loss)
The Company applies Statement of Financial Account Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income" which establishes 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 comprehensive loss due to foreign currency translation adjustments
would be approximately $56,000 less than reported for the six months ended June
30, 2000 and approximately $1,000 greater than reported in the six months ended
June 30, 1999.
E) Net Loss Per Share
Basic net loss per share is calculated based on the weighted average number
of common shares outstanding during the period. Diluted net loss per share
incorporates the dilutive effect of common stock equivalent options, warrants
and other convertible securities. Total warrants and options convertible into
Common stock as of June 30, 2000 and 1999, equaled 4,112,448 and 3,252,736,
respectively. Common stock equivalents have been excluded from the calculation
of weighted average number of diluted common shares, as their effect would be
antidilutive for all periods presented.
F) Revenue Recognition
The Company recognizes revenue from the sale of its products when the
products are shipped to its customers. Reserves for sales returns are provided
for potential returns at the time of revenue recognition.
2. BALANCE SHEET CAPTIONS
Components of other selected captions in the condensed consolidated balance
sheet consist of the following:
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<TABLE>
<CAPTION>
June 30, December 31, December 31,
(In Thousands) 2000 1999 1998
-------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
TRADE ACCOUNTS RECEIVABLE
Accounts receivable $ 715 $ 645 $ -
Allowance for doubtful accounts (43) - -
--------- --------- ---------
$ 672 $ 645
========= ========= =========
INVENTORIES
Raw material $ 112 $ 119 $ -
Work in progress 39 25 -
Finished goods 488 245 -
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$ 639 $ 389 -
========= ========= =========
PROPERTY AND EQUIPMENT
Office equipment $ 493 $ 289 $ 77
Laboratory and manufacturing equipment 120 72 -
Leasehold improvements 89 45 -
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702 406 77
Less accumulated depreciation (151) (84) (35)
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$ 551 $ 322 42
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GOODWILL
Excess of cost over net assets acquired $ 1,217 $ 771 $ -
Less accumulated amortization (109) (58) -
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$ 1,108 $ 713 -
========= ========= =========
ACCRUED EXPENSES
Accrued compensation $ 910 $ 400 $ 161
Accrued private placement equity costs 315 - -
Accrued research and development costs 150 - -
Other 653 879 631
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$ 2,028 $ 1,279 792
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</TABLE>
3. MINORITY INTEREST ACQUISITION OBLIGATION
On February 25, 1999, the Company acquired 51% of the outstanding common
stock of BMSA. Accordingly, the results of operations of BMSA have been included
in the consolidated condensed statements as of the date of acquisition.
In accordance with a February 25, 1999 purchase agreement, the Company
acquired a 51% ownership interest by granting to BMSA an exclusive sales and
manufacturing license to certain patents and technology primarily relating to
the Company's Embosphere(TM) Microsphere technology. The Company was also
granted an option to purchase the remaining 49% interest in BSMA through
December 31, 2004 for an amount equal to the product of the percentage interest
to be purchased and the sum of BMSA's rolling nine-month sales and worldwide
Embosphere Microsphere sales as of the date of exercise (the "Purchase Option").
Moreover, the holder of the remaining 49% interest was also granted an option
(the "Put Option") to require the Company to purchase the remaining 49% interest
from December 31, 2003 until December 31, 2004 for an amount equal to the
greater of an agreed upon price (in French Francs) for each percentage interest
to be sold or the amount payable under the Purchase Option. The Put Option
represents a contingent purchase consideration and the Company is accreting the
value of this Put Option over the period ending December 31, 2003.
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On April 7, 2000, the Company purchased an additional 34% of BMSA for
approximately $920,000. The transaction was accounted for as a step acquisition
of a minority interest whereby the fair value in excess of the then recorded
accrued acquisition obligation was treated as an increase to goodwill. As a
result of this step-acquisition, the Company's total ownership interest in BMSA
increased to 85%. As of June 30, 2000, the holder of the 15% minority interest
retains its Put Option with respect to the remaining 15% of the outstanding
equity interest in BMSA pursuant to the terms of the original purchase
agreement. The Company also retains its Purchase Option with respect to the
remaining 15% equity interest in BMSA. As of June 30, 2000 the Company estimated
the present value of the Put Option to be $406,000.
The Company has applied the purchase method of accounting to the purchase
of the interest in BMSA and has allocated the purchase price to the assets
acquired and liabilities assumed. The purchase price in excess of the fair value
of the tangible assets has been allocated to goodwill. Goodwill as of June 30,
2000 and December 31, 1999 of $1,108,000 and $713,000, respectively, is being
amortized through February 2010.
4. RELATED PARTY TRANSACTIONS
The related party payable represents amounts due for certain administrative
services provided on an arms-length basis by Sepracor Inc., the Company's
majority stockholder.
5. DISCONTINUED OPERATIONS
On May 17, 1999, the Company sold substantially all of its assets and
business, relating to its former core business, chromatography, for
approximately $11.0 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 and six months ended June 30, 1999 have been segregated
from the continuing operations and reported as a separate line item on the
consolidated condensed statements of operations.
6. 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. Of the total 653,887 common shares sold, unrelated
third-party institutional investors purchased 609,445, or 93%, and 44,442, or
7%, were purchased by members of the Company's Board of Directors. The warrants
have an exercise price equal to $20.00 per share and expire on February 4, 2005.
In accordance with the Black-Scholes option-pricing model, the Company valued
the warrants at approximately $929,000 and has included such amount as a
component of additional paid in capital. The Company estimates that the
$4,956,000 net proceeds allocated to the common stock issued represents a 23%
discount to the Nasdaq quoted market value at the time the Company negotiated
the private equity placement. Management believes that the 23% discount is
consistent with similar sales of private equity securities. The Company intends
to use the net proceeds from this private placement for general corporate
purposes, including research and development, sales and marketing activities.
7. SALES BY REGIONAL AREA
Sales from continuing operations by geographic region for the years ended
December 31, 1999 and 1998 are as follows;
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<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1999 1998
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<S> <C> <C>
France 86% 100%
Spain 5 -
All other 9 -
-------- --------
-------- --------
100% 100%
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</TABLE>
8. SUBSEQUENT EVENT
On July 28, 2000, the Company completed a private equity placement of
common stock for gross proceeds of approximately $13,364,000. Investors
purchased 1,214,900 shares of common stock at $11.00 per share. Of the total
shares sold, Sepracor, Inc. the Company's parent company, purchased 454,545
shares. All proceeds from this equity placement are to be used for general
corporate purposes, including research and development, sales and marketing
activities.
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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.
BioSphere Medical, Inc.
Date: August 16, 2000 /s/ Robert M. Palladino
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Robert M. Palladino
Chief Financial Officer
(Principal Financial & Accounting Officer)
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