-----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, VeffXehHQQIeyWq1Z/Jv0Sycb+3Tk2fHGlfyzYFj57tkQZ8AgabsrJAMPyqjXAKL vu5zAoLWTo0CtFa7YEh6Hw== 0000950005-96-000917.txt : 19961118 0000950005-96-000917.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950005-96-000917 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENDOSONICS CORP CENTRAL INDEX KEY: 0000883420 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 680028500 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19880 FILM NUMBER: 96664271 BUSINESS ADDRESS: STREET 1: 6616 OWENS DRIVE CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 5107340464 MAIL ADDRESS: STREET 1: 6616 OWENS DR CITY: PLEASANTON STATE: CA ZIP: 94588 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarter Ended September 30, 1996 [ ] 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 0-19880 ENDOSONICS CORPORATION (Exact name of registrant as specified in its charter) Delaware 68-0028500 (State or other jurisdiction of (IRS Employer incorporated or organization) Identification No.) 2870 Kilgore Road, Rancho Cordova, California 95670 (Address of principal executive offices) Registrant's telephone number, including area code (916)638-8008 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 --- --- On September 30, 1996, the registrant had outstanding 13,484,905 shares of Common Stock of $.001 par value, which is the registrant's only class of Common Stock. This report on Form 10-Q including all exhibits, contains 17 pages. 1 ENDOSONICS CORPORATION Form 10-Q Third Quarter TABLE OF CONTENTS Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements Consolidated balance sheets at September 30, 1996 and December 31, 1995............................................ 3 Consolidated statements of operations for the three months and nine months ended September 30, 1996 and 1995................ 4 Condensed consolidated statements of cash flows for the nine months ended September 30, 1996 and 1995................. 5 Notes to condensed consolidated financial statements.............. 6 Item 2. Management's discussion and analysis of financial condition and results of operation .................................... 10 Part II. Other Information Item 1 through 5 Not Applicable Item 6 (a) Exhibits: Exhibit 27 -- Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter Signatures................................................................. 16 2 ENDOSONICS CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share amounts)
September 30, December 31, 1996 1995 ------------------ ------------------- ASSETS Current assets: Cash and cash equivalents $ 35,333 $ 36,757 Short-term investments 4,054 7,638 Trade accounts receivable, net 6,684 5,852 Inventories 3,976 4,046 Accrued interest receivable and other current assets 632 973 --------- --------- Total current assets 50,679 55,266 Property and equipment, net 1,743 1,687 Investment in Cardiovascular Dynamics, Inc. 20,795 -- --------- --------- $ 73,217 $ 56,953 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 6,227 $ 5,394 Deferred distributorship fee revenue 9 154 Convertible obligation -- 750 Minority interest -- 2,500 STOCKHOLDERS' EQUITY Convertible preferred stock, $.001 par value 5,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $.001 par value; 25,000,000 shares authorized as of September 30, 1996 and December 31, 1995; and 13,484,905 and 12,831,512 shares issued and outstanding as of September 30, 1996 and December 31, 1995, respectively 14 13 Additional paid-in capital 123,875 98,989 Accumulated deficit (56,836) (50,837) Unrealized loss on available-for-sale securities (33) (7) Foreign currency translation (38) (3) --------- --------- Total stockholders' equity 66,982 48,155 $ 73,217 $ 56,953 ========= ========= See accompanying notes
3 ENDOSONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share amounts)
Three Months Ended September 30, Nine Months Ended September 30, 1996 1995 1996 1995 ------------- ------------ ------------ ------------- Total revenue $ 5,493 $ 4,661 $ 18,266 $ 11,431 Cost of sales 3,270 2,417 12,072 7,114 ------------ ------------ ------------ ------------ Gross profit 2,223 2,244 6,194 4,317 Operating expenses: Acquired in-process research, development and clinical -- -- -- 488 Other research, development and clinical 1,052 1,966 4,897 6,002 Marketing and sales 803 1,579 4,497 4,094 General and administrative 905 1,128 3,567 3,051 Restructuring -- -- 518 -- ------------ ------------ ------------ ------------ Total operating expenses 2,760 4,673 13,479 13,635 ------------ ------------ ------------ ------------ Loss from operations (537) (2,429) (7,285) (9,318) Equity in Net Loss of CVD (321) -- (370) -- Other income: Interest income 454 116 1,640 450 Distributorship fees and other 32 24 16 64 ------------ ------------ ------------ ------------ Total other income 486 140 1,656 514 ------------ ------------ ------------ ------------ Net loss ($372) ($2,289) ($5,999) ($8,804) ============ ============ ============ ============ Net loss per share ($.03) ($.23) ($.45) ($.88) Shares used in the calculation of net loss per share 13,455,841 10,120,043 13,340,895 10,045,350 ============ ============ ============ ============ See accompanying notes
4 ENDOSONICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands, except share and per share amounts)
Nine months ended September 30 1996 1995 -------- -------- Cash flows from operating activities Net loss ($ 5,999) ($ 8,804) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash in-process R & D -- 488 Depreciation and amortization 471 572 Amortization of deferred compensation 57 -- Net changes in: Operating assets 421 (1,940) Operating liabilities and deferred revenue 687 (916) -------- -------- Net cash used in operating activities (4,363) (8,768) Cash flows from investing activities: Purchase of short-term investments (11,859) Sales of short-term investments 158 4,897 Maturities of short-term investments 15,311 1,342 Impact of CVD IPO (6,569) -- Capital expenditures for property and equipment (1,104) (630) -------- -------- Net cash provided by (used in) investing activities (4,063) 5,609 Cash flows from financing activities: Proceeds from common stock issuance to Cordis Corp. 5,000 -- Proceeds from convertible obligation -- 750 Proceeds from issuance of stock 2,152 441 Deferred Compensation (150) -- -------- -------- Net cash provided by financing activities 7,002 1,191 -------- -------- Net (decrease) in cash and equivalents (1,424) (1,968) Cash and equivalents, beginning of period 36,757 4,862 ======== ======== Cash and equivalents, end of period $ 35,333 $ 2,894 ======== ======== Non-cash financing and investing activities: Common stock issued in business acquisition -- $ 2,660 ======== ======== See accompanying notes.
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 1. Summary of Significant Accounting Policies The interim financial information is unaudited. In the opinion of management of EndoSonics Corporation ("EndoSonics" or the "Company"), the condensed consolidated financial statements included in this report reflect all adjustments necessary, consisting only of normal recurring adjustments, to present fairly the Company's consolidated financial position at September 30, 1996 and the consolidated results of its operations and cash flows for the three- and nine-month periods ended September 30, 1996 and 1995. Results for the interim are not necessarily indicative of consolidated results to be expected for the entire fiscal year. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1995, contained in the Company's Annual Report on Form 10-K. Principles of Consolidation The consolidated financial statements include the accounts of EndoSonics Corporation (the "Company"), a Delaware Corporation, and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in unconsolidated subsidiaries, and other investments in which the Company has a 20% to 50% interest or otherwise has the ability to exercise significant influence, are accounted for under the equity method (see Note 4). Investments In accordance with SFAS 115, the Company has divided its investment portfolio into held-to-maturity and available-for-sale categories. Unrealized losses on available-for-sale securities are recorded as a separate component of shareholders' equity. 2. Inventories Inventories are stated at the lower of cost, determined on an average cost basis, or market value. Inventories consist of the following: September 30, 1996 December 31, 1995 ------------------ ----------------- Raw materials $1,308 $1,225 Work-in-process 1,261 1,575 Finished goods 1,407 1,246 ------- ------- Total $3,976 $4,046 ======= ======= 6 3. Computation of net loss per share Net loss per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares from stock options are excluded from the computation because their effect is antidilutive. 4. Change in ownership percentage of Cardiovascular Dynamics, Inc. On June 19, 1996, EndoSonics' 84% owned subsidiary, Cardiovascular Dynamics, Inc. (CVD), successfully completed an Initial Public Offering (IPO) of 3,400,000 shares of common stock at $12.00 per share, followed by an additional 510,000 shares issued in July 1996 (over-allotment option granted to CVD's underwriters). As of September 30, 1996, EndoSonics owned 46% of the outstanding shares of CVD. As a result of this transaction, CVD's results of operations have been consolidated through June 19, 1996, and accounted for on the equity method thereafter. In June 1996, the Company recorded an increase to additional paid-in capital of approximately $21 million representing the Company's proportionate share of CVD's net assets following the IPO. In the quarter ended September 30, 1996, the Company recorded ($321,000) representing its proportionate share of CVD's net losses for the period. Financial information for CVD is shown below: BALANCE SHEET INFORMATION -- CVD (Unaudited) September 30, (In thousands) 1996 ------------- Current assets $51,997 Property and equipment, net 823 Other assets 172 ------- Total assets $52,992 ======= Current liabilities $ 4,217 Deferred distributorship fee revenue 786 Stockholders' equity 47,989 ------- Total liabilities and stockholders' equity $52,992 ======= EndoSonics' share of CVD's net assets $20,795 ======= 7 STATEMENT OF OPERATIONS -- CVD
(Unaudited) (In thousands) Three Months Ended Nine Months Ended September 30, 1996 September 30, 1996 ------------------ ------------------- Total revenue $2,352 $6,186 Cost of sales 1,273 3,136 ------- ------- Gross profit 1,079 3,050 Total operating expenses 2,407 5,626 ------- ------- Loss from operations (1,328) (2,576) ------- ------- Other income (expense) 630 731 ------- ------- Net Loss ($698) ($1,845) ======= ======= EndoSonics' share of net losses of CVD ($321) ($370) ======= =======
Cardiovascular Dynamics, Inc., stock is quoted on The Nasdaq Stock Market. The closing price of CVD's stock at September 30, 1996 was $10.25 per share. The Company held 4,040,000 shares of CVD's common stock at September 30, 1996. 5. Components of the Consolidated Statement of Operations as of September 30, 1996 (Unaudited) (In Thousands) Nine months ended September 30, 1996 IVUS CVD Consolidated ------------------------------------- Total revenue $14,432 $3,834 $18,266 Cost of sales 10,209 1,863 12,072 ------------------------------------- Gross profit 4,223 1,971 6,194 Operating expenses: Other research, development and clinical 3,468 1,429 4,897 Marketing and sales 3,210 1,287 4,497 General and administrative 3,064 503 3,567 Restructuring 518 -- 518 ------------------------------------- Total operating expenses 10,260 3,219 13,479 ------------------------------------- Loss from operations (6,037) (1,248) (7,285) Other income (expense): Interest income 1,567 73 1,640 Other income (expense) (12) 28 16 -------------------------------------- Total other income 1,555 101 1,656 -------------------------------------- Net Loss ($4,852) ($1,147) ($5,999) ====================================== 8 Through June 19, 1996, the Statements of Operations of EndoSonics included the results of operations of CVD. As of June 20, 1996, the Company began accounting for CVD under the equity method of accounting. (See Note 4.) The results of operations for IVUS (intravascular ultrasound) include restructuring and other charges made in the quarter ended June 30, 1996, of approximately $3.1 million in connection with the consolidation of the Company's IVUS manufacturing operations and with the start-up production of the new Five/64 imaging devices. (See Note 6.) 6. Restructuring and Other Charges In June 1996, the Company recorded restructuring and other charges of approximately $3.1 million in connection with the consolidation of the Company's IVUS manufacturing operations and with the start-up production of the new Five/64 imaging devices. The elements of the total charges as of September 30, 1996 are as follows: (In Thousands) Representing Asset Future Provision Write-Downs Cash Outlays ---------------------------------------------- Consolidation of facilities $ 994 $ 867 Conversion to new technology 1,849 $808 815 Corporate reorganization 223 93 ------- ---- ------- $ 3,066 $808 $ 1,775 ======= ==== ======= The charges are included in the accompanying Consolidated Statements of Operations for the nine month period ended September 30, 1996 are as follows: (In Thousands) 1996 -------------- Cost of sales $ 794 Other research, development and clinical 475 Marketing and sales 480 General and administrative 799 Restructuring 518 ------- Total charges $ 3,066 ======= 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-Q contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed elsewhere herein and in the Company's Annual Report on Form 10-K. Overview Since inception in 1984, EndoSonics has engaged primarily in the research and development, manufacture and sale of products for the diagnosis and treatment of cardiovascular disease. The Company's financial results will be affected in the future by several factors, including the timing of any FDA approval to market the Company's products, FDA approval of IDE sites and the number of patients permitted to be treated, future changes in government regulations and third-party reimbursement policies applicable to the Company's products, the revenue mix of Oracle imaging systems and catheters, the progress of competing technologies, and the ability of the Company to develop the manufacturing and marketing capabilities necessary to support commercial sales. As a result of these factors, revenue levels, gross margins and operating results may fluctuate from quarter to quarter. Results of Operations Third quarter of 1996 compared to the same period in 1995 Total Revenue. Revenue (all IVUS) for the third quarter of 1996 advanced 18% to $5.5 million compared to $4.7 million for the third quarter of 1995, which included $1.6 million of CVD revenue. Revenues for the IVUS business increased 79% from $3.1 million in the third quarter of 1995. The principal reasons for this increase are continued growth in demand for IVUS products both in the U.S. and overseas markets, and increased sales through the Company's agreement with Cordis Corporation (a Johnson & Johnson Company). Further growth is dependent on the ability of the Company to increase production to levels of its new Five/64 catheters to levels sufficient to meet demand for the product in both the U.S. and overseas markets. 10 Cost of Sales. Cost of sales as a percentage of product sales decreased to 60% (all IVUS) for the three months ended September 30, 1996 from 63% for the third quarter of 1995, which included CVD. For the IVUS business, cost of sales increased from 57% in the third quarter of 1995. Gross profit margins increased to 40% (all IVUS) for the three months ended September 30, 1996 as compared to 37% for the third quarter of 1995 which included CVD. Gross profit margins for the IVUS business were 43% for third quarter of 1995. The decrease in the third quarter of 1996 was due primarily to the production inefficiencies incurred in manufacturing new catheter products. Due to the uncertainty associated with continued improvements in the efficiency of the Company's manufacturing process and the impact of increasingly competitive pricing, there can be no assurance that the Company's gross profit margin will be maintained or improve in future periods. Other Research, Development and Clinical. Other research, development and clinical decreased to $1.1 million (all IVUS) for the three months ended September 30, 1996 as compared to $2.0 million for the third quarter of 1995 (which included CVD), $1.5 million for the IVUS business. This decrease of 27% for IVUS is due to a reduction in expenses associated with the Pinnacle Development Project. Marketing and Sales. Marketing and sales expenses decreased to $0.8 million (all IVUS) for the three months ended September 30, 1996 from $1.6 million for the third quarter of 1995 (which included CVD), $1.1 million for the IVUS business. This decrease of 27% for the IVUS business is primarily the result of a levelling off of costs associated with increased staffing and marketing programs in Europe and the United States in support of higher sales levels. As a percentage of total revenue, marketing and sales expenses for IVUS decreased to 15% for the three months ended September 30, 1996 compared to 36% for the three months ended September 30, 1995, due primarily to increased revenues. General and Administrative. General and administrative expenses decreased to $0.9 million (all IVUS) for the three months ended September 30, 1996 from $1.1 million (including CVD) for the three months ended September 30, 1995. For the IVUS business, general and administrative expenses increased 29% from $0.7 million in the third quarter of 1995 due to an overall increase the Company's level of operations. As a percentage of total revenues, general and administrative expenses decreased to 17% for the three months ended September 30, 1996 compared with 22% of total revenue for the three months ended September 30, 1995 due to increased revenue. Other Income Net. Other income increased to $0.5 million for the three months ended September 30, 1996 from $0.1 million for the three months ended September 30, 1995, due to a higher level of interest income earned on the proceeds of an equity offering completed in the fourth quarter of 1995. Net Loss. Net loss decreased to $0.4 million, or $0.03 per share, for the three months ended September 30, 1996 as compared to a net loss of $2.3 million, or $0.23 per share, for the three months ended September 30, 1995. Third quarter 1996 included $0.3 million equity in the net loss of CVD. On a comparable basis, the IVUS business approached break-even ($51,000 loss) for the third quarter of 1996 versus a loss of $2.0 million for the third quarter of 1995. Weighted average shares outstanding increased by approximately 3.4 million shares primarily as a result of the Company's equity offering in the fourth quarter of 1995. 11 First Nine Months of 1996 compared to the same period of 1995 CVD's results of operations were consolidated in the Company's results through June 19, 1996, and accounted for on the equity method thereafter. (See Note 4 to Consolidated Financial Statements.) Total Revenue. Total revenue increased 60% to $18.3 million for the nine months ended September 30, 1996 from $11.4 million for the nine months ended September 30, 1995. Period to period comparison of IVUS revenues reflected a 67% increase from $8.6 million in 1995 to $14.4 million in 1996. The increase in IVUS revenues is due both to the growth of the overall market for IVUS imaging products and increased sales under the Company's distribution agreements with Cordis and, to a lesser extent, with Fukuda. Currently, a majority of the Company's sales of IVUS products consists of sales of the Company's IVUS imaging systems. The Company currently anticipates that sales of IVUS imaging catheters will increase as a percentage of total sales of IVUS products in future periods as the Company's installed base grows. For the nine months ended September 30, 1996 and September 30, 1995, export sales as a percentage of total revenue remained at 54%. The Company currently anticipates that export sales will continue to represent a substantial portion of the Company's total revenue in future periods. Cost of Sales. Cost of sales as a percentage of product sales decreased to 67% for the nine months ended September 30, 1996 from 68% for the nine months ended September 30, 1995. Period to period comparison of IVUS cost of sales reflected an increase from 70% in 1995 to 73% in 1996. After adjusting for $0.8 million in non-recurring charges in the IVUS business in 1996 (see Note 6 to Condensed Consolidated Financial Statements) these expenses decreased to 67% of total revenue. Cost of sales in the first nine months of 1995 were affected by $0.7 million related to the voluntary recall of its Visions IVUS imaging catheters in the first quarter of 1995 due to manufacturing defects. After adjusting for these recall related expenses, cost of sales as a percentage of product sales were 62% in the first nine months of 1995. Gross margins on product in the IVUS business for the first nine months of 1996 were 27% compared with 30% for the same period in 1995, 33% and 38%, respectively, after both of the above adjustments. The decrease in gross margins are the result of improvements in the Company's manufacturing processes which were more than offset by higher costs associated with initial production of new catheter products. Due to the possible impact of increasingly competitive pricing there can be no assurance that the Company's gross profit margin will be maintained or improve in future periods. The Company is in the process of establishing a new manufacturing process for its FIVE/64 catheter line in Rancho Cordova, California. Its gross margins will be affected during the remainder of 1996 and 1997 by the rate of adoption of FIVE/64 catheter products and the efficiency with which the Company is able to establish such process and facility and achieve production volumes. Acquired In-process, Research, Development and Clinical. In June 1995, EndoSonics recorded a non-cash charge of $0.5 million reflecting the final payment in connection with the 1993 acquisition of CVD. 12 Other Research, Development and Clinical. Other research, development and clinical expenses decreased by 18% to $4.9 million for the nine months ended September 30, 1996 from $6.0 million for the nine months ended September 30, 1995. Period to period comparison of IVUS expenses reflected a 24% decrease from $4.6 million in 1995 to $3.5 million in 1995. After adjusting for the $0.5 million in non-recurring charges in 1996 (see Note 6 to Condensed Consolidated Financial Statements), these expenses for the IVUS business decreased 35%, due to a decrease in expenses related to the Pinnacle Development Project. Marketing and Sales. Marketing and sales expenses increased 10% to $4.5 million for the nine months ended September 30, 1996 compared to $4.1 million for the nine months ended September 30, 1995. Period to period comparison of IVUS marketing and sales expenses reflected an 8% increase from $3.0 million in 1995 to $3.2 million in 1996. After adjusting for $0.5 million in non-recurring charges in 1996 (see Note 6 to Condensed Consolidated Financial Statements), these expenses for the IVUS business decreased 10%. As a percentage of total revenue, marketing and sales expenses decreased to 22%, 19% after adjustments for non-recurring charges, for the nine months ended September 30, 1996 from 34% of total revenue for the nine months ended September 30, 1995 due primarily to increased revenue. General and Administrative. General and administrative expenses increased 17% to $3.6 million for the nine months ended September 30, 1996 from $3.1 million for the nine months ended September 30, 1995. Period to period comparisons of IVUS general and administrative expenses indicate a 48% increase from $2.1 million in 1995 to $3.1 million in 1996. After adjusting for $0.8 million in non-recurring charges in 1996 (see Note 6 to Condensed Consolidated Financial Statements), these expenses for the IVUS business decreased 9%. General and administrative expenses decreased to 21% of total revenue, 16% after adjustments for non-recurring charges, for the nine months ended September 30, 1996 from 24% of total revenue for the nine months ended September 30, 1995 due primarily to increased revenue. Restructuring Charges. In the second quarter of 1996 the Company recorded $0.5 million in restructuring charges in connection with the consolidation of its administrative and manufacturing operations at a new facility in Rancho Cordova, California. These charges related primarily to lease commitments associated with the Pleasanton facility. Other Income, Net. Other income increased to $1.7 million for the nine months ended September 30, 1996 from $0.5 million for the nine months ended September 30, 1995, primarily due to a higher level of interest income earned on the proceeds of an equity offering completed in the fourth quarter of 1995. Net Loss. Net loss decreased to $6.0 million, or $0.45 per share, for the nine months ended September 30, 1996 as compared to a net loss of $8.8 million, or $0.88 per share, for the nine months ended September 30, 1995. The second and third quarters of 1996 include $0.4 million equity in the net loss of CVD. Period to period comparisons of the results of operations for the IVUS business indicates a 31% decrease in net loss from $6.5 million in 1995 to $4.5 million (without CVD's losses) in 1996. After adjusting for non-recurring expenses of $3.1 million in the second quarter of 1996 and CVD's net losses in the second and third quarters, net loss for the IVUS business decreased to $1.4 million ($0.11 per share). Weighted average shares outstanding increased by approximately 3.3 million, primarily as a result of the Company's equity offering in the fourth quarter of 1995. 13 Liquidity and Capital Resources On September 30, 1996, the Company had cash and equivalents of $35,333,000 and short-term investments of $4,054,000. As reflected in the condensed consolidated statements of cash flows, the Company's operations continue to result in negative cash flows. Net cash used in operations was $4,363,000 for the nine months ended September 30, 1996, as compared to $8,768,000 in the corresponding period in the previous year. The improvement is due in part to a lower net loss, the affiliate loan payoff from CVD and increases in current liabilities. The Company expects to incur substantial additional costs, primarily relating to ongoing research and development, clinical programs, and increased marketing efforts, prior to achieving positive cash flow from operations. EndoSonics anticipates using cash resources generated from product sales and existing cash balances to fund operations in 1996. The Company believes its available cash and equivalents, short-term investment and working capital positions as of September 30, 1996, will be sufficient to meet the Company's operating expenses and capital requirements through 1997. Cash Payment for Distribution Rights On July 28, 1995, CVD received a cash payment of $750,000 from its Japanese distributor, Fukuda Denshi Co., Ltd. In return for this cash payment, CVD has awarded Japanese distribution rights to Fukuda for CVD's new products for peripheral vascular, neurovascular and non-vascular clinical applications. 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 thereunto duly authorized. ENDOSONICS CORPORATION ------------------------- Reinhard Warnking President and Chief Executive Officer Date: November 14, 1996 -------------------------- Donald D. Huffman Vice President-Finance and Chief Financial Officer, and Principal Accounting Officer Date: November 14, 1996 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000883420 ENDOSONICS 1,000 3-MOS DEC-31-1995 JUL-01-1996 SEP-30-1996 35,333 4,054 6,684 0 3,976 50,679 1,743 0 73,217 6,236 0 14 0 0 66,968 73,217 18,266 18,266 12,072 12,072 0 0 0 (5,999) 0 (5,999) 0 0 0 (5,999) (0.45) (0.45)
-----END PRIVACY-ENHANCED MESSAGE-----