August 14, 1996
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: EndoSonics Corporation (the "Company") Report
on Form 10-Q for the Quarter Ended June 30, 1996
Commission File No. 0-19880
Ladies and Gentlemen,
On behalf of the Company, enclosed via electronic filing,
please find the Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1996.
A manually executed copy of the enclosed Form 10-Q and two
(2) additional conformed copies are simultaneously being
forwarded to the National Association of Securities Dealers, Inc.
Should you have any questions regarding this matter, please
do not hesitate calling me at (510) 734-0464.
Yours very truly,
Donald D. Huffman
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the Quarter Ended June 30, 1996
[ ] 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 0-19880
ENDOSONICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 68-0028500
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
6616 Owens Drive, Pleasanton, California 94588
(Address of principal executive offices)
Registrant's telephone number, including area code (510) 734-0464
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
On June 30, 1996, the registrant had outstanding 13,467,168
shares of Common Stock of $.001 par value, which is the
registrant's only class of Common Stock.
This report on Form 10-Q including all exhibits, contains 19
pages.
ENDOSONICS CORPORATION
Form 10-Q
Second Quarter
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated balance sheets at
June 30, 1996 and December 31,
1995............................... 3
Consolidated statements of operations for the
three months and six months ended
June 30, 1996 and 1995............. 4
Condensed consolidated statements of cash
flows for the six months ended June
30, 1996 and 1995.................. 5
Notes to condensed consolidated financial
statements......................... 6
Item 2. Management's discussion and analysis of financial
condition and results of operation.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................. 16
Signatures................................................ 18
Exhibits.................................................. 19
ENDOSONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
June 30, December 31,
1996 1995
_______ ___________
ASSETS
Current assets:
Cash and cash equivalents $33,515 $36,757
Short-term investments 5,345 7,638
Trade accounts receivable, net 5,833 5,852
Inventories 3,419 4,046
Accrued interest receivable and other 1,014 973
current assets 2,583 --
Receivable from Cardiovascular Dynamics
Total current assets 51,709 55,266
Property and equipment, net 1,397
Investment in Cardiovascular Dynamics, Inc. 21,114 1,687
_______ _______
$74,220 $56,953
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $6,880 $5,394
Deferred distributorship fee revenue 14 154
Convertible obligation -- 750
Minority interest -- 2,500
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value
5,000,000 shares authorized, no shares - -
issued and outstanding
Common stock, $.001 par value; 25,000,000
shares authorized as of June 30, 1996 and
December 31, 1995; and 13,467,168 and
12,831,512 shares issued and outstanding
as of June 30, 1996 and December 31, 1995,
respectively
14 13
Additional paid-in capital 123,864 98,989
Accumulated deficit (56,464) (50,837)
Unrealized loss on available-for-sale (45) (7)
securities
Foreign currency translation (43) (3)
_______ _______
Total stockholders' equity 67,326 48,155
_______ _______
$74,220 $56,953
======= =======
See accompanying notes
ENDOSONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Total revenue $7,101 $4,048 $12,773 $6,770
Cost of sales 5,306 2,428 8,802 4,696
______ ______ _______ ______
Gross profit 1,795 1,620 3,971 2,074
Operating expenses:
Acquired in-process research, - 488 - 488
development and clinical
Other research, development 2,232 2,244 3,845 4,036
and clinical
Marketing and sales 2,139 1,350 3,694 2,515
General and administrative 1,806 973 2,662 1,923
Restructuring 518 - 518 -
_____ _____ ______ _____
Total operating expenses 6,695 5,055 10,719 8,962
______ ______ ______ ______
Loss from operations (4,900) (3,435) (6,748) (6,888) (6,748)
Equity in Earnings (Loss) of
Subsidiary (49) - (49) -
Other income (expense):
Interest income 595 136 1,186 334
Distributorship fees and other (34) 18 (16) 40
____ ____ ____ ____
Total other income 561 154 1,170 374
_______ _______ _______ _______
Net loss ($4,388) ($3,281) ($5,627) ($6,514)
======== ======== ======== ========
Net loss per share ($.33) ($.33) ($.42) ($.65)
Shares used in the calculation
of net loss per share 13,448,205 10,027,619 13,271,181 10,007,385
</TABLE>
See accompanying notes
ENDOSONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
_______ _______
Cash flows from operating activities
<S> <C> <C>
Net loss ($5,627) ($6,514)
Adjustments to reconcile net loss to
net cash used in operating activities:
Non-cash in-process R & D -- 488
Depreciation and amortization 345 361
Amoritization of deferred 57
compensation
Net changes in :
Operating assets (605) (1,459)
Operating liabilities and
deferred revenue 1,346 (289)
Net cash used in _______ ________
operating activities (4,484) (7,413)
Cash flows from investing activities:
Purchase of short-term investments (11,859)
Sales of short-term investments 158 2,930
Maturities of short-term investments 14,032 2,083
Impact of CVD IPO (7,337) --
Capital expenditures for property
and equipment (635) (292)
________ _______
Net cash provided by (5,641) 4,721
investing activities
Cash flows from financing activities:
Proceeds from common stock issuance 5,000 --
to Cordis Corp.
Proceeds from exercise of options 2,033 278
Deferred Compensation (150)
Net cash provided by _______ ______
financing activities (6,883) 278
Net (decrease) increase in cash and (3,242) (2,414)
equivalents
Cash and equivalents, beginning of period 36,757 4,862
_______ ______
Cash and equivalents, end of period $33,515 $2,448
======= ======
</TABLE>
See accompanying notes.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. Summary of Significant Accounting Policies
The interim financial information is unaudited. In the opinion
of management of EndoSonics Corporation ("Endosonics" or the
"Company", the condensed consolidated financial statements
included in this report reflect all adjustments necessary,
consisting only of normal recurring adjustments, to present
fairly the Company's consolidated financial position at June 30,
1996 and the consolidated results of its operations and cash
flows for the three and six month periods ended June 30, 1996,
and 1995. Results for the interim are not necessarily indicative
of consolidated results to be expected for the entire fiscal
year. These financial statements should be read in conjunction
with the Company's audited financial statements for the year
ended December 31, 1995, contained in the Company's Annual Report
on Form 10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of
Endosonics Corporation (the "Company"), a Delaware Corporation,
and its wholly owned and majority owned subsidiaries, All
significant intercompany accounts and transactions have been
eliminated. Investments in unconsolidated subsidiaries, and
other investments in which the Company has a 20% to 50% interest
or otherwise has the ability to excercise significant influence,
are accounted for under the equity method (see Note 4).
Investments
In accordance with SFAS 115, the Company has divided its
investment portfolio into held-to-maturity and available-for-sale
categories. Unrealized losses on available-for-sale securities
are recorded as a separate component of shareholders' equity.
2. Inventories
Inventories are stated at the lower of cost, determined on an
average cost basis, or market value. Inventories consist of the
following:
June 30, December 31,
1996 1995
______ ______
Raw materials $1,445 $1,225
Work-in-process 1,128 1,575
Finished goods 846 1,246
______ ______
Total $3,419 $4,046
====== ======
3. Computation of net loss per share
Net loss per share is computed using the weighted average number
of shares of common stock outstanding. Common equivalent shares
from stock options are excluded from the computation because
their effect is antidilutive.
4. Change in ownership percentage of Cardiovascular Dynamics,
Inc.
On June 19, 1996, EndoSonics' 84% owned subsidiary,
Cardiovascular Dynamics, Inc. (CVD) successfully completed an
Initial Public Offering (IPO) of 3,400,000 shares of common stock
at $12.00 per share, followed by an additional 510,000 shares
issued in July 1996 (over-allotment option granted to CVD's
underwriters). EndoSonics currently owns 46% of the outstanding
shares of CVD (49% as of June 30, 1996). As a result of this
transaction, CVD's results of operations have been consolidated
through June 19, 1996, and accounted for on the equity method
thereafter. In June 1996, the Company recorded an increase to
additional paid-in capital of approximately $21 million
representing the Company's proportionate share of CVD's net
assets following the IPO. Condensed financial information for
CVD is shown below:
BALANCE SHEET INFORMATION
(Unaudited) June 30,
(In thousands) 1996
Current assets $48,549
Property and equipment, net 578
Other assets 46
_______
Total assets $49,173
=======
Current liabilities $ 5,464
Deferred distributorship fee revenue 54
Convertible obligation 750
Stockholders' equity 42,905
Total liabilities and ________
stockholders' equity $ 49,173
=======
EndoSonics' share of net assets $ 21,114
========
STATEMENT OF OPERATIONS
(Unaudited)
(In thousands) Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
Total revenue $1,801 $3,834
Cost of sales 921 1,863
Gross profit 880 1,971
______ ______
Total operating expenses 1,724 3,219
Loss from operations (844) (1,248)
Other income (expense) 74 101
_______ ________
Net Loss ($770) ($1,147)
====== ========
Cardiovascular Dynamics, Inc.'s stock is quoted on The Nasdaq
Stock Market. The closing price of CVD's stock at June 30, 1996
was $ 12.25 per share. The Company held 4,040,000 shares of
CVD's common stock at June 30, 1996.
5. The Components of the Consolidated Statement of Operations assuming CVD
had been consolidated through June 30, 1996 are as follows:
(Unaudited)
(In Thousands) Three months ended June 30, 1996
IVUS CVD Consolidated
______ ______ ______
Total revenue $5,300 $1,801 $7,101
Cost of sales 4,385 921 5,306
_____ ______ ______
Gross profit 915 880 1,795
Operating expenses:
Other research, development
and clinical 1,430 802 2,232
Marketing and sales 1,527 710 2,237
General and administrative 1,594 212 1,806
Restructuring 518 -- 518
_____ _____ _____
Total operating expense 5,069 1,724 6,793
_____ _____ _____
Loss from operations (4,154) (844) (4,998)
Other income (expense):
Interest income 533 62 595
Other income (expense) (46) 12 (34)
Total other income 487 74 561
_______ ______ ________
Net Loss ($3,667) ($770) ($4,437)
======== ====== ========
(Unaudited)
(In Thousands) Six months ended June 30, 1996
IVUS CVD Consolidated
______ ______ ____________
Total revenue $8,939 $3,834 $12,773
Cost of sales 6,939 1,863 8,802
Gross profit 2,000 1,971 3,971
Operating expenses:
Other research, development
and clinical 2,416 1,429 3,845
Marketing and sales 2,505 1,287 3,792
General and administrative 2,159 503 2,662
Restructuring 518 -- 518
_____ _____ ______
Total operating expenses 7,598 3,219 10,817
_____ _____ ______
Loss from operations (5,598) (1,248) (6,846)
Other income (expense):
Interest income 1,113 73 1,186
Other income (expense) (44) 28 (16)
______ ____ ______
Total other income 1,069 101 1,170
Net Loss ($4,529) ($1,147) ($5,676)
======== ======== ========
The results of operations for IVUS include restructuring and
other charges of approximately $3.1 million in connection with
the consolidation of the Company's IVUS manufacturing operations
and with the start-up production of the new Five/64 imaging
devices. (See Note 6.)
6. Restructuring and Other Charges
In June 1996, the Company recorded restructuring and other
charges of approximately $3.1 million in connection with the
consolidation of the Company's IVUS manufacturing operations and
with the start-up production of the new Five/64 imaging devices.
The elements of the total charges as of June 30, 1996 are as
follows:
(In Thousands)
Representing
Asset Future
Provision Write-Downs Cash Outlays
Consolidation of facilities $ 994 $ 994
Conversion to new technology 1,849 $808 1,041
Corporate reorganization 223 223
________ ____ ______
$ 3,066 $808 $2,258
======= ==== ======
The charges are included in the accompanying Consolidated
Statements of Operating as follows:
(In Thousands)
1996
_____________
Cost of sales $ 794
Other research, development and clinical 475
Marketing and sales 480
General and administrative 799
Restructuring 518
____________
Total charges $ 3,066
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Since inception in 1984, Endosonics has engaged primarily in the
research and development, manufacture and sale of products for
the diagnosis and treatment of cardiovascular disease. The
Company's financial results will be affected in the future by
several factors, including the timing of any FDA approval to
market the Company's products, FDA approval of IDE sites and the
number of patients permitted to be treated, future changes in
government regulations and third party reimbursement policies
applicable to the Company's products, the revenue mix of Oracle
imaging systems and catheters, the progress of competing
technologies, and the ability of the Company to develop the
manufacturing and marketing capabilities necessary to support
commercial sales. As a result of these factors, revenue levels,
gross margins and operating results may fluctuate from quarter to
quarter.
This Form 10-Q contains forward looking statements which involve
risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking
statements. Factors that might cause a difference include, but
are not limited to , those discussed elsewhere herein and in the
Company's Annual Report on Form 10-K, in particular under "Future
Operating Results" commencing on page 22 thereof.
Results of Operations
Second quarter of 1996 compared to the same period in 1995
Total Revenue. Revenue for the second quarter of 1996 advanced
75% to $7.1 million compared to $4.0 million for the second
quarter of 1995. The principal reasons for this increase are:
continued growth in demand for intravascular ultrasound (IVUS)
products both in the U.S. and overseas markets; increased sales
through the Company's agreement with Cordis Corporation (now a
subsidiary of Johnson & Johnson); and growth at the Company's
CVD subsidiary which produces non-ultrasound, advanced
therapeutic catheters.
Sales of the Company's all electronic IVUS imaging system and
catheters increased 67% to $5.3 million, as compared to $3.2
million for the second quarter of 1995. CVD increased total
revenues 124% to $1.8 million from $0.8 million in the second
quarter of 1995. CVD's increased revenues were primarily the
result of continued growth in sales of its FOCUS catheters, a
line of advanced therapeutic catheters introduced in 1995.
Cost of Sales. Cost of sales as a percentage of product sales
increased to 77% for the three months ended June 30, 1996 from
64% for the second quarter of 1995. After adjusting for $0.8
million of non-recurring expenses associated the IVUS business
(see Note 6 to Condensed Consolidated Financial Statements), cost
of sales as a percentage of product sales decreased to 63% for
the second quarter of 1996. On this basis, the decrease in cost
of sales as a percentage of product sales for the three months
ended June 30, 1996 was principally the result of improved
manufacturing efficiencies for IVUS products. Gross profit
margins decreased to 25% for the three months ended June 30, 1996
as compared to 40% for the second quarter of 1995. After
adjustments for non-recurring expenses, gross profit margins
increased to 37% in 1996. Due to the uncertainty associated with
continued improvements in the efficiency of the Company's
manufacturing process and the impact of increasingly competitive
pricing, there can be no assurance that the Company's gross
profit margin will be maintained or continue to improve in future
periods. The Company is in the process of establishing a new
manufacturing process and facility for its FIVE-64 catheter line in
Rancho Cordova, California. The Company's gross margins will be
affected during the remainder of 1996 and 1997 by the rate of adoption
FIVE-64 catheter products and the efficiency with which the Company is
able to establish such a process and facility and achieve production
volumes.
Acquired In-process Research, Development and Clinical. Acquired
in-process research, development and clinical expenses decreased
to zero in the three months ended June 30, 1996 from $0.5 million
in the second quarter of 1995. In June 1995, Endosonics recorded
a non-cash charge of $.5 million as the final payment in
connection with the 1993 acquisition of the Company's CVD
subsidiary.
Other Research, Development and Clinical. Other research,
development and clinical remained at $2.2 million for the three
months ended June 30, 1996 as compared with the second quarter of
1995. After adjusting for $0.5 million in non-recurring charges
in 1996 (see Note 6 to Condensed Consolidated Financial
Statements) these expenses dropped 22%. This decrease is due to
a reduction in expenses associated with the Pinnacle Development
Project, offset by continued investment in CVD's infrastructure
to launch and produce its new products.
Marketing and Sales. Marketing and sales expenses increased 58%
to $2.1 million for the three months ended June 30, 1996 from
$1.4 million for the second quarter of 1995. After adjusting for
$0.5 million in non-recurring charges in 1996 (see Note 6 to
Condensed Consolidated Financial Statements) these expenses
increased 23%. This increase is primarily the result of higher
costs associated with increased staffing and marketing programs
in Europe and the United States in support of higher sales
levels. As a percentage of total revenue, marketing and sales
expenses decreased to 30% before adjustments for non-recurring
charges, 23% after adjustments, for the three months ended June
30, 1996 compared to 33% for the three months ended June 30,
1995, due primarily to increased revenues.
General and Administrative. General and administrative expenses
increased 86% to $1.8 million for the three months ended June 30,
1996 from $1.0 million for the three months ended June 30, 1995.
After adjusting for $0.8 million in non-recurring charges for
1996 (see Note 6 to Condensed Consolidated Financial Statements)
these expenses increased 3%. This increase is attributable to an
overall increase the Company's level of operations. As a
percentage of total revenues, general and administrative expenses
increased to 25% before adjustments for non- recurring charges,
and decreased to 14% after adjustments, for the three months
ended June 30, 1996 compared with 24% of total revenue for the
three months ended June 30, 1995 due primarily to increased
revenue.
Restructuring Charges. In the second quarter of 1996 the Company
recorded $0.5 million in restructuring charges in connection with
the consolidation of administrative functions and manufacturing
operations at a new facility in Rancho Cordova, California.
These charges related primarily to lease committments associated
with the Pleasanton facility and the and the decision to obtain
public financing for CVD.
Other Income Net. Other income increased to $0.6 million for the
three months ended June 30, 1996 from $0.2 million for the three
months ended June 30, 1995, due to a higher level of interest
income earned on the proceeds of an equity offering completed in
the fourth quarter of 1995.
Net Loss. Net loss increased to $4.4 million, or $0.33 per
share, for the three months ended June 30, 1996 as compared to a
net loss of $3.3 million, or $0.33 per share, for the three
months ended June 30, 1995. After adjusting for non-recurring
expenses of $3.1 million, net loss was $1.3 million ($0.10 per
share). Weighted average shares outstanding increased by
approximately 3.4 million shares primarily as a result of the
Company's equity offering in the fourth quarter of 1995.
First Six Months of 1996 compared to the same period of 1995
Total Revenue. Total revenue increased 89% to $12.8 million for
the six months ended June 30, 1996 from $6.8 million for the six
months ended June 30, 1995. This increase was principally the
result of an increase in IVUS sales in the United States and
Europe.
Sales of the Company's digital all-electronic IVUS imaging system
and catheters accounted for approximately 70% of total revenue.
Sales of the Oracle Imaging System and catheters were $8.9
million for the six months ended June 30, 1996 compared to $5.2-
million for the six months ended June 30, 1995. The increase is
due both to the growth of the overall market for IVUS imaging
products and increased sales under the Company's distribution
agreements with Cordis and, to a lesser extent, with Fukuda.
Total revenue for CVD was $3.8 million for the six months ended
June 30, 1996 compared to $1.2 million for the six months ended
June 30, 1995. This increase was primarily the result of the
commencement of production and sale of a new line of advanced
therapeutic catheters.
Currently, a majority of the Company's sales of IVUS products
consists of sales of the Company's IVUS imaging systems. The
Company currently anticipates that sales of IVUS imaging
catheters will increase as a percentage of total sales of IVUS
products in future periods as the Company's installed base grows.
For the six months ended June 30, 1996, export sales as a
percentage of total revenue decreased to ---- as compared to 68%
for the six months ended June 30, 1995. The Company currently
anticipates that export sales will continue to represent a
substantial portion of the Company's total revenue in future
periods.
Cost of Sales. Cost of sales as a percentage of product sales
remained the same at 68% for the six months ended June 30, 1996
as compared with the six months ended June 30, 1995. After
adjusting for $0.8 million in non-recurring charges in 1996 (see
Note 6 to Condensed Consolidated Financial Statements) these
expenses decreased to 62% of total revenue. Cost of sales as a
percentage of product sales for the six months ended June 30,
1996 was reduced principally by improved manufacturing
efficiencies. Cost of sales in the first six months of 1995 were
also affected by expenses of $0.7 million related to the
voluntary recall of its Visions IVUS imaging catheters in the
first quarter of 1995 due to manufacturing defects. The recall
negatively impacted the ability of the Company to sell catheters
during the first quarter of 1995 due to production capacity
limitations associated with the replacement of these defective
catheters. Gross product margins were unchanged at 32%, but
improved to 38% after adjustments described above in the six
months ended June 30, 1996 as compared with the six months ended
June 30, 1995. Despite improvements in the efficiency of the
Company's manufacturing processes and the possible impact of
increasingly competitive pricing there can be no assurance that
the Company's gross profit margin will be maintained or continue
to improve in future periods. The Company is in the process of
establishing a new manufacturing process and facility for its
FIVE-64 catheter line in Rancho Cordova, California. The
Company's gross margins will be affected during the remainder of
1996 and 1997 by the rate of adoption of FIVE-64 catheter
products and the efficiency with which the Company is able to
establish such process and facility and achieve production
volumes.
Acquired In-process, Research, Development and Clinical. In June
1995, EndoSonics recorded a non-cash charge of $0.5 million
reflecting the final payment in connection with the 1993
acquisition of CVD.
Other Research, Development and Clinical. Other research,
development and clinical expenses decreased by 5% to $3.8 million
for the six months ended June 30, 1996 from $4.0 million for the
six months ended June 30, 1995. After adjusting for the $0.5
million in non-recurring charges in 1996, (see Note 6 to
Condensed Consolidated Financial Statements) these expenses
decreased 17%, due to a decrease in expenses related to the
Pinnacle Development Project, offset by continued investment in
CVD's infrastructure to launch and produce its new catheters.
Marketing and Sales. Marketing and sales expenses increased 47%
to $3.7 million for the six months ended June 30, 1996 compared
to $2.5 million for the six months ended June 30, 1995. After
adjusting for $0.5 million in non-recurring charges in 1996, (see
Note 6 to Condensed Consolidated Financial Statements) these
expenses increased 28%. This is primarily due to higher costs
associated with increased staffing and marketing programs in
Europe and the United States to support higher sales levels. As
a percentage of total revenue, marketing and sales expenses
decreased to 29%, 25% after adjustments for non-recurring
charges, for the six months ended June 30, 1996 from 37% of total
revenue for the six months ended June 30, 1995 due primarily to
increased revenue.
General and Administrative.
General and administrative expenses increased 38% to $2.7 million
for the six months ended June 30, 1996 from $1.9 million for the
six months ended June 30, 1995. After adjusting for $0.8 million
in non-recurring charges in 1996, (see Note 6 to Condensed
Consolidated Financial Statements) these expenses increased 22%.
This increase is attributable to an overall increase in the
Company's level of operations; however, general and
administrative expenses decreased to 21% of total revenue, 15%
after adjustments for non-recurring charges, for the six months
ended June 30, 1996 from 28% of total revenue for the six months
ended June 30, 1995 due primarily to increased revenue.
Restructuring Charges. In the second quarter of 1996 the Company
recorded $0.5 million in restructuring charges in connection with
the consolidation of its administrative and manufacturing
operations at a new facility in Rancho Cordova, California.
These charges related primarily to lease committments associated
with the Pleasanton facility.
Other Income, Net. Other income increased to $1.2 million for
the six months ended June 30, 1996 from $0.4 million for the six
months ended June 30, 1995, primarily due to a higher level of
interest income earned on the proceeds of an equity offering
completed in the fourth quarter of 1995.
Net Loss. Net loss decreased to $5.6 million, or $0.42 per
share, for the six months ended June 30, 1996 as compared to a
net loss of $6.5 million, or $0.65 per share, for the six months
ended June 30, 1995. After adjusting for non-recurring expenses
of $3.1 million in the second quarter of 1996, net loss decreased
to $2.5 million, ($0.19 per share). Weighted average shares
outstanding increased by approximately 3.3 million, primarily as
a result of the Company's equity offering in the fourth quarter
of 1995.
Liquidity and Capital Resources
On June 30, 1996, the Company had cash and equivalents of
$33,515,000 and short-term investments of $5,387,000. As
reflected in the condensed consolidated statements of cash flows,
the Company's operations continue to result in negative cash
flows. Net cash used in operations was $2,048,000 for the six
months ended June 30, 1996, as compared to $7,413,000 in the
corresponding period in the previous year. The improvement is
due in part to a lower net loss, the receivable from CVD and
increases in current liabilities. The Company expects to incur
substantial additional costs, primarily relating to ongoing
research and development, clinical programs, and increased
marketing efforts, prior to achieving positive cash flow from
operations. Endosonics anticipates using cash resources
generated from product sales and existing cash balances to fund
operations in 1996.
The Company believes its available cash and equivalents, short-
term investment and working capital positions as of June 30,
1996, will be sufficient to meet the Company's operating expenses
and capital requirements through 1997.
Cash Payment for Distribution Rights
On July 28, 1995, CVD received a cash payment of $750,000 from
its Japanese distributor, Fukuda Denshi Co., Ltd. In return for
this cash payment, CVD has awarded Japanese distribution rights
to Fukuda for CVD's new products for peripheral vascular,
neurovascular and non-vascular clinical applications.
Part II.
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders.
The Company's Annual Meeting of Stockholders was held on May 24,
1996. The following actions were taken at this meeting:
Affirmative Negative Votes and Abstentions
Votes Votes Withheld and Broker
Non-votes
a. Ammendment of Option 7,761,608 1,518,418 1,444,052
Plan to increase number
of shares issuable under
the Option Plan by an
additional 1,250,000
shares.
<TABLE>
<CAPTION>
b. Election of Directors
<S> <C> <C> <C>
Thomas J. Cable 10,595,969 134,791
William G. Davis 10,595,569 135,191
Michael R. Henson 10,567,969 162,791
Edward M. Leonard 10,564,963 165,797
Paul R. Norris 10,567,469 163,291
David H. Rammler 10,595,369 135,391
Reinhard J. Warnking 10,595,959 134,791
</TABLE>
c. Ratification of Ernst 10,722,350 2,600 5,810
& Young LLP as
Independent Auditors
ITEM 6. No reports of Form 8-K were filed during the period
a. The following Exhibit is filed herewith:
Exhibit EX-27
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.
ENDOSONICS CORPORATION
/s/
Reinhard Warnking
President and Chief
Executive Officer
Date: August 14, 1996
/s/
Donald D. Huffman
Vice President-Finance and
Chief Financial Officer, and
Principal Accounting Officer
Date: August 14, 1996
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<NAME> EndoSonics Corporation
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