<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
-- or --
/ / TRANSITION REPORT
FOR THE TRANSITION PERIOD FROM TO
----- -----
-------------------------
OSTEX INTERNATIONAL, INC.
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
0-25250
COMMISSION FILE NUMBER
STATE OF WASHINGTON 91-1450247
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER
2203 AIRPORT WAY SOUTH, SUITE 400, SEATTLE, WASHINGTON 98134
206-292-8082
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
[N/A]
FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT
-------------------------
Indicate by checkmark whether the registrant (1) has filed all Yes [X]
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 No [ ]
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.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF
OCTOBER 22, 1998 WAS 12,696,250.
-------------------------
<PAGE>
OSTEX INTERNATIONAL, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
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PAGE
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<S> <C> <C>
ITEM 1 - FINANCIAL STATEMENTS
Condensed Balance Sheets.................................... F-1
Condensed Statements of Operations.......................... F-2
Condensed Statements of Cash Flow........................... F-3
Notes to Condensed Financial Statements .................... F-4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 2
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...................................... 6
PART II -- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS....................................... 6
ITEM 2 - CHANGES IN SECURITIES................................... 6
ITEM 3 - EXHIBITS AND REPORTS ON FORM 8-K........................ 7
</TABLE>
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<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached hereto are Ostex International, Inc.'s (the "Company's or
Ostex' ") unaudited condensed balance sheet as of September 30, 1998, and
audited condensed balance sheet as of December 31, 1997, the unaudited condensed
statements of operations for the quarters ended September 30, 1998 and 1997, and
for the nine months ended September 30, 1998 and 1997, and the statements of
cash flow for the nine months ended September 30, 1998 and 1997. Notes follow
the unaudited financial statements and are an integral part thereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
which reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results or the timing of certain events to differ materially from
historical results or those anticipated. Words used herein such as "believes,"
"anticipates," "expects," "intends," and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements. In addition, the disclosures in this Item 2 under
the caption "Other Factors that May Affect Operating Results", consist
principally of a brief discussion of risks which may affect future results and
are thus, in their entirety, forward-looking in nature. Readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports previously filed with the
Securities and Exchange Commission (the "Commission"), including the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, that
attempt to advise interested parties of the risks and factors that may affect
the Company's business.
OVERVIEW
Ostex was incorporated in the State of Washington in 1989. The Company is
engaged in the discovery and commercialization of products associated with
osteoporosis and other collagen-related diseases. The Company believes that its
lead product, the Osteomark-Registered Trademark- test, incorporates
breakthrough technology in the area of bone resorption measurement.
Osteoporosis is a significant health problem. According to the National
Osteoporosis Foundation (the "NOF"), osteoporosis afflicts approximately 28
million people in the U.S. alone. Additionally millions of people are at risk
of skeletal degradation associated with Paget's disease of bone, cancer that
metastasizes to bone, hyperparathyroidism (overactivity of the parathyroid
gland, characterized by a reduction of bone mass) and renal osteodystrophy. In
spite of the serious human and economic consequences of these diseases
(according to the NOF, the direct healthcare and indirect lost productivity
costs of osteoporosis exceed $14 billion annually in the U.S. alone), medical
intervention usually commences only after pain, immobility, fractures, or other
symptoms have appeared. The Company expects the therapeutic market for
osteoporosis will increase significantly. The Company also believes new
therapeutic products are under development for osteoporosis, some of which are
in late-stage clinical trials, and that the Osteomark test can be used to
effectively predict a patient's response to osteoporosis therapy and monitor
existing therapies and other therapies which may be developed.
The Company is the exclusive licensee of the Osteomark technology, known
clinically as the NTx assay, which is a urine test that can aid in healthcare
decision-making at early menopause and beyond. The Osteomark assay is a
non-invasive diagnostic test which quantitatively indicates the level of bone
resorption. Individuals who are losing bone collagen at accelerated rates may
progress to low bone mass, a major cause of osteoporosis. The Company believes
that early identification of high levels of bone resorption allows physicians
the opportunity to prescribe antiresorptive therapy in cases where prescriptions
may not have been made otherwise, thereby avoiding the onset of osteoporosis.
The Company also believes that the Osteomark assay aids clinicians in monitoring
the effects of
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<PAGE>
antiresorptive therapies in postmenopausal women, as well as in older patients
who have already lost significant bone mass.
On May 8, 1995, the Company's Osteomark assay became commercially available
in the United States as a urinary assay that provides a quantitative measure of
the excretion of cross-linked N-telopeptides of Type I collagen (NTx) as an
indicator of human bone resorption, and in July 1996 the Company received
expanded claims from the Food and Drug Administration (the "FDA") for the assay.
The 1996 claims allow that an Osteomark test measurement, if taken prior to the
initiation of hormonal antiresorptive therapy, can be utilized to predict a
patient's response to that therapy, in terms of its effect on bone mineral
density. Additionally, the claims allow that the test can be used for
therapeutic monitoring of antiresorptive therapies in postmenopausal women, as
well as individuals diagnosed with osteoporosis and Paget's disease, and for
therapeutic monitoring of estrogen-suppressing therapies. In March 1998 the
claims were further expanded by allowing that, in addition to the 1996 claims,
an Osteomark test measurement can identify the probability of a decrease in bone
mineral density in postmenopausal women taking calcium supplements relative to
those treated with hormonal antiresorptive therapy.
The Company is manufacturing and marketing the Osteomark assay initially in
an Enzyme-linked Immunosorbent Assay ("ELISA") microtiter plate format for
testing urine samples and has successfully completed clinical trials of a
version of Osteomark to measure NTx in serum. These studies were submitted to
the FDA in September 1998. The Company believes that the use of a serum NTx
test provides a number of advantages to testing laboratories, including the
elimination of the requirement to normalize NTx values to creatinine
concentration as well as allowing testing of NTx in serum specimens that may
have been collected by the physician for testing other analytes such as
cholesterol levels, etc.
Worldwide promotion of the Osteomark test kits is supported by Johnson &
Johnson Clinical Diagnostics, Inc. ("Johnson & Johnson"). In 1995 the Company
entered into research, development, license and supply agreements with Johnson &
Johnson. These agreements grant Johnson & Johnson a license to manufacture,
sell and distribute certain products using Ostex' bone resorption technology.
Currently, Ostex sells Johnson & Johnson the Osteomark assay in the existing
microtiter plate format for distribution in the United States and certain
foreign countries and Johnson & Johnson is adapting the urine assay for use with
its automated analyzer. Ostex will receive royalties on Johnson & Johnson's
automated analyzer sales of products incorporating licensed Ostex technology.
Ostex has also entered into a research and development agreement and a
license agreement with Mochida Pharmaceutical Co., Ltd. ("Mochida"), a Japanese
pharmaceutical company, for the commercialization of the Osteomark assay in
Japan. Under the research and development agreement, Mochida has an option to
license the NTx serum assay upon completion of certain milestones. Under the
license agreement, Ostex granted Mochida exclusive marketing and distribution
rights to certain Ostex products in Japan, and Ostex sells to Mochida the
critical reagents necessary for Mochida to manufacture Osteomark kits. In
January 1998 Mochida launched the Osteomark assay in Japan for the management of
patients with hyperparathyroidism and for patients with metastatic bone tumors.
The Company also plans to develop the Osteomark assay in other formats,
including formats suitable for use in the physician's office. The Company has
entered into an agreement with Metrika, Inc. ("Metrika"), a diagnostic device
company, to develop physician office "point-of-care" Osteomark assay devices.
In June 1998 the Company entered into a new agreement with Metrika whereby the
Company has worldwide marketing and sales rights to the Metrika device for use
with bone resorption testing for all fields of use. In August 1998 the Company
formally concluded its "point-of-care" device co-development agreement with
Hologic, Inc. and has opted to concentrate its "point-of-care" and
"over-the-counter" co-development efforts on its relationship with Metrika.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
Total revenues were $623,000 for the quarter ended September 30, 1998,
compared to $1,505,000 for the quarter ended September 30, 1997. Product sales
were $623,000 during the three month period ended September 30, 1998, compared
to $1,055,000 for the same period in 1997. The 41% decrease in product sales
was due to lower volumes of Osteomark kits being sold to Johnson & Johnson and
national reference laboratories during the 1998 quarter compared to the same
period of 1997. License and research and development fees were zero during the
three month period ended September 30, 1998, compared to $450,000 during the
same period in 1997. The $450,000 reduction in fees collected
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under license and research and development agreements with Mochida was expected
and is due to attainment of scheduled milestones. The Company does not expect
to receive any further milestone payments under the license agreement with
Mochida and future payments of up to $750,000 under the research and development
agreement are contingent upon Mochida's decision to exercise its option to
license the NTx serum assay and achievement of certain serum assay development
milestones.
The Company's gross margin on product sales was 65% for the quarter ended
September 30, 1998, compared to 78% for the quarter ended September 30, 1997.
The 13% decrease was due primarily to an increase in unit manufacturing costs
resulting from decreased production volume spreading fixed manufacturing costs
over a lower base of units produced during the quarter ended September 30, 1998,
compared to the quarter ended September 30, 1997. The gross margin is expected
to continue to fluctuate depending on the volume and timing of customer orders
and the production levels needed to fill customer demand.
The Company's research and development expenditures totaled $661,000 for
the quarter ended September 30, 1998, compared to $1,090,000 for the quarter
ended September 30, 1997. The $429,000 decrease resulted primarily from
completion of contract development payments pursuant to NTx assay point-of-care
co-development programs during the first quarter of 1998. The decreased
research and development expenses were also attributable to the completion of
clinical studies that were ongoing during the 1997 quarter. The Company's
clinical study expenses during the 1997 quarter included a study for the
determination of the NTx reference range in males, a study to complement
physician interpretation of NTx results in postmenopausal women, and preliminary
studies for the use of the Osteomark test in helping to identify bone
metastases. The Company anticipates research and development expenses to
increase in future quarters as a result of continued clinical studies and other
costs associated with the introduction of its NTx serum test.
Selling, general and administrative expenses totaled $1,759,000 for the
quarter ended September 30, 1998, compared to $1,903,000 for the period ended
September 30, 1997. The decrease was due to previous restructuring within the
administrative areas of the Company which reduced the number of personnel, the
resignation of certain executive management during the fourth quarter of 1997
who were not replaced, the completion of litigation in connection with the
arbitration against Boehringer Mannheim Diagnostics, resolution of the C.R.
Bard, Inc. case, and reduced activity associated with the Company's legal action
against Osteometer Biotech A/S (see "Legal Proceedings" in Part II, Item 1 of
this Form 10-Q). The decrease was offset by an increase in expenses associated
with the promotion and advertising of the Osteomark test. Specifically,
physician, clinical laboratory, and managed care advertising campaigns were
initiated in September 1998.
Interest income totaled $184,000 for the quarter ended September 30, 1998,
compared to $196,000 for the quarter ended September 30, 1997. The decrease is
due to lower invested balances resulting from using cash to fund the Company's
operating losses.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER
30, 1997
The Company recorded revenues of $2,215,000 for the nine month period ended
September 30, 1998, compared to $3,108,000 for the nine month period ended
September 30, 1997. Product sales were $2,215,000 during the nine month period
ended September 30, 1998, compared to $2,658,000 for the same period in 1997.
The 17% decrease in product sales was due to lower volumes of Osteomark kits
being sold to Johnson & Johnson, national reference laboratories, and research
laboratories during the nine months ended September 30, 1998, compared to the
same period of 1997. License and research and development fees were zero during
the nine month period ended September 30, 1998, compared to $450,000 during the
same period in 1997. The $450,000 reduction in fees collected under license and
research and development agreements with Mochida was expected and is due to
attainment of scheduled milestones. The Company does not expect to receive any
further milestone payments under the license agreement with Mochida and future
payments of up to $750,000 under the research and development agreement are
contingent upon Mochida's decision to exercise its option to license the NTx
serum assay and achievement of certain serum assay development milestones.
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<PAGE>
The Company's gross margin on product sales was 70% for the nine month
period ended September 30, 1998, compared to 76% for the nine month period ended
September 30, 1997. The 6% decrease was due primarily to an increase in unit
manufacturing costs resulting from decreased production volume spreading fixed
manufacturing costs over a lower base of units produced during the nine month
period ended September 30, 1998, compared to the nine month period ended
September 30, 1997. Additionally, costs in the 1998 period increased within
manufacturing due to startup costs associated with the introduction of the NTx
serum assay to the production process. The gross margin is expected to continue
to fluctuate depending on the volume and timing of customer orders and the
production levels needed to fill customer demand.
The Company's research and development expenditures totaled $2,182,000 for
the nine month period ended September 30, 1998, compared to $3,522,000 for the
nine months ended September 30, 1997. The decrease of $1,340,000 was primarily
due to lower expenses in connection with the Company's point-of-care programs.
Reduced obligations for contract development payments for the NTx point-of-care
development program in 1998 contributed approximately $691,000 to the decrease
for the nine months ended September 30, 1998, compared to the same period in
1997. The Company anticipates increased research and development expenses as a
result of continued clinical studies and other costs associated with the
introduction of its NTx serum assay.
The completion of clinical studies and the closing of a laboratory in
Portland also contributed to the decrease in research and development expenses
for the nine months ended September 30, 1998, compared to the same period in
1997. Clinical study expenses decreased approximately $314,000 in the 1998
period compared to 1997. Included in the Company's clinical study expenses
during the 1997 quarter was a study for the determination of the NTx reference
range in males, a study to complement physician interpretation of NTx results in
postmenopausal women, and preliminary studies for the use of the Osteomark test
in helping to identify bone metastases. These studies were completed in 1997.
Additionally, research and development decreased approximately $152,000 in the
1998 period because of a consolidation of research from the Company's laboratory
located in Portland, Oregon, into the Seattle laboratory in July 1997.
Selling, general and administrative expenses totaled $5,784,000 for the
nine month period ended September 30, 1998, compared to $5,688,000 for the nine
months ended September 30, 1997. The approximately $96,000 increase in expenses
was due to an increase in expenses associated with the promotion and advertising
of the Osteomark test. This increase was offset by lower legal costs resulting
from the completion of litigation in connection with the arbitration against
Boehringer Mannheim Diagnostics, resolution of the C.R. Bard, Inc. case, and
reduced activity associated with the Company's legal action against Osteometer
Biotech A/S (see "Legal Proceedings" in Part II, Item 1 of this Form 10-Q) as
well as reduced expenses resulting from a prior restructuring within the
administrative areas of the Company which reduced the number of personnel and
the resignation of certain executive management during the fourth quarter of
1997 who were not replaced.
Interest income totaled $604,000 for the nine month period ended September
30, 1998, compared to $675,000 for the same period ended September 30, 1997. The
decrease is due to lower invested balances resulting from using cash to fund the
Company's operating losses.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $12,943,000 in cash and cash
equivalents and short-term investments, working capital of $12,780,000 and total
shareholders' equity of $15,735,000. As a result of funding operating losses
during the nine months ended September 30, 1998, cash, cash equivalents and
short-term investments decreased by $6,022,000, working capital decreased by
$5,588,000 and shareholders equity decreased by $5,909,000. During the nine
month period ended September 30, 1998, the Company purchased $92,000 in
property, plant and equipment and reduced notes payable by $136,000.
The Company's future capital requirements depend upon many factors,
including the timing and effectiveness of commercialization activities and
collaborative arrangements; continued scientific progress in its research and
development programs; the costs involved in filing, prosecuting and enforcing
patent claims; the costs involved in legal efforts to enforce patent rights; and
the time and costs involved in obtaining regulatory approvals. The Company is
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likely to require additional funds from equity or debt financing and there can
be no assurance that such additional funds will be available on favorable terms,
if at all. Due to the Company's significant long-term cash requirements, it may
seek to raise additional capital if conditions in the public equity markets are
favorable, even if the Company does not have an immediate need for additional
cash at that time. If additional financing is not available, the Company
anticipates that its existing available cash, its future license and research
revenues from existing collaboration agreements, product sales and interest
income from short-term investments will be adequate to satisfy its capital
requirements and to fund operations through 1999. No assurance can be given,
however, that such funds will in fact be adequate until that time, since the
Company's prediction is subject to a number of risks and uncertainties,
including those discussed in the following paragraph.
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
The Company's operating results may fluctuate due to a number of factors
including, but not limited to, volume and timing of product sales, product
pricing, market acceptance of the Company's products, changing economic
conditions in the healthcare industry, delays and increased costs of product and
technology development, the Company's ability to develop and maintain
collaborative arrangements, the timing of payments under those arrangements, the
outcome of litigation, and the effect of the Company's accounting policies, as
well as other risk factors detailed in the Company's 1997 Form 10-K and other
Commission filings. All of the foregoing factors are difficult for the Company
to predict and can materially adversely affect the Company's business and
operating results.
The Company is currently in the process of evaluating its information
technology infrastructure for the Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance. The
Company is presently in the process of certifying the Year 2000 compliance
status of its suppliers. The Company does not currently have any information
concerning the Year 2000 compliance status of its customers. However, the
Company does fall into the Year 2000 compliance audit of many of its customers.
In the event that any of the Company's significant suppliers or customers do not
successfully and timely achieve Year 2000 compliance, the Company's business or
operations could be adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1996, the Company filed an action in the United States District
Court for the Western District of Washington against Osteometer Biotech A/S
("Osteometer"), a medical technology company based in Denmark, and Diagnostic
Systems Laboratories Inc. for patent infringement of United States Patent No.
5,455,179. The Company believes Osteometer's bone resorption immunoassay
incorporates technology which infringes patented Ostex technology. In September
1996, the defendants filed a response denying infringement and counterclaimed
that Ostex' patent is invalid and unenforceable. By order dated July 7, 1997,
the Court granted Ostex' motion to file a supplemental complaint, to add a
second cause of action based upon United States Patent No. 5,641,837, which
issued on September 24, 1997. On October 24, 1997, Ostex filed a second
supplemental complaint to add third and fourth causes of action based upon U.S.
Patent No. 5,652,112, which issued on July 29, 1997, and U.S. Patent No.
5,656,439, which issued on August 12, 1997. The lawsuit is currently scheduled
for trial commencing August 24, 1999. Management intends to continue to
vigorously assert its position in the lawsuit.
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On April 9, 1997, the Company was served with a lawsuit filed in the United
States District Court, Central District of California by C.R. Bard, Inc.
("Bard"). The complaint alleged that Ostex' Osteomark product infringed U.S.
Patent No. 4,628,027 assigned to Bard in 1993. On April 22, 1998, the Court
issued an order granting Ostex' motion for summary judgment and dismissed Bard's
lawsuit with prejudice. Bard did not appeal this decision.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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SIGNATURE
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.
OSTEX INTERNATIONAL, INC.
DATE: November 16, 1998 By /S/ JOHN M. BRENNEMAN
----------------------------------
John M. Brenneman
Director of Finance and Operations
(principal financial and
principal accounting officer)
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OSTEX INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------- ----------------
(unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $ 3,147 $ 2,201
Short-term investments 9,796 16,764
Trade receivables and other current assets, net 816 1,344
Inventory, at cost 225 201
---------------- ----------------
Total current assets 13,984 20,510
PROPERTY, PLANT AND EQUIPMENT, net of accumulated 2,544 2,965
depreciation
OTHER ASSETS 599 637
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Total assets $ 17,127 $ 24,112
---------------- ----------------
---------------- ----------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,204 $ 2,142
NONCURRENT LIABILITIES:
Note payable, net of current portion 188 326
---------------- ----------------
Total liabilities 1,392 2,468
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SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 50,000,000
authorized; 12,696,250 and 12,696,250 issued
and outstanding, respectively 127 127
Additional paid-in capital 45,642 45,642
Accumulated other comprehensive income - unrealized
(loss)/gain on short-term investments (48) 3
Accumulated deficit (29,986) (24,128)
---------------- ----------------
Total shareholders' equity 15,735 21,644
---------------- ----------------
Total liabilities and shareholders' equity $ 17,127 $ 24,112
---------------- ----------------
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</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
F - 1
<PAGE>
OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Year to Date
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
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REVENUE:
Product sales $ 623 $ 1,055 $ 2,215 $ 2,658
License and research and development fees $ - $ 450 $ - $ 450
-------------- -------------- -------------- --------------
Total revenues 623 1,505 2,215 3,108
OPERATING EXPENSES:
Cost of products sold 217 228 669 640
Research and development 661 1,090 2,182 3,522
Selling, general and administrative 1,759 1,903 5,784 5,688
-------------- -------------- -------------- --------------
Total operating expenses 2,637 3,221 8,635 9,850
-------------- -------------- -------------- --------------
Loss from operations (2,014) (1,716) (6,420) (6,742)
OTHER INCOME (EXPENSE):
Interest income 184 196 604 675
Interest expense (13) (18) (43) (57)
-------------- -------------- -------------- --------------
Net loss $ (1,843) $ (1,538) $ (5,859) $ (6,124)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Basic and diluted net loss per common and
common equivalent share $ (0.15) $ (0.12) $ (0.46) $ (0.49)
Shares used in calculation 12,696 12,635 12,696 12,547
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F - 2
<PAGE>
OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Year to Date
-------------------------------------
September 30, September 30,
1998 1997
----------------- -----------------
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CASH FLOWS FROM OPERATING ACTIVITIES $ (5,732) $ (5,872)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (31,606) (3,592)
Proceeds from sales of short-term investments 38,512 11,206
Purchase of property, plant and equipment (92) (1,093)
----------------- -----------------
Net cash provided by investing activities 6,814 6,521
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 0 124
Proceeds from borrowings on note payable 0 0
Payments on note payable (136) (121)
----------------- -----------------
Net cash provided by financing activities (136) 3
----------------- -----------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 946 652
CASH AND CASH EQUIVALENTS, beginning of period 2,201 1,289
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $ 3,147 $ 1,941
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F - 3
<PAGE>
OSTEX INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited condensed financial statements include the accounts of Ostex
International, Inc. (a Washington corporation) (the "Company"). These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to the rules and
regulations of the Securities and Exchange Commission. While these statements
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for fair presentation of the results of the interim
periods, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report filed on Form 10-K for the year ended
December 31, 1997.
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
The Company adopted SFAS No. 128, "Earnings per Share," effective December 15,
1997. Basic net loss per share is the net loss divided by the average number of
shares outstanding during the year. Diluted net loss per share is calculated as
the net loss divided by the sum of the average number of shares outstanding
during the year plus the net additional shares that would have been issued had
all dilutive options been exercised, less shares that would be repurchased with
the proceeds from such exercise (Treasury Stock Method). During all periods
presented, the effect of including outstanding options is antidilutive,
therefore, no options are considered in the calculation of diluted net loss per
share. There is no difference between the previously reported net loss per
share and the basic and diluted net loss per share.
2. CONTINGENCIES
LEGAL PROCEEDINGS
Refer to Part II, Item 1 of this Form 10-Q.
3. COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and disclosure of comprehensive income. The
components of comprehensive income for the nine months ended September 30, 1998
and September 30, 1997, are as follows (in thousands) :
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
---------- ----------
<S> <C> <C>
Net loss $ (5,859) $ (6,124)
Unrealized gain/(loss)
on short-term investments (51) (89)
---------- ----------
Total comprehensive loss $ (5,910) $ (6,213)
---------- ----------
---------- ----------
</TABLE>
F - 4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,147
<SECURITIES> 9,796
<RECEIVABLES> 471
<ALLOWANCES> 50
<INVENTORY> 225
<CURRENT-ASSETS> 13,984
<PP&E> 4,770
<DEPRECIATION> 2,226
<TOTAL-ASSETS> 17,127
<CURRENT-LIABILITIES> 1,204
<BONDS> 188
0
0
<COMMON> 127
<OTHER-SE> 15,608
<TOTAL-LIABILITY-AND-EQUITY> 17,127
<SALES> 623
<TOTAL-REVENUES> 623
<CGS> 217
<TOTAL-COSTS> 217
<OTHER-EXPENSES> 2,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171
<INCOME-PRETAX> (1,843)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,843)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
