FORM 10-Q/A
Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-20584
ABIOMED, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2743260
(State of incorporation) (IRS Employer No.)
33 CHERRY HILL DRIVE
DANVERS, MASSACHUSETTS 01923
(Address of principal executive offices, including zip code)
(978) 777-5410
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 1998, there were 8,637,482 shares outstanding of the
registrant's Common Stock, $.01 par value.
ABIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
-------------
Part I - Financial Information:
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 1998 and March 31, 1998 3-4
Consolidated Statements of Operations
Three and Six Months Ended September 30, 1998
and September 30, 1997 5
Consolidated Statements of Cash Flows
Six Months Ended September 30, 1998 and
September 30, 1997 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
Part II - Other Information 17
Signatures 18
2
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
September March 31,
30, 1998 1998
(unaudited) (audited)
------------ -------------
Current Assets:
Cash and cash equivalents (Note 7) $ 1,716,839 $ 2,683,151
Short-term marketable securities (Note 8) 20,438,541 23,714,641
Accounts receivable, net of allowance for
doubtful accounts of $204,000 at September 30, 1998
and March 31, 1998, respectively 4,954,687 5,356,348
Inventories (Note 4) 3,209,573 2,327,442
Prepaid expenses and other current assets 413,131 208,387
------------ -------------
Total current assets 30,732,771 34,289,969
------------ -------------
Property and Equipment, at cost:
Machinery and equipment 5,357,049 4,316,852
Furniture and fixtures 563,172 533,460
Leasehold improvements 1,689,671 1,561,189
------------ -------------
7,609,892 6,411,501
Less: Accumulated depreciation and amortization 3,417,238 2,724,442
------------ -------------
4,192,654 3,687,059
------------ -------------
Other Assets, net (Notes 2 and 9) 522,151 638,176
------------ -------------
$35,447,576 $38,615,204
------------ -------------
------------ -------------
The accompanying notes are an integral part
of these consolidated financial statements.
3
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
September 30, March 31,
1998 1998
(unaudited) (audited)
------------- -----------
Current Liabilities:
Accounts payable $ 1,244,410 $ 2,057,473
Accrued expenses 2,948,064 2,872,288
------------- -----------
Total current liabilities 4,192,474 4,929,761
------------- -----------
Liabilities of Discontinued Operations, net (Note 3) 610,688 667,466
Stockholders' Investment (Note 5):
Class B Preferred Stock, $.01 par value-
Authorized 1,000,000 shares
Issued and outstanding-none - -
Common Stock, $.01 par value-
Authorized 25,000,000 shares
Issued and Outstanding- 8,637,482 shares at
September 30, 1998 and 8,567,015 shares at
March 31, 1998 86,375 85,670
Additional paid-in capital 58,105,784 57,454,983
Accumulated deficit (27,547,745) (24,522,676)
------------- -----------
Total stockholders' investment 30,644,414 33,017,977
------------- -----------
$35,447,576 $38,615,204
------------- -----------
------------- -----------
The accompanying notes are an integral part
of these consolidated financial statements.
4
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
-------------- --------------- --------------- --------------
Revenues:
Products $4,352,983 $4,967,490 $7,877,493 $8,803,913
Contracts 614,443 1,851,207 2,893,176 3,680,252
-------------- --------------- --------------- --------------
4,967,426 6,818,697 10,770,669 12,484,165
-------------- --------------- --------------- --------------
Costs and expenses:
Cost of product revenues 1,563,346 1,806,043 3,000,211 3,114,145
Research and development 3,950,444 2,010,657 6,984,224 3,654,132
Selling, general and administrative 2,306,439 2,668,715 4,538,306 4,553,708
-------------- --------------- --------------- --------------
7,820,229 6,485,415 14,522,741 11,321,985
-------------- --------------- --------------- --------------
(Loss) income from operations (2,852,803) 333,282 (3,752,072) 1,162,180
Interest and other income 369,791 292,147 727,003 416,642
-------------- --------------- --------------- --------------
(Loss) income from continuing operations (2,483,012) 625,429 (3,025,069) 1,578,822
Loss from discontinued operations (Note 3) - (137,425) - (219,857)
-------------- --------------- --------------- --------------
Net (loss) income $(2,483,012) $488,004 $(3,025,069) $1,358,965
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
(Loss) income from continuing operations per share
(Note 6):
Basic $(0.29) $0.08 $(0.35) $0.21
Diluted $(0.29) $0.07 $(0.35) $0.20
Loss from discontinued operations per share (Note 6):
Basic - $(0.02) - $(0.03)
Diluted - $(0.01) - $(0.03)
Net (loss) income per share (Note 6):
Basic $(0.29) $0.06 $(0.35) $0.18
Diluted $(0.29) $0.06 $(0.35) $0.17
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
Weighted average shares outstanding (Note 6):
Basic 8,620,861 8,263,092 8,598,869 7,637,928
Diluted 8,620,861 8,605,689 8,598,869 7,868,675
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
The accompanying notes are an integral part
of these consolidated financial statements.
5
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
-------------------------------------------
September 30, September 30,
1998 1997
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(3,025,069) $1,358,965
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities-
Depreciation and amortization 763,873 439,744
Changes in assets and liabilities-
Accounts receivable 401,661 (1,595,337)
Inventories (882,131) (52,096)
Prepaid expenses and other assets (159,796) (708,574)
Accounts payable (813,063) (156,294)
Accrued expenses 75,776 498,905
Liabilities of discontinued operations, net (56,778) 226,642
------------------ ------------------
Net cash (used in) provided by operating activities (3,695,527) 11,955
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term marketable securities, net 3,276,100 (15,855,425)
Purchases of property and equipment (1,198,391) (1,109,684)
------------------ -----------------
Net cash provided by (used in) investing activities 2,077,709 (16,965,109)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net - 15,965,069
Proceeds from exercise of stock options and stock issued
under employee stock purchase plan 651,506 99,349
----------------- -----------------
Net cash provided by financing activities 651,506 16,064,418
----------------- -----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS,
EXCLUDING INVESTMENTS (966,312) (888,736)
CASH AND CASH EQUIVALENTS, EXCLUDING INVEST-
MENTS, AT BEGINNING OF PERIOD 2,683,151 1,579,972
----------------- ------------------
CASH AND CASH EQUIVALENTS , EXCLUDING INVEST-
MENTS, AT END OF PERIOD $1,716,839 $691,236
----------------- -----------------
----------------- -----------------
The accompanying notes are an integral part
of these consolidated financial statements.
6
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PREPARATION
The unaudited consolidated financial statements of ABIOMED, Inc.
(the Company), presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's latest audited
financial statements, which are contained in the Company's Form 10-K for the
year ended March 31, 1998, which was filed with the Securities and Exchange
Commission. In the opinion of management, the accompanying consolidated
financial statements include all adjustments (consisting only of normal,
recurring adjustments) necessary to summarize fairly the Company's financial
position and results of operations. The results of operations for the six
months ended September 30, 1998 may not be indicative of the results that may
be expected for the full fiscal year.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, and its wholly owned subsidiaries, and the accounts of its
majority-owned subsidiary Abiomed Limited Partnership. All significant
intercompany accounts and transactions have been eliminated in consolidation.
3. DISCONTINUED OPERATIONS
In its fiscal year ended March 31, 1998, the Company made the
decision to shift all of its focus to the Company's core cardiovascular
business and to sell, license or otherwise dispose of its dental business.
The accompanying consolidated financial statements contain certain accounts
that have been reclassified in each of the periods presented to reflect this
decision by the Company. Reported revenue, cost and expenses from continuing
operations exclude the operating results of the Company's dental business.
The amount accrued by the Company at March 31, 1998 for
discontinuing the dental business included estimated operating losses of
$370,000 to be incurred during fiscal 1999. During the six months ended
September 30, 1998, the operating loss from the Company's dental business
applied against the accrual was $190,000.
7
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
4. INVENTORIES
Inventories include raw materials, work-in-process, and finished
goods and are priced at the lower of cost (first-in, first-out) or market and
consist of the following:
September 30, March 31,
1998 1998
---------------- ------------
Raw materials $1,435,900 $1,320,600
Work-in-process 516,212 483,723
Finished goods 1,257,461 523,119
---------- ----------
$3,209,573 $2,327,442
---------- ----------
---------- ----------
Finished goods and work-in-process inventories consist of direct
material, labor and overhead.
5. STOCKHOLDERS' INVESTMENT
During the six months ended September 30, 1998, options to purchase
306,550 shares of Common Stock were granted at exercise prices ranging from
$11.25 to $13.625 per share. Options to purchase 31,800 shares were canceled
during the quarter and options to purchase 64,150 shares of Common Stock were
exercised at prices ranging from $5.625 to $13.50 per share.
During the six months ended September 30, 1998, 6,286 shares of
Common Stock were issued under the Employee Stock Purchase Plan.
6. NET INCOME (LOSS) PER COMMON SHARE
The Company has calculated net income (loss) per common share in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, which requires the Company to present both basic and
diluted net income (loss) per share for all periods presented. Basic net
income (loss) per share ("Basic EPS") is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted net income (loss) per share ("Diluted EPS") is computed by
dividing net income (loss) by the weighted average number of common and
common equivalent shares outstanding during the period using the treasury
stock method. In computing Diluted EPS, common equivalent shares are not
considered dilutive in periods in which a net loss is reported because such
common equivalent shares are antidilutive. The number of shares that
otherwise would have been dilutive for the three and six months ended
September 30, 1998 are 125,406 and 214,195, respectively. In accordance with
SFAS No. 128, the Company has recomputed net income per share for the three
and six month periods ended September 30, 1997 which did not result in a
change to reported net income per share.
8
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 1: FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, continued)
7. CASH AND CASH EQUIVALENTS
The Company classifies marketable securities with a maturity date of
90 days or less at the time of acquisition to be a cash equivalent.
Securities, including marketable securities, with original maturities of
greater than 90 days are classified as investments.
8. INVESTMENTS
The Company classifies any security, including marketable
securities, with a maturity of greater than 90 days as short-term marketable
securities. At September 30, 1998 the Company's short-term marketable
securities consisted primarily of government agency securities and high-grade
corporate bonds and the amortized cost of these securities approximated
market value.
9. OTHER ASSETS
Other assets include approximately $272,000 in unamortized purchase
cost of the Company's majority interest of the Abiomed Limited Partnership.
The interest in the Abiomed Limited Partnership is being amortized over five
years, its estimated useful life. Abiomed Limited Partnership (the
Partnership) was formed in March 1985 and provided initial funding for the
design and development of certain of the Company's products.
Through August 3, 2000, the Company owes a royalty to the
Partnership of 5.5% of certain revenues from these products. Because the
Company owns 61.7% of the Partnership, the net royalty expense to the Company
is approximately 2.1% of these product revenues. This royalty formula is
subject to certain maximum amounts and to certain additional adjustments in
the event that the Company sells the technology. The Partnership is inactive
except with respect to receiving and distributing proceeds from these royalty
rights.
Also included in other assets are long-term accounts receivable
related to sales-type leases. The terms of these non-cancelable leases are
one to three years. As of September 30, 1998, approximately $250,000 is
included in other assets for these sales-type leases.
10. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company does not believe the adoption of this accounting standard will have
any impact on the Company's financial position or results of operations.
9
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
NET INCOME
Net loss and net loss per share for the three months ended September
30, 1998, were approximately $2,483,000 and $0.29 per share, respectively.
This compares to net income and net income per share of approximately
$488,000 and $0.06 per share, respectively, in the same period of the
previous year. The net loss for the three months ended September 30, 1998 is
primarily attributable to the Company's undertaking to accelerate the
development of its battery-powered heart replacement device ("HRD") and to
decreases in contract and product revenues.
REVENUES
Product revenues decreased by 12% to $4.4 million in the three
months ended September 30, 1998 from $5.0 million in the three months ended
September 30, 1997. This was primarily attributable to a decrease of $400,000
in international orders and $260,000 in orders from new U.S. customers, which
was partially offset by increased sales of BVS blood pumps to existing
customers. International revenues in the three months ended September 30,
1997 included $250,000 in revenue from a single international distributor.
The distributor is using the product to gain regulatory approval for that
distributor's territory. Efforts by that distributor to gain regulatory
approval for its territory are ongoing and, as such, the Company sold no
product to that distributor in the three months ended September 30, 1998. The
$260,000 decrease in orders from new U.S. customers primarily reflected
decreased unit sales of BVS consoles which was partially offset by increased
average selling prices. The increase in U.S. sales of BVS blood pumps to
existing customers in the three months ended September 30, 1998 compared to
September 30, 1997 reflects increases in both the number of units sold and
the average selling price. Sales of BVS blood pumps in the three months ended
September 30, 1997 included $230,000 in product revenues shipped in the
period from backlog. The Company generally operates with only limited
backlog. Without the effect of backlog on the September 30, 1997 quarter, the
Company's sales of BVS blood pumps increased approximately $270,000 in the
three months ended September 30, 1998 compared to the three months ended
September 30, 1997. More than 90% of total product revenues in the three
months ended September 30, 1998 were derived from domestic sources.
During the three months ended September 30, 1998, the Company added
24 medical centers in the U.S. as new customers of the BVS, increasing the
Company's U.S. customer base for the BVS to more than 375.
10
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
REVENUES (continued)
Contract revenues decreased by 67% to approximately $600,000 in the
three months ended September 30, 1998 from $1.9 million in the three months
ended September 30, 1997. The decrease in contract revenue was primarily
attributable to the Company's HRD government contract. None of the contract
revenue recognized in the three months ended September 30, 1998 was derived
from the Company's HRD government contract compared to $1.4 million of
contract revenue recognized under this contract for the three months ended
September 30, 1997. The $600,000 in contract revenues generated in the three
months ended September 30, 1998 were primarily derived from the Company's
Heart Booster-TM- contract and other grants. Revenues from these sources
totaled $500,000 in the three months ended September 30, 1997. The Company
accounts for revenue under its government contracts and grants as work is
performed, provided that the government has appropriated sufficient funds for
the work. Through September 30, 1998, the government had appropriated and the
Company has recognized as revenue, $6.7 million of the $8.5 million HRD
contract amount. To date, the Company's expenditures under the HRD contract
have exceeded the appropriated amount. The government appropriation schedule
calls for no further appropriation for the HRD contract until October 1999.
This schedule is subject to change at the discretion of the government.
While the Company currently plans to continue its expenditures in
connection with the development of the HRD, the Company will not recognize
any further contract revenues under the HRD contract until such time as
additional funds are appropriated under the HRD contract, if ever. The
Company believes that certain of its costs incurred prior to further
appropriation may be reimbursable under the HRD contract, if and when
additional appropriation under the HRD contract is made. Due to the Company's
accelerated HRD development activity and the timing of government
appropriations, the Company believes that it will experience significant
quarterly fluctuations in contract revenues. The Company also believes that
the Company's total expenses to complete the development of the HRD will
significantly exceed the remaining $1.8 million HRD contract amount.
As of September 30, 1998, the Company's total backlog of research
and development contracts and grants was $6.2 million, including $1.8 million
for HRD research and development, $2.0 million for Heart Booster research and
development and $2.4 million for various other research and development.
Funding for the Company's government research and development contracts is
subject to government appropriation, and all of these contracts contain
provisions that make them terminable at the convenience of the government.
The Company retains rights to all technological discoveries and products
resulting from these efforts.
COSTS AND EXPENSES
Total costs and expenses increased to $7.8 million, 157% of total
revenues, for the three months ended September 30, 1998, from $6.5 million,
95% of total revenues, for the three months ended September 30, 1997. The
majority of this increase was incurred to support increased development
activities related to the HRD.
11
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COSTS AND EXPENSES (continued)
Cost of product revenues as a percentage of product revenues was 36%
for the three months ended September 30, 1998 and the three months ended
September 30, 1997. The impact of increased engineering costs incurred to
support expanded manufacturing capabilities and changes in the relative mix
of products sold were offset by higher average selling prices.
Research and development expenses increased by 96% to $4.0 million,
80% of total revenues, for the three months ended September 30, 1998, from
$2.0 million, 29% of total revenues for the three months ended September 30,
1997. The increase primarily reflected higher levels of spending by the
Company to advance the development of the HRD and to enhance the BVS and
higher level of activity under the Company's non-HRD cost-plus-fixed-fee
research and development contracts and grants. Research and development
expenses during the three months ended September 30, 1998 included $3.0
million of expenses incurred in connection with the Company's development
activities for the HRD. The Company anticipates that its research and
development expenses will continue to increase as a result of its plans to
further increase its research and development efforts to further develop and
test the HRD and enhance the BVS.
Selling, general and administrative expenses decreased by 14% to
$2.3 million, 46% of total revenues, for the three months ended September 30,
1998, from $2.7 million, 39% of total revenues, for the three months ended
September 30, 1997. This decrease was primarily due to reduced legal costs,
reduced headcount and related costs, and timing of spending for marketing
programs.
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest on the
Company's investment balances, net of interest and other expenses. Interest
and other income increased to $370,000 for the three months ended September
30, 1998 from $292,000 for the three months ended September 30, 1997. This
increase primarily reflected interest earned on the Company's higher average
investment balances.
Income taxes incurred during these periods were not material and the
Company continues to have significant net tax operating loss carryforwards
and tax credit carryforwards.
12
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
SIX MONTHS ENDED SEPTEMBER 30, 1998
NET INCOME
Net loss and net loss per share for the six months ended September
30, 1998, were approximately $3.0 million and $0.35 per share, respectively.
This compares to net income and net income per share of approximately $1.4
million and $0.17 per share, respectively, in the same period of the previous
year. The net loss for the six months ended September 30, 1998 is primarily
attributable to the Company's undertaking to accelerate the development of
its HRD and to the decrease in contract and product revenues.
REVENUES
Product revenues decreased by 11% to $7.9 million in the six months
ended September 30, 1998 from $8.8 million in the six months ended September
30, 1997. This decrease was comprised of decreases in sales of $400,000 in
BVS blood pumps to existing customers, of $270,000 in international orders
and of $260,000 in orders from new customers. Sales of BVS blood pumps in the
six months ended September 30, 1997 included $640,000 in product revenues
shipped in the period from backlog. The Company generally operates with only
limited backlog. Without the effect of backlog, the Company's sales of BVS
blood pumps increased approximately $240,000 in the six months ended
September 30, 1998 compared to the six months ended September 30, 1997
reflecting increases in both the number of units sold and average selling
prices of the BVS blood pumps. International revenues in the six months ended
September 30, 1997 included $250,000 in revenue from a single international
distributor. The distributor is using the product to gain regulatory approval
for that distributor's territory. Efforts by that distributor to gain
regulatory approval for its territory are ongoing and, as such, the Company
sold no product to that distributor in the six months ended September 30,
1998. The decrease in orders from new U.S. customers reflects decreased unit
sales of BVS consoles partially offset by increased average selling prices.
More than 90% of total product revenues in the six months ended September 30,
1998 were derived from domestic sources.
Contract revenues decreased by 21% to approximately $2.9 million in
the six months ended September 30, 1998 from $3.7 million in the six months
ended September 30, 1997. Approximately $1.8 million of the contract revenue
recognized in the six months ended September 30, 1998 was derived from the
Company's HRD government contract compared to $3.0 million of contract
revenue recognized under this contract for the six months ended September 30,
1997. Excluding revenue generated from the HRD government contract, the
Company generated $1.1 million in contract revenue in the six months ended
September 30, 1998 primarily from the Company's Heart Booster-TM- contract
and other government grants compared to $700,000 from these sources in the
six months ended September 30, 1997.
13
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COSTS AND EXPENSES
Total costs and expenses increased to $14.5 million, 135% of total
revenues, for the six months ended September 30, 1998, from $11.3 million,
91% of total revenues, for the six months ended September 30, 1997. The
majority of this increase in costs and expenses was incurred to support
increased development activities related to the HRD.
Cost of product revenues as a percentage of product revenues was 38%
for the six months ended September 30, 1998 as compared to 35% in the six
months ended September 30, 1997. The majority of this increase in cost of
products sold as a percentage of product revenues was attributable to higher
product costs for both the console and blood pumps due to increased
engineering costs incurred to support expanded manufacturing capabilities and
to changes in the relative mix of products sold partially offset by higher
average product selling prices.
Research and development expenses increased by 91% to $7.0 million,
65% of total revenues, for the six months ended September 30, 1998, from $3.7
million, 29% of total revenues for the six months ended September 30, 1997.
The increase primarily reflected higher levels of spending by the Company to
advance the development of the HRD and to enhance the BVS and higher level of
activity under the Company's non-HRD cost-plus-fixed-fee research and
development contracts and grants. Research and development expenses during
the six months ended September 30, 1998 included $5.2 million of expenses
incurred in connection with the Company's development activities for the HRD.
Selling, general and administrative expenses were $4.5 million, 42%
of total revenues, for the six months ended September 30, 1998, compared to
$4.5 million, 36% of total revenues, for the six months ended September 30,
1997.
INTEREST AND OTHER INCOME
Interest and other income consists primarily of interest on the
Company's investment balances, net of interest and other expenses. Interest
and other income increased to $727,000 for the six months ended September 30,
1998 from $417,000 for the six months ended September 30, 1997. This increase
primarily reflected interest earned on the Company's higher average
investment balances.
Income taxes incurred during these periods were not material and the
Company continues to have significant net tax operating loss carryforwards
and tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $22.2 million in cash and
short-term marketable securities. The Company also has a $3 million line of
credit from a bank that expires on November 30, 1998, and which was entirely
available at September 30, 1998.
14
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
In the six months ended September 30, 1998, operating activities
used cash of $3,696,000. Net cash used by operating activities during the six
months ended September 30, 1998 reflected a net loss of $3,025,000, increases
in inventory and prepaid expenses of $882,000 and $160,000, respectively, and
decreases in accounts payable and net assets of discontinued operations of
$813,000 and $57,000, respectively. These uses of cash were partially offset
by a decrease in accounts receivable of $402,000, an increase in accrued
expenses of $76,000 and depreciation and amortization expense of $764,000
included in the net loss. The increase in inventory is primarily attributable
to a decision by the company to increase levels of finished goods and lower
than expected sales for the quarter resulting in higher inventories.
During the six months ended September 30, 1998, investing activities
provided $2,078,000 of cash. Net cash provided by investing activities
included $3,276,000 of maturities of short-term investments partially offset
by $1,198,000 of purchases of equipment and improvements of property
primarily to support the advanced development of the HRD.
During the six months ended September 30, 1998, financing activities
provided $652,000 of cash. Net cash provided by financing activities included
$595,000 from the exercise of stock options and $57,000 from employee
purchases of Common Stock under the Employee Stock Purchase Plan.
Although the Company does not currently have significant capital
commitments, the Company believes that it will continue to make significant
investments over the next several years to support the development and
commercialization of its products and the expansion of its manufacturing and
product development facilities. The Company is currently negotiating to enter
into a new or amended facility lease that would allow the Company to
consolidate its operations into one building. There is no guarantee that the
Company will be able to negotiate acceptable terms. The Company estimates
that it may incur costs of approximately two million dollars for improvements.
The Company believes that its revenues and existing resources,
including its $22.2 million in cash and short-term marketable securities,
will be sufficient to fund its planned operations, including planned
increases in its internally funded HRD development and BVS enhancement
efforts, for at least the next twelve months.
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
As the year 2000 approaches, it is generally anticipated that
computers, software and other equipment utilizing microprocessors may be
unable to function properly. The Company has evaluated this potential issue
with respect to its products, its financial and management information
systems and its suppliers. With respect to the Company's products, the
software controlling the BVS drive console includes internal counters, but
the BVS operation is not related in any way to a specific calendar date.
Accordingly, the Company believes that the BVS will not need any repair of
modification with regard to the Year 2000 issue.
15
ABIOMED, INC. AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION (continued)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS (continued)
With respect to the Company's financial and management information
systems, the Company must upgrade the application software to be Year 2000
compliant. The supplier of the software has developed a Year 2000 compliant
version of the software and the Company anticipates upgrading its systems to
this version prior to the end of fiscal 1999. Because on April 1, 1999 the
Company begins its fiscal year 2000, the Company anticipates that if it does
not upgrade its financial and management information systems in Fiscal 1999,
it may encounter Year 2000 compliance issues as early as April 1999. With
respect to its suppliers, the Company is beginning to communicate with key
suppliers to assess their vulnerability to the Year 2000 issue and intends to
increase inventory levels of certain key components to help mitigate the risk
of certain suppliers not being able to supply materials on a timely basis due
to systems issues.
Although management does not expect Year 2000 issues to have a
material impact on its business or future results of operations, there can be
no assurance that there will not be interruptions of operations or other
limitations of system functionality or that the Company will not incur
significant costs to avoid such interruptions or limitations. To the extent
that the Company does not eliminate all Year 2000 issues, the most reasonably
likely worst case year 2000 scenario is systemic failures beyond the control
of the Company, such as a prolonged telecommunications or electrical failure,
or a general disruption in supplies and services provided to the Company
which could have a material adverse effect on the Company's business, results
of operations and financial condition.
This document contains forward looking statements, including
statements regarding the anticipated timing and cost of the Company's HRD
development activities, enhancements to be made to the BVS, planned expansion
of the Company's manufacturing and product development facilities, adequacy
of existing resources and overcoming Year 2000 related issues. The Company's
actual results, including its HRD development, BVS enhancements, facility
expansion, adequacy of resources and overcoming Year 2000 issues may differ
materially based on a number of factors, both known and unknown, including:
uncertainty of product development and clinical trials, complex
manufacturing, high quality requirements, unproven demonstration of required
reliability of products under development, dependence on key personnel, risks
associated with growing number of employees, inability to recruit required
human resources on schedule, competition and technological change, government
regulations including the FDA and other regulatory agencies, reliance on
government contracts, dependence on limited sources of supply, future capital
needs and uncertainty of additional funding, dependence on third-party
reimbursement, potential inadequacy of product liability insurance,
dependence on patents and proprietary rights and other risks detailed in the
Company's Form 10-K for the year ended March 31, 1998 which was filed with
the Securities and Exchange Commission. Investors are cautioned that all such
statements involve risks and uncertainties. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date of this document. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
16
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
No material change.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on August 13,
1998, the stockholders approved the following:
a) Elected two persons to serve as Class II directors as follows:
Votes Votes
Director for Withheld
---------------- --------- --------
W. Gerald Austen 7,898,220 34,315
Paul B. Fireman 7,895,720 36,815
b) A proposal to adopt the Company's 1998 Equity Incentive Plan.
The proposal received 4,966,658 votes for and 307,921 votes
against. There were 33,313 abstentions and 2,624,643 non-voting.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit 10 - ABIOMED, Inc. 1998 Equity Incentive Plan
b) REPORTS ON FORM 8-K
None
17
ABIOMED, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
- -----------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABIOMED, Inc.
Date: October 21, 1998 /s/ David M. Lederman
-------------------------------------
David M. Lederman
CEO and President
Date: October 21, 1998 /s/ John F. Thero
------------------------------------
John F. Thero
Vice President Finance
and Treasurer
Chief Financial Officer
Principal Accounting Officer
18