<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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 0-20584
ABIOMED, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2743260
(State of incorporation) IRS Employer No.)
33 CHERRY HILL DRIVE
DANVERS, MASSACHUSETTS 01923
(Address of principal executive offices, including zip code)
(978) 777-5410
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports requ-
ired to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 1998, there were 8,637,482 shares outstanding of the
registrant's Common Stock, $.01 par value.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S>
<C>
Part I - Financial Information:
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 1998 and March 31, 1998
3-4
Consolidated Statements of Operations
Three and Six Months Ended September 30, 1998
and September 30, 1997
5
Consolidated Statements of Cash Flows
Six Months Ended September 30, 1998 and
September 30, 1997
6
Notes to Consolidated Financial Statements
7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
10-16
Part II - Other Information
17
Signatures
18
</TABLE>
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
1998
March 31,
1998
(unaudited)
(audited)
<S>
<C>
<C>
Current Assets:
Cash and cash equivalents (Note 7)
$1,716,839
$2,683,151
Short-term marketable securities (Note 8)
20,438,541
23,714,641
Accounts receivable, net of allowance for
doubtful accounts of $204,000 at September 30, 1998
and March 31, 1998, respectively
4,954,687
5,356,348
Inventories (Note 4)
3,209,573
2,327,442
Prepaid expenses and other current assets
413,131
208,387
Total current assets
30,732,771
34,289,969
Property and Equipment, at cost:
Machinery and equipment
5,357,049
4,316,852
Furniture and fixtures
563,172
533,460
Leasehold improvements
1,689,671
1,561,189
7,609,892
6,411,501
Less: Accumulated depreciation and amortization
3,417,238
2,724,442
4,192,654
3,687,059
Other Assets, net (Notes 2 and 9)
522,151
638,176
$35,447,576
$38,615,204
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
September 30,
1998
March 31,
1998
(unaudited)
(audited)
<S>
<C>
<C>
Current Liabilities:
Accounts payable
$1,244,410
$2,057,473
Accrued expenses
2,948,064
2,872,288
Total current liabilities
4,192,474
4,929,761
Liabilities of Discontinued Operations, net (Note 3)
610,688
667,466
Stockholders' Investment (Note 5):
Class B Preferred Stock, $.01 par value-
Authorized 1,000,000 shares
Issued and outstanding-none
- -
- -
Common Stock, $.01 par value-
Authorized 25,000,000 shares
Issued and Outstanding- 8,637,482 shares at
September 30, 1998 and 8,567,015 shares at
March 31, 1998
86,375
85,670
Additional paid-in capital
58,105,784
57,454,983
Accumulated deficit
(27,547,745)
(24,522,676)
Total stockholders' investment
30,644,414
33,017,977
$35,447,576
$38,615,204
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended
September 30,
1998
September 30,
1997
September 30,
1998
September 30,
1997
<S>
<C>
<C>
<C>
<C>
Revenues:
Products
$4,352,983
$4,967,490
$7,877,493
$8,803,913
Contracts
614,443
1,851,207
2,893,176
3,680,252
4,967,426
6,818,697
10,770,669
12,484,165
Costs and expenses:
Cost of product revenues
1,563,346
1,806,043
3,000,211
3,114,145
Research and development
3,950,444
2,010,657
6,984,224
3,654,132
Selling, general and administrative
2,306,439
2,668,715
4,538,306
4,553,708
7,820,229
6,485,415
14,522,741
11,321,985
(Loss) income from operations
(2,852,803)
333,282
(3,752,072)
1,162,180
Interest and other income
369,791
292,147
727,003
416,642
(Loss) income from continuing operations
(2,483,012)
625,429
(3,025,069)
1,578,822
Loss from discontinued operations (Note 3)
- -
(137,425)
- -
(219,857)
Net (loss) income
$(2,483,012)
$488,004
$(3,025,069)
$1,358,965
(Loss) income from continuing operations per share (Note 6):
Basic
$(0.29)
$0.08
$(0.35)
$0.21
Diluted
$(0.29)
$0.07
$(0.35)
$0.20
Loss from discontinued operations per share (Note 6):
Basic
- -
$(0.02)
- -
$(0.03)
Diluted
- -
$(0.01)
- -
$(0.03)
Net (loss) income per share (Note 6):
Basic
$(0.29)
$0.06
$(0.35)
$0.18
Diluted
$(0.29)
$0.06
$(0.35)
$0.17
Weighted average shares outstanding (Note 6):
Basic
8,620,861
8,263,092
8,598,869
7,637,928
Diluted
8,620,861
8,605,689
8,598,869
7,868,675
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1998
September 30,
1997
<S>
<C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
$(3,025,069)
$1,358,965
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities-
Depreciation and amortization
763,873
439,744
Changes in assets and liabilities-
Accounts receivable
401,661
(1,595,337)
Inventories
(882,131)
(52,096)
Prepaid expenses and other assets
(159,796)
(708,574)
Accounts payable
(813,063)
(156,294)
Accrued expenses
75,776
498,905
Liabilities of discontinued operations, net
(56,778)
226,642
Net cash (used in) provided by operating activities
(3,695,527)
11,955
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term marketable securities, net
3,276,100
(15,855,425)
Purchases of property and equipment
(1,198,391)
(1,109,684)
Net cash provided by (used in) investing activities
2,077,709
(16,965,109)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net
- -
15,965,069
Proceeds from exercise of stock options and stock issued
under employee stock purchase plan
651,506
99,349
Net cash provided by financing activities
651,506
16,064,418
NET DECREASE IN CASH AND CASH EQUIVALENTS,
EXCLUDING INVESTMENTS
(966,312)
(888,736)
CASH AND CASH EQUIVALENTS, EXCLUDING INVEST-
MENTS, AT BEGINNING OF PERIOD
2,683,151
1,579,972
CASH AND CASH EQUIVALENTS , EXCLUDING INVEST-
MENTS, AT END OF PERIOD
$1,716,839
$691,236
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Preparation
The unaudited consolidated financial statements of ABIOMED, Inc.
(the Company), presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's latest audited
financial statements, which are contained in the Company's Form 10-K for
the year ended March 31, 1998, which was filed with the Securities and
Exchange Commission. In the opinion of management, the accompanying
consolidated financial statements include all adjustments (consisting only of
normal, recurring adjustments) necessary to summarize fairly the Company's
financial position and results of operations. The results of operations for
the six months ended September 30, 1998 may not be indicative of the
results that may be expected for the full fiscal year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, and its wholly owned subsidiaries, and the accounts of its
majority-owned subsidiary Abiomed Limited Partnership. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
3. Discontinued Operations
In its fiscal year ended March 31, 1998, the Company made the
decision to shift all of its focus to the Company's core cardiovascular
business and to sell, license or otherwise dispose of its dental business.
The accompanying consolidated financial statements contain certain
accounts that have been reclassified in each of the periods presented to
reflect this decision by the Company. Reported revenue, cost and expenses
from continuing operations exclude the operating results of the Company's
dental business.
The amount accrued by the Company at March 31, 1998 for
discontinuing the dental business included estimated operating losses of
$370,000 to be incurred during fiscal 1999. During the six months ended
September 30, 1998, the operating loss from the Company's dental business
applied against the accrual was $190,000.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
4. Inventories
Inventories include raw materials, work-in-process, and finished
goods and are priced at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
September 30,
1998
March 31,
1998
<S>
<C>
<C>
Raw materials
$1,435,900
$1,320,600
Work-in-process
516,212
483,723
Finished goods
1,257,461
523,119
$3,209,573
$2,327,442
</TABLE>
Finished goods and work-in-process inventories consist of direct
material, labor and overhead.
5. Stockholders' Investment
During the six months ended September 30, 1998, options to purchase
306,550 shares of Common Stock were granted at exercise prices ranging
from $11.25 to $13.625 per share. Options to purchase 31,800 shares were
canceled during the quarter and options to purchase 64,150 shares of
Common Stock were exercised at prices ranging from $5.625 to $13.50 per
share.
During the six months ended September 30, 1998, 6,286 shares of
Common Stock were issued under the Employee Stock Purchase Plan.
6. Net Income (Loss) Per Common Share
The Company has calculated net income (loss) per common share in
accordance with Statement of Financial Accounting Standards (SFAS) No.
128, Earnings Per Share, which requires the Company to present both basic
and diluted net income (loss) per share for all periods presented. Basic net
income (loss) per share ("Basic EPS") is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per share ("Diluted EPS") is computed
by dividing net income (loss) by the weighted average number of common
and common equivalent shares outstanding during the period using the
treasury stock method. In computing Diluted EPS, common equivalent
shares are not considered dilutive in periods in which a net loss is reported
because such common equivalent shares are antidilutive. The number of
shares that otherwise would have been dilutive for the three and six months
ended September 30, 1998 are 125,406 and 214,195, respectively. In
accordance with SFAS No. 128, the Company has recomputed net income per
share for the three and six month periods ended September 30, 1997 which
did not result in a change to reported net income per share.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
7. Cash and Cash Equivalents
The Company classifies marketable securities with a maturity date of
90 days or less at the time of acquisition to be a cash equivalent.
Securities, including marketable securities, with original maturities of
greater than 90 days are classified as investments.
8. Investments
The Company classifies any security, including marketable securities,
with a maturity of greater than 90 days as short-term marketable securities.
At September 30, 1998 the Company's short-term marketable securities
consisted primarily of government agency securities and high-grade corporate
bonds and the amortized cost of these securities approximated market value.
9. Other Assets
Other assets include approximately $272,000 in unamortized purchase
cost of the Company's majority interest of the Abiomed Limited Partnership.
The interest in the Abiomed Limited Partnership is being amortized over
five years, its estimated useful life. Abiomed Limited Partnership (the
Partnership) was formed in March 1985 and provided initial funding for the
design and development of certain of the Company's products.
Through August 3, 2000, the Company owes a royalty to the
Partnership of 5.5% of certain revenues from these products. Because the
Company owns 61.7% of the Partnership, the net royalty expense to the
Company is approximately 2.1% of these product revenues. This royalty
formula is subject to certain maximum amounts and to certain additional
adjustments in the event that the Company sells the technology. The
Partnership is inactive except with respect to receiving and distributing
proceeds from these royalty rights.
Also included in other assets are long-term accounts receivable
related to sales-type leases. The terms of these non-cancelable leases are
one to three years. As of September 30, 1998, approximately $250,000 is
included in other assets for these sales-type leases.
10. Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
The Company does not believe the adoption of this accounting standard will
have any impact on the Company's financial position or results of
operations.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
NET INCOME
Net loss and net loss per share for the three months ended September
30, 1998, were approximately $2,483,000 and $0.29 per share, respectively.
This compares to net income and net income per share of approximately
$488,000 and $0.06 per share, respectively, in the same period of the
previous year. The net loss for the three months ended September 30, 1998
is primarily attributable to the Company's undertaking to accelerate the
development of its battery-powered heart replacement device ("HRD") and to
decreases in contract and product revenues.
REVENUES
Product revenues decreased by 12% to $4.4 million in the three
months ended September 30, 1998 from $5.0 million in the three months
ended September 30, 1997. This was primarily attributable to a decrease of
$400,000 in international orders and $260,000 in orders from new U.S.
customers, which was partially offset by increased sales of BVS blood
pumps to existing customers. International revenues in the three months
ended September 30, 1997 included $250,000 in revenue from a single
international distributor. The distributor is using the product to gain
regulatory approval for that distributor's territory. Efforts by that
distributor to gain regulatory approval for its territory are ongoing and, as
such, the Company sold no product to that distributor in the three months
ended September 30, 1998. The $260,000 decrease in orders from new U.S.
customers primarily reflected decreased unit sales of BVS consoles which
was partially offset by increased average selling prices. The increase in
U.S. sales of BVS blood pumps to existing customers in the three months
ended September 30, 1998 compared to September 30, 1997 reflects
increases in both the number of units sold and the average selling price.
Sales of BVS blood pumps in the three months ended September 30, 1997
included $230,000 in product revenues shipped in the period from backlog.
The Company generally operates with only limited backlog. Without the
effect of backlog on the September 30, 1997 quarter, the Company's sales of
BVS blood pumps increased approximately $270,000 in the three months
ended September 30, 1998 compared to the three months ended September
30, 1997. More than 90% of total product revenues in the three months
ended September 30, 1998 were derived from domestic sources.
During the three months ended September 30, 1998, the Company
added 24 medical centers in the U.S. as new customers of the BVS,
increasing the Company's U.S. customer base for the BVS to more than 375.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
REVENUES (continued)
Contract revenues decreased by 67% to approximately $600,000 in
the three months ended September 30, 1998 from $1.9 million in the three
months ended September 30, 1997. The decrease in contract revenue was
primarily attributable to the Company's HRD government contract. None of
the contract revenue recognized in the three months ended September 30,
1998 was derived from the Company's HRD government contract compared to
$1.4 million of contract revenue recognized under this contract for the three
months ended September 30, 1997. The $600,000 in contract revenues
generated in the three months ended September 30, 1998 were primarily
derived from the Company's Heart Booster* contract and other grants.
Revenues from these sources totaled $500,000 in the three months ended
September 30, 1997. The Company accounts for revenue under its
government contracts and grants as work is performed, provided that the
government has appropriated sufficient funds for the work. Through
September 30, 1998, the government had appropriated and the Company has
recognized as revenue, $6.7 million of the $8.5 million HRD contract
amount. To date, the Company's expenditures under the HRD contract have
exceeded the appropriated amount. The government appropriation schedule
calls for no further appropriation for the HRD contract until October 1999.
This schedule is subject to change at the discretion of the government.
While the Company currently plans to continue its expenditures in
connection with the development of the HRD, the Company will not
recognize any further contract revenues under the HRD contract until such
time as additional funds are appropriated under the HRD contract, if ever.
The Company believes that certain of its costs incurred prior to further
appropriation may be reimbursable under the HRD contract, if and when
additional appropriation under the HRD contract is made. Due to the
Company's accelerated HRD development activity and the timing of
government appropriations, the Company believes that it will experience
significant quarterly fluctuations in contract revenues. The Company also
believes that the Company's total expenses to complete the development of
the HRD will significantly exceed the remaining $1.8 million HRD contract
amount.
As of September 30, 1998, the Company's total backlog of research
and development contracts and grants was $6.2 million, including $1.8
million for HRD research and development, $2.0 million for Heart Booster
research and development and $2.4 million for various other research and
development. Funding for the Company's government research and
development contracts is subject to government appropriation, and all of
these contracts contain provisions that make them terminable at the
convenience of the government. The Company retains rights to all
technological discoveries and products resulting from these efforts.
COSTS AND EXPENSES
Total costs and expenses increased to $7.8 million, 157% of total
revenues, for the three months ended September 30, 1998, from $6.5 million,
95% of total revenues, for the three months ended September 30, 1997. The
majority of this increase was incurred to support increased development
activities related to the HRD.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
COSTS AND EXPENSES (continued)
Cost of product revenues as a percentage of product revenues was 36%
for the three months ended September 30, 1998 and the three months ended
September 30, 1997. The impact of increased engineering costs incurred to
support expanded manufacturing capabilities and changes in the relative mix
of products sold were offset by higher average selling prices.
Research and development expenses increased by 96% to $4.0 million,
80% of total revenues, for the three months ended September 30, 1998, from
$2.0 million, 29% of total revenues for the three months ended September
30, 1997. The increase primarily reflected higher levels of spending by the
Company to advance the development of the HRD and to enhance the BVS
and higher level of activity under the Company's non-HRD cost-plus-fixed-
fee research and development contracts and grants. Research and
development expenses during the three months ended September 30, 1998
included $3.0 million of expenses incurred in connection with the
Company's development activities for the HRD. The Company anticipates
that its research and development expenses will continue to increase as a
result of its plans to further increase its research and development efforts
to further develop and test the HRD and enhance the BVS.
Selling, general and administrative expenses decreased by 14% to
$2.3 million, 46% of total revenues, for the three months ended September
30, 1998, from $2.7 million, 39% of total revenues, for the three months
ended September 30, 1997. This decrease was primarily due to reduced legal
costs, reduced headcount and related costs, and timing of spending for
marketing programs.
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest on the
Company's investment balances, net of interest and other expenses. Interest
and other income increased to $370,000 for the three months ended
September 30, 1998 from $292,000 for the three months ended September 30,
1997. This increase primarily reflected interest earned on the Company's
higher average investment balances.
Income taxes incurred during these periods were not material and the
Company continues to have significant net tax operating loss carryforwards
and tax credit carryforwards.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
SIX MONTHS ENDED SEPTEMBER 30, 1998
NET INCOME
Net loss and net loss per share for the six months ended September
30, 1998, were approximately $3.0 million and $0.35 per share,
respectively. This compares to net income and net income per share of
approximately $1.4 million and $0.17 per share, respectively, in the same
period of the previous year. The net loss for the six months ended
September 30, 1998 is primarily attributable to the Company's undertaking
to accelerate the development of its HRD and to the decrease in contract and
product revenues.
REVENUES
Product revenues decreased by 11% to $7.9 million in the six months
ended September 30, 1998 from $8.8 million in the six months ended
September 30, 1997. This decrease was comprised of decreases in sales of
$400,000 in BVS blood pumps to existing customers, of $270,000 in
international orders and of $260,000 in orders from new customers. Sales
of BVS blood pumps in the six months ended September 30, 1997 included
$640,000 in product revenues shipped in the period from backlog. The
Company generally operates with only limited backlog. Without the effect
of backlog, the Company's sales of BVS blood pumps increased
approximately $240,000 in the six months ended September 30, 1998
compared to the six months ended September 30, 1997 reflecting increases
in both the number of units sold and average selling prices of the BVS
blood pumps. International revenues in the six months ended September 30,
1997 included $250,000 in revenue from a single international distributor.
The distributor is using the product to gain regulatory approval for that
distributor's territory. Efforts by that distributor to gain regulatory
approval for its territory are ongoing and, as such, the Company sold no
product to that distributor in the six months ended September 30, 1998. The
decrease in orders from new U.S. customers reflects decreased unit sales of
BVS consoles partially offset by increased average selling prices. More
than 90% of total product revenues in the six months ended September 30,
1998 were derived from domestic sources.
Contract revenues decreased by 21% to approximately $2.9 million in
the six months ended September 30, 1998 from $3.7 million in the six
months ended September 30, 1997. Approximately $1.8 million of the
contract revenue recognized in the six months ended September 30, 1998 was
derived from the Company's HRD government contract compared to $3.0
million of contract revenue recognized under this contract for the six
months ended September 30, 1997. Excluding revenue generated from the
HRD government contract, the Company generated $1.1 million in contract
revenue in the six months ended September 30, 1998 primarily from the
Company's Heart Booster* contract and other government grants compared
to $700,000 from these sources in the six months ended September 30, 1997.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
COSTS AND EXPENSES
Total costs and expenses increased to $14.5 million, 135% of total
revenues, for the six months ended September 30, 1998, from $11.3 million,
91% of total revenues, for the six months ended September 30, 1997. The
majority of this increase in costs and expenses was incurred to support
increased development activities related to the HRD.
Cost of product revenues as a percentage of product revenues was 38%
for the six months ended September 30, 1998 as compared to 35% in the six
months ended September 30, 1997. The majority of this increase in cost of
products sold as a percentage of product revenues was attributable to higher
product costs for both the console and blood pumps due to increased
engineering costs incurred to support expanded manufacturing capabilities
and to changes in the relative mix of products sold partially offset by
higher average product selling prices.
Research and development expenses increased by 91% to $7.0 million,
65% of total revenues, for the six months ended September 30, 1998, from
$3.7 million, 29% of total revenues for the six months ended September 30,
1997. The increase primarily reflected higher levels of spending by the
Company to advance the development of the HRD and to enhance the BVS
and higher level of activity under the Company's non-HRD cost-plus-fixed-
fee research and development contracts and grants. Research and
development expenses during the six months ended September 30, 1998
included $5.2 million of expenses incurred in connection with the
Company's development activities for the HRD.
Selling, general and administrative expenses were $4.5 million, 42%
of total revenues, for the six months ended September 30, 1998, compared to
$4.5 million, 36% of total revenues, for the six months ended September 30,
1997.
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest on the
Company's investment balances, net of interest and other expenses. Interest
and other income increased to $727,000 for the six months ended September
30, 1998 from $417,000 for the six months ended September 30, 1997. This
increase primarily reflected interest earned on the Company's higher
average investment balances.
Income taxes incurred during these periods were not material and the
Company continues to have significant net tax operating loss carryforwards
and tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $22.2 million in cash and
short-term marketable securities. The Company also has a $3 million line of
credit from a bank that expires on November 30, 1998, and which was
entirely available at September 30, 1998.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
In the six months ended September 30, 1998, operating activities used
cash of $3,696,000. Net cash used by operating activities during the six
months ended September 30, 1998 reflected a net loss of $3,025,000,
increases in inventory and prepaid expenses of $882,000 and $160,000,
respectively, and decreases in accounts payable and net assets of
discontinued operations of $813,000 and $57,000, respectively. These uses
of cash were partially offset by a decrease in accounts receivable of
$402,000, an increase in accrued expenses of $76,000 and depreciation and
amortization expense of $764,000 included in the net loss. The increase in
inventory is primarily attributable to a decision by the company to increase
levels of finished goods and lower than expected sales for the quarter
resulting in higher inventories.
During the six months ended September 30, 1998, investing activities
provided $2,078,000 of cash. Net cash provided by investing activities
included $3,276,000 of maturities of short-term investments partially offset
by $1,198,000 of purchases of equipment and improvements of property
primarily to support the advanced development of the HRD.
During the six months ended September 30, 1998, financing activities
provided $652,000 of cash. Net cash provided by financing activities
included $595,000 from the exercise of stock options and $57,000 from
employee purchases of Common Stock under the Employee Stock Purchase
Plan.
Although the Company does not currently have significant capital
commitments, the Company believes that it will continue to make significant
investments over the next several years to support the development and
commercialization of its products and the expansion of its manufacturing
and product development facilities. The Company is currently negotiating
to enter into a new or amended facility lease that would allow the Company
to consolidate its operations into one building. There is no guarantee that
the Company will be able to negotiate acceptable terms. The Company
estimates that it may incur costs of approximately two million dollars for
improvements.
The Company believes that its revenues and existing resources,
including its $22.2 million in cash and short-term marketable securities,
will be sufficient to fund its planned operations, including planned
increases in its internally funded HRD development and BVS enhancement
efforts, for at least the next twelve months.
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
As the year 2000 approaches, it is generally anticipated that
computers, software and other equipment utilizing microprocessors may be
unable to function properly. The Company has evaluated this potential
issue with respect to its products, its financial and management information
systems and its suppliers. With respect to the Company's products, the
software controlling the BVS drive console includes internal counters, but
the BVS operation is not related in any way to a specific calendar date.
Accordingly, the Company believes that the BVS will not need any repair of
modification with regard to the Year 2000 issue.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS (continued)
With respect to the Company's financial and management information
systems, the Company must upgrade the application software to be Year 2000
compliant. The supplier of the software has developed a Year 2000
compliant version of the software and the Company anticipates upgrading its
systems to this version prior to the end of fiscal 1999. Because on April 1,
1999 the Company begins its fiscal year 2000, the Company anticipates that
if it does not upgrade its financial and management information systems in
Fiscal 1999, it may encounter Year 2000 compliance issues as early as April
1999. With respect to its suppliers, the Company is beginning to
communicate with key suppliers to assess their vulnerability to the Year
2000 issue and intends to increase inventory levels of certain key
components to help mitigate the risk of certain suppliers not being able to
supply materials on a timely basis due to systems issues.
Although management does not expect Year 2000 issues to have a
material impact on its business or future results of operations, there can be
no assurance that there will not be interruptions of operations or other
limitations of system functionality or that the Company will not incur
significant costs to avoid such interruptions or limitations. To the extent
that the Company does not eliminate all Year 2000 issues, the most
reasonably likely worst case year 2000 scenario is systemic failures beyond
the control of the Company, such as a prolonged telecommunications or
electrical failure, or a general disruption in supplies and services provided
to the Company which could have a material adverse effect on the
Company's business, results of operations and financial condition.
This document contains forward looking statements, including
statements regarding the anticipated timing and cost of the Company's HRD
development activities, enhancements to be made to the BVS, planned
expansion of the Company's manufacturing and product development
facilities, adequacy of existing resources and overcoming Year 2000 related
issues. The Company's actual results, including its HRD development, BVS
enhancements, facility expansion, adequacy of resources and overcoming
Year 2000 issues may differ materially based on a number of factors, both
known and unknown, including: uncertainty of product development and
clinical trials, complex manufacturing, high quality requirements, unproven
demonstration of required reliability of products under development,
dependence on key personnel, risks associated with growing number of
employees, inability to recruit required human resources on schedule,
competition and technological change, government regulations including the
FDA and other regulatory agencies, reliance on government contracts,
dependence on limited sources of supply, future capital needs and
uncertainty of additional funding, dependence on third-party reimbursement,
potential inadequacy of product liability insurance, dependence on patents
and proprietary rights and other risks detailed in the Company's Form 10-K
for the year ended March 31, 1998 which was filed with the Securities and
Exchange Commission. Investors are cautioned that all such statements
involve risks and uncertainties. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date of this document. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No material change.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on August 13,
1998, the stockholders approved the following:
a) Elected two persons to serve as Class II directors as follows:
Director
Votes for
Votes Withheld
W. Gerald Austen
7,898,220
34,315
Paul B. Fireman
7,895,720
36,815
b) A proposal to adopt the Company's 1998 Equity Incentive Plan.
The proposal received 4,966,658 votes for and 307,921 votes against.
There were 33,313 abstentions and 2,624,643 non-voting.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10 - ABIOMED, Inc. 1998 Equity Incentive Plan
b) Reports on Form 8-K
None
<PAGE>
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
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.
ABIOMED, Inc.
Date: October 21, 1998 /s/ David M. Lederman
David M. Lederman
CEO and President
Date: October 21, 1998 /s/ John F. Thero
John F. Thero
Vice President Finance
and Treasurer
Chief Financial Officer
Principal Accounting Officer
<PAGE>
Exhibit 10
ABIOMED, INC.
1998 EQUITY INCENTIVE PLAN
Section 1. Purpose
The purpose of the ABIOMED, Inc. 1998 Equity Incentive
Plan (the "Plan") is to attract and retain key employees,
directors, advisors and consultants, to provide an incentive for
them to assist ABIOMED, Inc. (the "Corporation") to achieve
long-range performance goals, and to enable them to
participate in the long-term growth of the Corporation.
Section 2. Definitions
(a) "Affiliate" means any business entity in which the
Corporation owns directly or indirectly 50% or more of the
total combined voting power or has a significant financial
interest as determined by the Committee.
(b) "Annual Meeting" means the annual meeting of shareholders
or special meeting in lieu of annual meeting of shareholders
at which one or more directors are elected.
(c) "Award" means any Option, Stock Appreciation Right,
Performance or Award Share, or Restricted Stock awarded
under the Plan.
(d) "Award Share" means a share of Common Stock awarded to
an employee, director, advisor or consultant without
payment therefor.
(e) "Board" means the Board of Directors of the Corporation.
(f) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Committee" means the Compensation Committee of the
Board, or such other committee of not less than two
members of the Board appointed by the Board to administer
the Plan, provided that the members of such Committee must
be Non-Employee Directors as defined in Rule 16b-3(b)
promulgated under the Securities Exchange Act of 1934, as
amended.
(h) "Common Stock" or "Stock" means the Common Stock, par
value $.01 per share, of the Corporation.
(i) "Corporation" means ABIOMED, Inc.
<PAGE>
(j) "Designated Beneficiary" means the beneficiary designated
by a Participant, in a manner determined by the Board, to
receive amounts due or exercise rights of the Participant in
the event of the Participant's death. In the absence of an
effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
(k) "Fair Market Value" means, with respect to Common Stock
or any other property, the fair market value of such property
as determined by the Board in good faith or in the manner
established by the Board from time to time.
(l) "Incentive Stock Option" means an option to purchase
shares of Common Stock, awarded to a Participant under
Section 6, which is intended to meet the requirements of
Section 422 of the Code or any successor provision.
(m) "Nonqualified Stock Option" means an option to purchase
shares of Common Stock, awarded to a Participant under
Section 6, which is not intended to be an Incentive Stock
Option.
(n) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
(o) "Participant" means a person selected by the Board to
receive an Award under the Plan.
(p) "Performance Cycle" or "Cycle" means the period of time
selected by the Board during which performance is measured
for the purpose of determining the extent to which an award
of Performance Shares has been earned.
(q) "Performance Shares" mean shares of Common Stock which
may be earned by the achievement of performance goals,
awarded to a Participant under Section 8.
(r) "Restricted Period" means the period of time selected by the
Board during which an award of Restricted Stock may be
forfeited to the Corporation.
(s) "Restricted Stock" means shares of Common Stock subject
to forfeiture, awarded to a Participant under Section 9.
(t) "Stock Appreciation Right" or "SAR" means a right to
receive any excess in value of shares of Common Stock over
the reference price, awarded to a Participant under Section
7.
<PAGE>
(u) "Stock Unit" means an award of Common Stock and/or other
rights granted as units that are valued in whole or in part by
reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
Section 3. Administration
The Plan shall be administered by the Committee, which
shall initially be the Stock Option Committee. The Board,
including any duly authorized committee of the Board, shall
have authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the operation of the
Plan as it shall from time to time consider advisable, and to
interpret the provisions of the Plan. The Board's decisions
shall be final and binding. To the extent permitted by
applicable law, the Board may delegate to the Committee the
power to make Awards to Participants and all determinations
under the Plan with respect thereto.
Section 4. Eligibility
All employees and, in the case of Awards other than
Incentive Stock Options, directors, advisors and consultants of
the Corporation or any Affiliate capable of contributing
significantly to the successful performance of the Corporation,
other than a person who has irrevocably elected not to be
eligible, are eligible to be Participants in the Plan.
Section 5. Stock Available for Awards
(a) Subject to adjustment under subsection (b), Awards may be
made under the Plan, as the Board may determine, provided
that a maximum of 500,000 shares of Common Stock may be
issued under this Plan. If any Award in respect of shares of
Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results
in fewer shares outstanding than were initially awarded,
including without limitation the surrender of shares in
payment for the Award or any tax obligation thereon, the
shares subject to such Award or so surrendered, as the case
may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award
under the Plan, subject, however, in the case of Incentive
Stock Options, to any limitation required under the Code.
Common Stock issued through the assumption or
substitution of outstanding grants from an acquired
corporation shall not reduce the shares available for Awards
under the Plan. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or
treasury shares.
<PAGE>
(b) In the event that the Board determines that any stock
dividend, extraordinary cash dividend, creation of a class of
equity securities, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or
other similar transaction affects the Common Stock such
that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available
under the Plan, then the Board, subject, in the case of
Incentive Stock Options, to any limitation required under
the Code, shall equitably adjust any or all of (i) the number
and kind of shares in respect of which Awards may be made
under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or
conversion price with respect to any of the foregoing, and if
considered appropriate, the Board may make provision for a
cash payment with respect to an outstanding Award,
provided that the number of shares subject to any Award
shall always be a whole number.
Section 6. Stock Options
(a) Subject to the provisions of the Plan, the Board may award
Incentive Stock Options and Nonqualified Stock Options and
determine the number of shares to be covered by each
Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The
terms and conditions of Incentive Stock Options shall be
subject to and comply with Section 422 of the Code, or any
successor provision, and any regulations thereunder.
(b) The Board shall establish the option price at the time each
Option is awarded, which price shall not be less than 100%
of the Fair Market Value of the Common Stock on the date
of award with respect to Incentive Stock Options.
(c) Each Option shall be exercisable at such times and subject
to such terms and conditions as the Board may specify in the
applicable Award or thereafter. The Board may impose such
conditions with respect to the exercise of Options, including
conditions relating to applicable federal or state securities
laws, as it considers necessary or advisable.
<PAGE>
(d) No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price therefor is
received by the Corporation. Such payment may be made in
whole or in part in cash or, to the extent permitted by the
Board at or after the award of the Option, by delivery of a
note or shares of Common Stock owned by the optionholder,
including Restricted Stock, valued at their Fair Market
Value on the date of delivery, by the reduction of the shares
of Common Stock that the optionholder would be entitled to
receive upon exercise of the Option, such shares to be
valued at their Fair Market Value on the date of exercise,
less their option price (a so-called "cashless exercise"), or
such other lawful consideration as the Board may determine.
(e) The Board may provide for the automatic award of an Option
upon the delivery of shares to the Corporation in payment of
an Option for up to the number of shares so delivered.
(f) In the case of Incentive Stock Options the following
additional conditions shall apply to the extent required
under Section 422 of the Code for the options to qualify as
Incentive Stock Options:
(i) Such options shall be granted only to employees of the
Corporation, and shall not be granted to any person who
owns stock that possesses more than ten percent of the
total combined voting power of all classes of stock of
the Corporation or of its parent or subsidiary
corporation (as those terms are defined in Section
422(b) of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder),
unless, at the time of such grant, the exercise price of
such option is at least 110% of the fair market value of
the stock that is subject to such option and the option
shall not be exercisable more than five years after the
date of grant;
(ii) Such options shall, by their terms, be transferable by
the optionholder only by the laws of descent and
distribution, and shall be exercisable only by such
optionholder during his lifetime.
(iii) Such options shall not be granted more than ten years
from the effective date of this Plan or any subsequent
amendment to the Plan approved by the stockholders of
the Corporation which extends this Incentive Stock
Option expiration date, and shall not be exercisable
more than ten years from the date of grant.
<PAGE>
Section 7. Stock Appreciation Rights
Subject to the provisions of the Plan, the Board may award
SARs in tandem with an Option (at or after the award of the
Option), or alone and unrelated to an Option. SARs in tandem
with an Option shall terminate to the extent that the related
Option is exercised, and the related Option shall terminate to
the extent that the tandem SARs are exercised.
Section 8. Performance Shares
(a) Subject to the provisions of the Plan, the Board may award
Performance Shares and determine the number of such shares
for each Performance Cycle and the duration of each
Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the
duration of Performance Cycles may differ from each other.
The payment value of Performance Shares shall be equal to
the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the
Board, on the date the Board determines that the
Performance Shares have been earned.
(b) The Board shall establish performance goals for each Cycle,
for the purpose of determining the extent to which
Performance Shares awarded for such Cycle are earned, on
the basis of such criteria and to accomplish such objectives
as the Board may from time to time select. During any
Cycle, the Board may adjust the performance goals for such
Cycle as it deems equitable in recognition of unusual or
non-recurring events affecting the Corporation, changes in
applicable tax laws or accounting principles, or such other
factors as the Board may determine.
(c) As soon as practicable after the end of a Performance Cycle,
the Board shall determine the number of Performance Shares
which have been earned on the basis of performance in
relation to the established performance goals. The payment
values of earned Performance Shares shall be distributed to
the Participant or, if the Participant has died, to the
Participant's Designated Beneficiary, as soon as practicable
thereafter. The Board shall determine, at or after the time
of award, whether payment values will be settled in whole
or in part in cash or other property, including Common
Stock or Awards.
<PAGE>
Section 9. Restricted Stock
(a) Subject to the provisions of the Plan, the Board may award
shares of Restricted Stock and determine the duration of the
Restricted Period during which, and the conditions under
which, the shares may be forfeited to the Corporation and
the other terms and conditions of such Awards. Shares of
Restricted Stock may be issued for no cash consideration or
such minimum consideration as may be required by
applicable law.
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as
permitted by the Board, during the Restricted Period.
Shares of Restricted Stock shall be evidenced in such
manner as the Board may determine. Any certificates issued
in respect of shares of Restricted Stock shall be registered
in the name of the Participant and unless otherwise
determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the
Corporation. At the expiration of the Restricted Period, the
Corporation shall deliver such certificates to the Participant
or if the Participant has died, to the Participant's
Designated Beneficiary.
Section 10. Stock Units
(a) Subject to the provisions of the Plan, the Board may award
Stock Units subject to such terms, restrictions, conditions,
performance criteria, vesting requirements and payment
rules as the Board shall determine.
(b) Shares of Common Stock awarded in connection with a
Stock Unit Award shall be issued for no cash consideration
or such minimum consideration as may be required by
applicable law. Such shares of Common Stock may be
designated as Award Shares by the Board.
Section 11. General Provisions Applicable to Awards
(a) Documentation. Each Award under the Plan shall be
evidenced by a written document delivered to the Participant
specifying the terms and conditions thereof and containing
such other terms and conditions not inconsistent with the
provisions of the Plan as the Board considers necessary or
advisable to achieve the purposes of the Plan or comply with
applicable tax and regulatory laws and accounting
principles.
<PAGE>
(b) Board Discretion. Each type of Award may be made alone,
in addition to or in relation to any other type of Award.
The terms of each type of Award need not be identical, and
the Board need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the
Board at the time of award or at any time thereafter.
Without limiting the foregoing, an Award may be made by
the Board, in its discretion, to any 401(k), savings, pension,
profit sharing or other similar plan of the Corporation in
lieu of or in addition to any cash or other property
contributed or to be contributed to such plan.
(c) Settlement. The Board shall determine whether Awards are
settled in whole or in part in cash, Common Stock, other
securities of the Corporation, Awards, other property or
such other methods as the Board may deem appropriate. The
Board may permit a Participant to defer all or any portion of
a payment under the Plan, including the crediting of interest
on deferred amounts denominated in cash and dividend
equivalents on amounts denominated in Common Stock. If
shares of Common Stock are to be used in payment pursuant
to an Award and such shares were acquired upon the
exercise of a stock option (whether or not granted under this
Plan), such shares must have been held by the Participant
for at least six months.
(d) Dividends and Cash Awards. In the discretion of the Board,
any Award under the Plan may provide the Participant with
(i) dividends or dividend equivalents payable currently or
deferred with or without interest, and (ii) cash payments in
lieu of or in addition to an Award.
(e) Termination of Employment. The Board shall determine the
effect on an Award of the disability, death, retirement or
other termination of employment of a Participant and the
extent to which, and the period during which, the
Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise
rights thereunder.
<PAGE>
(f) Change in Control. In order to preserve a Participant's
rights under an Award in the event of a change in control of
the Corporation, the Board in its discretion may, at the time
an Award is made or at any time thereafter, take one or more
of the following actions: (i) provide for the acceleration of
any time period relating to the exercise or realization of the
Award, (ii) provide for the purchase of the Award upon the
Participant's request for an amount of cash or other property
that could have been received upon the exercise or
realization of the Award had the Award been currently
exercisable or payable, (iii) adjust the terms of the Award
in a manner determined by the Board to reflect the change in
control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such
other provision as the Board may consider equitable and in
the best interests of the Corporation.
(g) Withholding. The Corporation shall have the power and the
right to deduct or withhold, or require a Participant to remit
to the Corporation an amount sufficient to satisfy federal,
state and local taxes (including the Participant's FICA
obligation) required to be withhold with respect to an Award
or any dividends or other distributions payable with respect
thereto. In the Board's discretion, such tax obligations may
be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value on the date of
delivery. The Corporation and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the
Participant.
(h) Amendment of Award. The Board may amend, modify or
terminate any outstanding Award, including substituting
therefor another Award of the same or a different type,
changing the date of exercise or realization and converting
an Incentive Stock Option to a Nonqualified Stock Option,
provided that the Participant's consent to such action shall
be required unless the Board determines that the action,
taking into account any related action, would not materially
and adversely affect the Participant.
(i) Except as otherwise provided by the Board, Awards under
the Plan are not transferable other than as designated by the
participant by will or by the laws of descent and
distribution.
<PAGE>
Section 12. Miscellaneous
(a) No Right To Employment. No person shall have any claim
or right to be granted an Award, and the grant of an Award
shall not be construed as giving a Participant the right to
continued employment. The Corporation expressly reserves
the right at any time to dismiss a Participant free from any
liability or claim under the Plan, except as expressly
provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary
shall have any rights as a shareholder with respect to any
shares of Common Stock to be distributed under the Plan
until he or she becomes the holder thereof. A Participant to
whom Common Stock is awarded shall be considered the
holder of the Stock at the time of the Award except as
otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the shareholders
of the Corporation, the Plan shall be effective on September
1, 1998. Prior to such approval, Awards may be made under
the Plan expressly subject to such approval.
(d) Amendment of Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time,
provided that no amendment shall be made without
shareholder approval if such approval is necessary to
comply with any applicable requirement of the laws of the
jurisdiction of incorporation of the Corporation, any
applicable tax requirement, any applicable rules or
regulation of the Securities and Exchange Commission,
including Rule 16(b)-3 (or any successor rule thereunder),
or the rules and regulations of the Nasdaq Stock Market
National Market or any other exchange or stock market over
which the Corporation's securities are listed.
(e) Governing Law. The provisions of the Plan shall be
governed by and interpreted in accordance with the laws of
the jurisdiction of incorporation of the Corporation.
<PAGE>
(f) Indemnity. Neither the Board nor the Committee, nor any
members of either, nor any employees of the Corporation or
any parent, subsidiary, or other affiliate, shall be liable for
any act, omission, interpretation, construction or
determination made in good faith in connection with their
responsibilities with respect to this Plan, and the
Corporation hereby agrees to indemnify the members of the
Board, the members of the Committee, and the employees of
the Corporation and its parent or subsidiaries in respect of
any claim, loss, damage, or expense (including reasonable
counsel fees) arising from any such act, omission,
interpretation, construction or determination to the full
extent permitted by law.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Company's
Consolidated Income Statement, Consolidated Balance Sheet and Consolidated
Statement of Cash Flows and is qualified in its entirety by reference to Form
10-Q for the period ending September 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 1716839
<SECURITIES> 20438541
<RECEIVABLES> 4954687
<ALLOWANCES> 204000
<INVENTORY> 3209573
<CURRENT-ASSETS> 30732771
<PP&E> 7609892
<DEPRECIATION> 3417238
<TOTAL-ASSETS> 35447576
<CURRENT-LIABILITIES> 4792474
<BONDS> 0
0
0
<COMMON> 86375
<OTHER-SE> 30558039
<TOTAL-LIABILITY-AND-EQUITY> 35447576
<SALES> 7877493
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