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, 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)
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 11,653,050 as of April 30, 1997.
Page 1 of 15
Exhibit Index at Page 14
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<TABLE>
VIDAMED, INC.
INDEX
PART I: FINANCIAL INFORMATION
<CAPTION>
Page
<S> <C> <C>
Item 1. Condensed consolidated financial statements - unaudited
Condensed consolidated balance sheets - March 31, 1997
and December 31, 1996 3
Condensed consolidated statements of operations - three months
ended March 31, 1997 and 1996 4
Condensed consolidated statements of cash flows - three months
ended March 31, 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 8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Page 2 of 15
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VidaMed, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1997 1996
---------- ------------
(Unaudited) (*)
Assets
Current Assets:
Cash and cash equivalents $ 4,301 $ 3,879
Short-term investments -- 1,976
Accounts Receivable 4,105 2,413
Other current assets 2,326 2,112
-------- --------
Total current assets 10,732 10,380
Property and equipment, net 2,214 2,259
Other assets, net 204 208
-------- --------
Total assets $ 13,150 $ 12,847
======== ========
Liabilities and stockholders' equity
Current liabilities:
Notes payable, current portion $ 1,094 $ 1,064
Accounts payable 1,381 1,246
Accrued professional fees 449 498
Accrued clinical trial costs 852 982
Accrued and other liabilities 3,635 3,114
Current portion of obligations under
capital leases 345 470
Deferred revenue 446 467
-------- --------
Total current liabilities 8,202 7,841
Notes payable, noncurrent 194 480
Other long-term liabilities 751 825
Stockholders' equity:
Capital stock 59,623 55,577
Accumulated deficit (55,620) (51,876)
-------- --------
Total stockholders' equity 4,003 3,701
-------- --------
Total liabilities and stockholders' equity .. $ 13,150 $ 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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VidaMed, Inc.
Condensed Consolidated Statements of Operations
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1997 1996
-------- ---------
Revenues:
Product sales, net $ 3,252 $ 381
License fees and grant revenue 50 107
-------- --------
Net revenues 3,302 488
Cost of Goods Sold 1,783 790
-------- --------
Gross Profit (Loss) 1,519 (302)
Operating Expenses:
Research and development 1,898 1,411
Selling, general and administrative 3,358 1,614
-------- --------
Total operating expenses 5,256 3,025
Loss from operations (3,737) (3,327)
Other income(expense), net (7) (3)
-------- --------
Net loss $ (3,744) $ (3,330)
======== ========
Net loss per share $ (.34) $ (.36)
======== ========
Shares used in computing net loss per share 11,128 9,350
======== ========
See accompanying notes.
Page 4 of 15
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VidaMed, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------
1997 1996
----- -----
Cash flows from operating activities:
Net loss $ (3,744) $ (3,330)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 326 353
Other (24) (22)
Changes in assets and liabilities:
Accounts Receivable (1,692) (229)
Other current assets (214) (127)
Other assets 4 3
Accounts payable 135 (45)
Accrued and other liabilities 342 (58)
Deferred revenue (21) (106)
-------- --------
Net cash used in operating activities (4,888) (3,561)
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (257) (284)
Purchase of short-term investments -- (4,902)
Proceeds from maturities of
short-term investments 1,976 7,000
-------- --------
Net cash provided by investing activities 1,719 1,814
-------- --------
Cash flows from financing activities:
Net cash proceeds from issuance of Common Stock 4,021 209
Principal payments under capital leases (164) (170)
Principal payments of long-term debt (11) (5)
Principal payments of notes payable (255) (2,928)
Net proceeds from issuance of notes payable
and convertible notes -- 10,100
-------- --------
Net cash provided by financing activities 3,591 7,206
-------- --------
Net increase in cash and cash equivalents 422 5,459
Cash and cash equivalents at the beginning
of the period 3,879 5,686
-------- --------
Cash and cash equivalents at the end of the period $ 4,301 $ 11,145
======== ========
See accompanying notes.
Page 5 of 15
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VIDAMED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 1997 and the statements of operations for the
three months ended March 31, 1997 and 1996, and the statements of cash flows for
the three months ended March 31, 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 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 March 31, 1997 and December
31, 1996 consist of the following:
March 31, December 31,
1997 1996
---------- ----------
Raw Materials $ 295,000 $ 600,000
Work in process 142,000 174,000
Finished Goods 553,000 673,000
---------- ----------
$ 990,000 $1,447,000
========== ==========
Page 6 of 15
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4. Intellectual Property Litigation Risks
In 1995, EP Technologies, Inc. ("EPT") and the University of California ("UC"),
which have filed United States patent applications relating to ablation of body
tissue, 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, based on current available information, that an
interference will not be allowed on the patents, an adverse determination in the
current patent office proceeding or in other 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.
5. Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments with maturities from the
date of purchase 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.
6. Convertible notes
In March 1996, the Company completed the sale of $10.1 million of 5% convertible
subordinated notes (the "Notes"). The Notes were converted 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. As of December
31, 1996 all of the $10.1 million in principal and accrued interest on the Notes
had been converted into an aggregate of 1,375,676 shares of Common Stock.
7. Common stock
In February 1997, the Company entered into an equity financing agreement with a
European investment banker 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. The common stock will be 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. As of March 31, 1997 the Company had completed
two issuances of common stock resulting in $4.0 million in net proceeds to the
Company. The first sale of $2.5 million resulted in the issuance of 286,123
common stock shares. The second sale of $1.5 million resulted in the issuance of
242,424 common stock shares, although additional proceeds of $103,896 were
received in April 1997 after the pricing period was completed due to adjustment
of the purchase price.
Page 7 of 15
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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, 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 10K 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 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 inception. As of March 31, 1997, the Company had an
accumulated deficit of $55.6 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 March 31, 1997 and
1996 include license fees for distribution rights in Japan and for the quarter
ended March 31, 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. 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 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 expects its operating losses to continue through at least fiscal
year 1997 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 health care
providers and payors, will be deemed superior to other current and emerging
methods for treating BPH or will achieve significant market acceptance in the
United States market. Furthermore, determinations as to eligibility of the TUNA
System for reimbursement 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 eligible for reimbursement in the
United States under either private or governmental healthcare payment systems.
Ineligibility of TUNA procedures for reimbursement
Page 8 of 15
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would have an adverse effect on the ability of the TUNA System to achieve market
acceptance. 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 March 31, 1997 increased 577% to
$3,302,000 from $488,000 in the three months ended March 31, 1996. Product sales
in the first quarter of 1997 increased 755% to $3,252,000 from $381,000 in the
same period in 1996. The increase in product sales between the first quarter of
1997 and 1996 is the result of sales of the TUNA System in the United States.
Cost of product sales increased 126% to $1,783,000 in the three months ended
March 31, 1997 from $790,000 in the three months ended March 31, 1996. The
increase is due to higher product sales in the three months of 1997, although
the Company also experienced excess manufacturing overhead in the first quarter
of 1996. Increased sales in the first quarter of 1997 resulted in improved
absorption of manufacturing overhead.
Research and development expenses increased 35% to $1,898,000 in the three
months ended March 31, 1997 from $1,411,000 in the three months ended March 31,
1996. The increase was primarily due to product development for the new TUNA
System RF generator resulting from increased outside services and development
material.
Selling, general and administrative expenses increased 108% to $3,358,000 in the
three months ended March 31, 1997 from $1,614,000 in the three months ended
March 31, 1996. The increase was primarily due to increased sales and marketing
expense incurred in the continuing product introduction of the TUNA System in
the United States. Significant sales and marketing expenses included
commissions, advertising expenses and physician workshops. Advertising expenses
included cooperative advertising amounts related to Tenet Healthcare, a major
private organization with which VidaMed entered into an agreement in the first
quarter of 1997 to provide TUNA Systems to Tenet's hospitals.
Total operating expenses in the three months ended March 31, 1997 increased 74%
to $5,256,000 from $3,025,000 in the three months ended March 31, 1996. The
increase in operating expenses was due primarily to the increase in selling,
general and administrative expenses.
Other expense for the three months ended March 31, 1997 was $7,000, compared to
$3,000 for the three months ended March 31, 1996. This change in the three month
amount is primarily due to lower interest income attributable to lower
investment balances.
The net loss for the three month periods ended March 31, 1997 was $3,744,000,
compared to $3,330,000 for the three months ended March 31, 1996.
Liquidity and Capital Resources
At March 31, 1997 the Company's cash and cash equivalents were $4,301,000,
compared to $5,855,000 at December 31, 1996. In February 1997, the Company
entered into an equity financing agreement with a European institutional
investor 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. The common stock will be priced at a 10% discount to the current market
price at the time of sale, subject to adjustment based on a
Page 9 of 15
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formula linked to the market price of the Company's common stock during the 21
days following each sale. As of March 31, 1997 the Company had drawn down $4.0
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 three months ended March 31, 1997 and 1996, VidaMed consumed cash in
operations of $4,888,000 and $3,561,000 respectively. The changes in cash used
in operations were due 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.
Although VidaMed believes that its current capital resources, cash generated
from the sale of products and remaining balance on the equity financing
agreement 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 10 of 15
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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
None
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. On March 14, 1997 the Company
filed a report on Form 8-K regarding 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. The
common stock will be 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 each sale.
Page 11 of 15
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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 12, 1997 By: /s/ James A. Heisch
------------------------ -----------------------------
James A. Heisch
President, Chief Executive
Officer
Date: May 12, 1997 By: /s/ Richard D. Brounstein
------------------------ -----------------------------
Richard D. Brounstein
VP Finance, Chief Financial
Officer (Principal Financial
Officer)
Date: May 12, 1997 By: /s/ Thomas M. Fahey
------------------------ -----------------------------
Thomas M. Fahey
Director of Finance
(Principal Accounting
Officer)
Page 12 of 15
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PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
During the first quarter of 1997 the Company issued common stock under the
equity financing agreement. The first sale of $2.5 million of VidaMed common
stock resulted in the issuance of 286,123 shares. The second sale of $1.5
million of VidaMed common stock resulted in the issuance of 242,424 shares
although additional proceeds of $103,896 were received in April 1997 after the
pricing period was concluded due to an adjustment in the purchase price.
.
Page 13 of 15
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
27.1 Financial Data Schedule
Page 14 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,301
<SECURITIES> 0
<RECEIVABLES> 4,278
<ALLOWANCES> 173
<INVENTORY> 990
<CURRENT-ASSETS> 10,732
<PP&E> 5,274
<DEPRECIATION> 3,060
<TOTAL-ASSETS> 13,150
<CURRENT-LIABILITIES> 8,202
<BONDS> 945
<COMMON> 11
0
0
<OTHER-SE> 3,992
<TOTAL-LIABILITY-AND-EQUITY> 13,150
<SALES> 3,252
<TOTAL-REVENUES> 3,302
<CGS> 1,783
<TOTAL-COSTS> 5,244
<OTHER-EXPENSES> (48)
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> (3,740)
<INCOME-TAX> 4
<INCOME-CONTINUING> (3,744)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,744)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
