UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 0-26082
VIDAMED, INC.
(exact name of registrant as specified in its charter)
Delaware 77-0314454
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1380 Willow Road, Suite 101
Menlo Park, CA 94025
(Address of principal executive offices)
(415) 328-8781
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
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. [ X ] Yes [ ] No
The number of outstanding shares of the registrant's Common Stock, $.001 par
value, was 10,726,686 as of May 10, 1996.
<PAGE>
<TABLE>
VIDAMED, INC.
INDEX
PART I: FINANCIAL INFORMATION
<CAPTION>
Page
<S> <C>
Item 1. Condensed consolidated financial statements - unaudited
Condensed consolidated balance sheets - March 31, 1996
and December 31, 1995 3
Condensed consolidated statements of operations - three months
ended March 31, 1996 and 1995 4
Condensed consolidated statements of cash flows - three months
ended March 31, 1996 and 1995 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition
and results of operations 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
Page 2 of 16
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VidaMed, Inc.
Condensed Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(Unaudited) (*)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 11,144,937 $ 5,686,497
Short-term investments 5,913,200 8,003,379
Other current assets 2,338,517 1,982,082
------------ ------------
Total current assets 19,396,654 15,671,958
Property and equipment, net 2,863,987 2,908,837
Other assets, net 232,289 235,331
------------ ------------
Total assets $ 22,492,930 $ 18,816,126
============ ============
Liabilities and stockholders' equity Current liabilities:
Notes payable, current portion 977,239 $ 3,650,049
Accounts payable 442,197 486,888
Accrued compensation 252,071 174,623
Accrued professional fees 251,254 337,817
Accrued clinical trial costs 886,394 977,705
Accrued and other liabilities 2,948,200 2,898,273
Deferred revenue 672,917 779,167
------------ ------------
Total current liabilities 6,430,272 9,304,522
Notes payable, noncurrent 1,288 339 1,543,084
Convertible notes, noncurrent 10,100,000 --
Other long-term liabilities 1,023,929 1,213,825
Stockholders' equity:
Capital stock 45,313,534 45,087,483
Accumulated deficit (41,663,144) (38,332,788)
------------ ------------
Total stockholders' equity 3,650,390 6,754,695
------------ ------------
Total Liabilities and stockholders' equity $ 22,492,930 $ 18,816,126
============ ============
<FN>
* Derived from audited financial statements
See accompanying notes.
</FN>
</TABLE>
Page 3 of 16
<PAGE>
VidaMed, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
----------------------------
1996 1995
----------- -----------
Revenues:
Product sales, net $ 380,591 $ 668,295
License fees and grant revenue 107,444 108,684
----------- -----------
Net revenues 488,035 776,979
Operating Expenses:
Cost of product sales 789,923 936,667
Research and development 1,411,070 1,443,151
Selling, general and administrative 1,614,405 1,590,760
----------- -----------
Total operating expenses 3,815,398 3,970,578
Loss from operations (3,327,363) (3,193,599)
Other expense, net (2,993) (139,379)
----------- -----------
Net loss $(3,330,356) $(3,332,978)
=========== ===========
Net loss per share ($ .36) ($ 1.43)
=========== ===========
Shares used in computing net loss per share 9,349,798 2,332,292
=========== ===========
See accompanying notes.
Page 4 of 16
<PAGE>
<TABLE>
VidaMed, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,330,356) $ (3,332,978)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 352,867 260,521
Other (22,030) (3,732)
Changes in assets and liabilities:
Other current assets (356,435) 98,875
Other assets 3,042 18,595
Accounts payable (44,691) (413,854)
Accrued compensation 77,448 110,083
Accrued professional fees (86,563) (89,368)
Accrued clinical trial costs (91,311) 72,357
Accrued and other liabilities 42,790 56,856
Deferred revenue (106,250) (106,249)
------------ ------------
Net cash used in operating activities (3,561,489) (3,328,894)
------------ ------------
Cash flows from investing activities:
Expenditures for property and equipment (284,017) (118,611)
Purchase of short-term investments (4,902,387) --
Proceeds from maturities of short-term investments 7,000,000 --
------------ ------------
Net cash provided by/(used in) investing activities 1,813,596 (118,611)
------------ ------------
Cash flows from financing activities:
Net cash proceeds from issuance of Common Stock 209,099 59,320
Principal payments under capital leases (170,092) (181,499)
Principal payments of long-term debt (5,119) (3,989)
Principal payments of notes payable (2,927,555) --
Net proceeds from issuance of notes payable
and Convertible Notes 10,100,000 4,168,805
------------ ------------
Net cash provided by financing activities 7,206,333 4,042,637
------------ ------------
Net increase in cash and cash equivalents 5,458,440 595,132
Cash and cash equivalents at the beginning
of the period 5,686,497 371,638
------------ ------------
Cash and cash equivalents at the end of the period $ 11,144,937 $ 966,770
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
Page 5 of 16
<PAGE>
VIDAMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements of
VidaMed, Inc. (the "Company" or "VidaMed") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X. The
balance sheet as of March 31, 1996 and the statements of operations for the
three months periods ended March 31, 1996 and 1995, and the statements of cash
flows for the three month periods ended March 31, 1996 and 1995, are unaudited
but include all adjustments (consisting of normal recurring adjustments) which
the Company considers necessary for a fair presentation of the financial
position at such dates and the operating results and cash flows for those
periods. Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information normally included in financial statements and related
footnotes prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The accompanying financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's annual report on Form 10-K for the year ended December 31,
1995.
Results for any interim period are not necessarily indicative of results for any
other interim period or for the entire year.
2. Net loss per share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the periods presented. Common equivalent shares
are excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares (stock options, warrants, convertible notes
and preferred stock) issued during the 12 month period prior to the Company's
initial public offering (IPO) have been included in the calculation as if they
were outstanding for all periods through March 31, 1995 (using the treasury
stock method for stock options and warrants and the if-converted method for
convertible notes and preferred stock).
Page 6 of 16
<PAGE>
The pro forma calculation of net loss per share presented below has been
computed as described above but also gives retroactive effect from the date of
issuance to the conversion of the convertible preferred stock which
automatically converted to common shares upon closing of the Company's initial
public offering.
Three months ended
March 31, 1995
------------------
Pro forma net loss per share $ (.57)
==========
Shares used in computation 5,800,039
=========
3. Initial public offering
In June 1995, the Company completed an initial public offering ("IPO") of
3,565,000 shares of Common Stock at a price to the public of $6.50 per share.
The net proceeds of the offering to the Company, after deducting underwriting
discounts and expenses, were $20.8 million.
Upon completion of the IPO all 3,424,481 outstanding shares of convertible
preferred stock were automatically converted into 3,618,103 shares of common
stock.
Upon completion of the IPO $1,518,805 of convertible notes were automatically
converted into 333,800 shares of common stock. The conversion price on the
convertible notes of $4.55 per common share was based on 70% of the IPO price.
4. Inventories
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market value. Inventories at March 31, 1996 and December
31, 1995 consist of the following:
March 31, December 31,
1996 1995
---------- ----------
Raw Materials $ 599,000 $ 507,000
Work in process 31,000 154,000
Finished Goods 515,000 684,000
---------- ----------
$1,145,000 $1,345,000
========== ==========
Page 7 of 16
<PAGE>
5. Intellectual Property Litigation Risks
The Company is aware that EP Technologies, Inc. ("EPT") and the University of
California ("UC") have filed a United States patent application in the field of
ablation of body tissue. These parties have also requested the United States
Patent and Trademark Office to declare an interference with two of VidaMed's
United States patent applications on which notices of allowances have been
received. The inventors identified on the EPT/UC application are Stuart Edwards,
who was previously VidaMed's Chief Executive Officer and was previously the
Chief Technical Officer of EPT, and a cardiologist from the University of
California, San Francisco, who worked as a consultant to EPT while Mr. Edwards
was employed there.
Although the Company believes that the interference will not be allowed on the
patents, an adverse determination in litigation or interference proceedings to
which the Company may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties. 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 its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
6. Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. The Company invests its excess cash with
major banks or investment managers. Short-term investments consist of corporate
paper and government securities with remaining maturities at the date of
purchase of greater than 90 days and less than one year. Short-term investments
are designated as available for sale and carried at fair market value, with
unrealized gains and losses reported in stockholders' equity.
7. Convertible notes
In March 1996, the Company completed the sale of $10.1 million of 5% Convertible
Subordinated Notes Payable. The Notes are due February 28, 1999, if not
previously converted. Interest is payable semiannually in either cash or Common
Stock of the Company. The Notes are convertible into Common Stock of VidaMed
based upon a percentage (ranging from 80% to 85%) of the average closing bid
price over a period of five trading days prior to conversion. The Notes are
convertible at the option of the Noteholder 41 days after issuance or at the
option of the Company one year after issuance. At May 10, 1996 $9.55 million in
principal and accrued interest on these notes had been converted into an
aggregate of 1,320,707 shares of Common Stock.
Page 8 of 16
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three months ended March 31, 1996 and 1995, should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's 10K for the year ended
December 31, 1995
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from those
anticipated by the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below and in the
Company's report on Form 10-K for the year ended December 31, 1995.
Overview
VidaMed has a limited history of operations and has experienced significant
operating losses since inception. As of March 31, 1996, the Company had an
accumulated deficit of $41.7 million. The Company commenced sales of its
TransUrethral Needle Ablation ("TUNA") system in late 1993. Revenues for the
quarter ended March 31, 1995 also include consulting revenues and electronic
component sales by Scionex, a wholly-owned subsidiary acquired in June 1994.
Sales by Scionex to third parties have been discontinued as of the end of 1995
as Scionex has directed all of its activities to development and production of
the radiofrequency generators for the TUNA System. Revenues for the quarters
ended March 31, 1996 and 1995 include license fees for distribution rights in
Japan and a United Kingdom government grant.
VidaMed anticipates that a substantial amount of its revenues from product sales
in the future will be from sales in the United States contingent upon receiving
FDA approval for its TUNA System in 1996. VidaMed filed a premarket 510(k)
notification with the Food and Drug Administration ("FDA") for the TUNA System
in March 1996. VidaMed currently sells its products internationally primarily to
distributors who resell to physicians and hospitals. Sales to distributors are
made on open credit terms and may include volume purchase discounts and extended
payment terms. Therefore, distributors may purchase several months of inventory
at one time to take advantage of discounts and extended payment terms. While
revenue from product sales are generally recognized at the time of shipment (net
of allowances for discounts and estimated returns), a portion of the Company's
initial shipments to distributors have not been recognized as revenues due to
extended payment terms or limited sell through experience associated with these
distributors. The Company anticipates continuing this revenue recognition
policy; however, as its distributor relationships mature, the Company believes
that it will recognize a greater portion of revenues upon shipment.
The Company expects its operating losses to continue through at least fiscal
year 1996 as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities and research and development.
Page 9 of 16
<PAGE>
The Company does not have a backlog of orders for its products and anticipates
that it will continue to manufacture and ship orders after their receipt.
Accordingly, the Company does not anticipate that it will develop a significant
backlog in the future.
Results of Operations
Net revenue for the three months ended March 31, 1996 decreased 37% to $488,000
from $777,000 in the three months ended March 31, 1995. Product sales in the
first quarter of 1996 decreased 43% to $381,000 from $668,000 in the same period
in 1995. The decrease in product sales between the first quarter of 1995 and
1996 is primarily the result of the initial orders from new distributors in 1995
and the discontinuance of Scionex sales to third party customers in 1996.
Scionex had sales of $154,000 in the first quarter of 1995.
Cost of product sales decreased 16% to $790,000 in the three months ended March
31, 1996 from $937,000 in the three months ended March 31, 1995. The decrease is
primarily due to lower product sales in the March 31, 1996 quarter, although
excess overhead caused by decreased production partially offset the reduction.
Research and development expenses decreased 2% to $1,411,000 in the three months
ended March 31, 1996 from $1,443,000 in the three months ended March 31, 1995.
The decrease was primarily due to lower clinical trial expenses in 1996, but was
offset by an increase in product development material costs. The decreased
clinical trial costs are due to the completion of the enrollment in the U.S.
clinical trials in 1995.
Selling, general and administrative expenses increased 1% to $1,614,000 in the
three months ended March 31, 1996 from $1,591,000 in the three months ended
March 31, 1995. The increase in the three month period ending March 31, 1996 was
primarily due to increased sales and marketing expense in anticipation of the
U.S. TUNA product launch. Sales and administrative personnel were hired during
the March 1996 quarter in preparation of the TUNA introduction . This was offset
by a slight decrease in general and administrative expenses due to reduced
patent and travel expenses.
Total operating expenses in the three months ended March 31, 1996 decreased 4%
to $3,815,000 from $3,971,000 in the three months ended March 31, 1995.
Other expense decreased in the three months ended March 31, 1996 to $3,000 from
$139,000 in the three months ended March 31, 1995 due to interest earned on
proceeds from the IPO and Convertible Notes offsetting interest expense.
The net loss for the three month period ended March 31, 1996 was $3,330,000,
compared to $3,333,000 for the comparable period in 1995.
Liquidity and Capital Resources
At March 31, 1996 the Company's cash, cash equivalents and short-term
investments were $17,058,000, compared to $13,690,000 at December 31, 1995. In
June 1995 the Company completed an initial public offering of 3,565,000 shares
of Common Stock at a price to the
Page 10 of 16
<PAGE>
public of $6.50 per share. The net proceeds of the offering to the Company,
after deducting underwriting discounts and expenses, were $20.8 million. In
March 1996, the Company completed the issuance of $10.1 million in convertible
subordinated notes payable. As of May 10, 1996 $9.55 million in principal and
accrued interest on these notes had been converted into an aggregate of
1,320,707 shares of Common Stock.
In April 1995, the Company obtained a $3,000,000 secured credit facility. To
date, the Company has borrowed $3,000,000 under this facility. Repayment is
based on a three year amortization schedule.
In January and February 1996, the Company repaid $2,700,000 in previous
outstanding notes payable issued by the Company in January and February 1995.
Interest on these notes accrued at the prime rate.
During the three months ended March 31, 1996 and 1995, VidaMed consumed cash in
operations of $3,561,000 and $3,329,000, respectively. The changes in cash used
in operations were due primarily to the payment of loan fees on the convertible
notes issued in March 1996.
Although VidaMed believes that the proceeds from its initial public offering,
the issuance of convertible notes and cash generated from the sale of products
will be sufficient to meet the Company's operating and capital requirements
through the next twelve months, there can be no assurance that the Company will
not require additional financing within this time frame. There can be no
assurance that additional financing, if required, will be available on
satisfactory terms or at all. In any event, VidaMed may in the future seek to
raise additional funds through bank facilities, debt or equity offerings or
other sources of capital. VidaMed's future liquidity and capital requirements
will depend on numerous other factors, including progress of clinical trials,
actions related to regulatory and reimbursement matters, and the extent to which
the TUNA system gains market acceptance.
Page 11 of 16
<PAGE>
VIDAMED, INC.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(11.1) Statement Re: Computation of Net Loss Per Share
(27.1) Financial Data Schedule
b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended March 31, 1996.
Page 12 of 16
<PAGE>
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.
VIDAMED, INC.
Date: May 10, 1996 By: /s/ James A. Heisch
-------------------------- ----------------------
James A. Heisch
President, Chief Executive Officer,
Chief Financial Officer
(Principal Financial Officer)
Date: May 10, 1996 By: /s/ Thomas M. Fahey
-------------------------- ------------------------
Thomas M. Fahey
Director of Finance
(Principal Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
11.1 Statement regarding computation of net loss per share
27.1 Financial Data Schedule
<TABLE>
EXHIBIT 11.1
VIDAMED, INC.
STATEMENT RE: COMPUTATION OF NET LOSS PER SHARE
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Calculation of shares outstanding for computing net loss per share:
Weighted average shares of common
stock outstanding 9,349,798 1,261,470
SEC Staff Accounting Bulletin Nos. 55, 64 1,070,822
and 83 "cheap stock"
----------- -----------
Total shares used in calculation of net loss per share 9,349,798 2,332,292
Net loss $(3,330,356) $(3,332,978)
Net loss per share ($.36) ($1.43)
Calculation of shares outstanding for computing pro forma net
loss per share:
Shares used in computing net loss per share:
Adjusted to reflect the effect of the assumed
conversion of Preferred Stock from the date
of issuance -- 3,467,747
----------- -----------
Shares used in computing pro forma net loss per share 9,349,798 5,800,039
Net loss $(3,330,356) $(3,332,978)
Pro forma net loss per share ($.36) ($.57)
</TABLE>
Page 15 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,144,937
<SECURITIES> 5,913,200
<RECEIVABLES> 564,128
<ALLOWANCES> 47,847
<INVENTORY> 1,144,721
<CURRENT-ASSETS> 19,396,654
<PP&E> 4,816,181
<DEPRECIATION> 1,952,194
<TOTAL-ASSETS> 22,492,930
<CURRENT-LIABILITIES> 6,430,272
<BONDS> 1,934,490
<COMMON> 9,385
0
0
<OTHER-SE> 3,641,005
<TOTAL-LIABILITY-AND-EQUITY> 22,492,930
<SALES> 380,591
<TOTAL-REVENUES> 488,035
<CGS> 789,923
<TOTAL-COSTS> 3,020,904
<OTHER-EXPENSES> (17,579)
<LOSS-PROVISION> 4,571
<INTEREST-EXPENSE> (5,500)
<INCOME-PRETAX> (3,304,284)
<INCOME-TAX> 26,072
<INCOME-CONTINUING> (3,330,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,330,356)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
