<PAGE>
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 QUARTER ENDED SEPTEMBER 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-29839
ORAPHARMA, INC.
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction
of incorporation or organization)
22-3473777
----------
(I.R.S. Employer
Identification No.)
732 Louis Drive
Warminster, Pennsylvania
18974
-----
(Address of principal executive offices)
215/956-2200
------------
(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
--------------
As of November 6, 2000, 13,409,599 shares of common stock were outstanding.
<PAGE>
ORAPHARMA, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations - Three months ended September 30, 2000
and 1999 and Nine months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows - Nine months ended September 30, 2000
and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION 10
Item 2. Change in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
----------------------------
ITEM 1. Financial Statements
ORAPHARMA, INC. AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
----------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,073,803 $ 80,412,200
Prepaid expenses and other 263,944 1,791,875
Deferred offering costs 222,012 -
------------ ------------
Total Current Assets 13,559,759 82,204,075
FIXED ASSETS, net 957,897 1,420,247
INTANGIBLE ASSETS, net 194,083 689,825
------------ ------------
$ 14,711,739 $ 84,314,147
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 192,935 $ -
Accounts payable 452,763 1,043,295
Accrued expenses 1,420,468 1,163,717
------------ ------------
Total Current Liabilities 2,066,166 2,207,012
------------ ------------
LONG-TERM DEBT 288,043 -
------------ ------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK 32,974,359 -
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.001 per share, 50,000,000 shares
authorized, 1,039,635, and 13,381,187 issued and
outstanding at December 31, 1999 and September 30, 2000 1,040 13,381
respectively
Additional paid-in capital 2,789,617 111,903,309
Deferred compensation (815,393) (655,612)
Deficit accumulated during the development stage (22,592,093) (29,153,943)
------------ ------------
Total stockholders' equity (deficit) (20,616,829) 82,107,135
------------ ------------
$ 14,711,739 $ 84,314,147
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ORAPHARMA, INC. AND SUBSIDIARY
------------------------------
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended Inception (August
September 30, September 30, 1, 1996) through
------------ -------------
September 30,
1999 2000 1999 2000 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 2,628,073 $ 1,787,621 $ 5,894,143 $ 5,537,477 $ 24,552,578
General and administrative 444,772 1,789,420 1,420,637 3,982,614 9,124,534
----------- ----------- ----------- ----------- ------------
Operating loss (3,072,845) (3,577,041) (7,314,780) (9,520,091) (33,677,112)
----------- ----------- ----------- ----------- ------------
INTEREST INCOME , net 148,291 1,339,263 513,171 2,958,241 4,523,169
----------- ----------- ----------- ----------- ------------
NET LOSS $(2,924,554) $(2,237,778) $(6,801,609) $(6,561,850) $(29,153,943)
=========== =========== =========== =========== ============
BASIC AND DILUTED NET LOSS PER
SHARE $ (3.81) $ (0.17) $ (9.37) $ (0.65)
=========== =========== =========== ===========
SHARES USED IN COMPUTING BASIC
AND DILUTED NET LOSS PER
SHARE 768,319 13,255,136 725,998 10,120,382
=========== =========== =========== ===========
PRO FORMA BASIC AND DILUTED
NET LOSS PER SHARE $ (0.38) $ (0.17) $ (0.88) $ (0.55)
=========== =========== =========== ===========
SHARES USED IN COMPUTING PRO
FORMA BASIC AND DILUTED NET
LOSS PER SHARE 7,772,324 13,255,136 7,730,003 11,995,867
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ORAPHARMA, INC. AND SUBSIDIARY
------------------------------
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Period from
Nine Months Ended Inception (August
September 30, 1, 1996) Through
-------------
September 30,
1999 2000 2000
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(6,801,609) $(6,561,850) $(29,153,943)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 210,288 297,567 831,554
Stock based compensation expense 17,643 184,721 601,261
Common stock and warrants issued in
connection with acquisition of technology - 61,164 835,897
Changes in operating assets and liabilities -
Prepaid expenses and other (116,312) (1,305,919) (1,569,863)
Accounts payable (780,301) 590,532 1,043,294
Accrued expenses (786,981) (256,751) 741,674
----------- ----------- ------------
Net cash used in operating activities (8,257,272) (6,990,536) (26,670,126)
----------- ----------- ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (169,788) (705,660) (2,107,988)
Expenditures for intangible assets - (550,000) (809,639)
----------- ----------- ------------
Net cash used in investing activities (169,788) (1,255,660) (2,917,627)
----------- ----------- ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of notes payable - - 915,000
Proceeds from sale of preferred stock, net of
expenses - - 33,730,563
Proceeds from the sale of common stock and
exercise of stock options and warrants 160,998 76,065,571 76,069,390
Proceeds from PA Opportunity Grant 200,000 - - 200,000
Repayment of notes payable (144,702) (480,978) (915,000)
----------- ----------- ------------
Net cash provided by financing activities 216,296 75,584,593 109,999,953
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,210,764) 67,338,397 80,412,200
CASH AND CASH EQUIVALENTS, beginning of period 19,236,084 13,073,803 -
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of period $11,025,320 $80,412,200 $ 80,412,200
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ORAPHARMA, INC. AND SUBSIDIARY
------------------------------
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In management's opinion, the accompanying consolidated financial
statements have been prepared on a basis consistent with the audited financial
statements and contain adjustments, which are of a normal and recurring nature,
necessary to present fairly the Company's financial position and results of
operations. Interim financial results are not necessarily indicative of results
anticipated for the full year. These unaudited consolidated financial statements
should be read in conjunction with the Company's 1999 audited financial
statements and footnotes included in the Company's Registration Statement on
Form S-1 (File No. 333-93881).
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of expenses incurred during the reporting period. Actual
results could differ from those estimates.
2. Net Loss Per Common Share
The Company has presented basic and diluted net loss per share pursuant to the
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share," and the Securities and Exchange Commission Staff Accounting Bulletin No.
98. In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Pro forma basic and
diluted net loss per common share, as presented in the statements of operations,
give effect to the conversion of redeemable convertible preferred stock that
automatically converted to common stock upon the closing of the Company's
initial public offering ("IPO"), from the original date of issuance.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss $(2,924,554) $(2,237,778) $(6,801,609) $(6,561,850)
=========== =========== =========== ===========
Basic and diluted:
Weighted-average shares of common stock outstanding 957,038 13,360,125 957,038 10,258,863
Less: weighted average shares subject to repurchase (188,719) (104,989) (231,040) (138,481)
----------- ----------- ----------- -----------
Weighted-average shares used in computing basic and
diluted net loss per share 768,319 13,255,136 725,998 10,120,382
=========== =========== =========== ===========
Basic and diluted net loss per share $ (3.81) $ (0.17) $ (9.37) $ (0.65)
=========== =========== =========== ===========
Pro forma:
Shares used above 768,319 13,255,136 725,998 10,120,382
Pro forma adjustment to reflect the weighted average
effect of assumed conversion of redeemable convertible
preferred stock 7,004,005 - 7,004,005 1,875,485
----------- ----------- ----------- -----------
Shares used in computing pro forma basic and diluted
net loss per share 7,772,324 13,255,136 7,730,003 11,995,867
=========== =========== =========== ===========
Pro forma basic and diluted net loss per share $ (0.38) $ (0.17) $ (0.88) $ (0.55)
=========== =========== =========== ===========
</TABLE>
We have excluded all outstanding redeemable convertible preferred stock,
outstanding stock options and warrants, and shares subject to repurchase from
the calculation of basic and diluted loss per common share because all such
securities are antidilutive for all applicable periods presented. The pro forma
calculations exclude outstanding stock options and warrants, and shares subject
to repurchase as they are antidilutive for all applicable periods presented.
3. Stockholders' Equity
In February 2000, we effected a 1 for 2 reverse stock split of all outstanding
common and preferred stock and increased the number of authorized shares of
common stock to 50,000,000. All references in the accompanying financial
statements to the number of shares and per share amounts have been retroactively
restated to reflect the reverse stock split.
On March 9, 2000 we completed our IPO and sold 4,000,000 shares of our common
stock to the public at $18.00 per share. Net proceeds to the Company after
underwriting commission and expenses were approximately $66.0 million. On April
7, 2000 we sold an additional 600,000 shares of common stock to cover
underwriter over-allotments and received net proceeds of approximately $10.0
million.
6
<PAGE>
Following completion of our IPO, all of the outstanding shares of Series A, B, C
and D redeemable convertible preferred stock were converted into 7,557,100
shares of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations as well as information contained elsewhere in this Report
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
include statements about the following:
. establishing a sales and marketing force, including related hiring and
training activities;
. the product launch of ARESTIN(TM);
. our intentions regarding international collaborations;
. anticipated operating losses and capital expenditures;
. our product development efforts for ARESTIN(TM) and our other product
candidates; and
. the status of our regulatory process for ARESTIN(TM).
When used in this Report, we intend the words "may", "believe," "anticipate,"
"planned," "expect," "require," "intend," "assume" and similar words to identify
"forward-looking statements." These forward-looking statements involve risks,
uncertainties and other factors that may cause our actual results, performance
or achievements, to be far different from that suggested by our forward-looking
statements. Such risks and uncertainties include the possible failure of
clinical trials for our product candidates; our ability to successfully market
product candidates; our ability to achieve milestones on which licensed rights
to commercialize ARESTIN(TM) are dependent; the prospect of continued losses by
us; and our dependence on sole-source suppliers for the production of
ARESTIN(TM). You should not place undue reliance on our forward-looking
statements. We do not intend to update any of these factors or to publicly
announce the results of any revisions to any of these forward-looking
statements.
OVERVIEW OF ORAPHARMA'S FINANCIAL PERFORMANCE
Background
We have devoted substantially all of our resources since we began operations in
August 1996 to the research and development of locally delivered pharmaceutical
products for oral healthcare. Some programs are based on our core technology
that we license from American Home Products. Additional programs are based on
technology that we license from others. With respect to our new product
candidates, other than ARESTIN(TM), we have formed relationships to capitalize
on our core technology and expand our expertise in formulation and development.
We cannot accurately estimate either the cost of these development activities
or the time when the costs will be incurred, and we are unable to predict with
any certainty if they will become commercial products.
We are a development stage pharmaceutical company and have not generated
revenues from product sales. We have not been profitable and since inception
have incurred a cumulative net loss of approximately $ 29.2 million through
September 30, 2000. These losses have resulted principally from costs incurred
in research and development activities, including phase three clinical trials of
our lead product candidate, ARESTIN(TM), and general and administrative
expenses. We expect to incur additional operating losses until such time as we
generate sufficient revenue to offset expenses. Research and development costs
relating to new product candidates will continue to increase. We also expect
manufacturing, sales and marketing costs to increase as we prepare for the
product launch of ARESTIN(TM).
In October 1999 we completed phase three clinical trials for ARESTIN(TM) for the
adjunct treatment of periodontitis. We filed a New Drug Application (NDA) for
ARESTIN(TM) with the United States Food and Drug Association (FDA) on February
17, 2000. The FDA accepted the NDA for review on April 21, 2000 and we are
awaiting the results of this review. Most of our revenue for the foreseeable
future will depend on our ability to receive regulatory approval for, and
successfully market, ARESTIN(TM). Assuming we obtain FDA approval, we intend to
sell ARESTIN(TM) in the United States by deploying a sales and marketing force
of 50 to 75 persons, and expect to begin hiring and training activities in late
2000 and early 2001. In international markets, we intend to rely on strategic
relationships to market and sell ARESTIN(TM) rather than establish our own sales
force.
Equity Financings
We have financed our operations primarily with the net proceeds generated from
the issuance of common and redeemable convertible preferred stock. From our
inception in August 1996 through December 31, 1999, we received net proceeds of
approximately $33.0 million from the sale of redeemable convertible preferred
stock.
On March 9, 2000 we sold 4,000,000 shares of common stock in connection with our
initial public offering and received net proceeds of approximately $66.0
million. On April 7, 2000, we sold an additional 600,000 shares to cover
underwriters' over-allotments and received net proceeds of approximately $10.0
million.
At the effective date of the initial public offering on March 9, 2000, all
outstanding shares of series A, B, C and D preferred stock automatically
converted into an aggregate of 7,557,100 shares of common stock.
Milestone Payments, Royalties and License Fees
In April 2000, we paid American Home Products (AHP) a milestone payment of
$500,000 based on the FDA acceptance of our NDA for review. A second
7
<PAGE>
milestone payment of $2.5 million is due to AHP if and when we receive FDA
approval of ARESTIN(TM) for the treatment of periodontitis. We also paid AHP
$250,000 and issued it 110,000 shares of our common stock at the time we entered
into our license agreement in February 1997. Our license agreement with AHP also
requires us to pay royalties on sales of ARESTIN(TM) and other products that are
covered by the AHP patents or developed using the AHP technology.
In April 2000, we paid Gary R. Jernberg, DDS a milestone payment of $50,000
based on the FDA acceptance of our NDA for review. A second milestone payment
of $100,000 is due to Dr. Jernberg if and when we receive FDA approval of
ARESTIN(TM) for the adjunct treatment of periodontitis. We are also required to
pay royalties on sales of ARESTIN(TM) to Dr. Jernberg, a holder of three U.S.
patents, and to Technical Development and Investments, Est., relating to
technology previously licensed by AHP to this third party. Royalties payable to
these parties can be fully credited against up to 50% of the royalties payable
under our agreement with AHP.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999.
Research and Development Expenses.
---------------------------------
Research and development expenses decreased to approximately $1.8 million for
the three months ended September 30, 2000 compared to approximately $2.6 million
in the same period in 1999, a decrease of 32%. This decrease of $800,000 was
primarily due to the reduction of spending for phase three clinical trials that
was partially offset by increased spending for new product development and
scale-up activities associated with production of ARESTIN(TM).
General and Administrative Expenses.
-----------------------------------
General and administrative expenses increased to approximately $1.8 million for
the three months ended September 30, 2000 compared to $445,000 in the same
period in 1999, an increase of 302%. This increase of approximately $1.4
million was primarily due to sales and marketing activities associated with the
planned launch of ARESTIN(TM) and to a lesser extent higher personnel costs and
professional expenses.
Net Interest Income (Expense).
-----------------------------
Interest income increased to approximately $1.3 million for the three months
ended September 30, 2000 compared to $161,000 in the same period in 1999, an
increase of 732%. This increase of approximately $1.2 million was attributable
to higher levels of cash and cash equivalents available for investment in 2000
and higher interest rates. The greater availability of cash and cash
equivalents was due to the initial public offering of our common stock on March
9, 2000 and the over-allotment sale on April 7, 2000. Interest expense for the
same periods was $0.00 and $13,000 respectively and represented interest paid on
an equipment financing facility.
Net Loss.
--------
Net loss decreased to approximately $2.2 million for the three months ended
September 30, 2000 compared to approximately $2.9 million for the same period in
1999, a decrease of 23%. This $700,000 decrease reflects reduced spending for
phase three clinical trials and increased interest income. These beneficial
developments were partially offset by increased spending for sales, marketing
and production scale-up of ARESTIN(TM) and increased spending for new product
development.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999.
Research and Development Expenses.
---------------------------------
Research and development expenses decreased to approximately $5.5 million for
the nine months ended September 30, 2000 compared to approximately $5.9 million
in the same period in 1999, a decrease of 6%. This decrease of $400,000 was
primarily due to reduced spending for phase three clinical trials that was
partially offset by increased spending for new product development and scale-up
activities associated with production of ARESTIN(TM).
General and Administrative Expenses.
-----------------------------------
General and administrative expenses increased to approximately $4.0 million for
the nine months ended September 30, 2000 compared to approximately $1.4 million
in the same period in 1999, an increase of 180%. This increase of approximately
$2.6 million was primarily due to increased spending for sales and marketing
activities associated with the planned market launch of ARESTIN(TM) and to a
lesser extent higher personnel costs and professional expenses.
Net Interest Income (Expense).
-----------------------------
Interest income increased to approximately $3.0 million for the nine months
ended September 30, 2000 compared to $553,000 in the same period in 1999, an
increase of 437%. This increase of approximately $2.4 million was attributable
to higher levels of cash and cash equivalents available for investment in 2000
and higher interest rates. The greater availability of cash and cash
equivalents was due to the initial public offering of our common stock on March
9, 2000 and the over-allotment sale on April 7, 2000. Interest expense for the
same periods was $9,000 and $40,000 respectively and represented interest paid
on an equipment financing facility.
Net Loss.
--------
The net loss decreased to approximately $6.6 million for the nine months ended
September 30, 2000 compared to approximately $6.8 million for the same period in
1999, a decrease of 5%. This decrease of $200,000 was primarily due to reduced
spending for phase three clinical trials and increased interest income. These
beneficial developments were partially offset by increased spending for sales,
marketing, the production scale-up of ARESTIN(TM) and increased spending for new
product development.
LIQUIDITY AND CAPITAL RESOURCES
8
<PAGE>
As of September 30, 2000, we had cash and cash equivalents of approximately
$80.4 million, an increase of approximately $67.4 million from December 31,
1999. On March 9, 2000, we sold 4,000,000 shares of common stock in the initial
public offering and raised net proceeds of approximately $66.0 million. On
April 7, 2000, we sold an additional 600,000 shares of common stock to cover
underwriter over-allotments and received net proceeds of approximately $10.0
million. As of September 30, 2000, all of the proceeds from the sale of these
shares are invested in short term, investment-grade, interest-bearing
securities.
During the nine months ended September 30, 2000, the net cash used in operating
activities was approximately $7.0 million. This represents the net loss for the
period, adjusted for certain non-cash expenses, and changes in other operating
assets and liabilities as set forth in the statements of cash flows.
Net cash used in investing activities for the nine months ended September 30,
2000 was approximately $1.3 million. The cash was used for milestone payments
on our licensing agreements plus the acquisition of production and computer
equipment.
We anticipate that our capital expenditures will be approximately $2.6 million
for the year ending December 31, 2000. Approximately $1.7 million will be spent
on laboratory and production equipment, $800,000 on computer equipment and
software and the balance on leasehold improvements and furniture. The company
has also committed to expenditures of approximately $2.0 million for leasehold
improvements at the facility of the contractor who will manufacture ARESTIN(TM).
Payments will be disbursed over a six-month period ending on or about March 31,
2001.
Net cash proceeds from financing activities for the nine months ended September
30, 2000 was approximately $76.0 million from the sale of 4,600,000 shares of
common stock.
In June 1999, we increased our credit facility with a bank from $750,000 to
$1,750,000. The facility was used to finance leasehold improvements and
purchases of equipment and software through June 30, 2000. Borrowings under this
facility bore interest at the prime rate plus 0.75%. On March 29, 2000 we
repaid the outstanding balance of $480,978. This credit facility expired on June
30, 2000 and was not renewed.
We lease our corporate and research and development facilities under an
operating lease expiring on September 30, 2003. We have two 5 year renewal
options subject to the landlord's determination of the fair rental value for
each renewal term. We have also entered into operating lease agreements for
various office equipment. The terms of these lease agreements range from 18 to
65 months. Current minimum annual payments for both the real and personal
property leases total $190,010 per year.
We believe that our current cash position and expected interest income will be
sufficient to fund our operations and capital expenditures through 2001. Our
operating expenses and capital expenditures will increase due to the
manufacturing scale-up and planned market launch of ARESTIN(TM) in the first
half of 2001. Research and development expenditures, including clinical studies,
are expected to continue at high levels as we develop new product candidates.
The initiation of commercial manufacturing will require the purchase of
production equipment and the hiring of additional staff to coordinate raw
material suppliers and manage contract manufacturing services at multiple
locations. Sales and marketing activities will require the hiring and training
of approximately 50 to 75 sales and marketing persons in late 2000 and early
2001. We also intend to hire additional research and development, clinical
research and administrative staff.
INCOME TAXES
As of December 31, 1999, we had approximately $20.5 million and $670,000 of net
operating loss and research and development credit carryforwards, respectively,
for federal income tax purposes, which expire on various dates beginning in
2011. These amounts reflect differences in the treatment of expenses for tax
reporting and financial reporting. As of December 31, 1999, we had capitalized
approximately $1.2 million of research and development expenses for federal
income tax purposes. The Tax Reform Act of 1986, as amended, contains certain
provisions that may limit our ability to utilize net operating loss and tax
credit carryforwards in any given year or if there is an ownership change. Any
future ownership change, such as described in Section 382 of the Internal
Revenue Code, may limit the utilization of net operating loss and tax credit
carryforwards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company believes that it is not subject to a material impact to its
financial position or results of operations, relating to market risk.
$79,642,525, which includes net proceeds of $75,983,746 from the IPO, are
invested in a money market account currently earning 6.50%. A decline in
prevailing interest rates would reduce the Company's interest income
accordingly. The Company has not entered into any arrangements to offset such
risk.
9
<PAGE>
PART II - OTHER INFORMATION
------------------------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
d) On March 9, 2000, the Company consummated its initial public offering (the
"Offering") of its common stock, no par value (the "Common Stock") based on the
registration statement relating to this offering (File No. 333-93881) which was
declared effective on that date. Robertson Stephens, U. S. Bancorp Piper Jaffray
and Gerard Klauer Mattison & Co., Inc. were the managing underwriters of the
Offering. The Offering terminated on April 7, 2000 upon the sale of the 600,000
shares subject to the underwriters' over-allotment option. The number of shares
registered, the aggregate price of the offering amount registered, the amount
sold and the aggregate offering price of the amount sold by the Company in the
Offering were as follows:
<TABLE>
<CAPTION>
Shares Aggregate Aggregate
Registered Price Registered Amount Sold Price Sold
---------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Primary Offering 4,000,000 $72,000,000 4,000,000 $72,000,000
Overallotment Offering 600,000 10,800,000 600,000 10,800,000
</TABLE>
The Company incurred the following expenses with respect to the Offering during
the period March 9, 2000 through March 31, 2000, none of which were direct or
indirect payments to directors, officers, general partners of the Company or
their associates or to persons owning 10% or more of any class of equity
securities of the Company or to affiliates of the Company and no further
expenses have been incurred:
<TABLE>
<CAPTION>
Underwriting
Discounts Underwriter's
and Commissions Finders' Fees Expenses Other Expenses Total Expenses
--------------- ------------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Primary Offering $5,040,000 $ - $ - $ 967,702 $6,007,702
Overallotment Offering 756,000 - - 52,552 808,552
---------- -------- --------- ---------- ----------
$5,796,000 $ - $ - $1,020,254 $6,816,254
========== ======== ========= ========== ==========
</TABLE>
The net offering proceeds to the Company from the primary offering, after
deducting the foregoing discounts, commissions, fees and expenses, were
$75,983,746. During the period March 9, 2000 through September 30, 2000 we have
been using cash on hand prior to the IPO that allowed us to invest the net
proceeds raised as follows:
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment -
Purchases of real estate -
Acquisition of other businesses -
Repayment of indebtedness -
Temporary investments (money market account) $75,983,746
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
11
<PAGE>
SIGNATURE
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.
Date: November 9, 2000 /s/ Michael D. Kishbauch
---- ------------------ ------------------------------------------
Michael D. Kishbauch
President and Chief Executive Officer
(Principal Executive Officer
and Duly Authorized Signatory)
Date: November 9, 2000 /s/ James A. Ratigan
---- ------------------ ------------------------------------------
James A. Ratigan
Executive Vice President, Chief Financial
Officer and Secretary (Principal Financial
Officer and Duly Authorized Signatory)
Date: November 9, 2000 /s/ Robert D. Haddow
---- ------------------ ------------------------------------------
Robert D. Haddow
Controller (Principal Accounting Officer
and Duly Authorized Signatory)
12
<PAGE>
EXHIBIT INDEX
27.1 FINANCIAL DATA SCHEDULE
13
