-----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, U0MzuFZ2slEOcB0f7rFgrx6wRC00PMyo3xvvEByZDUAnmt7x3SSA0/Cmuwb0oeXd 4TFBZZ0AVO0BIYWn95OxwQ== 0000927016-96-001735.txt : 19961118 0000927016-96-001735.hdr.sgml : 19961118 ACCESSION NUMBER: 0000927016-96-001735 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDIOTECH INTERNATIONAL INC CENTRAL INDEX KEY: 0001011060 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 043186647 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28034 FILM NUMBER: 96662698 BUSINESS ADDRESS: STREET 1: 11 STATE ST CITY: WOBURN STATE: MA ZIP: 01801 BUSINESS PHONE: 6179334772 MAIL ADDRESS: STREET 1: 11 STATE ST CITY: WOBURN STATE: MA ZIP: 01801 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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 No. 0-28034 --------- CardioTech International, Inc. ------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 04-3186647 - ------------------------------------------- --------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 11 State Street, Woburn, Massachusetts 01801 - ---------------------------------------------------- ------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 933-4772 -------------- 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 outstanding of the registrant's class of Common Stock as of November 11, 1996 was 4,272,916. No shares were held in treasury. CARDIOTECH INTERNATIONAL, INC. TABLE OF CONTENTS Page ---- PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements Consolidated Balance Sheets at September 30, 1996 and March 31, 1996 3 Consolidated Statements of Operations for the three and six months ended September 30, 1996, and 1995 4 Consolidated Statements of Cash Flows for the six months ended September 30, 1996, and 1995 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7-11 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 12 Signatures 13
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARDIOTECH INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
March 31, 1996 Sept. 30, 1996 --------------- --------------- (unaudited) ASSETS Current Assets: Cash and Cash Equivalents $ 504 $ 2,885,617 Accounts Receivable - Trade - 23,747 Accounts Receivable - Other - 132,044 Prepaid Expenses - 132,370 ----------- ----------- Total Current Assets 504 3,173,778 Property and Equipment, net 35,190 235,349 ----------- ----------- Total Assets $ 35,694 $ 3,409,127 =========== =========== LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities: Accounts Payable $ - $ 69,982 Accrued Expenses - 52,179 ----------- ----------- Total Current Liabilities $ - $ 122,161 ----------- ----------- Stockholder's Equity: Preferred stock $.01 par value; 5,000,000 shares authorized, none issued or outstanding Common stock, $.01 par value, 20,000,000 shares authorized, 2,831,491 and 4,272,916 issued and outstanding at March 31, 1996 and September 30, 1996, respectively 2,831 42,729 Due to Parent 4,063,966 - Additional Paid in Capital - 8,182,854 Accumulated Deficit (4,031,103) (4,932,400) Cumulative Translation Adjustment - (6,217) ----------- ----------- Total Stockholder's Equity 35,694 3,286,966 ----------- ----------- Total Liabilities and Stockholder's Equity $ 35,694 $ 3,409,127 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 CARDIOTECH INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Six Months Ended Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 --------------- --------------- --------------- --------------- Research Revenue $ 29,950 $ 141,921 $ 53,613 $ 220,368 Operating Expenses Research and Development 162,968 310,283 348,743 462,282 Selling, General and Administrative 74,955 171,452 146,070 305,637 ---------- ---------- ---------- ---------- Total Operating Expense 237,923 481,735 494,813 767,919 Other Income and Expenses Spin Off Transaction Cost - (70,339) - (393,897) Interest Income - 33,369 - 40,151 ---------- ---------- ---------- ---------- - (36,970) - (353,746) ---------- ---------- ---------- ---------- Net Loss $ (207,973) $ (376,784) $ (441,200) $ (901,297) ========== ========== ========== ========== Net Loss Per Common Share $(0.07) $(0.09) $(0.16) $(0.24) ========== ========== ========== ========== Weighted Average Number of Shares Outstanding 2,831,941 4,256,638 2,831,941 3,694,801
The accompanying notes are an integral part of these consolidated financial statements. 4 CARDIOTECH INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months ended September 30, 1995 1996 ----------- ------------ Cash flows from operating activities: Net Loss $(441,200) $ (901,297) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and Amortization 36,519 18,953 Changes in assets and liabilities Accounts receivable 22,620 (155,791) Prepaid expenses (19,386) (75,370) Accounts payable - 69,982 Accrued expenses 11,427 52,179 --------- ---------- Net cash flows from operating activities (390,020) (991,344) ========= ========== Cash flows from investing activities: Purchase of property, plant and equipment -- (74,706) --------- ---------- Net cash flows from investing activities -- (74,706) ========= ========== Cash flows from financing activities: Net proceeds from issuance of common stock - 3,830,000 Advance from parent 396,075 485,012 Payment of spin-off costs - (393,896) --------- ---------- Net cash flows from financing activities 396,075 3,921,116 ========= ========== Net increase in cash and cash equivalents 6,055 2,885,066 --------- ---------- Effect of exchange rate changes on cash (6,055) 47 Cash and cash equivalents at beginning of period 504 504 --------- ---------- Cash and cash equivalents at end of period $ 504 $2,885,617 ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 5 CARDIOTECH INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The unaudited consolidated financial statements included herein have been prepared by Cardiotech International, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of interim period results. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The results for the interim periods presented are not necessarily indicative of results to be expected for the full fiscal year. 2. In June 1996, the Company issued 1,412,625 shares of CardioTech Common Stock for $3.8 million in cash, equipment having an estimated market value of $147,000, the transfer of certain vascular graft manufacturing patents, and the forgiveness of certain amounts due to its former parent PolyMedica Industries, Inc. ("PMI"). After it acquired these shares, PMI owned 3,929,493 shares, or 92.6% of CardioTech Common Stock. On June 12, 1996 and June 19, 1996, PMI distributed (the "Spin Off") all of the shares of common stock that PMI owned to stockholders of record as of June 3, 1996. On June 11, 1996 all advances from PMI to CardioTech were forgiven and are classified by the Company as additional paid in capital. 3. Net Loss per share is computed using the weighted average number of shares of common stock outstanding. Common equivalent shares from stock options and warrants are excluded from the computation as their effect is anti-dilutive. 4. On October 1, 1996, the Company signed a two (2) year lease agreement with Poly Medica Pharmaceuticals, Inc., the owner of the office, manufacturing and research facilities currently occupied by the company. The agreement replaces in its entirety the service agreement between PMI, and the Company signed in June 1996. The term of the lease agreement is one year longer that the service agreement it replaces, and the base rent in the first year is $180,000 the same base rent under the service agreement. The agreement, however, provides for a two (2) year payback of build out costs for the office space occupied by the Company in Woburn, MA, and a factor for increased utility costs. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND RESULTS OF OPERATIONS OVERVIEW CardioTech synthesizes, designs and manufactures medical-grade polymers, particularly polyurethanes that the Company believes are useful in the development of vascular graft technology and other implantable medical devices because they can be synthesized to exhibit compatibility with human blood and tissue. CardioTech is using proprietary manufacturing technology to develop and fabricate small bore synthetic vascular grafts made of ChronoFlex(R), a family of polyurethanes that has been demonstrated to be biodurable, blood and tissue compatible and non-toxic. In addition to the graft research and development program, since 1990 CardioTech has been engaged in various internal and joint venture programs with corporate partners and internal programs for the development and sale of ChronoFlex and other proprietary biomaterials for use in medical devices manufactured by third parties. This activity has generated research revenues for CardioTech. As CardioTech is now focusing more of its research and development resources on the vascular graft program, period to period comparisons of changes in research revenues are not necessarily indicative of results to be expected for any future period. CardioTech was established as a separate subsidiary of PMI in March 1993, to focus on PMI's existing biomaterials business, with a particular emphasis on accelerating the research, development and commercialization of small bore vascular graft products through external funding and a more focused and strategic product development effort. In June 1996, PMI spun off the Company. See Note 2 of Notes to Consolidated Financial Statements. CardioTech is headquartered in Massachusetts and operates from manufacturing and laboratory facilities located in Massachusetts and the United Kingdom. 7 RESULTS OF OPERATIONS: Comparison for the Quarters Ended September 30, 1996 and 1995. Research revenues for the quarter ended September 30, 1996 were $141,921 compared to $29,950 for the quarter ended September 30, 1995. The majority of this increase $110,000, represents income derived from activities under research grants from the National Institute of Health, the remainder of the increase is due to increased sales of medical grade polyurethanes to medical device manufacturers and contract research activities. Research and development expenses for the quarter ended September 30, 1996 were $310,283 compared to $162,968 for the quarter ended September 30, 1995. The increase reflects the focusing of management on continued research and development activity related to preparations for clinical trials of the vascular access graft in Europe. In addition, this increase reflects activities related to the National Institute of Health Grant and the design and formulation of medical grade polyurethanes for sale to medical devices manufacturer. Selling, general and administrative expenses for the quarter ended September 30, 1996 were $171,452 compared to $74,955 for the quarter ended September 30, 1995. The increase in selling, general and administrative expenses reflects the costs incurred by the Company as a stand alone company subsequent to the Spin Off. These costs include but are not limited to the establishment of a finance and accounting group ($30,000), legal fees ($31,200), and investor relations and public reporting fees ($40,330) offset by a greater amount of the Chief Executives salary being directed to research efforts ($5,000). Other income and expenses for the quarter ended September 30, 1996 were $36,970, compared to $0 during the quarter ended September 30, 1995. The Company incurred $70,339 of additional Spin Off costs partially offset by interest income of $33,369. Comparison of the Six Months ended September 30, 1996 to the Six Months ended September 30, 1995. Research revenues for the six months ended September 30, 1996 were $220,368 compared to $53,613 for the six months ended September 30, 1995. This $166,755 increase is principally due to increased research revenue under a research grants from the National Institute of Health ($110,000), increased research revenues from the sale of medical grade polyurethanes for use in medical device research, royalty income on specially designed polyurethanes for a medical device manufacture ($48,333) and increased contract research revenues ($5,000). Research and development expenses for six month period ended September 30, 1996 were $462,282 compared to $348,743 for the period ended September 30, 1995. The increase of $113,539 reflects the Company's continued research and development activities in preparing for clinical trials of the vascular access graft in Europe, activities related to the National Institute of Health Grant and work in the design and production of medical 8 polyurethanes for sales to medical devices manufacturers. Selling, general and administrative expenses for the six months ended September 30, 1996 were $305,637, compared to $146,070 for the six months ended September 30, 1995. The increase reflects the additional costs associated with being a separate company subsequent to the Spin Off. These costs include, but are not limited to the establishment of a separate finance and accounting group ($31,200), office space and related expenses ($8,850), investor relations and public reporting fees ($43,590), insurance expense ($37,643) and legal fees ($38,228). Other income and expenses for the six months ended September 30,1996, were expenses of $353,746, compared to $0 during the six months ended September 30, 1995. During the six months ended September 30, 1996, the Company incurred $393,879 in Spin Off transaction costs offset by interest income of $40,151. 9 LIQUIDITY AND CAPITAL RESOURCES CardioTech's future growth will depend on its ability to raise capital to support research and development activities and to commercialize its vascular graft technology. To date, CardioTech has not generated any revenue from the sale of vascular grafts, although it has received a minor amount of research revenues relating to its other biomaterials applications. Since inception, funding from PMI has been used to finance the development of CardioTech's technologies. CardioTech expects to continue to incur operating losses unless and until product sales and/or royalty payments generate sufficient revenue to fund its continuing operations. CardioTech will require substantial funds for further research and development, future pre-clinical and clinical trials, regulatory approvals, establishment of commercial-scale manufacturing capabilities, and the marketing of its products. CardioTech's capital requirements depend on numerous factors, including but not limited to, the progress of its research and development programs, the progress of pre-clinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any intellectual property rights, competing technological and market developments, changes in CardioTech's development of commercialization activities and arrangements, and the purchase of additional facilities and capital equipment. CardioTech is currently conducting its operations with approximately $2,900,000 in cash contributed by PMI in connection with the Spin Off. CardioTech estimates such amounts will be sufficient to fund its initial working capital and research and development activities through June 1998. Past spending levels are not necessarily indicative of future spending levels. From the inception of CardioTech's business through March 31, 1996, PMI has funded approximately $4.1 million in operating losses to support CardioTech's research activities. Future expenditures for product development, especially relating to outside testing and clinical trials, are discretionary and, accordingly, can be adjusted to available cash. CardioTech will seek to obtain additional funds through public or private equity or debt financing, collaborative arrangements, or from other sources. There can be no assurance that additional financing will be available at all or on acceptable terms to permit successful commercialization of CardioTech's technology and products. If adequate funds are not available, CardioTech may be required to curtail significantly one or more of its research and development programs, or obtain funds through arrangements with collaborative partners or others that may require CardioTech to relinquish rights to certain of its technologies, product candidates or products. 10 Forward Looking Statements The Company believes that Form 10-Q contains forward-looking statements that are subject to certain risks and uncertainties. These forward-looking statements include statements regarding the sufficiency of the Company's liquidity and capital. Such statements are based on management's current expectations. The forward looking statements are subject to a number of factors that could cause actual results to differ materially from the Company's projections. Such factors include the timely development of products by the Company and the Company's ability to obtain financing to support its working capital needs. For more explanation of these and other risk factors, please see the Company's Form 10-K for the year ended March 31, 1996. ChronoFlex(R) is a registered trademark of PMI. 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit: 27.1 Financial Data Schedule (b) Reports on Form 8-K: None 12 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. CardioTech International, Inc. /s/ Michael Szycher, Ph.D. --------------------------------------- Michael Szycher, Ph.D. Chairman and Chief Executive Officer /s/ John E. Mattern -------------------------------------------- John E. Mattern Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer) Dated: November 14, 1996 13 EX-27 2 ARTICLE 5 FINANCIAL DATA SHEDULE
5 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 2,885,617 0 155,791 0 0 3,173,778 235,349 18,953 3,409,127 122,161 0 0 0 42,729 3,244,237 3,409,127 0 220,368 0 767,919 353,746 0 0 (901,297) 0 0 0 0 0 (901,297) (0.24) (0.24)
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