<PAGE>
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 September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act Of 1934
Commission file number 0-21001
NITINOL MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 95-4090463
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
27 Wormwood Street
Boston, Massachusetts 02210
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number including area code: (617) 737-0930
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of class)
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 [ ] NO [ X ]
At November 11, 1996, the number of shares outstanding of the registrant's
Common Stock, par value $.001 per share, was 9,435,922 shares.
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
INDEX
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<CAPTION>
Part I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
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Item 1. CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance
Sheets as of September 30, 1996
and December 31, 1995...................... 1
Condensed Consolidated Statements of
Operations for the three month and nine
month periods ended September 30, 1996
and 1995................................... 2
Condensed Consolidated Statements of Cash
Flows for the nine month period ended
September 30, 1996 and 1995................ 3
Notes to Condensed Consolidated Financial
Statements................................. 4
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 8
PART II OTHER INFORMATION
- -------------------------
Item 2. CHANGES IN SECURITIES...................... 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................... 14
Item 6. EXHIBITS................................... 14
Signatures................................. 15
</TABLE>
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPPTION>
At At
December 31, September 30,
1995 1996
----------- -----------
Assets (Audited) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 533,247 $ 3,781,040
Accounts receivable 323,217 860,833
Inventories 208,061 622,081
Prepaid expenses and other current assets 20,326 777,490
Deferred tax asset $ 143,000 143,000
----------- -----------
Total current assets 1,227,851 6,184,444
----------- -----------
Property and equipment, at cost:
Laboratory and computer equipment 393,171 829,490
Leasehold improvements 124,461 542,070
Construction in process -- 334,593
Equipment under capital lease -- 254,240
Office furniture and equipment 76,030 82,475
Computer software -- 7,045
----------- -----------
593,662 2,049,913
Less- Accumulated depreciation
and amortization (208,777) (407,752)
----------- -----------
384,885 1,642,161
----------- -----------
Other assets 48,014 382,333
----------- -----------
$ 1,660,750 $ 8,208,938
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 498,816 $ 831,298
Accrued expenses 215,983 146,968
Distribution payable to stockholders 100,000 --
Current portion of capital lease obligation -- 43,831
Subordinated debt 309,356 --
Loan from distributor 780,830 250,330
Deferred revenue 600,000 500,960
----------- -----------
Total current liabilities 2,504,985 1,773,387
----------- -----------
Preferred stock redemption liability
Capital lease obligation, net of current portion -- 197,837
Redemption value of preferred stock -- 4,501,223
Stockholders' equity (deficit)
Preferred stock, $.001 par value-
Authorized-3,000,000 shares
Issued and outstanding-none -- --
Convertible preferred stock, $.001 par value-
Authorized-3,800,000 shares
Issued and outstanding-no shares and
3,787,104 shares at December 31,1995
and September 30, 1996, respectively
(preference in liquidation of $8,500,000
at September 30, 1996)
Common stock, $.001 par value-
Authorized-30,000,000 shares
Issued and outstanding-3,774,112 and
4,292,710 shares at December 31, 1995
and September 30, 1996, respectively 3,775 4,294
Paid-in Capital -- 4,130,101
Accumulated deficit (848,010) (2,401,691)
----------- -----------
Total stockholders' equity (deficit) (844,235) 1,736,491
----------- -----------
$ 1,660,750 $ 8,208,938
=========== ===========
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------------------------------- ---------------------------------
<S> <C> <C>
Revenues:
Product sales $ 1,014,777 $ 531,267 $ 3,013,555 $ 1,833,867
License fees 687,500 - 1,312,500 -
Product development 6,267 133,363 85,294 402,278
-------------------------------- ---------------------------------
1,708,544 664,630 4,411,349 2,236,145
-------------------------------- ---------------------------------
Expenses:
Cost of product sales 529,441 246,822 1,453,454 792,809
Research and development 814,499 183,068 1,977,536 548,978
General and administrative 444,295 192,597 1,384,266 471,308
Selling and marketing 98,675 41,568 201,954 106,757
In-process research and development - - 1,111,134 -
-------------------------------- ---------------------------------
1,886,910 664,055 6,128,344 1,919,852
-------------------------------- ---------------------------------
Income (loss) from operations (178,366) 575 (1,716,995) 316,293
-------------------------------- ---------------------------------
Interest expense (7,809) (8,647) (33,529) (25,199)
Interest income 69,777 1,438 196,843 7,054
-------------------------------- ---------------------------------
61,968 (7,209) 163,314 (18,145)
-------------------------------- ---------------------------------
Net income (loss) $ (116,398) $ (6,634) $ (1,553,681) $ 298,148
================================ =================================
Net income (loss) per common and common
equivalent share $ (0.02) $ (0.00) $ (0.22) $ 0.04
================================ =================================
Weighted average common and common
equivalent shares outstanding 7,100,710 6,571,893 7,013,908 6,802,362
================================ =================================
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,553,681) $ 298,148
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization 204,021 62,119
Common stock issued for in-process research and development 806,174 -
Warrant grant in exchange for license 11,200 -
Changes in assets and liabilities-
Accounts receivable (537,616) 15,561
Inventories (414,020) (96,613)
Prepaid expenses and other current assets (757,164) (14,771)
Accounts payable 332,482 116,122
Accrued expenses (69,015) (160,150)
Deferred revenue (99,040) -
----------------------------------
Net cash provided by (used in) operating activities (2,076,659) 220,416
----------------------------------
Cash flows from investing activities:
Purchases of property and equipment (903,228) (190,220)
Increase in other assets (339,364) (5,271)
----------------------------------
Net cash used in investing activities (1,242,592) (195,491)
----------------------------------
Cash flows from financing activities:
Payments of subordinated debt (309,356) (2,500)
Payments of loan from distributor (530,500) (292,720)
Proceeds from issuance of convertible preferred stock, net 7,510,998 -
Proceeds from issuance of common stock 8,475 3,000
Distributions to stockholders (100,000) -
Payments of capital lease obligations (12,573) -
----------------------------------
Net cash provided by (used in) financing activities 6,567,044 (292,220)
----------------------------------
Net increase (decrease) in cash and cash equivalents 3,247,793 (267,295)
Cash and cash equivalents, beginning of period 533,247 715,400
----------------------------------
Cash and cash equivalents, end of period $ 3,781,040 $ 448,105
==================================
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 18,713 $ 27,746
==================================
Taxes $ 186,500 $ -
==================================
Supplemental disclosure of non-cash investing and financing transactions:
Equipment acquired under capital lease obligation $ 254,240 $ -
==================================
Accretion of dividends on convertible preferred stock $ 251,223 $ -
==================================
Common stock issued for in-process research and development $ 806,174 $ -
==================================
Common stock issued for property and equipment $ 298,783 $ -
==================================
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
Nitinol Medical Technologies, Inc. (the Company) designs, develops, and
markets innovative medical devices that utilize advanced materials and are
delivered by minimally invasive procedures. The Company's products are
designed to offer alternative approaches to existing complex treatments,
thereby reducing patient trauma, shortening procedure, hospitalization and
recovery times, and lowering overall treatment costs. The Company's patented
medical devices include self-expanding stents, vena cava filters, and septal
repair devices.
2. Interim Financial Statements
The accompanying Condensed Consolidated Financial Statements as of September
30, 1996 and for the three and nine month periods then ended are unaudited.
In management's opinion, these unaudited Condensed Consolidated Financial
Statements have been prepared on the same basis as the audited Consolidated
Financial Statements included in the Company's Registration Statement on Form
S-1 (File No. 333-06463) declared effective on September 27, 1996 and include
all adjustments, consisting of only normal recurring adjustments, necessary
for a fair presentation of the results for such interim periods. The results
of operations for the three and nine months ended September 30, 1996 are not
necessarily indicative of the results expected for the fiscal year ending
December 31, 1996.
Prior to October 19, 1995, the Company elected to be taxed as an S corporation
for federal and state income tax purposes. Accordingly, the accompanying
Condensed Consolidated Financial Statements do not include a provision for
income taxes for the three and nine months ended September 30, 1995.
3. Cash and Cash Equivalents
The Company considers all investments with maturities of 90 days or less from
the date of the purchase to be cash equivalents. At September 30, 1996, cash
equivalents consist of money market accounts, commercial paper, and short-term
mutual funds that invest in U.S. government obligations. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, the Company considers its
cash equivalents, which are carried at market and approximate cost, as
available for sale.
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based on the
weighted-average number of shares of common stock and common stock equivalents
outstanding during the respective periods. All shares of capital stock,
options and warrants issued during the 12 months immediately preceding the
anticipated initial public offering (the "Offering"),discussed in Note 9(a),
were treated as if they had been outstanding for all periods, in accordance
with the Securities and Exchange Commission rules and regulations, calculated
under the treasury stock method and based on the Offering price of $11.00 per
share. Pro forma net income (loss) per common and common equivalent share has
not been presented as the results are not materially different from historical
net income (loss) per common and common equivalent share.
5. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
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<CAPTION>
At At
December 31, September 30,
1995 1996
------------ -------------
<S> <C> <C>
Components $178,366 $561,126
Finished Goods 29,695 60,955
-------- --------
$208,061 $622,081
-------- --------
</TABLE>
Finished goods consist of materials, labor and manufacturing overhead.
6. Depreciation and Amortization
The Company provides depreciation and amortization by charges to operations
using the straight-line method, which allocates the cost of property and
equipment over the following estimated useful lives:
Asset Classification Estimated Useful Life
-------------------- ---------------------
Laboratory and computer equipment 5-7 Years
Leasehold improvements Life of Lease
Equipment under capital leases Life of Lease
Office furniture and equipment 5-10 Years
Computer Software 3 Years
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. Prepaid Expenses and Other Current Assets:
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
At At
December 31, September 30,
1995 1996
------------ -------------
<S> <C> <C>
Rent deposit $ 2,825 $506,937
Equipment deposit -- 87,603
Other prepaid expenses 17,501 182,950
------- --------
$20,326 $777,490
------- --------
</TABLE>
The full amount of the rent deposit at September 30, 1996 was returned to the
Company in October 1996.
8. Lease Finance Facility Agreement
In June 1996, the Company entered into a $1,500,000 lease finance facility
agreement with a bank under which the Company leases equipment at an interest
rate that is 200 basis points above the bank's cost of funds. As of September
30, 1996, the Company has approximately $242,000 outstanding under this
agreement. Each lease under this agreement is payable in equal monthly
installments over a period of 60 months.
9. Subsequent Events
(a) Initial Public Offering
On October 2, 1996, the Company completed an initial public offering (the
"offering") of 3,000,000 shares of the Company's Common Stock at $11.00 per
share for net proceeds of approximately $30,690,000, net of underwriting
discounts and before approximately $700,000 of related expenses. Upon completion
of the Offering, all outstanding shares of the Company's Convertible Preferred
Stock, par value $.001 per share, automatically converted into 1,993,212 and
3,787 shares of the Company's Common Stock and Redeemable Preferred Stock, par
value $.001 per share, respectively. Proceeds from the Offering were used to
redeem the Redeemable Preferred Stock for $4,505,000, which included dividends
of $255,000. Pursuant to an over-allotment option, on October 30, 1996, the
underwriters of the Offering purchased an additional 150,000 shares of the
Company's Common Stock at $11.00 per share resulting in additional net proceeds
to the Company of approximately $1,500,000.
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
9. Subsequent Events (continued)
(b) Pro Forma Financial Information
The following sets forth certain financial information as of September 30,
1996 on a pro forma basis adjusted for the Offering discussed in Note 9(a):
<TABLE>
<CAPTION>
September 30, 1996
------------------
Actual Pro forma
----------- ------------
(as adjusted)
<S> <C> <C>
Cash and cash equivalents $3,781,040 $30,800,540
Total assets 8,208,938 35,228,438
Redemption value of preferred stock 4,501,223 --
Stockholders' equity 1,736,491 33,257,214
Outstanding Shares of Stock:
Convertible preferred stock 3,787,104 --
Common stock 4,292,710 9,435,922
</TABLE>
(c) Operating Lease Commitment
In May 1996, the Company entered into a lease for a new manufacturing,
research and administrative facility which increased the Company's annual
facility lease payments by approximately $400,000. The Company partially
occupied this facility in August 1996 and fully occupied the facility on
October 2, 1996. Rent expense for this facility for both the three and nine
month periods ended September 30, 1996 was approximately $34,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q, other than the historical financial
information, contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties or other factors
which may cause actual results, performance or achievement of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include uncertainties in market demand and acceptance,
government regulation and approvals, and intellectual property rights and
litigation; the impact of healthcare reform programs and competitive products
and pricing; risks associated with technology and product development and
commercialization, potential product liability, management of growth, and
dependence on significant corporate relationships, and other risks detailed in
the Company's Prospectus dated September 27, 1996 filed with the Securities and
Exchange Commission pursuant to Rule 424 (b).
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1995
Revenues. Revenues for the three months ended September 30, 1996 increased to
$1.7 million from $665,000 for the three months ended September 30, 1995 (a 156%
increase). Product sales increased to $1.0 million for the three months ended
September 30, 1996 from $531,000 for the three months ended September 30, 1995
(an 88% increase). The increase in product sales is primarily due to increased
unit sales of vena cava filters, primarily due to the introduction of the
straight-line delivery system for the vena cava filter in November 1995, and the
commencement of sales of the CardioSeal Septal Occluder in connection with
clinical trials at the end of September 1996. The Company recorded $687,500 in
license fees from Boston Scientific corporation ("Boston Scientific") related to
its stent technology in the three months ended September 30, 1996, consisting of
$500,000 in milestone payments and a quarterly minimum royalty payment of
$187,500. Product development revenues from Boston Scientific (which consist of
reimbursement of certain costs incurred by the Company) decreased to $6,000 for
the three months ended September 30, 1996 from $133,000 for the three months
ended September 30, 1995 (a 95% decrease), due to the completion of the
Company's transfer of its stent technology to Boston Scientific in November 1995
which resulted in a reduction of stent development costs incurred by the Company
on behalf of Boston Scientific.
Cost of Product Sales. Cost of product sales increased to $529,000 for the
three months ended September 30, 1996 from $247,000 for the three months ended
September 30, 1995 (a 114% increase). The cost of product sales for the three
months ended September 30, 1995 was entirely related to vena cava filters, while
the cost of product sales for the three months ended September 30, 1996 also
includes the cost of sales of the CardioSeal Septal Occluder in connection with
clinical trials. The increase reflects the increase in
<PAGE>
vena cava filters sold in the three months ended September 30, 1996 and the cost
of sales of the CardioSeal Septal Occluder in connection with clinical trials.
Cost of products sales, as a percent of product sales, increased to 52% for the
three months ended September 30, 1996 from 47% for the three months ended
September 30, 1995. This increase primarily reflects the impact of the start-up
manufacturing costs for the introduction of the straight-line delivery system
for the Company's vena cava filter which resulted in a higher unit manufacturing
cost as a percent of the selling price.
Research and Development. Research and development expenses increased to
$815,000 for the three months ended September 30, 1996 from $183,000 for the
three months ended September 30, 1995 (a 345% increase). The increase reflects
increased activity in the Company's development programs for vena cava filters,
the CardioSeal Septal Occluder and other products under development. Increased
expenses, including regulatory and clinical trial expenses, resulted primarily
from increases in personnel and related costs, engineering expenses and
facilities related costs. The Company received reimbursement from Boston
Scientific for $6,000 and $133,000 of these expenses in the three months ended
September 30, 1996 and 1995 respectively, which amounts are included in
revenues.
General and Administrative. General and administrative expenses increased to
$444,000 for the three months ended September 30, 1996 from $193,000 for
the three months ended September 30, 1995 (a 130% increase). The increase
consisted primarily of increases in personnel and related costs, legal and
professional fees, facilities costs and consulting expenses. These increases
resulted from the Company's expanded scope of operations.
Selling and Marketing. Selling and marketing expenses increased to $99,000 for
the three months ended September 30, 1996 from $42,000 for the three months
ended September 30, 1995 (a 136% increase). The increase related primarily to
the introduction of the straight-line delivery system for the Company's vena
cava filter, the international distribution of the vena cava filter by Bard
International beginning in January 1996, and to pre-marketing activities related
to the CardioSeal Septal Occluder. Selling and marketing expenses for the three
months ended September 30, 1995 were entirely related to vena cava filters.
Interest Income (Expense), Net. Interest income, net was $62,000 for the three
months ended September 30, 1996 as compared to interest expense, net amounting
to $7,000 for the three months ended September 30, 1995. This increase was
primarily due to the receipt in February 1996 of $7.5 million in net proceeds
from the sale of Convertible Preferred Stock. Interest expense for the three
months ended September 30, 1995 consisted primarily of interest on subordinated
debt to stockholders, which was fully repaid in April 1996. Interest expense
for the three months ended September 30, 1996 consisted primarily of interest on
capitalized lease obligations.
Income Taxes. The Company had no income tax provision for the three months
ended September 30, 1996 as it incurred an operating loss. Prior to October 19,
1995, the Company elected to be taxed as a "S" Corporation for federal and state
income tax
<PAGE>
purposes and, accordingly, the financial statements do not include a
provision for income taxes for the three months ended September 30, 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenues. Revenues for the nine months ended September 30, 1996 increased to
$4.4 million from $2.2 million for the nine months ended September 30, 1995 (a
100% increase). Product sales increased to $3.0 million for the nine months
ended September 30, 1996 from $1.9 million for the nine months ended September
30, 1995 (a 58% increase). The increase in product sales is primarily due to
increased unit sales of vena cava filters, which in turn, was primarily due to
the introduction of the straight-line delivery system in November 1995, and the
commencement of sales of the CardioSeal Septal Occluder at the end of September
1996 in connection with clinical trials. The Company recorded $1.3 million in
license fees from Boston Scientific related to its stent technology in the nine
months ended September 30, 1996, consisting of $750,000 in milestone payments
and three quarterly minimum royalty payments of $187,500 each. Product
development revenues from Boston Scientific (which consist of reimbursement of
certain costs incurred by the Company) decreased to $85,000 for the nine months
ended September 30, 1996 from $402,000 for the nine months ended September 30,
1995 (a 79% decrease), due to the completion of the Company's transfer of its
stent technology to Boston Scientific in November 1995 which resulted in a
reduction of stent development costs incurred by the Company on behalf of Boston
Scientific.
Cost of Product Sales. Cost of product sales increased to $1.5 million for the
nine months ended September 30, 1996 from $793,000 for the nine months ended
September 30, 1995 (an 89% increase). The cost of product sales for the nine
months ended September 30, 1995 was entirely related to vena cava filters, while
the cost of product sales for the nine months ended September 30, 1996 also
includes the cost of sales of the CardioSeal Septal Occluder in connection with
clinical trials. Cost of products sales, as a percent of product sales,
increased to 48% for the nine months ended September 30, 1996 from 43% for the
nine months ended September 30, 1995. This increase reflects the impact of the
start-up manufacturing costs for the introduction of the straight-line delivery
system for the Company's vena cava filter which resulted in a higher unit
manufacturing cost as a percent of the selling price.
Research and Development. Research and development expenses increased to $2.0
million for the nine months ended September 30, 1996 from $549,000 for the nine
months ended September 30, 1995 (a 264% increase). The increase reflects
increased activity in the Company's development programs for vena cava filters,
the CardioSeal Septal Occluder and other products under development. Increased
expenses, including regulatory and clinical trial expenses, resulted primarily
from increases in personnel and related costs, engineering expenses and
facilities related costs. The Company received reimbursement from Boston
Scientific for $85,000 and $402,000 of these expenses in the nine months ended
September 30, 1996 and 1995 respectively, which amounts are included in
revenues.
<PAGE>
General and Administrative. General and administrative expenses increased to
$1.4 million for the nine months ended September 30, 1996 from $471,000 for the
nine months ended September 30, 1995 (a 197% increase). The increase consisted
primarily of increases in personnel and related costs, legal and professional
fees, facilities costs and consulting expenses. These increases resulted from
the Company's expanded scope of operations.
Selling and Marketing. Selling and marketing expenses increased to $202,000 for
the nine months ended September 30, 1996 from $107,000 for the nine months ended
September 30, 1995 (an 89% increase). The increase related primarily to the
introduction of the straight-line delivery system for the Company's vena cava
filter, the international distribution of the vena cava filter by Bard
International beginning in January 1996, and to pre-marketing activities related
to the CardioSeal Septal Occluder. Selling and marketing expenses for the nine
months ended September 30, 1995 were entirely related to vena cava filters.
In-Process Research and Development. In the nine months ended September 30,
1996, the Company recorded a charge of $1.1 million for in-process research and
development related to the CardioSeal Septal Occluder which was acquired in
February 1996.
Interest Income (Expense), Net. Interest income, net was $163,000 for the nine
months ended September 30, 1996 as compared to interest expense, net amounting
to $18,000 for the nine months ended September 30, 1995. This increase was
primarily due to the receipt in February 1996 of $7.5 million in net proceeds
from the sale of Convertible Preferred Stock. Interest expense for the nine
months ended September 30, 1995 consisted primarily of interest on subordinated
debt to stockholders, which was fully repaid in April 1996. Interest expense
for the nine months ended September 30, 1996 consisted of interest on
subordinated debt to stockholders and interest on capitalized lease obligations.
Income Taxes. The Company had no income tax provision for the nine months ended
September 30, 1996 as it incurred an operating loss. Prior to October 19, 1995,
the Company elected to be taxed as a "S" Corporation for federal and state
income tax purposes and, accordingly, the financial statements do not include a
provision for income taxes for the nine months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 1996, operations utilized cash of $2.1
million of which part was used to fund a portion of the acquisition of the
septal repair device technology and for working capital. Cash flow from
operations was used to fund increases in accounts receivable of $538,000 during
the nine months ended September 30, 1996. The increases in working capital
items during the nine months ended September 30, 1996 reflect the increases in
product sales and the timing of such product sales, including sales of the
Company's CardioSeal Septal Occluder which began at the end of September 1996
in connection with clinical trials. Accounts receivable is anticipated to
increase as sales of such product increase. In the nine months ended September
30, 1995,
<PAGE>
operations provided cash of approximately $220,000 due primarily to
net income.
In February 1996, the Company received approximately $7.5 million in net
proceeds from the sale of 3,787,104 shares of Convertible Preferred Stock, which
funds were used in part to accelerate its facilities and infrastructure
expansion. During the nine months ended September 30, 1996 the Company made
distributions to its stockholders of $100,000. In 1994, the Company began
paying a $1.5 million loan received in 1992 from C.R.Bard, Inc. ("Bard"), the
distributor of the Company's vena cava filter. Loan payments are based upon the
number of domestic vena cava units sold to Bard. The loan is expected to be
repaid by the end of 1996. Payments during the nine months ended September 30,
1996 and the nine months ended September 30, 1995 amounted to $531,000 and
$293,000, respectively. In addition, during the nine months ended September 30,
1996, and September 30, 1995 the Company repaid subordinated debt to its
stockholders amounting to $309,000 and $2,500, respectively.
Purchases of property and equipment for use in its manufacturing, research and
development and general and administrative activities amounted to $903,000
during the nine months ended September 30, 1996. In May 1996, the Company
entered into a lease for a new manufacturing, research and administrative
facility which increased its annual facility lease payments by approximately
$400,000. The Company partially occupied this facility in August, 1996 and
fully occupied this facility by October 2, 1996. The Company anticipates
incurring costs during 1996 for leasehold improvements of approximately $1.0
million, net of landlord's contribution, of which approximately $542,000 was
incurred during the nine months ended September 30, 1996, and anticipates
additional leasehold improvements of approximately $400,000 in 1997. In
addition, the Company has received a $1.5 million lease finance facility from a
bank and anticipates leasing equipment and furniture of approximately $1.0
million under such facility during 1996, of which approximately $254,000 was
leased during the nine months ended September 30,1996, and anticipates leasing
an additional $500,000 under such facility during 1997.
The Company is party to various other substantial contractual arrangements
including salaries and fees for current employees and consultants which are
likely to increase as additional agreements are entered into and additional
personnel are retained. The Company has also committed to purchase certain
minimum quantities of the vena cava filter from a supplier through September
2001. All of these arrangements require cash payments by the Company over
varying periods of time. Certain of these arrangements are cancelable on short
notice and certain require termination or severance payments as part of any
early termination.
On October 2,1996, the Company received net proceeds of approximately
$30,690,000 net of underwriting discounts and before approximately $700,000 of
related expenses, related to the Offering of 3,000,000 shares of Common Stock at
$11.00 per share. On October 30, 1996 the Company received net proceeds of
approximately $1.5 million net of underwriting discounts, related to the sale of
an additional 150,000 shares of Common Stock at $11.00 per share in connection
with the exercise of an over-allotment option granted to the underwriters in
connection with the Offering. The Company believes that
<PAGE>
the net proceeds of the Offering, its existing resources and cash flow from
operations will be sufficient to fund its current level of operations and
planned new product development, including increased working capital
requirements and capital expenditures, for the foreseeable future. The Company
expects to accelerate its product development, marketing and other activities
with the proceeds of the Offering. The Company expects operating losses to
continue through early 1997 as it continues to expend substantial resources to
complete development of the Company's products, seek regulatory clearances or
approvals, build its marketing, sales and manufacturing organizations and
conduct further research and development.
The Company may require funds in addition to the net proceeds of the Offering
for its research and product development programs, preclinical and clinical
testing, operating expenses, regulatory process, manufacturing and marketing
programs and potential licenses and acquisitions. Any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive covenants. The Company's capital requirements will depend
on numerous factors, including the sales of its products, the progress of its
research and development programs, the progress of preclinical and clinical
testing, the time and cost involved in obtaining regulatory approvals, the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights, competing technological and market developments,
developments and changes in the Company's existing research, licensing and other
relationships and terms of any collaborative, licensing and other arrangements
that the Company may establish.
<PAGE>
PART II OTHER INFORMATION
Item 2. Changes in Securities
See Note 9(a) in the Notes to Financial Statements in Part I--Financial
Information of this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
Pursuant to Section 228(a) of the General Corporation Law of the State
of Delaware, a majority of the holders of the Company's Common Stock
and all of the holders of the Company's Convertible Preferred Stock,
approved, by a written consent dated as of September 16, 1996, the
Certificate of Amendment to the Company's Amended and Restated
Certificate of Incorporation which amended the definition of a
"Qualified Public Offering".
Item 6. Exhibits
Exhibit 27. Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NITINOL MEDICAL TECHNOLOGIES, INC.
Date: November 8, 1996 By: /s/ Thomas M. Tully
-------------------------------
Thomas M. Tully
President and Chief Executive
Officer
Date: November 8, 1996 By: /s/ Theodore I. Pincus
-------------------------------
Theodore I. Pincus
Executive Vice President and
Chief Financial Officer
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
STATEMENT RE: EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------------------------------- -----------------------------------
<S> <C> <C>
Net Income (Loss) $ (116,398) $ (6,634) $ (1,553,681) $ 298,148
================================== ===================================
Weighted average common
shares outstanding 4,292,430 3,763,613 4,205,628 3,760,030
Stock issued within twelve
months of initial public
offering (1) 2,808,280 2,808,280 2,808,280 2,808,280
Common stock equivalents - - - 234,052
---------------------------------- -----------------------------------
Weighted average number of
common and common equiv-
alent shares outstanding 7,100,710 6,571,893 7,013,908 6,802,362
---------------------------------- -----------------------------------
Net income (loss) per share
amount $ (0.02) $ (0.00) $ (0.22) $ 0.04
================================== ===================================
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, stock, stock options, and stock warrants issued at prices below the
initial public offering price during the 12-month period immediately
preceding the initial filing date of the Company's Registration Statement of
its initial public offering have been included as outstanding for all
periods presented. The dilutive effect of the common stock equivalents was
computed in accordance with the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND FOR THE THREE AND
NINE MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,781,040
<SECURITIES> 0
<RECEIVABLES> 860,833
<ALLOWANCES> 0
<INVENTORY> 622,081
<CURRENT-ASSETS> 6,184,444
<PP&E> 2,049,913
<DEPRECIATION> 407,752
<TOTAL-ASSETS> 8,208,938
<CURRENT-LIABILITIES> 1,773,387
<BONDS> 0
4,501,223
3,787
<COMMON> 4,294
<OTHER-SE> 1,782,410
<TOTAL-LIABILITY-AND-EQUITY> 8,208,938
<SALES> 3,013,555
<TOTAL-REVENUES> 4,411,349
<CGS> 1,453,454
<TOTAL-COSTS> 6,128,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (163,314)
<INCOME-PRETAX> (1,553,681)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,553,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,553,681)
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
