<PAGE>
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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
June 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
---- ----
As of August 2, 1996, there were 18,443,445 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)
<TABLE>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,867 $ 3,115
Investment securities 3,841 3,932
Trade accounts receivable 3,704 2,860
Inventories (note 3) 1,788 1,918
Prepaid expenses and other current assets 798 1,017
---------- ---------
Total current assets 12,998 12,842
---------- ---------
Property and equipment, net 3,486 3,952
Goodwill and other intangible assets, net 7,071 7,795
Other assets 340 424
---------- ---------
$ 23,895 $ 25,013
---------- ---------
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 3,806 $ 3,710
Deferred revenue (note 4) 644 648
Current portion of note payable 75 71
Current portion of capital lease obligations 97 112
---------- ---------
Total current liabilities 4,622 4,541
---------- ---------
Lease payable and deferred rent concessions, net of current portion 35 107
Note payable, net of current portion 445 520
Capital lease obligations, net of current portion 61 98
---------- ---------
Total long-term liabilities 541 725
---------- ---------
Total liabilities 5,163 5,266
---------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value. Authorized
5,000,000 shares; none issued - -
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
18,392,478 and 18,281,779, respectively 18 18
Additional paid-in capital 83,207 83,139
Cumulative foreign currency translation adjustment 2 118
Accumulated deficit (64,495) (63,528)
---------- ---------
Total shareholders' equity 18,732 19,747
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$ 23,895 $ 25,013
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</TABLE>
Page 2
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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>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 5,451 $ 4,534 $ 10,119 $ 8,711
Cost of revenues 2,699 2,464 5,260 4,835
---------- ---------- ---------- ----------
Gross margin 2,752 2,070 4,859 3,876
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Marketing and sales expense 1,455 1,444 2,986 2,843
General and administrative expense 1,149 1,021 2,182 1,989
Research and development expense 430 327 783 666
---------- ---------- ---------- ----------
Total operating expenses 3,034 2,792 5,951 5,498
---------- ---------- ---------- ----------
Loss From Operations (282) (722) (1,092) (1,622)
OTHER INCOME (EXPENSE):
Interest income 65 110 153 236
Interest expense (11) (17) (23) (36)
Other, net (10) 5 (5) 5
---------- ---------- ---------- ----------
44 98 125 205
---------- ---------- ---------- ----------
Net Loss $ (238) $ (624) $ (967) $ (1,417)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss per share (note 2) $ (0.01) $ (0.03) $ (0.05) $ (0.08)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares 18,382,290 18,314,955 18,377,629 18,313,670
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Page 3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONT'D)
SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands, Except Shares and Per Share Amounts)
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Six Months Ended June 30,
-------------------------
1996 1995
------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (967) $(1,417)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,405 1,472
Net change in operating assets and liabilities (491) (860)
------ -------
Net cash used by operating activities (53) (805)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (186) (30)
Decrease (increase) in short-term investments 91 (314)
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Net cash used by investing activities (95) (344)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 68 33
Principal payments on obligations under
capital leases and note payable (126) (153)
------ -------
Net cash used by financing activities (58) (120)
------ -------
Effect of exchange rate changes on cash (42) 34
------ -------
Net decrease in cash and cash equivalents (248) (1,235)
Cash and cash equivalents at beginning of period 3,115 3,672
------ -------
Cash and cash equivalents at end of period $2,867 $2,437
------ -------
------ -------
Supplemental disclosures of cash flow
information -- cash paid for interest $ 39 $ 57
------ -------
------ -------
Supplemental disclosure of non-cash
investing and financing activities:
Transfers from inventory to equipment held
for rental or loan $ 28 $ 72
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Page 4
<PAGE>
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):
June 30, 1996 December 31, 1995
------------- -----------------
Finished Goods $ 665 $ 843
Work in Process 639 543
Raw Materials 484 532
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$ 1,788 $ 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
$640,000 and $606,000 at June 30, 1996 and December 31, 1995, respectively.
Additional deferred revenue in the amount of $4,000 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 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
Page 5
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ITEM 1. FINANCIAL STATEMENTS (cont'd)
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
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1995:
REVENUES
Revenue for the three and six months ended June 30, 1996 increased
$917,000 (20%) and $1,408,000 (16%), respectively, as compared to the same
period last year. The increases are primarily attributable to increased
disposable catheter revenue resulting from usage of the Company's Vitesse-TM-
E-II catheter combined with catheters sold in support of the ongoing clinical
trials in the United States and Europe. The Company continues to focus on
increased utilization of its disposable fiber-optic catheters, including
expanding the applications of the Company's technology.
Fluctuations in foreign currency exchange rates during the three months
and six months ended June 30, 1996 compared to the same period in 1995 caused
a decrease in revenues of 3% and 2%, respectively.
Page 6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (cont'd)
Gross Margin
Gross margin percentages for the three and six months ended June 30,
1996 were 50% and 48%, respectively, compared to 46% and 44% for the three
and six months ended June 30, 1995. The improvement in gross margin
percentages is due to greater manufacturing efficiencies realized by
increased unit volumes of catheters.
OPERATING EXPENSES
Total operating expenses for the three months ended June 30, 1996
compared to the three months ended June 30, 1995 increased $242,000, or 9%,
due to research and development costs associated with the Company's ongoing
clinical trials and administrative costs associated with the adoption of a
shareholder rights plan and the filing of a shelf registration statement.
Marketing and sales expenses for the three months ended June 30, 1996 were
substantially the same as in the comparable period in 1995. 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 June 30, 1996 compared to the same period in 1995 caused a decrease in
expenses of 2%.
Operating expenses for the six months ended June 30, 1996 compared to
the same period in 1995 increased $453,000, or 8%. The increase is due to
(1) increased clinical study costs associated with the ongoing total occlusion
device and pacing lead removal clinical trials; (2) increased staffing of
clinical support personnel in Europe and growth in commission costs, which is
consistent with the growth in revenues; 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 six months ended
June 30, 1996 compared to the same period in 1995 caused a decrease in expenses
of 1%.
OTHER INCOME
Other income decreased $54,000 (56%) and $80,000 (39%), respectively, for
the three and six months ended June 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 investment securities held at June 30,
1996 as compared to June 30, 1995.
Page 7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (cont'd)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash, cash equivalents and
investment securities of $6,708,000. The Company increased its cash, cash
equivalents and investment securities balance by $207,000 during the three
months ended June 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.
Page 8
<PAGE>
PART II.---OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
None
ITEM 2. CHANGES IN SECURITIES
Pursuant to a shareholders rights plan adopted on May 6, 1996, the
Company declared a dividend distribution of one Preferred Share Purchase
Right ("Right") on each outstanding share of The Spectranetics Corporation
common stock. Each Right will entitle shareholders to buy one one-hundredth
of a share of newly created Series A Junior Participating Preferred Stock of
the Company at an exercise price of $25.00. The Rights will be exercisable
if a person or group acquires 15% or more of the Company's common stock or
announces a tender offer for 15% or more of the common stock; provided,
however, that if any person or group owns 15% or more of the Company's common
stock as of May 6, 1996, then the Rights would become exercisable with
respect to such person or group only after such person or group acquires
beneficial ownership of any additional shares of the Company's common stock.
The Company's Board of Directors will be entitled to redeem the Rights at
$.001 per Right at any time before the tenth day after a person or group has
acquired 15% or more of the outstanding common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on June 12, 1996, Emile J.
Geisenheimer was re-elected as a director to hold office for a three-year term.
A total of 14,537,177 shares voted in favor of this nominee and 376,272 shares
withheld authority.
In addition, the shareholders approved the following:
- Approval of an amendment to the Company's Stock Option Plan which
increases the number of shares authorized to be issued under such
plan from 1,200,000 to 2,100,000 shares. There were 15,711 broker
non-votes, 13,728,513 shares voted in favor of this proposal,
1,086,971 voted against this proposal, and 82,254 shares abstained
from voting.
- Ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year 1996. There were no broker
non-votes, 14,810,127 shares voted in favor of this proposal, 50,047
voted against this proposal, and 53,275 shares abstained from voting.
Page 9
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PART II. -- OTHER INFORMATION (cont'd)
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
Form 8-K dated May 6, 1996, filed with the Commission on May 17,
1996, related to the adoption of the Company's Shareholders
Rights Plan.
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)
August 14, 1996 By: /s/ James P. McCluskey
----------------------------------
James P. McCluskey
Vice President, Finance
Secretary/Treasurer and
Principal Financial Officer
Page 10
<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 JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,867
<SECURITIES> 3,841
<RECEIVABLES> 3,704
<ALLOWANCES> 0
<INVENTORY> 1,788
<CURRENT-ASSETS> 12,988
<PP&E> 3,486<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,895
<CURRENT-LIABILITIES> 4,622
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 18,714
<TOTAL-LIABILITY-AND-EQUITY> 18,732
<SALES> 9,287
<TOTAL-REVENUES> 10,119
<CGS> 4,639
<TOTAL-COSTS> 5,260
<OTHER-EXPENSES> 5,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> (967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (967)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<FN>
<F1>PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION
</FN>
</TABLE>
