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UNITED STATES
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, 1997
COMMISSION FILE NUMBER: 0-28460
FUSION MEDICAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3177221
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1804 N. SHORELINE BOULEVARD
MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(415) 903-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED 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.
(Item 1) { X } Yes { } No
(Item 2) { X } Yes { } No
THE NUMBER OF OUTSTANDING SHARES OF THE REGISTRANT'S COMMON STOCK, $.001 PAR
VALUE, WAS 7,059,823 AS OF MARCH 31, 1997.
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FUSION MEDICAL TECHNOLOGIES, INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Condensed financial statements - unaudited
Condensed statements of operations - three months ended March 31, 1997
and 1996
Condensed balance sheets - March 31, 1997 and December 31, 1996
Condensed statements of cash flows - three months ended March 31, 1997
and 1996
Notes to condensed consolidated financial statements
Item 2. Management's discussion and analysis of financial condition and results
of operations
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 5. Exhibits and Reports on Form 8-K
Signatures
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Part I: Financial Statements
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FUSION MEDICAL TECHNOLOGIES, INC.
(A Company in the Development Stage)
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
Three Months Ended Three Months Ended
March 31, March 31,
1997 1996
(unaudited) (unaudited)
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Revenues................................ $ 50 $ -
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Operating Expenses
Cost of goods......................... 158 -
Research and development.............. 1,241 1,063
Marketing, general and administrative 1,044 554
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Total operating expenses 2,443 1,617
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Operating Loss.......................... $(2,393) $(1,617)
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Interest Income......................... 327 59
Other Expense........................... (24) (1)
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Net loss................................ $(2,090) $(1,559)
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Net Loss Per Share $ (0.30) $ (0.80)
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Shares used in computing net loss
per share.............................. 7,025 1,943
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS
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FUSION MEDICAL TECHNOLOGIES, INC.
(A Company in the Development Stage)
CONDENSED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1997 1996
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 13,378 $ 10,778
Available-for-sale securities 6,065 11,145
Other Assets 511 414
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Total Current Assets 19,954 22,337
Long Term Assets 2,824 2,726
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Total Assets $ 22,778 $ 25,063
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities $ 958 $ 1,265
Long-term Obligations 56 56
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Total Liabilities 1,014 1,321
Common stock and other stockholders' equity 35,447 35,335
Deficit accumulated during the development stage (13,683) (11,593)
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Total Stockholders' Equity 21,764 23,742
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Total Liabilities and Stockholders' Equity $ 22,778 $ 25,063
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS
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FUSION MEDICAL TECHNOLOGIES, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
(In Thousands)
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March 31, March 31,
1997 1996
(unaudited) (unaudited)
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CASH FLOWS USED FOR OPERATING ACTIVITIES:
Net loss $ (2,090) $ (1,559)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 101 46
Amortization of deferred compensation 94 94
Change in assets and liabilities:
Accounts receivable (115) -
Prepaids and other current assets 187 27
Accounts payable 126 147
Accrued expenses (398) (1)
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Net cash used in operating activities (2,095) (1,246)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (199) (190)
Purchases of short-term investments (14,294) -
Sales of short-term investments 19,172 489
-
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Net cash provided by investing activities 4,679 299
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 49 16
Repayment of notes payable (33) (33)
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Net cash provided (used) by financing activities 16 (17)
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Net increase (decrease) in cash and cash
equivalents 2,600 (964)
Cash and cash equivalents, beginning of period 10,778 4,382
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Cash and cash equivalents, end of period $ 13,378 $ 3,418
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Supplemental disclosure of cash flow information:
Cash paid for interest 5 8
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Cash paid for taxes 19 -
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS
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FUSION MEDICAL TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed financial statements of Fusion Medical
Technologies, Inc. (the "Company" or "Fusion") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10
of Regulation S-X. The balance sheet as of March 31, 1997, and the
statements of operations for the three month periods ended March 31, 1997,
and 1996, and the statements of cash flows for the three month periods ended
March 31, 1997 and 1996 are unaudited but include all adjustments (consisting
of normal recurring adjustments) which the Company considers necessary for a
fair presentation of the financial position at such dates and the operating
results and cash flows for those periods. Although the Company believes that
the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information normally included
in financial statements and related footnotes prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying financial statements should be read in
conjunction with the financial statements as contained in the Company's
Annual Report on Form 10-K and notes thereto.
Results for any interim period are not necessarily indicative of results for
any other interim period or for the entire year.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the periods presented. Common equivalent
shares are excluded from the computation as their effect is antidilutive,
except that, pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, common and common equivalent shares (stock options,
warrants and preferred stock) issued during the 12 month period prior to the
Company's initial public offering have been included in the calculation as if
they were outstanding for all periods through June 7, 1996 (using the
treasury stock method for stock options and warrants and if-converted method
for preferred stock).
3. INITIAL PUBLIC OFFERING
On June 7, 1996, the Company's registration statement for its initial public
offering of 2,1000,000 shares of common stock at $13.00 per share (the
"IPO"), was declared effective by the Securities and Exchange Commission.
The Company received net proceeds of approximately $24,5000,000 after
deducting underwriting discounts, commissions and offering costs.
Upon completion of the IPO all outstanding shares of convertible preferred
stock were automatically converted into 3,172,739 shares of common stock.
4. CASH AND CASH EQUIVALENTS AND AVAILABLE-FOR-SALE SECURITIES
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and
cash equivalents include money market funds and various deposit accounts.
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The Company has classified its investments as available-for-sale. Such
investments are recorded at fair market value and unrealized gains and
losses, if material, are recorded as a separate component of equity until
realized. Interest income is recorded using an effective interest rate, with
associated premium or discount amortized to "investment income." The cost of
securities sold is based upon the specified identification method.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128 ("SFAS 128"), "Earnings per Share", which specifies the
computation, presentation and disclosure requirements for income per share of
common stock. SFAS 128 will become effective for the Company's year ending
December 31, 1997. The Company believes that the adoption of SFAS 128 will
not have a material impact on the Company's financial statements and results
of operations.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Financial Condition and Results of Operations
of the Company for the three months ended March 31, 1997, should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors Affecting
Operating Results and Market Price of Common Stock". The following
discussion contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from
those anticipated by these forward-looking statements as a result of certain
factors, including those set forth in "Additional Factors That Might Affect
Future Results" below.
OVERVIEW
Fusion Medical Technologies, Inc. ("Fusion" or the "Company") was
incorporated in Delaware in 1993. The Company is developing proprietary wound
closure products which the Company believes may have broad application in a
variety of surgical procedures, including lung resections for cancer and
emphysema, procedures requiring anastomoses, and minimally invasive
surgeries. The Company's RapiSeal bioresorbable patch and Fusion liquids are
designed to effectively treat surgical wounds in a wide variety of organs and
blood vessels by rapidly forming flexible seals across the targeted tissue.
The Company believes that its wound closure products have the potential to
reduce post-operative complications associated with air and fluid leaks and
consequently reduce hospital costs. In a 26 patient, multi-center trial, the
Company's initial product, RapiSeal, was effective in treating 96% of the
previously untreatable air leaks identified during lung resection surgery.
The Company received 510(k) pre-market clearance from the United States Food
and Drug Administration (the "FDA") to market its RapiSeal patch in
connection with lung surgery in June 1996. In February 1997, the Company
also received 510(k) pre-market clearance to sell a patch product for the
treatment of bleeding which occurs in solid organ surgeries, such as liver,
spleen and kidney surgeries. The Company's patch product is designed to
effectively treat surgical wounds by creating barriers across the targeted
tissue. The Company believes that its patch products have the potential to
reduce post-operative complications associated with air and fluid leaks and
consequently reduce hospital costs.
In May 1997, the Company received 510(k) pre-market clearance from the FDA to
market in the United States the Company's SilverBullet-TM- electrode. The
SilverBullet allows surgeons to utilize standard electrosurgical equipment
available in the operating room as an energy source for the application of
Fusion's RapiSeal patch.
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To expand its product offerings, the Company is developing a collagen-based
flowable-gel product to enable surgeons to quickly and easily stop bleeding
which occurs in connection with a wide variety of surgeries, such as those
performed by cardiac, vascular and general surgeons. Pre-clinical tests
indicate the Company's flowable-gel product may be effective in controlling
heavy active bleeding. The first version of the flowable-gel product will be
targeted for open surgery, and work has begun on a device appropriate for use
in minimally invasive surgery. The Company currently believes it will begin
clinical evaluation of this product in open surgical procedures in the second
half of 1997.
Future revenues, if any, and results of operations may fluctuate
significantly from quarter to quarter and will depend upon, among other
factors, actions relating to regulatory and reimbursement matters, the extent
to which the Company's product or products gain market acceptance, the rate
at which the Company establishes its distribution network, the timing and
size of any distributor purchases, the progress of clinical trials, and the
introduction of competitive products for wound sealing.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUES
The Company recorded revenues of $50,000 for the quarter ended March 31, 1997
and no revenue for the quarter ended March 31, 1996. The Company's sales
representatives began selling activities in October 1996.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 17% to $1,241,000 in the three
months ended March 31, 1997 versus $1,063,000 in the three months ended March
31, 1996. The increase for the three month period of 1997 was attributable to
an increased number of employees and related use of supplies, consultants and
laboratory research as the Company substantially increased its activities.
Expenses for the three month period ended March 31, 1997, included costs
associated with the Company's Flowable-gel product.
MARKETING, GENERAL AND ADMINISTRATIVE
Marketing, general and administrative expenses increased 88% to $1,044,000 in
the three months ended March 31, 1997, versus $554,000 for the three months
ended March 31, 1996. The increase in the quarter ended March 31, 1997,
compared to the year earlier period were primarily the result of increases in
sales and administrative personnel, expanded marketing activities and
occupancy related costs.
Net interest income increased 454% to $327,000 for the three months ended
March 31, 1997 versus $59,000 for the three months ended March 31, 1996. The
increase was attributable to the Company's initial public offering in June
1996, which increased its average cash balance.
As a result of the items discussed above, net loss was $2,090,000 for the
three months ended March 31, 1997. This compares to a net loss of $1,559,000
for the three months ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's cash, cash equivalents and
available-for-sale securities were $19,443,000, compared to $4,465,000 for
March 31, 1996. On June 7, 1996, the Company completed its initial public
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offering of 2,100,000 shares of common stock at a price of $13.00 per share.
The net proceeds to the Company from the IPO were approximately $24,500,000.
During the three months ended March 31, 1997 and 1996, Fusion's operations
consumed cash of $2,095,000 and $1,246,000, respectively. The changes in
cash used in operations were due primarily to funding increased levels of
research and development of RapiSeal and Fusion's liquids, as well as
increased marketing activities and associated personnel costs. The Company
expects the increased use of cash will continue through the end of 1998 as it
increases its operations to reflect the sales and marketing of RapiSeal and
the continued expansion of research and development for the flowable-gel and
other liquid products.
Although Fusion believes that the proceeds from its initial public offering,
augmented by cash generated by sales of the RapiSeal product, will be
sufficient to meet the Company's operating and capital requirements at least
through 1998, there can be no assurance that the Company will not require
additional financing within this time frame. Fusion's future liquidity and
capital requirements will depend on numerous factors, including market
acceptance of RapiSeal, the receipt of and the time required to obtain
regulatory clearances and approvals for other products or other uses of
RapiSeal, the resources the Company devotes to developing, manufacturing and
marketing its products and other factors. There can be no assurance that
additional financing, if required, will be available on satisfactory terms or
at all. Any additional equity financing may be dilutive to stockholders, and
debt financing, if available, may include restrictive covenants.
ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS
RISKS ASSOCIATED WITH LVR. A statistically significant body of clinical data
does not exist from which to draw final conclusions concerning the
effectiveness and long-term outcomes associated with the Lung Volume
Reduction ("LVR") procedure. Independent studies of patients who have
undergone the LVR procedure reported that patients experienced reduced
shortness of breath, improved exercise tolerance and improved quality of
life. However, the number of patients who have undergone the LVR procedure
in the United States and for whom a clinically acceptable post-operative
evaluation period has elapsed is relatively small. As a result, there can be
no assurance concerning the safety, effectiveness and long-term outcomes
associated with the LVR procedure. The Health Care Financing Administration
("HCFA") has suspended payment for, and is reviewing the appropriate
reimbursement, if any, for LVR. In connection with such review, HCFA has
announced its intention to collaborate with the National Institutes of Health
("NIH") on a large-scale, multi-center trial to be conducted by the NIH to
evaluate the long-term benefits of the LVR procedure for patients with
late-stage emphysema. There can be no assurance as to when this trial will be
completed or whether the results of the trial will demonstrate the safety or
long-term efficacy of LVR. It is not known when HCFA will make a final
determination as to reimbursement for LVR, and it may be several years before
a determination is made. There can be no assurance that reimbursement for LVR
will be reinstated or, if reinstated that HCFA will not impose limitations on
reimbursement. The Company believes a significant portion of the candidates
for the LVR procedure could be affected by HCFA's determination with respect
to reimbursement. Failure to reinstate reimbursement or the imposition of
limitations on reimbursement would have a material adverse effect on the
Company's business prospects. If reimbursement is not available for LVR
procedures, if the LVR procedure is not widely adopted or if RapiSeal cannot
be used successfully in LVR procedures, it would have a material adverse
effect on the Company's business, financial condition and results of
operations.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success will depend upon the
medical community's active sponsorship and ultimate acceptance of the
RapiSeal patch and the Fusion liquid products. The Company is unable to
predict how quickly, if at all, the medical community will accept its
products or, if accepted, the number of products that will be used. Use of
the Company's products may require changes in surgical practices, and there
can be no assurance that surgeons will be willing to make such changes. To
achieve market acceptance of its products, the Company must also demonstrate
that its products offer clinically
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significant advantages. The Company conducted its multi-center clinical
trial of RapiSeal in support of its 510K application in only 26 patients,
which may not provide sufficient data to demonstrate clinically significant
advantages, if any, to surgeons. Moreover, this limited experience with
patients may initially make it difficult for the Company to ascertain those
factors most relevant to the surgeon's decision whether to use the Company's
products. Air leaks associated with lung resections require the insertion of
chest tubes in the patient. While the Company believes that the RapiSeal
patch may reduce hospital costs by shortening the duration of patient
dependence on chest tubes, RapiSeal will not eliminate the need for chest
tubes. In addition, air leaks may occur in the patient after the lung
resection procedure, and RapiSeal cannot address such leaks. Failure of the
RapiSeal patch and the Fusion liquids to achieve significant clinical
adoption would have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's ability to
compete effectively will depend in part on its ability to develop and
maintain the proprietary aspects of its technology. The Company as pursued
its own patents covering its technologies in various forms. In addition, the
Company has licensed technology to further broaden its patent portfolio. The
Company owns one and has licensed 2 issued United States patents, and has 14
pending United States patent applications related to its patch technology and
liquid formulations. The Company has also licensed 1 United States patent
related to the manufacture of its patch technology. There can be no
assurance that the pending patent applications will issue, or that the issued
patent or any patents that may issue in the future will provide any
competitive advantages for the Company's products or that they will not be
successfully challenged, invalidated or circumvented in the future.
Moreover, litigation or interference proceedings associated with enforcing or
defending patents or trade secrets is expensive and can divert the efforts of
technical and management personnel. The Company has filed certain
corresponding patent applications in certain foreign countries and may file
additional patent applications outside the United States. The Company
believes that obtaining foreign patents may be more difficult than obtaining
domestic patents because of differences in patent laws and believes the
protection provided by foreign patents, if obtained, and any other foreign
intellectual property protection may be weaker than that provided
domestically. In addition, there can be no assurance that competitors will
not seek to apply for and obtain patents that will prevent, limit or
interfere with the Company's ability to make, use and sell its products. A
number of medical device and other companies, universities and research
institutions have filed patent applications or have issued patents relating
to compositions and methods for wound closure. In addition, the medical
device industry has been characterized by extensive litigation regarding
patents and other intellectual property rights, and many companies in the
medical device industry have employed intellectual property litigation to
gain competitive advantage. There can be no assurance that suits will not be
brought against the Company in the future challenging its patent rights or
claiming infringement on patents held by third parties.
An adverse determination in litigation or interference proceedings to which
the Company may become a party could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from
third parties or require the Company to cease using such technology.
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, there can be no assurance that necessary
licenses would be available to the Company on satisfactory terms, if at all.
Adverse determinations in a judicial or administrative proceeding or failure
to obtain necessary licenses on satisfactory terms, if at all, could prevent
the Company from manufacturing and selling its products, which would have a
material adverse effect on the Company's business, financial condition and
results of operation.
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT. In the United States,
health care providers that purchase medical devices, such as the RapiSeal
patch and the Fusion liquids, generally rely on third-party payors,
principally federal Medicare, state Medicaid and private health insurance
plans to reimburse all or part of the cost of the procedure in which the
medical device is used. The Company's success will be dependent, in part,
upon its ability to obtain satisfactory third-party reimbursement from health
care payors for
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surgical procedures that may use RapiSeal and the Fusion liquids. HCFA has
suspended payment for, and is reviewing the appropriate reimbursement, if
any, for LVR. See "Risks Associated with LVR." The Company anticipates that
in a prospective payment system, such as the Diagnostic Related Group System
utilized by Medicare, and in many managed care systems used by private health
care payors, the cost of the Company's products will be incorporated into the
overall cost of the procedures and that there will not be separate
reimbursement for the Company's products. Rergardless of the type of
reimbursement system, the Company believes that surgeon advocacy of the
RapiSeal patch and the Fusion liquids will be required to obtain
reimbursement. There can be no assurance that any reimbursement will be
sufficient to assure profitability. Failure by physicians, hospitals and
other users of the Company's products to obtain sufficient reimbursement from
health care payors for procedures in which the Company's products are used or
adverse changes in governmental and private third-party payors' policies
toward reimbursement for such procedures would have a material adverse effect
on the Company's business, financial condition and results of operations.
If the Company obtains the necessary foreign regulatory approvals, market
acceptance of the Company's products in international markets would be
dependent, in part, upon the availability of reimbursement within prevailing
health care payment systems for the Company's products or the procedures in
which the products are used. Reimbursement and health care payment systems
in international markets vary significantly by country, and include both
government-sponsored health care and private insurance. The Company intends
to seek international reimbursement approvals. There can be no assurance
that any such approvals will be obtained in a timely manner, if at all, and
failure to receive international reimbursement approvals could have a
material adverse effect on market acceptance of the Company's products in the
international markets in which such approvals are sought.
LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK. The Company received a
manufacturing license from the California Department of Health Services
(CDHS) and commenced shipment of RapiSeal for use in its clinical trial in
November 1995 and, in the quarter ended March 31, 1997 produced revenues of
approximately $50,000. However, the Company has limited experience
manufacturing RapiSeal, and no experience manufacturing any other products,
in the volumes necessary to achieve significant commercial sales, and there
can be no assurance that reliable, high-volume manufacturing can be achieved
at a commercially reasonable cost. The Company may encounter difficulties in
scaling up production, including problems involving production yield, quality
control and assurance, and shortages of qualified personnel. The Company's
manufacturing facilities will be subject to GMP regulations, international
quality standards and other regulatory requirements. Difficulties
encountered by the Company in manufacturing scale-up or failure by the
Company to implement and maintain its facilities in accordance with GMP
regulations, international quality standards or other regulatory requirements
would entail a delay or termination of production, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any manufacturing difficulties involving production
yields, quality control and assurances, supplies of components or shortages
of qualified personnel encountered by the Company could also have a material
adverse effect on its business, financial condition and results of
operations. There can be no assurance that the Company will be able to
manufacture and supply sufficient quantities of products to meet product
requirements for United States and international clinical trials and
commercial sales.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS. The Company acquires several
components of its products from single source suppliers. Generally, the
Company believes that there are alternative suppliers of equivalent materials
available, and that the Company could substitute suppliers with minimal
regulatory consequences from this substitution. However, there can be no
assurance that such substitute suppliers will be available, or that such
substitutions could be made in a timely manner or on commercially reasonable
terms. In the case of collagen, there are only a few suppliers that could
meet the Company's requirements. The company currently relies exclusively on
one supplier of collagen, Kensey Nash Corporation, and expects to continue to
do so through at least the end of 1997. Fusion and this supplier have
entered into a long-term supply agreement. However, if this supplier were
unable to meet the Company's demands there can be no assurance that the
<PAGE>
Company would be able to secure alternative sources of collagen to produce
sufficient product to meet its customers' needs. A transition to alternate
arrangements could involve additional costs and delays in production. There
can be no assurance that such transition would be successful in entering into
alternate arrangements on commercially reasonable terms, if at all.
Sterilization of the Company's product is out-sourced to a single vendor. While
the Company believes alternative sterilization vendors are readily available,
there can be no assurance that such vendors would be available or that such a
transition could be made in a timely, cost-effective manner. In the event the
Company is not able to acquire sufficient supplies from its current sources
or to locate alternate sources on commercially reasonable terms, the Company
may not be able to manufacture its products on a timely and cost-competitive
basis, or at all, which would have a material adverse efect on the Company's
business, financial condition and results of operations.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE. The Company has had
limited sales to date and only has a small sales and marketing organization.
The Company intends to sell the RapiSeal patch for use in lung surgeries in
the United States through a direct sales force. In other markets, the Company
intends to sell its products primarily through agreement with distributors or
by means of collaborative arrangements, and the Company has entered into some
such agreements or arrangements to date. There can be no assurance that the
Company will be able to build a direct sales force or marketing organization,
that establishing a direct sales force or marketing organization will be cost
effective, or that the Company's sales and marketing efforts will be
successful. There can be no assurance that the Company will be able to enter
into agreements with additional distributors or collaborative arrangements on
a timely basis or at all, or that such distributors or collaborators will
devote adequate resources to selling the Company's products. In addition, to
the extent that the Company enters into distribution agreements or
collaborative arrangements for the sale of its products, the Company will be
dependent upon the efforts of third parties, and there can be no assurance
that such efforts will be successful. Failure to build an effective sales and
marketing organization or to establish effective distribution or
collaborative arrangements would have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE. The wound closure market
is highly competitive, and the Company expects competition in its targeted
markets to intensify. The Company expects to encounter direct competition
from companies offering pericardial strips, synthetic strips, and synthetic
fibrin glues. In addition, several large companies targeting the wound
closure market may be developing products that would compete with the
Company's products. The Company is also aware of several potential
competitors that are working on biological tissue sealants. Many of the
competitors or potential competitors have greater name recognition, broader
product lines, greater distribution capabilities, substantially greater
capital resources and larger marketing research and development staffs and
facilities than the Company. Broad product lines may give the Company's
competitors or potential competitors the ability to negotiate exclusive,
long-term medical device supply contracts and, consequently, the ability to
offer comprehensive pricing for their products, including those that may
compete with the Company's products. By offering a broader product line,
these potential competitors may also have a significant advantage in
marketing competing products to group purchasing organizations and other
managed care organizations that increasingly seek to reduce costs through
centralization of purchasing functions. There can be no assurance that the
Company will be able to effectively compete against such competitors or
potential competitors. In addition, there can be no assurance that the
Company's current competitors or other companies will not succeed in
developing technologies and products that are more effective than the
Company's or that would render the Company's technology or products obsolete
or uncompetitive.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The medical device
industry has historically been litigious, and the Company faces an inherent
business risk of financial exposure to product liability claims in the event
that the use of its products results in personal injury. Although the
Company has not experienced any claims to date, there can be no assurance
that the Company will not experience losses due to product liability claims
in the future. The Company currently maintains liability insurance with
coverage
<PAGE>
limits of $3.0 million on a claims-made basis. There can be no assurance
that the coverage limits of the Company's insurance policies will be
adequate. Such insurance is expensive, difficult to obtain and may not be
available in the future at acceptable terms, or at all. Any claims against
the Company regardless of their merit or eventual outcome, could have a
material adverse impact upon the Company's business, financial condition and
results of operations.
PART II: OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
None.
Item 2 CHANGES IN SECURITIES
None.
Item 3 DEFAULTS UPON SENIOR SECURITIES
None.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5 OTHER INFORMATION
None.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 11.1 Computation of net loss per share.
Exhibit 27.1 Financial Data Schedule.
<PAGE>
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.
FUSION MEDICAL TECHNOLOGIES, INC.
Date: May 13, 1997 By:
------------------------------------
Philip Sawyer
President, Chief Executive Officer
and Acting Chief Financial Officer
<PAGE>
FUSION MEDICAL TECHNOLOGIES, INC.
(A Company in the Development Stage)
COMPUTATION OF NET LOSS PER SHARE
(In Thousands)
EXHIBIT 11.1
Three Months Ended Three Months Ended
March 31, March 31,
1997 1996
(unaudited) (unaudited)
------------------ ------------------
Weighted average common
shares outstanding................. 7,025 1,520
Common equivalent shares
pursuant to Staff Accounting
Bulletin No. 83.................. - 423
------- -------
Shares used in computing per
share amounts (1)................ 7,025 1,943
------- -------
------- -------
Net loss........................... $(2,090) $(1,559)
------- -------
------- -------
Net loss per share................. $ (0.30) $ (0.80)
------- -------
------- -------
(1) PRIMARY AND DILUTIVE EARNINGS PER SHARE ARE THE SAME FOR ALL PERIODS
PRESENTED.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS SCHEDULE.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,378,000
<SECURITIES> 6,065,000<F1>
<RECEIVABLES> 47,600
<ALLOWANCES> 0
<INVENTORY> 83,000
<CURRENT-ASSETS> 19,957,000
<PP&E> 1,703,100
<DEPRECIATION> 483,234
<TOTAL-ASSETS> 22,782,000
<CURRENT-LIABILITIES> 1,075,000
<BONDS> 0
0
0
<COMMON> 40,713
<OTHER-SE> 21,610,200
<TOTAL-LIABILITY-AND-EQUITY> 22,782,000
<SALES> 0
<TOTAL-REVENUES> 50,000
<CGS> 158,000
<TOTAL-COSTS> 2,443,000
<OTHER-EXPENSES> 24,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (2,090,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,393,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,090,000)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
<FN>
<F1>SECURITIES, ITEM 5-02(2) ARE NET OF ACCRUED INTEREST AND UNREALIZED
GAIN/LOSS.
</FN>
</TABLE>
