<PAGE> 1
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 fiscal quarter ended: September 30, 1996 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: 0-19806
CYBERONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 776-0236465
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17448 Highway 3, Suite 100
Webster, Texas 777598-4135
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (713) 332-1375
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 suc 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, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 7, 1996
Common Stock - $0.01 par value 11,762,542
<PAGE> 2
CYBERONICS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets
September 30, 1996 (unaudited) and June 30, 1996 3
Consolidated Statements of Operations (unaudited)
three months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited)
three months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CYBERONICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------ ------------
(UNAUDITED)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 10,570,401 $ 2,121,930
Accounts receivable 439,691 473,038
Inventories 997,675 671,836
Prepaid expenses 111,472 258,585
------------ ------------
Total current assets 12,119,239 3,525,389
Securities held to maturity 43,687 80,032
Property and equipment, net 325,529 332,881
Other assets, net 9,863 9,741
------------ ------------
$ 12,498,318 $ 3,948,043
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 565,106 $ 924,059
Accrued liabilities 989,845 1,558,934
------------ ------------
Total current liabilities 1,554,951 2,482,993
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized; no shares
issued or outstanding -- --
Common stock, $.01 par value, 25,000,000 shares authorized; 11,762,542 and
9,577,115 shares issued and outstanding at September 30, 1996 and June 30,
1996, respectively 117,625 95,771
Additional paid-in capital 50,588,538 39,261,602
Deferred compensation (1,784) (4,460)
Accumulated deficit (39,714,692) (37,922,171)
Cumulative translation adjustments (46,320) 34,308
------------ ------------
Total stockholders' equity 10,943,367 1,465,050
------------ ------------
$ 12,498,318 $ 3,948,043
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 4
CYBERONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net sales ................................. $ 284,943 $ 192,310
Cost of goods sold ........................ 69,291 56,060
------------ ------------
Gross profit .............................. 215,652 136,250
Operating expenses:
Research and development ................ 1,426,985 1,909,576
Selling, general and administrative ..... 810,250 505,069
------------ ------------
Total operating expenses ............ 2,237,235 2,414,645
------------ ------------
Loss from operations ...................... (2,021,583) (2,278,395)
Interest income, net ...................... 147,327 153,018
Other income (expense) .................... 81,735 (4,187)
------------ ------------
Net loss .................................. $ (1,792,521) $ (2,129,564)
============ ============
Net loss per share ........................ $ (0.16) $ (0.22)
============ ============
Shares used in computing net loss per share 11,216,235 9,500,209
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 5
CYBERONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ............................................................... $ (1,792,521) $ (2,129,564)
Non-cash items included in net loss:
Depreciation and amortization ........................................ 44,105 55,042
Compensation expense related to certain stock options and common stock
issuances .......................................................... 2,676 22,800
Change in operating assets and liabilities:
Accounts receivable .................................................. 33,347 (72,217)
Inventories .......................................................... (325,839) (45,059)
Prepaid expenses ..................................................... 147,113 53,100
Accounts payable and accrued liabilities ............................. (928,042) 322,453
------------ ------------
Net Cash Used In Operating Activities .............................. (2,819,161) (1,793,445)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................................... (36,753) (16,792)
Purchases of investments ............................................... -- (2,393,740)
Maturities of investments .............................................. 36,345 679,302
------------ ------------
Net Cash Used In Investing Activities .............................. (408) (1,731,230)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, net ............................ 11,348,790 4,203
Payments of capital lease obligations .................................. -- (23,875)
Other .................................................................. (122) 312
------------ ------------
Net Cash Provided By (Used In) Financing Activities ................ 11,348,668 (19,360)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ............. (80,628) (9,606)
------------ ------------
Net increase (decrease) in cash and cash equivalents ............... 8,448,471 (3,553,641)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD ........................ 2,121,930 8,862,993
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD .............................. $ 10,570,401 $ 5,309,352
============ ============
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 6
CYBERONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the full
year ended June 30, 1997. The financial information presented herein should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1996.
NOTE 2 - INVESTMENT SECURITIES:
At September 30, 1996 and June 30, 1996, the Company's entire
investment portfolios consisted of securities held to maturity. Securities held
to maturity are primarily various types of corporate bonds and asset-backed
investments with various maturity dates over the next 18 months and have a fair
market value of $43,934 and a gross unrealized holding gain of $247 at September
30, 1996.
NOTE 3 - REVENUE RECOGNITION:
Revenue from product sales is generally recognized upon shipment to the
customer. Net sales for the three months ended September 30, 1996 were derived
entirely from international markets. Domestic sales have depended entirely upon
the Company conducting clinical trial activities under arrangements with certain
investigational centers, some of which receive research funding from the
Company. Arrangements with certain investigational centers employ risk-sharing
provisions. Domestic sales made under risk-sharing arrangements are deferred
until the Company receives payment from the centers and the centers in turn
receive third-party reimbursement or satisfy other terms set forth in their
respective arrangements.
NOTE 4 - INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ -------------
(UNAUDITED)
<S> <C> <C>
Raw materials and components $371,202 $307,707
Work-in-process ............ 404,139 227,821
Finished goods ............. 222,334 136,308
-------- --------
$997,675 $671,836
======== ========
</TABLE>
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<PAGE> 7
NOTE 5 - ACCRUED LIABILITIES:
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ -------------
(UNAUDITED)
<S> <C> <C>
Clinical costs ............... $ 385,878 $ 618,885
Payroll and other compensation 147,932 257,468
Professional services ........ 149,019 209,540
Customer deposits ............ 48,916 48,916
Warranties ................... 178,928 167,778
Marketing activities ......... -- 155,526
Other ........................ 79,172 100,821
---------- ----------
$ 989,845 $1,558,934
========== ==========
</TABLE>
NOTE 6 - STOCKHOLDERS' EQUITY:
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
and a related Common Stock Purchase Agreement (the "Stock Purchase Agreement")
between Cyberonics and St. Jude Medical, Inc. ("St. Jude"), on July 23, 1996,
Cyberonics sold to St. Jude 2,181,818 newly-issued shares of Cyberonics Common
Stock at $5.50 per share, netting cash proceeds to Cyberonics of approximately
$11,300,000 after offering costs.
On October 18, 1996, St. Jude's right under the terms of the Merger
Agreement to acquire all remaining outstanding shares of Cyberonics for
$72,090,669 expired unexercised.
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to the Summary section and financial
statement line item discussions set forth in Management's Discussion and
Analysis of Financial Condition and Results of Operations. Readers are also
encouraged to refer to the Company's Annual Report on Form 10-K for a further
discussion of the Company's business and the risks and opportunities attendant
thereto.
SUMMARY
Cyberonics was founded in 1987 to design, develop and bring to market
medical devices which provide a novel therapy, vagus nerve stimulation, for the
treatment of epilepsy and other debilitating neurological disorders. Clinical
trials of the Company's investigational NeuroCybernetic Prosthesis ("NCP(R)
System") began with the first patient implant in November 1988 under an
Investigational Device Exemption ("IDE") from the United States Food and Drug
Administration ("FDA"). The Company has been unprofitable to date, has no
significant revenues and expects to incur operating losses through the next
several years due to continuing requirements for research and development
activities (including product and process development and clinical trials and
related regulatory activities), sales and marketing activities and manufacturing
start-up. For the period from inception through September 30, 1996, the Company
had incurred a cumulative net deficit of approximately $39.7 million.
Cyberonics is continuing the clinical testing of the NCP System under
its IDE from the FDA. In January 1994, the Company announced that its amended
PMA application was accepted for filing by the FDA. While the amended PMA
application has been accepted for filing, the FDA further informed the Company
that, based on its initial scientific review of the amended PMA application,
there were "significant deficiencies" in the submission and that an amendment
containing certain additional clinical and technical information must be
provided before the regulatory review process could continue.
In response to further discussions with the FDA, the Company announced
in July 1994 that it would initiate an additional confirmatory U.S. clinical
trial for the NCP System. Based on these discussions with the FDA, this study is
an additional requirement of the FDA's regulatory approval process for the NCP
System for the treatment of epilepsy patients experiencing refractory partial
seizures.
In January 1995, the Company announced that it had received permission
to begin enrolling patients into its additional confirmatory trial, under which
an additional 265 patients were targeted for enrollment at 20 major
investigational centers in the United States. In August 1996, the final patient
completed the confirmatory trial. Submission of the final data to the FDA is
expected to take place in early calendar 1997, although it may take longer.
There can be no assurance that the Company will adequately address the
concerns raised by the FDA, or that additional concerns will not be raised by
the FDA in the future. The timing of the PMA approval process is unpredictable
and there can be no assurance as to when or whether the Company will receive
pre-market approval. The Company is currently clinically testing the NCP System
under an IDE from the FDA and cannot commence marketing or commercial sales of
the NCP System in the United States until it receives pre-market approval from
the FDA. The Company's business, financial condition and results of operations
are critically dependent upon receiving FDA approval of the Company's PMA
application.
-8-
<PAGE> 9
Cyberonics is pursuing government and third-party reimbursement
approvals for the NCP System in the United States and in international markets.
The Company believes that such approvals will be critical to market acceptance
of the NCP System when and if regulatory approvals are obtained. There can be no
assurance that third-party reimbursement will be available to enable the Company
to successfully market the NCP System in the United States when and if the
Company's PMA is approved or, if available, that the level of reimbursement will
be sufficient to enable the Company to sell the NCP System on a profitable
basis.
The health-care industry in the United States is undergoing substantial
reform, and there is substantial uncertainty and turmoil surrounding the issues
of funding, reimbursement and regulatory approval. While the Company believes
that the NCP System will be favorably viewed in the context of the changing
health-care industry, there can be no assurances that the pending health-care
reforms will not adversely affect regulatory or reimbursement approvals for the
NCP System. The Company does not expect to achieve significant sales unless and
until both regulatory and reimbursement approvals are obtained for the NCP
System and even if such approvals are obtained, there can be no assurance the
Company will achieve significant sales.
In June 1994, the Company was granted regulatory approval to market the
NCP System in the original twelve-member countries of the European Union after
having obtained "CE marking," the designation of market approval now universally
accepted by all European Union member countries. The Company has obtained
government and third-party reimbursement approval in certain of the European
Union member countries and is continuing to pursue full reimbursement approval
for substantially all of the remaining European Union member countries. The
Company does not believe that significant sales volume can be generated without
full reimbursement approval. There can be no assurances as to when or whether
such reimbursement will be obtained in any of these European Union member
countries or, if obtained, whether the levels of reimbursement will be
sufficient to enable the Company to sell the NCP System on a profitable basis.
The Company believes that existing and future antiepileptic drug
compounds will be the primary competition for its NCP System, although the
Company could also face competition from other medical devices. Three new
antiepileptic drugs, felbamate, gabapentin and lamotrigine recently received FDA
approval. No other major antiepileptic drugs have been introduced in the United
States since 1978. In August 1994, the manufacturer of felbamate announced that,
in conjunction with recommendations from the FDA, it was advising that patients
be withdrawn from the drug based on reports of serious complications. There can
be no assurance that the NCP System will achieve market acceptance for the
treatment of epilepsy or any other indication.
The Company relies upon sole source suppliers for certain of the key
components and materials used in its products. The Company routinely experiences
discontinuation or unavailability of components and materials requiring
qualification of alternative sources or, if no such alternative sources are
identified, product design changes. Qualifying alternative sources and
redesigning products can be time consuming. In addition, such changes generally
require regulatory submissions and approvals. Specifically, the Company is aware
of future product design changes that will be required to incorporate a new
battery and microprocessor into the NCP Generators' circuitry. Although the
Company believes that these changes will be made without disruption, any
extended delays in or inability to secure alternate sources for these or other
components and materials could result in product supply and manufacturing
interruptions which 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.
LIQUIDITY AND CAPITAL RESOURCES
From inception through February 1993 the Company financed its
operations primarily through private placements of its securities and had raised
approximately $16.5 million in net proceeds. In February 1993, the
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<PAGE> 10
Company completed an initial public offering of 2,000,000 shares of its Common
Stock, generating net proceeds to the Company of approximately $22 million.
Additionally, through June 30, 1996, the Company has funded approximately
$530,000 of its equipment needs with proceeds from an equipment lease agreement.
As further described below, in July 1996 the Company raised an additional $11.3
million net of offering costs in a sale of 2,181,818 shares of its Common Stock
to St. Jude Medical, Inc. The Company had no short- or long-term borrowings
outstanding at June 30, 1996, and has no credit facilities available at this
time.
The Company expects to incur substantial additional costs related to
clinical trials and regulatory activities, expansion of manufacturing
capabilities, sales and marketing activities associated with preparation for
United States and international market entry and product and process
development. In addition, if regulatory and reimbursement approvals are
obtained, the Company will incur substantial marketing and distribution
expenses. The amount and timing of anticipated expenditures will depend upon
numerous factors both within and outside of the Company's control. Factors
within the Company's control include the nature and timing of additional
clinical trials for partial seizures and for other indications, and the nature
and timing of marketing and sales activities. Factors affecting the amount and
timing of expenditures which are largely beyond the Company's control include
the clinical trial and regulatory activities associated with the Company's
effort to obtain FDA approval of its PMA application for partial seizures.
Moreover, even if the Company obtains PMA approval for the NCP System for
partial seizures, the Company's ability to generate income from operations will
be dependent upon obtaining reimbursement approval from government and
third-party payors as well as receiving market acceptance for the NCP System.
Therefore, while the Company believes that its current resources will be
sufficient to fund its operations at least through its current fiscal year
ending June 30, 1997, the Company will require additional funds after that date.
On April 8, 1996, the Company and St. Jude Medical, Inc. ("St. Jude")
entered into an Agreement and Plan of Merger (the "Merger Agreement') and a
Common Stock Purchase Agreement (the "Stock Purchase Agreement"). Pursuant to
the Stock Purchase Agreement, upon approval of the Merger Agreement by holders
of a majority of the Company's outstanding Common Stock, St. Jude agreed to
purchase 2,181,818 shares of the Company's newly-issued Common Stock at $5.50
per share, representing a cash investment in the Company of $12 million before
deducting commissions and other offering costs. On July 23, 1996, Cyberonics
shareholders approved the Merger Agreement and the Stock Purchase Agreement, the
stock purchase was completed, and St. Jude provided the Company with cash
proceeds totaling approximately $11.3 million net of commission and other
offering costs. The Company believes that the proceeds from this investment will
be sufficient to fund its operations as an independent entity through at least
June 30, 1997. The availability of financing at that time will depend upon a
number of important factors, including the state of the United States capital
markets and economy in general and the health care and medical device segments
in particular, the status of the Company's international sales activities and
the status of the Company's clinical and regulatory activities. There can be no
assurance that the Company will be able to raise such capital when needed or
that the terms upon which capital will be available will be favorable to the
Company.
In addition to providing the Company with approximately $11.3 million
of additional capital, the Merger Agreement further gave St. Jude the right, but
not the obligation, to acquire the Company on or before October 18, 1996 in a
merger pursuant to which the holders of Company Common Stock (other than St.
Jude) would receive cash totaling approximately $72 million. On October 18,
1996, St. Jude's right to acquire the Company expired unexercised.
The Company's liquidity will continue to be reduced as amounts are
expended for continuing clinical trials and related regulatory affairs,
manufacturing start-up, product and process development, and expansion of sales
and marketing activities. While not currently anticipated, the Company's
liquidity could also be substantially reduced if significant amounts were
expended for additional facilities and equipment.
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<PAGE> 11
RESULTS OF OPERATIONS
Net Sales. Cyberonics has been granted regulatory approval to market
and sell the NCP System internationally in the original twelve member countries
of the European Union (the United Kingdom, Germany, The Netherlands, France,
Spain, Italy, Belgium, Denmark, Greece, Portugal, Ireland and Luxembourg) and
has permission to sell in certain other international markets including Sweden,
Norway, Finland, Switzerland, Israel, Australia, South Africa, Hong Kong and
China. Cyberonics is engaged in obtaining reimbursement approvals from the
various health care provider systems that exist in these countries and has
received partial or complete reimbursement approvals in a number of these
markets. During the year ending June 30, 1997, the Company expects that the
substantial majority of its net sales will be generated from its international
markets, the extent of which will depend, in part, on the success of future
efforts to obtain broader international reimbursement approval and additional
countries' regulatory approvals.
In the United States, the Company has permission from the FDA to sell
the NCP Systems used in clinical trials for up to $6,000 per system. Given the
experimental nature of the device, the Company believes that widespread
reimbursement from government and third party payors is unlikely in connection
with its clinical studies. Therefore, the Company has not aggressively sought to
sell the NCP Systems used in the clinical studies. The Company does not expect
to achieve significant sales unless and until both regulatory and reimbursement
approvals are obtained for the NCP System.
Net sales for the three months ended September 30, 1996 totaled
$284,943 compared to $192,310 for the three months ended September 30, 1995.
Domestic sales depend entirely upon the Company conducting clinical trial
activities under arrangements with certain investigational centers, some of
which receive research funding from the Company. Domestic sales made in
connection with such clinical studies have been limited to date and are expected
to be minimal in the future as the Company has completed its confirmatory
clinical trial and is not presently seeking reimbursement for implants
associated with any other United States trial activity at this time.
Arrangements with certain investigational centers employ risk-sharing
provisions. Domestic sales made under risk-sharing arrangements are deferred
until Cyberonics receives payment from the centers and the centers in turn
receive third-party reimbursement or satisfy other terms set forth in their
respective arrangements. Net sales for the three months ended September 30, 1996
were derived entirely from international markets.
Gross Profit. In determining gross profit, cost of sales is calculated
primarily to include the acquisition cost of raw materials and components,
direct labor and allocated manufacturing overhead. Direct labor and overhead
constitute a substantial majority of cost of sales. The Company is obligated to
pay royalties ranging from 7% to 7.75% on the first $12 million in net sales,
and from 4% to 4.75% thereafter. Minimum royalty obligations under the Company's
license agreements totaled $46,000 during each of the years ended June 30, 1996,
1995 and 1994, and will continue at or above this level in future years.
Royalties up to the minimum amount are presently classified as research and
development expenses while amounts exceeding this minimum are included as a
component of the Company's cost of sales.
The Company's gross margin percentage was 75.7% for the three months
ended September 30, 1996 compared to 70.8% for the prior year period. The
improvement is attributable primarily to a shift in sales mix entirely toward
international markets and their higher average selling prices, combined with
reduced production costs for the NCP System related to the efficiencies of
higher unit volumes. Continued fluctuations in gross margin percentages can be
expected prior to the Company achieving commercial levels of production volume,
particularly if the Company continues to experience period-to-period changes in
unit production.
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<PAGE> 12
Research and Development Expenses. Research and development expenses
are comprised of both expenses related to the Company's product and process
development efforts and expenses associated with conducting clinical trials and
certain related regulatory activities. Research and development expenses totaled
$1,426,985 and $1,909,576 during the three months ended September 30, 1996 and
1995, respectively. The decreased level of research and development expenditures
is attributable primarily to the recent completion of the Company's confirmatory
clinical trial, which was at its peak level of activity during fiscal 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaled $810,250 and $505,069 during the three months
ended September 30, 1996 and 1995, respectively. The continued increases from
year to year were primarily due to expanded international market development and
marketing activities. The Company expects to incur higher selling, general and
administrative expenses in developing its international market and in
anticipation of regulatory and reimbursement approvals for the NCP System, and
expects these expenses to increase significantly when and if such approvals are
obtained.
Interest Income, net. Net interest income totaled $147,327 and $153,018
during the three months ended September 30, 1996 and 1995, respectively. Due to
the July 1996 equity investment totaling net proceeds of $11.3 million from St.
Jude, the Company expects to have interest income that will partially offset
operating losses for several fiscal quarters. Interest income for the three
months ended September 30, 1996 was lower in comparison with the prior year
period due to lower average levels of invested funds.
Other Income (Expense), net. Other income (expense) totaled $81,735 and
$(4,187) during the three months ended September 30, 1996 and 1995,
respectively. For each of these periods, other income (expense) consisted of net
gains and losses resulting from foreign currency transactions.
Income Taxes. Due to its net operating loss history, to date the
Company has incurred no income tax expense for financial reporting purposes.
Current federal income tax regulations with respect to changes in ownership
could limit the utilization of the Company's net operating loss carryforwards.
Effect of Inflation. The Company believes that inflation has not had a
material impact on its operating or financial ratios during the three months
ended September 30, 1996 as compared to the prior year period.
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<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 1996, the Company
solicited stockholder approval at a Special Meeting of
proposals (i) to approve an Agreement and Plan of Merger
between the Company and St. Jude Medical, Inc. (the "Merger
Agreement") and (ii) the issuance and sale to St. Jude
Medical, Inc. of up to 2,181,818 shares of Common Stock (the
"Stock Sale"). The stockholder vote on the proposals was as
follows:
<TABLE>
<CAPTION>
For Against Abstain Nonvote
--- ------- ------- -------
<S> <C> <C> <C> <C>
The Merger Agreement: 8,005,416 126,487 730 --
The Stock Sale: 8,086,253 43,650 2,730 --
</TABLE>
As described elsewhere herein, St. Jude's option to acquire
all of the outstanding stock of the Company expired
unexercised on October 18, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1996.
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<PAGE> 14
SIGNATURE
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.
CYBERONICS, INC.
Registrant
BY: /s/ JOHN K. BAKEWELL
------------------------------------------------
John K. Bakewell
Vice President, Finance and Administration and
Chief Financial Officer (principal financial and
accounting officer)
Dated: November 13, 1996
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<PAGE> 15
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,570,401
<SECURITIES> 43,687
<RECEIVABLES> 439,691
<ALLOWANCES> 0
<INVENTORY> 997,675
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0
0
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</TABLE>
