<PAGE>
U.S. 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 February 29, 2000
-----------------
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)
<TABLE>
<CAPTION>
<S> <C>
New Jersey 22-3273101
- ---------------------------------------------------------- --------------------------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
</TABLE>
P.O. Box 7224, Princeton, NJ 08543
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number. . .(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
-------- -------
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 APRIL 3, 2000
- ---------------------- ----------------------------
Class A common stock (No Par Value) 5,308,036
Transitional Small Business Disclosure Format (check one)
YES NO X
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1
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PART 1: FINANCIAL INFORMATION
PART 2: OTHER INFORMATION
ECHOCATH, INC.
INDEX
Item 1: Financial Statements Page
----
Balance Sheets,
August 31, 1999 and February 29, 2000 (Unaudited) 3
Statements of Operations for the three months ended
February 28, 1999 (Unaudited), and February 29, 2000 (Unaudited) 4
Statements of Operations for the six months ended
February 28, 1999 (Unaudited), and February 29, 2000 (Unaudited) 5
Statements of Cash Flows for the six months ended
February 28, 1999 (Unaudited), and February 29, 2000 (Unaudited) 6
Notes to Financial Statements 7 - 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operation 9 - 14
Signatures 15
2
<PAGE>
Item 1: Financial Statements
ECHOCATH, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, 1999 February 29, 2000
--------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,264 $ 21,984
Inventory 44,325 47,524
Prepaid expenses 71,903 50,504
---------- ----------
Total current assets 142,492 120,012
Furniture, equipment and leasehold improvements, net 184,575 144,558
Intangible assets, net 287,384 301,052
Debt issuance cost, net 340,642 1,045,228
Other assets 61,403 61,842
---------- ----------
$1,016,496 $1,672,692
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable $ 540,000 $150,000
6.5% Convertible Debentures-IPA 525,000 --
Deferred income -- 40,000
Accounts payable 177,066 120,856
Accrued expenses 943,390 675,343
Obligations under capital leases 17,863 17,863
---------- ----------
Total current liabilities 2,203,319 1,004,062
6.5% Convertible notes, less current portion 850,000 2,525,000
Note payable, less current portion -- 468,322
Obligations under capital leases, less current portion 19,271 10,869
Other liabilities 136,750 97,478
---------- ----------
Total liabilities 3,209,340 4,105,731
---------- ----------
Stockholders' deficit:
Preferred stock, no par value, 5,000,000 shares authorized; 280,000 shares of
Series B cumulative convertible issued and outstanding, senior in
liquidation to Class A common stock,
(liquidation value $1,400,000) 1,393,889 1,393,889
Class A common stock, no par value, 18,500,000 shares authorized;
3,524,036 issued and outstanding as of February 29, 2000 and 2,352,018
as of August 31, 1999 7,473,834 12,296,098
Class B common stock, no par value, 1,500,000 shares authorized;
1,172,018 shares issued and outstanding as of August 31, 1999
and zero issued and outstanding as of Feburary 29, 2000 4,023,470 --
Accumulated deficit (15,084,037) (16,123,026)
---------- ----------
Total stockholders' deficit (2,192,844) (2,433,039)
---------- ----------
$1,016,496 $1,672,692
========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
ECHOCATH, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1999 AND
FEBRUARY 29, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
REVENUE:
Royalty and license fees $ 165,000 $ 36,666
Product sales 8,040 --
--------- ----------
Total revenue 173,040 36,666
Cost of sales 7,574 --
--------- ----------
Gross profit 165,466 36,666
Operating expenses:
R&D 329,086 336,539
Marketing and G&A 272,697 264,346
--------- ----------
Total operating expenses 601,783 600,885
--------- ----------
Loss from operations (436,317) (564,219)
Net interest expense (21,066) (146,136)
Tax benefit -- 447,956
--------- ----------
Net loss (457,383) (262,399)
--------- ----------
Preferred dividends 18,900 18,900
---------- ----------
Net loss to common stockholders $ (476,283) $ (281,299)
========== ==========
Basic and diluted net loss per common share $ (.18) $ (.10)
Weighted average shares outstanding 2,691,000 2,691,000
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ECHOCATH, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1999 AND
FEBRUARY 29, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
REVENUE:
Royalty and license fees $ 165,000 $ 66,666
Product sales 23,759 --
----------- -----------
Total revenue 188,759 66,666
Cost of sales 15,299 --
----------- -----------
Gross profit 173,460 66,666
Operating expenses:
R&D 718,820 701,861
Marketing and G&A 556,252 540,913
----------- -----------
Total operating expenses 1,275,072 1,242,774
----------- -----------
Loss from operations (1,101,612) (1,176,108)
Net interest expense (37,546) (273,037)
Tax benefit -- 447,956
----------- -----------
Net loss (1,139,158) (1,001,189)
----------- -----------
Preferred dividends 37,800 37,800
----------- ------------
Net loss to common stockholders $(1,176,958) $(1,038,998)
=========== ============
Basic and diluted net loss per common share $ (.44) $ (.39)
Weighted average shares outstanding 2,691,000 2,691,000
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
EchoCath, Inc.
Statements of Cash Flows
Six Months ended February 28, 1999 and February 29, 2000
(Unaudited)
<TABLE>
<CAPTION>
1999 2000
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,139,158) $(1,001,189)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 56,219 57,643
Noncash interest expense and amortization of debt issuance costs -- 209,208
Change in operating assets & liabilities:
Increase in trade accounts receivable (60,095) --
Decrease (increase) in inventory 14,248 (3,199)
Decrease in prepaid expenses and other current assets 34,547 21,399
Decrease (increase) in other assets 409 (439)
Increase (decrease) in accounts payable 86,587 (56,210)
Increase (decrease) in accrued expenses 384,283 (70,256)
Deferred income -- 40,000
Decrease in other liabilities (3,469) (39,272)
----------- -----------
Net cash used in operating activities (626,429) (842,315)
----------- -----------
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold improvements (19,393) (3,589)
Purchases of intangible assets (8,890) (27,705)
----------- -----------
Net cash used in investing activities (28,283) (31,294)
----------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations 4,954 (8,402)
Principal payments on C.R. Bard note -- (119,469)
Proceeds from employee stock purchase plan 615 --
Proceeds from IPA notes 525,000 --
Class B preferred dividends (37,800) (37,800)
Debt issuance costs -- (115,000)
Proceeds from 6.5% convertible notes -- 1,150,000
----------- -----------
Net cash provided by financing activities 482,861 869,329
----------- -----------
Net decrease in cash and cash equivalents (171,851) (4,280)
Cash and cash equivalents, beginning of year 256,234 26,264
----------- -----------
Cash and cash equivalents, end of period $ 84,383 $ 21,984
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 2,000 $ 2,195
=========== ===========
Supplemental disclosure of noncash information:
Equipment acquired under capital lease $ 13,337 $ --
Issuance of warrants in connection with private placements $ 225,000 $ 991,718
=========== ===========
</TABLE>
See accompanying notes to financial statements.
6
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ECHOCATH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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 the management of EchoCath, Inc. (the "Company") 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 the
Company's Form 10-KSB for the fiscal year ended August 31, 1999.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the continuation of operations, realization of assets
and liquidation of liabilities in the ordinary course of business (see Note J).
The financial statements do not include any adjustments that might result from
the outcome of this certainty. In the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at February 28,
1999 and February 29, 2000 have been made.
NOTE B:
Inventories are summarized as follows:
August 31, 1999 February 29, 2000
--------------- -----------------
Raw Materials $ 44,325 $ 47,524
Work in Process -- --
Finished Goods -- --
----------- -------------
$ 44,325 $ 47,524
=========== =============
NOTE C:
Private Placement Offering
On October 29, 1999 the Company completed a private placement offering. The
offering consisted of Units of (i) a $25,000 convertible promissory note and
(ii) a three-year warrant to purchase 33,333 shares of Class A Common Stock. A
total of 3,366,633 warrants were issued. The notes bear interest at 6.5% per
annum and mature three-years from the date of the final closing October 29,
1999, unless previously converted into Class A Common Stock. A total of
$2,525,000 of notes were issued through the private placement, of which
$1,250,000 are convertible into shares of Common Stock at the option of the
holder, at any time prior to the maturity date, at a rate of one share of Class
A Common Stock for each $0.75 of debt (plus accrued and unpaid interest) and
$1,275,000 of which are convertible at the market price on the date of
conversion, but not less than $0.25 (plus accrued and unpaid interest); the
notes are also convertible at the option of the Company, on the maturity date,
at a conversion price equal to the lesser of $0.75 or the average closing sale
price of the share of Class A Common Stock over the five day period immediately
prior to the maturity date, but not less than $0.25 per share. Each warrant
entitles the holder to purchase one share of Class A Common Stock at an exercise
price of $0.75 per share. The offering resulted in net proceeds of $2,209,358,
and the conversion of $525,000 of 6.5% convertible debentures into the same
convertible debt offered under the private placement described above. In
connection with the warrants issued, the Company recorded debt issuance costs
totaling $673,327, plus $30,642 of other debt issuance costs. The warrants were
valued at $.20 per share using the Black-Scholes pricing model. The debt
issuance costs will be amortized over the life of the debt.
The holders of the Company's Class B Common Stock maintained "super voting"
rights, whereby they were entitled to 5 votes per Class B Common Share. As a
condition to the offering, holders of a minimum of 900,000 shares of the
Company's Class B Common Stock were required to convert their shares into Class
A Common Stock at a ratio of 1 to 1. Additionally, each Class B Common
shareholder converting their shares received a five-year warrant to purchase
shares of Class A Common Stock for an equal number of shares, exercisable at
$.75 per share. A total of 1,172,018 warrants were issued. As of November 30,
1999, all shares of Class B Common Stock have been converted into Class A Common
Stock. In connection with the warrants issued, the Company recorded issuance
costs totaling $234,000. The warrants were valued at $.20 per warrant using the
Black-Scholes pricing model. The issuance cost will be amortized over the life
of the debt.
7
<PAGE>
The Placement Agents for the private placement offering are entitled to cash
compensation equal to 10% of the gross proceeds of the offering and 400,000
five-year warrants to purchase up to 400,000 shares of Class A Common Stock at
$0.75 per share. In connection with the warrants issued, the Company recorded
issuance costs totaling $80,000, plus $200,000 for the placement agent fees. The
warrants were valued at $0.20 per warrant using the Black-Scholes pricing model.
The issuance costs will be amortized over the life of the debt.
Pursuant to the terms of the private placement, the Company has agreed to offer
(a "Rights Offering") to its Class A Common Shareholders as soon as is
practicable and efficacious (i) a right to purchase one share of Class A Common
Stock at a price per share equal to the market price immediately prior to the
effective date of a registration statement covering the Rights Offering and (ii)
a three-year warrant to purchase one share of Class A Common Stock at such
market price. The Placement Agents are entitled to a commission equal to 11.25%
of the gross proceeds of the Rights Offering and five-year warrants to purchase
a number of shares of Class A Common Stock equal to 11.25% of the number of
shares sold in the Offering, at an exercise price of $.75 per share. The Rights
Offering, if and when made, will be made only by means of a prospectus.
Pursuant to the terms of the private placement the Company filed a Form S-3
Registration Statement with the U.S. Securities and Exchange Commission in
February 2000 registering the underlying Class A common shares.
NOTE D:
Private Placement Offering in lieu of Rights Offering
On February 23, 2000, the Company offered its 6.5% convertible promissory
noteholders the opportunity to purchase four shares at $.75 per share for every
warrant they exercise at the same price. The Company issued a total of 1,500,000
million shares in this offering. The number of shares that was purchased was
proportional to the number of units purchased in the 6.5% convertible promissory
note offering. For each unit purchased in the 6.5% convertible promissory note
offering, the noteholder purchased up to 14,850 new shares at $.75 per share
plus exercising warrants for 3,712 shares at $.75 per share. If a noteholder did
not purchase the shares available to them, those shares were made available to
the other noteholders participating in this offering. The Company received
proceeds of $1,406,205 as of April 10, 2000, including the exercise warrants of
375,000. All of these funds were received after February 29, 2000.
The Company has asked the 6.5% convertible promissory noteholders to release it
from any obligation it may have for a rights offering described in Note C.
NOTE E:
Development and License and Distribution Agreements
On December 30, 1996 the Company announced that it entered into an exclusive
license agreement with Medtronic, Inc. for the licensing of EchoMark(R) and
ColorMark(R) proprietary technologies for certain medical procedures. The total
payments to the Company under the December 1996 Medtronic Agreement have been
$265,000, including a payment of $65,000 pursuant to a termination agreement in
February 1999.
8
<PAGE>
The Company entered into an exclusive license agreement dated February 27, 1997
with EP MedSystems, Inc. (EP MedSystems). The agreement provides that certain
products can be incorporated into the EP MedSystems' diagnostic catheter line.
The Company may potentially receive development milestone payments of up to
$150,000. Milestones include the sale of a limited quantity of product. When
products are commercially available the Company will receive royalties under the
terms of the agreement. The Company has received no milestone payment but it has
earned minimum royalties of $30,000 per quarter starting with calendar quarter
beginning January 1999 under this agreement. The agreement provides that any
royalty payment can be reduced, but not to an amount below zero, by an amount
equal to the amount of any dividends under the Company's Series B cumulative
preferred stock which are accrued but not paid as of that date. As of February
29, 2000, $146,666 of royalties due have been used to reduce accrued dividends.
As of February 29, 2000 the Company has $80,134 of accrued preferred stock
dividends, which is included as a component of other liabilities on the
accompanying Balance Sheet.
The Company entered into an option agreement on January 11, 1999 with another
company for the licensing of certain technology. The term of the option was
three months and the non-refundable consideration received for the option was
$100,000. The Company extended the option to June 11, 1999 for additional
consideration of $60,000, but did not renew the option beyond June 11, 1999. The
option has now expired.
The Company entered into an option agreement on April 16, 1999 with another
company for the licensing of certain technology. The term of the option was
three months, and the non-refundable consideration received for the option was
$35,000. The option has been extended at the election of the holder for up to
three one-month periods upon payment of a non-refundable fee to the Company of
$10,000 per month. As of September 20, 1999 a new agreement was reached
extending the term of the option for four additional months starting November 1,
1999 upon monthly payments of $10,000 per month.
NOTE F:
Preferred Stock Subscription Agreement
The Company entered into a subscription agreement dated February 27, 1997 with
EP MedSystems. EP MedSystems purchased 280,000 shares of the Company's Series B
cumulative convertible preferred stock for $1,400,000. The agreement provides
for an annual dividend of $.27 per share. The Company can redeem the preferred
stock if certain performance goals of the Class A common stock are achieved. The
Series B preferred stock is convertible into Class A common stock. The
conversion of Series B cumulative convertible preferred stock to Class A common
stock will be at the conversion rate of 1 share of Class A common stock for each
1.3 of series B cumulative convertible preferred stock.
NOTE G:
Net Loss Per Share
Basic and diluted net loss per common share for the relevant period is
calculated based upon net loss after cumulative Series B preferred stock
dividends of $37,800 and $18,900 for the six and three month periods ended
February 29, 2000 and February 28,1999, respectively, divided by the weighted
average number of shares of common stock outstanding during that period. For
purposes of the diluted loss per share calculation, the exercise or conversion
of all potential common shares is not included since their effect would be
antidilutive for all periods presented.
NOTE H:
Comprehensive Income
The net loss of $457,383 and $262,399 recorded for the three months ended
February 28, 1999 and February 29, 2000 and $1,139,158 and $1,001,189 recorded
for the six months ended February 28, 1999 and February 29, 2000, respectively,
is equal to the comprehensive loss for those periods.
9
<PAGE>
NOTE I:
Bard Debt
On September 24, 1993, the Company entered into an exclusive worldwide
development, supply and license agreement with Bard Radiology, C.R. Bard, Inc.
(Bard). As part of this agreement, Bard provided to the Company an advance of
$540,000 in order to assist the Company with its manufacturing obligations. This
advance was evidenced by a note payable issued by the Company to Bard, which is
secured by virtually all of the Company's inventory, furniture and equipment.
The development, supply and license agreement was terminated on October 28,
1996. The note bears interest of prime plus 1% and was due December 31, 1998.
The carrying amount of this note approximates its fair value due to the variable
nature of interest rates. The principal and accrued interest due as of February
29, 2000 is $618,322.
On November 23, 1999, the Company reached an agreement to refinance its Bard
debt. In order to satisfy the Bard debt obligation, the Company was required to
make principal payments of $75,000 immediately, 10% of net funds that are
received from subsequent financing, licensing and royalty activity beginning
January 1, 2000 with a minimum payment of $150,000, and beginning with the first
quarter of 2001 and continuing thereafter 7.5% of net revenue and financing
received in that quarter, with a minimum payment of $75,000 every six months
until the indebtedness is repaid. Interest on the unpaid balance of the debt
shall accrue at the rate of prime plus1% and continue to accrue until full
payment of all principal and interest outstanding.
NOTE J:
Need for Additional Financing
At February 29, 2000, the Company had a working capital deficiency of $844,738.
The report of the Company's independent auditors on the Company's fiscal year
ended August 31, 1999 financial statements included an explanatory paragraph
which stated that the Company's recurring losses from operations, its net
capital deficiency, and negative working capital raises substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustment that might result from the outcome of this
uncertainty. The Company is in need of additional financing and does not expect
its existing cash, together with funds anticipated to be generated through
operations, to be sufficient to meet the Company's cash requirements beyond June
30, 2000.
The Company's ability to continue with its plans is contingent upon its ability
to obtain sufficient cash flow from operations or to obtain additional financing
from external sources. The Company expects that additional cash resources will
be available either through financing provided by the completion of license
agreements and strategic alliances, a rights offering or, if necessary, by
reducing the level of its operational 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 or at all. The Company will 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.
While the Company anticipates funding from private equity placements and other
sources, there can be no assurances that the Company will be able to obtain
financing from any other sources on acceptable terms or at all.
NOTE K:
Sale of Tax Benefits
As of December 20, 1999, The Company sold its tax benefits under the New Jersey
Corporation Business Tax Benefit Certificate Transfer Program for $447,956. Such
amount was recorded as tax benefit in the Statement of Operations. The Company
sold approximately $6,600,000 of its State net operating loss carryforwards
during the second quarter of fiscal 2000. Historically, the Company had
recognized a 100% valuation allowance against these net operating losses.
10
<PAGE>
NOTE L:
Segment Information
The Company is managed and operated as one business. The entire business is
comprehensively managed by a single management team that reports to the Chief
Executive Officer. The Company does not operate separate lines of business or
separate business entities with respect to any of its products. In addition, the
Company does not directly conduct any of its operations outside of the United
States. Accordingly, the Company does not prepare discrete financial information
with respect to separate product areas or by location and does not have separate
reportable segments as defined by SFAS No. 131.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
Certain statements in this Report on Form 10-QSB ("Report") under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and elsewhere 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: limited
commercial operations; no assurances of success; need for additional financing;
uncertainty of market acceptance; reliance on collaborative agreements;
competition and rapid technological change; failure to receive or delays in
receiving regulatory approval; limited manufacturing and assembly experience;
limited marketing and sales experience; dependence upon, and need for, key
personnel; uncertain protection of patent and proprietary rights; lack of
reimbursement; general economic and business conditions; industry capacity;
industry trends; demographic changes; changes in business strategy or
development plans; quality of management; availability, terms and deployment of
capital; potential adverse impact of FDA and other government regulations;
limitations on third party reimbursement; potential adverse impact of
anti-remuneration laws; potential product liability; risk of loss in lawsuit;
risk of low prices stocks; and other factors referenced in this Report. When
used in this Report, statements that are not statements of material fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "anticipates," "plans," "intends," "estimates," "projects," "believes,"
"expects" and similar expressions are intended to identify such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
Six Months Ended February 29, 2000 and February 28, 1999
Revenue:
The Company had revenues of $66,666 from royalty fees for the six months ended
February 29, 2000 as compared with license fees of $165,000 and product sales of
$23,759 for the six months ended February 28, 1999.
11
<PAGE>
Research and Development:
Research and development expenses decreased $16,959, or 2.4%, during the six
months ended February 29, 2000 primarily attributable to the costs associated
with the reallocation of payroll and facilities costs that were partially offset
by increased material costs related to the development of the Company's
products.
Marketing, General and Administrative:
Marketing, general and administrative expenses decreased $15,339, or 2.8%,
primarily attributable to a reduction in consultant fees in the current year.
The consultant fees in fiscal 1999 related to the private placement activity.
This was partially offset by an increase in legal expenses in the current six
months related to the Form S-3 registration and the new private placement
described in Note C of the Notes to Condensed Financial Statements.
Interest Expense:
Interest expense increased $235,491, primarily attributable to the amortization
of debt issuance costs after the completion of the private placement in October
1999.
Tax Benefit:
The Company sold New Jersey tax benefits (see note K of the Notes to Condensed
Financial Statements) for $447,956 during the second quarter of fiscal 2000.
RESULTS OF OPERATIONS
Three Months Ended February 28, 1999 and February 29, 2000
Revenue:
The Company had revenues of $36,666 from royalties for the quarter ended
February 29, 2000, and revenues of $8,040 from product sales and $165,000 from
license fees for the quarter ended February 28, 1999.
Research and Development:
Research and development expenses increased $7,453, or 2.3%, during the three
months ended February 29, 2000. This is primarily attributable to the increased
purchasing activity and consultant activity related to the development of the
Company's products that was partially offset by costs associated with the
reallocation of facilities space and payroll costs.
Marketing, General and Administrative:
Marketing, general and administrative expenses decreased $8,351, or 3.1%,
primarily attributable to a reduction in consultants fees in the current year.
The consultant fees in fiscal 1999 related to the private placement activity.
This was partially offset by increases in legal expenses in the current fiscal
quarter relating to the Form S-3 registration, and the new private placement
described in Note D of the Notes to Condensed Financial Statements.
Interest Expense:
Interest expense increased $125,070, primarily attributable to the amortization
of debt issuance costs after the completion of the private placement in October
1999.
Tax Benefit:
The Company sold New Jersey tax benefits (see note K of the Notes to Condensed
Financial Statements) for $447,956 during the second quarter of fiscal 2000.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Need For Additional Financing
At February 29, 2000, the Company had a working capital deficiency of $844,738.
The report of the Company's independent auditors on the Company's fiscal year
ended August 31, 1999 financial statements included an explanatory paragraph
which stated that the Company's recurring losses from operations, its net
capital deficiency, and negative working capital raises substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustment that might result from the outcome of this
uncertainty. The Company is in immediate need of additional financing and does
not expect its existing cash, together with funds anticipated to be generated
through operations, to be sufficient to meet the Company's cash requirements
beyond June 30, 2000.
The Company's ability to continue with its plans is contingent upon its ability
to obtain sufficient cash flow from operations or to obtain additional financing
from external sources. The Company expects that additional cash resources will
be available either through financing provided by the completion of license
agreements and strategic alliances, a rights offering or, if necessary, by
reducing the level of its operational 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 or at all. The Company will 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.
While the Company anticipates funding from private equity placements and other
sources, there can be no assurances that the Company will be able to obtain
financing from any other sources on acceptable terms or at all.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
On October 16, 1997, EP MedSystems delivered to the Company a complaint
subsequently amended (the "Complaint") filed in the United States District Court
for the District of New Jersey (the "Court") in connection with the Company's
sale of securities to EP MedSystems pursuant to a Subscription Agreement, dated
as of February 27, 1997, by and between the Company and EP MedSystems. In the
Complaint, EP MedSystems alleges that the Company violated Section 10(b) of the
Exchange Act and committed common law fraud in connection with EP MedSystems'
purchase of securities from the Company. EP MedSystems requested unspecified
compensatory damages, costs, attorneys' fees and punitive damages. On November
26, 1997, pursuant to an order of the Court, the Company filed an Answer,
without prejudice to its right to move to dismiss the Complaint, denying the
material allegations of the Complaint, and asserting a counterclaim against EP
MedSystems seeking its costs and expenses in the action, including its
attorneys' fees, based on EP MedSystems' breach of the Subscription Agreement.
On October 20, 1998, the Court dismissed the suit with prejudice, but did not
decide on the Company's outstanding counterclaims against EP MedSystems. On June
9, 1999 EP MedSystems filed an appeal of that dismissal. If the appeal is
successful, the suit will be reinstated. The appellate court on December 7, 1999
heard oral arguments of the appeal. A decision on the matter is expected during
the next quarter.
Item 2: Private Placement Offering in lieu of Rights Offering
On February 23, 2000, the Company offered the convertible promissory noteholders
the opportunity to purchase four shares for every warrant they exercise at $.75
per share. The Company may issue a total of 1,500,000 million shares in this
offering. The number of shares that can be purchased is proportional to the
number of units purchased in the 6.5% convertible promissory note offering. For
each unit purchased in the 6.5% convertible promissory note offering, the
noteholder may purchase up to 14,850 new shares at $.75 plus exercising warrants
for 3,712 shares. If a noteholder does not purchase the shares available to
them, those shares will be made available to the noteholders participating in
such offering.
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<PAGE>
The Company has asked the noteholders to release it from any obligation it may
have for a rights offering described in Note D.
If successful, the maximum proceeds received by the Company, including the
exercise warrants, will be $1,406,205. As of April 3, 2000 the Company has
received subscriptions for $1,337,657. None of these funds were received prior
to February 29, 2000.
Item 3: Defaults Upon Senior Securities - None
Item 4: Submission of Matters to a Vote of Security Holders - None
Item 5: Other Information - None
Item 6: Exhibits and Reports on Form 8-K
a) 27) Financial Data Schedule
b) None
10.29: Subscription Agreement, dated February 22, 2000 by and between the
Company and purchasers of 6.5% Convertible Promissory Notes
10.30: Escrow Agreement, dated February 22, 2000 by and among the Company and
Buchanan Ingersoll Professional Corporation
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 14, 2000
EchoCath, Inc.
----------------------------
(Registrant)
By: /s/ Frank DeBernardis
----------------------------
Frank DeBernardis
President, Chief Executive Officer,
Principal Financial and Accounting
Officer
15
<PAGE>
Exhibit 10.29
SUBSCRIPTION AGREEMENT
EchoCath, Inc.
P.O. Box 7224
Princeton, New Jersey 08543
Gentlemen:
1. Subscription. (a) The undersigned (sometimes referred to herein as the
"Subscriber"), intending to be legally bound, hereby irrevocably subscribes to
purchase from EchoCath, Inc., a New Jersey corporation (the "Company"), the
number of shares of Class A common stock, no par value per share (the "Common
Stock"), of the Company (the "Shares"), set forth on the signature page hereof,
for a purchase price of $0.75 per Share (the "Purchase Price"), provided the
Subscriber agrees to exercise one (1) Warrant (dated to expire either May 14,
2002 or October 29, 2002) (collectively, the "Warrants") to purchase shares of
Common Stock held by the Subscriber for every four (4) Shares purchased
hereunder.
(b) Subscription payments (which include the exercise of the Warrants
associated with the purchase of the Shares) should be made payable to "Buchanan
Ingersoll Professional Corporation, as escrow agent" and should be delivered to
Buchanan Ingersoll Professional Corporation, 650 College Road East, 4th Floor,
Princeton, NJ 08540, Attention: John F. Cinque, Esq., together with two executed
and properly completed copies of this Agreement (including the Notice of
Exercise for the Warrant) and a completed Investor Questionnaire. Wire transfers
should be made in accordance with the following instructions:
Wire Transfer Instructions
Wire to: Summit Bank, Kingston, NJ
Account Number: 999616722
SubAccount Number: ___________
ABA Number: 021202162
For the Credit of: Buchanan Ingersoll Professional Corporation
Attorney Trust Account
Sub Account: EchoCath, Inc.
The Company shall have the right to accept or reject this subscription in whole
or in part at any time prior to March 31, 2000. In any event, the Company shall
not accept any subscription unless and until the Company has received
subscriptions to purchase an aggregate of 600,000 Shares in the Offering. If the
subscription is not accepted in whole or in part by the Company, the full or
ratable amount, as the case may be, of any subscription payment received will be
promptly refunded to the subscriber without deduction therefrom or interest
thereon.
<PAGE>
(c) If this subscription is accepted by the Company, in whole or in
part, the Company shall deliver to the undersigned the Shares subscribed for
hereby, dated the date of closing of such subscription, and a fully executed
copy of this Agreement. The Company may conduct multiple closings of the
Offering (each respective closing being referred to herein as the "Closing".)
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the undersigned as follows, in each case as of
the date hereof and as of the date of the Closing, except for any changes
resulting solely from the Offering:
(a) The Company is duly organized, validly existing and in good
standing under the laws of the State of New Jersey with full power and authority
to own, lease, license and use its properties and assets and to carry out the
business in which it is currently engaged.
(b) The Company has all requisite power and authority to: (i) execute,
deliver and perform its obligations under each this Agreement; and (ii) to issue
and sell the Shares. All necessary corporate proceedings of the Company have
been duly taken to authorize the execution and delivery of the Shares.
(c) The Shares are validly authorized, fully paid and nonassessable,
without any personal liability attaching to the ownership thereof, and will not
be issued in violation of any preemptive or other rights of shareholders.
(d) The execution and delivery of this Agreement, the issuance of the
Shares and the incurrence of the obligations herein set forth and the
consummation of the transactions herein contemplated, will not result in a
violation of, or constitute a default under, the certificate of incorporation or
by-laws, in the performance or observance of any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness to which the Company is a party or by which it or any
of its properties may be bound or in violation of any material order, rule,
regulations, writ, injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign.
3. Representations and Warranties of the Subscriber. The undersigned hereby
represents and warrants to, and agrees with, the Company as follows:
(a) If a natural person, the undersigned is: a bona fide resident of
the State contained in the address set forth on the signature page of this
Agreement as the undersigned's home address; at least 21 years of age; and
legally competent to execute this Agreement. If an entity, the undersigned is
duly authorized to execute this Agreement and this Agreement constitutes the
legal, valid and binding obligation of the undersigned enforceable against the
undersigned in accordance with its terms.
(b) The undersigned has received, read carefully and is familiar with
this Agreement. Respecting the Company, the undersigned is familiar with the
Company's business, plans and financial condition, the terms of the Offering and
any other matters relating to the Offering; the undersigned has received all
materials which have been requested by the
2
<PAGE>
undersigned; has had a reasonable opportunity to ask questions of the Company
and its representatives; and the Company has answered all inquiries that the
undersigned or the undersigned's representatives have put to it. The undersigned
has had access to all additional information necessary to verify the accuracy of
the information set forth in this Agreement and any other materials furnished
herewith, and has taken all the steps necessary to evaluate the merits and risks
of an investment as proposed hereunder.
(c) The undersigned or the undersigned's purchaser representative has
such knowledge and experience in finance, investments and other business matters
so as to be able to protect the interests of the undersigned in connection with
this transaction, and the undersigned's investment in the Company hereunder is
not material when compared to the undersigned's total financial capacity.
(d) The undersigned understands the various risks of an investment in
the Company as proposed herein and can afford to bear such risks, including,
without limitation, the risks of losing the entire investment.
(e) The undersigned acknowledges that no market for the Shares
presently exists and none may develop in the future and that the undersigned may
find it impossible to liquidate the investment at a time when it may be
desirable to do so, or at any other time.
(f) The undersigned has been advised by the Company that none of the
Shares have been registered under the Securities Act of 1933, as amended (the
"Act"), that the Shares will be issued on the basis of the statutory exemption
provided by Section 4(2) of the Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering
and under similar exemptions under certain state securities laws, that this
transaction has not been reviewed by, passed on or submitted to any Federal or
state agency or self-regulatory organization where an exemption is being relied
upon, and that the Company's reliance thereon is based in part upon the
representations made by the undersigned in this Agreement. The undersigned
acknowledges that the undersigned has been informed by the Company of, or is
otherwise familiar with, the nature of the limitations imposed by the Act and
the rules and regulations thereunder on the transfer of Shares. In particular,
the undersigned agrees that no sale, assignment or transfer of any of the Shares
shall be valid or effective, and the Company shall not be required to give any
effect to such a sale, assignment or transfer, unless (i) the sale, assignment
or transfer of such Shares is registered under the Act, it being understood that
the Shares are not currently registered for sale and that the Company has no
obligation or intention to so register the Shares, or (ii) such Shares are sold,
assigned or transferred in accordance with all the requirements and limitations
of Rule 144 under the Act, it being understood that Rule 144 is not available at
the present time for the sale of the Shares, or (iii) such sale, assignment or
transfer is otherwise exempt from registration under the Act. The undersigned
further understands that an opinion of counsel and other documents may be
required to transfer the Shares. The undersigned acknowledges that the Shares
shall be subject to a stop transfer order and the certificate or certificates
evidencing any Shares shall bear the following or a substantially similar legend
or such other legend as may appear on the forms of Warrants and such other
legends as may be required by state Shares or blue sky laws:
3
<PAGE>
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and neither such Shares
nor any interest therein may be offered, sold, pledged,
assigned or otherwise transferred unless (1) a registration
statement with respect thereto is effective under the Act and
any applicable state securities laws, or (2) the Company
receives an opinion of counsel to the holder of such Shares,
which counsel and opinion are reasonably satisfactory to the
Company, that such Shares may be offered, sold, pledged,
assigned or transferred in the manner contemplated without an
effective registration statement under the Act or applicable
state securities laws."
(g) The undersigned will acquire the Shares for the undersigned's own
account (or for the joint account of the undersigned and the undersigned's
spouse either in joint tenancy, tenancy by the entirety or tenancy in common)
for investment and not with a view to the sale or distribution thereof or the
granting of any participation therein, and has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
(h) It never has been represented, guaranteed or warranted by any
broker, the Company, any of the officers, directors, shareholders, partners,
employees or agents of either, or any other persons, whether expressly or by
implication, that:
(i) the Company or the undersigned will realize any given
percentage of profits and/or amount or type of consideration, profit or
loss as a result of the Company's activities or the undersigned's
investment in the Company; or
(ii) the past performance or experience of the management of the
Company, or of any other person, will in any way indicate the predictable
results of the ownership of the Shares or of the Company's activities.
(i) The undersigned is not subscribing for Shares as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a subscription by a person other than a representative of the Company with
which the undersigned had a pre-existing relationship in connection with
investments in Shares generally.
(j) The undersigned is not relying on the Company with respect to the
tax and other economic considerations of an investment.
(k) Without limiting any of the undersigned's other representations and
warranties hereunder, the undersigned acknowledges that the undersigned has
reviewed and is aware of the risk factors described in the Company's
Registration Statement on Form S-3 (Reg. No. 333-95609) declared effective on
February __, 2000.
4
<PAGE>
(l) The undersigned acknowledges that the representations,
warranties and agreements made by the undersigned herein shall survive the
execution and delivery of this Agreement and the purchase of the Shares.
4. Concerning the Escrow Agent. To induce Buchanan Ingersoll Professional
Corporation to serve as the Escrow Agent and to act in such capacity hereunder,
the Company and the Escrow Agent have entered into a separate agreement (the
"Escrow Agreement"), relating to the proceeds of the Offering, a copy of which
is annexed hereto as Exhibit A. In connection therewith, it is further agreed by
the parties hereto that:
(a) The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the undersigned and the Company hereby agree to
jointly and severally indemnify and hold harmless the Escrow Agent from and
against any and all losses, liabilities, claims, actions, damages and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
arising out of or in connection with this Escrow Agreement.
(b) The Subscriber understands and agrees that, notwithstanding its
duties as Escrow Agent under the Escrow Agreement, the Escrow Agent is legal
counsel to the Company, and, accordingly, neither any services provided by the
Escrow Agent as Escrow Agent nor any provisions of the Escrow Agreement, either
express or implied, shall restrict or inhibit the Escrow Agent in any way from
representing the Company or its affiliates in any action, dispute, controversy,
arbitration, suit or negotiation arising under this Agreement, the Escrow
Agreement or under any other agreement or in any manner or context whatsoever,
whether or not directly or indirectly involving the Company or its affiliates.
5. Indemnification. The undersigned acknowledges that the undersigned
understands the meaning and legal consequences of the representations and
warranties contained in Section 3 hereof, and agrees to indemnify and hold
harmless the Company, its officers, directors, partners, employees, agents and
controlling persons thereof, past, present or future, from and against any and
all loss, damage or liability due to or arising out of a breach of any such
representation or warranty.
6. Transferability. Neither this Agreement, nor any interest of the
undersigned herein, shall be assignable or transferable by the undersigned in
whole or in part except by operation of law.
7. Miscellaneous.
(a) This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersede all existing
agreements among them concerning such subject matter, and (subject to Section
7(g)) may be modified only by a written instrument duly executed by the party to
be charged.
5
<PAGE>
(b) Except as otherwise specifically provided herein, any notice or
other communication required or permitted to be given hereunder shall be in
writing and shall be mailed by certified mail, return receipt requested, or by
Federal Express, Express Mail or similar overnight delivery or courier service
or delivered (in person or by telecopy, telex or similar telecommunications
equipment) against receipt to the party to whom it is to be given, (i) if to the
Company, at the address set forth on the first page hereof, (ii) if to the
undersigned, at the address set forth on the signature page hereof, or (iii) in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 7(b). Notice to the estate of
any party shall be sufficient if addressed to the party as provided in this
Section 7(b). Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party address which shall be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 7(b) shall be deemed given
at the time of receipt thereof.
(c) This Agreement shall be binding upon and inure to the benefit
of the parties hereto, the successors and assigns of the Company, and the
permitted successors, assigns, heirs and personal representatives of the
undersigned (including permitted transferees of the Shares).
(d) The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
(e) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) This Agreement has been negotiated and shall be consummated in
the State of New Jersey and shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to principles
governing conflicts of law.
(g) This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement
(except as provided in Section 7(c)).
(h) The parties hereto irrevocably consent to the jurisdiction of
the courts of the State of New Jersey and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Agreement, any document or instrument delivered pursuant to, in connection
with or simultaneously with this Agreement, or a breach of this Agreement or any
such document or instrument. In any such action or proceeding, each party hereto
waives personal service of any summons, complaint or other process and agrees
that service thereof may be made in accordance with Section 7(b).
[Signature page follows]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year this subscription has been accepted by the Company as set forth
below.
Under penalties of perjury, by signing this signature page, the Subscriber
certifies that (i) the name, residence address and social security or taxpayer
identification number set forth below are true, correct and complete, and (ii)
the Subscriber is not subject to backup withholding and (a) the Subscriber is
exempt from backup withholding, or (b) the Subscriber has not been notified by
the Internal Revenue Service ("IRS") that he or it is subject to backup
withholding as a result of a failure to report all interest or dividends, or (c)
the IRS has notified the Subscriber that he or it is no longer subject to backup
withholding.
If you have been notified by the IRS that you are currently subject to
backup withholding because of under reporting interest or dividends on your tax
return cross-out (ii) above.
Number of Shares ___________________________________
Being Purchased Print Name of Subscriber
____________________________
Number of Warrants By:________________________________
Being Exercised (Signature of Subscriber
(equal to 1/4 of above) or Authorized Signatory)
____________________________
Notice of Exercise Attached Hereto
Social Security Number or other
Taxpayer Identification Number:
___________________________________
Address:___________________________
___________________________________
___________________________________
___________________________________
Telephone: ________________________
7
<PAGE>
If the Shares will be held as joint tenants,
tenants in common, or community property,
please complete the following:
____________________________________________
Print name of spouse or other co-subscriber
____________________________________________
Signature of spouse or other co-subscriber
____________________________________________
Print manner in which Shares will be held
____________________________________________
Social Security Number
ACCEPTED BY:
ECHOCATH, INC.
By: ____________________________________
Name: Frank A. DeBernardis
Title: Chief Executive Officer
Date: March ___, 2000
8
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of February 22, 2000 by and among EchoCath, Inc.,
a New Jersey corporation (the "Company"), and Buchanan Ingersoll Professional
Corporation, a Pennsylvania professional corporation (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Company is offering (the "Offering") a minimum of 600,000
Shares and a maximum of 1,500,000 shares of Class A Common Stock of the Company
(the "Shares") for a purchase price of $0.75 per Share upon the exercise of one
(1) warrant for every (4) Shares purchased; and
WHEREAS, the Escrow Agent has agreed to act as escrow agent and hold and
deliver the proceeds of the Offering upon each successive closing of the
Offering, as instructed by the Company pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
agreements hereinafter contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1. The Company hereby appoints Buchanan Ingersoll Professional Corporation
as escrow agent in accordance with the terms and conditions set forth herein.
The Escrow Agent agrees to be appointed and to serve hereunder. The Escrow Agent
is hereby empowered on behalf of the Company to accept all wire transfers and to
endorse and collect all checks, drafts or other instruments received on account
of subscriptions for the Shares.
2. Subject to the terms and conditions of this Agreement, the Escrow Agent
will hold and disburse all funds received by it as follows:
(a) All funds received by the Escrow Agent pursuant to the terms of
this Agreement (the "Escrowed Property") shall be held, pending disbursement, in
the Escrow Agent's designated attorney trust account, which account does not
bear interest.
(b) The Escrow Agent shall disburse all funds from time to time in
accordance with written instructions signed on behalf of the Company. Any such
instructions shall include the name of each subscriber in the Offering whose
subscription is being accepted and the amount of each subscription so accepted.
The Escrow Agent shall not be required to disburse any funds unless and until an
aggregate of 600,000 Shares are sold in the Offering.
(c) In the event that the Company notifies the Escrow Agent that it has
not accepted a subscription, the Escrow Agent shall use reasonable efforts to
return funds deposited in respect of such subscription, without interest, to the
applicable subscriber. Such reasonable
<PAGE>
efforts may include, but shall not be limited to, wiring such funds to the
account from which it was received or sending a check, via first class United
States Postal Service mail, for the full amount of such funds to the subscriber
at the address indicated on the applicable subscription agreement. If the Escrow
Agent is not readily able to determine where to return any such funds, it shall
have no further obligation under this provision other than to safekeep such
funds.
(d) In the event any unaccepted funds remain in the escrow past March
31, 2000 the scheduled expiration of the Offering (or such later date to which
the Offering may be extended), the Escrow Agent shall return such unaccepted
funds to the respective subscribers in accordance with the provisions of
subparagraph (c) above.
3. The Escrow Agent shall not be under any duty to give the property held
by it hereunder any greater degree of care than it gives its own similar
property.
4. This Escrow Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement relating to
the Offering except this Escrow Agreement.
5. The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the Company shall indemnify and hold harmless the
Escrow Agent from and against any and all losses, liabilities, claims, actions,
damages and expenses, including, without limitation, reasonable attorneys' fees
and disbursements, arising out of or in connection with this Escrow Agreement.
6. The Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that any person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so. The
Escrow Agent shall be fully protected in any action taken hereunder in good
faith and shall not be responsible for any failure or inability of the Company
to honor any of the provisions of this Agreement. The Escrow Agent shall be
under no liability to the other parties to any document executed in connection
with the Offering (except this Agreement) or to anyone else by reason of any
failure on the part of any such party to perform such party's obligations under
such agreement.
7. The Escrow Agent may act pursuant to the advice of counsel with respect
to any matter relating to this Agreement and shall not be liable for any action
taken or omitted in accordance with such advice.
8. The Escrow Agent does not have any interest in the Escrowed Property
deposited hereunder but is serving as escrow holder only and having only
possession thereof. The Company shall pay or reimburse the Escrow Agent upon
request for any and all expenses, if
2
<PAGE>
any, incurred by the Escrow Agent in connection with this Agreement (including,
without limitation, any wire transfer fees) and transfer taxes or other taxes
relating to the Escrowed Property incurred in connection herewith and shall
indemnify and hold harmless the Escrow Agent from any amounts that it is
obligated to pay in the way of such expenses and taxes.
9. The Escrow Agent makes no representation as to the validity, value,
genuineness or the collectability of any security or other document or
instrument held by or delivered to it.
10. The Escrow Agent may at any time resign as such by delivering the
Escrowed Property to any successor Escrow Agent designated by the Company in
writing, or to any court of competent jurisdiction, whereupon the Escrow Agent
shall be discharged of and from any and all further obligations arising in
connection with this Agreement. The resignation of the Escrow Agent will take
effect on the earlier of (a) the appointment of a successor (including a court
of competent jurisdiction) or (b) the day which is 30 days after the date of
delivery of its written notice of resignation to the Company. If at that time
the Escrow Agent has not received a designation of a successor Escrow Agent, the
Escrow Agent's sole responsibility after that time shall be to safekeep the
Escrowed Property until receipt of a designation of successor Escrow Agent or a
written disposition instruction by the Company or a final order of a court of
competent jurisdiction.
11. In the event of any disagreement resulting in adverse claims or demands
being made in connection with the Escrowed Property, or in the event that the
Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall be entitled to retain the Escrowed Property
until the Escrow Agent shall have received (i) a final non-appealable order of a
court of competent jurisdiction directing delivery of the Escrowed Property or
(ii) a written agreement executed by the parties to the dispute directing
delivery of the Escrowed Property, in which event the Escrow Agent shall
disburse the Escrowed Property in accordance with such order or agreement. Any
court order shall be accompanied by a legal opinion by counsel for the
presenting party satisfactory to the Escrow Agent to the effect that said
opinion is final and non-appealable.
12. The parties hereto hereby irrevocably submit to the jurisdiction of any
New Jersey state or federal court sitting in New Jersey in any action or
proceeding arising out of or relating to this Agreement, and the parties hereby
irrevocably agree that all claims in respect of such action or proceeding
arising out of or relating to this Agreement, shall be heard and determined in
such a New Jersey state or federal court. The parties hereto hereby consent to
and grant to any such court jurisdiction over the persons of such parties and
over the subject matter of any such dispute and agree that delivery or mailing
of any process or other papers in the manner provided herein above, or in such
other manner as may be permitted by law, shall be valid and sufficient service
thereof.
13. No printed or other matter in any language which mentions the Escrow
Agent's name or the rights, powers, or duties of the Escrow Agent shall be
issued by the parties hereto or on such parties' behalf unless the Escrow Agent
shall first have given its specific written consent thereto.
3
<PAGE>
14. Notwithstanding anything to the contrary contained herein, the Escrow
Agent's duties and obligations hereunder, and this Agreement, shall terminate
upon the release and distribution of the Escrowed Property in accordance with
the terms of this Agreement. Notwithstanding the preceding sentence, paragraphs
5 and 8 hereof shall survive the resignation of the Escrow Agent or the
termination of this Agreement.
15. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and to each of the subscribers in the Offering and upon and to
each of their respective successors, heirs and assigns. Neither this Agreement
nor any of the rights or obligations hereunder may be assigned by any of the
parties hereto without the prior consent of the other.
16. This Agreement shall be governed by the laws of the State of New
Jersey, except with regard to its conflict of law provisions.
17. The obligations of the Escrow Agent hereunder shall be completed and
this Agreement shall terminate upon the delivery of all of the proceeds of the
Offering to the Company.
[Signature page follows]
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
BUCHANAN INGERSOLL
PROFESSIONAL CORPORATION
By:__________________________________
Name: William J. Thomas
Title: Member of the Firm
ECHOCHATH, INC.
By:__________________________________
Name: Frank A. DeBernardis
Title: Chief Executive Officer
5
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