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 June 30, 1999
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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: 0-28748
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CLOSURE MEDICAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 56-1959623
- ---------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
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.
Class Outstanding at August , 1999
----- ----------------------------
Common Stock, par value $0.01 per share 13,334,251
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CLOSURE MEDICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998..........3
3
Statements of Operations (unaudited) for the three months ended June 30,
1999 and 1998 and for the six months ended June 30, 1999 and 1998..........4
Statements of Cash Flows (unaudited) for the six months ended June 30,
1999 and 1998..............................................................5
Notes to Condensed Financial Statements (unaudited)...........................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................8
Item 3. Quantitative and Qualitative Disclosure about Market Risk...............11
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.....................13
Item 6. Exhibits and Reports on Form 8-K........................................13
</TABLE>
2
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PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLOSURE MEDICAL CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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ASSETS (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 7 $ 824
Short-term investments 11,453 14,275
Restricted investments -- 1,603
Accounts receivable 2,746 1,191
Inventories 712 1,008
Prepaid expenses and other assets 431 286
-------- --------
Total current assets 15,349 19,187
Restricted investments 1,496 --
Furniture, fixtures and equipment, net 8,369 7,707
Intangible assets, net 701 526
-------- --------
Total assets $ 25,915 $ 27,420
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,583 $ 1,721
Accrued expenses 1,109 1,705
Deferred revenue 872 1,245
Capital lease obligations 260 245
Current portion of long-term debt 600 2,650
-------- --------
Total current liabilities 4,424 7,566
Deferred revenue 670 670
Capital lease obligations 799 934
Long-term debt less current portion 1,800 --
-------- --------
Total liabilities 7,693 9,170
-------- --------
Commitments and Contingencies (See note 6) -- --
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 13,324 and 13,290 shares, respectively 133 133
Additional paid-in capital 46,728 46,358
Accumulated deficit (28,398) (27,848)
Deferred compensation on stock options (241) (393)
-------- --------
Total stockholders' equity 18,222 18,250
-------- --------
Total liabilities and stockholders' equity $ 25,915 $ 27,420
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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CLOSURE MEDICAL CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
Product sales $ 4,277 $ 1,342 $ 8,094 $ 2,112
Cost of products sold 1,520 850 2,697 1,384
-------- -------- -------- --------
Gross profit 2,757 492 5,397 728
-------- -------- -------- --------
Research, development and regulatory affairs expenses 1,588 1,550 3,450 2,908
General and administrative expenses 1,270 1,450 2,758 2,550
-------- -------- -------- --------
Total operating expenses 2,858 3,000 6,208 5,458
-------- -------- -------- --------
Loss from operations (101) (2,508) (811) (4,730)
Interest expense (94) (103) (185) (191)
Investment and interest income 210 291 446 645
-------- -------- -------- --------
Net income (loss) $ 15 $ (2,320) $ (550) $ (4,276)
======== ======== ======== ========
Shares used in computation of net income (loss) per share:
Basic 13,315 13,264 13,309 13,258
======== ======== ======== ========
Diluted 13,884 13,264 13,309 13,258
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.00 $ (0.17) $ (0.04) $ (0.32)
======== ======== ======== ========
Diluted $ 0.00 $ (0.17) $ (0.04) $ (0.32)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CLOSURE MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (550) $(4,276)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization expense 458 200
Amortization of deferred compensation on stock options 152 151
Loss on disposals of fixed assets 3 8
Change in accounts receivable (1,555) 368
Change in inventories 296 (248)
Change in prepaid expenses and other assets (145) 73
Change in accounts payable and accrued expenses (734) (882)
Change in deferred revenue (373) 327
------- -------
Net cash used by operating activities (2,448) (4,279)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment (1,117) (2,885)
Investment in intangible assets (181) (164)
Purchases of investments (3,696) (8,150)
Proceeds from the sale of investments 6,625 9,945
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Net cash provided (used) by investing activities 1,631 (1,254)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 1,500
Repayment of debt (250) (50)
Net proceeds from sales of common stock 370 177
Payments under capital lease obligations (120) (111)
------- -------
Net cash provided by financing activities -- 1,516
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Decrease in cash and cash equivalents (817) (4,017)
Cash and cash equivalents at beginning of period 824 7,277
------- -------
Cash and cash equivalents at end of period $ 7 $ 3,260
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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CLOSURE MEDICAL CORPORATION
NOTES TO CONDENSED 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.
On September 30, 1996, the Company sold 2,550,000 shares of Common Stock in its
initial public offering ("IPO"). On April 2, 1997, the Company completed a
follow-on public offering selling 1,025,000 shares of Common Stock. The net
proceeds from the IPO and follow-on public offering of approximately $17.9
million and $12.0 million, respectively, have been and will continue to be used
primarily for capital expenditures related to laboratories, office space and
manufacturing facilities, research and development, including clinical trials,
working capital and general corporate purposes.
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, 1998
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
The results of operations for the three and six month periods ended June 30,
1999 are not necessarily indicative of the results to be expected for the full
year ending December 31, 1999.
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, 2000. The Company will adopt SFAS 133 on or before the effective date. 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, 1999. 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 (in thousands):
June 30, December 31,
1999 1998
----------- ------------
Packaging $ 165 $ 86
Raw materials 51 106
Work-in-process 146 616
Finished goods 350 200
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$ 712 $ 1,008
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6
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CLOSURE MEDICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 anti-dilutive.
6. Commitments and Contingencies
In December 1998, a former employee of the Company filed a discrimination claim
with the Raleigh Area Office of the Equal Employment Opportunity Commission. The
Company has retained counsel in this matter and management believes that the
outcome will not have a material adverse effect on the Company.
7
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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, 1998 contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
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, 1998 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 $17.9 million. 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 $12.0 million. The Company has also
funded its operations through sales of DERMABOND(R) Topical Skin Adhesive
("DERMABOND") after the product received its CE Mark and FDA approval in August
1997 and August 1998, respectively.
The Company has been unprofitable since its inception and has incurred net
losses in each year, including a net loss of approximately $4.8 million for the
year ended December 31, 1998. The Company anticipates that its recurring
operating expenses will increase for the next several years, as it expects its
research and development and general and administrative expenses to increase in
order to develop new products, manufacture commercial quantities of products and
fund additional clinical trials. The Company also expects to incur additional
capital expenditures to expand its manufacturing capabilities. The Company
expects to incur a loss in 1999 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, entering into additional marketing agreements and on the ability
of its marketing partners to commercialize successfully products incorporating
the Company's technologies. The Company may never generate significant revenue
or become profitable on a sustained basis, if at all.
8
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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. 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 26
countries outside the U.S.
Revenues from product sales have increased sequentially for several quarters
beginning with the quarter ended June 30, 1998, the quarter prior to Ethicon's
U.S. sales launch of DERMABOND. The Company does not expect this sequential
growth to continue over the next several quarters. Ethicon has notified the
Company that its orders for DERMABOND will be reduced due to excess inventory
on-hand. The Company plans to reduce certain operating expenses given this
expected decrease in revenues and related earnings but expects to continue new
product development at anticipated levels.
RESULTS OF OPERATIONS
Total revenues consisting of product sales were $4.3 million for the three
months ended June 30, 1999, compared to $1.3 million for the three months ended
June 30, 1998. For the six months ended June 30, 1999, product sales were $8.1
million compared to $2.1 million for the same period of 1998. The increase in
1999 product sales was primarily a result of increased sales volume of
DERMABOND.
Cost of products sold was $1.5 million for the three months ended June 30, 1999,
compared to $850,000 for the three months ended June 30, 1998. Cost of products
sold as a percentage of product sales decreased to 36% in the three months ended
June 30, 1999, compared to 63% during the same period of 1998. For the six
months ended June 30, 1999, cost of products sold was $2.7 million compared to
$1.4 million for the same period of 1998. Cost of products sold as a percentage
of product sales decreased to 33% in the six months ended June 30, 1999,
compared to 66% during the same period of 1998. 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 $2.9 million for the three months ended June 30, 1999,
compared to $3.0 million for the three months ended June 30, 1998. For the six
months ended June 30, 1999 and June 30, 1998, operating expenses were $6.2
million and $5.5 million, respectively. This increase was primarily attributable
to the addition of personnel, expansion of the Company's facilities and
increased research and development and regulatory affairs expenses. At June 30,
1999, the Company had approximately 98 employees compared to approximately 81 at
June 30, 1998. In March 1998, the Company relocated its corporate offices into a
50,000 square foot facility and its manufacturing operations to the same
facility in August 1998. Prior to the move, the Company occupied approximately
20,000 square feet. The increase in research and development and regulatory
affairs expenses was primarily due to costs associated with the Company's
development efforts related to its ongoing research and development programs.
The Company expects these expenses will increase as the Company expands its
pipeline and related development efforts and clinical trials for potential new
products.
Interest expense was $94,000 for the three months ended June 30, 1999, compared
to $103,000 for the three months ended June 30, 1998. For the six months ended
June 30, 1999 and June 30, 1998, interest expense was $185,000 and $191,000,
respectively. This decrease was primarily the result of the continued reduction
of the Company's term loan balance and capital lease obligations through monthly
principal payments.
Investment and interest income was $210,000 for the three months ended June 30,
1999, compared to $291,000 for the same period of 1998. For the six months ended
June 30, 1999 and June 30, 1998,
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investment and interest income was $446,000 and $645,000, respectively. This
decrease was attributed to interest earned from lower average cash and
investment balances.
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 June 30, 1999,
the Company has raised approximately $30.0 million in equity financing. The
Company has 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 was classified as
deferred revenue and will be credited against future royalties and product
purchases expected to be paid by Ethicon. The supply and distribution agreement
for DERMABOND does not provide for any additional future milestone payments from
Ethicon.
At June 30, 1999 net working capital was approximately $10.9 million versus net
working capital of $11.6 million available at December 31, 1998. This decrease
was primarily attributable to cash used to fund the Company's operations. At
June 30, 1999, the Company's primary working capital consisted of $12.9 million
of cash, cash equivalents and investments compared to $16.7 million at December
31, 1998. The Company had $3.5 million in debt and capital lease obligations at
June 30, 1999, reflecting a $370,000 decrease over the December 31, 1998 debt
and capital lease obligations. These decreases represent monthly principal
payments on these obligations.
Net cash provided by investing activities was $1.6 million for the six months
ended June 30, 1999 compared to net cash used by investing activities of $1.3
million for the same period in 1998. During the 1999 period cash was provided
by the sale of investments. During the six months ended June 30, 1998 the
Company added leasehold improvements related to its new 50,000 square
foot facility as well as the acquisition of capital equipment.
Net cash provided by financing activities was $0.0 and $1.5 million for the six
months ended June 30, 1999 and 1998, respectively. The Company's primary
financing activities during the six months ended June 30, 1999 were the net
proceeds from employee stock options and repayments of its term loan. The
Company's primary financing activity during the six months ended June 30, 1998
was the Company's additional borrowings of $1.5 million under its term loan.
The Company believes that existing cash and cash equivalents and investments,
which totaled approximately $12.9 million at June 30, 1999, will be sufficient
to finance its capital requirements for 12 months. The Company expects to incur
a loss in 1999 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 general and administrative expenses to increase in order to
develop new products, manufacture commercial quantities of products 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
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receipt of regulatory clearances and approvals and (viii) general economic
conditions. The Company may 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 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. Such companies' failure to achieve Year 2000 compliance could have a
material adverse effect on the Company. All critical suppliers and customers are
reporting significant progress toward completion or completion of projects
designed to address their own Year 2000 Issues. All have reported plans to
mitigate any Year 2000 related disruption by the end of 1999.
The Company has and will continue to utilize both internal and external
resources to mitigate the Year 2000 Issue. The Project is significantly
complete. 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 $60,000 related to the assessment of, and efforts in connection
with, the Project. The total remaining cost of the Project is estimated to be
approximately $15,000 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The Company is subject to interest rate risk on its investment
portfolio which consists primarily of high quality corporate bonds and
Eurodollar bonds with an average maturity of less than one year. The Company
mitigates default risk by investing in what it believes are the safest and
highest credit quality securities and by monitoring the credit rating of
investment issuers. The portfolio includes only marketable
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securities with active secondary or resale markets to ensure portfolio liquidity
and there are limitations regarding average and individual duration of
investments. These available-for-sale securities are subject to interest rate
risk and will decrease in value if market interest rates increase. At June 30,
1999, the Company's total portfolio consisted of approximately $13.0 million of
investments, all of which had maturities within one year. Additionally, the
Company generally has the ability to hold fixed income investments to maturity.
Therefore, the Company does not expect its results of operations or cash flows
to be materially affected due to a sudden change in interest rates.
FOREIGN CURRENCY EXCHANGE RISK
The Company's international sales and related royalties of DERMABOND are based
on sales in foreign currencies, but payable in U.S. dollars, and thus may be
adversely affected by fluctuations in currency exchange rates. Additionally,
fluctuations in currency exchange rates may adversely affect demand for the
Company's products by increasing the price of the Company's products in the
currency of the countries in which the products are sold.
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PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company (the "Meeting") was held on
June 8, 1999. At the meeting, the following nominees were re-elected as
directors for the Company to serve until the Annual Meeting of Stockholders of
the Company in 2002 and until their successors shall have been elected and
qualified and received the votes set forth after their names below:
Name of Nominee For Withheld
- ----------------- ---------- --------
Randy H. Thurman 12,367,625 38,597
Robert V. Toni 12,367,625 38,597
The terms of office of the following directors continued after the Meeting:
Dennis C. Carey, F. William Schmidt, Ronald A. Ahrens, Richard W. Miller and
Rolf D. Schmidt.
Also at the Meeting, the stockholders of the Company approved and adopted an
amendment to the Company's Amended and Restated 1996 Equity Compensation Plan
(the "Plan") to increase the amount of shares issuable annually to any
individual under the Plan from 75,000 to 300,000 of Common Stock. The results of
the voting on such matter were as follows:
For Against Abstentions or Broker Non-Votes
--------- ------- -------------------------------
9,311,931 974,385 46,217
In addition, at the Meeting, the stockholders of the Company approved and
adopted the 1999 Employee Stock Purchase Plan in order to encourage employee
ownership of the Company. The results of the voting on such matter were as
follows:
For Against Abstentions or Broker Non-Votes
--------- ------- -------------------------------
9,203,629 979,414 45,611
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11 Computation of 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
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11 Computation of Net Income (Loss) Per Share.
27 Financial Data
Schedule.
<PAGE>
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: August 13, 1999 By:\s\ Robert V. Toni
--------------------
Robert V. Toni
President and Chief Executive Officer
Date: August 13, 1999 By:\s\ J. Blount Swain
--------------------
J. Blount Swain
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 11
CLOSURE MEDICAL CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding for the period- basic EPS 13,315 13,264 13,309 13,258
------------ ----------- ------------ ------------
Effect of dilutive stock options (a)
569 - - -
------------ ----------- ------------ ------------
Weighted average common shares
outstanding for the period- diluted EPS 13,884 13,264 13,309 13,258
============ =========== ============ ============
Net income (loss) $ 15 $ (2,320) $ (550) $ (4,276)
============ =========== ============ ============
Net income (loss) per share- basic $ 0.00 $ (0.17) $ (0.04) $ (0.32)
============ =========== ============ ============
Net income (loss) per share- diluted $ 0.00 $ (0.17) $ (0.04) $ (0.32)
============ =========== ============ ============
</TABLE>
(a) Options to purchase 1,216,694 shares of common stock were outstanding at the
quarter ended June 30, 1999 but were not included in the computation of diluted
EPS as their effect was anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,254
<SECURITIES> 12,948,963
<RECEIVABLES> 2,745,928
<ALLOWANCES> 0
<INVENTORY> 712,138
<CURRENT-ASSETS> 15,349,073
<PP&E> 9,717,267
<DEPRECIATION> 1,348,071
<TOTAL-ASSETS> 25,915,277
<CURRENT-LIABILITIES> 4,423,490
<BONDS> 0
0
0
<COMMON> 133,168
<OTHER-SE> 46,487,544
<TOTAL-LIABILITY-AND-EQUITY> 25,915,277
<SALES> 8,094,041
<TOTAL-REVENUES> 8,094,041
<CGS> 2,696,716
<TOTAL-COSTS> 2,696,716
<OTHER-EXPENSES> 6,208,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,422
<INCOME-PRETAX> (550,354)
<INCOME-TAX> 0
<INCOME-CONTINUING> (550,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (550,354)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
