SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
__________
Date of Report (Date of earliest event reported): November 17, 2000
CARDIOTECH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
000-28034
(Commission
File Number)
Massachusetts 04-3186647
--------------- ---------------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
78E Olympia Avenue
Woburn, MA 01801
-----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 933-4772
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 17, 2000, CardioTech International, Inc. ("CardioTech" or the
"Company") entered into a Share Purchase Agreement in Respect of Cardiotech
International Ltd. (the "Agreement") with Nervation Limited ("Nervation"). This
Agreement provides for the purchase of all the issued and outstanding ordinary
shares (the "Shares") of Cardiotech International, Ltd. ("LTD") by Nervation
from CardioTech for total cash consideration of $7,000,000. The Company
obtained stockholder approval for the sale of the Shares on October 26, 2000.
The following is a partial description of the terms and conditions of the
Agreement. The Company agreed:
1. To transfer all the Shares of LTD to Nervation;
2. To extend the right to Nervation the use of the name "CardioTech"
and/or any similar imitations thereof for a period of not less
than five (5) years;
3. To transfer legal title to all assets used by LTD in connection
with manufacturing, marketing, development and exploration of the
access and peripheral grafts (the "Business");
4. To grant an exclusive worldwide license to manufacture the
specific formulation of Chronoflex RC for the Business in certain
events including business interruption, sale, merger or
acquisition of the Company and/or the inability of the Company to
furnish the Chronoflex RC to LTD in sufficient quantity and/or
consistently and on a reasonable and timely commercial basis;
5. To grant LTD the option to become the exclusive distributor of
the Company's CardioPass Coronary Artery Bypass Graft ("CABG") in
Europe. If LTD exercises this option, it agreed to fund up to
$3,000,000 to perform European clinical trials to obtain CE
Marking.
6. To enter into a covenant by the Company not to compete with
Nervation in the manufacturing, marketing, development and
exploitation of the access and peripheral grafts currently used
in the Business, including the Vasculink Vascular Access Graft
and the Myolink Arterial Bypass Graft; and
7. To assign all Trademarks and Intellectual Property used in
connection with the Business and assets being transferred to
Nervation.
8. To purchase CABG grafts from LTD. LTD agreed to supply the
Company with such grafts. This is subject to the Company's
ability to obtain another supplier and to obtain the transfer of
the technology.
<PAGE>
In exchange for the above referenced terms and conditions the Company will
receive and/or maintain the following as consideration for consummating said
transaction:
1. A cash payment of $7,000,000;
2. The exclusive, worldwide right to the CABG and a covenant from
Nervation not to compete directly or indirectly with the CABG
product utilizing ChronoFlex technology;
3. The release of certain obligations and guarantee with respect to
certain debts and obligations of LTD; and
4. An advance payment of $200,000 for ChronoFlex RC to be sold to
LTD.
As a result of this transaction, the Company received gross proceeds of
$7,200,000. In connection with the transaction, the Company repayed
approximately $2,033,000 of 7% senior convertible notes held by Dresdner
Kleinwort Benson Private Equity Partners LP, including all accrued interest and
redemption premiums. Per the Agreement, the Company was also required to place
in escrow, for a period of eighteen months from the date of the Agreement,
$700,000 of the gross proceeds to fulfill certain indemnification provisions.
The Company incurred transaction related costs of approximately $250,000.
The description contained herein of the transaction is qualified in its
entirety by reference to the Share Purchase Agreement and related agreements to
the transaction (Exhibit 2.1), and a copy of CardioTech's press release
announcing the consummation of the transaction (Exhibit 99.1), copies of which
are attached hereto and incorporated herein by reference.
ITEM 7. PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Pro forma financial information.
----------------------------------
The pro forma condensed consolidated balance sheet of CardioTech International,
Inc. ("CardioTech" or the "Company") as of September 30, 2000, reflects the
financial position of the Company after giving effect to the sale of all of the
ordinary shares of CardioTech International Ltd ("LTD") and assumes the sale was
consummated as of September 30, 2000. The pro forma condensed consolidated
statements of operations for the fiscal year ended March 31, 2000 and the six
months ended September 30, 2000 assumes the sale was consummated as of April 1,
1999 and are based on the operations of the Company for the year ended March 31,
2000 and the six months ended September 30, 2000, respectively.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the Company based upon assumptions deemed proper by it. The
unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of the future financial position or results of operations
or actual results that would have occurred had the transaction been in effect as
of the date presented.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the Company's historical financial statements and
related notes.
<PAGE>
The unaudited pro forma Balance Sheet of the Company as of September 30, 2000,
as if the contemplated sale of LTD occurred on September 30, 2000, is as
follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
CARDIOTECH LTD OTHER CARDIOTECH
(1) (2)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,279,000 $ 6,000 $ 4,787,000 (3) $ 6,060,000
Accounts receivable -- trade 180,000 35,000 66,000 (4) 211,000
Accounts receivable -- other 364,000 4,000 360,000
Inventory 116,000 55,000 61,000
Prepaid expenses 122,000 23,000 99,000
------------- ------------ ------------ ------------
Total Current Assets 2,061,000 123,000 4,853,000 6,791,000
Property and equipment, net 504,000 182,000 322,000
Other non-current assets 1,060,000 103,000 957,000
------------- ------------ ------------ ------------
Total Assets $ 3,625,000 $ 408,000 $ 4,853,000 $ 8,070,000
============= ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 565,000 86,000 479,000
Accrued expenses 539,000 365,000 88,000 (4) 262,000
Intercompany payable to Cardiotech International, Inc. - 2,864,000 2,864,000 (5) -
Deferred revenue - - 200,000 (6) 200,000
15% convertible subordinated notes due 2000 527,000 527,000 -
------------- ------------ ------------
Total Current Liabilities 1,631,000 3,842,000 3,152,000 941,000
7% convertible senior notes due 2003 2,339,000 - (1,974,000) 365,000
------------- ------------ ------------ ------------
Total Liabilities 3,970,000 3,842,000 1,178,000 1,306,000
------------- ------------ ------------ ------------
Stockholders' Equity (Deficit):
Common stock 85,000 - 85,000
Additional paid-in capital 14,516,000 1,658,000 1,658,000 (7) 14,516,000
Accumulated deficit (14,818,000) (5,046,000) 2,085,000 (7)(8) (7,687,000)
Notes receivable from officers (150,000) - (150,000)
Accumulated other comprehensive income (loss) 22,000 (46,000) (68,000) (4)(9) -
------------- ------------ ------------ ------------
Total Stockholders' Equity (Deficit) (345,000) (3,434,000) 3,675,000 6,764,000
------------- ------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 3,625,000 $ 408,000 $ 4,853,000 $ 8,070,000
============= ============ ============ ============
</TABLE>
(1) Unaudited Consolidated Balance Sheet of CardioTech as of
September 30, 2000 as reported in the September 30, 2000 Form
10QSB prior to giving affect to the sale of the common stock of
LTD.
(2) To eliminate the Assets, Liabilities and Stockholders' Deficit of
LTD as of September 30, 2000.
(3) Consideration received by CardioTech for the sale of LTD less
repayment of 7% convertible senior notes, redemption premium,
trade payables and transaction costs as follows:
Cash received for sale of LTD common stock $ 7,000,000
Advance on Supply Agreement 200,000
Repayment of 7% convertible senior note principal (1,974,000)
Repayment of redemption premium on 7% convertible senior note (59,000)
Payment of trade payables (130,000)
Payment of transaction costs (250,000)
------------
Net cash proceeds $ 4,787,000
============
(4) Intercompany receivable and payable due from/to LTD eliminated in
consolidation.
(5) Forgiveness of intercompany debt due to CardioTech by LTD.
(6) Deferred revenues resulting from advance of $200,000 by the
purchaser of LTD to CardioTech in consideration of an obligation
by CardioTech to supply certain materials to the purchaser of
LTD.
(7) Elimination of stockholders' equity and accumulated deficit of
LTD.
(8) Effect of gain on sale of LTD calculated as follows:
<PAGE>
Purchase price of LTD common stock $ 7,000,000
Less:
Net assets of LTD (3,434,000)
Transaction costs 250,000
Redemption premium 59,000
LTD trade payables 130,000
Write-off of intercompany due CardioTech 2,864,000
------------
Gain on sale of LTD $ 7,131,000
============
(9) Elimination of cumulative translation adjustment.
<PAGE>
The unaudited pro forma condensed consolidated Statement of Operations of the
Company for the year ended March 31, 2000, as if the sale of LTD occurred on
April 1, 1999, is as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
CARDIOTECH LTD OTHER CARDIOTECH
(1) (2)
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales $ 493,000 $ 67,000 $ 38,000 (3) $ 464,000
Royalties, licenses and grants 1,004,000 - 1,004,000
------------ ------------ -------- ------------
1,497,000 67,000 38,000 1,468,000
------------ ------------ -------- ------------
Operating Expenses:
Cost of materials 201,000 103,000 38,000 (4) 136,000
Research and development 2,080,000 515,000 1,565,000
Selling, general and administrative 2,875,000 471,000 2,404,000
------------ ------------ -------- ------------
Total Operating Expenses 5,156,000 1,089,000 38,000 4,105,000
------------ ------------ -------- ------------
Loss from Operations (3,659,000) (1,022,000) - (2,637,000)
------------ ------------ -------- ------------
Interest Income and Expense:
Interest income 56,000 19,000 37,000
Interest expense (211,000) (71,000) 134,000 (5) (6,000)
------------ ------------ -------- ------------
(155,000) (52,000) 134,000 31,000
------------ ------------ -------- ------------
Net Loss (3,814,000) (1,074,000) 134,000 (2,606,000)
Other Comprehensive Income (Loss):
Foreign currency translation adjustments (12,000) - 12,000 (6) -
------------ ------------ -------- ------------
Comprehensive Loss $(3,826,000) $(1,074,000) $146,000 $(2,606,000)
============ ============ ======== ============
Net Loss per Common Share, Basic and Diluted $ (0.58) $ (0.40)
============ ============
Shares Used in Computing Net Loss
per Common Share, Basic and Diluted 6,541,545 6,541,545
============ ============
</TABLE>
(1) Audited Consolidated Statement of Operations of CardioTech as of
March 31, 2000 as reported in the March 31, 2000 Form 10KSB prior
to giving affect to the sale of LTD.
(2) To eliminate revenues and expenses of LTD for the entire period.
(3) Intercompany sales made by CardioTech to LTD eliminated in
consolidation.
(4) Intercompany costs of goods associated with sales made by
CardioTech to LTD eliminated in consolidation.
(5) Elimination of interest expense resulting from the redemption of
certain 7% convertible senior notes.
(6) Elimination of foreign currency translation adjustments.
<PAGE>
The unaudited pro forma condensed consolidated Statement of Operations of the
Company for the six months ended September 30, 2000, as if the sale of LTD
occurred as of April 1, 1999, is as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
CARDIOTECH LTD OTHER CARDIOTECH
(1) (2)
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales $ 466,000 $ 61,000 $ 17,000 (3) $ 422,000
Royalties, licenses and grants 401,000 - 401,000
------------ ---------- --------- ------------
867,000 61,000 17,000 823,000
------------ ---------- --------- ------------
Operating Expenses:
Cost of sales 529,000 92,000 17,000 (4) 454,000
Research and development 281,000 84,000 197,000
Selling, general and administrative 910,000 195,000 715,000
------------ ---------- --------- ------------
Total Operating Expenses 1,720,000 371,000 17,000 1,366,000
------------ ---------- --------- ------------
Loss from Operations (853,000) (310,000) - (543,000)
------------ ---------- --------- ------------
Interest Income and Expense:
Interest income 74,000 4,000 70,000
Interest expense (107,000) (27,000) 46,000 (5) (34,000)
------------ ---------- --------- ------------
(33,000) (23,000) 46,000 36,000
------------ ---------- --------- ------------
Net Loss (886,000) (333,000) 46,000 (507,000)
Other Comprehensive Income (Loss):
Foreign currency translation adjustments 46,000 - (46,000) (6) -
------------ ---------- --------- ------------
Comprehensive Loss $ (840,000) $(333,000) $ - $ (507,000)
============ ========== ========= ============
Net Loss per Common Share, Basic and Diluted $ (0.11) $ (0.06)
============ ============
Shares Used in Computing Net Loss
per Common Share, Basic and Diluted 8,342,546 8,342,546
============ ============
</TABLE>
(1) Unaudited condensed consolidated Statement of Operations of
CardioTech as of September 30, 2000 as reported in the September
30, 2000 Form 10QSB prior to giving effect to the sale of LTD.
(2) To eliminate revenues and expenses of LTD for the entire period.
(3) Intercompany sales made by CardioTech to LTD eliminated in
consolidation.
(4) Intercompany costs of goods associated with sales made by
CardioTech to LTD eliminated in consolidation.
(5) Elimination of interest expense resulting from the redemption of
certain 7% convertible senior notes.
(6) Elimination of foreign currency translation adjustments.
<PAGE>
(b) Exhibits.
--------
The following exhibits are filed as part of this report pursuant to
Item 601 of Regulation S-K:
Exhibit
-------
Number Description
------ -----------
2.1 Share Purchase Agreement between the Company and Nervation
Limited.
2.2 Option Agreement along with Form of Distribution Agreement
between the Company and LTD.
2.3 Product Development, Supply and Purchase Agreement relating to
CABG between the Company and LTD.
2.4 Supply and Purchase Agreement relating to Chronoflex RC between
the Company and LTD.
99.1 CardioTech's Press Release dated November 21, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
CardioTech International, Inc. has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: December 1, 2000 CARDIOTECH INTERNATIONAL, INC.
By: /s/ Michael Szycher
-----------------------
Michael Szycher, Ph.D.
Chief Executive Officer
By: /s/ David Volpe
-------------------
David Volpe
Chief Financial Officer
By: /s/ Thomas Lovett
---------------------
Thomas Lovett
Corporate Controller
<PAGE>
EXHIBIT INDEX
Exhibit
-------
Number Description
------ -----------
2.1 Share Purchase Agreement between the Company and Nervation
Limited.
2.2 Option Agreement along with Form of Distribution Agreement
between the Company and LTD.
2.3 Product Development, Supply and Purchase Agreement relating to
CABG between the Company and LTD.
2.4 Supply and Purchase Agreement relating to Chronoflex RC between
the Company and LTD.
99.1 CardioTech's Press Release dated November 21, 2000.
<PAGE>
