UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

 

FORM 10-Q

 

 

 

Commission file number 0-15360

 

 

BIOJECT MEDICAL TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

 

 

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 ý                                                             Noo

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes o         No ý

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

BIOJECT MEDICAL TECHNOLOGIES INC.

FORM 10-Q

INDEX

 

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets – June 30, 2003 (unaudited) and December 31, 2002
	Consolidated Statements of Operations - Three and Six Month Periods Ended June 30, 2003 and 2002 (unaudited)
	Consolidated Statements of Cash Flows - Six Months Ended June 30, 2003 and 2002 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II - OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits and Reports on Form 8-K
Signatures

 

 

PART 1 - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

 

		June 30, 2003			December 31, 2002
ASSETS
Current assets:
Cash and cash equivalents		$	11,148,174		$	8,895,687
Short-term marketable securities		2,564,625			8,404,090
Accounts receivable, net of allowance for doubtful accounts of $3,000 and $2,500		681,609			561,940
Receivable from related party, current portion		74,025			74,025
Inventories, net		1,588,613			1,302,776
Other current assets		324,788			163,548
Total current assets		16,381,834			19,402,066
Long-term marketable securities		3,414,277			5,077,043
Receivable from related party		37,012			74,025
Property and equipment, net of accumulated depreciation of $3,931,119 and $3,706,027		3,662,739			2,897,968
Other assets, net		855,344			782,804
Total assets		$	24,351,206		$	28,233,906
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	626,243		$	470,321
Accrued payroll		555,490			438,766
Other accrued liabilities		84,228			113,034
Deferred revenue		67,140			67,140
Total current liabilities		1,333,101			1,089,261
Long-term liabilities:
Long-term lease payable		22,886			26,125
Deferred revenue		518,257			251,792
Commitments
Shareholders’ equity:
Preferred stock, no par value, 10,000,000 shares authorized; issued and outstanding:
Series A Convertible - 952,738 shares at June 30, 2003 and December 31, 2002, $15 stated value		17,149,000			17,149,000
Series C Convertible - 391,830 shares at June 30, 2003 and December 31, 2002, no stated value		2,400,000			2,400,000
Common stock, no par, 100,000,000 shares authorized; issued and outstanding 10,736,086 and 10,644,887 shares at June 30, 2003 and December 31, 2002		88,572,165			88,355,898
Accumulated deficit		(85,644,203		)	(81,038,170		)
Total shareholders’ equity		22,476,962			26,866,728
Total liabilities and shareholders’ equity		$	24,351,206		$	28,233,906

 

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

 

2

 

BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
Revenue:
Net sales of products		$	1,155,634		$	679,456		$	1,939,331		$	1,801,799
License and technology fees		263,869			366,122			580,654			1,752,070
		1,419,503			1,045,578			2,519,985			3,553,869
Operating expenses:
Manufacturing		1,191,164			1,069,863			2,120,161			2,830,379
Research and development		1,290,035			792,974			2,429,931			1,816,905
Selling, general and administrative		1,395,225			1,215,930			2,731,900			2,777,994
Total operating expenses		3,876,424			3,078,767			7,281,992			7,425,278
Operating loss		(2,456,921		)	(2,033,189		)	(4,762,007		)	(3,871,409		)
Interest income		66,785			235,562			157,558			403,039
Other loss		(793		)	(204		)	(1,584		)	(93,218		)
		65,992			235,358			155,974			309,821
Net loss allocable to common shareholders		$	(2,390,929	)	$	(1,797,831	)	$	(4,606,033	)	$	(3,561,588	)
Basic and diluted net loss per common share		$	(0.22	)	$	(0.17	)	$	(0.43	)	$	(0.34	)
Shares used in per share calculations		10,708,247			10,588,757			10,661,539			10,560,437

 

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

 

3

 

BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

		For the Six Months Ended June 30,
		2003			2002
Cash flows from operating activities:
Net loss allocable to common shareholders		$	(4,606,033	)	$	(3,561,588	)
Adjustments to reconcile net loss to net cash used in operating activities:
Compensation expenses related to stock options, warrants and common stock		39,845			57,730
Stock contributed to 401(k) Plan		92,825			55,023
Contributed capital for services		—			232,065
Other non-cash loss, net		—			88,878
Depreciation and amortization		258,092			216,824
Forgiveness of related party receivable		37,013			25,000
Changes in operating assets and liabilities:
Accounts receivable		(119,669		)	(265,223		)
Inventories		(285,837		)	555,423
Other current assets		(161,240		)	84,556
Related party receivable		—			(150,000		)
Accounts payable		161,078			(142,117		)
Accrued payroll		116,724			(200		)
Other accrued liabilities		(28,806		)	(211,606		)
Deferred revenue		266,465			(1,029,917		)
Net cash used in operating activities		(4,229,543		)	(4,045,152		)
Cash flows from investing activities:
Purchase of marketable securities		—			(7,755,727		)
Maturity of marketable securities		7,502,231			7,164,255
Purchase of related party property		—			(601,000		)
Proceeds from sale of related party property		—			507,986
Capital expenditures		(989,863		)	(455,591		)
Other assets		(105,540		)	(78,222		)
Net cash provided by (used in) investing activities		6,406,828			(1,218,299		)
Cash flows from financing activities:
Payments made on capital lease obligations		(8,395		)	(5,181		)
Net proceeds from sale of common stock		83,597			37,147
Net cash provided by financing activities		75,202			31,966
Increase (decrease) in cash and cash equivalents		2,252,487			(5,231,485		)
Cash and cash equivalents:
Beginning of period		8,895,687			12,541,432
End of period		$	11,148,174		$	7,309,947
Supplemental disclosure of cash flow information:
Equipment received in exchange for forgiveness of note		$	—		$	20,000
Note receivable forgiven in exchange for property received		—			15,864

 

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

 

4

 

BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

Note 1.  Basis of Presentation

The financial information included herein for the three and six month periods ended June 30, 2003 and 2002 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2002 is derived from Bioject Medical Technologies Inc.’s 2002 Transition Report on Form 10-K for the nine months ended December 31, 2002.  The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in Bioject’s 2002 Transition Report on Form 10-K.  The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

 

Note 2.  Inventories

Inventories are stated at the lower of cost or market.  Cost is determined in a manner, which approximates the first-in, first out (FIFO) method. Costs utilized for inventory valuation purposes include labor, materials and manufacturing overhead.  Net inventories consist of the following:

 

		June 30, 2003			December 31, 2002
Raw materials and components		$	733,557		$	616,800
Work in process		6,480			53,460
Finished goods		848,576			632,516
		$	1,588,613		$	1,302,776

 

Note 3. Net Loss Per Share

The following common stock equivalents are excluded from the diluted loss per share calculations, as their effect would have been antidilutive:

 

		Three and Six Months Ended June 30,
		2003		2002
Stock options and warrants		3,852,788		3,210,491
Convertible preferred stock		2,689,136		2,689,136
Total		6,541,924		5,899,627

 

Note 4. Stock-Based Compensation

We account for stock options using the intrinsic value method as prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.”   Pursuant to Statement of Financial Accounting Standards (SFAS) No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure,” which we adopted in December 2002, we have computed, for pro forma disclosure purposes, the impact on net loss and net loss per share as if we had accounted for our stock-based compensation plans in accordance with the fair value method prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” as follows:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
Net loss, as reported		$	(2,390,929	)	$	(1,797,831	)	$	(4,606,033	)	$	(3,561,588	)
Add - stock-based employee compensation expense included in reported net loss		14,238			136,488			39,845			57,730
Deduct - total stock-based employee compensation expense determined under the fair value based method for all awards		(658,620		)	(1,128,333		)	(1,247,848		)	(1,849,140		)
Net loss, pro forma		$	(3,035,311	)	$	(2,789,676	)	$	(5,814,036	)	$	(5,352,998	)
Basic and diluted net loss per share:
As reported		$	(0.22	)	$	(0.17	)	$	(0.43	)	$	(0.34	)
Pro forma		$	(0.28	)	$	(0.26	)	$	(0.55	)	$	(0.50	)

 

5

 

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:

 

Three and Six Month Periods Ended June 30,		2003		2002
Risk-free interest rate		3.0	%	3.0% - 4.0	%
Expected dividend yield		0	%	0	%
Expected lives		5 years		3 - 5 years
Expected volatility		97% - 114	%	114% - 122	%

 

Note 5. Agreement with National Institutes of Health

In June 2003, we signed a subcontract with SAIC-Frederick, Inc., a subsidiary of Science Applications International Corporation – Frederick (SAIC). Under its contract with the National Cancer Institute, the federal government will utilize our Biojector® 2000 needle-free technology in HIV and Ebola clinical trials.  Pursuant to the subcontract, we will supply the government’s Vaccine Research Center, National Institute of Allergy and Infectious Diseases/National Institutes of Health with non-exclusive rights to utilize our B-2000 needle-free injection system for up to a 36-month period.  In addition, we will provide product, training, clinical and administrative support for the clinical trials.  We expect that under the subcontract we will be reimbursed by SAIC-Frederick, Inc. on a time and material basis between $250,000 and $1.0 million per year for product supplied and services performed.

 

Note 6. Amendment to 2000 Employee Stock Purchase Plan

In June 2003, our shareholders approved an amendment to our 2000 Employee Stock Purchase Plan to increase the total number of shares reserved for issuance thereunder from 150,000 to 450,000 shares.

 

Note 7. Amendment to 1992 Stock Incentive Plan

In June 2003, our shareholders approved an amendment to our 1992 Stock Incentive Plan to increase the total number of shares reserved for issuance thereunder from 2.7 million to 3.9 million shares.

 

Note 8. Subsequent Event – Capital Lease

In July 2003, we executed a $1.0 million, five year capital lease proposal with Fidelity Capital for the financing of certain manufacturing equipment. We anticipate monthly lease payments of approximately $20,000 once financing is completed.

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

This Quarterly Report on Form 10-Q contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning prospects for future strategic corporate relationships, current corporate partners, prospects for sales of our products into new, high leverage markets and generally heightened prospects for the adoption and use of needle-free technology.  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, such risks as the risk that our products, including the cool.click™ or the SeroJet™, will not be accepted by the market, the risk that we will be unable to enter into additional strategic corporate licensing and supply agreements or maintain existing agreements, the fact that our business has never been profitable and may never be profitable, uncertainties related to the time required to complete research and development, obtaining necessary clinical data and government

 

6

 

clearances, the risk that we may be unable to produce our products at a unit cost necessary for the products to be competitive in the market and the risk that we may be unable to comply with the extensive government regulations applicable to our business. Readers of this Form 10-Q are referred to our filings with the Securities and Exchange Commission, including our Transition Report on Form 10-K for the nine-month transition period ended December 31, 2002, for further discussions of factors which could affect future results.

 

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.

 

Overview

 

We develop needle-free injection systems that improve the way patients take medications and vaccines.

 

Our long-term goal is to become the leading supplier of needle-free injection systems to the pharmaceutical and biotech industries.  In 2003, we will continue to focus our business development efforts on new and existing licensing and supply agreements with leading pharmaceutical and biotechnology companies. 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.

 

In 2003, our clinical research efforts will continue to be aimed primarily at clinical research collaborations in the areas of vaccines and drug delivery. Currently, we are involved in collaborations with approximately 20 institutions.

 

In 2003, our other research and development efforts will continue to be primarily focused on the development of the smaller, lighter Iject™ and the Iject-R™ (reusable), as well as product improvements to existing devices and development of products for our strategic partners.  The Iject-R™ is designed with a durable injection device capable of giving multiple injections up to 1.0 mL and is to be used with pre-filled disposables syringes.  This economical, convenient and easy to use device is designed for the home use market where frequent injections are required.

 

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; and vi) the timing of new product introductions by us and our competitors.

 

We do not expect to report net income from operations in 2003.

 

Results of Operations

 

Product sales increased to $1.2 million and $1.9 million, respectively, in the three and six month periods ended June 30, 2003 from $679,000 and $1.8 million, respectively, in the comparable periods of 2002.  The increase in product sales in the second quarter of 2003 is primarily due to the shipment of a large order to Serono in April 2003 of the cool.click™ product and the sale of B-2000 product to the U.S. military.  These increases were partially offset by the absence of sales of our SeroJet™ product in the first six months of 2003 compared to $706,000 of SeroJet™ sales in the six month period ended June 30, 2002.

 

7

 

License and development fees decreased to $264,000 and $581,000, respectively, in the three and six month periods ended June 30, 2003 from $366,000 and $1.8 million, respectively, in the comparable periods of 2002. The $1.8 million in the six months ended June 30, 2002 includes a $1.0 million non-refundable development fee received from Amgen in the quarter ended December 31, 2001, which was to be recognized over the term of the agreement with Amgen.  However, in the quarter ended March 31, 2002, Amgen terminated its license and development agreement and, accordingly, we recognized the entire $1.0 million in that quarter. We are currently recognizing revenues from licensing and/or development agreements with Serono and Merial, whereas in the six month period ended June 30, 2002, we were also receiving fees from Amgen.

 

Manufacturing expense is made up of the cost of products sold and manufacturing overhead expense related to excess manufacturing capacity. Manufacturing expense was $1.2 million and $2.1 million, respectively, in the three and six month periods ended June 30, 2003 compared to $1.1 million and $2.8 million, respectively, in the comparable periods of 2002.  The decreased manufacturing expense in the six month period ended June 30, 2003 is primarily due to $497,000 of costs related to inventory scrap and obsolescence in the quarter ended March 31, 2002 that were not incurred in 2003. The increase in the second quarter of 2003 compared to the second quarter of 2002 is primarily due to increased sales volume.

 

Research and development expense increased to $1.3 million and $2.4 million, respectively, in the three and six month periods ended June 30, 2003 from $793,000 and $1.8 million, respectively, in the comparable periods of 2002.  Research and development expense in the first six months of 2003 primarily relates to costs incurred in relation to the development of the Iject™, the Vetjet™ for Merial and for enhancements to the Vitajet™ spring-powered product.

 

Selling, general and administrative expenses was $1.4 million and $2.7 million, respectively, in the three and six month periods ended June 30, 2003 compared to $1.2 million and $2.8 million, respectively, in the comparable periods of 2002. The increase in the second quarter of 2003 compared to the second quarter of 2002 is primarily due to increased payroll and payroll related expenses and recruiting and relocation expenses, which relate to our business development initiatives.  In addition, our annual report and proxy solicitation expenses were higher during the 2003 periods compared to the 2002 periods as a result of the change in our fiscal year end to December 31. For the six month period ended June 30, 2003 compared to the six month period ended June 30, 2002, such increases were offset by decreases in consulting fees.

 

Interest income decreased to $67,000 and $158,000, respectively, in the three and six month periods ended June 30, 2003 compared to $236,000 and $403,000, respectively, in the comparable periods of 2002 due primarily to lower interest rates and lower cash and investment balances in 2003 compared to 2002.  The lower cash and investment balances are due to the fact that we have not raised any capital since December 2001 and, therefore, have been utilizing existing cash and investment balances for operations.

 

Other loss of $93,000 in the six month period ended June 30, 2002 primarily relates to a loss on the purchase and sale of real estate associated with the relocation of our Chief Executive Officer from Portland, Oregon to New Jersey.  There were no other significant items in the 2002 or 2003 periods.

 

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 stock options and warrants, proceeds received from our initial public offering in 1986, proceeds received from a public offering of common stock in November 1993, licensing and technology revenues and revenues from sales of products.

 

8

 

Total cash, cash equivalents and short and long-term marketable securities at June 30, 2003 were $17.1 million compared to $22.4 million at December 31, 2002.  Working capital at June 30, 2003 was $15.0 million compared to $18.3 million at December 31, 2002.

 

The decrease in cash, cash equivalents and short and long-term marketable securities during the six months ended June 30, 2003 resulted primarily from $4.2 million used in operations, $990,000 used for capital expenditures and $106,000 used for other investing activities, primarily patent applications.

 

Net accounts receivable increased to $682,000 at June 30, 2003 from $562,000 at December 31, 2002 due primarily to the timing of payments received from and shipments to Serono and the U.S. military and licensing fees due from Merial.  Included in the balance at June 30, 2003, was $129,000 due from Serono, which is current, $203,000 due from the U.S. military, of which $172,000 was collected in July 2003, and $200,000 due from Merial, all of which was collected in July 2003.

 

Receivable from related party, current and long-term, totaling $111,000 at June 30, 2003 relates to a three-year, non-interest bearing loan to our Chief Executive Officer related to his relocation from Oregon to New Jersey.  The note is being forgiven over the three-year term of the note, beginning January 2002, so long as he remains our Chief Executive Officer.

 

Inventories increased to $1.6 million at June 30, 2003 compared to $1.3 million at December 31, 2002 due primarily to the timing of shipments of Vial Adapter product to be shipped in the third quarter.

 

Other current assets increased to $325,000 at June 30, 2003 compared to $164,000 at December 31, 2002 due to an increase in prepaid insurance and rent.

 

Capital expenditures totaled $990,000 in the first six months of 2003, primarily for the purchase of production molds for manufacturing and production automation for sterile fill for our Iject^™ disposable product and our Vial Adapter product.  We anticipate spending up to a total of $2.0 million in 2003 for these projects.  In July 2003, we signed a $1.0 million capital lease proposal with Fidelity Capital for manufacturing equipment.

 

Accounts payable increased to $626,000 at June 30, 2003 from $470,000 at December 31, 2002 due primarily to inventory purchases and purchases related to capital expenditures late in the quarter.

 

Deferred revenue totaled $585,000 at June 30, 2003 compared to $319,000 at December 31, 2002.  The balance at June 30, 2003 represents amounts received from Serono pursuant to the terms of their license agreement and a non-refundable deposit received from a potential licensing partner.  See “Critical Accounting Policies – Revenue Recognition for Product Development and License Fee Revenues.”

 

NEW ACCOUNTING PRONOUNCEMENTS

 

Accounting For Derivative Instruments and Hedging Activities

In May 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  SFAS No. 149 addresses certain accounting issues related to hedging activity and derivative instruments embedded in other contracts.  In general, the amendments require contracts with comparable characteristics to be accounted for similarly.  In addition, SFAS No. 149 provides guidance as to when a financing component of a derivative must be given special reporting treatment in the statement of cash flows.  SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003.  We do not utilize derivative or hedging instruments and, therefore, do not expect that the adoption of SFAS No. 149 will have a material effect on our financial position, results of operations or cash flows.

 

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB approved SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 addresses the financial accounting and reporting for obligations

 

9

 

associated with an exit activity, including restructuring, or with a disposal of long-lived assets.  Exit activities include, but are not limited to, eliminating or reducing product lines, terminating employees and contracts and relocating plant facilities or personnel.  SFAS No. 146 specifies that a company will record a liability for a cost associated with an exit or disposal activity only when that liability is incurred and can be measured at fair value.  Therefore, commitment to an exit plan or a plan of disposal expresses only management’s intended future actions and, therefore, does not meet the requirement for recognizing a liability and the related expense.  SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged.  The adoption of SFAS No. 146 on January 1, 2003 did not have any effect on our financial position, results of operations or cash flows.

 

Revenue Arrangements with Multiple Deliverables

In November 2002, the EITF reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.”  EITF No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF No. 00-21 will be effective for interim periods beginning after June 15, 2003. We do not expect the application of the provisions of EITF No. 00-21 to have a material effect on our financial position, results of operations or cash flows.

 

Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

In May 2003, the FASB approved SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”  SFAS No. 150 establishes standards for how to classify and measure financial instruments with characteristics of both liabilities and equity.  It requires financial instruments that fall within its scope to be classified as liabilities.  SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and, for pre-existing financial instruments, as of July 1, 2003.  We do not have any financial instruments that fall under the guidance of SFAS No. 150 and, therefore, the adoption will not have any effect on our financial position or results of operations.

 

CRITICAL ACCOUNTING POLICIES

 

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 include the following:

•                  revenue recognition for product development and license fee revenues;

•                  inventory reserves; and

•                  long-lived asset impairment.

 

Revenue Recognition for Product Development and License Fee Revenues

In accordance with Staff Accounting Bulletin 101 (“SAB 101”), “Revenue Recognition in Financial Statements,” product development revenue is recognized on a percentage of completion basis as qualifying expenditures are incurred and licensing revenues, if separable, are recognized over the term of the license agreement.  The FASB’s Emerging Issues Task Force (EITF) 00-21 “Accounting for Multiple Element Arrangements” requires arrangements with multiple elements 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 can not be separated must be accounted for as a combined unit.  Our accounting policy is consistent with EITF 00-21.  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

 

10

 

recognized according to the terms of the associated agreements.  The balance of $585,000 at June 30, 2003 represents amounts received from Serono and a non-refundable deposit received from a potential licensing partner.

 

Inventory Reserves

We regularly evaluate the realizability of our inventory 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 annually to determine if inventory carrying costs exceed market selling prices and if certain components have become obsolete. We record reserves for inventory based on the above factors and, at June 30, 2003, they totaled $1.1 million.  If circumstances related to our inventories change, our estimates of the realizability of inventory could materially change.

 

Long-Lived Asset Impairment

We regularly evaluate our long-lived assets and certain identified intangible assets for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires us to review our long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable, but at least annually, utilizing an un-discounted cash flow analysis.  Based on this analysis, we did not recognize any impairment on our long-lived assets during the six months ended June 30, 2003.  If circumstances related to our long-lived assets change, we may record an impairment charge in the future.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We mitigate this risk by diversifying investments among high credit quality securities in accordance with our investment policy. As of June 30, 2003, our investment portfolio included cash, cash equivalents and marketable corporate debt securities of $4.1 million and federal government debt securities of $13.0 million.  The debt securities are subject to interest rate risk, and will decline in value if interest rates increase.  Due to the short duration of our investment portfolio, an immediate 10 percent increase in interest rates would not have a material effect on our financial condition or results of operations.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our President and Chief Executive Officer and Chief 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 Chief 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

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.

 

11

 

PART II

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

The annual meeting of our shareholders was held on June 19, 2003, at which the following actions were taken:

 

1.               The shareholders elected the three nominees for director to the Board of Directors.  The three, Class Two directors elected, along with the voting results, are as follows:

 

Name		No. of Shares Voting For		No. of Shares Withheld Voting
Grace Keeney Fey		8,931,945		661,079
Eric T. Herfindal		9,423,913		169,111
Richard J. Plestina		9,423,893		169,131

 

The terms of our Class One and Class Three directors did not expire at our 2003 annual meeting.  Accordingly, the terms of those directors continued after the meeting.  Those directors are William A. Gouveia, Edward L. Flynn, James C. O’Shea, Sandra Panem, Ph.D. and John Ruedy, M.D.

 

2.               The shareholders approved an amendment to the 2000 Employee Stock Purchase Plan to increase the total number of shares reserved for issuance thereunder from 150,000 to 450,000 shares as follows:

 

No. of Shares Voting For:		No. of Shares Voting Against:		No. of Shares Abstaining:		No. of Broker Non-Votes:
3,933,204		826,481		21,679		4,811,660

 

3.               The shareholders approved an amendment to the 1992 Stock Incentive Plan to increase the total number of shares reserved for issuance thereunder from 2,700,000 to 3,900,000 shares as follows:

 

No. of Shares Voting For:		No. of Shares Voting Against:		No. of Shares Abstaining:		No. of Broker Non-Votes:
3,537,447		1,220,348		23,569		4,811,660

 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 

(a) Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:

3.1                                 2002 Restated Articles of Incorporation of Bioject Medical Technologies Inc.

31.1                           Certification of James C. O’Shea pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2                           Certification of John Gandolfo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1                           Certification of James C. O’Shea pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2                           Certification of John Gandolfo pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b) Reports on Form 8-K

We filed one report on Form 8-K during the quarter ended June 30, 2003, which was dated and filed April 23, 2003 pursuant to Item 12, Results of Operations and Financial Condition, regarding our financial results for the quarter ended March 31, 2003.

 

12

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Date: August 7, 2003	BIOJECT MEDICAL TECHNOLOGIES INC.
	(Registrant)
	/s/ JAMES C. O’SHEA
	James C. O’Shea Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)
	/s/ JOHN GANDOLFO
	John Gandolfo Chief Financial Officer and Vice President of Finance (Principal Financial and Accounting Officer)

 

13