<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended JUNE 30, 1996
or
[X] 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 0-26116
SPINE-TECH, INC.
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 06-1258314
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7375 BUSH LAKE ROAD
MINNEAPOLIS, MINNESOTA 55439-2029
----------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 832-5600
----------------------------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date. Common
Stock, $.01 Par Value -- 9,871,152 SHARES AS OF AUGUST 2, 1996.
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SPINE-TECH, INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 494,209 $ 1,171,034
Short-term investments 18,238,570 22,416,043
Accounts receivable 860,268 1,957,477
Inventories - Note B 5,045,096 1,821,560
Interest receivable 332,199 228,467
Prepaid expenses 345,405 57,726
----------- -----------
Total current assets 25,315,747 27,652,307
Land and building 2,013,109 1,752,773
Furniture and fixtures 117,072 113,993
Equipment 605,058 387,640
Accumulated depreciation (355,874) (196,588)
----------- -----------
2,379,365 2,057,818
Investments 4,192,792 2,955,748
----------- -----------
Total assets $31,887,904 $32,665,873
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,416 $ 232,270
Accrued clinical payments 261,750 329,905
Accrued royalties 190,053 198,913
Other accrued expenses 122,846 100,584
----------- -----------
Total current liabilities 576,065 861,672
Commitments and contingencies -- --
Shareholders' equity:
Common Stock, par value $.01 per share: authorized
shares - 15,000,000. Issued and outstanding shares:
December 31, 1995 - 9,653,252; June 30, 1996 -
9,871,152 98,711 96,532
Additional paid-in capital 34,469,891 34,023,971
Accumulated deficit (3,256,763) (2,316,302)
----------- -----------
Total shareholders' equity 31,311,839 31,804,201
----------- -----------
Total liabilities and shareholders' equity $31,887,904 $32,665,873
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial
statements.
See notes to condensed financial statements.
<PAGE>
SPINE-TECH, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------
1996 1995 1996 1995
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 1,502,047 $ 1,707,094 $ 2,947,469 $ 3,266,817
Cost of goods sold 566,189 635,204 1,129,131 1,229,960
---------- --------- ---------- ----------
Gross profit 935,858 1,071,890 1,818,338 2,036,857
Operating expenses:
Selling, general and administrative 1,443,161 811,734 2,662,047 1,498,849
Research and development 459,857 384,064 875,623 798,277
---------- --------- ---------- ----------
Total operating expenses 1,903,018 1,195,798 3,537,670 2,297,126
---------- --------- ---------- ----------
Operating loss (967,160) (123,908) (1,719,332) (260,269)
Interest income, net 381,703 29,786 778,871 67,431
---------- --------- ---------- ----------
Net loss $ (585,457) $ (94,122) $ (940,461) $ (192,838)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net loss per share:
Primary $ (0.06) $ (0.04) $ (0.10) $ (0.08)
Fully diluted $ (0.06) $ (0.01) $ (0.10) $ (0.03)
Weighted average shares outstanding:
Primary 9,824,959 2,603,256 9,765,828 2,534,315
Fully diluted 9,824,959 6,738,484 9,765,828 6,669,543
</TABLE>
See notes to condensed financial statements.
<PAGE>
SPINE-TECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (940,461) $ (192,838)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 159,286 47,747
Common Stock and stock options issued
for consulting services 12,262 51,500
Changes in operating assets and liabilities:
Accounts receivable 1,097,209 (820,230)
Inventories (3,223,536) (109,230)
Interest receivable (103,732) --
Prepaid expenses (287,679) (97,904)
Accounts payable and accrued expenses (285,607) 696,846
---------- ----------
Cash used in operating activities (3,572,258) (424,109)
INVESTING ACTIVITIES
Purchase of property and equipment (480,833) (42,811)
(Purchases) maturities of investments 2,940,429 (20,119,221)
---------- ----------
Cash provided by (used in) investing activities 2,459,596 (20,162,032)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock -- 21,998,704
Proceeds from stock options exercised 435,837 59,500
---------- ----------
Cash provided by financing activities 435,837 22,058,204
---------- ----------
(Decrease) increase in cash and cash equivalents (676,825) 1,472,063
Cash and cash equivalents at beginning of period 1,171,034 419,008
---------- ----------
Cash and cash equivalents at end of period $ 494,209 $1,891,071
---------- ----------
---------- ----------
</TABLE>
See notes to condensed financial statements.
<PAGE>
SPINE-TECH, INC.
Notes to Condensed Financial Statements (Unaudited)
June 30, 1996
Note A - Basis of Presentation
The accompanying unaudited condensed 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 Article 10 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 six-month period ended June
30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
Note B - Inventories
The components of inventory consist of the following:
June 30, December 31,
1996 1995
---------- ------------
Raw material $ 60,151 $ 8,423
Work in process 968,355 213,202
Finished products 4,016,590 1,589,935
---------- ------------
$5,045,096 $ 1,821,560
---------- ------------
---------- ------------
Note C - Investments
The amortized cost and estimated market value of investments
are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
As of December 31, 1995:
U.S. government obligations $ 4,000,110 $ -- $ -- $ 3,999,961
Corporate debt securities 6,102,249 -- 22,163 6,080,086
Commercial paper 15,269,432 142,661 -- 15,412,093
--------------------------------------------------------
$25,371,791 $ 142,661 $ 22,163 $25,492,140
--------------------------------------------------------
--------------------------------------------------------
As of June 30, 1996:
U.S. government obligations $ 7,010,712 $ 18,384 $ 9,294 $ 7,019,802
Corporate debt securities 9,147,441 -- 67,731 9,079,710
Commercial paper 6,273,209 73,353 -- 6,346,562
--------------------------------------------------------
$22,431,362 $ 91,737 $ 77,025 $22,446,074
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
<PAGE>
The amortized cost and estimated fair market value of investments by
contractual maturity are shown below:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
---------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $18,238,570 $18,258,374 $22,416,043 $22,549,909
Due after one year 4,192,792 4,187,700 2,955,748 2,946,231
---------------------------------------------------
$22,431,362 $22,446,074 $25,371,791 $25,492,140
---------------------------------------------------
---------------------------------------------------
</TABLE>
Note D - Initial Public Offering
The Company completed the initial public offering ("IPO") of its
Common Stock in June 1995. The shares of Series A, B and C
Preferred Stock were automatically converted on a three-for-two basis
to shares of Common Stock on the closing date of June 27, 1995.
Note E - Net Loss Per Share
The net loss per share is computed using the weighted average number
of shares of Common Stock outstanding during the periods presented.
The fully diluted net loss per share assumes the conversion of
preferred shares outstanding prior to the IPO to common shares as
of the beginning of the earliest period presented. The net loss per
share for periods presented prior to June 27, 1995, the closing date
of the IPO, also gives effect to the requirements of Staff Accounting
Bulletin No. 83 (SAB 83).
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since commencing full-time operations in July 1991, the Company has been
engaged in the design, development, manufacture and sale of spinal implants
and instruments for the surgical treatment of degenerative disc disease and
other spinal conditions. To date, the Company's revenues have been derived
from sales of the Company's products for clinical trials in the United States
and international sales in various countries. The clinical trial of the
Company's BAK/L-TM- device began in April 1992 under an Investigational Device
Exemption ("IDE") in the United States. On October 20, 1995, the Company
received notification from the Food and Drug Administration ("FDA") that its
amended Premarket Approval ("PMA") application for the BAK/L Interbody Fusion
System had met the threshold determination that the PMA is sufficiently
complete to permit a substantive review and was, therefore, suitable for
filing. Additionally, the FDA indicated that the PMA was granted expedited
review because the lower reoperation rate reported in the PMA for the BAK/L
indicated a potential benefit to public health. As announced in May 1996,
the Food and Drug Administration Orthopaedic and Rehabilitation Devices
Advisory Panel reviewed and recommended approval of the Company's (PMA)
application for clearance to market the BAK Interbody Fusion System. In June
1996, the Company further announced that the FDA had informed the Company
that its PMA application for the BAK Interbody Fusion System is approvable
subject to approval of final product labeling and a post-approval study
protocol. Spine-Tech has been working with the FDA to resolve these final
items. The Company cannot begin marketing or commercial sale of the BAK
Interbody Fusion System until it receives final FDA approval.
The Company has developed and is developing additional products which
address degenerative disc disease and other spinal conditions. In addition
to the BAK/L, the Company has developed the BAK/C-TM- which is used in the
cervical spine and the BAK/T-TM- which is used in the thoracic spine. Both of
these products are subject to extensive clinical trials under separate IDEs
from the FDA. The BAK/C clinical trial commenced during the first quarter of
fiscal 1995. The BAK/T clinical trial commenced during the third quarter of
fiscal 1995. The BAK/C has been introduced on a very limited basis into
certain international markets. As international approvals are received, both
the BAK/C and the BAK/T will be introduced into select international markets.
In May 1995, the Company introduced Cervi-Lok-Registered Trademark-, an
anterior cervical implantable plate and screw system for use in the cervical
spine, pursuant to a 510(k) clearance received from the FDA. The product had
been introduced on a limited basis in the United States during the second
quarter of fiscal 1995. National roll-out commenced during the third quarter
of fiscal 1995. International roll-out of Cervi-Lok began in the fourth
quarter of fiscal 1995.
In September 1993, the Company entered into an exclusive agreement with
Smith & Nephew-Richards, Inc. ("Smith & Nephew") for the distribution of the
BAK/L implant outside of the United States for a period of up to eight years
as long as quarterly minimum purchases were made by Smith & Nephew from the
Company. During the first quarter of 1996, Smith & Nephew informed the
Company that they would not make their required minimum purchases under the
contract. Based upon provisions in the agreement, the Company terminated
Smith & Nephew's exclusive distribution rights. Under terms of the agreement,
Smith & Nephew retains non-exclusive rights to distribute the BAK/L outside
of the United States for a period of one year from notification of
termination of exclusive rights. Smith & Nephew accounted for 65% of net
sales for the second quarter ended June 30, 1995. With the termination of
the exclusive distribution agreement, Smith & Nephew accounted for 9% of net
sales for the second quarter ended June 30, 1996. The Company is in the
process of appointing independent international distributors on a country by
country basis to distribute the BAK/L product line. There can be no assurance
that the Company will be successful in finding and appointing independent
international distributors who will be able to successfully sell the BAK/L
product line.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Net sales decreased to $1.5 million for the three months ended June 30,
1996 from $1.7 million for the three months ended June 30, 1995. Net sales
for the period were primarily affected by a decrease in sales to Smith &
Nephew to $139,000, or 9% of net sales, as compared to $1.1 million, or 65%
of net sales for the comparable period in 1995. Domestic sales increased 89%
to $1.1 million for the three months ended June 30, 1996 from $582,000 for
the comparable period in 1995. During the first half of 1995, the Company was
not able to sell BAK/L devices for clinical trials under certain portions of
its IDE because the Company had previously reached the maximum patient
enrollment allowed. On June 28, 1995, the Company received approval from the
FDA to expand patient enrollment in the U.S. clinical trial of the BAK/L
device. In addition to its sales of BAK/L devices and related BAK/L
instruments, during the three months ended June 30, 1996, the Company had
both domestic and international sales of its BAK/C, BAK/T and Cervi-Lok
devices and related instruments.
Gross profit decreased to $936,000 for the three months ended June 30,
1996 from $1.1 million for the three months ended June 30, 1995. This decline
was due to decreased net sales. As a percentage of net sales, gross profit
was 62.2% for the three months ended June 30, 1996, as compared to 62.8% in
the comparable period in 1995.
Total operating expenses increased to $1.9 million for the three months
ended June 30, 1996 from $1.2 million for the three months ended June 30,
1995. Selling, general and administrative expenses increased to $1.4 million
for the three months ended June 30, 1996 from $812,000 for the three months
ended June 30, 1995, increasing as a percentage of net sales to 96%, compared
to 48% for the comparable period in 1995, primarily as a result of increased
sales and marketing expenses as the Company expands its capabilities to
support international activities and increasing domestic sales. Research and
development expenses increased to $460,000 for the three months ended June
30, 1996 from $384,000 for the three months ended June 30, 1995, increasing
as a percentage of net sales to 31%, compared to 22% for the comparable
period in 1995 due to additional development projects being undertaken by the
Company. Interest income totaled $382,000 for the three months ended June
30, 1996, compared to $30,000 for the comparable period in 1995. The
increase is due to additional cash available for investments resulting from
the Company's initial public offering.
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Net sales decreased to $2.9 million for the six months ended June 30, 1996
from $3.3 million for the six months ended June 30, 1995. Net sales for the
period were primarily affected by a decrease in sales to Smith & Nephew to
$371,000, or 13% of net sales, as compared to $2.1 million, or 64% of net
sales for the comparable period in 1995. Domestic sales increased 82% to $2.0
million for the six months ended June 30, 1996 from $1.1 million for the
comparable period in 1995. During the first half of fiscal 1995, the Company
was not able to sell BAK/L devices for clinical trials under certain portions
of its IDE because the Company had previously reached the maximum patient
enrollment allowed. On June 28, 1995, the Company received approval from the
FDA to expand patient enrollment in the U.S. clinical trial of the BAK/L
device. In addition to its sales of BAK/L devices and related BAK/L
instruments, during the six months ended June 30, 1996, the Company had both
domestic and international sales of its BAK/C, BAK/T and Cervi-Lok devices
and related instruments.
Gross profit decreased to $1.8 million for the six months ended June 30,
1996 from $2.0 million for the six months ended June 30, 1995. This decline
is attributable primarily to the decline in net sales. As a percentage of
net sales, gross profit was 61.7% for the six months ended June 30, 1996, as
compared
<PAGE>
to 62.4% in the comparable period in 1995. This slight variation is primarily
due to variations in prices paid to outside vendors for implants and
instruments.
Total operating expenses increased to $3.5 million for the six months
ended June 30, 1996 from $2.3 million for the six months ended June 30, 1995.
Selling, general and administrative expenses increased to $2.7 million for
the six months ended June 30, 1996 from $1.5 million for the six months ended
June 30, 1995, increasing as a percentage of net sales to 93%, compared to
46% for the comparable period in 1995, primarily as a result of increased
sales and marketing expenses as the Company expands its capabilities to
support international activities and increasing domestic sales. Research and
development expenses increased slightly to $876,000 for the six months ended
June 30, 1996, versus $798,000 for the six months ended June 30, 1995,
increasing as a percentage of net sales to 30%, compared to 24% for the
comparable period in 1995 due to additional development projects being
undertaken by the Company. Interest income totaled $779,000 for the six
months ended June 30, 1996, compared to $68,000 for the comparable period in
June 30, 1995. The increase is due to additional cash available for
investments resulting from the Company's June 1995 initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
In June 1995, the Company successfully completed its initial public
offering of 3,225,000 shares of newly issued Common Stock. After selling
expenses, the Company received proceeds of just over $26 million from the
offering. The Company expects to use these proceeds for working capital
requirements, funding of clinical trials, expansion of research and
development and sales and marketing activities, and, other general corporate
purposes. In November 1995, the Company used a portion of these proceeds to
acquire and relocate to a new facility. The Company expects to undertake a
renovation of the acquired facility during 1996 and will use a portion of the
initial public offering proceeds to finance such renovation. During the six
months ended June 30, 1996, the Company used approximately $5.0 million for
operating activities and for capital asset acquisitions. Of this amount, $3.2
million was used to increase inventory, $481,000 to purchase equipment, and
$1.3 million to finance operating activities and working capital needs.
Approximately $1.0 million was provided by a net reduction in the level of
receivables and $436,000 in proceeds from the exercise of stock options.
Until funds are needed for the purposes described above, they have been
invested primarily in short term U.S. government obligations and corporate
debt securities. As of June 30, 1996, the Company had $18.2 million of these
investments with a maturity of one year or less and $4.2 million with a
maturity of more than one year. The Company believes that its currently
available cash and cash equivalents combined with additional cash flow
from operations will be adequate to finance ongoing operations.
The Company's future liquidity and capital requirements will depend on
numerous factors, including FDA regulatory actions and continued domestic and
international sales of its entire product line.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation related to its license of certain
technology (the "Karlin Technology") from Dr. Gary Michelson and an
affiliated company, Karlin Technology, Inc. ("Karlin"), co-owners of the
Karlin Technology. The litigation principally relates to the interpretation
of Dr. Michelson's and Karlin's right to co-license the Karlin Technology to
a third party. In December 1993, Dr. Michelson and Karlin filed a complaint
against the Company and Smith & Nephew Group, an entity under common control
with Smith & Nephew, in United States District Court for the Central District
of California. In December 1994, the plaintiffs served the defendants with a
second amended complaint (the "Complaint"). The Complaint alleged various
causes of action, including tortious interference with prospective and
contractual business relationships, unfair competition and breach of
contract, and requested various types of relief, including money damages,
injunctive relief and declaratory judgment. In addition, in the event the
Company objected to the co-license of the Karlin Technology to a third party,
the Complaint requested rescission of the license agreement. Sofamor Danek
Inc. ("Danek"), a competitor of the Company, is the other co-licensee of the
Karlin Technology. The Company is not contesting the co-license of the Karlin
Technology to Danek. Each of the claims of the Complaint was the subject of a
dispositive motion resulting in an order by the Court granting its dismissal.
On February 12, 1996, the Court entered Judgment finding that the Company is
the prevailing party on all counts of the Complaint. The plaintiffs have
filed a notice of appeal of the judgment to the Ninth Circuit Court of
Appeals.
On June 19, 1995, the Company received a purported notice of termination
of the license agreement based on alleged inadequacy in the reporting of the
royalty payments due by the Company to Karlin under the license agreement.
Karlin has claimed that the Company has therefore breached the license
agreement. However, the Company contests that it has breached the agreement.
Under the terms of the agreement, the license agreement may not be terminated
until after a final, non-appealable determination of the existence of the
breach by a court of competent jurisdiction. The Company, on September 15,
1995, commenced a non-binding arbitration against plaintiffs in Minneapolis
before the American Arbitration Association asserting that plaintiffs'
purported termination of the License agreement is meritless and ineffective.
Karlin and Michelson have not taken a definitive position in the arbitration
on whether they intend to seek to enforce the purported termination. Although
the Company believes that the purported termination is without merit, a
determination against the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company and Michelson are also in litigation in the United States
District Court for the District of Minnesota concerning inventorship of U.S.
Patent No. 5,489,307. Prior to the issuance of the patent to the Company,
Michelson in the above-referenced California action asserted that he was the
true inventor of the then pending patent application for the '307 patent.
This claim was dismissed for lack of a justifiable controversy. In the
Minnesota action brought by the Company, Michelson has filed a motion to
dismiss for lack of personal jurisdiction and stated that if the motion is
denied, he will assert as-yet-unidentified counterclaims.
Surgical Dynamics, Inc. ("Surgical Dynamics"), a competitor of the
Company, has filed a complaint for declaratory judgment in the United States
District Court for the Central District of California of patent invalidity,
unenforceability and non-infringement against Karlin and Danek regarding the
U.S. Patent No. 5,015,247, which is part of the Karlin Technology. Karlin and
Danek have counterclaimed against Surgical Dynamics claiming patent
infringement. The outcome of the litigation is uncertain. There can be no
assurances that the patent related to the Karlin Technology will be upheld or
that the Company will continue to have such patent protection for its
products.
On April 16, 1996, Surgical Dynamics filed a complaint in state court in
Hawaii against the Company and Terry Corley, a former sales employee of
Surgical Dynamics who had agreed to work for the Company. The complaint
alleged, among other things, that the Company aided and abetted a breach of
<PAGE>
fiduciary duty by Corley and tortiously interfered with Corley's employment
by Surgical Dynamics. The complaint seeks injunctive relief and unspecified
compensatory and punitive damages. In response to the Company's motion to be
dismissed from the action for lack of personal jurisdiction, the parties
stipulated to dismissal of the action in Hawaii and recommencement of the
action in Minnesota. On July 11, 1996, the Company filed an action against
Surgical Dynamics in the U.S. District Court for the District of Minnesota
seeking declaratory relief that the Company did not aid or abet a breach of
fiduciary duty by Corley or tortiously interfere with Corley's employment by
Surgical Dynamics. Surgical Dynamics has not yet filed an answer or
counterclaim. Assuming that Surgical Dynamics re-asserts its claims against
the Company, the Company intends to contest these claims vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1996 Annual Meeting of Shareholders on May 8, 1996, the
shareholders approved the following:
1. Election of directors to serve until his successor is duly
elected. The directors were approved as follows:
Names of Director Votes For Votes Withheld
----------------- --------- --------------
David W. Stassen 7,997,718 10,047
Stephen D. Kuslich, M.D. 7,997,718 10,047
Robert J. DePasqua 7,996,888 10,877
James F. Lyons 7,996,238 11,527
Kenneth W. Anstey 7,997,638 10,127
2. Proposal to approve the Spine-Tech, Inc. 1996 Omnibus Stock
Plan. The proposal received 4,547,205 votes for and 955,102
votes against. There were 52,656 abstentions and 2,452,802
broker non-votes.
3. Proposal to approve the Spine-Tech, Inc. Employee Stock
Purchase Plan. The proposal received 5,474,075 votes for and
41,320 votes against. There were 43,008 abstentions and
2,449,362 broker non-votes.
4. Proposal to ratify the appointment of Ernst & Young LLP as
independent auditors for the 1996 fiscal year. The proposal
received 7,989,292 votes for and 12,722 votes against. There
were 5,751 abstentions and no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the
Company (1) and Notice of Change of Registered
Office/Registered Agent dated January 19, 1996 (2)
<PAGE>
3.2 Restated By-Laws of the Company and Amendment to Restated
By-Laws of the Company (3)
4.1 Specimen of Common Stock certificate (4)
10.1 1994 Spine-Tech, Inc. Stock Option Plan (4)
10.2 Spine-Tech, Inc. 1993 Non-Employee Director Stock Option
Plan (4)
10.3 Spine-Tech, Inc. 1991 Stock Option Plan (4)
10.4 Stock Purchase Agreement between the Company and Smith &
Nephew Richards, Inc. dated September 30, 1993 (4)
10.5 Master Distributor Agreement between the Company and Smith
& Nephew Richards, Inc. dated September 30, 1993 (4) (5)
10.6 Stock Purchase Agreement among the Company, St. Paul Fire
and Marine Insurance Company and the other Purchasers named
therein dated June 27, 1991 (4)
10.7 Amendment dated September 15, 1993 to Stock Purchase
Agreement among the Company, St. Paul Fire and Marine
Insurance Company and the other Purchasers named therein
dated June 27, 1991 (4)
10.8 Amendment dated October 21, 1991 to Stock Purchase
Agreement among the Company, St. Paul Fire and Marine
Insurance Company and the other Purchasers named therein
dated June 27, 1991 (4)
10.9 Agreement between the Company and Orthomet, Inc. dated June
27, 1991 (4)
10.11 Loan Agreement between the Company and Riverside Bank dated
April 20, 1995 (4)
10.12 Collaboration Agreement between the Company and Ethicon
Endo-Surgery dated June 27, 1994 (4)
10.13 Spine-Tech, Inc. 1996 Employee Stock Purchase Plan (6)
10.14 Spine-Tech, Inc. 1996 Omnibus Stock Plan (6)
10.15 Intentionally omitted.
10.16 Intentionally omitted.
10.17 License Agreement dated as of May 10, 1992, among the
Company, Karlin Technology, Inc. and Gary K. Michelson
(4)(5)
10.18 License Agreement dated as of January 1, 1995 between the
Company and Dr. Ted Obenchain (4)(5)
10.19 Employment Agreement between the Company and David W.
Stassen dated June 15, 1992 (4)
<PAGE>
10.20 Employment Letter from the Company to David W. Stassen
dated June 2, 1992 (4)
10.21 Employment Agreement between the Company and Ted K.
Schwarzrock dated November 1, 1993 (4)
10.22 Management Agreement dated as of February 1, 1996 between
the Company and David W. Stassen (6)
10.23 Management Agreement dated as of February 1, 1996 between
the Company and Keith M. Eastman (6)
10.24 Management Agreement dated as of February 1, 1996 between
the Company and Ted K. Schwarzrock (6)
10.25 Management Agreement dated as of February 1, 1996 between
the Company and Douglas W. Kohrs (6)
10.26 Management Agreement dated as of February 1, 1996 between
the Company and Richard C. Jansen (6)
10.27 Management Agreement dated as of February 1, 1996 between
the Company and David L. Shaw (6)
11 Statement of Computation of Per Share Loss
27 Financial Data Schedule (filed electronically)
(b) Reports on Form 8-K
On May 23, 1996, the Company filed a report on Form 8-K with respect
to the FDA Orthopaedic and Rehabilitation Panel's action to recommend
approval of the Company's PMA application with certain conditions.
_____________________________
(1) Incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995 (File No.
0-26116).
(2) Incorporated herein by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (File No.
0-26116).
(3) Incorporated herein by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996
(File No. 0-26116).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-91928).
(5) Exhibit contains portions for which confidential treatment has been
granted to the Company.
(6) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
(File No. 0-26116).
<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.
SPINE-TECH, INC.
----------------
(Registrant)
Date: August 9, 1996 By: David W. Stassen
-------------------------------------
David W. Stassen,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 1996 By: Keith M. Eastman
-------------------------------------
Keith M. Eastman,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation of the
Company (1) and Notice of Change of Registered
Office/Registered Agent dated January 19, 1996 (2)
3.2 Restated By-Laws of the Company and Amendment to Restated
By-Laws of the Company (3)
4.1 Specimen of Common Stock certificate (4)
10.1 1994 Spine-Tech, Inc. Stock Option Plan (4)
10.2 Spine-Tech, Inc. 1993 Non-Employee Director Stock Option
Plan (4)
10.3 Spine-Tech, Inc. 1991 Stock Option Plan (4)
10.4 Stock Purchase Agreement between the Company and Smith &
Nephew Richards, Inc. dated September 30, 1993 (4)
10.5 Master Distributor Agreement between the Company and Smith
& Nephew Richards, Inc. dated September 30, 1993 (4) (5)
10.6 Stock Purchase Agreement among the Company, St. Paul Fire
and Marine Insurance Company and the other Purchasers named
therein dated June 27, 1991 (4)
10.7 Amendment dated September 15, 1993 to Stock Purchase
Agreement among the Company, St. Paul Fire and Marine
Insurance Company and the other Purchasers named therein
dated June 27, 1991 (4)
10.8 Amendment dated October 21, 1991 to Stock Purchase
Agreement among the Company, St. Paul Fire and Marine
Insurance Company and the other Purchasers named therein
dated June 27, 1991 (4)
10.9 Agreement between the Company and Orthomet, Inc. dated June
27, 1991 (4)
10.11 Loan Agreement between the Company and Riverside Bank dated
April 20, 1995 (4)
10.12 Collaboration Agreement between the Company and Ethicon
Endo-Surgery dated June 27, 1994 (4)
10.13 Spine-Tech, Inc. 1996 Employee Stock Purchase Plan (6)
10.14 Spine-Tech, Inc. 1996 Omnibus Stock Plan (6)
10.15 Intentionally omitted.
10.16 Intentionally omitted.
10.17 License Agreement dated as of May 10, 1992, among the
Company, Karlin
<PAGE>
Technology, Inc. and Gary K. Michelson (4)(5)
10.18 License Agreement dated as of January 1, 1995 between the
Company and Dr. Ted Obenchain (4)(5)
10.19 Employment Agreement between the Company and David W.
Stassen dated June 15, 1992 (4)
10.20 Employment Letter from the Company to David W. Stassen
dated June 2, 1992 (4)
10.21 Employment Agreement between the Company and Ted K.
Schwarzrock dated November 1, 1993 (4)
10.22 Management Agreement dated as of February 1, 1996 between
the Company and David W. Stassen (6)
10.23 Management Agreement dated as of February 1, 1996 between
the Company and Keith M. Eastman (6)
10.24 Management Agreement dated as of February 1, 1996 between
the Company and Ted K. Schwarzrock (6)
10.25 Management Agreement dated as of February 1, 1996 between
the Company and Douglas W. Kohrs (6)
10.26 Management Agreement dated as of February 1, 1996 between
the Company and Richard C. Jansen (6)
10.27 Management Agreement dated as of February 1, 1996 between
the Company and David L. Shaw (6)
11 Statement of Computation of Per Share Loss Filed Electronically
27 Financial Data Schedule Filed Electronically
</TABLE>
_____________________________
(1) Incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995 (File No.
0-26116).
(2) Incorporated herein by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (File No.
0-26116).
(3) Incorporated herein by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996
(File No. 0-26116).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-91928).
(5) Exhibit contains portions for which confidential treatment has been
granted to the Company.
(6) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
(File No. 0-26116).
<PAGE>
SPINE-TECH, INC.
Exhibit 11---Statement Re: Computation of Loss Per Share
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY LOSS PER SHARE:
Weighted average shares outstanding 9,824,959 2,249,514 9,765,828 2,180,573
SAB No. 83 shares -- for stock options
granted at exercise prices less than the
initial public offering price during the
12 months preceding the initial public
offering using the treasury stock method -- 353,742 -- 353,742
---------- --------- ----------- ---------
9,824,959 2,603,256 9,765,828 2,534,315
---------- --------- ----------- ---------
---------- --------- ----------- ---------
Net loss $ (585,457) $ (94,122) $ (940,461) $(192,838)
---------- --------- ----------- ---------
---------- --------- ----------- ---------
Primary loss per share $ (0.06) $ (0.04) $ (0.10) $ (0.08)
---------- --------- ----------- ---------
---------- --------- ----------- ---------
FULLY DILUTED LOSS PER SHARE:
Weighted average shares outstanding 9,824,959 6,384,742 9,765,828 6,315,801
SAB No. 83 shares -- for stock options
granted at exercise prices less than the
initial public offering price during the
12 months preceding the initial public
offering using the treasury stock method -- 353,742 -- 353,742
---------- --------- ----------- ---------
9,824,959 6,738,484 9,765,828 6,669,543
---------- --------- ----------- ---------
---------- --------- ----------- ---------
---------- --------- ----------- ---------
Net loss $ (585,457) $ (94,122) $ (940,461) $(192,838)
---------- --------- ----------- ----------
---------- --------- ----------- ----------
Fully diluted loss per share $ (0.06) $ (0.01) $ (0.10) $ (0.03)
---------- --------- ----------- ---------
---------- --------- ----------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS OF SPINE-TECH, INC., FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000889842
<NAME> SPINE-TECH, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 494,209
<SECURITIES> 22,431,362
<RECEIVABLES> 920,851
<ALLOWANCES> 60,583
<INVENTORY> 5,045,096
<CURRENT-ASSETS> 25,315,747
<PP&E> 2,735,239
<DEPRECIATION> 355,874
<TOTAL-ASSETS> 31,887,904
<CURRENT-LIABILITIES> 576,065
<BONDS> 0
0
0
<COMMON> 98,711
<OTHER-SE> 31,213,128
<TOTAL-LIABILITY-AND-EQUITY> 31,887,904
<SALES> 2,947,469
<TOTAL-REVENUES> 2,947,469
<CGS> 1,129,131
<TOTAL-COSTS> 1,129,131
<OTHER-EXPENSES> 3,537,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (940,461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (940,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (940,461)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
