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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NUMBER: 0-7101
INAMED CORPORATION
State of Incorporation: Florida I.R.S. Employer Identification No.: 59-0920629
3800 Howard Hughes Parkway, Suite #900, Las Vegas, Nevada 89109
Telephone Number: (702) 791-3388
-------------------------
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
----- -----
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On June 30, 1996 there were 7,991,650 Shares of the Registrant's Common Stock
Outstanding.
This document contains 17 pages.
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INAMED CORPORATION AND SUBSIDIARIES
FORM 10-Q
Quarter Ended June 30, 1996
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Unaudited Consolidated Income Statements 5
Unaudited Consolidated Statements
of Cash Flows 7
Notes to the Unaudited Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION 16
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PART I. FINANCIAL INFORMATION
ITEM 1.
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
(Unaudited)
June 30, 1996 December 31, 1995
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Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,211,287 $ 2,807,327
Trade accounts receivable, net of allowance for
doubtful accounts and returns and allowances
of $5,840,408 at June 30, 1996 and
$6,641,177 at December 31, 1995 14,723,312 10,470,375
Notes receivable - trade -- 157,534
Related party notes receivable 507 385,508
Inventories 18,180,128 17,695,847
Prepaid expenses and other current assets 2,445,147 1,825,213
Income tax refund receivable 170,306 95,580
Deferred income taxes 1,446,030 2,014,589
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Total current assets 56,176,717 35,451,973
------------ -----------
Property and equipment, at cost:
Machinery and equipment 9,329,129 8,923,564
Furniture and fixtures 3,808,608 3,714,717
Leasehold improvements 8,123,450 7,567,208
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21,261,187 20,205,489
Less accumulated depreciation
and amortization (10,400,377) (9,234,166)
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Net property and equipment 10,860,810 10,971,323
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Notes receivable, net of allowance of $1,066,958
at June 30, 1996 and December 31, 1995 2,065,495 2,047,535
Intangible assets, net 1,510,502 1,658,926
Other assets, at cost 390,419 255,187
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Total assets $ 71,003,943 $50,384,944
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------------ -----------
</TABLE>
(continued)
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
(Unaudited)
June 30, 1996 December 31, 1995
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Liabilities and Stockholders' (Deficit) Equity
-----------------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 29,525 $ 51,735
Notes payable to bank 480,015 1,273,476
Notes payable to others -- 493,511
Related party notes payable -- 1,759,417
Accounts payable 12,575,502 20,093,073
Accrued liabilities:
Salaries, wages, and payroll taxes 2,877,719 9,559,348
Interest 1,722,055 1,609,947
Self-insurance 1,094,332 1,130,632
Stock option compensation 68,714 68,714
Other 1,090,376 2,200,860
Royalties payable 2,356,045 1,430,115
Income taxes payable 1,151,480 1,812,818
Deferred income taxes 14,760 10,065
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Total current liabilities 23,460,523 41,493,711
------------ ------------
Long-term debt, excluding current installments 30,872 89,437
Deferred grant income 1,136,914 1,114,735
Deferred income taxes 169,904 239,177
Litigation settlement 9,152,000 9,152,000
Convertible notes payable 34,560,000 --
Commitments and contingencies
Stockholders' (deficit) equity:
Common stock, $0.01 par value.
Authorized 20,000,000 shares;
issued and outstanding 7,991,650 79,917 76,027
Additional paid-in capital 13,397,733 9,963,635
Cumulative translation adjustment 743,223 882,146
Accumulated deficit (11,727,143) (12,625,924)
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Stockholders' (deficit) equity 2,493,730 (1,704,116)
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Total liabilities and stockholders' (deficit) equity $ 71,003,943 $ 50,384,944
------------ ------------
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</TABLE>
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
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<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
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<S> <C> <C>
Net sales $ 48,261,533 $ 45,857,475
Cost of goods sold 15,703,743 14,015,331
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Gross profit 32,557,790 31,842,144
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Operating expenses:
Marketing 12,823,910 11,539,256
General and administrative 14,599,966 13,427,630
Research and development 2,103,481 2,111,294
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Total operating expenses 29,527,357 27,078,180
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Operating income 3,030,433 4,763,964
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Other income (expense):
Interest income 575,139 323,076
Interest expense (2,264,733) (140,499)
Royalty Income 94,766 27,978
Foreign currency transaction gains (losses) (180,062) 166,078
Miscellaneous income 152,238 143,381
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Net other income (expense) (1,622,652) 520,014
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Income before income tax expense 1,407,781 5,283,978
Income tax expense 508,999 1,399,034
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Net income $ 898,782 $ 3,884,944
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Net income per share of common stock $ 0.12 $ 0.52
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Weighted average common shares outstanding 7,618,140 7,506,625
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</TABLE>
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1996 June 30, 1995
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<S> <C> <C>
Net sales $27,859,500 $24,112,600
Cost of goods sold 7,931,020 7,681,019
Gross profit 19,928,480 16,431,581
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Operating expenses:
Marketing 6,876,859 6,158,177
General and administrative 8,168,298 5,819,028
Research and development 927,508 1,044,919
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Total operating expenses 15,972,665 13,022,124
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Operating income 3,955,815 3,409,457
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Other income (expense):
Interest income (expense) 297,369 (33,571)
Interest expense (1,410,859) (11,756)
Royalty income 94,766 27,978
Foreign currency transaction losses (86,062) (97,665)
Miscellaneous income 9,064 24,170
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Net other expense (1,095,722) (90,844)
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Income before income taxes 2,860,093 3,318,613
Income taxes 694,358 574,165
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Net income $ 2,165,735 $ 2,744,448
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Net income per share of common stock $ 0.28 $ 0.36
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Weighted average common shares outstanding 7,633,848 7,521,265
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</TABLE>
The Notes to Financial Statements are an integral part of this statement
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<TABLE>
<CAPTION>
Six Months ended June 30, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 898,782 $ 3,884,944
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Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 1,113,696 1,370,741
Amortization of intangible assets 148,453 155,183
Deferred income taxes 506,443 342,629
Changes in assets and liabilities:
Trade accounts receivable (4,349,713) (4,146,995)
Notes receivable 135,282 311,125
Inventories (795,667) (2,661,130)
Prepaid expenses and other current assets (638,122) 983,309
Income tax refund receivable (77,330) 19,322
Other assets (135,738) (7,321)
Accounts payable (7,489,332) 202,440
Accrued salaries, wages and payroll taxes (6,633,085) 3,933,283
Accrued interest 112,108 --
Accrued self-insurance (36,300) (3,973)
Other accrued liabilities (1,097,057) (1,078,689)
Royalties payable 925,930 266,158
Income taxes payable (661,039) 330,834
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Total adjustments (18,971,471) 16,916
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Net cash provided by
(used in) operating activities (18,072,689) 3,901,860
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Cash flows from investing activities:
Purchases of property and equipment (1,167,638) (2,857,898)
------------ ------------
Net cash used in investing activities (1,167,638) (2,857,898)
------------ ------------
</TABLE>
(continued)
The Notes to Financial Statements are an integral part of this statement.
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<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<TABLE>
<CAPTION>
Six Months ended June 30, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
1996 1995
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<S> <C> <C>
Cash flows from financing activities:
Increases in notes payable and long-term debt $ 34,560,000 $ 203,767
Principal repayment of notes payable
and long-term debt (1,310,481) (351,457)
(Increase) decrease in related party receivables 385,001 (183,565)
Increase (decrease) in related party payables (1,759,417) (3,858)
Net change in deferred grant income 23,783 4,069
Repurchases and retirements of common stock (3,463) (850)
Issuance of common stock 3,441,451 29,500
Cash overdraft -- --
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Net cash provided by (used in)
financing activities 35,336,874 (302,394)
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Effect of exchange rate changes on cash 307,413 (355,450)
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Net increase in cash
and cash equivalents 16,403,960 386,118
Cash and cash equivalents at beginning of period 2,807,327 673,951
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Cash and cash equivalents at end of period $ 19,211,287 $ 1,060,069
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Supplemental disclosure of cash flow information:
Cash paid during the six months for:
Interest $ 1,134,405 $ 163,811
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Income taxes $ 1,658,032 $ 790,651
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</TABLE>
Disclosure of accounting policy:
For purposes of the consolidated statement of cash flows, the Company
considers all certificates of deposit to be cash equivalents.
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for fair presentation of the results of
operations for the periods presented. Interim results are not necessarily
indicative of the results to be expected for a full year.
Certain information and footnote disclosures normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted as allowed by Form 10-Q. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements for the year
ended December 31, 1995 as filed with the Securities and Exchange Commission on
Form 10-K.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
INAMED Corporation's subsidiaries are McGhan Medical Corporation and CUI
Corporation, which develop, manufacture and sell medical devices principally for
the plastic and general surgery fields; BioEnterics Corporation which develops,
manufactures and sells medical devices and associated instrumentation to the
bariatric and general surgery fields; Biodermis Corporation which develops,
produces and distributes premium products for dermatology, wound care and burn
treatment; Bioplexus Corporation which is a development company that develops,
produces and distributes specialty medical products for use by the general
surgery profession; Flowmatrix Corporation which manufactures high quality
silicone components and devices for INAMED's wholly-owned subsidiaries and
distributes an international line of proprietary silicone products; Medisyn
Technologies Corporation which focuses on the development and promotion of the
merits of the use of silicone chemistry in the fields of medical devices,
pharmaceuticals and biotechnology; INAMED Development Company, which is engaged
in the research and development of new medical devices using silicone-based
technology; McGhan Limited, an Irish corporation which manufactures medical
devices principally for the plastic and general surgery fields; Medisyn
Technologies, Ltd. and Chamfield Ltd., Irish corporations which specialize in
the development of silicone materials for use by INAMED's wholly-owned
subsidiaries; and INAMED B.V., a Netherlands corporation, INAMED B.V.B.A., a
Belgium corporation, INAMED GmbH, a German corporation, INAMED S.R.L., an
Italian corporation, INAMED Ltd., a United Kingdom corporation, INAMED S.A.R.L.,
a French corporation, INAMED, Mexico S.A. de C.V., a Mexican corporation,
INAMED, S.A., a Spanish corporation, INAMED do Brazil, a Brazilian corporation,
INAMED Medical Group, a Japanese corporation, and McGhan Medical Asia Pacific, a
Hong Kong corporation, which all sell medical devices on a direct sales basis
in the various countries in which they are located.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of INAMED
Corporation and its wholly-owned subsidiaries (collectively referred to as the
Company for the purposes of financial reporting). All significant intercompany
balances and transactions have been eliminated in consolidation.
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INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (CONTINUED)
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NET INCOME PER SHARE
Net income per share is based upon the weighted average number of shares
outstanding during each of the respective periods. Common stock equivalents are
excluded since their inclusion would immaterially affect the calculation or
would be antidilutive.
RECLASSIFICATION
Certain reclassifications were made to the 1995 consolidated financial
statements to conform to the 1996 presentation.
NOTE 3 - TRADE ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
RETURNS
The provision for doubtful accounts and returns was reduced from $6,574,031
to $5,840,408 after an internal review concluded that actual bad debt from 1993
to the present amounts to just 0.16% of sales per year and that there is a
decreasing trend in the return rate.
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
June 30, 1996 December 31, 1995
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Raw materials $ 2,885,365 $ 2,513,862
Work in process 4,763,204 3,773,579
Finished goods 11,125,609 12,167,768
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18,774,178 18,455,209
Less allowance for
obsolescence (594,050) (759,362)
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$18,180,128 $ 17,695,847
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NOTE 5 - CONVERTIBLE NOTES PAYABLE
In January 1996, the Company completed a private placement offering by
issuing three-year secured convertible, non-callable notes due March 31, 1999
bearing an interest rate of 11%. The Company received $35 million in proceeds
from the offering to be used for the anticipated litigation settlement, for
capital investments and improvements to expand production capacity, and for
working capital purposes. Of the proceeds received from the offering, $15
million was deposited to escrow for litigation settlement purposes based on the
Company receiving a mandatory non-opt certification by the Federal Court.
The notes became convertible into shares of common stock at the option of
the note holders on April 22, 1996. The conversion rate is one share of common
stock for each $10 principal amount of notes. Alternatively, the notes may
automatically convert into shares of common stock upon the occurrence of certain
events in connection with the certification of the Company's Mandatory Class.
In April 1996 the Company completed the Form S-3 registration of 3.5 million
shares of its common stock in direct response to the private placement offering
requirements.
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INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (CONTINUED)
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In June 1996, the Company received a waiver from the note holders of a
majority in principal amount of the notes relating to a covenant default under
the indenture for the notes for the quarter ended March 31, 1996. In connection
with the waiver, the company agreed to issue to the note holders additional
shares of common stock equal to five percent (5%) of the shares issuable upon
conversion of the notes. The issuance of the additional shares of common stock
is scheduled to occur on January 10, 1997.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
INAMED and/or its subsidiaries are defendants in numerous State court
actions and a Federal class action in the United States District Court, Northern
District of Alabama, Southern Division, under Chief Judge Sam C. Pointer, Jr.,
US District Court, regarding Master File No. C892-P-10000-S (Silicone Gel Breast
Implants Product Liability Litigation MDL 926). The claims are for general and
punitive damages substantially exceeding provisions made in the Company's
consolidated financial statements. The accompanying consolidated financial
statements have been prepared assuming that the Company will withstand the
financial results of said litigation. The events described below are in
chronological order.
Several US based manufacturers negotiated a settlement with the Plaintiffs'
Negotiating Committee ("PNC"), and on March 29, 1994 filed a Proposed Non-
Mandatory Class Action Settlement in the Silicone Breast Implant Products
Liability (the "Settlement Agreement") providing for settlement of the claims as
to the class (the "Settlement") as described in the Settlement Agreement. The
Settlement Agreement provides for resolution of any existing or future claims,
including claims for injuries not yet known, under any Federal or State law,
from any claimant who received a silicone breast implant prior to June 1, 1993.
A fairness hearing for the non-mandatory class was held before Judge Pointer on
August 18, 1994. On September 1, 1994, Judge Pointer gave final approval to the
non-mandatory class action settlement.
The Company was not originally a party to the Settlement Agreement.
However, on April 8, 1994 the Company and the PNC reached an agreement which
would join the Company into the Settlement. The agreement reached between the
Company and the PNC added great value to the Settlement by enabling all
plaintiffs and US based manufacturers to participate in the Settlement, and
facilitating the negotiation of individual contributions by the Company,
Minnesota Mining and Manufacturing Company ("3M"), and Union Carbide Corporation
which total more than $440 million.
Under the terms of the Settlement Agreement, the parties stipulate and
agree that all claims of the Settlement Class against the Company regarding
breast implants and breast implant materials shall be fully and finally settled
and resolved on the terms and conditions set forth in the Settlement Agreement.
Under the terms of the Settlement Agreement, the Company will pay $1
million to the Settlement fund for each of 25 years starting three years after
Settlement approval by the Court. The Company recorded a pre-tax charge of $9.1
million in the fourth quarter of 1993. The charge represents the present value
(discounted at 8%) of the Company's settlement of $25 million over a payment
period of 25 years.
Under the Settlement, $1.2 billion had been provided for "current claims"
(disease compensation claims). In May, 1995, Judge Pointer completed a
preliminary review of current claims which had been filed as of September, 1994,
in compliance with deadlines set by the court. Judge Pointer determined that
based on the preliminary review, it appears that projected amounts of eligible
current claims exceed the $1.2 billion provided in the Settlement. The
Settlement provided that in the event of such over
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INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (CONTINUED)
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subscription, the amounts to be paid to eligible current claimants would be
reduced and claimants would have a right to "opt-out" of the Settlement at that
time.
On October 1, 1995, Judge Pointer finalized details of a scaled-back
breast implant injury settlement involving defendants Bristol-Myers Squibb,
Baxter International, and 3M, allowing plaintiffs to reject this settlement and
file their own lawsuits if they believe payments are too low. On November 14,
1995, McGhan Medical and Union Carbide were added to this list of settling
defendants to achieve the Bristol, Baxter, 3M, McGhan and Union Carbide Revised
Settlement Program (the "Revised Settlement Program").
At June 30, 1996, the Company's reasonable estimate of its liability to
fund the Revised Settlement Program is a range between $9.1 million, the
original estimate as noted above, and $50 million, with no amount within the
range a better estimate. Due to the uncertainty of the ultimate resolution and
acceptance of the Revised Settlement Program by the registrants, claimants, and
plaintiffs and combined with the current lack of information related to the
substance of the claims, the financial statements do not reflect any additional
provision for the litigation settlement.
The Company has entered into a Settlement Agreement with health care
providers by which the company, on or before December 17, 1996, will pay $1
million into the MDL Settlement Fund ("the Fund") to be administered by Edgar C.
Gentle, III, Esq. ("the Fund Agent").
The Company has opposed the plaintiffs' claims in these complaints and
other similar actions, and continues to deny any wrongdoing or liability to the
plaintiffs of any kind. However, the extensive burdens and expensive litigation
the Company would continue to incur related to these matters prompted the
Company to work toward and enter into the Settlement which insures a more
satisfactory method of resolving claims of women who have received the Company's
breast implants.
Management's commitment to the Settlement does not alter the Company's need
for complete resolution sought under a mandatory ("non-opt-out") settlement
class (the "Mandatory Class"). Therefore, the Company has petitioned the United
States District Court, Northern District of Alabama, Southern Division, for
certification of a Mandatory Class under the provisions of Federal Rule of Civil
Procedure. On July 11, 1996, the Company filed an appearance of counsel and
status report on the INAMED Mandatory Class Application to the United States
District Court, Northern District of Alabama, Southern Division, Chief Honorable
Judge Samuel C. Pointer, Jr.
The Company was a defendant with 3M in a case involving three plaintiffs in
Houston, Texas, in March 1994, in which the jury awarded the plaintiffs $15
million in punitive damages and $12.9 million in damages plus fees and costs.
However, the decision was reversed in March 1995 resulting in no financial
responsibility on the part of the Company.
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<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
Net sales as an aggregate were $48.3 million during the first six months of
1996 which represents a 5% increase from the first six months of 1995. Domestic
sales growth was adversely affected during the first six months of 1996 by
shortages of raw materials and by changes made by the Company in certain
manufacturing processes and procedures in order to achieve regulatory approvals
and attain higher standards of control. The Company expects international sales
to continue to represent an increasing percentage of net sales, since this
market is experiencing increasing demand. Management anticipates that continued
market growth, an increase in production capacity, both domestically and
internationally, and expansion of the international sales force will allow an
increase in sales growth throughout the remainder of 1996.
Gross profit was 67% of net sales for the first six months of 1996 compared
to 69% for the corresponding period in 1995. Management anticipates that the
Company may experience future quarters with higher costs of production as
modifications are made to accommodate changing FDA views and related
regulations.
Marketing expense as a percentage of net sales was 27% in the first six
months of 1996, compared to 25% for the first six months of 1995. This increase
is primarily due to an increase in royalty payments.
General and administrative expenses as a percentage of net sales were 30%
in the first six months of 1996 compared to 29% in the first six months of 1995.
Management expects future general and administrative expenses to grow
proportionally with sales, and to be reactive to litigation expense.
Research and development expenses decreased slightly from $2,111,294 in the
first six months of 1995 to $2,103,481 in the first six months of 1996. The
Company continues its commitment to developing new and improved medical products
for use by the medical profession and the public. As a percentage of net sales,
this expense was 4.6% in the first six months of 1995 and 4.4% in the first six
months of 1996. Diversification into other facets of medical devices through
the use of new technology remains a goal of the Company. R & D expenses are
expected to increase throughout 1996 as the Company increases research and
development overseas due to the FDA backlog on approval of new devices in the
United States.
Interest expense increased for the first six months of 1996 in comparison
with interest expense for the same period of 1995. The significant increase was
entirely the result of interest incurred on the Company's convertible notes
payable which were issued in January 1996.
On May 24, 1996 INAMED Corporation offered investors in the above subject
convertible notes an incentive for early conversion. The investors were offered
a ten percent (10%) bonus of INAMED common stock based upon the holders'
respective amount of shares issuable upon conversion of the notes. The offer
expired on May 29, 1996, at which time an amount of US$440,000 had been
converted to equity, resulting in the issuance of 4,400 bonus shares in the
third quarter of 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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On June 27, 1996 the Company entered into a Regulation S transaction
("Offshore Stock Subscription Agreement") with certain non-US investors outside
the United States. This agreement was in connection with an offer and sale by
the Company of 344,333 shares of common stock at $8.7125 per share.
The Company continues to incur increased costs related to obtaining FDA and
European Economic Community approvals for the Company's products. The Company
is continuing to address FDA regulations related to pre-market approval of
silicone mammary implants, and anticipates ongoing investment of employee hours
and Company funds to facilitate compliance with all FDA regulations as
determined by PMA studies and any new regulations which may be adopted. The FDA
is expected to issue a call for PMA applications for saline-filled breast
implants in 1998. The Company has agreed to conduct clinical trials and is
collecting data in anticipation of FDA action.
FINANCIAL CONDITION
During the first six months of 1996 INAMED Corporation has maintained its
position as one of the largest medical device companies serving the plastic,
reconstructive and general surgical markets world-wide. In order to meet the
increased demand, internationally, for its products, the Company has increased
production in Europe through expansion of its manufacturing plant in Ireland.
This plant supplies the majority of the products for the Company's international
market. The Irish facility works closely with the Company's other subsidiaries
in Europe to develop new products for that market. Internationally, the Company
has significantly increased its market share by use of direct sales methods
rather than distributors wherever it is financially advantageous to do so. The
Company currently has direct marketing subsidiaries in eleven non-US countries.
Since December 31, 1995, the cash balance has increased and the current
ratio has changed from 0.9 to 1 on December 31, 1995 to 2.4 to 1 on June 30,
1996. The majority of the Company's cash flows in the first six months of 1996
were generated by the issuance of convertible notes as discussed in Note 5 to
the financial statements, and by product sales. Growth, regulatory activities
and legal expenses continue to consume a significant amount of available cash
resources.
In June of 1990, the Company established a $4.5 million comprehensive
financing package for working capital with a major bank that utilizes domestic
accounts receivable, inventories and certain other assets as collateral. In
December of 1990, the line of credit was increased to $5.3 million. The line of
credit agreement expired August 31, 1993 and was extended through March 31,
1996. In January 1996, the obligation to the bank was satisfied.
In April 1994, the Company increased its international line of credit with
a major Dutch bank. The current line is approximately 1.5 million Guilders and
is collateralized by the accounts receivable, inventories and certain other
assets of INAMED B.V. The line of credit expired on June 30, 1996 but has been
extended while negotiations for new credit lines continue. As of June 30, 1996,
approximately 0.7 million Guilders had been drawn on the line of credit. The
interest rate on the line of credit is European prime discount rate plus 2.5%
per annum, at a minimum of 7% per annum.
The Company continues to develop a global banking relationship in order to
most efficiently manage its increasingly international cash flows.
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
McGhan Limited continues to receive grants from the Irish Industrial
Development Authority ("IDA") which include reimbursement for qualified training
expenses, leasehold improvements and capital improvement costs at the Company's
operation in Ireland. Additionally, McGhan Limited has obtained approval for
additional grants from the European Economic Community "Industry R & D
Initiative" for approved research and development programs for up to $1 million.
The Company believes that additional approvals will be achieved in future years.
-15-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in breast implant litigation as discussed
in Note 6 to the unaudited consolidated financial statements.
ITEMS 2. THROUGH 5.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Form 8-K, dated January 23, 1996
(2) Form 8-K, dated April 19, 1996
(3) Form 8-K, dated May 24, 1996
-16-
<PAGE>
INAMED CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INAMED CORPORATION
By /s/Donald K. McGhan
-------------------------------------
Donald K. McGhan
Chairman of the Board and President
Dated: August 14, 1996
------------------------
-17-
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<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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