-----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, PBgXmnPN5LBPXc8cnL6EmGi7/JJPtKpQo20TPUc1uUMsqIrUvMhgUpaiUqVwUcuW GuKNNn+p2LFTf2Bz9K1vKA== 0000891618-97-002307.txt : 19970520 0000891618-97-002307.hdr.sgml : 19970520 ACCESSION NUMBER: 0000891618-97-002307 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDIOGENESIS CORP CENTRAL INDEX KEY: 0001013465 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 770352469 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28424 FILM NUMBER: 97606067 BUSINESS ADDRESS: STREET 1: 3110 CORONADO AVE CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4083288500 MAIL ADDRESS: STREET 1: CARDIOGENESIS CORP STREET 2: 540 OAKMEAD PKWY CITY: SUNNYVALE STATE: CA ZIP: 94086 10-Q 1 FORM 10-Q FOR PERIOD END 3/31/97 1 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 March 31, 1997 [ ] 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: 0-28424 CARDIOGENESIS CORPORATION (Exact name of registrant as specified in its charter) Delaware 77-0352469 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 540 OAKMEAD PARKWAY SUNNYVALE, CALIFORNIA 94086 (Address of principal executive offices, including zip code) (408) 328-8500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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 [ ] The number of shares of Common Stock outstanding as of April 17, 1997 was 12,004,654. -1- 2 CARDIOGENESIS CORPORATION TABLE OF CONTENTS
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of March 31, 1997 3 and December 31, 1996 Condensed Consolidated Statements of Operations for the three months 4 ended March 31, 1997 and 1996 Condensed Consolidated Statements of Cash Flows for the three months 5 ended March 31, 1997 and 1996 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 7 AND RESULTS OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11 SIGNATURE 12 INDEX TO EXHIBITS 13
-2- 3 CARDIOGENESIS CORPORATION Condensed Consolidated Balance Sheets (in thousands) (unaudited)
March 31 December 31 1997 1996 -------- ----------- ASSETS Current assets: Cash and cash equivalents $13,690 $ 2,080 Available-for-sale securities 39,054 53,626 Accounts receivable, net 2,359 2,024 Inventories 1,175 1,108 Other current assets 1,129 1,388 ------- ------- Total current assets 57,407 60,226 Property and equipment, net 1,504 1,546 Available for sale securities, non-current 2,502 2,502 Other assets 23 23 ------- ------- Total assets $61,436 $64,297 ======= ======= TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,412 $ 2,532 Deferred revenue -- 370 ------- ------- Total liabilities 3,412 2,902 Stockholders' equity 58,024 61,395 ------- ------- Total liabilities and stockholders' equity $61,436 $64,297 ======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements. -3- 4 CARDIOGENESIS CORPORATION Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
Three Months Ended March 31 --------------------------- 1997 1996 -------- ------- Sales $ 1,583 $ 631 Cost of sales 1,131 318 -------- ------- Gross profit 452 313 -------- ------- Operating expenses: Research and development 3,254 1,574 General and administrative 771 494 Sales and marketing 801 303 -------- ------- Operating expenses 4,826 2,371 -------- ------- Operating loss (4,374) (2,058) Interest income 779 180 ======== ======= Net loss $ (3,595) $(1,878) ======== ======= Net loss per share $ (0.30) $ (0.43) ======== ======= Shares used in computing net loss per share 11,982 4,368 ======== =======
The accompanying notes are an integral part of these condensed consolidated financial statements. -4- 5 CARDIOGENESIS CORPORATION Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
Three Months Ended March 31 --------------------------- 1997 1996 -------- ------- Cash from operating activities: Net loss $ (3,595) $(1,878) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 115 42 Amortization of deferred compensation 137 396 Disposal of property and equipment -- 7 Changes in assets and liabilities: Accounts receivable (335) 394 Interest receivable 324 -- Inventories (67) (318) Prepaids and other (65) (80) Accounts payable and other 823 (120) Accrued expenses 201 239 Accrued compensation (100) (14) Deferred revenue (370) (425) Short-term note payable (44) -- -------- ------- Net cash used in operating activities (2,976) (1,757) -------- ------- Cash flows from investing activities: Purchase of available-for-sale securities (5,378) (1,927) Maturities of available-for-sale securities 19,950 415 Acquisition of property and equipment (75) (58) Other assets -- (12) -------- ------- Net cash provided by (used in) investing activities 14,497 (1,582) -------- ------- Cash flows from financing activities: Proceeds from issuance of Preferred Stock, net of issuance costs -- 240 Proceeds from issuance of Common Stock, net of issuance costs 89 64 -------- ------- Net cash provided by financing activities 89 304 -------- ------- Net increase (decrease) in cash and cash equivalents 11,610 (3,035) Cash and cash equivalents, beginning of period 2,080 4,150 ======== ======= Cash and cash equivalents, end of period $ 13,690 $ 1,115 ======== =======
The accompanying notes are an integral part of these condensed consolidated financial statements. -5- 6 CARDIOGENESIS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS These interim consolidated financial statements are unaudited, but have been prepared in accordance with generally accepted accounting principles for interim information and with the instructions to Form 10-Q. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The interim financial information herein is not necessarily indicative of results for any future period. The interim consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto for the fiscal year ended December 31, 1996 included in the Company's Form 10-K filed with the Securities and Exchange Commission. NOTE 2 - INVENTORIES Inventories (in thousands) consisted of the following:
MARCH 31 DECEMBER 31 1997 1996 -------- ----------- (unaudited) Raw materials $ 193 $ 20 Finished goods 992 1,088 ------ ------ $1,175 $1,108 ====== ======
NOTE 3 - LITIGATION On September 11, 1996, the Company filed an action for declaratory relief against PLC Systems, Inc. of Canada and its wholly-owned American subsidiary, PLC Medical Systems, Inc., (collectively, "PLC"), seeking a judgment that PLC's United States patent No. 5,125,926 to a certain heart-synchronized pulsed laser system is invalid and unenforceable. In the suit, filed in the United States District Court for the Northern District of California, the Company also requested the Court to enter judgment that the Company's Transmyocardial Revascularization (TMR) systems do not infringe the PLC patent. In October 1996, PLC responded to the complaint. In its response, PLC took the position that its patent has been infringed by the Company, but made no further claims. -6- 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve a number of risks and uncertainties, including the factors described throughout this Report, and in the Company's Form 10-K filed with the Securities and Exchange Commission, particularly the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors." The actual results the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. The Company has identified by an asterisk (*) various sentences within this Report which contain such forward-looking statements, and words such as "believes", "anticipates", "expects", "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The Company undertakes no obligation to revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Report. Readers are urged to carefully review and consider the various disclosures made by the Company in this Report and in the Company's Form 10-K filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business. OVERVIEW Since its inception, CardioGenesis has been primarily engaged in the design, development, and marketing of its transmyocardial revascularization (TMR) systems. The Company has a limited operating history and has experienced significant operating losses since its inception. The Company incurred a net loss of $3.6 million in the three months ended March 31, 1997. The development and potential commercialization of the Company's products will require significant research and development, regulatory, sales and marketing, manufacturing and other expenditures. *Operating losses are expected to continue at least through 1997 as the Company continues to perform research and development, to fund clinical trials in support of regulatory and reimbursement approvals, and to expand its marketing and sales activities in the U.S. and internationally by supporting Boston Scientific Corporation (BSC). There can be no assurance the Company's TMR systems will ever generate significant revenues or the Company will achieve or sustain profitability. The research, manufacture, sale and distribution of medical devices such as the Company's TMR systems are subject to numerous regulations imposed by governmental authorities, principally the Food and Drug Administration (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 TMR system can be marketed in the United States. Securing FDA approvals and clearances will require submission to the FDA of extensive clinical data and technical information. Also, many foreign governments and the European Union also have review processes for medical devices. In July 1996, the Company received the CE Mark approval to market its ITMR System in the European Community. The CE Mark is awarded to companies whose products meet the essential requirements of the European Medical Device Directive (MDD) and provides the regulatory approval necessary for commercialization. The Company will be subject to continued supervision by regulators and will be required to report any serious adverse incidents to the appropriate authorities. The Company also will be required to comply with additional national requirements that are outside the scope of the MDD. *The Company plans to continue to seek regulatory approvals to allow for marketing and distribution of its products in international markets. The Company commenced clinical trials of its intraoperative TMR (ITMR(TM)) System in October 1995 and began clinical trials of its percutaneous myocardial revascularization (PMR(TM)) System in Europe in November 1996. In March 1997, the Company reported it had filed an Investigational Device Exemption (IDE) application with the FDA to conduct clinical investigations of its PMR System in no-option patients. Clinical trials of the Company's thoracoscopic TMR (TTMR(TM)) System have not commenced. In July 1996, the Company began a Phase II clinical trial under an investigational device exemption (IDE) that allowed a prospective, randomized, multi-center clinical trial of its ITMR System in "no-option" patients with severe coronary artery disease (CAD). As of March 31, 1997, over 200 patients had been enrolled in this study. In August 1996, the Company received an IDE from -7- 8 the FDA and has begun a clinical study of its ITMR System used as an adjunctive therapy to coronary artery bypass graft (CABG) surgery in patients with severe angina who are only partially treatable by CABG. *Substantial additional clinical testing of the Company's TMR systems is required. The Company continues to expect to file a PMA application for the ITMR System by the end of 1997. The Company recorded sales of $1.6 million for the first three months of 1997 from sales of ITMR Systems and disposable ITMR probes to its international distributor, BSC, in Europe and to clinical trial sites in the U.S. The Company recognizes product revenues upon shipment of its products to customers and fulfillment of acceptance terms, if any, and when no significant contractual obligations remain outstanding. Deferred revenue consists of shipments that have been made which are subject to limited rights of return or other contingencies. *The Company anticipates its revenues from product sales over the next several years will be primarily derived from international sales by BSC. As a result, the revenue levels of the Company are and will be dependent on the efforts of BSC in international markets *Any such international sales will be subject to a number of risks, including foreign currency fluctuations, economic or political instability, foreign tax laws, shipping delays, various tariffs and trade regulations and restrictions and foreign medical regulations, any of which could have a significant impact on the Company's revenues. *Results of the Company's operations have varied and are expected to fluctuate significantly from quarter to quarter depending on numerous factors, including: (i) demand for the Company's products, new product introductions by the Company or its competitors or transitions to new products; (ii) the timing of orders and shipments; (iii) the degree of acceptance of TMR therapy by the medical community; (iv) competition, including pricing pressures; (v) the timing of regulatory and third-party reimbursement approvals; (vi) expansion of the Company's manufacturing capacity and the Company's ability to manufacture its products efficiently; (vii) the timing of research and development expenses, including clinical trial-related expenditures, and (viii) seasonal factors affecting the number of procedures performed. *Due to such fluctuations in operating results, period-to-period comparisons of the Company's operating results are not necessarily meaningful and should not be relied upon as indicators of likely future performance. RESULTS OF OPERATIONS Three Months Ended March 31, 1997 and 1996 Sales. Sales of the Company's ITMR System for commercial use in Europe and for use at clinical trial sites in both the U.S. and Europe increased approximately $1.0 million to $1.6 million for the three months ended March 31, 1997 from $631,000 for the three months ended March 31, 1996. Cost of Sales. Cost of sales was approximately $1.1 million, or 71% of sales, for the three months ended March 31, 1997 and $318,000, or 50% of sales, for the same period in 1996. The increase in the percentage of cost of sales to sales is primarily due to increases in operations and quality personnel and implementation of systems in support of increasing production levels. Research and Development Expenses. Research and development expenses increased $1.7 million to $3.3 million for the three months ended March 31, 1997 from $1.6 million for the same period in 1996. The increase in 1997 was primarily due to the initiation of three additional clinical trials, two with the Company's ITMR System and one with the PMR System. Also, the Company continued to invest in mechanism research in the field of TMR. *The Company expects research and development expenses to continue to increase throughout 1997 as the Company continues to enroll patients in its ongoing clinical trials, initiates additional clinical trials, and continues to invest in TMR mechanism research. General and Administrative Expenses. General and administrative expenses increased $277,000 to $771,000 for the three months ended March 31, 1997 from $494,000 for the same period in 1996. The increase in 1997 was due to increased finance and administration personnel costs to support the Company's growth and comply with additional infrastructure requirements associated with being a public company, increased legal fees associated with research and development agreements and the exclusive international distribution agreement with -8- 9 BSC, legal fees related to the suit by the Company against PLC Medical Systems, Inc. (PLC) seeking a judgment that a PLC patent is invalid and unenforceable, increased property, general liability, and product liability insurance costs, and public and investor relations program costs. *General and administrative expenses should continue to increase in 1997. Sales and Marketing Expenses. Sales and marketing expenses increased $498,000 to $801,000 for the three months ended March 31, 1997 from $303,000 for the same period in 1996. The increase in 1997 was due to adding sales and marketing personnel and the implementation of marketing and training programs. *Sales and marketing expenses should continue to increase in 1997, but at a reduced rate of growth, as the Company expands clinical studies, conducts physician training, and supports the sales and marketing activities of BSC. Interest Income. Interest income increased $599,000 to $779,000 for the three months ended March 31, 1997 from $180,000 for the same period in 1996. The increase in 1997 is due to the investment of the proceeds from the Company's initial public offering of Common Stock in May 1996 of approximately $54.5 million, net of issuance costs. Deferred Compensation Expense. The Company recorded deferred compensation expense of approximately $2.3 million with respect to options to purchase Common Stock granted and Preferred Stock issued during 1996 and 1995. Deferred compensation expense is being amortized over the vesting period of the options, which is generally four years. The Company recognized compensation expense of $137,000 and $396,000 for the three months ended March 31, 1997 and 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations since inception primarily through the private sale of capital stock and interest income on proceeds from private financings as well as from its initial public offering in May 1996. Through March 31, 1997, the Company had raised approximately $77.2 million from the sale of stock, net of issuance costs. Net cash used in the Company's operations was $3.0 million and $1.8 million for the three months ended March 31, 1997 and 1996, respectively. The increases in net cash used in the Company's operations were primarily a result of increased levels of research and development, general and administrative, and sales and marketing activities. The Company's acquisition of property and equipment was $74,000 and $58,000 for the three months ended March 31, 1997 and 1996, respectively. *The Company expects similar levels of capital expenditures during the rest of 1997. At March 31, 1997, the Company had cash, cash equivalents, and available-for-sale securities, of $55.2 million. *The Company plans to finance its operations and capital needs principally from the cash, cash equivalents, and available-for-sale securities, and, to the extent available, from bank and lease financing and believes these sources of cash will be sufficient to fund its operations at least through 1998. *However, the Company's future liquidity and capital requirements will depend upon numerous factors, including the level of sales generated by BSC in major and emerging international markets; market acceptance of, and demand for the Company's products; the Company's clinical research and product development programs; the receipt of, and the time required to obtain, regulatory clearances and 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, and to expand manufacturing capacity; facilities requirements; and other factors. *Although the Company believes the current levels of cash, cash equivalents, and available-for-sale securities, together with cash generated from operations, will provide adequate funding for its operations and capital requirements through at least 1998, the Company may be required to raise additional funds through public or private debt or equity financings, collaborative relationships, bank facilities or other arrangements. *There can be no assurance the Company will not require additional funding sooner or that such additional funding, if needed, will be available on terms attractive to the Company, or at all. *Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. -9- 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. -10- 11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Number Description ------ ----------- 11.01 Statement Regarding Computation of Net Loss Per Share 27.01 Financial Data Schedule (b) Reports on Form 8-K none -11- 12 SIGNATURE 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. CARDIOGENESIS CORPORATION (Registrant) Date: May 14, 1997 By: /s/ Richard P. Powers --------------------------------------------- Richard P. Powers Chief Financial Officer, Vice President of Finance and Administration, and Secretary (Duly Authorized Officer, Principal Financial Officer, and Principal Accounting Officer) -12- 13 INDEX TO EXHIBITS EXHIBIT ------- 11.01 Statement Regarding Computation of Net Loss Per Share 27.01 Financial Data Schedules -13- EX-11.1 2 COMPUTATION OF NET LOSS PER SHARE 1 EXHIBIT 11.01 CARDIOGENESIS CORPORATION COMPUTATION OF NET LOSS PER SHARE(1) (in thousands, except per share data) (unaudited) Three Months Ended March 31 --------------------------- 1997 1996 ------- ------- Weighted average common shares outstanding for the period 11,982 - Common equivalent shares pursuant to Staff Accounting Bulletin No. 83 - 4,368 ------- ------- Shares used in per share calculation 11,982 4,368 ======= ======= Net loss $(3,595) $(1,878) ======= ======= Net loss per share $ (0.30) $ (0.43) ======= ======= - ---------- (1) There is no difference between primary and fully diluted net loss per share for all periods presented. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 13,690 39,054 2,639 (280) 1,175 1,129 1,504 0 61,436 3,412 0 0 0 58,024 0 61,436 1,583 1,583 1,131 1,131 4,826 0 0 (3,595) 0 (3,595) 0 0 0 (3,595) (.30) (.30)
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