-----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, UtNSj+D3qhxoH6/CSxJlCgdZ3vUcYtvsaqxcYM+H38ge5Enee1dCssqBRPIAM7cq 0LBrbdKoItnmoev1vq16yw== 0001005477-97-002353.txt : 19971020 0001005477-97-002353.hdr.sgml : 19971020 ACCESSION NUMBER: 0001005477-97-002353 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971017 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVOSTE CORP /FL/ CENTRAL INDEX KEY: 0001012131 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 592787476 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20727 FILM NUMBER: 97697599 BUSINESS ADDRESS: STREET 1: 4350-C INTERNATIONAL BLVD CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7707170904 MAIL ADDRESS: STREET 1: 4350 C INTERNATIONAL BLVD CITY: NORCROSS STATE: GA ZIP: 30093 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 1997. |_| Transition period pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _____________ to ______________. 0-20727 ------- (Commission File Number) Novoste Corporation ------------------- (Exact Name of Registrant as Specified in Its Charter) Florida 59-2787476 ------------------------------- ---------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 4350-C International Blvd., Norcross, GA 30093 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone, including area code: (770) 717-0904 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 requirements for the past 90 days. (Item 1) Yes |X| No |_| (Item 2) Yes |X| No |_| As of October 16, 1997, there were 8,524,925 shares of the Registrant's Common Stock outstanding. Exhibit Index on page: 16 Total number of pages: 18 1 NOVOSTE CORPORATION FORM 10-Q INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Condensed Financial Statements Condensed Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 3 Condensed Statements of Operations (unaudited) for the three and nine months ended September 30, 1997 and 1996 and the period from inception (May 22, 1992) through September 30, 1997 4 Condensed Statements of Cash Flows (unaudited) for the nine months ended September 30, 1997 and 1996 and the period from inception (May 22, 1992) through September 30, 1997 5 Notes to Condensed Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-13 PART II. OTHER INFORMATION Item 5. Other Matters 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16 EXHIBIT 11 - COMPUTATION OF NET LOSS PER SHARE 17 EXHIBIT 27 - FINANCIAL DATA SCHEDULE 18 2 NOVOSTE CORPORATION (A Development Stage Company) CONDENSED BALANCE SHEETS
September 30, December 31, 1997 1996 ------------ ------------ (unaudited) Assets Current assets: Cash and cash equivalents $ 15,737,474 $ 19,954,827 Short-term investments 3,961,633 7,588,693 Prepaid expenses 148,214 126,349 ------------ ------------ Total current assets 19,847,321 27,669,869 Property and equipment, net 1,068,197 1,128,031 License agreements, net 143,168 153,396 Other assets 215,664 303,642 ------------ ------------ $ 21,274,350 $ 29,254,938 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 306,537 $ 155,946 Accrued expenses and taxes withheld 1,474,516 665,175 ------------ ------------ Total current liabilities 1,781,053 821,121 ------------ ------------ Shareholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value, 25,000,000 shares authorized; 8,502,930 and 8,257,967 shares issued, respectively 85,029 82,580 Additional paid-in capital 42,405,272 41,772,791 Deficit accumulated during the development stage (22,973,164) (13,405,714) ------------ ------------ 19,517,137 28,449,657 Less treasury stock, 5,780 and 5,280 shares of common stock, respectively, at cost (23,840) (15,840) ------------ ------------ Total shareholders' equity 19,493,297 28,433,817 ------------ ------------ $ 21,274,350 $ 29,254,938 ============ ============
See accompanying notes. 3 NOVOSTE CORPORATION (A Development Stage Company) UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
From inception Three months ended Nine months ended (May 22, 1992) September 30, September 30, through September 30, 1997 1996 1997 1996 1997 --------------------------- --------------------------- --------------------- Miscellaneous revenues $ -- $ -- $ 29,313 $ -- $ 320,200 Costs and expenses: Research and development 3,137,301 1,153,791 8,618,578 2,799,071 17,505,610 General and administrative 382,484 396,872 1,342,605 1,091,872 5,430,146 Marketing 284,723 129,147 575,390 341,168 2,107,501 ------------ ------------ ------------ ------------ ------------ 3,804,508 1,679,810 10,536,573 4,232,111 25,043,257 ------------ ------------ ------------ ------------ ------------ Loss from operations (3,804,508) (1,679,810) (10,507,260) (4,232,111) (24,723,057) ------------ ------------ ------------ ------------ ------------ Interest income 284,786 404,277 939,810 559,642 1,931,652 Interest expense -- (280) -- (87,331) (181,759) ------------ ------------ ------------ ------------ ------------ Net loss ($ 3,519,722) ($ 1,275,813) ($ 9,567,450) ($ 3,759,800) ($22,973,164) ============ ============ ============ ============ ============ Net loss per share ($ 0.41) ($ 0.16) ($ 1.14) ($ 0.60) ============ ============ ============ ============ Weighted average shares outstanding 8,489,546 8,086,006 8,375,739 6,275,378 ============ ============ ============ ============
See accompanying notes. 4 NOVOSTE CORPORATION (A Development Stage Company) UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
From inception For the nine months (May 22, 1992) ended September 30, through September 30, 1997 1996 1997 ------------ ------------ --------------------- Cash flows from operating activities Net loss ($ 9,567,450) ($ 3,759,800) ($22,973,164) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 310,150 223,647 1,188,025 Issuance of stock for services or compensation 202,500 248,076 1,149,818 Changes in assets and liabilities: Prepaid expenses (21,865) (187,736) (155,673) Accounts payable 150,591 59,632 306,537 Accrued expenses and taxes withheld 809,341 152,954 1,869,023 Other 130,719 -- (225,318) ------------ ------------ ------------ Net cash used by operations (7,986,014) (3,263,227) (18,840,752) ------------ ------------ ------------ Cash flows from investing activities Maturity (purchase) of short-term investments 3,627,060 (2,977,365) (3,961,633) Purchase of property and equipment, net (192,204) (305,234) (1,944,630) ------------ ------------ ------------ Net cash provided by (used by) investing activities 3,434,856 (3,282,599) (5,906,263) ------------ ------------ ------------ Cash flows from financing activities Proceeds from issuance of notes payable -- 2,561,700 4,770,150 Repayment of notes payable -- (1,800,150) (2,970,150) Proceeds from issuance of common stock 333,805 31,023,428 38,684,489 ------------ ------------ ------------ Net cash provided by financing activities 333,805 31,784,978 40,484,489 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (4,217,353) 25,239,152 15,737,474 Cash and cash equivalents at beginning of period 19,954,827 817,587 -- ============ ============ ============ Cash and cash equivalents at end of period $ 15,737,474 $ 26,056,739 $ 15,737,474 ============ ============ ============ Supplemental disclosures of cash flow information Cash paid for interest -- $ 101,312 $ 165,137 ============ ============ ============
See accompanying notes. 5 NOVOSTE CORPORATION (A Development Stage Company) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS September 30, 1997 Note 1. Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with instructions to Article 10 of Regulation S-X. Accordingly, such financial statements do not include all of the information and disclosures 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. The operating results of the interim periods presented are not necessarily indicative of the results to be achieved for the year ending December 31, 1997. The accompanying financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1996 and for the cumulative period from May 22, 1992 (inception) through December 31, 1996, included in the Company's 1996 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC"). Certain prior year expense amounts have been reclassified in the Statements of Operations for the three and nine months ended September 30, 1996 and the period from inception through September 30, 1997 to conform with current year classifications. Note 2. Net Loss Per Share The net loss per share is computed based on the weighted average number of common shares outstanding after giving effect to certain adjustments described below. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be antidilutive, except that, in accordance with SEC requirements, common and common stock equivalent shares issued during the twelve-month period prior to the initial filing of the public offering on April 11, 1996 have been included in the calculations as if they were outstanding through March 31, 1996 using the treasury stock method. See Exhibit 11. Historical net loss per share information presented in accordance with GAAP for the period affected by the above mentioned SEC requirement is as follows: Nine months ended September 30, 1996 ---- Net loss per share ($0.63) ====== Shares used in computing net loss per share 6,002,227 ========= 6 NOVOSTE CORPORATION (A Development Stage Company) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS September 30, 1997 In February 1997 the Financial Accounting Standards Board issued a new accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change the current method of computing earnings per share. The new standard requires presentation of "basic earnings per share" and "diluted earnings per share" amounts, as defined. SFAS No. 128 will be effective for the Company's quarter and year ending December 31, 1997, and, upon adoption, all prior-period earnings per share data presented shall be restated to conform with the provisions of the new pronouncement. Application earlier than the Company's quarter ending December 31, 1997 is not permitted. The adoption of SFAS No. 128 is not anticipated to have a material impact on operations. Note 3. Cash Equivalents and Investments Cash equivalents are comprised of certain highly liquid investments with maturities of less than three months. In addition to cash equivalents, the Company has investments in commercial paper that are classified as short-term (mature in more than 90 days but less than one year). Such investments are classified as held-to-maturity, as the Company has the ability and intent to hold them until maturity. Investments held-to-maturity are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts without recognition of gains or losses that are deemed to be temporary. Premiums and discounts are amortized or accreted over the life of the related instrument as an adjustment to yield using the straight-line method, which approximates the effective interest method. Interest income is recognized when earned. Fair value approximates carrying value for all cash equivalents and investments. Note 4. Shareholders' Equity On May 20, 1996 the Company amended an option to purchase 100,000 shares of Common Stock at $3.20 per share of which options for 75,000 shares had not yet become exercisable. As amended, options to purchase such 75,000 shares become exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject to acceleration upon the achievement of three specified milestones at the rate of 25,000 shares per milestone. The Company is recording total non-cash compensation expense of $810,000 ratably over the three year period ending May 19, 1999, subject to acceleration if the specific milestones are met at earlier dates. The Company expensed $67,500 and $202,500 relating to these options in the three and nine months ended September 30, 1997, respectively, and $67,500 and $248,000 in the three and nine months ended September 30, 1996, respectively. Note 5. Miscellaneous Revenue On May 15, 1997 the Company sold all of the technology, intellectual property and equipment relating to the "Pulse Plus" blood containment device product line for $130,000 in cash and a continuing royalty. During each 12-month period following the date of the first sale of the device (the "Royalty Period"), the Company shall receive a royalty equal to $.10 per unit on the initial 500,000 units sold and $.08 per unit on all units sold in excess of 500,000. The purchaser guaranteed minimum royalty payments of $10,000 for the first Royalty Period, $20,000 for the second Royalty Period and $30,000 in the third Royalty Period. Royalties shall cease with the expiration of the last related patent. The net book value of the equipment sold was $100,687 and the Company recorded a $29,313 gain on the sale as miscellaneous revenue in the nine months ended September 30, 1997. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Information The statements contained in this Form 10-Q that are not historical are 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, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. The Company intends that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company's views as of the date they are made with respect to future events and financial performance, but are subject to many uncertainties and risks which could cause the actual results of the Company to differ materially from any future results expressed or implied by such forward-looking statements. Some of these risks are discussed below in the section "Certain Factors That May Impact Future Operations." Additional risk factors are discussed in "Item 1 - Business" of the Company's Form 10-K and other reports filed by the Company from time to time on Forms 10-Q and 8-K. The Company does not undertake any obligation to update or revise any forward-looking statement, made by it or on its behalf, whether as a result of new information, future events, or otherwise. Overview Novoste, incorporated in January 1987, was first capitalized and commenced operations in May 1992. To date the Company has been engaged primarily in research and development efforts and clinical trials in interventional cardiology, electrophysiology and critical care products. Commencing in 1994, the Company has devoted its efforts to developing the Beta-Cath(TM) System, an intraluminal beta radiation catheter delivery system designed to reduce the frequency of restenosis subsequent to percutaneous transluminal coronary angioplasty ("PTCA"). The Beta-Cath(TM) System applies localized beta radiation to the site of the vascular injury caused by a PTCA procedure and is designed to inhibit long-term cell proliferation ("hyperplasia") and vascular remodeling, each primary causes of restenosis. The development, manufacture, sale and distribution of medical devices such as the Company's Beta-Cath(TM) System are subject to numerous regulations imposed by governmental authorities, principally the FDA and corresponding state and foreign agencies. The regulatory process is lengthy, expensive and uncertain. FDA approval of a Pre Market Approval ("PMA") application is required before any Beta-Cath(TM) System can be marketed in the United States. Securing FDA approval will require submission to the FDA of extensive clinical data and technical information. The Company does not expect regulatory approval of the Beta-Cath(TM) System for sale in the United States prior to 2000 or for sale outside the United States prior to the latter half of 1998, and there can be no assurance when or if such approvals will be obtained. The Company conducted a feasibility clinical trial at Emory and Rhode Island Hospitals under an Investigational Device Exemption ("IDE") granted by the FDA to determine the clinical safety of the Beta-Cath(TM) System for use in coronary arteries. Patient enrollment for the clinical trial at Emory was completed on July 31, 1996 and the enrollment at Rhode Island was completed on October 25, 1996. Twenty-three patients were enrolled in the study. The Company also completed enrollment for a 30 patient human clinical safety study at a single site in Canada on June 10, 1997 and commenced enrollment for a human clinical safety trial in The Netherlands on April 30, 1997. As of October 16, 1997, 23 of the planned 30 patients at the site in The Netherlands had been enrolled. Six month follow-up has been completed for 35 patients and summary data revealed a restenosis rate of 11%. Three patients required target lesion revascularization (a re-opening procedure at the original treatment site) during the six month follow-up. The late loss index (a measure of how much of the 8 angioplasty benefit is lost over six months) was 0%. In addition, no adverse clinical events relating to the Beta-Cath(TM) System were reported. Additionally, on July 3, 1997 the Company received an IDE from the FDA to perform a randomized, placebo-controlled multicenter trial of the Beta-Cath(TM) System to support a Premarket Approval application in the United States. As of October 16, 1997, 10 of the 27 clinical sites had commenced enrollment and 34 of the planned 1,100 patients have been enrolled. For the period since its inception through September 30, 1997 the Company has earned minimal non-recurring revenues and experienced significant losses in each period. At September 30, 1997 the Company had an accumulated deficit of approximately $23.0 million. Novoste expects to continue to incur significant operating losses through 1999 as the Company continues to initiate new research and development projects, conduct its clinical trials in the United States, Canada and Europe, seek regulatory approval or clearance for its products in the United States and abroad, expand its sales and marketing efforts in contemplation of product introduction and market development, and increase its administrative activities to support growth of the Company. There can be no assurance that the Company's research and development efforts will be successfully completed. Additionally, as clinical testing is incomplete, there can be no assurance that the Beta-Cath(TM) System will be safe and effective. There can be no assurance that the Beta-Cath(TM) System will be approved by the FDA or any domestic or foreign government agency or that the Beta-Cath(TM) System or any other product developed by Novoste will be successfully introduced or attain any significant level of market acceptance. There can be no assurance that the Company will ever achieve either significant revenues from sales of its Beta-Cath(TM) System or ever achieve or sustain profitability. Results of Operations Net loss for the three months ended September 30, 1997 was $3,520,000, or ($0.41) per share, as compared to $1,276,000, or ($0.16) per share, for the three months ended September 30, 1996. Net loss for the nine months ended September 30, 1997 was $9,567,000, or ($1.14) per share, as compared to $3,760,000 or ($0.60) per share for the year earlier period. The increase in net loss for the three and nine months ended September 30, 1997 compared to the year earlier periods is primarily due to increased spending for research and development as well as increased marketing, general and administrative expenses related to the Company's development of its Beta-Cath(TM) System, offset by increased interest income earned from the investment of the net proceeds from the initial public offering in May 1996. Revenues. Miscellaneous revenues were $0 and $29,000 for the three and nine months ended September 30, 1997. No revenue was earned in the same periods in 1996. This increase was due to the sale of a product line (see Note 5 to the Condensed Financial Statements). Research and Development Expenses. Research and development expenses increased 172% to $3,137,000 for the three months ended September 30, 1997 from $1,154,000 for the three months ended September 30, 1996. For the nine months ended September 30, 1997, research and development expenses increased 208% to $8,619,000 from $2,799,000 for the same period in 1996. For the three months ended September 30, 1997, these increases were primarily a result of (a) the cost of manufacturing the Beta-Cath(TM) System for clinical trial sites, (b) monthly reimbursement of approximately $65,000 to the Company's radioactive isotope supplier of costs to increase production capacity, (c) the increased size of the Company's research and development staff, and (d) services provided by outside consultants in the development of the Beta-Cath(TM) System. These same four factors influenced the increase for the nine month period in addition to a milestone payment of 617,000 DM ($360,000) in June 1997 to the Company's radioactive isotope supplier upon meeting delivery requirements. The Company expects research and development expenses to continue to increase in the immediate future as the Company 9 continues clinical trials of its Beta-Cath(TM) System in both the U.S. and selected foreign countries, and as it continues the development and design of the Beta-Cath(TM) System and component parts. General and Administrative Expenses. General and administrative expenses decreased 4% to $382,000 for the three months ended September 30, 1997 from $397,000 for the three months ended September 30, 1996. For the nine months ended September 30, 1997 general and administrative expenses increased 23% to $1,343,000 from $1,092,000 for the same period in 1996. This increase for the nine month period was primarily a result of additional personnel, higher salaries and increased costs associated with being a public company such as directors and officers liability insurance, legal and accounting fees. The Company expects general and administrative expenses to increase in the future in support of a higher level of operations. Marketing Expenses. Marketing expenses increased 120% to $285,000 for the three months ended September 30, 1997 from $129,000 for the three months ended September 30, 1996. For the nine months ended September 30, 1997, marketing expenses increased 69% to $575,000 from $341,000 for the same period in 1996. These increases were primarily the result of increased trade show costs, consulting fees and higher salaries. The Company expects sales and marketing expenses to significantly increase in the future, if and when the Beta-Cath(TM) System is approved in the U.S. and other countries. Interest Income. Net interest income decreased 29% to $285,000 for the three months ended September 30, 1997 from $404,000 for the three months ended September 30, 1996. The decrease is primarily due to higher average cash balances in 1996 after the closing of the initial public offering in May 1996. For the nine months ended September 30, 1997 interest income increased 99% to $940,000 from $472,000 for the same period in 1996. The increase in interest income was primarily due to larger cash equivalents and short-term investment balances after the Company's initial public offering in May 1996. Liquidity and Capital Resources The Company financed its activities since inception up to May 23, 1996, the date of the Company's initial public offering, through private placements of its Common Stock, Class B Common Stock and promissory notes. Since inception through September 30, 1997, the Company obtained funds aggregating approximately $38.4 million in net proceeds from the issuance of Common Stock and Class B Common Stock (including approximately $30.6 million in net proceeds from its initial public offering), and approximately $1.8 million in net proceeds from the issuance of convertible promissory notes. During the nine months ended September 30, 1997 and 1996 the Company used cash to fund operations of $8.0 million and $3.3 million, respectively. Cash used to fund operations since inception was approximately $18.8 million. The increase in cash used in operations was due primarily to increased research and development activities and increased general and administrative expenses to support increased operations. The Company's expenditures for equipment and improvements have aggregated $1.9 million since inception. Future cash needs for operating activities are anticipated to be higher than historical levels because of the development, manufacturing scale-up and commercialization of the Beta-Cath(TM) System, subject to the factors discussed below. The Company's principal source of liquidity at September 30, 1997 consisted of cash, cash equivalents and short-term investments of $19.7 million. The Company did not have any credit lines available or outstanding borrowings at September 30, 1997. The Company anticipates that its operating losses will continue through 1999 because it plans to expend substantial resources in funding clinical trials in support of regulatory approvals, and continues to expand 10 research and development and marketing activities. Novoste believes that current cash balances and short-term investments, together with interest thereon, will be sufficient to meet the Company's operating and capital requirements through 1998. However, the Company's future liquidity and capital requirements will depend upon numerous factors, including the progress of the Company's clinical research and product development programs; the receipt of and the time required to obtain regulatory clearances and approvals; the resources required to gain approvals; the resources the Company devotes to the development, manufacture and marketing of its products; the resources required to hire and develop a direct sales force in the United States, develop distributors internationally, and to expand manufacturing capacity; market acceptance and demand for its products; and other factors. Novoste may in the future seek to raise additional funds through bank facilities, debt or equity offerings or other sources of capital. There can be no assurance that additional financing, if required, will be available on satisfactory terms, or at all. Certain Factors That May Impact Future Operations Dependence on the Beta-Cath(TM) System. The Company has elected to focus its resources on the continued development and refinement of the Beta-Cath(TM) System. The Company expects in the future to derive substantially all of its revenue from the Beta-Cath(TM) System. If the Company is unable to obtain requisite regulatory approvals or to achieve commercial acceptance of the Beta-Cath(TM) System, the Company's business, financial condition and results of operations will be materially and adversely affected and could result in cessation of the Company's current business. Early Stages of Clinical Trials. The Company is currently at an early stage of clinical testing. Clinical data obtained to date are insufficient to demonstrate the safety and efficacy of this product under applicable FDA regulatory guidelines. There can be no assurance that the Beta-Cath(TM) System will prove to be safe and effective in clinical trials under applicable United States or international regulatory guidelines or that additional modifications to the Company's product will not be necessary. In addition, the clinical trials may identify significant technical or other obstacles to be overcome prior to obtaining necessary regulatory or reimbursement approvals. Limited Sales, Marketing and Distribution Experience. At present the Company has no sales and a limited marketing capability. The Company intends to sell its products in the United States directly and outside the United States through corporate partners and/or international distributors. There can be no assurance that the Company will be able to recruit and train adequate sales and marketing personnel to successfully commercialize the Beta-Cath(TM) System in the United States. The inability to recruit or retain suitable international distributors or corporate partners could also have a material adverse effect on the Company's business, financial condition and results of operations. The Company also intends to select one or more established market leaders in the radioisotope business to inventory and deliver the radiation sources and provide related training, testing and support services to hospitals in both the United States and international markets. The inability to recruit or retain one or more such entities for this purpose could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on a Key Supplier. The Company currently purchases all radiation source materials from a single supplier. The Company believes that because of the technical expertise and capital investment required to manufacture the radiation source materials, it could be extremely difficult and expensive to find an alternate source of supply. Any failure or disruption in the ability of the supplier to provide the radiation source materials could have a material adverse effect on the business, financial condition and results of operations of the Company. 11 Patents and Proprietary Rights. The Company's success will depend, in part, on its ability to obtain patent protection for its products, preserve its trade secrets through copyrights and confidentiality agreements, and operate without infringing the proprietary rights of others. The Company's strategy is to actively pursue patent protection in the United States and foreign jurisdictions for technology that it believes to be proprietary and that offers a potential competitive advantage for its products. The Company received a Notice of Allowance from the U.S. Patent and Trademark Office ("USPTO"), indicating that the Company's first patent application for its Beta-Cath(TM) System has been allowed for issuance as a United States patent. The Company also holds eight issued United States patents and two issued foreign patents, and has twelve United States patent applications pending and has filed, or will file, counterpart applications in several foreign countries. The Company employs a full time manager of intellectual property to prepare invention records and to coordinate the prosecution of new intellectual property. The Company received a letter from NeoCardia, L.C.C. ("NeoCardia") dated July 7, 1995, in which NeoCardia notified the Company that NeoCardia is the exclusive licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and requested that the Company confirm that its products did not infringe the claims of the Dake Patent. The Company has concluded based upon advice of patent counsel that the Company's Beta-Cath(TM) System would not infringe any valid claim of the Dake Patent. On August 22, 1995, on behalf of the Company, its patent counsel responded that the Company did not infringe the Dake Patent. In June 1997 the USPTO issued a final Office Action with respect to two merged reexamination requests relating to the Dake Patent. In the final Office Action the patent examiner upheld the patentability of some of the original claims and certain new claims for the Dake Patent but rejected other claims. In August 1997 the holder of the Dake Patent filed an amendment in response to the final Office Action seeking, among other things, to add certain additional new method claims calling for the inserting of a radioactive means or element into the carrier or device after the carrier or device is in place in the artery or lumen. In October 1997 the examiner, however, rejected these particular additional new claims, as indefinite and improperly attempting to broaden the scope of certain of the original claims; the examiner concluded that those original claims set forth inserting a device which comprises the radioactive elements or means, and that the proposed new claims would preclude the device from including these elements while the device is being inserted ino the artery or lumen. The examiner also rejected for indefiniteness a pending apparatus claim that called for radioctive means positioned in the carrier after the carrier is placed in the artery. The examiner indicated that the remaining claims were patentable. The holder of the Dake Patent has the right to appeal any final rejection of any claims presented. The Company continues to believe based upon advice of counsel and the Office Action of the USPTO in the Dake Patent reexamination that the Beta-Cath(TM) System would not infringe any original, amended or new claims of the Dake Patent which survive the reexamination proceeding. In May 1997 Guidant Corporation ("Guidant") acquired NeoCardia. Guidant is a New York Stock Exchange-listed, medical device company and is a competitor of Novoste. Guidant has significantly greater capital resources than the Company. There can be no assurance that Guidant will not sue the Company for patent infringement and obtain damages from the Company and/or injunctive relief restraining the Company from commercializing the Beta-Cath(TM) System in the U.S., or that the Company will not be required to obtain a license from Guidant to market the Beta-Cath(TM) System in the U.S., any of which could have a material adverse effect on the Company's business, financial condition and results of operations or could result in cessation of the Company's business. Product Development. The focus of the Company's current development efforts is to design future generation components of the Beta-Cath(TM) System. The medical device industry is characterized by rapid and significant technological change. Therefore, the Company's future success will depend in a large part on the Company's ability to continue to respond to such changes, as well as expand the applications for which its products are used, through the timely development and successful introduction of enhanced and new versions of its Beta-Cath(TM) System. Product research and development will require substantial 12 expenditures and will be subject to inherent risks, and there can be no assurance that any new product introduced will receive regulatory approval or will be commercially successful. Highly Competitive Market; Risk of Alternative Therapies. Competition in the medical device industry, and specifically the market for cardiovascular devices, is intense. Many companies are developing devices and therapies to improve the outcome of coronary revascularization procedures and to reduce the frequency of restenosis, such as coronary stents. Other companies have various radiation therapy products under development to reduce restenosis. In addition, drugs, gene therapy and other minimally invasive catheter-based procedures are currently being developed. Many of the Company's competitors and potential competitors have substantially greater financial resources than the Company and also have greater resources and expertise in the areas of research and development, obtaining regulatory approvals, manufacturing and marketing. There can be no assurance that the Company's competitors will not succeed in developing, marketing and distributing technologies and products that are more effective than those developed and marketed by the Company or that would render the Company's technology and products obsolete or noncompetitive. Additionally, there is no assurance that the Company will be able to compete effectively against such competitors in terms of manufacturing, marketing and sales. New Accounting Pronouncements In February 1997 the Financial Accounting Standards Board issued a new accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change the current method of computing earnings per share. The new standard requires presentation of "basic earnings per share" and "diluted earnings per share" amounts, as defined. SFAS No. 128 will be effective for the Company's quarter and year ending December 31, 1997, and, upon adoption, all prior-period earnings per share data presented shall be restated to conform with the provisions of the new pronouncement. Application earlier than the Company's quarter ending December 31, 1997 is not permitted. The adoption of SFAS 128 is not anticipated to have a material impact on operations. 13 PART II. OTHER INFORMATION Item 5. Other Matters In June 1997 the U.S. Patent and Trademark Office ("USPTO") issued a final Office Action with respect to two merged reexamination requests relating to the Dake Patent. In the final Office Action the patent examiner upheld the patentability of some of the original claims and certain new claims for the Dake Patent but rejected other claims. In August 1997 the holder of the Dake Patent filed an amendment in response to the final Office Action seeking, among other things, to add certain additional new method claims calling for the inserting of a radioactive means or element into the carrier or device after the carrier or device is in place in the artery or lumen. In October 1997 the examiner, however, rejected these particular additional new claims, as indefinite and improperly attempting to broaden the scope of certain of the original claims; the examiner concluded that those original claims set forth inserting a device which comprises the radioactive elements or means, and that the proposed new claims would preclude the device from including these elements while the device is being inserted ino the artery or lumen. The examiner also rejected for indefiniteness a pending apparatus claim that called for radioctive means positioned in the carrier after the carrier is placed in the artery. The examiner indicated that the remaining claims were patentable. The holder of the Dake Patent has the right to appeal. See Patents and Proprietary Technology in Certain Factors That May Impact Future Operations for further discussion. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: (11) Computation of net loss per share (27) Financial data schedule (b) The Company did not file any reports on Form 8-K during the three months ended September 30, 1997. 14 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 hereunto duly authorized. NOVOSTE CORPORATION October 17, 1997 s/Thomas D. Weldon - ------------------------ ------------------------------------ Date Thomas D. Weldon President & Chief Executive Officer October 17, 1997 s/David N. Gill - ------------------------ ------------------------------------ Date David N. Gill Vice President - Finance, Chief Operating Officer and Chief Financial Officer (Principal Financial & Accounting Officer) 15 EXHIBIT INDEX Exhibit Page Number Exhibit Description Number - ------ ------------------- ------ 11 Computation of net loss per share 17 27 Financial data schedule 18 16 EX-11 2 COMPUTATION OF NET LOSS PER SHARE Exhibit 11 Novoste Corporation Computation of Net Loss Per Share
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Weighted average number of shares of common stock outstanding during the period. 8,489,546 8,086,006 8,375,739 6,002,227 Effect of common stock issued and stock options and warrants granted during the 12-month period preceding April 11, 1996(1) ...................... -- -- -- 391,767 Elimination of duplicative effect of including the same shares in both amounts above ........................ -- -- -- (118,616) ----------- ----------- ----------- ----------- Total common and common equivalent shares ............ 8,489,546 8,086,006 8,375,739 6,275,378 =========== =========== =========== =========== Net loss ..................... ($3,519,722) ($1,275,813) ($9,567,450) ($3,759,800) =========== =========== =========== =========== Net loss per share (2) Primary .................. ($ 0.41) ($ 0.16) ($ 1.14) ($ 0.60) =========== =========== =========== =========== Fully Diluted ............ ($ 0.41) ($ 0.16) ($ 1.14) ($ 0.60) =========== =========== =========== ===========
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, Common Stock issued and stock options and warrants granted at prices below the initial public offering price per share during the 12-month period immediately preceding the initial filing date of the Company's Registration Statement for its initial public offering have been included as outstanding for all periods presented which include periods prior to such filing date using the treasury stock method. (2) Since the impact of including common stock equivalents is anti-dilutive for both primary and fully diluted loss per share, the calculation of loss per share for both purposes is identical. 17 EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS Dec-31-1997 Jan-01-1997 Sep-30-1997 15,737,474 3,961,633 0 0 0 19,847,321 1,866,684 798,487 21,274,350 1,781,053 0 0 0 85,029 19,408,268 21,274,350 29,313 29,313 0 10,536,573 0 0 939,810 (9,567,450) 0 (9,567,450) 0 0 0 (9,567,450) (1.14) (1.14)
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