<PAGE> 1
================================================================================
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, 2000
[ ] 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 July 28, 2000, there were 23,378,757 outstanding shares of Common Stock.
================================================================================
<PAGE> 2
PART I---FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 3,713 $ 4,900
Investment securities, held to maturity 6,764 3,468
Trade accounts receivable, net of allowance 6,286 5,564
Inventories 2,993 2,746
Other current assets 640 492
-------- --------
Total current assets 20,396 17,170
Property and equipment, net 4,215 3,675
Other intangible assets, net 1,023 1,138
Other assets 593 298
Long-term investments, held to maturity 4,993 11,757
-------- --------
Total Assets $ 31,220 $ 34,038
======== ========
Liabilities and Shareholders' Equity:
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities $ 4,960 $ 6,308
Deferred revenue 1,091 917
Current portion of notes payable 545 942
Current portion of capital lease obligations 16 46
-------- --------
Total current liabilities 6,612 8,213
-------- --------
Deferred revenue 2,028 2,028
Notes payable, net of current portion 243 376
Capital lease obligations, net of current portion 25 35
-------- --------
Total long-term liabilities 2,296 2,439
-------- --------
Total liabilities 8,908 10,652
-------- --------
Shareholders' Equity:
Preferred stock, $.001 par value
Authorized 5,000,000 shares; none issued -- --
Common stock, $.001 par value
Authorized 60,000,000 shares; issued and outstanding
23,345,567 and 23,037,188 shares, respectively 23 23
Additional paid-in capital 91,949 91,112
Accumulated other comprehensive loss (168) (128)
Accumulated deficit (69,492) (67,621)
-------- --------
Total shareholders' equity 22,312 23,386
-------- --------
Total Liabilities and Shareholders' Equity $ 31,220 $ 34,038
======== ========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS (UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGES, SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenue $ 6,808 $ 4,937 $ 13,470 $ 9,007
Cost of revenue 2,086 1,744 4,360 3,104
------------ ------------ ------------ ----------
Gross margin 4,722 3,193 9,110 5,903
------------ ------------ ------------ ----------
Gross margin % 69% 65% 68% 66%
Operating Expenses:
Marketing and sales 3,420 2,238 6,509 4,402
General and administrative 1,353 922 2,641 1,901
Royalties expense 289 239 602 434
Research and development 829 1,016 1,686 1,803
Reorganization costs and
litigation reserves -- 1,358 -- 1,358
------------ ------------ ------------ ----------
Total operating expenses 5,891 5,773 11,438 9,898
------------ ------------ ------------ ----------
Operating Loss (1,169) (2,580) (2,328) (3,995)
Other Income (Expense):
Interest income 216 108 510 162
Interest expense (24) (40) (54) (89)
Other, net -- (5) 1 7
------------ ------------ ------------ ----------
Total other income (expense) 192 63 457 80
------------ ------------ ------------ ----------
Loss from Continuing Operations (977) (2,517) (1,871) (3,915)
Discontinued Operations:
Gain from sale of discontinued industrial
subsidiary (net of $150 income taxes) -- 8,664 -- 8,664
Income from operations of discontinued
industrial subsidiary -- 248 -- 721
------------ ------------ ------------ ----------
Income from Discontinued Operations -- 8,912 -- 9,385
------------ ------------ ------------ ----------
Net Income (Loss) (977) 6,395 (1,871) 5,470
Other Comprehensive Loss -
Foreign currency translation (3) (21) (40) (50)
------------ ------------ ------------ ----------
Comprehensive Income (Loss) $ (980) $ 6,374 $ (1,911) $ 5,420
============ ============ ============ ==========
Loss from Continuing Operations per share -
basic and diluted $ (0.04) $ (0.11) $ (0.08) $ (0.18)
Income from Discontinued Operations
per share - basic and diluted -- 0.39 -- 0.43
------------ ------------ ------------ ----------
Net Income (Loss) per share - basic and
diluted $ (0.04) $ 0.28 $ (0.08) $ 0.25
============ ============ ============ ==========
Weighted Average Common Shares
Outstanding - basic and diluted 23,254,912 22,932,802 23,186,240 21,756,276
============ ============ ============ ==========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONT'D)
THE SPECTRANETICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,871) $ 5,470
Adjustments to reconcile net loss to net cash
used by operating activities:
Income from discontinued industrial subsidiary -- (721)
Gain on sale of discontinued industrial subsidiary -- (8,664)
Depreciation and amortization 799
766
Net change in operating assets and liabilities (3,486) 1,063
-------- --------
Net cash used by operating activities (4,558) (2,086)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (345) (149)
Net cash received from discontinued industrial subsidiary -- 1,140
Net proceeds from sale of discontinued industrial subsidiary -- 14,346
Decrease (increase) in gross investments 3,467 (5,503)
-------- --------
Net cash provided (used) by investing activities 3,122 9,834
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of common stock options 785 55
Proceeds from private placement of common stock, net -- 6,537
Principal payments on obligations under
capital leases and notes payable (551) (598)
-------- --------
Net cash provided by financing activities 234 5,994
-------- --------
Effect of exchange rate changes on cash 15 (27)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,187) 13,715
Cash and cash equivalents at beginning of period 4,900 4,158
-------- --------
Cash and cash equivalents at end of period $ 3,713 $ 17,873
======== ========
Supplemental disclosures of cash flow information --
cash paid for interest $ 64 $ 105
======== ========
Supplemental disclosure of noncash investing and financing activity - transfers
from inventory to equipment held for rental or loan $ 825 $ 384
======== ========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 4
<PAGE> 5
ITEM 1. NOTES TO FINANCIAL STATEMENTS
(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 assets, liabilities and 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.
Certain reclassifications have been made in the financial statements to
conform with the financial statements as presented at December 31, 1999.
(2) LOSS PER SHARE
The Company calculates earnings (loss) per share under the provisions
of Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128). Under SFAS 128, basic loss per share is computed on the basis of
weighted-average common shares outstanding. Diluted loss per share considers
potential common stock instruments in the calculation, and is the same as basic
loss per share for the three and six months ended June 30, 2000 and 1999, as all
potential common stock instruments were anti-dilutive.
(3) SHAREHOLDERS' EQUITY AND PRIVATE PLACEMENT OF COMMON STOCK
In February 1999, the Company completed the private placement of
3,800,000 shares of its common stock and received cash proceeds, net of offering
costs, therefrom of $6,537,000.
(4) DISCONTINUED OPERATIONS
In June 1999, the Company completed the sale of its industrial
subsidiary, Polymicro Technologies, Inc. (PTI), for $15,000,000 in cash. PTI
manufactures drawn silica glass products for industrial, aerospace and medical
uses with an emphasis on the analytical instrument market.
The income from PTI up to the date of disposal is shown as "income from
operations of discontinued industrial subsidiary" on the consolidated statement
of operations.
(5) INVENTORIES
Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Raw Materials $1,507 $1,105
Work in Process 117 788
Finished Goods 1,369 853
------ ------
$2,993 $2,746
====== ======
</TABLE>
Page 5
<PAGE> 6
ITEM 1. NOTES TO FINANCIAL STATEMENTS (CONT'D)
(6) DEFERRED REVENUE
In 1997, the Company entered into a license and supply agreement with
United States Surgical Corporation (USSC), whereby USSC paid a license fee in
addition to advance payment for products to be supplied by the Company. The
payments received were recorded as deferred revenue and have been amortized as
product is shipped under the agreement. During 1997, cash received under the
agreement totaled $6,339,000. There was no revenue related to these agreements
during the three and six months ended June 30, 2000 and 1999. The remaining
deferred revenue balance of $2,028,000 is shown as non-current on the balance
sheet at June 30, 2000, and December 31, 1999, as delivery dates are unknown due
to the Baxter Healthcare litigation (see note 8).
Other deferred revenue - current, in the amounts of $1,091,000 and
$917,000 at June 30, 2000, and December 31, 1999, respectively, relates
primarily to payments received in advance for various product maintenance
contracts, whereby revenue is initially deferred and amortized over the life of
the contract, which is generally one year.
(7) SEGMENT AND GEOGRAPHIC REPORTING
An operating segment is a component of an enterprise whose operating
results are regularly reviewed by the enterprise's chief operating decision
maker to make decisions about resources to be allocated to the segment and
assess its performance. The primary performance measure used by management is
net earnings or loss. As a result of the sale of PTI in June 1999, the Company
operates in one distinct line of business consisting of the development,
manufacturing, marketing and distribution of a proprietary excimer laser system
for the treatment of certain coronary and vascular conditions. The Company has
identified two geographic reportable segments within this line of business: (1)
U.S. Medical and (2) Europe Medical. U.S. Medical and Europe Medical offer
similar products and services but operate in different geographic regions and
have different distribution networks. Additional information regarding each
reportable segment is shown below.
U. S. MEDICAL
Products offered by this reportable segment include an excimer laser
unit ("equipment"), fiber-optic delivery devices ("disposables"), and the
service of the excimer laser unit ("service"). The Company is subject to product
approvals from the Food and Drug Administration ("FDA"). At June 30, 2000,
FDA-approved products were used in conjunction with coronary angioplasty as well
as the removal of non-functioning pacing leads from pacemakers and cardiac
defibrillators. This segment's customers are primarily located in the United
States; however, the geographic area served by this segment also includes
Canada, Mexico, South America, the Pacific Rim and Australia.
U.S. Medical is also corporate headquarters for the Company.
Accordingly, research and development as well as corporate administrative
functions are performed within this reportable segment. As of June 30, 2000 and
1999, cost allocations of these functions to Europe Medical have not been
performed. Allocations to income from operations of our discontinued industrial
subsidiary for general and administrative activities totaled $145,000 and
$190,000 for the three and six months ended June 30, 1999, respectively.
Page 6
<PAGE> 7
ITEM 1. NOTES TO FINANCIAL STATEMENTS (CONT'D)
Revenue associated with intersegment transfers to Europe Medical were
$393,000 and $550,000 for the three months ended June 30, 2000 and 1999,
respectively, and $927,000 and $968,000 for the six months ended June 30, 2000
and 1999, respectively. Revenue is based upon transfer prices, which provide for
intersegment profit that is eliminated upon consolidation. For each of the three
and six months ended June 30, 2000 and 1999, intersegment revenue and
intercompany profits have been eliminated in the segment information in the
table shown below.
EUROPE MEDICAL
The Europe Medical segment is a marketing and sales subsidiary located
in the Netherlands that serves all of Europe as well as the Middle East.
Products offered by this reportable segment are similar to U.S. Medical
products. Beginning in January 1999, the Company established a direct sales
force in Germany, which accounts for the majority of the revenue within this
segment. The Company has received CE mark approval for products that relate to
three applications of excimer laser technology - coronary angioplasty, lead
removal, and peripheral angioplasty to clear blockages in leg arteries.
Summary financial information relating to reportable continuing segment
operations is shown below. Intersegment transfers as well as intercompany assets
and liabilities are excluded from the information provided.
<TABLE>
<CAPTION>
(in thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
REVENUE: 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Medical $ 6,077 $ 4,306 $11,751 $ 7,742
Europe Medical 731 631 1,719 1,265
------- ------- ------- -------
Total revenues $ 6,808 $ 4,937 $13,470 $ 9,007
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
SEGMENT NET LOSS: 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Medical $ (534) $(1,437) $(1,136) $(2,567)
Europe Medical (443) (1,080) (735) (1,348)
------- ------- ------- -------
Total net loss $ (977) $(2,517) $(1,871) $(3,915)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
SEGMENT ASSETS: 2000 1999
-------- ------------
<S> <C> <C>
U.S. Medical $28,874 $32,299
Europe Medical 2,346 1,739
------- -------
Total assets $31,220 $34,038
======= =======
</TABLE>
Page 7
<PAGE> 8
ITEM 1. NOTES TO FINANCIAL STATEMENTS (CONT'D)
(8) COMMITMENTS AND CONTINGENCIES
On August 6, 1999, the Company was notified of a lawsuit claiming
patent infringement, which was filed in Delaware by Baxter Healthcare
Corporation. The lawsuit seeks an injunction against further alleged
infringement of the patents as well as unspecified damages. The Company is aware
of these patents and does not believe any patent infringement has occurred. The
Company has also asserted several counterclaims against Baxter. The Company has
accrued for costs incurred and expected to be incurred as a result of this
claim. We have assessed the range of costs to be incurred and have accrued costs
at the lower end of the range, as there is no better estimate within the range.
However, it is difficult to assess the costs involved related to the defense and
resolution of this claim. As such, the possibility exists that the costs to
resolve this matter may exceed the amount accrued.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CORPORATE OVERVIEW
We develop, manufacture, service and distribute an excimer laser
unit and fiber optic delivery system for the treatment of certain coronary and
vascular conditions. In June 1999, we sold our wholly owned subsidiary,
Polymicro Technologies, Inc., a manufacturer and distributor of drawn silica
glass products, which include capillary tubing and specialty fiber optics. The
operations of Polymicro are reflected in our financial statements as a
discontinued operation, and our discussion and analysis contained herein focuses
on our continuing medical business only.
We sell the only excimer laser system that has been market
approved by the FDA in the United States for multiple cardiovasclar applications
-- including coronary angioplasty and lead removal. Our laser system competes
primarily against alternative technologies including balloon catheters,
cardiovascular stents and mechanical atherectomy devices.
Our strategy is to expand our installed base of laser systems,
increase the utilization of our FDA-approved products, and develop additional
procedures for our excimer laser system. In 1997, we secured FDA approval to use
our excimer laser system for removal of pacemaker and defibrillator leads. We
are currently conducting three clinical trials evaluating the use of our excimer
laser system to treat restenosed stents and blocked arteries in the upper and
lower leg. We expect that each of these trials will continue another two to
three years.
FORWARD-LOOKING STATEMENTS
Forward looking statements in this Quarterly Report on Form 10-Q
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Shareholders are cautioned that all
forward-looking statements pertaining to the Company involve risks and
uncertainties, including, without limitation, the risks set forth below under
the caption "Risk Factors" and other risks detailed from time to time in the
Company's periodic reports and other information filed with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
In this section, we discuss revenue and net income (loss) from
continuing operations for the three and six months ended June 30, 2000 and 1999.
Page 8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
On August 6, 1999, one of our competitors, Boston Scientific
Corporation, announced a product recall of its rotational atherectomy system. We
believe that a large part of the increase within our coronary angioplasty
product line during the last half of 1999 was directly related to the recall.
Boston Scientific responded to the recall by supplying its customers with the
earlier generation rotational atherectomy system, and has since received FDA
clearance to re-introduce the product that was recalled in August.
We believe that have retained and we can continue to retain the
business gained since the product recall was announced, but our ability to do so
depends on, among other things, the acceptance of excimer laser angioplasty as a
viable alternative to rotational atherectomy.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
Revenue increased by 38% to $6,808,000 for the three months ended June
30, 2000, as compared with $4,937,000 for the three months ended June 30, 1999.
Increased revenue included a 64% increase in disposables revenue, an 18%
decrease in equipment revenue and a 22% increase in service revenue.
Increased disposables revenue, which consists of single-use catheter
products, resulted from an increase of 76% in sales of coronary angioplasty
catheters and an 82% increase in sales of lead removal devices over our 1999
levels, primarily due to increased unit volumes. The increased units reflect
growth within previously existing customer accounts as well as continued growth
in our installed base of laser systems.
Equipment revenue decreased in 2000 primarily due to decreased unit
sales of our laser system, partially offset by increased rental revenue of 41%
related to the Evergreen rental program introduced in July 1999.
Gross margin increased to 69% during the three months ended June 30,
2000, as compared with 65% for the three months ended June 30, 1999. This
increase is primarily the result of a shift in sales mix toward higher margin
disposable revenue during the three months ended June 30, 2000, manufacturing
efficiencies resulting from increased unit volumes, and improved pricing within
our coronary angioplasty product line.
Operating expenses grew 2% during the three months ended June 30, 2000,
to $5,891,000 as compared with $5,773,000 for the three months ended June 30,
1999.
Marketing and sales expenses increased by 53% to $3,420,000 for the
three months ended June 30, 2000, as compared with $2,238,000 for the same
period for 1999. This increase relates to costs incurred primarily in the United
States for the hiring and training of sales personnel. The U.S. field sales
organization has increased to 31 employees as of June 30, 2000, as compared with
17 as of June 30, 1999.
General and administrative expenses grew 47% to $1,353,000 for the
three months ended June 30, 2000, as compared with $922,000 for the three months
ended June 30, 1999. This increase is primarily attributable to increased
personnel costs associated with building the infrastructure necessary to support
the company's growth. Additionally, for the three months ended June 30, 1999,
costs of $145,000 were allocated to Polymicro for corporate administrative
support. No allocations were recorded for the three months ended June 30, 2000.
Page 9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
Royalties expense represent costs paid on license agreements held by
third parties on our products. Royalties expense increased by 21% to $289,000
for the three months ended June 30, 2000, as a direct result of increased
royalty-bearing revenue as compared to the three months ended June 30, 1999.
Research and development expenses decreased 18% to $829,000 for the
three months ended June 30, 2000, as compared with $1,016,000 for the three
months ended June 30, 1999. This decrease is due primarily to final close-out
costs of $335,000 associated with certain clinical trials in Europe during the
three months ended June 30, 1999. No costs of this nature were recorded during
the three months ended June 30, 2000. When adjusted for these close-out costs
incurred in 1999, research and development costs increased 22%, which is due to
ongoing clinical trials studying the use of excimer laser technology to treat
in-stent restenosis and blockages in the upper and lower legs.
Reorganization and litigation charges recorded during the three months
ended June 30, 1999, represent one-time charges associated with termination
costs for a change in management within our European subsidiary, Spectranetics
International, B.V., and litigation costs related to the patent infringement
lawsuit filed by Baxter Healthcare Corporation. See further discussion of Baxter
litigation at Part II, Item 1.
Interest income increased due to higher cash and investment balances
received from the private placement of common stock in February 1999 and the
cash received from the sale of PTI in June 1999. Interest expense decreased
slightly from the prior year and related primarily to interest charges on our
equipment loan.
Loss from continuing operations for the three months ended June 30,
2000, decreased 61% to a loss of $977,000 from a loss of $2,517,000 for the
three months ended June 30, 1999, primarily due to increases in revenue and
gross margin partially offset by increases in expenses discussed above.
U.S. MEDICAL
Revenue in the United States increased 41% to $6,077,000 for the three
months ended June 30, 2000, as compared with revenue of $4,306,000 for the three
months ended June 30, 1999. Equipment revenue decreased by 23%. Disposables
revenue increased 75%, led by an 86% increase in lead removal products and an
83% increase in coronary angioplasty revenue. Service revenue increased 14%.
Loss from continuing operations decreased 63% to a loss of $534,000 for
the three months ended June 30, 2000, as compared with a loss of $1,437,000 for
the three months ended June 30, 1999. The decreased net loss was primarily due
to increased revenue partially offset by increased operating expenses.
EUROPE MEDICAL
Revenue from our medical business in Europe increased 16% to $731,000
for the three months ended June 30, 2000, as compared with revenue of $631,000
for the three months ended June 30, 1999. This increase is primarily
attributable to an increase in equipment and service revenue.
Net loss decreased 59% to a loss of $443,000 for the three months ended
June 30, 2000, as compared with a loss of $1,080,000 for the three months ended
June 30, 1999. This decrease is primarily due to increased revenue and gross
margin as well as a 37% decrease in operating expenses.
Page 10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
The functional currency of Spectranetics International, B.V., is the
Dutch guilder. All revenue and expenses are translated to United States dollars
in the consolidated statements of operations using weighted average exchange
rates during the period. Fluctuation in Dutch guilder currency rates during the
three months ended June 30, 2000, as compared with the three months ended June
30, 1999, caused a decrease in revenue and operating expenses of 2%.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Revenue increased 50% to $13,470,000 for the six months ended June 30,
2000, as compared with $9,007,000 for the six months ended June 30, 1999.
Increased revenue included a 56% increase in disposables sales, a 47% increase
in equipment revenue and a 23% increase in service revenue.
Increased disposables revenue, which consists of single-use catheter
products, resulted from an increase of 53% in sales of coronary angioplasty
catheters and a 90% increase in sales of lead removal devices over our 1999
levels. The increases are a result of increased unit volumes, which reflect
growth within previously existing customer accounts as well as continued growth
in our installed base of laser systems.
Equipment revenue increased in 2000 primarily due to increased unit
sales of our laser system. Additionally, rental revenue contributed to a 34%
increase in equipment revenue in connection with the introduction of the
Evergreen rental program in July 1999.
Gross margin increased to 68% during the six months ended June 30,
2000, as compared with 66% for the six months ended June 30, 1999. This increase
is primarily the result of a shift in sales mix toward higher margin disposables
revenue combined with manufacturing efficiencies as a result of increased unit
volumes during the six months ended June 30, 2000.
Operating expenses grew 16% during the six months ended June 30, 2000,
to $11,438,000, as compared with $9,898,000 for the six months ended June 30,
1999.
Marketing and sales expenses increased 48% to $6,509,000 for the six
months ended June 30, 2000, as compared with $4,402,000 for the same period for
1999. This increase relates to costs incurred primarily in the United States for
the hiring and training of sales personnel. The U.S. field sales organization
has increased to 31 employees as of June 30, 2000, as compared with 17 as of
June 30, 1999.
General and administrative expenses grew 39% to $2,641,000 for the six
months ended June 30, 2000, as compared with $1,901,000 for the six months ended
June 30, 1999. This increase is primarily attributable to increased personnel
costs associated with building the infrastructure necessary to support the
company's growth, higher legal costs and the lack of corporate administrative
allocations to Polymicro which were recorded in the six months ended June 30,
1999 but not in the six months ended June 30, 2000 due to the sale of Polymicro
in 1999.
Royalties expense represents costs paid on license agreements held by
third parties on our products. Royalties expense increased by 39% to $602,000
for the six months ended June 30, 2000 as a direct result of increased revenue
as compared to the six months ended June 30, 1999.
Research and development expenses decreased 6% to $1,686,000 for the
six months ended June 30, 2000, as compared with $1,803,000 for the six months
ended June 30, 1999. This decrease is due primarily to final close-out costs of
$335,000 associated with certain clinical trials in Europe during the six
Page 11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
months ended June 30, 1999. No costs of this nature were recorded during the
three months ended June 30, 2000. When adjusted for these close-out costs
incurred in 1999, research and development costs increased 15%, which is due to
ongoing clinical trials studying the use of excimer laser technology to treat
in-stent restenosis and blockages in the upper and lower legs.
Reorganization and litigation charges recorded during the six months
ended June 30, 1999, represent one-time charges associated with termination
costs for a change in management within our European subsidiary, Spectranetics
International, B.V., and litigation costs related to the patent infringement
lawsuit filed by Baxter Healthcare Corporation. See further discussion of Baxter
litigation at Part II, Item 1. No costs of this nature were recorded during the
six months ended June 30, 2000.
Interest income increased due to higher cash and investment balances
received from the private placement of common stock in February 1999 and the
cash received from the sale of PTI in June 1999. Interest expense decreased
slightly from the prior year and related primarily to interest charges on our
equipment loan.
Loss from continuing operations for the six months ended June 30, 2000,
decreased 52% to a loss of $1,871,000 from a loss of $3,915,000 for the six
months ended June 30, 1999, primarily due to increases in revenue and gross
margin partially offset by increases in expenses discussed above.
U.S. MEDICAL
Revenue in the United States increased 52% to $11,751,000 for the six
months ended June 30, 2000, as compared with revenue of $7,742,000 for the six
months ended June 30, 1999. Equipment revenue increased by 24%. Disposables
revenue increased 67%, led by a 92% increase in lead removal products and a 66%
increase in coronary angioplasty revenue. Service revenue increased 17%.
Loss from continuing operations decreased 56% to a loss of $1,136,000
for the six months ended June 30, 2000, as compared with a loss of $2,567,000
for the six months ended June 30, 1999. The decreased net loss was primarily due
to increased revenue partially offset by increased operating expenses.
EUROPE MEDICAL
Revenue from our medical business in Europe increased 36% to $1,719,000
for the six months ended June 30, 2000, as compared with revenue of $1,265,000
for the six months ended June 30, 1999. This increase is primarily attributable
to an increase in equipment and service revenue.
Net loss decreased 45% to a loss of $735,000 for the six months ended
June 30, 2000, as compared with a loss of $1,348,000 for the three months ended
June 30, 1999. This decrease is primarily due to increased revenue and gross
margin as well as a 16% decrease in operating expenses.
The functional currency of Spectranetics International, B.V. is the
Dutch guilder. All revenue and expenses are translated to United States dollars
in the consolidated statements of operations using weighted average exchange
rates during the period. Fluctuation in Dutch guilder currency rates during the
six months ended June 30, 2000, as compared with the six months ended June 30,
1999, caused a decrease in revenue and operating expenses of 2%.
Page 12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had cash, cash equivalents and investment
securities of $15,470,000, compared with $20,125,000 at December 31, 1999. In
February 1999, Spectranetics completed the private placement of 3,800,000 shares
of common stock and received cash proceeds, net of offering costs, therefrom of
$6,537,000. In June 1999, the Company completed the sale of PTI for $15,000,000
in cash .
Cash used in operations totaled $4,558,000 for the three months ended
June 30, 2000, primarily due to the following: (1) net loss of $1,871,000, (2)
$722,000 related to increased receivables balances, (3) $1,109,000 related to
increased inventories and equipment held for rental or loan, and (4) $1,266,000
related to decreased accounts payable and accrued liabilities. The table below
describes the growth in receivables and inventory in relative terms, through the
presentation of financial ratios. Days sales outstanding is calculated by
dividing the ending accounts receivable balance by the average daily sales for
the quarter. Inventory turns is calculated by dividing annualized cost of sales
for the quarter by ending inventory.
<TABLE>
<CAPTION>
June 30, 2000 Dec 31, 1999
------------- ------------
<S> <C> <C>
Days Sales Outstanding 83 75
Inventory Turns 2.8 3.0
</TABLE>
Receivables considered to be overdue were not significant as of June
30, 2000, or December 31, 1999.
Net cash provided by investing activities was $3,122,000 for the six
months ended June 30, 2000, primarily due to a $3,467,000 decrease in invested
balances. Capital expenditures were $345,000 for the six months ended June 30,
2000, compared with $149,000 for the six months ended June 30, 1999.
Net cash provided by financing activities was $234,000, consisting of
$785,000 from the issuance of common stock associated with stock option
exercises and the employee stock purchase plan, which was offset by $551,000
from principal payments on debt and capital lease obligations.
During 1997 we secured a $2,000,000 credit line collateralized by
equipment (equipment line). The equipment line bears interest, which is accrued
monthly, at a rate equal to one-quarter of a percent above the prime rate
(interest rate of 9.25% at June 30, 2000), and matures on December 23, 2000. At
June 30, 2000, the equipment line had an outstanding balance of $400,000. As of
June 30, 2000, we are in compliance with the debt covenants and we expect to
remain compliant with these covenants.
During 1998, we entered into a $330,000 loan agreement collateralized
by equipment held for rental or loan owned by Spectranetics International, B.V.
The loan bears interest at 6.51% per annum and matures in December 2003. At June
30, 2000, the loan had an outstanding balance of $196,000.
At June 30, 2000 and December 31, 1999, we placed a number of systems
on rental, loan and fee-per-procedure programs. Totals of $3,972,000 and
$3,331,000 were recorded as property and equipment as of June 30, 2000, and
December 31, 1999, respectively, and are being depreciated over three to five
years. This equipment was transferred from inventory at cost. We will continue
to offer these programs as we execute our strategy of increasing our installed
base of laser systems in major cardiac centers.
Page 13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
We currently use three placement programs. Since July 1999, most units
were placed under the Evergreen or evaluation programs. A description of our
placement programs follows:
(1) Rental programs - Straight rental program with terms varying
from 6 months to 3 years. Rental revenue in the amount of
$3,000 to $5,000 is invoiced on a monthly basis and revenue is
recognized upon invoicing. Catheter revenue is recognized when
shipped and invoiced. The lasers are transferred from
inventory to property and equipment upon shipment of the laser
to the customer. The laser is then depreciated over three to
five years, depending on the type of laser. Depreciation on
these lasers is included in cost of revenue. At the end of the
rental term, if the customer elects to purchase the unit,
revenue is recognized upon invoicing the customer after
receiving a valid purchase order. Cost of revenue equal to the
net book value of the system is also recorded at this time.
(2) Evergreen - The Evergreen rental program was introduced in
July 1999, and is similar to the straight rental program.
However, rental revenue under this program varies on a sliding
scale depending on the customer's catheter purchases each
month. Rental revenue is invoiced on a monthly basis and
revenue is recognized upon invoicing.
(3) Evaluation programs - We "loan" a laser system to an
institution for use over a short period of time, usually three
to six months. The loan of the equipment is made to create
awareness of the product, and no revenue is earned or
recognized in connection with the placement of this laser. The
units are transferred to the "equipment held for rental or
loan" account upon shipment of the laser system. The laser
systems are depreciated over a three to five year period that
is expensed to cost of revenue. At the end of the evaluation
period, the equipment typically converts to a rental agreement
or the customer purchases the laser system.
We believe our liquidity and capitalization as of June 30, 2000, is
sufficient to meet our operating and capital requirements through December 31,
2000. Revenue increases from current levels and attaining profitability will be
necessary to sustain us over the long term.
CONVERSION TO THE EURO
On January 1, 1999, eleven countries in Europe adopted a common
currency, the "euro", and exchange rates between the currencies of the eleven
countries were fixed against the new euro. The former currencies of those eleven
countries will remain legal tender as denominations of the euro until January 1,
2002 and goods and services may be paid for using either the euro or the former
currency until that time.
Spectranetics International, B.V., currently intends to continue using
the Dutch guilder as its functional currency until its fiscal year beginning
January 1, 2002.
Due to the size of the Spectranetics International, B.V., operations in
relation to the consolidated operations, the conversion to the Euro is not
expected to have a material effect on the consolidated financial statements.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133), which is effective for fiscal quarters
Page 14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
beginning after June 15, 1999, later extended to June 15, 2000. FAS 133 requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies under the standard for hedge accounting. The Company
does not anticipate a material impact on the results of operations as a result
of implementing this standard.
RISK FACTORS
We Have Continued to Suffer Losses. We have incurred net losses since
our inception in June 1984. At June 30, 2000, we had accumulated $69.5 million
in net losses since inception. We anticipate that our net losses will continue
in the foreseeable future. We may be unable to increase sales or achieve
profitability.
Our Small Sales and Marketing Team May be Unable to Compete with our
Larger Competitors or Reach All Potential Customers. Many of our competitors
have larger sales and marketing operations than ours. This allows those
competitors to spend more time with customers, which gives them a significant
advantage over our team in making sales.
Our European Operations Have Not Been Successful and Our Recently
Established Direct Sales Force in Europe May Not Be Successful. In January 1999,
we established a direct sales force for our principal European markets. We may
be unable to develop an effective European sales force, and our sales and
marketing efforts in Europe could be unsuccessful.
We Are Exposed to the Problems that Come from Having International
Operations. For the six months ended June 30, 2000, our revenue from
international operations represented 13% of consolidated revenues. Changes in
international economic conditions, currency exchange rates, foreign tax laws or
tariffs or other trade regulations could adversely affect our ability to market
our products in these and other countries. As we expand our international
operations, we expect our sales and expenses denominated in foreign currencies
to expand.
Our Products are Still New and May Not Be Accepted in Their Markets.
Excimer laser technology is a relatively new procedure that competes with more
established therapies for restoring circulation to clogged or obstructed
arteries. Market acceptance of the excimer laser system depends on our ability
to provide adequate clinical and economic data that shows the clinical efficacy
of and patient need for excimer laser angioplasty and lead removal.
We May Be Unable to Compete Successfully in our Highly Competitive
Industry in Which Many Other Competitors are Bigger Companies. Our primary
competitors are manufacturers of products used in competing therapies, such as
balloon angioplasty, stent implantation, open chest bypass surgery, and
atherectomy, a mechanical method for removing arterial blockages.
We also compete with companies that develop lead extraction devices or
removal methods, such as mechanical sheaths. Almost all of our competitors have
substantially greater financial, manufacturing, marketing and technical
resources than we do. We expect competition to intensify.
SCIMED Life Systems, Inc. (a subsidiary of Boston Scientific
Corporation), Cordis Corporation (a subsidiary of Johnson & Johnson
Interventional Systems), and Advanced Cardiovascular Systems, Inc. (a subsidiary
of Guidant Corporation), are the leading balloon angioplasty manufacturers.
Manufacturers of atherectomy devices include Devices for Vascular Intervention,
Inc. (a subsidiary of Guidant Corporation) and SCIMED. Cook Vascular, Inc.
competes with us in the lead removal market with its mechanical lead removal
products.
Page 15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
We believe that the primary competitive factors in the interventional
cardiovascular market are:
o the ability to treat a variety of lesions safely and
effectively;
o the impact of managed care practices and procedure costs;
o ease of use;
o size and effectiveness of sales forces; and
o research and development capabilities.
Failure of Third Parties to Reimburse Medical Providers for our
Products May Reduce Our Sales. We sell our CVX-300 laser unit primarily to
hospitals, which then bill third-party payors, such as government programs and
private insurance plans, for the services the hospitals provide using the
CVX-300 laser unit. Unlike balloon angioplasty and atherectomy, laser
angioplasty requires the purchase of expensive capital equipment. In some
circumstances, the amount reimbursed to hospitals for procedures involving our
products may not be adequate to cover a hospital's costs. We do not believe that
reimbursement has materially adversely affected our business to date, but
continued reimbursement driven cost-containment measures could hurt our business
in the future.
In addition, the FDA has required that the label for the CVX-300 laser
unit state that adjunctive balloon angioplasty was performed together with laser
angioplasty in most of the procedures we submitted to the FDA for pre-market
approval. Adjunctive balloon angioplasty requires the purchase of a balloon
catheter in addition to the laser catheter. While all approved procedures using
the excimer laser system are reimbursable, some third-party payors attempt to
deny reimbursement for procedures they believe are duplicative, such as
adjunctive balloon angioplasty performed together with laser angioplasty.
Third-party payors may also attempt to deny reimbursement if they determine that
a device used in a procedure was experimental, was used for a non-approved
indication or was not used in accordance with established protocols regarding
cost effective treatment methods. Hospitals that have experienced reimbursement
problems or expect to experience reimbursement problems may not purchase our
excimer laser systems in the future.
Regulatory Compliance is Very Expensive and Can Often Be Denied or
Significantly Delayed. The industry in which we compete is subject to extensive
regulation by the FDA and comparable state and foreign agencies. Complying with
these regulations is costly and time consuming. International regulatory
approval processes may take longer than the FDA approval process. If we fail to
comply with applicable regulatory requirements, we may be subject to, among
other things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. We may be unable to obtain
future regulatory approval in a timely manner or at all if existing regulations
are changed or new regulations are adopted. For example, the FDA approval
process for the use of excimer laser technology in clearing blocked arteries in
the lower leg has taken longer than we anticipated, due to requests for
additional clinical data and changes in regulatory requirements.
Failures in Clinical Trials May Hurt Our Business and Our Stock Price.
All of Spectranetics' potential products are subject to extensive regulation and
will require approval from the Food and Drug Administration and other regulatory
agencies prior to commercial sale. The results from pre-clinical testing and
early clinical trials may not be predictive of results obtained in large
clinical trials. Companies in the medical device industry have suffered
significant setbacks in various stages of clinical trials, even in advanced
clinical trials after promising results had been obtained in earlier trials.
The development of safe and effective products is highly uncertain and
subject to numerous risks. The product development process may take several
years, depending on the type, complexity, novelty and intended use of the
product. Product candidates that may appear to be promising in development may
not reach the market for a number of reasons.
Page 16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
Product candidates may:
o be found ineffective;
o take longer to progress through clinical trials than had been
anticipated; or
o require additional clinical data and testing.
We Have Important Sole Source Suppliers and May Be Unable to Replace
Them if They Stop Supplying Us. We purchase certain components of our CVX-300
laser unit from several sole source suppliers. We do not have guaranteed
commitments from these suppliers and order products through purchase orders
placed with these suppliers from time to time. While we believe that we could
obtain replacement components from alternative suppliers, we may be unable to do
so.
Potential Product Liability Claims and Insufficient Insurance Coverage
May Hurt Our Business and Stock Price. We are subject to risk of product
liability claims. We maintain product liability insurance with coverage and
aggregate maximum amounts of $5,000,000. The coverage limits of our insurance
policies may be inadequate, and insurance coverage with acceptable terms could
be unavailable in the future.
Technological Change May Result in Our Products Becoming Obsolete. We
derive more than 80% of our revenue from the sale or lease of the CVX-300 laser
unit and the sale of disposable devices. Technological progress or new
developments in our industry could adversely affect sales of our products. Many
companies, some of which have substantially greater resources than we do, are
engaged in research and development for the treatment and prevention of coronary
artery disease. These include pharmaceutical approaches as well as development
of new or improved angioplasty, atherectomy or other devices. Our products could
be rendered obsolete as a result of future innovations in the treatment of
vascular disease.
Our Patents and Proprietary Rights May be Proved Invalid so Competitors
Can Copy Our Products; We May Infringe Other Companies' Rights. We hold patents
and licenses to use patented technology, and have patent applications pending.
Any patents for which we have applied may not be granted. In addition, our
patents may not be sufficiently broad to protect our technology or to give us
any competitive advantage. Our patents could be challenged as invalid or
circumvented by competitors. In addition, the laws of certain foreign countries
do not protect our intellectual property rights to the same extent as do the
laws of the United States. We do not have patents in many foreign countries. We
could be adversely affected if any of our licensors terminate our licenses to
use patented technology.
We are aware of patents and patent applications owned by others
relating to laser and fiber-optic technologies, which, if determined to be valid
and enforceable, may be infringed by Spectranetics. Holders of certain patents,
including holders of patents involving the use of lasers in the body, have
contacted us and requested that we enter into license agreements for the
underlying technology. We cannot guarantee you that a patent holder will not
file a lawsuit against us and may prevail. If we decide that we need to license
this technology, we may be unable to obtain these licenses on favorable terms,
or at all. We may not be able to develop or otherwise obtain alternative
technology.
Litigation concerning patents and proprietary rights is time-consuming,
expensive, unpredictable and could divert the efforts of our management. An
adverse ruling could subject us to significant liability, require us to seek
licenses and restrict our ability to manufacture and sell our products. See Part
II, Item 1, "Legal Proceedings."
Protections Against Unsolicited Takeovers in Our Rights Plan, Charter
and Bylaws May Reduce or Eliminate our Stockholders' Ability to Resell Their
Shares at a Premium Over Market Price. We have a stockholder rights plan that
may prevent an unsolicited change of control of Spectranetics. The rights plan
may adversely affect the market price of our common stock or the ability of
stockholders to participate
Page 17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONT'D)
in a transaction in which they might otherwise receive a premium for their
shares. Under the rights plan, rights to purchase preferred stock in certain
circumstances have been issued to holders of outstanding shares of common stock,
and rights will be issued in the future for any newly issued common stock.
Holders of the preferred stock are entitled to certain dividend, voting and
liquidation rights that could make it more difficult for a third party to
acquire Spectranetics.
Our charter and bylaws contain provisions relating to issuance of
preferred stock, special meetings of stockholders and amendments of the bylaws
that could have the effect of delaying, deferring or preventing an unsolicited
change in the control of Spectranetics. Our Board of Directors are elected for
staggered three-year terms, which prevents stockholders from electing all
directors at each annual meeting, and may have the effect of delaying or
deferring a change in control.
Potential Volatility of Stock Price. The market price of our common
stock, similar to other health care companies, has been, and is likely to
continue to be, highly volatile. The following factors may significantly affect
the market price of our common stock:
o fluctuations in operating results;
o announcements of technological innovations or new products by
Spectranetics or our competitors;
o governmental regulation;
o developments with respect to patents or proprietary rights;
o public concern regarding the safety of products developed by
Spectranetics or others;
o general market conditions; and
o financing future operations through additional issuances of
equity securities, which may result in dilution to existing
stockholders and falling stock prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks include changes in foreign currency exchange
rates and interest rates. Market risk is the potential loss arising from adverse
changes in market rates and prices, such as foreign currency exchange and
interest rates. We do not use financial instruments to any degree to manage
these risks. We do not use financial instruments to manage changes in commodity
prices, and do not hold or issue financial instruments for trading purposes. Our
debt consists of obligations with fixed interest rates ranging from 5.75% to
6.51%, as well as an obligation with a variable interest rate equal to the prime
rate plus three-quarters of a percent. An increase or decrease of 1% in the
prime rate would cause interest expense to increase or decrease by approximately
$16,000 over a twelve-month period.
Page 18
<PAGE> 19
PART II.---OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 1999, Cook Vascular, Inc., filed a lawsuit in the U.S.
federal court in Indiana claiming co-ownership of two patents issued to
Spectranetics. Cook alleges that the patents were issued improperly by listing
only Spectranetics employees as inventors. Cook also alleges breach of contract,
misappropriation of trade secrets, and conspiracy. The technology at issue is
catheters utilizing electrical energy to remove implanted pacemaker leads. On
June 5, 2000, Cook amended its original complaint, alleging infringement by
Spectranetics of a Cook patent directed to a mechanical device for removing
implanted pacemaker leads. The Company intends to defend itself vigorously and
views all of Cook's claims as without merit and completely lacking factual
support.
On August 6, 1999, Baxter Healthcare Corporation, an affiliate of
Baxter International, Inc., served notice of a complaint against us in the U.S.
District Court for the District of Delaware claiming that all of our laser-based
products infringe on three patents licensed by Baxter. We feel our position is
meritorious and intend to vigorously defend our patent position and we have
asserted several counterclaims against Baxter.
The Company is involved in other legal proceedings in the normal course
of business and does not expect them to have a material adverse effect on our
business.
ITEMS 2-3. NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on June 21, 2000.
(b) The following directors were elected for a three-year term to
expire at the Company's Annual Meeting of Shareholders in
2003:
<TABLE>
<CAPTION>
Affirmative votes Votes withheld
----------------- --------------
<S> <C> <C>
Joseph A. Largey 21,305,145 829,507
James A. Lent 21,305,145 829,507
</TABLE>
Gary R. Bang, Cornelius C. Bond, Jr., Emile J. Geisenheimer,
Joseph M. Ruggio, M.D. and John G. Schulte continued their
terms of office as director after the meeting.
(c) The following other matters were voted upon at the meeting:
(1) Approval of an amendment to the 1997 Equity Participation Plan
to increase the number of shares authorized for issuance
thereunder from 2,500,000 shares to 6,000,000 shares:
<TABLE>
<S> <C>
In favor: 6,266,152
Against: 3,996,543
Abstained: 70,671
</TABLE>
(2) Ratification of KPMG Peat Marwick LLP as the Company's
independent auditors for the year ended December 31, 2000:
Page 19
<PAGE> 20
<TABLE>
<S> <C>
In favor: 22,033,785
Against: 50,551
Abstained: 50,316
</TABLE>
(3) Approval of an amendment to the Company's Employee Stock
Purchase Plan to increase the number of shares reserved for
issuance thereunder from 350,000 shares to 850,000 shares and
to increase the maximum percentage of a participant's base
compensation which may be used to purchase stock in a
particular purchase period from 5% to 15%:
<TABLE>
<S> <C>
In favor: 7,813,984
Against: 2,437,264
Abstained: 82,118
</TABLE>
ITEM 5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed herewith
and made a part of this report on Form 10-Q:
Exhibit 27.1 Financial Data Schedule for 2000 First
Quarter Form 10-Q.
Page 20
<PAGE> 21
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, 2000 By: /s/ Paul C. Samek
-----------------------------------------------
Paul C. Samek
Vice President Finance, Chief Financial Officer
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
27.1 Financial Data Schedule for 2000 Second Quarter 10-Q.
</TABLE>
