-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ChQlDCZ/B4xhZsg61Oe7Eu8umBXM+h6uSdV71l9vW3LtUdK56FEUi8hG0MYoW2Mb zMrDf0OO4kAmMMS5KCl9sQ== 0000927016-96-000877.txt : 19960816 0000927016-96-000877.hdr.sgml : 19960816 ACCESSION NUMBER: 0000927016-96-000877 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERSEPTIVE BIOSYSTEMS INC CENTRAL INDEX KEY: 0000859640 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 042987616 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20032 FILM NUMBER: 96614094 BUSINESS ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5083837700 MAIL ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1996 or ( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period From_____________ To ________ Commission File Number: 0-20032 PerSeptive Biosystems, Inc. --------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2987616 -------- ---------- (State or other jurisdiction of (IRS Employer ID No.) incorporation or organization) 500 Old Connecticut Path, Framingham, MA 01701 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) (508) 383-7700 -------------- (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock 17,464,697 Shares - ------------ ----------------- (Class) (Outstanding at August 7, 1996) Page 1 of 23 PERSEPTIVE BIOSYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 30, 1996 TABLE OF CONTENTS Page No. -------- Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: a) Consolidated Balance Sheets at June 30, 1996 (unaudited) and September 30, 1995 3 b) Consolidated Statements of Operations for the three and nine-month periods ended June 30, 1996 and 1995 (unaudited) 4 c) Consolidated Statements of Cash Flows for the nine-month periods ended June 30, 1996 and 1995 (unaudited) 5 d) Notes to the Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 4. Submission of Matters to a Vote of Security-Holders 20 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 Page 2 of 23 Part I. FINANCIAL INFORMATION Item 1. Financial Statements
PerSeptive Biosystems, Inc. Consolidated Balance Sheets (in thousands) June 30 September 30, 1996 1995 ------------- ------------ (unaudited) Assets: Current assets: Cash and cash equivalents $6,686 $12,215 Securities available-for-sale 9,901 11,601 Accounts receivable, net 16,428 17,865 Inventories, net 22,957 22,911 Other current assets 2,170 1,913 ------------- ------------ Total current assets 58,142 66,505 Fixed assets, net 34,846 35,584 Patent and license costs, net 6,027 6,681 Purchase options, net - 1,959 Goodwill, net 24,184 25,144 Deferred financing costs, net 1,014 1,294 Other long-term assets 401 1,042 ------------- ------------ Total assets $124,614 $138,209 ============ =========== Liabilities and stockholders' equity: Current liabilities: Accounts payable $12,464 $9,351 Accrued expenses 15,718 16,154 Advances from PerSeptive Technologies II Corporation - 1,779 Current portion of deferred revenue 1,327 2,485 Short-term borrowing 5,097 3,943 Accrued purchase cost - 3,423 Current portion of obligations and other current liabilities 2,631 2,274 ------------- ------------ Total current liabilities 37,237 39,409 Long-term liabilities: Convertible subordinated notes 27,230 27,230 Long-term debt 5,577 3,170 Capital lease obligations, less current portion 973 2,159 Deferred revenue and other liabilities, less current portion 817 1,134 ------------- ------------ Total long-term liabilities 34,597 33,693 Stockholders' equity: Redeemable convertible preferred stock 27,538 25,992 Common stock 172 140 Additional paid-in capital 131,611 111,372 Accumulated deficit (104,629) (72,566) ------------- ------------ 54,692 64,938 Cumulative translation adjustment (1,816) 225 Unrealized loss on investments (96) - Deferred compensation - (56) ------------- ------------ Total stockholders' equity 52,780 65,107 ------------- ------------ Total liabilities and stockholders' equity $124,614 $138,209 ============ ===========
The accompanying notes are an integral part of these financial statements. Page 3 of 23 Perseptive Biosystems, Inc. Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
Three months ended Nine months ended June 30, June 30, --------------------------------- ------------------------------ 1996 1995 1996 1995 --------------- ------------ ---------- -------------- Revenue: Product revenue $ 18,170 $ 17,778 $ 56,601 $ 50,262 Contract revenue - 5,020 10,101 15,014 --------------- ------------ ---------- -------------- 18,170 22,798 66,702 65,276 --------------- ------------ ---------- -------------- Cost of goods sold: Cost of product revenue 9,165 8,400 27,865 24,066 Cost of contract revenue - 4,261 8,571 12,737 Other charges - - 4,837 - --------------- ------------ ---------- -------------- 9,165 12,661 41,273 36,803 --------------- ------------ ---------- -------------- Gross profit 9,005 10,137 25,429 28,473 Operating Expenses: Research and development 4,450 1,537 7,720 5,347 Selling, general and administrative 9,865 8,164 30,512 24,139 Other charges - 15,459 13,496 15,459 Amortization 320 778 1,838 2,366 --------------- ------------ ---------- -------------- 14,635 25,938 53,566 47,311 --------------- ------------ ---------- -------------- Loss from operations (5,630) (15,801) (28,137) (18,838) --------------- ------------ ---------- -------------- Other expense: Interest expense, net (768) (366) (2,190) (1,138) Other expense, net (79) (82) (90) (119) --------------- ------------ ---------- -------------- Loss before provision for income taxes (6,477) (16,249) (30,417) (20,095) Provision for income taxes - - 100 - --------------- ------------ ---------- -------------- Net loss (6,477) (16,249) (30,517) (20,095) ============== =========== ========= ============= Net loss per common share ($0.40) ($1.38) ($2.08) ($1.81) ============== =========== ========= ============= Weighted average common shares outstanding 17,357 12,297 15,412 12,220 ============== =========== ========= ============= The accompanying notes are an integral part of these financial statements.
Page 4 of 23
PerSeptive Biosystems, Inc. Consolidated Statements of Cash Flows (in thousands) (unaudited) Nine months ended June 30, ------------------------------------------ 1996 1995 -------------------- -------------------- Cash flows from operating activities: Net loss ($ 30,517) ($ 20,095) Adjustments to reconcile net loss to net cash used in operating activities, net of acquired amounts: Depreciation and amortization 7,846 7,488 Non-cash portion of other charges 17,261 15,459 Changes in assets and liabilities: Decrease (increase) in accounts receivable 1,037 (2,680) Decrease (increase) in inventories (4,326) 3,227 Increase in other current assets (257) - Decrease (increase) in other assets 557 (1,895) Increase (decrease) in accounts payable 3,113 (3,556) Decrease in accrued expenses (5,857) (1,520) Decrease in other liabilities (3,254) (82) -------------------- -------------------- Net cash used in operating activities (14,397) (3,654) -------------------- -------------------- Cash flows from investing activities: Purchase of fixed assets, net (8,180) (15,689) Cash and securities available-for-sale acquired from PTC II 11,851 - Purchase of securities available-for-sale (21,952) (48,547) Proceeds from sale and maturities of securities available-for-sale 23,556 60,518 Increase in patents and licenses (27) (1,151) -------------------- -------------------- Net cash provided by (used in) investing activities 5,248 (4,869) -------------------- -------------------- Cash flows from financing activities: Proceeds from capital lease financing 306 5,000 Principal payments under capital lease obligations (1,135) (745) Net proceeds from facility financing 2,407 1,266 Payment of finance costs (191) (161) Net proceeds from short-term borrowing 1,154 4,173 Proceeds from issuance of common stock 1,312 456 -------------------- -------------------- Net cash provided by financing activities 3,853 9,989 -------------------- -------------------- Effect of exchange rate changes on cash and cash equivalents (233) - -------------------- -------------------- Increase (decrease) in cash and cash equivalents (5,529) 1,466 Cash and cash equivalents at beginning of period 12,215 6,600 -------------------- -------------------- Cash and cash equivalents at end of period $ 6,686 $ 8,066 =================== =================== Supplemental disclosure of cash flow information: Interest paid $ 1,896 $ 1,246 Supplemental disclosure of non-cash investing activities: Accretion of Series A Preferred Stock $ 1,546 $ 1,988 Stock and warrants issued in connection with acquisition of PTC II, net of warrants exchanged 15,592 Stock issued to AMI in exchange for remaining acquisition costs 3,423 Stock acquisition of Perlsis II 1,870 The accompanying notes are an integral part of these financial statements.
Page 5 of 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying consolidated balance sheet at June 30, 1996, and the consolidated statements of operations for the three and nine-month periods ended June 30, 1996 and 1995, and the consolidated statements of cash flows for the nine-month periods ended June 30, 1996 and 1995 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that these statements reflect all disclosures and adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of results of operations for such periods. The results of operations for the three and nine-month periods ended June 30, 1996 are not necessarily indicative of the results expected for the year ended September 30, 1996. It is suggested that these financial statements be read in conjunction with the consolidated financial statements for the year ended September 30, 1995 and the notes thereto, included in the Company's Annual Report on Form 10-K, as amended. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) INVENTORIES Inventories consist of the following (in thousands): June 30, 1996 September 30, 1995 ------------- ------------------ Raw material $ 9,217 $10,838 Work in process 2,277 2,495 Finished goods 11,463 9,578 ------- ------- Total inventories $22,957 $22,911 ======= ======= Page 6 of 23 (3) NET LOSS PER COMMON SHARE Net loss per common share is determined by dividing net loss, including accretion on preferred stock, by the weighted average common shares outstanding during the period. Accretion on preferred stock was $515,000 and $1,546,000 for the three and nine months ended June 30, 1996 and $662,000 and $1,988,000 for the three and nine months ended June 30, 1995, respectively. All common stock equivalents consisting of options, warrants, contingently issuable shares and shares held in escrow have been excluded from the calculation of weighted average common shares outstanding, as their inclusion would be anti-dilutive. (4) ACQUISITION OF PERSEPTIVE TECHNOLOGIES II CORPORATION On November 1, 1995, the Company, PerSeptive Acquisition Corporation ("PAC"), a wholly owned subsidiary of the Company, and PerSeptive Technologies II Corporation ("PTC II") entered into a definitive agreement pursuant to which the Company agreed to an exchange offer for all of the 2,645,000 outstanding units of PTC II followed by a merger of PTC II with PAC. Each PTC II unit consisted of one share of callable common stock of PTC II and one Class E Warrant of the Company, exercisable at $33.00 until December 1998. Effective March 8, 1996, the Company acquired 2,603,125 units of PTC II that were validly tendered and not withdrawn in the exchange offer. The PTC II shareholders, who participated in the exchange offer, exchanged their units for 2,603,125 shares of the Company's common stock and 2,603,125 new Class I Warrants to purchase the Company's common stock, exercisable until August 8, 1997 at an exercise price per share of $13.50. On March 13, 1996, PTC II merged with PAC and became a wholly owned subsidiary of the Company. Each of the remaining 41,875 shares of callable common stock of PTC II not exchanged in the exchange offer were automatically converted into a right to receive one share of the Company's common stock upon the merger of PTC II with PAC. During the quarter ended June 30, 1996, 36,475 rights were exchanged for an equivalent number of shares of the Company's common stock. The total value of the common stock issued in the exchange offer was approximately $16 million based on the market value of the Company's common stock on March 8, 1996. The transaction has been accounted for as a purchase and the Company has recorded an in-process research and development charge of approximately $6.8 million which represents the value of acquired technologies which have not reached commercialization. During the three-month period ended March 31, 1996, the Company recognized research and development revenue from PTC II totaling approximately $5 million. Page 7 of 23 The following is a summary of the purchase price and the allocation of the purchase price to the net assets acquired, calculated using the closing price of PerSeptive's common stock of $5.875 on March 8, 1996: Purchase Price: 000's - ---------------------------------------- -------- Shares of Common Stock Issued 2,603,125 at $5.875 $15,294 Shares of Common Stock to be Issued 41,875 at $5.875 246 Warrants Issued 2,603,125 at $0.90 2,343 Warrants Returned 2,603,125 at $0.88 (2,291) Estimated Tax Obligation on Interest 1,000 Income Write off of Purchase Option Cost 1,082 Transaction costs (i) 1,620 ------- Total purchase price $19,294 ======= (i) Amount represents the estimated acquisition costs associated with the Transaction which include professional fees, printing costs and regulatory filing fees. March 8, Allocation of the Purchase Price: 1996 - ------------------------------------- 000's Net asset values: --------- Cash and investments $11,851 Other current assets 693 Accrued expenses (35) In-process research and development 6,785 ------- Allocation of consideration $19,294 ======= Page 8 of 23 (5) OTHER CHARGES During the three-month period ended March 31, 1996, the Company announced the introduction of several new product offerings, completed the acquisition of PTC II, and took certain actions to identify the research and development programs, previously funded by PTC II, which would be discontinued. As a result of these actions the Company recorded other charges totaling $18.3 million. The components of these other charges include $10.1 million related to the acquisition of PTC II which includes $6.8 million for in-process research and development, $2.2 million related to the write-down of long-term assets used in discontinued research and development programs related to PTC II, and $1.1 million of severance costs principally resulting from wages and benefits for employees terminated as a result of the acquisition and related management actions. Other charges also include reserves for inventory and other assets of $4.8 million recorded in cost of revenue. This represents provisions to reserve for inventory associated with discontinued product lines as well as the repositioning of certain products within the purification, analysis, and chemical product lines. The remaining $3.4 million of other charges represent accrued legal costs primarily related to the Company's ongoing legal defense of its patents and certain other miscellaneous charges. (6) LITIGATION AND OTHER MATTERS On December 26, 1994, the Company announced a restatement of its financial results for its fiscal year ended September 30, 1993 and for the first three quarters of its 1994 fiscal year. Shortly thereafter, a number of class action lawsuits were filed in the U.S. District Court for the District of Massachusetts against the Company and certain of its officers. These lawsuits were consolidated in an amended complaint filed on March 8, 1995. The complaint asserted, on behalf of the class of all purchasers of the Company's Common Stock from February 2, 1993 through December 26, 1994, violations of federal securities laws and common law consisting of the issuing of allegedly materially false and misleading financial results with respect to the Company's quarterly and year-end fiscal 1993 financial statements and the Company's quarterly financial statements for the first, second and third quarters of fiscal 1994. The complaint sought unspecified damages, interest, costs and fees. On May 8, 1995, the Company filed its answer which denied all of plaintiffs' material allegations and raised several affirmative defenses. On June 14, 1995, the Court entered a preliminary order of approval of a stipulation of compromise and settlement (the "Stipulation") between the defendants in this action and the plaintiff class. On August 11, 1995, the court approved the Stipulation. Pursuant to the terms of the Stipulation, the purchasers of (a) the Company's Class E Warrants, which were originally issued as part of units with the common stock of PerSeptive Technologies II Corporation, and (b) its 8 1/4% Convertible Subordinated Notes due 2001, are included in the plaintiff class in addition to the purchasers of the Company's Common Stock. In exchange for releases of the defendants, the plaintiff class is entitled to receive: $5,000,000 in cash, a portion of which is paid by third parties; $5,000,000 in shares of the Company's Common Stock; and $2,000,000 in warrants to purchase shares of the Company's Common Stock. In August of 1995, the Company issued 493,827 shares of common stock with an aggregate market value of $5,000,000. The final cash payment of $1,500,000 due under a promissory note issued pursuant to the Stipulation, together with interest thereon, was made on April 1, 1996. The Company issued the Class G Warrants to purchase up to 279,330 shares of the Company's common stock for $12.66 per share. The warrants became exercisable at any time on or after March 11, 1996 and will Page 9 of 23 expire September 11, 2003. The costs of the settlement, including professional fees associated with the settlement, were recorded as a charge during the quarter ended June 30, 1995. Since November 1994, the Company has been responding to informal requests for information from the Securities and Exchange Commission (the "Commission") relating to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it had obtained a formal order of investigation so that, among other matters, it could utilize subpoena powers to obtain information relevant to its inquiry. The Commission has and may in the future utilize its subpoena powers to obtain information from various officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of this investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. On October 14, 1993, the Company filed suit in the United States District Court for the District of Massachusetts against Pharmacia Biotech, Inc., together with certain of its affiliates, its parent Procordia AB (collectively, "Pharmacia"), and Sepracor, Inc. ("Sepracor"), for willful infringement of certain PerSeptive patents covering the process of Perfusion Chromatography/R/ and the manufacture, sale and use of chromatography particles that enable Perfusion Chromatography (collectively, the "Patents"). This lawsuit seeks to enjoin the defendants from infringing the Patents and asks for treble damages. On October 15, 1993, the Company filed a related action against Sepracor in which the Company claims that Sepracor made false and misleading representations of fact with respect to the Company's products. On October 12, 1993, Pharmacia filed a suit against the Company seeking a declaratory judgment: (i) that Pharmacia's products do not infringe the Patents; and (ii) that the Patents are invalid and unenforceable. The Company believes that this suit lacks merit. This action has been consolidated with PerSeptive's actions in the United States District Court for the District of Massachusetts. On May 19, 1994, the Company joined BioSepra Inc. ("BioSepra"), which is partially owned by Sepracor, as a party to this suit and amended the pleadings to assert claims against BioSepra for willful infringement of the Patents and for false and misleading advertising. The Company's claims against BioSepra are consolidated with claims against Sepracor and Pharmacia for pretrial proceedings. Discovery in these matters is substantially completed. Page 10 of 23 Pharmacia, Sepracor and BioSepra each have asserted counterclaims against the Company. On February 10, 1995, Sepracor and BioSepra filed a counterclaim against the Company alleging that its allegations that Sepracor and BioSepra have infringed the Patents and alleged statements concerning the litigation made to customers constitute unfair competition, commercial disparagement, unfair trade practices, tortious interference with customer relationships and violation of the Lanham Act. On March 6, 1995, Pharmacia filed a counterclaim alleging that the Company's allegations that Pharmacia has infringed the Patents and alleged statements concerning the litigation made to customers constitute unfair competition, commercial disparagement, unfair trade practices and violation of the Lanham Act. The Company has denied any liability on the counterclaims. On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgment relating to the inventorship of the three Perfusion Chromatography patents, and granting the Defendants' motions for partial summary judgment that inventorship of those patents is improper for failure to name two or more persons as joint inventors. The Court, however, affirmed the Company's inventorship. On March 19, 1996, PerSeptive filed a Motion to Vacate the January 9 order and requested the Court to conduct an evidentiary hearing pursuant to 35 U.S.C. (S) 256 to determine whether the patents can and should be corrected by adding additional alleged inventors and, among other issues, if the patents can be corrected, whether the alleged additional inventors should be estopped from asserting any rights on account of their never having claimed to have been inventors, among other factors. On April 29, 1996, the Court denied the Motion to Vacate. An evidentiary hearing on the inventorship issue was conducted in May and June of 1996. Post-hearing submissions were filed by the parties in July 1996 and closing arguments were heard by the Court on August 8, 1996. The Company has preserved its rights of appeal on a number of issues, including the Court's January 9, 1996 order that inventorship of the patents was improper for failure to name additional persons as joint inventors. The Company intends to vigorously pursue the litigation. (7) ACQUISITION OF ADVANCED MAGNETICS, INC. - IN VITRO DIAGNOSTICS DIVISION At September 30, 1995, the Company had a liability of approximately $3.4 million for the final settlement of the Company's acquisition of the In Vitro Diagnostics Division of Advanced Magnetics, Inc ("AMI"). In December 1995, the Company issued 373,678 shares of common stock with a value of $3.4 million, to satisfy this obligation. (8) TRANSACTION WITH CHEMGENICS Effective June 28, 1996 the Company completed a transaction with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.) in which the Company transferred certain assets and employees of the Company's drug discovery program and entered into a license agreement, licensing the Company's technology in the field of drug discovery to ChemGenics in exchange for shares of ChemGenics Common Stock equal to 40% of its fully diluted capital stock, plus warrants to purchase, for a period of four years, additional shares of Common Stock at $5.00 per share equal to 10% of such fully diluted amount. The transaction was accounted for under the equity method. The book value of the assets transferred was not significant. The transaction will combine the Company's proprietary technology in the field of drug discovery with ChemGenics' gene technologies. Page 11 of 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed below under the caption "Certain Factors That May Affect Future Results," as well as elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and those discussed in the Company's other filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 AND 1995 Revenue for the three months ended June 30, 1996 was $18,170,000 compared with $22,798,000 for the comparable 1995 period. The decrease in total revenue is attributable to the elimination of contract revenue previously recorded in connection with the Company's development efforts on behalf of PTC-II, following the acquisition of PTC-II during the quarter ended March 31, 1996. Product revenue totaled $18,170,000 and $17,778,000 for the three months ended June 30, 1996 and 1995, respectively. The growth in product revenue is attributable to continued growth in the analysis product line and further expansion of the Company's products into the European and Japanese market place. Gross profit from product and related revenue for the three months ended June 30, 1996 and 1995 was $9,005,000 and $9,378,000, respectively. Gross margin from product and related revenue was 50% during the three months ended June 30, 1996 as compared to 53% during the same period in the prior year. The decrease in gross margin is primarily attributable to unfavorable overhead absorption resulting from efforts to control the level of product inventory on hand and the existence of excess manufacturing capacity established to support future revenue growth as well as the absence of any significant revenue in the current period from non-recurring license fees which were reported in the prior comparable period. This decrease in gross margin is net of benefits realized from the sale of certain products during the three-month period ended June 30, 1996 for which specific reserves had been established during the three-month period ended March 31, 1996. Research and development expenses for the three months ended June 30, 1996 amounted to $4,450,000, or 24% of product and related revenue, as compared with $1,537,000, or 9% of product and related revenue for the comparable period in the prior year. The increase is primarily due to the elimination of research and development funding previously received from PTC II. Actions have been taken to control the level of research and development expense actually incurred following the acquisition of PTC II by the Company. This has been accomplished, in part, through the recently announced restructuring program that resulted in the elimination of a significant portion of the Company's research and development staffing and related variable support costs. Although management intends to pursue commercialization opportunities and alliances in order to obtain value from the technology acquired from PTC II, the Company continues to evaluate the scope and direction of the various programs. However, there is no assurance that funding sources and/or third party arrangements will be obtained or Page 12 of 23 established to defray the cost of research and development or that any of these acquired technologies will ultimately be successfully commercialized. Selling, general and administrative expenses amounted to $9,865,000, or 54% of product and related revenue, during the three months ended June 30, 1996, as compared with $8,164,000, or 46% of product and related revenue during the comparable period in the prior year. The increase in the aggregate spending level in the three-month period ending June 30, 1996 as compared to the comparable prior year period is attributable to continued investment in the sales and marketing organizations and marketing and promotional activities to support the Company's new product offerings. During the three months ended June 30, 1995 the Company recorded a charge of approximately $15.5 million related primarily to the shareholder settlement that received final court approval in September 1995 and an in-process research and develoment charge recorded in connection with the purchase of all of the outstanding stock of PerIsis II, an independent research and development company established in March 1993. Net interest expense was $768,000 during the three-month period ended June 30, 1996, as compared with $366,000 during the comparable period in the prior year. This increase is primarily attributable to higher interest expense incurred during the period ended June 30, 1996 as a result of an increase in current year short-term and long-term borrowings and capital lease agreements as well as lower interest income due to a lower average cash and investments balance maintained during the three months ended June 30, 1996 as compared to the comparable period in the prior year. NINE MONTHS ENDED JUNE 30, 1996 AND 1995 Revenue for the nine months ended June 30, 1996 was $66,702,000, as compared with $65,276,000 for the comparable period in the prior year. Product revenue totaled $56,601,000 and $50,262,000 for the 1996 and 1995 periods, respectively. The growth in product revenue is attributable to continued sales growth in both the purification and analysis product lines and the further expansion of the Company's products into the European and Japanese market place. The decrease in contract research revenue is attributable to the elimination of revenue derived from contract research activities undertaken pursuant to the Development Agreement between PTC II and the Company, which was terminated following the acquisition of PTC II by the Company in March 1996 (see Note 4 to the Consolidated Financial Statements). Gross profit from product and related revenue for the nine-months ended June 30, 1996 and 1995 was $28,736,000 and $26,196,000, respectively. Gross margin from product and related revenue was 51% during the nine-months ended June 30, 1996 as compared to 52% during the same period in the prior year. This decrease in gross margin on product and related revenues is primarily attributable to changes in product mix and unfavorable overhead absorption resulting from efforts to control the level of product inventory on hand and the existence of excess manufacturing capacity established to support future revenue growth. Page 13 of 23 Included in cost of goods sold for the nine months ended June 30, 1996 are other charges totaling $4.8 million. These charges represent provisions to write-off inventory and other assets associated with discontinued products as well as the repositioning of certain products within the purification, analysis, and chemical product lines. Research and development expenses were $7,720,000, or 14% of product and related revenue, during the nine months ended June 30, 1996 as compared with $5,347,000, or 11% of product and related revenue in the comparable 1995 period. The increase in research and development expense is attributable to the elimination of research and development funding previously received from PTC II which was acquired by the Company in March 1996. Selling, general and administrative expenses were $30,512,000 in the nine-month period ended June 30, 1996, as compared with $24,139,000 in the comparable period in the prior year. The increase in the aggregate spending level in the nine-month period ending June 30, 1996 as compared to the comparable prior year period is attributable to continued investment in the sales and marketing organizations and marketing and promotional activities to support the Company's new product offerings. During the nine months ended June 30, 1996, the Company recorded other charges of $13.5 million. The Company completed the acquisition of PTC II and took certain actions to identify the research and development programs, previously funded by PTC II, which would be discontinued. As a result of these actions the Company recorded other charges totaling $10.1 million. The PTC II charge includes $6.8 million for in-process research and development, $2.2 million related to the write-down of fixed assets previously used to support the contract research and development activities related to PTC II and $1.1 million of severance costs, principally wages and benefits for terminated employees, resulting from the discontinuation of certain research programs and other headquarters support functions. The remaining $3.4 million of other charges represent accrued legal costs primarily related to the Company's ongoing legal enforcement of its patents and certain other miscellaneous charges. During the nine months ended June 30, 1995 the Company recorded a charge of approximately $15.5 million related primarily to the shareholder settlement that received final court approval in September 1995 and an in-process research and development charge recorded in connection with the purchase of all of the outstanding stock of PerIsis II, an independent research and development company established in March 1993. Net interest expense was $2,190,000 during the nine-month period ended June 30, 1996, as compared with $1,138,000 during the comparable period in the prior year. This increase is primarily attributable to higher interest expense incurred during the nine-month period ended June 30, 1996 as a result of an increase in current year short-term and long-term borrowings and capital lease agreements as well as lower interest income due to a lower average cash and investments balance maintained during the nine months ended June 30, 1996 as compared to the comparable period in the prior year. LIQUIDITY AND CAPITAL RESOURCES Cash and investments at June 30, 1996 were $16,587,000 as compared to $23,816,000 at September 30, 1995. Expenditures of cash and investments during the nine-month period ended June 30, 1996 primarily related to the funding of capital programs of $8.1 million and operational requirements of $14.4 million. These expenditures were offset by the receipt of cash and investments of $11.9 million from PTC II as a result of the acquisition. Cash expenditures for capital programs, primarily related to the construction of the Company's new manufacturing facility in Hamburg, Germany, were partially funded by $2.6 million from various financing facilities obtained by the Company during the prior fiscal year. In addition, additional short-term borrowings were used to fund operational needs. Net proceeds Page 14 of 23 from short-term financings during the nine-month period ending June 30, 1996 were $1.2 million. Management anticipates additional cash usage relating to various factors including, but not limited to a semi-annual interest payment due on the 8 1/4% convertible subordinated notes, and cash requirements associated with capital expenditures, patent enforcement actions, working capital and operational needs. The Company believes that its capital resources are sufficient to fund its planned operations through the end of fiscal 1996. The Company believes that additional financing will be required for the development of some of its future planned product introductions and to support the Company's future operations and revenue growth. The Company's future working capital and capital requirements will in general depend on numerous factors, including the progress of the Company's research and development of new products, the level of resources that the Company devotes to the development of manufacturing and marketing capabilities, the consistency of cash collections, the success of cost containment initiatives, the competitive environment and the growth in the Company's business, which may cause the Company's actual future capital resources to differ materially, notwithstanding the forward-looking statement in the first sentence of this paragraph. The Company believes that the level of financial resources available to it is an important competitive factor. The Company is actively seeking to raise additional capital through equity or debt financing in the near future or to enter into corporate partnering arrangements. However, there can be no assurance that the Company will be able to successfully raise additional capital at acceptable terms, and any failure to do so could have adverse consequences on planned future product introductions and the Company's growth and operations. TRANSACTION WITH CHEMGENICS Effective June 28, 1996 the Company completed a transaction with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.) in which the Company transfered certain assets and employees of the Company's drug discovery program and entered into a license agreement, licensing the Company's technology in the field of drug discovery to ChemGenics in exchange for shares of ChemGenics Common Stock equal to 40% of its fully diluted capital stock, plus warrants to purchase, for a period of four years, additional shares of Common Stock at $5.00 per share equal to 10% of such fully diluted amount. The transaction was accounted for under the equity method. The book value of the asets transferred was not significant. The transaction will combine the Company's proprietary technology in the field of drug discovery with ChemGenics' gene technologies. The Company does not expect to recognize any significant impact from this transaction in its results of operations or cash flows in the near term. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Potential Downward Fluctuations in Operating Results. The Company's operating results may vary significantly from quarter to quarter or year to year, depending on factors such as the timing of biopharmaceutical development and commercialization programs of the Company's customers, the timing of increased research and development and sales and marketing expenses, the timing and size of orders, the introduction of new products by the Company and the capital resources of the Company's customers. The Company's current and planned expense levels are based in part on its expectations as to future revenue. Consequently, revenue or profits may vary significantly from quarter to quarter or year to year, and revenue or profits in any period will not necessarily be indicative of results in subsequent periods. Page 15 of 23 History of Operating Losses and Uncertainty of Future Profitability. To date, the Company has not achieved profitability in any fiscal year. There can be no assurance that the Company will achieve or maintain profitability or that its revenue growth can be sustained in the future. The Company's success in the market for biopharmaceutical purification, analysis and synthesis products will depend, in part, on attracting and maintaining key employees, continued development of foreign sales operations, successful integration of recent acquisitions, continued support from current customers, development of new customers and successful enforcement of the Company's patent rights (see "Legal Proceedings"). Additional Financing Requirements. The Company believes additional long-term financing will be required for the development of some of its future planned product introductions and to support its planned operations and capital expenditures in its core business relating to the purification, analysis and synthesis of biomolecules. The Company is actively seeking to raise additional capital through equity or debt financing or to enter into corporate partnering arrangements; however, there can be no assurances that this funding will be made available or that acceptable terms will be reached (see related discussion in Liquidity and Capital Resources section above). Patent and License Uncertainties. Proprietary rights relating to the Company's products will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. There can be no assurance that any pending patent applications filed by the Company will result in patents being issued or that any patents now or hereafter owned by the Company will afford protection against competitors. In the absence of patent protection, the Company's business may be adversely affected by competitors that independently develop functionally equivalent technology. The Company has established a policy of vigorously enforcing its patent rights (see "Legal Proceedings"). Pending Governmental Investigation. Since November 1994, the Securities and Exchange Commission (the "SEC") has been conducting an investigation into certain financial matters of the Company. If, after completion of its investigation, the SEC finds that violations of the federal securities laws have occurred, the SEC has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The SEC may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. The Company has been cooperating fully with the investigation. There can be no assurance as to the timeliness of the completion of this investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company (see "Legal Proceedings"). Intense Competition and Risk of Technological Obsolescence. The Company encounters, and expects to continue to encounter, intense competition in the sale of its current and future products. There can be no assurance that developments by others will not render the Company's products or technologies obsolete or non-competitive. Page 16 of 23 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1. Since November 1994, the Company has been responding to informal requests for information from the Securities and Exchange Commission (the "Commission") relating to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it had obtained a formal order of investigation so that, among other matters, it could utilize subpoena powers to obtain information relevant to its inquiry. The Commission has and may in the future utilize its subpoena powers to obtain information variously from officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of this investigation, or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. 2. On October 14, 1993, the Company filed suit against Pharmacia Biotech, Inc., a New Jersey corporation, together with certain of its affiliates and their parent Pharmacia AB, a Swedish corporation (collectively, "Pharmacia"), and Sepracor Inc., a Delaware corporation ("Sepracor"), in the United States District Court for the District of Massachusetts (Civil Action No. 93-12237-PBS) for willful infringement of the Company's US Patents Nos. 5,019,270 and 5,228,989 (collectively, the "Patents") covering the process of Perfusion Chromatography and the manufacture, sale and use of chromatography particles that enable Perfusion Chromatography. This lawsuit seeks to enjoin the defendants from infringing the Patents and asks for treble damages. On October 15, 1993, the Company filed a related action against Sepracor in the United States District Court for the District of Massachusetts (Civil Action No. 93- 12249-PBS) in which the Company claims that Sepracor has made false and misleading representations of fact with respect to the Company's products in violation of applicable state and federal law. On October 12, 1993, as a result of prior correspondence with the Company, Pharmacia filed a suit against the Company in the United States District Court for the District of New Jersey (Civil Action No. 93-4450 (HAA)) seeking a declaratory judgment: (i) that Pharmacia's products do not infringe the Patents and (ii) that the Patents are invalid and unenforceable. On January 18, 1994, the United States District Court for the District of New Jersey allowed the Company's motion to transfer all proceedings in Pharmacia's action to the United States District Court for the District of Massachusetts. By orders dated December 3, 1993 and March 29, 1994, the United States District Court for the District of Massachusetts has consolidated all three actions identified above for pretrial proceedings. Page 17 of 23 On May 19, 1994, the United States District Court for the District of Massachusetts allowed the Company's motion to join BioSepra Inc., which is partially owned by Sepracor ("BioSepra"), as a party and to amend the pleadings to assert claims against BioSepra for willful infringement of the Patents and for false and misleading advertising. The Company's claims against BioSepra are consolidated with claims against Sepracor and Pharmacia for pretrial proceedings. On October 5, 1994, the Court allowed the Company's motion to amend its pleadings to allege claims against Sepracor and BioSepra for infringement of United States Patent No. 5,030,352 (the "'352 Patent"), covering novel coatings for chromatography media, which is assigned to the Purdue Research Foundation and exclusively licensed to the Company. On January 24, 1995, the US Patent and Trademark Office issued a third patent assigned to the Company, US Patent No. 5,384,042 (the "'042 Patent"), covering the manufacture, sale and use of matrices that enable Perfusion Chromatography. On January 25, 1995, the Company filed a complaint in the United States District Court for the District of Massachusetts against Pharmacia, Sepracor and BioSepra alleging willful infringement of the '042 Patent. On February 14, 1995, the Court allowed an assented-to motion to consolidate that action, designated Civil Action No. 95-10157-PBS, with the pending actions described above. Pharmacia, Sepracor and BioSepra each have asserted counterclaims against the Company. On February 10, 1995, Sepracor and BioSepra filed a counterclaim against the Company alleging that its allegations that Sepracor and BioSepra have infringed the Patents and alleged statements concerning the litigation made to customers constitute unfair competition, commercial disparagement, unfair trade practices pursuant to Mass. Gen. Laws ch. 93A, tortious interference with customer relationships and violation of the Lanham Act. Sepracor requested relief in the form of an unspecified amount of damages, double or treble damages to the extent permitted by Mass. Gen. Laws ch. 93A, dismissal of all claims asserted by PerSeptive, and Sepracor's costs and attorney's fees. On March 6, 1995, Pharmacia filed a counterclaim alleging that the Company's allegations that Pharmacia has infringed the Patents and alleged statements concerning the litigation made to customers constitute unfair competition, commercial disparagement, unfair trade practices pursuant to Mass. Gen. Laws ch. 93A, and violation of the Lanham Act. Pharmacia requested relief in the form of an unspecified amount of damages, double or treble damages to the extent permitted by Mass. Gen. Laws ch. 93A, dismissal of all claims asserted by PerSeptive, and Pharmacia's costs and attorney's fees. Since the Court has bifurcated discovery on damages issues, Sepracor and Pharmacia have not quantified the amount of damages sought in their respective counterclaims. The Company has denied any liability on the counterclaims. Page 18 of 23 On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgment relating to the inventorship of the three Perfusion Chromatography patents, and granting the Defendants' motions for partial summary judgment that inventorship of those patents is improper for failure to name two or more persons as joint inventors. The Court, however, affirmed the Company's inventorship. On March 19, 1996, PerSeptive filed a Motion to Vacate the January 9 order and requested the Court to conduct an evidentiary hearing pursuant to 35 U.S.C. (S) 256 to determine whether the patents can and should be corrected by adding additional alleged inventors and, among other issues, if the patents can be corrected, whether the alleged additional inventors should be estopped from asserting any rights on account of their never having claimed to have been inventors, among other factors. On April 29, 1996, the Court denied the Motion to Vacate. An evidentiary hearing on the inventorship issue was conducted in May and June 1996. Post-hearing submissions were filed by the parties in July 1996 and closing arguments were heard by the Court on August 8, 1996. The Company has preserved its rights of appeal on a number of issues, including the Court's January 9, 1996 order that inventorship of the patents was improper for failure to name additional persons as joint inventors. The Company may incur substantial additional expenses relating to these lawsuits. There can be no assurance that the outcome of the litigation will not have a material adverse effect on the Company. The Company intends to continue vigorously pursuing this litigation. Page 19 of 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (a) The Company held an Annual Meeting of Stockholders (the "Meeting") on May 6, 1996. (b) Not Applicable. (c) The following matters were voted on at the Meeting: 1. To elect two members to the Board of Directors to serve for a three-year term as Class II Directors. 2. To consider and act upon the issuance of certain shares of the Company's Common Stock issued and issuable upon redemption of the Company's Series A Redeemable Convertible Preferred Stock, $.01 par value per share, which was issued to Millipore Corporation and an affiliate ("Millipore") as part of the consideration paid by the Company in the 1994 acquisition of the Company's synthesis products business from Millipore. 3. To consider and act upon an amendment to the Company's 1992 Stock Plan (the "Plan") increasing the number of shares of Common Stock available for issuance under the Plan from 2,900,500 to 3,585,550. 4. To consider and act upon an amendment to the Company's 1992 Non-Employee Director Stock Option Plan (the "Director Plan") increasing the annual grant under the Director Plan from 1,500 to 7,500 shares of the Company's Common Stock. 5. to ratify the selection of the firm of Coopers & Lybrand L.L.P. as auditors for the fiscal year ending September 30, 1996. Edwin M. Kania, Jr. was elected to the Board of Directors to serve for a three- year term as a Class II Director with 10,459,939 shares voting for and the votes of 1,278,827 shares withheld. There were no abstentions or broker non-votes. William F. Pounds was elected to the Board of Directors to serve for a three- year term as a Class II Director with 10,459,794 shares voting for and the votes of 1,278,972 shares withheld. There were no abstentions or broker non-votes. The issuance of shares of the Company's Common Stock issued and issuable upon redemption by Millipore of the Company's Series A Convertible Preferred Stock was approved with 7,891,890 shares voting for, 474,267 shares voting against and 38,936 shares abstaining. There were 3,333,673 broker non-votes. Page 20 of 23 The amendment to the Plan increasing the total number of shares of the Company's Common Stock reserved for issuance under the Plan from 2,900,500 to 3,585,550 was approved with 8,447,644 shares voting for, 3,210,143 shares voting against and 30,754 shares abstaining. There were 50,225 broker non-votes. The amendment to the Director Plan increasing the annual grant issuance under the Director Plan from 1,500 to 7,500 was approved with 10,161,582 shares voting for, 1,502,584 shares voting against and 25,975 shares abstaining. There were 48,625 broker non-votes. The selection of Coopers & Lybrand L.L.P. as the Company's auditors for the fiscal year ending September 30, 1996 was approved with 11,638,672 shares voting for, 25,184 shares voting against and 46,910 shares abstaining. There were 28,000 broker non-votes. (d) Not Applicable. Page 21 of 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K Current Report on Form 8-K dated June 28, 1996 relating to the license of certain technology to ChemGenics Pharmaceuticals, Inc. in exchange for securities in that company. [The remainder of this page is intentionally left blank.] Page 22 of 23 SIGNATURES - ---------- Pursuant to 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. PERSEPTIVE BIOSYSTEMS, INC. Date: August 14, 1996 By: /s/ Noubar B. Afeyan --------------- --------------------- Noubar B. Afeyan, Chief Executive Officer (Principal Executive Officer) By: /s/ Thomas G. Ruane ------------------- Thomas G. Ruane, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Page 23 of 23 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS SEP-30-1996 SEP-30-1995 OCT-01-1995 OCT-01-1994 JUN-30-1996 JUN-30-1995 6,686 12,215 9,901 11,601 16,428 17,865 0 0 22,957 22,911 58,142 66,505 34,846 35,584 0 0 124,614 138,209 37,237 39,409 33,780 32,559 27,538 25,992 0 0 172 140 1,912 (225) 124,614 138,209 56,601 50,262 66,702 65,276 27,865 24,066 41,273 36,803 53,566 47,311 0 0 2,190 1,138 (30,417) (20,095) 100 0 (30,517) (20,095) 0 0 0 0 0 0 (30,517) (20,095) (2.08) (1.81) (2.08) (1.81)
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