FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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 1-9585
ABIOMED, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2743260
(State of incorporation) (I.R.S. Employer No.)
33 CHERRY HILL DRIVE
DANVERS, MASSACHUSETTS 01923
(Address of principal executive offices, including zip code)
(508) 777-5410
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or 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 September 30, 1996, there were 6,972,138 shares outstanding of the
registrant's Common Stock, $.01 par value.
ABIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1996 and March 31, 1996
3-4
Consolidated Statements of Operations
Three and Six Months Ended September 30, 1996
and September 30, 1995
5
Consolidated Statements of Cash Flows
Six Months Ended September 30, 1996 and
September 30, 1995
6
Notes to Consolidated Financial Statements
7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
9-13
Part II - Other Information
14-15
Signatures
16
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 1996
March 31, 1996
(unaudited)
(audited)
Current Assets:
Cash and cash equivalents (Note 6)
$7,304,349
$2,938,332
Short-term marketable securities (Note 6)
3,189,452
7,709,110
Accounts receivable, net
2,943,575
2,606,289
Inventories (Note 3)
1,818,103
1,653,512
Prepaid expenses and other current assets
204,353
92,280
Total current assets
15,459,832
14,999,523
Property and equipment, at cost:
Machinery and equipment
2,598,755
2,378,851
Furniture and fixtures
181,841
156,048
Leasehold improvements
665,174
378,998
3,445,770
2,913,897
Less: Accumulated depreciation
and amortization
2,452,236
2,331,145
993,534
582,752
Other assets, net (Note 7)
556,077
627,154
$17,009,443
$16,209,429
The accompanying notes are an integral part
of these consolidated financial statements.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
September 30, 1996
March 31, 1996
(unaudited)
(audited)
Current Liabilities:
Accounts payable
$926,875
$777,943
Accrued expenses
1,234,546
1,486,981
Total current liabilities
2,161,421
2,264,924
Stockholders' Investment (Note 4):
Class B Preferred Stock, $.01 par value-
Authorized 1,000,000 shares
Issued and outstanding-none
- -
- -
Common Stock, $.01 par value-
Authorized 25,000,000 shares at September 30, 1996
Issued and Outstanding- 6,972,138 shares at
September 30, 1996 and 5,518,054 shares at
March 31, 1996
69,721
55,180
Class A Common Stock $.01 par value
Authorized - 2,346,000 shares
Issued and Outstanding - 0 shares at September 30, 1996
and 1,428,000 shares at March 31, 1995
- -
14,280
Additional paid-in capital
36,891,361
36,625,221
Accumulated deficit
(22,113,060)
(22,750,176)
Total stockholders' investment
14,848,022
13,944,505
$17,009,443
$16,209,429
The accompanying notes are an integral part
of these consolidated financial statements.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended
Three Months Ended
September 30, 1996
September 30, 1995
September 30, 1996
September 30, 1995
Revenues:
Products
$5,759,555
$4,394,792
$2,891,206
$2,270,351
Contracts
1,753,849
1,455,297
936,926
836,248
7,513,404
5,850,089
3,828,132
3,106,599
Costs and expenses:
Cost of products
2,122,853
1,822,769
1,074,154
907,876
Research and development
1,780,737
1,519,037
916,762
860,178
Selling, general and administrative
3,229,235
2,631,499
1,709,642
1,414,585
7,132,825
5,973,305
3,700,558
3,182,639
Net income (loss) from operations
380,579
(123,216)
127,574
(76,040)
Interest and other income
256,537
255,725
126,313
124,488
Net income
$637,116
$132,509
$253,887
$48,448
Net income per common share (Note 5):
$0.09
$0.02
$0.04
$0.01
Weighted average number of common
and dilutive common equivalent shares
outstanding
7,196,343
6,967,191
7,199,239
6,972,429
The accompanying notes are an integral part
of these consolidated financial statements.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Six Months Ended
September 30, 1996
September 30. 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$637,116
$132,509
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization
192,168
165,751
Changes in assets and liabilities-
Accounts receivable
(337,286)
(565,037)
Inventories
(164,591)
155,929
Prepaid expenses and other current assets
(112,073)
(186,024)
Accounts payable
148,932
504,055
Accrued expenses
(252,435)
2,177
Net cash provided by operating activities
111,831
209,360
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of investments, net
4,519,658
264,303
Purchases of property and equipment and improvements
(531,873)
(100,458)
Purchases of Abiomed Limited Partnership units from
limited partners (Note 7)
- -
(770,000)
Net cash provided by (used in) investing activities
3,987,785
(606,155)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and stock issued
under employee stock purchase plan
266,401
116,479
Net cash provided by financing activities
266,401
116,479
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS,
EXCLUDING INVESTMENTS
4,366,017
(280,316)
CASH AND CASH EQUIVALENTS, EXCLUDING INVEST-
MENTS, AT BEGINNING OF PERIOD
2,938,332
614,091
CASH AND CASH EQUIVALENTS , EXCLUDING INVEST-
MENTS, AT END OF PERIOD
$7,304,349
$333,775
The accompanying notes are an integral part
of these consolidated financial statements.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Preparation
The unaudited consolidated financial statements of ABIOMED, Inc. (the
Company), presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's latest audited
financial statements, which are contained in the Company's Form 10-K for the
year ended March 31, 1996, which was filed with the Securities and Exchange
Commission. In the opinion of management, the accompanying consolidated
financial statements include all adjustments (consisting only of normal,
recurring adjustments) necessary to summarize fairly the Company's financial
position and results of operations. The results of operations for the six
months ended September 30, 1996 may not be indicative of the results that
may be expected for the full fiscal year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, ABIOMED Cardiovascular, Inc.,
ABIOMED R&D Inc., ABIODENT, Inc., Abiomed Research and Development,
Inc., ABD Holding Company, Inc., and the accounts of its majority-owned
subsidiary Abiomed Limited Partnership (see Note 7). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
3. Inventories
Inventories include raw materials, work-in-process, and finished goods
and are priced at the lower of cost (first-in, first-out) or market and consist
of the following:
September 30, 1996
March 31, 1996
Raw Materials
$788,948
$799,548
Work-in-Process
365,595
428,287
Finished Goods
663,560
425,677
TOTAL
$1,818,103
$1,653,512
Finished goods and work-in-process inventories consist of direct
material, labor and overhead.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited, continued)
4. Stockholders' Investment
Effective July 31, 1996, in accordance with the rights for the Class A
Common Stock, 1,428,000 shares of Class A Common Stock $0.01 par value
were converted into an equal number of shares of the Company's $0.01 par
value Common Stock.
During the second quarter of fiscal 1997, options to purchase 172,485
shares of Common Stock were granted at an exercise price of $12.50 per
share. Options to purchase 2,500 shares were canceled during the quarter.
Options to purchase 6,500 shares were exercised in the second quarter at
exercise prices ranging from $5.75 to $11.25 per share. During the second
quarter of fiscal 1997, 372 shares of Common Stock were issued under the
Employee Stock Purchase Plan.
5. Net Income Per Common Share
Net income per common and common equivalent share is computed by
dividing net income by the weighted average number of common and common
equivalent shares outstanding during the period using the treasury stock
method.
6. Cash and Cash Equivalents
The Company classifies any marketable security with a maturity date of
90 days or less at the time of acquisition to be a cash equivalent. Securities,
including marketable securities, with original maturities of greater than 90
days are classified as investments. Such investments are classified as long-
term investments when their maturities are greater than one year from the
balance sheet date. The Company reports investments at cost plus accrued
interest. As of September 30, 1996, the Company had no long-term
investments.
7. Other Assets
Other assets represent the purchase of the majority interest of the
Abiomed Limited Partnership. This amount is being amortized over five years,
its estimated useful life. Abiomed Limited Partnership (the Partnership) was
formed in March 1985 and provided initial funding for the design and
development of certain of the Company's products.
Through August 3, 2000, the Company owes a royalty to the Partnership
of 5.5% of certain revenues from these products. Because the Company owns
61.7% of the Partnership, the net royalty expense to the Company is
approximately 2.1% of these product revenues. This royalty formula is subject
to certain maximum amounts and to certain additional adjustments in the
event that the Company sells the technology. The Partnership is inactive
except with respect to receiving and distributing proceeds from these royalty
rights.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET INCOME
Net income and income per share for the three months ended September
30, 1996, were approximately $254,000 and $0.04 per share, respectively.
These earnings compare to net income and income per share of approximately
$48,000 and $0.01 per share, respectively, in the same period of the previous
year.
Net income and income per share for the six months ended September
30, 1996, were approximately $637,000 and $0.09 per share, respectively.
These earnings compare to net income and income per share of approximately
$133,000 and $0.02 per share in the same period of the previous year.
REVENUES
In the three months ended September 30, 1996, total revenues were
approximately $3,828,000, 23% higher than total revenues of approximately
$3,107,000 in the same period of the previous year.
Product revenues were approximately $2,891,000, 27% higher than
product revenues of approximately $2,270,000 in the same period of the
previous year. These results primarily reflected increased domestic unit sales
of the disposable BVS blood pump and related accessories to an expanded
installed customer base, increased units sales of the BVS console and
increased average selling prices of these products. More than 90% of total
product revenues in the quarter were derived from domestic sources.
Revenues from Research and Development (R&D) contracts and grants
for this quarter were approximately $937,000, 12% higher than total revenues
of approximately $836,000 reported in the same quarter of the previous year.
This increase primarily reflected timing of scheduled activities under existing
contracts and grants.
In the six months ended September 30, 1996, total revenues were
approximately $7,513,000, 28% higher than total revenues of approximately
$5,850,000 in the same period of the previous year.
Product sales for the first six months of fiscal 1997 were approximately
$5,760,000 compared with approximately $4,395,000 for the same period of
the previous year, an increase of 31%. This growth primarily reflected
increased unit sales of the disposable BVS blood pump and related accessories
to an expanded installed customer base, increased unit sales of the BVS
console and increased average selling prices of these products.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
REVENUES (continued)
Revenues from R&D contracts and grants for the six months ended
September 30, 1996 were approximately $1,754,000, 20% higher than in the
same period of the prior year. The increase primarily reflected the timing of
scheduled activities under existing contracts and grants.
In aggregate, as of September 30, 1996, the Company's backlog of
research and development contracts and grants totaled approximately
$12,600,000 compared to a backlog of approximately $5,500,000 as of March
31, 1996. The majority of this increase was due to a four year cost-plus-fixed-
fee extension of approximately $8,500,000 to the Company's contract from the
National Heart, Lung and Blood Institute (NHLBI) to continue development of
the Company's battery-powered implantable total artificial heart (TAH).
Included in the September 30, 1996 backlog was approximately $8,400,000
from this TAH contract and approximately $3,800,000 for continued research
and development of an implantable Heart Booster. All such contracts contain
provisions making them terminable at the convenience of the government.
Product revenues from the Company's dental subsidiary, ABIODENT,
Inc., represented less than 10% of total revenues. Dental products revenues,
compared to the corresponding periods of the prior fiscal year, were relatively
unchanged for the three months ended September 30, 1996 and increased
approximately 35% for the six months ended September 30, 1996.
COSTS AND EXPENSES
Total costs and expenses for the three months ended September 30,
1996, were approximately $3,701,000, 16% higher than total costs and
expenses of approximately $3,183,000 in the same fiscal quarter of the
previous year. The majority of this increase reflected expenses incurred to
support higher revenues.
Cost of products sold as a percentage of product revenues improved to
approximately 37% in the first three months of fiscal 1997 from approximately
40% in the same quarter of the previous year. This decrease in cost as a
percentage of revenues primarily reflected a change in product mix, increased
production volumes and increased operational efficiencies.
Total research and development costs increased during the second fiscal
quarter of 1997 to approximately $917,000, a 6% increase over research and
development costs of approximately $860,000 incurred during the same fiscal
period of the previous year. The increase primarily reflected the timing of
scheduled expenditures under cost-plus fixed-fee contracts and grants. The
Company anticipates that its research and development costs will increase,
particularly in connection with the TAH.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
COSTS AND EXPENSES (continued)
Selling, general and administrative expenses for the three months ended
September 30, 1996, increased to approximately $1,710,000, 21% higher than
selling, general and administrative expenses in the same fiscal quarter of the
previous year. This increase primarily reflected increased sales and marketing
expenses, particularly increased personnel and sales commissions, related to
the increase in product revenues.
Total costs and expenses for the six months ended September 30, 1996
increased to $7,133,000, 19% higher than total costs and expenses of
approximately $5,973,000 for the first six months of last year. The increase
was primarily attributable to higher revenue levels attained during the first
six months of fiscal 1997.
Cost of products sold as a percentage of product revenues improved to
approximately 37% in the first six months of fiscal 1997 from approximately
41% in the same six month period of the previous fiscal year. This decrease in
cost as a percentage of revenues primarily reflected a change in product mix,
increased production volumes and increased operational efficiencies.
Total research and development costs increased to approximately
$1,781,000 for the six months ended September 30, 1996. This represents a
17% increase over the $1,519,000 reported for the same period in the previous
fiscal year. The increase primarily reflected the timing of scheduled
expenditures under cost-plus fixed-fee contracts and grants.
Selling, general and administrative expenses for the six months ended
September 30, 1996 increased to approximately $3,229,000, 23% higher than
selling, general and administrative expenses in the six month period ended
September 30, 1995. This increase primarily reflected increased sales and
marketing expenses, particularly increased personnel and sales commissions,
related to the increase in product revenues.
INTEREST AND OTHER
For the three months ended September 30, 1996, interest and other
income was approximately $126,000 and approximately even with interest and
other income in the corresponding quarter of the prior year.
For the six months ended September 30, 1996, interest and other income
was approximately $256,000 and approximately even with interest and other
income in the corresponding quarter of the prior year.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
INTEREST AND OTHER (continued)
Income taxes incurred during these periods were not material and the
Company continues to have significant net tax operating loss carryforwards
and tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's balance sheet included
$10,494,000 in cash and short-term investments, a decrease of approximately
$154,000 from March 31, 1996. This decrease primarily reflected
approximately $532,000 of cash used for equipment purchases and leasehold
improvements partially offset by approximately $112,000 in positive cash flow
from operations and approximately $266,000 in proceeds from the exercise of
employee stock options and stock purchased under the Employee Stock
Purchase Plan. The September 30, 1996 balance included approximately
$7,304,000 in cash, and $3,189,000 in short-term investments. The Company
also has a $3,000,000 line of credit from a bank that expires on December 1,
1996, and which was entirely available at September 30, 1996.
For the six months ended September 30, 1996, net cash provided by
operating activities included net income of approximately $637,000, including
depreciation and amortization expenses of $192,000, and an increase in
accounts payable of approximately $149,000. These sources of cash were
partially offset by an increase in accounts receivable of $337,000, an increase
in inventory of $165,000, an increase in prepaid expenses of $112,000 and a
decrease in accrued expenses of approximately $252,000.
Net cash provided by investing activities included approximately
$4,520,000 of net maturities of short-term investments offset by
approximately $532,000 of purchases and improvements of property and
equipment. During the first six months of fiscal 1997, the Company received
proceeds of approximately $262,000 from the exercise of stock options under
the 1992 Combination Stock Option Plan and proceeds of approximately
$4,000 from stock purchased under the Employee Stock Purchase Plan.
Although the Company does not currently have significant capital
commitments, the Company believes that it will continue to make significant
investments in the coming years to support the development and
commercialization of its products under development. The Company believes
that its revenues and existing resources are sufficient to meet its current
needs but that additional funding will be necessary to accelerate development
and potential commercialization of such products under development,
particularly the TAH.
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
HEALTH CARE REFORM
Private and government proposals for significant health care reform are
expected to continue to affect healthcare expenditures in the United States as
well as internationally where the company sells or plans to sell its products.
The Company cannot assess at this time the potential impact that healthcare
trends may have on future results because of uncertainties surrounding any
unforseeable changes.
***
ABIOMED, INC. AND SUBSIDIARIES
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
At the Company's annual meeting of shareholders held on August
14, 1996, the stockholders approved the following:
a) Elected two persons to serve as Class I directors as follows:
Director
Votes For
Votes
Withheld
Dr. David M. Lederman
19,112,995
43,049
Desmond H. O'Connell, Jr.
4,816,226
59,808
b) A proposal to amend of certificate of incorporation and by-
laws to provide that stockholders may not take action by
written consent. The proposal received 15,531,669 votes for
and 665,823 votes against. There were 56,235 abstentions and
2,902,307 non-voting.
c) A proposal to amend the Company's 1992 Combination Stock
Option Plan to increase the number of shares that may be
issued under that plan by 250,000 shares. The proposal
received 18,284,522 votes for and 600,175 votes against.
There were 35,357 abstentions and 235,980 non-voting.
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.01 Certificate of Incorporation, as amended
3.02 By-laws of ABIOMED, Inc., as amended and restated.
10.01 NHLBI Implantable Total Artificial Contract
Extension.
b) Reports on Form 8-K
Form 8-K dated July 31, 1996.
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABIOMED, Inc.
Date: October 24, 1996 /s/ David M. Lederman
David M. Lederman
CEO and President
Date: October 24 ,1996 /s/ John F. Thero
John F. Thero
Vice President Finance and
Administration; and Treasurer
Chief Financial Officer
Principal Accounting Officer
16