<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 MARCH 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From ________________
to _________________.
Commission file number 0-26116
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
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(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
--- ---
As of MAY 5, 1997, there were issued and outstanding 10,091,711 shares of
Common Stock, $.01 par value.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPINE-TECH, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,755,277 $ 1,724,043
Short-term investments - Note C 13,553,600 9,674,222
Accounts receivable 5,699,670 3,150,981
Inventories - Note B 6,330,201 6,982,802
Deferred tax asset 1,360,800 2,155,300
Interest receivable 145,931 221,178
Prepaid expenses 105,375 146,362
----------- -----------
Total current assets 29,950,854 24,054,888
Land and building 5,126,830 5,049,315
Furniture and fixtures 718,436 704,857
Equipment 1,199,679 1,087,919
Accumulated depreciation (533,924) (373,299)
----------- -----------
6,511,021 6,468,792
Investments - Note C -- 3,535,474
----------- -----------
Total assets $36,461,875 $34,059,154
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 479,179 $ 567,490
Accrued clinical payments 67,272 41,850
Accrued royalties 611,877 365,272
Other accrued expenses 1,292,007 437,691
----------- -----------
Total current liabilities 2,450,335 1,412,303
Commitments and contingencies -- --
Shareholders' equity:
Common Stock, par value $.01 per share: authorized
shares - 15,000,000. Issued and outstanding shares:
December 31, 1996 - 9,939,055; March 31, 1997 - 10,069,012 100,690 99,391
Additional paid-in capital 35,282,703 35,108,809
Accumulated deficit (1,371,853) (2,561,349)
----------- -----------
Total shareholders' equity 34,011,540 32,646,851
----------- -----------
Total liabilities and shareholders' equity $36,461,875 $34,059,154
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at December 31, 1996 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)
Three Months Ended
March 31,
-------------------------
1997 1996
----------- ----------
Net sales $ 9,403,879 $1,445,422
Cost of goods sold 2,190,968 562,942
----------- ----------
Gross profit 7,212,911 882,480
Operating expenses:
Sales and marketing 3,301,422 547,749
General and administrative 1,485,533 671,137
Research and development 632,344 415,766
----------- ----------
Total operating expenses 5,419,299 1,634,652
----------- ----------
Operating income (loss) 1,793,612 (752,172)
Interest income, net 190,385 397,168
----------- ----------
Income (loss) before taxes 1,983,997 (355,004)
Income tax expense 794,500 --
----------- ----------
Net income (loss) $ 1,189,497 $ (355,004)
----------- ----------
----------- ----------
Net income (loss) per share:
Primary $ 0.11 $ (0.04)
Fully diluted $ 0.10 $ (0.04)
Weighted average shares outstanding:
Primary 11,328,054 9,706,697
Fully diluted 11,392,170 9,706,697
See notes to condensed financial statements.
<PAGE>
SPINE-TECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,189,497 $ (355,004)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 160,624 71,011
Common Stock and stock options issued
for consulting services 12,262 --
Changes in operating assets and liabilities:
Accounts receivable (2,548,689) 984,846
Inventories 652,601 (1,201,373)
Deferred tax asset 794,500 --
Interest receivable 75,247 (88,293)
Prepaid expenses 40,987 47,042
Accounts payable and accrued expenses 1,038,032 128,278
----------- -----------
Cash provided by (used in) in operating activities 1,415,061 (413,493)
INVESTING ACTIVITIES
Purchase of property and equipment (202,854) (139,641)
Purchases of investments (343,904) (495,658)
----------- -----------
Cash used in investing activities (546,758) (635,299)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock -- --
Proceeds from stock options exercised 162,931 263,202
----------- -----------
Cash provided by financing activities 162,931 263,202
Increase (decrease) in cash and cash equivalents 1,031,234 (785,590)
Cash and cash equivalents at beginning of period 1,724,043 1,171,034
----------- -----------
Cash and cash equivalents at end of period $ 2,755,277 $ 385,444
----------- -----------
----------- -----------
</TABLE>
See notes to condensed financial statements.
<PAGE>
SPINE-TECH, INC.
Notes to Condensed Financial Statements (Unaudited)
March 31, 1997
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 three-month
period ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. For further
information, refer to the financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
Note B - Inventories
The components of inventory consist of the following:
March 31, December 31,
1997 1996
---------- ------------
Raw material $ 90,081 $ 38,653
Work in process 1,565,979 1,285,133
Finished products 4,674,141 5,657,986
---------- ------------
$6,330,201 $6,981,772
---------- ------------
---------- ------------
Note C - Investments
The amortized cost and estimated market value of investments are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
As of December 31, 1996:
U.S. government obligations $ 3,525,974 $ 7,691 $ -- $ 3,533,665
Corporate debt securities 6,022,928 -- 66,288 5,956,640
Commercial paper 3,660,794 15,059 -- 3,765,853
----------- ---------- ---------- -----------
$13,209,696 $22,750 $ 66,288 $13,166,158
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
As of March 31, 1997:
U.S. government obligations $ 2,526,555 $ 9,621 $ -- $ 2,536,176
Corporate debt securities 4,006,808 -- 66,647 3,940,161
Commercial paper 7,020,238 40,308 -- 7,060,546
----------- ---------- ---------- -----------
$13,553,600 $49,930 $ 66,647 $13,536,883
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
<PAGE>
The amortized cost and estimated fair market value of investments by
contractual maturity are shown below:
March 31, 1997 December 31, 1996
----------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
Due in one year or less $13,553,600 $13,536,883 $ 9,674,222 $ 9,645,727
Due after one year -- -- 3,535,474 3,520,431
----------------------------------------------------
$13,553,600 $13,536,883 $13,209,696 $13,166,158
----------------------------------------------------
----------------------------------------------------
Note D - Net Income (Loss) Per Share
The net income (loss) per share is computed using the weighted average number
of shares of Common Stock and common stock equivalents, if dilutive,
outstanding during the periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share for the first
quarter ended March 31, 1997 and 1996 of $.01 and $.00 per share,
respectively. The impact of Statement 128 on the calculation of fully
diluted earnings per share is not expected to be material.
<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. The Company's spinal implants are designed to
facilitate fusion of spinal vertebrae in order to reduce spinal instability
that can cause chronic, disabling back pain.
A clinical trial of the Company's BAK-TM- Interbody Fusion System
device began in April 1992 under an Investigational Device Exemption ("IDE")
in the United States. Based upon data from the clinical trial, the Company
submitted a Pre-Market Approval Application ("PMA") to the United States Food
and Drug Administration (the "FDA"). On May 23, 1996, the 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. On September 20, 1996, the Company received FDA approval to
market the BAK Interbody Fusion System in the United States, and the Company
commenced domestic commercial shipments of the BAK.
The Company has developed and is developing additional products which
address degenerative disc disease and other spinal conditions. In addition
to the BAK Interbody Fusion System, the Company has developed the BAK/C-TM-
which is used in the cervical spine. Like the BAK, the BAK/C is subject to
extensive clinical trials under a separate IDE from the FDA. The BAK/C
clinical trial commenced during the first quarter of fiscal 1995. The BAK/C
has been introduced into certain international markets. As international
approvals are received, the BAK/C will be introduced into additional
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. While the
product has been rolled-out on a nationwide basis, sales efforts have been
minimal on this product since BAK commercial launch. 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 Interbody Fusion System outside of the United States 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 outside of the United
States for a period of one year from notification of termination of exclusive
rights. Smith & Nephew accounted for 66% of net sales for the first quarter
ended March 31, 1995 With the termination of the exclusive distribution
agreement, Smith & Nephew accounted for 16% of net sales for the first
quarter ended March 31, 1996 and no sales for the first quarter ended March
31, 1997. The Company is in the process of appointing independent
international distributors on a country by country basis to distribute the
BAK product line. There can be no assurance that the Company will be
successful in identifying and appointing independent international
distributors who will be able to successfully sell the BAK product line.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Net sales increased to $9.4 million for the three months ended March 31,
1997 from $1.4 million for the three months ended March 31, 1996. Net sales
for the period were primarily affected by the previously discussed FDA
approval to market the BAK in the United States. For the three months ended
March 31, 1997, BAK revenues accounted for 92% of net sales, as compared to
51% of net sales for the three months ended March 31, 1996. Total
international revenues for the three months ended March 31, 1997 were
$553,000, up slightly from $541,000 for the three months ended March 31,
1996. However, for the first quarter of 1996, sales to Smith & Nephew were
$231,000, or 43% of international sales, whereas during the first quarter of
1997, all sales were to independent distributors.
Gross profit increased to $7.2 million for the three months ended March
31, 1997 from $882,000 for the three months ended March 31, 1996. This
increase was primarily due to the substantial increase in net sales for the
first quarter of 1997 over the first quarter of 1996. As a percentage of net
sales, gross profit was 76.7% for the three months ended March 31, 1997, as
compared to 61% in the comparable period in 1996. This improvement is the
direct result of the increased sales of the BAK implants as a percentage of
total sales.
Total operating expenses increased to $5.4 million for the three months
ended March 31, 1997, from $1.6 million for the three months ended March 31,
1996. Sales and marketing expenses increased to $3.3 million for the three
months ended March 31, 1997 from $548,000 for the three months ended March
31, 1996, decreasing as a percentage of net sales to 35.1%, compared to 37.9%
for the comparable period in 1996. Most of the increase was related to the
establishment of a direct sales force in the United States, the cost of
conducting surgeon BAK training programs and increased marketing efforts.
General and administrative expenses increased to $1.5 million for the three
months ended March 31, 1997 from $671,000 for the three months ended March
31, 1996, decreasing as percentage of net sales to 15.8%, compared to 46.4%
for the comparable period in 1996. Expense increases relate primarily to
additional personnel needed to support increased sales activities. Research
and development expenses increased to $632,000 for the three months ended
March 31, 1997, from $416,000 for the three months ended March 31, 1996,
decreasing as a percentage of net sales to 6.7%, compared to 29% for the
comparable period in 1996. Interest income totaled $190,000 for the three
months ended March 31, 1997, compared to $397,000 for the quarter ended March
31, 1996. The decrease is due to the reduced amount of funds available for
short term investments during the three months ended March 31, 1997 resulting
from the use of cash to fund working capital needs and capital purchases
during the past twelve month period.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1997, cash and cash equivalents
increased by $1.0 million. Of this amount, $1.4 million was generated by
operating activities, $162,000 provided by the exercise of stock options,
while $202,000 was used to purchase property and equipment, and $344,000 was
used to purchase short-term investments.
Until funds are needed for operating purposes, they have been invested
primarily in short term U.S. government obligations and corporate debt
securities. As of March 31, 1997, the Company had $13.5 million of these
investments, all with a maturity of one year or less. 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 for the foreseeable future.
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 medical device market is characterized by frequent and substantial
intellectual property litigation. Intellectual property litigation is
complex and expensive, and the outcome of such litigation is difficult to
predict.
The Company is not aware of any patent infringement charge or any
violation of other proprietary rights claimed by any third party relating to
the Company or the Company's products, except as set forth below. However,
no assurance can be given that the Company or its products will not become
the subject of such a claim in the future. Any future litigation could
result in substantial expense to the Company and significant diversion of
effort by its technical and management personnel. Litigation may also be
necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by it or to determine the enforceability, scope and
validity of the proprietary rights of others. An adverse determination in
any such proceeding could subject the Company to significant liabilities to
third parties, or require it to seek licenses from, and pay substantial
royalties to, third parties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms,
or at all. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could
prevent the Company from manufacturing and selling certain of its products,
which would have a material adverse effect on its business, financial
condition and results of operations.
The Company is involved in litigation related to its license of the
Karlin Technology from Dr. Michelson and 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 and the inventorship of one of the Company's patents. 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, Central District of California. In December
1994, the plaintiffs served the defendants with a second amended complaint
(the "Complaint"). The Company filed an answer to the Complaint in January
1995 denying the material allegations and setting forth affirmative defenses.
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. 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 relating to
the Karlin Technology has been the subject of a dispositive motion resulting
in an order by the court granting its dismissal in the Company's favor. On
February 12, 1996, the court entered Judgment finding that the Company is the
prevailing party on all counts of the Complaint. Dr. Michelson and Karlin
have appealed the judgment to the Ninth Circuit Court of Appeals. An oral
hearing before the appellate court is scheduled for June 4, 1997.
On June 19, 1995, the Company received a purported notice of termination
of the Karlin 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. The Company denies, however, 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 license agreement
also provides for non-binding arbitration and the right of a breaching party
to cure a preach by adopting the recommendation of the arbitrator. On
September 15, 1995, the Company commenced a non-binding arbitration against
Dr. Michelson and Karlin in Minneapolis before the American Arbitration
Association asserting that purported termination of the license agreement is
meritless and ineffective. Dr. Michelson and Karlin have taken the position
in the arbitration that they do not intend to seek to enforce the purported
termination. They also contend, however, that they may in the future
terminate the license agreement if the
<PAGE>
royalty reports are determined to have been inadequate. Although the Company
believes that a valid termination of the agreement will not be a remedy
available to Karlin and Michelson, a determination against the Company could
have a material adverse effect on the Company's business, financial condition
and results of operations.
On August 13, 1996, Karlin and Michelson filed an arbitration before the
American Arbitration Association in Los Angeles. Karlin and Michelson seek
in this arbitration (i) an award of royalties which they claim the Company
has not paid, and (ii) a declaration that Dr. Michelson is the inventor of
certain surgical methods used by or claimed to be invented by the Company,
damages for failure to give Dr. Michelson inventive credit for these methods,
and an order that the Company place corrective advertising to ameliorate the
purported failure. After the Company objected to Los Angeles as the forum
for this arbitration, the AAA transferred the arbitration to Minnesota so
that it could be coordinated with the prior pending arbitration filed by the
Company. Both arbitrations are currently pending before the AAA in
Minnesota. No discovery has yet taken place and no hearing dates have been
set.
The Company and Karlin and Dr. 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, Dr. Michelson in the above-referenced California
action asserted that he was the true inventor of the then pending patent
application for the patent. This claim was dismissed for lack of a
justifiable controversy. In the Minnesota action brought by the Company, Dr.
Michelson filed a motion to dismiss for lack of personal jurisdiction which
was denied. Karlin and Michelson then filed a motion to dismiss, transfer or
stay the action, asserting that the action should be heard only in the United
States District Court for the Central District of California. In April 1997,
the Minnesota court denied the motions to dismiss or transfer, but granted
the motion to stay pending the decision of the Ninth Circuit Court of
Appeals. On December 16, 1996, Karlin and Dr. Michelson filed an action
against the Company in the United States District Court for the Central
District of California. The complaint seeks (i) declaratory relief that Dr.
Michelson is the true inventor and owner of the patent, or in the
alternative, that the patent in invalid; (ii) unspecified damages and an
injunction based upon the Company's acquisition and exploitation of the
patent; (iii) unspecified damages and termination of the Karlin license
agreement based upon numerous allegedly false representations made by the
Company in connection with the entry into the License Agreement; (iv)
unspecified damages for alleged disparagement of title in connection with the
bilateral predistraction method and associated instruments specified in the
patent; (v) unspecified damages for breach of fudiciary duty in connection
with alleged failures by the Company to pay royalties due and the Company's
conduct related to the patent; (vi) unspecified damages for misappropriation
of trade secrets in connection with the application for and exploitation of
the patent; and (vii) unspecified damages for statutory unfair competition in
connection with the same alleged conduct. The complaint also seeks
unspecified punitive damages. The Company has not yet responded to this
complaint. Although the Company believes that neither a termination of the
agreement nor substantial damages will be remedies available to Karlin and
Dr. Michelson in this action, a determination against the Company could have
a material adverse effect on its business, financial condition and results of
operation.
Surgical Dynamics, Inc., 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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amended and Restated Articles of Incorporation of the Company.(1)(2)(3)
3.2 Restated By-Laws of the Company and Amendment to Restated By-Laws of
the Company.(4)
4.1 Specimen of Common Stock certificate.(5)
4.2 Form of Rights Agreement dated as of August 21, 1996 between the
Company and Norwest Bank Minnesota, N.A.(3)
10.1 1994 Spine-Tech, Inc. Stock Option Plan.*(6)
10.2 Spine-Tech, Inc. 1993 Non-Employee Director Stock Option Plan.*(7)
10.3 Spine-Tech, Inc. 1991 Stock Option Plan.*(8)
10.4 Loan Agreement between the Company and Riverside Bank dated April 20,
1995.(9)
10.5 Spine-Tech, Inc. 1996 Employee Stock Purchase Plan.*(10)
10.6 Spine-Tech, Inc. 1996 Omnibus Stock Plan.*(11)
10.7 License Agreement dated as of May 10, 1992, among the Company, Karlin
Technology, Inc. and Gary K. Michelson.(12)(13)
10.8 License Agreement dated as of January 1, 1995 between the Company and
Dr. Ted Obenchain.(13)(14)
10.9 Employment Agreement between the Company and David W. Stassen dated
June 15, 1992.*(15)
10.10 Employment Letter from the Company to David W. Stassen dated June
2, 1992.* (16)
10.11 Employment Agreement between the Company and Ted K. Schwarzrock
dated November 1, 1993.*(17)
10.12 Management Agreement dated as of February 1, 1996 between the
Company and David W. Stassen.(18)
10.13 Management Agreement dated as of February 1, 1996 between the
Company and Keith M. Eastman.*(19)
10.14 Management Agreement dated as of February 1, 1996 between the
Company and Ted K. Schwarzrock.*(20)
10.15 Management Agreement dated as of February 1, 1996 between the
Company and Douglas W. Kohrs.*(21)
<PAGE>
10.16 Management Agreement dated as of February 1, 1996 between the
Company and Richard C. Jansen.*(22)
10.17 Management Agreement dated as of February 1, 1996 between the
Company and David L. Shaw.*(23)
10.18 Collaboration agreement between the Company and Ethicon Endo
Surgery dated June 27, 1994.(24)
11 Statement of Computation of Net Income (Loss).
27 Financial Data Schedule (filed electronically).
- -------------------------
* Management contract of compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
(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 1 to the Company's Current
Report on Form 8-K dated August 21, 1996.
(4) Incorporated by reference to Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996.
(5) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(6) Incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(7) Incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(8) Incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(9) Incorporated by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(10) Incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(11) Incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(12) Incorporated by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(13) Exhibit contains portions for which confidential treatment has been
granted to the Company.
<PAGE>
(14) Incorporated by reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(15) Incorporated by reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(16) Incorporated by reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(17) Incorporated by reference to Exhibit 10.21 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(18) Incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(19) Incorporated by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(20) Incorporated by reference to Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(21) Incorporated by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(22) Incorporated by reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(23) Incorporated by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(24) Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(b) Reports on Form 8-K
No reports were filed during the quarter ended March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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: May 8, 1997 By: David W. Stassen
----------------------------------------
David W. Stassen,
President and Chief Executive Officer
Date: May 8, 1997 By: Keith M. Eastman
----------------------------------------
Keith M. Eastman,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company.
(1)(2)(3)
3.2 Restated By-Laws of the Company and Amendment to Restated
By-Laws of the Company.(4)
4.1 Specimen of Common Stock certificate.(5)
4.2 Form of Rights Agreement dated as of August 21, 1996 between
the Company and Norwest Bank Minnesota, N.A.(3)
10.1 1994 Spine-Tech, Inc. Stock Option Plan.*(6)
10.2 Spine-Tech, Inc. 1993 Non-Employee Director Stock Option
Plan.* (7)
10.3 Spine-Tech, Inc. 1991 Stock Option Plan.*(8)
10.4 Loan Agreement between the Company and Riverside Bank dated
April 20, 1995.(9)
10.5 Spine-Tech, Inc. 1996 Employee Stock Purchase Plan.*(10)
10.6 Spine-Tech, Inc. 1996 Omnibus Stock Plan.*(11)
10.7 License Agreement dated as of May 10, 1992, among the Company,
Karlin Technology, Inc. and Gary K. Michelson.(12)(13)
10.8 License Agreement dated as of January 1, 1995 between the Company
and Dr. Ted Obenchain.(13)(14)
10.9 Employment Agreement between the Company and David W. Stassen
dated June 15, 1992.*(15)
10.10 Employment Letter from the Company to David W. Stassen dated
June 2, 1992.*(16)
10.11 Employment Agreement between the Company and Ted K. Schwarzrock
dated November 1, 1993.*(17)
10.12 Management Agreement dated as of February 1, 1996 between the
Company and David W. Stassen.(18)
10.13 Management Agreement dated as of February 1, 1996 between the
Company and Keith M. Eastman.*(19)
10.14 Management Agreement dated as of February 1, 1996 between the
Company and Ted K. Schwarzrock.*(20)
10.15 Management Agreement dated as of February 1, 1996 between the
Company and Douglas W. Kohrs.*(21)
<PAGE>
10.16 Management Agreement dated as of February 1, 1996 between the
Company and Richard C. Jansen.*(22)
10.17 Management Agreement dated as of February 1, 1996 between the
Company and David L. Shaw.*(23)
10.18 Collaboration agreement between the Company and Ethicon Endo
Surgery dated June 27, 1994.(24)
11 Statement of Computation of Net Income (Loss). Filed Electronically
27 Financial Data Schedule. Filed Electronically
-----------------------------------
* Management contract of compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
(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 1 to the Company's Current
Report on Form 8-K dated August 21, 1996.
(4) Incorporated by reference to Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996.
(5) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(6) Incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(7) Incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(8) Incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-91928).
(9) Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No. 33-91928).
(10) Incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(11) Incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(12) Incorporated by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
<PAGE>
(13) Exhibit contains portions for which confidential treatment has been
granted to the Company.
(14) Incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1 (Registration No. 33-91928).
(15) Incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (Registration No. 33-91928).
(16) Incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (Registration No. 33-91928).
(17) Incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (Registration No. 33-91928).
(18) Incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(19) Incorporated by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(20) Incorporated by reference to Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(21) Incorporated by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(22) Incorporated by reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(23) Incorporated by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(24) Incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (Registration No. 33-91928).
<PAGE>
SPINE-TECH, INC.
EXHIBIT 11--STATEMENT RE: COMPUTATION OF INCOME (LOSS) PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, March 31,
--------------------------------------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER SHARE:
Weighted average shares outstanding 10,011,095 9,706,697 10,011,095 9,706,697
Net effect of dilutive stock options --
based on the treasury stock method 1,316,959 -- 1,316,959 --
----------- ---------- ----------- -----------
11,328,054 9,706,697 11,328,054 9,706,697
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net income (loss) $ 1,189,497 $ (355,004) $ 1,189,497 $ (355,004)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Primary income (loss) per share $ 0.11 $ (0.04) $ 0.11 $ (0.04)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
FULLY DILUTED INCOME (LOSS) PER SHARE:
Weighted average shares outstanding 10,011,095 9,706,697 10,011,095 9,706,697
Net effect of dilutive stock options --
based on the treasury stock method 1,381,075 -- 1,381,075 --
----------- ---------- ----------- -----------
11,392,170 9,706,697 11,392,170 9,706,697
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net income (loss) $ 1,189,497 $ (355,004) $ 1,189,497 $ (355,004)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Income (loss) per share $ 0.10 $ (0.04) $ 0.10 $ (0.04)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</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 THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000889842
<NAME> SPINE-TECH, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,755,277
<SECURITIES> 13,553,600
<RECEIVABLES> 5,782,193
<ALLOWANCES> 82,523
<INVENTORY> 6,330,201
<CURRENT-ASSETS> 29,950,854
<PP&E> 7,044,945
<DEPRECIATION> 533,924
<TOTAL-ASSETS> 36,461,875
<CURRENT-LIABILITIES> 2,450,335
<BONDS> 0
0
0
<COMMON> 100,690
<OTHER-SE> 33,910,850
<TOTAL-LIABILITY-AND-EQUITY> 36,461,875
<SALES> 9,403,879
<TOTAL-REVENUES> 9,403,879
<CGS> 2,190,968
<TOTAL-COSTS> 2,190,968
<OTHER-EXPENSES> 5,419,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,983,997
<INCOME-TAX> 794,500
<INCOME-CONTINUING> 1,189,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,189,497
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
</TABLE>
