<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1996 Commission file number 0-28492
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- --------------------------------------------------------------------------------
INNOVASIVE DEVICES, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3132641
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
734 Forest Street, Marlborough MA 01752
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(Address of principal executive offices)
Registrant's telephone number, including area code 508/460-8229
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N/A
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Former name, former address and former fiscal year, if changed since last
report.
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.
(1) YES X NO
---- ----
(1) YES NO X
---- ----
The number of shares outstanding of the registrant's common stock as of August
9, 1996 was 7,259,741.
<PAGE>
INNOVASIVE DEVICES, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I: Financial Information
Item 1. Condensed Financial Statements
Condensed Balance Sheet at June 30, 1996 (unaudited)
and December 31, 1995 3
Condensed Statement of Operations (unaudited) for the
Three Months Ended June 30, 1996 and June 30, 1995 4
Condensed Statement of Operations (unaudited) for the
Six Months Ended June 30, 1996 and June 30, 1995 4
Condensed Statements of Cash Flows (unaudited) for the
Six Months Ended June 30, 1996 and June 30, 1995 5
Notes to unaudited Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. Other Information 11
Signatures 12
Exhibit Index 13
</TABLE>
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
INNOVASIVE DEVICES, INC.
Condensed Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents $ 24,821 $ 5,052
Accounts receivable, less allowance 666 283
of $56 at June 30, 1996 and $51 at
December 31, 1995
Inventories 657 405
Prepaid expenses 127 48
----------- ------------
Total current assets 26,271 5,788
Fixed assets, net 640 599
Other assets, net 18 12
----------- ------------
$ 26,929 $ 6,399
=========== ============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 239 $ 459
Related party payables 358 265
Other current liabilities 555 206
----------- ------------
Total current liabilities 1,152 930
Mandatorily redeemable convertible
preferred stock - 13,970
Stockholders' equity (deficit):
Common stock 1 1
Additional paid in capital 39,830 3,459
Accumulated deficit (14,054) (11,936)
----------- ------------
25,777 (8,476)
Less: common stock held in treasury - 25
----------- ------------
Total stockholders' equity (deficit) 25,777 (8,501)
----------- ------------
$ 26,929 $ 6,399
=========== ============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
<PAGE>
INNOVASIVE DEVICES, INC.
Condensed Statement of Operations
(In thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 1,088 $ 296 $ 1,890 $ 462
Cost of sales 414 217 752 404
------- ------- ------- -------
Gross profit 674 79 1,138 58
Selling, general and administrative 1,157 589 2,248 1,082
expenses
Research and development 596 371 1,178 702
------- ------- ------- -------
Loss from operations (1,079) (881) (2,288) (1,726)
Interest income, net 112 5 174 24
------- ------- ------- -------
Net loss $ (967) $ (876) $(2,114) $(1,702)
======= ======= ======= =======
Unaudited pro forma net loss per
share:
Net loss per share $( 0.16) $( 0.18) $( 0.37) $( 0.35)
======= ======= ======= =======
Shares used in computing net loss
per share 5,882 4,820 5,669 4,820
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
4
<PAGE>
INNOVASIVE DEVICES, INC.
Condensed Statement of Cash Flows
(In thousands; unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss $(2,114) $(1,702)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 138 101
Changes in assets and liabilities:
Accounts receivable, net (383) (157)
Inventories (252) (116)
Prepaid expenses (79) (30)
Other assets (6) 5
Accounts payable (220) (18)
Related party payables 93 37
Other current liabilities 349 86
------- -------
Net cash used for operating activities (2,474) (1,794)
------- -------
Cash flows from investing activities
Purchases of fixed assets (179) (101)
------- -------
Cash flows from financing activities
Proceeds from issuance of preferred stock, 926 -
net of issuance costs
Proceeds from issuance of common stock, 21,496 -
net of issuance costs
Principal payments on note payable (464)
Proceeds from issuance of convertible notes payable 1,000
------- -------
Net cash provided by financing activities 22,422 536
------- -------
Net increase (decrease) in cash and cash equivalents 19,769 (1,359)
Cash and cash equivalents at beginning of period 5,052 2,051
------- -------
Cash and cash equivalents at end of period $24,821 $ 692
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
5
<PAGE>
INNOVASIVE DEVICES, INC.
Notes to Unaudited Condensed Financial Statements
1. -- Basis of Presentation
The accompanying unaudited condensed financial statements of Innovasive Devices,
Inc. (the "Company") include, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of the Company's financial position at June 30, 1996 and the
results of operations for the three and six month periods ended June 30, 1996
and 1995. Interim results of operations are not necessarily indicative of the
results to be achieved for the full year.
Pursuant to accounting requirements of the Securities and Exchange Commission
(the "SEC") applicable to quarterly reports on Form 10-Q , the accompanying
unaudited condensed financial statements and these notes do not include all
disclosures required by generally accepted accounting principles for complete
financial statements. Accordingly, these statements should be read in
conjunction with the financial statements and accompanying notes contained in
the Company's Registration Statement on Form S-1 (Registration No. 333-3368)
filed with the SEC on April 11, 1996, as amended by filings on May 17, 1996 and
May 30, 1996.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
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<S> <C> <C>
(unaudited)
Raw materials $ 248 $ 157
Work-in-process 63 68
Finished goods 346 180
---------- ------------
Totals $ 657 $ 405
========== ============
</TABLE>
3. Common Stock Issuance (unaudited)
In June 1996, the Company sold and issued 1,900,000 shares of its common stock
pursuant to an initial public offering. Net proceeds to the Company from the
offering were approximately $21 million. Upon completion of the offering, all
outstanding shares of Preferred Stock were converted into 3.5 million shares of
common stock.
6
<PAGE>
INNOVASIVE DEVICES, INC.
Notes to Unaudited Condensed Financial Statements
4. Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share is determined by dividing the net loss by the
weighted average number of common stock and common stock equivalents outstanding
during the period, including the effect of the assumed conversion of all
convertible preferred stock prior to the actual conversion which occurred upon
the closing of the Company's initial public offering in the second quarter of
1996.
Pursuant to SEC Staff Accounting Bulletin 83, common stock equivalents,
although anti-dilutive, issued at prices below the offering price per share
during the twelve months preceding the initial public offering of the Company's
common stock have been included in the calculation of pro forma net loss per
share using the treasury stock method as if outstanding since the beginning of
each period presented through March 31, 1996.
7
<PAGE>
INNOVASIVE DEVICES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Since its inception, Innovasive Devices (the "Company") has been primarily
engaged in the development, manufacture and marketing of proprietary devices and
instrumentation which facilitate the reattachment of soft tissue structures,
such as ligaments and tendons, to bones and other tissues. The Company has a
limited operating history and has expended significant resources to fund
research and development, the establishment of its manufacturing capabilities
and the expansion of its marketing and sales organization. The Company plans to
continue investing aggressively in these areas. The Company's sales are
principally derived from the sale of its family of ROC tissue fasteners and
related surgical instrumentation. The Company commenced commercial shipments of
its first ROC fastener during 1994 and expanded its product offering during
1995, to include the IDeal Arthroscopic Suture Fastener System.
The following information should be read in conjunction with the unaudited
condensed financial statements and notes thereto included in this Quarterly
Report and with the Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Registration Statement on Form S-1 (Registration No. 333-3368) filed
with the SEC on April 11, 1996, as amended by filings on May 17, 1996 and May
30, 1996.
Any statements in this report expressing the beliefs and expectations of
management regarding the Company's future results and performance are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based on current
expectations that involve a number of risks and uncertainties. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. Such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. Certain of such risks and uncertainties are described
in the Company's Report on Form 8-K filed with the SEC on July 23, 1996.
Results of Operations
Three Months Ended June 30, 1996 compared to Three Months Ended June 30, 1995
Net sales increased $792,000 to $1,088,000 in the second quarter of 1996 from
$296,000 in the second quarter of 1995. This increase was primarily due to the
introduction of additional ROC suture fasteners and the expansion of the
domestic direct sales force and the international distributor network. The
company ships and invoices direct to customers within the domestic market,
however, internationally the company sells through its distributors.
Gross profit increased to $674,000 in the second quarter of 1996 from $79,000 in
the second quarter of 1995. As a percentage of sales, gross profit increased to
62.0% in the second quarter of 1996 from 26.7% in the second quarter of 1995.
The increase in gross profit was due primarily to increased net sales of ROC
suture fasteners which resulted in improved manufacturing efficiencies.
8
<PAGE>
Selling, general and administrative expenses increased to $1,157,000 in the
second quarter of 1996 from $589,000 in the second quarter of 1995. The increase
resulted primarily from the expansion of the domestic direct sales force,
increased salary and travel costs, higher selling commissions resulting from
higher sales volume, increased sample expenses and the increased costs
associated with operating as a public company.
Research and development expenses increased to $596,000 in the second quarter of
1996 from $371,000 in the second quarter of 1995. The increase was primarily
attributable an increase in expenses related to the collaborative development
effort with Collagen Corporation, other product development costs and patent
preparation and filing costs associated with the development programs.
Net interest income increased to $112,000 in the second quarter of 1996 from
$5,000 in the second quarter of 1995. The primary reason for the increase was
the interest received on the investment of the proceeds of the initial public
offering closed during the second quarter of 1996.
As a result of the foregoing, the net loss increased to $967,000 in the second
quarter of 1996 from a loss of $876,000 in the second quarter of 1995.
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995
Net sales increased $1,428,000 to $1,890,000 for the first six months of 1996
from $462,000 for the first six months of 1995. The increase was primarily
attributable to the introduction of additional ROC suture fasteners and the
expansion of the domestic direct sales force and the international distributor
network.
Gross profit increased to $1,138,000 for the first six months of 1996 from
$58,000 for the first six months of 1995. As a percentage of sales, gross profit
increased to 60.2% for the first six months of 1996 from 12.6% for the first six
months of 1995. The increase in gross profit was due primarily to increased net
sales of ROC suture fasteners which resulted in improved manufacturing
efficiencies.
Selling, general and administrative expenses increased to $2,248,000 for the
first six months of 1996 from $1,082,000 for the first six months of 1995. The
increase resulted primarily from the expansion of the domestic direct sales
force, increased salary and travel costs, higher selling commissions resulting
from higher sales volume, increased sample expenses and the increased costs
associated with operating as a public company. In addition, the Company recorded
a charge of $128,000 in the first quarter of 1996 associated with a facility
under lease through May 1997, which it vacated in March 1996.
Research and development expenses increased to $1,178,000 for the first six
months of 1996 from $702,000 for the first six months of 1995. The increase was
primarily attributable to an increase in expenses related to the collaborative
development effort with Collagen Corporation, other product development costs,
patent preparation and filing and salary related costs associated with the
development programs.
Net interest income increased to $174,000 for the first six months of 1996 from
$24,000 for the first six months of 1995. While the Company maintained higher
average cash balances during the first quarter of 1996 as compared to the first
quarter of 1995, the primary reason for the increase is the interest received on
the investment of the proceeds of the initial public offering closed during the
second quarter of 1996.
9
<PAGE>
As a result of the foregoing, the net loss increased to $2,114,000 for the first
six months of 1996 from $1,702,000 for the first six months of 1995.
Liquidity and Capital Resources
As of June 30, 1996 the Company had cash and cash equivalents of $24.8 million
as compared to a balance of $5.1 million on December 31, 1995. The increase in
the balance is primarily a result of the proceeds of $21.5 million from the
Company's initial public offering of 1,900,000 shares of common stock completed
in June 1996. Accounts receivable increased to $666,000 on June 30, 1996 from
$283,000 on December 31,1995 as a result of the higher sales level. Inventories
increased to $657,000 on June 30,1996 from $405,000 on December 31, 1995 as a
result of a broader product offering and the higher sales level.
Cash used in the Company's operations increased to $2.5 million for the first
six months of 1996 from $1.8 million for the first six months of 1995. The
increase in cash used for operations resulted from a higher net loss, the
financing of accounts receivable and the build up of inventories.
The Company expects that its balance of cash and cash equivalents will be
adequate to fund the near term cash requirements for operations, working capital
and fixed assets.
10
<PAGE>
INNOVASIVE DEVICES, INC.
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. See Exhibit Index, Page 13
b. Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INNOVASIVE DEVICES, INC,
Date: August 14 , 1996 By:/s/ Richard D. Randall
-------------------------
Richard D. Randall
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: August 14 , 1996 By:/s/ James V. Barrile
------------------------
James V. Barrile
Executive Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
12
<PAGE>
INNOVASIVE DEVICES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
<S> <C> <C>
11 Statement Regarding Computation of Pro Forma Net Loss per Share 14
</TABLE>
13
<PAGE>
Exhibit 11
INNOVASIVE DEVICES, INC.
Statement Regarding Computation of Pro Forma Net Loss Per Common Share
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss $ (967,000) $ (874,000) $(2,114,000) $(1,702,000)
========= ========== ============ ===========
Weighted average common shares
outstanding:
a. Shares attributable to common 3,311,477 1,811,478 2,561,746 1,811,478
stock outstanding
b. Shares attributable to mandatorily
convertible preferred stock 2,570,242 2,881,624 3,044,249 2,881,624
c. Shares attributable to common
stock options pursuant to APB 15 - 126,438 63,219 126,438
and SAB 83
--------- ---------- ------------ -----------
Weighted average common shares outstanding 5,881,719 4,819,540 5,669,214 4,819,540
========= ========== ============ ===========
Pro forma net loss per share $(0.16) $(0.18) $(0.37) $(0.35)
========= ========== ============ ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
UNAUDITED BALANCE SHEET AT JUNE 30, 1996 AND THE UNAUDITED CONDENSED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 24,821
<SECURITIES> 0
<RECEIVABLES> 722
<ALLOWANCES> 56
<INVENTORY> 657
<CURRENT-ASSETS> 26,271
<PP&E> 1,210
<DEPRECIATION> 570
<TOTAL-ASSETS> 26,929
<CURRENT-LIABILITIES> 1,152
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 25,776
<TOTAL-LIABILITY-AND-EQUITY> 26,929
<SALES> 1,890
<TOTAL-REVENUES> 1,890
<CGS> 752
<TOTAL-COSTS> 752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,114)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,114)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
