UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2004
OR
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-23678
BIOSPHERE MEDICAL, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 04-3216867 | |
| (State or Other Jurisdiction of Organization or Incorporation) |
(IRS Employer Identification Number) |
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 a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The number of shares outstanding of the Registrant’s Common Stock as of November 1, 2004 was 14,294,032 shares.
INDEX
2
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(unaudited)
| (in thousands, except share data)
|
SEPTEMBER 30, 2004 |
DECEMBER 31, 2003 |
||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 897 | $ | 2,043 | ||||
| Marketable securities |
2,770 | 5,532 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $201 and $180 as of September 30, 2004 and December 31, 2003, respectively |
2,624 | 2,534 | ||||||
| Inventories, net |
3,130 | 3,496 | ||||||
| Prepaid expenses and other current assets |
326 | 405 | ||||||
| Total current assets |
9,747 | 14,010 | ||||||
| Property and equipment, net |
1,230 | 1,497 | ||||||
| Goodwill, net |
1,443 | 1,443 | ||||||
| Other assets |
53 | 52 | ||||||
| TOTAL ASSETS |
$ | 12,473 | $ | 17,002 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 927 | $ | 824 | ||||
| Accrued compensation |
862 | 1,054 | ||||||
| Deferred licensing revenue |
20 | — | ||||||
| Other accrued expenses |
1,028 | 1,279 | ||||||
| Current portion of long-term debt and capital lease obligations |
178 | 149 | ||||||
| Total current liabilities |
3,015 | 3,306 | ||||||
| Long-term debt and capital lease obligations |
221 | 171 | ||||||
| TOTAL LIABILITIES |
3,236 | 3,477 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued or outstanding |
— | — | ||||||
| Common stock, $0.01 par value, 25,000,000 shares authorized; 14,294,000 and 13,841,000 shares issued and outstanding as of September 30, 2004 and December 31, 2003, respectively |
143 | 138 | ||||||
| Additional paid-in capital |
82,587 | 81,952 | ||||||
| Accumulated deficit |
(73,541 | ) | (68,593 | ) | ||||
| Accumulated other comprehensive income |
48 | 28 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY |
9,237 | 13,525 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 12,473 | $ | 17,002 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|||||||||||||||
| (in thousands, except per share amounts) | 2004 |
2003 |
2004 |
2003 |
||||||||||||
| REVENUES: |
||||||||||||||||
| Product sales |
$ | 3,413 | $ | 2,986 | $ | 9,799 | $ | 9,158 | ||||||||
| Licensing revenues |
60 | — | 80 | — | ||||||||||||
| TOTAL REVENUES: |
3,473 | 2,986 | 9,879 | 9,158 | ||||||||||||
| COSTS AND EXPENSES: |
||||||||||||||||
| Costs of product sales |
1,161 | 1,161 | 5,010 | 3,418 | ||||||||||||
| Research and development |
562 | 534 | 1,771 | 2,059 | ||||||||||||
| Sales |
1,172 | 1,308 | 3,516 | 4,064 | ||||||||||||
| Marketing |
931 | 728 | 2,047 | 3,517 | ||||||||||||
| General and administrative |
890 | 785 | 2,409 | 2,615 | ||||||||||||
| TOTAL COSTS AND EXPENSES: |
4,716 | 4,516 | 14,753 | 15,673 | ||||||||||||
| LOSS FROM OPERATIONS |
(1,243 | ) | (1,530 | ) | (4,874 | ) | (6,515 | ) | ||||||||
| Interest and other income, net |
95 | 69 | (74 | ) | 335 | |||||||||||
| NET LOSS |
$ | (1,148 | ) | $ | (1,461 | ) | $ | (4,948 | ) | $ | (6,180 | ) | ||||
| BASIC AND DILUTED NET LOSS |
||||||||||||||||
| PER SHARE |
$ | (0.08 | ) | $ | (0.11 | ) | $ | (0.35 | ) | $ | (0.46 | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
||||||||||||||||
| Basic and diluted |
14,249 | 13,566 | 14,102 | 13,377 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| NINE MONTHS ENDED SEPTEMBER 30, |
||||||||
| (in thousands) | 2004 |
2003 |
||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (4,948 | ) | $ | (6,180 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Provision for doubtful accounts |
21 | 59 | ||||||
| Provision for inventory obsolescence |
1,268 | 35 | ||||||
| Depreciation and amortization |
438 | 534 | ||||||
| Non-cash stock-based compensation to non-employees |
— | 39 | ||||||
| Realized gains (losses) on available for sale marketable securities |
4 | (13 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(177 | ) | (165 | ) | ||||
| Inventories |
(961 | ) | (669 | ) | ||||
| Prepaid expenses and other current assets |
74 | 104 | ||||||
| Accounts payable |
115 | 4 | ||||||
| Accrued compensation |
(195 | ) | 15 | |||||
| Other accrued expenses |
(159 | ) | (340 | ) | ||||
| Net cash used in operating activities |
(4,520 | ) | (6,577 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(188 | ) | (237 | ) | ||||
| Purchase of available for sale marketable securities |
(255 | ) | (8,085 | ) | ||||
| Sale and maturity of available for sale marketable securities |
3,010 | 13,557 | ||||||
| Net cash provided by investing activities |
2,567 | 5,235 | ||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from the exercise of stock options and warrants |
639 | 556 | ||||||
| Proceeds from issuance of long-term debt and capital leases |
211 | 3 | ||||||
| Principal payments under long-term debt and capital leases |
(126 | ) | (64 | ) | ||||
| Net cash provided by financing activities |
724 | 495 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
83 | 110 | ||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
(1,146 | ) | (737 | ) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
2,043 | 4,112 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 897 | $ | 3,375 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) Nature of Business
BioSphere Medical, Inc. (“we”, “our”) was incorporated in Delaware in December 1993. During 1999, we strategically refocused our business on the development and commercialization of our proprietary Embosphere® Microspheres and other ancillary embolotherapy products for use in treating uterine fibroids, hypervascularized tumors and arteriovenous malformations. Between February 1999 and November 2001, we acquired all ownership interests in Biosphere Medical S.A. (“BMSA”), a French societe anonyme. BMSA holds the license to the embolotherapy platform device that is the main focus of our business. In May 1999, we sold substantially all of our assets relating to our former core business, chromatography, and changed our name from BioSepra, Inc. to BioSphere Medical, Inc.
We believe that our existing cash and other working capital together with the proceeds of $8.0 million from our private placement of series A preferred stock and warrants, which was completed on November 10, 2004, will be adequate to meet our operating and capital requirements, as currently planned, for at least the next 12 months.
B) Basis of Presentation
The accompanying consolidated financial statements are unaudited and have been prepared on a basis consistent with our annual audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003. The consolidated financial statements include the accounts of our three wholly owned subsidiaries, BMSA, Biosphere Medical Japan, Inc. and BSMD Ventures, Inc. All material inter-company balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual audited financial statements have been condensed or omitted. The consolidated financial statements, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair statement of the results for the three and nine months ended September 30, 2004 and 2003. The results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
Certain reclassifications have been made to the prior year’s consolidated financial statement to conform to the current period presentation.
C) Cash, Cash Equivalents and Marketable Securities
We consider all highly liquid investments with a maturity of ninety days or less, as of the date of purchase, to be cash equivalents. In accordance with our investment policy, surplus cash is invested in investment grade corporate and U.S. government debt as well as certain asset backed securities. We determine the appropriate classification of marketable securities at each balance sheet date. Available-for-sale marketable securities are carried at their fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in the accompanying balance sheet.
D) Comprehensive Loss
Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity that are excluded from net loss, specifically, the effects of foreign currency translation adjustments and any unrealized gains or losses on available for sale securities, that are reflected separately in accumulated other comprehensive income (loss) as stockholders’ equity. For the three and nine months ended September 30, 2004 and 2003, our comprehensive loss was as follows:
| THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|||||||||||||||
| (in thousands) | 2004 |
2003 |
2004 |
2003 |
||||||||||||
| Net loss |
$ | (1,148 | ) | $ | (1,461 | ) | $ | (4,948 | ) | $ | (6,180 | ) | ||||
| Cumulative translation adjustment |
(28 | ) | (44 | ) | 23 | (62 | ) | |||||||||
| Unrealized gain on available for sale securities |
(1 | ) | 14 | (3 | ) | (20 | ) | |||||||||