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EX-23 - CONSENT OF MOSS ADAMS LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - BIOJECT MEDICAL TECHNOLOGIES INCdex23.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - BIOJECT MEDICAL TECHNOLOGIES INCdex321.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - BIOJECT MEDICAL TECHNOLOGIES INCdex322.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - BIOJECT MEDICAL TECHNOLOGIES INCdex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - BIOJECT MEDICAL TECHNOLOGIES INCdex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended: December 31, 2010

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-15360

 

 

BIOJECT MEDICAL TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

Oregon   93-1099680

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

20245 SW 95th Avenue

Tualatin, Oregon

  97062
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (503) 692-8001

Securities Registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, without par value   OTC Bulletin Board

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  ¨    No  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:    Yes  ¨  No  x

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $2,454,483, computed by reference to the last sales price ($0.16) as reported by the OTC Bulletin Board, as of the last business day of the Registrant’s most recently completed second fiscal quarter (June 30, 2010).

The number of shares outstanding of the registrant’s common stock as of March 30, 2011 was 18,495,094 shares.

 

 

Documents Incorporated by Reference

Portions of the registrant’s definitive Proxy Statement for the 2011 Annual Shareholders’ Meeting are incorporated by reference into Part III.

 

 

 


Table of Contents

BIOJECT MEDICAL TECHNOLOGIES INC.

2010 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

 

          Page  
PART I   
Item 1.    Business      2   
Item 1A.    Risk Factors      14   
Item 1B.    Unresolved Staff Comments      21   
Item 2.    Properties      21   
Item 3.    Legal Proceedings      21   
Item 4.    Reserved      21   
PART II   
Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      22   
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      23   
Item 8.    Financial Statements and Supplementary Data      29   
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      54   
Item 9A.    Controls and Procedures      54   
Item 9B.    Other Information      54   
PART III   
Item 10.    Directors, Executive Officers and Corporate Governance      55   
Item 11.    Executive Compensation      55   
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      55   
Item 13.    Certain Relationships and Related Transactions, and Director Independence      55   
Item 14.    Principal Accountant Fees and Services      55   
PART IV   
Item 15.    Exhibits and Financial Statement Schedules      56   
Signatures         58   

 

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PART I

 

ITEM 1. BUSINESS

General

We commenced operations in 1985 and are an innovative developer and manufacturer of needle-free injection therapy systems (“NFITS”).

Our NFITS work by forcing liquid medication at high speed through a tiny orifice held against the skin. This creates a fine stream of high-pressure medication that penetrates the skin, depositing the medication in the tissue beneath. By bundling customized needle-free delivery systems with partners’ injectable medications and vaccines, we can enhance demand for these products in the healthcare provider and end-user markets.

Our long-term goal is to become the leading supplier of needle-free injection systems to the pharmaceutical and biotechnology industries. We have been focusing our business development efforts on new and existing licensing and supply agreements with leading pharmaceutical, biotechnology and animal health companies, as well as developing mutually beneficial agreements with global health and government organizations, including research agreements that could lead to long-term agreements. Our pipeline of prospective new partnerships remains active. We are also actively pursuing additional opportunities, both domestically and overseas, as we expand our current product line. However, historically, finalizing agreements has been a long process and, given the current difficult global economic conditions, we believe that process will take even longer.

We continue to focus our business strategies with a key goal of protecting shareholder value and providing the best chances for Bioject to succeed. We implemented a multi-targeted approach to improve our prospects going forward: (i) expanded targeting efforts with military and public health accounts; (ii) explored new options for funding of technologies to support the needs of the developing world; (iii) increased focus on federally funded programs to deliver new benefits for emergency preparedness and biodefense; (iv) continued to explore strategic alternatives to advance new drug+device opportunities and enhance our long-term opportunities; and (v) assessed various opportunities to improve our cash position. The strategic approach and decisions made were challenging in 2010 as it was necessary to maintain viability of the organization by striving for a positive cash balance while we paid off our remaining debt in the first quarter of 2010.

The challenges we faced during 2010 were significant and only added to the hurdles we face in aiming to realize positive results with the above business strategies. During 2010, there were some significant potential agreements, which were not entered into, even though there was strong interest in our technology. In addition, addressing device modifications, the timing of orders and lower output during the first half of the year impacted both revenue and cash throughout the year. Contributing to those issues was the winding down of Serono orders due to the expiration of its agreement, which expired at the end of 2010.

We continued to focus on carefully managing fixed operating expenses, which led to further reductions in research and development during 2010. However some of those reductions were offset with increased administrative costs, mainly due to the hiring of a new national sales manager. From February 2009, a 10% across-the-board temporary salary reduction for all employees and a voluntary temporary 20% reduction in base salary by executive management remained in effect through 2010.

With regard to our multi-targeted approach to improving our prospects for the future, we have significantly expanded the number of military and public health targets with whom we are in discussions about utilizing Bioject’s needle-free injection technology devices. This may lead to potential growth in the future, but, in the short-term, it has only resulted in the addition of a few new accounts. With regard to the developing world opportunities, our interactions and meetings during 2010 led to the Intradermal Pen (“ID Pen”) collaboration in February 2011, which is highlighted below. We continue to explore additional opportunities in this arena, although there is heightened competition for needle-free options. With respect

 

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to the federally funded programs, we began dialogue with some governmental sectors and enlisted expertise to understand the various opportunities that may exist. One initial success, listed below, was the Therapeutic Discovery Project. Also, we continued to explore new drug+device strategic options both on our own and also with the help of our strategic alliance partner, MPI Research. Because of the complexity associated with, and additional resources necessary for an organization to pursue these types of opportunities, this strategy may take longer to be realized, especially in the current economic climate. Finally, in assessing various options to improve our cash position, we found it challenging to secure capital. However, our exploration of various options eventually led to an arrangement with one of our key customers, Merial, resulting in an amendment to our development and supply agreement with Merial that enhances our supply chain management process and cash flow during 2011.

In January 2010, we established a strategic alliance with MPI Research, a leading pre-clinical research organization with experience in the development of injectable therapeutics. The strategic alliance creates a preferred partnership relationship, which allows us to gain access to a range of capabilities and resources needed for us to explore drug+device opportunities, including access to pharmacologic, analytical, safety and other preclinical testing resources available at MPI Research. The strategic alliance offers MPI Research the opportunity to provide our needle-free technology as an alternate delivery option to current drug/biologic manufacturers who may be interested in seeking a more highly competitive and differentiable drug+device brand.

In March 2010, we met the final milestone in our license, development and supply agreement with Merial for their new state-of-the-art spring-powered device for feline leukemia and canine melanoma vaccinations for companion animals and we initiated the first product shipments of the new device to Merial at the end of the first quarter of 2010. As referenced above, in December 2010, the Merial development and supply agreement was modified to enhance the supply chain management process throughout 2011.

Also in March 2010, we repaid the remaining $150,000 of debt we had outstanding and, at December 31, 2010, we did not have any short or long-term debt outstanding.

In November 2010, we received a $244,000 grant pursuant to Section 48D of the Internal Revenue Code for Qualifying Therapeutic Discovery Projects. The award was in support of our development efforts regarding our dose sparing needle-free injection delivery systems.

In the first quarter of 2011, Serono extended its contract with a one-time fixed extension of the agreement until December 31, 2011.

In February 2011, we entered into a collaboration with PATH and the World Health Organization (“WHO”) to support efforts to advance clinical research of intradermal delivery of vaccines in developing-country immunization programs by providing our Intradermal Pen (the “ID Pen”). The ID Pen is a unique disposable-syringe jet injector for intradermal delivery. PATH and WHO will each provide funding for the production of ID Pen devices for further evaluation.

While revenues in 2010 were lower than in 2009, we are undertaking actions related to both revenue and cash management in an attempt to improve our results. Such actions include the hiring of a new National Sales Manager who is focusing on increasing sales of our devices to the military and public health sectors. We are also exploring new options for funding of technologies to support the needs of the developing world and are targeting potential federally funded programs that would use our device technology in order to deliver new benefits for emergency preparedness and biodefense.

Revenues and results of operations have fluctuated and can be expected to continue to fluctuate significantly from quarter to quarter and from year to year. Various factors may affect quarterly and yearly operating results, including: i) the length of time to close product sales; ii) customer budget cycles; iii) the implementation of cost reduction measures; iv) uncertainties and changes in product sales due to third party payer policies and proposals relating to healthcare cost containment; v) the timing and amount of payments under licensing and technology development agreements; vi) our ability to enter into new agreements with partners or customers; and vii) the timing of new product introductions by us and our competitors.

 

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We currently have one active licensing and development agreement, which includes commercial product supply provisions, with Merial Ltd. In December 2010, we modified the agreement to enhance the supply chain management process and cash flow throughout 2011.

We currently have supply agreements or commitments with Merial, Ferring Pharmaceuticals Inc. and the U.S. federal government. Our Serono agreement expired in December 2010, but was extended with a one-time fixed extension of the agreement until December 31, 2011 as discussed above.

See Note 2 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this Annual Report on Form 10-K for detailed descriptions of our agreements or arrangements with these companies.

“Biojector,” “Bioject,” “Vitajet,” “Iject” and “Zetajet” are trademarks or registered trademarks of Bioject Inc.

Where You Can Find More Information

We make available, free of charge, on our website at www.bioject.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after they are filed electronically with the SEC. You can also obtain copies of these reports by contacting Investor Relations at 503-692-8001, ext. 4207. The public may read and copy any materials we file with the Commission at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at www.sec.gov.

Needle-Free Injection

Medications are currently delivered using various methods, each of which has both advantages and limitations. The most commonly used drug delivery techniques include oral ingestion, intravenous infusion, subcutaneous, intradermal and intramuscular injection, inhalation and transdermal “patch” diffusion. Many drugs are effective only when injected.

Injections using traditional needle-syringes suffer from many shortcomings, including: (i) the risk of needlestick injuries; (ii) the risk of penetrating a patient’s vein; and (iii) the patient’s aversion to needles and discomfort. The most dangerous of these, the contaminated needlestick injury, occurs when a needle that has been exposed to a patient’s blood accidentally penetrates a healthcare worker’s skin. Contaminated needles can transmit deadly blood-borne pathogens including such viruses as HIV and Hepatitis B.

Because of growing awareness in recent years of the danger of blood-borne pathogen transmission, needle safety has become a higher concern for hospitals, healthcare professionals and their patients. As a result, pressure on the healthcare industry to eliminate the risk of contaminated needlestick injuries has increased. For example, the U.S. Occupational Safety and Health Administration (“OSHA”) issued regulations, effective in 1992, which require healthcare institutions to treat all blood and other body fluids as infectious. These regulations were changed by Congress with passage of the Needlestick Safety Prevention Act, which was effective in 2001. These regulations require implementing “engineering and work practice controls” to “isolate or remove blood-borne pathogen hazards from the workplace.” Among the required controls are special handling and disposal of contaminated “sharps” in biohazardous “sharps” containers, safer medical devices, including needleless systems, and follow-up testing for victims of needlestick injuries. To date, more than 30 states and the U.S. Occupational Safety and Health Administration have adopted, or have pending, legislation or regulations that require health care providers to utilize systems designed to reduce the risk of needlestick injuries.

 

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The costs resulting from needlestick injuries vary widely. Accidental needlesticks involving sterile needles involve relatively little cost. Needlesticks with contaminated needles require investigation and follow-up. These are much more expensive. Investigation typically includes identifying the source of contamination, testing the source for blood-borne pathogens and repeatedly testing the needlestick victim for infection over an extended period. Some healthcare providers are requiring additional measures, including treating all needlestick injuries as contaminated unless proven otherwise.

In an effort to protect healthcare workers from needlestick injuries, many healthcare facilities have adopted more expensive alternative technologies. While these technologies can help to reduce accidental needlesticks, they cannot eliminate the risk.

Description of Our Products

Biojector® 2000

Our Biojector® 2000 system (B2000) consists of two components: a hand-held, reusable jet injector and a sterile, single-use, disposable plastic syringe capable of delivering variable doses of medication up to 1.0 mL. The B2000 system is a refinement of jet injection technology that enables healthcare professionals to reliably deliver measured variable doses of medication through the skin, either intramuscularly or subcutaneously, without a needle.

The first component of the system, the Biojector® 2000, is a portable hand-held device, which is approximately the size of a TV remote control. It is designed for ease of use by healthcare professionals, and to be attractive and non-threatening to patients. The Biojector® 2000 injector uses disposable CO2 cartridges as a power source. The CO2 cartridges, which are purchased from an outside supplier, give an average of ten injections before requiring replacement. The CO2 gas provides consistent, reliable pressure on the plunger of the disposable syringe, thereby propelling the medication into the tissue. The CO2 propellant does not come into contact with either the patient or the medication. The B2000 is also available with a tank adapter which allows the device to be attached to a large volume CO2 tank. The tank adapter eliminates the need to change CO2 cartridges after every ten injections and is an attractive option for applications where a large number of injections are given in a relatively short period of time.

The second component of the system, the Biojector® single-use disposable syringe, is provided in a sterile, peel-open package and consists of a plastic, needle-free, variable dose syringe, Drug Reconstitution System (“DRS” or “Vial Adapter”) needle-free syringe filling device, which is used to fill the syringe, and a safety cap. The body of the syringe is transparent and has graduated markings to aid accurate filling by healthcare workers.

There are five different Biojector® syringes, each of which is intended for a different injection depth or body type. The syringes are molded using our patented manufacturing process. A trained healthcare worker selects the syringe appropriate for the intended type of injection. One syringe size is for subcutaneous injections, while the others are designed for intramuscular injections, depending on the patient’s body characteristics and the location of the injection.

Giving an injection with a Biojector® 2000 system is easy and straightforward. The healthcare worker giving the injection checks the CO2 pressure on an easy-to-read gauge at the rear of the injector, draws medication up into a disposable plastic syringe using our needle-free Vial Adapter, inserts the syringe into the Biojector® 2000, presses the syringe tip against the appropriate disinfected surface on the patient’s skin, and then presses an actuator, thereby injecting the medication. A thin stream of medication is expelled at high velocity through a precision molded, small diameter orifice in the syringe. The medication is injected at a velocity sufficient to penetrate the skin and force the medication into the tissue at the desired depth.

The current suggested list price for the Biojector® 2000 professional jet injector is $1,200, and the suggested list price for Biojector® syringes is $200 for a box of 100 syringes. CO2 cartridges are sold for a suggested list price of $8.00 for a box of ten. Discounts are offered for volume purchases.

 

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Drug Reconstitution System

The needle-free drug reconstitution system allows for the transfer of diluents to reconstitute powdered medications into liquid form and withdrawal of liquid medication into a syringe without the use of a needle. Our 13 mm Vial Adapter has a compact, polycarbonate spike design to draw up liquid medication and to reconstitute lyophilized (powdered) medication. It allows healthcare workers and patients to access medication without using a needle. The Vial Adapter fits most single and multi-dose medication vials available in the U.S. and European markets, and is widely used in clinics and home healthcare throughout North America. While the Vial Adapter is an integral part of the needle-free syringe packaging for the Biojector® 2000 needle-free injection system, it functions with any conventional syringe.

Several pharmaceutical manufacturers include this unique product as part of their drug reconstitution kits. The 13 mm Vial Adapter is the ideal solution to the challenges of reconstituting and drawing up medication. It provides clinicians and patients the highest levels of safety, convenience and ease of use.

The suggested list price for the Vial Adapter is $196.00 for a box of 400. Discounts are offered for volume purchases.

Vitajet®

The Vitajet® is also composed of two components, a portable injector unit and a disposable syringe. It is smaller and lower in cost than other products in our needle-free offering. The method of operation and drug delivery is similar to the Biojector®, except that the Vitajet® is powered by a spring rather than by CO2. Vitajet’s® regulatory labeling limits its use to the injection of insulin. A modified Vitajet®, called the cool.click™, has received regulatory clearance for injection of Serono’s human growth hormone Saizen® and another modified Vitajet®, called the SeroJet™, has regulatory clearance for administering Serono’s human growth hormone Serostim® for the treatment of AIDS wasting. The Vetjet™ is a modified Vitajet® for use in the veterinary market and is licensed to Merial. Currently, the Vitajet is only offered in the modified versions of the cool.click™, SeroJet™ and Vetjet™.

ZetaJet™

The ZetaJet™ is Bioject’s latest advance in needle-free delivery systems. It consists of two components, the portable injector and an auto-disabling disposable syringe. The ZetaJet™ Needle-free Injection Therapy System is a compact, spring-powered injection device. It is intended to deliver vaccines and injectable medications either subcutaneously or intramuscularly. The syringe assembly has a unique “auto-disable” feature that prevents re-use of the syringe. The plunger is pre-assembled into the syringe and can be used for reconstitution and other pre-injection tasks.

A custom molded exterior, providing a multitude of ergonomic options, can be added to achieve specific attributes needed for different clinical applications. The exterior molding of the device can be customized in shape, texture and color for a wide spectrum of therapeutic and patient segments, offering the ultimate in selective branding.

The self-powered spring device uses an auto-disable syringe, and it is ideal for use in mass immunization programs world-wide. The auto-disable feature dramatically reduces the risks of both the spread of disease from accidental needle-stick injuries and the re-use of a syringe or needle, and prevents possible contamination of syringes and vials.

FDA marketing clearance for the ZetaJet™ was obtained in April 2009. The rights to CE mark the ZetaJet™ were granted in January 2010.

We have other products under development, which are intended to address other markets or to enhance the Biojector® 2000 system. See “Research and Product Development.”

Marketing and Competition

The traditional needle-syringe is currently the primary method for administering intramuscular and subcutaneous injections.

 

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During the last 20 years, there have been many attempts to develop portable one-shot jet injection hypodermic devices. Problems have arisen in the attempts to develop such devices including: (i) inadequate injection power; (ii) little or no control of pressure and depth of penetration; (iii) complexity of design, with related difficulties in cost and performance; (iv) difficulties in use, including filling and cleaning; and (v) the necessity for sterilization between uses.

In recent years, several spring-driven, needle-free injectors have been developed and marketed. We believe that market acceptance of these devices may help support the expanded use of needle-free devices, while at the same time increasing the competition in the market. Other needle-free competitors appear to focus on one or a more limited selection of devices than those offered by Bioject. However, it is clear that needle-free competition has increased in many of the same segments in which we were previously the key player.

Also in recent years, various versions of a “safety syringe” have been designed and marketed. Most versions of the safety syringe generally involve a standard or modified needle-syringe with a plastic guard or sheath surrounding the needle. Such covering is usually retracted or removed in order to give an injection. The intent of the safety syringe is to reduce or eliminate needlestick injuries. However, while the safety syringe is in use and before the needle has been covered, a safety syringe still poses a risk of needlestick injury. Additionally, some safety syringes require manipulation after injection and pose the risk of needlestick injury during that manipulation. Safety syringes may also be bulky and add to contaminated waste disposal costs. However, newer models are becoming smaller.

Our primary sales and marketing objective is to form development, licensing and supply arrangements with leading pharmaceutical, biotechnology and veterinary companies, which would ordinarily include some or all of the following components: i) licensing revenues for full or partially exclusive access to our products for a specific application or medical indication; ii) development fees if we customize one of our products for the customer or develop a new product; iii) milestone payments related to the customer’s progress in developing products to be used in conjunction with our products; iv) royalty revenue derived from strategic partners’ drug sales; and v) product revenues from the sale of our products to the customer pursuant to a supply agreement. Product sales through this channel would ordinarily be made to the pharmaceutical or biotechnology company, whose sales force would then sell that company’s injectable pharmaceutical products, along with our products, to end-users. In addition, we also sell to military and public health centers that have been properly trained to utilize our devices.

Selling to new customers in our target markets is often a lengthy process. A new customer is typically adopting our products as a new technology. Accordingly, the purchase approval process usually involves a lengthy product evaluation process, including testing and approval by several individuals or committees within the potential customer’s organization and a thorough cost-benefit analysis.

The medical equipment market is highly competitive, and competition is likely to intensify. Many of our existing and potential competitors have been in business longer than us and have substantially greater technical, financial, marketing, sales and customer support resources. We believe that the primary competition for the Biojector® 2000 system, and other needle-free jet injection systems we may develop, is the traditional, disposable needle-syringe and the safety syringe. Leading suppliers of needle-syringes and safety syringes include: Becton-Dickinson & Co., Sherwood Medical Co., a subsidiary of Tyco International, and Terumo Corp. of Japan. Manufacturers of traditional needle-syringes compete primarily on price, which generally ranges from approximately $0.10 to $0.39 per unit. Manufacturers of safety syringes compete on features, quality and price. Safety syringes generally are priced in a range of $0.30 to $1.29 per unit for volume sales.

We expect to compete with traditional needle-syringes and safety syringes based on issues of healthcare worker safety, ease of use, reduced cost of disposal, patient comfort and reduced cost of compliance with OSHA regulations and other legislation. Except in the case of certain safety syringes, we do not expect to compete with needle-syringes based on purchase cost alone. However, we believe that the B2000 system will compete effectively based on overall cost when all indirect costs, including disposal of syringes and testing, treatment and workers’ compensation expenses related to needlestick injuries, are considered.

 

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Several companies are developing devices that will likely compete with our jet injection products for certain applications. We are not aware of any current competing products with U.S. regulatory approval that have total features and benefits comparable to the B2000 system.

We are aware of other portable, needle-free injectors currently on the market, which are generally focused on subcutaneous self-injection applications of 0.5 mL or less. These products include: the Medi-Jector Vision®, which is manufactured by Antares Pharma; and the Pharmajet, which is manufactured by Pharmajet. These products compete primarily with our spring-powered product line. Current list prices for such injectors range from approximately $200 to $665 per injector. We are also aware of a company, Zogenix, with a pre-filled single-use needle-free disposable that competes with the Iject™. The Sumavel™ DosePro™ is marketed in combination with sumatriptan.

Significant Customers

Product sales to customers accounting for 10% or more of our total product sales were as follows:

 

     Year Ended December 31,  
     2010     2009     2008  

Merial

     46     26     38

Serono

     21     29     32

Ferring

     20     20     *   

 

* Less than 10%

Product Line and Geographic Revenue Information

Revenue by product line was as follows:

 

     Year Ended December 31,  
     2010      2009      2008  

Biojector® 2000 (or CO2 powered)

   $ 672,518       $ 1,490,471       $ 848,495   

Spring Powered

     3,446,704         3,305,119         4,387,806   

Vial Adapters

     1,026,914         1,297,329         569,627   
                          
     5,146,136         6,092,919         5,805,928   

License and Technology Fees

     431,305         599,072         666,846   
                          
   $ 5,577,441       $ 6,691,991       $ 6,472,774   
                          

Geographic revenues were as follows:

 

     Year Ended December 31,  
     2010      2009      2008  

United States

   $ 4,382,178       $ 4,846,250       $ 4,550,976   

All other

     1,195,263         1,845,741         1,921,798   
                          
   $ 5,577,441       $ 6,691,991       $ 6,472,774   
                          

All of our long-lived assets are located in the United States.

Patents and Proprietary Rights

We believe that the technology incorporated in our currently marketed Biojector® 2000 and Vitajet® devices and single-dose disposable plastic syringes, as well as the technology of products under development, give us advantages over both the manufacturers of competing needle-free jet injection systems and over prospective competitors seeking to develop similar systems. We attempt to protect our technology through a combination of patents, trade secrets and confidentiality agreements and practices.

 

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Patent Summary Table                    Trademark Summary Table         

Item

   Issued      Pending      Total     

Item

   Issued      Pending      Total  

U.S. Patents

     38         10         48       U.S. Trademarks      6         1         7   

Foreign Patents

     15         21         36       Foreign Trademarks      11         2         13   
                                                        

Total

     53         31         84       Total      17         3         20   
                                                        

Our patents expire between 2011 and 2028.

Patent applications have been filed on matters specifically related to single use, disposable devices currently under development. We generally file patent applications in the U.S., Canada, Europe and Japan, and sometimes world-wide, at the times and under the circumstances that we deem filing to be appropriate in each of those jurisdictions. There can be no assurance that any patents applied for will be granted or that patents held by us will be valid or sufficiently broad to protect our technology or provide a significant competitive advantage. We also rely on trade secrets and proprietary know-how that we seek to protect through confidentiality agreements with our employees, consultants, suppliers and others. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to, or be developed independently by, competitors. In addition, the laws of foreign countries may not protect our proprietary rights to our technology, including patent rights, to the same extent as the laws of the U.S.

We believe that we have independently developed our technology and attempt to assure that our products do not infringe on the proprietary rights of others. However, if infringement of the proprietary rights of others is alleged and proved, there can be no assurance that we could obtain necessary licenses to that technology on terms and conditions that would not have an adverse effect.

Government Regulation

Our products and manufacturing operations are subject to extensive government regulations, both in the U.S. and abroad. In the U.S., the Food and Drug Administration (“FDA”) administers the Federal Food, Drug and Cosmetic Act (“FFDCA”) and has adopted regulations to administer the FFDCA. These regulations include policies that: i) govern the introduction of new medical devices; ii) require compliance to applicable regulations, standards and practices in the manufacture and labeling of medical devices; and iii) require medical device companies to establish and maintain applicable documentation and records and to report device-related malfunctions which have caused or may cause a death, serious injury or other significant adverse device experience to the FDA. Our manufacturing facilities and applicable documentation and quality records are subject to FDA inspection. The FDA has broad discretion to enforce the FFDCA and related regulations. Noncompliance with the FFDCA or its regulations can result in multiple enforcement actions depending on the severity of the violation.

Unless exempted by regulation, the FFDCA provides that medical devices may not be commercially distributed in the U.S. unless they have been cleared by the FDA. The FFDCA provides two basic review procedures for pre-market clearance of medical devices. Certain products qualify for a submission authorized by Section 510(k) of the FFDCA. Under Section 510(k), manufacturers provide the FDA with a pre-market notification (“510(k) notification”) of the manufacturer’s intent to begin marketing the product. In the 510(k) notification, the manufacturer must establish, among other things, that the product it plans to market is substantially equivalent to another legally marketed product. To be substantially equivalent, a proposed product must have the similar intended use and be determined to be as safe and effective as a legally marketed device. Further, it may not raise questions of safety and effectiveness that are different from those associated with a legally marketed device. Marketing a medical device may commence when the FDA issues correspondence finding substantial equivalence to such a legally marketed device. The FDA may require, in connection with the 510(k) submission that it be provided with animal and/or human clinical test results.

 

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A 510(k) notification is required when a device is being introduced into the market for the first time, when the manufacturer makes a change or modification to an already marketed device that could significantly affect the device’s safety or effectiveness, and when there is a major change or modification in the intended use of the device. When any change or modification is made in a device or its intended use, the manufacturer is expected to make the initial determination as to whether the change or modification is of a kind that would require filing a new 510(k) notification. FDA regulations provide only limited guidance in making this determination.

If a medical device does not qualify for the 510(k) procedure, the manufacturer must file a pre-market approval application (“PMA”). A PMA must show that the device is safe and effective and is generally a much more comprehensive submission than a 510(k) notification. A PMA typically requires more extensive testing before filing with the FDA, a longer FDA review process and is for class III medical devices.

We are developing the Iject® Needle-Free Injection System, a single prefilled disposable injector for self-injection, and pre-filled Biojector® syringes. We plan to seek arrangements with pharmaceutical and biologics companies that will enable them to provide medications in pre-filled syringes packaged with the injector device. See “Research and Product Development.” Before pre-filled Iject® or Biojector® syringes may be distributed for use in the U.S., the FDA may require tests to prove that the medication will retain its chemical and pharmacological properties when stored in and delivered using a pre-filled needle-free syringe. It will be the pharmaceutical or biotechnology company’s responsibility to conduct these clinical tests. It is current FDA policy that such pre-filled syringes are evaluated by the FDA by submitting a Request for Designation (“RFD”) to the Office of Combination Products, (“OCP”). The pharmaceutical or biotechnology company will be responsible for the submission to the OCP. A pre-filled syringe meets the FDA’s definition of a combination product, or a product comprised of two or more regulated components, i.e. drug/device. The OCP will assign a center with primary jurisdiction for a combination product (CDER, CBER, CDRH) and ensure the timely and effective premarket review. The primary or lead review center often will consult or collaborate with other evaluation centers to obtain all the appropriate materials and requirements to process the submission.

We believe that if a drug intended to be used in one of our pre-filled syringes was already the subject of an approved new drug application (“NDA”) or an abbreviated new drug application (“ANDA”) for intramuscular, subcutaneous or intradermal injection, then the main issues affecting clearance for use in the pre-filled syringe would be: i) the ability of the syringe to store the drug; ii) the ability of the manufacturer to assure the drug’s stability until used; and iii) the ability to demonstrate that the needle-free syringe will perform equivalently to a needle and syringe, or is safe and efficacious in its own right. FDA recommends pre-submission discussions with the OCP to clarify submission requirements. An early Request for Designation can avoid costly delays as the primary requirements and the premarket route (510(k), PMA, NDA) will be determined.

The FDA also regulates and monitors our quality assurance and manufacturing practices. The FDA requires us and our contract manufacturers to demonstrate compliance with current Good Manufacturing Practices (“GMP”) Regulations. These regulations require, among other things, that: i) the manufacturing process be regulated and controlled by the use of written procedures; and ii) the ability to produce devices which meet the manufacturer’s specifications be validated by extensive and detailed testing of every aspect of the process. GMPs also require investigating any deficiencies in the manufacturing process or in the products produced and detailed record-keeping. The FDA’s interpretation and enforcement of these requirements has been increasingly strict and will likely continue to be at least as strict in the future. Failure to adhere to GMP requirements would cause the products produced by us to be considered in violation of the FFDCA and subject to enforcement action. The FDA monitors compliance with these requirements by requiring manufacturers to register their establishments with the FDA, and by subjecting their manufacturing facilities to periodic FDA inspections. If the inspector observes conditions that violate the FFDCA or GMP regulations, the manufacturer must correct those conditions or explain them satisfactorily. Otherwise, the manufacturer may face potential regulatory action, which may include warning letters, product detentions, device alerts or field corrections, voluntary and mandatory recalls, seizures, injunctive actions and civil or criminal penalties. The most recent FDA inspection for compliance with Good Manufacturing Practices was performed in 2010.

 

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The FDA’s Medical Device Reporting Regulation requires that we provide information to the FDA if any death or serious injury alleged to have been associated with the use of our products occurs. In addition, any product malfunction that would likely cause or contribute to a death or serious injury if the malfunction were to occur must also be reported. FDA regulations prohibit a device from being marketed for unapproved or uncleared indications. If the FDA believes that we are not in compliance with these regulations, it may institute proceedings to detain or seize products, issue a product recall, seek injunctive relief or assess civil and criminal penalties.

The use and manufacture of our products are subject to OSHA and other federal, state and local laws and regulations that relate to such matters as: i) safe working conditions for healthcare workers and other employees; ii) manufacturing practices; iii) environmental protection and disposal of hazardous or potentially hazardous substances; and iv) the policies of hospitals and clinics relating to complying with these laws and regulations. There can be no assurance that we will not be required to incur significant costs to comply with these laws, regulations or policies in the future, or that such laws, regulations or policies will not increase the costs or restrictions related to the use of our products or otherwise have a materially adverse effect upon our ability to do business.

Laws and regulations regarding the manufacture, sale and use of medical devices are subject to change and depend heavily on administrative interpretation. There can be no assurance that future changes in regulations or interpretations made by the FDA, OSHA or other domestic and international regulatory bodies will not adversely affect us.

Sales of medical devices outside of the U.S. are subject to foreign regulatory requirements. The requirements for obtaining pre-market clearance by a foreign country may differ from those required for FDA clearance. Devices having an effective 510(k) clearance or PMA may be exported without further FDA authorization. However, certain countries require their own certifications and FDA authorization is generally required in order to export non-cleared or non-approved medical devices.

In June 1998, we first received certification to ISO 9001 (Quality management systems — Requirements) and EN 46001 (Application of EN ISO 9001 to the manufacture of medical devices) from TŰV Product Services indicating that we have in place a quality system that conforms to International Standards for medical device manufacturers. Our quality system has maintained continuous certification. In 2005, we changed auditors, to Underwriters Laboratories, and, due to a change in requirements, migrated our quality system certification to the International Standard ISO 13485:2003 (Medical devices — Quality management systems — Requirements for regulatory purposes).

Our quality system is also certified under the Canadian Medical Devices Conformity Assessment System (“CMDCAS”) for compliance to the Canadian Medical Device Regulation (“CMDR”). We first received certification to the CMDR from TŰV in 2003, in accordance with the Standards Council of Canada (“SCC”) standards, and Health Canada’s regulatory requirements. That same certification is currently provided by Underwriters Laboratories. We hold Canadian Medical Devices Licenses and Medical Device Establishment License with Health Canada permitting the importation for sale of some of our medical devices in Canada.

In November 1999, we first received certification from TŰV Product Services to EC-Directive 93/42/EEC Annex. II.3 Medical Device Directive, (MDD), which allows us to label selected products with the CE Mark and sell them in the European Community and various non-European countries that recognize the CE Mark. That certification has been continuously maintained. In November 2010, we passed our most recent MDD re-certification audit with Underwriters Laboratories.

 

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Research and Product Development

Research and product development efforts are focused on enhancing our current product offerings and on developing new needle-free injection products. We use clinical magnetic resonance imaging, tissue studies and proprietary in vitro test methods to determine the reliability and performance of new and existing products.

As of March 1, 2011, our research and product development staff, including clinical and regulatory staff members, consisted of 5 employees. Research and development expense totaled $1.4 million and $1.6 million for the years ended December 31, 2010 and 2009, respectively. Our research and development focuses on development of new products, product enhancements and also provides supportive manufacturing engineering expertise.

A primary focus of our current external research efforts is on clinical research in the area of DNA-based vaccines and medications. Currently, our devices are being used in numerous clinical research projects both within and outside of the U.S., of which, many are DNA-based. These research projects are being conducted by companies engaged in the development of DNA-based medications as well as by universities and governmental institutions conducting research in this area.

Developing DNA-based preventative and therapeutic treatments for a variety of diseases is a very active and growing area of medical research. Researchers hope to develop DNA-based treatments for diseases that have previously not been treatable as well as DNA-based alternatives to therapies currently used in the treatment of other diseases. Most DNA therapies currently being developed require injecting the medication either intramuscularly (into the muscle tissue) or intradermally (just under the skin). We have developed an adapter for the Biojector® syringe to allow the device to consistently deliver intradermal injections. This adapter is being used in clinical studies to deliver intradermal injections. Initial studies show the adapter to be effective. A published trial with the Naval Medical Research Center using a DNA-based malaria vaccine indicated that the adapter consistently delivered intradermal injections. In addition, pre-clinical testing in animals provided consistent data indicating effective intradermal injections. This adapter has not been cleared by the FDA to be marketed for intradermal injections and is not currently submitted to the FDA to gain clearance for those claims. If our jet injection technology is proven to enhance the performance of DNA-based medications, this area of medicine could present a significant opportunity for us to license our products to pharmaceutical and biotechnology companies for use in conjunction with their DNA-based medications. There can be no assurance that further clinical studies will prove conclusively that our technology is more effective in delivering DNA-based medications than alternative delivery systems that are either currently available or that may be developed in the future. Further, there can be no assurance, should our technology prove to be more effective in delivering DNA-based medications, that regulatory clearance will be gained to deliver any DNA-based medications using our products. Further, should intradermal delivery of DNA-based medications be critical to effective delivery of those compounds, there is no assurance that we will gain regulatory clearance for intradermal delivery of DNA-based medications with our products.

In June 2010, the New England Journal of Medicine (NEJM) published a study that was conducted in Oman and supported by the Ministry of Health in Oman, PATH and the World Health Organization (WHO) as part of the Global Polio Eradication Initiative (GPEI). The study gave fractional doses of polio vaccine using Bioject’s B2000 device technology to deliver the vaccine intradermally. The results of the study demonstrated that needle-free intradermal administration of fractional doses of the polio vaccine was safe, effective and lower cost than a similar course of treatment with a full-dose needle and syringe option.

During 2010, our product development efforts focused on a next generation spring device utilizing an auto-disable syringe. In addition, we continued to work on product improvements to existing devices and the development of products for our strategic partners. In addition, we conducted work on a new ID Pen, which is a unique disposable-syringe jet injector for intradermal delivery, based upon our existing and new technology.

 

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At such time as we enter into a development agreement with a partner with respect to our Iject® device, we anticipate completion of a family of Iject® devices, each optimized for the delivery of a specific drug or vaccine, which could be licensed to pharmaceutical and biotechnology companies for different non-competing products. In addition, some of our research and development efforts have focused on the Jupiter Jet for dermal fillers and customization for multi-dose prefilled syringes.

Iject®

The Iject® device is designed to be pre-filled and target the growing market for patients administering their own injections in the home. Benefits of the Iject® are: (i) single-use; (ii) fully disposable; (iii) minimal patient interaction; (iv) ready-to-use and (v) safe.

In order to support the pre-filled Iject® family of devices, and to expand the market opportunities for the Biojector® 2000, we are developing component processing and packaging methods to enable standardized, high-speed, automated filling of Iject® and Biojector® syringes. We intend to outsource the sterile filling process to a contract manufacturing partner.

When the pre-filled technology is perfected, we intend to seek arrangements with pharmaceutical and biotechnology companies under which those companies will sell their medications pre-packaged in Iject® devices or Biojector syringes. The purchase of Iject® devices or Biojector® syringes pre-filled with medication eliminates the filling and measuring procedures associated with traditional injection of medications and with injections administered with the current Biojector® syringe. Before pre-filled syringes may be distributed for use in the U.S., pharmaceutical and biotechnology companies wishing to use these syringes must commit to packaging and distributing their products in the pre-filled syringes and to the time and financial resources necessary to gain regulatory clearance to package and market their products in this manner. This process could be lengthy. In addition, the companies will have to establish that their drugs will remain chemically and pharmacologically stable when packaged and stored in a Biojector® or Iject® pre-filled syringe and that a drug that is packaged, stored and delivered in this manner is safe and effective for its intended uses. See “Governmental Regulation.”

Jupiter Jet

The Jupiter Jet is a pistol-shaped, or streamlined, ergonomic, gas-powered injection device being developed for patient and professional use. It is capable of delivering low doses of injectate (0.03—0.2 mL) at subcutaneous and intradermal injection depths. It is loaded using a standard, pre-filled (3 mL, 5 mL or 10 mL) vial or syringe. It is powered by either a gas cartridge (similar to that powering the Biojector® 2000) or from an external CO2 tank that connects to the Jupiter Jet via a hose. The injection nozzle is disposable, to minimize risk of cross-contamination.

The Jupiter Jet is simple and easy to use, and is targeted at the cosmetic and self-injection markets. To set up the device, the disposables (drug vial and injection nozzle) are removed from the blister pack and attached to the device. A CO2 cartridge is loaded and, after a test-fire and priming, the device is ready to operate.

Unlike the Biojector® 2000, which requires a refill of drug injectate after each injection, the Jupiter Jet is loaded with a standard pre-filled syringe vial allowing for multiple variable-dose injections with a single loading. This feature makes the Jupiter Jet well-suited for regular self-injection (i.e. insulin therapy) or dermatological procedures with repeat injections. Not only does this design reduce time and effort involved in loading the drug into the device, but the use of a standard syringe vial reduces the overall cost of use. The Jupiter Jet is subject to 510(k) notification as described under “Governmental Regulation.”

Manufacturing

We assemble our products and related syringes from components purchased from outside suppliers. Some of these components are currently obtained from single sources, with some components requiring significant production lead times. For example, we utilize medical-grade resins and elastomers, as well as high-grade stainless steel, for which there has been supply chain disruptions. Lead times on certain of these materials have increased, which could negatively affect our ability to manufacture products in a timely manner. There can be no assurance that sufficient numbers of qualified manufacturing employees

 

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will be available when needed to increase production to meet either foreseen or unforeseen demand for our products. Further, while we believe that we continue to maintain supplier relationships that will provide a sufficient supply of materials to meet demands at full manufacturing capacity, there can be no assurance that such supplier relationships will be sufficient to meet such demand in quantities and at prices and quality levels required for us to operate efficiently and profitably.

Employees

As of March 1, 2011, we had 33 full-time employees. Of these employees, five were engaged in research and product development, 23 in manufacturing, one in product sales, and four in administration. As of March 1, 2011, we also had three per diem nurses on contract. In addition, we hire temporary contract manufacturing labor as necessary based on production requirements. None of our employees are represented by a labor union.

Product Liability

We believe that our products reliably inject medications both subcutaneously and intramuscularly when used in accordance with product guidelines. Our current insurance policies provide coverage at least equal to an aggregate of $5 million with respect to certain product liability claims. We have experienced one product liability claim to date, and we did not incur a significant liability. There can be no assurance, however, that we will not become subject to more such claims, that our current insurance would cover such claims, or that insurance will continue to be available to us in the future. Our business may be adversely affected by product liability claims.

 

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, or results of operations could be materially adversely affected by any of these risks. Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.

We need to obtain funding in 2011 to continue operations. Sufficient funding may not be available to us and, if available, may be subject to conditions. The unavailability of funding could adversely affect our business and cause us to cease operations. At December 31, 2010, we had cash of $0.2 million and a working capital deficit of $0.1 million. We continue to monitor our cash and have previously taken measures to reduce our expenditure rate and delay capital and maintenance expenditures. However, if we do not enter into one or more licensing development and supply agreements with sufficient up-front payments or increase sales to current customers or markets, we may need to do one or more of the following to provide additional resources during 2011:

 

   

secure additional debt financing;

 

   

secure additional equity financing;

 

   

secure a strategic partner; or

 

   

reduce our operating expenditures.

Our contract with Serono expired in December 2010 and, in early 2011, Serono provided some last-buy purchases, which we will fulfill throughout 2011. While management continues to work on a number of strategic options and alternatives to keep Bioject operating, there are no assurances that we will be successful. Financing may not be available to us on acceptable terms or at all. If we are unable to obtain additional resources, our business could be adversely affected and we could be forced to cease operations.

We have a history of losses and may never be profitable. Since our formation in 1985, we have incurred significant annual operating losses and negative cash flow. At December 31, 2010, we had an accumulated deficit of $123.8 million and a net working capital deficit of $0.1 million. Due to our lack of additional committed capital, recurring losses, negative cash flows and accumulated deficit, there is substantial doubt about our ability to continue as a going concern. We may never be profitable, which could have a negative effect on our stock price, our business and our ability to continue operations. Our revenues are derived from licensing and technology fees and from product sales. We sell our products to

 

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strategic partners, who market our products under their brand name, and to end-users such as public health clinics for vaccinations and the military for mass immunizations. We have not attained profitability at these sales levels. We may never be able to generate significant revenues or achieve profitability. Now, and in the future, we will require substantial additional financing. Such financing may not be available on terms acceptable to us, or at all, which would have a material adverse effect on our business. Any future equity financing could result in significant dilution to shareholders.

Our preferred stock has a liquidation preference and, as a result, if we are sold or liquidated, holders of common stock could receive nothing. We have outstanding shares of Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock. Under the terms of the preferred stock, if we are sold or liquidated, the holders of these shares would be entitled to receive approximately $9.7 million, at December 31, 2010, prior to any payments to the holders of common stock. Accordingly, if we are sold or liquidated, holders of common stock could receive nothing.

If our products are not accepted by the market, our business could fail. Our success will depend on market acceptance of our needle-free injection drug delivery systems and on market acceptance of other products under development. If our products do not achieve market acceptance, our business could fail. Currently, the dominant technology used for intramuscular and subcutaneous injections is the hollow-needle syringe, which has a cost per injection that is significantly lower than that of our products. Our products may be unable to compete successfully with needle-syringes.

We may be unable to enter into additional strategic corporate licensing and distribution agreements or maintain existing agreements, which could cause our business to suffer. A key component of our sales and marketing strategy is to enter into licensing and supply arrangements with leading pharmaceutical and biotechnology companies for whose products our technology provides either increased medical effectiveness or a higher degree of market acceptance. Historically, these agreements have taken a long time to finalize, and the current economic environment may extend that period even further. If we cannot enter into these agreements on terms favorable to us or at all, our business may suffer.

In prior years, several agreements have been canceled by our partners prior to completion. These agreements were canceled for various reasons, including, but not limited to, costs related to obtaining regulatory approval, unsuccessful pre-clinical studies, changes in drug development and changes in business development strategies. These agreements resulted in significant short-term revenue. However, none of these agreements developed into the long-term revenue stream anticipated by our strategic partnering strategy.

We may be unable to enter into future licensing or supply agreements with major pharmaceutical or biotechnology companies. Even if we enter into these agreements, they may not result in sustainable long-term revenues which, when combined with revenues from product sales, could be sufficient for us to operate profitably.

We expanded our strategy to focus on military and public health sales, which is subject to a number of risks and uncertainties, and, as a result, we may not be successful in implementing this strategy. We recently expanded the number of military and public health targets with whom we are in discussions about utilizing our needle-free injection technology devices, including by hiring a new National Sales Manager. However, this expanded strategy has only resulted in a few new accounts. Successfully implementing this strategic focus is subject to a number of risks, including the risk that our products will not be accepted by these targets. Accordingly, there is no assurance that our expanded strategy will be successful, and the failure of our expanded strategy could negatively affect our business.

Our new drug+device strategy is currently suspended and is subject to a number of risks and uncertainties and, as a result, we may not be successful in implementing the strategy. In 2007, we announced a new component of our business strategy pursuant to which we plan to attempt to secure rights to injectable medications to sell in combination with our products under our own brand. Successfully implementing this strategy is subject to a number of risks. We may not be successful in

 

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securing rights to medications we are interested in combining with our products. Even if successful in securing rights, these products would be subject to FDA approval, and it will be our responsibility to obtain such approval. This approval may not be obtained or may take a significant period of time to obtain. In addition, there is a risk that our device will not work for the new drug indication. We may also need to raise additional funds to finance this new strategy, and there is no assurance such funds will be available to us on acceptable terms or at all. We do not have experience manufacturing or marketing to end-users drug+device combinations. In addition, these new products may not be accepted by the market. Further, due to our current liquidity situation, we have suspended implementation of this strategy until such time as our cash position improves significantly. Accordingly, there is no assurance that our new strategy will be successfully implemented, and failure to successfully implement the strategy could negatively affect our business.

We have amended our lease agreement for rent deferrals and, if we default under our lease agreement in the future, our landlord could terminate our lease, which would adversely affect our business. In November 2008, we negotiated a $15,000 rent deferral for each of November 2008, December 2008 and January 2009 and, in March 2009, we entered into an agreement pursuant to which we deferred $12,000 of rent for each of February, March and April 2009. On July 8, 2009, we entered into another amendment to our lease agreement, effective June 30, 2009, pursuant to which we deferred $12,000 of rent for each of May and June 2009. In March 2011, we entered into an agreement with the landlord, which provides for the repayment of deferred rent at the rate of $2,000 per month for the period April 1, 2011 through March 31, 2012 and $3,742 per month for the period April 1, 2012 through December 31, 2014. If we are unable to make the payments under the lease when due, including the deferred rent payments, or are unable to negotiate additional rent deferrals, our landlord could declare an event of default and terminate our lease, which would have a material adverse effect on our business.

We must retain qualified personnel in a competitive marketplace, or we may not be able to grow our business. Our success depends upon the personal efforts and abilities of our senior management. We may be unable to retain our key employees, namely our management team, or to attract, assimilate or retain other highly qualified employees. We have implemented workforce and extended salary reductions, and there remains substantial competition for highly skilled employees. Our key employees are not bound by agreements that could prevent them from terminating their employment at any time. If we fail to attract and retain key employees, our business could be harmed.

We depend on a few significant customers. Our top three customers accounted for 87% of our total product sales in 2010. Our supply agreement with one of these customers, Serono, which represented 21% of our total product sales in 2010, expired in December 2010, but was extended with a one-time fixed extension of the agreement until December 31, 2011. If we do not replace the sales represented by Serono, our business will be negatively affected. Our agreement with Merial contains provisions allowing Merial to remove its production equipment and utilize a different third-party assembler if we fail to meet the production terms of the agreement. In addition, if any of these customers delays, reduces or ceases ordering our products or services, whether as a result of the expiration of a supply agreement or otherwise, our business would be negatively affected.

Our common stock is listed on the Over-the-Counter Bulletin Board, which may impair the price at which our common stock trades, the liquidity of the market for our common stock and our ability to obtain additional funding. The Over-the-Counter Bulletin Board is an electronic quotation service maintained by the Financial Industry Regulatory Authority. Our stock, like most stock listed on this service, has very limited trading volume. As a consequence, the ability of a stockholder to sell our common stock, the price obtainable for our common stock and our ability to obtain additional funding may be materially impaired.

We have limited manufacturing experience, and may be unable to produce our products at the unit costs necessary for the products to be competitive in the market, which could cause our financial condition to suffer. We have limited experience manufacturing our products in commercially viable quantities. We have increased our production capacity for the Biojector® 2000 system, the ZetaJet™ and the Vitajet® product lines through automation of, and changes in, production methods, in order to achieve

 

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savings through higher volumes of production. If we are unable to achieve these savings, our results of operations and financial condition could suffer. The current cost per injection of the Biojector® 2000 system, ZetaJet™ and Vitajet® product lines is substantially higher than that of traditional needle-syringes, our principal competition. In order to reduce costs, a key element of our business strategy has been to reduce the overall manufacturing cost through automating production and packaging. There can be no assurance that we will achieve sales and manufacturing volumes necessary to realize cost savings from volume production at levels necessary to result in significant unit manufacturing cost reductions. Failure to do so will continue to make competing with needle-syringes on the basis of cost very difficult and will adversely affect our financial condition and results of operations. We may be unable to successfully manufacture devices at a unit cost that will allow the product to be sold profitably. Failure to do so would adversely affect our financial condition and results of operations.

We are subject to extensive government regulation and must continue to comply with these regulations or our business could suffer. Our products and manufacturing operations are subject to extensive government regulation in both the U.S. and abroad. If we cannot comply with these regulations, we may be unable to distribute our products, which could cause our business to suffer or fail. In the U.S., the development, manufacture, marketing and promotion of medical devices are regulated by the Food and Drug Administration (“FDA”) under the FFDCA. The FFDCA provides that new pre-market notifications under Section 510(k) of the FFDCA are required to be filed when, among other things, there is a major change or modification in the intended use of a device or a change or modification to a legally marketed device that could significantly affect its safety or effectiveness. A device manufacturer is expected to make the initial determination as to whether the change to its device or its intended use is of a kind that would necessitate the filing of a new 510(k) notification. The FDA may not concur with our determination that our current and future products can be qualified by means of a 510(k) submission or that a new 510(k) notification is not required for such products.

Future changes to manufacturing procedures could require that we file a new 510(k) notification. Also, future products, product enhancements or changes, or changes in product use may require clearance under Section 510(k), or they may require FDA pre-market approval (“PMA”) or other regulatory clearances. PMAs and regulatory clearances other than 510(k) clearance generally involve more extensive prefiling testing than a 510(k) clearance and a longer FDA review process. It is current FDA policy that pre-filled syringes are evaluated by the FDA by submitting a Request for Designation (“RFD”) to the Office of Combination Products (“OCP”). The pharmaceutical or biotechnology company with which we partner is responsible for the submission to the OCP, although we will have this responsibility with respect to drug+device combinations produced by us under our new strategy. A pre-filled syringe meets the FDA’s definition of a combination product, or a product comprised of two or more regulated components, i.e. drug/device. The OCP will assign a center with primary jurisdiction for a combination product (CDER, CDRH) to ensure the timely and effective pre-market review of the product. Depending on the circumstances, drug and combination drug/device regulation can be much more extensive and time consuming than device regulation.

FDA regulatory processes are time consuming and expensive. Product applications submitted by us may not be cleared or approved by the FDA. In addition, our products must be manufactured in compliance with Good Manufacturing Practices, as specified in regulations under the FFDCA. The FDA has broad discretion in enforcing the FFDCA, and noncompliance with the FFDCA could result in a variety of regulatory actions ranging from product detentions, device alerts or field corrections, to mandatory recalls, seizures, injunctive actions and civil or criminal penalties. If we were to have a recall of our product in the field, it could negatively affect our results of operations, financial position and cash flows. Our facility was subject to a routine surveillance audit by the FDA in September 2010. No adverse findings were noted during the audit.

 

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Sales of our products, including the Iject® pre-filled syringe, are dependent on regulatory approval being obtained for the product’s use with a given drug to treat a specific condition. It is the responsibility of the strategic partner producing the drug to obtain this approval. The failure of a partner to obtain regulatory approval or to comply with government regulations after approval has been received could harm our business. In order for a strategic partner to sell our devices for delivery of its drug to treat a specific condition, the partner must first obtain government approval. This process is subject to extensive government regulation both in the U.S. and abroad. As a result, sales of our products, including the Iject® product, to any strategic partner are dependent on that partner’s ability to obtain regulatory approval. Accordingly, delay or failure of a partner to obtain that approval could cause our financial results to suffer. In addition, if a partner fails to comply with governmental regulations after initial regulatory approval has been obtained, sales to that partner may cease, which could cause our financial results to suffer.

If we cannot meet international product standards, we will be unable to distribute our products outside of the United States, which could cause our business to suffer. Distribution of our products in countries other than the U.S. may be subject to regulation in those countries. Failure to satisfy these regulations would impact our ability to sell our products in these countries and could cause our business to suffer.

We have received the following certifications from Underwriters Laboratories (“UL”) that our products and quality systems meet the applicable requirements, which allows us to label our products with the CE Mark and sell them in the European Community and non-European Community countries.

 

Certificate

   Issue Date    Date Renewed

ISO 13485:2003 and CMDCAS

   February 2006    January 2009
EC Certificate – Needle-free Injection Systems and Accessories (Biojector® 2000, cool.click®, ZetaJet™)    March 2007    January 2010

EC Certificate – Vial Adapters and Reconstitution Kits

   March 2007    January 2009

If we are unable to continue to meet the standards of ISO 13485 or CE Mark certification, it could have a material adverse effect on our business and cause our financial results to suffer.

If the healthcare industry limits coverage or reimbursement levels, the acceptance of our products could suffer. The price of our products exceeds the price of needle-syringe combinations and, if coverage or reimbursement levels are reduced, market acceptance of our products could be harmed. The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare facilities. During the past several years, the healthcare industry has been subject to increased government regulation of reimbursement rates and capital expenditures. Among other things, third party payers are increasingly attempting to contain or reduce healthcare costs by limiting both coverage and levels of reimbursement for healthcare products and procedures. Because the price of the Biojector® 2000 system exceeds the price of a needle-syringe, cost control policies of third party payers, including government agencies, may adversely affect acceptance and use of the Biojector® 2000 system. In addition, on March 23, 2010 the Patient Protection and Affordable Care Act was signed into law and, commencing in 2013, the legislation imposes a 2.3% excise tax on sales of medical devices, which may negatively affect our business.

We depend on outside suppliers for manufacturing. Our current manufacturing processes for the Biojector® 2000 and ZetaJet™ jet injector and disposable syringes as well as manufacturing processes to produce our modified Vitajet® consist primarily of assembling component parts supplied by outside suppliers. Some of these components are currently obtained from single sources, with some components requiring significant production lead times. In the past, we have experienced delays in the delivery of certain components and continue to experience such delays from time to time. These current delays, or any delays or interruptions we may experience in the future, including suppliers suspending or ceasing operations, could have a material adverse effect on our financial condition and results of operations.

 

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Manufacturing difficulties could delay product shipments to customers. Delays in receiving approval for the manufacture of customers’ products or delays related to internal manufacturing difficulties could delay the timing of shipments to customers and negatively affect our results of operations, financial position and cash flows.

If we are unable to manage our growth, our results of operations could suffer. If our products achieve market acceptance or if we are successful in entering into significant product supply agreements with major pharmaceutical or biotechnology companies or vaccine companies, we expect to experience rapid growth. Such growth would require expanded customer service and support, increased personnel, expanded operational and financial systems, and implementing new and expanded control procedures. We may be unable to attract sufficient qualified personnel or successfully manage expanded operations. As we expand, we may periodically experience constraints that would adversely affect our ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely affect our financial condition and results of operations.

We may be unable to compete in the medical equipment field, which could cause our business to fail. The medical equipment market is highly competitive and competition is likely to intensify. If we cannot compete, our business will fail. Our products compete primarily with traditional needle-syringes, “safety syringes,” other needle-free injectors and also with other alternative drug delivery systems. In addition, manufacturers of needle-syringes, as well as other companies, may develop new products that compete directly or indirectly with our products. There can be no assurance that we will be able to compete successfully in this market. A variety of new technologies (for example, micro needles on dissolvable patches and transdermal patches) are being developed as alternatives to injection for drug delivery. While we do not believe such technologies have significantly affected the use of injection for drug delivery to date, there can be no assurance that they will not do so in the future. Many of our competitors have longer operating histories as well as substantially greater financial, technical, marketing and customer support resources.

We are dependent on a single technology, and if it cannot compete or find market acceptance, our business will suffer. Our strategy has been to focus our development and marketing efforts on our needle-free injection technology. Focus on this single technology leaves us vulnerable to competing products and alternative drug delivery systems. If our technology cannot find market acceptance or cannot compete against other technologies, business will suffer. We perceive that healthcare providers’ desire to minimize the use of the traditional needle-syringe has stimulated development of a variety of alternative drug delivery systems such as “safety syringes,” jet injection systems, nasal delivery systems and transdermal diffusion “patches.” In addition, pharmaceutical companies frequently attempt to develop drugs for oral delivery instead of injection. While we believe that for the foreseeable future there will continue to be a significant need for injections, alternative drug delivery methods may be developed which are preferable to injection.

We rely on patents and proprietary rights to protect our technology. We rely on a combination of trade secrets, confidentiality agreements and procedures and patents to protect our proprietary technologies. We have been granted a number of patents in the U.S. and several patents in other countries covering certain technology embodied in our current jet injection system and certain manufacturing processes. Additional patent applications are pending in the U.S. and certain foreign countries. The claims contained in any patent application may not be allowed, or any patent or our patents collectively may not provide adequate protection for our products and technology. In the absence of patent protection, we may be vulnerable to competitors who attempt to copy our products or gain access to our trade secrets and know-how. In addition, the laws of foreign countries may not protect our proprietary rights to this technology to the same extent as the laws of the U.S. We believe we have independently developed our technology and attempt to ensure that our products do not infringe the proprietary rights of others.

If a dispute arises concerning our technology, we could become involved in litigation that might involve substantial cost. Such litigation might also divert substantial management attention away from our operations and into efforts to enforce our patents, protect our trade secrets or know-how or determine the

 

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scope of the proprietary rights of others. If a proceeding resulted in adverse findings, we could be subject to significant liabilities to third parties. We might also be required to seek licenses from third parties in order to manufacture or sell our products. Our ability to manufacture and sell our products might also be adversely affected by other unforeseen factors relating to the proceeding or its outcome.

If our products fail or cause harm, we could be subject to substantial product liability, which could cause our business to suffer. Producers of medical devices may face substantial liability for damages in the event of product failure or if it is alleged the product caused harm. We currently maintain product liability insurance and, to date, have experienced one product liability claim. There can be no assurance, however, that we will not be subject to a number of such claims, that our product liability insurance would cover such claims, or that adequate insurance will continue to be available to us on acceptable terms in the future. Our business could be adversely affected by product liability claims or by the cost of insuring against such claims.

There are a large number of shares eligible for sale into the public market, which may reduce the price of our common stock. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market, or the perception that such sales could occur. We have a large number of shares of common stock outstanding and available for resale. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. There are also a large number of shares of common stock issuable upon conversion of our outstanding preferred stock and exercise of warrants. In addition, as of December 31, 2010, we had approximately 294,000 shares of common stock available for future issuance under our stock incentive plan. As of December 31, 2010, options to purchase approximately 2.3 million shares of common stock were outstanding and approximately 60,000 restricted stock units were outstanding and will be eligible for sale in the public market from time to time subject to vesting.

Our stock price may be highly volatile, which increases the risk of securities litigation. The market for our common stock and for the securities of other small market-capitalization companies has been highly volatile in recent years. This increases the risk of securities litigation relating to such volatility. We believe that factors such as quarter-to-quarter fluctuations in financial results, new product introductions by us or our competition, public announcements, changing regulatory environments, sales of common stock by certain existing shareholders, substantial product orders and announcement of licensing or product supply agreements with major pharmaceutical, biotechnology companies or vaccine companies could contribute to the volatility of the price of our common stock, causing it to fluctuate dramatically. General economic trends such as recessionary cycles and changing interest rates may also adversely affect the market price of our common stock.

Concentration of ownership could delay or prevent a change in control or otherwise influence or control most matters submitted to our shareholders. Certain funds affiliated with Life Sciences Opportunities Fund II (Institutional), L.P. (collectively, the “LOF Funds”) and its affiliates currently own shares of Series D Preferred Stock, Series E Preferred Stock, Series G Preferred Stock and warrants to purchase common stock representing in aggregate approximately 46.9% of our outstanding voting power (assuming exercise of the warrants). As a result, the LOF Funds and their affiliates have the potential to control matters submitted to a vote of shareholders, including a change of control transaction, which could prevent or delay such a transaction.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. PROPERTIES

Our principal manufacturing and support facilities are located in approximately 40,500 square feet of leased office and manufacturing space in Tualatin, Oregon. The manufacturing facilities include a clean room assembly area, assembly line, testing facilities and warehouse area. The lease, which expires October 31, 2014, has one option to extend for an additional five-year term. The rent is approximately $34,500 per month averaged over the remaining life of the lease term. In 2008 and 2009, we negotiated several rent deferrals. In March 2011, we entered into an agreement with the landlord, which provides for the repayment of deferred rent at the rate of $2,000 per month for the period April 1, 2011 through March 31, 2012 and $3,742 per month for the period April 1, 2012 through December 31, 2014. See Note 16 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for additional information.

We believe that our facilities are sufficient to support our anticipated manufacturing operations and other needs through the term of the lease. We believe that, if necessary, we will be able to obtain alternative facilities at rates and terms comparable to those of the current leases.

 

ITEM 3. LEGAL PROCEEDINGS

As of the date of filing this Form 10-K, we are not a party to any litigation that could have a material adverse effect on our financial position or results of operations.

 

ITEM 4. RESERVED

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Prices and Dividends

Our common stock trades on the Over-the-Counter Bulletin Board with the trading symbol BJCT. The following table sets forth the high and low closing sale prices of our common stock for each quarter in the two years ended December 31, 2010.

 

Year Ended December 31, 2009

   High      Low  

Quarter 1

   $ 0.10       $ 0.06   

Quarter 2

     0.33         0.08   

Quarter 3

     0.30         0.19   

Quarter 4

     0.28         0.07   

Year Ended December 31, 2010

   High      Low  

Quarter 1

   $ 0.32       $ 0.12   

Quarter 2

     0.30         0.15   

Quarter 3

     0.29         0.09   

Quarter 4

     0.10         0.07   

As of January 31, 2011, there were 3,845 shareholders of record and approximately 682 beneficial shareholders.

We have not declared any cash dividends during our history and have no intention of declaring a cash dividend in the foreseeable future.

Equity Compensation Plan Information

The following table summarizes equity securities authorized for issuance pursuant to compensation plans as of December 31, 2010.

 

Plan Category

  Number of securities
to be issued upon
exercise of

outstanding options,
warrants and rights (a)
    Weighted average
exercise price of
outstanding options,
warrants and rights (b)
    Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities reflected
in column (a)) (c)
 

Equity compensation plans approved by shareholders

    2,301,291      $ 0.39        293,825 (1) 

Equity compensation plans not approved by shareholders(2)

    361,847      $ 1.01        —     
                 

Total

    2,663,138      $ 0.47        293,825   
                 

 

(1) Represents 293,825 shares of common stock available for issuance under our 1992 Stock Incentive Plan. Under the terms of 1992 Stock Incentive Plan, a committee of the Board of Directors may authorize the sales of common stock, grant incentive stock options or non-statutory stock options, and award stock bonuses and stock appreciation rights to eligible employees, officers and directors and eligible non-employee agents, consultants, advisers and independent contractors of Bioject or any parent or subsidiary.
(2) We have issued and outstanding warrants to purchase an aggregate of 211,847 shares of common stock to various non-employee consultants and advisors. The warrants are fully exercisable and have grant dates ranging from December 2004 to October 2008, with four, five and seven year terms and exercise prices ranging from $0.75 to $1.32. In addition, this number includes 150,000 vested options held by Mr. Makar that were issued pursuant to his employment agreement. Mr. Makar also holds 250,000 unvested restricted stock units that were issued pursuant to his employment agreement.

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning cash requirements. Such forward looking statements (often, but not always, using words or phrases such as “expects” or “does not expect,” “is expected,” “anticipates” or “does not anticipate,” “plans,” “estimates” or “intends,” or stating that certain actions, events or results “may,” “could,” “would,” “should,” “might” or “will” be taken, occur or be achieved) involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. Such risks, uncertainties and other factors include, without limitation, the risk that we may not enter into anticipated licensing, development or supply agreements, the risk that we may not achieve the milestones necessary for us to receive payments under our future development agreements, the risk that our products will not be accepted by the market, the risk that we will be unable to meet production demands as a result of supply or other factors, the risk that we will be unable to obtain needed debt or equity financing on satisfactory terms, or at all, risks related to the general economic environment and uncertainties in the financial markets, uncertainties related to our dependence on the continued performance of strategic partners and technology and uncertainties related to the time required for us or our strategic partners to complete research and development and obtain necessary clinical data and government clearances.

Forward-looking statements are based on the estimates and opinions of management on the date the statements are made. We assume no obligation to update forward-looking statements if conditions or management’s estimates or opinions should change, even if new information becomes available or other events occur in the future. See also Item 1A. Risk Factors.

OVERVIEW

We are an innovative developer and manufacturer of needle-free injection therapy systems (“NFITS”). Our NFITS work by forcing liquid medication at high speed through a tiny orifice held against the skin. This creates a fine stream of high-pressure medication that penetrates the skin, depositing the medication in the tissue beneath. By bundling customized needle-free delivery systems with partners’ injectable medications and vaccines, we can enhance demand for these products in the healthcare provider and end-user markets.

Our long-term goal is to become the leading supplier of needle-free injection systems to the pharmaceutical and biotechnology industries. We have been focusing our business development efforts on new and existing licensing and supply agreements with leading pharmaceutical and biotechnology companies, as well as research agreements that could lead to long-term agreements. Our pipeline of prospective new partnerships remains active. We are also actively pursuing additional opportunities, both domestically and overseas, as we expand our current product line. However, historically, finalizing agreements has been a long process and, given the current difficult global economic conditions, we believe that process will take even longer.

In January 2010, we established a strategic alliance with MPI Research, a leading pre-clinical research organization with experience in the development of injectable therapeutics. The strategic alliance creates a preferred partnership relationship, which allows us to gain access to a range of capabilities and resources needed for us to explore drug+device opportunities, including access to pharmacologic, analytical, safety and other preclinical testing resources available at MPI Research. The strategic alliance offers MPI Research the opportunity to provide our needle-free technology as an alternate delivery option to current drug/biologic manufacturers who may be interested in seeking a more highly competitive and differentiable drug+device brand.

 

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In March 2010, we met the final milestone in our license, development and supply agreement with Merial for their new state-of-the-art spring-powered device for feline leukemia and canine melanoma vaccinations for companion animals and we initiated the first product shipments of the new device to Merial at the end of the first quarter of 2010. In December 2010, the Merial development and supply agreement was modified to enhance the supply chain management process through 2011.

Also in March 2010, we repaid the remaining $150,000 of debt we had outstanding and, at December 31, 2010, we did not have any short or long-term debt outstanding.

In November 2010, we received a $244,000 grant pursuant to Section 48D of the Internal Revenue Code for Qualifying Therapeutic Discovery Projects. The award was in support of our development efforts regarding our dose sparing needle-free injection delivery systems.

In the first quarter of 2011, Serono extended its contract with a one-time fixed extension of the agreement until December 31, 2011.

Also, in February 2011, we entered into a collaboration with PATH and the World Health Organization (“WHO”) to support efforts to advance clinical research of intradermal delivery of vaccines in developing-country immunization programs by providing our Intradermal Pen (the “ID Pen”). The ID Pen is a unique disposable-syringe jet injector for intradermal delivery. PATH and WHO will each provide funding for the production of ID Pen devices for further evaluation.

We do not expect to report net income in 2011.

GOING CONCERN AND CASH REQUIREMENTS FOR THE NEXT TWELVE-MONTH PERIOD

Our limited amount of additional committed capital, recurring losses, negative cash flows and accumulated deficit are factors that raise substantial doubt about our ability to continue as a going concern. See Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

CONTRACTUAL PAYMENT OBLIGATIONS

A summary of our contractual commitments and obligations as of December 31, 2010 was as follows:

 

     Payments Due By Period  

Contractual Obligation

   Total      2011      2012 and
2013
     2014 and
2015
     2016 and
beyond
 

Operating leases and deferred rent(1)

   $ 1,742,434       $ 425,603       $ 913,939       $ 402,892       $ —     

Capital leases

     6,373         6,373         —           —           —     

Purchase order commitments

     550,408         550,408         —           —           —     
                                            
   $ 2,299,215       $ 982,384       $ 913,939       $ 402,892       $ —     
                                            

 

(1) Operating leases and deferred rent includes $120,000 of deferred rent due beginning in April 2011. See also Notes 14 and 16 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

 

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RESULTS OF OPERATIONS

The consolidated financial data for the years ended December 31, 2010 and 2009 are presented in the following table:

 

     Year Ended December 31,  
     2010     2009  

Revenue:

    

Net sales of products

   $ 5,146,136      $ 6,092,919   

Licensing and technology fees

     431,305        599,072   
                
     5,577,441        6,691,991   

Operating expenses:

    

Manufacturing

     3,864,314        4,067,494   

Research and development

     1,355,321        1,563,132   

Selling, general and administrative

     2,045,395        1,945,187   
                

Total operating expenses

     7,265,030        7,575,813   
                

Operating loss

     (1,687,589     (883,822

Interest income

     5,160        11,239   

Interest expense

     (38,681     (196,954

Other Income

     213,919        —     

Change in fair value of derivative liabilities

     32,451        (9,673
                
     212,849        (195,388
                

Net loss

     (1,474,740     (1,079,210

Preferred stock dividend

     (97,543     (53,084
                

Net loss allocable to common shareholders

   $ (1,572,283   $ (1,132,294
                

Basic and diluted net loss per common share allocable to common shareholders

   $ (0.09   $ (0.07
                

Shares used in per share calculations

     17,841,974        17,027,748   
                

Revenue

Product sales in 2010 decreased $0.9 million, or 15.5%, compared to 2009, due primarily to the following:

 

   

a $659,000, or 38%, decrease in sales to Serono from $1.7 million in 2009 to $1.1 million in 2010 due to reductions in their order forecast in anticipation of the contract ending December 2010;

 

   

a $202,000, or 17%, decrease in sales to Ferring from $1.2 million in 2009 to $1.0 million in 2010, due to timing of orders;

 

   

the completion of a grant project for the Centers for Disease Control, which resulted in $137,000 of revenue in 2009 and no revenue in 2010;

 

   

sales of $619,000 of B2000 product to various county public health agencies for use in their emergency preparedness programs in 2009, with no comparable sales in 2010; and

 

   

a $70,000, or 14%, decrease in sales to the military from $498,000 in 2009 to $428,000 in 2010.

These factors were partially offset by a $793,000, or 51%, increase in sales to Merial from $1.6 million in 2009 to $2.4 million in 2010 primarily due to sales of the new spring-powered device.

We currently have supply agreements or commitments with Merial, Ferring Pharmaceuticals Inc. and the U.S. federal government. Our agreement with Serono expired in December 2010, however, in the first quarter of 2011, it was extended with a one-time fixed extension of the agreement until December 31, 2011.

 

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License and technology fees recognized in accordance with our agreements were as follows:

 

     Year Ended December 31,  
     2010      2009  

Serono

   $ 112,310       $ 104,310   

Merial

     174,166         318,734   

Vical

     —           16,667   

Royalty fees

     99,829         100,702   

Other

     45,000         58,659   
                 
   $ 431,305       $ 599,072   
                 

We currently have an active licensing and development agreement, which includes commercial product supply provisions, with Merial. Our license agreement with Vical expired pursuant to its terms on August 6, 2009.

Manufacturing Expense

Manufacturing expense is made up of the cost of products sold and manufacturing overhead expense related to excess manufacturing capacity.

The $203,000, or 5.0%, decrease in manufacturing expense in 2010 compared to 2009 was primarily due to lower product sales, partially offset by unabsorbed overhead costs.

Research and Development Expense

Research and development costs include labor, materials and costs associated with clinical studies incurred in the research and development of new products and modifications to existing products.

The $208,000, or 13.3%, decrease in research and development expense in 2010 compared to 2009 was primarily due to the timing of expenses related to on-going projects.

Selling, General and Administrative Expense

Selling, general and administrative costs include labor, travel, outside services and overhead incurred in our sales, marketing, management and administrative support functions.

The $100,000, or 5.2%, increase in selling, general and administrative expense in 2010 compared to 2009 was primarily due to the hiring of a National Sales Manager in March 2010 and related expenses, as well as a $40,000 increase in stock-based compensation expense primarily as a result of stock-based awards granted in the second quarter of 2010.

Interest Expense

Interest expense included the following:

 

     Year Ended December 31,  
     2010      2009  

Contractual interest expense

   $ 10,400       $ 94,000   

Amortization of debt issuance costs

     3,100         7,000   

Accretion of $1.25 million convertible debt

     25,200         96,000   
                 
   $ 38,700       $ 197,000   
                 

Other Income

Other income of $0.2 million in 2010 related to a $244,000 grant, less related expenses, pursuant to Section 48D of the Internal Revenue Code for Qualifying Therapeutic Discovery Projects. The award was in support of our development efforts regarding our dose sparing needle-free injection delivery systems.

Change in Fair Value of Derivative Liabilities

As of December 31, 2010, we no longer had any derivative liabilities recorded on our balance sheet. See Note 3 of Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.

 

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LIQUIDITY AND CAPITAL RESOURCES

Since our inception in 1985, we have financed our operations, working capital needs and capital expenditures primarily from private placements of securities, the exercise of warrants, loans, proceeds received from our initial public offering in 1986, proceeds received from a public offering of common stock in 1993, licensing and technology revenues and revenues from sales of products.

Total cash at December 31, 2010 was $0.2 million compared to $1.1 million at December 31, 2009. We had a working capital deficit of $0.1 million at December 31, 2010 compared to working capital of $0.7 million at December 31, 2009. Our debt retirement costs were $150,000 in 2010 to pay off the remaining balance on our convertible loan, which was paid in March 2010. Following the repayment of this outstanding debt, we did not have any short or long-term debt outstanding. Given our current cash balance, if no new licensing, development or supply agreements with significant up-front payments are entered into or there is no significant increase in product sales in 2011, we will need to obtain additional debt or equity financing during 2011 in order to continue operations.

The overall decrease in cash during 2010 resulted from $0.6 million of cash used in operating activities, $154,000 used for principal payments on debt and capital leases and $214,000 used for capital expenditures and patent activity.

Net accounts receivable decreased $61,000 to $0.8 million at December 31, 2010 compared to $0.9 million at December 31, 2009. Receivables from three different customers accounted for a total of 95% of our accounts receivable balance at December 31, 2010, with individual accounts totaling 70%, 17% and 8%, respectively. For the customer representing 70% of our balance at December 31, 2010, none of the amounts due were related to equipment purchased on their behalf, compared to $0.5 million at December 31, 2009. Of the accounts receivable due at December 31, 2010, all outstanding balances were collected prior to the filing of this Form 10-K. Historically, we have not had collection problems related to our accounts receivable.

Inventories decreased $241,000 to $0.6 million at December 31, 2010 compared to $0.9 million at December 31, 2009, primarily as a result of the disposal of approximately $0.2 million of obsolete Serono inventory. In connection with this disposal, we also eliminated the related liability from our balance sheet.

Capital expenditures totaled $19,000 in 2010. We anticipate spending up to a total of $50,000 or more in 2011 for production molds for current research and development projects.

Accounts payable were $0.9 million at both December 31, 2010 and 2009, as the extension of payment terms to manage our cash usage rate were offset by the payment of $0.5 million of invoices outstanding at December 31, 2009 related to capital purchases on behalf of a customer.

Other accrued liabilities at December 31, 2010 and 2009 included $0.4 million of inventory credits that could be taken against current invoices or require repayment at any time.

Deferred revenue of $1.3 million at December 31, 2010 represented amounts received from Merial.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 15 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this Annual Report on Form 10-K.

 

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Our critical accounting policies and estimates include the following:

 

   

revenue recognition for product development and license fee revenues;

 

   

inventory valuation;

 

   

long-lived asset impairment; and

 

   

stock-based compensation.

Revenue Recognition for Product Development and License Fee Revenues

Product development revenue is recognized, to the extent of cash received, on a percentage of completion basis as qualifying expenditures are incurred. Licensing revenues, if separable, are recognized over the term of the license agreement. Revenue arrangements with multiple elements are broken out as separate units of accounting based on their relative fair values. Revenue for a separate unit of accounting should be recognized only if the amount due can be reliably measured and the earnings process is substantially complete. Any units that cannot be separated must be accounted for as a combined unit. Should agreements be terminated prior to completion, or our estimates of percentage of completion be incorrect, we could have unanticipated fluctuations in our revenue on a quarterly basis. Amounts received prior to meeting recognition criteria are recorded on our balance sheet as deferred revenues and are recognized according to the terms of the associated agreements. At December 31, 2010, deferred revenue totaled $1.3 million and included amounts received from Merial.

Inventory Valuation

We evaluate the realizability of inventory values based on a combination of factors, including the following: historical and forecasted sales and usage rates, anticipated technology improvements and product upgrades, as well as other factors. All inventories are reviewed quarterly to determine if inventory carrying costs exceed market selling prices and if certain components have become obsolete. If our review indicates a reduction in utility below carrying value, we reduce inventory to a new cost basis. If circumstances related to our inventories change, our estimates of the realizability of inventory values could materially change.

Long-Lived Asset Impairment

We evaluate our long-lived assets and certain identified intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable utilizing an undiscounted cash flow analysis. We did not recognize any impairment of our long-lived assets during 2010 or 2009. If circumstances related to our long-lived assets change, we may record impairment charges in the future.

Stock-Based Compensation

We measure and recognize compensation expense for all share-based payment awards granted to our employees and directors, including employee stock options and restricted stock based on the estimated fair value of the award on the grant date. We utilize the Black-Scholes valuation model for valuing our stock option awards.

The use of the Black-Scholes valuation model to estimate the fair value of stock option awards requires us to make judgments and assumptions regarding the risk-free interest rate, expected dividend yield, expected term and expected volatility over the expected term of the award. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the actual amount of expense could be materially different in the future.

 

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Compensation expense is only recognized on awards that ultimately vest. Therefore, for both stock option awards and restricted stock awards, we have reduced the compensation expense to be recognized over the vesting period for anticipated future forfeitures. Forfeiture estimates are based on historical forfeiture patterns. We update our forfeiture estimates annually and recognize any changes to accumulated compensation expense in the period of change. If actual forfeitures differ significantly from our estimates, our results of operations could be negatively affected.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item begins on the following page.

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Bioject Medical Technologies Inc.

We have audited the accompanying consolidated balance sheets of Bioject Medical Technologies Inc. (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bioject Medical Technologies Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 of the consolidated financial statements, the Company has suffered recurring losses, has had significant recurring negative cash flows from operations, and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 1. The consolidated financial statements do not include any adjustments that might result from this uncertainty.

 

/s/ Moss Adams LLP
Portland, Oregon
March 31, 2011

 

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     December 31,  
     2010     2009  
ASSETS     

Current assets:

    

Cash

   $ 180,154      $ 1,146,318   

Accounts receivable, net of allowance for doubtful accounts of $5,149 and $5,149

     837,890        899,311   

Inventories

     626,458        867,676   

Other current assets

     70,403        20,951   
                

Total current assets

     1,714,905        2,934,256   

Property and equipment, net of accumulated depreciation of $7,768,893 and $7,343,888

     645,346        1,070,088   

Other assets, net

     1,309,478        1,251,838   
                

Total assets

   $ 3,669,729      $ 5,256,182   
                
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 945,816      $ 949,963   

Accrued payroll

     225,144        163,512   

Short-term notes payable

     —          124,758   

Derivative liabilities

     —          32,451   

Other accrued liabilities

     481,165        690,663   

Deferred revenue

     176,207        276,272   
                

Total current liabilities

     1,828,332        2,237,619   

Long-term liabilities:

    

Deferred revenue

     1,136,016        1,222,427   

Other long-term liabilities

     324,551        348,161   

Commitments

    

Shareholders’ equity:

    

Preferred stock, no par value, 10,000,000 shares authorized:

    

Series D Convertible - 2,086,957 shares issued and outstanding at December 31,2010 and 2009, liquidation preference of $1.15 per share

     1,878,768        1,878,768   

Series E Convertible - 3,308,392 shares issued and outstanding at December 31, 2010 and 2009, liquidation preference of $1.37 per share

     5,478,466        5,478,466   

Series F Convertible - 8,314 shares issued and outstanding at December 31, 2010 and 2009, liquidation preference of $75 per share

     723,025        720,018   

Series G Convertible - 92,448 shares issued and outstanding at December 31, 2010 and 2009, liquidation preference of $13 per share

     1,299,570        1,205,034   

Common stock, no par value, 100,000,000 shares authorized;

    

18,455,094 shares issued and outstanding at December 31, 2010 and 17,729,111 at December 31, 2009

     114,762,654        114,355,059   

Accumulated deficit

     (123,761,653     (122,189,370
                

Total shareholders’ equity

     380,830        1,447,975   
                

Total liabilities and shareholders’ equity

   $ 3,669,729      $ 5,256,182   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     For the year ended December 31,  
     2010     2009  

Revenue:

    

Net sales of products

   $ 5,146,136      $ 6,092,919   

Licensing and technology fees

     431,305        599,072   
                
     5,577,441        6,691,991   

Operating expenses:

    

Manufacturing

     3,864,314        4,067,494   

Research and development

     1,355,321        1,563,132   

Selling, general and administrative

     2,045,395        1,945,187   
                

Total operating expenses

     7,265,030        7,575,813   
                

Operating loss

     (1,687,589     (883,822

Interest income

     5,160        11,239   

Interest expense

     (38,681     (196,954

Other Income

     213,919        —     

Change in fair value of derivative liabilities

     32,451        (9,673
                
     212,849        (195,388
                

Net loss

     (1,474,740     (1,079,210

Preferred stock dividends

     (97,543     (53,084
                

Net loss allocable to common shareholders

   $ (1,572,283   $ (1,132,294
                

Basic and diluted net loss per common share allocable to common shareholders

   $ (0.09   $ (0.07
                

Shares used in per share calculations

     17,841,974        17,027,748   
                

The accompanying notes are an integral part of these consolidated financial statements.

 

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

     Preferred Stock      Common Stock      Accumulated
Deficit
    Total
Shareholders’
Equity
 
     Series D      Series E      Series F      Series G          
     Shares      Amount      Shares      Amount      Shares      Amount      Shares      Amount      Shares      Amount       

Balance at December 31, 2008

     2,086,957       $ 1,878,768         3,308,392       $ 5,478,466         8,314       $ 670,134         —         $ —           16,436,420       $ 113,962,525       $ (121,057,076   $ 932,817   

Compensation expense related to fair value of stock- based awards

     —           —           —           —           —           —           —           —           688,053         316,617         —          316,617   

Stock issued in connection with 401(k) and ESPP

     —           —           —           —           —           —           —           —           604,640         75,917         —          75,917   

Conversion of $600,000 convertible note and accrued interest

     —           —           —           —           —           —           92,448         1,201,834         —           —           —          1,201,834   

Series F Preferred Stock dividends

     —           —           —           —           —           49,884         —           —           —           —           —          49,884   

Series G Preferred Stock dividends

     —           —           —           —           —           —           —           3,200         —           —           —          3,200   

Net loss allocable to common shareholders

     —           —           —           —           —           —           —           —           —           —           (1,132,294     (1,132,294
                                                                                                          

Balance at December 31, 2009

     2,086,957         1,878,768         3,308,392         5,478,466         8,314         720,018         92,448         1,205,034         17,729,113         114,355,059         (122,189,370     1,447,975   

Compensation expense related to fair value of stock- based awards

     —           —           —           —           —           —           —           —           330,783         368,483         —          368,483   

Stock issued in connection with 401(k)

     —           —           —           —           —           —           —           —           385,200         39,112         —          39,112   

Series F Preferred Stock dividends

     —           —           —           —           —           3,007         —           —           —           —           —          3,007   

Series G Preferred Stock dividends

     —           —           —           —           —           —           —           94,536         —           —           —          94,536   

Net loss allocable to common shareholders

     —           —           —           —           —           —           —           —           —           —           (1,572,283     (1,572,283
                                                                                                          

Balance at December 31, 2010

     2,086,957       $ 1,878,768         3,308,392       $ 5,478,466         8,314       $ 723,025         92,448       $ 1,299,570         18,445,096       $ 114,762,654       $ (123,761,653   $ 380,830   
                                                                                                          

The accompanying notes are an integral part of these consolidated financial statements.

 

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Year ended December 31,  
     2010     2009  

Cash flows from operating activities:

    

Net loss

   $ (1,474,740   $ (1,079,210

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

    

Compensation expense related to fair value of stock-based awards

     368,483        316,617   

Stock contributed to 401(k) Plan

     39,112        57,117   

Depreciation and amortization

     555,309        667,883   

Patent write-off

     26,266        59,947   

Other non-cash interest expense

     25,242        153,839   

Change in fair value of derivative instruments

     (32,451     9,673   

Change in deferred revenue

     (186,476     (339,711

Change in deferred rent

     (18,976     54,071   

Changes in operating assets and liabilities:

    

Accounts receivable, net

     61,421        (421,982

Inventories

     241,218        139,747   

Other current assets

     (49,452     46,934   

Accounts payable

     (4,147     276,940   

Accrued payroll

     61,632        1,890   

Other accrued liabilities

     (209,498     172,251   
                

Net cash (used in) provided by operating activities

     (597,057     116,006   

Cash flows from investing activities:

    

Capital expenditures

     (18,967     (17,602

Other assets

     (195,506     (146,872
                

Net cash used in investing activities

     (214,473     (164,474

Cash flows from financing activities:

    

Payments made on capital lease obligations

     (4,634     (15,906

Payments made on short and long-term debt

     (150,000     (660,000

Net proceeds from sale of Series G preferred stock

     —          500,000   

Net proceeds from sale of common stock

     —          18,800   
                

Net cash used in financing activities

     (154,634     (157,106
                

Decrease in cash

     (966,164     (205,574

Cash:

    

Beginning of year

     1,146,318        1,351,892   
                

End of year

   $ 180,154      $ 1,146,318   
                

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 3,161      $ 35,018   

Supplemental non-cash information:

    

Preferred stock dividend to be settled in Series F or Series G preferred stock

   $ 97,543      $ 53,084   

Issuance of Series G preferred stock in exchange for note payable and accrued interest

     —          701,834   

The accompanying notes are an integral part of these consolidated financial statements.

 

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. THE COMPANY:

General

The consolidated financial statements of Bioject Medical Technologies Inc. include the accounts of Bioject Medical Technologies Inc., an Oregon corporation, and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated.

We commenced operations in 1985 for the purpose of developing, manufacturing and distributing needle-free injection therapy systems (“NFITS”). Since our formation, we have been engaged principally in organizational, financing, research and development and marketing activities. Our revenues to date have been derived primarily from licensing and technology fees for the jet injection technology and from product sales of the B-2000, Vial Adapter and spring-powered Vitajet® devices and syringes.

Going Concern and Cash Requirements

Our financial statements have been prepared on a going concern basis. We have historically suffered recurring operating losses and negative cash flows from operations. As of December 31, 2010, we had an accumulated deficit of $123.8 million with total shareholders’ equity of $0.4 million. Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, assuming that we will continue as a going concern.

At December 31, 2010, we had a cash balance of $0.2 million and we had a working capital deficit of $0.1 million.

In March 2010, we repaid the remaining $150,000 of debt we had outstanding and, as of December 31, 2010, we did not have any short or long-term debt outstanding.

In November 2010, we were awarded and received a $244,000 grant pursuant to Section 48D of the Internal Revenue Code for Qualifying Therapeutic Discovery Projects. The award was in support of our development efforts regarding our dose sparing needle-free injection delivery systems. This grant, net of related expenses, was recorded as other income in our consolidated statements of operations.

We continue to monitor our cash and have previously taken measures to reduce our expenditure rate, including extended temporary salary reductions and rent deferrals. The rent deferrals become due beginning April 2011. In addition, we delayed capital and maintenance expenditures. However, if we do not enter into one or more licensing, development and supply agreements with sufficient up-front payments or increase sales to current customers or markets during 2011, we may need to do one or more of the following to raise additional resources, or reduce our cash requirements in order to continue operations:

 

   

secure additional debt financing;

 

   

secure additional equity financing;

 

   

secure a strategic partner; or

 

   

reduce our operating expenditures.

While management is committed to working on a number of strategic options and alternatives intended to keep us as a going concern, there is no assurance that we will be successful to continue operations over the next twelve months.

 

2. SIGNIFICANT ACCOUNTING POLICIES:

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We do not have any off-balance sheet credit exposure related to our customers.

 

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Historically, we have not had significant write-offs related to our accounts receivable. Our bad debt reserve totaled $5,149 at both December 31, 2010 and 2009 and activity related to the bad debt reserve was immaterial in 2010 and 2009. We did not have any bad debt expense in 2010 or 2009.

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined in a manner which approximates the first-in, first out (FIFO) method. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. Any write-down of inventory to the lower of cost or market at the close of a fiscal period creates a new cost basis that subsequently would not be marked up based on changes in underlying facts and circumstances.

Inventories consisted of the following:

 

      December 31,  
      2010      2009  

Raw materials and components

   $ 348,683       $ 496,208   

Work in process

     74,385         132,537   

Finished goods

     203,390         238,931   
                 
   $ 626,458       $ 867,676   
                 

We evaluate the realizability of inventory values based on a combination of factors, including the following: historical and forecasted sales and usage rates, anticipated technology improvements and product upgrades, as well as other factors. All inventories are reviewed quarterly to determine if inventory carrying costs exceed market selling prices and if certain components have become obsolete. If our review indicates a reduction in utility below carrying value, we reduce inventory to a new cost basis. If circumstances related to our inventories change, our estimates of the realizability of inventory values could materially change.

Property and Equipment

Property and equipment are stated at cost. Expenditures for repairs and maintenance are expensed as incurred. We do not accrue for planned major maintenance expenditures. Expenditures that increase useful life or value are capitalized. For financial statement purposes, depreciation expense on property and equipment is computed on the straight-line method using the following lives:

 

Furniture and Fixtures    5 years
Machinery and Equipment    7 years
Computer Equipment    3 years
Production Molds    5 years

Leasehold improvements are amortized on the straight-line method over the shorter of the remaining term of the related lease or the estimated useful lives of the assets.

Other Assets

Other assets primarily includes costs incurred in the patent application process. Identifiable intangible assets with definite useful lives are amortized over the estimated useful life. We amortize our patent costs on a straight-line basis over the expected life of the patent, not to exceed the statutory life of 17 or 20 years. Our patents are evaluated for impairment as discussed below in “Accounting for Long-Lived Assets.”

Accounting for Long-Lived Assets

Our long-lived assets include property, plant and equipment and patents. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable, utilizing an undiscounted cash flow analysis. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is only recognized to the extent the carrying amount exceeds the fair value of the asset. No impairment charges related to our long-lived assets were recorded during 2010 or 2009.

 

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Fair Value of Financial Assets and Liabilities

We estimate the fair value of our monetary assets and liabilities, including, but not limited to, accounts receivable, accounts payable and debt, based upon comparison of such assets and liabilities to the current market values for instruments of a similar nature and degree of risk. We estimate that the recorded value of all our monetary assets and liabilities approximates fair value as of December 31, 2010 and 2009. See also Note 3.

Fair Value of Derivative Liabilities

We recorded derivative liabilities in connection with our convertible debt and equity financing agreements entered into in 2006. Derivative liabilities were presented at fair value each reporting period and changes in fair value were recorded in earnings. The fair value of derivative liabilities was determined using the Black-Scholes valuation model as described in Note 3. As of December 31, 2010, we did not have any derivative liabilities on our balance sheet.

Revenue Recognition

Product Sales and Concentrations

We record revenue from sales of our products upon delivery, which is when title and risk of loss have passed to the customer, the price is fixed or determinable and collectibility is assured.

Product sales to customers accounting for 10% or more of our product sales were as follows:

 

     Year Ended December 31,
     2010   2009

Merial

   46%   26%

Serono

   21%   29%

Ferring

   20%   20%

At December 31, 2010 and 2009, accounts receivable from Merial accounted for approximately 70% and 60%, respectively, of our gross accounts receivable. Two additional customers accounted for a total of 25% of our gross accounts receivable as of December 31, 2010. Three additional customers accounted for a total of 37% of our gross accounts receivable as of December 31, 2009.

License and Development Fees

Product development revenue is recognized, to the extent of cash received, on a percentage-of-completion basis as qualifying expenditures are incurred. Licensing revenues, if separable, are recognized over the term of the license agreement. Revenue arrangements with multiple elements are required to be broken out as separate units of accounting based on their relative fair values. Revenue for a separate unit of accounting should be recognized only if the amount due can be reliably measured and the earnings process is substantially complete. Any units that cannot be separated must be accounted for as a combined unit.

Effective January 1, 2011, we adopted the guidance in Accounting Standards Update (“ASU”) 2010-17, “Revenue Recognition – Milestone Method,” which provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. We recognize these milestone payments as revenue in their entirety upon achieving the related milestone.

Should agreements be terminated prior to completion, or should we change our estimates of percentage of completion, we could have unanticipated fluctuations in our revenue on a quarterly basis. Amounts received prior to meeting recognition criteria are recorded on our balance sheet as deferred revenue and are recognized according to the terms of the associated agreements. At December 31, 2010, deferred revenue totaled approximately $1.3 million and included amounts received from Merial.

 

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Licensing and Development Agreements

During 2010 or 2009, we had licensing and/or development agreements, which often included commercial product supply provisions, with Merial and Vical. A detailed summary of the Merial agreement follows:

Merial In August 2002, we entered into an exclusive license and supply agreement with Merial, the world’s leading animal health company, for delivery of Merial’s veterinary pharmaceuticals and vaccines utilizing a veterinary-focused needle-free injector system for production animals, which is currently in development. The agreement had an original term of five years and was extended in August 2007 through December 2009 and has not been renewed. Commercialization was achieved in February 2007.

In March 2004, we signed a second license and supply agreement with Merial. Under terms of this agreement, we provided Merial with an exclusive license for use of a modified version of our Vitajet® needle-free injector system for use in veterinary clinics to administer vaccines for the companion animal market. The agreement has a five-year term with a three-year automatic renewal. This product was commercialized in 2005.

The March 2004 agreement may be terminated by Merial for any reason and all of the agreements may be terminated by either party for failure to meet contractual obligations or for bankruptcy.

In May 2006, we signed an additional agreement with Merial to deliver a modified Vitajet® 3 for delivery of one of their proprietary vaccines for use in the companion animal market. This agreement was terminated upon entering into the June 2008 agreement discussed below.

In June 2008, we signed a new long-term exclusive license, development and supply agreement with Merial for a next generation companion animal device, which allows for the delivery of injectables. The agreement included a non-refundable, up-front license payment of $1.4 million. During 2010 and 2009, we recognized deferred revenue of $174,000 and $319,000, respectively. Deferred revenue at December 31, 2010 was $1.3 million, which will be recognized over the remaining 8 year term of the agreement. The agreement also includes development milestones with associated payments, provisions for capital equipment and a supply agreement extending up to 10 years. In December 2010, this agreement was modified to enhance the supply chain management process through 2011. In both 2010 and 2009, we received development milestone payments totaling $0.1 million. We also had product sales to Merial totaling $2.4 million and $1.6 million, respectively, in 2010 and 2009. In December 2010, we modified the agreement to enhance the supply chain management process and cash flow through 2011.

We are also entitled to receive royalty payments on Merial’s vaccine sales under the 2004 agreement, if and when they occur, which utilize the needle-free injector systems. Any additional indications or drugs will have separately negotiated terms. At December 31, 2010 and 2009, total deferred revenue related to Merial was $1.3 million and $1.4 million respectively.

Supply Agreements

In addition to the agreements described above, we currently have supply agreements with Ferring Pharmaceuticals Inc. and Serono.

Serono In October 2007, we entered into a three-year, non-exclusive supply agreement with Serono for the delivery of the cool.click™ and Serojet™ spring-powered needle-free device for use with its recombinant human growth hormone drugs. At December 31, 2010 and 2009, deferred revenue related to Serono was $0 and $0.1 million, respectively. We recognized revenue related to this and previous agreements with Serono totaling $1.1 million and $1.8 million in 2010 and 2009, respectively. In the first quarter of 2011, Serono extended the agreement with a one-time fixed extension of the agreement until December 31, 2011.

Ferring Pharmaceuticals Inc. We had a 30-month agreement with Ferring for Vial Adapters for use with one of its drugs, which was extended in January 2007 by Ferring for two consecutive 12-month periods. In January 2009, we extended our agreement with Ferring for an additional three years with two, one-year options. Revenue recognized pursuant to this agreement and other product sales totaled $1.0 million and $1.2 million in 2010 and 2009, respectively.

 

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Other Revenue Recognition Policies

We provide volume discounts to our customers, which are recorded as a reduction to revenue upon the sale of the related products.

Our return policy allows for unopened merchandise to be returned within 60 days of purchase for a 20% restocking fee. Returns have historically been immaterial and we do not maintain a reserve for returns. Returns are recorded as a reduction to revenue upon receipt, and the 20% restocking fee is recorded as revenue at the same time.

We recognize revenue related to products being developed pursuant to license and development agreements upon customer acceptance.

Research and Development

Expenditures for research and development are charged to expense as incurred.

Income Taxes

Deferred tax assets and liabilities are recognized for the future consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (temporary differences). Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are recovered or settled. Valuation allowances for deferred tax assets are established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2010 and 2009, our deferred tax assets had a 100% valuation allowance.

We recognize benefits related to uncertain tax return positions in the financial statements if they are “more-likely-than-not” to be sustained by the taxing authority. We treat interest and penalties accrued on unrecognized tax benefits as tax expense within our financial statements.

Product Warranty

We have a one-year warranty policy for defective products with options to purchase extended warranties for additional years for our B2000 and ZetaJet™ product lines and an 18-month warranty policy for the cool.click™ and SeroJet™. We review our accrued warranty on a quarterly basis utilizing recent return rates and sales levels. The estimated warranty is recorded as a reduction of product sales and is reflected on the accompanying consolidated balance sheet in other accrued liabilities. Our warranty accrual totaled $5,000 at both December 31, 2010 and 2009. We have not experienced significant warranty activity at any time in the past and we do not expect significant warranty activity in the future.

Taxes Assessed by a Governmental Authority

We account for all taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction (i.e., sales, use, value added) on a net (excluded from revenues) basis.

Shipping and Handling Costs

Shipping and handling costs are included as a component of manufacturing costs.

Segment Reporting and Enterprise-Wide Disclosures

We operated in one segment during 2010 and 2009.

 

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Revenue by product line was as follows:

 

     Year Ended December 31,  
     2010      2009  

Biojector® 2000 (or CO2 powered)

   $ 672,518       $ 1,490,471   

Spring Powered

     3,446,704         3,305,119   

Vial Adapters

     1,026,914         1,297,329   
                 
     5,146,136         6,092,919   

License and Technology Fees

     431,305         599,072   
                 
   $ 5,577,441       $ 6,691,991   
                 

Geographic revenues, based on the location of the customers, were as follows:

 

     Year Ended December 31,  
     2010      2009  

United States

   $ 4,382,178       $ 4,846,250   

All other

     1,195,263         1,845,741   

All of our long-lived assets are located in the United States.

Comprehensive Income Reporting

Comprehensive loss did not differ from currently reported net loss in the periods presented.

Net Loss Per Share

Basic loss per common share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted loss per common share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares outstanding during the year. Common equivalent shares from stock options and other common stock equivalents are excluded from the computation when their effect is antidilutive.

We were in a loss position for both periods presented and, accordingly, there is no difference between basic loss per share and diluted loss per share since the common stock equivalents and the effect of convertible preferred stock and convertible debt under the “if-converted” method would be antidilutive.

Potentially dilutive securities that were not included in the diluted net loss per share calculations because they would be antidilutive were as follows:

 

     Year Ended December 31,  
     2010      2009  

Stock options, restricted stock units and warrants

     4,131,069         2,933,211   

Convertible preferred stock

     15,471,626         15,471,549   

Series E Payment-in-kind dividends

     550,516         550,516   

Series F Payment-in-kind dividends

     133,263         128,624   

Series G Payment-in-kind dividends

     751,814         24,615   

$1.25 million convertible debt

     —           166,667   
                 

Total

     21,038,288         19,275,182   
                 

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense, using the straight-line method, over the employee’s requisite service period (generally the vesting period of the equity award).

See Note 12 for additional information regarding stock-based compensation and our stock-based incentive plans.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, valuation allowances for receivables, inventory and deferred income taxes, the valuation of stock-based compensation and derivative liabilities and revenue recognition. Actual results could differ from those estimates.

 

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3. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES:

As of December 31, 2010, we did not have any financial asset or liabilities that were valued at fair value on a recurring basis.

Certain of our previous convertible debt and equity agreements included derivative liabilities. These instruments were recorded at fair value and were marked to market each period using the Black-Scholes valuation model.

Following are the disclosures related to our previously-existing financial liabilities:

 

     Warrants issued in
connection with
March 2006 $1.5
million bridge loan(1)
    $1.25 million
convertible  debt
conversion
feature(2)
 

Fair value at December 31, 2009

   $ (30,039   $ (2,412

Change in fair value

     30,039        2,412   
                

Fair value at December 31, 2010

   $ —        $ —     
                

 

(1) The warrants issued in connection with the March 2006 $1.5 million bridge loan expired in September 2010 and, accordingly, there is no value attributable to the warrants at December 31, 2010.
(2) The $1.25 million convertible debt was paid off during the first quarter of 2010 and, accordingly, there is no value attributable to the conversion feature at December 31, 2010.

 

4. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consisted of the following:

 

     December 31,  
     2010     2009  

Machinery and equipment

   $ 4,852,268      $ 4,852,178   

Production molds

     3,068,027        3,068,027   

Furniture and fixtures

     351,719        351,719   

Leasehold improvements

     142,052        142,052   

Assets in process

     173        —     
                
     8,414,239        8,413,976   

Less – accumulated depreciation

     (7,768,893     (7,343,888
                
   $ 645,346      $ 1,070,088   
                

Depreciation expense was $444,000 in 2010 and $556,000 in 2009.

Assets in process include capital assets that are not yet ready for production and they are not depreciated until they are substantially complete and ready to be put into production. We did not record any capitalized interest related to our assets in process at December 31, 2010.

 

5. OTHER ASSETS:

Other assets consist of patent costs. The gross amount of patents and the related accumulated amortization were as follows:

 

     December 31,  
     2010     2009  

Patents

   $ 2,359,217      $ 2,204,392   

Accumulated amortization

     (1,049,739     (952,554
                
   $ 1,309,478      $ 1,251,838   
                

 

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Amortization expense, including $26,266 and $59,947 for the write-off of abandoned patents in 2010 and 2009, respectively, was as follows:

 

Year Ended December 31,

   Patents      Debt
Issuance
Costs
 

2010

   $ 137,866       $ —     

2009

     171,545         6,790   

Patents are amortized over their useful lives of 17 years with no residual value. Amortization is as follows over the next five years and thereafter:

 

Year Ending December 31,

   Patents  

2011

   $ 111,600   

2012

     120,000   

2013

     120,000   

2014

     120,000   

2015

     120,000   

Thereafter

     717,878   

 

6. OTHER ACCRUED LIABILITIES:

Included in other accrued liabilities was $0.4 million and $0.6 million at December 31, 2010 and 2009, respectively, related to prepaid inventory and credits for Serono.

 

7. 401(K) RETIREMENT BENEFIT PLAN:

We have a 401(k) Retirement Benefit Plan for our employees. All employees, subject to certain age and length of service requirements, are eligible to participate. The plan permits certain voluntary employee contributions to be excluded from the employees’ current taxable income under provisions of the Internal Revenue Code Section 401(k). We match 62.5% of employee contributions up to 6% of salary with our common stock and may make discretionary profit sharing contributions to all employees, which may either be made in cash or common stock. Participants are allowed to sell our common stock held in their account and reinvest it in other plan options. We issued 385,200 and 493,712 shares, respectively, and recorded an expense of $39,000 and $57,000, respectively, related to employer matches of our stock under the 401(k) Plan related to the years ended December 31, 2010 and 2009. The Board of Directors has reserved up to 1.8 million shares of common stock for these voluntary employer matches, of which 1.6 million shares have been issued, or were committed to be issued, at December 31, 2010.

 

8. INCOME TAXES:

The income tax provision differs from the amount computed by applying the statutory federal income tax rate to pretax income as a result of the following differences:

 

     Year Ended December 31,  
     2010     2009  

Statutory tax rate

   $ (501,412   $ (366,931

State taxes, net of federal tax

     (54,389     (33,344

Permanent and other items

     (74,020     (14,379

Stock-based compensation

     292,292        64,949   

Expiration of net operating losses

     1,886,313        2,042,308   

Valuation allowance

     (1,548,784     (1,692,603
                
   $ —        $ —     
                

 

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We had the following deferred tax assets and (liabilities):

 

     December 31,  
     2010     2009  

Deferred tax assets:

    

Inventory

   $ 278,958      $ 273,882   

Deferred revenue

     507,734        579,193   

Other accrued liabilities

     109,394        284,314   

Net operating loss carryforwards and credits

     33,544,769        34,893,300   
                
     34,440,855        36,030,689   

Deferred tax liabilities:

    

Depreciation and amortization

     (209,795     (250,845
                

Total deferred tax assets, net

     34,231,060        35,779,844   

Less valuation allowance

     (34,231,060     (35,779,844
                

Net deferred tax assets

   $ —        $ —     
                

A full valuation allowance has been recorded against the deferred tax assets because of the uncertainty regarding the realizability of these benefits due to our historical operating losses. The net change in the valuation allowance for deferred tax assets was a decrease of $1.5 million and $1.7 million for the years ended December 31, 2010 and 2009, respectively, mainly due to the expiration of net operating loss carryforwards. As of December 31, 2010, we had net operating loss carryforwards of approximately $87.1 million and $68.3 million available to reduce future federal and state taxable income, respectively, which expire in 2011 through 2031. Approximately $2.0 million of our carryforwards were generated as a result of deductions related to exercises of stock options. If utilized, this portion of our carryforwards, as tax effected, will be accounted for as a direct increase to contributed capital rather than as a reduction of that year’s provision for income taxes.

As of December 31, 2010, we had unused research tax credits of approximately $1.6 million available to reduce future federal income taxes. If unutilized, the credits expire between 2011 and 2030.

We did not have any unrecognized tax benefits or associated interest at December 31, 2010 or 2009 and we do not expect any significant changes to our unrecognized tax benefits within the next 12 months. We file federal and various state and local income tax returns. With few exceptions, we are no longer subject to federal, state or local income tax examinations for years prior to 2006.

We have not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study, and the fact that there may be additional such ownership changes in the future. If we have experienced an ownership change at any time since our formation, utilization of net operating loss or research and development credit carryforwards would be subject to an annual limitation under Section 382 of the Internal Revenue Code, which is determined by first multiplying the value of our stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss or research and development credit carryforwards before utilization. Further, until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

 

9. $1.25 MILLION CONVERTIBLE LOAN:

At December 31, 2010, no amounts were outstanding under a term loan agreement with Partners For Growth, L.P. (“PFG”) for $1.25 million of convertible debt financing. This loan matured and was paid off in March 2010. At December 31, 2009, $150,000 was outstanding under this term loan agreement.

 

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10. CONVERSION OF $600,000 CONVERTIBLE NOTE:

In December 2009, we sold an aggregate of 92,448 shares of our Series G Convertible Preferred Stock (the “Series G Preferred Stock”) at a price of $13.00 per share under a Purchase Agreement with each of Life Sciences Opportunities Fund II, L.P. and Life Sciences Opportunities Fund (Institutional) II, L.P. (together “LOF”). Gross proceeds from the sale were $1.2 million, payable by payment of $0.5 million in cash and the cancellation of the $0.6 million outstanding principal amount of and $0.1 million accrued interest through December 18, 2009 on two convertible subordinated promissory notes, dated as of December 5, 2007, issued by us to LOF.

 

11. SHAREHOLDERS’ EQUITY:

Shareholder Rights Plan

On July 1, 2002, we adopted a shareholder rights agreement in order to obtain maximum value for shareholders in the event of an unsolicited acquisition attempt. To implement the agreement, we issued a dividend of one right for each share of our common stock held by shareholders of record as of the close of business on July 19, 2002.

Pursuant to the terms of the Series G Convertible Preferred Stock Agreement (see below), on January 8, 2010, we entered into a Fifth Amendment to Rights Agreement, which changed the expiration date of the rights issued under the Rights Agreement to January 10, 2010. Accordingly, as of that date, the rights no longer exist and the Rights Agreement terminated.

Preferred Stock

We have authorized 10 million shares of preferred stock to be issued from time to time with such designations and preferences and other special rights and qualifications, limitations and restrictions thereon, as permitted by law and as fixed from time to time by resolution of the Board of Directors.

We entered into a Registration Rights Agreement, dated December 18, 2009, with the holders of our Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series F Preferred Stock and Series G Preferred Stock. The Registration Rights Agreement supersedes the Registration Rights Agreement, dated January 22, 2008, between us and the holders of our Series F Preferred Stock; Article 6 of the Securities Purchase Agreement, dated as of March 8, 2006 between us and the holders of our Series E Preferred Stock; and the Registration Rights Agreement, dated November 15, 2004, between us and the holders of our Series D Preferred Stock. Under the Registration Rights Agreement, we agreed to file a registration statement under the Securities Act of 1933 to register the underlying common stock issued or issuable upon conversion of the Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock within 180 days of demand by the majority of holders of registrable securities (as defined in the agreement). The agreement also grants the parties certain piggy-back registration rights.

Series D Preferred Stock

On November 15, 2004, we entered into a Purchase Agreement with Life Sciences Opportunities Fund II, L.P. and Life Sciences Opportunities Fund II (Institutional), L.P. (collectively, the “Investors”) in connection with our sale and issuance to the Investors of an aggregate of 2,086,957 shares of our Series D convertible Preferred Stock and warrants to purchase an aggregate of 626,087 shares of our common stock at $1.15 per share. The issuance price of the Series D Preferred Stock was $1.15 per share at an initial conversion rate of one share of Series D Preferred Stock for one share of common stock, subject to adjustment under certain circumstances. The warrants expired unexercised on November 14, 2008. The net proceeds from the sale of the Series D Preferred Stock totaled $2.3 million. The value of the warrant, $514,000, was allocated on a pro rata basis to Series D Preferred Stock and common stock.

The Purchase Agreement provides that one representative of the Investors has the right to attend our board meetings. In addition, the Series D Preferred Stock has the following rights and preferences:

 

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Series D Preferred Stock holders are entitled to receive, pro rata among such holders and on a pari passu basis with the holders of common stock, as if the Series D Preferred Stock had been converted into common stock, cash dividends at the same rate and in the same amount per share as any and all dividends declared and paid upon the then outstanding shares of our common stock.

 

   

In the event of any voluntary or involuntary liquidation, dissolution, or winding up of Bioject, Series D Preferred Stock holders are entitled to receive a pro rata distribution of the assets available for distribution to our shareholders, before any payment is made in respect of the common stock or any series of Preferred Stock or other equity securities with rights junior to the Series D Preferred Stock with respect to liquidation preference, in an amount equal to $1.15 per share plus all accrued but unpaid dividends.

 

   

The Series D Preferred Stock may be converted into common stock at the initial conversion rate of one share of Series D Preferred Stock being convertible into one share of common stock (subject to antidilution adjustments).

 

   

Series D Preferred Stock holders have the right to one vote for each share of common stock into which Series D Preferred Stock could then be converted, and, with respect to such vote, the Series D Preferred Stock holders have full voting rights and powers equal to the voting rights and powers of the holders of common stock; provided, however, that for purposes of determining these voting rights, each share of Series D Preferred Stock will be deemed to be converted into a number of shares equal to $1.15 divided by $1.30.

 

   

We may not, without obtaining the approval of a majority of the outstanding Series D Preferred Stock:

 

   

take any action that adversely affects the rights, privileges and preferences of the Series D Preferred Stock;

 

   

amend, alter or repeal any provision of, or add any provision to, our Articles of Incorporation or bylaws to change the rights, powers, or preferences of the Series D Preferred Stock;

 

   

declare or pay dividends on shares of common stock or Preferred Stock that is junior to the Series D Preferred Stock, subject to limited exceptions;

 

   

create any new series or class of preferred stock or other security having a preference or priority as to dividends or upon liquidation senior or pari passu with that of the Series D Preferred Stock;

 

   

reclassify any class or series of preferred stock into shares with a preference or priority as to dividends or assets superior to or on a parity with that of the Series D Preferred Stock;

 

   

apply any of our assets to the redemption or acquisition of shares of common stock or preferred stock, which is redeemable by its terms, junior to the Series D Preferred Stock, subject to limited exceptions;

 

   

increase or decrease the number of authorized shares of any series of preferred stock or our common stock;

 

   

agree to an acquisition of, or sale of all or substantially all of, our assets;

 

   

materially change the nature of our business; or

 

   

liquidate, dissolve or wind up Bioject’s affairs.

Series E Preferred Stock and Related $1.5 Million Convertible Debt Financing

On March 8, 2006, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with LOF and several of its affiliates (collectively, the “LOF Affiliates”). Under the Securities Purchase Agreement, upon receiving shareholder approval at our annual meeting in May 2006, and the satisfaction of customary and other closing conditions, the LOF Affiliates purchased approximately $3.0 million of our Series E Preferred Stock at $1.37 per share. Each share of Series E Preferred Stock is convertible into one share of common stock. The Series E Preferred Stock also included an 8% annual payment-in-kind dividend for 24 months. The Series E Preferred Stock was recorded at fair value on the date of issuance, approximately $3.1 million, and the difference of $109,000 was charged to net loss allocable to common shareholders as a beneficial conversion.

 

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At the same time, we also entered into a Note and Warrant Purchase Agreement with certain of the LOF Affiliates for $1.5 million of convertible debt financing (the “Agreement”). Under the terms of this Agreement, we received $1.5 million of debt financing on March 8, 2006. The debt was due April 1, 2007, but was automatically converted, along with $32,500 of accrued interest, to Series E Preferred Stock, at a conversion rate of $1.37 per share, upon shareholder approval and the closing of our offering of Series E Preferred Stock under the Securities Purchase Agreement. Interest on debt outstanding under the Agreement was 10% per annum.

For the $3.0 million purchase and the conversion of the $1.5 million convertible debt, along with the $32,500 of accrued interest, a total of 3,308,392 shares of Series E Preferred Stock were issued to the LOF Affiliates.

In connection with the Agreement, we issued warrants to purchase an aggregate of 656,934 shares of our common stock at $1.37 per share to the lenders. The warrants expired in September 2010. See Note 13. The remaining proceeds from the issuance of the convertible debt, totaling $833,000, were recorded as short-term borrowings and were to be accreted to the $1.5 million face amount over the term of the debt. However, upon the closing of the Series E Preferred Stock as discussed above, the convertible debt under the Agreement was settled and converted to $1.6 million of Series E Preferred Stock.

The Series E Preferred Stock has the following additional significant rights and preferences:

 

   

In the event of any voluntary or involuntary liquidation, dissolution, or winding up of Bioject (a “Liquidation”), subject to the rights of any series of Preferred Stock with senior liquidation preferences, issued, or outstanding, the holders of Series E Preferred Stock then outstanding shall be entitled to receive, out of the assets of Bioject available for distribution to its shareholders (if any), before any payment shall be made in respect of the common stock, the Series D Preferred Stock or any other series of preferred stock or other equity securities of Bioject with rights junior to the Series E Preferred Stock with respect to liquidation preference, and pro rata based on the respective liquidation preferences with holders of preferred stock with a liquidation preference pari passu with the Series E Preferred Stock, an amount per share of Series E Preferred Stock equal to the Series E stated value, plus all accrued but unpaid dividends thereon to the date fixed for distribution, including specifically and without limitation, the payment-in-kind dividends to the extent not previously issued.

 

   

If, prior to the conversion of all of the Series E Preferred Stock (including the payment-in-kind dividends), there shall be:

 

   

any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Bioject’s common stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of Bioject or another entity;

 

   

any dividend or other distribution of cash, other assets, or of notes or other indebtedness of Bioject, any other securities of Bioject (except common stock), or rights to the holders of its common stock; or

 

   

any acquisition or asset transfer that does not constitute a Liquidation,

then the holders of Series E Preferred Stock shall thereafter have the right to receive upon conversion of Series E Preferred Stock, upon the basis and upon the terms and conditions specified herein and in lieu of shares of common stock, immediately theretofore issuable upon conversion, such cash, stock, securities, rights, and/or other assets that the holder would have been entitled to receive in such transaction had the Series E Preferred Stock been converted immediately prior to such transaction.

 

   

The Series E Preferred Stock and any related common stock equivalents outstanding are subject to antidilution adjustments.

 

   

On vote for each share of common stock into which Series E Preferred Stock could then be converted and, with respect to such vote, full voting rights and powers equal to the voting rights and powers of the holders of common stock;

 

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So long as any of the originally issued shares of Series E Preferred Stock (subject to adjustment for any stock splits, stock dividends, combinations, recapitalizations, and the like and excluding payment-in-kind dividends) are outstanding as a single class, and except as otherwise mandated by applicable law or the terms of the Articles of Incorporation, Bioject shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of not less than a majority of the then outstanding Series E Preferred Stock, voting as a class:

 

   

take any action that adversely affects the rights, preferences and privileges of the holders of the Series E Preferred Stock;

 

   

amend, alter, or repeal any provision of, or add any provision to the Articles of Incorporation and/or the Articles of Amendment or bylaws of Bioject;

 

   

declare or pay dividends on shares of common stock or preferred stock that is junior to the Series E Preferred Stock;

 

   

create any new series or class of preferred stock or other security having a preference or priority as to dividends or upon liquidation senior to or pari passu with that of the Series E Preferred Stock;

 

   

reclassify any class or series of preferred stock into shares with a preference or priority as to dividends or assets superior to or on a parity with that of the Series E Preferred Stock;

 

   

apply any of its assets to the redemption or acquisition of shares of common stock or preferred stock, except pursuant to any agreement granting Bioject a right of first refusal or similar rights, and except in connection with purchases at fair market value from employees, advisors, officers, directors, consultants, and service providers of Bioject upon termination of employment or service;

 

   

increase or decrease the number of authorized shares of any series of preferred stock or common stock of Bioject;

 

   

agree to an acquisition of, or sale of all or substantially all of, our assets;

 

   

materially change the nature of Bioject’s business; or

 

   

liquidate, dissolve or wind up Bioject’s affairs.

Series F Convertible Preferred Stock

On January 22, 2008, we amended our Articles of Incorporation to designate 9,645 shares of our authorized preferred stock as Series F Convertible Preferred Stock (the “Series F Preferred Stock”). A description of the material rights and preferences of the Series F Preferred Stock is as follows:

 

   

Receive 8% annual payment-in-kind dividends (“PIK Dividends”) for 24 months following January 22, 2008 (while these dividends will accrue, they will only be paid in connection with certain liquidation events or conversion of the Series F Preferred Stock);

 

   

Receive on a pari passu basis with the holders of common stock, as if the Series F Preferred Stock had been converted into common stock immediately before the applicable record date, cash dividends at the same rate and in the same amount per share as any and all dividends declared and paid upon the then outstanding shares of common stock;

 

   

Receive, in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company and before any payment is made in respect of the common stock, the Series E Convertible Preferred Stock or the Series D Convertible Preferred Stock, an amount per share of Series F Preferred Stock equal to $75 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like), plus all accrued but unpaid dividends thereon to the date fixed for distribution, including, without limitation, the PIK Dividends to the extent not previously issued (if our assets available for distribution to shareholders are insufficient to pay the holders of Series F Preferred Stock the full amount to which they are entitled, then all the assets available for distribution to our shareholders shall be distributed ratably first to the holders of the Series F Preferred Stock);

 

   

Be convertible, at any time at the option of the holder, into common stock at a conversion rate of one share of Series F Preferred Stock being convertible into one hundred (100) shares of common stock (subject to anti-dilution adjustments);

 

   

One vote for each share of common stock into which Series F Preferred Stock could then be converted (excluding any PIK Dividends), and with respect to such vote, full voting rights and powers equal to the voting rights and powers of the holders of common stock;

 

   

Consent rights with respect to certain extraordinary transactions; and

 

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Registration rights with respect to the shares of common stock issuable upon conversion of such shares of Series F Preferred Stock.

There is no restriction on the repurchase or redemption of the Series F Preferred Stock while there is an arrearage in the payment of dividends.

Series G Convertible Preferred Stock

On December 18, 2009, we amended our Articles of Incorporation to designate 184,615 shares of our authorized preferred stock as Series G Preferred Stock. A description of the material rights and preferences of the Series G Preferred Stock is set forth below.

The Series G Preferred Stock is entitled to:

 

   

Receive 8% annual payment-in-kind dividends (“PIK Dividends”) per year; however, if we fail to declare or pay the PIK Dividends within 90 days of December 18 (beginning December 18, 2010), the PIK Dividends shall increase to 10%. PIK Dividends are payable in Series G Preferred Stock or cash at the option of the Board of Directors;

 

   

Receive on a pari passu basis with the holders of common stock, as if the Series G Preferred Stock had been converted into common stock immediately before the applicable record date, cash dividends at the same rate and in the same amount per share as any and all dividends declared and paid upon the then outstanding shares of common stock;

 

   

Receive, in the event of any voluntary or involuntary liquidation, dissolution, or winding up of Bioject and before any payment is made in respect of the common stock, the Series F Preferred Stock, Series E Preferred Stock or the Series D Preferred Stock, an amount per share of Series G Preferred Stock equal to $13.00 (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like), plus all accrued but unpaid dividends thereon to the date fixed for distribution, including, without limitation, the PIK Dividends to the extent not previously issued (if our assets available for distribution to shareholders are insufficient to pay the holders of Series G Preferred Stock the full amount to which they are entitled, then all the assets available for distribution to our shareholders shall be distributed ratably first to the holders of the Series G Preferred Stock);

 

   

Be convertible, at any time at the option of the holder, into common stock at a conversion rate of one share of Series G Preferred Stock being convertible into one hundred shares of common stock (subject to anti-dilution adjustments);

 

   

One vote for each share of common stock into which Series G Preferred Stock could then be converted (excluding any PIK Dividends), and with respect to such vote, full voting rights, and powers equal to the voting rights and powers of the holders of common stock;

 

   

For so long as 90,000 shares of Series G Preferred Stock are outstanding, nominate two directors, and for so long as less than 90,000 and more than 50,000 shares of Series G Preferred Stock are outstanding, nominate one director;

 

   

Consent rights with respect to certain extraordinary transactions, including (i) any increase in the number of shares of common stock reserved for issuance under our 1992 Stock Incentive Plan in excess of 5,400,000 shares, or any reservation or issuance of shares of common stock to our employees or directors under any stock incentive plan or agreement not in effect on December 18, 2009 and (ii) any prepayment of indebtedness for borrowed money; and

 

   

Registration rights with respect to the shares of common stock issuable upon conversion of such shares of Series G Preferred Stock.

There is no restriction on the repurchase or redemption of the Series G Preferred Stock while there is an arrearage in the payment of dividends.

Common Stock

Holders of common stock are entitled to one vote for each share held on all matters to be voted on by shareholders. No shares have been issued subject to assessment, and there are no preemptive or conversion rights and no provision for redemption, purchase or cancellation, surrender or sinking or purchase funds. Holders of common stock are not entitled to cumulate their shares in the election of directors. Certain holders of common stock have certain demand and piggyback registration rights enabling them to register their shares for sale under the 1933 Securities Act.

 

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12. STOCK-BASED COMPENSATION:

Certain information regarding our stock-based compensation was as follows:

 

     Year Ended December 31,  
     2010      2009  

Weighted average grant-date per share fair value of share options granted

   $ 0.18       $ —     

Stock-based compensation recognized in results of operations

     368,483         316,617   

Fair value of restricted stock units that vested during the period

     52,371         147,078   

There was no stock-based compensation capitalized in fixed assets, inventory or other assets during the years ended December 31, 2010 or 2009.

The stock-based compensation was included in our statement of operations as follows:

 

     Year Ended December 31,  
     2010      2009  

Manufacturing

   $ 45,839       $ 21,879   

Research and development

     49,874         61,727   

Selling, general and administrative

     272,770         233,011   
                 
   $ 368,483       $ 316,617   
                 

To determine the fair value of stock-based awards granted during the periods presented, we used the Black-Scholes option pricing model and the following weighted average assumptions:

 

      Year Ended December 31,  
     2010      2009  

Stock Incentive Plan

             

Risk-free interest rate

     2.01-2.62%         —     

Expected dividend yield

     0%         —     

Expected term

     4.75 - 7 years         —     

Expected volatility

     168%-179%         —     

There were no stock option grants during 2009.

The risk-free rate used is based on the U.S. Treasury yield over the estimated term of the options granted. The expected volatility is calculated based on the actual volatility of our common stock over a 5 year period. The option pricing model assumes no dividend payments will be made through the expected term.

We amortize stock-based compensation on a straight-line basis over the vesting period of the individual award with estimated forfeitures considered. Shares to be issued upon the exercise of stock options will come from newly issued shares.

Restated 1992 Stock Incentive Plan

Options may be granted to our directors, officers and employees and eligible non-employee agents, consultants, advisers and independent contractors by the Board of Directors under terms of the Bioject Medical Technologies Inc. Restated 1992 Stock Incentive Plan (the “Plan”). The Plan expires June 9, 2020. Under the terms of the Plan, eligible employees may receive statutory and nonstatutory stock options, stock bonuses, stock appreciation rights and restricted stock for purchase of shares of our common stock at prices and vesting as determined by the Board or a committee of the Board. As amended, a total of up to 5,400,000 shares of our common stock, including options outstanding at the date of initial shareholder approval of the Plan, may be granted under the Plan. At December 31, 2010, we had option or restricted share grants covering 294,000 shares of our common stock available for grant and a total of 2.4 million shares of our common stock reserved for issuance.

 

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Stock option activity for the year ended December 31, 2010 was as follows:

 

     Options     Weighted
Average
Exercise Price
 

Outstanding at December 31, 2009

     307,200      $ 1.58   

Granted

     2,080,764        0.19   

Exercised

     —          —     

Forfeited

     (86,673     2.50   
          

Outstanding at December 31, 2010

     2,301,291      $ 0.40   
          

Certain information regarding options outstanding as of December 31, 2010 was as follows:

 

     Options
Outstanding
     Options
Exercisable
 

Number

     2,301,291         624,232   

Weighted average exercise price

   $ 0.40       $ 0.96   

Aggregate intrinsic value

     —           —     

Weighted average remaining contractual term

     5.8 years         4.3 years   

There is no aggregate intrinsic value for our options outstanding at December 31, 2010 as no optionees had options with exercise prices less than $0.07 per share, the market value of our common stock on that date.

Restricted stock unit activity was as follows:

 

     Restricted
Stock  Units
    Weighted Average
Per Share
Grant Date
Fair Value
 

Balances, December 31, 2009

     156,952      $ 0.60   

Granted

     —       

Vested

     (97,450     0.70   

Forfeited

     —       
          

Balances, December 31, 2010

     59,502        0.39   
          

As of December 31, 2010, unrecognized stock-based compensation related to outstanding, but unvested options and restricted stock units was $267,000, which will be recognized over the weighted average remaining vesting period of approximately three years.

Employee Stock Purchase Plan

Our 2000 Employee Stock Purchase Plan, as amended, terminated in November 2009.

Warrants

Warrant activity is summarized as follows:

 

     Shares     Exercise Price  

Balances, December 31, 2009

     2,185,725        0.75 – 1.92   

Expiration of Series DD

     (100,000     1.92   

Expiration of Series EE

     (58,515     1.40   

Expiration of Series FF

     (656,934     1.37   
          

Balances, December 31, 2010

     1,370,276        0.75-1.32   
          

No warrants were issued or exercised during 2010.

 

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13. COMMITMENTS:

Leases

In October 2003, we entered into a 10-year facility lease for space to house our Tualatin, Oregon based research and development, manufacturing and administration functions. This lease has one, five-year renewal option. We also lease office equipment under operating leases for periods up to five years and certain equipment under capital leases.

At December 31, 2010, future minimum payments under noncancellable operating and capital leases with terms in excess of one year were as follows:

 

For the year ending December 31,

   Operating      Capital  

2011

   $ 425,603       $ 6,373   

2012

     449,239         —     

2013

     464,700         —     

2014

     402,892         —     

2015

     —           —     

Thereafter

     —           —     
                 

Total minimum lease payments

   $ 1,742,434         6,373   
           

Less amounts representing interest and maintenance fees

        (200
           

Present value of future minimum lease payments

      $ 6,173   
           

At December 31, 2010 and 2009, the gross amount of assets on our balance sheet under capital leases was $16,000 and $22,000, respectively. Lease expense for the years ended December 31, 2010 and 2009 totaled $424,000 and $421,000, respectively.

Our 2003 facility lease includes deferred rent related to leasehold improvements made by the landlord. In addition, in November 2008, we negotiated a $15,000 rent deferral for each of November 2008, December 2008 and January 2009 and, in March 2009, we entered into an agreement pursuant to which we deferred $12,000 of rent for each of February, March and April 2009. On July 8, 2009, we entered into another amendment to our lease agreement, effective June 30, 2009, pursuant to which we deferred $12,000 of rent for each of May and June 2009. Such agreements provided that amounts deferred, plus accrued interest at the rate of 9% per annum, shall be due within sixty (60) days upon the earlier to occur of (i) sale of all or substantially all of our assets or the acquisition or merger of Bioject or the occurrence of any other transaction identified in Section 4.15.4 of the original lease agreement, (ii) capital or equity raise of $3.0 million or more, (iii) the entering of a strategic partnership with up-front payments over $300,000, (iv) default by us under the lease; provided, that if none of the foregoing events have occurred by December 31, 2010, we shall commence paying back amounts deferred plus accrued interest in twelve (12) equal installments at the same time and in the same manner as base rent commencing on January 1, 2011 and on the first of each month thereafter until paid in full.

Unpaid deferred rent and accrued interest totaled $120,000 and $110,000 at December 31, 2010 and 2009, respectively, and was included as a component of current liabilities and other long-term liabilities, as appropriate, on our consolidated balance sheets. We were scheduled to begin repaying the deferred rent in January 2011 in twelve equal installments. However, in March 2011, we entered into an agreement with the landlord, which provides for further deferral. See Note 16 Subsequent Events.

Purchase Order Commitments

At December 31, 2010, we had open purchase order commitments totaling approximately $550,000 through 2011, primarily related to inventory purchases for firm customer orders. Of this amount, $18,000 related to capital equipment purchases for the benefit and ownership of a customer, which will reimburse us for costs incurred.

 

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14. RELATED PARTY TRANSACTIONS:

Mr. Jerald Cobbs and Mr. Albert Hansen

Mr. Jerald Cobbs, a member of our Board of Directors, was the Managing Director of Signet Healthcare Partners (formerly Sanders Morris Harris) (“Signet”). Mr. Albert Hansen is a member of our Board of Directors and Managing Director of Signet. LOF and several of its affiliates are affiliates of Signet. As of December 31, 2010, LOF and several of its affiliates held 3,858,908 shares of our Series E Preferred Stock, including accrued payment-in-kind dividends. The 3,858,908 shares of our Series E Preferred Stock held by LOF and several of its affiliates are convertible into 3,858,908 shares of our common stock. The Series E Preferred Stock included an 8% annual payment-in-kind dividend for 24 months, which expired in the second quarter of 2008.

Certain funds affiliated with LOF and several of its affiliates also own 2,086,957 shares of our Series D Preferred Stock and 95,967 shares of our Series G Preferred Stock, including accrued dividends, which are convertible into 2,086,957 and 9,596,725 shares of our common stock, respectively.

LOF holds a warrant to purchase an aggregate of 80,000 shares of our common stock at $0.75 per share. The warrant expires in December 2011.

The transactions with LOF were all deemed to be made at arms-length rates.

Mr. Edward Flynn

At December 31, 2010, Mr. Edward Flynn, a member of our Board of Directors, held 1,616,160 shares of our common stock, 784 shares of our Series F Preferred Stock, 4,166 shares of our Series G Preferred Stock, including preferred dividends, and a warrant for 66,667 shares of common stock. The Series F Preferred Stock and the Series G Preferred Stock are convertible into 783,842 and 416,588 shares of our common stock, respectively.

 

15. RECENT ACCOUNTING GUIDANCE:

Not Yet Adopted

ASU 2010-17

In April 2010, the FASB issued ASU 2010-17, “Revenue Recognition – Milestone Method,” which provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. While we are still analyzing the provisions of ASU 2010-17, we believe that our current practices are consistent with the guidance in ASU 2010-17 and, accordingly, we do not expect the adoption of the provisions of ASU 2010-17 to have any effect on our financial position, results of operations or cash flows.

ASU 2010-06

ASU 2010-06, “Improving Disclosures about Fair Value Measurements,” requires new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into or out of Level 1 and Level 2 fair-value classifications. It also requires information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair-value assets and liabilities. These disclosures are required for fiscal years beginning on or after December 15, 2009. The ASU also clarifies existing fair-value measurement disclosure guidance about the level of disaggregation, inputs and valuation techniques, which are required to be implemented in fiscal years beginning on or after December 15, 2010. Since the requirements of this ASU only relate to disclosure, the adoption of the guidance will not have any effect on our financial position, results of operations or cash flows.

 

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16. SUBSEQUENT EVENTS:

PATH and WHO

In February 2011, we entered into a collaboration with PATH and the World Health Organization (“WHO”) to support efforts to advance clinical research of intradermal delivery of vaccines in developing-country immunization programs by providing our Intradermal Pen (the “ID Pen”). The ID Pen is a unique disposable-syringe jet injector for intradermal delivery. PATH and WHO will each provide funding for the development of ID Pen devices for further evaluation.

Deferred Rent Repayment Terms

In March 2011, we entered into an agreement with the landlord of our Tualatin, Oregon facility, which provides for the repayment of deferred rent at the rate of $2,000 per month for the period April 1, 2011 through March 31, 2012 and $3,742 per month for the period April 1, 2012 through December 31, 2014. See also Note 13.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a –15(f). Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2010.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts non-accelerated filers from Section 404(b) of the Sarbanes-Oxley Act of 2002.

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our President and Chief Executive Officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our President and Chief Executive Officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our President and Chief Executive Officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

None.

 

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PART III

We have omitted from Part III the information that will appear in our definitive proxy statement for our 2011 Annual Meeting of Shareholders (the “Proxy Statement”), which will be filed within 120 days after the end of our year ended December 31, 2010 pursuant to Regulation 14A.

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item will be included in our Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.

 

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be included in our Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

See Item 5. for Equity Compensation Plan Information.

Additional information required by this item is included in our Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item will be included in our Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item will be included in our Proxy Statement for our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.

 

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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements and Schedules

The Consolidated Financial Statements, together with the report thereon of Moss Adams LLP, are included on the pages indicated below:

 

     Page  

Report of Moss Adams LLP, Independent Registered Public Accounting Firm

     30   

Consolidated Balance Sheets as of December 31, 2010 and 2009

     31   

Consolidated Statements of Operations for the years ended December 31, 2010 and 2009

     32   

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2010 and 2009

     33   

Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009

     34   

Notes to Consolidated Financial Statements

     35   

There are no schedules required to be filed herewith.

Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index. Exhibit numbers marked with an asterisk (*) represent management or compensatory arrangements.

 

Exhibit
No.

  

Description

      3.1

   2002 Restated Articles of Incorporation of Bioject Medical Technologies Inc., as amended. Incorporated by reference to Form 10-Q for the quarter ended June 30, 2010.

      3.2

   Second Amended and Restated Bylaws of Bioject Medical Technologies Inc., as amended March 10, 2011. Incorporated by reference to Form 8-K filed March 15, 2011.

      4.1

   Form of Rights Agreement dated as of July 1, 2002 between the Company and American Stock Transfer & Trust Company, including Exhibit A, Terms of the Preferred Stock, Exhibit B, Form of Rights Certificate, and Exhibit C, Summary of the Right To Purchase Preferred Stock. Incorporated by reference to Form 8-K dated July 2, 2002.

      4.1.1

   First Amendment, dated October 8, 2002, to Rights Agreement dated July 1, 2002 between Bioject and American Stock Transfer & Trust Company. Incorporated by reference to registration statement on Form 8-A/A filed with the Commission on October 8, 2002.

      4.1.2

   Second Amendment, dated November 15, 2004, to Rights Agreement dated July 1, 2002 between Bioject and American Stock Transfer & Trust Company. Incorporated by reference to Form 8-K dated November 15, 2004.

      4.1.3

   Third Amendment to Rights Agreement, dated March 8, 2006, between Bioject Medical Technologies Inc. and American Stock Transfer & Trust Company. Incorporated by reference to Form 8-K dated March 3, 2006 and filed March 9, 2006.

      4.1.4

   Fourth Amendment to Rights Agreement, dated November 20, 2007, between Bioject Medical Technologies Inc. and American Stock Transfer & Trust Company. Incorporated by reference to Form 8-K dated December 19, 2007 and filed December 20, 2007.

      4.1.5

   Fifth Amendment to Rights Agreement, dated January 8, 2010, between Bioject Medical Technologies Inc. and American Stock Transfer & Trust Company. Incorporated by reference to Form 8-K dated January 8, 2010 and filed January 14, 2010.

    10.1*

   Standard Employment with Christine Farrell, dated January 21, 1997. Incorporated by reference to Form 10-K for the year ended December 31, 2005.

    10.1.1*

   First Amendment to Standard Employment Agreement with Christine Farrell, dated November 2004. Incorporated by reference to Form 10-K for the year ended December 31, 2005.

    10.1.2*

   Second Amendment to Standard Employment Agreement, dated December 31, 2008, between Bioject Medical Technologies Inc. and Christine Farrell. Incorporated by reference to Exhibit 10.1 to Form 8-K dated December 31, 2008 and filed January 5, 2009.

    10.2*

   1992 Stock Incentive Plan, as amended. Incorporated by reference to Form 10-Q for the quarter ended June 30, 2010.

    10.2.1*

   Standard Form of Stock Option Agreement. Incorporated by reference to Form 10-K for the year ended December 31, 2007.

 

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Exhibit
No.

  

Description

    10.2.2*

   Form of Restricted Stock Unit Grant Agreement. Incorporated by reference to Form 8-K dated March 11, 2005 and filed March 17, 2005.

    10.2.3*

   Form of Restricted Stock Unit Award Agreement for January 19, 2006 grants (time-based vesting and performance-based vesting). Incorporated by reference to Form 8-K dated January 19, 2006 and filed on June 15, 2006.

    10.2.4*

   Form of Restricted Stock Unit Award Agreement for June 1, 2006 grants (time-based vesting if performance measures achieved). Incorporated by reference to Form 8-K dated January 19, 2006 and filed on June 15, 2006.

    10.2.5*

   Form of Restricted Stock Unit Award Agreement for May 24, 2006 grants (time-based vesting). Incorporated by reference to Form 8-K dated January 19, 2006 and filed on June 15, 2006.

    10.3

   Industrial Lease dated October 2003 between Multi-Employer Property Trust, and Bioject Medical Technologies Inc., an Oregon corporation. Incorporated by reference to Form 10-K for the nine-month transition period ended December 31, 2002.

    10.3.1

   First Amendment to Lease dated December 2003 by and between the Multi-Employer Property Trust and Bioject Medical Technologies Inc. Incorporated by reference to Form 10-K for the year ended December 31, 2008.

    10.3.2

   Second Amendment to Lease dated November 18, 2008 by and between the NewTower Trust Multi-Employer Property Trust and Bioject Medical Technologies Inc. Incorporated by reference to Form 10-K for the year ended December 31, 2008.

    10.3.3

   Third Amendment to Lease dated March 25, 2009 by and between the NewTower Trust Multi-Employer Property Trust and Bioject Medical Technologies Inc. Incorporated by reference to Form 10-K for the year ended December 31, 2008.

    10.3.4

   Fourth Amendment to Lease Agreement between MEPT Commerce Park Tualatin II and III LLC and Bioject Medical Technologies Inc. dated June 30, 2009. Incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on July 14, 2009.

    10.3.5

   Fifth Amendment to Lease Agreement between MEPT Commerce Park Tualatin II and III LLC and Bioject Medical Technologies Inc. dated March 31, 2011. Incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on March 31, 2011.

    10.4

   License and Distribution Agreement dated December 21, 1999 between Bioject, Inc. and Serono Laboratories, Inc. Incorporated by reference to Form 10-Q for the quarter ended December 31, 1999. (1)

    10.4.1

   Amendment dated March 15, 2000 to License and Distribution Agreement dated December 21, 1999 between Bioject, Inc. and Serono Laboratories, Inc. Incorporated by reference to Form 10-K for the year ended March 31, 2000.

    10.5

   Warrant, dated December 11, 2006, issued to Partners for Growth, L.P. Incorporated by reference to Form 8-K dated December 11, 2006 and filed on December 15, 2006.

    10.6

   Warrant, dated December 15, 2004, issued to Partners for Growth, L.P. Incorporated by reference to Form 8-K dated December 15, 2004.

    10.7

   Series “EE-3” Common Stock Purchase Warrant, dated August 21, 2006, issued to RCC Ventures, LLC. Incorporated by reference to Exhibit 10.16 in the Form 10-K filed April 2, 2007.

    10.8

   Form of Warrant dated March 8, 2006. Incorporated by reference to Form 8-K dated March 3, 2006 and filed March 9, 2006.

    10.9

   Indemnity Agreement between Bioject Medical Technologies Inc. and Jerald S. Cobbs dated as of March 8, 2006. Incorporated by reference to Form 10-K for the year ended December 31, 2005.

    10.10

   Series G Convertible Preferred Stock Purchase Agreement dated December 18, 2009 between Bioject Medical Technologies Inc. Life Sciences Opportunities Fund II, L.P., Life Sciences Opportunities Fund (Institutional) II, L.P., and Edward Flynn. Incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on December 21, 2009.

    10.10.1

   Registration Rights Agreement dated December 18, 2009 between Bioject Medical Technologies Inc., Life Sciences Opportunities Fund II, L.P., Life Sciences Opportunities Fund (Institutional) II, L.P., Edward Flynn, Ralph Makar, David Tierney, Richard Stout, Christine Farrell, and the Investors listed on Exhibit A thereto. Incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on December 21, 2009.

    14

   Code of Ethics. Incorporated by reference to Form 10-K for the year ended December 31, 2003.

    21

   List of Subsidiaries. Incorporated by reference to Form 10-K for the year ended March 31, 1999.

    23

   Consent of Moss Adams LLP, Independent Registered Public Accounting Firm

    31.1

   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

    31.2

   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.

    32.1

   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

    32.2

   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

 

(1) Certain portions of this exhibit have been omitted based on a request for confidential treatment; these portions have been filed separately with the Securities and Exchange Commission.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Bioject Medical Technologies Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 31, 2011:

 

BIOJECT MEDICAL TECHNOLOGIES INC.
(Registrant)
By:  

/s/ RALPH MAKAR

Ralph Makar
President and Chief Executive Officer
(Principal Executive Officer)

Pursuant to the request of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant and in the capacities indicated on March 31, 2011.

 

SIGNATURE

       

TITLE

   

/s/ RALPH MAKAR

      Director and President  
Ralph Makar       and Chief Executive Officer  
      (Principal Executive Officer)  

/s/ CHRISTINE M. FARRELL

      Vice President of Finance  
Christine M. Farrell       (Principal Financial and Accounting Officer)  

/s/ AL HANSEN

      Chairman of the Board  
Al Hansen        

/s/ JERALD S. COBBS

      Director  
Jerald S. Cobbs        

/s/ EDWARD L. FLYNN

      Director  
Edward L. Flynn        

/s/ MARK LOGOMASINI

      Director  
Mark Logomasini        

/s/ DAVID S. TIERNEY

      Director  
David S. Tierney        

 

58