-----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, B2qJFAmzDXtbQCiD2JmXAl4E0nViXYbAt0xeMvWQ5LN9vzp+HKruyOG0GXCM6urV 1GxrTPZycb4Kvvjqz5oMXQ== 0000927016-97-002890.txt : 19971106 0000927016-97-002890.hdr.sgml : 19971106 ACCESSION NUMBER: 0000927016-97-002890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NITINOL MEDICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0001017259 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 954090463 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21001 FILM NUMBER: 97708422 BUSINESS ADDRESS: STREET 1: 263 SUMMER STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6177370930 MAIL ADDRESS: STREET 1: 263 SUMMER STREET CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [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 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: 0-21001 Nitinol Medical Technologies, Inc. ---------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 95-4090463 - ------------------------------- -------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 27 Wormwood Street, Boston, Massachusetts 02210 - ------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) 617-737-0930 ------------ (Registrant's Telephone Number, Including Area Code) 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. Yes x No --- --- As of October 31, 1997, there were 9,622,754 shares of Common Stock, $.001 par value per share, outstanding. NITINOL MEDICAL TECHNOLOGIES, INC. INDEX -----
Part I. Financial Information Page Number --------------------- ----------- Item. 1 Consolidated Balance Sheets at December 31, 1996 and September 30, 3 1997 Consolidated Statements of Operations for the Three and Nine Months 4 Ended September 30, 1997 and 1996 Condensed Consolidated Statements of Cash Flows for the Nine Months 5 Ended September 30, 1997 and 1996 Item 2. Notes to Consolidated Financial Statements 6-12 Item 3. Management's Discussion and Analysis of Financial Condition and 13-18 Results of Operations Quantitative and Qualitative Disclosure about Market Risk N/A Part II. Other Information ----------------- Item 4. Changes in Securities 19 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 Exhibit 11.1 Exhibit 27.1
-2- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Nitinol Medical Technologies, Inc. and Subsidiaries Consolidated Balance Sheets
At At September 30, December 31, 1997 1996 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 5,685,959 $ 4,082,486 Marketable securities 18,677,467 25,273,555 Accounts receivable 1,691,435 782,230 Inventories 1,077,107 745,977 Prepaid expenses and other current assets 948,966 610,017 ------------ ------------ Total current assets 28,080,934 31,494,265 ------------ ------------ Property and equipment, at cost: Leasehold improvements 1,128,972 1,191,498 Laboratory and computer equipment 1,038,007 925,166 Equipment under capital lease 851,545 548,063 Office furniture and equipment 145,071 93,031 ------------ ------------ 3,163,595 2,757,758 Less-Accumulated depreciation and amortization (716,227) (504,909) ------------ ------------ 2,447,368 2,252,849 ------------ ------------ Long-term investments 2,725,687 1,083,763 Other assets 155,208 98,627 ------------ ------------ $ 33,409,197 $ 34,929,504 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 151,580 $ 420,424 Accrued expenses 778,148 678,164 Current portion of capital lease obligation 152,474 94,954 ------------ ------------ Total current liabilities 1,082,202 1,193,542 ------------ ------------ Capital lease obligation, net of current portion 575,549 415,591 Stockholders' equity Common stock, $.001 par value- Authorized-30,000,000 shares Issued and outstanding-9,739,705 and 9,435,922 shares at September 30, 1997 and December 31, 1996, respectively 9,741 9,437 Paid-in Capital 36,093,410 35,321,821 Accumulated deficit (4,351,705) (2,010,887) ------------ ------------ Total stockholders' equity 31,751,446 33,320,371 ------------ ------------ $ 33,409,197 $ 34,929,504 ============ ============
The accompanying Notes are an integral part of these Consolidated Financial Statements. 3 Nitinol Medical Technologies, Inc. and Subsidiaries Consolidated Statements of Operations
For the Three Months Ended For the Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ----------------------------- ------------------------------- Revenues: Product sales $ 2,265,077 $ 1,014,777 $ 6,154,792 $ 3,013,555 License fees 250,000 687,500 750,000 1,312,500 Product development 8,216 6,267 58,610 85,294 ----------------------------- ------------------------------- 2,523,293 1,708,544 6,963,402 4,411,349 ----------------------------- ------------------------------- Expenses: Cost of product sales 917,213 529,441 2,802,896 1,453,454 Research and development 793,909 814,499 2,268,618 1,977,536 General and administrative 636,604 444,295 1,968,402 1,384,266 Selling and marketing 294,128 98,675 678,475 201,954 In-process research and development -- -- 2,449,072 1,111,134 Restructuring charge -- -- 193,635 -- ----------------------------- ------------------------------- 2,641,854 1,886,910 10,361,098 6,128,344 ----------------------------- ------------------------------- Loss from operations (118,561) (178,366) (3,397,696) (1,716,995) ----------------------------- ------------------------------- Interest expense (10,979) (7,809) (30,726) (33,529) Interest income 394,624 69,777 1,201,103 196,843 ----------------------------- ------------------------------- 383,645 61,968 1,170,377 163,314 ----------------------------- ------------------------------- Income (loss) before provision for income taxes 265,084 (116,398) (2,227,319) (1,553,681) Provision for income taxes 90,500 -- 113,500 -- ----------------------------- ------------------------------- Net income (loss) $ 174,584 $ (116,398) $(2,340,819) $(1,553,681) ============================= =============================== Net income (loss) per common and common equivalent share $ 0.02 $ (0.02) $ (0.25) $ (0.22) ============================= =============================== Weighted average common and common equivalent shares outstanding 11,151,490 7,100,710 9,535,505 7,013,908 ============================= ===============================
The accompanying Notes are an integral part of these Consolidated Financial Statements. 4 Nitinol Medical Technologies, Inc. and Subsidiary Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 1996 -------------------------------- Cash flows from operating activities: Net loss $(2,340,819) $(1,553,681) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 329,211 204,021 Acceleration of stock options 111,576 Common stock issued for in-process research and development -- 806,174 Warrant grant in exchange for license -- 11,200 Changes in assets and liabilities- Accounts receivable (909,205) (537,616) Inventories (331,130) (414,020) Prepaid expenses and other current assets (338,949) (757,164) Accounts payable (268,844) 332,482 Accrued expenses 99,985 (69,015) Deferred revenue -- (99,040) -------------------------------- Net cash used in operating activities (3,648,175) (2,076,659) -------------------------------- Cash flows from investing activities: Maturities of marketable securities, net 4,954,164 -- Purchases of property and equipment (213,827) (903,228) Increase in other assets (63,003) (339,364) -------------------------------- Net cash provided by (used in) investing activities 4,677,334 (1,242,592) -------------------------------- Cash flows from financing activities: Payments of subordinated debt -- (309,356) Payments of loan from distributor -- (530,500) Proceeds from issuance of convertible preferred stock, net -- 7,510,998 Proceeds from issuance of common stock 662,917 8,475 Redemption of fractional shares of common stock (2,600) -- Distributions to stockholders -- (100,000) Payments of capital lease obligations (86,003) (12,573) -------------------------------- Net cash provided by financing activities 574,314 6,567,044 -------------------------------- Net increase in cash and cash equivalents 1,603,473 3,247,793 Cash and cash equivalents, beginning of period 4,082,486 533,247 -------------------------------- Cash and cash equivalents, end of period $ 5,685,959 $ 3,781,040 ================================ Supplemental disclosure of cash flow information: Cash paid during the period for- Interest $ 30,726 $ 18,713 ================================ Taxes $ 28,500 $ 186,500 ================================ Supplemental disclosure of non-cash investing and financing transactions: Write-off of abandoned leasehold improvements $ 111,472 $ -- ================================ Equipment acquired under capital lease obligation $ 303,481 $ 254,240 ================================ Accretion of dividends on convertible preferred stock $ -- $ 251,223 ================================ Common stock issued for property and equipment $ -- $ 298,783 ================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. 5 Nitinol Medical Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Operations Nitinol Medical Technologies, Inc. (the Company) designs, develops, and markets innovative medical devices that utilize advanced technologies and are delivered by minimally invasive procedures. The Company's products are designed to offer alternative approaches to existing complex treatments, thereby reducing patient trauma, shortening procedure, hospitalization and recovery times, and lowering overall treatment costs. The Company's patented medical devices include self-expanding stents, vena cava filters, and septal repair devices. At this time, the Company's stents have been commercially launched in Europe and in the United States for certain indications, its vena cava filters are marketed in the United States and abroad, and the CardioSEAL septal repair device is in the clinical trials stage in the U.S. and has begun commercial sales in Europe and other international markets. The Company is subject to a number of risks similar to those of other companies in this stage of development, including uncertainties regarding the development of commercially viable products, competition from alternative procedures and larger companies, dependence on key personnel and government regulation. 2. Interim Financial Statements The accompanying Consolidated Financial Statements as of September 30, 1997 and for the three and nine month periods then ended are unaudited. In management's opinion, these unaudited Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements included in the Company's Annual Report as of December 31, 1996 as filed on Form 10-K on March 12, 1997 and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. The results of operations for the three and nine months ended September 30, 1997 are not necessarily indicative of the results expected for the fiscal year ending December 31, 1997. 3. Reclassifications Certain prior period amounts have been reclassified to conform to current period's presentation. 6 Nitinol Medical Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. Cash and Cash Equivalents, Marketable Securities, and Long-Term Investments In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has classified certain of its marketable securities and long-term investments as held-to-maturity and certain of its marketable securities as available-for-sale. Held-to-maturity securities represent those securities for which the Company has the intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities represent those securities that do not meet the classification of held-to-maturity, are not actively traded and are reported at fair market value with any unrealized gains and losses included in stockholders' equity. There were no unrealized gains and losses at September 30, 1997 and December 31, 1996. The Company considers all investments with maturities of 90 days or less from the date of the purchase to be cash equivalents. Cash and cash equivalents, which are carried at cost and approximate market, consist of the following at:
September 30, December 31, 1997 1996 ---- ---- Cash $1,033,847 $ 816,124 Cash equivalents-- Commercial paper 3,971,476 2,994,829 Money market 680,636 271,533 ---------- ---------- $5,685,959 $4,082,486 ========== ==========
7 Nitinol Medical Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. Cash and Cash Equivalents, Marketable Securities, and Long-Term Investments--(continued) Marketable securities consist of the following at:
September 30, December 31, 1997 1996 ---- ---- Held-to-maturity-- Eurodollar bonds $10,763,028 $11,084,143 Commercial paper 4,988,423 10,958,453 Corporate debt securities 1,135,784 329,363 Zero coupon bonds 1,126,120 -- Medium-term notes 664,112 501,596 ----------- ----------- 18,677,467 22,873,555 Available-for-sale-- Taxable auction securities -- 2,400,000 ----------- ----------- $18,677,467 $25,273,555 =========== ===========
Long-term investments, which are carried at cost and approximate market, are comprised of the following at:
September 30, December 31, 1997 1996 ---- ---- Held-to-maturity-- Eurodollar bonds $1,479,177 $1,083,763 Corporate debt securities 1,246,510 -- ---------- ---------- $2,725,687 $1,083,763 ========== ==========
In addition, the following amounts of interest receivable generated from the Company's cash and cash equivalents, marketable securities, and long-term investments are included in prepaid expenses and other current assets and in other assets in the accompanying balance sheets at:
September 30, December 31, 1997 1996 ---- ---- Short-term interest receivable $476,589 $237,643 Long-term interest receivable 5,676 16,953 -------- -------- $482,265 $254,596 ======== ========
8 Nitinol Medical Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following at:
September 30, December 31, 1997 1996 ---- ---- Components $ 713,345 $ 307,778 Finished Goods 363,762 438,199 ---------- ---------- $1,077,107 $ 745,977 ========== ==========
Finished goods consist of materials, labor and manufacturing overhead. 6. Depreciation and Amortization The Company provides depreciation and amortization by charges to operations using the straight-line method, which allocates the cost of property and equipment over the following estimated useful lives:
Asset Classification Estimated Useful Life -------------------- --------------------- Leasehold improvements Life of Lease Laboratory and computer equipment 3-7 Years Equipment under capital leases Life of Lease Office furniture and equipment 5-10 Years
7. Net Income (Loss) per Common and Common Equivalent Share Net income (loss) per common and common equivalent share is based on the weighted-average number of shares of common stock and common stock equivalents, in periods where they are not dilutive, outstanding during the respective periods. All shares of capital stock, options and warrants issued during the 12 months immediately preceding the Company's initial public offering on October 2, 1996 were treated as if they had been outstanding for all periods presented in 1996, in accordance with the Securities and Exchange Commission rules and regulations, calculated under the treasury stock method and based on the offering price of $11.00 per share. 9 Nitinol Medical Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. In-Process Research and Development On May 29, 1997 the Company entered into an agreement to invest $2.3 million in Image Technologies Corporation (ITC) in exchange for 345,722 shares of ITC's $.01 par value convertible preferred stock, representing a 23% ownership interest in ITC. Under the terms of this agreement, the Company has extended ITC a credit line of up to $2 million of senior debt, convertible to convertible preferred stock at the option of the Company and equivalent to up to an additional 20% ownership of ITC. ITC may draw against this line of credit based upon meeting its approved business plan. The Company, however, has the right to advance all of the line and convert to convertible preferred stock at its option. The Company also has a 24 month option to purchase the remaining 57% of ITC for $24.5 million of which up to $8.5 million may be payable in cash. The option may be extended for an additional six months under certain conditions. ITC is a development stage company with no revenues to date. Due to the uncertainty regarding the realization of the investment, the Company charged the amount of the purchase price and related acquisition costs to operations as in-process research and development in the period of the investment. 9. Restructuring Charge During the three months ended June 30, 1997, the Company reorganized its vena cava filter operations and brought the assembly of its straight-line vena cava filters in-house. In connection with this restructuring, the Company reduced staff and incurred other non-recurring costs. The $194,000 restructuring charge in the accompanying statements of operations includes a non-cash charge of $112,000 for the accelerated vesting of certain stock options, cash severance and benefits of $62,000, and $20,000 for the transfer of assembly technology. Other start-up costs related to the in-house assembly of the straight-line vena cava filter, including the training of manufacturing personnel and associated materials and overhead, are included in cost of goods sold in the accompanying statement of operations. 10 Nitinol Medical Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. Lease Finance Facility Agreement In June 1996, the Company entered into a one-year $1.5 million lease finance facility agreement with a bank under which the Company leases equipment at an interest rate that is 200 basis points above the bank's cost of funds. Leases under this agreement are payable in equal monthly installments over a period of 36-60 months and expire through November 2001. Borrowings of $572,000 were made under this agreement of which $459,000 was outstanding as of September 30, 1997. Upon the expiration of this agreement in June 1997, the Company entered into a new agreement with the bank that provides the Company with similar terms and the option to borrow up to $1 million through March 31, 1998. As of September 30, 1997, borrowings of $280,000 and $221,000 were made under this new agreement by the Company and ITC, respectively (see Note 8). Borrowings made by ITC are guaranteed by the Company. As of September 30, 1997, $269,000 and $214,000 was outstanding under this agreement by the Company and ITC, respectively. 11. Accrued Expenses Accrued expenses consist of the following at:
September 30, December 31, 1997 1996 ---- ---- Payroll and payroll related $149,757 $231,212 Royalties 103,565 75,520 Income taxes payable 88,000 3,000 Leasehold improvements 48,553 108,553 Other accrued expenses 388,273 259,878 -------- -------- Total accrued expenses $778,148 $678,164 ======== ========
11 Nitinol Medical Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. New Accounting Standard In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share. This statement is effective for fiscal years ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its fiscal year ended December 31, 1997. The Company believes that the adoption of SFAS No. 128 will not have a material effect on its previously reported income (loss) per share. 12 Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q, other than the historical financial information, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievement of the Company to be materially different from any future results, performance, or achievement expressed or implied by such forward-looking statements. Factors that might cause such a difference include uncertainties in market demand and acceptance, government regulation and approvals, and intellectual property rights and litigation; the impact of healthcare reform programs and competitive products and pricing; risks associated with technology and product development and commercialization, potential product liability, management of growth, and dependence on significant corporate relationships, and other risks detailed under the heading "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Certain Factors That May Affect Future Results" in the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and filed with the Securities and Exchange Commission on March 12, 1997. Results of Operations Three months ended September 30, 1997 compared with three months ended September 30, 1996 Revenues. Revenues for the three months ended September 30, 1997 increased to $2.5 million from $1.7 million for the three months ended September 30, 1996 (a 47% increase). Product sales increased to $2.3 million for the three months ended September 30, 1997 from $1.0 million for the three months ended September 30, 1996 (a 130% increase). The increase in product sales was due to increased unit sales of vena cava filters; a 3% increase in the price of vena cava filters; and a full quarter of commercial sales of the CardioSEAL Septal Occluder in Europe and other international markets and sales in connection with clinical trials in the three months ended September 30, 1997, compared with sales of the CardioSEAL Septal Occluder during the three months ended September 30, 1996 which were only in connection with clinical trials that commenced at the end of September 1996. The market for septal occluders (including the CardioSEAL Septal Occluder) is proving to be more competitive and price sensitive than previously expected. Therefore, the Company expects a slower increase in sales growth for the CardioSEAL Septal Occluder than originally anticipated. The Company recorded $250,000 in license fees from Boston Scientific Corporation ("Boston Scientific") related to its stent technology in the three months ended September 30, 1997 representing a quarterly minimum royalty payment. Revenues for the three months ended September 30, 1996 included $187,500 in such quarterly minimum royalty payments in addition to $500,000 in milestone payments from Boston Scientific. 13 Cost of Product Sales. Cost of product sales increased to $917,000 for the three months ended September 30, 1997 from $529,000 for the three months ended September 30, 1996 (a 73% increase). The cost of product sales for the three months ended September 30, 1997 includes cost of sales of vena cava filters and CardioSEAL Septal Occluders in connection with clinical trials and foreign commercial sales. The cost of product sales for the three months ended September 30, 1996 was primarily related to sales of vena cava filters as sales of the CardioSEAL Septal Occluder in connection with clinical trials commenced at the end of September 1996. Cost of product sales, as a percent of product sales, decreased to 40% for the three months ended September 30, 1997 from 53% for the three months ended September 30, 1996. This decrease is primarily attributable to sales of the CardioSEAL Septal Occluder which has a lower cost of product sales as a percent of sales than the vena cava filter as well as a decrease in the cost of the vena cava filter due to the reorganization of the Company's filter operations in the second quarter of 1997. See Note 9 of the accompanying Notes to Consolidated Financial Statements. Research and Development. Research and development expenses remained relatively constant for the three months ended September 30, 1997 as compared to the three months ended September 30, 1996. General and Administrative. General and administrative expenses increased to $637,000 for the three months ended September 30, 1997 from $444,000 for the three months ended September 30, 1996 (a 43% increase). The increase consisted primarily of increases in personnel and related costs, legal and professional fees, facilities costs, insurance costs, investor relations costs, and computer systems costs resulting from the Company's expanded scope of operations in 1997. Selling and Marketing. Selling and marketing expenses increased to $294,000 for the three months ended September 30, 1997 from $99,000 for the three months ended September 30, 1996 (a 197% increase). The increase related primarily to the marketing activities related to commercial sales of the CardioSEAL Septal Occluder in Europe and other international markets which commenced in June 1997. Interest Income, Net. Interest income, net was $384,000 for the three months ended September 30, 1997 as compared to $62,000 for the three months ended September 30, 1996 (a 519% increase). The increase was primarily due to the closing of the Company's initial public offering of 3,150,000 shares of common stock in October 1996 resulting in net proceeds to the Company of $31.2 million. 14 Income Taxes. The Company had a provision for income taxes of $90,500 for the three months ended September 30, 1997 based on income before provision for income taxes of $265,000 for the period. The Company's effective tax rate reflects the impact of lower state taxation on the Company's investment income. There was no provision for income taxes for the three months ended September 30, 1996 as the Company incurred an operating loss for that period. Nine months ended September 30, 1997 compared with nine months ended September 30, 1996 Revenues. Revenues for the nine months ended September 30, 1997 increased to $7.0 million from $4.4 million for the nine months ended September 30, 1996 (a 59% increase). Product sales increased to $6.2 million for the nine months ended September 30, 1997 from $3.0 million for the nine months ended September 30, 1996 (a 107% increase). The increase in product sales was primarily due to increased unit sales of vena cava filters, a 3% increase in the price of vena cava filters, and the commencement of sales of the CardioSEAL Septal Occluder in connection with clinical trials at the end of September 1996, and the commencement of commercial sales of the CardioSEAL Septal Occluder in June 1997 in certain European and other international markets. The market for septal occluders (including the CardioSEAL Septal Occluder) is proving to be more competitive and price sensitive than previously expected. Therefore, the Company expects a slower increase in sales growth for the CardioSEAL Septal Occluder than originally anticipated. The Company recorded $750,000 in license fees from Boston Scientific Corporation ("Boston Scientific") related to its stent technology in the nine months ended September 30, 1997 representing three quarterly minimum royalty payments of $250,000 each. Revenues for the nine months ended September 30, 1996 included $750,000 in milestone payments and $562,500 in minimum royalty payments from Boston Scientific. Product development revenues from Boston Scientific (which consist of reimbursement of certain costs incurred by the Company) decreased to $59,000 for the nine months ended September 30, 1997 from $85,000 for the nine months ended September 30, 1996 as a result of a reduction of stent development costs incurred by the Company on behalf of Boston Scientific in the nine months ended September 30, 1997 compared to the nine months ended September 30, 1996. 15 Cost of Product Sales. Cost of product sales increased to $2.8 million for the nine months ended September 30, 1997 from $1.5 million for the nine months ended September 30, 1996 (an 87% increase). The cost of product sales for the nine months ended September 30, 1997 includes sales of vena cava filters and CardioSEAL Septal Occluders in connection with clinical trials and foreign commercial sales. The cost of product sales for the nine months ended September 30, 1996 was primarily related to sales of vena cava filters as sales of the CardioSEAL Septal Occluder in connection with clinical trials commenced at the end of September 1996. Cost of product sales, as a percent of product sales, decreased to 45% for the nine months ended September 30, 1997 from 50% for the nine months ended September 30, 1996. This decrease is primarily attributable to sales of the CardioSEAL Septal Occluder which has a lower cost of product sales as a percent of sales than the vena cava filter as well as a decrease in the cost of the vena cava filter due to the reorganization of the Company's filter operations in the second quarter of 1997. See Note 9 of the accompanying Notes to Consolidated Financial Statements. Research and Development. Research and development expenses increased to $2.3 million for the nine months ended September 30, 1997 from $2.0 million for the nine months ended September 30, 1996 (a 15% increase). The increase reflects an increase in regulatory and clinical trial expenses for the CardioSEAL Septal Occluder incurred in connection with clinical trials which commenced in September 1996, as well as increased activity in the Company's development programs for vena cava filters and other products under development. Increased expenses resulted primarily from increases in personnel and related costs, engineering expenses and facilities related costs. The Company received reimbursement from Boston Scientific for $59,000 and $85,000 of these expenses in the nine months ended September 30, 1997 and 1996, respectively, which amounts are included in revenues. General and Administrative. General and administrative expenses increased to $2.0 million for the nine months ended September 30, 1997 from $1.4 million for the nine months ended September 30, 1996 (a 43% increase). The increase consisted primarily of increases in personnel and related costs, legal and professional fees, facilities costs, insurance costs, investor relations costs, and computer systems costs resulting from the Company's expanded scope of operations in 1997. Selling and Marketing. Selling and marketing expenses increased to $678,000 for the nine months ended September 30, 1997 from $202,000 for the nine months ended September 30, 1996 (a 236% increase). The increase related primarily to marketing activities related to the CardioSEAL Septal Occluder in connection with the commencement of commercial sales of the CardioSEAL Septal Occluder in Europe and other international markets in June 1997. 16 In-Process Research and Development. For the nine months ended September 30, 1997, the Company recorded a charge of $2.4 million for in-process research and development related to the Company's investment in Image Technologies Corporation on May 29, 1997. See Note 8 of the accompanying Notes to Consolidated Financial Statements. Restructuring Charge. During the nine months ended September 30, 1997, the Company reorganized its vena cava filter operations and brought the assembly of its straight-line vena cava filters in-house. In connection with this reorganization, the Company recorded a restructuring charge of $194,000 in the nine months ended September 30, 1997. See Note 9 of the accompanying Notes to Consolidated Financial Statements. Interest Income, Net. Interest income, net was $1.2 million for the nine months ended September 30, 1997 as compared to $163,000 for the nine months ended September 30, 1996 (a 636% increase). The increase was primarily due to the closing of the Company's initial public offering of 3,150,000 shares of common stock in October 1996 resulting in net proceeds to the Company of $31.2 million. Income Taxes. The Company had a provision for income taxes of $113,500 for the nine months ended September 30, 1997 which reflects the non-deductibility of the in-process research and development and a portion of the restructuring charge recorded in the period. There was no provision for income taxes for the nine months ended September 30, 1996 as the Company incurred an operating loss for that period. Liquidity and Capital Resources In the nine months ended September 30, 1997, the Company's operations utilized cash of approximately $3.6 million of which $2.4 million was used to acquire the 23% interest in Image Technologies Corporation (see Note 8 of the accompanying Notes to Consolidated Financial Statements) and $1.2 million was used for working capital purposes primarily related to sales of the CardioSEAL Septal Occluder in connection with clinical trials and commercial sales in Europe and other international markets and for increased vena cava filter sales. 17 Purchases and capitalized leases of property and equipment for use in its research and development and general and administrative activities amounted to $214,000 for the nine months ended September 30, 1997. In June 1996, the Company entered into a one-year $1.5 million equipment lease line of credit agreement without covenants. Upon expiration of this agreement in June 1997, the Company entered into a new agreement with similar terms that provides the Company with the option to borrow up to $1 million through March 31,1998. As of September 30, 1997, the Company borrowed $572,000 and $280,000 under the $1.5 million and $1.0 million agreement, respectively. See Note 10 of the accompanying Notes to Consolidated Financial Statements. The Company is party to various other substantial contractual arrangements including salaries and fees for current employees and consultants which are likely to increase as additional agreements are entered into and additional personnel are retained. The Company also has committed to purchase certain minimum quantities of the vena cava filter from a supplier through June 2001. See Note 8 to the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 12, 1997. All of these arrangements require cash payments by the Company over varying periods of time. Certain of these arrangements are cancelable on short notice and certain require termination or severance payments as part of any early termination. The Company believes that its existing resources and cash flow from current operations will be sufficient to fund its current level of operations and planned new product development, including increased working capital requirements and capital expenditures, for the foreseeable future. The Company expects to expend substantial resources to complete development of the Company's products, seek regulatory clearances or approvals, build its marketing, sales and manufacturing organizations and conduct further research and development. The Company may require additional funds for its research and product development programs, preclinical and clinical testing, operating expenses, regulatory processes, manufacturing and marketing programs and potential licenses and acquisitions. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. The Company's capital requirements will depend on numerous factors, including the sales of its products, the progress of its research and development programs, the progress of preclinical and clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, developments and changes in the Company's existing research, licensing and other relationships and terms of any collaborative, licensing and other arrangements that the Company may establish. 18 PART II OTHER INFORMATION Item 2. Changes in Securities --------------------- During the quarterly period ended September 30, 1997, the Company granted options to purchase 19,000 shares of Common Stock at a weighted average exercise price of $13.78 per share to employees pursuant to the Company's 1996 Stock Option Plan. None of such options has been exercised. The Company believes that the transactions described in this paragraph are exempt from the registration requirements of the Securities Act of 1933, as amended, by reason of Section 4(2) thereof. No underwriters were engaged in connection with these grants. Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) Exhibits -------- 11.1 Statement re: Company's Earnings Per Share. 27.1 Financial Data Schedule. (b) Reports on Form 8-K. -------------------- The Company did not file any Reports on Form 8-K during the quarter ended September 30, 1997. 19 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. NITINOL MEDICAL TECHNOLOGIES, INC. Date: November 5, 1997 By: /s/ Thomas M. Tully ------------------------------------- Thomas M. Tully President and Chief Executive Officer Date: November 5, 1997 By: /s/ Theodore I. Pincus ------------------------------------- Theodore I. Pincus Executive Vice President and Chief Financial Officer 20 EXHIBIT INDEX Exhibits -------- 11.1 Statement re: Company's Earnings Per Share. 27.1 Financial Data Schedule. EX-11.1 2 EARNINGS PER SHARE EXHIBIT 11.1 NITINOL MEDICAL TECHNOLOGIES, INC. STATEMENT RE: EARNINGS PER SHARE (UNAUDITED)
For the Three Months Ended For the Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------------------------------ -------------------------------- Net income (loss) $ 174,584 $ (116,398) $ (2,340,819) $ (1,553,681) ============================== ================================ Weighted average common shares outstanding 9,614,778 4,292,430 9,535,505 4,205,628 Stock issued within twelve months of initial public offering (1) - 2,808,280 - 2,808,280 Common stock equivalents 1,536,712 - - - ------------------------------ -------------------------------- Weighted average number of common and common equiv- alent shares outstanding 11,151,490 7,100,710 9,535,505 7,013,908 ------------------------------ -------------------------------- Net income (loss) per share amount $ 0.02 $ (0.02) $ (0.25) $ (0.22) ============================== ================================
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, stock, stock options, and stock warrants issued at prices below the initial public offering price during the 12-month period immediately preceding the initial filing date of the Company's Registration Statement of its initial public offering have been included as outstanding for all periods presented in 1996. The dilutive effect of the common stock equivalents was computed in accordance with the treasury stock method. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997 AND FOR THE THREE- AND NINE-MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 5,685,959 18,677,467 1,691,435 0 1,077,107 28,080,934 3,163,595 716,227 33,409,197 1,082,202 0 0 0 9,741 31,741,705 33,409,197 6,154,792 6,963,402 2,802,896 7,558,202 0 0 1,170,377 2,227,319 113,500 2,340,819 0 0 0 2,340,819 (.25) (.25)
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