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 September 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 (IRS Employer
incorporated or organization) Identification No.)
2870 Kilgore Road, Rancho Cordova, California 95670
(Address of principal executive offices)
Registrant's telephone number, including area code (916)638-8008
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 September 30, 1996, the registrant had outstanding 13,484,905 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 17 pages.
1
<PAGE>
ENDOSONICS CORPORATION
Form 10-Q
Third Quarter
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated balance sheets at September 30, 1996 and
December 31, 1995............................................ 3
Consolidated statements of operations for the three months and
nine months ended September 30, 1996 and 1995................ 4
Condensed consolidated statements of cash flows for the
nine months ended September 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 .................................... 10
Part II. Other Information
Item 1 through 5 Not Applicable
Item 6
(a) Exhibits:
Exhibit 27 -- Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
Signatures................................................................. 16
2
<PAGE>
<TABLE>
ENDOSONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
<CAPTION>
September 30, December 31,
1996 1995
------------------ -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,333 $ 36,757
Short-term investments 4,054 7,638
Trade accounts receivable, net 6,684 5,852
Inventories 3,976 4,046
Accrued interest receivable and other current assets 632 973
--------- ---------
Total current assets 50,679 55,266
Property and equipment, net 1,743 1,687
Investment in Cardiovascular Dynamics, Inc. 20,795 --
--------- ---------
$ 73,217 $ 56,953
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,227 $ 5,394
Deferred distributorship fee revenue 9 154
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 September 30, 1996 and December 31, 1995;
and 13,484,905 and 12,831,512 shares issued and
outstanding as of September 30, 1996 and December 31, 1995,
respectively 14 13
Additional paid-in capital 123,875 98,989
Accumulated deficit (56,836) (50,837)
Unrealized loss on available-for-sale securities (33) (7)
Foreign currency translation (38) (3)
--------- ---------
Total stockholders' equity 66,982 48,155
$ 73,217 $ 56,953
========= =========
<FN>
See accompanying notes
</FN>
</TABLE>
3
<PAGE>
<TABLE>
ENDOSONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Total revenue $ 5,493 $ 4,661 $ 18,266 $ 11,431
Cost of sales 3,270 2,417 12,072 7,114
------------ ------------ ------------ ------------
Gross profit 2,223 2,244 6,194 4,317
Operating expenses:
Acquired in-process research, development and clinical -- -- -- 488
Other research, development and clinical 1,052 1,966 4,897 6,002
Marketing and sales 803 1,579 4,497 4,094
General and administrative 905 1,128 3,567 3,051
Restructuring -- -- 518 --
------------ ------------ ------------ ------------
Total operating expenses 2,760 4,673 13,479 13,635
------------ ------------ ------------ ------------
Loss from operations (537) (2,429) (7,285) (9,318)
Equity in Net Loss of CVD (321) -- (370) --
Other income:
Interest income 454 116 1,640 450
Distributorship fees and other 32 24 16 64
------------ ------------ ------------ ------------
Total other income 486 140 1,656 514
------------ ------------ ------------ ------------
Net loss ($372) ($2,289) ($5,999) ($8,804)
============ ============ ============ ============
Net loss per share ($.03) ($.23) ($.45) ($.88)
Shares used in the calculation of
net loss per share 13,455,841 10,120,043 13,340,895 10,045,350
============ ============ ============ ============
<FN>
See accompanying notes
</FN>
</TABLE>
4
<PAGE>
<TABLE>
ENDOSONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share and per share amounts)
<CAPTION>
Nine months ended
September 30
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss ($ 5,999) ($ 8,804)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash in-process R & D -- 488
Depreciation and amortization 471 572
Amortization of deferred compensation 57 --
Net changes in:
Operating assets 421 (1,940)
Operating liabilities and deferred revenue 687 (916)
-------- --------
Net cash used in operating activities (4,363) (8,768)
Cash flows from investing activities:
Purchase of short-term investments (11,859)
Sales of short-term investments 158 4,897
Maturities of short-term investments 15,311 1,342
Impact of CVD IPO (6,569) --
Capital expenditures for property and equipment (1,104) (630)
-------- --------
Net cash provided by (used in) investing activities (4,063) 5,609
Cash flows from financing activities:
Proceeds from common stock issuance to Cordis Corp. 5,000 --
Proceeds from convertible obligation -- 750
Proceeds from issuance of stock 2,152 441
Deferred Compensation (150) --
-------- --------
Net cash provided by financing activities 7,002 1,191
-------- --------
Net (decrease) in cash and equivalents (1,424) (1,968)
Cash and equivalents, beginning of period 36,757 4,862
======== ========
Cash and equivalents, end of period $ 35,333 $ 2,894
======== ========
Non-cash financing and investing activities:
Common stock issued in business acquisition -- $ 2,660
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30,
1996 and the consolidated results of its operations and cash flows for the
three- and nine-month periods ended September 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 exercise 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:
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials $1,308 $1,225
Work-in-process 1,261 1,575
Finished goods 1,407 1,246
------- -------
Total $3,976 $4,046
======= =======
6
<PAGE>
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). As of September 30, 1996, EndoSonics owned 46% of the outstanding
shares of CVD. 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. In the quarter ended September 30,
1996, the Company recorded ($321,000) representing its proportionate share of
CVD's net losses for the period. Financial information for CVD is shown below:
BALANCE SHEET INFORMATION -- CVD
(Unaudited) September 30,
(In thousands) 1996
-------------
Current assets $51,997
Property and equipment, net 823
Other assets 172
-------
Total assets $52,992
=======
Current liabilities $ 4,217
Deferred distributorship fee revenue 786
Stockholders' equity 47,989
-------
Total liabilities and stockholders' equity $52,992
=======
EndoSonics' share of CVD's net assets $20,795
=======
7
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS -- CVD
<CAPTION>
(Unaudited)
(In thousands) Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ -------------------
<S> <C> <C>
Total revenue $2,352 $6,186
Cost of sales 1,273 3,136
------- -------
Gross profit 1,079 3,050
Total operating expenses 2,407 5,626
------- -------
Loss from operations (1,328) (2,576)
------- -------
Other income (expense) 630 731
------- -------
Net Loss ($698) ($1,845)
======= =======
EndoSonics' share of net losses of CVD ($321) ($370)
======= =======
</TABLE>
Cardiovascular Dynamics, Inc., stock is quoted on The Nasdaq Stock Market. The
closing price of CVD's stock at September 30, 1996 was $10.25 per share. The
Company held 4,040,000 shares of CVD's common stock at September 30, 1996.
5. Components of the Consolidated Statement of Operations as of September 30,
1996
(Unaudited)
(In Thousands) Nine months ended September 30, 1996
IVUS CVD Consolidated
-------------------------------------
Total revenue $14,432 $3,834 $18,266
Cost of sales 10,209 1,863 12,072
-------------------------------------
Gross profit 4,223 1,971 6,194
Operating expenses:
Other research, development
and clinical 3,468 1,429 4,897
Marketing and sales 3,210 1,287 4,497
General and administrative 3,064 503 3,567
Restructuring 518 -- 518
-------------------------------------
Total operating expenses 10,260 3,219 13,479
-------------------------------------
Loss from operations (6,037) (1,248) (7,285)
Other income (expense):
Interest income 1,567 73 1,640
Other income (expense) (12) 28 16
--------------------------------------
Total other income 1,555 101 1,656
--------------------------------------
Net Loss ($4,852) ($1,147) ($5,999)
======================================
8
<PAGE>
Through June 19, 1996, the Statements of Operations of EndoSonics included the
results of operations of CVD. As of June 20, 1996, the Company began accounting
for CVD under the equity method of accounting. (See Note 4.)
The results of operations for IVUS (intravascular ultrasound) include
restructuring and other charges made in the quarter ended June 30, 1996, 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 September 30,
1996 are as follows:
(In Thousands)
Representing
Asset Future
Provision Write-Downs Cash Outlays
----------------------------------------------
Consolidation of facilities $ 994 $ 867
Conversion to new technology 1,849 $808 815
Corporate reorganization 223 93
------- ---- -------
$ 3,066 $808 $ 1,775
======= ==== =======
The charges are included in the accompanying Consolidated Statements of
Operations for the nine month period ended September 30, 1996 are 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
=======
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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.
Results of Operations
Third quarter of 1996 compared to the same period in 1995
Total Revenue. Revenue (all IVUS) for the third quarter of 1996 advanced 18% to
$5.5 million compared to $4.7 million for the third quarter of 1995, which
included $1.6 million of CVD revenue. Revenues for the IVUS business increased
79% from $3.1 million in the third quarter of 1995. The principal reasons for
this increase are continued growth in demand for IVUS products both in the U.S.
and overseas markets, and increased sales through the Company's agreement with
Cordis Corporation (a Johnson & Johnson Company). Further growth is dependent on
the ability of the Company to increase production to levels of its new Five/64
catheters to levels sufficient to meet demand for the product in both the U.S.
and overseas markets.
10
<PAGE>
Cost of Sales. Cost of sales as a percentage of product sales decreased to 60%
(all IVUS) for the three months ended September 30, 1996 from 63% for the third
quarter of 1995, which included CVD. For the IVUS business, cost of sales
increased from 57% in the third quarter of 1995. Gross profit margins increased
to 40% (all IVUS) for the three months ended September 30, 1996 as compared to
37% for the third quarter of 1995 which included CVD. Gross profit margins for
the IVUS business were 43% for third quarter of 1995. The decrease in the third
quarter of 1996 was due primarily to the production inefficiencies incurred in
manufacturing new catheter products. 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 improve in future
periods.
Other Research, Development and Clinical. Other research, development and
clinical decreased to $1.1 million (all IVUS) for the three months ended
September 30, 1996 as compared to $2.0 million for the third quarter of 1995
(which included CVD), $1.5 million for the IVUS business. This decrease of 27%
for IVUS is due to a reduction in expenses associated with the Pinnacle
Development Project.
Marketing and Sales. Marketing and sales expenses decreased to $0.8 million (all
IVUS) for the three months ended September 30, 1996 from $1.6 million for the
third quarter of 1995 (which included CVD), $1.1 million for the IVUS business.
This decrease of 27% for the IVUS business is primarily the result of a
levelling off of 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 for IVUS decreased to
15% for the three months ended September 30, 1996 compared to 36% for the three
months ended September 30, 1995, due primarily to increased revenues.
General and Administrative. General and administrative expenses decreased to
$0.9 million (all IVUS) for the three months ended September 30, 1996 from $1.1
million (including CVD) for the three months ended September 30, 1995. For the
IVUS business, general and administrative expenses increased 29% from $0.7
million in the third quarter of 1995 due to an overall increase the Company's
level of operations. As a percentage of total revenues, general and
administrative expenses decreased to 17% for the three months ended September
30, 1996 compared with 22% of total revenue for the three months ended September
30, 1995 due to increased revenue.
Other Income Net. Other income increased to $0.5 million for the three months
ended September 30, 1996 from $0.1 million for the three months ended September
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 decreased to $0.4 million, or $0.03 per share, for the three
months ended September 30, 1996 as compared to a net loss of $2.3 million, or
$0.23 per share, for the three months ended September 30, 1995. Third quarter
1996 included $0.3 million equity in the net loss of CVD. On a comparable basis,
the IVUS business approached break-even ($51,000 loss) for the third quarter of
1996 versus a loss of $2.0 million for the third quarter of 1995. 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.
11
<PAGE>
First Nine Months of 1996 compared to the same period of 1995
CVD's results of operations were consolidated in the Company's results through
June 19, 1996, and accounted for on the equity method thereafter. (See Note 4 to
Consolidated Financial Statements.)
Total Revenue. Total revenue increased 60% to $18.3 million for the nine months
ended September 30, 1996 from $11.4 million for the nine months ended September
30, 1995. Period to period comparison of IVUS revenues reflected a 67% increase
from $8.6 million in 1995 to $14.4 million in 1996. The increase in IVUS
revenues 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.
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
nine months ended September 30, 1996 and September 30, 1995, export sales as a
percentage of total revenue remained at 54%. 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 decreased to 67%
for the nine months ended September 30, 1996 from 68% for the nine months ended
September 30, 1995. Period to period comparison of IVUS cost of sales reflected
an increase from 70% in 1995 to 73% in 1996. After adjusting for $0.8 million in
non-recurring charges in the IVUS business in 1996 (see Note 6 to Condensed
Consolidated Financial Statements) these expenses decreased to 67% of total
revenue. Cost of sales in the first nine months of 1995 were affected by $0.7
million related to the voluntary recall of its Visions IVUS imaging catheters in
the first quarter of 1995 due to manufacturing defects. After adjusting for
these recall related expenses, cost of sales as a percentage of product sales
were 62% in the first nine months of 1995.
Gross margins on product in the IVUS business for the first nine months of 1996
were 27% compared with 30% for the same period in 1995, 33% and 38%,
respectively, after both of the above adjustments. The decrease in gross margins
are the result of improvements in the Company's manufacturing processes which
were more than offset by higher costs associated with initial production of new
catheter products. Due to the possible impact of increasingly competitive
pricing there can be no assurance that the Company's gross profit margin will be
maintained or improve in future periods. The Company is in the process of
establishing a new manufacturing process for its FIVE/64 catheter line in Rancho
Cordova, California. Its 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.
12
<PAGE>
Other Research, Development and Clinical. Other research, development and
clinical expenses decreased by 18% to $4.9 million for the nine months ended
September 30, 1996 from $6.0 million for the nine months ended September 30,
1995. Period to period comparison of IVUS expenses reflected a 24% decrease from
$4.6 million in 1995 to $3.5 million in 1995. After adjusting for the $0.5
million in non-recurring charges in 1996 (see Note 6 to Condensed Consolidated
Financial Statements), these expenses for the IVUS business decreased 35%, due
to a decrease in expenses related to the Pinnacle Development Project.
Marketing and Sales. Marketing and sales expenses increased 10% to $4.5 million
for the nine months ended September 30, 1996 compared to $4.1 million for the
nine months ended September 30, 1995. Period to period comparison of IVUS
marketing and sales expenses reflected an 8% increase from $3.0 million in 1995
to $3.2 million in 1996. After adjusting for $0.5 million in non-recurring
charges in 1996 (see Note 6 to Condensed Consolidated Financial Statements),
these expenses for the IVUS business decreased 10%. As a percentage of total
revenue, marketing and sales expenses decreased to 22%, 19% after adjustments
for non-recurring charges, for the nine months ended September 30, 1996 from 34%
of total revenue for the nine months ended September 30, 1995 due primarily to
increased revenue.
General and Administrative. General and administrative expenses increased 17% to
$3.6 million for the nine months ended September 30, 1996 from $3.1 million for
the nine months ended September 30, 1995. Period to period comparisons of IVUS
general and administrative expenses indicate a 48% increase from $2.1 million in
1995 to $3.1 million in 1996. After adjusting for $0.8 million in non-recurring
charges in 1996 (see Note 6 to Condensed Consolidated Financial Statements),
these expenses for the IVUS business decreased 9%. General and administrative
expenses decreased to 21% of total revenue, 16% after adjustments for
non-recurring charges, for the nine months ended September 30, 1996 from 24% of
total revenue for the nine months ended September 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 commitments associated with
the Pleasanton facility.
Other Income, Net. Other income increased to $1.7 million for the nine months
ended September 30, 1996 from $0.5 million for the nine months ended September
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 $6.0 million, or $0.45 per share, for the nine
months ended September 30, 1996 as compared to a net loss of $8.8 million, or
$0.88 per share, for the nine months ended September 30, 1995. The second and
third quarters of 1996 include $0.4 million equity in the net loss of CVD.
Period to period comparisons of the results of operations for the IVUS business
indicates a 31% decrease in net loss from $6.5 million in 1995 to $4.5 million
(without CVD's losses) in 1996. After adjusting for non-recurring expenses of
$3.1 million in the second quarter of 1996 and CVD's net losses in the second
and third quarters, net loss for the IVUS business decreased to $1.4 million
($0.11 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.
13
<PAGE>
Liquidity and Capital Resources
On September 30, 1996, the Company had cash and equivalents of $35,333,000 and
short-term investments of $4,054,000. 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 $4,363,000 for the nine
months ended September 30, 1996, as compared to $8,768,000 in the corresponding
period in the previous year. The improvement is due in part to a lower net loss,
the affiliate loan payoff 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 September 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.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENDOSONICS CORPORATION
-------------------------
Reinhard Warnking
President and Chief
Executive Officer
Date: November 14, 1996
--------------------------
Donald D. Huffman
Vice President-Finance and
Chief Financial Officer, and
Principal Accounting Officer
Date: November 14, 1996
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883420
<NAME> ENDOSONICS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 35,333
<SECURITIES> 4,054
<RECEIVABLES> 6,684
<ALLOWANCES> 0
<INVENTORY> 3,976
<CURRENT-ASSETS> 50,679
<PP&E> 1,743
<DEPRECIATION> 0
<TOTAL-ASSETS> 73,217
<CURRENT-LIABILITIES> 6,236
<BONDS> 0
<COMMON> 14
0
0
<OTHER-SE> 66,968
<TOTAL-LIABILITY-AND-EQUITY> 73,217
<SALES> 18,266
<TOTAL-REVENUES> 18,266
<CGS> 12,072
<TOTAL-COSTS> 12,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,999)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,999)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,999)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
