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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
 
OR
 
¨
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934  
 
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
 
COMMISSION FILE NO. 000-31519
 
 
CURON MEDICAL, INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
  
77-0470324
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
735 Palomar Avenue
Sunnyvale, CA 94085
(Address of principal executive offices, including zip code)
 
(408) 733-9910
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No   ¨
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes  ¨   No  x
 
As of May 13, 2003, 20,104,880 shares of the Registrant’s Common Stock were outstanding.
 

 

 
 
CURON MEDICAL, INC.
 
INDEX
 
              
Page
PART I.
   
FINANCIAL INFORMATION
     
    
Item 1.
        
            
3
            
4
            
5
            
6
    
Item 2.
      
10
    
Item 3.
      
25
    
Item 4.
      
25
PART II.
   
OTHER INFORMATION
     
    
Item 1.
      
26
    
Item 5.
      
27
    
Item 6.
      
27
            
28
            
 
            
29

2

 

PART I    FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
CURON MEDICAL, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited, in thousands)
    
March 31, 2003
     
December 31, 2002
  
Assets
                  
Current assets:
                  
Cash and cash equivalents
   
$
9,533
 
   
$
8,570
 
Marketable securities
   
 
9,701
 
   
 
14,397
 
Accounts receivable, net of allowance for doubtful accounts of $34 and $34, respectively
   
 
436
 
   
 
688
 
Inventories, net
   
 
1,247
 
   
 
1,295
 
Prepaid expenses and other current assets
   
 
934
 
   
 
972
 
    
  
Total current assets
   
 
21,851
 
   
 
25,922
 
Long term investments
   
 
1,563
 
   
 
528
 
Property and equipment, net
   
 
687
 
   
 
766
 
Other assets
   
 
21
 
   
 
20
 
    
  
Total assets
   
$
24,122
 
   
$
27,236
 
    
  
Liabilities and Stockholders’ Equity
                  
Current liabilities:
                  
Accounts payable
   
$
172
 
   
$
191
 
Accrued liabilities
   
 
1,071
 
   
 
882
 
Notes payable
   
 
—  
 
   
 
42
 
    
  
Total current liabilities
   
 
1,243
 
   
 
1,115
 
Other liabilities
   
 
16
 
   
 
18
 
    
  
Total liabilities
   
 
1,259
 
   
 
1,133
 
    
  
Contingencies (Note 4)
                  
Stockholders’ equity:
                  
Common stock
   
 
20
 
   
 
20
 
Additional paid-in capital
   
 
90,128
 
   
 
90,128
 
Deferred stock compensation
   
 
(81
)
   
 
(125
)
Accumulated deficit
   
 
(66,997
)
   
 
(63,732
)
Treasury stock
   
 
(234
)
   
 
(234
)
Accumulated other comprehensive income
   
 
27
 
   
 
46
 
    
  
Total stockholders’ equity
   
 
22,863
 
   
 
26,103
 
    
  
Total liabilities and stockholders' equity
   
$
24,122
 
   
$
27,236
 
    
  
 
See accompanying notes to condensed consolidated financial statements

3

 
CURON MEDICAL, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
(in thousands, except per share amounts)

 
    
For the Three Months Ended
  
    
March 31, 2003
       
March 31, 2002
  
Revenues
   
$
709
 
     
$
939
 
Cost of goods sold
   
 
983
 
     
 
983
 
    
    
Gross loss
   
 
(274
)
     
 
(44
)
    
    
Operating expenses:
                    
Research and development
   
 
453
 
     
 
789
 
Clinical and regulatory
   
 
315
 
     
 
418
 
Sales and marketing
   
 
1,402
 
     
 
1,878
 
General and administrative
   
 
920
 
     
 
972
 
    
    
Total operating expenses
   
 
3,090
 
     
 
4,057
 
    
    
Operating loss
   
 
(3,364
)
     
 
(4,101
)
Interest income
   
 
95
 
     
 
278
 
Other income (expense), net
   
 
4
 
     
 
(2
)
    
    
Net loss
   
$
(3,265
)
     
$
(3,825
)
    
    
Net loss per share, basic and diluted
   
$
(0.16
)
     
$
(0.20
)
    
    
Shares used in computing net loss per share, basic and diluted
   
 
19,977
 
     
 
19,407
 
    
    
 
See accompanying notes to condensed consolidated financial statements

4

 
CURON MEDICAL, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited, in thousands)

 
    
For the Three Months Ended,
  
    
March 31, 2003
       
March 31, 2002
  
Cash Flows From Operating Activities
                    
Net loss
   
$
(3,265
)
     
$
(3,825
)
Adjustments to reconcile net loss to net cash used in operating activities:
                    
Depreciation and amortization
   
 
136
 
     
 
169
 
Amortization of acquired technology
   
 
—  
 
     
 
88
 
Amortization of stock-based compensation
   
 
44
 
     
 
177
 
Gain on sale of property and equipment
   
 
(6
)
     
 
—  
 
Amortization of premium (accretion of discount) on securities, net
   
 
83
 
     
 
(81
)
Changes in assets and liabilities:
                    
Accounts receivable, net
   
 
252
 
     
 
(25
)
Inventories, net
   
 
48
 
     
 
192
 
Prepaid expenses and other current assets
   
 
38
 
     
 
126
 
Accounts payable
   
 
(19
)
     
 
(183
)
Accrued liabilities
   
 
189
 
     
 
(84
)
Other long-term assets and liabilities
   
 
(3
)
     
 
2
 
    
    
Net cash used in operating activities
   
 
(2,503
)
     
 
(3,444
)
    
    
Cash Flows From Investing Activities
                    
Purchase of property and equipment
   
 
(57
)
     
 
(68
)
Sale of property and equipment
   
 
6
 
     
 
—  
 
Purchase of marketable securities
   
 
(3,101
)
     
 
(8,449
)
Proceeds from maturities of marketable securities
   
 
6,660
 
     
 
12,256
 
    
    
Net cash provided by investing activities
   
 
3,508
 
     
 
3,739
 
    
    
Cash Flows From Financing Activities
                    
Principal payments on notes payable
   
 
(42
)
     
 
(103
)
Payments on related party notes receivable
   
 
—  
 
     
 
(25
)
Proceeds from issuance of common stock
   
 
—  
 
     
 
6
 
    
    
Net cash used in financing activities
   
 
(42
)
     
 
(122
)
    
    
Net increase in cash and cash equivalents
   
 
963
 
     
 
173
 
Cash and cash equivalents at beginning of period
   
 
8,570
 
     
 
7,509
 
    
    
Cash and cash equivalents at end of period
   
$
9,533
 
     
$
7,682
 
    
    
 
See accompanying notes to condensed consolidated financial statements

5

 

CURON MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, tabular amounts in thousands, except per share data)

March 31, 2003

NOTE 1.   The Company and Summary of Significant Accounting Policies

The Company

Curon Medical, Inc. (the "Company") was incorporated in the State of Delaware on May 1, 1997. The Company develops, manufactures and markets proprietary products for the treatment of gastrointestinal disorders.

The Company has sustained operating losses and negative cash flows from operations and expects such losses to continue in the foreseeable future. The Company intends to finance its operations primarily through its cash and cash equivalents, marketable securities, future financing and future revenues. The Company currently has enough cash to fund operations for at least the next twelve months. Should additional funding be required at any point in the future, alternative financing will be sought from other sources, including the public equity market, private financings, collaborative arrangements and debt. If additional capital is raised through the issuance of equity or securities convertible into equity, stockholders may experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock. There can be no assurance that the Company will be able to obtain such financing, or to obtain it on acceptable terms.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all intercompany balances and transactions. Certain reclassifications have been made to prior year amounts in order to conform to current year presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, contain all adjustments (all of which are normal and recurring in nature) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods indicated. Interim results of operations are not necessarily indicative of the results to be expected for the full year or any other interim periods.

These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the SEC.

6

 

Net Loss Per Share

Basic and diluted net loss per share is calculated as follows:

    
Three Months Ended March 31,
  
    
2003
     
2002
     
Numerator:
                  
Net loss
   
$
(3,265
)
   
$
(3,825
)
    
  
Denominator:
                  
Weighted average shares outstanding
   
 
19,994
 
   
 
19,650
 
Weighted average unvested common shares subject to repurchase
   
 
(17
)
   
 
(243
)
    
  
Weighted average shares used in basic and diluted net loss per share
   
 
19,977
 
   
 
19,407
 
    
  
Net loss per share
   
$