-----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, LBchIzsPlp75V44iAGdMIOqXu0DKQB3jfAX/rTBuMsIJcoB8rbzGAKoMU5vgXzC6 GPlOhL+ZVnRau5hq6Mj2gw== /in/edgar/work/0001015402-00-003267/0001015402-00-003267.txt : 20001116 0001015402-00-003267.hdr.sgml : 20001116 ACCESSION NUMBER: 0001015402-00-003267 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDIOTECH INTERNATIONAL INC CENTRAL INDEX KEY: 0001011060 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 043186647 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-11737 FILM NUMBER: 768211 BUSINESS ADDRESS: STREET 1: 78-E OLYMPIA AVENUE CITY: WOBURN STATE: MA ZIP: 01801-4772 BUSINESS PHONE: 7819334772 MAIL ADDRESS: STREET 1: 11 STATE ST CITY: WOBURN STATE: MA ZIP: 01801 10QSB 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (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, 2000 [ ] 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. ----------------------------- (Name of small business issuer as specified in its charter) Massachusetts 04-3186647 ------------------------------ ------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 78 E Olympia Avenue, Woburn, Massachusetts 01801 ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 933-4772 -------------- The number of shares outstanding of the registrant's class of Common Stock as of October 31, 2000 was 8,470,364. No shares were held in treasury.
CARDIOTECH INTERNATIONAL, INC. FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000 TABLE OF CONTENTS Page ---- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets at September 30, 2000, and March 31, 2000 3 Condensed Consolidated Statements of Operations for the three months and six months ended September 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 12 Item 6 - Exhibits and Reports on Form 8-K 12 Signatures 13
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CARDIOTECH INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, MARCH 31, 2000 2000 --------------- ------------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents $ 1,279,000 $ 1,793,000 Accounts receivable -- trade 180,000 102,000 Accounts receivable -- other 364,000 343,000 Inventory 116,000 135,000 Prepaid expenses 122,000 53,000 --------------- ------------- Total Current Assets 2,061,000 2,426,000 Property and equipment, net 504,000 535,000 Other non-current assets 1,060,000 1,203,000 --------------- ------------- Total Assets $ 3,625,000 $ 4,164,000 =============== ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Accounts payable $ 565,000 $ 654,000 Accrued expenses 539,000 608,000 15% convertible subordinated notes due 2000 527,000 575,000 --------------- ------------- Total Current Liabilities 1,631,000 1,837,000 Long Term Obligations: 7% convertible senior notes due 2003 2,339,000 2,259,000 --------------- ------------- Total Liabilities 3,970,000 4,096,000 --------------- ------------- Commitments and Contingencies Stockholders' (Deficit) Equity: Common stock, $.01 par value, 20,000,000 shares authorized, 8,470,364 and 8,099,067 shares issued and outstanding at September 30, 2000 and March 31, 2000, respectively 85,000 81,000 Additional paid-in capital 14,516,000 14,092,000 Accumulated deficit (14,818,000) (13,931,000) Notes receivable from officers (150,000) (150,000) Accumulated other comprehensive income (loss) 22,000 (24,000) --------------- ------------- Total Stockholders' (Deficit) Equity (345,000) 68,000 --------------- ------------- Total Liabilities and Stockholders' (Deficit) Equity $ 3,625,000 $ 4,164,000 =============== =============
The accompanying notes are an integral part of these condensed consolidated financial statements. 3
CARDIOTECH INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ----------- ----------- ----------- ------------ Revenue: Product sales $ 239,000 $ 153,000 $ 466,000 $ 203,000 Research grants and contracts 94,000 139,000 161,000 283,000 Royalties 115,000 89,000 240,000 114,000 ----------- ----------- ----------- ------------ 448,000 381,000 867,000 600,000 ----------- ----------- ----------- ------------ Operating Expense: Cost of sales 278,000 194,000 529,000 425,000 Research and development 111,000 255,000 281,000 626,000 Selling, general and administrative 468,000 556,000 910,000 1,057,000 ----------- ----------- ----------- ------------ 857,000 1,005,000 1,720,000 2,108,000 Loss from operations (409,000) (624,000) (853,000) (1,508,000) ----------- ----------- ----------- ------------ Interest Income and Expense: Interest expense (54,000) (43,000) (107,000) (85,000) Interest income 35,000 12,000 74,000 36,000 ----------- ----------- ----------- ------------ (19,000) (31,000) (33,000) (49,000) ----------- ----------- ----------- ------------ Net loss $ (428,000) $ (655,000) $ (886,000) $(1,557,000) =========== =========== =========== ============ Other comprehensive income (loss): Foreign currency translation adjustments 29,000 (3,000) 46,000 (3,000) ----------- ----------- ----------- ------------ Comprehensive loss $ (399,000) $ (658,000) $ (840,000) $(1,560,000) =========== =========== =========== ============ Net loss per common share basic and diluted $ (0.05) $ (0.10) $ (0.11) $ (0.24) =========== =========== =========== ============ Shares used in computing Net Loss per common share, basic and diluted 8,438,637 6,585,069 8,342,546 6,365,650 =========== =========== =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4
CARDIOTECH INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED SEPTEMBER 30, 2000 1999 ----------- ------------ Cash flows from operating activities: Net Loss $ (886,000) $(1,557,000) Adjustments to reconcile net loss to net cash used by operating activities: Interest on convertible senior notes 80,000 64,000 Depreciation and amortization 160,000 143,000 Changes in assets and liabilities: (net of effects of Tyndale Plains-Hunter acquisition in 1999) Accounts receivable (99,000) (62,000) Inventory 19,000 (32,000) Prepaid expenses (69,000) (41,000) Other non-current assets - (140,000) Accounts payable (89,000) 80,000 Accrued expenses and other current liabilities (69,000) (7,000) ----------- ------------ Net cash used by operating activities (953,000) (1,552,000) ----------- ------------ Cash flows from investing activities: Purchase of property and equipment (36,000) (44,000) Acquisition of Tyndale Plains-Hunter, net - (327,000) ----------- ------------ Net cash used by investing activities (36,000) (371,000) ----------- ------------ Cash flows from financing activities: Net proceeds from issuance of common stock 467,000 - Net proceeds from issuance of convertible notes - 340,000 ----------- ------------ Net cash provided by financing activities 467,000 340,000 ----------- ------------ Effect of exchange rate changes on cash 8,000 (20,000) ----------- ------------ Net decrease in cash and cash equivalents (514,000) (1,603,000) Cash and cash equivalents at beginning of period 1,793,000 2,392,000 ----------- ------------ Cash and cash equivalents at end of period $1,279,000 $ 789,000 =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CARDIOTECH INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) 1. The unaudited consolidated financial statements included herein have been prepared by CardioTech International, Inc. (including its subsidiaries, collectively "CardioTech" or "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. Actual results could differ from those estimates. 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. It is suggested that these statements be read in conjunction with the Company's Consolidated Financial Statements and its notes thereto, for the year ended March 31, 2000, included in the Company's Annual Report to shareholders. 2. The Company computes basic and diluted earnings/loss per share ("EPS") in accordance with Statement of Financial Accountings Standards No. 128, Earnings Per Share. Basic earnings/loss per share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings/loss per share is based upon the weighted average number of common shares outstanding during the period plus additional weighted average common equivalent shares outstanding during the period. Common equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method. Common equivalent shares have been excluded from the computation of diluted loss per share for all periods presented, as their effect would have been anti-dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method. Options to purchase 2,381,428 and 1,308,055 shares of common stock outstanding during the periods ended September 30, 2000 and 1999, respectively, were excluded from the calculation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive. 3. On August 4, 2000, CardioTech entered into a Heads of Agreement (the "Agreement") with Nervation Limited ("Nervation"), FreeMedic PLC ("FreeMedic"), CardioTech International, Ltd ("CTL"), and certain members of the management of CTL (the "Management") to divest itself of CTL through the sale of its 100% common stock ownership in CTL to Nervation. The shareholders of the Company approved the divestiture of CTL at the Annual Meeting of Shareholders held October 26, 2000. Nervation, a newly formed UK company, is composed of key members of CTL's management, together with FreeMedic, a wholly owned subsidiary of University College London based at the Royal Free Campus of its Medical School. The newly formed management team has accessed financing commitments through Winchester Capital Technology Partners, including $7,000,000 in cash to be used in connection with the purchase of all of the outstanding shares of CTL from CardioTech. In addition to CardioTech's receipt of $7,000,000 in cash, the proposed transaction will also benefit CardioTech as it involves the release of certain liabilities and obligations, in particular, the release of a guarantee of $540,000 in CTL debt to FreeMedic in exchange for equity in Nervation. As a result of the proposed transaction, Nervation will have the exclusive rights to the VascuLink Vascular Access Graft and the MyoLink Arterial Bypass Graft. CardioTech will retain the exclusive rights to the CardioPass Coronary Artery Bypass Graft. CardioTech will also enter into a long term Supply agreement to provide "ChronoFlex RC" to Nervation, including a $200,000 advance payment on supplies to be delivered to Nervation. Nervation will supply grafts necessary 6 for CardioTech's pre-clinical trials of the Coronary Artery Bypass Graft. In connection with this transaction, CardioTech will redeem approximately $2.1 million to retire part of a long-term note held by Dresdner Kleinwort Benson Private Equity Partners, LP ("DKBPEP"). Also, the Company will grant Nervation an option to become the exclusive distributor of the Coronary Artery Bypass Graft in EEA countries if CE marking is received for the product. Despite the fact that the Board of Directors and shareholders have approved the transaction, and DKBPEP has provided its consent, there can be no assurances that a final agreement will be reached with Nervation in which event CTL would not be sold to them, and the long term note to DKBPEP would not be relieved. In addition, the terms of the final agreement may change from that of the terms of the Agreement. In such event, the officers of the Company will enter into the final agreements on terms that they believe are substantially similar to the terms as set forth in the Agreement. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW CardioTech International, Inc. (including its subsidiaries, collectively "CardioTech" or the "Company") is using its proprietary manufacturing technology to develop and manufacture small bore vascular grafts, or synthetic blood vessels, made of ChronoFlex, a family of polyurethanes that has been demonstrated to be biocompatible and non-toxic. Vascular grafts are used to replace, bypass or provide a new lining or arterial wall for occluded, damaged, dilated or severely diseased arteries and are also used to provide access for patients undergoing hemodialysis treatments. The Company develops layered, microporous small bore vascular grafts. The Company has developed a vascular access graft, called the VascuLink Vascular Access Graft and is developing (i) a peripheral graft, called the MyoLink Peripheral Graft, and (ii) a coronary artery bypass graft, called the CardioPass Coronary Artery Bypass Graft. Blood is pumped from the heart throughout the body via arteries. Blood is returned to the heart at relatively low pressure via veins, which have thinner walls than arteries and have check valves which force blood to move in one direction. Because a specific area of the body is often supplied by a single main artery; rupture, severe narrowing or occlusion of the artery supplying blood to that area is likely to cause an undesirable or catastrophic medical outcome. Vascular grafts are used to replace or bypass occluded, damaged, dilated or severely diseased arteries and are sometimes used to provide access to the bloodstream for patients undergoing hemodialysis treatments. Existing small bore graft technologies suffer from a variety of disadvantages in the treatment of certain medical conditions, depending upon the need for biodurability, compliance (elasticity) and other characteristics necessary for long-term interface with the human body. CardioTech is developing its grafts using specialized ChronoFlex polyurethane materials that it believes will provide significantly improved performance in the treatment of arterial disorders. The grafts have three layers, similar to natural arteries and are designed to replicate the physical characteristics of human blood vessels. Additionally, through its Biomaterials division, the Company develops, manufactures and markets polyurethane-based biomaterials for use in both acute and chronically implanted devices such as stents, artificial hearts, and vascular ports. These premium biomaterials are sold under the tradenames: ChronoFlex, ChronoThane, HydroThane, ChronoFilm, HydroMed and Hydroslip. CardioTech owns a number of patents relating to its vascular graft manufacturing technology. In addition, PolyMedica Corporation ("PMI") has granted to CardioTech an exclusive, perpetual, worldwide, royalty-free license for the use of one polyurethane patent and related technology in the field consisting of the development, manufacture and sale of implantable medical devices and biodurable polymer material to third parties for the use in medical applications (the "Implantable Device and Materials Field"). PMI also owns, jointly with Thermedics, Inc., the ChronoFlex polyurethane patents relating to the ChronoFlex technology ("Joint Technology".) PMI has granted to CardioTech a non-exclusive, perpetual, worldwide, royalty-free sublicense of these patents for use in the Implantable Devices and Materials Field. The Company was founded in 1993 as a subsidiary of PMI. In June 1996, PMI distributed all of the shares of CardioTech's common stock, par value $.01 per share, that PMI owned to PMI stockholders of record as of June 3, 1996. The Company is headquartered in Woburn, Massachusetts and also has a production facility in Wrexham, Brymbo U.K. ChronoFilm is a registered trademark of PMI. ChronoFlex, is a registered trademark of CardioTech. ChronoThane, ChronoPrene, HydroThane, PolyBlend and PolyWeld are tradenames of CardioTech. DuraGraft, VascuLink, MyoLink, CardioPass are trademarks of CardioTech. 8 RESULTS OF OPERATIONS Comparison for the Three Months Ended September 30, 2000 and 1999. Revenue for the three months ended September 30, 2000 was $448,000 as compared to $381,000 for the three months ended September 30, 1999, an increase of $67,000, or 18%. This increase was primarily the result of increases in biomaterials sales and related royalties on biomaterial licenses of $83,000. Product sales includes $29,000 of Vascular Grafts in the current quarter which did not exist in the prior year quarter. The increases in product and royalties revenues were offset by a decrease in research grant revenues of $45,000 due to the completion of NIH grants in the current quarter. Cost of sales for the three months ended September 30, 2000 was $278,000 as compared to $194,000 for the three months ended September 30, 1999, an increase of $84,000, or 43%. This increase is directly related to the increase in the level of biomaterial sales. Research and development expense for the three months ended September 30, 2000 was $111,000 as compared to $255,000 for the three months ended September 30, 1999, a decrease of $144,000, or 56%. This decrease was the result of decreased research and clinical expenses on the Vascular Graft, which were completed in the last fiscal year, and the completion of an NIH grant in the current quarter. Selling, general and administrative expense for the three months ended September 30, 2000 was $468,000 as compared to $556,000 for the three months ended September 30, 1999, a decrease of $88,000 or 16%. This reduction reflects the favorable impact of management's cost containment measures and continued efforts to maintain strict controls over such expenditures. Net interest expense for the three months ended September 30, 2000 was $19,000 as compared to $31,000 for the three months ended September 30, 1999, a decrease of $12,000 or 39%. The decrease primarily resulted from an increase in interest income of $23,000 on excess cash held in money market funds, and was partially offset by an increase in interest expense of $11,000 on outstanding loans during the period. Net loss for the three months ended September 30, 2000 was $428,000 as compared to $655,000 for the three months ended September 30, 1999, a decrease in net loss of $227,000 or 35%. The decrease in net loss is attributable, in part, to the increase in revenues generated from biomaterial sales and related royalties, decreases in costs associated with the completion of clinical trials on the Vascular Graft and completion of an NIH grant, and continued cost containment measures as implemented by management. Net loss per share for the three months ended September 30, 2000 was $0.05 per share as compared to $0.10 per share for the three months ended September 30, 1999, a decrease in net loss per share of $0.05, or 50%. Comparison for the Six Months Ended September 30, 2000 and 1999. Revenue for the six months ended September 30, 2000 was $867,000 as compared to $600,000 for the six months ended September 30, 1999, an increase of $267,000, or 45%. This increase was primarily the result of additional revenue from biomaterial sales and related royalties that were derived from the Company's core biomaterial products as well as increases resulting from its Tyndale Plains-Hunter. The increase was partially offset by a decrease in grant revenues resulting from the completion of an NIH grant. Cost of sales for the six months ended September 30, 2000 was $529,000 as compared to $425,000 for the six months ended September 30, 1999, an increase of $104,000, or 24%. This increase is primarily attributable to the increase in the level of biomaterial sales. Research and development expense for the six months ended September 30, 2000 was $281,000 as compared to $626,000 for the six months ended September 30, 1999, a decrease of $345,000, or 55%. This decrease was the result of decreased research and clinical expenses on the Vascular Graft, which were completed in the last fiscal year, and the completion of an NIH grant in the second quarter of fiscal 2001. Selling, general and administrative expense for the six months ended September 30, 2000 was $910,000 as compared to $1,057,000 for the six months ended September 30, 1999, a decrease of $147,000 or 14%. This decrease was primarily due to decreased salaries and employee related costs resulting from headcount reductions in the prior fiscal year. Additionally, the reduction in selling, general and administrative expenses continue to be favorably affected by management's implementation of cost containment measures. 9 Net interest expense for the six months ended September 30, 2000 was $33,000 as compared to $49,000 for the six months ended September 30, 1999. The decrease primarily resulted from an increase in interest income of $38,000 on excess cash held in money market funds, and was partially offset by an increase in interest expense of $22,000 on outstanding loans during the period. Net loss for the six months ended September 30, 2000 was $886,000 as compared to $1,557,000 for the six months ended September 30, 1999, a decrease in net loss of $671,000 or 43%. The decrease in net loss is attributable, in part, to the increase in revenues generated from biomaterial sales and related royalties, decreases in costs associated with the completion of clinical trials on the Vascular Graft and completion of an NIH grant, and continued cost containment measures as implemented by management. Net loss per share for the six months ended September 30, 2000 was $0.11 per share as compared to $0.24 per share for the six months ended June 30, 1999, or a decrease in net loss per share of $0.13, or 54%. LIQUIDITY AND CAPITAL RESOURCES The Company used $953,000 to fund operations during the six months ended September 30, 2000 compared to $1,552,000 for the six months ended September 30, 1999. The principal uses of funds for the six months ended September 30, 2000 were to fund a net loss of $886,000, an increase in accounts receivable of $99,000, an increase in prepaid expenses of $69,000, and a decrease in accounts payable and accrued expenses of $158,000. The uses of operating cash were offset by the effect of non-cash items that included interest accrued on convertible senior notes of $80,000 and depreciation and amortization of $160,000. The Company issued a total of 371,363 shares of common stock during the six months ended September 30, 2000 as a result of the exercise of common stock purchase warrants and employee incentive stock options. As a result of the exercise of warrants to purchase the Company's common stock, the Company received proceeds of $82,000. In addition, the Company received proceeds of $385,000 upon the exercise of employee incentive stock options. CardioTech's future growth will depend upon its ability to raise capital to support research and development activities and to market and sell its vascular graft technology. Through September 30, 2000, CardioTech continued to generate revenues from the sale of vascular grafts, the sale of and royalties earned on biomaterials, and NIH research grants. Since March 31, 2000, the Company began distribution and commercial sales of its Vasculink Vascular Access Graft in Europe. The Company has distributors located in, but not limited to, Spain, Italy, Germany, France, Sweden, and the Benelux countries. 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. On August 4, 2000, CardioTech entered into a Heads of Agreement (the "Agreement") with Nervation Limited ("Nervation"), FreeMedic PLC ("FreeMedic"), CardioTech International, Ltd. ("CTL"), and certain members of the management of CTL (the "Management") to divest itself of CTL through the sale of its 100% common stock ownership in CTL to Nervation. The shareholders of the Company approved the divestiture of CTL at the Annual Meeting of Shareholders held October 26, 2000. Nervation, a newly formed UK company, is composed of key members of CTL's management, together with FreeMedic, a wholly owned subsidiary of University College London based at the Royal Free Campus of its Medical School. The newly formed management team has accessed financing commitments through Winchester Capital Technology Partners, including $7,000,000 in cash to be used in connection with the purchase of all of the outstanding shares of CTL from CardioTech. In addition to CardioTech's receipt of $7,000,000 in cash, the 10 proposed transaction will also benefit CardioTech as it involves the release of certain liabilities and obligations, in particular, the release of a guarantee of $540,000 in CTL debt to FreeMedic in exchange for equity in Nervation. As a result of the proposed transaction, Nervation will have the exclusive rights to the VascuLink Vascular Access Graft and the MyoLink Arterial Bypass Graft. CardioTech will retain the exclusive rights to the CardioPass Coronary Artery Bypass Graft. CardioTech will also enter into a long term Supply agreement to provide "ChronoFlex RC" to Nervation, including a $200,000 advance payment on supplies to be delivered to Nervation. Nervation will supply grafts necessary for CardioTech's pre-clinical trials of the Coronary Artery Bypass Graft. In connection with this transaction, CardioTech will redeem approximately $2.1 million to retire part of a long-term note held by Dresdner Kleinwort Benson Private Equity Partners, LP ("DKBPEP"). Also, the Company will grant Nervation an option to become the exclusive distributor of the Coronary Artery Bypass Graft in EEA countries if CE marking is received for the product. Despite the fact that the Board of Directors and shareholders have approved the transaction, and DKBPEP has provided its consent, there can be no assurances that a final agreement will be reached with Nervation in which event CTL would not be sold to them, and the long term note to DKBPEP would not be relieved. In addition, the terms of the final agreement may change from that of the terms of the Agreement. In such event, the officers of the Company will enter into the final agreements on terms that they believe are substantially similar to the terms as set forth in the Agreement. As of September 30, 2000, CardioTech was conducting its operations with approximately $1,279,000 in cash and cash equivalents. CardioTech estimates such amount combined with its cash flow from operations will be sufficient to fund its working capital and research and development activities in the next twelve months. Future expenditures for product development, especially relating to outside testing and clinical trials, are discretionary and, accordingly, can be adjusted based on the availability of cash. FORWARD-LOOKING STATEMENTS The Company believes that this Form 10-QSB contains forward-looking statements that are subject to certain risks and uncertainties. These forward-looking statements include statements such as (i) the expected performance of its grafts, including their needle-hole sealing capability, (ii) the expected size of the market for the Company's products that are either commercially available or in development, (iii) the Company's ability to manufacture grafts that taper, (iv) HydroThane's bacterial resistance, clot resistance, and biocompatibility, (v) the sufficiency of the Company's liquidity and capital and the steps that would be taken in the event funding is not available. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from the forward-looking statements. The Company cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors. 11 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual shareholders' meeting on October 26, 2000. Michael Adams, Anthony Armini and Robert Chartoff were elected as Class I directors of the Company to hold office until the 2003 annual meeting of the shareholders. In addition, the shareholders approved a proposal to sell all of the shares of Cardiotech International Ltd., the Company's wholly owned subsidiary in England, to Nervation Limited. There were 4,962,802 shares voted for, 38,325 shares voted against and 32,111 shares abstaining. The shareholders also approved a proposal to increase the number of shares that may be issued under the 1996 Stock Option Plan to 4,000,000 shares. There were 4,247,085 shares voted for, 604,036 shares voted against and 182,017 shares abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: Exhibit 27 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 ---------------------------------------- Michael Szycher, Ph.D. Chairman and Chief Executive Officer /s/ David C. Volpe ----------------------------------------- David C. Volpe Acting Chief Financial Officer /s/ Thomas Lovett ----------------------------------------- Thomas Lovett Controller Dated: November 14, 2000 13 EX-27 2 0002.txt WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1 1-MO JAN-01-1993 JAN-01-1993 JAN-01-1993 1,279 0 544 0 116 2,061 988 (484) 3,603 1,631 2,339 0 0 85 (452) (367) 867 867 529 1,720 0 0 107 (886) 0 (886) 0 0 0 (886) (.110) (.110)
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