UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED June 30, 2004
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 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.) |
46117 Landing Parkway
Fremont, CA 94538
(Address of principal executive offices, including zip code)
(510) 661-1800
(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 ¨ No x
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 August 4, 2004, 24,466,368 shares of the Registrant’s Common Stock were outstanding.
INDEX
| Page | ||||||
| PART I. | FINANCIAL INFORMATION | 3 | ||||
| Item 1. | 3 | |||||
| Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 |
3 | |||||
| Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2004 and 2003 | 4 | |||||
| Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2004 and 2003 | 5 | |||||
| 6 | ||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | ||||
| Item 3. | 24 | |||||
| Item 4. | 24 | |||||
| PART II. | OTHER INFORMATION | 24 | ||||
| Item 1. | 24 | |||||
| Item 4. | 26 | |||||
| Item 6. | 27 | |||||
| 28 | ||||||
2
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
| June 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,828 | $ | 4,865 | ||||
| Marketable securities |
12,059 | 5,269 | ||||||
| Accounts receivable, net |
580 | 834 | ||||||
| Inventories, net |
1,280 | 1,063 | ||||||
| Prepaid expenses and other current assets |
1,234 | 863 | ||||||
| Total current assets |
16,981 | 12,894 | ||||||
| Property and equipment, net |
957 | 836 | ||||||
| Other assets |
121 | 124 | ||||||
| Total assets |
$ | 18,059 | $ | 13,854 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 403 | $ | 517 | ||||
| Accrued liabilities |
1,338 | 1,164 | ||||||
| Notes payable |
398 | — | ||||||
| Litigation reserve |
— | 1,250 | ||||||
| Total current liabilities |
2,139 | 2,931 | ||||||
| Warrant liability |
546 | — | ||||||
| Other liabilities |
156 | 115 | ||||||
| Total liabilities |
2,841 | 3,046 | ||||||
| Contingencies (Note 5) |
— | — | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
24 | 20 | ||||||
| Additional paid-in capital |
101,523 | 90,314 | ||||||
| Deferred stock compensation |
— | (4 | ) | |||||
| Accumulated deficit |
(86,050 | ) | (79,287 | ) | ||||
| Treasury stock |
(234 | ) | (234 | ) | ||||
| Accumulated other comprehensive income |
(45 | ) | (1 | ) | ||||
| Total stockholders’ equity |
15,218 | 10,808 | ||||||
| Total liabilities and stockholders’ equity |
$ | 18,059 | $ | 13,854 | ||||
See accompanying notes to condensed consolidated financial statements
3
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
| For the Three Months Ended |
For the Six Months Ended |
|||||||||||||||
| June 30, 2004 |
June 30, 2003 |
June 30, 2004 |
June 30, 2003 |
|||||||||||||
| Revenues |
$ | 931 | $ | 868 | $ | 1,837 | $ | 1,577 | ||||||||
| Cost of goods sold |
1,110 | 1,046 | 2,132 | 2,029 | ||||||||||||
| Gross loss |
(179 | ) | (178 | ) | (295 | ) | (452 | ) | ||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
433 | 464 | 930 | 917 | ||||||||||||
| Clinical and regulatory |
282 | 320 | 635 | 635 | ||||||||||||
| Sales and marketing |
2,009 | 1,852 | 4,078 | 3,254 | ||||||||||||
| General and administrative |
1,028 | 829 | 2,013 | 1,749 | ||||||||||||
| Total operating expenses |
3,752 | 3,465 | 7,656 | 6,555 | ||||||||||||
| Operating loss |
(3,931 | ) | (3,643 | ) | (7,951 | ) | (7,007 | ) | ||||||||
| Interest income |
42 | 66 | 81 | 161 | ||||||||||||
| Decrease in warrant liability |
679 | — | 1,122 | — | ||||||||||||
| Other income (expense), net |
(1 | ) | 2 | (15 | ) | 6 | ||||||||||
| Net loss |
$ | (3,211 | ) | $ | (3,575 | ) | $ | (6,763 | ) | $ | (6,840 | ) | ||||
| Net loss per share, basic and diluted |
$ | (0.13 | ) | $ | (0.18 | ) | $ | (0.29 | ) | $ | (0.34 | ) | ||||
| Shares used in computing net loss per share, basic and diluted |
24,385 | 20,055 | 23,522 | 20,016 | ||||||||||||
See accompanying notes to condensed consolidated financial statements
4
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| For the Six Months Ended, |
||||||||
| June 30, 2004 |
June 30, 2003 |
|||||||
| Cash Flows From Operating Activities |
||||||||
| Net loss |
$ | (6,763 | ) | $ | (6,840 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Payment of litigation settlement |
(1,250 | ) | — | |||||
| Decrease of warrant liability |
(1,122 | ) | — | |||||
| Depreciation and amortization |
246 | 269 | ||||||
| Stock-based compensation |
4 | 34 | ||||||
| (Gain)/loss on sale of property and equipment |
11 | (6 | ) | |||||
| Amortization of premium on securities, net |
276 | 172 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
254 | 62 | ||||||
| Inventories, net |
(217 | ) | 141 | |||||
| Prepaid expenses and other current assets |
(371 | ) | (110 | ) | ||||
| Accounts payable |
(114 | ) | 149 | |||||
| Accrued liabilities |
174 | 156 | ||||||
| Other long-term assets and liabilities |
44 | (4 | ) | |||||
| Net cash used in operating activities |
(8,828 | ) | (5,977 | ) | ||||
| Cash Flows From Investing Activities |
||||||||
| Purchase of property and equipment |
(378 | ) | (111 | ) | ||||
| Proceeds from disposition of property and equipment |
— | 6 | ||||||
| Purchase of marketable securities |
(11,960 | ) | (6,591 | ) | ||||
| Proceeds from maturities of marketable securities |
4,850 | 12,546 | ||||||
| Net cash provided by (used in) investing activities |
(7,488 | ) | 5,850 | |||||
| Cash Flows From Financing Activities |
||||||||
| Principal payments on notes payable |
(251 | ) | (86 | ) | ||||
| Proceeds from issuance of notes payable |
649 | 309 | ||||||
| Proceeds from issuance of common stock, net |
12,658 | — | ||||||
| Proceeds from exercise of stock options and ESPP |
223 | 49 | ||||||
| Net cash provided by financing activities |
13,279 | 272 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(3,037 | ) | 145 | |||||
| Cash and cash equivalents at beginning of period |
4,865 | 8,570 | ||||||
| Cash and cash equivalents at end of period |
$ | 1,828 | $ | 8,715 | ||||
See accompanying notes to the condensed consolidated financial statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, tabular amounts in thousands, except per share data)
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 financings and future revenues. Management believes that unless revenues increase and operating costs are controlled, the Company’s existing capital resources and interest income will not enable it to maintain current and planned operations beyond the third quarter of 2005. Management believes that if revenues do not increase sufficiently in relation to our operating costs, it may have to explore other options, such as raising additional capital through fundraising activity or a sale of the company or a portion of its assets. Should additional funding be required at any point in the future, alternative financing will be sought from various possible 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. If the Company is unable to raise additional funds, operations will need to be substantially reduced in order to conserve working capital.
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.
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, 2003, as filed with the SEC.
6
CURON MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Cont.
(Unaudited, tabular amounts in thousands, except per share data)
Net Loss Per Share
Basic and diluted net loss per share is calculated as follows:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Numerator: |
||||||||||||||||
| Net loss |
$ | (3,211 | ) | $ | (3,575 | ) | $ | (6,763 | ) | $ | (6,840 | <|||||