SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the quarterly period ended March 31, 2000
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 0-18962
CYGNUS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2978092
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
400 Penobscot Drive, Redwood City, California 94063-4719
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (650) 369-4300
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
---- ----
Number of shares outstanding of each of the registrant's classes of common stock
as of April 24, 2000:
Common Stock - 25,739,640 shares
Total pages: 25
Page number of exhibit index: 25
CYGNUS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1: Financial Statements
Condensed Statements of Operations for the three-month periods
ended March 31, 2000 and 1999 (unaudited).............................................2
Condensed Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999.................................................................3
Condensed Statements of Cash Flows for the three-month periods
ended March 31, 2000 and 1999 (unaudited).............................................4
Notes to the Condensed Financial Statements (unaudited).................................5
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................9
Item 3: Quantitative and Qualitative Disclosures About Market Risk .............................21
PART II. OTHER INFORMATION
Item 1: Legal Proceedings ......................................................................22
Item 6: Exhibits and Reports on Form 8-K .......................................................22
SIGNATURES................................................................................................24
1.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CYGNUS, INC.
Condensed Statements of Operations
(unaudited)
(In thousands, except per share data)
Three months ended March 31,
2000 1999
-------- --------
Contract revenues $ 1,038 $ --
Costs and expenses:
Research and development 3,829 5,507
Marketing, general and administrative 1,908 1,027
-------- --------
Total costs and expenses 5,737 6,534
Loss from operations (4,699) (6,534)
Interest income/(expense), net (316) (381)
-------- --------
Loss from continuing operations before income tax $ (5,015) $ (6,915)
Provision for taxes (100) --
-------- --------
Loss from continuing operations (5,115) (6,915)
Discontinued operations:
Income from operations of discontinued segment -- 99
-------- --------
Net loss $ (5,115) $ (6,816)
======== ========
Net loss per share from continuing operations, basic and diluted $ (0.20) $ (0.32)
======== ========
Net income/(loss) per share from discontinued segment, basic
and diluted $ -- $ 0.01
======== ========
Net loss per share, basic and diluted $ (0.20) $ (0.31)
======== ========
Shares used in computation of net loss
per share, basic and diluted 25,527 21,733
======== ========
(See accompanying notes.)
2.
CYGNUS, INC.
Condensed Balance Sheets
(In thousands)
March 31, December 31,
2000 (unaudited) 1999
---------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $ 14,019 $ 28,677
Short-term investments 18,413 10,215
Trade accounts receivable 99 62
Prepaid expenses and other current assets 1,121 861
---------------------- ---------------------
Total current assets 33,652 39,815
Equipment and improvements:
Equipment and improvements, at cost 9,785 8,282
Construction in progress 3,495 4,417
---------------------- ---------------------
13,280 12,699
Less accumulated depreciation and amortization (6,908) (6,610)
---------------------- ---------------------
Net equipment and improvements 6,372 6,089
Unamortized portion of deferred financing costs and other
assets 1,031 1,072
---------------------- ---------------------
Total Assets $ 41,055 $ 46,976
====================== =====================
LIABILITIES AND NET CAPITAL DEFICIENCY:
Current liabilities:
Accounts payable $ 1,167 $ 2,002
Accrued compensation 1,380 2,919
Other accrued liabilities 932 640
Deferred revenue -- 900
Current portion of long-term debt 3,768 3,243
---------------------- ---------------------
Total current liabilities 7,247 9,704
Arbitration obligation, less current portion 23,000 23,000
Long-term portion of debt 1,764 3,088
Convertible Debentures, net of discount of $5,287 in 2000
and $5,595 in 1999 12,766 12,084
Other long-term liabilities 310 304
Stockholders' net capital deficiency:
Common stock 26 25
Additional paid-in-capital 179,831 177,576
Accumulated deficit (183,905) (178,790)
Accumulated other comprehensive income/(loss) 16 (15)
---------------------- ---------------------
Net capital deficiency (4,032) (1,204)
---------------------- ---------------------
Total liabilities and stockholders' net capital
deficiency $ 41,055 $ 46,976
====================== =====================
Note: The condensed balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
(See accompanying notes.)
3.
CYGNUS, INC.
Condensed Statements of Cash Flows
(unaudited)
(In thousands)
Three months ended March 31,
2000 1999
------------------ -------------------
Cash flows from operating activities:
Net loss $ (5,115) $ (6,816)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 276 477
Net decrease in assets 297 4,696
Net decrease in liabilities (2,639) (829)
------------------ -------------------
Net cash used in operating activities (7,181) (2,472)
------------------ -------------------
Cash flows from investing activities:
Capital expenditures (577) (1,332)
Purchases of investments (14,196) (2,701)
Maturity and sale of investments 6,000 3,702
------------------ -------------------
Net cash used in investing activities (8,773) (331)
------------------ -------------------
Cash flows from financing activities:
Issuance of common stock 2,096 2,015
Principal payments of long-term debt (800) (846)
Payment of capital lease obligations -- (105)
------------------ -------------------
Net cash provided by financing activities 1,296 1,064
------------------ -------------------
Net decrease in cash and cash equivalents (14,658) (1,739)
Cash and cash equivalents at beginning of period 28,677 10,219
------------------ -------------------
Cash and cash equivalents at end of period $ 14,019 $ 8,480
================== ===================
(See accompanying notes.)
4.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The condensed financial statements of Cygnus, Inc. (the "Company,"
"Cygnus," "us," "we," "our," etc.) as of and for the three-month periods ended
March 31, 2000 and 1999 included herein are unaudited, but include all
adjustments (consisting only of normal recurring adjustments) that the
management of Cygnus, Inc. believes necessary for a fair presentation of the
financial position as of the reported dates and the results of operations for
the respective periods presented. Interim financial results are not necessarily
indicative of results for a full year. The condensed financial statements should
be read in conjunction with the audited financial statements and related notes
for the year ended December 31, 1999 included in our 1999 Annual Report on Form
10-K.
Effective February 1, 2000, we dissolved our wholly owned subsidiaries,
which were inactive.
2. NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted
average number of shares of Common Stock outstanding. Shares issuable from stock
options, warrants and Convertible Debentures outstanding are excluded from the
diluted loss-per-share computation, as their effect is anti-dilutive.
3. COMPREHENSIVE INCOME
Comprehensive income includes all changes in stockholders' equity
during a period except those resulting from investments by owners and
distributions to owners. Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" (FAS 130), requires unrealized gains and losses
on our available-for-sale securities to be included in other comprehensive
income or loss. Unrealized gains or losses for the three-month periods ended
March 31, 2000 and March 31, 1999 were not material and total comprehensive loss
approximated net loss for each of these periods.
4. CONVERTIBLE DEBT NOTES
In February 1998 we entered into Note Purchase Agreements with certain
institutional investors to issue and sell approximately $43.0 million of Senior
Subordinated Convertible Notes, which were restructured on October 28, 1998. The
restructured Notes, which totaled $24.5 million, were divided into three
tranches. The first and second tranches were fully converted into Common Stock.
The third tranche had an original principal amount of $12.5 million and could
not have been converted into Common Stock until July 1, 1999, at a conversion
price to have been determined then. In June 1999 we entered into two new
financing arrangements: a Convertible Debenture and Warrant Purchase Agreement
and a Structured Equity Line Flexible
5.
Financing-Service Mark- Agreement in order to help finance the complete
redemption of the $12.5 million third tranche of the restructured Notes and to
provide additional capital.
CONVERTIBLE DEBT AGREEMENT
On June 29, 1999, we entered into a Convertible Debenture and Warrant
Purchase Agreement with institutional investors ("Investors") to issue and sell
$14.0 million principal amount of 8.5% Convertible Debentures Due June 29, 2004
("Convertible Debentures"). These Convertible Debentures are convertible into
shares of Common Stock at any time at a conversion price of $12.705 per share.
We received gross proceeds of $14.0 million from the issuance of the Convertible
Debentures and incurred debt issuance costs of $0.5 million. If we and the
Investors mutually agree, or if certain trading volume, pricing and other
conditions are met, we and/or the Investors will have the right to require the
sale to existing Investors of an additional $6.0 million in additional aggregate
principal amount of Convertible Debentures in two separate tranches of $3.0
million each (each an "Additional Tranche"), provided that the second Additional
Tranche notice date may not be earlier than sixty days after the first
Additional Tranche notice date. The conversion price for each Additional Tranche
will be the average of the closing bid prices for the ten trading days prior to
and including the respective Additional Tranche notice date and the ten trading
days subsequent to the respective Additional Tranche notice date ("Additional
Closing Price") multiplied by 110%. On September 29, 1999 we received $3.0
million in gross proceeds from the issuance of the first Additional Tranche due
September 29, 2004, with a conversion price of $11.8663 (determined by the above
market-based formula), and incurred debt issuance costs of $0.1 million. Neither
the June 29, 1999 nor the September 29, 1999 Convertible Debentures contained
any beneficial conversion features.
In conjunction with the issuance of Convertible Debentures in June 1999
and the first Additional Tranche in September 1999, we issued to the debenture
holders warrants to purchase approximately 606 thousand shares and 139 thousand
shares of Common Stock, at the exercise price of $13.86 per share and $16.18 per
share, respectively. Each tranche of warrants had a contractual term of five
years from the date of respective grant. At the respective dates of grant, the
fair values ascribed to these warrants were approximately $5.0 million and $1.1
million, respectively, based on a Black-Scholes valuation model, were recorded
as debt discount and are being amortized as additional interest expense over the
debt term. We recorded amortization of $0.3 million for the three months ended
March 31, 2000. As of March 31, 2000, the unamortized fair value amounted to
$5.3 million. We will be required to issue warrants if the second Additional
Tranche of the Convertible Debentures is sold. Such warrants will be priced at
150% of the respective Additional Closing Price. The number of additional
warrants to be issued will be determined by dividing 50% of the respective
Additional Tranche by the respective Additional Closing Price.
We also issued to the placement agent warrants to purchase 50 thousand
shares of Common Stock at the exercise price of $13.86 per share. At the date of
grant, the fair value ascribed to the warrants was approximately $417 thousand,
based on a Black-Scholes valuation model, and that amount was recorded as
deferred financing cost and is being amortized as additional interest expense
over the debt term. We recorded amortization of $21 thousand for the three
months ended March 31, 2000.
6.
The Convertible Debentures have a stated interest rate of 8.5% and an
effective interest rate of 18.20%. The effective interest rate includes a
non-cash charge of $6.6 million for the amortization of the implicit value of
warrants issued in connection with the Convertible Debentures.
STRUCTURED EQUITY LINE NOTES
On June 30, 1999, we also entered into a Structured Equity Line
Flexible Financing Agreement ("Equity Line") with certain institutional
investors ("Investors"). The Equity Line is effective for two years ("Commitment
Period") and allows us, at our sole discretion, to sell Common Stock with a
maximum aggregate issue price of $30.0 million over the Commitment Period. On
June 30, 1999, we received net proceeds of approximately $3.8 million, after
deducting the issuance costs, from the sale of approximately 346 thousand shares
of Common Stock (the "Initial Investment"). The number of shares of Common Stock
for the Initial Investment was determined on the basis of the average closing
bid price for the ten trading days prior to June 30, 1999 ("Initial Investment
Purchase Price"). Under the terms of the Equity Line, over a period of eighty
trading days following June 30, 1999 ("Initial Period"), the Investors were
required to deliver purchase notices from time to time for the aggregate amount
of the Initial Investment ($4.0 million) to purchase shares of our Common Stock.
The per share price for each such purchase notice equaled 98% of the average of
the two lowest daily trade prices during the six trading days immediately prior
to the respective purchase notice. The number of shares originally issued was
subject to an upward adjustment, if required, to match the aggregate number of
shares covered by the $4.0 million of purchase notices. We issued an additional
92 thousand shares to reflect the actual purchase prices on the purchase
notices.
On September 29, 1999, we received net proceeds of approximately $3.9
million, after deducting the issuance costs, from the sale of approximately 361
thousand shares of Common Stock ("Additional Investment") pursuant to an
amendment to the Equity Line agreement, which allowed for an Additional
Investment period of 110 days ("Additional Period"). The terms for this
Additional Investment are similar to those applied to the Initial Investment,
and the number of shares was adjusted upwards at the end of the Additional
Period, resulting in the issuance of an additional 92 thousand shares of Common
Stock.
After the Initial Period and the Additional Period, the original terms
of the Equity Line allowed us, on a monthly basis ("Investment Period"), to
elect at our sole discretion to sell up to $1.5 million ("Company Election") in
additional shares of Common Stock. In addition to the above and upon our
approval, the Investors were also allowed to elect to purchase an additional
$1.0 million ("Investor Election") of Common Stock in each Investment Period. In
March 2000 the Equity Line was amended to increase the maximum monthly Company
Election to $4.0 million and the maximum monthly Investor Election to $3.0
million; however, the maximum aggregate issue price of $30.0 million over the
Commitment Period remained unchanged. In each Investment Period in which we
elect to sell additional shares, the Investors will from time to time issue
purchase notices for the aggregate amount of the Company Election and the
Investor Election, if applicable. The per share price of Common Stock to be sold
for each such purchase notice will equal 98% of the average of the two daily low
trade prices during the six trading days
7.
immediately prior to the respective purchase notice. At the beginning of each
Investment Period, we can set a minimum trading price ("Floor Price") to be used
in determining the purchase price of our Common Stock. The Investors may require
the aggregate dollar amount of the Company Election and Investor Election for
any Investment Period to be less than requested, based on certain market trading
volume guidelines. In December 1999 we received net proceeds of approximately
$1.4 million, after deducting the issuance costs, from the sale of 100 thousand
shares of Common Stock pursuant to the Equity Line. In January 2000 we received
additional net proceeds of approximately $1.0 million, after deducting the
issuance costs, from the sale of approximately 59 thousand shares of Common
Stock pursuant to the Equity Line.
In conjunction with the Equity Line, in January 2000 we issued
five-year warrants to the Investors to purchase 95 thousand shares of Common
Stock at $11.51 per share. The price of the warrants is determined for each
calendar year and will equal 120% of the weighted average per share sales price
of all shares of Common Stock sold pursuant to the Equity Line that calendar
year. The number of shares will equal 1% of the aggregate proceeds received for
all shares sold pursuant to the Equity Line during the year. Warrants to
purchase a minimum of 120 thousand shares must be issued under the Equity Line
and, if at the end of the Commitment Period, warrants to purchase less than 120
thousand shares of Common Stock have been issued, we must issue a warrant to
purchase the number of shares equal to the difference at a price equal to 120%
of the average exercise price of all warrants previously issued pursuant to the
Equity Line.
5. STATEMENTS OF CASH FLOWS DATA
March 31, March 31,
2000 1999
----------------------------------
(in thousands)
Supplemental disclosure of cash flows information
Interest paid $ 147 $ 285
Foreign tax paid $ 100 $ --
8.
6. DISCONTINUED OPERATIONS
On December 15, 1999, we completed the sale of substantially all of our
drug delivery business segment assets to Ortho-McNeil Pharmaceutical, Inc.
("Ortho-McNeil"), a Johnson & Johnson company. Under the terms of our agreement
with Ortho-McNeil, we received $20 million in cash at closing, and Ortho-McNeil
may pay up to an additional $55 million in cash, contingent on the achievement
of certain milestones. The contingent payments relate to the achievement of
certain technical, regulatory and commercialization milestones related to the
EVRA--Trademark--(Johnson & Johnson, New Brunswick, New Jersey) transdermal
contraceptive patch. We are eligible to receive up to $14.8 million of these
contingent milestones in the year 2000; however, because the achievement of
these milestones is not within our control, we cannot predict the likelihood or
timing of these contingent payments in the year 2000 and beyond. The drug
delivery business has been accounted for as a discontinued operation and the
prior period's financial statements have been restated to report only continuing
operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS,
INCLUDING, BUT NOT LIMITED TO, THOSE SPECIFICALLY IDENTIFIED AS SUCH, THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT ON FORM
10-Q THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT, INCLUDING WITHOUT LIMITATION STATEMENTS REGARDING OUR EXPECTATIONS,
BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS REPORT ON FORM 10-Q ARE BASED ON INFORMATION
AVAILABLE TO US ON THE DATE HEREOF, AND WE ASSUME NO OBLIGATION TO UPDATE ANY
SUCH FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN THE "RISK FACTORS"
CONTAINED IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND ELSEWHERE IN THIS REPORT ON FORM 10-Q.
General
We are engaged in the development and manufacture of diagnostic medical
devices, utilizing proprietary technologies to satisfy unmet medical needs cost
effectively. Our current efforts are primarily focused on the
GlucoWatch--Registered Trademark-- system and enhancements thereto. The
GlucoWatch system is a frequent, automatic and non-invasive glucose monitoring
device intended for detecting trends and tracking patterns of glucose levels in
adults, 18 years and older, who have diabetes. Our GlucoWatch system, with its
durable biographer and consumable AutoSensor, represents a potential advance in
glucose monitoring technology, as compared to the currently prevailing "finger
stick" blood monitoring methods. The GlucoWatch system is designed to measure
glucose frequently, automatically and non-invasively through the ease and
convenience of a biographer device worn like a wristwatch. The device is
intended for use at home and in healthcare facilities to supplement, not
replace, information obtained from standard blood glucose monitoring devices. In
1999, we sold substantially all of our drug delivery business to Ortho-McNeil
Pharmaceutical, Inc. and chose to focus on diagnostic medical devices, the first
of which is a glucose monitoring system.
9.
In mid-1998 we established product specifications and manufacturing
processes for the GlucoWatch system that the United States Food and Drug
Administration (FDA) is currently reviewing. Since that time, we have developed,
and continue to develop, a number of enhancements to the GlucoWatch system and
our manufacturing processes. Certain of these product and manufacturing
enhancements will be submitted to the FDA in the form of one or more supplements
to our existing premarket approval (PMA) application shortly after PMA approval,
assuming the FDA approves our existing PMA. Future supplements will include
enhancements such as increasing product performance, increasing user
convenience, increasing manufacturing capacity, and lowering manufacturing
costs. We are in the early developmental stages for a future telemetric product
that allows both greater flexibility in the location of the glucose extraction
component and a new form of the monitor that stores and displays glucose data.
There have been no sales of our glucose monitoring systems to date; however, on
December 6, 1999, we received a unanimous recommendation for approval of our PMA
for the GlucoWatch system from the FDA's Clinical Chemistry and Clinical
Toxicology Devices Panel of the Medical Devices Advisory Committee subject to
certain conditions. The FDA still needs to issue its decision on approval of our
PMA. Also, in December 1999, we received a CE Certificate for the GlucoWatch
system, indicating that the product has met the essential requirements and other
criteria of the European Community Directive 93/42/ECC, Annex V, Section 3.2.
The CE Certificate is required for selling products in the European Community.
Our GlucoWatch system is a revolutionary product, and its commercialization will
depend on successful implementation of manufacturing, sales, marketing and
reimbursement plans.
Our results of operations vary significantly from year to year, and
from quarter to quarter, and in the past have depended on, among other factors,
the signing of new product development agreements and the timing of recognizing
payment amounts specified thereunder, the timing of recognizing license or
distribution fees and cost reimbursement payments made by pharmaceutical
licensees, and the demand for our products. The level of revenues in any given
period is not necessarily indicative of expected revenues for future periods. In
1999, 97% of our revenues were attributable to one customer. We have incurred
net losses each year since our inception and do not believe we will achieve
profitability in 2000. At March 31, 2000 our accumulated deficit and net capital
deficiency were approximately $183.9 million and $4.0 million, respectively.
Results of Operations
COMPARISON FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
CONTRACT REVENUES for the quarter ended March 31, 2000 were $1.0
million, compared to $0.0 million for the quarter ended March 31, 1999. The
increase in contract revenue was primarily due to the amortization of a
milestone payment received in 1999 under our collaboration agreement with
Yamanouchi Pharmaceutical Co., Ltd. for the commercialization of the GlucoWatch
system in Japan. Under the Yamanouchi agreement, we are eligible to receive
additional milestone payments prior to commercialization and to receive a
percentage of the product's future commercial success in Japan. Yamanouchi's
option to include Korea within the collaboration agreement expired March 31,
2000.
10.
We have completed the $0.1 million, six-month Phase I Small Business
Innovative Research (SBIR) Grant for "High Performance Biosensor Electrode
Materials," which we received in September 1999 from the National Institute of
Diabetes and Kidney Diseases division of the National Institutes of Health, and
recognized this amount over a six-month period ended March 31, 2000.
Contract revenues, if any, are expected to fluctuate from quarter to
quarter and from year to year, and future contract revenues, if any, cannot be
reasonably predicted. The contributing factors to achieving contract revenues
include, but are not limited to, achievement of milestones under our current
contract, strategic decisions on self-funding certain projects, and future
successes, if any, in finalizing new collaborative agreements. We are unable to
predict to what extent a termination of our existing contract or new
collaborative agreements, if any, would impact overall contract revenues in 2000
and future periods.
RESEARCH AND DEVELOPMENT EXPENSES for the quarter ended March 31, 2000
were $3.8 million, compared to $5.5 million for the quarter ended March 31,
1999. This decrease reflects a reduction in clinical studies and development
expenditures associated with the GlucoWatch system.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES for the quarter ended
March 31, 2000 were $1.9 million, compared to $1.0 million for the quarter ended
March 31, 1999. The increase is primarily due to expenses incurred for
pre-commercialization and other general support activities, and non-cash,
stock-based compensation.
INTEREST INCOME/(EXPENSE), NET. We incurred net interest expense of
$0.3 million for the quarter ended March 31, 2000, which was consistent with the
net expense of $0.4 million for the quarter ended March 31, 1999.
Liquidity and Capital Resources
Cash, cash equivalents and investment balances as of March 31, 2000,
totaled $32.4 million. Through March 2000 we have received net proceeds of
approximately $105.5 million from public offerings of our Common Stock; and we
have financed approximately $11.1 million of manufacturing and research
equipment under capital loan and lease arrangements. Borrowings under those
arrangements are secured by specific Cygnus assets. We have an outstanding bank
loan agreement with Silicon Valley Bank that requires monthly principal and
interest payments through November 2001, in addition to compliance with various
financial covenants. As of March 31, 2000, there was $5.0 million outstanding
under this agreement, and borrowings are secured by specific Cygnus assets.
We have the second Additional Tranche of $3.0 million available under
our 1999 Convertible Debenture and Warrant Purchase Agreement, and we have $19.5
million remaining under our 1999 Structured Equity Line Flexible Financing
Agreement.
11.
Net cash used in operating activities for the quarter ended March 31,
2000 was $7.2 million, compared with net cash used of $2.5 million for the
quarter ended March 31, 1999. Cash used in operating activities during the
quarter ended March 31, 2000 was primarily due to the net loss from continuing
operations of $5.1 million, and a decrease in accrued compensation of $1.5
million and deferred revenue of $0.9 million. Cash used in operating activities
during the quarter ended March 31, 1999 was primarily due to the Company's net
loss of $6.8 million and a decrease in deferred compensation and other long term
liabilities of $4.1 million, offset by a decrease in deferred compensation,
notes receivable, prepaid expenses and other assets of $4.1 million and in
inventories of $0.8 million and an increase in accounts payable and other
liabilities of $2.0 million and in deferred revenue of $1.3 million.
The current level of cash used in operating activities is not
necessarily indicative of the level of future cash usage. We expect an increase
in operating cash usage for 2000.
Net cash used in investing activities of $8.8 million for the quarter
ended March 31, 2000 resulted primarily from net purchases of investments of
$8.2 million and capital expenditures of $0.6 million. Net cash used in
investing activities of $0.3 million for the quarter ended March 31, 1999
resulted primarily from capital expenditures of $1.3 million, offset by net
maturity and sales of investments of $1.0 million.
Net cash provided by financing activities of $1.3 million for the
quarter ended March 31, 2000 included gross proceeds of $1.0 million from the
January 2000 sale of Common Stock under our 1999 Structured Equity Line Flexible
Financing Agreement and additional stock proceeds of $1.1 million, offset by
long-term debt repayments of $0.8 million. Net cash provided by financing
activities of $1.1 million for the quarter ended March 31, 1999 included
additional stock proceeds of $2.0 million, offset by long-term debt and capital
lease repayments of $0.8 million and $0.1 million, respectively.
Our long-term capital expenditure requirements will depend upon
numerous factors, including, but not limited to: (i) the progress of our
research and development programs, (ii) the time required to obtain regulatory
approvals, (iii) the resources that we devote to the development of self-funded
products, (iv) proprietary manufacturing methods and advanced technologies, (v)
our ability to obtain any additional collaborative agreements, (vi) the
additional expenditures to support the manufacture of new products, if and when
approved, and (vii) possible acquisitions of products and technologies. As we
evaluate the progress of our development projects (in particular the GlucoWatch
system and our enhanced glucose monitoring products in development), our
commercialization plans and the lead time to set up manufacturing capabilities,
we may commence long-term planning for another manufacturing site. Nevertheless,
we believe that such long-term planning will not result in any material impact
on cash flows and liquidity for the next twelve months.
Based upon current expectations for operating losses and projected
short-term capital expenditures, we believe that existing cash, cash equivalents
and investments of $32.4 million as of March 31, 2000--when coupled with cash
from public financings (including debt or equity financings), any potential
collaborations and earnings from investments--will be sufficient to
12.
meet our operating expenses, debt servicing and repayments and capital
expenditure requirements at least for the next twelve months. However, there can
be no assurance that we will not require additional financing, depending upon
future business strategies, manufacturing and commercialization efforts, results
of clinical trials, management decisions to accelerate certain research and
development programs, and other factors.
Impact of Year 2000
In prior years we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999 we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and we believe these systems
successfully responded to the Year 2000 date change. We expensed approximately
$150 thousand during 1999 in connection with remediating our systems. We are not
aware of any material problems resulting from Year 2000 issues, either with our
products and our internal systems or with the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
Risk Factors
WE WISH TO CAUTION STOCKHOLDERS AND INVESTORS THAT THE FOLLOWING
IMPORTANT FACTORS, AMONG OTHERS, IN SOME CASES HAVE AFFECTED, AND IN THE FUTURE
COULD AFFECT, OUR ACTUAL RESULTS AND COULD CAUSE OUR ACTUAL RESULTS FOR 2000 AND
BEYOND TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS MADE BY OR ON BEHALF OF CYGNUS. THE STATEMENTS UNDER THIS CAPTION ARE
INTENDED TO SERVE AS CAUTIONARY STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THE FOLLOWING INFORMATION IS NOT
INTENDED TO LIMIT IN ANY WAY THE CHARACTERIZATION OF OTHER STATEMENTS OR
INFORMATION UNDER OTHER CAPTIONS AS CAUTIONARY STATEMENTS FOR SUCH PURPOSE.
We may not receive FDA approval on our products.
Although in December 1999 the FDA's Clinical Chemistry and Toxicology
Devices Panel of the Medical Devices Advisory Committee recommended the
GlucoWatch system for approval for sale with three conditions, there can be no
assurance that we can meet these conditions or, if we can, that the
recommendation of the Advisory Committee will result in the FDA deciding to
approve the product. Furthermore, as we seek regulatory approval for
enhancements and possible manufacturing changes to the GlucoWatch system through
the PMA supplement process, there can be no assurance that such supplements will
be approved or that one or more new PMAs will not need to be filed. The timing
for approval of PMA supplements could result in substantial delays in the
introduction of product enhancements and our capability to manufacture large
quantities of AutoSensors at reduced cost. Even if we receive the necessary
regulatory approvals for the GlucoWatch system, there can be no assurance that
unforeseen problems will not occur in product manufacturing and commercial
scale-up or marketing or product distribution. Any such occurrence could
significantly delay the commercialization of the GlucoWatch system or prevent
its market introduction entirely. Furthermore, even if the
13.
GlucoWatch system is successfully developed, the commercial success of the
GlucoWatch system will depend on its acceptance in the market.
Our product pipeline is severely limited.
With the sale of substantially all of our drug delivery business
segment assets to Ortho-McNeil Pharmaceutical, Inc. and the termination of the
remaining drug delivery projects, we are now exclusively focused on diagnostic
medical devices, initially on a line of frequent, automatic and non-invasive
glucose monitoring devices. There is an inherent risk in not having a broad base
of products in development and we cannot assure you that we will be successful
with this narrow, nondiversified line of products.
We do not have medical device marketing, distribution, manufacturing or sales
experience.
We do not have any experience marketing, distributing, manufacturing or
selling medical device products. To successfully market, distribute, manufacture
and sell the GlucoWatch system and our other glucose monitoring products under
development, we must either develop a more extensive capability for marketing,
distributing, manufacturing and sales or enter into arrangements with third
parties to market, distribute, manufacture and sell our products. We cannot
assure you that we will be able to successfully develop a more extensive
marketing, distributing, manufacturing and sales capabilities or that we will
enter into acceptable marketing, distributing, manufacturing and sales
agreements with third parties. If we maintain our own marketing, distributing,
manufacturing and sales capabilities, we will compete with other companies that
have experienced and well-funded marketing, distributing, manufacturing and
sales operations. If we enter into a marketing arrangement with a third party,
any revenues we receive will depend on the third party, and we will likely have
to pay a sales commission or similar amount to the third party. We may be unable
to successfully commercialize our products after FDA approval or may experience
delays in commercialization.
We cannot predict the market acceptance of our products.
We are focusing our efforts predominantly on a line of frequent,
automatic, and non-invasive glucose monitoring devices. No one can predict
market acceptance or penetration of such products, given that they are entirely
different from any glucose diagnostic product currently on the market. There is
a risk in introducing a very new type of product in a market of established
finger stick glucose monitors, and we cannot assure you that our products will
be accepted or to what degree they will be accepted. Additionally, some of our
competitors have announced, and others may be developing, new glucose monitoring
devices that are frequent, automatic, and non-invasive (or minimally invasive,
semi-invasive or less-invasive). We cannot predict what impact the introduction
of competing products will have on our market sales.
14.
We depend on third-party suppliers.
The GlucoWatch system is manufactured from components purchased from
outside suppliers, most of which are our single source for such components. In
the event that we are unable, for whatever reason, to obtain these components
from our suppliers or that the components obtained from these suppliers do not
pass quality standards, we will be required to obtain the components from
alternative suppliers. Additionally, we cannot assure you that, in the event a
current supplier were unable to meet our component requirements, we would be
able to rapidly find another supplier of the particular component or that the
alternate supply would be at the same price or have the same lead time. Any
interruption in the supply of the GlucoWatch system components or the pricing of
these components could have a material effect on our business, financial
condition and results of operations.
We face intense competition.
The medical device industry in general, and the market in which we
expect to offer the GlucoWatch system in particular, is intensely competitive.
Even if we successfully develop, gain FDA approval for and manufacture the
GlucoWatch system, we will compete with other providers of personal glucose
monitors. A number of our competitors are currently marketing traditional finger
stick glucose monitors. These monitors are widely accepted in the healthcare
industry and have long histories of accuracy and effective use. Furthermore, a
number of companies have announced that they are developing products that permit
less painful or painless, as well as continual or continuous, glucose
monitoring. Accordingly, we expect competition to increase. Many of our
competitors have substantially greater resources than we do and have greater
name recognition and lengthier operating histories in the healthcare industry.
We cannot assure you that we will be able to compete effectively against our
competitors. Additionally, we cannot assure you that the GlucoWatch system or
our other enhanced products under development will replace any currently used
devices or systems. Furthermore, we cannot assure you that our competitors will
not succeed in developing, even before we develop and commercialize the
GlucoWatch system or our other enhanced products under development, devices and
technologies that permit more efficient and less expensive glucose monitoring
devices. Pharmaceutical or other healthcare companies may also develop
therapeutic drugs, treatments or other products that will substantially reduce
the prevalence of diabetes or otherwise render our products obsolete.
15.
We depend on proprietary technology.
Our success depends in large part on our ability to obtain patent
protection for our products, preserve our trade secrets and operate without
infringing upon the proprietary rights of others, both in the U.S. and abroad.
Currently, patent applications in the U.S. are maintained in secrecy until
issuance and publication of discoveries in the scientific or patent literature
tends to lag behind actual discovery by several months. Thus, we cannot be
certain that we were the first to file patent applications on our inventions or
that we will not infringe upon third-party patents. We cannot assure you that
any patents will issue or will be upheld with respect to any of our patent
applications or that any patents will provide competitive advantages for our
products or will not be challenged or circumvented by our competitors. We also
rely on trade secrets and proprietary know-how that we seek to protect, in part,
by confidentiality agreements with our suppliers, employees and consultants. We
cannot assure you that these agreements will not be breached, that we would have
adequate remedies for any breach or that our trade secrets will not otherwise
become known or be independently developed by our competitors. Any litigation,
in the U.S. or abroad, as well as foreign opposition and/or domestic
interference proceedings, could result in substantial expense to us and
significant diversion of effort by our technical and management personnel. We
may resort to litigation to enforce our patents or protect trade secrets or
know-how, as well as to defend against infringement charges. A negative
determination in such proceedings could subject us to significant liabilities or
require us to seek licenses from third parties. Although patent and intellectual
property disputes in the medical device area have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, we cannot
assure you that necessary licenses would be available to us on satisfactory
terms, if at all. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling certain of our products, and could materially
adversely affect us.
We depend on collaborative arrangements.
If we commercialize our GlucoWatch system, we will depend upon
Yamanouchi Pharmaceutical Co., Ltd. to market and distribute the GlucoWatch
system in Japan. We do not have any marketing or distribution agreements for the
GlucoWatch system other than the Yamanouchi collaboration. One of our priorities
is to establish an alliance or alliances for the commercialization of the
GlucoWatch system in North America and Europe. The purpose of such an alliance
or alliances is for us to secure certain commercialization functions, such as
distribution, sales and customer service. We are in discussions with several
companies regarding this objective. Some of the companies are international in
scope and would provide the requisite commercialization functions worldwide;
however, it is not likely that such a worldwide commercialization partner, if
obtained, will be in place before we receive FDA approval, assuming such
approval occurs and is in second quarter 2000. There can be no assurance that we
will enter into an agreement with a worldwide commercialization partner. Other
companies focus on certain geographies and/or certain commercialization
functions. We are evaluating out-sourced capabilities for launch without a
worldwide commercialization alliance. There can be no assurance that we will be
able to out-source certain commercialization capabilities for launch. We cannot
assure you that such third parties will not, for competitive reasons, support,
directly or
16.
indirectly, a company or product that competes with one of our products.
Furthermore, any dispute between us and such a third party might require us to
initiate or defend against expensive litigation or arbitration proceedings. If
such a third party terminates an arrangement, cannot fund or otherwise satisfy
its obligations under its arrangements, or significantly disputes or breaches a
contractual commitment, then we would likely be required to seek an alternative
third party. We cannot assure you that we would be able to reach agreement with
a replacement third party. If we were unable to find a replacement third party,
we might not be able to perform or fund the activities of the current third
party. Even if we were able to perform and fund these activities, our capital
requirements would increase substantially. Additionally, we may choose to
self-fund certain research and development projects in order to exploit our
technologies. If these activities result in a commercial product, they will help
our long-term operating results but will negatively affect our short-term
operating results. Furthermore, as discussed above, we lack marketing,
manufacturing, distribution and sales experience in the medical device field.
Third parties may not reimburse patients, hospitals and physicians for the costs
of medical devices.
Successful commercialization of our products may depend in part on the
availability of reimbursement from third-party healthcare payers, such as
private insurance plans and the government. There can be no assurance that such
reimbursement will be available. Third-party payers are increasingly attempting
to contain healthcare costs by limiting both coverage and the level of
reimbursement for new therapeutic and diagnostic products. There can be no
assurance that adequate levels of reimbursement will be available to enable us
to achieve market acceptance of the GlucoWatch system or other new products
under development or to maintain price levels sufficient to realize an
appropriate return on our investment. In certain international countries, the
period of time needed to obtain such reimbursement can be lengthy. We may delay
the launch of our products in certain countries until eligibility for
reimbursement is established. This could potentially harm our business,
financial condition and results of operations.
17.
We may need additional financing and it may not be available.
In order to continue to develop our diagnostic products, we will
require substantial resources to conduct research and development and clinical
trials necessary to bring our products to market and to establish production and
marketing capabilities. We may seek additional funding through public or private
financings, including debt or equity financings. We may also seek other
arrangements, including collaborative arrangements. Any additional equity
financings may dilute the holdings of current stockholders. Debt financing, if
available, may restrict our ability to issue dividends in the future and take
other actions. We may not be able to obtain adequate funds when we need them
from financial markets or arrangements with commercialization partners or other
sources. Even if funds are available, they may not be on acceptable terms. If we
cannot obtain sufficient additional funds, we may have to delay, scale back or
eliminate some or all of our research and product development programs or
license or sell products or technologies that we would otherwise seek to develop
ourselves. We believe that our existing cash, cash equivalents and investments,
plus cash from revenues, other fundings (such as financings or potential product
funding collaborations), and earnings from investments, will suffice to meet our
operating expenses, debt servicing and repayments, and capital expenditure
requirements at least for the next twelve months. The amounts and timing of
future expenditures will depend on progress of ongoing research and development,
results of clinical trials, rates at which operating losses are incurred,
executing possible commercialization agreements, developing our products,
manufacturing of the GlucoWatch system, the FDA regulatory process, and other
factors, many of which are beyond our control.
We are highly leveraged and may be unable to service our debt.
As of March 31, 2000, we had indebtedness of approximately $46.6
million. The degree to which we are leveraged could materially adversely affect
our ability to obtain financing for working capital, commercialization of
products or other purposes and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt service
obligations depends upon our future performance, which will depend upon
financial, business and other factors, many of which are beyond our control.
Although we believe our cash flows will be adequate to meet our interest
payments, we cannot assure you that we will continue to generate cash flows in
the future sufficient to cover our fixed charges or to permit us to satisfy any
redemption obligations pursuant to our indebtedness. If we cannot generate cash
flows in the future sufficient to cover our fixed charges or to permit us to
satisfy any redemption obligations pursuant to our indebtedness, and we cannot
borrow sufficient funds either under our credit facilities or from other
sources, we may need to refinance all or a portion of our existing debt, to sell
all or a portion of our assets, or to sell equity securities. There is no
assurance that we could successfully refinance, sell our assets or sell equity
securities, or, if we could, we cannot give any assurance as to the amount of
proceeds we could realize. In the event of insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding-up of our business or upon default or
acceleration relating to our debt obligations, our assets will first be
available to pay the amounts due under our debt obligations. Holders of Common
Stock would only receive the assets remaining, if any, after payment of all
indebtedness and any Preferred Stock.
18.
We have incurred substantial losses, have a history of operating losses, have an
accumulated deficit and expect continued operating losses.
We reported a net loss from continuing operations of $5.1 million
for the quarter ended March 31, 2000 and have experienced annual operating
losses since our inception. We expect to continue to incur operating losses
at least until we have significant sales, if we ever do, of the GlucoWatch
system. We cannot assure you that we will generate significant revenues or
achieve profitability. We do not have experience in manufacturing, marketing
or selling our medical device products. Our future development efforts may
not result in commercially viable products. We may fail in our efforts to
introduce our products or to obtain required regulatory clearances. Our
products may never gain market acceptance, and we may never generate revenues
or achieve profitability. Our revenues to date have been derived primarily
from product development and licensing fees related to our products under
development and manufacturing and royalty revenues from our discontinued
operations, including Nicotrol--Registered Trademark-- (Pharmacia AB,
Stockholm, Sweden) nicotine patch and the Fempatch--Registered Trademark--
(Warner-Lambert Co., Morris Plains, New Jersey) system. As a result of the
sale of our drug delivery business, we will no longer receive manufacturing
revenue or royalty payments from the Nicotrol patch or the Fempatch system.
If we obtain regulatory approvals, we expect that a substantial portion of
our future revenues will be derived from sales of the GlucoWatch system and
other diagnostic products currently under development.
We may be subject to product liability claims.
The design, development, manufacture and use of our medical products
involve an inherent risk of product liability claims and associated adverse
publicity. Producers of medical products may face substantial liability for
damages in the event of product failure or allegations that the product caused
harm. We currently maintain product liability insurance, but it is expensive and
difficult to obtain and may not be available in the future on acceptable terms.
We cannot assure you that we will not be subject to product liability claims,
that our current insurance will cover any claims, or that adequate insurance
will continue to be available on acceptable terms in the future. In the event we
are held liable for damages in excess of the limits of our insurance coverage,
or if any claim or product recall creates significant adverse publicity, our
business, financial condition and results of operations could be materially
adversely affected.
We may not be able to retain or hire key personnel.
Our ability to operate successfully and manage our potential future
growth significantly depends upon retaining key scientific, technical, sales,
marketing, managerial and financial personnel, and attracting and retaining
additional highly qualified scientific, technical, sales, marketing, managerial
and financial personnel. We face intense competition for qualified personnel in
these areas, and we cannot assure you that we will be able to attract and retain
qualified personnel. The loss of key personnel or our inability to hire and
retain additional qualified personnel in the future could adversely affect our
business, financial condition and operating results.
19.
Our stock price is volatile.
The trading price of our Common Stock fluctuates substantially in
response to factors such as, but not limited to, announcements by us or our
competitors of results of regulatory approval filings or clinical trials or
testing, developments or disputes governing proprietary rights, technological
innovations or new commercial products, government regulatory action, general
conditions in the medical technology industry, changes in securities analysts'
recommendations, or other events or factors, many of which are beyond our
control. In addition, the stock market in general has experienced extreme price
and volume fluctuations in recent years and even in recent months that have
particularly affected the market prices of many medical technology companies,
unrelated to the operating performance of these companies. Fluctuations or
decreases in the trading price of our Common Stock may adversely affect the
market for our Common Stock. In the past, following periods of volatility in the
market price for a company's securities, securities class action litigation
often has been instituted. Such litigation could result in substantial costs and
a diversion of management attention and resources, which could have a material
adverse effect on our business, financial condition and operating results.
Our Restated Certificate of Incorporation and Bylaws have anti-takeover
provisions.
Our Restated Certificate of Incorporation and Bylaws contain several
provisions that may make the acquisition of control of Cygnus more difficult or
expensive. The Certificate of Incorporation and Bylaws, among other things: (i)
provide that directors may be removed only for cause and only upon the
affirmative vote of the holders of at least a majority of the outstanding shares
of voting stock entitled to vote for such directors, (ii) permit the remaining
directors (but not the stockholders, unless the directors so resolve) to fill
vacancies and newly created directorships on the Board, (iii) eliminate the
ability of stockholders to act by written consent and (iv) require the vote of
stockholders holding at least 66 2/3% of the outstanding shares of voting
stock to amend, alter or repeal the Bylaws and certain provisions of the
Restated Certificate of Incorporation, including the provisions described in (i)
through (iv). Such provisions may make the removal of incumbent directors more
difficult and time consuming and may have the effect of discouraging a tender
offer or other takeover attempt not previously approved by the Board of
Directors. Under the Restated Certificate of Incorporation, the Board of
Directors also has the authority to issue shares of Preferred Stock in one or
more series and to fix the powers, preferences and rights of any such series
without stockholder approval. The Board of Directors could, therefore, issue,
without stockholder approval, Preferred Stock with voting and other rights that
could adversely affect the voting power of the holders of Common Stock and could
make it more difficult for a third party to gain control of Cygnus. In addition,
we have adopted a Stockholder Rights Plan which, under certain circumstances,
would significantly dilute the equity interest of persons seeking to acquire
control over us without the prior approval of the Board of Directors.
20.
We do not pay dividends.
We have never declared or paid cash dividends on our Common Stock. Our
current bank term loan agreement precludes us from paying dividends to
stockholders. We currently intend to retain any earnings for use in our business
and therefore do not anticipate paying any dividends in the future.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in our Annual Report on Form 10-K for the year
ended December 31, 1999.
21.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
The following exhibits are filed herewith or incorporated by reference:
3.01 Bylaws of the Registrant, as amended.
3.02 Restated Certificate of Incorporation of the Registrant, as
amended to date.
4.01 Specimen of Common Stock certificate of the Registrant,
incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement Form S-1 No. 33-38363.
4.02 Form of Senior Indenture incorporated herein by reference
to Exhibit 4.1 filed with our Registration Statement on
Form S-3 (File No. 33-39275) declared effective by the
Securities and Exchange Commission on November 12, 1997
(the "November 1997 Form S-3").
4.03 Form of Subordinated Indenture incorporated herein by
reference to Exhibit 4.2 filed with our November 1997 Form
S-3.
4.04 Form of Senior Debt Security (included in Exhibit 4.1)
incorporated herein by reference to Exhibit 4.3 filed with
our November 1997 Form S-3.
4.05 Form of Subordinated Debt Security (included in Exhibit
4.2) incorporated herein by reference to Exhibit 4.4 filed
with our November 1997 Form S-3.
4.06 First Supplemental Indenture dated as of February 2, 1998
by and between Cygnus, Inc. and State Street Bank and
Trust Company of California, N.A. incorporated by reference
to Exhibit 4.5 of our Form 8-K dated February 4, 1998.
4.07 Second Supplemental Indenture, dated as of October 28,
1998, by and between Cygnus, Inc. and State Street Bank and
Trust Company of California, N.A., to the Indenture dated
as of February 3, 1998 and the First Supplemental Indenture
dated as of February 3, 1998, incorporated by reference to
Exhibit 4.8 of our Form 8-K filed on October 30, 1998.
22.
4.08 Amended and Restated Rights Agreement dated October 27, 1998
between Cygnus, Inc. and ChaseMellon Shareholder Services,
L.L.C. (the "Rights Agent" successor to Chemical Trust), which
includes the Certificate of Determination for the Series A
Junior Participating Preferred Stock as Exhibit A, the form of
Rights Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C, incorporated by
reference to Exhibit 99.2 of the Registrant's Form 8A/A filed
on December 14, 1998, Registration No. 0-19962.
4.09 Registration Rights Agreement dated June 30, 1999 between
Cygnus, Inc. and Cripple Creek Securities, LLC., incorporated
by reference to Exhibit 4.11 of our Form 10-Q for the quarter
ended June 30, 1999.
4.10 Registration Rights Agreement dated June 29, 1999 between
Cygnus, Inc. and the listed investors on Schedule I
thereto, incorporated by reference to Exhibit 4.12 of our
Form 10-Q for the quarter ended June 30, 1999.
10.109 Amendment No. 2 to our Structured Equity Line Flexible
Financing Agreement.
b) REPORTS ON FORM 8-K
We did not file any Reports on Form 8-K during the quarter ended March
31, 2000.
23.
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.
CYGNUS, INC.
Date: April 25, 2000 By: /s/ John C Hodgman
------------------- -----------------------------------
John C Hodgman
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date: April 25, 2000 By: /s/ Craig W. Carlson
------------------- -------------------------------------
Craig W. Carlson
Chief Financial Officer
(Principal Accounting Officer)
24.
INDEX OF EXHIBITS
The following exhibits are included herein:
Exhibit 27 Financial Data Schedule.
Exhibit 3.01 Bylaws of the Registrant, as amended.
Exhibit 3.02 Restated Certificate of Incorporation of the
Registrant, as amended to date.
Exhibit 10.109 Amendment No. 2 to our Structured Equity Line
Flexible Financing Agreement.
25.