<PAGE>
United States
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 September 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 _____
On November 8, 1996 there were 8,006,050 Shares of the
Registrant's Common Stock Outstanding.
This document contains 17 pages.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
Form 10-Q
Quarter Ended September 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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 December 31, 1995
------------------ -----------------
Assets
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 17,982,434 $ 2,807,327
Trade accounts receivable, net of allowance for
doubtful accounts and returns and allowances
of $2,409,839 at September 30, 1996 and
$6,641,177 at December 31, 1995 16,096,093 10,470,375
Notes receivable - trade -- 157,534
Related party notes receivable 13,546 385,508
Inventories 20,055,176 17,695,847
Prepaid expenses and other current assets 1,685,370 1,825,213
Income tax refund receivable 235,408 95,580
Deferred income taxes 2,010,622 2,014,589
----------- -----------
Total current assets 58,078,649 35,451,973
----------- -----------
Property and equipment, at cost:
Machinery and equipment 9,816,728 8,923,564
Furniture and fixtures 3,946,873 3,714,717
Leasehold improvements 8,597,623 7,567,208
----------- -----------
22,361,224 20,205,489
Less accumulated depreciation
and amortization (11,097,509) (9,234,166)
------------ -----------
Net property and equipment 11,263,715 10,971,323
------------ -----------
Notes receivable, net of allowance of $1,066,958
at September 30, 1996 and December 31, 1995 2,022,264 2,047,535
Intangible assets, net 1,427,862 1,658,926
Other assets, at cost 401,840 255,187
----------- -----------
Total assets $ 73,194,330 $ 50,384,944
----------- -----------
----------- -----------
</TABLE>
(continued)
The Notes to Financial Statements are an integral part of this
statement.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Liabilities and Stockholders' (Deficit) Equity
- -----------------------------------------------
Current liabilities:
Current installments of long-term debt $ 14,168 $ 51,735
Notes payable to bank 1,481,381 1,273,476
Notes payable to others -- 493,511
Related party notes payable -- 1,759,417
Accounts payable 12,426,783 20,093,073
Accrued liabilities:
Salaries, wages, and payroll taxes 4,086,006 9,559,348
Interest 1,672,313 1,609,947
Self-insurance 1,094,332 1,130,632
Stock option compensation 68,714 68,714
Other 1,265,241 2,200,860
Royalties payable 1,980,337 1,430,115
Income taxes payable 1,096,438 1,812,818
Deferred income taxes 26,595 10,065
----------- ------------
Total current liabilities 25,212,308 41,493,711
----------- ------------
Long-term debt, excluding current installments 100,472 89,437
Deferred grant income 1,129,148 1,114,735
Deferred income taxes 190,166 239,177
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 8,006,050 80,061 76,027
Additional paid-in capital 13,412,133 9,963,635
Cumulative translation adjustment 739,681 882,146
Accumulated deficit (11,381,639) (12,625,924)
------------ ------------
Stockholders' (deficit) equity 2,850,236 (1,704,116)
------------ ------------
Total liabilities and stockholders' (deficit) equity $ 73,194,330 $ 50,384,944
</TABLE>
The Notes to Financial Statements are an integral part of
this statement.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Net sales $ 70,977,044 $ 64,136,586
Cost of goods sold 21,859,617 20,854,509
------------ ------------
Gross profit 49,117,427 43,282,077
------------ ------------
Operating expenses:
Marketing 18,850,662 16,772,662
General and administrative 21,761,260 21,587,052
Research and development 3,560,114 3,276,591
------------ ------------
Total operating expenses 44,172,036 41,636,305
------------ ------------
Operating income 4,945,391 1,645,772
------------ ------------
Other income (expense):
Interest income 756,526 648,866
Interest expense (3,324,112) (213,229)
Royalty Income 94,766 102,265
Foreign currency transaction losses (222,123) (414,175)
Miscellaneous income 156,663 238,348
------------ ------------
Net other income (expense) (2,538,280) 362,075
------------ ------------
Income before income tax expense 2,407,111 2,007,847
Income tax expense 1,162,827 715,491
------------ ------------
Net income $ 1,244,284 $ 1,292,356
------------ ------------
------------ ------------
Net income per share of common stock $ 0.16 $ 0.17
------------ ------------
------------ ------------
Weighted average common shares outstanding 7,743,767 7,559,073
------------ ------------
------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Net sales $ 22,715,511 $ 18,279,111
Cost of goods sold 6,155,874 6,839,178
------------ ------------
Gross profit 16,559,637 11,439,933
------------ ------------
Operating expenses:
Marketing 6,026,752 5,233,406
General and administrative 7,161,294 8,159,422
Research and development 1,456,633 1,165,297
------------ ------------
Total operating expenses 14,644,679 14,558,125
------------ ------------
Operating income (loss) 1,914,958 (3,118,192)
------------ ------------
Other income (expense):
Interest income 181,387 325,790
Interest expense (1,059,379) (72,730)
Royalty income -- 74,287
Foreign currency transaction losses (42,061) (580,253)
Miscellaneous income 4,425 94,967
------------ ------------
Net other expense (915,628) (157,939)
------------ ------------
Income (loss) before income taxes 999,330 (3,276,131)
Income taxes 653,828 (683,543)
------------ ------------
Net income (loss) $ 345,502 $ (2,592,588)
------------ ------------
------------ ------------
Net income (loss) per share of common stock $ 0.04 $ (0.34)
------------ ------------
------------ ------------
Weighted average common shares outstanding 7,998,507 7,662,257
------------ ------------
------------ ------------
</TABLE>
The Notes to Financial Statements are an integral part of this statement
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended September 30, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,244,284 $ 1,292,356
------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 1,810,802 1,940,954
Amortization of intangible assets 230,533 233,057
Deferred income taxes (24,093) 532,535
Changes in assets and liabilities:
Trade accounts receivable (5,737,371) (1,772,322)
Notes receivable 174,564 304,107
Inventories (2,728,211) (3,385,739)
Prepaid expenses and other current assets 117,451 1,472,731
Income tax refund receivable (144,828) 20,091
Other assets (147,455) (7,062)
Accounts payable (7,639,684) 415,305
Accrued salaries, wages and payroll taxes (5,396,239) 3,672,596
Accrued interest 62,366 (1,027)
Accrued self-insurance (36,300) (54,573)
Other accrued liabilities (919,304) (452,066)
Royalties payable 550,222 921,692
Income taxes payable (716,547) (610,421)
------------ -----------
Total adjustments (20,544,094) 3,229,858
------------ -----------
Net cash provided by
(used in) operating activities (19,299,810) 4,522,214
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (2,266,227) (3,907,150)
------------ -----------
Net cash used in investing activities (2,266,227) (3,907,150)
------------ -----------
</TABLE>
(continued)
The Notes to Financial Statements are an integral part of this
statement.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended September 30, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Increases in notes payable and long-term debt $ 34,836,498 $ 190,580
Principal repayment of notes payable
and long-term debt (530,451) (452,330)
(Increase) decrease in related party receivables 371,962 (322,756)
Increase (decrease) in related party payables (1,759,417) 114,204
Net change in deferred grant income 13,520 51,222
Repurchases and retirements of common stock (3,463) (1,346)
Proceeds from exercise of stock options -- 181,250
Issuance of common stock 3,455,995 29,500
Cash overdraft -- --
____________ ___________
Net cash provided by (used in)
financing activities 36,384,644 (209,676)
------------ ------------
Effect of exchange rate changes on cash 356,500 (310,372)
------------ ------------
Net increase in cash
and cash equivalents 15,175,107 95,016
Cash and cash equivalents at beginning of period 2,807,327 673,951
------------ -----------
Cash and cash equivalents at end of period $ 17,982,434 $ 768,967
------------ -----------
Supplemental disclosure of cash flow information:
Cash paid during the nine months for:
Interest $ 1,388,794 $ 249,148
------------ -----------
Income taxes $ 1,530,932 $ 853,577
------------ -----------
</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.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Note 1 - Interim Financial Statements
The accompanying unaudited consolidated financial statements
include all adjustments (of normal recurring accruals only) 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/A.
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 develops and promotes 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; INAMED Japan an
administration company for INAMED Medical Group, 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.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (CONTINUED)
Net Income Per Share
Net income per share is based upon the weighted average
number of shares outstanding during each of the respective
periods.
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 $2,409,839. Actual bad debt from 1993 to the
present amounts to approximately 0.16% of sales per year and the
return rate continues to decline.
Note 4 - Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
<S> <C> <C>
Raw materials $ 3,261,974 $ 2,513,862
Work in process 4,438,272 3,773,579
Finished goods 13,266,582 12,167,768
----------- -----------
20,966,828 18,455,209
Less allowance for
obsolescence (911,653) (759,362)
----------- -----------
$ 20,055,175 $ 17,695,847
</TABLE>
On a limited basis, the Company is releasing inventory
on consignment.
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 designed 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.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (CONTINUED)
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.
Absent an extension of the current 11% convertible
notes indenture, it is anticipated that $15,000,000 will be
extinguished as a liability in the first quarter of 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
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (CONTINUED)
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, projected amounts of eligible current
claims appeared to exceed the $1.2 billion provided in the
Settlement. The Settlement provided that in the event of such
over 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, which allows
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 in the spirit of the Revised
Settlement Program is contributing to the claims administration
management for the settlement which year to date has totaled
$600,000.
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") or other
acceptable settlement resolution. 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 Rules 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.
The Company is actively negotiating for class action
settlement resolve.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales as an aggregate were $71 million during the nine
months of 1996 which represents a 11% increase from the first
nine 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.
Gross profit was 69% of net sales for the first nine months
of 1996 compared to 66% 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 nine months of 1996, compared to 26% for the first nine
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 31% in the first nine months of 1996 compared to 34%
in the first nine 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 increased slightly from
$3,276,591 in the first nine months of 1995 to $3,560,114 in the
first nine months of 1996. The Company continues its commitment
to developing new and improved medical products for use by the
medical profession and the public. As a percentage of net sales,
this expense was 5.1% in the first nine months of 1995 and 5% in
the first nine months of 1996. R & D expenses are expected to
increase throughout the remaining quarter of 1996 and into 1997
as the Company increases research and development overseas due to
the FDA backlog on approval of new devices in the United States.
Interest expense increased for the first nine months of 1996
in comparison with interest expense for the same period of 1995.
The significant increase was entirely the result of interest
incurred on the Company's convertible notes payable which were
issued in January 1996.
On May 24, 1996 INAMED Corporation offered investors in the
above subject convertible notes an incentive for early
conversion. The investors were offered a ten percent (10%) bonus
of INAMED common stock based upon the holders' respective amount
of shares issuable upon conversion of the notes. The offer
expired on May 29, 1996, at which time an amount of US$ 440,000
had been converted to equity, resulting in the issuance of 4,400
bonus shares on September 24, 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS (CONTINUED)
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, European Economic Community and Asian market
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.
Financial Condition
During the first nine 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 increasing 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 September 30, 1996. The majority of the Company's
cash flows in the first nine 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. As of November 8, 1996, approximately 1.5 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.
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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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.
<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
None
<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: November 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,982,434
<SECURITIES> 0
<RECEIVABLES> 18,505,932
<ALLOWANCES> 2,409,839
<INVENTORY> 20,055,176
<CURRENT-ASSETS> 58,078,649
<PP&E> 22,361,224
<DEPRECIATION> 11,097,509
<TOTAL-ASSETS> 73,194,330
<CURRENT-LIABILITIES> 25,212,308
<BONDS> 0
0
0
<COMMON> 13,492,194
<OTHER-SE> (10,641,958)
<TOTAL-LIABILITY-AND-EQUITY> 73,194,330
<SALES> 70,977,044
<TOTAL-REVENUES> 70,977,044
<CGS> 21,859,617
<TOTAL-COSTS> 66,031,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,324,112
<INCOME-PRETAX> 2,407,111
<INCOME-TAX> 1,162,827
<INCOME-CONTINUING> 1,244,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,244,284
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
