-----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, V8X2Dw6kQqeHeM5XTnLC2LkOoeup4f/haxs+ECu4kQA6Stp+INoIYY2N5dpNew8r NZg196ZpDZDeuLzF60D9OA== 0000912057-96-025363.txt : 19961113 0000912057-96-025363.hdr.sgml : 19961113 ACCESSION NUMBER: 0000912057-96-025363 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERCLOSE INC CENTRAL INDEX KEY: 0000934438 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 3154669 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26890 FILM NUMBER: 96657790 BUSINESS ADDRESS: STREET 1: 199 JEFFERSON DRIVE CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 4154733100 10-Q 1 FORM 10-Q 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 SEPTEMBER 30, 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 September 27, 1996 there were 9,498,856 shares of the Registrant's Common Stock outstanding. Exhibit Index on page: 18 Total number of pages: 19 1 PERCLOSE, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Balance Sheets as of September 30, 1996 and March 31, 1996 3 Statements of Operations for the three and six months ended September 30, 1996 and 1995 4 Statements of Cash Flows for the six months ended September 30, 1996 and 1995 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 16 SIGNATURES 17 EXHIBIT INDEX 18 2 PERCLOSE, INC. BALANCE SHEETS September 30, March 31, 1996 1996 ------------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,701,766 $ 9,803,777 Short-term investments 27,804,167 28,052,742 Accounts receivable 1,845,478 920,217 Inventories 623,200 529,606 Other receivables 99,846 3,212 Prepaid expenses 183,256 274,364 ------------- ------------- Total current assets 36,257,713 39,583,918 Equipment and leasehold improvements 2,779,129 2,050,475 Less accumulated depreciation (1,360,557) (1,068,353) ------------- ------------- 1,418,572 982,122 Other assets 495,821 350,421 ------------- ------------- Total assets $ 38,172,106 $ 40,916,461 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 612,496 $ 317,222 Accrued compensation 586,791 413,840 Accrued license fee 194,375 188,750 Other accrued expenses 1,076,401 629,253 Current portion of notes payable 373,795 356,153 ------------- ------------- Total current liabilities 2,843,858 1,905,218 Long-term portion of notes payable 318,184 510,789 Stockholders' equity: Convertible preferred stock, no par value - - Common stock, $0.001 par value 9,497 9,502 Additional paid-in capital 57,214,673 57,372,411 Accumulated deficit (22,013,723) (18,436,607) Deferred compensation (200,383) (444,852) ------------- ------------- Total stockholders' equity 35,010,064 38,500,454 ------------- ------------- Total liabilities and stockholders' equity $ 38,172,106 $ 40,916,461 ------------- ------------- ------------- ------------- 3 PERCLOSE, INC. STATEMENT OF OPERATIONS (unaudited)
Three Months Ended Six Months Ending September 30, September 30, ----------------------- --------------------------- 1996 1995 1996 1995 ---------- ---------- --------- --------- Net revenues, product sales $ 1,034,354 $ 407,954 $ 2,534,529 $ 573,162 Operating expenses: Cost of goods sold, including manufacturing start-up expenses in 1995 1,061,117 1,195,527 2,223,156 2,268,314 Research and development 1,329,680 708,515 2,394,644 1,435,811 Marketing, general, and administrative 1,312,503 714,416 2,495,895 1,599,112 ----------- ----------- ------------ ----------- Total operating expenses 3,703,300 2,618,458 7,113,695 5,303,237 ----------- ----------- ------------ ----------- Loss from operations (2,668,946) (2,210,504) (4,579,166) (4,730,075) Interest income 484,734 89,105 954,037 190,034 Interest expense (33,422) (55,823) (64,410) (85,760) ----------- ----------- ------------ ----------- 451,312 33,282 889,627 104,274 ----------- ----------- ------------ ----------- Net loss $(2,217,634) $(2,177,222) $ (3,689,539) $(4,625,801) ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- Net loss per share $ (0.23) $ (0.39) ----------- ------------ ----------- ------------ Shares used in computing net loss per share 9,497,105 9,497,988 ----------- ------------ ----------- ------------ Pro forma net loss per share $ (0.32) $ (0.69) ----------- ----------- ----------- ----------- Shares used in computing pro forma net loss per share 6,734,611 6,734,611 ----------- ----------- ----------- -----------
4 PERCLOSE, INC. STATEMENT OF CASH FLOWS (unaudited)
Six Months Ended September 30, ---------------------------- 1996 1995 --------------- -------------- OPERATING ACTIVITIES Net loss $ (3,689,539) $ (4,625,801) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 292,204 377,267 Deferred compensation amortization 51,095 50,525 Changes in operating assets and liabilities: Accounts receivable (925,261) (78,960) Inventory (93,594) 393,295 Other receivables (96,634) 89,128 Prepaid expenses 91,108 (61,803) Accounts payable 295,274 (147,951) Accrued expenses 625,723 100,005 ------------- ------------ Net cash provided by (used in) operating activities (3,449,624) (3,904,295) INVESTING ACTIVITIES Purchases of short-term investments (12,038,795) - Proceeds from sales and maturities of short-term investments 12,399,794 2,403,163 Purchases of equipment and improvements (728,655) (261,066) Other assets (145,400) (9,714) -------------- -------------- Net cash provided by (used in) investing activities (513,056) 2,132,383 FINANCING ACTIVITIES Principal payments under capital lease obligations and notes payable (174,963) (143,517) 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 83,028 73,132 Repurchase of common stock (47,396) - ------------- -------------- Net cash provided by (used in) financing activities (139,331) 3,422,584 Net increase (decrease) in cash and cash equivalents (4,102,011) 1,650,672 Cash and cash equivalents at beginning of period 9,803,777 3,743,592 ------------- -------------- Cash and cash equivalents at end of period $ 5,701,766 $ 5,394,264 --------------- -------------- --------------- --------------
5 PERCLOSE, INC. NOTES TO FINANCIAL STATEMENTS September 30, 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 September 30, 1996 and 1995 actually ended on September 27, 1996 and September 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 September 30, 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 PERCLOSE, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1996 (unaudited) The following is a summary of available-for-sale securities at September 30, 1996:
Gross Amortized Unrealized Estimated Cost Gain (Loss) Fair Value ------------- ------------ ------------- Obligations of federal government agencies $ 2,458,330 $ (9,182) $ 2,449,148 Corporate obligations, principally commercial paper and corporate notes $ 29,982,337 $ (6,228) $ 29,976,109 ------------- ------------- ------------- $ 32,440,667 $ (15,410) $ 32,425,257 ------------- ------------- ------------- ------------- ------------- ------------- Amounts included in short term investments $ 27,656,548 $ (31,601) $ 27,624,947 Amounts included in cash and cash equivalents $ 4,784,119 $ 16,191 $ 4,800,310 ------------- ------------- ------------- $ 32,440,667 $ (15,410) $ 32,425,257 ------------- ------------- ------------- ------------- ------------- -------------
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 ------------- ------------ ------------- ------------- ------------ -------------
During the six months ended September 30, 1996 and for the 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 September 30, 1996 by contract maturity are shown below: Estimated Fair Value ---------- Due in one year or less $24,995,142 Due in one to two years $7,430,115 ----------- $32,425,257 ----------- ----------- 7 PERCLOSE, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1996 (Unaudited) Note 3. Inventories Inventories consist of the following: September 30, March 31, 1996 1996 ---- ---- Raw materials $ 183,098 $ 226,808 Work-in-process 209,534 197,583 Finished goods 230,568 105,215 ---------- ---------- $ 623,200 $ 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 September 30, 1996 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 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 July 1996 the Company filed a 510(k) application with the United States Food and Drug Administration ("FDA") for clearance of its Prostar systems for commercial sale in the United States. In October 1996 the FDA advised the Company that it will review the Company's applications for regulatory approval for the Prostar systems under the Pre-Market Approval ("PMA") regulatory pathway. Therefore, the Company intends to resubmit an application for approval of its Prostar systems as a PMA. An IDE clinical trial for the Techstar systems has recently been completed and, following data analysis and compilation, the Company plans to submit a PMA application for clearance of the Techstar systems for sale in the United States. An IDE clinical trial for the Prostar Plus systems began in June 1996 and, following completion of the clinical testing and data analysis, the Company also plans to submit a PMA application for clearance of the Prostar Plus systems for sale in the United States. The FDA has advised the Company, in a preliminary conversation, that the PMA application for the Prostar systems will, when submitted to the FDA and accepted for filing by the agency, 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 September 30, 1996 and 1995 Net revenues of $1,034,000 in the three months ended September 30, 1996 increased 154% compared with net revenues of $408,000 in the three months ended September 30, 1995 and were the result of increased , Techstar and Prostar Plus shipments to international distributors. The increased revenues were attributable to the introduction of the Techstar and Prostar Plus systems during the latter part of fiscal year 1995 and the resulting higher volumes of those units shipped in the three months ended September 30, 1996. 9 Revenues for three months ended September 30, 1996 reflect a deferral of $500,000 of sales made to Perclose's French distributor in the period due to the French government's decision to discontinue direct reimbursement to private French hospitals for the use of Perclose products. The Company was notified of the French government's decision in October 1996 . The deferred sales will be recognized as revenue when and if the ongoing sales levels in France stabilize and the related uncertainties are resolved. Although the Company and its French distributor are currently assessing the impact of the French government's reimbursement decision on the market for the Company's products in France, it is likely that the Company will, as a result of the reimbursement unavailability, experience a decline in sales in future fiscal periods. Sales attributable to the Company's German and Japanese distributor during the quarter were 82% and 14% of total sales, respectively. Cost of goods sold, including manufacturing start-up costs in 1995, decreased to $1,061,000 in the three months ended September 30, 1996 from $1,195,000 in the three months ended September 30, 1995. The modest decrease of 11% reflects 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 88% to $1,330,000 for the three months ended September 30, 1996 from $709,000 in the comparable prior year period. This increase was primarily the 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 84% to $1,313,000 in the three months ended September 30, 1996 from $714,000 in the three months ended September 30, 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 expenditures and marketing expenditures. Interest and other income increased to $485,000 for the three months ended September 30, 1996 from $89,000 for the three months ended September 30, 1995 primarily as a result of higher cash balances resulting from the Company's initial public offering. Interest expense remained approximately level at $33,000 for the three months ended September 30, 1996 compared with $56,000 for the three months ended September 30, 1995 due to a leveling off of capital expenditures, and thus the financing associated with capital expenditures, compared to the year ago period. Six months ended September 30, 1996 and 1995 Net revenues of $2,535,000 in the six months ended September 30, 1996 increased 342% compared with net revenues of $573,000 in the six months ended September 30, 1995 and were the result of increased Techstar and Prostar Plus shipments to international distributors. The increased revenues were attributable to the introduction of the Techstar and Prostar Plus systems during the latter part of fiscal year 1995 and the resulting higher volumes of those units shipped in the six months ended September 30, 1996. Sales attributable to the Company's German, French and Japanese distributors during the six months ended 1996 period were 67% , 18% and 11% of total sales, respectively. 10 Cost of goods sold, including manufacturing start-up costs in 1995, decreased modestly to $2,223,000 in the six months ended September 30, 1996 from $2,268,000 in the six months ended September 30, 1995. The modest decrease of 2 % reflects 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 67% to $2,395,000 for the six months ended September 30, 1996 from $1,436,000 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 56% to $2,496,000 in the six months ended September 30, 1996 from $1,599,000 in the six months ended September 30, 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 $954,000 for the six months ended September 30, 1996 from $190,000 for the six months ended September 30, 1995 primarily as a result of higher cash balances resulting from the Company's initial public offering. Interest expense remained approximately level at $64,000 for the six months ended September 30, 1996 compared with $86,000 for the six months ended September 30, 1995 due to a leveling off of capital expenditures, and thus the financing associated with capital expenditures, compared to the year ago period. 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 Perclose has financed its operations primarily through the sale of equity securities and, to a lesser extent, through an equipment credit and loan agreement and product sales. From inception through September 30, 1996, Perclose raised $22.8 million in net proceeds of private equity financings and stock option exercises, $34.1 million in an initial public offering of common stock and $1.3 million in borrowings under an equipment credit facility. 11 During the six month periods ended September 30, 1996 and 1995, the Company used cash to fund operations of $3.4 million and $3.9 million, respectively. The decrease in cash used in operations was due primarily to higher product revenues that more than offset higher expenses in the September 1996 period 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 have aggregated $2.8 million since inception. The Company's principal source of liquidity at September 30, 1996 consists of cash, cash equivalents and short-term investments of $33.5 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 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. 12 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 July 1996 the Company filed a 510(k) application with the United States Food and Drug Administration for clearance of its Prostar systems for commercial sale in the United States. In October 1996 the FDA advised the Company that it will review the Company's applications for regulatory approval for the Prostar systems under the Pre-Market Approval regulatory pathway. Therefore, the Company intends to resubmit an application for approval of its Prostar systems as a PMA. An IDE clinical trial for the Techstar systems has recently been completed and, following data analysis and compilation, the Company plans to submit a PMA application for clearance of the Techstar systems for sale in the United States. An IDE clinical trial for the Prostar Plus systems began in June 1996 and, following completion of the clinical testing and data analysis, the Company also plans to submit a PMA application for clearance of the Prostar Plus systems for sale in the United States. The FDA has advised the Company, in a preliminary conversation, that the PMA application for the Prostar systems will, when submitted to the FDA and accepted for filing by the agency, 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. 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. The Company has recently been informed by its French distributor that the French government discontinued direct reimbursement to private French hospitals for the use of Perclose products. Although the Company and its distributor are currently assessing the impact of the French government's reimbursement decision on the market for the Company's products in France, it is likely that the Company will, as a result of the reimbursement unavailability, experience a decline in sales in future fiscal periods. 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 13 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 September 30, 1996 the Company had an accumulated deficit of $22.2 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. 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 distributor 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 and development and 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 14 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. 15 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 The Company solicited proxies for an annual meeting of shareholders on September 24, 1996. The matters voted upon at the meeting and results of the voting with respect to those matters were as follows: 1 - Election of Class I Directors: For Withheld ------------ -------------- Michael L. Eagle 7,443,339 0 Serge Lashutka 7,443,339 0 For Against Abstain ------------- ------------- ---------- 2 - Approve amendment to the 1992 Stock Plan 6,104,520 1,266,377 10,420 3 - Confirm appointment of For Against Abstain Ernst & Young as the ------------- ----------- ---------- independent auditors for fiscal year 1997 7,462,317 2,362 5,760 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 September 30, 1996. 16 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: November 8, 1996 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) 17 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 19 27.1 Edgar financial index tags (EDGAR version only) 20 * Incorporated by reference to the Registrant's Registration Statement on Form S - 1 (Registration No. 33-97128) filed on September 20, 1995. 18 Exhibit 11.1 PERCLOSE, INC. Statement Re: Computations of Loss Per Share
Three Months Ended Six Months Ended September 30, September 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- HISTORICAL - ---------- Net loss $(2,217,634) $(3,689,539) ------------ ------------ ------------ ------------ Weighted average common shares outstanding 9,497,105 9,497,988 Shares related to SAB No. 55, 64 and 83 - - Total weighted average common shares outstanding 9,497,105 9,497,988 ------------ ------------ ------------ ------------ Net loss per share $ (0.23) $ (0.39) ------------ ------------ ------------ ------------ PRO FORMA - --------- Net loss $(2,177,222) $(4,625,801) ------------ ------------ ------------ ------------ Weighted average common shares outstanding 1,493,525 1,493,525 Convertible preferred stock 3,133,720 3,133,720 Shares related to SAB No. 55, 64 and 83 2,107,366 2,107,366 ----------- ------------ Total weighted average common shares outstanding 6,734,611 6,734,611 ------------ ------------ ------------ ------------ Net loss per share $ (0.32) $ (0.69) ------------ ------------ ------------ ------------
19 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000934438 PERCLOSE, INC. 9-MOS MAR-31-1996 JUL-01-1996 SEP-30-1996 5,701,766 27,804,167 1,845,478 0 623,200 36,257,713 2,779,129 1,360,557 38,172,106 2,843,858 0 0 0 9,497 35,000,567 38,172,106 1,034,354 1,034,354 1,061,117 2,642,183 0 0 451,312 (2,217,634) 0 (2,217,634) 0 0 0 (2,217,634) (0.23) (0.23)
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