1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______ to ______
Commission file number 0-28440
CARDIOVASCULAR DYNAMICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 68-0328265
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
13900 Alton Parkway, Suite 122, Irvine, California 92718
(Address of principal executive offices)
Registrant's telephone number, including area code (714) 457-9546
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exhange Act of
1934 during the preceeding 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
----- -----
On July 31, 1996, the registrant had outstanding 8,776,000 shares of Common
Stock of $.001 par value, which is the registrant's only class of Common Stock.
2
CARDIOVASCULAR DYNAMICS, INC.
Form 10-Q
June 30, 1996
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed balance sheets at June 30, 1996 and December 31, 1995 3
Condensed statements of operations for the three months and
six months ended June 30, 1996 and 1995 4
Condensed statements of cash flows for the three months and
six months ended June 30, 1996 5
Notes to condensed financial statements 6
Item 2. Management's discussion and analysis of financial condition
and results of operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
3
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
June 30, December 31,
1996 1995
--------- ------------
ASSETS
Current assets:
Cash and equivalents $45,097 $ 1,568
Trade accounts receivable, net 1,945 1,117
Inventories 1,175 754
Other current assets 332 58
------- -------
Total current assets 48,549 3,497
Property and equipment, net 578 424
Other assets 46 81
------- -------
Total Assets $49,173 $ 4,002
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,765 $ 1,684
Payable to affiliate 2,619 2,537
Deferred distributorship fee-current 50 50
------- -------
Total current liabilities 5,434 4,271
Deferred distributorship fee revenue 54 79
Convertible obligation 750 750
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value;
7,560,000 shares authorized, no shares and 2,000,000
shares issued and outstanding as of June 30, 1996
and December 31, 1995, respectively -- 2
Common stock, $.001 par value; 30,000,000 authorized,
8,266,000 shares and no shares outstanding as of
June 30, 1996 and December 31, 1995, respectively 9 --
Additional paid-in capital 50,936 5,670
Deferred compensation (438) (345)
Accumulated deficit (7,572) (6,425)
------- -------
Total stockholders' equity 42,935 (1,098)
------- -------
Total Liabilities and Stockholders' Equipment $49,173 $ 4,002
======= =======
See accompanying notes
3
4
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------ ------- ------- -------
Total revenue $1,801 $ 804 $ 3,834 $ 1,213
Cost of sales 921 360 1,863 478
------ ------- ------- -------
Gross profit 880 444 1,971 735
Operating expenses:
Charge for acquired in-process research
and development -- 488 -- 488
Research, development and clinical 802 572 1,429 986
Marketing and sales 710 410 1,287 665
General and administrative 212 248 503 516
------ ------- ------- -------
Total operating expenses 1,724 1,718 3,219 2,655
------ ------- ------- -------
Loss from operations (844) (1,274) (1,248) (1,920)
Other income (expense):
Interest income 62 1 73 23
Distributorship fees and other income 12 22 28 39
------ ------- ------- -------
Total other income 74 23 101 62
------ ------- ------- -------
Net loss $ (770) $(1,251) $(1,147) $(1,858)
====== ======= ======= =======
Net loss per share $(0.13) $ (0.28) $ (0.22) $ (0.42)
====== ======= ======= =======
Shares used in the calculation of
net loss per share 5,765 4,426 5,116 4,415
====== ======= ======= =======
See accompanying notes
4
5
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six months ended June 30,
1996 1995
------- -------
Cash flows from operating activities:
Net loss $(1,147) $(1,858)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 90 37
Amortization of deferred compensation 57 --
Charge for acquired in-process research
and development -- 488
Net changes in:
Operating assets (1,488) (186)
Operating liabilities and deferred revenue 1,056 287
------- -------
Net cash used in operating activities (1,432) (1,232)
Cash flows from investing activities:
Capital expenditures for property and equipment (244) (371)
------- -------
Net cash used in investing activities (244) (371)
Cash flows from financing activities:
Proceeds from sale of common stock 37,123 --
Proceeds from sale of preferred stock 8,000 --
Payable to affiliate, net 82 (282)
------- -------
Net cash provided by (used in)
financing activities 45,205 (282)
------- -------
Net increase (decrease) in cash and equivalents 43,529 (1,885)
Cash and equivalents, beginning of period 1,568 3,379
------- -------
Cash and equivalents, end of period $45,097 $ 1,494
======= =======
See accompanying notes
5
6
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
1. Basis of Presentation
Cardiovascular Dynamics, Inc. ("CVD" or the "Company") designs, develops,
manufactures and markets catheters used to treat certain vascular diseases.
The accompanying condensed financial statements have been prepared in
accordance with generally accepted accounting principals for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended
June 30, 1996 are not necessarily indicative of results that may be expected
for the year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto for the year ended December 31, 1995
included in the Company's Registration Statement on Form S-1.
2. Closing of Initial Public Offering
On June 19, 1996, the Company closed its initial public offering which
consisted of 3,400,000 shares of common stock at $12.00 per share. On July 17,
1996, the Company's underwriters exercised their overallotment option to
purchase an additional 510,000 shares of common stock at $12.00 per share. CVD
received net offering proceeds from the sale of common stock of approximately
$42,700,000 after deducting underwriting discounts and commissions and other
expenses of the offering.
3. Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common stock equivalent shares from convertible
debt, stock options and warrants are not included as the effect is
anti-dilutive. In accordance with Securities and Exchange Commission Staff
Accounting Bulletins, common stock and common stock equivalent shares issued by
the Company at prices below the initial public offering price during the period
beginning one year prior to the offering have been included in the calculation
as if they were outstanding for all periods presented (using the treasury stock
method and the initial public offering price of the Company's common stock).
6
7
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
4. Stock Split
In May 1996, the Board of Directors approved a stock split of 2-for-1 of all
the outstanding shares of common stock. All share and per share information
has been adjusted to give effect to the stock split in the accompanying
financial statements.
5. Inventories
Inventories are stated at the lower of cost, determined on an average cost
basis, or market value. Inventories consist of the following:
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials $ 450,000 $162,000
Work-in-process 589,000 330,000
Finished goods 136,000 262,000
---------- --------
$1,175,000 $754,000
========== ========
7
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those in the forward looking statements. For a discussion of
factors which might result in different outcomes, see the Company's Prospectus
dated June 19, 1996, in particular "Risk Factors" beginning on page 6 thereof.
Overview
Since inception in 1992, Cardiovascular Dynamics, Inc. has engaged primarily in
the research and development of products for the treatment of cardiovascular
disease. The Company's financial results will be affected in the future by
several factors, including the timing of any FDA approval to market the
Company's products, FDA approval of IDE sites and the number of patients
permitted to be treated, future changes in government regulations and third
party reimbursement policies applicable to the Company's products, the progress
of competing technologies and the ability of the Company to develop the
manufacturing and marketing capabilities necessary to support commercial sales.
As a result of these factors, revenue levels, gross margins and operating
results may fluctuate from quarter to quarter.
On July 15, 1996, CVD and Medtronic, Inc. entered into an agreement providing
for the co-distribution by Medtronic of the Company's balloon angioplasty
catheters. These catheters employ the Company's patented Focus Technology.
Under the Agreement, Medtronic will purchase a minimum number of angioplasty
catheters manufactured by the Company for distribution worldwide for a period
of up to three years. Specific products to be distributed by Medtronic will
differ in individual country markets. The Company will continue to sell Focus
Technology products through its own direct and indirect sales force network.
These products are currently sold under the names FACT(TM), CAT(TM) and ARC(TM).
Results of Operations
Second quarter of 1996 compared to the same period in 1995
Revenue for the second quarter of 1996 increased 124% to $1.8 million compared
to $0.8 million for the second quarter of 1995 representing increased sales of
the Company's Focus catheters and the introduction of additional products.
8
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The gross profit percentage for the second quarter of 1996 decreased to 49%
compared to 55% for the same period of 1995. In the second quarter of 1995,
CVD's products were manufactured by Endosonics Corporation at fixed per unit
costs. In the second quarter of 1996, the Company was manufacturing its own
products at relatively low volumes which resulted in higher per unit costs.
Research, development and clinical expenses increased by 40% to $0.8 million in
the quarter ended June 30, 1996 over the quarter ended June 30, 1995. The
primary reason for this increase was additional spending on development of the
Company's line of peripheral vascular products.
Marketing and sales expenses rose 73% to $0.7 million, up $.3 million, in the
June 30, 1996 quarter, compared to the second quarter of 1995. This increase
reflects the investment the Company is making to build its sales and marketing
infrastructure by adding additional personnel and developing additional
distributor relationships.
General and administrative expenses remained relatively constant in both the
three months ended June 30, 1996 and 1995.
First six months of 1996 compared to the same period of 1995
Revenue for the first half of 1996 increased 216% to $3.8 million compared to
$1.2 million for the same period of 1995 representing increased sales of the
Company's Focus catheters and the introduction of additional products.
The gross profit percentage for the first half of 1996 decreased to 51%
compared to 61% for the same period of 1995. In the first half of 1995, CVD's
products were manufactured by Endosonics Corporation at fixed per unit costs.
Additionally, a significant portion of the total revenues in the first half of
1995 was comprised of license fees and other revenues that had no associated
cost of sales. In the second quarter of 1996, the Company was manufacturing its
own products at relatively low volumes, and the percentage of total revenues
that represented non-product revenues was less significant.
Research, development and clinical expenses increased by 45% to $1.4 million in
the first half of 1996 over the same period in 1995. The primary reason for
this increase was additional spending on development of the Company's line of
peripheral vascular products.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
For the first half of 1996, marketing and sales expenses rose 94% to $1.3
million, up $0.6 million compared to the same period of 1995. This increase
reflects the investment the Company is making to build its sales and marketing
infrastructure by adding addition personnel and developing additional
distributor relationships.
General and administrative expenses remained relatively constant in both the
six months ended June 30, 1996 and 1995.
The Company has experienced an operating loss for each of the last three years.
The Company expects to continue to incur operating losses through at least 1997
and there can be no assurance that the Company will ever be able to achieve or
sustain profitability in the future. CVD's results of operations have varied
significantly from quarter to quarter. Quarterly operating results will depend
upon several factors, including the timing and amount of expenses associated
with expanding the Company's operations, the conduct of clinical trials and the
timing of regulatory approvals, new product introductions both in the United
States and internationally, the mix between pilot production of new products
and full-scale manufacturing of existing products, the mix between domestic
and export sales, variations in foreign exchange rates, changes in third-party
payors' reimbursement policies and healthcare reform. The Company does not
operate with a significant backlog of customer orders, and therefore revenues
in any quarter are significantly dependent on orders received within that
quarter. In addition, the Company cannot predict ordering rates by
distributors, some of whom place infrequent stocking orders. The Company's
expenses are relatively fixed and difficult to adjust in response to
fluctuating revenues. As a result of these and other factors, the Company
expects to continue to experience significant fluctuations in quarterly
operating results, and there can be no assurance that the Company will be able
to achieve or maintain profitability in the future.
Liquidity and Capital Resources
On June 19, 1996, the Company closed its initial public offering which
consisted of 3,400,000 shares of common stock at $12.00 per share. On July 17,
1996, the Company's underwriters exercised their overallotment option to
purchase an additional 510,000 shares of common stock at $12.00 per share. CVD
received net offering proceeds from the sale of common stock of approximately
$42.7 million after deducting underwriting discounts and commissions and other
expenses of the offering.
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company had working capital of $43.1 million at June 30, 1996 as compared
to negative working capital of $0.8 million as of December 31, 1995. From
inception through June 30, 1996, the Company raised approximately $11.4 million
from the private sales of preferred and common stock and $2.6 million in
working capital from Endosonics Corporation (CVD's former parent company). The
Company intends to repay Endosonics Corporation during the third quarter of
1996.
Cash flows used in operations were $1.4 million for the first half of 1996 as
compared to $1.2 million for the same period of 1995.
On June 30, 1996, CVD had cash and cash equivalents of $45.1 million. The
Company expects to incur substantial costs related to, among other things,
clinical testing, product development, marketing and sales expenses, and
increased working capital, prior to achieving positive cash flow from
operations. The Company anticipates that its existing capital resources will
be sufficient to fund its operations through 1997. CVD's future capital
requirements will depend on many factors, including its research and
development programs, the scope and results of clinical trials, the regulatory
approval process, the costs involved in intellectual property rights
enforcement or litigation, competitive products, the establishment of
manufacturing capacity, the establishment of sales and marketing capabilities,
and the establishment of collaborative relationships with other parties. The
Company may need to raise funds through additional financings, including
private or public equity offerings and collaborative arrangements with existing
or new corporate partners. There can be no assurance that funds will be raised
on favorable terms, or at all. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate one or more of its
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to grant rights to certain
technologies or products that the Company would not otherwise grant.
11
12
Part II.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
By written consent in lieu of the 1996 Annual Meeting of Stockholders, on May
1, 1996, the stockholders of the Company unanimously approved the following
resolutions:
(a) Amendment of the Amended and Restated Certificaate of Incorporation of
the Company to effect a 2-for-1 stock split and authorization of 5,000,000
shares of undesignated Preferred Stock;
(b) Amendment of the Amended and Restated Bylaws of the Company in
connection with the Initial Public Offering of the Company's Common Stock;
(c) Increase the number of shares authorized under the Company's Stock
Option Plan from 400,000 shares to an aggregate of 1,200,000 shares (on a
post-split basis); and
(d) Adoption of a 1996 Stock Option/Stock Issuance Plan and Employee Stock
Purchase Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.1 * Supply Agreement
Exhibit 10.2 * OEM Agreement
Exhibit 27 Financial Data Schedule
* Confidential Treatment Requested
(b) No reports on Form 8-K were filed during the quarter.
12
13
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
undersigned thereto duly authorized.
CARDIOVASCULAR DYNAMICS, INC.
Date: August 13, 1996 /s/ MICHAEL R. HENSON
-------------------------------------
Michael R. Henson
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1996 /s/ DANA P. NICKELL
--------------------------------------
Dana P. Nickell
Vice President-Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
13
14
EXHIBIT INDEX
10.1 * Supply Agreement
10.2 * OEM Agreement
27 Financial Data Schedule
_________________________
* Confidential Treatment Requested
14