SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended May 31, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
Commission File Number : 0-27380
EchoCath, Inc.
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(Exact Name of Small Business Issuer as specified in its charter)
New Jersey 22-3273101
- ----------------------------------------------- --------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
P.O. Box 7224, Princeton, NJ 08543
- ---------------------------------------------- -------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code. . . (609) 987-8400
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Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report
Check whether Issuer (1) has filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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
------- -------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
CLASS OF COMMON EQUITY OUTSTANDING AT MAY 31, 1996
Class A Common Stock (No Par Value) 1,610,000
Class B Common Stock (No Par Value) 1,500,000
Transitional Small Business Disclosure Format (check one)
YES NO X
------- -------
PART 1 : FINANCIAL INFORMATION
ECHOCATH, INC.
INDEX
Item 1 : Financial Statements Page
Balance Sheets,
August 31, 1995 and May 31, 1996 (Unaudited) 3
Statements of Operations for the three months ended
May 31, 1995 (Unaudited), and May 31, 1996 (Unaudited) 4
Statements of Operations for the nine months ended
May 31, 1995 (Unaudited), and May 31, 1996 (Unaudited)
and for the period from February 14, 1990 (date of
inception) to May 31, 1996 (Unaudited) 5
Statements of Cash Flows for the nine months ended
May 31, 1995 (Unaudited), and May 31, 1996 (Unaudited and
for the period from February 14, 1990 (date of inception) to
May 31, 1996 (Unaudited) 6
Notes to Financial Statements and Exhibits 7
Item 2: Management's Discussion and Analysis and
Reports on Form 8-K 8
Signatures 9
ECHOCATH, INC.
(formerly EchoCath, Ltd.)
(A Development Stage Enterprise)
BALANCE SHEETS
ASSETS
August 31, 1995 May 31, 1996
--------------- ------------
(Unaudited)
Current assets :
Cash and cash equivalents $ 14,186 $ 3,014,122
SBIR grant receivable ------ 22,116
Shareholder advance ------ 101,899
Inventory 144,926 118,681
Prepaid expenses 69,680 112,618
------ -------
Total current assets 228,792 3,369,436
Furniture, equipment and leasehold
improvements, net 102,711 223,089
Intangible assets, net 219,468 200,583
Deferred offering costs 328,236 ------
Other assets 11,262 31,123
------ -------
$ 890,469 $ 3,824,231
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 293,233 $ 138,718
Accrued expenses 865,073 242,419
Due to related parties 48,470 -------
Note payable 370,000 -------
Obligations under capital leases,
current portion 11,392 22,905
------ -------
Total current liabilities 1,588,168 404,042
Obligations under capital leases,
less current portion 31,351 58,216
Note payable 540,000 540,000
Other liabilities ------ 69,375
------ -------
Total liabilities 2,159,519 1,071,633
--------- ---------
Capital contribution subject to repayment (Note E) 750,000 750,000
------- --------
Stockholders' equity :
Preferred stock, no par value, 5,000,000
shares authorized; no shares issued
and outstanding --------- ----------
Class A common stock, no par value, 18,500,000
shares authorized; 1,610,000 issued and
outstanding --------- 6,217,542
Class B common stock, no par value, 1,500,000
shares authorized; 1,500,000 shares issued
and outstanding, convertible into one share
of Class A common stock 2,280,902 3,348,470
Class B common stock to be issued 975,368 ---------
Deficit accumulated during the
development stage (5,275,320) (7,563,414)
----------- -----------
Total stockholders' equity (deficit) (2,019,050) 2,002,598
----------- -----------
$ 890,469 $ 3,824,231
============ ============
See accompanying notes to financial statements.
ECHOCATH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1995 AND
MAY 31,1996
(UNAUDITED)
1995 1996
SBIR GRANT INCOME $ ------ $ 38,449
COST OF SALES AND SBIR GRANT EXPENSE 25,391 80,468
------- --------
GROSS (LOSS) (25,391) (42,019)
OPERATING EXPENSES:
R&D 199,766 283,809
MARKETING AND G&A 198,966 373,539
------- --------
TOTAL OPERATING EXPENSES 398,732 657,348
-------- -------
LOSS FROM OPERATIONS (424,123) (699,367)
NET INTEREST INCOME (EXPENSE) (19,273) 16,600
----------- --------
NET LOSS $ (443,396) $ (682,767)
============ ===========
NET LOSS PER SHARE $ (.85) $ (.42)
SHARES AND COMMON SHARE EQUIVALENT 521,000 1,610,000
ECHOCATH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1995 AND
MAY 31, 1996 AND FOR THE PERIOD FROM
FEBRUARY 14, 1990 (DATE OF INCEPTION)
TO MAY 31, 1996
(UNAUDITED)
FEBRUARY 14, 1990
(DATE OF INCEPTION)
1995 1996 TO MAY 31, 1996
SBIR GRANT INCOME $ ------ $ 38,449 $ 38,449
LICENSE FEES ------ ------ 275,000
PRODUCT SALES 30,598 77,847
------ ------ ------
TOTAL REVENUE 30,598 38,449 391,296
COST OF SALES AND
SBIR GRANT EXPENSE 47,430 80,468 284,451
--------- ------ -------
(16,832) (42,019) 106,845
OPERATING EXPENSES:
R&D 573,991 721,296 6,101,615
REPURCHASE OF TECHNOLOGY
RIGHTS (SEE NOTE C)
------ 575,000 575,000
MARKETING & G&A 540,607 933,691 4,076,708
------- ------- ---------
TOTAL OPERATING EXPENSES 1,114,598 2,229,987 10,753,323
--------- --------- ----------
LOSS FROM OPERATIONS (1,131,430) (2,272,006) (10,646,478)
---------- ----------- ------------
NET INTEREST (EXPENS) (55,699) (16,090) (120,204)
---------- ----------- ---------
NET LOSS $(1,187,129) $(2,288,096) $(10,766,682)
------------ ------------ =============
NET LOSS PER SHARE $ (2.28) $ (1.83)
------------ ------------
SHARES AND COMMON SHARE
EQUIVALENT
521,000 1,249,687
_______ _________
ECHOCATH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MAY 31, 1995, MAY 31, 1996
AND THE PERIOD FROM FEBRUARY 14, 1990 (DATE OF INCEPTION)
TO MAY 31, 1996
UNAUDITED
<TABLE>
1995 1996 FEBRUARY 14,
1990 (DATE OF
INCEPTION) TO
MAY 31, 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (1,187,129) $ (2,288,096) $ (10,766,682)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 42,100 53,833 236,506
Loss on write-off of intangible assets ------ ------ 2,000
Accounts receivable (3,600) (31,116) (31,116)
Inventory 7,076 26,246 (80,045)
Prepaid expenses 53,120 (33,938) (103,618)
Other assets ------ (10,081) (21,343)
Deferred offering costs (230,848) 328,236 -------
Accounts payable 79,606 (159,213) 134,020
Accrued expenses and due to (from) related parties 278,136 (609,142) 200,468
------- --------- ---------
Net cash used in operating activities (961,539) (2,723,271) (10,429,810)
--------- ---------- -----------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements ------- (163,758) (324,393)
Purchase of intangible assets (42,687) 8,432 (224,053)
________ _________ _________
Net cash used in investing activities (42,687) (155,326) (548,446)
________ _________ _________
Cash flows from financing activities:
Proceeds from partner borrowings -------- --------- 840,000
Principal payment on partner borrowings -------- --------- (840,000)
Proceeds from borrowings of notes payable 250,000 --------- 1,925,000
Principal payments on borrowings of notes -------- (370,000) (1,385,000)
payable
Advance to shareholder -------- (101,899) (101,899)
Additions to capital lease obligations -------- 50,000 50,000
Principal payment on capital lease obligations (8,237) (9,310) (57,201)
Capital contribution for repurchase of
technology rights ------- 75,000 75,000
Proceeds from obligation to issue common stock 905,368 ------ 1,725,368
Net proceeds from issuance of capital stock ------- ------ 2,826,268
Capital increase from settlement of prior
obligations ------- 17,200 17,200
Proceeds from partner capital contributions ------- ------ 2,700,100
Net proceeds from initial public offering and
over-allotment option ------- 6,217,542 6,217,542
------- --------- ---------
Net cash provided by financing activities 1,147,131 5,878,533 13,992,378
---------- --------- ----------
Net increase in cash 142,905 2,999,936 3,014,122
Cash, beginning at September 1, 1994 and September 1, 1995 1,813 14,186 ---------
------- ------- ---------
Cash at May 31, 1995 and May 31, 1996 $ 144,718 $ 3,014,122 $ 3,014,122
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 55,699 $ 16,090 $ 154,059
--------- ------------- ------------
Supplemental disclosure of noncash transaction:
Equipment transferred from partner $ -------- $ ------ $ 48,604
---------- ------------- ------------
Inventory transferred from partner $ -------- $ ------ $ 38,635
---------- ------------- ------------
Capital lease obligation transferred from partner $ -------- $ ------ $ 25,506
---------- ------------- ------------
Equipment acquired under capital lease $ -------- $ 50,000 $ 115,128
---------- ------------- ------------
</TABLE>
<PAGE>
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ECHOCATH, INC. (A DEVELOPMENT STAGE ENTERPRISE)
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NOTE A: GENERAL AND BUSINESS
_____________________________
The summary financial statements included herein have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. 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, although EchoCath, Inc. management believes that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these summary financial statements be read in conjunction with the
financial statements and the notes thereto included in EchoCath, Inc.'s
Registration Statement on Form SB-2 (Reg. No. 33-97688).
In the opinion of Management, all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the financial position,
results of operation and cash flows at May 31, 1995 and 1996 and for all periods
presented have been made.
NOTE B:
_______
In January 1996, the Company completed its initial public offering consisting of
1,400,000 units. A unit consists of one share of Class A Common Stock, one Class
A Redeemable Warrant, and one Class B Redeemable Warrant. The proceeds from the
offering before expenses were $7,000,000.
In February 1996, the over-allotment option to purchase 210,000 units, as
described above, was exercised by the underwriter and this resulted in
additional proceeds of $1,050,000 before expenses.
NOTE C :
________
In January 1996, the Company entered into an agreement to repurchase, for
$575,000, certain technology rights. Of such amount, $500,000 was paid from
proceeds of the initial public offering and $75,000 was reflected as a capital
contribution. The Company recognized a $575,000 charge to operations relating to
this agreement to repurchase.
NOTE D :
________
Inventories are summarized as follows:
May 31, 1996
____________
Raw Materials 68,294
Work in Process 19,128
Finished Goods 31,259
------
118,681
=======
NOTE E :
________
On July 7, 1995, the Company entered into an agreement to amend its previously
existing agreement with Alliance. In accordance with the new agreement, the
partners of Alliance and certain other entities and individuals became entitled
to receive a 35% equity interest in the Company in exchange for Alliance's
repayment of the Company's $750,000 of outstanding borrowings under the
Company's bank demand note payable, which was paid in full in August 1995. The
payment of such indebtedness is to be treated as a capital contribution;
however, if a portion of the Class B warrants to be issued in connection with
the initial public offering are subsequently exercised providing the Company
with $23,040,000 in proceeds, then $750,000 of such proceeds will be repaid to
Alliance. Accordingly, the $750,000 received from Alliance is reflected as
"Capital contribution subject to repayment" in the accompanying balance sheet.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
____________________
Nine Months Ended May 31, 1995 and 1996
Product Sales : The Company had no product sales revenue for the nine months
ending May 31, 1996 and 1995, but the Company did recognize revenue of $38,449
in third quarter of fiscal 1996 from a phase 1 SBIR grant that the Company
anticipates will generate total revenue of $98,000 by September 30, 1996.
Cost of Sales : The Company determined that it may not have obtained all
necessary vendor documentation on approximately 24% of its inventory. As a
result, $38,881 was charged to operations. Expenses related to SBIR grant were
$38,449. The balance of the cost of sales of $5,138 was inventory that was
classified as demonstration inventory during the quarter.
Research and Development : R & D expenses increased 26% during the nine months
because of the establishment of the Medical Advisors Board, the addition of new
personnel in the third quarter, additional materials purchased as a result of
post Initial Public Offering increase in activity, and building operating costs
were higher as a result of the severe winter. R & D expense also included the
repurchase of certain technology rights for $575,000 that is recorded in a
separate line in the Statement of Operations as of May 31, 1996 without a
comparable expense for May 31, 1995.
Selling, General and Administrative Expenses : S, G & A expenses increased 73%
during the nine months because of a significant increase in legal expense
relating to various corporate matters, the addition of the Co-Chairman of the
Board of Directors, and an increase in insurance expense because of the addition
of Directors and Officers Insurance Coverage.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
As a result of its initial public offering, the company had cash and cash
equivalents of $3,014,122 as of May 31, 1996. The Company believes that its
existing capital resources will enable it to maintain its current and planned
operation for at least 12 months from the date of this report.
PART II: OTHER INFORMATION
_________________
Item 6: Exhibits and Reports on Form 8-K
________________________________
There were no reports on form 8-K filed during the quarter
ended May 31, 1996.
SIGNATURES
__________
Pursuant to the requirements of the Exchange Act, the registrant caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 9, 1996
EchoCath, Inc.
-------------------------------------
(Registrant)
By: _________________________
Frank DeBernardis
President, Chief Executive Officer,
Principal Financial and Accounting Officer
