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 September 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 October 31, 1996, the registrant had outstanding 8,786,000 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
SEPTEMBER 30, 1996
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed balance sheets at September 30, 1996 and
December 31, 1995 3
Condensed statements of operations for the three months and
nine months ended September 30, 1996 and 1995 4
Condensed statements of cash flows for the nine months ended
September 30, 1996 and 1995 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
Items 1 through 6. 14
Signatures 15
Exhibit Index 16
3
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
September 30, December 31,
1996 1995
---- ----
ASSETS
Current assets:
Cash and equivalents $ 47,377 $ 1,568
Trade accounts receivable, net 2,083 1,117
Inventories 1,996 754
Other current assets 194 58
-------- -------
Total current assets 51,650 3,497
Property and equipment, net 855 424
Other assets 486 81
-------- -------
Total Assets $ 52,991 $ 4,002
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,401 $ 962
Accrued payroll and other accrued expenses 1,005 722
Customer deposits 754 0
Payable to affiliate 0 2,537
Deferred distributorship fee-current 50 50
-------- -------
Total current liabilities 4,210 4,271
Deferred distributorship fee revenue 42 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 September 30, 1996
and December 31, 1995, respectively -- 2
Common stock, $.001 par value; 30,000,000 authorized,
8,786,000 shares and no shares outstanding as of
September 30, 1996 and December 31, 1995, respectively 9 --
Additional paid-in capital 56,657 5,670
Deferred compensation (407) (345)
Accumulated deficit (8,270) (6,425)
-------- -------
Total stockholders' equity 47,989 (1,098)
-------- -------
Total Liabilities and Stockholders' Equity $ 52,991 $ 4,002
======== =======
See accompanying notes
3
4
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Nine Months Ended
Ended September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenue:
Sales $ 2,252 $ 1,240 $ 5,836 $ 2,156
License fee and other from related party 0 53 200 230
Contract 100 292 150 412
------- ------- ------- -------
Total revenue 2,352 1,585 6,186 2,798
Cost of sales 1,273 665 3,136 1,143
------- ------- ------- -------
Gross profit 1,079 920 3,050 1,655
Operating expenses:
Charge for acquired in-process research
and development -- -- -- 488
Research, development and clinical 1,181 434 2,610 1,420
Marketing and sales 807 455 2,094 1,120
General and administrative 419 465 922 981
------- ------- ------- -------
Total operating expenses 2,407 1,354 5,626 4,009
------- ------- ------- -------
Loss from operations (1,328) (434) (2,576) (2,354)
Other income:
Interest income 621 6 694 29
Distributorship fees and other income 9 9 37 48
------- ------- ------- -------
Total other income 630 15 731 77
------- ------- ------- -------
Net loss $ (698) $ (419) $(1,845) $(2,277)
======= ======= ======= =======
Net loss per share $ (0.08) $ (0.09) $ (0.29) $ (0.51)
======= ======= ======= =======
Shares used in the calculation of
net loss per share 9,153 4,468 6,462 4,433
======= ======= ======= =======
See accompanying notes
4
5
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine months ended September 30,
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (1,845) $(2,277)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 135 49
Amortization of deferred compensation 88 --
Charge for acquired in-process research
and development -- 488
Net changes in:
Trade accounts receivable, net (966) (350)
Inventories (1,242) (357)
Other assets (136) 129
Accounts payable and accrued expenses 2,476 996
Deferred distributor fee revenue (37) (41)
-------- -------
Net cash used in operating activities (1,527) (1,363)
Cash flows used in investing activities:
Capital expenditures for property and equipment
and other assets (971) (458)
-------- -------
Net cash used in investing activities (971) (458)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of convertible obligation -- 750
Proceeds from sale of common stock 42,844 --
Proceeds from sale of preferred stock to parent 8,000 --
Payable to affiliate, net (2,537) (235)
-------- -------
Net cash provided by financing activities 48,307 515
-------- -------
Net increase (decrease) in cash and equivalents 45,809 (1,306)
Cash and equivalents, beginning of period 1,568 3,379
-------- -------
Cash and equivalents, end of period $ 47,377 $ 2,073
======== =======
See accompanying notes
5
6
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 nine month periods ended September 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 Prospectus dated June 19, 1996.
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 $42.7 million,
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)
SEPTEMBER 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:
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials $ 731,000 $162,000
Work-in-process 578,000 330,000
Finished goods 687,000 262,000
---------- --------
$1,996,000 $754,000
========== ========
6. Subsequent Events
In October 1996, the Company acquired Intraluminal Devices, Inc. ("IDI") by the
statutory merger (the "Merger") of IDI with and into IDI Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
Company. In exchange for $1.4 million in common stock of the Company,
approximately 86,400 shares, the Company acquired all of the outstanding common
stock of IDI. In addition, under the terms of the Merger Agreements, the Company
may become obligated to issue additional shares of common stock to the former
shareholders of IDI in the event the closing price of the Company's common
stock, as reported on the Nasdaq National Market on the fourth day after the
related registration statement is declared effective, is below $12.97 per share.
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 uncertanties 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. 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 FACTTM, CATTM and ARCTM.
In October 1996, the Company acquired Intraluminal Devices, Inc. ("IDI") by the
statutory merger (the "Merger") of IDI with and into IDI Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
Company. In exchange for $1.4 million in common stock of the Company,
approximately 86,400 shares, the Company acquired all of the outstanding common
stock of IDI (after conversion of IDI Preferred Stock into IDI Common Stock). In
addition, under the terms of the Merger Agreements, the Company may become
obligated to issue
8
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
additional shares of common stock to the former shareholders of IDI in the event
the closing price of the Company's common stock, as reported on the Nasdaq
National Market on the fourth day after the related registration statement is
declared effective is below $12.97 per share. The Company expects to
significantly increase research and development expenditures to complete the
development or to determine the saleability of IDI products.
Results of Operations
Third quarter of 1996 compared to the same period in 1995
Revenue for the third quarter of 1996 increased 48% to $2.35 million compared to
$1.59 million for the third quarter of 1995 representing increased sales from
the further development of the market for the Company's Focus catheters and the
introduction of additional products.
The gross profit percentage for the third quarter of 1996 decreased to 46%
compared to 58% for the same period of 1995. In the third quarter of 1995, total
revenues included approximately $0.35 million of contract revenues that had no
associated cost of sales. This contract revenue represented 22% of total
revenues for that quarter. In the third quarter of 1996, the Company had $0.1
million of contract revenues, representing approximately 4% of total revenues.
Research, development and clinical expenses increased by 172% to $1.2 million in
the quarter ended September 30, 1996 from $0.4 million in the quarter ended
September 30, 1995. The primary reason for this increase was additional spending
on development of the Company's line of peripheral vascular products and
coronary stent products.
Marketing and sales expenses rose 77% to $0.8 million, up $0.3 million, in the
quarter ended September 30, 1996, compared to $0.5 million in the same period 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 comparing the
three month periods ended September 30, 1996 and 1995.
Interest income rose to $0.6 million in the third quarter of 1996 compared with
$0.0 million in the same period of 1995. The increase was due to the investment
of funds received from the initial public offering in June 1996.
9
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
First nine months of 1996 compared to the same period of 1995
Revenue for the first nine months of 1996 increased 121% to $6.2 million
compared to $2.8 million for the same period during 1995 representing increased
sales from the further development of the market for the Company's Focus
catheters and the introduction of additional products.
The gross profit percentage for the first nine months of 1996 decreased to 49%
compared to 59% 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, 23% of the total revenues in the first nine months of 1995 was
comprised of license fees and other revenues which had no associated cost of
sales. During the nine months ended September 30, 1996, the Company manufactured
its own products at relatively low volumes, and the percentage of total revenues
that represented license fees and other revenues which had no associated cost of
sales was only 6% of total revenues.
Research, development and clinical expenses increased by 84% to $2.6 million in
the first nine months of 1996 from $1.4 million for 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 and coronary stent products.
During the nine months ended September 30, 1996, marketing and sales expenses
rose 87% to $2.1 million, up from $1.1 million for the same period during 1995.
This increase reflects the investment the Company is making to build its sales
and marketing infrastructure by adding personnel and distributor relationships.
General and administrative expenses remained relatively constant comparing the
nine month periods ended September 30, 1996 and 1995.
Interest income rose to $0.7 million during the nine months ended September 30,
1996 compared with $0.0 million in the same period of 1995. The increase was due
to the investment of funds received from the initial public offering in June
1996.
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
10
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
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.
The Company had working capital of $47.4 million at September 30, 1996 as
compared to negative working capital of $0.8 million as of December 31, 1995.
From inception through September 30, 1996, the Company raised approximately
$11.4 million from the private sales of preferred and common stock and $2.7
million in working capital from Endosonics Corporation (CVD's former parent
company). The Company repaid Endosonics Corporation during the third quarter of
1996.
Cash flows used in operations were $1.5 million for the nine months of 1996 as
compared to $1.4 million for the same period of 1995.
On September 30, 1996, CVD had cash and cash equivalents of $47.2 million. The
Company expects to incur substantial costs related to, among other things,
clinical testing, product development, marketing and sales expenses, and
increased working
11
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
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.
Trade accounts receivable, net, increased 86% to $2.1 million as of September
30, 1996 compared with $1.1 million at December 31, 1996. The increase stemmed
from an increase in the sales level compared to the prior year. Specifically,
sales for the third quarter of 1996 were $2.3 million, while sales for the forth
quarter of 1995 were $1.3 million or 77% higher.
Inventories rose 65% to $2.0 million as of September 30, 1996, compared with
$0.8 million at December 31, 1996, to meet current sales demand. Accounts
payable increased 150% to $2.4 million at September 30, 1996, compared with $1.0
million at the end of the same period of 1995, due to an increase in
expenditures to support higher sales.
Property and equipment, net, increased 102% from $0.4 million at December 31,
1996 to $0.9 million at September 30, 1996. The Company increased its investment
in capital assets during the first nine months of 1996 to support rising
production and research and development efforts.
Accrued payroll and other accrued expenses increased 39% from $0.7 million at
December 31, 1996 to $1.0 million at September 30, 1996 primarily due to higher
personnel costs to support operations. The customer deposits at the end of
September 30, 1996 stemmed from upfront deposits by Medtronic, Inc. as part of a
co-distribution agreement. See further discussion in the "Overview" section of
12
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
At December 31, 1995, the Company had an obligation of $2.5 ("payable to
affiliate") payable to its former parent company, Endosonics Corporation
("Endosonics"). In the third quarter of 1996, the Company paid the obligation
which then totalled $2.7 million. The obligation primarily stemmed from expenses
paid by Endosonics on behalf of the Company and from inventory purchased from
Endosonics.
13
14
Part II.
OTHER INFORMATION
Items 1 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 2.3(1) Agreement and Plan of Reorganization by and
among CardioVascular Dynamics, Inc., IDI Acquisition
Corporation and Intraluminal Devices, Inc. ("IDI")
dated October 2, 1996.
Exhibit 27 Financial Data Schedule
- ---------------------
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on November 12, 1996.
(b) No reports on Form 8-K were filed during the quarter.
14
15
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: November 12, 1996 /s/ MICHAEL R. HENSON
---------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1996 /s/ DANA P. NICKELL
-------------------
Vice President-Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
16
EXHIBIT INDEX
2.3 (1) Agreement and Plan of Reorganization by and among CardioVascular
Dynamics, Inc., IDI Acquisition Corporation and Intraluminal Devices,
Inc. ("IDI") dated October 2, 1996.
27 Financial Data Schedule
- -------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on November 12,
1996.
16