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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
September 30, 1996
/ / 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 0-19711
The Spectranetics Corporation
(Exact name of Registrant as specified in its charter)
DELAWARE 84-0997049
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
96 TALAMINE COURT
COLORADO SPRINGS, COLORADO 80907
(719) 633-8333
(Address of principal executive offices and telephone number)
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 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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As of October 31, 1996, there were 18,491,445 outstanding shares of Common
Stock.
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<PAGE>
PART I---FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
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September 30, December 31,
1996 1995
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ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,986 $ 3,115
Investment securities 5,125 3,932
Trade accounts receivable 4,415 2,860
Inventories (note 3) 1,685 1,918
Prepaid expenses and other current assets 649 1,017
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Total current assets 13,860 12,842
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Property and equipment, net 3,334 3,952
Goodwill and other intangible assets, net 6,708 7,795
Other assets 395 424
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$ 24,297 $ 25,013
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LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 4,086 $ 3,710
Deferred revenue (note 4) 716 648
Current portion of note payable 75 71
Current portion of capital lease obligations 91 112
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Total current liabilities 4,968 4,541
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Lease payable and deferred rent concessions,
net of current portion 31 107
Note payable, net of current portion 445 520
Capital lease obligations, net of current portion 40 98
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Total long-term liabilities 516 725
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Total liabilities 5,484 5,266
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SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value. Authorized
5,000,000 shares; none issued -- --
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
18,491,445 and 18,281,779, respectively 18 18
Additional paid-in capital 83,356 83,139
Cumulative foreign currency translation adjustment 3 118
Accumulated deficit (64,564) (63,528)
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Total shareholders' equity 18,813 19,747
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$ 24,297 $ 25,013
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
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Three Months Ended Sept 30, Nine Months Ended Sept 30,
--------------------------- --------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues $ 5,595 $ 4,331 $ 15,714 $ 13,042
Cost of revenues 2,784 2,413 8,045 7,248
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Gross margin 2,811 1,918 7,669 5,794
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OPERATING EXPENSES:
Marketing and sales expense 1,516 1,239 4,503 4,083
General and administrative expense 973 941 3,154 2,930
Research and development expense 466 303 1,248 969
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Total operating expenses 2,955 2,483 8,905 7,982
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LOSS FROM OPERATIONS (144) (565) (1,236) (2,188)
OTHER INCOME (EXPENSE):
Interest income 84 105 238 341
Interest expense (10) (16) (34) (51)
Other, net 1 58 (4) 63
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75 147 200 353
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NET LOSS $ (69) $ (418) $ (1,036) $ (1,835)
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LOSS PER SHARE (note 2) $ -- $ (0.02) $ (0.06) $ (0.10)
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WEIGHTED AVERAGE COMMON SHARES 18,462,133 18,341,621 18,406,003 18,323,089
---------- ---------- ---------- ----------
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</TABLE>
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
Nine Months Ended
September 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,036) $(1,835)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,072 2,235
Net change in operating assets and liabilities (709) (1,143)
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Net cash provided from (used by) operating activities 327 (743)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (288) (73)
(Increase) decrease in short-term investments (1,193) 593
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Net cash used by investing activities (1,481) 520
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 217 44
Principal payments on obligations under
capital leases and note payable (150) (187)
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Net cash used by financing activities 67 (143)
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Effect of exchange rate changes on cash (42) 25
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Net decrease in cash and cash equivalents (1,129) (341)
Cash and cash equivalents at beginning of period 3,115 3,672
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Cash and cash equivalents at end of period $ 1,986 $ 3,331
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Supplemental disclosures of cash flow information --
cash paid for interest $44 $65
Supplemental disclosure of non-cash investing
and financing activities:
Transfers from inventory to equipment held for rental
or loan $17 $61
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</TABLE>
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
(1) GENERAL
The information included in the accompanying condensed consolidated
interim financial statements is unaudited and should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's latest Annual Report on Form 10-K. In the opinion of management,
all adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results of operations for the interim periods
presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
entire year.
(2) LOSS PER SHARE
The loss per common share does not reflect the assumed exercise of stock
options, since the effect of such inclusion would be antidilutive.
(3) INVENTORIES
Components of inventories are as follows (in thousands):
September 30, 1996 December 31, 1995
------------------ -----------------
Finished Goods $ 619 $ 843
Work in Process 587 543
Raw Materials 479 532
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$1,685 $1,918
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(4) DEFERRED REVENUE
The Company has various product maintenance contracts. Revenue from
product maintenance contracts is deferred and recognized ratably over the
contract period. Deferred revenue related to such contracts was
approximately $716,000 and $606,000 at September 30, 1996 and December 31,
1995, respectively.
Additional deferred revenue in the amount of $42,000 at December 31,
1995 relates to a sales contract that requires the Company to buy back the
product if the customer is not satisfied. As of September 30, 1996, the
buyback provision had expired and revenue of $42,000 was recorded in the
statement of operations during the nine months ended September 30, 1996.
(5) ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS 123), was issued by the Financial Accounting
Standards Board in October 1995. SFAS 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans as well
as transactions in which an entity issues its equity instruments to acquire
goods or services from non-employees. This statement defines a fair value
based method of accounting for employee stock options or similar equity
instruments, and encourages all entities to adopt that method of accounting
for all of their employee stock
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Entities electing to remain with the accounting in Opinion 25
must make proforma disclosures of net income and, if presented, earnings per
share, as if the fair value based method of accounting defined by SFAS 123
had been applied. SFAS 123 is applicable to fiscal years beginning after
December 15, 1995. The Company currently accounts for its equity instruments
using the accounting prescribed by Opinion 25. The Company does not
currently expect to adopt the accounting prescribed by SFAS 123; however, the
Company will include the disclosures required by SFAS 123 as required in
future consolidated financial statements included in Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995:
REVENUES
Revenues for the three and nine months ended September 30, 1996
increased $1,264,000 (29%) and $2,672,000 (20%), respectively, as compared to
the same period last year. The increases for the three months ended
September 30, 1996 are due primarily to increased sales of laser systems
followed by continued strong growth in catheter sales. Laser system sales
increased as a result of system placements in the Company's export markets,
which did not occur during the three months ended September 30, 1995. The
increase in catheter sales is largely attributable to the successful product
introduction of the Vitesse-Registered Trademark- E-II along with sales of
the Spectranetics Laser Sheath (SLS-TM-) used in connection with the PLEXES
clinical trial. For the nine months ended September 30, 1996 as compared to
the same period in 1995, the revenue growth was achieved principally from
catheter sales resulting from the Company's ongoing clinical trials relating
to SLS-TM- and the Prima-Registered Trademark- laser guidewire.
Additionally, the introduction of the FDA market-released Vitesse-Registered
Trademark- E-II catheter, which was released for distribution in the first
quarter of 1996, contributed to catheter sales growth. Increased system
placements in export markets also contributed to the revenue growth during
the nine months ended September 30, 1996.
Foreign currency fluctuations resulting from the strengthening of the
U.S. dollar against the Dutch guilder caused a decrease in revenues of
$62,000 and $248,000, respectively, during the three and nine months ended
September 30, 1996.
GROSS MARGIN
Gross margin percentages for the three and nine months ended September
30, 1996 were 50% and 49%, respectively, compared to 44% and 44% for the
three and nine months ended September 30, 1996. The improvement in gross
margin percentages is due to greater manufacturing efficiencies realized by
increased unit volumes of catheters.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONT'D)
OPERATING EXPENSES
Total operating expenses for the three months ended September 30, 1996
compared to the three months ended September 30, 1995 increased $472,000, or
19%, primarily due to research and development costs associated with the
Company's ongoing clinical trials and costs associated with additional
headcount within the Company's sales organization. In accordance with the
Company's efforts to broaden applications of the Company's technology, the
Company expects research and development expenses to increase in the future,
primarily in the area of clinical studies.
Fluctuations in foreign currency exchange rates during the three months
ended September 30, 1996 compared to the same period in 1995 caused a
decrease in expenses of $34,000.
Operating expenses for the nine months ended September 30, 1996 compared
to the same period in 1995 increased $923,000, or 12%. The increase is due
to (1) increased staffing within the Company's worldwide sales organization
and growth in commission costs associated with growth in revenues; (2)
increased clinical study costs associated with the ongoing clinical trials
relating to SLS-TM- and the Prima-Registered Trademark- laser guidewire; and
(3) increased administrative expense associated with the adoption of a
shareholder rights plan and the filing of a shelf registration statement.
Fluctuations in foreign currency exchange rates during the nine months
ended September 30, 1996 compared to the same period in 1995 caused a
decrease in expenses of $125,000.
OTHER INCOME
Other income decreased $72,000 (49%) and $153,000 (43%), respectively,
for the three and nine months ended September 30, 1996 compared to the same
periods in 1995. The decrease is due to lower investment yields earned on
investment securities combined with a decrease in the average balance of
investment securities held during the respective periods.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash, cash equivalents and
investment securities of $7,111,000. The Company increased its cash, cash
equivalents and investment securities balance by $403,000 during the three
months ended September 30, 1996. Management believes that the Company's
liquidity and capitalization will be sufficient to meet short-term operating
needs. Continued revenue increases over current levels will be necessary to
sustain the Company over the longer term.
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PART II.---OTHER INFORMATION
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ITEMS 1-4. NONE
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
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.
THE SPECTRANETICS CORPORATION
(Registrant)
November 13, 1996 By: /s/ James P. McCluskey
------------------------------------
James P. McCluskey
Vice President, Finance
Secretary/Treasurer and
Principal Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SPECTRANETICS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
AND STATEMENTS OF OPERATIONS AS FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM
10-Q FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,986
<SECURITIES> 5,125
<RECEIVABLES> 4,415
<ALLOWANCES> 0
<INVENTORY> 1,685
<CURRENT-ASSETS> 13,860
<PP&E> 3,334 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,297
<CURRENT-LIABILITIES> 4,968
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 18,795
<TOTAL-LIABILITY-AND-EQUITY> 24,297
<SALES> 15,714
<TOTAL-REVENUES> 15,714
<CGS> 8,045
<TOTAL-COSTS> 8,045
<OTHER-EXPENSES> 8,905
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,036)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
<FN>
<F1> PP&E is shown net of accumulated depreciation
</FN>
</TABLE>
