FORM 10-Q/A (Amendment No. 1)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-23776
HemaSure Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-3216862
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(State or other jurisdiction of (I.R.S. Employer
organization or incorporation) Identification No.)
140 Locke Drive, Marlborough, Massachusetts 01752
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(Address of principal executive offices)
(zip code)
(508) 490-9500
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
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<S> <C>
Common Stock, par value $.01 per share 9,042,850
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Class Outstanding at August 14, 1998
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The undersigned registrant hereby amends Part I, Item 2, entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations," of
its Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Overview
HemaSure was established in December 1993 as a wholly-owned subsidiary of
Sepracor Inc. ("Sepracor"). Prior to that date, its business was conducted as
part of Sepracor's bioprocessing division. Effective as of January 1, 1994, in
exchange for 3,000,000 shares of Common Stock, Sepracor transferred to HemaSure
its technology relating to the manufacture, use and sale of medical devices.
The Company is utilizing its proprietary filtration technologies to develop
products to increase the safety of donated blood and to improve certain blood
transfusion procedures. The Company's products are designed for use in blood
centers and hospital blood banks worldwide. From inception through fiscal 1995,
HemaSure has sold non-blood related filter products primarily to Sepracor. In
February 1998, the Company determined to discontinue manufacturing the LeukoNet
System and focus on the completion of development and market introduction of its
next-generation red cell filtration product. All of the Company's planned
blood-related products are in the research and development state, and certain of
these products may require preclinical and clinical testing prior to submission
of any regulatory application for commercial use. The Company's success will
depend on development and commercial acceptance of these blood-related products
and its ability to raise capital through strategic partnerships, public or
private equity and/or debt financing.
The Company is subject to risks common to companies in the medical technology
industry, including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology and compliance with FDA regulations.
Three and six months ended June 30, 1998 and 1997
The Company did not record any revenues for the quarter ended June 30, 1998
compared to revenues of $517,000 in the same period in 1997. Revenues were
$25,000 for the first six months of 1998 compared to $1,068,000 for the first
six months of 1997. Revenues for all periods presented represent sales of the
Company's discontinued LeukoNet System.
Total cost of products sold exceeded total product sales in all periods due to
the high costs associated with low-volume production.
Research and development expenses were $1,249,000 in the second quarter of 1998
compared to $876,000 in the second quarter of 1997, and were $2,011,000 in the
six months ended June 30, 1998 compared to $1,761,000 in the six months ended
June 30, 1997. The increase in both the three and six month periods is primarily
attributable to costs associated with the development of the Company's next
generation red cell filtration system, the r/LS system.
Legal expenses related to patents were $394,000 in the second quarter of 1998
compared to $106,000 in the second quarter of 1997, and were $1,456,000 in the
six months ended June 30, 1998 compared to $200,000 in the six months ended June
30, 1997. The increase in both the three and six month periods is due to costs
associated with defending the Company's patent position in its outstanding
litigation with Pall Corp.
Selling, general and administrative expenses were $1,252,000 in the three months
ended June 30, 1998 compared to $1,000,000 in the three months ended June 30,
1997, and were $2,263,000 in the first six months of 1998 compared to $2,319,000
in the first six months of 1997. The increase in the three month period is due
primarily to increases in sales and marketing costs associated with the
preparation to market and sell the Company's r/LS system. The decrease in the
six month period is primarily attributable to lower administrative costs
associated with the Company's decision to focus on its core blood filtration
business offset in part by sales and marketing costs associated with the
preparation to market and sell the Company's r/LS system. Sales and marketing
costs may increase in future periods from current levels as the Company
continues its efforts to expand sales of its blood filtration products.
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In the three month period ended June 30, 1997, the Company recorded a one time
charge of $1,215,000 for severance and related charges in connection with
executive management departures pursuant to HemaSure's decision to focus on its
core blood filtration business.
Interest income for both the three and six months ended June 30, 1998 decreased
compared to the three and six months ended June 30, 1997 due to lower average
cash and marketable securities balances available for investment. Interest
expense for the three and six month periods ended June 30, 1998 decreased
compared to the same periods in 1997 related to a convertible subordinated note
payable which is not in existence in 1998 and a lower average capital lease
obligation balance.
Liquidity and Capital Resources
The net increase in cash and cash equivalents for the six months ended June 30,
1998 was $508,000. This increase is attributable primarily to net cash provided
from investing activities of $6,696,000 offset in part by net cash used in
operating activities of $6,105,000 and net cash used in financing activities of
$83,000.
Net cash provided from investing activities relates to available-for-sale
marketable securities investing activities of $6,862,000 offset in part by
additions to property and equipment of $167,000. Net cash used in operating
activities is primarily attributable to the net loss of $6,292,000 and a
reduction in accounts payable and accrued expenses of $418,000 offset in part by
deprecation and amortization of $284,000 and the reduction of accounts
receivable of $436,000.
In August 1998, the Company received a written commitment from a commercial bank
for a $5 million revolving line of credit. Up to $3 million under the line will
be available upon the signing of the definitive loan agreement, with the
remainder available upon the completion of certain events as defined including
clearance of its 510(k) Pre-Market Notification Application currently with the
U.S. Food and Drug Administration. The revolving line of credit, which is
expected to expire in June 2000, will be used to help finance the Company's
working capital requirements and for general corporate purposes. Amounts
borrowed under the line are anticipated to bear interest at the bank's prime
lending rate plus 1/2% payable quarterly in arrears. The bank will have a first
lien on all assets of the Company including its intellectual property.
Sepracor, the Company's largest stockholder, has agreed in principle to
guarantee repayment by the Company of amounts borrowed under the line of credit.
In exchange for the guarantee, subject to the approval of the Company's Board of
Directors, the Company will grant to Sepracor warrants to purchase up to
1,700,000 shares of the Company's common stock at a price of $0.69 per share, of
which 1,000,000 warrants will be exercisable upon issuance and 700,000 warrants
will be exercisable in the event the Company draws down in excess of $3 million
under the line of credit. The warrants will expire in the year 2003 and have
certain registration rights associated with them. HemaSure will value the
warrants as of the date of the final agreement and record a charge over the term
of the line of credit. The closing of the line of credit is subject to the
satisfaction of customary conditions, including the negotiation and execution of
customary loan documents and related agreements with Sepracor. Accordingly,
there can be no assurance that the line of credit will close on the terms set
forth in the commitment, if at all.
In January 1997, the Company entered into a Restructuring Agreement of the debt
related to its acquisition of Novo Nordisk's plasma products unit. The amount
included in the balance sheet at December 31, 1997 includes the effect of the
Restructuring Agreement net of a $3,000,000 contingency amount to reflect the
most probable result of the Company's decision to exit the plasma business. On
January 6, 1998, $8,687,000 of debt, which the Company believes was the entire
amount outstanding as of the date of conversion, was converted into Common Stock
at a conversion price of $10.50 per share, or 827,375 shares, pursuant to the
terms of the note. The holder of the note has contested the conversion of the
note, including the forgiveness of the $3,000,000 amount.
The Company believes based on its current operating plan that, in addition to
its available cash and marketable securities balances, and the use of the funds
available to it under the line of credit commitment, it will be able to fund the
Company's operations through 1998. The Company expects to continue to evaluate
the need for additional capital over the remainder of 1998 in order to continue
to fund working capital and general corporate financing requirements. Possible
sources of such additional capital could include strategic partnerships, public
or private equity and/or debt financing. No assurance can be given, however,
that the Company will be able to obtain additional financing on terms acceptable
to the Company, if at all. Should the Company fail to obtain any such
/financing, or to obtain such financing on terms favorable to the Company, the
Company may be unable to continue
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or complete the development of its proposed products and/or market such products
successfully, or to continue its current operations as presently conducted, if
at all, beyond 1998. Should the Company be unable to complete the financing
expected from its written commitment for such financing, it would not be able to
continue its current operations beyond August 1998, if at all. The Company's
cash requirements may vary materially from those now planned because of factors
such as successful development of products, results of product testing, approval
process at the FDA and similar foreign agencies, commercial acceptance of its
products, patent developments and the introduction of competitive products.
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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.
HemaSure Inc.
Date: August 24, 1998 /s/ John F. McGuire
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Name: John F. McGuire
Title: President and Chief Executive Officer
(Principal Executive Officer)
Date: August 24, 1998 /s/ James B. Murphy
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Name: James B. Murphy
Title: Senior Vice President Finance
and Administration
(Principal Financial Officer)
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