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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-28034
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CardioTech International, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3186647
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
11 State Street, Woburn, Massachusetts 01801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 933-4772
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of class)
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _______
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The number of shares outstanding of the registrant's class of Common Stock
as of August 13, 1996 was 4,244,116. No shares were held in treasury.
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CARDIOTECH INTERNATIONAL, INC.
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets at
June 30, 1996 and March 31, 1996 3
Consolidated Statements of Operations
for the three months ended
June 30, 1996, and 1995 4
Consolidated Statements of Cash Flows
for the three months ended
June 30, 1996, and 1995 5
Statement of Stockholders' Equity
for the years ended
March 31, 1996
and quarter ended June 30, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIOTECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
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March 31, 1996 June 30, 1996
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(unaudited)
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 504 $ 3,319,620
Accounts Receivable -- Trade - 23,200
Accounts Receivable -- Other - 2,059
Prepaid Expenses - 104,695
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Total Current Assets 504 3,449,574
Property and Equipment, net 35,190 173,276
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Total Assets $ 35,694 $ 3,622,850
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LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ - $ 9,842
Accrued Expenses - 24,269
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Total Current Liabilities $ - $ 34,111
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Stockholders' Equity:
Preferred stock $.01 par value; 5,000,000 shares
authorized, none issued or outstanding
Common Stock, $.01 par value, 20,000,000
shares authorized, 2,831,491 and 4,244,116
issued and outstanding at March 31, 1996 and
June 30, 1996, respectively 2,831 42,441
Due to Parent 4,063,966
Additional Paid in Capital 8,111,143
Accumulated Deficit (4,031,103) (4,555,616)
Cumulative Translation Adjustment (9,229)
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Total Stockholders' Equity 35,694 3,588,739
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Total Liabilities and Stockholders' Equity $ 35,694 $ 3,622,850
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CARDIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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<CAPTION>
Three Months Ended
June 30, 1995 June 30, 1996
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<S> <C> <C>
Research Revenue $ 23,663 $ 78,447
Operating Expenses
Research and Development 185,775 151,999
Selling, General and Administrative 71,115 134,185
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Total Operating Expenses 256,890 286,184
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Other Income and Expenses
Spin Off Transaction Cost - (323,558)
Interest Income - 6,782
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- (316,776)
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Net Loss $(233,227) $(524,513)
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Net Loss Per Common Share $ (0.08) $ (0.17)
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Weighted Average Number of
Shares Outstanding 2,831,941 3,082,555
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CARDIOTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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<CAPTION>
Three months ended June 30,
1995 1996
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Cash flows from operating activities:
Net Loss $ (233,227) $ (524,513)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation 3,979 7,320
Changes in assets and liabilities
Accounts receivable 27,292 (25,259)
Prepaid expenses (29,328) (104,695)
Accounts payable 9,842
Accrued expenses (4,901) 24,269
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Net cash flows from operating activities (236,185) (613,036)
Cash flows from financing activities:
Net proceeds from issuance of common stock 3,830,000
Advance from parent 242,241 485,012
Payment of spinoff costs (373,631)
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Net cash flows from financing activities 242,241 3,941,381
Net increase in cash and cash equivalents 6,056 3,328,345
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Effect of exchange rate changes on cash (6,056) (9,229)
Cash and cash equivalents at beginning of period 504 504
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Cash and cash equivalents at end of period $ 504 $ 3,319,620
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CARDIOTECH INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the year ended March 31, 1996 and Quarter Ended June 30, 1996
(unaudited)
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<CAPTION>
Common Stock Additional Total Currency
---------------------- Due to Paid In Accumulated Translation Stockholders'
Number of Parent Capital Deficit Adjustment Equity
Shares Amount
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 2,831,491 2,831 4,063,966 (4,031,103) 35,694
Issuance of Common
Stock to Parent 1,412,625 39,610 3,960,375 3,999,985
Payment of shared spin off
costs to former parent (373,631) (373,631)
Forgiveness of advances
from Parent and adjustment
of APIC (4,063,966) 4,524,399 460,433
Effect of Cumulative
Translation Adjustment (9,229) (9,229)
Net Loss June 30, 1996 (524,513) (524,513)
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Balance at June 30, 1996 4,244,116 $42,441 $ - $8,111,143 $(4,555,616) $(9,229) $3,588,739
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CARDIOTECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. The results for the interim periods presented are not necessarily
indicative of results to be expected for the full fiscal year.
2. In June 1996, the Company issued 1,412,625 shares of CardioTech Common
Stock for $3.8 million in cash, equipment having an estimated market value of
$147,000, the transfer of certain vascular graft manufacturing patents, and the
forgiveness of certain amounts due to its former parent PolyMedica Industries,
Inc. ("PMI"). After it acquired these shares, PMI owned 3,929,493 shares, or
92.6% of CardioTech Common Stock. On June 12, 1996 and June 19, 1996, PMI
distributed (the "Spin Off") all of the shares of common stock that PMI owned to
stockholders of record as of June 3, 1996. On June 11, 1996 all advances from
PMI to CardioTech were forgiven and are classified by the Company as equity as
additional paid in capital.
3. Net Loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
CardioTech synthesizes, designs and manufactures medical-grade polymers,
particularly polyurethanes that are useful in the development of vascular graft
technology and other implantable medical devices because they can be synthesized
to exhibit compatibility with human blood and tissue. CardioTech uses
proprietary manufacturing technology to fabricate small bore synthetic vascular
grafts made of ChronoFlex(R), a family of polyurethanes that has been
demonstrated to be biodurable, blood, tissue compatible and non-toxic.
In addition to the graft research and development program, since 1990
CardioTech has been engaged in various internal and joint venture programs with
corporate partners for the development and sale of ChronoFlex and other
proprietary biomaterials for use in medical devices manufactured by third
parties. This activity has generated research revenues for CardioTech.
As CardioTech is now focusing more of its research and development
resources on the vascular graft program, period to period comparisons of changes
in research revenues are not necessarily indicative of results to be expected
for any future period.
CardioTech was established as a separate subsidiary of PMI in March 1993 to
focus on PMI's existing biomaterials business, with a particular emphasis on
accelerating the research, development and commercialization of small bore
vascular graft products through external funding and a more focused and
strategic product development effort. In June 1996; PMI spun off the Company.
See Note 2 of Notes to Consolidated Financial Statements.
CardioTech is headquartered in Massachusetts and operates from
manufacturing and laboratory facilities located in Massachusetts and the United
Kingdom.
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RESULTS OF OPERATIONS:
Comparison for the Quarters Ended June 30, 1996 and 1995.
Research Revenues for the quarter ended June 30, 1996 were $78,447 compared
to $23,663 for the quarter ended June 30, 1995. The majority of this increase
$40,000, represents royalty income on specially designed polyurethanes for a
major medical device manufacture. The balance of this increase was due to an
increase in the shipment of biomaterials for scientific research for the quarter
ended June 30, 1996.
Research and Development expenses for the quarter ended June 30, 1996 were
$151,999 compared to $185,775 for the quarter ended June 30, 1995. This decrease
reflects the fact that during the quarter certain members of management devoted
substantial time to effectuating the Spin Off, rather than research and
development efforts.
Selling, general and administrative expenses for the quarter ended June 30,
1996 were $134,185 compared to $71,115 for the quarter ended June 30, 1995. The
increase in selling, general and administrative expenses reflects the costs
incurred by the Company in establishing itself as a stand alone company prior to
the Spin Off.
Other income and expenses for the quarter ended June 30, 1996 were $316,776
compared to $0 during the quarter ended June 30, 1996. The Company incurred
$323,558 in Spin Off transaction costs, which were partially offset by interest
income of $6,782.
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LIQUIDITY AND CAPITAL RESOURCES
CardioTech's future growth will depend on its ability to raise capital to
support research and development activities and to commercialize its vascular
graft technology. To date, CardioTech has not generated any revenue from the
sale of vascular grafts, although it has received a minor amount of research
revenues relating to its other biomaterials applications. Since inception,
funding from PMI has been used to finance the development of CardioTech's
technologies. CardioTech expects to continue to incur operating losses unless
and until product sales and/or royalty payments generate sufficient revenue to
fund its continuing operations.
CardioTech will require substantial funds for further research and
development, future pre-clinical and clinical trials, regulatory approvals,
establishment of commercial-scale manufacturing capabilities, and the marketing
of its products. CardioTech's capital requirements depend on numerous factors,
including but not limited to, the progress of its research and development
programs, the progress of pre-clinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any intellectual property rights, competing
technological and market developments, changes in CardioTech's development of
commercialization activities and arrangements, and the purchase of additional
facilities and capital equipment.
CardioTech is currently conducting its operations with approximately
$3,300,000 in cash contributed by PMI in connection with the Spin Off.
CardioTech estimates such amounts will be sufficient to fund its initial working
capital and research and development activities through June 1998.
Past spending levels are not necessarily indicative of future spending
levels. From the inception of CardioTech's business through March 31, 1996, PMI
has funded approximately $4.1 million in operating losses to support
CardioTech's research activities. Future expenditures for product development,
especially relating to outside testing and clinical trials, are discretionary
and, accordingly, can be adjusted to available cash.
CardioTech will seek to obtain additional funds through public or private
equity or debt financings, collaborative arrangements, or from other sources.
There can be no assurance that additional financing will be available at all or
on acceptable terms to permit successful commericialization of CardioTech's
technology and products. If adequate funds are not available, CardioTech may be
required to curtail significantly one or more of its research and development
programs, or obtain funds through arrangements with collaborative partners or
others that may require CardioTech to relinquish rights to certain of its
technologies, product candidates or products.
Inflation
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The moderate rate of inflation has not had a material effect on the
Company's operations.
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Forward Looking Statements
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This Form 10-Q contains forward-looking statements that are subject to
certain risks and uncertainties. These forward-looking statements include
statements regarding the sufficiency of the Company's liquidity and capital.
Such statements are based on management's current expectations. The forward
looking statements are subject to a number of factor's that could cause actual
results to differ materially from the Company's projections. Such factors
include the timely development of products by the Company and the Company's
ability to obtain financing to support its working capital needs. For more
explanation of these and other risk factors, please see the Company's Form 10-K
for the year ended March 31, 1996.
ChronoFlex(R) is a registered trademark of PMI.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARDIOTECH INTERNATIONAL, INC.
/s/ Michael Szycher, Ph.D.
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Michael Szycher, Ph.D.
Chairman and Chief Executive Officer
/s/ John E. Mattern
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John E. Mattern
Chief Financial Officer and Chief Operating Officer
(Principal Financial and
Accounting Officer)
Dated: August 13, 1996
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-01-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,319,620
<SECURITIES> 0
<RECEIVABLES> 25,259
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,449,574
<PP&E> 173,276
<DEPRECIATION> 7,320
<TOTAL-ASSETS> 3,622,850
<CURRENT-LIABILITIES> 34,111
<BONDS> 0
0
0
<COMMON> 42,441
<OTHER-SE> 3,546,298
<TOTAL-LIABILITY-AND-EQUITY> 3,622,850
<SALES> 0
<TOTAL-REVENUES> 78,447
<CGS> 0
<TOTAL-COSTS> 286,184
<OTHER-EXPENSES> 316,776
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (524,513)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (524,513)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
