<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 MARCH 31, 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 EXHANGE ACT OF
1934 DURING THE PRECEEDING 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 APRIL 30, 1997, THE REGISTRANT HAD OUTSTANDING APPROXIMATELY 9,103,000 SHARES
OF COMMON STOCK OF $.001 PAR VALUE, WHICH IS THE REGISTRANT'S ONLY CLASS OF
COMMON STOCK.
<PAGE> 2
CARDIOVASCULAR DYNAMICS, INC.
FORM 10-Q
MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1997 AND
DECEMBER 31, 1996 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND 1996 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31, 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 8
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6. 12
SIGNATURES 13
EXHIBIT INDEX 14
</TABLE>
<PAGE> 3
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents .................................. $ 16,971 $ 17,192
Marketable securities ................................. 23,808 25,733
Trade accounts receivable, net ........................ 2,734 2,268
Inventories ........................................... 3,899 2,899
Other receivables ..................................... 467 320
Other current assets .................................. 170 162
-------- --------
Total current assets .............................. 48,049 48,574
Property and equipment, net ............................. 1,311 1,182
Notes receivable from officers .......................... 425 325
Other assets ............................................ 6 3
-------- --------
Total assets ............................................ $ 49,791 $ 50,084
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................. $ 906 $ 750
Accrued payroll and related expenses .................. 961 1,040
Other accrued expenses ................................ 577 592
Deferred distributorship fee-current portion .......... 50 50
-------- --------
Total current liabilities ......................... 2,494 2,432
Deferred distributorship fee revenue .................... 17 29
STOCKHOLDERS' EQUITY
Covertible preferred stock, $.001 par value;
7,560,000 shares authorized, no shares issued and
outstanding ........................................... -- --
Common stock, $.001 par value; 30,000,000 authorized,
9,103,000 shares and 9,004,000 shares outstanding as of
March 31, 1997 and December 31, 1996, respectively .... 9 9
Additional paid-in capital .............................. 59,099 58,869
Deferred compensation ................................... (345) (376)
Accumulated deficit ..................................... (11,647) (11,049)
Unrealized gains on investments ......................... 164 170
-------- --------
Total stockholders' equity ........................ 47,280 47,623
-------- --------
Total liabilities and stockholders' equity .............. $ 49,791 $ 50,084
======== ========
</TABLE>
See accompanying notes
3
<PAGE> 4
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
------- -------
<S> <C> <C>
Revenue:
Sales ............................................. $ 3,019 $ 1,783
License fee and other from related party .......... 0 100
Contract .......................................... 0 150
------- -------
Total revenue ....................................... 3,019 2,033
Cost of sales ....................................... 1,416 942
------- -------
Gross profit ........................................ 1,603 1,091
Operating expenses:
Research, development and clinical ................ 993 627
Marketing and sales ............................... 1,350 577
General and administrative ........................ 443 291
------- -------
Total operating expenses ............................ 2,786 1,495
------- -------
Loss from operations ................................ (1,183) (404)
Other income:
Interest income .................................. 572 11
Distributorship fees and other income ............ 13 16
------- -------
Total other income ........................ 585 27
------- -------
Net loss ............................................ $ (598) $ (377)
======= =======
Net loss per share (pro forma through June, 1996) ... $ (0.07) $ (0.08)
======= =======
Shares used in the calculation of net loss per share
(pro forma through June, 1996) 9,081 4,485
======= =======
</TABLE>
See accompanying notes
4
<PAGE> 5
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $ (598) $ (377)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................... 72 45
Amortization of deferred compensation ........... 31 26
Bad debt expense ................................ 12 --
Net changes in:
Trade accounts receivable, net ............... (478) (467)
Receivable from related parties .............. -- (100)
Inventories .................................. (1,000) 2
Other assets ................................. (256) (15)
Accounts payable and accrued expenses ........ 62 85
Deferred distributor fee revenue ............. (12) (12)
-------- --------
Net cash used in operating activities ... (2,167) (813)
Cash flows used in investing activities:
Purchase of available-for-sale securities .......... (10,884) --
Proceeds from sales of available-for-sale-securities 12,802 --
Capital expenditures for property and equipment
and other assets ................................. (202) (146)
-------- --------
Net cash used in investing activities ... 1,716 (146)
Cash flows provided by financing activities:
Proceeds from sale of common stock ................. 136 --
Proceeds from exercise of stock options ............ 94 --
Proceeds from sale of preferred stock to parent .... -- 8,000
Payable to parent, net ............................. -- 46
-------- --------
Net cash provided by financing activities 230 8,046
-------- --------
Net increase (decrease) in cash and equivalents ....... (221) 7,087
Cash and equivalents, beginning of period ............. 17,192 1,568
-------- --------
Cash and equivalents, end of period ................... $ 16,971 $ 8,655
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. BASIS OF PRESENTATION
Cardiovascular Dynamics, Inc. ("CVD" or the "Company") designs, develops,
manufactures and markets catheters 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 month period ended March 31, 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 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.
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 March 31, 1997 and March 31,
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.
6
<PAGE> 7
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Raw materials $1,299,000 $1,015,000
Work-in-process 1,204,000 510,000
Finished goods 1,396,000 1,374,000
---------- ----------
$3,899,000 $2,899,000
========== ==========
</TABLE>
4. ACQUISITION OF INTRALUMINAL DEVICES, INC.
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 quarter ended March 31,
1996, on the basis that the acquisition had taken place at the beginning of
1996, would have reported a pro forma net loss of $463,000 and pro forma net
loss per share of $(0.10).
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward looking statements that
involve risks and uncertanties that could cause actual results to differ
materially from those in the forward looking statements. Some of these factors
are discussed below. For a further discussion of factors which might result in
different outcomes, see the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, in particular "Risk Factors" beginning on page 19
thereof.
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.
On July 15, 1996, CVD and Medtronic, Inc. entered into an agreement providing
for the co-distribution by Medtronic of the Company's balloon angioplasty
catheters. These catheters employ the Company's patented Focus Technology. Under
the Agreement, Medtronic will purchase a minimum number of angioplasty catheters
manufactured by the Company for distribution worldwide for a period of up to
three years. If the Company is unable to meet its delivery obligations with
respect to the purchased catheters, up to 60% of the Company's manufacturing
capacity will be devoted to manufacturing such catheters for Medtronic. Specific
products to be distributed by Medtronic will differ in individual country
markets. The Company will continue to sell Focus Technology products through its
own direct and indirect sales force network. These products are currently sold
under the names FACT(TM), CAT(TM) and ARC(TM).
RESULTS OF OPERATIONS
FIRST QUARTER OF 1997 COMPARED TO THE SAME PERIOD IN 1996
Revenue for the first quarter of 1997 increased 48% to $3.0 million compared to
$2.0 million for the first quarter of 1996. The increase resulted primarily from
increased sales volume of the Company's existing and new Focus catheters (42%),
and, to a lesser extent, the introduction of other new products (22%).
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The gross profit percentage for the first quarter of 1997 decreased to 53%
compared to 54% for the same period of 1996. In the first quarter of 1996, total
revenues included approximately $0.3 million of contract revenues and license
fee income that had no associated cost of sales. These revenues and fees
represented 12% of total revenues for that quarter. In the first quarter of
1997, the Company had no contract revenues or licensing fee income.
Research, development and clinical expenses increased by 58% to $1.0 million in
the quarter ended March 31, 1997 from $0.6 million in the quarter ended March
31, 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.
Marketing and sales expenses rose 134% to $1.4 million, up $0.8 million in the
quarter ended March 31, 1997, compared to $0.6 million in the same period of
1996. This increase reflects the investment the Company is making to build its
sales and marketing infrastructure by adding additional personnel and developing
additional distributor relationships.
General and administrative expenses increased by 52% to $0.4 million for the
quarter ended March 31, 1997 from $0.3 million for the same quarter in 1996. The
increase was due primarily to the addition of additional administrative staff
and the added costs of operating as a public company.
Interest income rose to $0.6 million in the first quarter of 1997 compared with
$0.0 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
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
LIQUIDITY AND CAPITAL RESOURCES
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.
From inception through September 30, 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 March 31, 1997, the Company had cash, cash equivalents and marketable
securities available for sale of $40.8 million. Net cash used in operating
activites were $2.2 million for the first three months of 1997 as compared to
$0.8 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
1997. 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
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to grant rights to certain
technologies or products that the Company would not otherwise grant.
Trade accounts receivable, net, increased 21% to $2.7 million as of March 31,
1997, compared with $2.3 million at December 31, 1996. The increase stemmed from
an increase in the sales level compared to the prior quarter. Specifically,
sales for the first quarter of 1997 were $3.0 million, while sales for the
fourth quarter of 1996 were $2.5 million.
Inventories rose 34% to $3.9 million as of March 31, 1997, compared with $2.9
million at December 31, 1996, to meet current sales demand. Accounts payable
increased 21% to $0.9 million at March 31, 1997, compared with $0.8 million at
the end of 1996, due to an increase in expenditures to support higher sales.
Property and equipment, net, increased 11% from $1.2 million at December 31,
1996 to $1.3 million at March 31, 1997. The Company increased its investment in
capital assets during the first three months of 1997 to support rising
production and research and development efforts.
11
<PAGE> 12
PART II.
OTHER INFORMATION
Items 1 through 5. Not applicable
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.
12
<PAGE> 13
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: May 13, 1997 /s/ Michael R. Henson
--------------------------
President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 13, 1997 /s/ Dana P. Nickell
---------------------------
Vice President-Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
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EXHIBIT INDEX
11 Statement Regarding the Computation of Net Loss Per Share
27 Financial Data Schedule
- -------------------------
14
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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 March 31,
----------------------------
1997 1996
------- -------
<S> <C> <C>
Net loss ........................................................... $ (598) $ (377)
======= =======
Computations of weighted average common and common
equivalent shares outstanding:
Weighted average common shares outstanding ....................... 9,081 --
Shares related to staff accounting bulletin topic 4D:
Stock options .................................................. -- 318
Preferred Stock Warrants (1) ................................... -- 87
Adjusted to reflect the effect of the assumed conversion
of Convertible Obligation from the date of issuance ............ -- 62
Adjusted to reflect the effect of the assumed conversion
of Preferred Stock from the date of issuance (Series
A and B) ....................................................... -- 4,018
------- -------
Shares used in computing net loss per share (pro forma through
June 1996) ..................................................... 9,081 4,485
======= =======
Net loss per share (pro forma through June 1996) ................. $ (0.07) $ (0.08)
======= =======
</TABLE>
- ----------------
(1) At an assumed conversion rate of two shares of Common Stock for each share
of Preferred Stock.
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,971
<SECURITIES> 23,808
<RECEIVABLES> 3,117
<ALLOWANCES> 383
<INVENTORY> 3,899
<CURRENT-ASSETS> 48,049
<PP&E> 1,672
<DEPRECIATION> 361
<TOTAL-ASSETS> 49,791
<CURRENT-LIABILITIES> 2,494
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 47,271
<TOTAL-LIABILITY-AND-EQUITY> 49,791
<SALES> 3,019
<TOTAL-REVENUES> 3,019
<CGS> 1,416
<TOTAL-COSTS> 1,416
<OTHER-EXPENSES> 2,774
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (598)
<INCOME-TAX> 0
<INCOME-CONTINUING> (598)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (598)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
