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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 JUNE 30, 1997
--------------------------------------------
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 0-27540
ENDOVASCULAR TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 94-3096794
(State of Incorporation) (I.R.S. Employer Identification No.)
1360 O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025
415-325-1600
(Address, Zip Code and Telephone Number of Principal Executive Offices)
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 [ ]
The number of shares outstanding of the issuer's common stock as of August 6,
1997 was 8,538,050.
This document contains 21 pages and the Exhibit Index is on Page 20
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ENDOVASCULAR TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ---------------------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1997 and
December 31, 1996 3
Condensed Statements of Operations for the Three and Six Month
Periods Ended June 30, 1997 and June 30, 1996 4
Condensed Statements of Cash Flows for the Six Month Periods Ended
June 30, 1997 and June 30, 1996 5
Notes to Condensed Financial Statements 6
Risk Factors 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. OTHER INFORMATION
- ------------------------------
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Exhibit Index 20
Exhibits 21
</TABLE>
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ENDOVASCULAR TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS (unaudited)
Current Assets
Cash and cash equivalents $ 1,045,888 $ 2,530,792
Securities available-for-sale 7,048,247 15,328,545
Accounts receivable 827,973 505,440
Interest receivable 210,917 269,329
Inventory 357,740 --
Prepaids and other 573,745 306,837
Notes receivable from employees 381,501 31,501
------------ ------------
Total current assets 10,446,011 18,972,444
Property and equipment, net 2,615,575 1,905,579
Other assets 72,861 74,361
------------ ------------
Total assets $ 13,134,447 $ 20,952,384
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 365,022 714,323
Accrued and other liabilities 2,752,445 1,563,384
------------ ------------
Total current liabilities 3,117,467 2,277,707
------------ ------------
Stockholders' Equity
Common stock, $0.00001 par value:
Authorized: 30,000,000 shares at June 30, 1997
and December 31, 1996, respectively; issued and
outstanding: 8,512,061 and 8,402,371 shares at
June 30, 1997 and December 31, 1996, respectively 85 84
Additional paid-in capital 56,894,166 56,298,754
Deferred compensation (68,280) (81,934)
Accumulated deficit (46,808,991) (37,542,227)
------------ ------------
Total stockholders' equity 10,016,980 18,674,677
------------ ------------
Total liabilities and stockholders' equity $ 13,134,447 $ 20,952,384
============ ============
</TABLE>
See accompanying notes to condensed financial statements
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ENDOVASCULAR TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net product sales $ 844,180 $ 252,500 $ 1,687,305 $ 355,500
Cost of goods sold 782,461 315,047 1,558,283 432,087
----------- ----------- ----------- -----------
Gross margin 61,719 (62,547) 129,022 (76,587)
Operating costs and expenses
Research and development 3,673,318 2,828,651 7,323,534 5,287,303
Selling, general and administrative 1,239,541 696,824 2,431,861 1,128,393
----------- ----------- ----------- -----------
Total operating costs and expenses 4,912,859 3,525,475 9,755,395 6,415,696
Loss from operations (4,851,140) (3,588,022) (9,626,373) (6,492,283)
Interest income 152,569 362,085 359,609 600,402
----------- ----------- ----------- -----------
Net loss $(4,698,571) $(3,225,937) $(9,266,764) $(5,891,881)
=========== =========== =========== ===========
Net loss per share $ (0.55) $ (0.38) $ (1.09) $ (0.73)
=========== =========== =========== ===========
Shares used in computing net loss per share 8,495,503 8,465,573 8,466,979 8,052,827
</TABLE>
See accompanying notes to condensed financial statements
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ENDOVASCULAR TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,266,764) $ (5,891,881)
------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 271,810 145,196
Amortization of deferred compensation 13,654 13,654
Changes in current assets and liabilities -
Accounts receivable (322,533) (242,500)
Interest receivable 58,412 (164,052)
Inventory (357,740) --
Prepaids and other (266,908) (95,165)
Note receivable from employees (350,000) --
Other assets -- (20,205)
Accounts payable (349,301) 242,393
Accrued and other liabilities 1,189,061 346,816
------------ ------------
Total adjustments (113,545) 226,137
------------ ------------
Net cash used in operating activities (9,380,309) (5,665,744)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale (4,471,161) (27,886,447)
Sale/maturity of securities available-for-sale 12,751,459 13,711,145
Purchases of property and equipment (980,306) (959,161)
------------ ------------
Net cash provided by (used in) investing activities 7,299,992 (15,134,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations -- (15,131)
Proceeds from exercise of stock options 194,451 56,206
Proceeds from employee stock purchase plan 222,783 --
Stock option vesting acceleration 178,179 --
Proceeds from sale of common stock -- 24,000,000
Stock issuance costs -- (2,405,312)
------------ ------------
Net cash provided by (used in) financing activities 595,413 21,635,763
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,484,904) 835,556
CASH AND CASH EQUIVALENTS, beginning of period 2,530,792 2,203,937
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,045,888 $ 3,039,493
============ ============
</TABLE>
See accompanying notes to condensed financial statements
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ENDOVASCULAR TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The accompanying unaudited condensed financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. 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. Operating results for the three and six
month periods ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. The
condensed financial statements should be read in conjunction with the
Company's annual audited financial statements included in the Company's
Form 10K for the year ended December 31, 1996.
Revenue Recognition
Revenue from product sales is related to the sale of the Company's EGS
systems consisting of an endovascular prosthesis and delivery catheter. As
the Company's products are in clinical trials, the Company recognizes
revenue once the EGS system has been used in a surgical procedure with the
exception of ancillary devices sold to its international distributors, for
which revenue is recognized upon shipment. Costs of goods sold include
costs attributable to the manufacture of the products.
Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares from stock options are
excluded from the computation as their effect is anti-dilutive, except
that, pursuant to the Commission's Staff Accounting Bulletins, common and
common equivalents (stock options and preferred stock) issued during the
12-month period prior to the initial public offering of the Company's
common stock at prices below the initial public offering price of $12.00
per share have been included in the calculation as if they were outstanding
for all periods prior to the initial public offering (using the treasury
stock method).
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share, which simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion ("APBO") No. 15.
SFAS No. 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share, which excludes dilution. SFAS No.
128 also requires dual presentation of basic and diluted earnings per share
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation. Diluted earnings per share is
computed similarly to fully diluted earnings per share pursuant to APBO No.
15. SFAS No. 128 must be adopted for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires restatement of all
prior-period earnings per share data presented. For the three and six
months ended June 30, 1997, basic and diluted loss per share would be
equivalent to the loss per share presented in the accompanying condensed
statement of operations.
2. CREDIT AGREEMENT
In February 1997, the Company entered into a $30 million credit agreement.
Borrowings under the agreement bear interest at 16.5% to 19%. Interest
accruing during the first thirty months in which loans are outstanding is
payable in full thirty months after the date the first loan is made.
Interest accruing thereafter is due quarterly. Principal payments are due
in full on March 31, 2002. Balances owed under the agreement may be prepaid
subject to a prepayment fee, which is initially set at 5% of the prepayment
amount and is reduced on each anniversary date of the agreement by 1%.
Further, all principal outstanding will be due upon the occurrence of
certain asset sales and issuances of equity securities, and will be due at
the lender's discretion upon a change in control of the Company. Among
other requirements, the agreement prohibits the Company from paying
dividends and incurring additional indebtedness.
There are no balances outstanding under this agreement.
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3. RISK FACTORS
Early Stage of Clinical Trials; No Assurance of Safety and Efficacy
The Company's EGS systems for endovascular abdominal aortic aneurysm (AAA)
repair are at an early stage of clinical testing. There can be no assurance
that the Company's products will prove to be safe and effective in clinical
trials or will ultimately be cleared for marketing by United States or
foreign regulatory authorities. The Company does not expect to submit a PMA
for any of its EGS systems until 1998, and there can be no assurance that
the Company will ever submit a PMA or that, if submitted, such PMA will be
approved by the FDA. If the Tube, Bifurcated or Aortoiliac EGS systems do
not prove to be safe and effective in clinical trials or if the Company is
otherwise unable to commercialize either system successfully, the Company's
business, financial condition and results of operations will be materially
adversely effected and cessation of the Company's business could occur.
During the course of its clinical trials, the Company identifies technical
difficulties and areas of improvement for its products. The clinical trials
may identify significant technical or other obstacles to be overcome prior
to obtaining necessary regulatory or reimbursement approvals. For example,
the Company continues to observe blood flow outside the implant ("Perigraft
Flow") in patients treated with the Tube and Bifurcated EGS systems. The
clinical significance of Perigraft Flow is unknown. There can be no
assurance that Perigraft Flow or other difficulties will not have a
material adverse effect on the safety and efficacy of the Company's EGS
systems or any follow-on devices and thereby prevent the Company from
obtaining PMA approval from the FDA.
Attachment System Fractures; Suspension of Clinical Trials January 1995
In January 1995, the Company discovered fractures in the attachment system
component of the Tube EndoGraft prosthesis during routine follow-up tests.
Based on this discovery, the Company suspended its clinical trials
worldwide. As of August 6, 1997 a total of 46 patients, representing
approximately 51% of 91 patients, implanted prior to February 1995, with
the Tube EndoGraft prosthesis in place for more than six weeks, have
experienced attachment system fractures. In eight patients with fractures,
the Tube EndoGraft prosthesis was removed and the AAA was treated by open
surgery. Three patients with fractures have died for reasons unrelated to
the attachment system fractures. The remaining patients are closely
monitored by their physicians and the Company for fractures or the onset of
adverse clinical consequences. The Company expects additional fractures to
occur in these attachment systems. There can be no assurance that
additional adverse clinical consequences will not occur in the future,
which could result in the suspension of clinical trials or otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations.
Following suspension of clinical trials in January 1995, the Company
determined that the fractures were caused by metal fatigue resulting from
higher than anticipated forces acting on the attachment systems. As a
result, the Company has implemented a number of significant modifications
to the attachment systems and subjected the redesigned attachment systems
to accelerated fatigue testing. There can be no assurance, however, that
the accelerated fatigue testing accurately simulates the actual forces
present in the human body. In addition, there can be no assurance that
fractures will not occur in the redesigned attachment systems, which may
not be apparent for a substantial period of time, or that the Company will
not experience additional problems with the redesigned attachment systems.
Any future attachment system fractures that might occur could result in
another suspension or termination of clinical trials, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Limited Operating History; History of Losses; Substantial Additional
Losses; Fluctuations in Operating Results
The Company has a limited history of operations. Since its inception in
June 1989, the Company has been primarily engaged in research and
development of the EGS systems. The Company has experienced significant
operating losses since inception, and as of June 30, 1997, the Company's
accumulated deficit was approximately $46.8 million. The Company will incur
substantial additional losses until it can achieve significant commercial
sales of its EGS systems which are dependent on a number of factors,
including receipt of marketing approval. There can be no assurance that the
EGS systems or any other products of the Company will be approved, can be
successfully commercialized or that the Company will achieve significant
revenues from either international or domestic sales of such products. In
addition, there can be no assurance that the Company will achieve or
sustain profitability in the future. Failure to achieve significant
revenues or profitability would have a material adverse effect on the
Company's business, financial condition and results of operations.
Moreover, results of operations have varied and are expected to fluctuate
significantly from quarter to quarter depending upon numerous factors,
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including the results of clinical trials, the introduction and market
acceptance of products by the Company or competitors, international sales,
the results of regulatory and reimbursement actions, the timing of orders
by distributors, the expenditures incurred in the research and development
of new products, competitive pricing and the expansion of manufacturing
capacity. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Government Regulation; Significant Time Before Submission of any PMA
The Company's EGS systems are subject to extensive regulation by the FDA
and most foreign governments. The Company does not anticipate filing a PMA
for any of the EGS systems until 1998 and does not anticipate receiving
approval for at least one or two years after a PMA is accepted for filing,
if at all. There can be no assurance as to when, or if, the Company will
complete clinical trials of any of its EGS systems or that data from such
trials, if completed, will be adequate to support approval of a PMA. See
"-Early Stage of Clinical Trials; No Assurance of Safety and Efficacy" and
"-Attachment System Fractures; Suspension of Clinical Trials." Furthermore,
there can be no assurance that the Company will be able to obtain PMA
approval on a timely basis, or at all, and delays in the receipt of or
failure to receive such approvals would have a material adverse effect on
the Company's business, financial condition and results of operations and
could result in cessation of the Company's business.
Sales of EGS systems outside of the United States are subject to regulatory
requirements that vary widely from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than
that required for FDA approval, and the requirements may differ. In
addition, there may be foreign regulatory barriers other than premarket
approval, and the FDA must approve exports of devices that require a PMA
but are not yet approved domestically. Countries in which the Company
currently markets or intends to market EGS systems may adopt regulations in
the future that could prevent the Company from marketing its EGS systems in
those countries. In addition, the Company may be required to spend
significant amounts of capital in order to respond to requests for
additional information by the FDA or foreign regulatory bodies or may
otherwise be required to spend significant amounts of capital in order to
obtain FDA and foreign regulatory approvals. Any such events could
substantially delay or preclude the Company from marketing its EGS systems
in the United States or foreign countries.
Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation
by the FDA and certain state agencies. Foreign and domestic regulatory
approvals, if granted, may include significant limitations on the indicated
uses for which the product may be marketed. In addition, the FDA and
certain foreign regulatory authorities impose numerous other requirements
with which medical device manufacturers must comply. Product approvals
could be withdrawn for failure to comply with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company
is also be required to adhere to applicable FDA regulations setting forth
current Quality Systems Regulations ("QSR") requirements, which include
testing, control and documentation requirements. Ongoing compliance with
QSR and other applicable regulatory requirements are monitored through
periodic inspections by state and federal agencies, including the FDA, and
by comparable agencies in other countries. Changes in existing regulations
or adoption of new regulations or policies could prevent the Company from
obtaining, or affect the timing of, future regulatory approvals or
clearances.
Substantial Dependence on Limited Product Line
The Company anticipates that for the foreseeable future it will be
substantially dependent on the successful development and commercialization
of endovascular products for AAA repair. Failure of the Company to
successfully develop and commercialize these products would have a material
adverse effect on the Company's business, financial condition and results
of operations.
No Assurance of Market Acceptance
There can be no assurance that the Tube, Bifurcated or Aortoiliac EGS
systems will gain any significant degree of market acceptance among
physicians, patients or health care payors, even if necessary regulatory
and reimbursement approvals are obtained. The Company believes that
recommendations by physicians and health care payors will be essential for
market acceptance of the EGS systems, and there can be no assurance that
any such recommendations will be obtained. Physicians will not recommend
the Tube, Bifurcated
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or Aortoiliac EGS systems unless they conclude, based on clinical data and
other factors, that the EGS systems represent an acceptable alternative to
open AAA surgical repair. In particular, physicians may elect not to
recommend the Tube, Bifurcated or Aortoiliac EGS procedure until such time,
if ever, as successful resolution of the attachment fractures is
established and the clinical significance of unresolved Perigraft Flow is
better understood. Widespread use of the Company's EGS systems would
require the training of numerous physicians, and the time required to
complete such training could result in a delay or dampening of market
acceptance. Even if the safety and efficacy of the Company's EGS systems is
established, physicians may elect not to use them for a number of reasons
including unfavorable reimbursement from health care payors. Failure of the
Company's products to achieve any significant market acceptance would have
a material adverse effect on the Company's business, financial condition
and results of operations.
Risk of Need for Substantial Additional Capital
The Company's development efforts have consumed substantial capital to
date. The Company's future liquidity and capital requirements will depend
upon numerous factors, including: the progress of clinical trials; the
timing and costs of filing future IDEs, PMAs and PMA supplements; the
timing and costs required to receive both domestic and international
governmental approvals; the extent to which the Company's products gain
market acceptance; the timing and costs of product introductions; the
extent of the Company's ongoing research and development programs; and the
costs of developing marketing and distribution capabilities, if regulatory
approvals are received. In February 1997, the Company entered into a credit
agreement pursuant to which the Company may borrow up to $30,000,000 (the
"Funds"), subject to the terms and conditions of the credit agreement. The
Company believes that the amount of Funds available thereunder, together
with existing cash, cash equivalents and short-term investments will allow
the Company to meet capital requirements for at least the next 12 months.
However, the credit agreement requires the Company to satisfy certain
conditions, the failure of which would prevent the Company from drawing the
Funds. Furthermore, any default by the Company under the credit agreement
would result in the acceleration of the Company's obligation to repay any
drawn Funds. In the event that the Company is unable to borrow Funds under
the credit agreement or repay Funds previously borrowed on an accelerated
basis, the Company's business, financial condition and results of
operations could be materially adversely affected. Furthermore, the Company
may be required to seek additional debt or equity financing. Issuance of
additional equity securities could result in substantial dilution to
stockholders. There can be no assurance that such financing will be
available on terms acceptable to the Company, or at all. The Company's
inability to fund its capital requirements would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Uncertainty Regarding Patents and Protection of Proprietary Technology
The Company holds a number of issued United States and foreign patents and
has filed a number of United States and counterpart patent applications in
other countries. There can be no assurance that the Company's United States
and foreign issued patents or pending applications will offer any
protection or that they will not be challenged, invalidated or
circumvented. In addition, there can be no assurance that competitors will
not obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or in
international markets
The Company typically enters into confidentiality and assignment agreements
in connection with employment, consulting or advisory relationships. There
can be no assurance, however, that these agreements will not be breached or
that the Company will have adequate remedies for any breach. Furthermore,
no assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained
in secrecy for a period after filing. In addition, patents issued and
patent applications filed relating to medical devices are voluminous.
Accordingly, there can be no assurance that current and potential
competitors or other third parties have not or will not file applications
for, or have not or will not receive, patents and will not obtain
additional proprietary rights relating to materials or processes used or
proposed to be used by the Company.
The Company has received letters from two medical device companies, Cook,
Inc. ("Cook") and InnerDyne Medical, Inc. ("InnerDyne"). The Cook letter,
dated July 9, 1993, suggested potential infringement of a Cook-owned patent
by future commercial sale of the Company's attachment system component of
the EndoGraft prosthesis. The Company has reviewed the Cook matter and the
Company believes that no such infringement exists.
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The InnerDyne letter, dated November 2, 1994, proposed that the Company
discuss licensing an InnerDyne-owned patent that InnerDyne believed to be
pertinent to the Company's EVT Expandable Sheath. The Company has reviewed
the InnerDyne matter and the Company believes that it is not necessary to
enter into a licensing arrangement with InnerDyne. There can be no
assurance, however, that the Company's products do not infringe upon the
patent rights or other intellectual property rights of Cook, InnerDyne or
other companies, that the Company will not be required to seek licenses
from these or other companies or that these or other companies will not
bring claims of infringement against the Company. Although patent and
intellectual property disputes in the medical device industry have
sometimes been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and could include
ongoing royalties. There can be no assurance that necessary licenses would
be available to the Company on satisfactory terms or at all. Furthermore,
any litigation or administrative proceeding could result in substantial
costs to the Company and distraction of the Company's management, even if
the Company ultimately prevails in such litigation. An adverse ruling in
any litigation or administrative proceeding could have a material adverse
effect on the Company's business, financial condition and results of
operations.
If any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject
matter claimed in such patents, or would be required to obtain licenses or
to redesign its products or processes to avoid infringement. There can be
no assurance that such licenses would be available at all or on terms
acceptable to the Company or that the Company could redesign its products
or processes to avoid infringement. Litigation may be necessary to defend
against claims of infringement, to enforce patents issued to the Company or
to protect trade secrets and could result in substantial cost to, and
diversion of effort by, the Company.
Volatility of Stock Price
The market price for the Company's Common Stock has been subject to
significant fluctuations and may be volatile in the future. The Company
believes that factors such as announcements of developments related to the
Company's business, announcements of clinical results, regulatory
approvals, technological innovations or new products or enhancements by the
Company or its competitors, developments in the Company's relationships
with its customers, partners, distributors, and suppliers, changes in
analysts' estimates, regulatory developments, political and economic
instability, fluctuations in results of operations and general conditions
in the Company's market or the markets served by the Company's customers or
the economy could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially. The Company may be particularly
vulnerable to fluctuations in the market price of its Common Stock given
the substantial amount of time before it may achieve significant revenues
from commercial sales of its products. In addition, in recent years the
stock market in general, and the market for shares of small capitalization
health care stocks in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance
of affected companies. Such fluctuations could adversely affect the market
price of the Company's Common Stock. There can be no assurance that the
market price of the Company's Common Stock will not continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's performance. Further, it is likely that in some
future quarter the Company's net sales or operating results will be below
the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would likely be materially
adversely affected.
Risks Associated with International Sales
International sales are expected to account for a substantial portion of
the Company's revenues in the foreseeable future. A number of risks are
inherent in international transactions. International sales may be limited
or disrupted by the imposition of government controls, export license
requirements, economic or political instability, trade restrictions,
changes in tariffs or difficulties in staffing and management.
Additionally, although the Company's sales are denominated in U.S. dollars,
the Company's business, financial condition and results of operations may
be adversely affected by fluctuations in currency exchange rates as well as
increases in duty rates and difficulties in obtaining export licenses. The
financial condition, expertise and performance of the Company's
international distributors and any future international distributors could
affect sales of the Company's products internationally and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Key Suppliers; Limited Manufacturing Experience
The Company uses or relies on sole source suppliers for certain components
and services used to manufacture its EGS systems. The Company utilizes
materials supplied by third parties, including raw material manufactured by
Dow Chemical Co. ("Dow Chemical") and DuPont, in its products. In recent
years, in the wake of litigation
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surrounding silicone breast implants, both Dow Chemical and DuPont have
ceased supplying chemical raw materials for use in implantable medical
devices, including DuPont raw material used to produce the graft material
utilized in the Company's EndoGraft prostheses. There can be no assurance
that use of such graft material by the Company will not be restricted or
that the Company will be able to obtain additional quantities of such graft
material in the future. Moreover, the continued use by the Company of graft
material based on chemical raw materials manufactured by third parties
could subject the Company to liability exposure. The Company believes that
the cessation of the supply of components and materials for implantable
medical devices may be addressed through legislative action. There can be
no assurance that such legislative action will occur on a timely basis, if
at all. The establishment of additional or replacement suppliers for
certain of these components of raw materials cannot be accomplished
quickly, particularly because of the time and effort required to obtain FDA
approval to use materials from alternative suppliers. Although the Company
routinely attempts to identify primary and alternative vendors, the
qualification of additional or replacement vendors for certain components
or services is a lengthy process. Any significant supply interruption would
have a material adverse effect on the Company's ability to manufacture its
products and, therefore, a material adverse effect on its business,
financial condition and results of operations.
The Company manufactures its products at its Menlo Park, California
facility. To date, the Company's manufacturing activities have consisted
primarily of producing limited quantities of products for use in clinical
trials and controlled market release. The manufacture of the Company's
products is a complex and costly operation involving a number of separate
processes and components. Certain manufacturing processes of the EGS
systems are labor intensive and achieving significant cost reductions will
depend in part upon reducing the time required to complete these processes.
There can be no assurance that the Company will be able to achieve cost
reductions in the manufacture of its products. The Company does not have
experience in manufacturing its products in the commercial quantities that
might be required if the Company receives PMA approval. Manufacturers often
encounter difficulties in scaling up manufacturing of new products,
including problems involving product yields, quality control and assurance,
component and service availability, adequacy of control policies and
procedures and lack of qualified personnel. The Company has and will
continue to consider as appropriate the internal manufacture of components
currently provided by third parties, as well as the implementation of new
production processes. There can be no assurance that manufacturing yields
or costs will not be adversely affected by the transition to in-house
production or to new production processes when and if such efforts are
undertaken, and thereby materially and adversely affect the Company's
business, financial condition and results of operations.
Limitations on Third-Party Reimbursement
In the United States, the Company's products will be purchased primarily by
medical institutions which then bill various third-party payors, such as
Medicare, Medicaid and other government programs and private insurance
plans, for the health care services provided to their patients. Medicare
traditionally has considered items or services involving devices that have
not been approved or cleared for marketing by the FDA to be precluded from
Medicare coverage. There can be no assurance, however, that any of the EGS
systems and related services will be covered when they are used in clinical
trials and, if covered, whether the payment amounts for their use will be
considered to be adequate by hospitals and physicians. If the devices are
not covered or the payments are considered to be inadequate, the Company
may need to bear additional costs to sponsor such trials, and such costs
could have a material adverse effect on the Company's business, financial
condition and results of operations. Even if a device has received approval
or clearance for marketing by the FDA, there can be no assurance that
Medicare will cover the device and related services. Furthermore, Medicare
may place certain restrictions on the circumstances in which coverage will
be available. Limited or no coverage of the Company's products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Acute care hospitals are now generally reimbursed by Medicare for inpatient
operating costs under a prospective payment system ("PPS"). Under PPS,
acute care hospitals receive a prospectively determined payment amount for
each covered inpatient based upon the Diagnosis-Related Group ("DRG") to
which the patient is assigned, regardless of the actual cost of the
services provided. The Health Care Financing Administration ("HCFA") has
not made any decision concerning which DRG will be generally assigned to
patients who undergo AAA diagnosis and endovascular repair procedures in
which the Company's products are used, and there can be no assurance that
the DRG to which such patients will be assigned will result in Medicare
payment levels that are considered by hospitals to be adequate. Because the
DRG system is also used by other government and private payors, HCFA's
decision concerning the DRG assignment for these patients also may affect
the amount of payment made by other payors.
Physician services are reimbursed by Medicare based on a physician fee
schedule which has not been determined for AAA diagnosis and endovascular
repair procedures in which the Company's products are used. There can be no
Page 11
<PAGE> 12
assurance that the physicians fee schedule for endovascular AAA procedures
using the Company's products will result in Medicare payment levels that
physicians consider to be adequate. In addition, Medicare payment levels
are used by many other third-party payors in addition to Medicare. Failure
by hospitals and physicians to receive what they consider to be adequate
reimbursement for AAA diagnosis and repair procedures in which the
Company's products are used would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-Government Regulation."
Competition
The Company expects that significant competition in the endovascular
grafting market will develop. There are many large companies, with
significantly greater financial, manufacturing, marketing, distribution and
technical resources and experience than the Company, focusing on the
development of endovascular technology. Many of these companies have
vascular stents, as well as vascular graft and catheter technologies that
may be applicable to endovascular repair. The Company may compete against a
number of these companies including: Boston Scientific Corporation;
Medtronic Corporation; Pfizer Corporation; Johnson & Johnson; C.R. Bard,
Inc.; and United States Surgical Corporation. Several of these companies
have designed and developed products that compete directly with the
Company's products. There can be no assurance that one or more of these or
other companies will not develop technologies that are more effective or
less costly than the Company's products, or that would otherwise render the
Company's products and technology non-competitive or obsolete. Such
competition could have a material, adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company's products could be rendered obsolete as a result of future
innovations in AAA surgical techniques, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Any product developed by the Company that gains regulatory approval will
have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speeds with which the Company can
develop products, complete clinical testing and regulatory approval
processes, gain reimbursement acceptance and supply commercial quantities
of the product to the market are expected to be important competitive
factors. In addition, the Company believes that the primary competitive
factors in the market for endovascular grafting products are safety,
long-term efficacy, ease of delivery, reliability, innovation and price.
The Company also believes that physician relationships and customer support
are important competitive factors. There can be no assurance that the
Company's competitive position will be maintained or that the Company will
be first to market endovascular products for the treatment of AAA's in the
United States.
Risk of Technological Obsolescence
The medical device industry is characterized by rapid and significant
technological change. There can be no assurance that third parties will not
succeed in developing or marketing technologies and products that are more
effective than those developed or marketed by the Company or that would
render the Company's technology and products obsolete or noncompetitive.
Additionally, new less invasive surgical procedures and medications could
be developed that replace or reduce the importance of current procedures
that use the Company's products. Accordingly, the Company's success will
depend in part on its ability to respond quickly to medical and
technological changes through the development and introduction of new
products. Product development involves a high degree of risk and there can
be no assurance that the Company's new product development efforts will
result in any commercially successful products.
Risk of Federal Reform of Health Care
There are widespread efforts to control health care costs in the United
States on the federal, state and local levels. For example, the U.S.
Congress is currently considering various legislative proposals to reform
the Medicare and Medicaid programs. Current proposals call for reductions
in the annual updates for hospital PPS rates and physician reimbursement
rates, reductions in the amount of added payments made to teaching
hospitals and hospitals that serve a disproportionate share of low-income
persons, increased incentives and opportunities for Medicare beneficiaries
to obtain their benefits through managed care plans, and the establishment
of a "block grant" program that would give states greater discretion in
designing and administering state Medicaid programs. If enacted into law,
any of these proposals could affect the amount of Medicare and Medicaid
payment that is made to hospitals and physicians and, in turn, demand for
the Company's products. Lower demand for the Company's products resulting
from federal healthcare reform could have a material adverse effect on the
Company's business, financial condition and results of operations.
Page 12
<PAGE> 13
Lack of Sales and Marketing Experience; Dependence on International
Distributors
The Company currently has a small sales and marketing function and has no
experience in marketing and selling its EGS systems. There can be no
assurance that the Company will be able to recruit and train adequate sales
and marketing personnel. The Company plans to rely on distributors for
substantially all of its international sales. Any foreign sales by the
Company may be subject to certain risks, including exchange rate
fluctuations, international monetary conditions, tariffs, import licenses,
trade policies, domestic and foreign tax policies and foreign medical
regulations. The loss of major international distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Product Liability and Availability of Insurance
The clinical use and sale of the Company's products involve significant
risk of product liability claims. There can be no assurance that the
coverage limits of the Company's insurance policies will be adequate.
Product liability insurance is expensive and in the future may not be
available to the Company on acceptable terms or at all. While there have
been no product liability claims to date, there can be no assurance that a
product liability claim will not be brought against the Company either for
injuries occurring in the past or in the future, including, but not limited
to, injuries due to fractures in the attachment system of the Tube
EndoGraft prosthesis. A successful claim brought against the Company in
excess of its insurance coverage could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"-Attachment System Fractures: Suspension of Clinical Trials in 1995."
Dependence on Key Personnel
The Company's future business and operating results depend in significant
part upon the continued contributions of its key technical personnel and
senior management, many of whom would be difficult to replace. None of such
persons is subject to a noncompete agreement. The Company's business and
future operating results also depend in significant part upon its ability
to attract and retain qualified management, manufacturing, technical,
marketing and sales and support personnel for its operations. Competition
for such personnel is intense, and there can be no assurance that the
Company will be successful in attracting or retaining such personnel. The
loss of key employees, the failure of any key employee to perform or the
Company's inability to attract and retain skilled employees, as needed,
could materially adversely affect the Company's business, financial
condition and results of operations.
Control by Officers, Directors and Principal Stockholders
The Company's officers, directors and principal stockholders beneficially
own a significant portion of the Company's Common Stock (assuming exercise
of immediately exercisable options held by such directors and officers). As
a result, such persons may have the ability effectively to control the
Company and direct its affairs and business. Such concentration of
ownership may also have the effect of delaying, deferring or preventing a
change in control of the Company.
Anti-takeover Effects of Certain Charter Provisions, Delaware Law and
Rights Plan
Under the Company's Certificate of Incorporation, the Board of Directors
has the power to authorize the issuance of up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without further
vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, may
have the effect of delaying, deferring or preventing a change in control of
the Company, may discourage bids for the Common Stock at a premium over the
market price of the Common Stock and may adversely affect the market price
of and the voting or other rights of the holders of the Common Stock. The
Company has no present plans to issue shares of Preferred Stock. In
addition, the Company's Certificate of Incorporation provides for a
classified Board of Directors such that approximately only one-third of the
members of the Board are elected at each annual meeting of stockholders.
Classified Boards may have the effect of delaying, deferring or
discouraging changes in control of the Company. Further, certain provisions
of the Company's Bylaws and of Delaware law could discourage, delay or
prevent a merger, tender offer or proxy contest involving the Company.
Furthermore, the Company has adopted a stockholder rights plan that, in
conjunction with certain provisions of the Company's charter documents and
Delaware law, could delay or make more difficult a merger, tender offer, or
proxy contest involving the Company.
Page 13
<PAGE> 14
Absence of Dividends
The Company has never paid cash dividends and does not anticipate paying
cash dividends on the Common Stock in the foreseeable future. In addition,
the Company entered into a credit agreement in February 1997, pursuant to
which the Company the Company has agreed not to make or declare any
dividends on the Common Stock for so long as it is indebted under such
credit agreement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Page 14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report on Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors".
OVERVIEW
Since its inception in June 1989, the Company has been engaged in the research
and development of its EGS systems and related technology for the endovascular
repair of abdominal aortic aneurysms. To date, the Company has generated limited
revenues and has been unprofitable since inception. The Company does not expect
to begin generating significant revenues from sales of its products until it
receives U.S. marketing approval and market launch, and will continue to incur
substantial losses for the next several years. Furthermore, the Company expects
its expenses in all categories to increase as its clinical trials and other
business activities expand.
The research, manufacture, sale and distribution of medical devices such as the
Company's EGS systems are subject to numerous regulations imposed by
governmental authorities, principally the FDA and corresponding state and
foreign agencies. The regulatory process is lengthy, expensive and uncertain.
FDA approval of a PMA application is required before any EGS system can be
marketed in the United States. Securing FDA approvals and clearances will
require submission to the FDA of extensive clinical data and technical
information. Many foreign governments and the European Union also have a review
process for medical devices.
The Company commenced U.S. clinical trials of its original Tube EGS system in
February 1993 and its Bifurcated EGS system in September 1994. Following
suspension of all clinical trials in January 1995 due to attachment system
fractures, and after receiving FDA clearance to reinitiate clinical trials, the
Company re-initiated Phase II clinical trials of the Tube EGS system in November
1995 and reached its Phase II target enrollment in January 1997. The Company
re-initiated Phase I clinical trials of the Bifurcated EGS system in December
1995. In June 1996, the Phase I clinical trial of the Bifurcated EGS system was
completed, and the Phase II clinical trial of that device was initiated in
August 1997 and reached its Phase II target enrollment in April 1997. Patient
enrollment in each of these Phase II trials is continuing. Additional clinical
testing of the Tube and Bifurcated EGS systems is required and the Company does
not believe it will be able to complete clinical trials of, obtain regulatory
approval for, and begin commercial sales of its EGS systems in the United States
before mid-1999, if ever.
In October 1996, the Company received approval from the FDA to begin Phase II
clinical trials of the Aortoiliac EGS system, bypassing the Phase I trial. The
Aortoiliac EGS system utilizes an endovascular prosthesis that is a hybrid
between the Company's Tube EndoGraft and Bifurcated EndoGraft. The device is
designed to address aneurysms in which one iliac artery is unsuitable for
endovascular attachment of an implant.
In June 1995, the Company became ISO 9001/EN 46001 certified and in May 1997
received CE Mark approval from an independent Dutch Notified Body for Medical
Devices to market its products throughout the European Community. The Company
anticipates that a substantial portion of its revenues from product sales over
the next several years will be derived from international sales through its
distributor network. Any such international sales will be subject to a number of
risks, including exchange rate fluctuations, international monetary conditions,
tariffs, import licenses, trade policies, domestic and foreign tax policies and
foreign medical regulations.
There can be no assurance that the Company's research and development efforts
will be successfully completed. Given that the Company is in clinical testing,
there can be no assurance that the Company's EGS systems will be shown to be
safe and effective. Accordingly, the Company is unable to predict the likelihood
that its products will be approved for marketing by the FDA or any other foreign
government agency, and there can be no assurance that the Company will ever
achieve either significant revenues from sales of its EGS systems or profitable
operations.
Results of operations will fluctuate significantly from quarter to quarter and
will depend upon, among other factors: actions relating to foreign and domestic
regulatory and reimbursement matters; the extent to which the Company's products
gain market acceptance; the rate at which the Company establishes its
international distributor network; the progress of clinical trials; and
introduction of competing products or alternative treatments for AAA. See "Risk
Factors - Limited Operating History; History of Losses; Substantial Additional
Losses; Fluctuations in Operating Results."
Page 15
<PAGE> 16
RESULTS OF OPERATIONS
Three and Six Month Periods Ended June 30, 1997 and June 30, 1996
In 1996, the Company began recognizing revenue on sales of its products used in
clinical trials. During the three month period ended June 30, 1997, the Company
recognized approximately $844,000 in sales, 43% of which were international
sales. For the same period in 1996, the Company recognized $252,500 in sales,
35% of which were international sales.
During the six month period ended June 30, 1997, the Company recognized
approximately $1,687,000 in sales, 37% of which were international sales. For
the same period in 1996, the Company recognized $355,500 in sales, 26% of which
were international sales. The international sales price to European distributors
may to increase due to receipt of CE Mark approval. Currently prices range from
approximately 55% to 60% of the U.S. price. Revenue, in clinical trials, is
recognized only upon successful implantation of an EndoGraft prosthesis.
Gross margin for the three month period ended June 30, 1997 was approximately
$62,000, or 7% of product sales. Negative gross margin for the three month
period ended June 30, 1996 was approximately $63,000, or 25% of product sales.
Gross margin for the six month period ended June 30, 1997 was approximately
$129,000, or 7% of product sales. Negative gross margin for the six month period
ended June 30, 1996 was approximately $77,000, or 22% of product sales. A
positive gross margin was reported for the first six months of 1997 due to
higher sales volume. Higher volume allows fixed costs to be spread over a
greater number of units, thereby decreasing the cost per unit. The negative
gross margin reported in 1996 reflected the Company's early stage of
manufacturing.
Research and development expenses include research, development, clinical and
regulatory expenses and certain manufacturing expenses. Research and development
for the three month period ended June 30, 1997 increased to approximately
$3,673,000 from approximately $2,829,000 for the comparable three month period
in 1996. The increase in spending was due primarily to higher clinical trial
costs, which is directly related to the increased sales volume in the U.S. The
balance of the increased spending is due primarily to personnel costs associated
with headcount increases. These same factors primarily account for the increase
in the six month period ended June 30, 1997 to approximately $7,324,000 from
approximately $5,287,000 in the comparable six month period in 1996. The Company
believes that research and development expenses will continue to increase in the
future due to clinical trial expenses and continuing research spending and
regulatory requirements.
Selling, general and administrative expenses increased to approximately
$1,240,000 during the three month period ended June 30, 1997 from approximately
$697,000 for the comparable three month period in 1996. The 1997 period includes
the costs associated with the Company's European operations. Increases in
personnel account for the balance of the increased spending. For the six month
period ended June 30, 1997, selling, general and administrative expenses
increased to approximately $2,432,000 from approximately $1,128,000. The
increase in spending was due primarily to the establishment of a sales and
marketing function during the second quarter of 1996 and includes the costs
associated with the Company's European operations. Increases in personnel
account for the balance of the increased spending. The Company anticipates
continued increases in administrative expenses due to the increased level of
business activities.
The net loss of approximately $4,699,000 for the three months ended June 30,
1997 was greater than the net loss of approximately $3,226,000 for the
comparable period in 1996 due primarily to the increase in research and
development spending, principally related to clinical trial costs, as well as
the establishment of a marketing organization in Europe. Similarly, for the six
months ended June 30, 1997, the net loss of approximately $9,267,000 has
increased from approximately $5,892,000 reported for the six month period ended
June 30, 1996, primarily due to increases in research and development,
principally related to clinical trial costs, as well as European marketing.
The Company has not incurred any income tax expense since inception due to its
history of operating losses.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company completed an initial public offering of two
million shares of Common Stock with net proceeds to the Company of approximately
$21.6 million after deducting the underwriters discount, commissions and
offering expenses. Cash, cash equivalents and available-for-sale securities were
approximately $8.1 million at June 30, 1997.
Cash used in operating activities for the six months ended June 30, 1997
increased to approximately $9,380,000 from approximately $5,666,000 for the
comparable period in 1996, related to increased spending for research and
development expenditures, primarily clinical trials costs, and the establishment
of a marketing organization in Europe.
Page 16
<PAGE> 17
Cash used for purchases of property and equipment in the six month period ended
June 30, 1997 was approximately $980,000, as compared to approximately $959,000
for the same period in 1996. The 1996 period includes costs associated with a
facilities expansion and the 1997 period includes development payments on a
software diagnostic project that is targeted to provide 3-D modeling of patient
anatomy to assist in selection, delivery and implantation of the Company's
products.
In February 1997, the Company secured a credit facility of $30 million (the
"Funds"). However, the credit agreement requires the Company to satisfy certain
conditions, the failure of which would prevent the Company from drawing the
Funds. Furthermore, any default by the Company under the credit agreement would
result in the acceleration of the Company's obligation to repay any drawn Funds.
In the event that the Company is unable to borrow Funds or repay Funds
previously borrowed on an accelerated basis, the Company's business, financial
condition and results of operations could be materially adversely affected.
Pursuant to the credit agreement the Company has agreed not to make or declare
any dividends on the Common Stock for so long as it is indebted under such
agreement.
The Company expects to continue to incur substantial expenses in support of
additional research and development activities, including costs of clinical
studies, manufacturing, the establishment of a sales and marketing organization
and ongoing administrative activities. The Company anticipates that pre-existing
cash and cash equivalents and available-for-sale securities and capital
available under its credit facility will be sufficient to fund its operations
and planned new product development, including increased working capital
expenditures, through the next 12 months.
The Company's cash requirements may vary materially from those now planned
because of results of research, development, and clinical testing, the
development of regulatory submissions and the FDA regulatory process, the
development of commercial-scale manufacturing capability, the development of
sales, distribution and marketing capabilities, and other factors. The Company
may be required to seek additional funds through debt or equity financing.
Issuance of additional equity securities could result in substantial dilution to
stockholders. There can be no assurance that such financing will be available on
terms acceptable to the Company, or at all. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may also
enter into collaborative arrangements with corporate partners that could provide
the Company with additional funding.
Page 17
<PAGE> 18
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
See Exhibits incorporated by reference on Page 20
See Exhibit 11.1 on Page 21
b) Reports on form 8-K
There were no reports filed of Form 8-K during the quarterly period
ended June 30, 1997.
Page 18
<PAGE> 19
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.
ENDOVASCULAR TECHNOLOGIES, INC.
(Registrant)
Date: August 7, 1997 /s/ W. James Fitzsimmons
--------------------- ----------------------------
W. James Fitzsimmons
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 7, 1997 /s/ G. Bradley Cole
--------------------- --------------------------
G. Bradley Cole
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 19
<PAGE> 20
ENDOVASCULAR TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
*3.1 Restated Certificate of Incorporation of the Company.
****3.2 Bylaws of the Company.
****4.1 Reference is made to Exhibits 3.1 and 3.2.
*4.2 Specimen Common Stock certificate.
*4.3 Fourth Amended and Restated Investor Rights Agreement, dated
August 15, 1994, among the Company and the investors and the
founders named therein.
****4.4 Credit Agreement between the Company and Guidant Corporation,
dated February 28, 1997.
*10.1 Form of Indemnification Agreement.
*10.2 1989 Stock Option Plan.
*10.3 1995 Stock Option Plan.
*10.4 Employee Stock Purchase Plan.
*10.5 1996 Incentive Compensation Plan.
*10.6 Employment agreement between the Company and W. James Fitzsimmons.
*10.7 Employment agreement between the Company and Victor M. Bernhard.
**10.8 Employment agreement between the Company and Ronald R. Giannotti.
***10.9 Employment agreement between the Company and Elizabeth A. McDermott.
**10.10 Lease by and between Menlo Business Park and Patrician
Associates, Inc. and the Company, as amended by First
Amendment to Lease Agreement, dated February 26, 1996.
****10.11 Rights Agreement between the Company and ChaseMellon
Shareholder Services dated February 5, 1997.
****10.12 Promissory Note Secured by Second Deed of Trust between the
Company and Ronald R. Giannotti dated February 9, 1997.
****10.13 Officer Severance Plan and Summary Plan Description effective
September 24, 1996.
****10.14 Multimedia Development Agreement between the Company and
Engineering Animation, Inc. dated March 19, 1997.
*****10.15 Promissory Note Secured by Second Deed of Trust between the
Company and Lori E. Adels dated April 11, 1997.
11.1 Computation of Net Loss Per Share. 21
27.1 Financial Data Schedule.
- ----------
* Incorporated by reference from an exhibit to the Company's Registration Statement on
Form S-1, as amended, (File No. 33-80557) declared effective by the Commission on
February 6, 1996.
** Incorporated by reference from an exhibit to the Company Annual Report on
Form 10-K filed with the Commission on March 29, 1996.
*** Incorporated by reference from an exhibit to the Company Report on Form
10-Q filed with the Commission on November 12, 1996.
**** Incorporated by reference from an exhibit to the Company Annual Report on
Form 10-K filed with the Commission on March 28, 1997.
***** Incorporated by reference from an exhibit to the Company Form 10-Q filed
with the Commission on May 15, 1997.
</TABLE>
Page 20
<PAGE> 1
EXHIBIT 11.1
ENDOVASCULAR TECHNOLOGIES, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Loss $ (4,699) $ (3,226) $ (9,267) $ (5,892)
=========== =========== =========== ===========
Weighted average common shares outstanding 8,496 8,299 8,467 7,886
Common shares and options granted (using the treasury
stock method assuming an initial public offering price
of $12.00) since December 15, 1994 included pursuant
to Securities and Exchange Commission Rules -- 167 -- 167
----------- ----------- ----------- -----------
Weighted average common and equivalent shares 8,496 8,466 8,467 8,053
=========== =========== =========== ===========
Net loss per common and equivalent share $ (0.55) $ (0.38) $ (1.09) $ (0.73)
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,045,888
<SECURITIES> 7,048,247
<RECEIVABLES> 912,473
<ALLOWANCES> 84,500
<INVENTORY> 357,740
<CURRENT-ASSETS> 10,446,011
<PP&E> 3,816,952
<DEPRECIATION> 1,201,377
<TOTAL-ASSETS> 13,134,447
<CURRENT-LIABILITIES> 3,117,467
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 10,016,895
<TOTAL-LIABILITY-AND-EQUITY> 13,134,447
<SALES> 1,687,305
<TOTAL-REVENUES> 1,687,305
<CGS> 1,558,283
<TOTAL-COSTS> 1,558,283
<OTHER-EXPENSES> 9,755,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,266,764)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,266,764)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> (1.09)
</TABLE>
