<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 1997
[ ] 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 0-28440
CARDIOVASCULAR DYNAMICS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 68-0328265
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
13700 ALTON PARKWAY, SUITE 160, IRVINE, CALIFORNIA 92618
- --------------------------------------------------------------------------------
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 457-9546
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
--- ---
ON OCTOBER 31, 1997, THE REGISTRANT HAD OUTSTANDING APPROXIMATELY 9,371,000
SHARES OF COMMON STOCK OF $.001 PAR VALUE, WHICH IS THE REGISTRANT'S ONLY CLASS
OF COMMON STOCK.
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CARDIOVASCULAR DYNAMICS, INC.
FORM 10-Q
SEPTEMBER 30, 1997
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets at September 30,
1997 and December 31, 1996 3
Condensed consolidated statements of operations for the
three and nine months ended September 30, 1997 and 1996 4
Condensed consolidated statements of cash flows for the
nine months ended September 30, 1997 and 1996 5
Notes to condensed consolidated financial statements 6
ITEM 2. Management's discussion and analysis of financial
condition and results of operations 10
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6 16
SIGNATURES 18
EXHIBIT INDEX 19
2
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CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 1,792 $ 17,192
Marketable securities available-for-sale 32,869 25,733
Trade accounts receivable, net 2,726 2,268
Other receivables 528 320
Inventories 4,445 2,899
Other current assets 110 162
-------- --------
Total current assets 42,470 48,574
Property and equipment, net 1,472 1,182
Notes receivable from officers 269 325
Due from affiliate 67 --
Goodwill 1,929 --
Other assets 178 3
-------- --------
Total Assets $ 46,385 $ 50,084
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 991 $ 750
Accrued payroll and related expenses 970 1,040
Other accrued expenses 125 592
Loans payable 142 --
Deferred distributorship fee-current portion -- 50
-------- --------
Total current liabilities 2,228 2,432
Deferred distributorship fee revenue -- 29
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value;
7,560,000 shares authorized, no shares issued and
outstanding -- --
Common stock, $.001 par value; 30,000,000 authorized,
9,358,000 shares and 9,004,000 shares outstanding as of
September 30, 1997 and December 31, 1996, respectively 9 9
Additional paid-in capital 59,900 58,869
Deferred compensation (283) (376)
Accumulated deficit (14,302) (11,049)
Treasury stock at cost, 200,000 common shares (1,450) --
Unrealized exchange gain 21 --
Unrealized gains on available-for-sale securities 262 170
-------- --------
Total stockholders' equity 44,157 47,623
-------- --------
Total Liabilities and Stockholders' Equity $ 46,385 $ 50,084
======== ========
</TABLE>
See accompanying notes
3
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CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 2,569 $ 2,252 $ 8,943 $ 5,836
License fee and other from related party 0 0 0 200
Contract 0 100 0 150
------- ------- ------- -------
Total revenue 2,569 2,352 8,943 6,186
Cost of sales 1,405 1,273 4,392 3,136
------- ------- ------- -------
Gross profit 1,164 1,079 4,551 3,050
Operating expenses:
Research, development and clinical 1,595 1,181 3,507 2,610
Marketing and sales 1,802 807 4,838 2,094
General and administrative 464 419 1,265 922
------- ------- ------- -------
Total operating expenses 3,861 2,407 9,610 5,626
------- ------- ------- -------
Loss from operations (2,697) (1,328) (5,059) (2,576)
Other income:
Interest income 577 621 1,727 694
Distributorship fees and other income 54 9 79 37
------- ------- ------- -------
Total other income 631 630 1,806 731
------- ------- ------- -------
Net loss $(2,066) $ (698) $(3,253) $(1,845)
======= ======= ======= =======
Net loss per share $ (0.23) $ (0.08) $ (0.36) $ (0.29)
======= ======= ======= =======
Shares used in the calculation of
net loss per share 9,107 9,153 9,098 6,462
======= ======= ======= =======
</TABLE>
See accompanying notes
4
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CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,253) $ (1,845)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 248 135
Amortization of deferred compensation 93 88
Changes, net of effects from purchase of Clinitec:
Trade accounts receivable, net (397) (966)
Inventories (1,229) (1,242)
Other assets (154) (136)
Accounts payable and accrued expenses (2,483) 2,476
Deferred distributor fee revenue (29) (37)
-------- --------
Net cash used in operating activities (7,204) (1,527)
Cash flows used in investing activities:
Purchase of available-for-sale securities (31,518) --
Sales of available-for-sale securities 24,474 --
Capital expenditures for property and equipment
and other assets (515) (971)
Purchase of Clinitec, net of cash acquired (30) --
Change in other assets (187) --
-------- --------
Net cash used in investing activities (7,776) (971)
Cash flows provided by (used in) financing activities:
Proceeds from sale of common stock 436 42,844
Proceeds from exercise of stock options 204 --
Proceeds from exercise of stock warrants 390 --
Proceeds from sale of preferred stock to parent -- 8,000
Purchase of treasury stock (1,450) --
Payable to affiliate, net -- (2,537)
-------- --------
Net cash provided by (used in)
financing activities (420) 48,307
-------- --------
Net increase (decrease) in cash and equivalents (15,400) 45,809
Cash and equivalents, beginning of period 17,192 1,568
-------- --------
Cash and equivalents, end of period $ 1,792 $ 47,377
======== ========
Supplemental schedule of non-cash investing and
financing activities:
The Company purchased all of the capital stock on
Clinitec for $30. In conjunction with the acquisition,
the Company forgave $1,630 in debt and assumed the
following liabilities:
Fair value of assets acquired $ 401
Cash paid for the capital stock (30)
--------
Liabilities assumed $ 371
========
</TABLE>
See accompanying notes
5
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CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
Cardiovascular Dynamics, Inc. and subsidiaries ("CVD" or the "Company") design,
develop, manufacture and market catheters and stents used to treat certain
vascular diseases. The accompanying condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, 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 nine month
periods ended September 30, 1997 are not necessarily indicative of results that
may be expected for the year ending December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K/A for the year ended December 31, 1996.
2. NET LOSS PER SHARE
Pro forma net loss per share is computed using the weighted average number of
shares of Common Stock, Preferred Stock (using the as-if-converted method) and
Common Stock issuable upon conversion of the Convertible Obligation,
outstanding. Common equivalent shares from stock options and warrants are not
included as the effect is anti-dilutive, except that in accordance with
Securities and Exchange Commission Staff Accounting Bulletins, common equivalent
shares issued by the Company at prices substantially below the anticipated
initial public offering price during the period beginning one year prior to the
offering have been included in the calculation as if they were outstanding for
all periods presented (using the treasury stock method and the initial public
offering price).
For periods subsequent to the Company's initial public offering in June 1996,
the Company's net loss per share has been calculated based on the weighted
average number of common and dilutive common equivalent shares outstanding.
Common stock equivalents that are anti-dilutive are excluded from the
calculation.
6
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CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to result in an
change in earnings per share for the quarters ended September 30, 1997 and
September 30, 1996 since the effect of stock options is anti-dilutive in the
1997 period and the 1996 period includes the effect of stock options calculated
pursuant to requirements of the Securities and Exchange Commission for "cheap
stock", which are not changed as a result of the issuance of Statement No. 128.
The impact of Statement 128 on the calculation of fully diluted earnings per
share for these quarters is not expected to be material.
3. INVENTORIES
Inventories are stated at the lower of cost, determined on an average cost
basis, or market value. Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $1,135,000 $1,015,000
Work-in-process 447,000 510,000
Finished goods 2,863,000 1,374,000
---------- ----------
$4,445,000 $2,899,000
========== ==========
</TABLE>
4. ACQUISITIONS
On October 16, 1996, the Company acquired all of the outstanding shares of
Intraluminal Devices, Inc. (IDI) in a transaction accounted for as a purchase
for approximately 93,000 shares of the Company's common stock valued at $1.4
million. The entire purchase price was assigned to products in the development
stage and, together with acquisition costs of $0.7 million, were expensed as
acquired in-process research and development in the fourth quarter of 1996. Pro
forma combined results of the Company and IDI for the three and nine month
periods ended September 30, 1996, on the basis that the acquisition had taken
place at the
7
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CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITIONS (Continued)
beginning of 1996, would have reported a pro forma net loss of $(0.7) million
and $(2.0) million, respectively, and pro forma net loss per share of $(0.08)
and $(0.31), respectively.
In July 1997, the Company acquired its independent distributor in Germany and
Switzerland, Clinitec GmbH ("Clinitec"). In exchange for the assumption of the
assets and liabilities of the Clinitec, including bank debt of $0.3 million, the
Company acquired all of the common stock of Clinitec. At the time of the
acquisition, Clinitec had a deficiency in stockholder's equity of approximately
$0.5 million.
Proforma combined results of the Company and Clinitec for the three and nine
month periods ended September 30, 1997 and 1996, on the basis that the
acquisition had taken place at the beginning of said years, would have reported
the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Proforma Revenues $ 2.6 $ 2.4 $ 9.3 $ 6.2
Proforma Net Loss (2.2) (0.8) (3.9) (2.0)
Proforma Net Loss
Per Share (0.24) (0.08) (0.43) (0.31)
</TABLE>
5. OTHER SIGNIFICANT EVENTS
In July 1996, the Company and Medtronic, Inc. ("Medtronic") entered into a
written OEM agreement ("Agreement") pursuant to which Medtronic was to purchase
certain angioplasty balloon catheters and related components from the Company.
Medtronic advised the Company of its election to not make minimum purchases of
product for the second year of the Agreement. The Company is currently
attempting to collect the remaining $1.3 million worth of orders owed under the
minimum purchase commitment for the first year of the Agreement.
8
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CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. OTHER SIGNIFICANT EVENTS (Continued)
Medtronic has informed the Company that it does not believe it is required to
fulfill such commitment. This dispute adversely affected the Company's financial
results for the third quarter of 1997 and could have an adverse effect in the
fourth quarter of 1997. The Company believes it has a valid legal claim for the
entire $1.3 million and intends to aggressively pursue collection.
In August 1997, SCIMED Life Systems, Inc. exercised 120,000 warrants for an
equal amount of the Company's common stock at $3.29 per share.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All statements other than statements of historical fact included in this Report
on Form 10-Q 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. The Company intends that such forward-looking statements be subject to the
safe harbors created thereby. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable at this
time, it can give no assurance that such expectations will prove to have been
correct. The Company makes no undertaking to correct or update any such
statements in the future. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as in the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1996. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
OVERVIEW
Since inception in 1992, Cardiovascular Dynamics, Inc. has engaged primarily in
the research and development of products for the treatment of cardiovascular
disease. The Company's financial results will be affected in the future by
several factors, including the timing of any FDA approval to market the
Company's products, FDA approval of IDE sites and the number of patients
permitted to be treated, future changes in government regulations and third
party reimbursement policies applicable to the Company's products, the progress
of competing technologies and the ability of the Company to develop the
manufacturing and marketing capabilities necessary to support commercial sales.
As a result of these factors, revenue levels, gross margins and operating
results may fluctuate from quarter to quarter.
In July 1996, the Company and Medtronic, Inc. ("Medtronic") entered into a
written OEM agreement ("Agreement") pursuant to which Medtronic was to purchase
certain angioplasty balloon catheters and related components from the Company.
Medtronic advised the Company of its election to not make minimum purchases of
product for the second year of the Agreement. The Company is currently
attempting to collect the remaining $1.3 million worth of orders owed under the
minimum purchase commitment for the first year of the Agreement. Medtronic has
informed the Company that it does not believe it is required to fulfill such
commitment. This dispute adversely affected the Company's financial results
10
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
for the third quarter of 1997 and could have an adverse effect in the fourth
quarter of 1997. The Company believes it has a valid legal claim for the entire
$1.3 million and intends to aggressively pursue collection. See Note 5 to the
Condensed Consolidated Financial Statements.
In July, 1997, the Company acquired its independent distributor in Germany and
Switzerland, Clinitec GmbH ("Clinitec"). In exchange for the assumption of the
assets and liabilities of the Clinitec, including bank debt of $0.3 million, the
Company acquired all of the common stock of Clinitec. At the time of the
acquisition, Clinitec had a deficiency in stockholder's equity of approximately
$0.5 million. Costs relating to the acquisition and other operating
expenses--including legal, severance, relocation and other costs--of $0.7
million were expensed in the quarter ended September 30, 1997. Management
believes that the acquisition had a negative impact on sales during the third
quarter and will have a negative impact in the fourth quarter of 1997 in making
the transition from distributor to direct sales in Germany. See Note 4 to the
Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
Third quarter of 1997 compared to the same period in 1996
Revenue for the third quarter of 1997 increased 9% to $2.6 million compared to
$2.4 million for the third quarter of 1996. The increase resulted primarily from
sales volume of the Company's new stent products (25% of the dollar increase)
and increased sales volume of smart needle products (8%), offset by a reduction
in sales of new and existing Focus catheters (19%) and by a reduction in
contract and license fee income (5%).
The gross profit percentage for the second quarter of 1997 decreased to 45%
compared to 46% for the same period of 1996. The decrease resulted primarily
from the fact that the 1996 revenues included $100,000 of license fees that had
no associated cost of sales.
Research, development and clinical expenses increased by 35% to $1.6 million in
the quarter ended September 30, 1997 from $1.2 million in the quarter ended
September 30, 1996. The primary reason for this increase was additional spending
on development of the Company's line of coronary stent products and FOCUS
technology angioplasty catheters, and increased spending on clinical trials for
these products.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Marketing and sales expenses rose 123% to $1.8 million, up $1.0 million in the
quarter ended September 30, 1997, compared to $0.8 million in the same period of
1996. This increase reflects, primarily, the investment the Company is making to
increase its international sales and marketing efforts--including the operating
costs of the German and Swiss distributor, Clinitec, acquired in July,
1997--adding personnel and developing additional distributor relationships.
General and administrative expenses increased by 11% to $0.5 million for the
quarter ended September 30, 1997 from $0.4 million for the same quarter in 1996.
The increase was due primarily to the addition of administrative staff.
Interest income remained relatively constant at $0.6 million in the third
quarter of 1997 and in the same period of 1996.
First nine months of 1997 compared to the same period of 1996
Revenue for the first nine months of 1997 increased 45% to $8.9 million compared
to $6.2 million for the same period of 1996. The increase resulted primarily
from sales volume of the Company's new stent products (35% of the dollar
increase) and increased sales volume from new and existing Focus catheters
(12%), offset by a reduction in contract and license fee income (8%). In the
first nine months of 1996, total revenues included approximately $0.3 million of
contract revenues and license fee income that had no associated cost of sales.
In the first nine months of 1997, the Company had no contract revenues or
licensing fee income.
The gross profit percentage for the first nine months of 1997 increased to 51%
compared to 49% for the same period of 1996. The increase resulted primary from
a decline in the cost of sales primarily due to relatively higher production
volumes.
Research, development and clinical expenses increased by 34% to $3.5 million in
the nine month period ended September 30, 1997 from $2.6 million in the nine
month period ended September 30, 1996. The primary reason for this increase was
additional spending on development of the Company's line of coronary stent
products and FOCUS technology angioplasty catheters, and increased spending on
clinical trials for these products.
Marketing and sales expenses rose 131% to $4.8 million, up $2.7 million in the
nine month period ended September 30, 1997, compared to $2.1 million in the same
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
period of 1996. This increase reflects, primarily, the investment the Company is
making to build its sales and marketing infrastructure by adding additional
personnel and developing additional distributor relationships, increased
international sales and marketing efforts and the cost of promotional marketing
allowances provided to certain distributors to help develop foreign markets.
General and administrative expenses increased by 37% to $1.3 million for the
nine months ended September 30, 1997 from $0.9 million for the same period in
1996. The increase was due primarily to the addition of administrative staff and
the added costs of operating as a public company following the Company's public
offering in June 1996.
Interest income rose to $1.7 million in the first nine months of 1997 compared
with $0.7 million in the same period of 1996. The increase was due to the
investment of funds received from the initial public offering in June 1996.
The Company has experienced an operating loss for each of the last three years.
The Company expects to continue to incur operating losses through at least 1997
and there can be no assurance that the Company will ever be able to achieve or
sustain profitability in the future. CVD's results of operations have varied
significantly from quarter to quarter. Quarterly operating results will depend
upon several factors, including the timing and amount of expenses associated
with expanding the Company's operations, the conduct of clinical trials and the
timing of regulatory approvals, new product introductions both in the United
States and internationally, the mix between pilot production of new products and
full-scale manufacturing of existing products, the mix between domestic and
export sales, variations in foreign exchange rates, changes in third-party
payors' reimbursement policies and healthcare reform. The Company does not
operate with a significant backlog of customer orders, and therefore revenues in
any quarter are significantly dependent on orders received within that quarter.
In addition, the Company cannot predict ordering rates by distributors, some of
whom place infrequent stocking orders. The Company's expenses are relatively
fixed and difficult to adjust in response to fluctuating revenues. As a result
of these and other factors, the Company expects to continue to experience
significant fluctuations in quarterly operating results, and there can be no
assurance that the Company will be able to achieve or maintain profitability in
the future.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
From inception through the initial public offering on June 19, 1996, the Company
raised approximately $11.4 million from the private sales of preferred and
common stock and $2.7 million in working capital from Endosonics Corporation
(CVD's former parent company). The Company repaid Endosonics Corporation during
the third quarter of 1996.
On June 19, 1996, the Company closed its initial public offering which consisted
of 3,400,000 shares of common stock at $12.00 per share. On July 17, 1996, the
Company's underwriters exercised their overallotment option to purchase an
additional 510,000 shares of common stock at $12.00 per share. CVD received net
offering proceeds from the sale of common stock of approximately $42.8 million
after deducting underwriting discounts and commissions and other expenses of the
offering.
In August 1997, SCIMED Life Systems, Inc. ("SCIMED") exercised 120,000 warrants
for an equal amount of the Company's common stock at $3.29 per share. See Notes
to the Consolidated Financial Statements in the Company's Annual Report on Form
10-K/A for the year ended December 31, 1996.
On September 30, 1997, the Company had cash, cash equivalents and marketable
securities available for sale of $34.7 million. Net cash used in operating
activites was $7.2 million for the first nine months of 1997 as compared to $1.5
million for the same period of 1996. The Company expects to incur substantial
costs related to, among other things, clinical testing, product development,
marketing and sales expenses, and increased working capital, prior to achieving
positive cash flow from operations. The Company anticipates that its existing
capital resources will be sufficient to fund its operations through September
30, 1998. CVD's future capital requirements will depend on many factors,
including its research and development programs, the scope and results of
clinical trials, the regulatory approval process, the costs involved in
intellectual property rights enforcement or litigation, competitive products,
the establishment of manufacturing capacity, the establishment of sales and
marketing capabilities, and the establishment of collaborative relationships
with other parties. The Company may need to raise funds through additional
financings, including private or public equity offerings and collaborative
arrangements with existing or new corporate partners. There can be no assurance
that funds will be raised on favorable terms, or at all. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate one
or more of its development programs or obtain funds through arrangements with
collaborative partners or others that may require the Company
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
to grant rights to certain technologies or products that the Company would not
otherwise grant.
Trade accounts receivable, net, increased 20% to $2.7 million as of September
30, 1997, compared with $2.3 million at December 31, 1996. The increase stemmed
from an increase in the sales levels for the nine months ended September 30,
1997 compared with sales for the same period of 1996.
Inventories rose 53% to $4.4 million as of September 30, 1997, compared with
$2.9 million at December 31, 1996. This increase resulted primarily from
inventories produced to fulfill Medtronic's minimum purchase commitment which
were not accepted, as described above. Accounts payable and accrued expenses
increased 32% to $1.0 million at September 30, 1997, compared with $0.8 million
at the end of 1996, due to an increase in expenditures to support higher sales
and payment timing differences.
Property and equipment, net, increased 25% from $1.2 million at December 31,
1996 to $1.5 million at September 30, 1997. The Company increased its investment
in capital assets during the first nine months of 1997 to support rising
production and research and development efforts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item has been omitted as it is inapplicable to the Company.
15
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PART II.
OTHER INFORMATION
ITEMS 1 AND 3 THROUGH 5. Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On July 24, 1997, the Company issued a total of 25,197 shares of Common
Stock to three principals of Cathex as part of a transaction which established
Cathex as the Company's distributor in Japan. On August 18, 1997, the Company
issued 120,000 shares of Common Stock to SCIMED Life Systems, Inc., upon
exercise of 120,000 warrants, for a purchase price of $3.29 per share. No
commissions were paid with respect to either issuance. Such issuances were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof. The issuances were made without any general solicitation to a single
accredited investor.
(d) USE OF PROCEEDS
The Company registered 3,400,000 shares of its Common Stock with the
Securities and Exchange Commission on Form S-1, Registration No. 333-04560 (the
"Registration Statement"). The Registration Statement was granted effectiveness
on June 19, 1996 and on June 25, 1996 the Company completed its initial public
offering of Common Stock (the "IPO") by consummating the sale of 3,400,000
shares of its Common Stock to the underwriters identified in the Registration
Statement, Volpe, Brown, Whelan & Co. (formerly Volpe, Welty & Company),
Wessels, Arnold & Henderson and Vector Securities International, Inc. serving as
the representatives thereof. The price of the Company's Common Stock was $12.00
per share, less underwriting discounts and commissions of $.84 per share. The
Company received net proceeds of $37.9 million from the sale of such Common
Shares before deducting offering expenses.
On July 17, 1996, the underwriters of the Company's IPO exercised their
option to purchase an additional 510,000 shares of Common Stock directly from
the Company at a price of $12.00 per share, less underwriting discounts and
commissions of $.84 per share. The Company received net proceeds of $5.7
million, before deducting offering expenses, from the sale of the Common Stock
pursuant to the exercise of such option.
In conjunction with completing the IPO, the Company incurred total
direct offering expenses of approximately $0.8 million, all of which were
payable to third
16
<PAGE> 17
PART II.
OTHER INFORMATION (Continued)
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) USE OF PROCEEDS (Continued)
parties. Total net proceeds to the Company from the IPO and the exercise of the
over-allotment option, after deducting underwriting discounts and commissions
and total direct offering expenses, was $42.8 million.
The Company used approximately $2.7 million of the net proceeds from
the IPO for repayment of certain outstanding indebtedness to Endosonics, Inc., a
holder of in excess of ten percent of the Common Stock of the Company. From the
date of the IPO until September 30, 1997, in the normal course of business, the
Company has paid salaries and bonuses in excess of $0.1 million each to four
officers of the Company and used $1.7 million for working capital. The Company
has also used approximately $1.2 million of the net proceeds for machinery and
equipment and leasehold improvement purchases. On August 21, 1997, the Company
used approximately $1.5 million to purchase 200,000 shares of the Company's
Common Stock. At September 30, 1997, approximately $34.9 million was held in
temporary investments, of which approximately $10.0 million is invested in U.S.
Treasury and other agencies debt securities and $24.9 million is invested in
corporate debt securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 11 -- Statement Regarding the Computation of Net Loss Per Share
Exhibit 27 -- Financial Data Schedule
- ------------------
(b) No reports on Form 8-K were filed during the quarter.
17
<PAGE> 18
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 undersigned
thereto duly authorized.
CARDIOVASCULAR DYNAMICS, INC.
Date: November 12, 1997 /s/ MICHAEL R. HENSON
---------------------------------
Michael R. Henson
President and Chief
Executive Officer
(Principal Executive Officer)
Date: November 12, 1997 /s/ DANA P. NICKELL
---------------------------------
Dana P. Nickell
Vice President-Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
11 Statement Regarding the Computation of Net Loss Per Share
27 Financial Data Schedule
19
<PAGE> 1
EXHIBIT 11
CARDIOVASCULAR DYNAMICS, INC.
STATEMENT REGARDING THE COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss............................................................ $(2,066) $ (698) $(3,253) $(1,845)
======= ======= ======= =======
Computations of weighted average common and common equivalent
shares outstanding:
Weighted average common shares outstanding........................ 9,107 8,748 9,098 3,298
Shares related to staff accounting bulletin topic 4D:
Stock options................................................... -- 318 -- 318
Preferred Stock Warrants(1)..................................... -- 87 -- 87
Adjusted to reflect the effect of the assumed conversion of
Convertible Obligation from the date of issuance.............. -- -- -- 39
Adjusted to reflect the effect of the assumed conversion of
Preferred Stock from the date of issuance (Series A and B).... -- -- -- 2,720
------- ------- ------- -------
Shares used in computing net loss per share (pro forma for
the three and nine months ended September 30, 1996)........... 9,107 9,153 9,098 6,462
======= ======= ======= =======
Net loss per share (pro forma for the three and nine months
ended September 30, 1996)..................................... $ (0.23) $ (0.08) $ (0.36) $ (0.29)
======= ======= ======= =======
</TABLE>
- -----------------------
(1) At an assumed conversion rate of two shares of Common Stock for each share
of Preferred Stock.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,792
<SECURITIES> 32,869
<RECEIVABLES> 3,119
<ALLOWANCES> 393
<INVENTORY> 4,445
<CURRENT-ASSETS> 42,470
<PP&E> 2,006
<DEPRECIATION> 534
<TOTAL-ASSETS> 46,385
<CURRENT-LIABILITIES> 2,228
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 44,148
<TOTAL-LIABILITY-AND-EQUITY> 46,385
<SALES> 8,943
<TOTAL-REVENUES> 8,943
<CGS> 4,392
<TOTAL-COSTS> 4,392
<OTHER-EXPENSES> 9,610
<LOSS-PROVISION> 36
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,253)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
