<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 28, 1998
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 or other jurisdiction of incorporation) (IRS Employer Identification Number)
</TABLE>
Nine Technology Drive, Westborough, MA 01581
(Address of principal executive offices)
Registrant's telephone number (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 twelve 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 ninety days.
YES [X] NO [ ]
Indicate number of shares outstanding of each of the Issuer's classes of common
stock as of March 28,1998
Common Stock, $0.01 par value 15,296,857
----------------------------- ------------------
(Title of each class) (Number of shares)
<PAGE> 2
Proteon, Inc.
Form 10-Q
Quarterly Report
March 28, 1998
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 28, 1998 and
December 31, 1997.
Consolidated Statements of Operations for the three months
ended March 28, 1998 and March 29, 1997.
Consolidated Statements of Cash Flows for the three months
ended March 28, 1998 and March 29, 1997.
Notes to the Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
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.
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
Proteon, Inc.
Consolidated Balance Sheets
(in thousands)
Assets
<TABLE>
<CAPTION>
March 28, December 31,
1998 1997
(unaudited)
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,069 $ 5,317
Marketable securities 9,668 12,443
Accounts receivable, net 6,188 6,224
Inventories 6,102 5,710
Deposits and other assets 432 437
------- --------
Total current assets 27,459 30,131
Property and equipment, net 3,071 3,272
------- --------
Total assets $30,530 $ 33,403
======= ========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 2,561 $ 2,292
Accrued compensation 361 765
Accrued expenses 2,541 2,779
Accrued warranty 676 675
------- --------
Total current liabilities 6,139 6,511
Stockholders' equity:
Preferred stock - -
Common stock 157 157
Capital in excess of par value 49,381 49,347
Accumulated deficit (24,179) (21,666)
Accumulated translation adjustments 88 110
Less treasury stock, at cost (1,056) (1,056)
------- --------
Total stockholders' equity 24,391 26,892
------- --------
Total liabilities and stockholders' equity $30,530 $ 33,403
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
Proteon, Inc.
Consolidated Statements of Operations
for the three months ended
(in thousands, except per share data)
(unaudited)
Three months ended
March 28, March 29,
1998 1997
--------- ---------
Sales:
Product $ 3,493 $ 7,592
Software licensing - 508
Service and other 695 1,025
------- -------
Net sales 4,188 9,125
Cost of sales:
Product 2,062 4,282
Service and other 511 587
------- -------
Cost of sales 2,573 4,869
Gross profit 1,615 4,256
Operating expenses:
Research and development 1,215 1,577
Selling and marketing 2,247 2,587
General and administrative 853 584
------- -------
Total operating expenses 4,315 4,748
------- -------
Loss from operations (2,700) (492)
Interest income, net 191 251
------- -------
Loss before income taxes (2,509) (241)
Provision for income taxes 4 72
------- -------
Net loss $(2,513) $ (313)
======= =======
Per share data:
Basic and diluted loss per share $ (0.16) $ (0.02)
======= =======
Basic and diluted weighted average number
of common shares outstanding 15,286 15,545
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
Proteon, Inc.
Consolidated Statements of Cash Flows
for the three months ended
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss $(2,513) $ (313)
Adjustments to reconcile net loss to cash
flows provided (consumed) by operating activities:
Bad debt provision 154 -
Depreciation and amortization 307 505
Loss on disposition of fixed assets - 1
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (118) (1,385)
(Increase) decrease in inventories (392) 1,659
(Increase) decrease in deposits and other assets 5 (9)
(Decrease) increase in accounts payable and accrued expenses (372) (3,031)
------- -------
Net cash provided (consumed) by operating activities (2,929) (2,573)
------- -------
Cash flows generated (consumed) by investing activities:
Proceeds from the sale of fixed assets - 1
Capital expenditures (106) (108)
Marketable securities sales and maturities 3,460 -
Marketable securities purchases (685) (3,067)
------- -------
Net cash generated (consumed) by investing activities 2,669 (3,174)
------- -------
Cash flows provided (consumed) by financing activities:
Proceeds from the issuance of common stock 34 3
Purchase of treasury stock - (354)
------- -------
Net cash provided (consumed) by financing activities 34 (351)
Effect of exchange rate changes on cash (22) (63)
------- -------
Net increase (decrease) in cash and cash equivalents (248) (6,161)
Cash and cash equivalents at beginning of period 5,317 16,612
------- -------
Cash and cash equivalents at end of period 5,069 10,451
======= =======
</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 28, 1998 and the results of its
consolidated operations and consolidated cash flows for the interim periods
ended March 28, 1998 and March 29, 1997, 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, 1997, included in the Company's 1997
Annual Report to Shareholders.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
under the first-in, first-out method.
- --------------------------------------------------------------------------------
(in thousands) March 28, 1998 December 31, 1997
- --------------------------------------------------------------------------------
Raw materials $1,270 $1,043
Work in process 400 373
Finished goods 4,432 4,294
- --------------------------------------------------------------------------------
Total inventories $6,102 $5,710
- --------------------------------------------------------------------------------
Net Income (Loss) Per Common Share and Common Equivalent Share
The Company adopted the requirements of SFAS No. 128 "Earnings per Share" in the
fourth quarter, 1997. This statement replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share
(EPS). Basic EPS excludes the effect of any dilutive options, warrants or
convertible securities and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed by dividing income
available to common stockholders by the sum of the weighted average number of
common shares and common share equivalents computed using the average market
price for the period under the treasury stock method. Outstanding options of
1,731,230 with an average exercise price of $2.06 as of March 28, 1998, and
outstanding options of 1,450,463 with an average exercise price of $3.19 as of
March 29, 1997 were not included in the diluted EPS computation because their
effect would be antidilutive. All earnings per share amounts have been restated
to conform with the SFAS 128 requirements.
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
requires that all components of comprehensive income and total comprehensive
income be reported and that changes be shown in a financial statement displayed
with the same prominence as other financial statements. The Company has elected
to disclose this information in its statement of stockholders' equity. For the
quarters ended March 28, 1998 and March 29, 1997 total comprehensive loss was
$2,535,000 and $376,000, respectively. Total comprehensive loss for the quarter
ended March 28, 1998 was comprised of net loss of $2,513,000 and foreign
currency translation adjustments of $22,000. Total comprehensive loss for the
quarter ended March 29, 1997 was comprised of net loss of $313,000 and foreign
currency translation adjustments of $63,000.
Newly Issued Accounting Standards
The FASB issued Statement No. 131 ("SFAS 131"), "Disclosures about Segments of
an Enterprise and Related Information". This Statement, which supersedes
Statement No. 14 "Financial Reporting for Segments of a Business Enterprise,"
changes the way public companies report information about segments. The
Statement, which is based on the management approach to segment reporting,
includes requirements to report segment information quarterly and entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenues. The Statement
is effective for periods beginning after December 15, 1997. Restatement for
earlier years is required for comparative purposes unless impracticable. In
addition, SFAS 131 need not be applied to interim periods in the initial year,
however, in subsequent years, interim period information must be presented on a
comparative basis. The Company is currently evaluating this Statement and its
effect on financial statement disclosures.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net Sales
Net sales for the quarter ended March 28, 1998 were $4,188,000 as compared with
$9,125,000 for the quarter ended March 29, 1997, a decrease of $4,937,000, or
54.1%. Net sales for this quarter do not include $750,000, which is expected to
be recognized as revenue in the second quarter of 1998, pursuant to a router
research agreement executed during the first quarter of 1998 with a
multi-billion dollar, multinational communications equipment provider.
Product sales for the quarter ended March 28, 1998 were $3,493,000 as compared
with $7,592,000 for the quarter ended March 29, 1997, a decrease of $4,099,000,
or 54.0%.
Product sales results reflect Proteon's ongoing product transition from LAN to
Internet Access products. Product revenue for the quarter ended March 28, 1998
is down when compared to the same period of a year ago due to anticipated
decreases in the LAN and Enterprise router product categories as well as from a
decline in the average selling prices of certain GlobeTrotter products. Sales of
GlobeTrotter products on a unit basis were relatively unchanged for the quarter
ended March 28, 1998 when compared to the same period last year.
There was no software licensing revenue for the quarter ended March 28, 1998
compared to $508,000 for the quarter ended March 29, 1997. The Company expects
that it will continue to have software licensing revenue in the future, however
at varying and uncertain levels. Software licensing revenue is an ancillary
component of the Company's core revenue stream but strategic in its adoption of
the OpenROUTE routing technology in its markets.
For the quarter ended March 28, 1998 service and other revenues decreased by
$330,000 or 32.2%, to $695,000, as compared to $1,025,000 for the quarter ended
March 29, 1997. This decrease was primarily due to the reduction in service
contracts worldwide resulting from the Company's decision to focus on Internet
Access products, which require fewer support services.
Gross Profit
Total gross profit decreased as a percentage of net sales to 38.6% for the
quarter ended March 28, 1998 from 46.6% for the quarter ended March 29, 1997.
This change was the result of decreases in LAN and Enterprise router product
unit sales, the lack of any software licensing revenue and a reduction in the
average selling prices of certain GlobeTrotter products.
The Company's product gross profit for the quarter ended March 28, 1998
decreased slightly to 41.0% from 43.6% when compared to the same period in the
prior year reflecting the reduction in the average selling prices of certain
GlobeTrotter products.
Research and Development
Research and development expenses were $1,215,000 or 29.0% of net sales for the
quarter ended March 28, 1998 compared to $1,577,000 or 17.3% of net sales for
the same period in the prior year. The decrease in expenses of $362,000 or 23.0%
was primarily due to concentrating the Company's development efforts on the
Internet Access products as well as lower personnel and personnel-related costs.
The Company considers investments in research and development to be critical to
future revenues and intends to focus these expenditures on Internet access
products.
Selling and Marketing
Selling and marketing expenses were $2,247,000 or 53.7% of net sales for the
quarter ended March 28, 1998 compared to $2,587,000 or 28.4% of net sales for
the quarter ended March 29, 1997, a decrease of $340,000, or 13.1%. This
decrease was mainly due to reduced commissions and travel expenses associated
with the lower level of revenue in the first quarter of 1998 when compared to
the first quarter of 1997.
<PAGE> 8
General and Administrative
General and administrative expenses were $853,000, or 20.4% of net sales for the
quarter ended March 28, 1998, compared to $584,000 or 6.4% of net sales for the
quarter ended March 29, 1997, an increase of $269,000, or 46.1%. This increase
was principally due to provisions recorded in the first quarter of 1998
pertaining to potential international bad debts and additional professional
services costs.
Provision for Income Taxes
For the quarter ended March 28, 1998, the Company booked an income tax provision
of $4,000 for state income taxes and tax liabilities in its foreign
subsidiaries.
Liquidity and Capital Resources
During the first three months of 1998, $2,929,000 of cash was consumed by
operating activities. In addition to the cash consumed by the net operating loss
for the period of $2,513,000, cash consumption was due to an increase in
inventories of $392,000 and a reduction in current liabilities of $372,000.
Investing activities for the three months ended March 28, 1998, generated
$2,669,000 principally from sales of marketable securities exceeding purchases
by $2,775,000.
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 meaning 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.
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
(LANs); segmentation using various switching technologies; and the push by
businesses of all sizes and individuals to connect their systems and networks to
the Internet.
Proteon is positioning itself as a company focused on the network access market.
Proteon views the network access market as having two segments: Internet access
and local access. Its current strategy is based upon concentration on the
Internet access market segment.
Rapidly changing technology, new product introductions and a multiplicity of
current and evolving industry standards characterize the market for the
Company's products. 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.
<PAGE> 9
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. U.S.
Assemblies, 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 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
IBM dominates the market for Token Ring network interface card products. 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.
<PAGE> 10
Internet Access (Routers)
Proteon expects to participate significantly in the market segment of Internet
access routing specifically addressing the needs to users to connect to the
Internet or build corporate intranets. The Company has enhanced its Internet
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 Series 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 intended to provide a full range of solutions for the
client/server marketplace. The Company also seeks opportunities to leverage
technology through licensing arrangements.
Internetworking Software
OpenROUTE(TM), Proteon's internetworking software suite, is the foundation of
the Company's high performance Internet access and 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 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> 11
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, if
any.
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 11%, 11% and 12%, of the Company's sales in 1997,
1996 and 1995, respectively, and a second reseller accounted for approximately
8%, 14 % and 10% of the Company's sales in 1997, 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
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.
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 35.4%, 38.3% and 35.7% in 1997, 1996 and 1995,
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.
<PAGE> 12
Shares Eligible for Future Sale
Approximately 15,296,857 outstanding shares of Common Stock as of March 28, 1998
are now freely tradable or eligible for sale on the open market. In addition,
options to acquire an aggregate of 644,707 shares of Common Stock were vested as
of March 28, 1998, 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
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.
Year 2000
The Company is reviewing all systems and equipment that might be affected by the
Year 2000 issue. Management is in the process of developing an action plan that
provides for the repair or replacement of all systems with exposure to Year 2000
problems by the end of 1998, the cost of which is not expected to have a
material financial impact on the Company. The plan calls for a combination of
internal and external resources. The commitment of internal resources is not
expected to have a significant impact on the Company's future sales and
operating results. To date, the Company is not aware of any situations of
noncompliance that would materially adversely affect its operations or financial
condition. There can be no assurance, however, that instances of noncompliance
which could have a material adverse effect on the Company's operations or
financial condition will not be identified, that the systems of other companies
with which the Company transacts business will be corrected on a timely basis,
or that a failure by such entities to correct a Year 2000 problem or a
correction which is incompatible with the Company's information systems would
not have a material adverse effect on the Company's operations or financial
condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
<PAGE> 13
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
(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 28, 1998.
<PAGE> 14
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 11, 1998 By: /s/ Daniel J. Capone, Jr.
---------------------------------------
Daniel J. Capone, Jr.
President & Chief Executive Officer
(principal executive officer)
By: /s/ Steven T. Shedd
---------------------------------------
Steven T. Shedd
Chief Financial Officer, Vice President
Treasurer and Clerk
(principal financial officer)
By: /s/ James M. Roller
---------------------------------------
James M. Roller
Corporate Controller
(principal accounting officer)
<PAGE> 15
Exhibit Index
Exhibit
Number Description
- ------- -----------
(3.1) Restated Articles of Organization as Amended * (a)
(filed as Exhibit 3.1)
(3.3) By-Laws, as amended and restated, of the Registrant * (b)
(filed as Exhibit 3.3)
(4.1) Article 4 of the Restated Article of Organization,
(See 3.1 above)
(4.2) Form of Common Stock Certificate * (c)
(filed as Exhibit 4.2)
(27) Financial Data Schedule
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) Amendment No. 1 on Form 8 to the Registrant's Registration Statement on
Form 8-A, File No. 0-19175.
Where documents are incorporated 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROTEON, INC. AS OF MARCH 28, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-28-1998
<EXCHANGE-RATE> 1
<CASH> 5,069
<SECURITIES> 9,668
<RECEIVABLES> 6,188
<ALLOWANCES> 0
<INVENTORY> 6,102
<CURRENT-ASSETS> 27,459
<PP&E> 13,251
<DEPRECIATION> 10,180
<TOTAL-ASSETS> 30,530
<CURRENT-LIABILITIES> 6,139
<BONDS> 0
0
0
<COMMON> 49,538
<OTHER-SE> (1,056)
<TOTAL-LIABILITY-AND-EQUITY> 30,530
<SALES> 3,493
<TOTAL-REVENUES> 4,188
<CGS> 2,062
<TOTAL-COSTS> 2,573
<OTHER-EXPENSES> 4,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,509)
<INCOME-TAX> 4
<INCOME-CONTINUING> (2,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,513)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
