<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934.
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
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
0-26890
Perclose, Inc.
--------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-3154669
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
199 Jefferson Drive, Menlo Park, CA 94025-1114
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (415) 473-3100
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
requirements for the past 90 days.
(Item 1) Yes X No
--------- --------
(Item 2) Yes X No
--------- --------
As of December 27, 1996 there were 9,520,234 shares of the Registrant's Common
Stock outstanding.
Exhibit Index on page: 16
Total number of pages: 17 (hard copy version)
18 (Edgar version)
1
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PERCLOSE, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Balance Sheets as of December 31, 1996 and
March 31, 1996 3
Statements of Operations for the three and nine
months ended December 31, 1996 and 1995 4
Statements of Cash Flows for the nine months
ended December 31, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION 15
SIGNATURES 15
EXHIBIT INDEX 16
2
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PERCLOSE, INC.
BALANCE SHEETS
December 31, March 31,
1996 1996
--------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,516,613 $ 9,803,777
Short-term investments 27,959,825 28,052,742
Accounts receivable 2,027,052 920,217
Other receivables 98,494 3,212
Inventories 652,428 529,606
Prepaid expenses 376,896 274,364
--------------- --------------
Total current assets 33,631,308 39,583,918
Equipment and leasehold improvements 2,697,406 2,050,475
Less accumulated depreciation (1,266,722) (1,068,353)
--------------- --------------
1,430,684 982,122
Other assets 441,221 350,421
--------------- --------------
Total assets $ 35,503,213 $ 40,916,461
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 123,041 $ 317,222
Accrued compensation 633,421 413,840
Accrued license fee 197,188 188,750
Other accrued expenses 1,725,021 629,253
Current portion of notes payable 373,795 356,153
--------------- --------------
Total current liabilities 3,052,466 1,905,218
Long-term portion of notes payable 228,077 510,789
Stockholders' equity:
Convertible preferred stock, no par value - -
Common stock, $0.001 par value 9,519 9,502
Additional paid-in capital 57,229,036 57,372,411
Accumulated deficit (24,838,206) (18,436,607)
Deferred compensation (177,679) (444,852)
--------------- --------------
Total stockholders' equity 32,222,670 38,500,454
--------------- --------------
Total liabilities and stockholders' equity $ 35,503,213 $ 40,916,461
=============== ==============
See accompanying notes. 3
<PAGE>
PERCLOSE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------------- ------------------------------------
1996 1995 1996 1995
---------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Net revenues, product sales $ 892,568 $ 787,245 $ 3,427,097 $ 1,360,407
Operating expenses:
Cost of goods sold, including
manufacturing start-up expenses in 1995 1,228,147 1,150,855 3,451,303 3,419,169
Research and development 1,293,208 856,379 3,687,852 2,292,190
Marketing, general, and administrative 1,608,650 778,880 4,104,545 2,377,992
---------------- ------------------ ----------------- ----------------
Total operating expenses 4,130,005 2,786,114 11,243,700 8,089,351
---------------- ------------------ ----------------- ----------------
Loss from operations (3,237,437) (1,998,869) (7,816,603) (6,728,944)
Interest income 470,582 293,329 1,424,619 483,363
Interest expense (30,023) (42,572) (94,433) (128,332)
---------------- ------------------ ----------------- ----------------
440,559 250,757 1,330,186 355,031
---------------- ------------------ ----------------- ----------------
Net loss $ (2,796,878) $ (1,748,112) $ (6,486,417) $ (6,373,913)
================ ================== ================= ================
Net loss per share $ (0.29) $ (0.68)
================ =================
Shares used in computing
net loss per share 9,518,247 9,504,741
================ =================
Pro forma net loss per share $ (0.21) $ (0.87)
================== ================
Shares used in computing
pro forma net loss per share 8,455,095 7,308,106
================== ================
See accompanying notes. 4
</TABLE>
<PAGE>
PERCLOSE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
--------------------------------------------
1996 1995
--------------------- --------------------
<S> <C> <C>
Operating Activities
Net loss $ (6,486,417) $ (6,373,913)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 474,634 524,986
Deferred compensation amortization 73,799 85,226
Changes in operating assets and liabilities:
Accounts receivable (1,106,835) (439,499)
Other receivables (95,282) 69,301
Inventory (122,822) 420,459
Prepaid expenses (102,532) (209,182)
Accounts payable (194,181) 111,351
Accrued expenses 1,323,787 333,666
--------------------- --------------------
Net cash provided by (used in) operating activities (6,235,849) (5,477,605)
Investing Activities
Purchases of short-term investments (16,107,716) (13,958,863)
Proceeds from sales and maturities of short-term investments 16,285,451 4,383,140
Purchases of equipment and improvements (923,196) (341,238)
Other Assets (90,800) 44,888
--------------------- --------------------
Net cash provided by (used in) investing activities (836,261) (9,872,073)
Financing Activities
Principal payments under capital
lease obligations and notes payable (265,070) (218,939)
Proceeds from borrowing on notes payable - 236,279
Proceeds from issuance of convertible preferred stock - 3,256,690
Proceeds from issuance (retirements) of common stock 97,412 34,262,737
Repurchase of common stock (47,396) -
--------------------- --------------------
Net cash provided by (used in) financing activities (215,054) 37,536,767
Net increase (decrease) in cash and cash equivalents (7,287,164) 22,187,089
Cash and cash equivalents at beginning of period 9,803,777 3,743,592
--------------------- --------------------
Cash and cash equivalents at end of period $ 2,516,613 $ 25,930,681
===================== ====================
</TABLE>
See accompanying notes.
5
<PAGE>
PERCLOSE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The operating results of the interim periods presented are not necessarily
indicative of the results for the year ending March 31, 1997 or for any future
interim period. The accompanying financial statements should be read in
conjunction with the audited financial statements and notes thereto for the year
ended March 31, 1996 included in the Company's Annual Report on Form 10-K as
filed with the Securities Exchange Commission.
The Company's fiscal year ends on the last Friday in March. The Company's
fiscal quarters end on the Friday closest to the end of each calendar quarter.
The three months shown as having ended December 31, 1996 and 1995 actually ended
on December 27, 1996 and December 29, 1995, respectively. For ease of
presentation, the accompanying financial statements have been shown as ending on
the last day of the calendar month.
Note 2. Available-for-Sale Securities
At December 31, 1996 and March 31, 1996, all debt securities are designated as
available-for-sale. Available-for-sale securities are carried at fair value
with unrealized gains and losses, net of tax, reported in stockholders' equity.
The amortized cost of available-for-sale debt securities is adjusted for the
amortization of premiums and the accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income.
6
<PAGE>
PERCLOSE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
The following is a summary of available-for-sale securities at December 31, 1996:
Gross
Amortized Unrealized Estimated
Cost Gain (Loss) Fair Value
---- ----------- ----------
<S> <C> <C> <C>
Obligations of federal government agencies $ 5,856,787 $ 4,087 $ 5,860,874
Corporate obligations, principally
commercial paper and corporate notes $ 24,590,556 $ (47,102) $ 24,543,454
------------ ----------- ------------
$ 30,447,343 $ (43,015) $ 30,404,328
============ =========== ============
Amounts included in short term investments $ 28,002,840 $ (43,015) $ 27,959,825
Amounts included in cash and cash equivalents $ 2,444,503 $ - $ 2,444,503
------------ ----------- ------------
$ 30,447,343 $ (43,015) $ 30,404,328
============ =========== ============
The following is a summary of available-for-sale securities at March 31, 1996:
Gross
Amortized Unrealized Estimated
Cost Gain (Loss) Fair Value
---- ----------- ----------
Obligations of federal government agencies $ 2,966,642 $ - $ 2,966,642
Corporate obligations, principally
commercial paper and corporate notes $ 33,180,046 $ (127,833) $ 33,052,213
------------ ----------- ------------
$ 36,146,688 $ (127,833) $ 36,018,855
============ =========== ============
Amounts included in short term investments $ 28,180,575 $ (127,833) $ 28,052,742
Amounts included in cash and cash equivalents $ 7,966,113 $ - $ 7,966,113
------------ ----------- ------------
$ 36,146,688 $ (127,833) $ 36,018,855
============ =========== ============
</TABLE>
During the three and nine months ended December 31, 1996 and for fiscal
year 1996 there were no gross realized gains or losses on sales of
available-for-sale securities. Securities mature through August 1998.
Available-for-sale securities at December 31, 1996 by contract maturity are
shown below:
Estimated
Fair Value
-----------
Due in one year or less $25,950,488
Due in one to two years $ 4,453,840
-----------
$30,404,328
===========
7
<PAGE>
PERCLOSE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(Unaudited)
Note 3. Inventories
Inventories consist of the following:
December 31, March 31,
1996 1996
---- ----
Raw materials $ 378,884 $ 226,808
Work-in-process 118,188 197,583
Finished goods 155,356 105,215
------- --------
$ 652,428 $ 529,606
========= =========
Note 4. Net Loss Per Share
Except as noted below, net loss per share is computed using the weighted average
number of common shares outstanding. Common equivalent shares from stock
options and convertible preferred stock are excluded from the computation as
their effect is antidilutive except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued during the period beginning twelve months prior to the Company's
November 1995 initial public offering at prices substantially below the initial
public offering price have been included in the calculation as if they were
outstanding for all periods presented prior to the effective date of the
Company's initial public offering (using the treasury stock method at the
initial offering price for stock options and the if-converted method for
convertible preferred stock).
Pro forma net loss per share for the three and nine months ended December 31,
1995 has been computed as described above and also gives effect to the
conversion of convertible preferred stock not included above that automatically
converted upon completion of the Company's initial public offering from the
original date of issuance.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
Since its inception in March 1992, the Company has been engaged in the design,
development, clinical testing, manufacture and sale of a family of suture-based
percutaneous arterial access site closure systems known as the Prostar, Techstar
and Prostar Plus systems. The Company's products are designed to close the
puncture made in the femoral artery during catheter-based therapeutic and
diagnostic cardiology procedures. The Company has received regulatory approvals
where required to market certain of its Prostar, Techstar and Prostar Plus
systems in several markets in Europe, Canada and Japan.
In November 1996 the Company filed an application with the United States Food
and Drug Administration ("FDA") for clearance of its Prostar systems for
commercial sale in the United States under the Pre-Market Approval ("PMA")
regulatory pathway. An IDE clinical trial for the Techstar systems was completed
in July 1996 and the Company plans to submit a PMA Supplement application for
clearance of the Techstar systems for sale in the United States after the PMA
for the Prostar 9F and 11F systems are approved. An IDE clinical trial for the
Prostar Plus systems was completed in December 1996 and, following completion of
the clinical testing and data analysis, the Company also plans to submit a PMA
Supplement application for clearance of the Prostar Plus systems for sale in the
United States. The FDA has advised the Company that the PMA application for the
Prostar systems will be reviewed on an expedited basis. There can, however, be
no assurance that the Company will in fact receive expedited review of such PMA
application or any PMA applications it submits for the Techstar or Prostar Plus
systems, or as to when or whether the Company will receive approval of such PMA
applications. Delays in or the failure to receive FDA approval of PMA
applications would have a material adverse effect on the Company's business,
financial condition and results of operations.
RESULTS OF OPERATIONS
Three months ended December 31, 1996 and 1995
Net revenues of $893,000 in the three months ended December 31, 1996 increased
13% compared with net revenues of $787,000 in the three months ended December
31, 1995 and were the result of increased Techstar and Prostar Plus shipments to
international distributors. Sales attributable to the Company's German and
Japanese distributor during the quarter were 60% and 20% of total sales,
respectively.
Cost of goods sold, including manufacturing start-up costs in 1995, increased to
$1,228,000 in the three months ended December 31, 1996 from $1,151,000 in the
three months ended December 31, 1995. The modest increase in these expenditures
reflects the manufacturing infrastructure that was put in place in 1995 to
anticipate higher volumes of shipments for ensuing periods.
Research and development expenses increased 51% to $1,293,000 for the three
months ended December 31, 1996 from $856,000 in the comparable prior year
period. This increase was primarily the result of additional personnel required
for new product development of the
9
<PAGE>
Company's Prostar Plus and Techstar systems and the costs associated with the
U.S. Prostar Plus clinical study.
Marketing, general and administrative expenses increased 106% to $1,609,000 in
the three months ended December 31, 1996 from $779,000 in the three months ended
December 31, 1995. The increase was primarily due to increases in personnel and
costs associated with the expansion of the Company's European field sales force,
sales and marketing expenditures.
Interest and other income increased to $471,000 for the three months ended
December 31, 1996 from $293,000 for the three months ended December 31, 1995
primarily due to the lower cash balances in the 1995 period prior to the
Company's initial public offering, which occurred on November 7, 1995. Interest
expense remained approximately level at $30,000 for the three months ended
December 31, 1996 compared with $43,000 for the three months ended December 31,
1995.
Nine months ended December 31, 1996 and 1995
Net revenues of $3,427,000 in the nine months ended December 31, 1996 increased
152% compared with net revenues of $1,360,000 in the nine months ended December
31, 1995 and were the result of increased Techstar and Prostar Plus shipments to
international distributors, offset by lower sales to the Company's French
distributor in the September and December 1996 quarters. In October 1996, the
Company's French distributor was informed that the French government has decided
to discontinue direct reimbursement to private French hospitals for the use of
Perclose products. The Company and its distributor are currently formulating
different reimbursement and marketing strategies for the Company's products in
France. The Company experienced a lower rate of sales to France in the two most
recent quarters and it is likely that the Company will, as a result of current
reimbursement unavailability, experience a lower level in French sales in future
fiscal periods than it obtained prior to the September and December quarters.
Sales attributable to the Company's German, French and Japanese distributors
during the nine months ended December 31, 1996 period were 64%, 13% and 13% of
total sales, respectively.
Cost of goods sold, including manufacturing start-up costs in 1995, were
$3,451,000 in the nine months ended December 31, 1996 versus $3,419,000 in the
nine months ended December 31, 1995. The comparable figures reflect the
manufacturing infrastructure that was put in place in 1995 that was needed to
prepare for the manufacture of higher volumes of products in 1996.
Research and development expenses increased 61% to $3,688,000 for the nine
months ended December 31, 1996 from $2,292,000 in the comparable prior year
period. This increase was primarily a result of additional personnel required
for new product development of the Company's Prostar Plus and Techstar systems
and the costs associated with the U.S. Prostar Plus clinical study.
Marketing, general and administrative expenses increased 73% to $4,105,000 in
the nine months ended December 31, 1996 from $2,378,000 in the nine months ended
December 31, 1995. The increase was primarily due to increases in personnel and
costs associated with the expansion of the Company's European field sales force,
sales and marketing expenditures.
10
<PAGE>
Interest and other income increased to $1,425,000 for the nine months ended
December 31, 1996 from $483,000 for the nine months ended December 31, 1995 due
to the lower cash balances in the 1995 period prior to the Company's initial
public offering, which occurred on November 7, 1995. Interest expense decreased
to $94,000 for the nine months ended December 31, 1996 compared with $128,000
for the nine months ended December 31, 1995 due to a leveling off of financing
associated with capital expenditures.
Income Taxes
The Company has incurred only state minimum taxes since inception, which are
included in general and administrative expenses. The Company has incurred net
losses in prior fiscal years and expects to incur a net loss in the current
fiscal year. The Company has not generated any net income to date and therefore
has not paid any federal taxes since inception.
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, a valuation allowance
has been established in an amount equal to the net deferred assets of the
Company to reflect these uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months period ended December 31, 1996 and 1995, the Company used
cash to fund operations of $6.2 million and $5.5 million, respectively. The
increase in cash used during the period ended December 31, 1996 was due to
higher expenses associated with increased research and development activities,
initiation of marketing and sales activities in international markets, increased
general and administrative expenses to support increased operations and
purchases of inventory to support international sales. The Company's
expenditures for equipment and improvements were $923,000 for nine months ended
December 31, 1996 versus $341,000 for nine months ended 1995 period and have
aggregated $3.0 million since inception. The purchases during the last nine
months were mainly for computer equipment and production equipment due to
increased personnel hires and manufacturing activity, respectively.
The Company's principal source of liquidity at December 31, 1996 consists of
cash, cash equivalents and short-term investments of $30.5 million.
The Company anticipates that its operating losses will continue for at least the
next two years since it plans to expend substantial resources in funding
clinical trials in support of regulatory approvals, and continues to expand
research, development, marketing and sales activities. Although Perclose
believes that current cash balances and short-term investments along with cash
generated from the future sales of products will be sufficient to meet the
Company's operating and capital requirements through calendar 1997, there can be
no assurance that the Company will not require additional financing within this
time frame. There can be no assurance that additional financing, if required,
will be available on satisfactory terms or at all. In any event, Perclose may
in the future seek to raise additional funds through bank facilities, debt or
equity offerings or other sources of capital. Perclose's future liquidity and
capital requirements will depend on numerous factors, including progress of the
Company's clinical trials, actions relating to regulatory and
11
<PAGE>
reimbursement matters, the costs and timing of expansion of marketing, sales,
manufacturing and product development activities, the extent to which the
Company's products gain market acceptance, and competitive developments.
FACTORS AFFECTING OPERATING RESULTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's future results from operations could vary significantly
as a result of the factors described in this section.
The clinical data obtained to date on the Prostar, Techstar and Prostar Plus
systems are insufficient to demonstrate the safety and efficacy of these
products under applicable FDA regulatory guidelines. There can be no assurance
that the Company's products will prove to be safe and effective in United States
clinical trials under applicable regulatory guidelines. In addition, the
clinical trials may identify significant technical or other obstacles to be
overcome prior to obtaining necessary United States regulatory or United States
and further international reimbursement approvals. If the Prostar, Techstar and
Prostar Plus systems do not prove to be safe and effective in United States
clinical trials or if the Company is otherwise unable to commercialize these
products successfully in the United States, the Company's business, financial
condition and results of operations could be materially and adversely affected.
The Prostar, Techstar and Prostar Plus systems are currently the Company's only
products. These products will require additional development, clinical trials
and regulatory approvals before they can be marketed in the United States.
In November 1996 the Company filed an application with the United States Food
and Drug Administration ("FDA") for clearance of its Prostar systems for
commercial sale in the United States under the Pre-Market Approval ("PMA")
regulatory pathway. An IDE clinical trial for the Techstar systems was completed
in July 1996 and the Company plans to submit a PMA Supplement application for
clearance of the Techstar systems for sale in the United States after the PMA
for the Prostar 9F and 11F systems are approved. An IDE clinical trial for the
Prostar Plus systems was completed in December 1996 and, following completion of
the clinical testing and data analysis, the Company also plans to submit a PMA
Supplement application for clearance of the Prostar Plus systems for sale in the
United States. The FDA has advised the Company that the PMA application for the
Prostar systems will be reviewed on an expedited basis. There can, however, be
no assurance that the Company will in fact receive expedited review of such PMA
application or any PMA applications it submits for the Techstar or Prostar Plus
systems, or as to when or whether the Company will receive approval of such PMA
applications. Delays in or the failure to receive FDA approval of PMA
applications would have a material adverse effect on the Company's business,
financial condition and results of operations.
12
<PAGE>
There can be no assurance as to when or whether the Company will receive FDA
clearance or approval for sale of the Prostar and/or Techstar systems in the
United States. There can be no assurance that the Company's development efforts
will be successful or that the Prostar, Techstar and Prostar Plus systems or any
other product developed by the Company will be safe or effective, capable of
being manufactured in commercial quantities at acceptable costs, approved by
appropriate regulatory and reimbursement authorities or successfully marketed.
Furthermore, because the Prostar, Techstar and Prostar Plus systems represent
the Company's sole near-term product focus, the Company could be materially and
adversely affected if these systems are not successfully commercialized. The
Company, through its Japanese distributor, has applied for and received
regulatory approval to sell the Prostar, Techstar and Prostar Plus systems in
Japan and intends to commence clinical trials in Japan that will form the basis
of an application for Japanese reimbursement approval. The Company has received
certain reimbursement approvals in certain states in Germany. In October 1996,
the Company's French distributor was informed that the French government has
decided to discontinue direct reimbursement to private French hospitals for the
use of Perclose products. The Company and its distributor are currently
formulating different reimbursement and marketing strategies for the Company's
products in France. The Company experienced a lower rate of sales to France in
the two most recent quarters and it is likely that the Company will, as a result
of current reimbursement unavailability, experience a lower level in French
sales in future fiscal periods than it obtained prior to the September and
December quarters.
The Company's products represent a new method of closing arterial access sites
and there can be no assurance that these products will gain any significant
degree of market acceptance among physicians, patients and health care payors,
even if necessary international and United States regulatory and reimbursement
approvals are obtained. The Company believes that factors affecting market
acceptance include: recommendations and endorsements from physicians, that the
products represent an attractive alternative to other means of closing arterial
access sites, that the products reduce the time to ambulation and hospital
stays, and the Company's ability to train interventional cardiologists. Failure
of the Company's products to achieve significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Perclose has a limited history of operations and has experienced significant
operating losses since inception. As of December 31, 1996 the Company had an
accumulated deficit of $24.8 million. The Company has been primarily engaged in
research and development of its percutaneous arterial access site closure
products. The Company has generated only limited revenues from international
sales in certain markets, which sales commenced in December 1994, and does not
have experience in manufacturing, marketing or selling its products in
quantities necessary for achieving profitability. Manufacturers often encounter
difficulties in scaling up production of new products, including problems
involving production yields, quality control and assurance, component supply and
shortage of qualified personnel. Difficulties encountered by Perclose in
manufacturing scale-up could have a material adverse effect on its business,
financial condition and results of operation.
13
<PAGE>
Perclose anticipates that substantially all of its future revenues from product
sales will be derived from sales to its international distributors, unless and
until it receives approval to market its products in the United States.
Perclose sells its products internationally to distributors who resell to
hospitals. There can be no assurance that the Prostar, Techstar and Prostar
Plus systems will be successfully commercialized or that the Company will
achieve significant revenues from either international or domestic sales. Sales
through international distributors are subject to risks, including the risk of
financial instability and the risk that the distributors will not effectively
promote the Company's products. Loss, termination or ineffectiveness of
distributors could have a material adverse effect on the Company's international
sales efforts and could result in the Company repurchasing unsold inventory from
former distributors by virtue of local laws applicable to distribution
relationships, provisions of distribution agreements or negotiated settlements
entered into with such distributors.
The Company anticipates that its operating losses will continue for at least the
next two years since it plans to expend substantial resources in funding
clinical trials in support of regulatory approvals and continues to expand
research, development, marketing and sales activities. Even so there can be no
assurance that the Company will achieve or sustain profitability in the future.
The Company anticipates that its results of operations will fluctuate on a
quarterly basis for the foreseeable future due to several factors, including
actions relating to regulatory and reimbursement matters, progress of clinical
trials, the extent to which the Company's products gain market acceptance,
introduction of alternative means for arterial access site closure, and
competitive developments. Results of operations will also be affected by the
timing of orders received from distributors, the extent to which the Company
expands its international distribution network and the ability of distributors
to effectively promote the Company's products.
Competition in the emerging market for arterial access site closure devices is
expected to be intense and to increase. The Company believes its principal
competition will come from existing compression closure techniques, as well as
newer collagen plug closure devices. Most of the Company's competitors have
significantly greater financial, technical, research, marketing, sales,
distribution and other resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing or marketing
technologies and products that are technologically superior, more effective or
commercially attractive than any that are being developed by the Company, or
that such competitors will not succeed in obtaining regulatory approval,
introducing or commercializing any such products prior to the Company. Such
developments could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the medical device
market is generally characterized by rapid change and by frequent emergence of
new technologies, products or procedures. There can be no assurance that any
such new technologies, products or procedures will not reduce the number of
coronary catheterization procedures performed.
The Company currently manufactures and ships products shortly after receipt of
orders, and the Company anticipates that it will continue to do so in the
future. Accordingly, to date the Company has not developed a significant
backlog and the Company does not anticipate that it will develop a material
backlog in the future.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
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: The exhibits listed on the accompanying Index
to Exhibits are filed as a part hereof and
are incorporated by reference.
b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Registrant during the quarter ended December
31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this 10-Q report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 5, 1997 PERCLOSE, INC.
/S/ Henry A. Plain, Jr.
-----------------------
Henry A. Plain, Jr.
President and Chief Executive Officer
/S/ Kenneth E. Ludlum
---------------------
Kenneth E. Ludlum
Vice President Finance and Administration,
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Exhibit Description Number
- ------- ------------------------------------------------------- ------
1.1 Underwriting Agreement. *
2.1 Form of Merger Agreement for Delaware reincorporation. *
3.1 Articles of Incorporation of Perclose, Inc., a California
corporation, as currently in effect. *
3.2 Certificate of Incorporation of Perclose, Inc., a Delaware
corporation, as in effect immediately following
reincorporation. *
3.3 Form of Restated Certificate of Incorporation of the
Company to be filed after the closing of the initial public
offering. *
3.4 Bylaws of the Registrant, as currently in effect. *
3.5 Bylaws of the Registrant, as in effect immediately
following reincorporation. *
4.1 Specimen Common Stock Certificate. *
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation. *
10.1 Form of Indemnification Agreement between the Company and
each of its directors and officers. *
10.2 1992 Stock Plan and form of Stock Option Agreement
thereunder. *
10.3 1995 Director Option Plan. *
10.4 1995 Employee Stock Purchase Plan and forms of agreements
thereunder. *
10.5 Lease dated July 6, 1993 between Registrant and the
David D. Bohanon Organization for facility located at
199 Jefferson Drive, Menlo Park, California, as amended by
First Amendment to Lease dated January 31, 1994. *
10.6 Loan and Security Agreement dated September 29, 1994
between the Registrant, Silicon Valley Bank and MMC/GATX
Partnership No. I, as amended by Loan Modification
Agreement. *
10.7 Shareholder Rights Agreement dated August 23, 1995 between
the Registrant and certain holders of the Registrant's
securities. *
10.8 Employment Agreement dated March 28, 1995 between the
Registrant and Steve Van Dick. *
10.9 Agreement dated March 30, 1993 between Registrant and
LocalMed, Inc. *
11.1 Calculation of loss per share 17
27.1 Edgar financial index tags (EDGAR version only) *
* Incorporated by reference to the Registrant's Registration
Statement on Form S - 1 (Registration No. 33-97128) filed on
September 20, 1995.
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
PERCLOSE, INC.
Statement Re: Computations of Loss Per Share
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------------- ---------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
HISTORICAL
- ----------
Net loss $ (2,796,878) $ (6,486,417)
================= =================
Weighted average common
shares outstanding 9,518,247 9,504,741
================= =================
Net loss per share $ (0.29) $ (0.68)
================= =================
PRO FORMA
- ---------
Net loss $ (1,748,112) $ (6,373,913)
================ ================
Weighted average common
shares outstanding 6,708,067 3,231,706
Convertible preferred stock 1,044,573 2,437,338
Shares related to SAB
No. 55, 64 and 83 702,455 1,639,062
---------------- ----------------
Total weighted average
common shares outstanding 8,455,095 7,308,106
================ ================
Net loss per share $ (0.21) $ (0.87)
================ ================
17
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000934438
<NAME> PERCLOSE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,516,613
<SECURITIES> 27,959,825
<RECEIVABLES> 2,027,052
<ALLOWANCES> 0
<INVENTORY> 652,428
<CURRENT-ASSETS> 33,631,308
<PP&E> 2,697,406
<DEPRECIATION> 1,266,722
<TOTAL-ASSETS> 35,503,213
<CURRENT-LIABILITIES> 3,052,466
<BONDS> 0
0
0
<COMMON> 9,519
<OTHER-SE> 32,213,151
<TOTAL-LIABILITY-AND-EQUITY> 35,503,213
<SALES> 892,568
<TOTAL-REVENUES> 892,568
<CGS> 1,228,147
<TOTAL-COSTS> 4,130,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440,559
<INCOME-PRETAX> (2,796,878)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,796,878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,796,878)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
