SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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 September 30, 1998
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or
Transition Report Pursuant to Section 13 or 15(d) of the
- ------ Secrities Exchange Act of 1934
For the transition period from to
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Commission File Number: 0-28748
CLOSURE MEDICAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 56-1959623
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(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
5250 Greens Dairy Road, Raleigh, North Carolina 27616
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(Address of principal executive offices) (Zip Code)
(919) 876-7800
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
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Class Outstanding at November 5, 1998
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Common Stock, par value $0.01 per share 13,287,449
CLOSURE MEDICAL CORPORATION
INDEX
PAGE NUMBER
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of September 30, 1998 (unaudited) and December 31, 1997..................3
Statement of Operations (unaudited) for the three months ended September 30,
1998 and 1997 and for the nine months ended September 30, 1998 and 1997.................4
Statement of Cash Flows (unaudited) for the nine months ended September 30,
1998 and 1997..............................................................................5
Notes to Financial Statements (unaudited)..................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................................8
PART II: OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds...........................................12
Item 6 Exhibits and Reports on Form 8-K....................................................13
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLOSURE MEDICAL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 3,682 $ 7,277
Short-term investments 12,715 14,417
Accounts receivable 742 1,226
Inventories 626 347
Prepaid expenses 210 367
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Total current assets 17,975 23,634
Furniture, fixtures and equipment, net 6,722 3,694
Restricted investments 1,582 1,517
Long-term investments 1,362 1,298
Intangible assets, net 385 276
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Total assets $ 28,026 $ 30,419
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 955 $ 478
Accrued expenses 1,597 2,598
Deferred revenue 2,340 2,019
Capital lease obligations 240 155
Current portion of long-term debt 350 350
------------ ------------
Total current liabilities 5,482 5,600
Capital lease obligations 998 1,250
Long-term debt less current portion 2,450 1,150
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Total liabilities 8,930 8,000
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Stockholders' Equity:
Preferred Stock, $.01 par value. Authorized 2,000 shares; none - -
issued or outstanding
Common Stock, $.01 par value. Authorized 35,000 shares;
issued and outstanding 13,280 and 13,242 shares, respectively 133 132
Additional paid-in capital 46,289 46,058
Accumulated deficit (26,857) (23,075)
Deferred compensation on stock options (469) (696)
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Total stockholders' equity 19,096 22,419
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Total liabilities and stockholders' equity $ 28,026 $ 30,419
============ ============
The accompanying notes are an integral part of these financial statements.
3
CLOSURE MEDICAL CORPORATION
STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 3SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
Product sales $ 2,710 $ 591 $ 4,822 $ 939
License and product development revenues 1,500 - 1,500 -
------ -- ------ -------
Total revenues 4,210 591 6,322 939
------ ---- ------ -------
Cost of products sold 1,063 461 2,448 883
------ ---- ------ -------
Gross profit and license and product development 3,147 130 3,874 56
revenues ------ ---- ------ -------
Research, development and regulatory affairs expenses 1,502 870 4,410 2,366
Selling and administrative expenses 1,339 1,266 3,889 3,548
------ ------ ------ ------
Total operating expenses 2,841 2,136 8,299 5,914
------ ------ ------ -----
Income (loss) from operations 306 (2,006) (4,425) (5,858)
Interest expense (100) (18) (291) (26)
Investment and interest income 288 397 934 1,062
---- ---- ---- -----
Net income (loss) $ 494 $ (1,627) $ (3,782) $ (4,822)
==== ======= ======= =======
Shares used in computation of net income (loss)
per share:
Basic 13,278 13,212 13,264 12,873
======= ======= ======= ======
Diluted 13,656 13,212 13,264 12,873
======= ======= ======= ======
Net income (loss) per share:
Basic $ 0.04 $ (0.12) $ (0.29) $ (0.37)
==== ====== ====== ======
Diluted $ 0.04 $ (0.12) $ (0.29) $ (0.37)
==== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
4
CLOSURE MEDICAL CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,782) $ (4,822)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization expense 374 121
Amortization of deferred compensation on stock options 227 228
Net loss on disposals of fixed assets 11 4
Net loss on disposals of intangibles 75 50
Change in accounts receivable 484 (128)
Change in inventories (279) (101)
Change in prepaid expenses 157 (61)
Change in accounts payable and accrued expenses (524) 1,024
Change in deferred revenue 321 (32)
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Net cash used by operating activities (2,936) (3,717)
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Cash flows from investing activities:
Additions to furniture, fixtures and equipment (3,405) (1,075)
Additions to intangible assets (192) (99)
Purchases of investments (12,046) (28,999)
Proceeds from the sale of investments 13,619 16,568
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Net cash used by investing activities (2,024) (13,605)
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Cash flows from financing activities:
Proceeds from borrowings 1,500 -
Repayment of debt (200) -
Net proceeds from sale of common stock 232 12,483
Proceeds from capital lease obligations - 1,066
Payments under capital lease obligations (167) (51)
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Net cash provided by financing activities 1,365 13,498
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Increase (decrease) in cash and cash equivalents (3,595) (3,824)
Cash and cash equivalents at beginning of period 7,277 13,024
----------- ------------
Cash and cash equivalents at end of period $ 3,682 $ 9,200
=========== ============
The accompanying notes are an integral part of these financial statements.
5
CLOSURE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Operations
Closure Medical Corporation ("Closure" or the "Company"), formerly named
Tri-Point Medical Corporation, develops, manufactures and commercializes medical
tissue cohesive products based on its proprietary cyanoacrylate technology for
use in wound closure in humans and animals. The Company was incorporated in
Delaware on February 20, 1996. From May 10, 1990 to February 29, 1996, the
business of the Company was conducted by Tri-Point Medical L. P. (the
"Partnership"). On March 1, 1996, substantially all of the assets and
liabilities of the Partnership, except for the indebtedness to Sharpoint
Development Corporation ("Sharpoint"), the Partnership's general partner, were
transferred to the Company in exchange for one share of Common Stock. On the
effective date of the Company's initial public offering, September 25, 1996,
obligations of and interests in the Partnership were contributed to the Company
in exchange for an aggregate of 9,600,000 shares of Common Stock.
In April 1997, the Company completed a follow-on offering. An aggregate of
1,725,000 shares (including the over-allotment option) were sold at $12.875 per
share, of which 1,025,000 shares were sold by the Company and 700,000 shares
were sold by a stockholder, generating net proceeds to the Company of
approximately $12,020,000.
2. Significant Accounting Policies
The significant accounting policies followed by the Company for interim
financial reporting are consistent with the accounting policies followed for
annual financial reporting. These unaudited financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, and in management's
opinion, all adjustments of a normal recurring nature necessary for a fair
presentation have been included. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
The results of operations for the three and nine month periods ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year ending December 31, 1998.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), was issued in June 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. SFAS 130 is effective for financial
statements for fiscal years beginning after December 31, 1997. The Company
adopted SFAS 130 effective January 1, 1998; the adoption of this statement did
not have a material impact on its financial position or results of operations.
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131"), was issued in June 1997.
SFAS 131 specifies revised guidelines for determining an entity's operating
segments and the type and level of financial information to be disclosed. The
Company adopted SFAS 131 effective January 1, 1998; the adoption of this
statement did not have a material impact on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits" ("SFAS 132"), was issued in
February 1998. SFAS 132 significantly changes current financial statement
disclosure requirements from those that were required under SFAS No. 87
"Employers' Accounting for Pensions", SFAS No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions". SFAS 132 does not change the existing measurement
or recognition provisions of SFAS Nos. 87, 88 or 106. SFAS 132, which is
effective for fiscal years beginning after December 15, 1997, currently has no
material impact on the Company's disclosures.
6
CLOSURE MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), was issued in June 1998. SFAS
133 is effective for financial statements for fiscal years beginning after June
15, 1999. The Company will adopt SFAS 133 on or before the effective date;
however, it is not anticipated that this standard will have a material impact on
the results of operations or financial position of the Company.
3. Taxes
No federal or state income tax provision has been provided for income tax
purposes, as the Company does not expect to have a tax liability for the year
ending December 31, 1998. Additionally, the deferred tax asset that might be
recorded as a result of net operating losses under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," has been offset by
a related valuation allowance because realization of the asset is not likely.
Accordingly, no benefit has been recorded.
4. Inventories
Inventories included the following:
September 30, December 31,
1998 1997
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(In thousands)
Packaging $ 40 $ 45
Raw materials 39 54
Work-in-process 229 224
Finished goods 318 24
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$ 626 $ 347
========== ==========
5. Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the periods.
Diluted net income (loss) per share is computed using the weighted average
number of common and common equivalent shares outstanding during the periods.
Common equivalent shares consist of stock options using the treasury stock
method. Common equivalent shares from stock options are excluded from the
computation if their effect is antidilutive.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I--Item 1 of this Form
10-Q and the audited financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 1997 contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
The statements set forth below that are not historical facts or statements of
current conditions are forward-looking statements. Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "forecasts," "estimates," "plans,"
"continues," "may," "will," "should," "anticipates," or "intends" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy or intentions. These forward-looking statements, such as
statements regarding present or anticipated scientific progress, development of
potential products, future revenues, capital expenditures and research and
development expenditures, future financings and collaborations, management,
manufacturing development and capabilities, regulatory clearances and approvals
and other statements regarding matters that are not historical facts, involve
predictions. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements. Potential risks and uncertainties that could affect
the Company's actual results, performance or achievements include, but are not
limited to, the "Risk Factors" set forth in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 filed with the Securities and Exchange
Commission. Given these uncertainties, current or prospective investors are
cautioned not to place undue reliance on any such forward-looking statements.
Furthermore, the Company disclaims any obligation or intent to update any such
factors or forward-looking statements to reflect future events or developments.
OVERVIEW
Since its inception in May 1990, the Company has been developing, manufacturing
and commercializing medical tissue cohesive products for use in wound closure in
humans and animals. The Company's products are based on its proprietary
cyanoacrylate technology, and a substantial portion of the Company's historical
expenses have consisted of research and development and clinical trial expenses.
Through September 25, 1996, the effective date of the Company's initial public
offering, the Company had funded its operations with cash borrowed from
Sharpoint Development Corporation ("Sharpoint"), sales of Octyldent(R) and
Nexaband(R) products, and license and product development revenues from
marketing partners. On September 30, 1996, the Company completed its initial
public offering, issuing 2,550,000 shares of Common Stock and generating net
proceeds of approximately $17,926,000. On April 2, 1997, the Company completed a
follow-on public offering, issuing 1,025,000 shares of Common Stock and
generating net proceeds of approximately $12,020,000.
The Company has been unprofitable since its inception and has incurred net
losses in each year, including a net loss of approximately $6,829,000 for the
year ended December 31, 1997. The Company anticipates that its recurring
operating expenses will increase for the next several years, as it expects its
research and development and selling and administrative expenses to increase in
order to develop new products, manufacture in commercial quantities and fund
additional clinical trials. The Company also expects to incur additional capital
expenditures to expand its manufacturing capabilities. The Company expects to
continue to incur a loss in 1998 and may incur losses in subsequent years,
although the amount of future net losses and time required by the Company to
reach profitability are highly uncertain. The Company's ability to generate
significant revenue and become profitable will depend on its success in
commercializing DERMABOND, expanding its manufacturing capabilities, developing
new products and entering into additional marketing agreements and on the
ability of its marketing partners to commercialize successfully products
incorporating the Company's technologies. No assurance can be given that the
Company will generate significant revenue or become profitable on a sustained
basis, if at all.
On August 28, 1998, the Company was granted approval from the U. S. Food and
Drug Administration ("FDA") of its premarket approval application to market
DERMABOND in the United States.
8
DERMABOND, which is used to replace sutures, staples and adhesive strips for
closing certain topical incisions and lacerations, is the first such product to
be approved by the FDA for the U. S. market. In March 1996, Closure licensed
exclusive worldwide marketing and distribution rights for DERMABOND to Ethicon,
Inc. ("Ethicon") , a subsidiary of Johnson & Johnson. In August 1997, Closure
received CE Mark approval allowing the Company to ship DERMABOND to Ethicon to
support its launch in European Union countries. DERMABOND is currently marketed
by Ethicon in the U. S. and approximately 23 countries outside the U. S.
RESULTS OF OPERATIONS
Total revenues were $4,210,000 for the three months ended September 30, 1998,
compared to $591,000 for the three months ended September 30, 1997. Product
sales were $2,710,000 for the three months ended September 30, 1998, compared to
$591,000 for the three months ended September 30, 1997. License and product
development revenues were $1,500,000 for the 1998 period versus $0 for the 1997
period. For the nine months ended September 30, 1998, total revenues were
$6,322,000, consisting of product sales of $4,822,000 and license and product
development revenues of $1,500,000, compared to $939,000, consisting of product
sales only, for the same period of 1997. The increase in 1998 product sales was
primarily a result of increased sales volume of DERMABOND. License and product
development revenues represents the milestone payment from Ethicon for the
approval from the FDA of the premarket approval application to market DERMABOND
in the United States.
Cost of products sold were $1,063,000 for the three months ended September 30,
1998, compared to $461,000 for the three months ended September 30, 1997. Cost
of products sold as a percentage of product sales decreased to 39% in the three
months ended September 30, 1998, compared to 78% during the same period of 1997.
For the nine months ended September 30, 1998, cost of products sold were
$2,448,000 compared to $883,000 for the same period of 1997. Cost of products
sold as a percentage of product sales decreased to 51% in the nine months ended
September 30, 1998, compared to 94% during the same period of 1997. The decrease
in cost of products sold as a percentage of product sales was primarily a result
of the increased sales volume of DERMABOND resulting in the fixed portion of
cost of products sold being allocated over higher sales volume.
Operating expenses were $2,841,000 for the three months ended September 30,
1998, compared to $2,136,000 for the three months ended September 30, 1997. For
the nine months ended September 30, 1998 and September 30, 1997, operating
expenses were $8,299,000 and $5,914,000, respectively. These increases were
primarily attributable to the addition of personnel, expansion of the Company's
facilities and increased research and development and regulatory affairs
expenses. At September 30, 1998, the Company had approximately 88 employees
compared to approximately 54 at September 30, 1997. In March 1998, the Company
relocated its corporate offices into a 50,000 square feet facility and its
manufacturing operations to the same facility in August 1998. Prior to the move,
the Company occupied approximately 20,000 square feet.
Interest expense was $100,000 for the three months ended September 30, 1998,
compared to $18,000 for the three months ended September 30, 1997. For the nine
months ended September 30, 1998 and September 30, 1997, interest expense was
$291,000 and $26,000, respectively. These increases were a result of the Company
entering into a new lease line and term loan during March and November 1997,
respectively. Additionally, the Company increased its borrowings under the term
loan in February 1998.
Investment and interest income was $288,000 for the three months ended September
30, 1998, compared to $397,000 for the same period of 1997. This decrease was
attributed to interest earned from lower average cash and investment balances.
9
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through the sale of
equity securities, borrowings from Sharpoint and other lenders, license and
product development revenues, and product sales revenues. Through September 30,
1998, the Company had raised approximately $30 million in equity financing. As
of March 29,1996, all long-term debt to Sharpoint, including accrued interest,
was contributed as partners' capital to the Partnership. The Company has entered
into and received approximately $4.5 million from a lease line and term loan
since March 1997. In addition, the Company has received approximately $7.0
million related to the supply and distribution agreement for DERMABOND entered
into with Ethicon in March 1996, of which $2.0 million has been classified as
deferred revenue and will be credited against future royalties and product
purchases expected to be paid by Ethicon.
Net cash used by operating activities was $2,936,000 and $3,717,000 for the nine
months ended September 30, 1998 and 1997, respectively.
Net cash used for investing activities was $2,024,000 and $13,605,000 for the
nine months ended September 30, 1998 and 1997, respectively. Investing
activities during the 1998 period were primarily related to leasehold
improvements of the Company's new 50,000 square feet facility and acquisition of
capital equipment. During the same period of 1997, cash was used primarily to
purchase investments.
Net cash provided by financing activities was $1,365,000 and $13,498,000 for the
nine months ended September 30, 1998 and 1997, respectively. The Company's
primary financing activity during the nine months ended September 30, 1998 was
the Company's additional borrowings under its term loan whereby the Company had
borrowed $3.0 million as of September 30, 1998. The Company's primary financing
activity during the nine months ended September 30, 1997 was the Company's
follow-on offering of 1,725,000 shares of Common Stock, of which 1,025,000
shares were sold by the Company generating net proceeds to the Company of
approximately $12,020,000.
The Company believes that existing cash and cash equivalents and investments,
which totaled approximately $19.3 million at September 30, 1998, will be
sufficient to finance its capital requirements for at least 12 months. The
Company expects to incur a loss in 1998 and may incur losses in subsequent
years, although the amount of future net losses and time required by the Company
to reach profitability are highly uncertain. The Company anticipates that its
recurring operating expenses will increase for the next several years, as it
expects its research and development and selling and administrative expenses to
increase in order to develop new products, manufacture in commercial quantities
and fund additional clinical trials. The Company also expects to incur
additional capital expenditures to expand its manufacturing capabilities.
The Company's future capital requirements, however, will depend on numerous
factors, including (i) the Company's ability to manufacture and commercialize
successfully its lead product, DERMABOND, (ii) the progress of its research and
product development programs for future nonabsorbable and absorbable products,
including clinical studies, (iii) the effectiveness of product commercialization
activities and marketing agreements for its future products, including
additional scale-up of manufacturing capability in anticipation of product
commercialization and development and progress of sales and marketing efforts,
(iv) the ability of the Company to maintain existing marketing agreements,
including its agreement with Ethicon for DERMABOND, and establish and maintain
new marketing agreements, (v) the costs involved in preparing, filing,
prosecuting, defending and enforcing intellectual property rights and complying
with regulatory requirements, (vi) the effect of competing technological and
market developments, (vii) timely receipt of regulatory clearances and approvals
and (viii) general economic conditions. There can be no assurance that the
Company will not be required to seek additional capital to finance its
operations in the future. If the Company's currently available funds and
internally generated cash flow are not sufficient to satisfy its financing
needs, the Company will be required to seek additional funding through bank
borrowings and additional public or private sales of its securities, including
equity securities, or through other arrangements with marketing partners. Other
than the Company's equipment financing line of credit
10
and term loan, the Company has no credit facility or other committed sources of
capital. There can be no assurance that additional funds, if required, will be
available to the Company on favorable terms, if at all.
YEAR 2000 UPDATE
The Company's Year 2000 Project ("Project") is addressing the issue of computer
programs with date-sensitive software that may be unable to distinguish between
the year 1900 and the year 2000. Failure to correct the Year 2000 Issue could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The Company
believes it has identified the significant internal issues and has developed a
plan to resolve these Year 2000 Issues. The Project continues to assess external
customers and suppliers and their Year 2000 compliance.
Based on a recent third party assessment, it appears the Company will be
required to modify or replace insignificant portions of its software so that its
computer systems will properly utilize dates beyond December 31, 1999 and
mitigate the Year 2000 Issue. However, if such modifications and conversions are
not made, or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Company.
The Company is in the process of identifying and prioritizing critical suppliers
and customers, and communicating with them about their plans and progress in
addressing the Year 2000 Issue. Therefore, based on presently available
information, there can be no guarantee that the systems of other companies on
which the Company's systems rely will be converted, or if so, in a timely
manner, would not have a material adverse effect on the Company.
The Company will utilize both internal and external resources to mitigate the
Year 2000 Issue. The Project is planned to be completed no later than the end of
first quarter of 1999. The total cost associated to mitigate the Year 2000 Issue
is not expected to be material to the Company's financial position, results of
operations or liquidity. To date the Company has incurred and expensed
approximately $25,000 related to the assessment of, and preliminary efforts in
connection with, the Project. The total remaining cost of the Project is
estimated to be approximately $50,000 and will be expensed as incurred.
The costs of and the date on which the Company plans to complete the Project are
based on management's best estimates, which were derived utilizing numerous
assumptions and factors, including those of external sources. Therefore, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from current plans.
11
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Company's Registration Statement on Form S-1 (Registration No. 333-5425)
(the "Registration Statement") for the Company's initial public offering ("IPO")
of 3,000,000 shares of Common Stock, of which 2,550,000 shares were sold by the
Company, was declared effective by the Securities and Exchange Commission on
September 25, 1996 (the "Effective Date"). The net proceeds to the Company from
the IPO were approximately $17,926,000.
For the period beginning on the Effective Date through September 30, 1998,
reasonable estimates of the uses of proceeds from the IPO are as follows:
(millions)
-----------
Working capital $7.1
Research and development and regulatory affairs 9.0 (a)
Capital expenditures 2.1 (b)
Obtain and protect patents .4
-----
Total $18.6
Of the above uses of proceeds attributed to working capital, approximately
$172,000 represented direct payments to directors for annual board compensation
and meeting fees and expenses and approximately $2,456,000 represented payments
to officers of the Company for compensation. Included in the payments to
directors was approximately $59,000 to two individuals beneficially owning ten
percent or more of the Common Stock of the Company. Additionally, reflected in
working capital is approximately $210,000 paid to a consultant who provides
services to the Company.
Temporary investments during this period have consisted primarily of corporate
and municipal bonds and money market funds. The Company invested all of the net
proceeds, approximately $18 million, upon the completion of the IPO and such
amount has been reduced as the expenditures described above have been incurred.
As of September 30, 1998, the Company had approximately $15.7 million in
short-term and long-term investments, which amount also includes proceeds of the
Company's follow-on offering in April 1997.
(a) Regulatory affairs expenses primarily consist of clinical trial expenses.
(b) Of the Company's capital expenditures of approximately $6.6 million for
this period, approximately $4.5 million has been financed through a capital
lease agreement and term loan (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources" included in Item 2 of Part I of this Form 10-Q).
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11 Computation of pro forma net income (loss) per share (see Note
5 to Notes to Financial Statements in Item 1 of Part I of this
Form 10-Q).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None
13
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.
CLOSURE MEDICAL CORPORATION
Date: November 13, 1998 By:\s\Robert V. Toni
----------------------------------------
Robert V. Toni
President and Chief Executive Officer
Date: November 13, 1998 By:\s\J. Blount Swain
---------------------------------------
J. Blount Swain
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
11 Computation of Pro Forma Net Income (Loss) Per Share.
27 Financial Data Schedule.