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.
|_| Transition period pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _____________ to ______________.
0-20727
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(Commission File Number)
Novoste Corporation
-------------------
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2787476
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350-C International Blvd., Norcross, GA 30093
- ---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (770) 717-0904
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
(Item 1) Yes |X| No |_|
(Item 2) Yes |X| No |_|
As of July 30, 1997, there were 8,491,000 shares of the Registrant's Common
Stock outstanding.
Exhibit Index on page: 16
Total number of pages: 18
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NOVOSTE CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 3
Condensed Statements of Operations (unaudited) for the three
and six months ended June 30, 1997 and 1996 and the period
from inception (May 22, 1992) through June 30, 1997 4
Condensed Statements of Cash Flows (unaudited) for the six
months ended June 30, 1997 and 1996 and the period
from inception (May 22, 1992) through June 30, 1997 5
Notes to Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
PART II. OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
EXHIBIT 11 - COMPUTATION OF NET LOSS PER SHARE 17
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 18
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NOVOSTE CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 16,430,314 $ 19,954,827
Short-term investments 5,552,358 7,588,693
Prepaid expenses 185,087 126,349
------------ ------------
Total current assets 22,167,759 27,669,869
Property and equipment, net 1,014,574 1,128,031
License agreements, net 146,578 153,396
Other assets 237,471 303,642
------------ ------------
$ 23,566,382 $ 29,254,938
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 23,855 $ 155,946
Accrued expenses and taxes withheld 700,019 665,175
------------ ------------
Total current liabilities 723,874 821,121
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
8,471,780 and 8,257,967 shares issued, respectively 84,718 82,580
Additional paid-in capital 42,235,072 41,772,791
Deficit accumulated during the development stage (19,453,442) (13,405,714)
------------ ------------
22,866,348 28,449,657
Less treasury stock, 5,780 and 5,280 shares of common stock, respectively,
at cost (23,840) (15,840)
------------ ------------
Total shareholders' equity 22,842,508 28,433,817
------------ ------------
$ 23,566,382 $ 29,254,938
============ ============
</TABLE>
See accompanying notes.
3
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NOVOSTE CORPORATION
(A Development Stage Company)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From inception
Three months ended Six months ended (May 22, 1992)
June 30, June 30, through June 30,
1997 1996 1997 1996 1997
------------------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
Miscellaneous revenues $ 29,313 $ -- $ 29,313 $ -- $ 320,200
Costs and expenses:
Research and development 3,157,439 761,218 5,481,277 1,645,280 14,368,309
General and administrative 443,023 518,035 960,121 695,000 5,047,662
Marketing 152,137 92,612 290,667 212,021 1,822,778
----------- ----------- ----------- ------------ ------------
3,752,599 1,371,865 6,732,065 2,552,301 21,238,749
----------- ----------- ----------- ------------ ------------
Loss from operations (3,723,286) (1,371,865) (6,702,752) (2,552,301) (20,918,549)
----------- ----------- ----------- ------------ ------------
Interest income 317,964 98,539 655,024 105,795 1,646,866
Interest expense -- -- -- (37,481) (181,759)
----------- ----------- ----------- ------------ ------------
Net loss ($3,405,322) ($1,273,326) ($6,047,728) ($ 2,483,987) ($19,453,442)
=========== =========== =========== ============ ============
Net loss per share ($ 0.40) ($ 0.22) ($ 0.72) ($ 0.49)
=========== =========== =========== ============
Weighted average shares outstanding 8,453,621 5,744,241 8,393,106 5,089,711
=========== =========== =========== ============
</TABLE>
See accompanying notes.
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NOVOSTE CORPORATION
(A Development Stage Company)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From inception
For the six months (May 22, 1992)
ended June 30, through June 30,
1997 1996 1997
------------ ------------ ----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($ 6,047,728) ($ 2,483,987) ($19,453,442)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 199,717 142,903 1,077,592
Issuance of stock for services or compensation 135,000 173,261 1,082,318
Changes in assets and liabilities:
Prepaid expenses (58,738) (259,943) (192,546)
Accounts payable (132,091) 63,130 23,855
Accrued expenses and taxes withheld 34,844 284,983 1,094,526
Other 130,719 -- (225,318)
------------ ------------ ------------
Net cash used by operations (5,738,277) (2,079,653) (16,593,015)
------------ ------------ ------------
Cash flows from investing activities
Maturity (Purchase) of short-term investments 2,036,335 (982,647) (5,552,358)
Purchase of property and equipment, net (53,365) (193,975) (1,805,791)
------------ ------------ ------------
Net cash provided by (used by) investing activities 1,982,970 (1,176,622) (7,358,149)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of notes payable -- 2,561,700 4,770,150
Repayment of notes payable -- (1,800,150) (2,970,150)
Proceeds from issuance of common stock 230,794 30,671,210 38,313,260
Exercise of warrants -- 208,218 268,218
------------ ------------ ------------
Net cash provided by financing activities 230,794 31,640,978 40,381,478
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (3,524,513) 28,384,703 16,430,314
Cash and cash equivalents at beginning of period 19,954,827 817,587 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 16,430,314 $ 29,202,290 $ 16,430,314
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid for interest -- $ 101,032 $ 165,137
============ ============ ============
</TABLE>
See accompanying notes.
5
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NOVOSTE CORPORATION
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
June 30, 1997
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with instructions to Article 10 of Regulation S-X.
Accordingly, such financial statements do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The operating results of the interim periods presented are not necessarily
indicative of the results to be achieved for the year ending December 31, 1997.
The accompanying financial statements should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996 and for the cumulative period from May 22, 1992 (inception) through
December 31, 1996, included in the Company's 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission ("SEC").
Certain prior year expense amounts have been reclassified in the Statements of
Operations for the three and six months ended June 30, 1996 and the period from
inception through June 30, 1997 to conform with current year classifications.
Note 2. Net Loss Per Share
The net loss per share is computed based on the weighted average number of
common shares outstanding after giving effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculations
where the effect of their inclusion would be antidilutive, except that, in
accordance with SEC requirements, common and common stock equivalent shares
issued during the twelve-month period prior to the initial filing of the public
offering on April 11, 1996 have been included in the calculations as if they
were outstanding through March 31, 1996 using the treasury stock method. See
Exhibit 11.
Historical net loss per share information presented in accordance with GAAP for
the periods affected by the above mentioned SEC requirement is as follows:
Six months ended
June 30,
1996
----
Net loss per share ($0.50)
======
Shares used in computing net loss per share 4,927,140
=========
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NOVOSTE CORPORATION
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
June 30, 1997
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted.
Note 3. Cash Equivalents and Investments
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. In addition to cash equivalents, the
Company has investments in commercial paper that are classified as short-term
(mature in more than 90 days but less than one year). Such investments are
classified as held-to-maturity, as the Company has the ability and intent to
hold them until maturity. Investments held-to-maturity are carried at amortized
cost, adjusted for the amortization or accretion of premiums or discounts
without recognition of gains or losses that are deemed to be temporary. Premiums
and discounts are amortized or accreted over the life of the related instrument
as an adjustment to yield using the straight-line method, which approximates the
effective interest method. Interest income is recognized when earned. Fair value
approximates carrying value for all cash equivalents and investments.
Note 4. Shareholders' Equity
On May 20, 1996 the Company amended an option to purchase 100,000 shares of
Common Stock at $3.20 per share of which options for 75,000 shares had not yet
become exercisable. As amended, options to purchase such 75,000 shares become
exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject
to acceleration upon the achievement of three specified milestones at the rate
of 25,000 shares per milestone. The Company is recording total non-cash
compensation expense of $810,000 ratably over the three year period ending May
19, 1999, subject to acceleration if the specific milestones are met at earlier
dates. The Company expensed $67,500 and $135,000 relating to these options in
the three and six months ended June 30, 1997, respectively, and $34,000 in the
six months ended June 30, 1996.
Note 5. Miscellaneous Revenue
On May 15, 1997 the Company sold all of the technology, intellectual property
and equipment relating to the "Pulse Plus" blood containment device product line
for $130,000 in cash and a continuing royalty. During each 12-month period
following the date of the first sale of the device (the "Royalty Period"), the
Company shall receive a royalty equal to $.10 per unit on the initial 500,000
units sold and $.08 per unit on all units sold in excess of 500,000. The
purchaser guaranteed minimum royalty payments of $10,000 for the first Royalty
Period, $20,000 for the second Royalty Period and $30,000 in the third Royalty
Period. Royalties shall cease with the expiration of the last related patent.
The net book value of the equipment sold was $100,687 and the Company recorded a
$29,313 gain on the sale as miscellaneous revenue during the period ending June
30, 1997.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Information
The statements contained in this Form 10-Q that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Some of these risks are
discussed below in the section "Certain Factors That May Impact Future
Operations." Additional risk factors are discussed in "Item 1 - Business" of the
Company's Form 10-K and other reports filed by the Company from time to time on
Forms 10-Q and 8-K. The Company does not undertake any obligation to update or
revise any forward-looking statement, made by it or on its behalf, whether as a
result of new information, future events, or otherwise.
Overview
Novoste, incorporated in January 1987, was first capitalized and commenced
operations in May 1992. To date the Company has been engaged primarily in
research and development efforts and clinical trials in interventional
cardiology, electrophysiology and critical care products. Commencing in 1994,
the Company has devoted its efforts to developing the Beta-Cath(TM) System, an
intraluminal beta radiation catheter delivery system designed to reduce the
frequency of restenosis subsequent to percutaneous transluminal coronary
angioplasty ("PTCA"). The Beta-Cath(TM) System applies localized beta radiation
to the site of the vascular injury caused by a PTCA procedure and is designed to
inhibit long-term cell proliferation ("hyperplasia") and vascular remodeling,
each primary causes of restenosis. The Beta-Cath(TM) System was developed in
collaboration with certain physicians at Emory University Hospital, including
its Director of Interventional Cardiology, Dr. Spencer B. King, III.
The development, manufacture, sale and distribution of medical devices such as
the Company's Beta-Cath(TM) System 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 Pre Market Approval ("PMA") application is required before any
Beta-Cath(TM) System can be marketed in the United States. Securing FDA approval
will require submission to the FDA of extensive clinical data and technical
information. The Company does not expect regulatory approval of the
Beta-Cath(TM) System for sale in the United States prior to the later half of
1999 or for sale outside the United States prior to the later half of 1998, and
there can be no assurance when or if such approvals will be obtained. The
Company conducted a feasibility clinical trial at Emory and Rhode Island
Hospitals under an Investigational Device Exemption ("IDE") granted by the FDA
to determine the clinical safety of the Beta-Cath(TM) System for use in coronary
arteries. Patient enrollment for the clinical trial at Emory was completed on
July 31, 1996 and the enrollment at Rhode Island was completed on October 25,
1996. Twenty-three patients were enrolled in the study. Six month follow-up has
been completed for all patients and preliminary summary data on 18 patients
revealed a restenosis rate of 17%. Three patients required target lesion
revascularization (a re-opening procedure at the original treatment site) during
the six month follow-up. The late loss index (a measure of how much of the
angioplasty benefit is lost over six months) was 5%. In addition, no adverse
clinical events relating to the Beta-Cath(TM) System were reported. The Company
completed enrollment for a 30 patient human clinical safety
8
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study at a single site in Canada on June 10, 1997 and commenced enrollment for a
human clinical safety trial in The Netherlands on April 30, 1997. As of July 24,
1997, 12 of the planned 30 patients at the site in The Netherlands had been
enrolled. Additionally, on July 3, 1997, the Company received an IDE from the
FDA to perform a randomized, placebo-controlled multicenter trial of the
Beta-Cath(TM) System to support a Premarket Approval application in the United
States. This trial is expected to commence shortly.
For the period since its capitalization through June 30, 1997 the Company has
earned minimal non-recurring revenues and experienced significant losses in each
period. At June 30, 1997 the Company had an accumulated deficit of approximately
$19.5 million. Novoste expects to continue to incur significant operating losses
through at least 1998 and expects cumulative losses to increase significantly as
the Company continues to initiate new research and development projects, conduct
its clinical trials in the United States, Canada and Europe, seek regulatory
approval or clearance for its products, expand its sales and marketing efforts
in contemplation of product introduction and market development, and increase
its administrative activities to support growth of the Company.
There can be no assurance that the Company's research and development efforts
will be successfully completed. Additionally, as clinical testing is incomplete,
there can be no assurance that the Beta-Cath(TM) System will be safe and
effective. There can be no assurance that the Beta-Cath(TM) System will be
approved by the FDA or any domestic or foreign government agency or that the
Beta-Cath(TM) System or any other product developed by Novoste will be
successfully introduced or attain any significant level of market acceptance.
There can be no assurance that the Company will ever achieve either significant
revenues from sales of its Beta-Cath(TM) System or ever achieve or sustain
profitability.
Results of Operations
Net loss for the three months ended June 30, 1997 was $3,405,000, or ($0.40) per
share, as compared to $1,273,000, or ($0.22) per share, for the three months
ended June 30, 1996. Net loss for the six months ended June 30, 1997 was
$6,048,000, or ($0.72) per share, as compared to $2,484,000 or ($0.49) per share
for the year earlier period. The increase in net loss for the three and six
months ended June 30, 1997 compared to the year earlier periods is primarily due
to increased spending for research and development as well as increased
marketing, general and administrative expenses related to the Company's
development of its Beta-Cath(TM) System, offset by increased interest income
earned from the investment of the net proceeds from the initial public offering
in May 1996.
Revenues. Miscellaneous revenues were $29,000 for the three and six months ended
June 30, 1997. No revenue was earned in the same period in 1996. This increase
was due to the sale of a product line (see Note 5 to the Condensed Financial
Statements).
Research and Development Expenses. Research and development expenses increased
315% to $3,157,000 for the three months ended June 30, 1997 from $761,000 for
the three months ended June 30, 1996. For the six months ended June 30, 1997,
research and development expenses increased 233% to $5,481,000 from $1,645,000
for the same period in 1996. These increases were primarily a result of (a) a
milestone payment of 617,000 DM ($360,000) in June 1997 to the Company's
radioactive isotope supplier upon meeting delivery requirements, (b)
reimbursement to the same supplier of costs to increase production capacity
aggregating $365,000 during the six month period, (c) the increased size of the
Company's research and development staff and (d) services provided by outside
consultants in the development of the Beta-Cath(TM) System. The Company expects
research and development expenses to continue to increase in the immediate
future as the Company initiates additional clinical trials of its Beta-
9
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Cath(TM) System in both the U.S. and selected foreign countries, and it
continues the development and design of the Beta-Cath(TM) System and component
parts.
General and Administrative Expenses. General and administrative expenses
decreased 14% to $443,000 for the three months ended June 30, 1997 from $518,000
for the three months ended June 30, 1996. This decrease for the three month
period is primarily due to ancillary expenses to the Company's initial public
offering in May 1996 which did not occur in 1997. For the six months ended June
30, 1997 general and administrative expenses increased 38% to $960,000 from
$695,000 for the same period in 1996. This increase for the six month period was
primarily a result of additional personnel, higher salaries and increased costs
associated with being a public company such as directors and officers liability
insurance, legal and accounting fees. The Company expects general and
administrative expenses to increase in the future in support of a higher level
of operations.
Marketing Expenses. Marketing expenses increased 63% to $152,000 for the three
months ended June 30, 1997 from $93,000 for the three months ended June 30,
1996. For the six months ended June 30, 1997, marketing expenses increased 37%
to $291,000 from $212,000 for the same period in 1996. These increases were
primarily the result of increased trade show costs, consulting fees and higher
salaries. The Company expects sales and marketing expenses to significantly
increase in the future, if and when the Beta-Cath(TM) System is approved in the
U.S. and other countries.
Interest Income. Net interest income increased 221% to $318,000 for the three
months ended June 30, 1997 from $99,000 for the three months ended June 30,
1996. For the six months ended June 30, 1997 interest income increased 863% to
$655,000 from $68,000 for the same period in 1996. The increase in interest
income was primarily due to larger cash equivalents and short-term investment
balances arising from the initial public offering.
Liquidity and Capital Resources
The Company financed its activities since inception up to May 23, 1996, the date
of the Company's initial public offering, through private placements of its
Common Stock, Class B Common Stock and promissory notes. Since inception through
June 30, 1997, the Company obtained funds aggregating approximately $38.3
million in net proceeds from the issuance of Common Stock and Class B Common
Stock (including approximately $30.6 million in net proceeds from its initial
public offering), and approximately $1.8 million in net proceeds from the
issuance of convertible promissory notes.
During the six months ended June 30, 1997 and 1996 the Company used cash to fund
operations of $5.7 million and $2.1 million, respectively. Cash used to fund
operations since inception was approximately $16.6 million. The increase in cash
used in operations was due primarily to higher expenses associated with
increased research and development activities and increased general and
administrative expenses to support increased operations. The Company's
expenditures for equipment and improvements have aggregated $1.8 million since
inception. Future cash needs for operating activities are anticipated to be
higher than historical levels because of the development, manufacturing scale-up
and commercialization of the Beta-Cath(TM) System, subject to the factors
discussed below.
The Company's principal source of liquidity at June 30, 1997 consisted of cash,
cash equivalents and short-term investments of $22.0 million. The Company did
not have any credit lines available or outstanding borrowings at June 30, 1997.
The Company anticipates that its operating losses will continue through at least
1998 because it plans to expend substantial resources in funding clinical trials
in support of regulatory approvals, and continues to
10
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expand research and development and marketing activities. Novoste believes that
current cash balances and short-term investments, together with interest
thereon, will be sufficient to meet the Company's operating and capital
requirements through the second quarter of 1998. However, the Company's future
liquidity and capital requirements will depend upon numerous factors, including
the progress of the Company's clinical research and product development
programs; the receipt of and the time required to obtain regulatory clearances
and approvals; the resources required to gain approvals; the resources the
Company devotes to the development, manufacture and marketing of its products;
the resources required to hire and develop a direct sales force in the United
States, develop distributors internationally, and to expand manufacturing
capacity; market acceptance and demand for its products; and other factors.
Novoste may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. There can be
no assurance that additional financing, if required, will be available on
satisfactory terms, or at all.
Certain Factors That May Impact Future Operations
Dependence on the Beta-Cath System. The Company has elected to focus its
resources on the continued development and refinement of the Beta-Cath(TM)
System. The Company expects in the future to derive substantially all of its
revenue from the Beta-Cath(TM) System. If the Company is unable to obtain
requisite regulatory approvals or to achieve commercial acceptance of the
Beta-Cath(TM) System, the Company's business, financial condition and results of
operations will be materially and adversely affected and could result in
cessation of the Company's current business.
Early Stages of Clinical Trials. The Company is currently at an early stage of
clinical testing. Clinical data obtained to date are insufficient to demonstrate
the safety and efficacy of this product under applicable FDA regulatory
guidelines. There can be no assurance that the Beta-Cath(TM) System will prove
to be safe and effective in clinical trials under applicable United States or
international regulatory guidelines or that additional modifications to the
Company's product will not be necessary. In addition, the clinical trials may
identify significant technical or other obstacles to be overcome prior to
obtaining necessary regulatory or reimbursement approvals.
Limited Sales, Marketing and Distribution Experience. At present the Company has
no sales and a limited marketing capability. The Company intends to sell its
products in the United States directly and outside the United States through
international distributors and corporate partners. There can be no assurance
that the Company will be able to recruit and train adequate sales and marketing
personnel to successfully commercialize the Beta-Cath(TM) System in the United
States. The inability to recruit or retain suitable international distributors
or corporate partners could also have a material adverse effect on the Company's
business, financial condition and results of operations. The Company also
intends to select one or more established market leaders in the radioisotope
business to inventory and deliver the radiation sources and provide related
training, testing and support services to hospitals in both the United States
and international markets. The inability to recruit or retain one or more such
entities for this purpose could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on a Key Supplier. The Company currently purchases all radiation
source materials from a single supplier. The Company believes that because of
the technical expertise and capital investment required to manufacture the
radiation source materials, it could be extremely difficult and expensive to
find an alternate source of supply. Any failure or disruption in the ability of
the supplier to provide the radiation source materials could have a material
adverse effect on the business, financial condition and results of operations of
the Company.
11
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Patents and Proprietary Rights. The Company's success will depend, in part, on
its ability to obtain patent protection for its products, preserve its trade
secrets through copyrights and confidentiality agreements, and operate without
infringing the proprietary rights of others. The Company's strategy is to
actively pursue patent protection in the United States and foreign jurisdictions
for technology that it believes to be proprietary and that offers a potential
competitive advantage for its products. The Company received a Notice of
Allowance from the U.S. Patent and Trademark Office ("USPTO"), indicating that
the Company's first patent application for its Beta-Cath(TM) System has been
allowed for issuance as a United States patent. The Company also holds eight
issued United States patents and two issued foreign patents, and has twelve
United States patent applications pending and has filed, or will file,
counterpart applications in several foreign countries. Failure by the Company to
protect, defend and maintain such intellectual property rights could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Product Development. The focus of the Company's current development efforts is
to design future generation components of the Beta-Cath(TM) System. The medical
device industry is characterized by rapid and significant technological change.
Therefore, the Company's future success will depend in a large part on the
Company's ability to continue to respond to such changes, as well as expand the
applications for which its products are used, through the timely development and
successful introduction of enhanced and new versions of its Beta-Cath(TM)
System. Product research and development will require substantial expenditures
and will be subject to inherent risks, and there can be no assurance that any
new product introduced will receive regulatory approval or will be commercially
successful.
Highly Competitive Market; Risk of Alternative Therapies. Competition in the
medical device industry, and specifically the markets for cardiovascular
devices, is intense. Many companies are developing devices and therapies to
improve the outcome of coronary revascularization procedures and to reduce the
frequency of restenosis, such as coronary stents. Other companies have various
radiation therapy products under development to reduce restenosis. In addition,
drugs, gene therapy and other minimally invasive catheter-based procedures are
currently being developed. Many of the Company's competitors and potential
competitors have substantially greater financial resources than the Company and
also have greater resources and expertise in the areas of research and
development, obtaining regulatory approvals, manufacturing and marketing. There
can be no assurance that the Company's competitors will not succeed in
developing, marketing and distributing technologies and products that are more
effective than those developed and marketed by the Company or that would render
the Company's technology and products obsolete or noncompetitive. Additionally,
there is no assurance that the Company will be able to compete effectively
against such competitors in terms of manufacturing, marketing and sales.
New Accounting Pronouncements
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted.
12
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) Sale of Unregistered Securities
On April 17, 1997 the Company granted David O. Williams, M.D., 6,250
shares of restricted common stock valued at $90,625 (or $14.50 per share)
as payment for consulting services to be rendered from July 1997 through
February 2000.
The foregoing transaction of the Registrant was exempt from registration
under the Securities Act of 1933, as amended, under Section 4(2)
thereunder, and all stock certificates issued in connection therewith were
legended to reflect their restricted status.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on June 20, 1997 and
solicited votes by proxy in connection with such meeting.
(c) The following matters were approved by the shareholders:
(i) The approval of the following nominees to the Board of Directors:
6,779,502 in favor, 2,500 withheld, and 0 broker non-votes for J.
Stephen Holmes; 6,779,702 in favor, 2,300 withheld, and 0 broker
non-votes for William E. Whitmer; and 6,756,552 in favor, 25,450
withheld, and 0 broker non-votes for Stephen I. Shapiro.
(ii) The ratification of amendments to the Company's Amended and Restated
Stock Option Plan (the "Plan Amendments"), which Plan Amendments (a)
increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares to 2,700,000 shares, (b) allow for the
adoption and administration of such Plan by a Stock Option and
Compensation Committee (the "Committee") of the Board of Directors
comprised only of two or more "Non-Employee Directors" as defined by
the securities laws and regulations, (c) increase the maximum number
of shares from 50,000 to 100,000 with respect to options that may be
granted to any person or entity eligible within one calendar year,
(d) eliminate the granting of non-qualified stock options (a "NQSO")
to Outside Directors (as defined by such Plan) of the Company, (e)
define "Change in Control" of the Company and allow for the
immediate vesting of options upon a Change in Control, (f) allow for
the transferability of NQSOs as determined by the Committee and (g)
revise the provisions relating to the amendment or termination of
such a plan. Shareholders approved Plan Amendments by votes as
follows: 6,520,569 in favor, 171,510 against, 10,829 abstained, and
77,793 broker non-votes.
(iii) The adoption of the Non-Employee Director Stock Option Plan (the
"Director Plan"), which Director Plan authorizes the granting of an
aggregate of 100,000 NQSOs to Non-Employee Directors of the Company.
Shareholders approved Plan Amendments by votes as follows: 6,578,790
in favor, 169,960 against, 10,699 abstained, and 22,553 broker
non-votes.
13
<PAGE>
(iv) The ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the year ending December 31,
1997. The proposal received 6,775,904 votes in favor, 4,140 against,
1,958 abstained, and 0 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Computation of net loss per share
(27) Financial data schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended June 30, 1997.
14
<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 hereunto duly authorized.
NOVOSTE CORPORATION
July 30, 1997 s/Thomas D. Weldon
- ------------------ -------------------------------------
Date Thomas D. Weldon
President & Chief Executive Officer
July 30, 1997 s/David N. Gill
- ------------------ -------------------------------------
Date David N. Gill
Vice President - Finance,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial & Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Exhibit Description Number
- ------ ------------------- ------
11 Computation of net loss per share 17
27 Financial data schedule 18
16
Novoste Corporation Exhibit 11
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number of
shares of common stock
outstanding during the period .................. 8,453,621 5,744,241 8,393,106 4,927,140
Effect of common stock issued
and stock options and warrants
granted during the 12-month
period preceding April 11,
1996(1) ........................................ -- -- -- 597,205
Elimination of duplicative
effect of including the same
shares in both amounts
above .......................................... -- -- -- (434,634)
----------- ----------- ----------- -----------
Total common and common
equivalent shares .............................. 8,453,621 5,744,241 8,393,106 5,089,711
=========== =========== =========== ===========
Net loss ....................................... ($3,405,322) ($1,273,326) ($6,047,728) ($2,483,987)
=========== =========== =========== ===========
Net loss per share (2)
Primary .................................... ($ 0.40) ($ 0.22) ($ 0.72) ($ 0.49)
=========== =========== =========== ===========
Fully Diluted .............................. ($ 0.40) ($ 0.22) ($ 0.72) ($ 0.49)
=========== =========== =========== ===========
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common Stock issued and stock options and warrants granted at
prices below the initial public offering price per share during the
12-month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented which include periods
prior to such filing date using the treasury stock method.
(2) Since the impact of including common stock equivalents is anti-dilutive for
both primary and fully diluted loss per share, the calculation of loss per
share for both purposes is identical.
<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> 16,430,314
<SECURITIES> 5,552,358
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,167,759
<PP&E> 1,727,847
<DEPRECIATION> 713,273
<TOTAL-ASSETS> 23,566,382
<CURRENT-LIABILITIES> 723,874
<BONDS> 0
0
0
<COMMON> 84,718
<OTHER-SE> 22,757,790
<TOTAL-LIABILITY-AND-EQUITY> 23,566,382
<SALES> 29,313
<TOTAL-REVENUES> 29,313
<CGS> 0
<TOTAL-COSTS> 6,732,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 655,024
<INCOME-PRETAX> (6,047,728)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,047,728)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,047,728)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
