-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HKZvBh1LoFAATnDwCSP7BMJf9fUnZs60VrHuo5n16i/5W0eAy7txs9pUR0fUpv++ wvfyXvejr8bBg7b53kgIxg== 0000914190-98-000304.txt : 19980817 0000914190-98-000304.hdr.sgml : 19980817 ACCESSION NUMBER: 0000914190-98-000304 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SURMODICS INC CENTRAL INDEX KEY: 0000924717 STANDARD INDUSTRIAL CLASSIFICATION: ADHESIVES & SEALANTS [2891] IRS NUMBER: 411356149 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23837 FILM NUMBER: 98687795 BUSINESS ADDRESS: STREET 1: 9924 W 74TH ST CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6128292700 MAIL ADDRESS: STREET 1: 9924 WEST 74TH ST CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: BSI CORP DATE OF NAME CHANGE: 19970506 10QSB 1 FORM 10-QSB FOR SECOND QUARTER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1998 OR [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from to Commission file number 0-23837 SurModics, Inc. (Exact Name of Small Business Issuer as Specified in Its Charter) MINNESOTA 41-1356149 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 9924 West 74th Street Eden Prairie, Minnesota 55344 (Address of Principal Executive Offices) (612) 829-2700 (Issuer's Telephone Number, Including Area Code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 As of July 31, 1998, there were 7,199,760 shares of Common Stock outstanding. Traditional Small Business Disclosure Format (check one): Yes No X PART I - FINANCIAL INFORMATION Item 1. Financial Statements SURMODICS, INC. Condensed Balance Sheets (In thousands, except share data)
June 30, September 30, 1998 1997 ---------- --------- ASSETS (Unaudited) CURRENT ASSETS: Cash & cash equivalents $ 1,841 $ 492 Short-term investments 2,617 1,456 Accounts receivable, net 1,123 922 Inventories 304 264 Prepaids and other 215 74 -------- -------- Total current assets 6,100 3,208 -------- -------- PROPERTY AND EQUIPMENT, net 1,238 1,065 LONG-TERM INVESTMENTS 15,644 1,874 OTHER ASSETS, net 184 303 -------- -------- $ 23,166 $ 6,450 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 183 $ 280 Accrued liabilities 797 493 Deferred revenues 222 308 -------- -------- Total current liabilities 1,202 1,081 DEFERRED REVENUES AND OTHER, less current portion 162 267 -------- -------- Total liabilities 1,364 1,348 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Series A convertible preferred stock- $.05 par value; none and 376,828 shares issued and outstanding -- 19 Voting common stock- $.05 par value, 15,000,000 shares authorized; 7,199,160 and 3,400,868 shares issued and outstanding 360 170 Additional paid-in capital 28,876 13,492 Unearned compensation (185) (259) Stock purchase notes receivable (182) (160) Accumulated deficit (7,067) (8,160) -------- -------- Total stockholders' equity 21,802 5,102 -------- -------- $ 23,166 $ 6,450 ======== ========
The accompanying notes are an integral part of these condensed balance sheets. SURMODICS, INC. Condensed Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, ---------------------- ---------------------- 1998 1997 1998 1997 ------ ------ ------ ------ REVENUES: Royalties $1,240 $ 731 $3,447 $2,141 License fees 88 155 148 412 Product sales 831 588 2,063 1,514 Research and development 513 480 1,502 1,408 ------ ------ ------ ------ Total revenues 2,672 1,954 7,160 5,475 ------ ------ ------ ------ OPERATING COSTS AND EXPENSES: Product 344 319 912 905 Research and development 1,184 955 3,244 2,781 Sales and marketing 361 267 1,105 754 General and administrative 453 394 1,180 1,013 ------ ------ ------ ------ Total operating costs and expenses 2,342 1,935 6,441 5,453 ------ ------ ------ ------ INCOME FROM OPERATIONS 330 19 719 22 INTEREST INCOME, net 248 54 399 155 ------ ------ ------ ------ INCOME BEFORE PROVISION FOR INCOME TAXES 578 73 1,118 177 PROVISION FOR INCOME TAXES 12 -- 25 10 ------ ------ ------ ------ NET INCOME $ 566 $ 73 $1,093 $ 167 ====== ====== ====== ====== NET INCOME PER SHARE: Basic $ 0.08 $ 0.01 $ 0.19 $ 0.03 Diluted $ 0.07 $ 0.01 $ 0.17 $ 0.03 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic weighted average common shares outstanding 7,218 4,864 5,897 4,848 Dilutive effect of outstanding stock options 646 508 543 485 ------ ------ ------ ------ Diluted weighted average common shares outstanding 7,864 5,372 6,440 5,333
The accompanying notes are an integral part of these condensed financial statements. SURMODICS, INC. Condensed Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended June 30, --------------------------- 1998 1997 -------- -------- OPERATING ACTIVITIES: Net income $ 1,093 $ 167 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 436 344 Amortization of unearned compensation, net 94 (125) Change in deferred rent (12) (1) Change in assets and liabilities: Accounts receivable (201) (101) Inventories (40) 3 Accounts payable and accrued liabilities 207 147 Deferred revenues (180) (286) Prepaids and other (141) (108) -------- -------- Net cash provided by operating activities 1,256 40 -------- -------- INVESTING ACTIVITIES: Purchases of property and equipment, net (597) (145) Purchases of investments available for sale (17,500) (3,324) Sales of investments available for sale 2,569 1,832 Other (22) (171) -------- -------- Net cash used in investing activities (15,550) (1,808) -------- -------- FINANCING ACTIVITIES: Issuance of common stock, net of offering costs 15,643 205 -------- -------- Net increase (decrease) in cash and cash equivalents 1,349 (1,563) CASH AND CASH EQUIVALENTS: Beginning of period 492 2,013 ======== ======== End of period $ 1,841 $ 450 ======== ========
The accompanying notes are an integral part of these condensed financial statements. 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, 1998 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, 1997 and footnotes thereto included in the Company's Registration Statement on Form SB-2 as filed with the Securities and Exchange Commission on March 4, 1998. (2) New Accounting Pronouncements The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in financial statements. The Company will adopt the provisions of SFAS No. 130 in fiscal 1999. The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes a new model for segment reporting, called the "management approach" and requires certain disclosures for each segment. The management approach is based on the way the chief operating decision maker organizes segments within a company for making operating decisions and assessing performance. The Company will adopt the provisions of SFAS No. 131 in fiscal 1999. (3) Initial Public Offering On March 9, 1998, the Company completed an initial public offering of 2.0 million shares of Common Stock. Subsequently, on March 25, 1998, the underwriters purchased an additional 300,000 shares of Common Stock pursuant to the exercise of an overallotment option. In total, the offering generated net proceeds to the Company of approximately $15.5 million after deducting all offering expenses. (4) Preferred Stock Conversion Each share of the Series A Convertible Preferred Stock was automatically converted into four shares of voting Common Stock upon the closing of the initial public offering. The authorized shares of Series A Convertible Preferred Stock were eliminated and this class of stock was canceled. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. General The Company is a leading provider of surface modification solutions to medical device manufacturers. The Company's revenues have come from four primary sources: licensing of its patented technology to customers; royalties received from licensees based on their sales of products incorporating SurModics' technology; the sale of photo-reactive 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. In March 1998, the Company completed an initial public offering of 2.3 million shares of Common Stock with proceeds of approximately $15.5 million, net of related offering costs. Results of Operations Three Months Ended June 30, 1998 and 1997 Revenues. The Company's revenues were $2.7 million for the third quarter of fiscal 1998, an increase of $718,000, or 36.7%, over the same period of fiscal 1997. The revenue increase was primarily due to an increase in royalty revenue received from licensed customers of $509,000 or 69.7%. Within this total, royalties generated from PhotoLink(R) licenses increased 51.2% and royalties from diagnostic licensing increased 87.6%. In addition, the Company's product sales increased $243,000 or 41.4% between periods. The sales of reagent chemicals, the chemicals used by licensees in the PhotoLink coating process, increased 113.2%, while stabilization product sales increased 23.5%. These increases were due to additional customer demand for the Company's chemical products. Product costs. The Company's product costs were $344,000 for the third quarter of fiscal 1998, an increase of $25,000, or 7.8%, over the same period of fiscal 1997. Overall product margins increased to 58.6% in the third quarter of fiscal 1998 from 45.7% in the same period of fiscal 1997. These improvements were primarily due to the continued impact of a formulation change in certain of the stabilization products and production efficiencies achieved in manufacturing reagent chemicals due to increased volumes. Research and development expenses. Research and development expenses were $1,184,000 for the third quarter of fiscal 1998, an increase of $229,000, or 24.0%, over the same period of fiscal 1997. The change was primarily due to the added compensation, benefit, and general business expenses associated with additional technical personnel added by the Company over the last year; and increased depreciation expense associated with the build-out of some additional laboratory space. Sales and marketing expenses. Sales and marketing expenses were $361,000 for the third quarter of fiscal 1998, an increase of $94,000, or 35.2%, over the same period of fiscal 1997. This increase was primarily due to the additional compensation and travel expense associated with additional marketing personnel and higher spending for advertising and promotions. General and administrative expenses. General and administrative expenses were $453,000 for the third quarter of fiscal 1998, an increase of $59,000, or 15.0%, over the same period of fiscal 1997. The increase was due to costs associated with a new directors and officers liability insurance policy and other general business expenses incurred as a result of the Company's overall business growth. Interest income, net. The Company's net interest income was $248,000 for the third quarter of fiscal 1998, an increase of $194,000, or 359.3%, over the same period of fiscal 1997 due to the increased interest income earned on investments due to the proceeds received from the public stock offering. Nine Months Ended June 30, 1998 and 1997 Revenues. The Company's revenues were $7.2 million for the first nine months of fiscal 1998, an increase of $1.7 million or 30.8%, over the same period of fiscal 1997. The revenue increases were primarily due to an increase in royalty revenue of $1.3 million or 61.0%; an increase in sales of the Company's stabilization products of $364,000 or 32.0%; an increase in sales of the Company's reagent chemicals of $187,000 or 49.7%; and an increase in customer-funded research and development revenue of $172,000 or 32.3% between periods. Royalties generated from PhotoLink licenses increased 44.0% and royalties from diagnostic licensing increased 77.6%. Much of the increase in sales of stabilization products was due to larger shipments to one customer. The increase in reagent chemicals is a result of additional coating activities by existing PhotoLink customers. The increase in customer-funded research and development was due to greater customer development activity, especially related to work on drug delivery from coatings. Offsetting these revenue increases was a reduction in license fees from $412,000 in the first nine months of fiscal 1997 to $148,000 in the same period of fiscal 1998. The fiscal 1997 results included the receipt of one large license fee with no similar transaction in fiscal 1998. Product costs. The Company's product costs were $912,000 for the first nine months of fiscal 1998, an increase of $7,000, or 0.8%, over the same period of fiscal 1997. Product margins increased to 55.8% in 1998 from 40.2% in 1997. These improvements were primarily due to the continued impact of a formulation change in certain of the stabilization products and production efficiencies achieved in manufacturing reagent chemicals due to increased volumes. Research and development expenses. Research and development expenses were $3.2 million for the first nine months of fiscal 1998, an increase of $463,000, or 16.6%, over the same period of fiscal 1997. The change was primarily due to the added compensation and benefit costs associated with additional technical personnel added by the Company over the last year and increased depreciation expense associated with the build-out of some additional laboratory space. These changes were offset by lower costs incurred on research studies performed by external laboratories. Sales and marketing expenses. Sales and marketing expenses were $1.1 million for the first nine months of fiscal 1998, an increase of $351,000, or 46.6%, over the same period of fiscal 1997. This increase was primarily due to the additional compensation and travel expenses of additional marketing personnel, a related increase in recruitment costs, and the costs associated with a market research study completed by an external consulting firm. General and administrative expenses. General and administrative expenses were $1.2 million for the first nine months of fiscal 1998, an increase of $167,000, or 16.5%, over the same period of fiscal 1997. The increase was primarily due to higher compensation, benefit, and general business costs as described above. Interest income, net. The Company's net interest income was $399,000 for the first nine months of fiscal 1998, an increase of $244,000, or 157.4%, over the same period of fiscal 1997 due to the increased interest income earned on investments due to the proceeds received from the public stock offering. Year 2000 Compliance The Company has evaluated its information technology infrastructure for Year 2000 compliance and does not expect that the cost to modify its information technology infrastructure to be Year 2000 compliant will be material to its financial condition or results of operations. The Company does not anticipate any material disruption in its operations as a result of any failure by the Company or its suppliers or customers to be in compliance. Liquidity and Capital Resources On March 9, 1998, the Company completed an initial public offering of 2.0 million shares of Common Stock. Subsequently, on March 25, 1998, the underwriters purchased an additional 300,000 shares of Common Stock pursuant to the exercise of an overallotment option. In total, the offering generated net proceeds to the Company of approximately $15.5 million after deducting all offering expenses. As of June 30, 1998, the Company had working capital of approximately $2.9 million. For the last three fiscal years and for the first nine months of fiscal 1998, the Company has generated positive cash flow from operations. As of June 30, 1998, the Company had cash, cash equivalents and investments totaling approximately $20.1 million. The Company's funds are currently invested in money market funds and investment grade, interest-bearing securities with maturity dates of less than three years. As of June 30, 1998, the Company had no debt, nor did it have any credit agreements. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. (a) The following stock option exercises ocurred during the quarter ended June 30, 1998: Date Relationship Shares Option Price ---- ------------ ------ ------------ April 30, 1998 Former employee 320 $5.00 May 1, 1998 Former employee 1,920 $5.00 May 28, 1998 Former employee 400 $4.00 June 8, 1998 Current employee 100 $5.00 The Company relied on the exemption from registration available under section 3(b) of the Securities Act of 1933, as amended, and Rule 701 thereunder. (b) Use of Proceeds for the period ending June 30, 1998. (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 $ 74,184 Sales and marketing $ 166,460 Equipment upgrades $ 139,150 Patent protection $ -- Working capital and general corporate purposes $ 84,449 Money market funds $15,056,859 All the above items represented direct or indirect payments to others. 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 - None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SurModics, Inc. August 13, 1998 By: /s/ Stephen C. Hathaway Stephen C. Hathaway Vice President & CFO (Principal Financial Officer) Exhibit Index Exhibit Number Description 27 Financial Data Schedule EX-27 2 ART 5 FDS FOR THIRD QUARTER
5 1,000 U.S. Dollars 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 1 1,841 2,617 1,123 0 304 6,100 4,461 3,223 23,166 1,202 0 0 0 360 21,442 23,166 2,063 7,160 912 6,441 0 0 0 1,118 25 1,093 0 0 0 1,093 0.19 0.17
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