UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For
the transition period from __________ to ___________
Commission File Number 0-23837
SurModics, Inc.
(Exact name of registrant as specified in its Charter)
MINNESOTA 41-1356149
(State of incorporation) (I.R.S. Employer Identification No.)
9924 West 74th Street
Eden Prairie, Minnesota 55344
(Address of principal executive offices)
Registrant's telephone number, including area code: (952) 829-2700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
The number of shares of the registrant's Common Stock, $.05 par value per share,
outstanding as of July 31, 2000 was 7,833,725.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SURMODICS, INC.
Condensed Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------------ -----------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $1,326 $1,975
Short-term investments 12,825 3,947
Accounts receivable, net 1,441 1,433
Inventories 562 459
Prepaids and other 850 260
------------------ -----------------
Total current assets 17,004 8,074
------------------ -----------------
PROPERTY AND EQUIPMENT, net 7,103 5,275
LONG-TERM INVESTMENTS 9,338 15,917
DEFERRED TAX ASSETS 1,588 2,465
OTHER ASSETS, net 209 227
------------------ -----------------
$35,242 $31,958
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $238 $710
Accrued liabilities 1,297 1,261
Deferred revenues 369 268
------------------ -----------------
Total current liabilities 1,904 2,239
DEFERRED REVENUES AND OTHER, less current portion 125 --
------------------ -----------------
Total liabilities 2,029 2,239
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Preferred stock-
$.05 par value, 150,000 shares authorized;
no shares issued or outstanding -- --
Common stock-
$.05 par value, 45,000,000 shares authorized;
7,824,945 and 7,701,921 shares issued and outstanding 391 385
Additional paid-in capital 32,783 32,009
Unearned compensation (277) (267)
Stock purchase notes receivable (7) (58)
Accumulated other comprehensive loss (222) (187)
Retained earnings (deficit) 545 (2,163)
------------------ -----------------
Total stockholders' equity 33,213 29,719
------------------ -----------------
$35,242 $31,958
================== =================
</TABLE>
The accompanying notes are an integral part of these condensed balance
sheets.
2
<PAGE>
SURMODICS, INC.
Condensed Statements of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Royalties $2,296 $1,692 $7,149 $4,528
License fees 82 225 342 550
Product sales 1,226 1,126 3,648 2,916
Research and development 561 642 1,616 1,638
------- ------- ------- -------
Total revenues 4,165 3,685 12,755 9,632
------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Product 478 381 1,340 1,060
Research and development 1,570 1,345 4,954 3,723
Sales and marketing 433 504 1,165 1,339
General and administrative 645 700 1,900 1,899
------- ------- ------- -------
Total operating costs and expenses 3,126 2,930 9,359 8,021
------- ------- ------- -------
INCOME FROM OPERATIONS 1,039 755 3,396 1,611
------- ------- ------- -------
OTHER INCOME:
Investment income, net 320 267 920 797
Gain (loss) on sale of investments 9 (2) (1) 92
------- ------- ------- -------
Other income, net 329 265 919 889
------- ------- ------- -------
INCOME BEFORE INCOME TAX PROVISION 1,368 1,020 4,315 2,500
INCOME TAX BENEFIT (PROVISION) (507) 194 (1,607) 743
------- ------- ------- -------
NET INCOME $861 $1,214 $2,708 $3,243
======= ======= ======= =======
NET INCOME PER SHARE:
Basic $0.11 $0.16 $0.35 $0.44
Diluted $0.10 $0.15 $0.33 $0.41
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic weighted average common shares outstanding 7,818 7,368 7,772 7,289
Dilutive effect of outstanding stock options 489 726 535 703
------- ------- ------- -------
Diluted weighted average common shares outstanding 8,307 8,094 8,307 7,992
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
3
<PAGE>
SURMODICS, INC.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $2,708 $3,243
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 788 523
Amortization of unearned compensation, net 69 61
Change in deferred rent -- (30)
Change in deferred tax 1,577 (747)
Change in assets and liabilities:
Accounts receivable (8) (295)
Inventories (103) (86)
Prepaids and other (590) (207)
Accounts payable and accrued liabilities (436) (102)
Deferred revenues 226 (121)
------------- -------------
Net cash provided by operating activities 4,231 2,239
------------- -------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (2,598) (4,018)
Purchases of available-for-sale investments (20,792) (20,463)
Sales/maturities of available-for-sale investments 18,458 21,383
Repayment of stock purchase notes receivable 51 96
------------- -------------
Net cash used in investing activities (4,881) (3,002)
------------- -------------
FINANCING ACTIVITIES:
Issuance of common stock, net 1 554
------------- -------------
Net decrease in cash and cash equivalents (649) (209)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,975 1,344
------------- -------------
End of period $1,326 $1,135
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
<PAGE>
SURMODICS, INC.
Notes to Condensed Financial Statements
(Unaudited)
(1) Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed
financial statements have been prepared in accordance with generally accepted
accounting principles and reflect all adjustments, consisting solely of normal
recurring adjustments, needed to fairly present the financial results for these
interim periods. These financial statements include some amounts that are based
on management's best estimates and judgments. These estimates may be adjusted as
more information becomes available, and any adjustment could be significant. The
results of operations for the three months and nine months ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
entire fiscal year.
According to the rules and regulations of the Securities and Exchange
Commission, the Company has omitted footnote disclosures that would
substantially duplicate the disclosures contained in the audited financial
statements of the Company. Read together with the disclosures below, management
believes the interim financial statements are presented fairly. However, these
unaudited condensed financial statements should be read together with the
financial statements for the year ended September 30, 1999 and footnotes thereto
included in the Company's form 10-KSB as filed with the Securities and Exchange
Commission.
(2) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 137, "Deferral of the
Effective Date of SFAS No. 133," which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. If certain
conditions are met, a derivative may qualify for hedge accounting. Based on
current operations, the Company anticipates that the adoption of SFAS No. 133 at
the beginning of fiscal 2001 will not have a significant impact on its results
of operations.
(3) Comprehensive Income
The components of comprehensive income for the three-month and
nine-month periods are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
-------------------------- --------------------------
(In thousands) 2000 1999 2000 1999
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net income $861 $1,214 $2,708 $3,243
Other comprehensive income:
Change in unrealized loss on
Available-for-sale securities 65 (141) (35) (453)
------------- ------------ ------------ -------------
Total comprehensive income $926 $1,073 $2,673 $2,790
============= ============ ============ =============
</TABLE>
5
<PAGE>
(4) Operating Segments
<TABLE>
<CAPTION>
Research &
(In thousands) Licensing Manufacturing Development Corporate Consolidated
------------ ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Nine Months Ended June 30,
2000
Revenues:
PhotoLink $5,213 $1,730 $1,066 $ - $8,009
Diagnostic 2,278 - - - 2,278
Stabilization & other - 1,918 - - 1,918
Government - - 550 - 550
------------ ---------------- --------------- --------------- ---------------
Total Revenues 7,491 3,648 1,616 - 12,755
Expenses - 1,340 4,954 3,065 9,359
------------ ---------------- --------------- --------------- ---------------
Operating income (loss) 7,491 2,308 (3,338) (3,065) 3,396
Other income 919 919
Income tax provision (1,607) (1,607)
---------------
Net income $2,708
===============
Nine Months Ended June 30,
1999
Revenues:
PhotoLink $3,036 $1,295 $903 $ - $5,234
Diagnostic 2,042 - - - 2,042
Stabilization & other - 1,621 - - 1,621
Government - - 735 - 735
------------ ---------------- --------------- --------------- ---------------
Total Revenues 5,078 2,916 1,638 - 9,632
Expenses - 1,060 3,723 3,238 8,021
------------ ---------------- --------------- --------------- ---------------
Operating income (loss) 5,078 1,856 (2,085) (3,238) 1,611
Other income 889 889
Income tax benefit 743 743
---------------
Net income $3,243
===============
</TABLE>
(5) 1999 Employee Stock Purchase Plan
On November 15, 1999 the Board of Directors adopted, and on January 24,
2000 shareholders approved, the Company's 1999 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). The Stock Purchase Plan permits all full-time and
part-time employees (including officers) of the Company to purchase stock of the
Company. The Stock Purchase Plan does not allow an employee to purchase stock
through the Stock Purchase Plan if immediately after the grant of an option, he
or she would own stock representing 5% or more of the total combined voting
power or value of all classes of the stock of the Company. The Stock Purchase
Plan will terminate on February 28, 2010, unless the Board of Directors extends
the term of the Plan.
6
<PAGE>
(6) Stockholders' Equity
On January 24, 2000, shareholders approved an amendment to the Articles
of Incorporation to eliminate all references in the Articles to a class of
Convertible Preferred Stock, shares of which were automatically converted as
part of the Company's initial public offering in 1998.
Additionally, the Amendment increased the total number of authorized
shares of the Company to 50,000,000 consisting of 45,000,000 shares of Common
Stock, $0.05 par value per share, 150,000 of Series A Preferred Stock, $.05 par
value per share, and 4,850,000 undesignated shares.
(7) Subsequent Event
On July 6, 2000, the Company announced that it had entered into a
licensing and development agreement with Motorola, Inc., granting the Motorola
BioChip Systems unit exclusive rights to SurModics' proprietary PhotoLink
technology for use in Motorola's biochips. The agreement was subject to approval
by the Antitrust Division of the U.S. Department of Justice and Federal Trade
Commission. Such approval has now been received, and initial payments due under
the agreement, including both a license fee and equity investment, have been
received by SurModics
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
General
SurModics is a leading provider of surface modification solutions to
medical device manufacturers. The Company's revenues are derived from four
primary sources: fees from licensing its patented technology to customers;
royalties received from licensees; the sale of photoreactive chemical compounds
to licensees and stabilization products to the diagnostics industry; and
research and development fees generated on projects for commercial customers and
pursuant to government grants.
Results of Operations
Three Months Ended June 30, 2000 and 1999
Revenues. Revenues for the quarter ended June 30, 2000, were $4.2
million, an increase of $480,000, or 13%, over the same period of fiscal 1999.
The revenue components were as follows (in thousands):
<TABLE>
<CAPTION>
$ Increase % Increase
2000 1999 (Decrease) (Decrease)
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
PhotoLink revenue:
Royalties $1,656 $977 $679 69%
License fees 82 225 (143) (64%)
Reagent chemical sales 624 520 104 20%
Commercial development 398 412 (14) (3%)
--- --- ----
Total PhotoLink revenue 2,760 2,134 626 29%
Other revenue:
Diagnostic royalties 640 715 (75) (10%)
Stabilization & other products 602 606 (4) (1%)
Government research 163 230 (67) (29%)
--- --- ----
Total revenues $4,165 $3,685 $480 13%
====== ====== ====
</TABLE>
Third quarter revenue growth was primarily a result of increased
PhotoLink royalties and reagent chemical sales. The 69% growth in PhotoLink
royalties was due mostly to increased sales of coated products sold by the
Company's licensees. During the quarter, approximately 81% of the PhotoLink
royalties received were earned royalties based on the clients' sale of coated
products. The remaining royalties were minimum payments made to SurModics prior
to a medical device reaching the market. Sales of reagent chemicals (those
chemicals used by licensees in the PhotoLink coating process) increased 20% due
to increased purchases by several licensees. Reagent sales to a single client
decreased as anticipated, as a result of collaborative efforts to improve the
client's processing efficiencies. While sales to this client continued to
represent more than half of the reagents sold during the quarter, reagent sales
to all other customers increased 71% over the same period last year. The Company
signed two new license agreements in the third quarter and now has license
agreements with 47 companies covering over 100 different products.
Commercial development revenue decreased 3% from the same period last
year. Both periods included one customer that accounted for over half of the
development revenue recognized in that period. Diagnostic royalty revenue
8
<PAGE>
decreased 10% and it is anticipated it will remain at lower than historical
levels over the next several quarters until certain manufacturing issues of a
licensee are resolved.
Product costs. The Company's product costs were $478,000 for the third
quarter of fiscal 2000, an increase of $97,000, or 25%, over the same period of
fiscal 1999. Overall product margins decreased to 61% in the third quarter of
fiscal 2000 from 66% in the same period of fiscal 1999. The margin decline was
primarily due to higher scrap expense associated with production lots that
failed to meet quality standards. It is expected that margins will return to
recent levels in the third quarter.
Research and development expenses. Research and development expenses
were $1.6 million for the third quarter of fiscal 2000, an increase of $225,000,
or 17%, over the same period of fiscal 1999. The change was primarily due to
compensation and benefits associated with technical personnel added by the
Company over the last year, increased facility cost due to the construction of
additional laboratory space, and supplies cost to equip the new space. In
addition, the Company recovered $120,000 from a client for legal fees associated
with some patent infringement cases being pursued by that client. A portion of
this recovery was allocated to general and administrative expenses.
Sales and marketing expenses. Sales and marketing expenses were
$433,000 for the third quarter of fiscal 2000, a $71,000 or 14% decrease from
the same period of fiscal 1999. Increased promotional expenses were more than
offset by decreased compensation and benefit costs due to open positions. The
Company filled several of these positions early in the fourth quarter.
General and administrative expenses. General and administrative
expenses were $645,000 for the third quarter of fiscal 2000, a decrease of
$55,000, or 8%, over the same period of fiscal 1999. The decrease was the result
of decreased legal fees and investor relations costs.
Income from operations. The Company's income from operations was $1.0
million for the second quarter of fiscal 2000, an increase of $284,000, or 38%,
over the same period of fiscal 1999.
Other income, net. The Company's other income was $329,000 for the
second quarter of fiscal 2000, an increase of $64,000, or 24%, over the same
period of fiscal 1999. The increase was due to higher investment balances in the
current period.
Income tax expense. The Company's income tax provision was $507,000 for
the third quarter of fiscal 2000 versus a $194,000 income tax benefit recorded
in the same period of fiscal 1999. Net income for the third quarter of fiscal
1999 included the reversal of income tax valuation reserves of approximately
$572,000 reducing the Company's tax provision at statutory rates to a net credit
of $194,000. Excluding the effect of the reversal of income tax valuation
reserves, the Company's net income and diluted income per share would have been
as follows on a proforma basis:
<TABLE>
<CAPTION>
Proforma
--------
Three Months Ended June 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Net income before provision for income taxes $1,368,000 $1,020,000
Income tax provision (507,000) (378,000)
---------- ----------
Net income $ 861,000 $ 642,000
========== ==========
Diluted net income per share $0.10 $0.08
===== =====
</TABLE>
Other comprehensive income. The Company's other comprehensive income
was $65,000 for the third quarter of fiscal 2000. This income was due to an
9
<PAGE>
increase in the fair value of the Company's long-term investments
available-for-sale. As of June 30, 2000, the Company had a net $222,000
unrealized loss related to those investments.
Nine Months Ended June 30, 2000 and 1999
Revenues. Revenues for the nine months ended June 30, 2000 were $12.8
million, an increase of $3.1 million, or 32%, over the same period of fiscal
1999. The revenue components were as follows (in thousands):
<TABLE>
<CAPTION>
$ Increase % Increase
2000 1999 (Decrease) (Decrease)
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
PhotoLink revenue:
Royalties $4,871 $2,486 $2,385 96%
License fees 342 550 (208) (38%)
Reagent chemical sales 1,730 1,295 435 34%
Commercial development 1,066 903 163 18%
----- --- ---
Total PhotoLink revenue 8,009 5,234 2,775 53%
Other revenue:
Diagnostic royalties 2,278 2,042 236 12%
Stabilization & other products 1,918 1,621 297 18%
Government research 550 735 (185) (25%)
--- --- -----
Total revenues $12,755 $9,632 $3,123 32%
======= ====== ======
</TABLE>
The overall revenue growth of 32% for the first nine months was
distributed across most operating segments but resulted primarily from a 53%
increase in PhotoLink-related revenue. PhotoLink royalties increased 96% due to
increased sales of coated products sold by the Company's licensees. In addition,
the first quarter royalties included a one-time royalty payment of $225,000 from
a client as the result of a license renegotiation. Approximately 80% of the
PhotoLink royalties received during the period were earned royalties based on
the clients' sale of coated products. The remaining royalties were minimum
payments made to SurModics prior to a medical device reaching the market.
Reagent chemical sales increased 34% due to growing production of
PhotoLink-coated devices by SurModics' clients. SurModics signed seven new
PhotoLink license agreements during the first nine months. The fees from these
agreements, in addition to progress payments made on previously executed license
agreements resulted in $342,000, a 38% decrease from the $550,000 recorded on
the twelve license agreements signed in the same period last year. Stabilization
and other product sales increased 18% from the same period in fiscal 1999.
Product costs. The Company's product costs were $1.3 million for the
first nine months of fiscal 2000, an increase of $280,000, or 26%, over the same
period of fiscal 1999. Overall product margins are down slightly at 63% in the
first nine months of fiscal 2000 from 64% in the same period of fiscal 1999.
Increased labor and scrap costs have offset the efficiencies achieved through
increased production volumes.
Research and development expenses. Research and development expenses
were $5.0 million for the first nine months of fiscal 2000, an increase of $1.2
million, or 33%, over the same period of fiscal 1999. The change was primarily
10
<PAGE>
due to compensation and benefits associated with technical personnel added by
the Company over the last year, increased operating cost of additional
laboratory space, and supplies cost to equip the newly completed laboratory
space.
Sales and marketing expenses. Sales and marketing expenses were $1.2
million for the first nine months of fiscal 2000, a $174,000 or 13% decrease
from the same period of fiscal 1999. The decrease is due to lower compensation
and benefit costs due to open positions.
General and administrative expenses. General and administrative
expenses were $1.9 million for the nine months ended June 30, 2000, no change
from the same period of fiscal 1999. Increased labor costs were offset by
decreases in director and officer insurance premiums and investor relations
costs.
Income from operations. The Company's income from operations was $3.4
million for the first nine months of fiscal 2000, an increase of $1.8 million,
or 111%, over the same period of fiscal 1999.
Other income, net. The Company's other income was $919,000 for the
first nine months of fiscal 2000, an increase of $30,000, or 3%, over the same
period of fiscal 1999. An increase in investment income in the current period
was offset by a decrease in realized gains on the sale of investments. The first
nine months of fiscal 1999 included $92,000 of net realized gains from the sale
of investments.
Income tax expense. The Company's income tax provision was $1.6 million
for the nine months ended June 30, 2000 versus a $743,000 income tax benefit
recorded in the same period of fiscal 1999. Year-to-date net income for the nine
months of fiscal 1999 included the reversal of income tax valuation reserves of
approximately $1.6 million, reducing the Company's tax provision at statutory
rates to a net credit of $743,000. Excluding the effect of the reversal of
income tax valuation reserves, the Company's net income and diluted income per
share would have been as follows on a proforma basis:
<TABLE>
<CAPTION>
Proforma
--------
Nine Months Ended June 30,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Net income before provision for income taxes $4,315,000 $2,500,000
Income tax provision (1,607,000) (891,000)
---------- ----------
Net income $2,708,000 $1,609,000
========== ===========
Diluted net income per share $0.33 $0.20
===== =====
</TABLE>
Other comprehensive loss. The Company's other comprehensive loss was
$35,000 for the first nine months of fiscal 2000. This loss was due to a
reduction in the fair value of the Company's long-term investments
available-for-sale due to increases in interest rates. As of June 30, 2000, the
Company had a net $222,000 unrealized loss related to those investments.
Liquidity and Capital Resources
As of June 30, 2000, the Company had working capital of $15.1 million
and cash, cash equivalents and investments totaling $23.5 million. The Company's
investments principally consist of U.S. government agency obligations and
investment grade, interest-bearing corporate debt securities with varying
maturity dates, the majority of which are one year or less. The Company
generated positive cash flows from operating activities of $4.2 million in the
first nine months of fiscal 2000, which was an increase of 89% over the same
period of last year, primarily due to net income and the change in the deferred
tax asset as described above. Approximately $4.9 million of cash was used for
investing activities during the first nine months compared to $3.0 million last
year.
11
<PAGE>
As of June 30, 2000, the Company had no debt, nor did it have any
credit agreements. The Company believes that its existing capital resources will
be adequate to fund the Company's operations into the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains an investment portfolio in accordance with its
investment policy. The primary objectives of the Company's investment policy are
to preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. The Company's investment policy requires investments with
high-credit-quality issuers and limits the amount of credit exposure to any one
issuer.
The Company's investments principally consist of U.S. government and
government agency obligations and investment grade, interest-bearing corporate
debt securities with varying maturity dates, the majority of which are three
years or less. All of the Company's cash equivalents and marketable securities
are classified as available-for-sale securities.
The securities held in the Company's investment portfolio are subject
to interest rate risk. Changes in interest rates affect the fair value of the
available-for-sale securities. The Company has determined that a hypothetical
ten percent increase in interest rates would result in an approximate $225,000
decrease in the fair value of the Company's available-for-sale securities as of
June 30, 2000, but would have no material impact on the results of operations or
cash flows. SurModics does not use derivative instruments in its investment
portfolio.
Forward Looking Statements
The statements contained in this quarterly report relating to future
revenue growth and expense levels are based on current expectations and involve
a number of risks and uncertainties. These statements are forward looking and
are made pursuant to the safe harbor provisions of the Private Securities Reform
Act of 1995. The following factors could cause royalty revenue to materially and
adversely differ from that anticipated: the ability of the Company's licensees
to successfully gain regulatory approval for, market and sell products
incorporating the Company's technology; the amount and timing of resources
devoted by the Company's licensees to market and sell products incorporating the
Company's technology; the Company's ability to attract new licensees and to
enter into agreements for additional applications with existing licensees; the
Company's ability to maintain a competitive position in the development of
technologies and products in its areas of focus; and business and general
economic conditions.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
On August 7, 2000, the Company sold 396,946 shares of its Common Stock
for $13,000,000 to Motorola, Inc. The Company relied on Section 4(1) of the
Securities Act of 1933 for an exemption from registration of such securities.
The purchaser represented its intention to acquire the shares for investment
purposes only and not with a view to distribution thereof; in addition, a
restrictive securities legend has been placed on the certificates representing
the shares.
Cumulative use of proceeds through the period ended June 30, 2000.
(1) Effective Date: March 3, 1998
SEC File Number: 333-43217
(2) Offering Date: March 3, 1998
(4)(i) The offering has terminated; all securities registered were sold.
(4)(ii) Managing Underwriter: John G. Kinnard and Company,
Incorporated
(4)(iii) Title of Securities: Common Stock
(4)(iv) Amount Registered: 2,300,000
Aggregate Offering Price: $17,250,000
Amount Sold: 2,300,000
Aggregate Offering Price Sold: $17,250,000
(4)(v) Underwriting Discount and Commissions $ 1,293,750
Other Expenses $ 435,148
Total Expenses $ 1,728,898
All the above items represented direct or indirect payments to
others.
(4)(vi) Net Offering Proceeds $15,521,102
(4)(vii) Use of Net Offering Proceeds:
Research and development $ 2,147,000
Sales and marketing $ 1,341,000
Property and equipment upgrades $ 7,700,000
Patent protection $ 198,000
Working capital and general corporate
purposes $ 928,000
Administration $ 155,000
Money market funds $ 3,052,102
All the above items represented direct or indirect
payments to others.
13
<PAGE>
Item 3. Defaults Upon 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) Exhibits - 27 Financial Data Schedule
(b) Reports on Form 8-K - A report on Form 8-K dated July 6, 2000,
was filed on July 12, 2000, reporting under Item 5 the
issuance of a press release announcing a licensing agreement
with Motorola, Inc.'s Biochip Systems unit.
14
<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.
SurModics, Inc.
August 14, 2000
By:/s/ Stephen C. Hathaway
Stephen C. Hathaway
Vice President & CFO
(Principal Financial Officer)
15
<PAGE>
Exhibit Index
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
