SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
Commission file number 0-28288
____________________
CARDIOGENESIS CORPORATION
(formerly known as Eclipse Surgical Technologies, Inc.)
(Exact name of Registrant as specified in its charter)
______________________
| California | 77-0223740 | |
| (State of incorporation) |
(I.R.S. Employer Identification Number) |
26632 Towne Center Drive
Suite 320
Foothill Ranch, California 92610
(Address of principal executive offices)
(714) 649-5000
(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[ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock outstanding as of the latest practicable date.
37,058,647 shares of Common Stock, no par value
As of July 31, 2002
CARDIOGENESIS CORPORATION
TABLE OF CONTENTS
PART 1
FINANCIAL INFORMATION
| Page | ||||
Item 1. |
Financial Statements (unaudited): |
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a. Consolidated Balance Sheets
as of June 30, 2002 and December 31, 2001
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1 |
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b. Consolidated Statements of Operations & Comprehensive Income
(Loss) for the three and six months ended June 30, 2002
and 2001
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2 |
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c. Consolidated Statements of Cash Flows
for the six months ended June 30, 2002 and 2001
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3 |
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d. Notes to Consolidated Financial Statements
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4 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
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5 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
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16 |
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PART II OTHER INFORMATION |
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Item 1. |
Legal Proceedings
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17 |
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Item 2. |
Changes in Securities and Use of Proceeds
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17 |
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Item 3. |
Defaults Upon Senior Securities
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17 |
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Item 4. |
Submission of Matters to a Vote of Security Holders
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17 |
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Item 5. |
Other Information
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18 |
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Item 6. |
Exhibits and Reports on Form 8-K
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18 |
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Signatures
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20 |
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Item 1. Financial Statements.
CARDIOGENESIS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
| June 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| (unaudited) | |||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 2,569 | $ | 2,629 | |||||||
Accounts receivable, net of allowance for doubtful
accounts of $1,314 and $1,114 at June 30, 2002
and December 31, 2001, respectively |
1,880 | 2,330 | |||||||||
Inventories, net of reserve of $1,153 and $1,246 at
June 30, 2002 and December 31, 2001, respectively |
2,369 | 3,215 | |||||||||
Prepaids and other current assets |
978 | 569 | |||||||||
Total current assets |
7,796 | 8,743 | |||||||||
Property and equipment, net |
709 | 863 | |||||||||
Other assets |
1,606 | 1,703 | |||||||||
Total assets |
$ | 10,111 | $ | 11,309 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||||||||
Current liabilities: |
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Accounts payable |
$ | 1,457 | $ | 1,548 | |||||||
Accrued liabilities |
3,452 | 4,467 | |||||||||
Customer deposits |
50 | 54 | |||||||||
Deferred revenue |
648 | 931 | |||||||||
Note payable |
324 | 170 | |||||||||
Current portion of capital lease obligation |
30 | 30 | |||||||||
Current portion of long-term liabilities |
125 | 495 | |||||||||
Total current liabilities |
6,086 | 7,695 | |||||||||
Capital lease obligation, less current portion |
16 | 32 | |||||||||
Total liabilities |
6,102 | 7,727 | |||||||||
Shareholders’ equity: |
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Preferred stock: |
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no par value; 6,600 shares authorized;
none issued and outstanding |
— | — | |||||||||
Common stock: |
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no par value; 50,000 shares authorized; 37,059 |
|||||||||||
and 36,507 shares issued and outstanding
at June 30, 2002 and December 31, 2001, respectively |
168,236 | 167,750 | |||||||||
Accumulated other comprehensive loss |
(45 | ) | (88 | ) | |||||||
Accumulated deficit |
(164,182 | ) | (164,080 | ) | |||||||
Total shareholders’ equity |
4,009 | 3,582 | |||||||||
Total liabilities and shareholders’ equity |
$ | 10,111 | $ | 11,309 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
CARDIOGENESIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)
| Three months ended | Six months ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Net revenues |
$ | 3,010 | $ | 4,030 | $ | 6,168 | $ | 7,141 | ||||||||||||
Cost of revenues |
672 | 1,583 | 1,498 | 3,118 | ||||||||||||||||
Gross profit |
2,338 | 2,447 | 4,670 | 4,023 | ||||||||||||||||
Operating expenses: |
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Research and development |
437 | 706 | 643 | 1,249 | ||||||||||||||||
Sales, general and administrative |
3,061 | 3,756 | 6,433 | 6,894 | ||||||||||||||||
Restructuring costs |
— | 690 | — | 690 | ||||||||||||||||
Total operating expenses |
3,498 | 5,152 | 7,076 | 8,833 | ||||||||||||||||
Operating loss |
(1,160 | ) | (2,705 | ) | (2,406 | ) | (4,810 | ) | ||||||||||||
Interest, net |
12 | 33 | 19 | 58 | ||||||||||||||||
Gain on sale of equity investee |
2,285 | — | 2,285 | — | ||||||||||||||||
Equity in net loss of investee |
— | (295 | ) | — | (652 | ) | ||||||||||||||
Net income (loss) |
1,137 | (2,967 | ) | (102 | ) | (5,404 | ) | |||||||||||||
Other comprehensive income: |
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Unrealized holding losses arising
during period |
— | (3 | ) | — | — | |||||||||||||||
Foreign currency translation adjustment |
23 | 60 | 43 | 33 | ||||||||||||||||
Other comprehensive income |
23 | 57 | 43 | 33 | ||||||||||||||||
Comprehensive income (loss) |
$ | 1,160 | $ | (2,910 | ) | $ | (59 | ) | $ | (5,371 | ) | |||||||||
Net income (loss) per share: |
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Basic and diluted |
$ | 0.03 | $ | (0.09 | ) | $ | (0.00 | ) | $ | (0.17 | ) | |||||||||
Weighted average shares outstanding: |
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Basic |
36,979 | 33,631 | 36,744 | 32,227 | ||||||||||||||||
Diluted |
37,098 | 33,631 | 36,744 | 32,227 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CARDIOGENESIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six months ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
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Net loss |
$ | (102 | ) | $ | (5,404 | ) | ||||||
Adjustments to reconcile net loss to net cash
used in operating activities: |
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Depreciation and amortization |
165 | 246 | ||||||||||
Gain from sale of equity investee |
(2,285 | ) | — | |||||||||
Loss from equity in investee |
— | 652 | ||||||||||
Provision for doubtful accounts |
200 | 109 | ||||||||||
Inventory reserves |
339 | 670 | ||||||||||
Amortization of deferred compensation |
— | 56 | ||||||||||
Accretion of long-term liability |
— | 19 | ||||||||||
Amortization of license fees |
97 | 98 | ||||||||||
Loss on disposal of property and equipment |
28 | — | ||||||||||
Changes in operating assets and liabilities: |
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Accounts receivable — short term |
250 | 497 | ||||||||||
Inventories |
507 | 127 | ||||||||||
Prepaids and other current assets |
215 | (249 | ) | |||||||||
Accounts receivable — long term |
— | (138 | ) | |||||||||
Accounts payable |
(91 | ) | (109 | ) | ||||||||
Accrued liabilities |
(1,015 | ) | (100 | ) | ||||||||
Current portion of long term liabilities |
(370 | ) | — | |||||||||
Long term liabilities |
— | (250 | ) | |||||||||
Customer deposits |
(4 | ) | — | |||||||||
Deferred revenue |
(283 | ) | (249 | ) | ||||||||
Net cash used in operating activities |
(2,349 | ) | (4,025 | ) | ||||||||
Cash flows from investing activities: |
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Proceeds from sale of equity investee |
2,285 | — | ||||||||||
Acquisition of property and equipment |
(39 | ) | (19 | ) | ||||||||
Net cash provided by (used in) investing
activities |
2,246 | (19 | ) | |||||||||
Cash flows from financing activities: |
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Net proceeds from sales of common stock and from
issuance of common stock from exercise of options |
486 | 3,709 | ||||||||||
(Payments on) proceeds from short term borrowings |
(470 | ) | 305 | |||||||||
Repayments of capital lease obligations |
(16 | ) | (14 | ) | ||||||||
Net cash provided by financing activities |
— | 4,000 | ||||||||||
Effects of exchange rate changes on cash and
cash equivalents |
43 | 33 | ||||||||||
Net decrease in cash and cash equivalents |
(60 | ) | (11 | ) | ||||||||
Cash and cash equivalents at beginning of period |
2,629 | 3,357 | ||||||||||
Cash and cash equivalents at end of period |
$ | 2,569 | $ | 3,346 | ||||||||
Supplemental schedule of cash flow information: |
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Interest paid |
$ | 7 | $ | 2 | ||||||||
Taxes paid |
$ | 2 | $ | 26 | ||||||||
Supplemental schedule of noncash investing and
financing activities: |
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Deferred compensation |
$ | — | $ | 11 | ||||||||
Issuance of warrants |
$ | — | $ | 94 | ||||||||
Financing of insurance premiums with note payable |
$ | 624 | $ | 554 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Interim Financial Information (unaudited):
The interim financial statements in this report reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the results of operations and cash flows for the interim periods covered and of the financial position of the Company at the interim balance sheet date. Results for interim periods are not necessarily indicative of results to be expected for the full fiscal year. The year-end balance sheet information was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with CardioGenesis’ audited financial statements and notes thereto for the year ended December 31, 2001, contained in the Company’s Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission (“SEC”).
These financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. CardioGenesis has sustained significant losses for the last several years and expects to continue to incur losses through 2002. Management believes its cash balance as of June 30, 2002 is sufficient to meet the Company’s capital and operating requirements through the end of the fiscal year ending December 31, 2002.
CardioGenesis may require additional financing in the future. There can be no assurance that CardioGenesis will be able to obtain additional debt or equity financing, if and when needed, on terms acceptable to the Company. Any additional debt or equity financing may involve substantial dilution to CardioGenesis’ stockholders, restrictive covenants or high interest costs. The failure to raise needed funds on sufficiently favorable terms could have a material adverse effect on CardioGenesis’ business, operating results and financial condition. CardioGenesis’ long term liquidity also depends upon its ability to increase revenues from the sale of its products and achieve profitability. The failure to achieve these goals could have a material adverse effect on the business, operating results and financial condition.
Net Income (Loss) Per Share:
Basic earnings per share (“EPS”) is computed by dividing the net income (loss) by the weighted average number of common shares outstanding for the period. Dilutive EPS is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon the exercise of stock options and warrants using the “treasury stock” method.
Options to purchase 3,436,303 and 3,186,412 shares of common stock were outstanding at June 30, 2002 and 2001, respectively. Warrants to purchase 75,000 shares of common stock at $1.63 per share were outstanding as of June 30, 2002 and 2001. For the three months ended June 30, 2002, potentially dilutive securities resulted in potential common shares of approximately 119,000 shares. For the six months ended June 30, 2002 and 2001, and the three months ended June 30, 2001, no potential common shares were included in the diluted per share amount as the effect would have been anti-dilutive.
2. Inventories:
Inventories are stated at lower of cost (first-in, first-out) or market and consist of the following (in thousands):
| June 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
| (unaudited) | ||||||||
Raw materials |
$ | 573 | $ | 917 | ||||
Work-in-process |
248 | 323 | ||||||
Finished goods |
1,548 | 1,975 | ||||||
| $ | 2,369 | $ | 3,215 | |||||