UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2000
[ ] 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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(Name of small business issuer 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.)
78 E Olympia Avenue, Woburn, Massachusetts 01801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 933-4772
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The number of shares outstanding of the registrant's class of Common Stock as of
August 9, 2000 was 8,470,430. There are 20,822 shares held in treasury.
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CARDIOTECH INTERNATIONAL, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2000, and March 31, 2000 2
Condensed Consolidated Statements of Operations
for the three months ended June 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, MARCH 31,
2000 2000
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,553,000 $ 1,793,000
Accounts receivable -- trade 156,000 102,000
Accounts receivable -- other 299,000 343,000
Inventory 120,000 135,000
Prepaid expenses 40,000 53,000
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Total Current Assets 2,168,000 2,426,000
Property and equipment, net 513,000 535,000
Other non-current assets 1,131,000 1,203,000
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Total Assets $ 3,812,000 $ 4,164,000
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 736,000 $ 654,000
Accrued expenses 502,000 608,000
15% convertible subordinated notes due 2000 546,000 575,000
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Total Current Liabilities 1,784,000 1,837,000
7% Convertible senior notes due 2003 2,299,000 2,259,000
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Total Liabilities 4,083,000 4,096,000
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Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,365,430 and 8,099,067 shares
issued and outstanding at June 30, 2000 and
March 31, 2000, respectively 84,000 81,000
Additional paid-in capital 14,462,000 14,092,000
Accumulated deficit (14,389,000) (13,931,000)
Subscriptions receivable (Including notes receivable
from officers and directors of $150,000) (381,000) (150,000)
Treasury stock, at cost (40,000) -
Cumulative translation adjustment (7,000) (24,000)
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Total Stockholders' Equity (Deficit) (271,000) 68,000
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Total Liabilities and Stockholders' Equity (Deficit) $ 3,812,000 $ 4,164,000
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
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CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2000 1999
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Revenue:
Product sales $ 227,000 $ 50,000
Royalties, licenses and grants 193,000 169,000
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420,000 219,000
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Operating Expenses:
Cost of materials 340,000 232,000
Research and development 170,000 371,000
Selling, general and administrative 354,000 501,000
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Total Operating Expenses 864,000 1,104,000
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Loss from Operations (444,000) (885,000)
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Interest Income and Expense:
Interest income 39,000 25,000
Interest expense (53,000) (42,000)
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(14,000) (17,000)
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Net Loss (458,000) (902,000)
Other Comprehensive Income (Loss):
Foreign currency translation adjustments 17,000 (34,000)
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Comprehensive Loss $ (441,000) $ (936,000)
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Net Loss per Common Share, Basic and Diluted $ (0.06) $ (0.15)
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Shares Used in Computing Net Loss
per Common Share, Basic and Diluted 8,277,618 6,138,916
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
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CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED JUNE 30,
2000 1999
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Cash flows from operating activities:
Net loss $ (458,000) $ (902,000)
Adjustments to reconcile net loss to net
cash flows used by operating activities:
Interest on convertible senior notes 40,000 31,000
Depreciation and amortization 100,000 42,000
Changes in operating assets and liabilities:
Accounts receivable (10,000) (77,000)
Inventory 15,000 -
Prepaid expenses 13,000 (53,000)
Other assets - (112,000)
Accounts payable 82,000 (85,000)
Accrued expenses (106,000) (31,000)
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Net cash used by operating activities (324,000) (1,187,000)
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Cash flows from investing activities:
Purchase of property and equipment (8,000) (33,000)
Acquisition of Tyndale Plains-Hunter, net - (328,000)
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Net cash used by investing activities (8,000) (361,000)
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Cash flows from financing activities:
Net proceeds from issuance of common stock 102,000 -
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Net cash provided by financing activities 102,000 -
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Effect of exchange rate changes on cash
and cash equivalents (10,000) 16,000
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Net decrease in cash and cash equivalents (240,000) (1,532,000)
Cash and cash equivalents at beginning of period 1,793,000 2,392,000
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Cash and cash equivalents at end of period $1,553,000 $ 860,000
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Supplemental Disclosure of Cash Flow Information:
Taxes paid $ 456 $ 456
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. The unaudited consolidated financial statements included herein have been
prepared by CardioTech International, Inc. (including its subsidiaries,
collectively "CardioTech" or "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.
Actual results could differ from those estimates. 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. It is suggested
that these statements be read in conjunction with the Company's Consolidated
Financial Statements and its notes thereto, for the year ended March 31, 2000,
included in the Company's Annual Report to shareholders.
2. The Company computes basic and diluted earnings/loss per share ("EPS") in
accordance with Statement of Financial Accountings Standards No. 128, Earnings
Per Share. Basic earnings/loss per share is based upon the weighted average
number of common shares outstanding during the period. Diluted earnings/loss per
share is based upon the weighted average number of common shares outstanding
during the period plus additional weighted average common equivalent shares
issued during the period. Common equivalent shares result from the assumed
exercise of outstanding stock options and warrants, the proceeds of which are
then assumed to have been used to repurchase outstanding common stock using the
treasury stock method. Common equivalent shares have been excluded from the
computation of diluted loss per share for all periods presented, as their effect
would have been anti-dilutive.
Common equivalent shares result from the assumed exercise of outstanding
stock options and warrants, the proceeds of which are then assumed to have been
used to repurchase outstanding common stock using the treasury stock method.
Options to purchase 2,381,428 and 1,308,055 shares of common stock outstanding
during the periods ended June 30, 2000 and 1999, respectively, were excluded
from the calculation of diluted earnings per share because the effect of their
inclusion would have been anti-dilutive.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
CardioTech International, Inc. (including its subsidiaries, collectively
"CardioTech" or the "Company") is using its proprietary manufacturing technology
to develop and manufacture small bore vascular grafts, or synthetic blood
vessels, made of ChronoFlex, a family of polyurethanes that has been
demonstrated to be biocompatible and non-toxic. Vascular grafts are used to
replace, bypass or provide a new lining or arterial wall for occluded, damaged,
dilated or severely diseased arteries and are also used to provide access for
patients undergoing hemodialysis treatments. The Company develops layered,
microporous small bore vascular grafts. The Company has developed a vascular
access graft, called the VascuLink Vascular Access Graft and is developing (i) a
peripheral graft, called the MyoLink Peripheral Graft, and (ii) a coronary
artery bypass graft, called the CardioPass Coronary Artery Bypass Graft.
Blood is pumped from the heart throughout the body via arteries. Blood is
returned to the heart at relatively low pressure via veins, which have thinner
walls than arteries and have check valves which force blood to move in one
direction. Because a specific area of the body is often supplied by a single
main artery; rupture, severe narrowing or occlusion of the artery supplying
blood to that area is likely to cause an undesirable or catastrophic medical
outcome.
Vascular grafts are used to replace or bypass occluded, damaged, dilated or
severely diseased arteries and are sometimes used to provide access to the
bloodstream for patients undergoing hemodialysis treatments. Existing small
bore graft technologies suffer from a variety of disadvantages in the treatment
of certain medical conditions, depending upon the need for biodurability,
compliance (elasticity) and other characteristics necessary for long-term
interface with the human body.
CardioTech is developing its grafts using specialized ChronoFlex
polyurethane materials that it believes will provide significantly improved
performance in the treatment of arterial disorders. The grafts have three
layers, similar to natural arteries and are designed to replicate the physical
characteristics of human blood vessels.
Additionally, through its Biomaterials division, the Company develops,
manufactures and markets polyurethane-based biomaterials for use in both acute
and chronically implanted devices such as stents, artificial hearts, and
vascular ports. These premium biomaterials are sold under the tradenames:
ChronoFlex, ChronoThane, HydroThane, ChronoFilm, HydroMed and Hydroslip.
CardioTech owns a number of patents relating to its vascular graft
manufacturing technology. In addition, PolyMedica Corporation ("PMI") has
granted to CardioTech an exclusive, perpetual, worldwide, royalty-free license
for the use of one polyurethane patent and related technology in the field
consisting of the development, manufacture and sale of implantable medical
devices and biodurable polymer material to third parties for the use in medical
applications (the "Implantable Device and Materials Field"). PMI also owns,
jointly with Thermedics, Inc., the ChronoFlex polyurethane patents relating to
the ChronoFlex technology ("Joint Technology".) PMI has granted to CardioTech a
non-exclusive, perpetual, worldwide, royalty-free sublicense of these patents
for use in the Implantable Devices and Materials Field.
The Company was founded in 1993 as a subsidiary of PMI. In June 1996, PMI
distributed all of the shares of CardioTech's common stock, par value $.01 per
share, that PMI owned to PMI stockholders of record as of June 3, 1996. The
Company is headquartered in Woburn, Massachusetts and also has production
facilities in Lawrenceville, New Jersey and Wrexham, Brymbo U.K.
ChronoFilm is a registered trademark of PMI. ChronoFlex, is a registered
trademark of CardioTech. ChronoThane, ChronoPrene, HydroThane, PolyBlend and
PolyWeld are tradenames of CardioTech. DuraGraft, VascuLink, MyoLink, CardioPass
are trademarks of CardioTech.
<PAGE>
RESULTS OF OPERATIONS
Comparison for the Three Months Ended June 30, 2000 and 1999.
Revenue for the quarter ended June 30, 2000 was $420,000 compared to
$219,000 for the quarter ended June 30, 1999, an increase of $201,000, or 92%.
This increase was primarily the result of additional revenue from the Tyndale
Plains-Hunter subsidiary for biomaterials sales of $140,000 and license and
royalty income of $84,000, as well as increased Vascular Graft sales of $31,000.
The increase was partially offset by a decrease in grant revenue of $80,000.
Product sales of Biomaterials and Vascular Grafts was $227,000 for the quarter
ended June 30, 2000 as compared to $50,000 for the quarter ended June 30, 1999,
and increase of $177,000, or 354%.
Cost of materials for the quarter ended June 30, 2000 was $340,000,
compared to $232,000 for the quarter ended June 30, 1999, an increase of
$108,000, or 47%. This increase was directly related to the cost of materials
of the Tyndale Plains-Hunter subsidiary of $220,000. The increase was partially
offset by a decrease in cost of materials related to Vascular Grafts of $19,000
or 37%, and the existing biomaterials line of $94,000 or 52%. The decreases
were a result of efficiencies in production lines. Research and development
expense for the quarter ended June 30, 2000 was $170,000, compared to $371,000
for the quarter ended June 30, 1999, a decrease of $201,000, or 54%. This
decrease was the result of decreased research and development expenses on the
Vascular Graft, which were completed in the last fiscal year.
Selling, general and administrative expense for the quarter ended June 30,
2000 was $354,000, compared to $501,000 for the quarter ended June 30, 1999 or a
decrease of $147,000 or 29%. This decrease was primarily due to decreased
salaries and employee related costs resulting from headcount reductions in the
prior fiscal year. Additionally, the reduction in selling, general and
administrative expenses was favorably affected by management's implementation of
cost containment measures.
Net interest expense for the quarter ended June 30, 2000 was $14,000
compared to $17,000 for the quarter ended June 30, 1999. The decrease primarily
resulted from an increase in interest income of $14,000 on excess cash held in
money market funds, and was partially offset by an increase in interest expense
of $11,000 on outstanding loans during the period.
Net loss for the quarter ended June 30, 2000 was $458,000, compared to
$902,000 for the quarter ended June 30, 1999, or a decrease in net loss of
$444,000 or 49%. The decrease in net loss is attributable, in part, to the
additional revenue from the Tyndale Plains-Hunter subsidiary, the completion of
clinical trials on the Vascular Graft, and the implementation of management's
cost containment measures. Net loss per share for the quarter ended June 30,
2000 was $0.06 per share as compared to $0.15 per share for the quarter ended
June 30, 1999, or a decrease in net loss per share of $0.09, or 60%.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $324,000 to fund operations during the three months ended
June 30, 2000 compared to $1,187,000 for the three months ended June 30, 1999.
The principal uses of funds for the three months ended June 30, 1999 were a net
loss of $458,000 and a decrease in accrued expenses of $106,000. The uses of
operating cash were offset by a normal increase in payables of $82,00; and the
effect of non-cash items that included interest accrued on convertible senior
notes of $40,00 and depreciation of $100,000.
The Company issued a total of 266,363 shares of common stock during the
quarter ended June 30, 2000 as a result of the exercise of common stock purchase
warrants and employee incentive stock options. As a result of the exercise of
warrants to purchase the Company's common stock, the Company received proceeds
of $85,000. In addition, the Company received proceeds of $17,000 upon the
exercise of employee incentive stock options. The Company has Subscriptions
Receivable of $231,000 related to common stock options granted to consultants
and directors, which were exercised during the quarter.
CardioTech's future growth will depend upon its ability to raise capital to
support research and development activities and to market and sell its vascular
graft technology. Through June 30, 2000, CardioTech continued to generate
revenues from the sale of vascular grafts, the sale of and royalties earned on
biomaterials, and NIH research grants. Since March 31, 1999, the Company began
<PAGE>
distribution and commercial sales of its Vasculink Vascular Access Graft in
Europe. The Company has distributors located in, but not limited to, Spain,
Italy, Germany, France, Sweden, and the Benelux countries.
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.
As of June 30, 2000, CardioTech was conducting its operations with
approximately $1,553,000 in cash and cash equivalents. CardioTech estimates
such amount combined with its cash flow from operations will be sufficient to
fund its working capital and research and development activities in the next
twelve months. Future expenditures for product development, especially relating
to outside testing and clinical trials, are discretionary and, accordingly, can
be adjusted based on the availability of cash.
SUBSEQUENT EVENTS
Subsequent to the quarter ended June 30, 2000, the Company issued 105,000
shares of its common stock upon the exercise of options granted to consultants
and directors. The Company recognized $165,000 in Subscriptions Receivable.
FORWARD-LOOKING STATEMENTS
The Company believes that this Form 10-QSB contains forward-looking
statements that are subject to certain risks and uncertainties. These
forward-looking statements include statements such as (i) the expected
performance of its grafts, including their needle-hole sealing capability, (ii)
the expected size of the market for the Company's products that are either
commercially available or in development, (iii) the Company's ability to
manufacture grafts that taper, (iv) HydroThane's bacterial resistance, clot
resistance, and biocompatibility, (v) the sufficiency of the Company's liquidity
and capital and the steps that would be taken in the event funding is not
available. Such statements are based on management's current expectations and
are subject to a number of factors and uncertainties that could cause actual
results to differ materially from the forward-looking statements. The Company
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(A) Exhibits:
Exhibit 27: Financial Data Schedule
(B) Reports on Form 8-K:
None
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