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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 November 30, 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 (I.R.S. Employer Incorporation
or Organization) Identification No.)
P.O. Box 7224, Princeton, NJ 08543
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code. . . (609) 987-8400
- - --------------------------------------------------------------------------------
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
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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 JANUARY 13, 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
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1
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PART 1: FINANCIAL INFORMATION
ECHOCATH, INC.
INDEX
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<CAPTION
Item 1: Financial Statements Page
<S> <C>
Balance Sheets,
August 31, 1996 and November 30, 1996 (Unaudited) 3
Statements of Operations for the three months ended
November 30, 1995 (Unaudited), and November 30, 1996 (Unaudited) 4
Statements of Cash Flows for the three months ended November 30, 1995
(Unaudited), and November 30, 1996 (Unaudited and for the period from
February 14, 1990 (date of inception) to
November 30, 1996 (Unaudited) 5 & 6
Notes to Financial Statements and Exhibits 7
Item 2 : Management's Discussion and Analysis and
Reports on Form 8-K 8 & 9
Signatures 10
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ECHOCATH, INC.
(FORMERLY ECHOCATH, LTD.)
(A Development Stage Enterprise)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, 1996 November 30, 1996
--------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets :
Cash and cash equivalents $ 2,387,691 $ 1,466,069
Trade receivable 6,125 ------
Shareholder advance 101,899 101,899
Inventory 141,903 197,644
Prepaid expenses 150,288 140,506
----------- -----------
Total current assets 2,787,906 1,906,118
Furniture, equipment and leasehold improvements, net 254,604 302,710
Intangible assets, net 228,912 231,014
Other assets 29,862 29,686
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$ 3,301,284 $ 2,469,528
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 149,175 $ 101,251
Accrued expenses 352,286 285,314
Obligations under capital leases, current portion 23,015 22,701
----------- -----------
Total current liabilities 524,476 409,266
Obligations under capital leases 55,191 48,201
Note payable 540,000 540,000
Other liabilities 63,594 73,980
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Total liabilities 1,183,261 1,071,447
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Capital contribution subject to repayment 750,000 750,000
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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 6,211,661 6,197,823
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 3,348,470 3,348,470
Deficit accumulated during the development stage (8,192,108) (8,898,212)
----------- -----------
Total stockholders' equity 1,368,023 648,081
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$ 3,301,284 $ 2,469,528
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</TABLE>
See accompanying notes to financial statements.
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ECHOCATH, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1995 AND
NOVEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
SALES $ ------ $ 12,580
COST OF SALES ------ 4,303
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GROSS (--) 8,277
OPERATING EXPENSES:
R&D 163,372 356,627
MARKETING AND G&A 210,542 365,706
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TOTAL OPERATING EXPENSES 373,914 722,333
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LOSS FROM OPERATIONS (373,272) (714,056)
NET INTEREST INCOME (EXPENSE) (30,272) 7,952
----------- -----------
NET LOSS $ (404,186) $ (706,104)
=========== ===========
NET LOSS PER SHARE $ (.47) $ (.31)
SHARES AND COMMON SHARE EQUIVALENT 851,791 2,277,000
</TABLE>
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EchoCath, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
Three Months ended November 30, 1995 and 1996 and the
period from February 14, 1990 (date of inception)
to November 30, 1996
(unaudited)
<TABLE>
<CAPTION>
1995 1996 February 14, 1990
(date of inception) to
November 30,1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (404,186) $ (706,104) $(12,101,481)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 15,778 26,248 286,871
Loss on write-off of intangible assets ------ ------ 2,000
Change in operating assets & liabilities:
(Increase) decrease in accounts (1,700) 4,366 (4,759)
receivable
(Increase) decrease in inventory 297 (55,742) (159,008)
(Increase) decrease in prepaid 20,904 11,542 (135,747)
expenses
(Increase) decrease in other ------ (8,343) (29,686)
assets
(Increase) decrease in deferred (368,543) ------ ------
offering costs
Increase (decrease) in accounts (51,096) (696) 106,485
payable
Increase (decrease) in accrued
expenses and due to (from)
related parties (146,549) (95,294) 250,130
------------ ------------ ------------
Net cash used in operating activities (935,095) (824,023) (11,785,195)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of furniture, equipment and
leasehold improvements ------ (70,789) (447,341)
Purchase of intangible assets 14,632 (5,667) (261,523)
------------ ------------ ------------
Net cash used in investing activities 14,632 (76,456) (708,864)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from partner borrowings ------ ------ 840,000
Principal payments on partner
borrowings ------ ------ (840,000)
Proceeds from bridge loan 1,000,000 ------ ------
Proceeds from borrowings of notes
payable ------ ------ 1,925,000
Principal payments on borrowings of
notes payable (120,000) ------ (1,385,000)
Advance (to) from shareholder 100,000 ------ (101,899)
Additions to capital lease obligations ------ ------ 50,000
Principal payment on capital lease
obligations (2,349) (7,305) (69,732)
Capital contribution for repurchase
of technology rights ------ ------ 75,000
Proceeds from obligation to issue
common stock ------ ------ 1,725,368
Net proceeds from issuance of capital
stock ------ ------ 2,826,268
Capital increase from settlement of
prior obligations ------ ------ 17,200
Proceeds from partner capital
contributions ------ ------ 2,700,100
Net proceeds from initial public
offering and over-allotment option ------ (13,838) 6,197,823
------------ ------------ ------------
Net cash provided by financing activities 977,651 (21,143) 13,960,128
------------ ------------ ------------
Net increase (decrease) in cash 57,188 (921,622) 1,466,069
Cash, beginning of period 14,186 2,387,691 ------
------------ ------------ ------------
Cash, end of period $ 71,374 $ 1,466,069 $ 1,466,069
------------ ------------ ------------
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 30,651 $ 15,712 $ 236,951
------------ ------------ ------------
(continued)
</TABLE>
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<S> <C> <C> <C>
Supplemental disclosure of noncash transactions:
Equipment transferred from partner $ ------ $ ------ $ 48,604
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Inventory transferred from partner $ ------ $ ------ $ 38,635
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Capital lease obligation transferred
from partner $ ------ $ ------ $ 25,506
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Equipment acquired under capital lease $ ------ $ ------ $ 115,128
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</TABLE>
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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 Form
10-KSB (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 November 30, 1995 and 1996 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 :
Inventories are summarized as follows:
November 30, 1996
Raw Materials 78,039
Finished Goods 119,605
-------
197,644
-------
NOTE D :
The Shareholders Advance of $101,899 was paid in full as of December 9, 1996.
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.
NOTE F: SUBSEQUENT EVENT
As of December 30, 1996 the Company announced that it entered into an agreement
with Medtronic, Inc. for the licensing of EchoMark'r' and ColorMark'r'
proprietary technologies for certain medical procedures. Under the agreement the
Company will receive a series of payments totaling $950,000 after the completion
of certain milestones. When commercially available the Company will receive
royalties under the terms of the agreement which are capped at $20 million
dollars.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
Certain statements in this Report under the caption "Management's Discussion and
Analysis of Financial Condition and results of Operations" constitute
"forward-looking statements" within the meaning of Private Securities Litigation
Reform Act of 1995, including, without limitation, statements regarding future
cash requirements. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: delays in product development; problems or delays
with clinical trials; failure to receive or delays in receiving regulatory
approval; lack of enforceability of patents and proprietary rights; lack of
reimbursement; general economic and business conditions; industry capacity;
industry trends; demographic changes; competition; material costs and
availability; the loss of any significant customers; changes in business
strategy or development plans; quality of management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; changes in, or the failure to comply with,
government regulations; and other factors referenced in this Report.
RESULTS OF OPERATION
Three Months Ended November 30, 1996 and 1995
The Company had sales of $12,580 for the quarter ending November 30, 1996 and
no product sales revenue for the quarter ending November 30, 1995.
The Company had cost of sales of $4,303 which represents 34% of sales for the
quarter ending November 30, 1996 and no cost of sales for the quarter ending
November 30, 1995.
Research and Development expenses increased 118% during the three months ending
November 30, 1996 because of the establishment of the Medical Advisors Board,
the addition of new personnel and additional materials purchased. The quarter
ending November 30, 1995 was the last quarter before the Initial Public Offering
and the Company did not have the resources to match the current level of
expenditure.
Selling, General and Administrative expenses increased 74% during the three
months ending November 30, 1996 because of the additional costs of a consultant,
and an increase in insurance expense because of the addition of Directors and
Officers Insurance Coverage, marketing meetings and exhibits, and the addition
of an investor relations firm.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its current cash, together with revenues expected
to be derived from sales of certain of its products, should be sufficient to
fund research, development, testing, regulatory requirements, operating and
other capital needs through December 1997. The Company also believes that
additional cash resources should be available either through financing provided
by the completion of license agreements and strategic alliances or, if
necessary, by reducing the level of its operating expenses by deferring certain
research and development or marketing expenses. There can be no assurances that
the Company will be able to complete the aforementioned license agreements and
strategic alliances on acceptable terms. Following December 31, 1997, the
Company may well need substantial additional financing in order to continue
development of and commercialize certain of its proposed products and other
potential products. The Company has no binding commitments from any third
parties to provide funds to the Company.
8
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There can be no assurances that the Company will be able to obtain financing
from any other sources on acceptable terms.
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 November 30,
1996.
9
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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: January 21, 1997
EchoCath, Inc.
------------------------------------
(Registrant)
By: /s/ FRANK DEBERNARDIS
----------------------------------
Frank DeBernardis
President, Chief Executive Officer,
Principal Financial and Accounting
Officer
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as...............'r'
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-1-1996
<PERIOD-END> NOV-30-1996
<PERIOD-TYPE> 3-MOS
<CASH> 1,466,069
<SECURITIES> 0
<RECEIVABLES> 101,899
<ALLOWANCES> 0
<INVENTORY> 197,644
<CURRENT-ASSETS> 1,906,118
<PP&E> 302,710
<DEPRECIATION> 24,036
<TOTAL-ASSETS> 2,469,528
<CURRENT-LIABILITIES> 409,266
<BONDS> 0
<COMMON> 9,546,293
0
0
<OTHER-SE> (8,898,212)
<TOTAL-LIABILITY-AND-EQUITY> 2,469,528
<SALES> 12,580
<TOTAL-REVENUES> 12,580
<CGS> 4,303
<TOTAL-COSTS> 4,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,812
<INCOME-PRETAX> (706,104)
<INCOME-TAX> 0
<INCOME-CONTINUING> (706,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (706,104)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>