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 June 30, 1997
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)
46107 Landing Parkway
Fremont, CA 94538
(Address of principal executive offices)
(510) 492-4900
(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 12,586,158 as of July 25, 1997.
Page 1 of 15
Exhibit Index At Page 14
<PAGE>
<TABLE>
VIDAMED, INC.
INDEX
<CAPTION>
PART I: FINANCIAL INFORMATION
Page
<S> <C> <C>
Item 1. Condensed consolidated financial statements - unaudited
Condensed consolidated balance sheets - June 30, 1997
and December 31, 1996 3
Condensed consolidated statements of operations - three months
ended June 30, 1997 and 1996 and six months ended 4
June 30, 1997 and 1996
Condensed consolidated statements of cash flows - six months
ended June 30, 1997 and 1996 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition
and results of operations 9
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
Page 2 of 15
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VidaMed, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
1997 1996
-------- --------
(Unaudited) (*)
Assets
Current Assets:
Cash and cash equivalents $ 6,006 3,879
Short-term investments -- 1,976
Accounts Receivable 3,502 2,413
Inventory 1,777 1,447
Other current assets 1,246 665
-------- --------
Total current assets 12,531 10,380
Property and equipment, net 2,395 2,259
Other assets, net 237 208
-------- --------
Total assets $ 15,163 $ 12,847
======== ========
Liabilities and stockholders' equity Current liabilities:
Notes payable, current portion $ 1,026 $ 1,064
Accounts payable 1,563 1,246
Accrued professional fees 435 498
Accrued clinical trial costs 850 982
Accrued and other liabilities 4,187 3,114
Current portion of obligations under capital leases 221 470
Deferred revenue, current portion 621 467
-------- --------
Total current liabilities 8,903 7,841
Notes payable, noncurrent -- 480
Other long-term liabilities 778 825
Stockholders' equity:
Capital stock 65,637 55,577
Accumulated deficit (60,155) (51,876)
-------- --------
Total stockholders' equity 5,482 3,701
-------- --------
Total liabilities and stockholders' equity $ 15,163 $ 12,847
======== ========
* 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 accompanying notes.
Page 3 of 15
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<TABLE>
VidaMed, Inc.
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 2,103 $ 496 $ 5,355 $ 876
License fees and grant revenue 50 107 100 215
-------- -------- -------- --------
Net revenues 2,153 603 5,455 1,091
Cost of Products Sold 1,265 832 3,048 1,622
-------- -------- -------- --------
Gross Profit (Loss) 888 (229) 2,407 (531)
Operating Expenses:
Research and development 1,456 1,339 3,354 2,751
Selling, general and administrative 3,865 1,997 7,223 3,611
-------- -------- -------- --------
Total operating expenses 5,321 3,336 10,577 6,362
Loss from operations (4,433) (3,565) (8,170) (6,893)
Other income(expense), net (102) 11 (109) 8
-------- -------- -------- --------
Net loss $ (4,535) $ (3,554) $ (8,279) $ (6,885)
======== ======== ======== ========
Net loss per share $ (.38) $ (.34) $ (.72) $ (.70)
======== ======== ======== ========
Shares used in computing net loss per share 11,913 10,420 11,521 9,885
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
Page 4 of 15
</TABLE>
<PAGE>
VidaMed, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net loss $ (8,279) $ (6,885)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 670 712
Other 1 29
Changes in assets and liabilities:
Accounts Receivable (1,089) (234)
Inventory (330) 279
Other current assets (581) 126
Other assets (29) 13
Accounts payable 317 97
Accrued and other liabilities 878 179
Deferred revenue 217 (212)
-------- --------
Net cash used in operating activities (8,225) (5,896)
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (758) (451)
Purchase of short-term investments -- (7,846)
Proceeds from maturities of short-term investments 1,976 8,834
-------- --------
Net cash provided by investing activities 1,218 537
-------- --------
Cash flows from financing activities:
Net cash proceeds from issuance of Common Stock 10,002 365
Principal payments under capital leases (318) (345)
Principal payments of long-term debt (32) (10)
Principal payments of notes payable (518) (3,162)
Net proceeds from issuance of notes payable
and convertible notes -- 9,676
-------- --------
Net cash provided by financing activities 9,134 6,524
-------- --------
Net increase in cash and cash equivalents 2,127 1,165
Cash and cash equivalents at the beginning
of the period 3,879 5,687
-------- --------
Cash and cash equivalents at the end of the period $ 6,006 $ 6,852
======== ========
See accompanying notes.
Page 5 of 15
<PAGE>
VIDAMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(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 June 30, 1997 and the statements of operations for the three
and six months ended June 30, 1997 and 1996, and the statements of cash flows
for the six months ended June 30, 1997 and 1996, 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, 1996 filed with the Securities and
Exchange Commission.
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. 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 loss per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share or "basis" earnings per
share the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of loss per share is not expected to be
material.
3. Inventories
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market value. Inventories at June 30, 1997 and December 31,
1996 consist of the following:
June 30, December 31,
1997 1996
---------- ----------
Raw materials $ 424,000 $ 600,000
Work in process 108,000 174,000
Finished goods 1,245,000 673,000
---------- ----------
$1,777,000 $1,447,000
========== ==========
Page 6 of 15
<PAGE>
4. Common stock
In February 1997, the Company entered into an equity financing agreement with a
European investment bank under which the Company may, at its option, sell to
such investment bank up to $10.0 million of VidaMed common stock in increments
up to $2.5 million. Under this arrangement, the common stock is priced at a 10%
discount to the current market price at the time of sale, subject to adjustment
based on a formula linked to the market price of the Company's common stock
during the 21 trading days following the sale. Concurrent with each common stock
issuance under this arrangement, the Company issues to the investment bank a
warrant to purchase one share of common stock for each 10 shares of common stock
purchased under the arrangement. The exercise price of the warrant is equal to
the adjusted purchase price for the common stock multiplied by 1/0.9, with the
resulting product multiplied by 1.25. Each warrant has a term of three years
from the date of issuance.
As of June 30, 1997 the Company had completed four issuances of common stock
under the arrangment, resulting in $9.5 million in net proceeds to the Company.
The following table summarizes the issuance of common stock shares under this
arrangment:
Sale # Net Proceeds Shares Issued
------ ------------ -------------
1 $2,475,000 286,123
2 $2,646,000 404,040
3 $2,228,000 360,202
4 $2,121,000 415,838
The fourth sale includes the issuance of an additional 11,798 shares in July
1997 at the conclusion of the fourth pricing period due to adjustment of the
purchase price.
Page 7 of 15
<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 and six months ended June 30, 1997 and 1996, should be
read in conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
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 Annual Report on Form 10-K for the year ended December 31, 1996.
Overview
VidaMed has a limited history of operations and has experienced significant
operating losses since its inception. As of June 30, 1997, the Company had an
accumulated deficit of $60.2 million. The Company commenced international sales
of its TransUrethral Needle Ablation ("TUNA") system in late 1993 and United
States sales in October 1996. Revenues for the quarters ended June 30, 1997 and
1996 include license fees for distribution rights in Japan and for the quarter
ended June 30, 1996 includes a United Kingdom government grant which ended June
30, 1996.
VidaMed anticipates that a substantial amount of its revenues from product sales
in the future will be from sales in the United States. In the United States, the
Company markets the TUNA System through a network of five VidaMed sales managers
and approximately 35 independent dealers and representatives. A network of
distributors, supported by VidaMed staff, cover other countries in Europe, Asia
and South America. The Company filed a premarket 510(k) notification with the
Food and Drug Administration ("FDA") for the TUNA System in March 1996. The
company received FDA clearance to market the TUNA System for the treatment of
symptoms associated with BPH in the United States on October 8, 1996. In October
1996 the Company applied to the American Medical Association for a CPT code
which will become part of the 1998 Federal Register. The CPT code enables
Medicare reimbursement to occur on a routine basis within established
reimbursement amounts. Prior to the issuance of a CPT code there is no assurance
of Medicare reimbursement of the TUNA procedure and decisions about
reimbursement are made on an individual basis.
The Company expects its operating losses to continue through at least the next
four quarters as it continues to expend substantial resources in expansion of
marketing and sales activities as a result of FDA clearance of the Company's
510(k) premarket notification for the TUNA System, funding clinical trials in
support of regulatory and reimbursement approvals, and research and development.
The Company's future profitability will be dependent upon, among other factors,
market acceptance of the TUNA System and availability of third-party
reimbursement for procedures performed with the TUNA System.
Although the Company has received FDA clearance of its 510(k) notification for
the TUNA System for treatment of symptoms associated with BPH and has commenced
marketing of the TUNA System in the United States, there can be no assurance
that the TUNA System will be deemed clinically or cost effective by many health
care providers and payors, will be deemed superior to other current and emerging
methods
Page 8 of 15
<PAGE>
for treating BPH or will achieve significant market acceptance in the United
States market. Furthermore, determinations of reimbursement of the TUNA System
by private and governmental health payors are made by such payors independently
of the FDA approval, and, accordingly, there can be no assurance that the TUNA
procedure will be generally reimbursed at adequate levels in the United States
under either private or governmental healthcare payment systems. Adequacy of
reimbursement for TUNA procedures could have an adverse effect on the ability of
the TUNA System to achieve market acceptance. To date, VidaMed has received
reimbursement approvals from certain private healthcare payors in the United
States. However, due to the age of the typical BPH patient, the majority of
United States healthcare expenses for treatment of BPH are paid by Medicare. The
Company has not received approval for Medicare reimbursment for the TUNA
procedure. There can be no assurance as to when or whether such approval will be
received. Failure of the TUNA System to achieve market acceptance in the United
States would have a material adverse effect on business, financial condition and
results of operations of the Company.
The Company does not have a backlog of orders for its products in countries
where the TUNA System is approved 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 June 30, 1997 increased 257% to
$2,153,000 from $603,000 in the three months ended June 30, 1996. Product sales
in the second quarter of 1997 increased 324% to $2,103,000 from $496,000 in the
same period in 1996. For the first six months of 1997 net revenue increased 400%
to $5,455,000 from $1,091,000 during the same period in 1996. Product sales for
the first six months of 1997 increased 511% to $5,355,000 from $876,000 during
the same period in 1996. The increase in net revenues and product sales between
1997 and 1996 is the result of sales of the TUNA System in the United States.
Cost of product sales increased 52% to $1,265,000 in the three months ended June
30, 1997 from $832,000 in the three months ended June 30, 1996. For the six
months ended June 30, 1997 cost of product sales increased 88% to $3,048,000
from $1,622,000 in the same period in 1996. The increase is due to higher
product sales in the first six months of 1997, although the Company experienced
excess manufacturing overhead in the first and second quarters of 1996.
Increased sales in the first six months of 1997 resulted in improved absorption
of manufacturing overhead.
Research and development expenses increased 9% to $1,456,000 in the three months
ended June 30, 1997 from $1,339,000 in the three months ended June 30, 1996. The
increase is primarily due to continuing development efforts on both the TUNA
System RF generator and VidaMed TUNA System handpiece. For the six months ended
June 30, 1997 research and development expenses increased 22% to $3,354,000 from
$2,750,000 in the same period of 1996. The increase was primarily due to product
development for the new TUNA System RF generator resulting from increased
outside services and development material which occurred in the first quarter of
1997.
Selling, general and administrative expenses increased 94% to $3,865,000 in the
three months ended June 30, 1997 from $1,997,000 in the three months ended June
30, 1996. For the six months ended June 30, 1997 selling, general and
administrative expenses increased 100% to $7,223,000 from $3,611,000 in the same
period in 1996. The increase was primarily due to increased sales and marketing
expense incurred in the
Page 9 of 15
<PAGE>
continuing product introduction of the TUNA System in the United States.
Significant sales and marketing expenses included commissions, advertising
expenses, trade shows and physician workshops.
Total operating expenses in the three months ended June 30, 1997 increased 60%
to $5,321,000 from $3,336,000 in the three months ended June 30, 1996. Total
operating expenses for the first six months of 1997 increased 66% to $10,577,000
from $6,362,000 in the same periods in 1996. The increase in operating expenses
was due primarily to the increase in selling, general and administrative
expenses.
Other expense for the three and six months ended June 30, 1997 was $102,000 and
$109,000, respectively, compared to other income of $11,000 and $8,000 for the
comparable periods in 1996. This change is primarily due to lower interest
income attributable to lower investment balances, offset in part by lower
interest expense due to decreasing notes payable and capital lease balances.
The net loss for the three and six month periods ended June 30, 1997 was
$4,535,000 and $8,279,000, respectively, compared to $3,554,000 and $6,885,000
for the comparable periods in 1996.
Liquidity and Capital Resources
At June 30, 1997 the Company's cash and cash equivalents were $6,006,000,
compared to $5,855,000 at December 31, 1996. In February 1997, the Company
entered into an equity financing agreement with a European investment bank under
which the Company may, at its option, sell to such investment bank up to $10.0
million of VidaMed common stock. As of June 30, 1997 the Company had drawn down
$9.6 million under this agreement.
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. Borrowings bear
interest at the prime rate plus 3% per annum plus additional lump-sum interest
of 15% of each borrowing, payable at maturity. Repayment is based on a three
year amortization schedule.
During the six months ended June 30, 1997 and 1996, VidaMed consumed cash in
operations of $8,225,000 and $5,896,000, respectively. The changes in cash used
in operations were attributable to increased accounts receivable due to
increased product sales and sales and marketing expenses associated with the
product launch of the TUNA System in the United States.
The Company is moving to a 35,000 square foot facility in Fremont, CA in the
third quarter of 1997. The Company anticipates with the move to the new facility
in the next quarter that it will incur approximately $1.0 million in capital
costs.
Although VidaMed believes that its current capital resources 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 anticipates in
the future that it will 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 10 of 15
<PAGE>
VIDAMED, INC.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
See page 13.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
See page 13.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(27.1) Financial Data Schedule
b) Reports on Form 8-K. No reports on Form 8-K were
filed during the quarter ended June 30, 1997.
Page 11 of 15
<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: July 31, 997 By: /s/ James A. Heisch
--------------------- ------------------------
James A. Heisch
President, Chief Executive
Officer
Date: July 31, 1997 By: /s/ Richard D. Brounstein
------------------------- ------------------------------
Richard D. Brounstein
VP Finance, Chief Financial
Officer
(Principal Financial and
Accounting Officer)
Page 12 of 15
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
During the second quarter of 1997 the Company issued common stock in two sales
pursuant to its equity financing agreement with a European investment bank. In
the first quarter of 1997, the Company issued common stock in two sales pursuant
to the same arrangment totaling $4.0 million with 528,547 common stock shares
being issued. The second sale in the first quarter had an adjustment to the
amount funded of $1,173,000 that was completed in the second quarter resulting
in 161,616 additional common stock shares being issued. The first sale of common
stock in the second quarter resulted in the issuance of 360,202 shares for $2.25
million. The second sale of common stock in the second quarter resulted in the
issuance of 404,040 shares for $2.1 million. Additional common stock of 11,798
was issued in July 1997 to conclude the pricing period relating to the second
sale.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company solicited proxies for an annual meeting of stockholders on May 7,
1997 to all of the Company's stockholders.
The election of all directors was conducted and the following nominees were
elected: David L. Douglass, Stuart D. Edwards, James A. Heisch, Wayne I. Roe,
and Michael H. Spindler. The vote with respect to each nominee was as follows:
Votes Votes
Name For Withheld
---- --- --------
David L. Douglass 8,767,853 139,799
Stuart D. Edwards 8,757,070 150,582
James A. Heisch 8,768,053 139,599
Wayne I. Roe 8,768,553 139,099
Michael H. Spindler 8,766,153 141,499
The Company's Employee Stock Purchase Plan was amended and the number of shares
of Common Stock reserved for issuance under the plan was increased by 100,000 to
200,000 with 8,334,465 votes in favor, 279,844 votes against and 55,044
abstentions.
The Company's Stock Plan was amended and the number of shares of Common Stock
reserved for issuance under the plan was increased by 366,666 to 3,100,000 with
7,927,228 votes in favor, 272,167 votes against and 51,691 abstentions.
Ernst & Young LLP was ratified as the independent auditors of the Company for
the fiscal year ending December 31, 1997 with 8,842,408 votes in favor, 25,424
votes against and 39,820 abstentions.
Page 13 of 15
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
27.1 Financial Data Schedule
Page 14 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,006
<SECURITIES> 0
<RECEIVABLES> 3,934
<ALLOWANCES> 432
<INVENTORY> 1,777
<CURRENT-ASSETS> 12,532
<PP&E> 5,752
<DEPRECIATION> 3,357
<TOTAL-ASSETS> 15,163
<CURRENT-LIABILITIES> 8,903
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 5,470
<TOTAL-LIABILITY-AND-EQUITY> 15,163
<SALES> 5,355
<TOTAL-REVENUES> 5,455
<CGS> 3,048
<TOTAL-COSTS> 10,303
<OTHER-EXPENSES> (189)
<LOSS-PROVISION> 273
<INTEREST-EXPENSE> 292
<INCOME-PRETAX> (8,272)
<INCOME-TAX> 7
<INCOME-CONTINUING> (8,279)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,279)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
