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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-27596
CONCEPTUS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3170244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 Howard Avenue
San Carlos, CA 94070
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 802-7240
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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 at least the past 90 days.
Yes X No
----- -----
As of June 30, 1999, 9,629,150 shares of the Registrant's Common Stock were
outstanding.
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<PAGE>
<TABLE>
CONCEPTUS, INC.
FORM 10-Q For the Quarter Ended June 30, 1999
INDEX
<CAPTION>
Page
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Consolidated balance sheets at June 30, 1999 and December 31, 1998 3
c) Consolidated statements of operations for the three and six month periods ended June
30, 1999 and June 30, 1998 4
c) Consolidated statements of cash flows for the six month periods ended June 30, 1999
and June 30, 1998 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Part II. Other Information 11
Signature 12
Index to Exhibits 13
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Conceptus, Inc.
<TABLE>
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
Assets (Unaudited) (Note 1)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 10,677 $ 11,503
Short-term investments 3,981 5,568
Accounts receivable, net 21 139
Other current assets 220 65
-------- --------
Total current assets 14,899 17,275
Property and equipment, net 1,069 1,391
Other assets 317 365
-------- --------
$ 16,285 $ 19,031
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 261 $ 165
Accrued compensation 191 421
Other accrued liabilities 67 92
Current portion of deferred revenue 97 97
-------- --------
Total current liabilities 616 775
Long-term portion of deferred revenue 186 242
Stockholders' equity:
Common stock, $0.003 par value, 30,000,000 shares authorized, 63,573 63,570
9,629,150 and 9,620,205 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively
Stockholder notes receivable (54) (54)
Deferred compensation (59) (106)
Accumulated deficit (47,977) (45,396)
-------- --------
Total stockholders' equity 15,483 18,014
-------- --------
$ 16,285 $ 19,031
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Conceptus, Inc.
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 38 $ 85 $ 68 $ 252
Cost of sales 44 676 84 1,512
------- ------- ------- -------
Gross profit (loss) (6) (591) (16) (1,260)
Operating expenses:
Research and development 1,013 1,563 1,751 2,949
Selling, general and administrative 710 2,042 1,262 3,819
------- ------- ------- -------
Total operating expenses 1,723 3,605 3,013 6,768
------- ------- ------- -------
Operating loss (1,729) (4,196) (3,029) (8,028)
Interest and investment income, net 230 333 448 709
------- ------- ------- -------
Net loss $(1,499) $(3,863) $(2,581) $(7,319)
======= ======= ======= =======
Basic and diluted net loss per share $ (0.16) $ (0.41) $ (0.27) $ (0.77)
======= ======= ======= =======
Shares used in computing basic
and diluted net loss per share 9,626 9,517 9,623 9,510
======= ======= ======= =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
Conceptus, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1999
------------ ------------
<S> <C> <C>
Cash flows used in operating activities
Net loss $ (2,581) $ (7,319)
Adjustments to reconcile net loss to net cash
from (used in) operating activities:
Depreciation and amortization 331 346
Amortization of deferred compensation 47 52
Recognition of deferred revenue (56) (49)
Changes in operating assets and liabilities:
Accounts receivable 118 468
Note receivable - (256)
Inventory - 355
Other current assets (155) (18)
Accounts payable 96 (296)
Accrued compensation (230) 512
Other accrued liabilities (25) (14)
------------ ------------
Net cash used in operating activities (2,455) (6,219)
------------ ------------
Cash flows provided by investing activities
Purchase of investments - (18,522)
Maturities of investments 1,587 27,055
Capital expenditures (9) (718)
Change in other assets 48 13
------------ ------------
Net cash provided by investing activities 1,626 7,828
------------ ------------
Cash flows provided by financing activities
Proceeds from issuance of common stock 3 40
Principal payments on debt and capital obligations - (26)
------------ ------------
Net cash provided by financing activities 3 14
------------ ------------
Net change in cash and cash equivalents (826) 1,623
Cash and cash equivalents at beginning of period 11,503 9,250
------------ ------------
Cash and cash equivalents at end of period $10,677 $10,873
============ ============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1. Summary of Significant Accounting Policies
Method of Preparation
The accompanying consolidated balance sheet as of June 30, 1999 and the
consolidated statements of operations and cash flows for the three and six month
periods ended June 30, 1999 and 1998 have been prepared by Conceptus, Inc.
("Conceptus" or the "Company"), without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations, and cash flows at
June 30, 1999, and for all periods presented, have been made. The balance sheet
as of December 31, 1998 has been derived from audited financial statements as of
that date.
Although the Company believes that the disclosures in these
consolidated financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures required by
Generally Accepted Accounting Principles for complete financial statements have
been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). This financial data should be reviewed in
conjunction with the audited financial statements and notes thereto included in
the Company's Form 10-K for the year ended December 31, 1998. The results of
operations for the three and six months ended June 30, 1999 may not necessarily
be indicative of the operating results for the full 1999 fiscal year.
Computation of Net Loss Per Share
Basic earnings per share is computed using net income and the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed using net income and the weighted average number of common
and dilutive common equivalent shares outstanding during each period. Under the
requirements for calculating basic earnings per share, the effect of potentially
dilutive securities such as stock options is excluded. Basic and diluted net
loss is computed using the weighted average number of shares of common stock
outstanding.
Comprehensive Income
During the first and second quarters of 1999 and 1998, total
comprehensive income (loss) was the same as net income (loss) as unrealized
gains and losses were immaterial.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I-Item 1 of
this Quarterly Report. In addition, except for the historical statements
contained therein, the following discussion contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The Company wishes to alert readers that the factors set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, as
well as other factors, including those set forth in the following discussion
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future periods to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company.
6
<PAGE>
Overview
Since inception on September 18, 1992, Conceptus has been primarily
engaged in the design, development and marketing of innovative interventional
medical devices for use in reproductive medicine. Currently, the Company's focus
is to develop a non-surgical approach to female sterilization, the most commonly
performed contraceptive procedure worldwide. The Company has a limited history
of operations and has experienced significant operating losses since inception.
Operating losses are expected to continue for at least the next several years as
the Company continues to expend substantial resources to fund clinical trials in
support of regulatory and reimbursement approvals and to conduct research and
product development.
The Company continues to progress in its development and clinical
efforts of the S/TOP(TM) non-surgical permanent contraceptive device. As
previously announced, Conceptus demonstrated clinical feasibility of the S/TOP
device in May 1999 when 60 woman-months of efficacy data was obtained with no
pregnancies. As of August 5, 1999, woman-months of efficacy has increased to 114
and based on this sample data, statistical calculations estimate that if the
S/TOP device had no contraceptive effect there would have been approximately
nine pregnancies as of July 31, 1999. There have been no pregnancies in the
S/TOP phase II study to date. S/TOP devices have been placed in 61 patients who
are continuing in the Phase II clinical trial, and of these, 36 patients are
relying on the S/TOP device for contraception. Additionally, all patients
relying on the S/TOP device have been confirmed to have bilateral tubal
occlusion by hysterosalpingogram at the three-month post-placement examination.
The remaining 25 patients have not yet completed the three-month follow-up
examination to enable reliance on the S/TOP device.
The S/TOP procedure is designed to be a permanent method of
contraception capable of being place in an office setting with minimal
discomfort. To support the feasibility of an office based placement, the Company
is collecting data in its Phase II trial regarding the time required to complete
the procedure, the use of analgesia and/or anesthesia, patient tolerance of the
placement procedure, and patient tolerance of wearing the device. With the
introduction of the gamma design in November, 1998, average procedure time has
decreased below 29 minutes. A significant majority of the placement procedures
were performed without general anesthesia, and of the patients wearing the gamma
design, 91% have reported "good" to "excellent" tolerance of the procedure.
Total wear data has increased to 300 woman-months and there has been a low level
of anticipated adverse events.
In 53 cases in which a gamma device was placed, there have been three
adverse events, which the Company believes were a result of technical failures
and investigator learning curve. Two of these patients have exited from the
study and the third patient is continuing in the study. In each of these cases,
device placement did not meet study protocol requirements and resulted in
endoscopic device retrieval from the abdomen or uterus. Because the proper
placement of the S/TOP device is a critical component of the S/TOP procedure,
the Company is implementing device changes and has revised physician training in
order to minimize the possibility of improper placement. While the Company
believes that the incidence of improper placement can be managed to an
insignificant level, the possibility of improper placement cannot be entirely
eliminated.
In addition to the Company's on-going Phase II trial, the Company
continues to perform pre-hysterectomy studies to support the Company's theorized
mechanism of contraception of the S/TOP device. The Company believes the
contraceptive effect of the S/TOP device is a result of the space-filling design
of the device in combination with a local benign tissue response to the device.
These effects mechanically alter the tubal architecture and interfere with the
function of the normal fallopian tube. As of May 1999, histology analysis has
been performed on 35 fallopian tubes in which the S/TOP device was placed
7
<PAGE>
for an average of nine weeks prior to removal of the uterus. This analysis
demonstrated that the S/TOP device has become completely incorporated into the
fallopian tube tissue with a proliferation of smooth muscle cells and fibrotic
tissue interlaced throughout the device. Additionally, the response was noted to
be localized to the device with no reaction beyond the S/TOP device.
Conceptus continues to formulate a Phase III clinical trial to commence
in the first half of 2000 in approximately ten sites in the United States and
other appropriate countries. The Company plans to place devices in a sufficient
number of patients with an appropriate amount of follow-up data to demonstrate
what the Company believes is an efficacy rate that is sufficient for market
acceptance. In support of this plan, the Company plans to submit to the FDA and
other regulatory bodies in the fourth quarter of 1999, data from its Phase II
trial and histology analysis from pre-hysterectomy patients. There can be no
assurance, however, that the Company's efforts to obtain approvals from the FDA
and other regulatory bodies to commence a Phase III trial will be successful and
there can be no assurance that ultimate Phase III approval, if ever obtained,
will not require more clinical data than that which is available at the time of
the Company's initial request.
Based on the current and future Phase II clinical data the Company
plans to freeze the Phase II database in September 1999 and actively seek
approval from the FDA and other regulatory bodies to commence a Phase III
clinical trial in the first half of 2000. Thus, the Company plans to increase
the level of its expenditures on product development, regulatory and clinical
activities, and administrative support in pursuit of completion of Phase II and
Phase III clinical trials. The Company will need to raise additional funding to
prepare and execute a market release of the S/TOP device. Toward this end the
Company is actively seeking an appropriate sales and marketing partner to
prepare for a significant market launch of the S/TOP device upon approval from
the FDA and other regulatory bodies. The failure to secure necessary regulatory
approvals, the failure to secure a partner or the failure to secure additional
funding will adversely affect the Company. There can be no assurance that the
Company will be successful in these efforts.
In July 1998, the Company effected a major restructuring which
eliminated all sales and marketing personnel, the manufacturing function, and
significantly reduced administrative overhead. As a result of this
restructuring, the Company continues to seek sales and marketing partners to
distribute its current products, the ERA and FUTURA Resectoscope Sleeves, the
STARRT Falloposcopy system, and T-TAC products. While the Company is committed
to establishing an effective distribution channel for its existing products,
there can be no assurance that the Company will be successful in doing so as
there is no proven distribution channel for marketing the Company's products in
the United States or internationally.
Some of the Company's products are currently manufactured by certain
original equipment manufacturers while others are manufactured by Conceptus at
its location in San Carlos, California. The Company is also seeking to
out-source the manufacturing of its STARRT, ERA and FUTURA products.
Future revenues and results of operations may fluctuate significantly
from quarter to quarter and will depend upon, among other factors, the ability
to attract marketing partners and out-source manufacturing, the rate at which
the Company establishes its domestic and international distribution network, the
timing and size of distributor purchases, actions relating to regulatory and
reimbursement matters, the extent to which the Company's products gain market
acceptance, the progress of clinical trials, and the introduction of competitive
products for diagnosis and treatment of the female reproductive system.
8
<PAGE>
Results of Operations - Three and Six Months Ended June 30, 1999 and 1998
Sales decreased to $38,000 and $68,000 for the three and six months
ended June 30, 1999, respectively, from $85,000 and $252,000 for the same
periods in the prior year. The 55% and 73% decreases, respectively, are
primarily due to lower unit shipments of the Company's T-TAC and ERA products.
It is anticipated that revenues will continue to decrease during the third
quarter of 1999 as the Company focuses its efforts on the research and
development of its S/TOP permanent contraceptive device. Domestic sales
comprised 100% of sales for the three and six month periods ended June 30, 1999,
respectively, compared with 96% and 77% in the prior year periods.
Cost of sales decreased to $44,000 and $84,000 for the three and six
months ended June 30, 1999, respectively, from $676,000 and $1,512,000 for the
same periods in the prior year. The 93% and 94% decreases in cost of sales for
the second and first quarters of 1999, respectively are due to the elimination
of manufacturing operations combined with lower unit shipments of the company's
T-TAC and ERA products.
Research and development ("R&D") expenses, which include clinical and
regulatory expenses, decreased to $1,013,000 and $1,751,000 for the three and
six months ended June 30, 1999, respectively, from $1,563,000 and $2,949,000 for
the same periods in the prior year. The 35% and 40% decreases for the three and
six months ending June 30, 1999 are primarily due to a reduced level of research
and development activities on the Company's STARRT and ERA product lines.
Selling, general and administrative ("SG&A") expenses decreased to
$710,000 and $1,262,000 for the three and six months ended June 30, 1999,
respectively, from $2,042,000 and $3,819,000 for the same periods in the prior
year. The 65% and 66% decreases, respectively, are due to the elimination of all
sales and marketing personnel and reduced administrative overhead due to the
restructuring in July 1998.
Net interest and investment income decreased to $230,000 and $448,00
for the three and six months ended June 30, 1999, respectively, from $333,000
and $709,000 for the same periods in the prior year. The decreases for the three
and six months ended June 30, 1999 are a result of lower average cash balances
due to the utilization of cash for operations. Interest expense for the three
and six months ended June 30, 1999 and the amount for the same respective
periods in the prior year are immaterial.
As a result of the items discussed above, net loss increased to
$1,499,000 and $2,581,000 for the three and six months ended June 30, 1999,
respectively, from $3,863,000 and $7,319,000 for the same respective periods in
1998.
9
<PAGE>
The Company has a limited history of operations. Since its inception in
September 1992, the Company has been engaged primarily in research and
development of its T-TAC and STARRT Falloposcopy systems and its S/TOP device,
and since 1996, the ERA and FUTURA product lines. The Company has generated only
limited revenues and has only limited experience in manufacturing, marketing or
selling its products in commercial quantities. The Company has experienced
significant operating losses since inception and, as of June 30, 1999, had an
accumulated deficit of $48 million. The Company expects its operating losses to
continue for at least the next several years as it continues to expend
substantial resources in research and product development and funding clinical
trials in support of its S/TOP device. Due to the expense and unpredictable
nature of these activities, there can be no assurance that the Company will
achieve or sustain profitability in the future.
Liquidity and Capital Resources
At June 30, 1999, Conceptus had cash, cash equivalents and investments
of $14.7 million, compared with $17.1 million at December 31, 1998. The decrease
is primarily due to $2.4 million used in operating activities. Capital
expenditures for the first half of 1999 decreased to $9,000 compared with
capital expenditures of $718,000 in the prior year period. Capital expenditures
in the first half of 1999 represent the purchase of additional computer
equipment required for research and development, whereas capital expenditures in
the first half of 1998 represent leasehold improvements, furniture and equipment
for a new facility which has been leased to a third party through 2003.
Conceptus believes that its existing capital resources will be
sufficient to fund its operations through 2000. However, the Company's future
liquidity and capital requirements will depend upon numerous factors, including
the progress of the Company's clinical research and product development
programs, the receipt of and the time required to obtain regulatory clearances
and approvals, and the resources devoted to developing the Company's S/TOP
product. Accordingly, there can be no assurance that the Company will not
require additional financing within this time frame and, therefore, may in the
future seek to raise additional funds through bank facilities, debt or equity
offerings or other sources of capital. Furthermore, any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive convenants. Additional funding may not be available when
needed or on terms acceptable to the Company, which would have a material
adverse effect on the Company.
The "Year 2000 issue" arises because most computer systems and programs
were designed to handle only a two-digit year, not a four-digit year. These
computer systems and programs may interpret "00" as the year 1900 and could
either stop processing date-related computations or could process them
incorrectly in the year 2000. The Company has been informed by its information
system vendors that such systems are able to process the year 2000 accurately
and accordingly does not anticipate any Year 2000 issues from its own
information systems, databases or programs. However, the Company could be
adversely impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
interacts. The Company is in the process of developing a plan to determine the
impact that third parties which are not Year 2000 compliant may have on the
operations of the Company. There can be no assurance that such plan will be able
to address fully, or at all, the impact of the Year 2000 issue on the Company,
which could have a material adverse effect upon the Company's business,
financial condition and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
10
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
There are no material pending or threatened legal proceedings against
the Company. The Company from time to time is involved in routine legal matters
incident to its business. While management currently believes the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of the
Company, the ultimate outcome of any litigation is uncertain.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27
Exhibit 27 Financial Data Schedule
(a) Reports on Form 8-K.
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONCEPTUS, INC.
By: /s/ OLIVER BROUSE
-----------------------------------------------
Oliver Brouse
Director of Finance
(Duly Authorized and Principal Financial
and Accounting Director)
Date: August 13, 1999
12
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 10,677
<SECURITIES> 3,981
<RECEIVABLES> 21
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,899
<PP&E> 0
<DEPRECIATION> 1,875
<TOTAL-ASSETS> 16,285
<CURRENT-LIABILITIES> 616
<BONDS> 0
0
0
<COMMON> 63,573
<OTHER-SE> (48,090)
<TOTAL-LIABILITY-AND-EQUITY> 16,285
<SALES> 38
<TOTAL-REVENUES> 38
<CGS> 40
<TOTAL-COSTS> 1,723
<OTHER-EXPENSES> (230)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,499)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
