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 September 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
--------
CardioTech International, Inc.
-----------------------------
(Name of small business issuer as specified in its charter)
Massachusetts 04-3186647
------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
78 E Olympia Avenue, Woburn, Massachusetts 01801
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 933-4772
--------------
The number of shares outstanding of the registrant's class of Common Stock as of
October 31, 2000 was 8,470,364. No shares were held in treasury.
<PAGE>
<TABLE>
<CAPTION>
CARDIOTECH INTERNATIONAL, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 2000, and March 31, 2000 3
Condensed Consolidated Statements of Operations for the three months and
six months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31,
2000 2000
--------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,279,000 $ 1,793,000
Accounts receivable -- trade 180,000 102,000
Accounts receivable -- other 364,000 343,000
Inventory 116,000 135,000
Prepaid expenses 122,000 53,000
--------------- -------------
Total Current Assets 2,061,000 2,426,000
Property and equipment, net 504,000 535,000
Other non-current assets 1,060,000 1,203,000
--------------- -------------
Total Assets $ 3,625,000 $ 4,164,000
=============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 565,000 $ 654,000
Accrued expenses 539,000 608,000
15% convertible subordinated notes due 2000 527,000 575,000
--------------- -------------
Total Current Liabilities 1,631,000 1,837,000
Long Term Obligations:
7% convertible senior notes due 2003 2,339,000 2,259,000
--------------- -------------
Total Liabilities 3,970,000 4,096,000
--------------- -------------
Commitments and Contingencies
Stockholders' (Deficit) Equity:
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,470,364 and 8,099,067 shares issued and
outstanding at September 30, 2000 and March 31, 2000,
respectively 85,000 81,000
Additional paid-in capital 14,516,000 14,092,000
Accumulated deficit (14,818,000) (13,931,000)
Notes receivable from officers (150,000) (150,000)
Accumulated other comprehensive income (loss) 22,000 (24,000)
--------------- -------------
Total Stockholders' (Deficit) Equity (345,000) 68,000
--------------- -------------
Total Liabilities and Stockholders' (Deficit) Equity $ 3,625,000 $ 4,164,000
=============== =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Product sales $ 239,000 $ 153,000 $ 466,000 $ 203,000
Research grants and contracts 94,000 139,000 161,000 283,000
Royalties 115,000 89,000 240,000 114,000
----------- ----------- ----------- ------------
448,000 381,000 867,000 600,000
----------- ----------- ----------- ------------
Operating Expense:
Cost of sales 278,000 194,000 529,000 425,000
Research and development 111,000 255,000 281,000 626,000
Selling, general and administrative 468,000 556,000 910,000 1,057,000
----------- ----------- ----------- ------------
857,000 1,005,000 1,720,000 2,108,000
Loss from operations (409,000) (624,000) (853,000) (1,508,000)
----------- ----------- ----------- ------------
Interest Income and Expense:
Interest expense (54,000) (43,000) (107,000) (85,000)
Interest income 35,000 12,000 74,000 36,000
----------- ----------- ----------- ------------
(19,000) (31,000) (33,000) (49,000)
----------- ----------- ----------- ------------
Net loss $ (428,000) $ (655,000) $ (886,000) $(1,557,000)
=========== =========== =========== ============
Other comprehensive income (loss):
Foreign currency translation adjustments 29,000 (3,000) 46,000 (3,000)
----------- ----------- ----------- ------------
Comprehensive loss $ (399,000) $ (658,000) $ (840,000) $(1,560,000)
=========== =========== =========== ============
Net loss per common share basic and diluted $ (0.05) $ (0.10) $ (0.11) $ (0.24)
=========== =========== =========== ============
Shares used in computing Net Loss
per common share, basic and diluted 8,438,637 6,585,069 8,342,546 6,365,650
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (886,000) $(1,557,000)
Adjustments to reconcile net loss to net
cash used by operating activities:
Interest on convertible senior notes 80,000 64,000
Depreciation and amortization 160,000 143,000
Changes in assets and liabilities: (net of effects
of Tyndale Plains-Hunter acquisition in 1999)
Accounts receivable (99,000) (62,000)
Inventory 19,000 (32,000)
Prepaid expenses (69,000) (41,000)
Other non-current assets - (140,000)
Accounts payable (89,000) 80,000
Accrued expenses and other current liabilities (69,000) (7,000)
----------- ------------
Net cash used by operating activities (953,000) (1,552,000)
----------- ------------
Cash flows from investing activities:
Purchase of property and equipment (36,000) (44,000)
Acquisition of Tyndale Plains-Hunter, net - (327,000)
----------- ------------
Net cash used by investing activities (36,000) (371,000)
----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 467,000 -
Net proceeds from issuance of convertible notes - 340,000
----------- ------------
Net cash provided by financing activities 467,000 340,000
----------- ------------
Effect of exchange rate changes on cash 8,000 (20,000)
----------- ------------
Net decrease in cash and cash equivalents (514,000) (1,603,000)
Cash and cash equivalents at beginning of period 1,793,000 2,392,000
----------- ------------
Cash and cash equivalents at end of period $1,279,000 $ 789,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CARDIOTECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
outstanding 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 September 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.
3. On August 4, 2000, CardioTech entered into a Heads of Agreement (the
"Agreement") with Nervation Limited ("Nervation"), FreeMedic PLC ("FreeMedic"),
CardioTech International, Ltd ("CTL"), and certain members of the management of
CTL (the "Management") to divest itself of CTL through the sale of its 100%
common stock ownership in CTL to Nervation. The shareholders of the Company
approved the divestiture of CTL at the Annual Meeting of Shareholders held
October 26, 2000. Nervation, a newly formed UK company, is composed of key
members of CTL's management, together with FreeMedic, a wholly owned subsidiary
of University College London based at the Royal Free Campus of its Medical
School. The newly formed management team has accessed financing commitments
through Winchester Capital Technology Partners, including $7,000,000 in cash to
be used in connection with the purchase of all of the outstanding shares of CTL
from CardioTech. In addition to CardioTech's receipt of $7,000,000 in cash, the
proposed transaction will also benefit CardioTech as it involves the release of
certain liabilities and obligations, in particular, the release of a guarantee
of $540,000 in CTL debt to FreeMedic in exchange for equity in Nervation. As a
result of the proposed transaction, Nervation will have the exclusive rights to
the VascuLink Vascular Access Graft and the MyoLink Arterial Bypass Graft.
CardioTech will retain the exclusive rights to the CardioPass Coronary Artery
Bypass Graft. CardioTech will also enter into a long term Supply agreement to
provide "ChronoFlex RC" to Nervation, including a $200,000 advance payment on
supplies to be delivered to Nervation. Nervation will supply grafts necessary
6
<PAGE>
for CardioTech's pre-clinical trials of the Coronary Artery Bypass Graft. In
connection with this transaction, CardioTech will redeem approximately $2.1
million to retire part of a long-term note held by Dresdner Kleinwort Benson
Private Equity Partners, LP ("DKBPEP"). Also, the Company will grant Nervation
an option to become the exclusive distributor of the Coronary Artery Bypass
Graft in EEA countries if CE marking is received for the product. Despite the
fact that the Board of Directors and shareholders have approved the transaction,
and DKBPEP has provided its consent, there can be no assurances that a final
agreement will be reached with Nervation in which event CTL would not be sold to
them, and the long term note to DKBPEP would not be relieved. In addition, the
terms of the final agreement may change from that of the terms of the Agreement.
In such event, the officers of the Company will enter into the final agreements
on terms that they believe are substantially similar to the terms as set forth
in the Agreement.
7
<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 a production
facility in 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.
8
<PAGE>
RESULTS OF OPERATIONS
Comparison for the Three Months Ended September 30, 2000 and 1999.
Revenue for the three months ended September 30, 2000 was $448,000 as
compared to $381,000 for the three months ended September 30, 1999, an increase
of $67,000, or 18%. This increase was primarily the result of increases in
biomaterials sales and related royalties on biomaterial licenses of $83,000.
Product sales includes $29,000 of Vascular Grafts in the current quarter which
did not exist in the prior year quarter. The increases in product and royalties
revenues were offset by a decrease in research grant revenues of $45,000 due to
the completion of NIH grants in the current quarter.
Cost of sales for the three months ended September 30, 2000 was $278,000 as
compared to $194,000 for the three months ended September 30, 1999, an increase
of $84,000, or 43%. This increase is directly related to the increase in the
level of biomaterial sales.
Research and development expense for the three months ended September 30,
2000 was $111,000 as compared to $255,000 for the three months ended September
30, 1999, a decrease of $144,000, or 56%. This decrease was the result of
decreased research and clinical expenses on the Vascular Graft, which were
completed in the last fiscal year, and the completion of an NIH grant in the
current quarter.
Selling, general and administrative expense for the three months ended
September 30, 2000 was $468,000 as compared to $556,000 for the three months
ended September 30, 1999, a decrease of $88,000 or 16%. This reduction reflects
the favorable impact of management's cost containment measures and continued
efforts to maintain strict controls over such expenditures.
Net interest expense for the three months ended September 30, 2000 was
$19,000 as compared to $31,000 for the three months ended September 30, 1999, a
decrease of $12,000 or 39%. The decrease primarily resulted from an increase in
interest income of $23,000 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 three months ended September 30, 2000 was $428,000 as
compared to $655,000 for the three months ended September 30, 1999, a decrease
in net loss of $227,000 or 35%. The decrease in net loss is attributable, in
part, to the increase in revenues generated from biomaterial sales and related
royalties, decreases in costs associated with the completion of clinical trials
on the Vascular Graft and completion of an NIH grant, and continued cost
containment measures as implemented by management. Net loss per share for the
three months ended September 30, 2000 was $0.05 per share as compared to $0.10
per share for the three months ended September 30, 1999, a decrease in net loss
per share of $0.05, or 50%.
Comparison for the Six Months Ended September 30, 2000 and 1999.
Revenue for the six months ended September 30, 2000 was $867,000 as
compared to $600,000 for the six months ended September 30, 1999, an increase of
$267,000, or 45%. This increase was primarily the result of additional revenue
from biomaterial sales and related royalties that were derived from the
Company's core biomaterial products as well as increases resulting from its
Tyndale Plains-Hunter. The increase was partially offset by a decrease in grant
revenues resulting from the completion of an NIH grant.
Cost of sales for the six months ended September 30, 2000 was $529,000 as
compared to $425,000 for the six months ended September 30, 1999, an increase of
$104,000, or 24%. This increase is primarily attributable to the increase in
the level of biomaterial sales.
Research and development expense for the six months ended September 30,
2000 was $281,000 as compared to $626,000 for the six months ended September 30,
1999, a decrease of $345,000, or 55%. This decrease was the result of decreased
research and clinical expenses on the Vascular Graft, which were completed in
the last fiscal year, and the completion of an NIH grant in the second quarter
of fiscal 2001.
Selling, general and administrative expense for the six months ended
September 30, 2000 was $910,000 as compared to $1,057,000 for the six months
ended September 30, 1999, a decrease of $147,000 or 14%. 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 continue to be favorably affected
by management's implementation of cost containment measures.
9
<PAGE>
Net interest expense for the six months ended September 30, 2000 was
$33,000 as compared to $49,000 for the six months ended September 30, 1999. The
decrease primarily resulted from an increase in interest income of $38,000 on
excess cash held in money market funds, and was partially offset by an increase
in interest expense of $22,000 on outstanding loans during the period.
Net loss for the six months ended September 30, 2000 was $886,000 as
compared to $1,557,000 for the six months ended September 30, 1999, a decrease
in net loss of $671,000 or 43%. The decrease in net loss is attributable, in
part, to the increase in revenues generated from biomaterial sales and related
royalties, decreases in costs associated with the completion of clinical trials
on the Vascular Graft and completion of an NIH grant, and continued cost
containment measures as implemented by management. Net loss per share for the
six months ended September 30, 2000 was $0.11 per share as compared to $0.24 per
share for the six months ended June 30, 1999, or a decrease in net loss per
share of $0.13, or 54%.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $953,000 to fund operations during the six months ended
September 30, 2000 compared to $1,552,000 for the six months ended September 30,
1999. The principal uses of funds for the six months ended September 30, 2000
were to fund a net loss of $886,000, an increase in accounts receivable of
$99,000, an increase in prepaid expenses of $69,000, and a decrease in accounts
payable and accrued expenses of $158,000. The uses of operating cash were
offset by the effect of non-cash items that included interest accrued on
convertible senior notes of $80,000 and depreciation and amortization of
$160,000.
The Company issued a total of 371,363 shares of common stock during the six
months ended September 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 $82,000. In addition, the Company received proceeds of
$385,000 upon the exercise of employee incentive stock options.
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 September 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, 2000, the Company began
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.
On August 4, 2000, CardioTech entered into a Heads of Agreement (the
"Agreement") with Nervation Limited ("Nervation"), FreeMedic PLC ("FreeMedic"),
CardioTech International, Ltd. ("CTL"), and certain members of the management of
CTL (the "Management") to divest itself of CTL through the sale of its 100%
common stock ownership in CTL to Nervation. The shareholders of the Company
approved the divestiture of CTL at the Annual Meeting of Shareholders held
October 26, 2000. Nervation, a newly formed UK company, is composed of key
members of CTL's management, together with FreeMedic, a wholly owned subsidiary
of University College London based at the Royal Free Campus of its Medical
School. The newly formed management team has accessed financing commitments
through Winchester Capital Technology Partners, including $7,000,000 in cash to
be used in connection with the purchase of all of the outstanding shares of CTL
from CardioTech. In addition to CardioTech's receipt of $7,000,000 in cash, the
10
<PAGE>
proposed transaction will also benefit CardioTech as it involves the release of
certain liabilities and obligations, in particular, the release of a guarantee
of $540,000 in CTL debt to FreeMedic in exchange for equity in Nervation. As a
result of the proposed transaction, Nervation will have the exclusive rights to
the VascuLink Vascular Access Graft and the MyoLink Arterial Bypass Graft.
CardioTech will retain the exclusive rights to the CardioPass Coronary Artery
Bypass Graft. CardioTech will also enter into a long term Supply agreement to
provide "ChronoFlex RC" to Nervation, including a $200,000 advance payment on
supplies to be delivered to Nervation. Nervation will supply grafts necessary
for CardioTech's pre-clinical trials of the Coronary Artery Bypass Graft. In
connection with this transaction, CardioTech will redeem approximately $2.1
million to retire part of a long-term note held by Dresdner Kleinwort Benson
Private Equity Partners, LP ("DKBPEP"). Also, the Company will grant Nervation
an option to become the exclusive distributor of the Coronary Artery Bypass
Graft in EEA countries if CE marking is received for the product. Despite the
fact that the Board of Directors and shareholders have approved the transaction,
and DKBPEP has provided its consent, there can be no assurances that a final
agreement will be reached with Nervation in which event CTL would not be sold to
them, and the long term note to DKBPEP would not be relieved. In addition, the
terms of the final agreement may change from that of the terms of the Agreement.
In such event, the officers of the Company will enter into the final agreements
on terms that they believe are substantially similar to the terms as set forth
in the Agreement.
As of September 30, 2000, CardioTech was conducting its operations with
approximately $1,279,000 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.
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.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholders' meeting on October 26, 2000.
Michael Adams, Anthony Armini and Robert Chartoff were elected as Class I
directors of the Company to hold office until the 2003 annual meeting of the
shareholders. In addition, the shareholders approved a proposal to sell all of
the shares of Cardiotech International Ltd., the Company's wholly owned
subsidiary in England, to Nervation Limited. There were 4,962,802 shares voted
for, 38,325 shares voted against and 32,111 shares abstaining. The shareholders
also approved a proposal to increase the number of shares that may be issued
under the 1996 Stock Option Plan to 4,000,000 shares. There were 4,247,085
shares voted for, 604,036 shares voted against and 182,017 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
<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
----------------------------------------
Michael Szycher, Ph.D.
Chairman and Chief Executive Officer
/s/ David C. Volpe
-----------------------------------------
David C. Volpe
Acting Chief Financial Officer
/s/ Thomas Lovett
-----------------------------------------
Thomas Lovett
Controller
Dated: November 14, 2000
13
<PAGE>