1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
/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 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 / /
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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q/A 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 Cardiovascular Dynamics,
Inc.'s Prospectus dated June 19, 1996, in particular "Risk Factors" beginning on
page 6 thereof.
OVERVIEW
Since inception in 1992, Cardiovascular Dynamics, Inc. (the "Company" or "CVD")
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. ("Medtronic") 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. If the Company is unable to meet its delivery
obligations with respect to the purchased catheters, up to 60% of the Company's
manufacturing capacity will be devoted to manufacturing such catheters for
Medtronic. 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.
2
3
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.
3
4
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.
4
5
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.
5
6
PART II.
OTHER INFORMATION
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.
6
7
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: October 17, 1996 /s/ Michael R. Henson
---------------- --------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: October 17, 1996 /s/ Dana P. Nickell
---------------- --------------------------------------
Vice President-Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
7