<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ___________ to ____________.
Commission File Number 0-19175
PROTEON, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 04-2531856
(State of other jurisdiction of incorporation (IRS Employer Identification Number)
or organization)
</TABLE>
Nine Technology Drive, Westborough, MA 01581
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 898-2800
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 report(s), 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 April 28, 1997.
Common Stock, $0.01 par value 15,545,374
(Title of each class) (Number of shares)
Page 1 of ____ pages.
Exhibit Index at page _____
1
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PROTEON, INC.
Form 10-Q
QUARTERLY REPORT
March 29, 1997
Table of Contents
Page
Part I Financial Information
Item 1. Consolidated Balance Sheets
as of March 29, 1997 and December 31, 1996
Consolidated Statements of Operations for the three months
ended March 29, 1997 and March 30, 1996
Consolidated Statements of Cash Flows for the three months
ended March 29, 1997 and March 30, 1996
Notes to the 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 6. Exhibits and Reports on Form 8 - K
2
<PAGE> 3
Proteon, Inc.
<TABLE>
Consolidated Balance Sheets
(in thousands)
<CAPTION>
ASSETS
March 29, December 31,
1997 1996
(unaudited)
--------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,451 $ 16,612
Marketable securities 9,985 6,918
Accounts receivable, net 9,010 7,625
Inventories 7,078 8,737
Deposits and other assets 1,094 1,085
-------- --------
Total current assets 37,618 40,977
Property and equipment, net 4,195 4,594
-------- --------
Total assets $ 41,813 $ 45,571
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,061 $ 3,010
Accrued compensation 712 1,075
Accrued expenses 2,748 3,560
Accrued restructuring cost 873 1,661
Accrued warranty 957 1,074
-------- --------
Total current liabilities 7,351 10,380
Stockholders' equity:
Preferred stock - -
Common stock 156 156
Capital in excess of par value 49,295 49,292
Accumulated deficit (14,132) (13,819)
Accumulated translation adjustments 113 177
Less treasury stock, at cost (970) (615)
-------- --------
Total stockholders' equity 34,462 35,191
-------- --------
Total liabilities and stockholders' equity $ 41,813 $ 45,571
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
Proteon, Inc.
<TABLE>
Consolidated Statements of Operations
for the three months ended
(in thousands, except per share data)
(unaudited)
<CAPTION>
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
Sales:
Product $ 7,592 $ 10,297
Software licensing 508 2,183
Service and other 1,025 1,538
-------- --------
Net sales 9,125 14,018
Cost of sales:
Product 4,282 5,685
Software licensing - 104
Service and other 587 998
-------- --------
Cost of sales 4,869 6,787
Gross profit 4,256 7,231
Operating expenses:
Research and development 1,577 2,669
Selling and marketing 2,587 3,764
General and administrative 584 1,116
-------- --------
Total operating expenses 4,748 7,549
-------- --------
(Loss)/income from operations (492) (318)
Interest income, net 251 459
-------- --------
(Loss)/income before income taxes (241) 141
Provision for income taxes 72 -
-------- --------
Net (loss)/income $ (313) $ 141
======== ========
Net (loss)/income per common and common equivalent share $ (0.02) $ 0.01
======== ========
Weighted average number of common shares outstanding 15,545 15,741
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
Proteon, Inc.
<TABLE>
Consolidated Statements of Cash Flows
for the three months ended
(in thousands)
(unaudited)
<CAPTION>
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 7,741 $ 16,444
Cash paid to suppliers and employees (10,544) (16,593)
Interest received 251 464
Interest paid - (5)
Income taxes paid (21) (313)
-------- --------
Net cash (consumed) by operating activities (2,573) (3)
Cash flows from investing activities:
Proceeds from the sale of fixed assets 1 76
Capital expenditures (108) (495)
Marketable securities sales - 4,863
Marketable securities purchases (3,067) (6,648)
-------- --------
Net cash used in investing activities (3,174) (2,204)
Cash flows from financing activities:
Proceeds from the issuance of common stock 3 45
Purchase of treasury stock (354) -
-------- --------
Net cash (used) provided by financing activities (351) 45
Effects of exchange rate changes on cash (63) 24
-------- --------
Net decrease in cash and cash equivalents (6,161) (2,138)
Cash and cash equivalents at the beginning of year 16,612 25,829
-------- --------
Cash and cash equivalents at the end of the period $ 10,451 $ 23,691
======== ========
Reconciliation of net income to net cash (consumed)
generated by operating activities:
Net (loss) income $ (313) $ 141
-------- --------
Adjustments to reconcile net income to net cash
(consumed) generated by operating activities:
Depreciation and amortization 505 841
(Gain) loss on disposition of assets 1 (72)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,385) 2,427
Decrease (increase) in inventories 1,659 (3,813)
(Increase) in deposits and other assets (9) (442)
(Decrease) increase in payables and accrued expenses (3,031) 915
-------- --------
Total adjustments (2,260) (144)
-------- --------
Net cash (consumed) generated by operating activities $ (2,573) $ (3)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
PROTEON, INC.
Notes to Consolidated Financial Statements, unaudited
Management's Opinion:
In the opinion of the management of Proteon, Inc. (the "Company"), the Company's
consolidated financial position as of March 29, 1997 and the results of its
consolidated operations and consolidated cash flows for the interim periods
ended March 29, 1997 and March 30, 1996 , reflect all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the results for
the interim periods presented. It is suggested that these statements be read in
conjunction with the Company's consolidated financial statements and notes
thereto for the year ended December 31, 1996, included in the Company's 1996
Annual Report to Shareholders.
Utilization of Estimates:
To prepare the financial statements in conformity with generally accepted
accounting principles, management is required to 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 amounts of revenue and expenses during the reporting period. In
particular, the Company records reserves for estimated product returns and
regarding the collectibility of accounts receivable. Actual results could differ
from the estimates and assumptions used by management.
Inventories:
Inventories are stated at the lower of cost or market, with cost determined
under the first-in, first-out method.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands) March 29, 1997 December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 850 $1,373
Work in progress 581 718
Finished goods 5,647 6,646
- --------------------------------------------------------------------------------
Total inventories $7,078 $8,737
- --------------------------------------------------------------------------------
</TABLE>
Net Income (Loss) Per Common and Common Equivalent Share:
Net income (loss) per share are computed based on the weighted average number of
common share and common share equivalents outstanding during the period. Common
share equivalents are determined under the assumption that outstanding stock
options are exercised and the proceeds are used to purchase treasury stock.
Fully diluted net income (loss) per common share is not materially different
from primary net income (loss) per common share.
<PAGE> 7
PROTEON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Sales
Net sales for the quarter ended March 29, 1997 were $9,125,000 as compared with
$14,018,000 for the quarter ended March 30, 1996, a decrease of $4,893,000, or
34.9%.
Product sales for the quarter ended March 29, 1997 were $7,592,000 as compared
with $10,297,000 for the quarter ended March 30, 1996, a decrease of $2,705,000,
or 26.3%. The Company's product sales are categorized as Remote Access, and
Local Area Network (LAN). Prior to 1996, the Company analyzed and discussed
revenue in two product categories: Internetworking Systems Division (ISD) and
LAN Products Division (LPD). The Remote Access product category now includes
Proteon's GlobeTrotter, Remote Branch Routers, CNX, and GT Access Manager
product families. The Local Access product category includes Token Ring and
Ethernet Switches, The CSX9OOE Switch Concentrator, Series 70 and Series 75
Stackable Hubs, Series 90 and S90 Boss Chassis Hubs, Ethernet Hubs, and Token
Ring and Ethernet Adapter Cards.
Overall product sales results reflect our ongoing product transition from
Corporate Enterprise and LAN product solutions to Remote Access products.
Overall product revenue was down from a year ago for the quarter due to
anticipated decreases in both our LAN products and our CNX Router categories.
For the quarter ended March 29,1997, the decreases in LAN products net sales
were due primarily to lower average selling prices and declining unit volumes of
Adapter Cards, Switches and Hubs. The CNX reductions are due to planned
reduction in CNX backbone Router units as the company shifts to remote access
Routers. Although sales of units in the Remote Access category increased 108.9%
from the first quarter of 1996, primarily due to GlobeTrotter sales, these
increased volumes were not enough to offset the anticipated product revenue
declines in the LAN products and Corporate Enterprise categories.
Software licensing revenue for the quarter ended March 30, 1997, was $508,000
compared to $2,183,000 for the quarter ended March 30, 1996, a decrease of
$1,675,000, or 76.7%. This anticipated reduction in software licensing revenue
is a result of the completion of the two major multi-year agreements with IBM
and Digital Equipment Corporation. The Company expects that in future quarters
software licensing revenue will continue to experience variability and decrease
in total.
For the quarter ended March 29, 1997 service and other revenues decreased by
$513,000 or 33.4%, to $1,025,000, as compared to $1,538,000 for the quarter
ended March 30, 1996. These decreases were primarily due to the reduction in
service spares and upgrades revenue worldwide, which supported CNX Router
revenues.
<PAGE> 8
Gross Profit
Total gross profit decreased as a percentage of net sales to 46.6% for the
quarter ended March 29, 1997, from 51.6% for the quarter ended March 30, 1996.
The decrease is primarily the result of decreased contributions to gross profit
from highly profitable software licensing revenue. The Company's product gross
profit decreased to 43.6% from 44.8% when compared to the same period in the
prior year due primarily to declining unit margin and decreased volume in the
token ring adapter card segment of the LAN product category. For the quarter,
gross profit for software licensing was 100% versus 95.2% a year ago because of
decreased engineering efforts related to existing agreements. For the quarter,
gross profit from service and other sales increased to 42.7% from 35.1% a year
ago due to reduced fixed costs associated with licensing revenues.
Research and Development
Research and development expenses were $1,577,000 or 17.3% of net sales for the
quarter ended March 29, 1997, compared to $2,669,000 or 19.0% of net sales for
the same period in the prior year. The decrease in expenses of $1,092,000 was
primarily due to lower personnel and personnel related costs including decreased
outside consulting expenses related to software licensing contracts and fewer
customer funded development projects. The Company considers investments in
research and development to be critical to future revenues and intends to manage
these expenditures to focus on Remote Access products.
Selling and Marketing
Selling and marketing expenses were $2,587,000 or 28.4% of net sales for the
quarter ended March 29, 1997, compared to S3,764,000 or 26.9% of net sales for
the quarter ended March 30, 1996 a decrease of $1,178,000, or 31.3%. The
decrease in expenses was due primarily to lower personnel and personnel-related
costs as well as a reduction in advertising expenses for the three months ended
March 29, 1997 when compared with the same respective period in 1996.
General and Administrative
General and administrative expenses were $584,000, or 6.4% of net sales for the
quarter ended March 29, 1997, compared to $1,116,000 or 8.0% of net sales for
the quarter ended March 30, 1996, a decrease of $532,000, or 47.7%. The decrease
was due primarily to lower personnel and personnel related costs.
Provision for Income Taxes
For the quarter ended March 29, 1997, the Company recorded an income tax
provision of $72,000 as a result of state income taxes and anticipated tax
liabilities in its foreign subsidiaries.
<PAGE> 9
Liquidity and Capital Resources
During the first three months of 1997, the Company consumed $2,573,000 of cash
from operating activities. This cash consumption was due mainly to cash payments
to suppliers, and cash payments for employees separation costs and other
payments made as part of the restructuring of the business in the fourth quarter
of 1996 exceeding cash received from customers. During the quarter ended
March 29, 1997, the cash impact from restructuring was $788,000. The remaining
accrual of $873,000 as of March 29, 1997 will be paid during 1997.
Investing activities for the first three months consumed $3,174,000 due
principally to the purchase of marketable securities. Financing activities
consumed $351,000 due principally to the repurchase of treasury common stock.
The Company's management believes that its cash, cash equivalents and marketable
securities will satisfy its expected working capital and capital expenditure
requirements through the next twelve months.
Safe Harbor for Forward-Looking Statements
This Form 10-Q filing contains forward-looking statements within the measuring
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. These forward looking statements are based on management's current
expectations and involve a number of risks and uncertainties. The Company's
future results remain difficult to predict and may be affected by the factors
described below.
NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (FAS) No. 128, "Earnings per Share" and No. 129,
"Disclosure of Information About Capital Structure." FAS 128 specifies the
computation, presentation and disclosure requirements for earnings per share
and is designed to improve earnings per share information by simplifying the
existing computational guidelines, revising the disclosure requirements, and
increasing the comparability of per share data on an international basis. FAS
129 requires the disclosure of certain information about an entity's capital
structure which would include a brief discussion of rights and privileges for
securities outstanding. These standards will be effective for financial
statements for periods ending after December 15, 1997. The Company is currently
reviewing the adoption and impact of these standards, but does not expect them
to have a material impact on the Company's results of operations or its
financial position.
RISK FACTORS
Technological Change, New Products and Industry Standards
The data communications industry continues to undergo a fundamental shift away
from hierarchical single-vendor systems to open, peer-to-peer communications
networks and information management tools that provide users with greater
computing power and access to information. This evolution has fostered the
growth of two dynamic markets: workstations and networking. Workstations deliver
increasingly powerful, personal productivity tools, and data communications
networks provide the "highways" that distribute and share this processing power
throughout an organization, enabling users to more fully leverage and manage
information resources.
As the deployment of networks matures, four recent trends continue to develop:
networking of remote sites to the headquarters office via remote access routers;
reduction of network congestion with the implementation of local area networks
(LAN's); segmentation using various switching technologies; and the push by
businesses of all sizes and individuals to connect their systems and networks to
the Internet.
<PAGE> 10
Proteon is positioning itself as a company focused on the network access market.
Proteon views the network access market as having two segments ~ remote access
and local access. Its current strategy is based upon concentration on the remote
access market segment.
The market for the Company's products is characterized by rapidly changing
technology, new product introductions and a multiplicity of current and evolving
industry standards. Accordingly, the Company believes that its future success
will depend on its continuing ability to enhance and expand its existing
products and to develop or private label other manufacturer's technology and
introduce in a timely fashion new products which incorporate new technologies,
conform to standards and achieve market acceptance.
There can be no assurance that the Company's strategy is the correct one under
the circumstances; that the Company has correctly assessed trends in the
marketplace; that the Company will be able to develop, market or support, or
secure external supplies of, such products successfully; or that the Company
will be able to respond effectively to technological changes, new product
announcements by others or new industry standards.
Manufacturing and Supply; Dependence on Suppliers
The Company's manufacturing operations primarily consist of assembly, testing
and quality control of materials, components, subassemblies, and systems. SCI
Systems (SCI), a major subcontract manufacturer with access to cost-effective,
high volume manufacturing, distribution, and repair capability worldwide, and
others manufacture the majority of Proteon's board assemblies for its router,
hub, and adapter card product lines.
The Token Ring chipsets used in the Company's 4/16 Mbps and 4 Mbps adapters are
currently manufactured for external sale solely by Texas Instruments. The
Company has an agreement with Texas Instruments under which it believes it will
be able to obtain adequate supplies of these chipsets in a timely manner to meet
customer demand.
Certain logic semiconductors, signal processors, and subassembly components used
in the Company's products are also available only from limited sources. The
Company has not experienced any significant problems in obtaining required
supplies of such limited source components and believes that alternative sources
could be developed quickly, if necessary.
Proteon continues to have OEM arrangements with manufacturers for some of its
Ethernet product offerings. In most cases, if supplies from one vendor were
interrupted or reduced, the Company could find a comparable source for the
affected product with limited delays in shipment.
The inability to obtain sufficient sole or limited source components as
required, or to develop alternative sources if and as required in the future,
could result in delays or reductions in product shipments which would adversely
affect the Company's operating results. There can be no assurance that, in the
event of interruptions in contract manufacturing, supplies of components from
sole or limited sources or supplies of units from OEM vendors or similar
occurrences, the
<PAGE> 11
Company could find and engage suitable alternatives in a timely manner. Such
interruptions or the inability of Proteon to counteract them successfully could
have an adverse effect on the Company's business, operations and finances.
Intellectual Property
Currently, Proteon relies principally upon a combination of contractual rights,
trade secrets, and copyright laws to establish and protect proprietary aspects
of its products. The Company believes that, because of the rapid pace of
technological change in the data communications and computer industries, legal
protection for its products is a less significant factor in the Company's
success than the knowledge, ability, and experience of the Company's employees,
the frequency of product enhancements and the timeliness and quality of support
services provided by the Company. However, should a successful challenge be
mounted against the rights of Proteon in and to its intellectual property, by
allegations of infringement on the rights of others or for any other reason, the
Company's business, operations and finances could be adversely affected. Certain
technology used in the Company's products is licensed by the Company from third
parties. The termination of certain of these licenses would have a material
adverse effect on the Company's operations.
Product Compatibility and Competition
Network Interface Card Products
The market for Token Ring network interface card products is dominated by IBM.
While Token Ring networking is an industry standard, Proteon believes that its
ability to address successfully the market for Token Ring network products is
dependent upon the compatibility and interoperability of the Company's products
with products offered by IBM and upon maintaining compatibility with the Token
Ring standard as it continues to evolve.
Remote Access (Routers)
Proteon expects to participate significantly in the market segment of remote
access routing specifically addressing the needs to users to connect to the
Internet or build corporate intranets. The Company has enhanced its remote
access capabilities with the introduction of new products and expanded its
presence in the Integrated Services Digital Networks (ISDN) marketplace.
LAN Access
The Company continues to sell Token Ring Switches; intelligent hubs that provide
connectivity and management of different network cabling schemes and LAN
topologies; Ethernet hubs, the ProNET/E series, for the workgroup market
segment; Token Ring hubs, the Serial 75 Stackable Hub family for building
networked and extended workgroups; Token Ring adapters for physical connectivity
and Token Ring signaling between a PC or workstation and LAN cabling; a
multiport Token Ring PCI network adapter card; a line of Ethernet network
adapter cards
<PAGE> 12
intended to provide a full range of solutions for the client/server marketplace.
The company also seeks opportunities to leverage technology via licensing
arrangements.
Internetworking Software
OpenROUTE(TM), Proteon's internetworking software suite, is the foundation of
the Company's high performance remote access internetworking products. All of
Proteon's internetworking products ship with this software technology installed.
Also, Proteon licenses this software to other providers of internetworking
products.
As routing technology progresses, the Company may be required to modify its
routing and bridging software to maintain compatibility of its products with
various standards and interoperability with other manufacturers router products.
Failure by the Company to maintain such compatibility, interoperability, and
technical competencies could adversely affect the Company's business, operations
and finances.
Competition
The data communications, networking and computer industries are highly
competitive and characterized by rapidly changing technology and evolving
industry standards. These advances result in frequent new product introductions,
increased capabilities and improvements in the relative price/performance of
networking products. As a competitor in the networking industry, Proteon
believes one of the keys to success will be making networks more accessible to a
broader base of customers. Proteon is committed to open, standards-based
products, innovative solutions to customer requirements for reliable and high
performance networks, a favorable price/performance redo, ease of installation
and ease of use.
The Company competes with several companies having greater research and
development, marketing and financial resources, manufacturing capability,
customer support organizations, and name recognition than those of the Company.
There can be no assurance that the Company will be able to compete successfully
in the future or that competitive pressures will not adversely affect the
Company's business.
Research and Product Development
Management believes the Company's future success depends in large part upon
timely enhancement of existing products and the development of new products that
not only maintain technological excellence, but also improve the capabilities,
efficiency, and cost-effectiveness of the end users' data communications
networks. The Company is developing new products to improve price/performance
ratios, enhance its network management capabilities, simplify ease of use, and
ensure interoperability with other vendors' standards-based products.
<PAGE> 13
Variability of Quarterly Operating Results
The Company's quarterly operating results may vary significantly depending upon
factors such as the timing of new product announcements and releases by the
Company and its competitors, the timing of significant orders, the mix of
products sold and the mix of distribution channels through which the products
are sold. In addition, substantially all of the Company's sales in each quarter
result from orders booked in that quarter. Consequently, if sales do not close
in any quarter as anticipated, the Company's results of operations for that
quarter would be adversely affected. Further, the Company's expense levels are
based, in part, on its expectations as to future sales. If sales levels are
below expectations, operating results may be adversely affected. Also, quarterly
results can be materially affected by timing of software licensing revenues.
Method of Distribution
The Company sells its products to end users worldwide primarily through an
indirect sales channel comprised of Internet Service Providers ("ISPs"),
Original Equipment Manufacturers ("OEMs"), Value Added Resellers ("VARs") and
distributors. These resellers also represent other lines of products which are,
in some cases, identical or complementary to, or which compete with, those of
the Company. While the Company attempts to encourage these resellers to focus on
its products through marketing and support programs, there is a risk that these
resellers may give higher priority to products of other suppliers, thereby
reducing their efforts devoted to selling the Company's products. One reseller
accounted for approximately 14%, 12% and 11%, of the Company's sales in 1994,
1995 and 1996, respectively, and a second reseller accounted for approximately
14 % and 10% of the Company's sales in 1996, and 1995, respectively.
There can be no assurance that the Company has selected appropriate channels of
distribution for its products or that existing resellers will dedicate adequate
resources to sales of the Company's products. Failure to do so could result in
an adverse impact on the Company's business, operations and finances.
Marketing, Sales and Customers
End users of Proteon's products have typically been organizations with critical
applications requiring connectivity integrating their headquarters and wide area
computing environments. Proteon's marketing and distribution strategy is to
reach these end users primarily through an indirect sales channel comprised of
Internet service providers ('ISPs"), OEMs, VARs, and distributors with
experience in network integration and reputation for excellent service. In
addition, the Company's strategy includes increased presence of Proteon's sales
force in end-user sites.
Proteon's markets encompass the fast growing local access switching and remote
access internetworking segments of the network access market. Proteon's
customers include both the Global 1000 multinationals, as well as those small to
medium-sized enterprises requiring connection to the Internet and to suppliers,
customers, and business products.
<PAGE> 14
There can be no assurance that the Company has correctly formulated its end-user
profile or selected appropriate methods of marketing and selling its products.
Failure to do so could result in an adverse impact on the Company's business,
operations and finances.
Liquidity
Failure of the Company to create and maintain adequate working capital and
liquidity, by sales of equity, obtaining lines of credit or otherwise, could
adversely impact the Company's business, operations and finances.
International Sales, Regulatory Standards and Currency Exchange
International sales accounted for 38.3%, 35.7% and 35.1% in 1994, 1995 and 1996,
respectively, of the Company's net sales and the Company expects that
international sales will continue to be a significant portion of the Company's
business. Foreign regulatory bodies continue to establish standards different
from those in the United States, and the Company's products are designed
generally to meet those standards. The inability of the Company to design
products in compliance with such foreign standards could have an adverse effect
on the Company's operating results. The Company's international business may be
affected by changes in demand resulting from fluctuation in currency exchange
rates and tariffs and difficulties in obtaining export licenses.
Shares Eligible for Future Sale
Approximately 15,508,645 outstanding shares of Common Stock are now freely
tradable on the open market. In addition, options to acquire an aggregate of
522,604 shares of Common Stock were vested as of December 31, 1996, and the
shares issuable upon exercise of any such option will be freely tradable or
eligible for sale in the public market. Additional shares will become eligible
for resale in the public market at subsequent dates. Sales of substantial
numbers of such shares in the public market could adversely affect the market
price of the Common Stock.
Possible Volatility of Stock Price
The Company believes factors such as announcements of new products by the
Company or its competitors and quarterly variations in financial results could
cause the market price of the Common Stock to fluctuate substantially. In
addition, the stock market has experienced volatility which has particularly
affected the market prices for many high technology companies' stock and which
often has been unrelated to the operating performance of such companies. These
market fluctuations may adversely affect the price of the Company's Common
Stock.
Certain Charter and By-Law Provisions
The Company's Amended and Restated Articles of Organization and By-Laws contain
certain provisions that could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
<PAGE> 15
Company's Common Stock. Certain of such provisions allow the Company to issue
preferred stock with rights senior to those of the Common Stock and impose
various procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions.
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROTEON, INC.
May 12, 1997 By: / s /by: Daniel J. Capone, Jr.
-----------------------------------
Daniel J. Capone, Jr.
President & Chief Executive Officer
(principal executive officer)
By: / s /by: Robert J. Connaughton, Jr.
-----------------------------------
Robert J. Connaughton, Jr.
Chief Financial Officer,
Vice President
Treasurer and Clerk
(principal financial officer)
By: / s /by: James M. Roller
-----------------------------------
James M. Roller
Corporate Controller
(principal accounting officer)
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Defaults upon senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
Item 5. Other Information:
Not applicable.
Item 6. Exhibits and Reports on Form 8 - K:
(a) Exhibits: See Exhibits Index, page ____
(b) Reports on Form 8 - K:
The Company filed no reports on Form 8 - K with the Securities and
Exchange Commission during the quarter ended March 29, 1997.
<PAGE> 18
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
(3.1) Restated Articles of Organization as Amended * (a)
(filed as Exhibit 3.1 to registration statement) xx
(3.3) By-Laws, as amended and restated, of the Registrant * (b)
(filed as Exhibit 3.3 to 1991 Form 10-K) xx
(4.1) Article 4 of the Restated Article of Organization,
(See 3.1 above) xx
(4.2) Form of Common Stock Certificate * (c)
(filed as Exhibit 4.2 to Form 10-Q) xx
(11) Computation of Primary and Fully Diluted (Loss) Income
per Share (electronic filing only) xx
(27) Financial Data Schedule (electronic filing only) xx
All exhibit descriptions followed by an asterisk and a letter in parentheses
were previously filed with the Securities and Exchange Commission as Exhibits
to, and are hereby incorporated by reference from, the document to which the
letter in parentheses corresponds, as set forth below:
(a) Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.
(b) Registrant's Registration Statement on Form S-1 Registration No. 33-40073.
(c) Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 29, 1996.
Where documents are incoporated by reference from previous filings, the Exhibit
number of the document in that previous filing is indicated in parentheses
after the incorporation by reference code.
<PAGE> 1
EXHIBIT 11
Proteon, Inc.
<TABLE>
Computation of Primary and Fully Diluted
(Loss) Income Per Share
(in thousands)
<CAPTION>
Three months ended
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
Net (Loss) Income $ (313) $ 141
======= =======
Weighted average number of common
shares outstanding 15,545 15,741
Weighted average number of common
equivalent shares - -
------- -------
Weighted average number of common and
common equivalent shares outstanding
used to calculate per share data 15,545 15,741
======= =======
Net (loss) income per share:
Primary $ (0.02) $ 0.01
======= =======
Fully diluted $ (0.02) $ 0.01
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROTEON, INC. AS OF MARCH 29, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 10,451
<SECURITIES> 9,985
<RECEIVABLES> 9,623
<ALLOWANCES> 613
<INVENTORY> 7,078
<CURRENT-ASSETS> 37,618
<PP&E> 13,578
<DEPRECIATION> 9,383
<TOTAL-ASSETS> 41,813
<CURRENT-LIABILITIES> 7,351
<BONDS> 0
0
0
<COMMON> 49,451
<OTHER-SE> (970)
<TOTAL-LIABILITY-AND-EQUITY> 41,813
<SALES> 7,592
<TOTAL-REVENUES> 9,125
<CGS> 4,282
<TOTAL-COSTS> 4,869
<OTHER-EXPENSES> 4,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (241)
<INCOME-TAX> 72
<INCOME-CONTINUING> (313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
