SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
___X____ Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934. For the quarterly period
ended June 30, 1997.
________ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period
from _________ to _________.
Commission File Number
0-26992
CARDIOVASCULAR DIAGNOSTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
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North Carolina 56-1493744
- ------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of Incorporation or organization) (IRS Employer Identification Number)
5301 Departure Drive
Raleigh, North Carolina 27616
- ------------------------------------------------------------- ------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code 919-954-9871
------------------------------------
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of July 31, 1997
- --------------------------------- -------------------------------
Common Stock, par value $.001 6,730,843
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CARDIOVASCULAR DIAGNOSTICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
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JUNE 30, DECEMBER 31,
1997 1996
------------------ ------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $2,095 $2,716
Short term investments, held to maturity 3,754 5,973
Accounts receivable 2,390 1,292
Inventories 2,312 2,019
Other current assets 91 198
------------------ ------------------
Total current assets 10,642 12,198
Property and equipment, net 4,399 4,236
Intangible assets, net 1,627 1,700
Other assets 182 217
================== ------------------
Total assets $16,850 $18,351
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $314 $377
Accrued expenses 240 220
Current portion of capital lease obligations - 19
------------------ ------------------
Total current liabilities 554 616
------------------ ------------------
Long term debt 50 50
Capital lease obligations, less current portion 11 17
------------------ ------------------
Total non-current liabilities 61 67
------------------ ------------------
Total liabilities 615 683
------------------ ------------------
Shareholders' equity:
Common stock, $.001 par value; authorized 10,000,000 shares;
6,730,843 and 6,663,986 issued and outstanding at
June 30, 1997 and December 31, 1996, respectively. 7 7
Additional paid-in capital 33,722 33,682
Cumulative translation adjustments (101) (48)
Accumulated deficit (17,365) (15,940)
Unearned compensation (28) (33)
------------------ ------------------
Total shareholders' equity 16,235 17,668
------------------ ------------------
Total liabilities and shareholders' equity $16,850 $18,351
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
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CARDIOVASCULAR DIAGNOSTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
----------------- ---------------- ------------------ ----------------
Net sales $1,759 $1,721 4,043 3,224
Cost of goods sold 1,427 1,303 2,950 2,491
----------------- ---------------- ------------------ ----------------
Gross profit 332 418 1,093 733
Operating expenses:
General and administrative 884 806 1,643 1,442
Sales and marketing 328 537 623 991
Research and development 646 575 1,171 1,086
----------------- ---------------- ------------------ ----------------
Total operating expenses 1,858 1,918 3,437 3,519
Litigation expenses 122 - 122 -
----------------- ---------------- ------------------ ----------------
Operating loss (1,648) (1,500) (2,466) (2,786)
Other income(expense):
Net interest income 101 174 207 357
Grant/royalty income 138 19 138 29
Development income 475 - 725 -
----------------- ---------------- ------------------ ----------------
Total other income 714 193 1,070 386
----------------- ---------------- ------------------ ----------------
Net loss before taxes (934) (1,307) (1,396) (2,400)
Provision for income taxes (14) (19) (29) (38)
================= ================ ================== ================
Net loss ($948) ($1,326) ($1,425) ($2,438)
================= ================ ================== ================
Loss per share ($0.14) ($0.20) ($0.21) ($0.37)
Average weighted shares outstanding 6,729,722 6,560,002 6,722,151 6,548,779
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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CARDIOVASCULAR DIAGNOSTICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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June 30, June 30,
1997 1996
----------------- ----------------
Cash flows from operating activities:
Net loss ($1,425) ($2,438)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 316 341
Amortization 93 107
Change in assets and liabilities:
Receivables (1,099) (380)
Inventories (294) (267)
Other assets 139 (258)
Accounts payable and accrued expenses (43) (379)
----------------- ----------------
Net cash used in operating activities (2,313) (3,274)
----------------- ----------------
Cash flows from investing activities:
Payments for purchase of property and equipment (479) (724)
Costs incurred to obtain patents (10) (57)
Purchase of investments (5,531) (8,332)
Proceeds from maturities of investments 7,750 -
----------------- ----------------
Net cash used in investing activities 1,730 (9,113)
----------------- ----------------
Cash flows from financing activities:
Principal payments on long-term debt and capital lease obligations (26) (721)
Net proceeds from issuance of stock 40 1,015
----------------- ----------------
Net cash provided by financing activities 14 294
----------------- ----------------
Effect of exchange rates on cash (52) (91)
Net decrease in cash and cash equivalents (621) (12,184)
Cash and cash equivalents at beginning of period 2,716 16,237
----------------- ----------------
Cash and cash equivalents at end of period $2,095 $4,053
================= ================
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The accompanying notes are an integral part of the consolidated financial
statements.
4
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`
CARDIOVASCULAR DIAGNOSTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
Cardiovascular Diagnostics, Inc. ("CVDI") is the parent company of Coeur
Laboratories, Inc. ("Coeur"). The "Company" refers to CVDI and Coeur. All CVDI
financial reporting is consolidated including the accounts of Coeur. All
significant intercompany activity and balances have been eliminated. The
consolidated financial statements included herein as of any date other than
December 31 have been prepared by the Company without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Financial
information as of December 31 has been derived from the audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, the
accompanying unaudited consolidated financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position, results of operations and cash flows of the
Company. For further information regarding the Company's accounting policies,
refer to the Consolidated Financial Statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Results for the interim period are not necessarily indicative of the results
which might be achieved for any other interim period or for the full fiscal
year.
Note 2. Income Taxes Paid
No Federal income tax provision or benefit has been provided for income tax
purposes, as the Company has not realized net income for the quarter ended June
30, 1997 and has net operating loss carryforwards to offset net income when
realized. Coeur made state income tax payments in the amount of $14,272, which
represents management's estimate of state income tax expense for the quarter
ended June 30, 1997.
Note 3. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
Note 4. Inventory
Inventories consisted of the following:
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials $2,041,500 $1,431,534
Finished goods 270,937 587,264
------------ -----------
$2,312,437 $2,018,798
Note 5. Legal Proceedings
As reported in its filings on Form 10-Q for the period ended March 31,
1997, the Company filed suit on March 20, 1997, in the U. S. District Court,
Eastern District of North Carolina, Western Division in Raleigh, North Carolina,
against Boehringer Mannheim Corporation ("BMC") located in Indiana. The suit
5
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charges BMC with misappropriation of CVDI's trade secrets by improper
disclosure, breach of contract, breach of fiduciary duty, unfair and deceptive
trade practices, and constructive fraud. In addition, CVDI has requested a
declaratory judgment that neither the products nor activities of CVDI infringe
U.S. Patents 5,164,598 or 5,300,779, purportedly owned by BMC.
On April 9, 1997 BMC answered the claims made by CVDI and submitted a
counterclaim against CVDI. The Company believes that the counterclaim
allegations are without merit and intends to defend itself against these
allegations vigorously. Litigation expenses are related to this matter.
At this time there have been no material changes or events pertaining to this
litigation matter.
Note 6. New Accounting Pronouncements
The Company will adopt Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") on December 31, 1997. SFAS No. 131 requires the Company to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company has
yet to determine the impact, if any, of adoption of the new pronouncement.
The Company will adopt Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS No. 130") on December 31, 1997. SFAS
No. 130 requires the Company to display an amount representing total
comprehensive income for the period in a financial statement which is displayed
with the same prominence as other financial statements. Upon adoption, all
prior period data presented will be restated to conform to the provisions of
SFAS No. 130. The Company has yet to determine the impact, if any, of adoption
of the new pronouncement.
The Company will adopt Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") on December 31, 1997. SFAS No. 128
requires the Company to change its method of computing, presenting and
disclosing earnings per share information. Upon adoption, all prior period
data presented will be restated to conform to the provisions of SFAS No. 128.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements. The actual results might differ
materially from those projected in the forward-looking statements. Additional
information concerning factors that could cause actual results to materially
differ from those in the forward-looking statements is contained in the
Company's other SEC filings, including its Registration Statement on Form S-1,
copies of which are available upon request from the Company.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report. Unless the context indicates otherwise, all references to the Company
include Cardiovascular Diagnostics, Inc. ("CVDI") and its subsidiaries, Coeur
Laboratories, Inc.("Coeur") and Cardiovascular Diagnostics Europe, BV ("CDE").
In May 1995, the Company began commercial marketing of its Thrombolytic
Assessment System ("TAS"), consisting of a compact, portable analyzer and
disposable test cards which are inserted into the analyzer to perform a variety
of hemostasis tests. Coeur currently manufactures and sells a line of disposable
syringes used in angiography injectors, as well as a line of angiographic
procedure kit manifolds (collectively, "Imaging Products").
Results of Operations
THREE MONTHS ENDED JUNE 30, 1997 VS. JUNE 30, 1996
Net sales for the three months ended June 30, 1997 were $1,759,000, an increase
of 2% or $38,000, as compared to the same period in 1996. The increase in sales
was a direct result of increased TAS product sales. Sales of Imaging Products
for the period ended June 30, 1997 were approximately $1,012,000 as compared to
approximately $1,303,000 for the period ended June 30, 1996. The decrease in
sales of Imaging Products was due to declining manifold sales in Europe and
market competition in syringe sales.
Cost of goods sold increased $124,000, or 10%, from June 30, 1996 to June 30,
1997, which partially reflects the increase in sales of TAS products. The gross
profit decreased $86,000, or 21%, for the three-month period ended June 30, 1997
as compared to the same period in 1996 due to inefficiencies in manufacturing
low volumes of TAS products.
Total operating expenses decreased slightly, 3%, or approximately $59,000, for
the quarter ended June 30, 1997 as compared to the same period in 1996. This
decrease was the overall effect of eliminating the direct sales force in late
1996 after the DADE North American distribution agreement was signed, partially
offset by increased facility expenses and increased clinical trials expenses.
General and administrative expenses increased $78,000, or 10%, from June 30,
1996 to June 30, 1997 due to increased administrative costs of approximately
$46,000 and additional facility space expenses of $32,000.
Sales and marketing expenses for the quarter ended June 30, 1997 were $209,000,
or 39%, less than the same period in 1996. This decrease was due to the
elimination of the direct sales force in late 1996.
7
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Research and development expenses were $73,000, or 13%, greater for the period
ended June 30, 1997 than for the same period in 1996. The Company expects
research and development expenses, as compared to 1996, to continue to increase
during 1997 due to the clinical trials planned for expanding the TAS test card
menu.
The operating loss for the three months ended June 30, 1997 was $1,648,000 as
compared to an operating loss of $1,499,000 for the same period in 1996. The
increased loss of $149,000 is primarily due to BMC-related litigation expenses
of $122,000.
Interest income decreased $73,000 for the three-month period ended June 30, 1997
from the three-month period ended June 30, 1996 due to decreased investments as
funds were used to support operations. Grant and royalty income increased
$120,000 from the three-month period ended June 30,1997 from the same period in
1996. Grant income increased $131,000 due to the Company receiving a National
Institutes of Health award and royalty income decreased $11,000. During the
quarter ended June 30, 1997 the Company received development income of $475,000
for the milestones met in accordance with earlier collaboration agreements.
During the same quarter in 1996 there was no development income.
SIX MONTHS ENDED JUNE 30, 1997 VS. JUNE 30, 1996
Net sales for the six months ended June 30, 1997 were $4,043,000, an increase of
25% or $819,000, as compared to the same period in 1996. The increase in sales
were a direct result of increased TAS products sold to our most recent
distributors, DADE, Avecor and Ortho. Sales of Imaging Products for the period
ended June 30, 1997 were approximately $2,013,000 as compared to approximately
$2,414,000 for the period ended June 30, 1996. The decrease in sales of Imaging
Products was due to declining manifold sales in Europe and market competition in
syringe sales.
Cost of goods sold increased $459,000 or 18% from June 30, 1996 to June 30,
1997, which partially reflects the increase in sales of TAS products. The gross
profit increased $360,000 or 49% for the six-month period ended June 30, 1997 as
compared to the same period in 1996 and accordingly, the profit margin increased
to 27% from 23%. These improvements are results of implementation of raw
material cost savings and efficiencies in manufacturing during the first quarter
due to increased sales of TAS products.
Total operating expenses decreased approximately $81,000, for the six months
ended June 30, 1997 as compared to the same period in 1996. This decrease was
the overall effect of eliminating the direct sales force in late 1996 after the
DADE North American distribution agreement was signed, partially offset by
increased administration expenses and increased research and development
expenses.
General and administrative expenses increased $200,000, or 14%, from June 30,
1996 to June 30, 1997 due to increased administrative staffing costs of
approximately $127,000 and increased facility expenses of $73,000.
Sales and marketing expenses for the six months ended June 30, 1997 were
$367,000, or 37%, less than the same period in 1996. This decrease was due to
the elimination of the direct sales force in late 1996.
Research and development expenses were $86,000 greater for the period ended June
30, 1997 than for the same period in 1996. This increase was due to increased
clinical trials and marketing evaluation expenses. The Company expects research
and development expenses to increase during 1997 due to the clinical trials
planned for expanding the TAS test card menu.
8
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The operating loss for the six months ended June 30, 1997 was $2,466,000 as
compared to a loss of $2,785,000 for the same period in 1996. The gross profit
increased $360,000 from 1997 to 1996 and the operating expenses decreased
$81,000 from 1996 to 1997. This improvement of $441,000 is offset by BMC
litigation expenses of $122,000 for the six-month period ended June 30, 1997.
Interest income decreased $158,000 for the six-month period ended June 30, 1997
from the six-month period ended June 30, 1996 due to decreased investments as
funds were used to support operations. Grant and royalty income increased
$109,000 in the six-month period ended June 30,1997 from the same period in
1996. Grant income increased $120,000 due to the Company receiving an NIH award
and royalty income decreased $11,000. During the six-months ended June 30, 1997
the Company received development income of $725,000 for the milestones met in
accordance with earlier collaboration agreements. During the same period in 1996
there was no development income.
Liquidity and Capital Resources
From December 31, 1996 to June 30, 1997, cash and cash equivalents and short
term investments decreased $2,841,000. A portion of this decrease was due to the
utilization of cash for operations of approximately $2,313,000 and capital
expenditures for property and equipment of $479,000.
Accounts receivable increased 85% or $1,099,000 from December 31, 1996 to June
30, 1997 due to the increase in TAS sales for the six months ended June 30,
1997.
The Company expects to incur additional operating losses during 1997. The
Company's working capital requirements will depend on many factors, primarily
the volume of subsequent orders of TAS products from the distributors. In
addition, the Company expects to incur costs associated with clinical trials for
new test cards. The Company may acquire other products, technologies or
businesses that complement the Company's existing and planned products, although
the Company currently has no understanding, commitment or agreement with respect
to any such acquisitions.
Management believes that its existing capital resources and the cash flows from
operations will be adequate to satisfy its planned capital requirements through
at least 1998.
Factors That May Affect Future Results
A number of uncertainties exist that may affect the Company's future operating
results and stock price, including managed care, FDA regulations, and other
regulatory guidelines affecting the Company. The market price of the common
stock could be subject to significant fluctuations in response to variations in
the Company's quarterly operating results, as well as other factors which may be
unrelated to the Company's performance. The stock market in recent years has
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of or announcements concerning
public companies. Such broad fluctuations may adversely affect the market price
of the Company's common stock. Securities of issuers having relatively limited
capitalization are particularly susceptible to volatility based on short-term
trading strategies of certain investors.
9
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Part II. OTHER INFORMATION
Item 2. Changes in Securities
(a) No material modifications
(b) No material limitations or qualifications
(c) During the three months ended June 30, 1997, the Company issued the
following unregistered securities:
From April 1, 1997 through June 30, 1997, the Company issued options
to purchase an aggregate of 2,000 shares of Common Stock to employees of the
Company.
The sales of the above securities were deemed to be exempt from
registration under the Act in reliance upon section 4 (2) of the Securities Act
of 1933, as amended (the "Act"), or Regulation D or Rule 701 promulgated
thereunder as transactions by an issuer not involving a public offering.
Recipients of the securities in each such transaction represented their
intentions to acquire such securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the instruments issued in such transactions. All recipients had
adequate access to information about the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May 9, 1997. The
following is a brief description of each matter voted upon at the meeting and
the number of affirmative votes and the number of negative votes cast with
respect to each matter.
(a) The shareholders elected the following persons as directors of the
Company: Dennis J. Dougherty, William A. Hawkins, John K. Pirotte, Stephen R.
Puckett, Philip R. Tracy, Paul M. Wiles and John P. Funkhouser. The votes for
and against (withheld) each nominee were as follows:
Votes Votes Votes
Nominee For Withheld Abstained
------- ---- -------- ---------
Dennis J. Dougherty 4,757,493 0 258,958
William A. Hawkins 4,761,295 0 255,156
John K. Pirotte 4,761,295 0 255,156
Stephen R. Puckett 4,761,295 0 255,156
Philip R. Tracy 4,761,295 0 255,156
Paul M. Wiles 4,761,295 0 255,156
John P. Funkhouser 4,761,037 0 255,414
(b) The shareholders approved the amendment to the Cardiovascular
Diagnostics, Inc. Employee Stock Option Plan of 1995 with 4,221,862 shares
voting for, 719,933 shares voting against and 19,126 shares abstained.
(c) The shareholders ratified the appointment of Coopers & Lybrand L.L.P.
as the independent auditors of the Company for the year ending December 31,
1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement regarding computation of loss per share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the period.
10
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Exhibit 11.1
CARDIOVASCULAR DIAGNOSTICS, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
------------------- ------------------- ------------------- ------------------
Net loss ($947,531) ($1,325,157) ($1,425,164) ($2,437,997)
=================== =================== =================== ==================
Weighted average number of
shares outstanding 6,729,722 6,560,002 6,722,151 6,548,779
------------------- ------------------- ------------------- ------------------
Loss per share ($0.14) ($0.20) ($0.21) ($0.37)
=================== =================== =================== ==================
Net loss ($947,531) ($1,325,157) ($1,425,164) ($2,437,997)
Weighted average shares:
Common shares outstanding 6,729,722 6,560,002 6,722,151 6,548,779
Dilutive effect stock options & warrants - - - -
------------------- ------------------- ------------------- ------------------
Total shares 6,729,722 6,560,002 6,722,151 6,548,779
Diluted loss per share ($0.14) ($0.20) ($0.21) ($0.37)
=================== =================== =================== ==================
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11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARDIOVASCULAR DIAGNOSTICS, INC.
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Date: August 14, 1997 By: /s/ B. Denise Hobbs
-------------------
B. Denise Hobbs
Treasurer
(Principal Financial and Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 2,095 2,095
<SECURITIES> 3,754 3,754
<RECEIVABLES> 2,390 2,390
<ALLOWANCES> (4) (4)
<INVENTORY> 2,312 2,312
<CURRENT-ASSETS> 10,642 10,642
<PP&E> 7,598 7,598
<DEPRECIATION> (3,199) (3,199)
<TOTAL-ASSETS> 16,850 16,850
<CURRENT-LIABILITIES> 554 554
<BONDS> 0 0
0 0
0 0
<COMMON> 7 7
<OTHER-SE> 16,229 16,229
<TOTAL-LIABILITY-AND-EQUITY> 16,850 16,850
<SALES> 1,759 4,043
<TOTAL-REVENUES> 1,759 4,043
<CGS> 1,427 2,950
<TOTAL-COSTS> 1,427 2,950
<OTHER-EXPENSES> (1,980) (3,559)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 (1)
<INCOME-PRETAX> (933) (1,396)
<INCOME-TAX> (14) (29)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (948) (1,425)
<EPS-PRIMARY> (0.14) (0.21)
<EPS-DILUTED> (0.14) (0.21)
</TABLE>
