<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[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
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ______
Commission file number: 0-21001
Nitinol Medical Technologies, Inc.
----------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4090463
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
27 Wormwood Street, Boston, Massachusetts 02210
- ------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
617-737-0930
------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
--- ---
As of October 31, 1997, there were 9,622,754 shares of Common Stock,
$.001 par value per share, outstanding.
<PAGE>
NITINOL MEDICAL TECHNOLOGIES, INC.
INDEX
-----
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
--------------------- -----------
<S> <C>
Item. 1 Consolidated Balance Sheets at December 31, 1996 and September 30, 3
1997
Consolidated Statements of Operations for the Three and Nine Months 4
Ended September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows for the Nine Months 5
Ended September 30, 1997 and 1996
Item 2. Notes to Consolidated Financial Statements 6-12
Item 3. Management's Discussion and Analysis of Financial Condition and 13-18
Results of Operations
Quantitative and Qualitative Disclosure about Market Risk N/A
<CAPTION>
Part II. Other Information
-----------------
<S> <C>
Item 4. Changes in Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit 11.1
Exhibit 27.1
</TABLE>
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Nitinol Medical Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At At
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,685,959 $ 4,082,486
Marketable securities 18,677,467 25,273,555
Accounts receivable 1,691,435 782,230
Inventories 1,077,107 745,977
Prepaid expenses and other current assets 948,966 610,017
------------ ------------
Total current assets 28,080,934 31,494,265
------------ ------------
Property and equipment, at cost:
Leasehold improvements 1,128,972 1,191,498
Laboratory and computer equipment 1,038,007 925,166
Equipment under capital lease 851,545 548,063
Office furniture and equipment 145,071 93,031
------------ ------------
3,163,595 2,757,758
Less-Accumulated depreciation and amortization (716,227) (504,909)
------------ ------------
2,447,368 2,252,849
------------ ------------
Long-term investments 2,725,687 1,083,763
Other assets 155,208 98,627
------------ ------------
$ 33,409,197 $ 34,929,504
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 151,580 $ 420,424
Accrued expenses 778,148 678,164
Current portion of capital lease obligation 152,474 94,954
------------ ------------
Total current liabilities 1,082,202 1,193,542
------------ ------------
Capital lease obligation, net of current portion 575,549 415,591
Stockholders' equity
Common stock, $.001 par value-
Authorized-30,000,000 shares
Issued and outstanding-9,739,705 and 9,435,922
shares at September 30, 1997 and December 31,
1996, respectively 9,741 9,437
Paid-in Capital 36,093,410 35,321,821
Accumulated deficit (4,351,705) (2,010,887)
------------ ------------
Total stockholders' equity 31,751,446 33,320,371
------------ ------------
$ 33,409,197 $ 34,929,504
============ ============
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 2,265,077 $ 1,014,777 $ 6,154,792 $ 3,013,555
License fees 250,000 687,500 750,000 1,312,500
Product development 8,216 6,267 58,610 85,294
----------------------------- -------------------------------
2,523,293 1,708,544 6,963,402 4,411,349
----------------------------- -------------------------------
Expenses:
Cost of product sales 917,213 529,441 2,802,896 1,453,454
Research and development 793,909 814,499 2,268,618 1,977,536
General and administrative 636,604 444,295 1,968,402 1,384,266
Selling and marketing 294,128 98,675 678,475 201,954
In-process research and development -- -- 2,449,072 1,111,134
Restructuring charge -- -- 193,635 --
----------------------------- -------------------------------
2,641,854 1,886,910 10,361,098 6,128,344
----------------------------- -------------------------------
Loss from operations (118,561) (178,366) (3,397,696) (1,716,995)
----------------------------- -------------------------------
Interest expense (10,979) (7,809) (30,726) (33,529)
Interest income 394,624 69,777 1,201,103 196,843
----------------------------- -------------------------------
383,645 61,968 1,170,377 163,314
----------------------------- -------------------------------
Income (loss) before provision for
income taxes 265,084 (116,398) (2,227,319) (1,553,681)
Provision for income taxes 90,500 -- 113,500 --
----------------------------- -------------------------------
Net income (loss) $ 174,584 $ (116,398) $(2,340,819) $(1,553,681)
============================= ===============================
Net income (loss) per common and common
equivalent share $ 0.02 $ (0.02) $ (0.25) $ (0.22)
============================= ===============================
Weighted average common and common
equivalent shares outstanding 11,151,490 7,100,710 9,535,505 7,013,908
============================= ===============================
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
4
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1997 1996
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,340,819) $(1,553,681)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 329,211 204,021
Acceleration of stock options 111,576
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 (909,205) (537,616)
Inventories (331,130) (414,020)
Prepaid expenses and other current assets (338,949) (757,164)
Accounts payable (268,844) 332,482
Accrued expenses 99,985 (69,015)
Deferred revenue -- (99,040)
--------------------------------
Net cash used in operating activities (3,648,175) (2,076,659)
--------------------------------
Cash flows from investing activities:
Maturities of marketable securities, net 4,954,164 --
Purchases of property and equipment (213,827) (903,228)
Increase in other assets (63,003) (339,364)
--------------------------------
Net cash provided by (used in) investing activities 4,677,334 (1,242,592)
--------------------------------
Cash flows from financing activities:
Payments of subordinated debt -- (309,356)
Payments of loan from distributor -- (530,500)
Proceeds from issuance of convertible preferred stock, net -- 7,510,998
Proceeds from issuance of common stock 662,917 8,475
Redemption of fractional shares of common stock (2,600) --
Distributions to stockholders -- (100,000)
Payments of capital lease obligations (86,003) (12,573)
--------------------------------
Net cash provided by financing activities 574,314 6,567,044
--------------------------------
Net increase in cash and cash equivalents 1,603,473 3,247,793
Cash and cash equivalents, beginning of period 4,082,486 533,247
--------------------------------
Cash and cash equivalents, end of period $ 5,685,959 $ 3,781,040
================================
Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest $ 30,726 $ 18,713
================================
Taxes $ 28,500 $ 186,500
================================
Supplemental disclosure of non-cash investing and financing transactions:
Write-off of abandoned leasehold improvements $ 111,472 $ --
================================
Equipment acquired under capital lease obligation $ 303,481 $ 254,240
================================
Accretion of dividends on convertible preferred stock $ -- $ 251,223
================================
Common stock issued for property and equipment $ -- $ 298,783
================================
</TABLE>
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
5
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Operations
Nitinol Medical Technologies, Inc. (the Company) designs, develops, and
markets innovative medical devices that utilize advanced technologies 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. At this time, the Company's stents have been
commercially launched in Europe and in the United States for certain
indications, its vena cava filters are marketed in the United States and
abroad, and the CardioSEAL septal repair device is in the clinical trials
stage in the U.S. and has begun commercial sales in Europe and other
international markets. The Company is subject to a number of risks similar
to those of other companies in this stage of development, including
uncertainties regarding the development of commercially viable products,
competition from alternative procedures and larger companies, dependence on
key personnel and government regulation.
2. Interim Financial Statements
The accompanying Consolidated Financial Statements as of September 30, 1997
and for the three and nine month periods then ended are unaudited. In
management's opinion, these unaudited Consolidated Financial Statements
have been prepared on the same basis as the audited Consolidated Financial
Statements included in the Company's Annual Report as of December 31, 1996
as filed on Form 10-K on March 12, 1997 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, 1997 are not
necessarily indicative of the results expected for the fiscal year ending
December 31, 1997.
3. Reclassifications
Certain prior period amounts have been reclassified to conform to current
period's presentation.
6
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
4. Cash and Cash Equivalents, Marketable Securities, and Long-Term
Investments
In accordance with Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities, the
Company has classified certain of its marketable securities and long-term
investments as held-to-maturity and certain of its marketable securities as
available-for-sale.
Held-to-maturity securities represent those securities for which the
Company has the intent and ability to hold to maturity and are reported at
amortized cost. Available-for-sale securities represent those securities
that do not meet the classification of held-to-maturity, are not actively
traded and are reported at fair market value with any unrealized gains and
losses included in stockholders' equity. There were no unrealized gains and
losses at September 30, 1997 and December 31, 1996. The Company considers
all investments with maturities of 90 days or less from the date of the
purchase to be cash equivalents.
Cash and cash equivalents, which are carried at cost and approximate
market, consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Cash $1,033,847 $ 816,124
Cash equivalents--
Commercial paper 3,971,476 2,994,829
Money market 680,636 271,533
---------- ----------
$5,685,959 $4,082,486
========== ==========
</TABLE>
7
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
4. Cash and Cash Equivalents, Marketable Securities, and Long-Term
Investments--(continued)
Marketable securities consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Held-to-maturity--
Eurodollar bonds $10,763,028 $11,084,143
Commercial paper 4,988,423 10,958,453
Corporate debt securities 1,135,784 329,363
Zero coupon bonds 1,126,120 --
Medium-term notes 664,112 501,596
----------- -----------
18,677,467 22,873,555
Available-for-sale--
Taxable auction securities -- 2,400,000
----------- -----------
$18,677,467 $25,273,555
=========== ===========
</TABLE>
Long-term investments, which are carried at cost and approximate market,
are comprised of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Held-to-maturity--
Eurodollar bonds $1,479,177 $1,083,763
Corporate debt securities 1,246,510 --
---------- ----------
$2,725,687 $1,083,763
========== ==========
</TABLE>
In addition, the following amounts of interest receivable generated from
the Company's cash and cash equivalents, marketable securities, and
long-term investments are included in prepaid expenses and other current
assets and in other assets in the accompanying balance sheets at:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Short-term interest receivable $476,589 $237,643
Long-term interest receivable 5,676 16,953
-------- --------
$482,265 $254,596
======== ========
</TABLE>
8
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
5. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Components $ 713,345 $ 307,778
Finished Goods 363,762 438,199
---------- ----------
$1,077,107 $ 745,977
========== ==========
</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:
<TABLE>
<CAPTION>
Asset Classification Estimated Useful Life
-------------------- ---------------------
<S> <C>
Leasehold improvements Life of Lease
Laboratory and computer equipment 3-7 Years
Equipment under capital leases Life of Lease
Office furniture and equipment 5-10 Years
</TABLE>
7. 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, in periods where they are not dilutive, outstanding during the
respective periods. All shares of capital stock, options and warrants
issued during the 12 months immediately preceding the Company's initial
public offering on October 2, 1996 were treated as if they had been
outstanding for all periods presented in 1996, 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.
9
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
8. In-Process Research and Development
On May 29, 1997 the Company entered into an agreement to invest $2.3
million in Image Technologies Corporation (ITC) in exchange for 345,722
shares of ITC's $.01 par value convertible preferred stock, representing a
23% ownership interest in ITC. Under the terms of this agreement, the
Company has extended ITC a credit line of up to $2 million of senior debt,
convertible to convertible preferred stock at the option of the Company and
equivalent to up to an additional 20% ownership of ITC. ITC may draw
against this line of credit based upon meeting its approved business plan.
The Company, however, has the right to advance all of the line and convert
to convertible preferred stock at its option. The Company also has a 24
month option to purchase the remaining 57% of ITC for $24.5 million of
which up to $8.5 million may be payable in cash. The option may be extended
for an additional six months under certain conditions.
ITC is a development stage company with no revenues to date. Due to the
uncertainty regarding the realization of the investment, the Company
charged the amount of the purchase price and related acquisition costs to
operations as in-process research and development in the period of the
investment.
9. Restructuring Charge
During the three months ended June 30, 1997, the Company reorganized its
vena cava filter operations and brought the assembly of its straight-line
vena cava filters in-house. In connection with this restructuring, the
Company reduced staff and incurred other non-recurring costs. The $194,000
restructuring charge in the accompanying statements of operations includes
a non-cash charge of $112,000 for the accelerated vesting of certain stock
options, cash severance and benefits of $62,000, and $20,000 for the
transfer of assembly technology. Other start-up costs related to the
in-house assembly of the straight-line vena cava filter, including the
training of manufacturing personnel and associated materials and overhead,
are included in cost of goods sold in the accompanying statement of
operations.
10
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
10. Lease Finance Facility Agreement
In June 1996, the Company entered into a one-year $1.5 million 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. Leases under this agreement are payable in equal monthly
installments over a period of 36-60 months and expire through November
2001. Borrowings of $572,000 were made under this agreement of which
$459,000 was outstanding as of September 30, 1997. Upon the expiration of
this agreement in June 1997, the Company entered into a new agreement with
the bank that provides the Company with similar terms and the option to
borrow up to $1 million through March 31, 1998. As of September 30, 1997,
borrowings of $280,000 and $221,000 were made under this new agreement by
the Company and ITC, respectively (see Note 8). Borrowings made by ITC are
guaranteed by the Company. As of September 30, 1997, $269,000 and $214,000
was outstanding under this agreement by the Company and ITC, respectively.
11. Accrued Expenses
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Payroll and payroll related $149,757 $231,212
Royalties 103,565 75,520
Income taxes payable 88,000 3,000
Leasehold improvements 48,553 108,553
Other accrued expenses 388,273 259,878
-------- --------
Total accrued expenses $778,148 $678,164
======== ========
</TABLE>
11
<PAGE>
Nitinol Medical Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(continued)
12. New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing
and presenting earnings per share. This statement is effective for fiscal
years ending after December 15, 1997 and early adoption is not permitted.
When adopted, the statement will require restatement of prior years'
earnings per share. The Company will adopt this statement for its fiscal
year ended December 31, 1997. The Company believes that the adoption of
SFAS No. 128 will not have a material effect on its previously reported
income (loss) per share.
12
<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
under the heading "Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Certain Factors That May Affect Future Results" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
and filed with the Securities and Exchange Commission on March 12, 1997.
Results of Operations
Three months ended September 30, 1997 compared with three months ended
September 30, 1996
Revenues. Revenues for the three months ended September 30, 1997 increased to
$2.5 million from $1.7 million for the three months ended September 30, 1996 (a
47% increase). Product sales increased to $2.3 million for the three months
ended September 30, 1997 from $1.0 million for the three months ended September
30, 1996 (a 130% increase). The increase in product sales was due to increased
unit sales of vena cava filters; a 3% increase in the price of vena cava
filters; and a full quarter of commercial sales of the CardioSEAL Septal
Occluder in Europe and other international markets and sales in connection with
clinical trials in the three months ended September 30, 1997, compared with
sales of the CardioSEAL Septal Occluder during the three months ended September
30, 1996 which were only in connection with clinical trials that commenced at
the end of September 1996. The market for septal occluders (including the
CardioSEAL Septal Occluder) is proving to be more competitive and price
sensitive than previously expected. Therefore, the Company expects a slower
increase in sales growth for the CardioSEAL Septal Occluder than originally
anticipated. The Company recorded $250,000 in license fees from Boston
Scientific Corporation ("Boston Scientific") related to its stent technology in
the three months ended September 30, 1997 representing a quarterly minimum
royalty payment. Revenues for the three months ended September 30, 1996 included
$187,500 in such quarterly minimum royalty payments in addition to $500,000 in
milestone payments from Boston Scientific.
13
<PAGE>
Cost of Product Sales. Cost of product sales increased to $917,000 for the three
months ended September 30, 1997 from $529,000 for the three months ended
September 30, 1996 (a 73% increase). The cost of product sales for the three
months ended September 30, 1997 includes cost of sales of vena cava filters and
CardioSEAL Septal Occluders in connection with clinical trials and foreign
commercial sales. The cost of product sales for the three months ended September
30, 1996 was primarily related to sales of vena cava filters as sales of the
CardioSEAL Septal Occluder in connection with clinical trials commenced at the
end of September 1996. Cost of product sales, as a percent of product sales,
decreased to 40% for the three months ended September 30, 1997 from 53% for the
three months ended September 30, 1996. This decrease is primarily attributable
to sales of the CardioSEAL Septal Occluder which has a lower cost of product
sales as a percent of sales than the vena cava filter as well as a decrease in
the cost of the vena cava filter due to the reorganization of the Company's
filter operations in the second quarter of 1997. See Note 9 of the accompanying
Notes to Consolidated Financial Statements.
Research and Development. Research and development expenses remained relatively
constant for the three months ended September 30, 1997 as compared to the three
months ended September 30, 1996.
General and Administrative. General and administrative expenses increased to
$637,000 for the three months ended September 30, 1997 from $444,000 for the
three months ended September 30, 1996 (a 43% increase). The increase consisted
primarily of increases in personnel and related costs, legal and professional
fees, facilities costs, insurance costs, investor relations costs, and computer
systems costs resulting from the Company's expanded scope of operations in 1997.
Selling and Marketing. Selling and marketing expenses increased to $294,000 for
the three months ended September 30, 1997 from $99,000 for the three months
ended September 30, 1996 (a 197% increase). The increase related primarily to
the marketing activities related to commercial sales of the CardioSEAL Septal
Occluder in Europe and other international markets which commenced in June 1997.
Interest Income, Net. Interest income, net was $384,000 for the three months
ended September 30, 1997 as compared to $62,000 for the three months ended
September 30, 1996 (a 519% increase). The increase was primarily due to the
closing of the Company's initial public offering of 3,150,000 shares of common
stock in October 1996 resulting in net proceeds to the Company of $31.2 million.
14
<PAGE>
Income Taxes. The Company had a provision for income taxes of $90,500 for the
three months ended September 30, 1997 based on income before provision for
income taxes of $265,000 for the period. The Company's effective tax rate
reflects the impact of lower state taxation on the Company's investment income.
There was no provision for income taxes for the three months ended September 30,
1996 as the Company incurred an operating loss for that period.
Nine months ended September 30, 1997 compared with nine months ended
September 30, 1996
Revenues. Revenues for the nine months ended September 30, 1997 increased to
$7.0 million from $4.4 million for the nine months ended September 30, 1996 (a
59% increase). Product sales increased to $6.2 million for the nine months ended
September 30, 1997 from $3.0 million for the nine months ended September 30,
1996 (a 107% increase). The increase in product sales was primarily due to
increased unit sales of vena cava filters, a 3% increase in the price of vena
cava filters, and the commencement of sales of the CardioSEAL Septal Occluder in
connection with clinical trials at the end of September 1996, and the
commencement of commercial sales of the CardioSEAL Septal Occluder in June 1997
in certain European and other international markets. The market for septal
occluders (including the CardioSEAL Septal Occluder) is proving to be more
competitive and price sensitive than previously expected. Therefore, the Company
expects a slower increase in sales growth for the CardioSEAL Septal Occluder
than originally anticipated. The Company recorded $750,000 in license fees from
Boston Scientific Corporation ("Boston Scientific") related to its stent
technology in the nine months ended September 30, 1997 representing three
quarterly minimum royalty payments of $250,000 each. Revenues for the nine
months ended September 30, 1996 included $750,000 in milestone payments and
$562,500 in minimum royalty payments from Boston Scientific. Product development
revenues from Boston Scientific (which consist of reimbursement of certain costs
incurred by the Company) decreased to $59,000 for the nine months ended
September 30, 1997 from $85,000 for the nine months ended September 30, 1996 as
a result of a reduction of stent development costs incurred by the Company on
behalf of Boston Scientific in the nine months ended September 30, 1997 compared
to the nine months ended September 30, 1996.
15
<PAGE>
Cost of Product Sales. Cost of product sales increased to $2.8 million for the
nine months ended September 30, 1997 from $1.5 million for the nine months ended
September 30, 1996 (an 87% increase). The cost of product sales for the nine
months ended September 30, 1997 includes sales of vena cava filters and
CardioSEAL Septal Occluders in connection with clinical trials and foreign
commercial sales. The cost of product sales for the nine months ended September
30, 1996 was primarily related to sales of vena cava filters as sales of the
CardioSEAL Septal Occluder in connection with clinical trials commenced at the
end of September 1996. Cost of product sales, as a percent of product sales,
decreased to 45% for the nine months ended September 30, 1997 from 50% for the
nine months ended September 30, 1996. This decrease is primarily attributable to
sales of the CardioSEAL Septal Occluder which has a lower cost of product sales
as a percent of sales than the vena cava filter as well as a decrease in the
cost of the vena cava filter due to the reorganization of the Company's filter
operations in the second quarter of 1997. See Note 9 of the accompanying Notes
to Consolidated Financial Statements.
Research and Development. Research and development expenses increased to $2.3
million for the nine months ended September 30, 1997 from $2.0 million for the
nine months ended September 30, 1996 (a 15% increase). The increase reflects an
increase in regulatory and clinical trial expenses for the CardioSEAL Septal
Occluder incurred in connection with clinical trials which commenced in
September 1996, as well as increased activity in the Company's development
programs for vena cava filters and other products under development. Increased
expenses resulted primarily from increases in personnel and related costs,
engineering expenses and facilities related costs. The Company received
reimbursement from Boston Scientific for $59,000 and $85,000 of these expenses
in the nine months ended September 30, 1997 and 1996, respectively, which
amounts are included in revenues.
General and Administrative. General and administrative expenses increased to
$2.0 million for the nine months ended September 30, 1997 from $1.4 million for
the nine months ended September 30, 1996 (a 43% increase). The increase
consisted primarily of increases in personnel and related costs, legal and
professional fees, facilities costs, insurance costs, investor relations costs,
and computer systems costs resulting from the Company's expanded scope of
operations in 1997.
Selling and Marketing. Selling and marketing expenses increased to $678,000 for
the nine months ended September 30, 1997 from $202,000 for the nine months ended
September 30, 1996 (a 236% increase). The increase related primarily to
marketing activities related to the CardioSEAL Septal Occluder in connection
with the commencement of commercial sales of the CardioSEAL Septal Occluder in
Europe and other international markets in June 1997.
16
<PAGE>
In-Process Research and Development. For the nine months ended September 30,
1997, the Company recorded a charge of $2.4 million for in-process research and
development related to the Company's investment in Image Technologies
Corporation on May 29, 1997. See Note 8 of the accompanying Notes to
Consolidated Financial Statements.
Restructuring Charge. During the nine months ended September 30, 1997, the
Company reorganized its vena cava filter operations and brought the assembly of
its straight-line vena cava filters in-house. In connection with this
reorganization, the Company recorded a restructuring charge of $194,000 in the
nine months ended September 30, 1997. See Note 9 of the accompanying Notes to
Consolidated Financial Statements.
Interest Income, Net. Interest income, net was $1.2 million for the nine months
ended September 30, 1997 as compared to $163,000 for the nine months ended
September 30, 1996 (a 636% increase). The increase was primarily due to the
closing of the Company's initial public offering of 3,150,000 shares of common
stock in October 1996 resulting in net proceeds to the Company of $31.2 million.
Income Taxes. The Company had a provision for income taxes of $113,500 for the
nine months ended September 30, 1997 which reflects the non-deductibility of the
in-process research and development and a portion of the restructuring charge
recorded in the period. There was no provision for income taxes for the nine
months ended September 30, 1996 as the Company incurred an operating loss for
that period.
Liquidity and Capital Resources
In the nine months ended September 30, 1997, the Company's operations utilized
cash of approximately $3.6 million of which $2.4 million was used to acquire the
23% interest in Image Technologies Corporation (see Note 8 of the accompanying
Notes to Consolidated Financial Statements) and $1.2 million was used for
working capital purposes primarily related to sales of the CardioSEAL Septal
Occluder in connection with clinical trials and commercial sales in Europe and
other international markets and for increased vena cava filter sales.
17
<PAGE>
Purchases and capitalized leases of property and equipment for use in its
research and development and general and administrative activities amounted to
$214,000 for the nine months ended September 30, 1997. In June 1996, the Company
entered into a one-year $1.5 million equipment lease line of credit agreement
without covenants. Upon expiration of this agreement in June 1997, the Company
entered into a new agreement with similar terms that provides the Company with
the option to borrow up to $1 million through March 31,1998. As of September 30,
1997, the Company borrowed $572,000 and $280,000 under the $1.5 million and $1.0
million agreement, respectively. See Note 10 of the accompanying Notes to
Consolidated Financial Statements.
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 also has committed to purchase certain
minimum quantities of the vena cava filter from a supplier through June 2001.
See Note 8 to the Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 12, 1997. 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.
The Company believes that its existing resources and cash flow from current
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 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 additional funds for its research and product
development programs, preclinical and clinical testing, operating expenses,
regulatory processes, 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.
18
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities
---------------------
During the quarterly period ended September 30, 1997, the Company granted
options to purchase 19,000 shares of Common Stock at a weighted average exercise
price of $13.78 per share to employees pursuant to the Company's 1996 Stock
Option Plan. None of such options has been exercised. The Company believes that
the transactions described in this paragraph are exempt from the registration
requirements of the Securities Act of 1933, as amended, by reason of Section
4(2) thereof. No underwriters were engaged in connection with these grants.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
--------
11.1 Statement re: Company's Earnings Per Share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
The Company did not file any Reports on Form 8-K during the quarter ended
September 30, 1997.
19
<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 5, 1997 By: /s/ Thomas M. Tully
-------------------------------------
Thomas M. Tully
President and Chief Executive Officer
Date: November 5, 1997 By: /s/ Theodore I. Pincus
-------------------------------------
Theodore I. Pincus
Executive Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
Exhibits
--------
11.1 Statement re: Company's Earnings Per Share.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 11.1
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,
1997 1996 1997 1996
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 174,584 $ (116,398) $ (2,340,819) $ (1,553,681)
============================== ================================
Weighted average common
shares outstanding 9,614,778 4,292,430 9,535,505 4,205,628
Stock issued within twelve
months of initial public
offering (1) - 2,808,280 - 2,808,280
Common stock equivalents 1,536,712 - - -
------------------------------ --------------------------------
Weighted average number of
common and common equiv-
alent shares outstanding 11,151,490 7,100,710 9,535,505 7,013,908
------------------------------ --------------------------------
Net income (loss) per share amount $ 0.02 $ (0.02) $ (0.25) $ (0.22)
============================== ================================
</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 in 1996. 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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,685,959
<SECURITIES> 18,677,467
<RECEIVABLES> 1,691,435
<ALLOWANCES> 0
<INVENTORY> 1,077,107
<CURRENT-ASSETS> 28,080,934
<PP&E> 3,163,595
<DEPRECIATION> 716,227
<TOTAL-ASSETS> 33,409,197
<CURRENT-LIABILITIES> 1,082,202
<BONDS> 0
0
0
<COMMON> 9,741
<OTHER-SE> 31,741,705
<TOTAL-LIABILITY-AND-EQUITY> 33,409,197
<SALES> 6,154,792
<TOTAL-REVENUES> 6,963,402
<CGS> 2,802,896
<TOTAL-COSTS> 7,558,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,170,377
<INCOME-PRETAX> 2,227,319
<INCOME-TAX> 113,500
<INCOME-CONTINUING> 2,340,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,340,819
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
