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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997 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 0-19707
INNERDYNE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 87-0431168
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
1244 REAMWOOD AVENUE, SUNNYVALE, CA 94089
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 745-6010
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 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
The number of shares of Registrant's Common Stock issued and outstanding as
of March 31, 1997 was 21,630,138.
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TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Balance Sheets.................................... 3
Condensed Statements of Operations.......................... 4
Condensed Statements of Cash Flows.......................... 5
Notes to Condensed Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 7
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 17
PART II. OTHER INFORMATION.......................................... 18
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INNERDYNE, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (*SEE NOTE)
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 6,157,675 $ 7,270,285
Accounts receivable.............................. 1,467,322 1,290,805
Interest and other receivables................... 730,977 283,913
Inventory........................................ 991,039 1,159,098
Prepaid expenses and other....................... 213,187 151,150
----------- -----------
Total current assets........................... 9,560,200 10,155,251
Equipment and leasehold improvements, net........... 1,099,238 1,159,309
Other assets........................................ 47,020 47,020
----------- -----------
$10,706,458 $11,361,580
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................... $300,000 $300,000
Current installments of long-term debt........... 287,902 223,914
Accounts payable................................. 382,846 301,946
Accrued liabilities.............................. 1,073,517 1,146,877
----------- -----------
Total current liabilities...................... 2,044,265 1,972,737
Long-term debt, excluding current installments...... 550,452 629,557
Stockholders' equity:
Common stock..................................... 216,292 215,420
Additional paid-in-capital....................... 59,823,539 59,818,445
Accumulated deficit.............................. (51,928,090) (51,274,579)
----------- -----------
Net stockholders' equity...................... 8,111,741 8,759,286
----------- -----------
$10,706,458 $11,361,580
----------- -----------
----------- -----------
</TABLE>
* Condensed from audited financial statements.
See accompanying notes to condensed financial statements.
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INNERDYNE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED
MARCH 31, MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Product, licensing and contract revenue.......................... $2,951,204 $ 1,582,400
Cost of sales.................................................. 1,240,938 896,305
Research, development, regulatory and clinical................. 621,904 579,611
Sales and marketing............................................ 1,271,780 1,182,453
General and administrative..................................... 526,316 525,336
---------- -----------
Total costs and expenses.................................... 3,660,938 3,183,705
---------- -----------
Operating loss.............................................. (709,734) (1,601,305)
Interest/other income, net....................................... 56,223 17,063
---------- -----------
Net loss.................................................... $ (653,511) $(1,584,242)
---------- -----------
---------- -----------
Net loss per share............................................... $ (.03) $ (.09)
---------- -----------
---------- -----------
Weighted average shares outstanding.............................. 21,618,093 18,336,852
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
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INNERDYNE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED
MARCH 31, MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $(653,511) $(1,584,242)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of equipment and leasehold improvements.... 154,896 131,999
Decrease (increase) in receivables....................................... (623,581) (971)
Decrease (increase) in inventories....................................... 168,059 (128,941)
Decrease (increase) in prepaid expenses, and other assets................ (62,037) (166,800)
Increase (decrease) in accounts payable.................................. 80,900 105,597
Increase (decrease) in accrued expenses.................................. (73,360) 44,876
---------- ----------
Net cash used in operating activities....................................... (1,008,634) (1,598,482)
---------- ----------
Cash flows from investing activities:
Maturity of cash investments............................................. 0 997,604
Capital expenditures..................................................... (94,825) (89,153)
---------- ----------
Net cash provided by (used in) investing activities......................... (94,825) 908,451
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net.............................. 5,966 669,115
Proceeds from long-term debt............................................. 0 85,533
Proceeds from short-term borrowings...................................... 0 89,603
Principal payments on long-term debt, capital leases..................... (15,117) (36,388)
Principal payments on short-term debt.................................... 0 (18,597)
---------- ----------
Net cash provided by (used in) financing activities......................... (9,151) 789,266
---------- ----------
Net increase (decrease) in cash and cash equivalents........................ (1,112,610) 99,235
Cash and cash equivalents at beginning of period............................ 7,270,285 1,720,814
---------- ----------
Cash and cash equivalents at end of period.................................. $6,157,675 $1,820,049
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed financial statements.
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INNERDYNE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim condensed financial statements and notes are
unaudited, but in the opinion of management reflect all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
results of such periods. The results of operations for any interim period are
not necessarily indicative of results for the respective full year. These
condensed financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) for the three month period
ended March 31, 1997 should be read in conjunction with the audited financial
statements and notes thereto and MD&A included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
(2) INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
1997 1996
-------- ----------
Raw materials and supplies....... $508,239 $657,735
Finished goods................... 482,800 501,363
-------- ----------
Net inventory.................... $991,039 $1,159,098
-------- ----------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS QUARTERLY REPORT
ON FORM 10-Q, THE MATTERS DISCUSSED THROUGHOUT THIS QUARTERLY REPORT ON FORM
10-Q ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE PROJECTED. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
INCLUDE, BUT ARE NOT LIMITED TO, THE IMPACT OF INTENSE COMPETITION IN THE
COMPANY'S MARKET, THE EXTENT OF MARKET ACCEPTANCE OF THE COMPANY'S STEP-TM-
FAMILY OF PRODUCTS, THE TIMELY DEVELOPMENT AND MARKET ACCEPTANCE OF NEW
PRODUCTS, THE COMPLIANCE OF THE COMPANY'S MANUFACTURING FACILITIES WITH GOOD
MANUFACTURING PRACTICES ("GMP") REGULATIONS, THE CONTINUED ACCEPTANCE OF
MINIMALLY INVASIVE SURGICAL PROCEDURES, THE COMPANY'S ABILITY TO FURTHER
EXPAND INTO INTERNATIONAL MARKETS, PUBLIC POLICY RELATING TO HEALTHCARE
REFORM IN THE UNITED STATES AND OTHER COUNTRIES, APPROVAL OF THE COMPANY'S
PRODUCTS BY GOVERNMENT AGENCIES SUCH AS THE UNITED STATES FOOD AND DRUG
ADMINISTRATION (THE "FDA") AND THE RISKS SET FORTH IN GREATER DETAIL BELOW
UNDER THE HEADING "ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS," AS
WELL AS THOSE SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1996 AND INCLUDED FROM TIME TO TIME IN THE COMPANY'S
OTHER SECURITIES AND EXCHANGE COMMISSION ("SEC") REPORTS AND PRESS RELEASES,
COPIES OF WHICH ARE AVAILABLE FROM THE COMPANY UPON REQUEST. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT 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.
INTRODUCTION
InnerDyne, Inc. (the "Company" or "InnerDyne") is primarily focused upon
the development and commercialization of access products used to perform
minimally invasive surgical ("M.I.S.") procedures. In December 1996, the
Company announced the signing of an agreement which grants United States
Surgical Corporation ("U.S. Surgical") exclusive worldwide sales and
marketing rights for the Company's proprietary thermal ablation technology.
The Company also intends to continue developing its radial dilation and
biocompatible coating technologies, internally or through strategic
alliances.
RADIAL DILATION TECHNOLOGY
The primary focus of the Company is the development and commercial
application of its proprietary radial dilation technology. The key feature of
this proprietary technology is the capability to enter the body of a patient
by creating a small puncture wound, which can subsequently be dilated, or
increased in size, to create a larger working channel. Employment of radial
dilation within an expandable sheath permits the dilation to be accomplished
in a manner that tends to minimize tissue trauma. Upon completion of a
procedure, the dilation sequence is reversed, and the result is a smaller
residual wound than would be experienced through the employment of
similarly-sized conventional access devices. Potential benefits of radial
dilation technology include reduced risk, less patient trauma and reduced
procedure time.
STEP Product Line. The Company has developed a family of STEP-TM-
products utilizing InnerDyne's proprietary radial dilation technology. The
initial STEP products were introduced commercially in late 1994 and are
designed to provide access to the abdominal cavity in order to facilitate the
visualization and treatment of target areas within the cavity while
minimizing the tissue trauma associated with such access.
STEP. The STEP device incorporates the Company's proprietary radial
dilation technology and is InnerDyne's first product to be launched on a
commercial basis. The Company has received 510(k) clearances from the United
States Food and Drug Administration (the "FDA") to market this device for
laparoscopic and thorascopic M.I.S. procedures. With the Company's STEP
access device, a trocar does not need to be utilized, eliminating the risk of
internal organ damage from contact with the sharp bladed trocar. In contrast
to conventional trocars, the STEP device utilizes a standard insufflation
needle for the penetration through the abdominal wall at each site where it
is utilized, creating only a small puncture wound. Following removal of the
needle, the sheath that surrounds the needle is then dilated up to a larger
working channel through the insertion of a dilator and cannula. Following
dilation, the dilator is removed, leaving a rigid sheath that serves as a
working channel with an integral insufflation valve at the
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proximal end. The radial dilation of the tissue into an appropriately sized
working channel holds the cannula in place and obviates the need for an
anchoring system. After completion of a procedure, the rigid cannula is
removed, and the sheath retracts, permitting the opening in each of the
muscular layers of the abdominal wall to recover, leaving a residual wound
that is approximately half the size of that made using a conventional trocar
of similar size. The STEP is currently utilized in minimally invasive
general, gynecological and pediatric surgical procedures.
Management believes that positive attributes of the STEP product could
significantly affect health care system costs and patient satisfaction with
M.I.S. procedures in which trocars have traditionally been used. The results
of a Company-sponsored retrospective comparative outcomes study examining
this issue were released during late 1995. The study included 98 patients,
and compared an almost equal number of procedures performed using STEP
devices and conventional trocars for access. Statistically significant
results of that study indicated that STEP reduced device-related
complications during surgery by over 90% and resulted in an approximate 22%
savings in surgery time. Based upon published operating room costs, this time
savings would equate to dollar savings of $345 to $515 per procedure, a
substantial outcome for a product that is believed to be competitively priced
with conventional trocars. Management also believes that post-procedure
complications, such as infection and incisional hernias at access sites, may
be reduced with the use of the STEP device as compared to conventional
trocars. Prospective studies intended to corroborate and expand the findings
of the published outcomes study are underway, and may be completed during
1997.
Short STEP. The Short STEP is a conventional STEP device that has been
reduced in length and is particularly suitable for M.I.S. procedures
involving smaller individuals, especially children and thin females. The
Short STEP was commercially introduced in 1995.
Reposable STEP-TM-. Launched in 1996, the Reposable STEP incorporates
the radial dilation features of disposable STEP devices in a partially
reusable access device. A substantial market for reusable trocars exists,
primarily outside the United States, where the pressures on cost and the
recognition of the total costs involved in surgical procedures are perceived
somewhat differently. Although there is substantial usage of reusable access
devices in the U.S., and management expects a trend toward a somewhat more
frequent usage of reusable devices, there are significant offsetting concerns
relating to total health care system costs and safety involved with reusable
devices. The Reposable STEP includes a number of reusable components,
consisting of a combination of metal and plastic parts that may be cleaned
and sterilized by most conventional methods. The dilator, cannula and needle
are reusable, while the sheath and valve are single use components, designed
to be disposed of following surgery.
Mini STEP. The Mini STEP is a small-diameter radially dilating access
device designed for use in office micro-laparoscopic surgery utilizing small
instruments, and in tubal ligation and pediatric procedures. The working
diameter of the Mini STEP ranges from a nominal 2mm to 8mm. Like the STEP
device, Mini STEP is expected to offer clinicians the potential to reduce
device-related surgical complications and surgery time. The Mini STEP devices
will be commercially introduced in 1997.
R.E.D. The Radially Expanding Dilator ("R.E.D.") is the second product
type based upon the Company's proprietary radial dilation technology. The
R.E.D. is designed to enable access to organs deep within the abdominal
cavity. The only current alternative for this type of access involves the
insertion of a long flexible channel and scope through a natural body orifice
such as the mouth or the rectum, and only limited procedures are possible due
to the restricted size of the channel and the tortuous path that must be
navigated by the scope. The R.E.D. is designed to provide access through the
abdominal wall, across the peritoneal space, and into an internal organ.
InnerDyne believes that with use of the R.E.D. product, substantial
reductions in patient recovery times may be possible. The Company expects
that the enhanced capabilities of the R.E.D. may enable additional surgical
procedures to be performed through minimally invasive techniques. This
product has been released only on a very limited basis, and feedback
indicates it enables additional procedures to be performed endoscopically.
However, initial experience indicates a relatively high surgeon skill level
and advanced training is necessary to perform these intra-organ procedures
successfully. Accordingly, widespread commercialization of the R.E.D. will
require significant market development efforts.
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<PAGE>
Other Applications. InnerDyne has announced agreements for the use of
its proprietary radial dilation technology for specialized vascular access
and the placement of enteral feeding tubes. In addition, the Company is
exploring the potential use of its proprietary radial dilation technology in
other applications, such as access for vascular, thoracic and orthopedic
procedures, and is likely to increase resources associated with the pursuit
of one or more of these opportunities during 1997.
THERMAL ABLATION TECHNOLOGY
The Company has developed proprietary technology that is intended to
thermally ablate the lining of a body organ. The Company's ENABL-TM- Thermal
Ablation System (the "ENABL System") is based on this proprietary technology
and is designed to treat menorrhagia or excessive uterine bleeding by
thermally ablating the endometrial lining of the uterus through the
controlled introduction and heating of a normal saline solution in situ. The
Company has completed initial safety and preliminary efficacy trials with a
redesigned system. The results of these limited trials give preliminary
indications that the ENABL System represents a safe means of ablating uterine
tissue. However, there can be no assurance that the feasibility of this
technology will be satisfactorily demonstrated in expanded efficacy trials or
that the system will be successfully commercialized.
In December 1996, InnerDyne announced that it had signed an agreement
which granted U.S. Surgical exclusive worldwide sales and marketing rights
for the ENABL System. Under the terms of the agreement, in exchange for
initial license fees, milestone payments, and royalties based upon future
sales, U.S. Surgical gained the rights to complete development, manufacture
and market the technology on a worldwide basis. The agreement also provides
U.S. Surgical with an option to purchase rights to the technology for defined
applications.
BIOCOMPATIBLE COATING TECHNOLOGIES
The Company possesses certain proprietary technologies in the area of
biocompatible coatings. The technologies that comprise the Company's
thromboresistant coating ("TRC") capability are believed to have application
when foreign objects remain in contact with various areas of the body,
particularly within the blood stream, for sustained periods of time. These
technologies include the ability to deposit an extremely thin layer
(approximately one micron) of siloxane on a surface and the ability to graft
a bioactive substance, such as the drug heparin, to that siloxane layer. The
Company's TRC utilizes a "tether" molecule to attach heparin or other
bioactive molecules to the previously applied siloxane subsurface. One end of
the tether molecule is covalently bonded to the siloxane coating, and the
other end of the tether molecule is covalently bonded to the bioactive
molecule. Because both points of attachment utilize covalent bonds, the
Company believes that its coating process results in a stronger bonding of
heparin or other bioactive molecules to the surface of the device than other
methods presently in use, which it believes generally use a weaker ionic bond
in at least one of the attachment points. TRC coatings, employed with the
siloxane layer alone or in combination with bioactive substances, can extend
the life of blood-gas exchange devices or provide the capability to extend
the duration of contact of a coated device with blood or other body fluids
while minimizing the physiological impacts of such contact.
In 1994, the Company signed a license agreement with SENKO Medical
Manufacturing Co., Ltd. ("SENKO"), a Japan-based manufacturer and marketer of
membrane oxygenators used in open heart surgery, pursuant to which the
Company licensed one of its TRC technologies to SENKO. In connection with
this agreement, the Company transferred its siloxane coating technology to
SENKO for the coating of microporous hollow fibers used in the production of
oxygenators. The technology transfer was completed during the first quarter
of 1995, at which time the Company received the balance of the initial
payment from SENKO, and the royalty payment period commenced. In 1996,
InnerDyne received an order from SENKO to build a second fiber coating
system, which was delivered in March of 1997. In April 1996, the Company
announced the signing of an agreement with Boston Scientific Corporation
("Boston Scientific") covering the potential applications and use of
InnerDyne's proprietary biocompatible coating technologies with Boston
Scientific's stents, grafts, vena cava filters and other implantable medical
devices. The agreement involves an equity investment by Boston Scientific in
InnerDyne, initial research support and future license fees and royalty
payments if Boston Scientific decides to proceed with a technology transfer.
The Company has undertaken a number of discussions with other potential
licensees of the Company's biocompatible coating technologies, and samples of
coated products have been provided to several companies. These
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discussions have been with parties interested in the use of the technologies
to enhance gas exchange, as well as third parties interested in the possible
coating of in-dwelling devices for various applications. To date, the Company
has not entered into a contractual arrangement with any such parties.
RESULTS OF OPERATIONS
Total revenue for the three month period ended March 31, 1997 was
$2,951,204, compared to $1,582,400 for the corresponding period in 1996.
Total revenue is comprised of revenue from product sales and licensing and
contract revenue. Product sales increased to $2,519,154 for the three month
period ended March 31, 1997, from $1,519,880 for the corresponding period in
1996, reflecting increased sales of the Company's STEP devices. Licensing and
contract revenue for the three month period ended March 31, 1997 was
$432,050, compared to $62,520 for the corresponding period in 1996. The
licensing and contract revenue for the March 31, 1997 period related to
agreements with third parties covering the development of the Company's
proprietary thermal ablation technology, the development of non-competing
applications for the Company's radial dilation technology and the licensing
of the Company's proprietary biocompatible coatings technology. The licensing
and contract revenue for the three month period ended March 31, 1996 included
revenue earned related to licensing agreements for the Company's
biocompatible coatings technology and to a license, development and
manufacturing agreement for vascular access using the Company's radial
dilation technology. Licensing and contract revenue fluctuates from quarter
to quarter, based upon the number of agreements in effect and the amount and
timing of the payments to be made to InnerDyne pursuant to such agreements.
Cost of sales was $1,240,938 for the three month period ended March 31,
1997, compared to $896,305 for the same period in 1996. The increase in Cost
of sales for the three month period ended March 31, 1997 is attributable to
the increase in production and sales volume compared to the same period in
1996.
Research, development, regulatory and clinical expenses for the three
month period ended March 31, 1997 was $621,904, compared to $579,611 for the
corresponding period in 1996. The Company expects that research, development,
regulatory and clinical expenditures will increase in absolute dollars in
future periods, though it is possible that expenses associated with one or
more research programs could be funded from outside the Company, thereby
possibly reducing expected costs.
Sales and marketing expenses were $1,271,780 for the three month period
ended March 31, 1997, compared to $1,182,453 for the corresponding period
ended March 31, 1996, reflecting the growth of the Company's sales and
marketing functions to support commercialization of its M.I.S. products.
InnerDyne expects that sales and marketing expenses will generally continue
to increase in absolute dollars in future periods.
General and administrative expenses were $526,316 for the three month
period ended March 31, 1997, compared to $525,336 for the corresponding
period ended March 31, 1996. The Company anticipates that general and
administrative expenses will generally increase in absolute dollars in future
periods to support expanding operations.
Interest/other income, net increased to $56,223 for the three month
period ended March 31, 1997, compared to $17,063 for the same period in 1996,
primarily as a result of interest income earned on higher average cash and
cash equivalents balances following the Company's May 1996 secondary
offering.
The Company incurred a net loss of $653,511, or $.03 per share, for the
three month period ended March 31, 1997, compared to a net loss of
$1,584,242, or $.09 per share, for the same period in 1996. Management
believes that the Company is likely to incur operating losses at least
through 1997.
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LIQUIDITY AND CAPITAL RESOURCES
From its inception to March 31, 1997, the Company has incurred a
cumulative net loss of approximately $52 million. Since inception, the
Company's cash expenditures have exceeded its revenues. Prior to 1992, the
Company was funded primarily through private placements of equity securities.
In 1992, the Company completed an initial public offering of 2,875,000 shares
of its Common Stock at $11.00 per share, which raised approximately $28.8
million (net of underwriter's discounts and offering expenses). The 1994
acquisition of InnerDyne Medical, Inc. was accomplished through the issuance
of additional Common Stock of the Company. In June 1995, the Company closed
a private placement of 1,435,599 shares of the Company's Common Stock and
warrants to purchase 287,200 additional shares of Common Stock, with gross
proceeds to the Company of approximately $3.2 million. In March and April of
1996, holders of warrants to purchase an aggregate of 242,952 shares of
Common Stock exercised such warrants, resulting in gross proceeds to the
Company of $704,561. The Company concluded a public offering on May 20, 1996,
with the sale of 2,650,000 shares of Common Stock at $3.50 per share, which
raised $8,015,268 (net of underwriters commissions and issuance expenses).
At March 31, 1997, cash and cash equivalents totaled $6,157,675 compared
to a total cash and cash equivalents balance of $7,270,285 at December 31,
1996. The Company had $94,825 in capital expenditures in the three months
ended March 31, 1997. Working capital totaled $7,515,935 at March 31, 1997,
and the Company had long-term debt, excluding current installments, totaling
$550,452 relating to financing of equipment.
In February 1996, the Company renewed its credit facility with Silicon
Valley Bank. Subject to certain covenants and conditions, the Company may
borrow up to $2,000,000 on a revolving credit basis at prime plus 1 1/4%
based on eligible receivables. The Company also has an equipment advance
line of credit, which allows the Company to borrow up to $750,000 per year
based on eligible equipment purchases. Amounts outstanding on this equipment
advance line of credit are periodically converted to 42 month term loans
bearing interest at prime plus 1 3/4%. As of March 31, 1997, the Company had
drawn $300,000 for financing of working capital needs on the revolving line
of credit, secured by certain accounts receivable, and had borrowed $584,539
under the current agreement with Silicon Valley Bank for the financing of
capital expenditures.
In the future, the Company expects to incur substantial additional
operating losses and have cash outflow requirements as a result of
expenditures related to expansion of sales and marketing capability,
expansion of manufacturing capacity, research and development activities,
compliance with regulatory requirements, and possible investment in or
acquisition of additional complementary products, technologies or businesses.
The timing and amounts of these expenditures will depend upon many factors,
such as the progress of the Company's research and development, and will
include factors that may be beyond the Company's control, such as the results
of product trials, the requirements for and the time required to obtain
regulatory approval for existing products and any other products that may be
developed or acquired, and the market acceptance of the Company's products.
The Company's capital requirements will depend on numerous factors,
including market acceptance and demand for its products; the resources the
Company devotes to the development, manufacture and marketing of its
products; the progress of the Company's clinical research and product
development programs; the receipt of, and the time required to obtain
regulatory clearances and approvals; the resources required to protect the
Company's intellectual property; and other factors. The timing and amount of
such capital requirements cannot be accurately predicted. Funds may also be
used for the acquisition of businesses, products and technologies that are
complementary to those of the Company. Consequently, although the Company
believes that the proceeds of the public offering of shares of its Common
Stock completed in May 1996, together with revenues, credit facilities and
other sources of liquidity, will provide adequate funding for its capital
requirements through at least 1997, the Company may be required to raise
additional funds through public or private financings, collaborative
relationships or other arrangements. There can be no assurance that the
Company will not require additional funding or that such additional funding,
if needed, will be available on terms attractive to the Company, or at all.
Any additional equity financings may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants.
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ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
HISTORY OF LOSSES; PROFITABILITY UNCERTAIN. InnerDyne has experienced
operating losses since its inception in December 1985. InnerDyne reported
net losses of $0.7 million on revenues of $3.0 million, $4.7 million on
revenues of $9.1 million, $5.6 million on revenues of $5.3 million, and $9.9
million on revenues of $0.9 million for the three months ended March 31,
1997, and the fiscal years ended December 31, 1996, 1995 and 1994,
respectively. As of March 31, 1997, InnerDyne had an accumulated deficit of
approximately $52 million.
In the future, the Company expects to incur substantial additional
operating losses and have cash outflow requirements as a result of
expenditures related to expansion of sales and marketing capability,
expansion of manufacturing capacity, research and development activities,
compliance with regulatory requirements, and possible investment in or
acquisition of additional complementary products, technologies or businesses.
The timing and amounts of these expenditures will depend upon many factors,
such as the progress of the Company's research and development, and will
include factors that may be beyond the Company's control, such as the results
of product trials, the requirements for and the time required to obtain
regulatory approval for existing products and any other products that may be
developed or acquired, and the market acceptance of the Company's products.
The Company believes that it is likely to incur operating losses at least
through 1997. The cash needs of the Company have changed significantly as a
result of the merger completed during 1994 and the support requirements of
the added business focus areas. There can be no assurance that the Company
will not continue to incur losses, that the Company will be able to raise
cash as necessary to fund operations or that the Company will ever achieve
profitability.
INTENSE COMPETITION. The primary industry in which the Company competes,
minimally invasive surgery, is dominated by two large, well-positioned
entities that are intensely competitive and frequently offer substantial
discounts as a competitive tactic. U.S. Surgical is primarily engaged in
developing, manufacturing and marketing surgical wound management products,
and has historically been the firm most responsible for providing products
that have led to the growth of the industry. U.S. Surgical supplies a broad
line of products to the M.I.S. industry, including products which facilitate
access, assessment and treatment. Ethicon Endo-Surgery ("Ethicon"), a Johnson
& Johnson company, has made a major investment in the M.I.S. field in recent
years and is one of the leading suppliers of hospital products in the world.
Furthermore, U.S. Surgical and Ethicon each utilize purchasing contracts that
link discounts on the purchase of one product to purchases of other products
in their broad product lines. Substantially all of the hospitals in the
United States have purchasing contracts with one or both of these entities.
Accordingly, customers may be dissuaded from purchasing access products from
the Company rather than U.S. Surgical or Ethicon to the extent it would cause
them to lose discounts on products that they regularly purchase from U.S.
Surgical or Ethicon.
The Company faces a formidable task in successfully gaining significant
revenues within the M.I.S. access market. In order to succeed, management
believes that the Company will need to objectively demonstrate substantial
product benefits, and its sales effort must be able to effectively present
such benefits to both clinicians and health care administrators. The M.I.S.
access market is dominated by U.S. Surgical and Ethicon. Both entities
introduced new access devices, trocars with added features, during the past
two years. A number of other entities participate in various segments of the
M.I.S. access market.
There can be no assurance that the Company will be able to successfully
compete in the M.I.S. access market, and failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In the thermal ablation market, primary competition for the ENABL System
is current therapies for the treatment of excessive menstrual bleeding,
including drug therapy, dilatation and curettage, surgical endometrial
ablation and hysterectomy. The ENABL System will also compete against other
techniques under development for the treatment of excessive menstrual
bleeding, including endometrial ablation techniques that employ radio
frequency ("RF") energy or freezing techniques ("cryoablation") and the
uterine balloon therapy system being clinically tested by GyneCare, Inc.
-12-
<PAGE>
Additionally, there are other companies developing alternative methods of
uterine tissue ablation that compete with the Company and U.S. Surgical.
There can be no assurance that these companies will not succeed in developing
technologies and products that are more effective than any which have been or
are being developed by the Company and U.S. Surgical or that would render the
Company's technologies or products obsolete or not competitive. Such
competition could have a material adverse effect on the Company's business,
financial condition and results of operations. As a result of the entry of
large and small companies into the market, the Company expects competition
for devices and systems used to treat excessive menstrual bleeding to
increase.
CONTINUED DEPENDENCE ON Step PRODUCTS. To date, substantially all of the
Company's revenues from product sales are attributable to STEP products and
InnerDyne currently anticipates that sales of STEP products will represent
substantially all of the Company's revenues in the immediate future.
Accordingly, the success of the Company is largely dependent upon increased
market acceptance of its STEP product line by the medical community as a
reliable, safe and cost-effective access product for minimally invasive
surgery. InnerDyne commenced commercial sales of its STEP product in the
fourth quarter of 1994, and to date sales have been made to a relatively
limited number of physicians and hospitals. Recommendations and endorsements
by influential members of the medical community are important for the
increased market acceptance of the Company's STEP products, and there can be
no assurance that existing recommendations or endorsements will be maintained
or that new ones will be obtained. Failure to increase market acceptance of
the Company's STEP products would have a material adverse effect upon the
Company's business, financial condition and results of operations.
RELIANCE ON FUTURE PRODUCTS AND NEW APPLICATIONS; UNCERTAINTY OF
TECHNOLOGY CHANGES. The medical device industry is characterized by
innovation and technological change. The Company has made significant
investments in researching and developing its proprietary technologies,
including radial dilation, thermal ablation and biocompatible coatings. The
future success of the Company will depend in part on the timely commercial
introduction and market acceptance of these products. There can be no
assurance that these products will be timely introduced in commercial
quantities, if at all, or that such products will achieve market acceptance.
A failure by the Company to timely introduce such products or a failure of
such products to achieve market acceptance could have a material adverse
effect on the Company's business, financial condition and results of
operations. The future success of the Company will also depend upon, among
other factors, its ability to develop and gain regulatory clearance for new
and enhanced versions of products in a timely fashion, including, but not
limited to, the ENABL Thermal Ablation System being developed with U.S.
Surgical. There can be no assurance that the Company will be able to
successfully develop new products or technologies, manufacture new products
in commercial volumes, obtain regulatory approvals on a timely basis or gain
market acceptance of such products. Delays in development, manufacturing,
regulatory approval or market acceptance of new or enhanced products could
have a material adverse impact on the Company's business, financial condition
and results of operations.
LIMITED MANUFACTURING EXPERIENCE; COMPLIANCE WITH GOOD MANUFACTURING
PRACTICES; DEPENDENCE ON LIMITED SOURCES OF SUPPLY. The Company initiated
manufacture of commercial quantities of its STEP access device in its Salt
Lake City, Utah facility during late 1994. Accordingly, the Company has
limited experience in manufacturing M.I.S. access products or other products
in commercial quantities at acceptable costs. The Company's success will
depend in part on its ability to manufacture its products in compliance with
the FDA's Good Manufacturing Practices ("GMP") regulations and other
regulatory requirements in sufficient quantities and on a timely basis, while
maintaining product quality and acceptable manufacturing costs. Manufacturers
often encounter difficulties in scaling up production of new products,
including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel. The
materials utilized in the Company's M.I.S. products consist of both standard
and custom components that are purchased from a variety of independent
sources. A number of materials are available only from a limited number of
sources at the present time. Although InnerDyne believes that alternative
sources of these components can be obtained, internal testing and
qualification of substitute vendors could require significant lead times and
additional regulatory submissions. There could be no assurance that such
internal testing and qualification or additional regulatory approvals would
be obtained in a timely fashion, if at all. Failure to maintain production
volumes or increase production volumes in a timely or cost-effective manner
would have a material adverse effect on the Company's business, financial
condition and results of operations. Failure to maintain satisfactory GMP
compliance could have a significant impact on the
-13-
<PAGE>
Company's ability to continue to manufacture and distribute its products and,
in the most serious cases, result in the seizure or recall of products. Any
interruption of supply of raw materials could have a material adverse effect
on the Company's ability to manufacture its products and, therefore, on its
business, financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly
operating results have in the past fluctuated and will continue to fluctuate
significantly in the future depending on the timing and shipment of product
orders, new product introductions and changes in pricing policies by the
Company or its competitors, the timing and market acceptance of the Company's
new products and product enhancements, the continued market acceptance of
InnerDyne's STEP product line by the medical community, the Company's product
mix, the mix of distribution channels through which the Company's products
are sold, the extent to which the Company recognizes non-product revenues
during a quarter, and the Company's ability to obtain sufficient supplies of
sole or limited source components for its products. In particular,
fluctuations in production volumes affect gross margins from quarter to
quarter. Furthermore, gross margins can fluctuate from quarter to quarter to
the extent the Company recognizes non-product revenue during a quarter
because the Company generally derives higher gross margins from non-product
revenue than from product sales. In response to competitive pressures or new
product introductions, the Company may take certain pricing or other actions
that could materially and adversely affect the Company's operating results.
In addition, new product introductions by the Company could contribute to
quarterly fluctuations in operating results as orders for new products
commence and orders for existing products decline.
The Company's expense levels are based, in part, on its expectations of
future revenues. Because a substantial portion of the Company's revenue in
each quarter normally results from orders booked and shipped in the final
weeks of that quarter, revenue levels are extremely difficult to predict. If
revenue levels are below expectations, net income will be disproportionately
affected because only a small portion of the Company's expenses varies with
its revenue during any particular quarter. In addition, the Company typically
does not operate with any material backlog as of any particular date.
As a result of the foregoing factors and potential fluctuations in
operating results, results of operations in any particular quarter should not
be relied upon as an indicator of future performance. In addition, in some
future quarter the Company's operating results may be below the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially and adversely affected.
RELIANCE ON COLLABORATIVE RELATIONSHIPS; RESTRICTIONS ON ACTIVITIES. The
Company has entered into, and intends to continue to pursue, collaborative
arrangements with corporations and research institutions with respect to the
research, development, regulatory approval and marketing of certain of its
potential products. InnerDyne's future success may depend, in part, on its
relationship with such third parties, their strategic interest in the
potential products under development and, eventually, their success in
marketing or willingness to purchase any such products. The Company's
existing and anticipated contracts with such third parties restrict the
rights of InnerDyne to engage in certain areas of product development,
manufacturing and marketing. In addition, these third parties may have the
unilateral right to terminate any such arrangement without significant
penalty. There can be no assurance that InnerDyne will be successful in
establishing or maintaining any such collaborative arrangements or that any
such arrangements will be successful.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE. InnerDyne began
commercial sales of its first M.I.S. access product in the fourth quarter of
1994 and, therefore, has limited sales, marketing and distribution
experience. The Company is marketing its M.I.S. access products mainly to
general surgeons, gynecologists and pediatric laparoscopists. In the United
States, InnerDyne markets its products primarily through a network of
independent sales representatives who typically sell other complementary
M.I.S. products to the same customer base and direct representatives who are
employed by the Company within selected geographical areas. If the need
arises, the Company may expand its sales force, which will require recruiting
and training additional personnel. There can be no assurance that the Company
will be able to recruit and train such additional personnel in a timely
fashion. Loss of a significant number of InnerDyne's current sales personnel
or independent sales representatives, or failure to attract additional
personnel, could have a material adverse effect on the Company's business,
financial condition and results of operations.
-14-
<PAGE>
The Company expects to market its products outside of the United States
through international distributors in selected foreign countries after
regulatory approvals, if necessary, are obtained. Although InnerDyne
currently has relationships with a limited number of international
distributors, there can be no assurance that the Company will be able to
build a network of international distributors capable of effectively
marketing its M.I.S. access products or that such distributors will generate
significant sales of such products. The Company has limited experience in
marketing its products, and faces substantial competition from
well-entrenched and formidable competitors. As a result, there can be no
assurance that the Company will successfully achieve acceptable levels of
product sales at prices which provide an adequate return. Failure to do so
would have a material adverse effect on the Company's business, financial
condition and results of operations.
PATENTS AND PROPRIETARY RIGHTS. The Company's success will depend in
large part on its ability to obtain patent protection for products and
processes, to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. Although InnerDyne has obtained
certain patents and applied for additional United States and foreign patents
covering certain aspects of its technology, no assurance can be given that
any additional patents will be issued or that the scope of any patent
protection will exclude competitors or provide a competitive advantage, or
that any of the Company's patents will be held valid if subsequently
challenged. The validity and breadth of claims covered in medical technology
patents involves complex legal and factual questions and therefore may be
highly uncertain. InnerDyne also relies upon unpatented trade secrets, and no
assurance can be given that others will not independently develop or
otherwise acquire substantially equivalent trade secrets. In addition,
whether or not the Company's patents are issued, others may hold or receive
patents that contain claims having a scope that covers products developed by
InnerDyne.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and companies in
the medical device industry have used litigation to gain competitive
advantage. Litigation involving the Company would result in substantial cost
to and diversion of management attention from the day-to-day operation of the
business, but could be necessary to enforce patents issued to the Company, to
protect trade secrets and other specialized knowledge unknown to outside
parties, to defend the Company against claimed infringement of the rights of
others or to determine the scope and validity of the proprietary rights of
others. An adverse determination in litigation could subject the Company to
significant liabilities to third parties, could require the Company to seek
licenses from third parties under less favorable terms than might otherwise
be possible and could prevent the Company from manufacturing, selling or
using its products, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has in the past, and may in the future, receive
correspondence from third parties claiming that the Company's products or
technology infringe intellectual property rights of such third parties. The
Company and its patent counsel thoroughly review such claims and no such
outstanding claims currently exist. However, there can be no assurance that
InnerDyne will not receive additional claims that its products or technology
infringe third party rights or that third parties will not litigate such
claims. Any such occurrence could have a material adverse effect on the
Company's business, financial condition and results of operations.
GOVERNMENT REGULATION. Clinical testing, manufacture and sale of the
Company's products, including the STEP product line, the ENABL System and the
Company's biocompatible coatings technology, are subject to regulation by the
FDA and corresponding state and foreign regulatory agencies. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing,
manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of
marketing approvals and criminal prosecution. The FDA also has the authority
to request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
Before a new device can be introduced in the market, the manufacturer
must generally obtain FDA clearance of 510(k) notification or approval of a
premarket approval ("PMA") application. A PMA application must be filed if a
proposed device is not substantially equivalent to a legally marketed Class I
or Class II device, or if it is a Class III
-15-
<PAGE>
device for which the FDA has called for PMAs. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which FDA
approval has been sought by other companies have never been approved for
marketing. The ENABL System will likely be subject to the PMA approval
process prior to marketing by U.S. Surgical within the United States. There
can be no assurance that U.S. Surgical will be able to obtain the necessary
regulatory approval on a timely basis, or at all, and a delay in receipt of
or failure to receive such approval would have a material adverse effect on
the Company's business, financial condition and results of operations.
A 510(k) clearance will be granted if the submitted information
establishes that the proposed device is "substantially equivalent" to a
legally marketed Class I or Class II medical device or a Class III medical
device for which the FDA has not called for PMAs. For any of the Company's
devices cleared through the 510(k) process, modifications or enhancements
that could significantly affect the safety or effectiveness of the device or
that constitute a major change to the intended use of the device will require
a new 510(k) submission. There can be no assurance that the Company will
obtain 510(k) premarket clearance within a reasonable time frame, or at all,
for any of the devices or modifications for which it may file a 510(k).
The Company has received clearance from the FDA for the marketing of its
STEP device for use in accessing the abdominal and thoracic cavities for the
performance of minimally invasive surgical procedures. The Company has also
received FDA clearance for the marketing of its R.E.D. product for use in the
areas of gastrostomy, cystostomy, cholecystotomy, the dilation of biliary and
urethral strictures, laparoscopy and enterostomy. The Company has also
received market clearance for alternative versions of its STEP and R.E.D.
products, including products designed to employ its radial dilation
technology in vascular and arthroscopic applications and for biliary
indications. Although the Company has been successful in preparing requests
for 510(k) clearance, there can be no assurance that 510(k) clearances for
future products or product modifications can be obtained in a timely manner
or at all, or that any existing clearance can be successfully maintained. A
delay in receipt of, or failure to receive or maintain, such clearances would
have a material adverse effect on the Company's business, financial condition
and results of operations. Although the Company is strictly limited to
marketing its products for the indications for which they were cleared,
physicians are not prohibited by the FDA from using the products for
indications other than those cleared by the FDA. There can be no assurance
that the Company will not become subject to FDA action resulting from
physician use of its products outside of their approved indications.
The Company has made modifications to its cleared devices that the
Company believes do not require the submission of new 510(k) notices. There
can be no assurance, however, that the FDA would agree with any of the
Company's determinations not to submit a new 510(k) notice for any of these
changes or would not require the Company to submit a new 510(k) notice for
any of the changes made to the device. If the FDA requires the Company to
submit a new 510(k) notice for any device modification, the Company may be
prohibited from marketing the modified device until the 510(k) notice is
cleared by the FDA.
Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approval are subject to pervasive and continuing regulation by
the FDA and certain state agencies and various foreign governments.
Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed GMP
requirements, which include testing, control and documentation requirements.
Manufacturers must also comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA any incident in which its product
may have caused or contributed to a death or serious injury, or in which its
product malfunctioned and, if the malfunction were to recur, it would be
likely to cause or contribute to a death or serious injury.
The Company is registered as a manufacturer of medical devices with the
FDA. The Company is subject to routine inspection by the FDA and certain
state agencies for compliance with GMP requirements, MDR requirements and
other applicable regulations. Failure of the Company to maintain satisfactory
GMP compliance could have a significant adverse effect on the Company's
ability to continue to manufacture and distribute its products and, in the
most serious cases, could result in the seizure or recall of products,
injunction and/or civil fines.
DEPENDENCE ON INTERNATIONAL SALES. In the future, the Company expects to
derive an increasing portion of its revenue from international sales. To the
extent that the Company's international sales increase in future periods,
-16-
<PAGE>
a significant portion of the Company's revenues could be subject to the risks
associated with international sales, including economic or political
instability, shipping delays, changes in applicable regulatory policies,
fluctuations in foreign currency exchange rates and various trade
restrictions, all of which could have significant impact on the Company's
ability to deliver products on a competitive and timely basis. Future
imposition of, or significant increases in the level of, customs duties,
import quotas or other trade restrictions could have an adverse effect on the
Company's business, financial condition and results of operations. The
regulation of medical devices, particularly in the European Economic
Community, continues to expand and there can be no assurance that new laws or
regulations will not have an adverse effect on the Company.
STOCK PRICE VOLATILITY. The stock market in general and stocks of
medical device companies in particular, have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In addition,
the market price of the Common Stock has been and is likely to continue to be
highly volatile. Factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new products by the
Company or its competitors, FDA and international regulatory actions, actions
with respect to reimbursement matters, developments with respect to patents
or proprietary rights, public concern as to the safety of products developed
by the Company or others, changes in healthcare policy in the United States
and internationally, changes in stock market analyst recommendations
regarding the Company, other medical device companies or the medical device
industry generally or general market conditions may have a significant effect
on the market price of the Common Stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
-17-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
(a) Not Applicable.
(b) Not Applicable.
(c) In February 1997, the Company issued 6,000 shares of its Common
Stock to a single entity in connection with a license agreement with such
entity. The Company did not receive any cash proceeds from such issuance.
There were no underwriters employed in connection with such transaction. The
issuance of such securities was deemed to be exempt from registration under
the Securities Act of 1933, as amended (the "Act"), in reliance on Section
4(2) of the Act as a transaction by an issuer not involving any public
offering. The recipient of such shares of Common Stock has represented its
intention to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the certificate representing such shares. The
recipient of the shares had adequate access, through its relationship with
the Company, to information about the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER ITEMS
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number 27.01: Financial Data Schedule
(b) Reports on Form 8-K: The Company did not file any reports on Form
8-K during the quarter ended March 31, 1997.
-18-
<PAGE>
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.
INNERDYNE, INC.
/s/ Robert A. Stern
Robert A. Stern
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(DULY AUTHORIZED SIGNATORY,
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Date: May 14, 1997
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND STATMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF
THE COMPANY'S FORM 10-Q FOR THE QUARTER AND YEAR-TO-DATE ENDED MARCH 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,157,675
<SECURITIES> 0
<RECEIVABLES> 1,467,322
<ALLOWANCES> 0
<INVENTORY> 991,039
<CURRENT-ASSETS> 9,560,200
<PP&E> 1,099,238
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,706,458
<CURRENT-LIABILITIES> 2,044,265
<BONDS> 550,452
0
0
<COMMON> 216,292
<OTHER-SE> 7,895,449
<TOTAL-LIABILITY-AND-EQUITY> 10,706,458
<SALES> 2,519,154
<TOTAL-REVENUES> 2,951,204
<CGS> 1,240,938
<TOTAL-COSTS> 3,660,938
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (653,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (653,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (653,511)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
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