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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
MARCH 31, 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 May 3, 1996, there were 18,380,652 outstanding shares of Common Stock.
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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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<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,192 $ 3,115
Investment securities 4,309 3,932
Trade accounts receivable 3,424 2,860
Inventories (note 3) 1,834 1,918
Prepaid expenses and other current assets 975 1,017
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Total current assets 12,734 12,842
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Property and equipment, net 3,707 3,952
Goodwill and other intangible assets, net 7,433 7,795
Other assets 322 424
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$ 24,196 $ 25,013
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LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 3,822 $ 3,710
Deferred revenue (note 4) 561 648
Current portion of note payable 71 71
Current portion of capital lease obligations 107 112
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Total current liabilities 4,561 4,541
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Lease payable and deferred rent concessions, net
of current portion 40 107
Note payable, net of current portion 520 520
Capital lease obligations, net of current portion 76 98
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Total long-term liabilities 636 725
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Total liabilities 5,197 5,266
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SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value.
Authorized 5,000,000 shares; none issued - -
Common stock, $.001 par value.
Authorized 25,000,000 shares; issued and
outstanding 18,374,820 and 18,281,779,
respectively 18 18
Additional paid-in capital 83,173 83,139
Cumulative foreign currency translation adjustment 65 118
Accumulated deficit (64,257) (63,528)
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Total shareholders' equity 18,999 19,747
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$ 24,196 $ 25,013
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</TABLE>
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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)
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<TABLE>
<CAPTION>
Three Months Ended March 31,
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1996 1995
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<S> <C> <C>
Revenues $ 4,668 $ 4,177
Cost of revenues 2,561 2,371
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Gross margin 2,107 1,806
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OPERATING EXPENSES:
Marketing and sales expense 1,531 1,399
General and administrative expense 1,033 968
Research and development expense 353 339
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Total operating expenses 2,917 2,706
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LOSS FROM OPERATIONS (810) (900)
OTHER INCOME (EXPENSE):
Interest income 88 126
Interest expense (12) (19)
Other, net 5 -
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81 107
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NET LOSS $ (729) $ (793)
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LOSS PER SHARE (note 2) $ (0.04) $ (0.04)
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WEIGHTED AVERAGE COMMON SHARES 18,372,969 18,312,370
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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)
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (729) $ (793)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 722 735
Net change in operating assets and liabilities (415) (216)
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Net cash used by operating activities (422) (274)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (110) (13)
Increase in short-term investments (377) (919)
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Net cash provided by investing activities (487) (932)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 34 1
Principal payments on obligations under capital leases
and note payable (29) (40)
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Net cash (used in) provided by financing activities 5 (39)
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Effect of exchange rate changes on cash (19) 1
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Net decrease in cash and cash equivalents (923) (1,244)
Cash and cash equivalents at beginning of period 3,115 3,672
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Cash and cash equivalents at end of period $2,192 $ 2,428
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Supplemental disclosures of cash flow information --
cash paid for interest $ 4 $ 10
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Supplemental disclosure of non-cash investing and
financing activities:
Transfers from inventory to equipment held for rental
or loan $ 22 $ 72
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</TABLE>
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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(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):
March 31, 1996 December 31, 1995
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Finished Goods $ 741 $ 843
Work in Process 589 543
Raw Materials 504 532
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$1,834 $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
$533,000 and $606,000 at March 31, 1996 and December 31, 1995, respectively.
Additional deferred revenue in the amount of $28,000 and $42,000 at March
31, 1996 and December 31, 1995, respectively, relates to a sales contract that
requires the Company to buy back the product if the customer is not satisfied.
Revenue will be recognized when the buyback provisions expire unexercised.
(5) ACCOUNTING PRONOUNCEMENTS
Statement of Finanancial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS 121) was issued in March
1995 by the Financial Accounting Standards Board. It requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in
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ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is required to be adopted for fiscal years beginning
after December 15, 1995. The Company adopted SFAS 121 during the first quarter
of 1996 and its adoption did not have an effect on the consolidated financial
statements.
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
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 MONTHS ENDED MARCH 31, 1996
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1995:
REVENUES
Revenue for the three months ended March 31, 1996 increased $491,000 or
12%, compared to the three months ended March 31, 1995. The increase is
principally attributable to increased disposable catheter revenue, primarily
from catheters used in clinical trials. The Company continues to focus on
increased utilization of its disposable fiber-optic catheters, including
expanding the applications of the Company's technology. In addition to the use
of catheters in the six indications approved by the FDA, the Company's catheters
are also being used in ongoing clinical trials related to the clearing of
totally blocked arteries, removal of pacemaker leads, and debulking of
restenotic stents.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
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The increase in disposable catheter revenue is slightly offset by combined
decreases in laser system revenues and revenues from the Company's wholly-owned
subsidiary, Polymicro Technologies, Inc. (PTI). The decrease in laser system
revenues is reflective of continued reluctance by hospitals to make an outright
purchase of high-end capital equipment. The Company offers other acquisition
options which include system rental and fee-per-procedure pricing, which spread
the cost of acquiring the equipment over a longer period of time, on either a
monthly basis or based on utilization of the system.
Fluctuations in foreign currency exchange rates during the three months
ended March 31, 1996 compared to the same period in 1995 caused a decrease in
revenues of 1%.
GROSS MARGIN
Gross margin percentages for the three months ended March 31, 1996 and 1995
were 45% and 43%, respectively. The improvement in gross margin percentages was
primarily due to greater manufacturing efficiencies realized by increased unit
volumes of catheters.
OPERATING EXPENSES
Total operating expenses increased $211,000, or 8%, primarily due to
increased staffing of clinical support personnel in Europe and increased
worldwide marketing costs incurred to support the ongoing development of the
worldwide ELCA-Registered Trademark- market. Research and development, and
marketing and sales expenses for the three months ended March 31, 1996 were
substantially the same as in the comparable period in 1995. However, 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. There was no significant
difference in the effect of foreign currency fluctuations on operating expenses
for the three months ended March 31, 1996 as compared to the same period in
1995.
OTHER INCOME
Other income decreased $26,000, or 24%, for the three months ended March
31, 1996 compared to the same period in 1995. The decrease is due to lower
investment yields earned on investment securities combined with a decrease in
investment securities held during the three months ended March 31, 1996 as
compared to the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had cash, cash equivalents and investment
securities of $6,501,000. The Company consumed $422,000 of cash from operations
during the three months ended March 31, 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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ITEM 1. LEGAL PROCEEDING
None
ITEMS 2-5. 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)
May 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
Condensed Consolidated Balance Sheet and Statement of Operations as found on
Pages 2 and 3 of the Company's Form 10-Q for the three months ended March 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,192
<SECURITIES> 4,309
<RECEIVABLES> 3,424
<ALLOWANCES> 0
<INVENTORY> 1,834
<CURRENT-ASSETS> 12,734
<PP&E> 3,707
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,196
<CURRENT-LIABILITIES> 4,561
<BONDS> 636
0
0
<COMMON> 18
<OTHER-SE> 83,238
<TOTAL-LIABILITY-AND-EQUITY> 24,196
<SALES> 4,262
<TOTAL-REVENUES> 4,668
<CGS> 2,231
<TOTAL-COSTS> 2,561
<OTHER-EXPENSES> 2,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (729)
<INCOME-TAX> 0
<INCOME-CONTINUING> (729)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (729)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
