<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission file number 0-28288
____________________
ECLIPSE SURGICAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
______________________
CALIFORNIA 77-0223740
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
559 WEDDELL DRIVE
SUNNYVALE, CALIFORNIA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(408) 747-0120
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock outstanding as of the latest practicable date.
16,562,409 shares
As of October 31, 1997
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<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
Page
----
Item 1 Financial Statements:
a. Balance Sheets
as of September 30, 1997 and December 31, 1996 ...... 1
b. Statements of Operations
for the three and nine months ended
September 30, 1997 and 1996 ......................... 2
c. Statements of Cash Flows
for the nine months ended September 30, 1997
and 1996 ............................................. 3
d. Notes to Financial Statements ........................ 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 5
PART II - OTHER INFORMATION
Item 1 Legal Proceedings ........................................ 17
Item 4 Submission of Matters to a Vote of Security Holders ...... 17
Item 6 Exhibits and Reports on Form 8-K ......................... 17
Signatures ............................................... 18
EXHIBITS
Exhibit Index ............................................ 19
Exhibit 11.1 Statement Regarding Computation of Net Loss Per Share .... 20
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 21,223 $ 24,106
Marketable securities ...................................... 18,077 21,397
Accounts receivable, net of allowance for doubtful accounts
of $631 at September 30, 1997 and $280 at December 31,
1996, respectively ........................................ 1,554 2,483
Inventories ................................................ 3,549 2,464
Prepaids and other current assets .......................... 781 431
--------- ---------
Total current assets ..................................... 45,184 50,881
Property and equipment, net .................................. 1,659 906
Marketable securities ........................................ - 6,560
Other assets ................................................. 288 359
--------- ---------
Total assets ............................................. $ 47,131 $ 58,706
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Accounts payable ........................................... $ 2,380 $ 2,043
Accrued liabilities ........................................ 1,539 908
Customer deposits .......................................... 54 28
Current portion of long-term debt .......................... 7 41
--------- ---------
Total current liabilities ................................ 3,980 3,020
Long-term debt, less current portion ......................... 15 20
--------- ---------
Total liabilities ........................................ 3,995 3,040
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized: 5,000 shares;
Issued and outstanding: none
Common stock, no par value:
Authorized: 50,000 shares;
Issued and outstanding: 16,473 shares at September 30,
1997 and 16,172 shares at December 31, 1996 ............... 66,038 65,339
Unrealized gain on marketable securities ..................... 284 498
Accumulated deficit .......................................... (23,186) (10,171)
--------- ---------
Total shareholders' equity ............................... 43,136 55,666
--------- ---------
Total liabilities and shareholders' equity ............... $ 47,131 $ 58,706
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
1
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues ................................. $ 1,401 $ 2,863 $ 3,863 $ 6,825
Cost of revenues ............................. 721 978 1,985 2,333
--------- -------- ---------- ---------
Gross profit ............................... 680 1,885 1,878 4,492
--------- -------- ---------- ---------
Operating expenses:
Research and development ................... 2,982 1,868 8,626 3,777
Sales and marketing ........................ 1,864 763 4,741 1,645
General and administrative ................. 969 648 3,226 1,179
--------- -------- ---------- ---------
Total operating expenses ................. 5,815 3,279 16,593 6,601
--------- -------- ---------- ---------
Operating loss ......................... (5,135) (1,394) (14,715) (2,109)
Interest expense ............................. (13) (16) (19) (191)
Interest and other income .................... 632 736 1,719 972
--------- -------- ---------- ---------
Net loss ............................... $ (4,516) $ (674) $ (13,015) $ (1,328)
--------- -------- ---------- ---------
--------- -------- ---------- ---------
Net loss per share ........................... $ (0.27) $ (0.04) $ (0.80) $ (0.09)
--------- -------- ---------- ---------
--------- -------- ---------- ---------
Shares used in per share calculation ......... 16,441 15,775 16,303 14,206
--------- -------- ---------- ---------
--------- -------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (13,015) $ (1,328)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................... 414 94
Provision for doubtful accounts ............................. 1,013 157
Changes in operating assets and liabilities:
Increase in accounts receivable ........................... (84) (2,158)
Increase in inventories ................................... (1,085) (238)
Increase in prepaids and other assets ..................... (350) (1,596)
Decrease in other assets .................................. 71 -
Increase in accounts payable .............................. 338 647
Increase(decrease) in accrued liabilities ................. 631 (51)
Increase (decrease) in customer deposits .................. 25 (68)
---------- ---------
Net cash used in operating activities .................... (12,042) (4,541)
---------- ---------
Cash flows from investing activities:
Sale of marketable securities ................................. 9,666 -
Investment in marketable securities ........................... - (27,578)
Acquisition of property and equipment ......................... (1,167) (559)
---------- ---------
Net cash provided by (used in) investing activities ..... 8,499 (28,137)
---------- ---------
Cash flows from financing activities:
Payments on short-term borrowings ............................. - (45)
Net proceeds from issuance of common stock .................... 699 60,413
Proceeds from short-term borrowings ........................... 29
Payments on long-term debt .................................... (39) (1,692)
Proceeds from notes receivable for common stock ............... - 104
---------- ---------
Net cash provided by financing activities ............... 660 58,809
---------- ---------
Net increase (decrease) in cash and cash equivalents .. (2,883) 26,131
Cash and cash equivalents at beginning of period ................ 24,106 123
---------- ---------
Cash and cash equivalents at end of period ...................... $ 21,223 $ 26,254
---------- ---------
---------- ---------
Supplemental schedule of noncash investing and
financing activities:
Unrealized gain on marketable securities ...................... $ 284 $ -
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
INTERIM FINANCIAL INFORMATION (UNAUDITED):
The interim financial statements in this report reflect all adjustments,
consisting of normal recurring accruals, that are, in the opinion of
management, necessary for a fair statement of financial position, results of
operations and cash flows for the interim periods covered and of the
financial condition of the Company at the interim balance sheet dates.
Results for interim periods are not necessarily indicative of results to be
expected for the full fiscal year. The year-end balance sheet information
was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. These
financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended December 31, 1996,
contained in the Company's Annual Report on Form 10-K as filed with the U.S.
Securities and Exchange Commission (SEC).
NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common and common stock
equivalent shares issued by the Company during the twelve months preceding
the initial offering date, using the treasury stock method and the assumed
public offering price per share, have been included in the calculation of net
loss per share for the three and nine months ended September 30, 1996.
RECENT PRONOUNCEMENTS:
During February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," (SFAS 128) which specifies the
computation, presentation and disclosure requirements for Earnings per Share.
SFAS will become effective for the Company's 1997 fiscal year. The impact of
adopting SFAS 128 is not expected to have a material impact on the Company's
financial condition or results of operations.
In June, 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive income and
its components (including revenues, expenses, gains and losses) in a full set
of general purpose financial statements. This statement is effective for
fiscal years beginning after December 15, 1997, with earlier application
permitted.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"), which supersedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise." SFAS 131 changes current practice under SFAS 14 by
establishing a new framework on which to base segment reporting and also
requires interim reporting of segment information. SFAS 131 is effective for
fiscal years beginning after December 31, 1997 with earlier application
encouraged. The statement's interim reporting disclosures would not be
required until the first quarter immediately subsequent to the fiscal year in
which SFAS 131 is effective.
4
<PAGE>
2. Inventories:
Inventories are stated at lower of cost (first-in, first-out) or market
and consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 1996
1997 -----------------
-------------
(UNAUDITED)
Raw materials ......................... $ 1,599 $ 511
Work in process ....................... 359 99
Finished goods ........................ 1,591 1,854
-------- --------
$ 3,549 $ 2,464
-------- --------
-------- --------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE DISCUSSION AND ANALYSIS BELOW CONTAINS TREND ANALYSIS AND OTHER
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1993 AND SECTION 21E OF THE SECURITIES ACT OF 1934. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K AND OTHER REPORTS FILED BY THE COMPANY.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED IN ITEM 1 OF THIS QUARTERLY REPORT AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINED IN THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC).
OVERVIEW
The Company designs, develops, manufactures and distributes laser-based
surgical and catheter products and disposable fiber-optic accessories for the
treatment of advanced cardiovascular disease through Transmyocardial
Revascularization ("TMR") and Percutaneous Transluminal Myocardial
Revascularization ("PTMR"). TMR is a surgical procedure performed on the
beating or non-beating heart in which a laser device is used to create
pathways through the myocardium directly into the heart chamber. The pathways
are intended to enable improved blood supply to the myocardium. PTMR is a
catheter-based procedure which is performed under local anesthesia by
inserting a catheter in a leg artery and creating the laser channels from the
inside of the heart. TMR and PTMR potentially offer end-stage cardiac
patients who are not candidates for percutaneous transluminal coronary
angioplasty ("PTCA" or "balloon angioplasty") or coronary artery bypass graft
surgery ("CABG" or "open heart bypass surgery") a means to alleviate their
anginal symptoms and improve their quality of life. In the U.S., the Company
currently offers its laser systems for sale in limited numbers for
investigational use only pursuant to Investigational Device Exemptions
("IDE") from the U.S. Food and Drug Administration (the "FDA").
The Company was founded in 1989 as an outgrowth of certain research and
development efforts initially undertaken by the Company's founders in the
early 1980s related to the use of laser technology to treat cardiovascular
disease. From 1989 through September 1995, the Company engaged in research,
development and sale of surgical laser products principally for procedures
such as atherectomy and arthroscopy. In 1993, the Company created and spun
off to its shareholders a balloon angioplasty company, Atlantis Catheter
Company, Inc. In 1995, the Company determined that there is a significant
opportunity in the TMR and PTMR markets, and that the Company is
well-positioned to enter these markets because of the Company's expertise
with laser-based surgical and catheterization techniques and the treatment of
cardiovascular disease. Accordingly, in late 1995, the Company changed its
strategic direction and began to apply its laser expertise toward the nascent
TMR and PTMR markets.
5
<PAGE>
In late 1995, the Company began restructuring its operations and
expanding its management team in order to focus on the development and
commercialization of its TMR and PTMR products. In September 1995, the
Company received an Investigational Device Exemption ("IDE") allowing it to
begin selling its TMR products for investigational use only, and commenced
clinical trials in the United States and Europe in November 1995. In December
1996, the Company received the European Conforming Mark ("CE Mark") allowing
the commercial sale of its TMR laser system to the European Community. In
May 1997, the Company received International Standards Organization ("ISO")
9001 certification of its manufacturing and quality organization. In July
1997, the Company submitted an application to the FDA for marketing clearance
("PMA" or Pre-Market Approval) of its TMR products in the United States. In
June 1997, the Company received an IDE allowing it to begin selling its PTMR
products for investigational use only and commenced clinical trials of PTMR
in South America and Asia.
Prior to 1996, the Company had focused almost exclusively on research and
development activities relating to surgical laser products, substantially
contributing to annual operating losses since inception. Since 1996, the
Company has focused on TMR and PTMR activities, particularly research and
development activities and clinical trials. At September 30, 1997, the
Company had an accumulated deficit of $23,186,000.
The Company expects to continue to incur operating losses related to
research and development activities, including clinical studies, the
expansion of sales and marketing resources and the continued development of
corporate infrastructure. The timing and amounts of the Company's
expenditures will depend upon a number of factors, including the progress of
the Company's clinical trials, the status and timing of regulatory approval,
the timing of market acceptance, if any, of the Company's products, and the
efforts required to develop the Company's sales and marketing organization.
RESULTS OF OPERATIONS
REVENUES
Revenues decreased to $1,401,000 and $3,863,000 for the three and nine
months ended September 30, 1997, respectively as compared to $2,863,000 and
$6,825,000 in the corresponding periods of 1996. The decrease for both the
three and nine months ended September 30, 1997 resulted primarily from a
change in the mix of lasers sold versus placed as compared to the three and
nine months ended September 30, 1996. Additionally, the Company believes that
the decrease was due to a Health Care Financing Administration ("HCFA")
policy effective May 19, 1997 which restricts Medicare reimbursement for TMR
equipment and procedures. The Company's products had received third party
reimbursement under the preceding HCFA policy. Reimbursement is a significant
factor considered by hospitals in determining whether to acquire new
equipment.
Future revenues could continue to be affected by restrictions on third
party reimbursement and the timing and manner of sale of a limited number of
units of TMR and PTMR laser systems. The Company intends to continue selling
the systems to hospitals outright (list price is $295,000) or placing the
system with the hospital for a placement fee (currently $25,000) plus an
additional fee for each procedure performed. As a result of a new HCFA policy
restricting Medicare reimbursement for TMR equipment and procedures, the
Company anticipates that these sales will be more difficult to obtain in the
future than in prior periods.
The average selling price of the Company's laser base units, extent of
additional fees for procedures performed, the timing of individual orders and
shipments, as well as the manner of sale, could significantly impact quarter
to quarter results.
GROSS PROFIT
6
<PAGE>
Gross profit decreased to $680,000 or 49% and $1,878,000 or 49% of net
revenues for the three and nine months ended September 30, 1997,
respectively as compared to $1,885,000 or 66% and $4,492,000 or 66% of
revenues in the corresponding periods in 1996. The decrease for both the
three and nine months resulted from the higher level of manufacturing
overhead expenses associated with facility expansion and increased headcount
as well as the higher mix of lasers placed versus sold in 1997 as compared
to the same period in 1996.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $2,982,000 or 213% of
revenues and $8,626,000 or 223% of revenues for the three and nine months
ended September 30, 1997, respectively as compared to $1,868,000 or 65% of
revenues and $3,777,000 or 55% of revenues in the corresponding period in
1996. The increase in these expenses reflects a higher level of research and
development expense relating to TMR and PTMR including costs related to the
development of new products and costs to support an increasing number of
clinical trials and an increase in headcount to 36 from 15 at September 30,
1997 and 1996, respectively.
The Company's products are currently in clinical trials, and therefore,
subject to limitations by the FDA. The Company believes that continued
investment in the development of new and improved products and procedures and
continued investment in the Company's clinical trials is critical to its
future success. Additionally, as a result of a new HCFA policy restricting
Medicare reimbursement for TMR equipment and procedures, the Company
anticipates a significant increase in future expenditures relating to
hospital support of the Company's clinical trials. Accordingly, the Company
believes that research and development expenses will continue to increase
significantly over the short term and possibly thereafter. There can be no
assurance that the Company's future revenues, if any, will be sufficient to
offset the research and development expenses required in connection with
ongoing efforts including current and future clinical trials.
SALES AND MARKETING
Sales and marketing expenses increased to $1,864,000 or 133% of revenues
and $4,741,000 or 123% of revenues in the three and nine months ended
September 30, 1997, respectively as compared to $763,000 or 27% of revenues
and $1,645,000 or 24% of revenues as compared to the corresponding periods in
1996. This increase is due primarily to increased staffing to 26 from 10 at
September 30, 1997 and 1996, respectively. Seven of these new employees were
hired in the three months ended September 30, 1997 and were primarily focused
on the international marketplace. The increase for the nine months ended
September 30, 1997 reflects the Company's application of additional resources
to the TMR and PTMR markets including the expansion of sales and marketing
staff and related travel expenses, as well as reserves for the extended
payment terms which the Company has offered to customers as a result of the
HCFA policy restricting Medicare reimbursement for TMR equipment and
procedures. The Company expects that sales and marketing expenses will
continue to increase significantly as the Company continues to focus
resources on the development of its products.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $969,000 or 69% of
revenues and $3,226,000 or 84% of revenues for the three and nine months
ended September 30, 1997, respectively as compared to $648,000 or 23% of
revenues and $1,179,000 or 17% of revenues in the corresponding periods in
1996. The increase in the three months ended September 30, 1997 is due
primarily to patents and patent applications, insurance, additional facility
expenses and the increased headcount to 20 at September 30, 1997 as compared
to 13 at September 30, 1996. For the nine months ended September 30, 1997
general and administrative expenses increased due to increased headcount and
expenses related to being a publicly traded company, including investor
relations, legal, accounting, stock administration, and insurance expenses.
The Company anticipates that general and administrative expenses will
continue to increase in future periods.
7
<PAGE>
INTEREST INCOME AND EXPENSE
Interest income of $632,000 for the three months ended September 30,
1997 decreased $104,000 or 14% when compared to $736,000 for the three months
ended September 30, 1996 due to lower cash balances in 1997 as compared to
1996. For the nine months ended September 30, 1997 interest income increased
to $1,719,000 as compared to $972,000 for the corresponding period of 1996,
an increase of $747,000 or 77% primarily from investment of proceeds
received in connection with an initial public offering in May 1996. Prior to
its initial public offering, the Company had limited cash balances.
Interest expense decreased to $13,000 and $19,000 for the three and nine
months ended September 30, 1997, respectively as compared to $16,000 and
$191,000 for the three and nine months ended September 30, 1996, respectively
reflecting a decrease in outstanding debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its capital requirements primarily through its
cash balances which were derived from proceeds received in its May 1996
initial public offering. In addition, the Company's operations have been
funded in part through sales of the Company's products. At September 30,
1997, the Company had aggregate cash and marketable securities of
$39,300,000 as compared to $52,063,000 at December 31, 1996. The Company
used $12,042,000 and $4,541,000 for operating activities for the nine months
ended September 30, 1997 and 1996, respectively. At September 30, 1997, the
Company had an accumulated deficit of $23,186,000.
The Company anticipates that its current cash and marketable securities,
and to a significantly lesser extent, revenues from the sale of products for
investigational use, will be sufficient to meet the Company's cash
requirements through at least June, 1998. There can be no assurance, however,
that the Company will not require additional sources of cash at an earlier
date in the future, depending upon the progress of expansion of the Company's
clinical trials, any need for additional clinical trials or other testing of
the Company's products, and the timing of other required expenditures as
indicated above. In such event, the Company may be required to secure
additional equity or debt financing which could have a significantly dilutive
effect on the Company's shareholders. If the Company is required to obtain
additional financing in the future, there can be no assurance that capital
will be available on terms acceptable to the Company, if at all.
8
<PAGE>
CERTAIN FACTORS BEARING ON FUTURE RESULTS
CERTAIN OF THE STATEMENTS ABOVE ARE FORWARD-LOOKING STATEMENTS. IN
ADDITION, THE COMPANY MAY FROM TIME TO TIME MAKE ORAL FORWARD-LOOKING
STATEMENTS. THE FOLLOWING ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN ANY SUCH FORWARD-LOOKING
STATEMENTS..
EARLY STAGE OF CLINICAL TRIALS
The Company must obtain marketing clearance ("PMA") from the U.S. Food
and Drug Administration (the "FDA") before the Company will be able to offer
its products for TMR or PTMR on a commercial basis in the U.S. A necessary
prerequisite for submitting a PMA application is completion of clinical
testing to demonstrate the safety and effectiveness of the Company's TMR
products.
On July 2, 1997, the Company submitted a PMA application to the FDA for
use of the Eclipse laser system to treat patients with Class IV angina (chest
pain) caused by coronary artery disease using the TMR procedure. The FDA
review process can be lengthy and uncertain. There can be no assurance that
the FDA will approve this application or when this approval will occur, if at
all. On July 28, 1997 an FDA panel recommended non-approval of a PMA
application submitted by PLC Systems, Inc., a major competitor of the
Company. The Company believes that this decision may have a significant
impact on the FDA's review and approval of the Company's application. The
Company has two other clinical studies underway that have reached Phase II,
and four additional studies currently in Phase I.
Completion of the Company's clinical studies on a timely basis will
depend, among other things, on the Company's ability to successfully
establish TMR and PTMR sites and continue to identify and enroll
participating patients in a timely fashion. In addition, the clinical studies
will require substantial financial and management resources. There can be no
assurance that the Company will have the resources necessary to complete such
clinical studies. Furthermore, there can be no assurance that the Company's
clinical studies will be completed within the currently anticipated time
frame or otherwise in a timely manner, nor that such clinical studies will
demonstrate the safety and effectiveness of the Company's products to the
extent necessary to obtain FDA and other regulatory approvals and establish a
commercial market for the Company's products. Moreover, results of the
initial clinical testing are not necessarily predictive of results to be
achieved in later clinical studies, if undertaken, or commercially, if a PMA
is obtained. Failure to complete the Company's clinical studies in a timely
manner or to demonstrate the safety and effectiveness of the Company's TMR
products could delay or prevent regulatory approval and would materially and
adversely affect the Company's business and operating results.
NO ASSURANCE OF FDA OR OTHER REQUIRED GOVERNMENTAL APPROVALS
The Company's products are regulated in the U.S. as medical devices by
the FDA under the Federal Food, Drug, and Cosmetic Act ("FD&C Act") and, as
such, require FDA approval of a PMA application prior to commercial sale in
the U.S. The FDA approves PMA applications for specific indications only and
FDA regulation prohibits commercial marketing in the U.S. of devices for
indications that have not been approved by the FDA. The process of obtaining
required regulatory approvals from the FDA and other regulatory authorities
is lengthy, expensive and inherently uncertain, generally takes several years
or longer to complete, if approval is obtained at all, and requires the
submission of extensive clinical data and supporting information to the FDA.
On July 2, 1997, the Company submitted a PMA application to the FDA for
use of the Eclipse laser system to treat patients with Class IV angina (chest
pain) caused by coronary artery disease using the TMR procedure. There can be
no assurance that the FDA will approve this application in the foreseeable
future. On July 28, 1997 an FDA panel recommended non-approval of a PMA
application submitted by PLC Systems, Inc. This decision may have an impact
on the FDA's review and approval of the Company's application. Failure to
obtain FDA approval on a timely
9
<PAGE>
basis or for the indications sought by the Company would materially and
adversely affect the Company's business and operating results.
The Company will also be required to follow applicable Good
Manufacturing Practices ("GMP") regulations of the FDA, which include
testing, control and documentation requirements, as well as similar
requirements in other countries, including International Standards
Organization ("ISO") 9001 standards. Although the Company became 9001
certified in May 1997, failure to meet or to continue to satisfy these
requirements in the future would preclude the Company from marketing its
products on a commercial basis, and therefore would materially and adversely
affect the Company's business and operating results.
Sales of medical devices outside of the U.S. are subject to foreign
regulatory requirements that vary widely by country. In addition, the FDA
must approve the export of devices that require a PMA but are not yet
approved domestically. Foreign and domestic regulatory approvals, if
granted, may include significant limitations on the indicated uses for which
the product may be marketed. In addition, to obtain such approvals, medical
device manufacturers must comply with numerous other requirements of the FDA
and certain foreign regulatory authorities. For example, the European
Conforming Mark (the "CE Mark") is required to sell products in European
Union countries. The Company received CE Marking for its TMR laser in
December 1996. However, product approvals can be withdrawn due to various
factors including failure to comply with regulatory standards or unforeseen
problems following initial marketing.
RISKS ASSOCIATED WITH NEW SURGICAL PROCEDURE; NO ASSURANCE OF MARKET ACCEPTANCE
The Company's ability to successfully commercialize its TMR and PTMR
products will depend upon its ability to achieve acceptance of its products
and procedures among cardiologists, cardiac surgeons and other members of the
medical community as well as prospective patients. The Company believes that
it will not achieve such acceptance until such time, if any, as the Company's
TMR or PTMR products can be demonstrated to be safe, efficacious and
cost-effective. Even if the clinical safety and effectiveness of the
Company's TMR products is established, cardiologists, cardiac surgeons and
other members of the medical community may elect not to recommend TMR or PTMR
for any number of other reasons. Broad use of the Company's products will
require training of numerous physicians, and the time required to complete
such training could adversely affect market acceptance. Moreover, even if TMR
and PTMR become generally accepted by the medical community, physicians
trained in competitive products may elect not to consider the Company's
products, or may elect instead to recommend a competitor's products. Failure
of the Company's products to achieve significant market acceptance would
materially and adversely affect the Company's business and operating results.
DEPENDENCE ON SINGLE PRODUCT LINE
The Company has elected to focus its resources on the continued
development and refinement of its TMR and PTMR products. If the Company is
unable to obtain requisite regulatory approvals or to achieve commercial
acceptance of these products, the Company's business and operating results
will be materially and adversely affected and could result in cessation of
the Company's business.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS
OF FUTURE LITIGATION
The Company's success will depend, in part, on its ability to obtain
patent protection for its products, preserve its trade secrets, and operate
without infringing the proprietary rights of others. The Company's policy is
to seek to protect its proprietary position by, among other methods, filing
U.S. and foreign patent applications related to its technology, inventions
and improvements that are important to the development of its business. The
Company holds five U.S. patents and related foreign patents relating to
surgical treatment with lasers and fiber-optic handpieces, and has applied
for additional patents relating to its laser technology, TMR and PTMR
applications and fiber-optic handpieces. There can be no assurance that any
of the Company's patents or patent applications will not be challenged,
invalidated or circumvented in the future or that the rights granted
thereunder will provide a competitive advantage. The
10
<PAGE>
Company intends to vigorously protect and defend its intellectual property.
It is uncertain whether patent protection will continue to be available for
surgical methods in the future. Costly and time-consuming litigation brought
by the Company may be necessary to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, or to determine the
enforceability, scope and validity of the proprietary rights of others.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and
advisors to execute confidentiality and assignment of inventions agreements
in connection with their employment, consulting or advisory relationships
with the Company. There can be no assurance, however, that these agreements
will not be breached or that the Company will have adequate remedies for any
breach. Furthermore, no assurance can be given that competitors will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's proprietary technology,
or that the Company can meaningfully protect its rights in unpatented
proprietary technology.
The medical device industry in general, and the industry segment that
includes products for the treatment of cardiovascular disease in particular,
have been characterized by substantial competition and litigation regarding
patent and other intellectual property rights. In this regard, competitors of
the Company have been issued a number of patents related to TMR. In September
1995, the Company received from a competitor a notice of potential
infringement of the competitor's patent regarding a method for TMR utilizing
synchronization of laser pulses to the electrical signals from the heart. In
January 1996, the Company received from a second competitor a notice of
potential infringement of the competitor's patent regarding a method to
perform TMR using fiber optics. The Company has concluded in each case,
following discussion with its patent counsel, that it does not utilize the
process and/or apparatus which is the subject of the patent at issue, and has
responded to the respective competitor to such effect. The Company has
received no further correspondence on either matter. There can be no
assurance, however, that further claims or proceedings will not be initiated
by either competitor, or that claims by other parties will not arise in the
future. Any such claims in the future, with or without merit, could be
time-consuming and expensive to respond to and could divert the attention of
the Company's technical and management personnel. The Company may be involved
in litigation to defend against claims of infringement by the Company, to
enforce patents issued to the Company, or to protect trade secrets of the
Company. If any relevant claims of third party patents are upheld as valid
and enforceable in any litigation or administrative proceeding, the Company
could be prevented from practicing the subject matter claimed in such
patents, or would be required to obtain licenses from the patent owners of
each such patent or to redesign its products or processes to avoid
infringement.
Patent applications in the U.S. are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a period after filing. Publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries and the filing of
related patent applications. Accordingly, there can be no assurance that
current and potential competitors and other third parties have not filed or
in the future will not file applications for, or have not received or in the
future will not receive, patents or obtain additional proprietary rights that
will prevent, limit or interfere with the Company's ability to make, use or
sell its products either in the U.S. or internationally. In the event the
Company were to require licenses to patents issued to third parties, there
can be no assurance that such licenses would be available or, if available,
would be available on terms acceptable to the Company, or that the Company
would be successful in any attempt to redesign its products or processes to
avoid infringement. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could
prevent the Company from manufacturing and selling its products, which would
materially and adversely affect the Company's business, financial condition
and results of operations.
EXPECTATION OF INTENSE MARKET COMPETITION
The Company expects that the markets for TMR and PTMR, which are
currently in the early stages of development, will be intensely competitive.
Competitors are likely to include three laser competitors, PLC Systems, Inc.
("PLC"), CardioGenesis Corporation ("CardioGenesis") and U.S. Surgical
Corporation ("U.S. Surgical"), all three of which are currently selling TMR
and or PTMR products for investigational use in the U.S. and abroad. Other
11
<PAGE>
competitors may include additional companies that elect to enter the market,
including large companies in the laser, cardiac devices and cardiac surgery
markets. The Company believes that a number of significant companies
including Boston Scientific Corp., Baxter International, Inc., C.R. Bard,
Inc. and Cordis, a Johnson & Johnson company, have distribution rights to
current or future products in TMR or PTMR include. Many of these companies
have significantly greater financial, development, marketing and other
resources than the Company. In the event a competitor is able to obtain a PMA
for its products prior to the Company, the Company's ability to compete
successfully could be materially and adversely affected.
TMR and PTMR also compete with other more conventional or established
methods for the treatment of cardiovascular disease, including drug therapy,
PTCA and CABG. Although the Company is seeking to demonstrate the safety and
effectiveness of the Company's TMR procedures in patients for whom other
cardiovascular treatments are not likely to provide relief, and in the future
intends to pursue the safety and effectiveness of TMR or PTMR when used in
conjunction with other treatments, there can be no assurance that the
Company's products will be accepted in these markets nor that physicians will
use the Company's procedures to replace or supplement established
treatments, or that the Company's procedures will be competitive with
current or future technologies. In such event, the Company's business and
operating results could be materially and adversely affected.
Any product developed by the Company that gains regulatory approval will
face competition for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative pace at which the Company is able to
develop products, complete clinical testing and regulatory approval
processes, gain third party reimbursement acceptance and supply commercial
quantities of the product to the market are expected to be important
competitive factors. There can be no assurance that the Company will be able
to compete successfully against current and future competitors. Failure to do
so would materially and adversely affect the Company's business and operating
results.
HISTORY OF OPERATING LOSSES
From inception to September 30, 1997, the Company incurred cumulative net
losses of approximately $23.2 million. The Company's revenues and operating
income will continue to be constrained until such time, if ever, as FDA and
other regulatory approval is obtained for the Company's products, and for an
indefinite period of time after any such approval is obtained. Furthermore,
the Company expects its expenses in all categories to increase as its
clinical trial and other business activities expand. Hence, there can be no
assurance that the Company will achieve or sustain profitability in the
future. Failure to achieve significant commercial revenues or profitability
would materially and adversely affect the Company's business, financial
condition and results of operations.
RISKS OF TECHNOLOGICAL CHANGE
Significant resources are continually being expended to develop new and
improved treatment methodologies for coronary disease. Accordingly, the
market acceptance and commercial success of the Company's TMR and PTMR
products and procedures will depend not only on the safety and effectiveness
of the Company's TMR and PTMR products and procedures, but also the relative
safety and effectiveness of alternative treatment measures, which
alternatives could potentially include new treatments or improvements or
emergence of new alternative treatments would materially and adversely affect
the Company's business, financial condition and results of operations.
POTENTIAL DIFFICULTIES IN MANAGING BUSINESS UNDERGOING RAPID CHANGE
The Company's future success will depend to a significant extent on the
ability of its current and future management personnel to operate
effectively, both independently and as a group. In this regard, a number of
members of the Company's senior management team have only recently joined the
Company. Moreover, certain members of such management team have limited
experience as a senior executive of a public corporation. There can be no
assurance that the management team will operate together effectively. To
compete successfully against current and future competitors, complete
clinical trials in progress, prepare additional products for clinical trials
and develop future products, the
12
<PAGE>
Company believes that it must continue to expand its operations, particularly
in the areas of research and development, sales and marketing, training, and
manufacturing. If the Company were to experience significant growth in the
future, such growth would likely result in new and increased responsibilities
for management personnel and place significant strain upon the Company's
management, operating and financial systems and resources. To accommodate
such growth and compete effectively, the Company must continue to implement
and improve information systems, procedures and controls, and to expand,
train, motivate and manage its work force. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's future operations. Any failure to implement and improve
the Company's operational, financial and management systems or to expand,
train, motivate or manage employees could materially and adversely affect the
Company's business, financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Results of operations are expected to fluctuate significantly from
quarter to quarter depending upon numerous factors, including the timing and
results of clinical trials; delays associated with the FDA and other
regulatory approval processes; health care reform and reimbursement policies;
demand for the Company's products; changes in pricing policies by the Company
or its competitors; the number, timing and significance of product
enhancements and new product announcements by the Company and its
competitors; the ability of the Company to develop, introduce and market new
and enhanced versions of the Company's products on a timely basis; customer
order deferrals in anticipation of new or enhanced products offered by the
Company or its competitors; product quality problems; personnel changes;
changes in Company strategy; and the level of international sales. Quarter to
quarter operating results could also be affected by the timing of the receipt
of individual customer orders, order fulfillment and revenue recognition with
respect to small numbers of individual laser base units, since each unit
carries a high price per unit.
UNCERTAINTY REGARDING THIRD PARTY REIMBURSEMENT
The Company expects that its ability to successfully commercialize its
products will depend significantly on the availability of reimbursement for
surgical procedures using the Company's products from third party payors such
as governmental programs, private insurance and private health plans.
Reimbursement is a significant factor considered by hospitals in determining
whether to acquire new equipment. Notwithstanding FDA approval, if granted,
third party payors may deny reimbursement if the payor determines that a
therapeutic medical device is unnecessary, inappropriate, not cost-effective
or experimental or is used for a non-approved indication.
Medicare reimburses hospitals on a prospectively determined fixed amount
for the costs associated with an in-patient hospitalization based on the
patient's discharge diagnosis, and reimburses physicians on a prospectively
determined fixed amount based on the procedure performed, regardless of the
actual costs incurred by the hospital or physician in furnishing the care and
unrelated to the specific devices used in that procedure. Medicare and other
third party payors are increasingly scrutinizing whether to cover new
products and the level of reimbursement for covered products. In addition,
Medicare traditionally has considered items or services involving devices
that have not been approved or cleared for marketing by the FDA to be
precluded from Medicare coverage. Under a Health Care Financing
Administration ("HCFA") policy effective November 1, 1995, Medicare coverage
will not be precluded for items and related services involving devices that
have been classified by the FDA as "non-experimental/ investigational"
("Category B") devices and that are furnished in accordance with FDA-approved
protocols governing clinical trials. Even with items or services involving
Category B devices, however, Medicare coverage may be denied if other
coverage requirements are not met, for example if the treatment is not
medically needed for the specific patient. In November 1995, the Company
received Category B designation for its TMR procedure from the HCFA.
Accordingly, the Company's procedures had received third party reimbursement
in many cases under HCFA's policy. As of May 19, 1997, although Category B
status is retained, under a recent HCFA ruling, there will not be coverage
for any manufacturer's TMR procedures at this time. There can be no assurance
that this coverage will be given in the future or that Medicare will
adequately reimburse the costs of the Company's TMR and PTMR procedures when
and if a PMA is granted. While the Company is unable to determine the
ultimate effect of this policy change on the business and operating results,
the Company anticipates that research and development expenses will increase
significantly due to
13
<PAGE>
increased expenses in support of clinical trials, and revenues from sale of
investigational products are likely to decrease, at least over the short term
and possibly thereafter.
There can be no assurance as to whether third party payors will cover TMR
or PTMR or as to the levels of reimbursement. There also can be no assurance
that levels of reimbursement, if any, will not be decreased in the future, or
that future legislation, regulation, or reimbursement policies of third party
payors will not otherwise adversely affect the demand for the Company's
products or its ability to sell its products on a profitable basis.
Fundamental reforms in the healthcare industry in the U.S. and Europe that
could affect the availability of third party reimbursement continue to be
proposed, and the Company cannot predict the timing or effect of any such
proposal. If third party payor coverage or reimbursement is unavailable or
inadequate, the Company's business, financial condition and results of
operations could be materially and adversely affected.
LIMITED SALES, MARKETING AND DISTRIBUTION SYSTEMS
The Company has made limited sales of its TMR products to date, for
investigational use only. Accordingly, the Company has maintained a limited
sales and marketing organization in the U.S. and abroad. The Company plans to
market its TMR and PTMR products, if approved, through a direct sales force
and through a relationship with a major cardiovascular surgical products
company or companies for international sales. Establishment of a sales force
capable of effectively commercializing the Company's TMR and PTMR products
will require substantial efforts and require significant management and
financial resources. There can be no assurance that the Company will be able
to establish such a sales capability on a timely basis, if at all. Moreover,
there can be no assurance that the Company's international distributor or
distributors will devote sufficient resources to development of the markets
for the Company's products or will be successful in such commercialization
efforts.
RISK OF PRODUCT LIABILITY
The Company faces an inherent and significant business risk of exposure
to product liability claims in the event that the use of its products results
in personal injury or death, and there can be no assurance that material
product liability claims will not be assessed against the Company in the
future. The Company maintains insurance against product liability claims in
the amount of $3 million per occurrence and $3 million in the aggregate.
However, there can be no assurance that such coverage will continue to be
available in the amount desired or on terms acceptable to the Company, or
that such coverage will be adequate for liabilities actually incurred. Also,
in the event that any of the Company's products prove to be defective, the
Company may be required to recall or redesign such products. Any uninsured or
underinsured claim brought against the Company or any claim or product recall
that results in significant cost to or adverse publicity against the Company
could materially and adversely affect the Company's business, financial
condition and results of operations.
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON KEY SUPPLIERS
The Company's success will depend in part on its ability to manufacture
its products in a timely, cost-effective manner and in compliance with GMP,
ISO 9001 and other regulatory requirements. The manufacture of the Company's
products is a labor-intensive, complex operation involving a number of
separate processes and components. The Company's manufacturing activities to
date have consisted primarily of manufacturing limited quantities of systems
for use in clinical trials. The Company does not have experience in
manufacturing its products in the commercial quantities that might be
required if the Company receives regulatory approval for its TMR products.
Furthermore, as a condition to receipt of PMA approval, the Company's
facilities, procedures and practices will be subject to pre-approval and
ongoing GMP inspections by FDA.
Manufacturers often encounter difficulties in scaling up manufacturing of
new products, including problems involving product yields, quality control
and assurance, component and service availability, adequacy of control
policies and procedures, lack of qualified personnel, compliance with FDA
regulations, and the need for further FDA approval
14
<PAGE>
of new manufacturing processes and facilities. There can be no assurance that
manufacturing yields, costs or quality will not be adversely affected as the
Company seeks to increase production, and any such adverse effect could
materially and adversely affect the Company's business, financial condition
and results of operations.
The Company currently purchases certain laser and fiber-optic components
from single sources. Although the Company has identified alternative vendors,
the qualification of additional or replacement vendors for certain components
or services is a lengthy process. There can be no assurance that materials
obtained from outside suppliers will continue to be available in adequate
quantities or at the times required by the Company or that the Company will
be able to locate alternative suppliers on a timely basis. Any significant
supply interruption would have a material adverse effect on the Company's
ability to manufacture its products and, therefore, would materially and
adversely affect the Company's business, financial condition and results of
operations. The Company expects to manufacture its products based on
forecasted product orders, and intends to purchase subassemblies and
components prior to receipt of purchase orders from customers. Lead times for
materials and components ordered by the Company vary significantly, and
depend on factors such as the business practices of the specific supplier,
contract terms and general demand for a component at a given time. As a
result, there is a risk of excess or inadequate inventory if orders do not
match forecasts.
DEPENDENCE ON KEY PERSONNEL
The Company's future business and operating results depend in significant
part upon the continued contributions of its key technical and senior
management personnel, including Douglas Murphy-Chutorian, M.D., the Company's
Chief Executive Officer and Richard L. Mueller, Jr., the Company's President
and Chief Operating Officer. The Company maintains key person life insurance
policies on both of these individuals in the amount of $2 million. The
Company's future business and operating results also depend in significant
part upon its ability to attract and retain qualified additional management,
manufacturing, technical, marketing and sales and support personnel for its
operations. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting or retaining such
personnel. The loss of any key employee, the failure of any key employee to
perform in his or her current position, or the Company's inability to attract
and retain skilled employees, as needed, could materially and adversely
affect the Company's business, financial condition and results of operations.
TRADING MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE
Prior to the Company's initial public offering on May 31, 1996, there was
no public market for the Company's Common Stock. The market price of the
Common Stock has been, and is likely to continue to be, highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the Company or
its competitors, developments with respect to patents or proprietary rights,
conditions and trends in the medical device and other technology industries,
healthcare reform measures, adoption of new accounting standards affecting
the medical device industry, changes in financial estimates by securities
analysts, general market conditions and other factors. In addition, the stock
market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stocks of early stage companies. These broad market fluctuations may
materially and adversely affect the market price of the Common Stock. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been
brought against that company. Such litigation, if brought against the
Company, could result in substantial costs and a diversion of management's
attention and resources.
CONCENTRATION OF SHARE OWNERSHIP
The present directors and executive officers of the Company and their
affiliates beneficially own approximately 38% of the outstanding Common
Stock. As a result, these shareholders will be able to exercise significant
influence over matters requiring shareholder approval, including the election
of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.
15
<PAGE>
POTENTIAL NEED FOR ADDITIONAL CAPITAL
Although the Company anticipates that its current cash balances, together
with sales of products for investigational use, will be sufficient to meet
the Company's capital requirements through at least June, 1998, there can be
no assurance that the Company will not require additional sources of cash at
an earlier date. This will depend upon the progress of expansion of the
Company's clinical trials and any need for additional trials or other testing
of the Company's products, and the timing of required expenditures. If the
Company is required to obtain additional financing in the future, there can
be no assurance that capital will be available on terms acceptable to the
Company, if at all.
16
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material litigation outside of
the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit
-------
See page 18 for Exhibit 11.1, Statement Regarding Computation of
Net Loss Per Share.
b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the nine
month period ended September 30, 1997.
17
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
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.
ECLIPSE SURGICAL TECHNOLOGIES, INC.
Registrant
Date: November 13, 1997 /s/ Douglas Murphy-Chutorian, M.D.
-----------------------------------
Douglas Murphy-Chutorian, M.D.
Chief Executive Officer
Date: November 13, 1997 /s/ Barbara A. Dreblow
-----------------------------------
Barbara A. Dreblow
Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE>
ECLIPSE SURGICAL TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit
Number
- -------
11.1 Statement Regarding Computation of Net Loss Per Share ............20
<PAGE>
EXHIBIT 11.1
ECLIPSE SURGICAL TECHNOLOGIES, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding for the
period ............................................. 16,441 15,775 16,303 12,690
Common equivalent shares pursuant to Staff
Accounting Bulletin No. 83.......................... - - - 1,516
-------- -------- --------- --------
Shares used in per share calculations................. 16,441 15,775 16,303 14,206
-------- -------- --------- --------
-------- -------- --------- --------
Net loss.............................................. $(4,516) $ (674) $(13,015) $(1,328)
-------- -------- --------- --------
-------- -------- --------- --------
Net loss per share.................................... $ (0.27) $ (0.04) $ (0.80) $ (0.09)
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>
All share numbers reflect the Company's three-for-one stock split.
There is no difference between primary and fully diluted earnings per
share for each period presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ECLIPSE
SURGICAL TECHNOLOGIES, INC. FORM 10-Q 09/30/97 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 21,223
<SECURITIES> 18,077
<RECEIVABLES> 2,185
<ALLOWANCES> (631)
<INVENTORY> 3,549
<CURRENT-ASSETS> 781
<PP&E> 2,540
<DEPRECIATION> (881)
<TOTAL-ASSETS> 47,131
<CURRENT-LIABILITIES> 3,980
<BONDS> 0
0
0
<COMMON> 43,136
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47,131
<SALES> 1,401
<TOTAL-REVENUES> 1,401
<CGS> 721
<TOTAL-COSTS> 721
<OTHER-EXPENSES> 5,815
<LOSS-PROVISION> 631
<INTEREST-EXPENSE> (13)
<INCOME-PRETAX> (4,516)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,516)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> 0
</TABLE>
