-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EzMQKC0kf2ZwtQ6VdOxw7eDTAQ/sXHpaO9Nk49rhaj4+A9404pqzIgSGHNfrYVqc m1igvMIKT/nLW1UrwkUPAA== 0000927016-99-002042.txt : 19990518 0000927016-99-002042.hdr.sgml : 19990518 ACCESSION NUMBER: 0000927016-99-002042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVASIVE DEVICES INC CENTRAL INDEX KEY: 0001003608 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 043132641 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28492 FILM NUMBER: 99625089 BUSINESS ADDRESS: STREET 1: 734 FOREST ST CITY: MARLBOROUGH STATE: MA ZIP: 01752 BUSINESS PHONE: 5084346000 MAIL ADDRESS: STREET 1: 734 FOREST STREET CITY: MARLBOROUGH STATE: MA ZIP: 01752 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended March 31, 1999 Commission file number 0-28492 -------------- - -------------------------------------------------------------------------------- INNOVASIVE DEVICES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3132641 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 734 Forest Street, Marlborough MA 01752 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code 508/460-8229 ------------ N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. 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. (1) YES X NO_____ ----- (2) YES _____ NO X ----- The number of shares outstanding of the registrant's common stock as of May 14, 1999 was 9,207,249. INNOVASIVE DEVICES, INC. INDEX
Page ---- Part I: Financial Information Item 1. Condensed Financial Statements Condensed Balance Sheet at March 31, 1999 (unaudited) and December 31, 1998 3 Condensed Statement of Operations (unaudited) for the Three Months Ended March 31, 1999 and 1998 4 Condensed Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 1999 and 1998 5 Notes to Unaudited Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. Other Information 10 Signatures 11
2 Part I - Financial Information Item 1. Financial Statements INNOVASIVE DEVICES, INC. Condensed Balance Sheet (in thousands)
March 31, December 31, 1999 1998 ------------------- -------------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,603 $ 3,724 Marketable securities 501 1,043 Accounts receivable, net of allowance for doubtful accounts of $149 at March 31, 1999 and $140 at December 31, 1998 2,580 2,189 Inventories 5,600 5,596 Prepaid expenses 144 175 ------------------- -------------------- Total current assets 11,428 12,727 Fixed assets, net 2,108 2,212 Other assets, net 1,088 1,120 ------------------- -------------------- $ 14,624 $ 16,059 =================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 405 $ 682 Accounts payable to related party 59 60 Other current liabilities 1,803 2,103 ------------------- -------------------- Total current liabilities 2,267 2,845 Stockholders' equity: Common stock 1 1 Additional paid-in capital 54,918 54,918 Accumulated deficit (42,527) (41,655) Deferred compensation (35) (50) ------------------- -------------------- 12,357 13,214 ------------------- -------------------- $ 14,624 $ 16,059 =================== ====================
The accompanying notes are an integral part of these condensed financial statements. 3 INNOVASIVE DEVICES, INC. Condensed Statement of Operations (In thousands, except per share data; unaudited)
Three months ended March 31, ---------------------------------------- 1999 1998 ---- ---- Net sales $ 4,251 $ 2,558 Cost of sales 1,277 715 ----------- ----------- Gross profit 2,974 1,843 Selling, general and administrative expenses 3,019 2,722 Research and development 874 1,096 ----------- ----------- Loss from operations (919) (1,975) Interest income 47 195 ----------- ----------- Net loss $ (872) $ (1,780) =========== =========== Basic and diluted net loss per share $ (0.09) $ (0.19) =========== =========== Shares used in computing basic and diluted net loss per share 9,207 9,167 =========== ===========
The accompanying notes are an integral part of these condensed financial statements. 4 INNOVASIVE DEVICES, INC. Condensed Statement of Cash Flows (In thousands; unaudited)
Three months ended March 31, -------------------------- 1999 1998 ---- ---- Cash flows from operating activities Net loss $ (872) $ (1,780) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 294 322 Changes in assets and liabilities: Accounts receivable, net (391) (245) Inventories (4) (413) Prepaid expenses 31 16 Other assets - 110 Accounts payable (277) 45 Accounts payable to related party (1) (232) Other current liabilities (300) 58 --------- -------- Net cash used for operating activities (1,520) (2,119) --------- -------- Cash flows from investing activities Purchases of fixed assets (143) (225) Purchases of marketable securities - (4,919) Redemption of marketable securities 542 11,474 --------- -------- Net cash provided by investing activities 399 6,330 --------- -------- Cash flows from financing activities Proceeds from issuance of common stock, net of issuance costs - 21 --------- -------- Net increase (decrease) in cash and cash equivalents (1,121) 4,232 Cash and cash equivalents at beginning of period 3,724 2,916 --------- -------- Cash and cash equivalents at end of period $ 2,603 $ 7,148 ========= ========
The accompanying notes are an integral part of these condensed financial statements. 5 INNOVASIVE DEVICES, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of Innovasive Devices, Inc. (the "Company") include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial position as of March 31, 1999 and the results of its operations for the three month period ended March 31, 1999 and 1998. Results of operations for interim periods are not necessarily indicative of those to be achieved for the full year. Pursuant to accounting requirements of the Securities and Exchange Commission (the "SEC") applicable to quarterly reports on Form 10-Q, the accompanying unaudited condensed financial statements and these notes do not include all disclosures required by generally accepted accounting principles for complete financial statements. Accordingly, these statements should be read in conjunction with the financial statements and accompanying notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 filed with the SEC on March 31, 1999. 2. INVENTORIES Inventories consist of the following:
March 31, December 31, 1999 1998 ----------- ----------- (unaudited) Raw materials $ 1,293 $ 1,880 Work-in-process 362 640 Finished goods 3,945 3,076 ----------- ----------- Totals $ 5,600 $ 5,596 =========== ===========
3. NET LOSS PER SHARE (UNAUDITED) Basic earnings per share is computed by dividing the income available to common stockholders by the weighted average number of common shares outstanding for the period. For purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of common shares outstanding and potential dilutive common shares outstanding for the period. For each of the periods presented, basic and diluted earnings per share are the same due to the antidilutive effect of potential common shares outstanding. 6 INNOVASIVE DEVICES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Since its inception in 1990, the Company has been primarily engaged in the development, manufacture and marketing of proprietary devices and instrumentation which facilitate the reattachment of soft tissue structures, such as ligaments and tendons, to bones and other tissues. The Company has a limited operating history and as of March 31, 1999 had an accumulated deficit of $42.5 million. These losses have resulted principally from expenses associated to fund research and development, the establishment of its manufacturing capabilities and the expansion of its marketing and sales organization. Although the Company's sales were principally derived from the sale of its family of shoulder related products, the Company now markets five product platforms: suture anchors, suturing systems, cartilage repair products, anterior cruciate ligament ("ACL") reconstruction products and its newly introduced meniscal repair products. The Company's strategy is to continue to develop innovative products for the sports medicine/arthroscopy market and to leverage its core proprietary technology in other markets. The Company markets its products to surgeons in the United States through a network of clinical employee sales representatives and independent sales agents and internationally through established distributors of orthopaedic medical devices. The following information should be read in conjunction with the unaudited condensed financial statements and notes thereto included in this Quarterly Report and with the Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K filed with the SEC on March 31, 1999. Any statements in this report expressing the beliefs and expectations of management regarding the Company's future results and performance are forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations that involve a number of risks and uncertainties. The Company wishes to caution readers not to place undue reliance on any such forward- looking statements, which speak only as of the date made. Such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. These risks include the receipt of regulatory approvals, progress of product development programs, clinical efficacy of and market demand for the products. Certain of such risks and uncertainties are described in Exhibit 99 of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1999. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1998 Net sales for the first quarter of 1999 of $4,251,000 represents an increase of $1,693,000 from $2,558,000 for the same period in the prior year. The increase resulted primarily from a higher level of sales of ACL reconstruction products, Meniscal repair products, cartilage repair products, ROC suture anchors and suture systems. Products contributing to the increase in ACL reconstruction product sales over the first quarter of 1998 included: the Linx HT and Slingshot Cross Pin ACL Fixation systems which each provide femoral fixation of hamstring tendon grafts, and the GeoFit Screw and Washer system used for tibial fixation of soft tissue. The Company's newly introduced Meniscal repair products also contributed to the sales growth over the same period in the prior year. In the fourth quarter of 1998, the Company commenced commercial shipments of its Clearfix Meniscal Screw, a bioabsorbable device used to repair traumatic tears within the meniscus of the 7 knee through a minimally invasive arthroscopic approach. In the first quarter of 1999, the Company commenced commercial shipments of its Clearfix Meniscal Dart, a bioabsorbable device also used to repair traumatic tears within the meniscus. Sales of the Company's COR system, used for articular cartilage repair in the knee, also experienced growth over the same period last year. Contributing to the increase in ROC suture anchor sales was the BioROC, a bioabsorbable suture anchor introduced in the latter part of the first quarter of 1998. The Company also experienced increased sales of its ROC EZ and ROC XS suture anchors. Suture system sales also increased over the same quarter in 1998 as a result of increased sales of the Y-Knot and Suture Grasper product lines. Gross profit increased to $2,974,000 in the first quarter of 1999 from $1,843,000 in the first quarter of 1998. As a percentage of sales, gross profit was 70.0% in the first quarter of 1999 as compared to 72.0% in the first quarter of 1998. Gross profits were impacted by a higher percentage of sales to international distributors versus the same period in the prior year. The average selling price of products to international distributors are typically below that of domestic average selling prices. Selling, general and administrative expenses increased to $3,019,000 in the first quarter of 1999 from $2,722,000 in the first quarter of 1998. The increase resulted primarily from higher selling commissions resulting from higher sales volume, increased legal costs, and increased salary and travel costs related to the expansion of the domestic and international direct sales force. Research and development expenses decreased to $874,000 in the first quarter of 1999 from $1,096,000 in the first quarter of 1998. The decrease was primarily attributable to lower patent filing costs and a decrease in project costs related to a collaborative product development agreement with Cohesion Technologies, Inc. as this project transitions from the development to the clinical phase. Interest income decreased to $47,000 in the first quarter of 1999 from $195,000 in the first quarter of 1998 primarily as a result of investment returns earned on lower average cash balances maintained during the first quarter of 1999 as compared to the prior year. As a result of the foregoing, the net loss decreased to $872,000 in the first quarter of 1999 from a loss of $1,780,000 in the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, the Company had cash, cash equivalents and marketable securities of $3.1 million as compared to a balance of $4.8 million on December 31, 1998. Working capital decreased to $11.4 million as of March 31, 1999 from $12.7 million at December 31, 1998. Cash used in the Company's operations amounted to $1.5 million for the three months ended March 31, 1999 primarily resulting from the net loss of $872,000 and an increase in accounts receivable of $391,000 resulting from the increased sales volume over the prior quarter. Cash provided by investing activities totaled $399,000 for the three months ended March 31, 1999 resulting from net redemptions of marketable securities of $542,000 offset by capital expenditures of $143,000. On December 31, 1998, the Company entered into a working capital line of credit with a bank that provides the Company with a maximum borrowing availability of $2.5 million, limited by certain receivable and inventory balances. Borrowings under this agreement bear interest at the prime rate of 7.75%. The line of credit expires and all outstanding amounts thereunder are due December 31, 1999. Under the line of credit, the Company is obligated to comply with certain financial covenants. There were no borrowings outstanding under the line of credit at March 31, 1999. 8 The Company's future liquidity and capital requirements will depend upon the progress of research and development programs, regulatory matters and the expansion of its manufacturing capabilities to satisfy increasing volume requirements. In addition, the Company's capital requirements will depend upon, among other factors, the timing of the establishment of effective sales channels in the United States and abroad and the extent to which the Company's products gain market acceptance resulting in increased sales sufficient to generate a profit from operations. Therefore the Company cannot provide assurances that it will not require additional financing in the future. If additional financing is necessary, the Company would seek to raise these funds through bank facilities or debt or equity offerings. There can be no assurance that such funds would be available at all or on terms acceptable to the Company. IMPACT OF THE YEAR 2000 ISSUE The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company believes that its primary business and research and development systems will be Y2K compliant by the second quarter of 1999 based on it's internal evaluations and testing of these systems. The Company does not rely materially on non-IT related technology in its manufacturing processes and thereby does not anticipate that Y2K issues will affect its ability to manufacture finished goods. The Company has begun the process of developing a communication strategy for third party vendors and intends to issue questionnaires that will address Y2K compliance. The Company anticipates that its assessment of third party vendors will be completed by the second quarter of 1999. The Company does not anticipate incurring additional costs outside of the scope of its current IT budget to complete future testing and compliance activities. The Company relies extensively on third party suppliers. Because their systems are not directly under the Company's control, the Company is at risk that all required external Y2K compliance efforts will not be completed on a timely basis. In the event that the Company's significant suppliers do not successfully and timely achieve Y2K compliance, and the Company is unable to replace them with alternate suppliers, the Company's operations could be adversely affected. At this time, the Company believes that the Y2K problem will not pose significant operational problems for the Company's computer systems. Since no significant issues have arisen, the Company does not have a contingency plan to address any material Y2K issues. If significant Y2K issues arise, the Company may not be able to timely develop and implement a contingency plan and the Company's operations could be adversely affected. The disclosure in this Section is a Y2K Readiness Disclosure under the Year 2000 Information and Readiness Disclosure Act of 1998. 9 INNOVASIVE DEVICES, INC. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- On October 28, 1998, Bionx Implants, Inc., Bionx Implants, Oy. and Dr. Saul N. Schreiber ("Bionx") filed suit against the Company in the United States District Court for the District of Massachusetts alleging that the Company's Clearfix(TM) Meniscal Dart product infringed a Bionx patent. On March 24, 1999, Judge Gertner of that Court denied Bionx's motion for a preliminary injunction which would have precluded Innovasive from manufacturing, using or selling the Meniscal Dart on the grounds that Bionx was unlikely to succeed on the merits of its infringement claim. The Bionx claim does not allege any infringement with respect to the Company's Meniscal Screw, which was commercially launched in October 1998. The Company believes that the Bionx claim is without merit and intends to continue to defend itself vigorously. ITEM 2. CHANGES IN SECURITIES ---------------------- None Item 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None ITEM 5. OTHER INFORMATION ----------------- None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K --------------------------------- None 10 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. INNOVASIVE DEVICES, INC, DATE: MAY 14, 1999 BY: /s/ RICHARD D. RANDALL ------------------------- Richard D. Randall PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER) DATE: MAY 14, 1999 BY: /s/ JAMES V. BARRILE ------------------------ JAMES V. BARRILE EXECUTIVE VICE PRESIDENT OF FINANCE, CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL OFFICER) 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 2,603 501 2,729 149 5,600 11,428 4,354 2,246 14,624 2,267 0 0 0 1 12,357 14,624 4,251 4,251 1,277 1,277 0 0 0 (872) 0 (872) 0 0 0 (872) (0.09) (0.09)
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