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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 1999.
[ ] 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
RADIANCE MEDICAL SYSTEMS, INC.
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(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)
13700 ALTON PARKWAY, SUITE 160, IRVINE, CALIFORNIA 92618
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (949) 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
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ON MAY 6, 1999, THE REGISTRANT HAD OUTSTANDING APPROXIMATELY 11,690,000 SHARES
OF COMMON STOCK (INCLUDING 686,000 OF TREASURY SHARES) OF $.001 PAR VALUE, WHICH
IS THE REGISTRANT'S ONLY CLASS OF COMMON STOCK.
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RADIANCE MEDICAL SYSTEMS, INC.
FORM 10-Q
MARCH 31, 1999
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1999
AND DECEMBER 31, 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6. 18
SIGNATURES 20
EXHIBIT INDEX 21
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RADIANCE MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
March 31, December 31,
1999 1998
--------- ------------
ASSETS
Current assets:
Cash and equivalents $ 640 $ 1,437
Marketable securities available-for-sale 23,555 23,375
Trade accounts receivable, net 1,403 2,413
Other receivables 333 375
Inventories 929 1,623
Other current assets 193 218
-------- --------
Total current assets 27,053 29,441
Property and equipment, net 1,381 1,532
Notes receivable from officers 117 116
Goodwill 6,390 2,133
Other assets 54 559
-------- --------
Total Assets $ 34,995 $ 33,781
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,795 $ 4,286
Deferred license revenue 688 250
-------- --------
Total current liabilities 4,483 4,536
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value;
7,560,000 shares authorized, no shares issued and
outstanding -- --
Common stock, $.001 par value; 30,000,000 authorized,
11,651,000 shares and 9,578,000 shares outstanding as of
March 31, 1999 and December 31, 1998, respectively 12 10
Additional paid-in capital 68,384 60,664
Deferred compensation (351) (409)
Accumulated deficit (34,155) (27,807)
Treasury stock at cost, 686,000 common shares as of
March 31, 1999 and December 31, 1998, respectively (3,675) (3,675)
Accumulated other comprehensive income 297 462
-------- --------
Total stockholders' equity 30,512 29,245
-------- --------
Total Liabilities and Stockholders' Equity $ 34,995 $ 33,781
======== ========
See accompanying notes
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RADIANCE MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
----------------------------
1999 1998
-------- --------
Revenue:
Sales $ 1,193 $ 2,466
License revenue 563 --
-------- --------
Total revenue 1,756 2,466
Cost of sales 847 1,352
-------- --------
Gross profit 909 1,114
Operating expenses:
Charge for acquired in-process research
and development 4,194 --
Research, development and clinical 2,047 1,483
Marketing and sales 767 1,364
General and administrative 770 589
-------- --------
Total operating expenses 7,778 3,436
-------- --------
Loss from operations (6,869) (2,322)
Other income (expense):
Interest income 315 420
Gain on sale of assets 228 --
Other expense (22) (72)
-------- --------
Total other income 521 348
-------- --------
Net loss $ (6,348) $ (1,974)
======== ========
Basic and diluted net loss per share $ (0.60) $ (0.22)
======== ========
Shares used in computing basic and
diluted net loss per share 10,600 8,896
======== ========
See accompanying notes
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RADIANCE MEDICAL SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended March 31,
----------------------------
1999 1998
-------- --------
Cash flows from operating activities:
Net loss $ (6,348) $ (1,974)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 375 154
Amortization of deferred compensation 9 58
Bad debt expense 38 30
Foreign currency exchange loss 78 16
Charge for acquired in-process research and
development 4,194 --
Gain on sale of assets (228)
Changes, net of effects from purchase of Clinitec:
Trade accounts receivable, net 973 309
Inventories (10) 54
Other assets 82 (132)
Accounts payable and accrued expenses (1,025) (874)
Deferred revenue 438 --
-------- --------
Net cash used in operating activities (1,424) (2,359)
Cash flows provided by (used in) investing activities:
Purchase of available-for-sale securities (11,544) (6,817)
Sales of available-for-sale securities 11,263 5,864
Capital expenditures for property and equipment
and other assets (75) (40)
Sale of Vascular Access business unit, net 1,082 --
Purchase of Radiance, net of cash acquired (259) --
-------- --------
Net cash provided by (used in) investing activities 467 (993)
Cash flows provided by (used in) financing activities:
Proceeds from sale of common stock 89 66
Proceeds from exercise of common stock options 15 11
Proceeds from repayment of affiliate debt 56 258
Purchase of treasury stock -- (1,275)
-------- --------
Net cash provided by (used in) financing activities 160 (940)
-------- --------
Net decrease in cash and equivalents (797) (4,292)
Cash and equivalents, beginning of period 1,437 6,141
-------- --------
Cash and equivalents, end of period $ 640 $ 1,849
======== ========
Supplemental disclosure of non-cash investing activities:
The Company acquired the remaining common stock of RMS and,
in connection with the transaction, the following liabilities
were assumed:
Fair value of assets acquired $ 9,308 $ --
Cash paid (692) --
Common stock and options issued (7,569) --
-------- --------
Liabilities assumed $ 1,047 $ --
======== ========
See accompanying notes
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RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
March 31, 1999
1. Basis of Presentation
Radiance Medical Systems, Inc. (formerly Cardiovascular Dynamics, Inc. and
herein after referred to "Radiance" or the "Company") was incorporated in March
1992 in the State of California and reincorporated in Delaware in 1993. The
Company and its subsidiaries design, develop, manufacture and market proprietary
therapeutic catheters and stents used to treat certain vascular diseases.
Accordingly, the Company operates in a single business segment.
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles 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 month period ended March 31, 1999
is not necessarily indicative of results that may be expected for the year
ending December 31, 1999 or any other period. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K as amended for the year ended
December 31, 1998.
2. Net Loss Per Share
Net loss per common share is computed using the weighted average number of
common shares outstanding during the periods presented. Options to purchase
shares of the Company's common stock granted under the Company's stock option
plan have been excluded from the calculation of diluted earnings per share as
they are anti-dilutive.
3. Inventories
Inventories are stated at the lower of cost, determined on an average cost
basis, or market value. Inventories consist of the following:
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RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
March 31, 1999 December 31, 1998
-------------- -----------------
Raw materials $ 464 $ 630
Work-in-process 177 87
Finished goods 288 906
------ ------
$ 929 $1,623
====== ======
4. Deferred License Revenue
In June of 1998, the Company signed a technology license agreement with Guidant
Corporation, an international interventional cardiology products company, to
grant them the ability to manufacture and distribute stent delivery products
using the Company's focal technology. Under the Agreement, the Company is
entitled to receive certain milestone payments based upon the transfer of the
technology to Guidant, and royalty payments based upon the sale of products
using the focal technology. A milestone payment for $1.0 was received in the
first quarter of 1999. Based upon the completion of certain milestones, the
Company recognized $0.6 in license revenue in the first quarter of 1999 and will
recognize the remaining $0.7 million of deferred license revenue in future
periods.
5. Comprehensive Loss
Statement of Financial Accounting Standards No. 130 requires disclosure of the
total non-stockholder changes in equity resulting from revenue, expense, and
gains and losses, including those that do not affect retained earnings. The
Company's comprehensive loss included the following:
Three Months Ended
---------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Net loss $(6,348) $(1,974)
Unrealized gain (loss) on
available-for-sale securities (101) 75
Foreign currency translation
Adjustment (64) (33)
------- -------
Comprehensive loss $(6,513) $(1,932)
======= =======
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RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. Recent Accounting Pronouncements
For the year beginning January 1, 1999, the Company adopted SOP 98-1, Accounting
for the Costs of Computer Software Developed for or Obtained for Internal Use.
The SOP requires the capitalization of certain costs incurred after the date of
adoption in connection with developing or obtaining software for internal use.
The Company currently expenses such costs, and it anticipates that the impact of
the SOP will not be material on its results of operations or financial position
for the foreseeable future as amounts expended to develop or obtain software
have not been and are not expected to be material.
7. Sale of Assets and Acquisition
Sale of Assets of Vascular Access Business Unit
In January 1999, the Company sold substantially all of the properties and assets
used exclusively in its Vascular Access Business Unit to Escalon Medical
Corporation ("Escalon"). The Company received an initial payment of $1,104 for
assets transferred, including inventory ($704) and property and equipment
($146). It will receive an additional $1,000 upon the completion of the transfer
of the assets and technology and also is entitled to receive royalty payments
upon the sale of products for a five-year period. The Company will continue to
manufacture certain vascular access products for up to 180 days following the
completion of the sale on a "cost plus" basis.
Acquisition of RMS
In January 1999, Cardiovascular Dynamics, Inc. (now named Radiance Medical
Systems, Inc.) ("Radiance," or "the Company") acquired through a merger all of
the capital stock which it did not own of the (former) Radiance Medical Systems,
Inc. ("RMS"). Pursuant to the Merger, The Company paid former stockholders of
RMS $3.00 for each share of RMS preferred stock and $2.00 for each share of RMS
common stock, for a total consideration of approximately $7,033, excluding the
value of Radiance common stock options to be provided to RMS optionholders in
exchange for their RMS common stock options. The consideration was paid by
delivery of an aggregate of 1,900,157 shares of Company Common Stock, and $692
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RADIANCE MEDICAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
in cash to certain RMS stockholders who elected cash. Options for 546,250 shares
of RMS common stock accelerated and vested immediately prior to the completion
of the Merger. Of these, 1,250 were exercised, and holders received the same
consideration for their shares of RMS Common Stock as other holders of RMS
Common Stock. The options not exercised prior to the completion of the Merger
were assumed by the Company and converted into options at the same exercise
price to purchase an aggregate of 317,775 shares of the Company's Common Stock.
In addition, Radiance share and option holders may receive product development
Milestone payments of $2.00 for each share of Preferred Stock and $3.00 for each
share of Common Stock. The milestone payments may be increased up to 30%, or
reduced or eliminated if the milestones are reached earlier or later,
respectively, than the milestone target dates. The milestones represent
important steps in the United States Food and Drug Administration and European
approval process that the Company believes are critical to bringing the
Company's technology to the marketplace.
Proforma combined results of the Company and Radiance for the three month period
ended March 31, 1998, on the basis that the acquisition had taken place at the
beginning of 1998, would have reported the following:
Three Months
Ended March 31,
1998
---------------
Pro forma Revenues $ 2,466
Pro forma Net Loss (2,376)
Pro forma Net Loss
Per Share (0.21)
Not reflected in the above pro forma results is the charge of $4,194 for
acquired in-process research and development. In addition to the aforementioned
charge, the Company capitalized intangible assets of $3,354 and $1,301 for
developed research and development and employment contracts, respectively, as
part of the cost for the remaining common stock of RMS, as described more fully
above.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Radiance cautions stockholders that, in addition to the historical financial
information included herein, this Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 that are based on
management's beliefs, as well as on assumptions made by and information
currently available to management. All statements other than statements of
historical fact included in this document, including without limitation, certain
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and statements located elsewhere
herein regarding Radiance's financial position and business strategy, may
constitute forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"believes," "may," "will," "expects," "intends," "estimates," "anticipates,"
"plans," "seeks," or "continues," or the negative thereof or variations thereon
or similar terminology. Such forward-looking statements involve known and
unknown risks, including, but not limited to, economic and market conditions,
the regulatory environment in which Radiance operates, competitive activities or
other business conditions. There can be no assurance that Radiance's actual
results, performance or achievements will not differ materially from any future
results, performance or achievements expressed or implied from such
forward-looking statements. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as in the Company's Annual Report on Form 10-K as
amended for the year ended December 31, 1998, including but not limited to those
discussed in "Item 7--Risk Factors." All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these Cautionary Statements.
Overview
Since its inception in 1992, Radiance Medical Systems, Inc. has engaged
primarily in the research and development, manufacturing and marketing of
proprietary devices for the prevention of the recurrence of atherosclerotic
blockages following the interventional treatment of atherosclerosis. Radiance's
primary product under development is the RDX Catheter, a balloon catheter-based
delivery system designed to deliver radioactive materials to the area of the
artery that has been treated with conventional interventional therapy such as
Percutaneous Transluminal Coronary Angioplasty ("PTCA"), atherectomy and/or
stent deployment.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The Company is the result of an acquisition effected by the merger of the
(former) Radiance Medical Systems, Inc. ("RMS") with and into Cardiovascular
Dynamics, Inc. (now named Radiance Medical Systems, Inc.) in January 1999. RMS
originally was formed by the Company as a separate entity to focus on the
development of radiation therapy technology for the treatment of cardiovascular
disease, and to obtain financing for such development from sources other than
the Company. As a result of the merger, the Company acquired all of the shares
of RMS that it did not own.
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
materially from quarter to quarter.
On July 15, 1996, the Company entered into co-distribution agreements with
Medtronic, providing for the co-distribution of the Company's FACT, CAT and ARC
balloon angioplasty catheters. Under the terms of these agreements, Medtronic
was to 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 would differ in individual country
markets. The initial term of the Medtronic agreements was for a period of three
years from the date of first delivery of a product. In May of 1997, Medtronic
advised the Company of its election to not make minimum purchases of product for
the second year of the agreement.
In June 1997 Medtronic informed CVD that it would not fulfill its commitment for
the first year of the agreement and that it did not believe it was required to
fulfill such commitment. This dispute adversely affected the Company's financial
results for the first quarter 1998.
In June 1998, the Company signed a technology license agreement with Guidant
Corporation, an international interventional cardiology products company, to
grant them the ability to manufacture and distribute products using the
Company's focal technology. Under the terms of the Agreement, the Company is
entitled to receive certain milestone payments based upon the transfer of the
technological knowledge
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
to Guidant, and royalty payments based upon the sale of products using focal
technology by Guidant. See Note 4 to the Condensed Consolidated Financial
Statements.
In January 1999, the Company sold substantially all of the properties and assets
used exclusively in its Vascular Access Business Unit to Escalon Medical
Corporation ("Escalon"). The Company received an initial payment of $1.1 million
for actual inventory transferred, will receive an additional $1.0 million upon
the completion of the transfer of the assets and technology, and also is
entitled to receive royalty payments upon the sale of products for a five-year
period. The Company will continue to manufacture certain vascular access
products for up to 180 days following the completion of the sale.
In January 1999, Cardiovascular Dynamics, Inc. (now named Radiance Medical
Systems, Inc.) ("Radiance," or "the Company") acquired through a merger all of
the capital stock which it did not own of the (former) Radiance Medical Systems,
Inc. ("RMS"). Pursuant to the Merger, The Company paid former stockholders of
RMS $3.00 for each share of RMS preferred stock and $2.00 for each share of RMS
common stock, for a total consideration of approximately $7.0 million, excluding
the value of Radiance common stock options to be provided to RMS optionholders
in exchange for their RMS common stock options. The consideration was paid by
delivery of an aggregate of 1,900,157 shares of Company Common Stock, and $0.7
million in cash to certain RMS stockholders who elected cash. Options for
546,250 shares of RMS common stock accelerated and vested immediately prior to
the completion of the Merger. Of these, 1,250 were exercised, and holders
received the same consideration for their shares of RMS Common Stock as other
holders of RMS Common Stock. The options not exercised prior to the completion
of the Merger were assumed by the Company and converted into options at the same
exercise price to purchase an aggregate of 317,775 shares of the Company's
Common Stock. In addition, Radiance share and option holders may receive product
development Milestone payments of $2.00 for each share of Preferred Stock and
$3.00 for each share of Common Stock. The milestone payments may be increased up
to 30%, or reduced or eliminated if the milestones are reached earlier or later,
respectively, than the milestone target dates. The Milestones represent
important steps in the United States Food and Drug Administration and European
approval process that the Company believes are critical to bringing the
Company's technology to the marketplace. See Note 7 to the Condensed
Consolidated Financial Statements.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations
First quarter of 1999 compared to the same period in 1998
Sales Revenue. Sales Revenue for the first quarter of 1999 decreased
48% to $1.2 million compared to $2.5 million for the first quarter of 1998. The
decrease resulted primarily from the sale of the Vascular Access business unit
in January 1999 and from lower sales in Asia in the first quarter of 1999
compared with the same period of 1998. Management anticipates that product sales
revenue will continue to be materially lower in subsequent periods of 1999
compared with the same periods of 1998 due to the sale of the Vascular Access
business unit and the license of technology to Guidant.
License Revenue. $0.6 million in license revenue was recognized in the
first quarter of 1999 under the technology license agreement with Guidant.
Cost of Sales. The cost of sales for the first quarter of 1999
decreased to 48% compared to 55% of revenues for the same period of 1998. The
decrease is attributable primarily to the inclusion in revenues for the first
quarter of 1999 technology license revenue of $0.6 million that had no
associated cost of sales, offset by relatively higher cost of sales due to
pricing pressure in certain foreign markets and the sale of Vascular Access
products on a "cost plus" basis to the purchaser of the business unit, Escalon.
Charge for Acquired In Process Research and Development. The Company
incurred a charge of $4.2 million in the first quarter of 1999 in connection
with the purchase of the Common Stock of RMS not previously owned. The excess of
the purchase price of RMS over the fair market value of net assets was allocated
to acquired in-process research and development, developed research and
development and other intangibles in accordance with an independent appraisal.
Research and Development. Research and development expenses were $2.0
million and $1.5 million in the quarters ended March 31, 1999 and 1998,
respectively. During the quarter, the Company primarily directed its development
efforts on the development of the RDX catheter and, secondarily, to continued
efforts to develop its SEAL technology stent products and expects the overall
expenditures to increase in the second quarter and in the remainder of 1999 if
the technology proves to be suitable for clinical trials. At any time during the
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
development process, work on the technology could be halted or restarted under a
different design, for example, unless the efficacy of the design and technology
is proven at each stage of its development. There is no certainty that the
technology will ever reach the market or produce material sales due to many
risks, including competitor development of superior technologies or products, an
unrecoverable product cost, lack of product reimbursement, the uncertainty of
regulatory approval and other factors mentioned below concerning the risks
associated with Radiance's operations within this market.
Marketing and Sales. Marketing and sales expenses decreased 44% to $0.8
million, down $0.6 million in the quarter ended March 31, 1999, compared to $1.4
million in the same period of 1998. This decrease primarily reflects reductions
in the Company's domestic and foreign sales force and related expenses.
General and Administrative. General and administrative expenses
increased by 31% to $0.8 million for the quarter ended March 31, 1999, from $0.6
million for the same quarter in 1998. The increase was due primarily to the
appointment of an executive officer and higher travel expenses.
Other income (expense). Other Income (expense) increased 50% to $0.5
million in the first quarter of 1999 from $0.3 million for the same period of
1998. The increase was primarily due to a $0.2 million gain on the sale of the
assets of the Vascular Access business unit in the first quarter of 1999.
Radiance has experienced an operating loss for each of the last three years and
expects to continue to incur operating losses through at least 2000. Radiance's
results of operation have varied significantly from quarter to quarter.
Quarterly operating results depend upon several factors, including the timing
and amount of expenses associated with development of the RDX catheter, the
conduct of clinical trials and the timing of regulatory approvals, new product
introductions both in the United States and internationally, 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
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
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.
The Company has completed an assessment of our hardware and software and is in
the process of upgrading them so that our computer systems will function
properly on and after the Year 2000. Of the total cost of $15,000 estimated for
the Year 2000 upgrade, approximately $15,000 has been spent. Future expenditures
for upgrades and other project costs are not expected to exceed this estimate by
a material amount. Our Year 2000 upgrade was substantially completed in the
first quarter of 1999.
We will contact our vendors and customers to assess the impact the Year 2000
issue will have on our supply and service relationships we have with our vendors
and customers. Based upon our assessment of our systems and software, we believe
that the planned system enhancements and upgrades should prevent related
problems that could affect our ability to supply or service our customers. We
anticipate completing our assessment of significant vendor and customer Year
2000 issues by the end of the second quarter of 1999 and will formulate a
contingency plan based upon what we believe are the "worst-case" scenarios.
However, depending upon the response level by customers and vendors and the
information received from them, this assessment may not be completed as
anticipated or may be inadequate to assess or address the related risks. We
cannot be certain that all of our systems or software will be Year 2000 ready
nor have any assurance that our vendors' or customers' systems and software will
be Year 2000 ready. To prepare for any vendor problems, we will try to identify
alternative supply sources, but there is no guaranty that the alternative
sources will be Year 2000 ready or will be able to provide the same level of
service and supply as our current vendors. If our customers' systems and
software are not Year 2000 ready, any operational problems which may result
could cause slowed or lower demand of our products. Even if our goal is to be
Year 2000 ready, there can be no assurance that our plans will be sufficient to
address any third party failures, and any unresolved or undetected internal or
external Year 2000 issues could materially adversely affect our business,
financial condition or results of operations.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations primarily through
the sale of its equity securities, advances from Endosonics (Radiance's former
parent company), licensing its technologies and through international product
distribution
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
agreements. Prior to the Company's initial public offering, the Company had
raised an aggregate of approximately $11.4 million from the private sales of
preferred and common stock and $2.7 million in working capital advances from
Endosonics Corporation, which was repaid to Endosonics during the third quarter
of 1996.
In the third quarter of 1996, the Company closed its initial public offering of
common stock, resulting in net proceeds of approximately $42.8 million after
deducting underwriting discounts and commissions and other expenses of the
offering. For the quarters ended March 31, 1999 and 1998, the Company's net cash
used in operating activities was $1.3 and $2.4 million, respectively. The
decrease in net cash used, comparing the first quarter of 1999 and 1998,
resulted primarily from relatively lower product sales and thus accounts
receivable.
On March 31, 1999, the Company had cash, cash equivalents and marketable
securities available for sale of $24.2 million. The Company expects to incur
substantial costs related to, among other things, clinical testing, product
development, marketing and sales expenses, and to utilize increased levels of
working capital prior to achieving positive cash flow from operations. The
Company anticipates that its existing capital resources will sufficient to fund
its operations through June 30, 2000. Radiance'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, decreased 58% to $1.4 million as of March 31,
1999, compared with $2.4 million at December 31, 1998. The decrease was
primarily due to lower sales in Asia and the sale of the Vascular Access
business unit in the first quarter of 1999.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Inventories decreased 42% to $0.9 million as of March 31, 1999, compared with
$1.6 million at December 31, 1998. This decrease primarily resulted from the
sale of the inventory of the Vascular Access business unit totaling $0.7 million
in the first quarter of 1999.
Goodwill and other intangibles increased 200% to $6.4 million at March 31, 1999,
compared with $2.1 million at the end of 1998 mostly due to the recognition of
$4.7 million in developed research and development and employment contracts
obtained in the acquisition of RMS in the first quarter of 1999.
Accounts payable and accrued expenses decreased 11% to $3.8 million at March 31,
1999, compared with $4.3 million at the end of 1998 primarily to the payment of
annual incentive compensation and reorganization costs.
Deferred license revenue increased 175% to $0.7 million at March 31, 1999 from
$0.3 million at the end of 1998. The increase was due to the receipt of a
milestone payment of $1.0 million under the Guidant technology license
agreement, offset by the recognition of $0.6 million in license revenue during
the first quarter of 1999. See Note 4 to the Condensed Consolidated Financial
Statements.
Additional paid-in capital increased 13% to $68.4 million at March 31, 1999 from
$60.7 million at the end of 1998. This increase was due to the Company's
acquisition of all of the capital stock that it did not own of RMS through the
issuance of the Company's common stock and options with a value of approximately
$7.6 million and the payment of cash of approximately $0.7 million. See Note 6
to the Condensed Consolidated Financial Statements.
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Part II.
OTHER INFORMATION
Items 1, 3 and 5. Not applicable
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds
The Company has used approximately $2.7 million of the net proceeds from its
initial public offering on June 19, 1996, SEC file number 333-04560, the IPO for
repayment of certain outstanding indebtedness to Endosonics, Inc., a holder of
in excess of ten percent of the Common Stock of the Company. From the date of
the IPO until March 31, 1999, in the normal course of business, the Company has
paid salaries and bonuses in excess of $0.1 million each to nine present and
former officers of the Company and used $7.8 million for working capital. The
Company has also used approximately $1.8 million of the net proceeds for
machinery and equipment and leasehold improvement purchases. Through the end of
the first quarter of 1999, the Company used approximately $3.7 million to
purchase 686,000 shares of the Company's Common Stock on the open market. In
September of 1998, the Company exercised a Warrant to acquire 1,500,000 Series B
Preferred Stock of Radiance Medical Systems, Inc. for $1.5 million. In January
1999, the Company paid $0.7 million to stockholders of RMS who elected to
receive cash for their RMS common stock and $0.6 million in costs relating to
the acquisition of the remaining common stock of RMS not held by the Company. At
March 31, 1999, approximately $24.0 million was held in temporary investments,
of which approximately $8.9 million was invested in U.S. Agency debt securities,
$1.0 million was invested in Foreign Government debt securities, and $14.1
million was invested in corporate debt securities.
Item 4. Submission of Matters to a Vote of Security-Holders
The Company's Special Meeting of Stockholders was held on January 14, 1999. The
following actions were taken at this meeting:
Abstentions
and
Broker Affirmative Negative
Non-Votes Votes Votes Withheld
--------- ----- ----- --------
a. The issuance of CVD Common
Stock in exchange for the
outstanding capital stock of
RMS, in the merger between
Radiance, RMS Acquisition
Corp. and RMS 135,183 5,919,891 51,696 -0-
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Part II.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders (continued)
Abstentions
and
Broker Affirmative Negative
Non-Votes Votes Votes Withheld
--------- ----- ----- --------
b. Amendment to Certificate of
Incorporation of CVD to change
the name of CVD from
Cardiovascular Dynamics, Inc.
to Radiance Medical Systems,
Inc. 27,988 6,009,528 69,254 -0-
c. Amendment to CVD's 1996
Stock Option/Stock Issuance
Plan to increase The number of
shares Available for issuance
by An additional 750,000
Shares of Common Stock. 160,649 5,235,874 710,247 -0-
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed herewith:
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K.
o The Company filed a Report on Form 8-K as of January 22, 1999
reporting the consummation of the acquisition of the former
Radiance Medical Systems, Inc. by the Company.
o The Company filed a Report on Form 8-K as of February 5, 1999
reporting the Sale of the Vascular Access Business Unit to Escalon
Medical Corporation.
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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.
RADIANCE MEDICAL SYSTEMS, INC.
Date: May 14, 1999 /s/ Michael R. Henson
-------------------------------------
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1999 /s/ Stephen R. Kroll
-------------------------------------
Vice President-Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
21