UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission File Number: 0-27854
BONE CARE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1527471
(State of (IRS Employer
Incorporation) Identification No.)
1600 Aspen Commons, Suite 300
Middleton, Wisconsin 53562
(Address, including zip code of
Registrant's principal executive offices)
608-662-7800
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |X| No | |
As of May 1, 2003, 14,215,372 shares of the registrant's common stock, no par
value, were outstanding.
BONE CARE INTERNATIONAL, INC.
FORM 10-Q
For the quarterly period ended March 31, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1 Financial Statements
Condensed Balance Sheets
March 31, 2003 and June 30, 2002, Unaudited 3
Condensed Statements of Operations
Quarters and Nine Months Ended
March 31, 2003 and 2002, Unaudited 5
Condensed Statements of Cash Flows
Nine Months Ended
March 31, 2003 and 2002, Unaudited 6
Notes to Condensed Financial Statements, Unaudited 7
Item 2 Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
Item 4 Controls and Procedures
13
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES
16
Certifications
17
EXHIBIT INDEX
19
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BONE CARE INTERNATIONAL, INC.
Unaudited Condensed Balance Sheets
---------------------------------------------------------------------------------------------------
ASSETS
---------------------------------------------------------------------------------------------------
March 31, June 30,
2003 2002
---------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 1,764,362 $ 2,023,969
Marketable securities 15,178,948 18,436,896
Accounts receivable, net of allowance for
doubtful accounts of $203,009 and $152,960
at March 31, 2003 and June 30, 2002,
respectively 2,468,275 4,285,569
Inventories 2,039,348 2,099,469
Other current assets 980,170 775,596
---------------------------------------------------------------------------------------------------
Total current assets 22,431,103 27,621,499
---------------------------------------------------------------------------------------------------
Long-term securities 914,657 3,719,796
Other long-term assets 110,300 -
Property, plant and equipment-at cost:
Leasehold improvements 588,632 588,632
Furniture and fixtures 543,782 452,345
Machinery and other equipment 2,886,485 2,317,405
---------------------------------------------------------------------------------------------------
4,018,899 3,358,382
Less accumulated depreciation and amortization 2,119,276 1,573,497
---------------------------------------------------------------------------------------------------
1,899,623 1,784,885
Patent fees net of accumulated amortization
of $1,099,907 at March 31, 2003 and
$988,026 at June 30, 2002 1,268,387 1,198,249
Goodwill 359,165 359,165
---------------------------------------------------------------------------------------------------
$26,983,235 $34,683,594
===================================================================================================
See the accompanying notes to condensed financial statements.
-3-
BONE CARE INTERNATIONAL, INC.
Unaudited Condensed Balance Sheets
---------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
------------------------------------------------------------------------------------------------------------------------
March 31, June 30,
2003 2002
------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 2,465,856 $ 1,769,665
Accrued liabilities:
Accrued clinical study and research costs 516,777 152,352
Compensation payable 1,257,613 509,677
Accrued health and dental costs 56,281 -
Other current liabilities 347 1,924
Allowance for sales returns 299,520 226,100
------------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,596,394 2,659,718
Long-term liabilities 676,868 -
Shareholders' equity:
Preferred stock-authorized 2,000,000 - -
shares of $.001 par value; none issued
Common stock-authorized 28,000,000 shares of no par value; issued and
outstanding 14,215,372 shares at March 31, 2003
and 14,156,722 at June 30, 2002 11,393,883 11,393,883
Additional paid-in capital 62,219,918 62,096,272
Accumulated deficit (51,903,828) (41,520,236)
Accumulated other comprehensive income - 53,957
------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 21,709,973 32,023,876
------------------------------------------------------------------------------------------------------------------------
$ 26,983,235 $ 34,683,594
========================================================================================================================
See the accompanying notes to condensed financial statements.
-4-
BONE CARE INTERNATIONAL, INC.
Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
--------------------------------- ---------------------------------
Revenues $ 3,078,022 $ 3,774,692 $ 12,238,435 $ 10,258,829
Operating expenses:
Cost of sales 1,527,174 889,957 4,496,618 2,276,675
Research and development 1,577,120 1,687,705 4,553,280 4,279,453
Sales and marketing 3,223,289 2,450,436 10,023,999 7,247,053
General and administrative 1,488,187 812,975 4,028,209 2,621,203
--------------------------------- ---------------------------------
7,815,770 5,841,073 23,102,106 16,424,384
--------------------------------- ---------------------------------
Loss from operations (4,737,748) (2,066,381) (10,863,671) (6,165,555)
Interest income 112,989 285,753 480,079 994,825
--------------------------------- ---------------------------------
Net loss $ (4,624,759) $ (1,780,628) $(10,383,592) $ (5,170,730)
================================= =================================
Net loss per common share - basic and diluted $ (0.33) $ (0.13) $ (0.73) $ (0.37)
================================= =================================
Weighted average number of common shares 14,168,652 14,124,449 14,160,893 14,061,066
See the accompanying notes to condensed financial statements.
-5-
BONE CARE INTERNATIONAL, INC.
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31, March 31,
2003 2002
------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(10,383,592) $ (5,170,730)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation of fixed assets 545,779 504,268
Amortization of patents 115,805 119,067
Loss on disposal of patents 47,853 4,890
Changes in assets and liabilities:
Accounts receivable 1,817,294 434,299
Inventories 60,121 (764,344)
Other current assets (204,574) 408,490
Other long-term assets (110,300) -
Accounts payable 696,191 (214,029)
Accrued liabilities 1,167,065 58,494
Long-term liabilities 676,868 -
Allowance for sales returns 73,420 (155,000)
------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,498,070) (4,774,595)
------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Maturity of marketable securities 6,009,130 4,347,748
Additions to property, plant and equipment (660,517) (735,129)
Patent fees (233,796) (281,330)
------------------------------------------------------------------------------------------------
Net cash provided by investing activities 5,114,817 3,331,289
------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from stock option exercises 123,646 819,745
------------------------------------------------------------------------------------------------
Net cash provided by financing activities 123,646 819,745
------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (259,607) (623,561)
Cash and cash equivalents at beginning of period 2,023,969 1,842,838
------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,764,362 $ 1,219,277
================================================================================================
See the accompanying notes to condensed financial statements.
-6-
BONE CARE INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The financial statements in this report have been prepared by Bone Care
International, Inc. without audit, pursuant to the rules of the Securities and
Exchange Commission for quarterly reports on Form 10-Q and do not include all of
the information and note disclosures required by accounting principles generally
accepted in the United States of America for annual financial statements. These
financial statements should be read in conjunction with the financial statements
and notes thereto for the year ended June 30, 2002, included in the Company's
Form 10-K as filed with the Securities and Exchange Commission on September 30,
2002.
In the opinion of management, information included in this report reflects
all adjustments, consisting of normal, recurring adjustments, necessary for a
fair presentation of results for these interim periods.
The results of operations for the interim period ended March 31, 2003 are
not necessarily indicative of the results to be expected for the entire fiscal
year ending June 30, 2003.
(2) REVENUE RECOGNITION POLICY
Bone Care records sales and the related costs of Hectorol Capsules and
Hectorol Injection based on shipments to its customers reduced by the estimated
future returns. The terms of sale for all product sales are F.O.B. shipping
point. Revenue is recognized at the time of shipment as risk of loss has
transferred to the customer, delivery has occurred, and collectibility is
reasonably certain. Customers have a right to return product if they are unable
to sell it prior to the expiration date. In accordance with Statement of
Financial Accounting Standard (SFAS) No. 48, "Revenue Recognition When Right of
Return Exists", Bone Care's March 31, 2003 balance sheet includes a $299,520
accrual for the estimated amount of future returns related to Hectorol Capsules
and Hectorol Injection.
(3) INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined
principally by the first-in, first-out method. Inventories are comprised of:
-----------------------------
March 31, June 30,
2003 2002
-----------------------------
Raw materials $ 1,417,803 $ 456,548
Work in process 233,751 610,171
Finished goods 387,794 1,032,750
-----------------------------
$ 2,039,348 $2,099,469
=============================
(4) PATENTS
Effective October 1, 2002, the Company revised its estimated useful lives
for amortizing patents from 10 years to 17 years. This change in estimated lives
was based on the average term patents are enforceable. The impact of this change
on the quarter and the nine months ended March 31, 2003 was to decrease the net
loss by $26,300 and $39,300, respectively.
-7-
(5) NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. Options to
purchase common stock have been excluded from the calculations of diluted
earnings per share as the impact of these options on diluted earnings per share
would be anti-dilutive. As of March 31, 2003 and 2002, 1,842,233 and 800,683
options, respectively, have been excluded as the impact would have been
anti-dilutive.
(6) COMPREHENSIVE INCOME
Total comprehensive loss was $4,642,745 and $1,839,254 for the three
months ended March 31, 2003 and 2002, respectively. Total comprehensive loss was
$10,437,549 and $5,171,448 for the nine months ended March 31, 2003 and 2002,
respectively. Comprehensive loss is comprised of operating results and changes
in unrealized gains and losses on available-for-sale securities.
(7) NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 requires that a guarantor must recognize, at the inception
of a guarantee, a liability for the fair value of the obligation that it has
undertaken in issuing a guarantee. FIN No. 45 also addresses the disclosure
requirements that a guarantor must include in its financial statements for
guarantees issued. The disclosure requirements in this interpretation are
effective for financial statements ending after December 15, 2002. The initial
recognition and measurement provisions of this interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002.
Bone Care has not issued guarantees of indebtedness as of March 31, 2003.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation" and provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS No. 123 to require more prominent and more
frequent disclosures in financial statements of the effects of stock-based
compensation. The interim disclosure requirements of SFAS No. 148 are effective
for interim periods beginning after December 15, 2002. Bone Care's stock-based
compensation related to employees and non-employee directors is recognized using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and thus there is no
compensation expense for options granted with exercise prices equal to the fair
value of Bone Care's common stock on the date of the grant.
-8-
Pro forma net loss and loss per share had the company elected to adopt
the "fair-value based method" of SFAS No. 123 are as follows:
Quarters Ended Nine Months Ended
-------------------------------------- ----------------------------------------
March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002
-------------------------------------- ----------------------------------------
Net Loss as reported $(4,624,759) $(1,780,628) $(10,383,592) $(5,170,730)
Deduct: Total stock-based
employee compensation expense (441,877) (277,691) (1,150,738) (818,403)
-------------------------------------- ----------------------------------------
Pro forma net loss $(5,066,636) $(2,058,319) $(11,534,330) $(5,989,133)
Net loss per share - basic and
diluted
As reported $ (0.33) $ (0.13) $ (0.73) $ (0.37)
Pro forma $ (0.36) $ (0.15) $ (0.81) $ (0.43)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Total revenues for the quarter ended March 31, 2003 decreased to $3,078,022
from $3,774,692 in the quarter ended March 31, 2002. The decrease was the result
of a $757,431 decline in sales of Hectorol Injection, offset by a $60,761
increase in sales of Hectorol Capsules. Sales of Hectorol Injection were
constrained in the quarter ended March 31, 2003 by an inventory shortage
resulting from the temporary interruption of supply that began in the prior
quarter. From December 16, 2002 to March 12, 2003, the Company was temporarily
unable to fill customer orders for Hectorol Injection because of the
manufacturing issues described below. Commercial shipments of Hectorol Injection
were resumed in mid-March. Total revenues for the nine months ended March 31,
2003 increased to $12,238,435 from $10,258,829 in the nine months ended March
31, 2002. The increase was the result of a $3,025,959 increase in sales of
Hectorol Injection, offset by a $1,046,353 decline in sales of Hectorol
Capsules. Hectorol Injection, launched in August 2000, generated revenues of
$1,930,391 and $2,687,822 during the quarters ended March 31, 2003 and 2002,
respectively, and $8,882,119 and $5,856,160 during the nine months ended March
31, 2003 and 2002, respectively. Hectorol Capsules generated revenues of
$1,147,631 and $1,086,870 during the quarters ended March 31, 2003 and 2002,
respectively, and $3,356,316 and $4,402,669 during the nine months ended March
31, 2003 and 2002, respectively. Hectorol Capsule revenues were adversely
impacted by the introduction of a competitive generic form of oral calcitriol, a
vitamin D3, in 2002.
Gross margins for the quarter ended March 31, 2003 were $1,550,848, or 50%
of revenues, compared to $2,884,735, or 76% of revenues, in the quarter ended
March 31, 2002. Gross margins for the nine months ended March 31, 2003 were
$7,741,817, or 63% of revenues, compared to $7,982,154, or 78% of revenues, in
the nine months ended March 31, 2002. Gross margins were lower as a percentage
of sales due to increased cost of Hectorol Injection by Draxis Pharma Inc. as
compared to production of Hectorol by Akorn, Inc., increased spending for
quality assurance, and costs associated with the validation activities for the
Hectorol Injection manufacturing process at our contract manufacturers.
Validation costs were $416,000 for the quarter ended March 31, 2003 and $979,000
for the nine months ended March 31, 2003. No validation costs were incurred in
the quarter and nine months ended March 31, 2002.
Research and development expenses were $1,577,120 in the quarter ended
March 31, 2003, and $1,687,705 in the quarter ended March 31, 2002. Research and
-9-
development expenses were $4,553,280 in the nine months ended March 31, 2003,
and $4,279,453 in the nine months ended March 31, 2002. The increase for the
nine months ended March 31, 2003 is attributable to consulting expenses related
to validating computer network systems used in operating clinical software, and
internal costs to file the supplemental new drug application (SNDA) for 0.5mcg
Hectorol Capsules.
Sales and marketing expenses increased $772,853 to $3,223,289 in the
quarter ended March 31, 2003, from $2,450,436 in the quarter ended March 31,
2002 and increased $2,776,946 to $10,023,999 in the nine months ended March 31,
2003, from $7,247,053 in the nine months ended March 31, 2002. These increases
are attributable to the addition of senior level positions within the sales and
marketing departments and increased market research and promotional spending
related to the peritoneal dialysis and chronic kidney disease markets.
General and administrative expenses increased $675,212 to $1,488,187 in the
quarter ended March 31, 2003, from $812,975 in the quarter ended March 31, 2002.
General and administrative expenses increased $1,407,006 to $4,028,209 in the
nine months ended March 31, 2003, from $2,621,203 in the nine months ended March
31, 2002. The increase was attributable to costs associated with a higher
compensation package for the new President and CEO and to increases in insurance
premiums for property, casualty, and liability policies.
Interest income decreased to $112,989 in the quarter ended March 31, 2003,
from $285,753 in the quarter ended March 31, 2002. Interest income decreased to
$480,079 in the nine months ended March 31, 2003, from $994,825 in the nine
months ended March 31, 2002. The decreases were due to lower average cash and
marketable security balances for the current year, as well as lower yields on
our investments.
Manufacturing
We have entered into a manufacturing agreement with Draxis Pharma Inc., a
subsidiary of Draxis Health Inc., to serve as a manufacturer of Hectorol
Injection. Draxis has completed production of the validation lots, which have
been used as commercial product. On February 6, 2003, the Company submitted to
the FDA a CBE-30 (changes being effective in 30 days) to add Draxis as an
additional manufacturing site for Hectorol Injection. This submission was
accepted by the FDA and allowed commercial distribution to begin in March 2003.
As previously disclosed, Akorn, Inc. (previously the sole manufacturer of
Hectorol Injection) agreed to halt production of Hectorol Injection until such
time as certain general deviations from the FDA's current Good Manufacturing
Practices could be remediated. The FDA's site inspection, which concluded in
February 2003, resulted in additional inspectional observations that preclude
submission at this time of a CBE-30 with respect to the manufacture and process
improvements at Akorn. Although Akorn is not currently producing Hectorol
Injection, it has completed production of the validation lots, which could
ultimately be used as commercial product.
Management believes that Draxis will have sufficient production capacity to
meet the currently expected demand from existing customers and patients and
allow the Company to begin to supply new patients and customers by the end of
the quarter ending June 30, 2003. Bone Care also intends to seek a backup
supplier for Hectorol Injection in addition to Draxis.
-10-
Liquidity and Capital Resources
Net cash used in operating activities was $5,498,070 for the nine months
ended March 31, 2003 and $4,774,595 for the nine months ended March 31, 2002.
The cash used by operating activities was used primarily to fund marketing and
commercialization efforts for Hectorol Capsules and Hectorol Injection as well
as research and development.
We have experienced negative cash flows from operations since our inception
and do not anticipate generating adequate positive cash flows to fund our
operations until we achieve, if ever, sufficient revenues from the sale of
Hectorol Capsules and Hectorol Injection. We have expended, and expect to
continue to expend in the future, substantial funds for our:
o research and development programs;
o pre-clinical and clinical testing;
o regulatory processes, including completion of FDA post-approval Phase
IV commitments for Hectorol Capsules and Hectorol Injection;
o manufacturing expenses, including validation costs for Hectorol IV at
our contract manufacturers;
o sales and marketing programs; and
o other operating expenses.
Cash, cash equivalents and short- and long-term marketable securities were
$17,857,967 at March 31, 2003 and $24,180,661 at June 30, 2002. Cash and cash
equivalents are currently invested primarily in short-term investment grade
United States government, municipal and corporate debt securities.
Bone Care's capital requirements will depend on numerous factors, including
the progress of commercialization and marketing activities; the progress of its
research and development programs; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in Bone Care's existing licensing relationships and the
terms of any new collaborative, licensing, co-promotion or distribution
arrangements that Bone Care may establish; the cost of manufacturing preclinical
and clinical products; and other factors not within our control.
Based upon our current plans, we believe that we will have sufficient funds
to meet our operating expenses and capital requirements for at least the next
year. If necessary, additional capital to fund our operations may be sought
through equity or debt offerings or other financings. There is no assurance that
such additional funds will be available on acceptable terms, if at all.
At June 30, 2002, we had state tax net operating loss carryforwards of
approximately $38,010,000 and state research and development tax credit
carryforwards of approximately $449,000, which will begin expiring in 2006. We
also had federal net operating loss carryforwards of approximately $39,352,000
and research and development tax credit carryforwards of approximately
$1,741,000, which will begin expiring in 2011.
-11-
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 to the Notes to
the Financial Statements for the year ended June 30, 2002 included in the
Company's Form 10-K as filed with the Securities and Exchange Commission on
September 30, 2002. Those financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. On an on-going
basis, we evaluate our estimates, including those related to our provision for
sales returns and allowances, allowance for doubtful accounts, and our estimate
of excess and obsolete inventory. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis of judgments regarding the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Sales Returns and Allowances
When revenue is recognized, Bone Care simultaneously records an estimate of
various costs, which reduce product sales. These costs include estimates for
product returns, chargebacks, rebates, and discounts. Estimates are based on a
variety of factors including historical return experience, rebate and chargeback
agreements, inventory levels at our wholesale customers, and estimated sales by
our wholesale customers to other third parties who have contracts with us.
Actual experience associated with any of these items may differ materially from
our estimates. Factors are reviewed that influence our estimates and, if
necessary, adjustments are made when we believe that actual product returns,
chargebacks, rebates, and discounts may differ from established reserves.
Allowance for Doubtful Accounts
An allowance is maintained for estimated losses resulting from the
inability of customers to make required payments. Credit terms are extended on
an uncollateralized basis primarily to wholesale drug distributors and
independent clinics throughout the United States. Management specifically
analyzes accounts receivable, historical bad debts, customer credit-worthiness,
percentage of accounts receivable by aging category, and changes in customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Historically, our actual losses from uncollectible
accounts have been immaterial.
Excess and Obsolete Inventory
Inventories are stated at the lower of cost or market, with cost determined
at standard cost which approximates actual cost. In evaluating whether inventory
is stated at the lower of cost or market, management considers such factors as
the amount of inventory on hand, expiration dates, and the estimated time to
sell such inventory. As appropriate, provisions are made to reduce inventories
to their net realizable value. Historically, cost of inventories that
potentially may not sell prior to expiration or are deemed of no commercial
value have been written-off when identified.
-12-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our sales from inception to date have been made to U.S. customers and, as a
result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. However,
in future periods, we expect to sell in foreign markets, including Europe and
Asia. Because our sales are made in U.S. dollars, a strengthening of the U.S.
dollar could make our products less competitive in foreign markets. At March 31,
2003, we did not hold any short- or long-term investments other than high-grade
investment securities planned to be held to maturity and, therefore, we do not
believe that short-term fluctuations of interest rates would materially affect
the value of our investments.
Item 4. Controls and Procedures
Within the last 90 days, the Company's management, including its chief
executive officer and chief financial officer, have conducted an evaluation of
effectiveness of disclosure controls and procedures pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934. Based on that evaluation, the chief
executive officer and chief financial officer concluded that the disclosure
controls and procedures are effective in ensuring that all material information
required to be filed in this quarterly report has been made known to them in a
timely fashion. There have been no significant changes in internal controls, or
in factors that could significantly affect internal controls, subsequent to the
date the chief executive officer and chief financial officer completed their
evaluation.
-13-
PART II - OTHER INFORMATION
BONE CARE INTERNATIONAL, INC.
Item 1. Legal Proceedings
Bone Care may be a defendant from time to time in actions arising
out of our ordinary course of business operations. In the opinion of
management, the outcome of pending claims is not likely to have a
material adverse effect on our financial statements.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. We have based these forward-looking
statements largely on our current expectations and projections about
future events and financial trends affecting the financial condition
of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about us, including,
among other things:
o general economic and business conditions, both nationally
and in our markets;
o our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
o anticipated trends in our business;
o existing and future regulations affecting our business;
o our early stage of development;
o the uncertainty of our future profitability;
o our ability to satisfy the FDA's conditions for marketing
approval for Hectorol;
o other risk factors
In addition, in this Quarterly Report, the words "believe,"
"may," "will," "estimate," "continue," "anticipate," "intend,"
"expect" and similar expressions, as they relate to us, our business
or our management, are intended to identify forward-looking
statements.
Unless otherwise required by law, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise after the
-14-
date of this Quarterly Report. However, we acknowledge our obligation
to disclose material developments related to previously disclosed
information. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in the Quarterly
Report may not occur and actual results could differ materially from
those anticipated or implied in the forward-looking statements.
Hectorol(R) is a registered trademark of Bone Care International,
Inc., in the United States, European communities, Japan, and several
other countries. Bone Care(R) is a registered trademark of Bone Care
International in the United States. HectorolTM is the brand name for
the active drug substance of our first product, doxercalciferol. This
Quarterly Report also includes trademarks of other companies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits furnished:
(99.1) Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code
(99.2) Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code
(b) Reports on Form 8-K
None
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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.
BONE CARE INTERNATIONAL, INC.
(Registrant)
Date: May 13, 2003 /S/ PAUL L. BERNS
--------------------------------
Paul L. Berns
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 2003 /S/ ROBERT A. BECKMAN
--------------------------------
Robert A. Beckman
Vice President - Finance
(Principal Financial and Accounting Officer)
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CERTIFICATIONS
I, Paul L. Berns, the President and Chief Executive Officer of Bone
Care International, Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. the registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/S/ PAUL L. BERNS
-------------------------------
Paul L. Berns
President and Chief Executive Officer
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CERTIFICATIONS
I, Robert A. Beckman, the Vice President-Finance of Bone Care
International, Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date; and
5. the registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/S/ ROBERT A. BECKMAN
--------------------------------
Robert A. Beckman
Vice President-Finance
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BONE CARE INTERNATIONAL, INC.
Exhibit Index
For the Quarterly Period Ended March 31, 2003
No. Description Page
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as enacted by
section 906 of the Sarbanes-Oxley Act of 2002....................... 20
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as enacted by
section 906 of the Sarbanes-Oxley Act of 2002....................... 21
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