UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 second quarter period ended: September 30, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ________ to __________
Commission File Number: 0-28260
EP MEDSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3212190
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58 Route 46 West, Budd Lake, New Jersey 07828
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(201)691-6400
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. X Yes No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: Common Stock, no par value 7,599,917 shares outstanding
at November 13, 1996.
EP MEDSYSTEMS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PART I. -- FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996 3-4
(unaudited) and December 31, 1995
Consolidated Statements of Operations for the three 5
months ended September 30, 1995 and 1996(unaudited)
Consolidated Statements of Operations for the nine 6
months ended September 30, 1995 and 1996(unaudited)
Consolidated Statements of Cash Flows for the nine 7-8
months ended September 30, 1995 and 1996(unaudited)
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of 12-19
Financial Condition and Results of Operations
PART II. -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 20
Exhibit Index 21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EP MEDSYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $34,588 $986,706
Short-term investments 0 1,960,118
Accounts receivable, net 438,120 982,428
Inventories 469,265 532,736
Notes receivable, net 150,000 0
Prepaid expense and other 53,648 78,386
current assets
Total current assets 1,145,621 4,540,374
Property and equipment, net 148,954 152,055
Marketable securities 0 8,014,913
Intangible assets, net 722,448 641,383
Other assets 26,837 0
Total assets $2,043,860 $13,348,725
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current portion of notes payable $17,200 $0
Accounts payable 281,118 186,275
Payable due to related party 258,720 72,817
Accrued expenses 248,397 278,564
Deferred revenue 145,875 43,063
Customer deposits 91,502 102,123
Total current liabilities 1,042,812 682,842
Long-term debt 1180,318 0
Total liabilities 2,223,130 682,842
Commitments and contingencies
Shareholders' (deficit) equity:
Preferred Stock, no par value, - -
5,000,000 shares authorized, no
shares issued and outstanding
Common Stock, $.001 stated value,
25,000,000 shares authorized,
4,352,000 and 7,599,917 shares
issued and outstanding
4,352 7,600
Additional paid-in capital 3,306,088 16,743,014
Accumulated deficit (3,489,710) (4,084,731)
Total shareholders' (deficit) equity (179,270) 12,665,883
Total liabilities and shareholders'
(deficit) equity $2,043,860 $13,348,725
The accompanying notes are an integral part of these statements
EP MEDSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
September 30, September 30,
1995 1996
Product sales $ 637,380 $ 433,461
Revenue from catheter development 0 0
Total revenues 637,380 433,461
Operating costs and expenses:
Cost of products sold 364,563 270,959
Sales and marketing expenses 94,497 178,372
General and administrative
expenses 216,935 237,537
Depreciation and amortization 31,146 36,128
Research and development expenses 174,504 211,537
Loss from operations (244,265) (501,072)
Interest expense (12,062) (5,757)
Interest income 0 173,488
Net loss $ (256,327) $ (333,341)
Net loss per share $ (.04) $ (.04)
Weighted average shares outstanding 5,789,654 7,581,167
The accompanying notes are an integral part of these statements
EP MEDSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Nine Months Ended
September 30, September 30,
1995 1996
Product sales $ 1,524,002 $ 1,758,156
Revenue from catheter development 0 250,000
Total revenues 1,524,002 2,008,156
Operating costs and expenses:
Cost of products sold 824,097 936,765
Sales and marketing expenses 342,694 447,560
General and administrative
expenses 511,027 724,685
Depreciation and amortization 94,495 106,336
Research and development expenses 279,534 370,809
Write-off of value of 1995 Warrants
on retirement of 1995 Debentures 0 49,232
Write-off of intangible and other
assets 0 107,500
Loss from operations (527,845) (734,731)
Interest expense (31,602) (44,238)
Interest income 9,018 183,948
Net loss $ (550,429) $ (595,021)
Net loss per share $ (.10) $ (.09)
Weighted average shares outstanding 5,789,654 6,491,235
The accompanying notes are an integral part of these statements
EP MEDSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Nine Months Ended
September 30, September 30,
1995 1996
Cash flows from operating activities:
Net loss $(550,427) $(595,021)
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and amortization 100,302 124,670
Write-off of intangible and other 0 107,500
assets
Write-off of value of 1995 Warrants
on retirement of 1995 Debentures 0 49,232
Issuance of stock for research
and development 138,000 0
Issuance of stock for consulting 29,000 0
Bad debt expense 36,000 0
Changes in assets and liabilities:
(Increase)in accounts receivable (186,247) (544,308)
(Increase)in inventories (4,674) (63,471)
(Increase)in prepaid expenses
and other current assets (8,513) (24,738)
(Increase)decrease in other assets (2,071) 26,837
Increase (decrease) due to 134,259 (185,903)
related party
Increase (decrease) in accounts 25,156 (94,843)
payable
Increase (decrease) in accrued
expenses and deferred revenue 194,829 (72,646)
(Decrease) increase in deposits (4,375) 10,621
Net cash (used) by operating
activities (98,761) (1,262,070)
Cash flows from investing activities:
Capital expenditures, net of
disposals (38,669) (46,706)
Purchase of short term investments 0 (9,975,031)
Loan to Falfab (100,000) (7,500)
Net cash used in investing
activities (138,669) (10,029,237)
Net cash from financing activities:
Proceeds (repayment) of debentures, 687,500 (62,500)
Net proceeds from issuance of stock 0 12,415,175
(Payment) of borrowings (70,000) 0
Payments of notes payable (109,250) (109,250)
Net cash provided by financing
activities 508,250 12,243,425
Net increase (decrease) in cash 270,820 952,118
Cash, beginning of period 20,008 34,588
Cash, end of period 290,828 986,706
Supplemental Statement of Cash Flow Information:
Supplemental Noncash Investing and Financing Activities:
During the nine months ended September 30, 1996, the holders of
$1,025,000 face amount of long term debt (the "1995
Debentures") elected to exercise warrants ("the 1995 Warrants")
to purchase 512,500 shares of common stock at $2.00 per share
in lieu of receiving cash repayment of the debentures. On June
30, 1996, the Company repaid the remaining outstanding 1995
Debentures in the face amount of $112,500 in cash. The holders
of the remaining 1995 Warrants exercised warrants to purchase
56,250 shares of common stock at $2.00 per share.
Cash paid for interest was $26,708 and $60,969 for the nine
months ended September 30, 1995 and 1996, respectively.
The accompanying notes are an integral part of these statements
EP MEDSYSTEMS, INC.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements
reflect all adjustments (including normal recurring
adjustments) that management considers necessary to present
fairly the Company's financial position as of September 30,
1996; the results of operations for the three and nine months
ended September 30, 1996 and 1995; and the cash flows for the
nine months then ended. The results of operations for the
respective interim periods are not necessarily indicative of
the results to be expected for the full year. The unaudited
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the
notes thereto included in EP MedSystems, Inc.'s Registration
Statement on Form SB-2 (Reg. No. 333-3642).
Note 2 - Initial Public Offering
In June, 1996, the Company completed its initial public
offering consisting of 2,500,000 shares of common stock at
$5.50 per share. The net proceeds from the offering were
approximately $11,786,000 after deducting offering expenses.
Note 3 - Repayment of Debentures and Exercise of Stock Purchase
Warrants
During June, 1996, the holders of $1,025,000 face amount of
1995 Debentures elected to exercise their 1995 Warrants to
purchase 512,500 shares of common stock at $2.00 per share in
lieu of receiving cash repayment of the Debentures. On June 30,
1996, the Company repaid the remaining outstanding 1995
Debentures in the face amount of $112,500 in cash. During the
three months ended September 30, the holders of the remaining
1995 Warrants exercised their option to purchase 56,250 shares
of common stock at $2.00 per share. Upon repayment of the 1995
Debentures, the Company recorded a write off of $46,497,
representing the unamortized value placed on the 1995 Warrants
issued in connection with the 1995 Debentures.
Note 4 - Repayment of Note Payable
During September, 1996, the Company repaid the outstanding
principal and interest on a note payable issued in connection
with the acquisition of ProCath in the amount of $96,350 plus
accrued interest.
Note 5 - Inventories
Inventories consist of the following:
December September
31, 30
1995 1996
Raw materials $ 285,326 $ 283,613
Work-in-process 21,671 13,839
Finished goods 162,268 235,284
$ 469,265 $ 532,736
Note 6 - Net Loss Per Common Share
Net loss per share for the three months ended September 30,
1996 is calculated according to Accounting Principles Board
Opinion No. 15 ("APB 15"), "Earnings per Share," and is
computed by dividing net loss by the weighted average number of
shares of common stock outstanding during the period. Options
and warrants have been excluded because they are anti-dilutive.
Net loss per share for the nine months ended September 30, 1996
is computed by dividing net loss by the weighted average number
of shares of common stock and common stock equivalents deemed
outstanding. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"),
common stock, stock options and warrants issued during the
twelve months preceding the Company's initial public offering
at prices below the initial public offering price have been
included in the Company's loss per share computation through
June 30, 1996, the period during which the initial public
offering became effective, using the treasury stock method,
even though they were anti-dilutive.
Net loss per share for the three and nine months ended
September 30, 1995 is computed by dividing net loss by the
weighted average number of shares of common stock and common
stock equivalents deemed outstanding during the periods
presented. Pursuant to SAB No. 83, common stock, stock
options and warrants issued during the twelve months preceding
the Company's initial public offering at prices below the
initial public offering price have been included in the
Company's loss per share computation for the three and nine
month periods ending September 30, 1995, using the treasury
stock method, even though they were antidilutive. Stock
options issued prior to the twelve months preceding the initial
public offering are excluded as they are antidilutive.
EP MEDSYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion of significant factors
that affected the Company's interim financial condition and
results of operations. This should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission (Reg. No. 333-3642).
This Report on Form 10-QSB contains certain statements of a
forward looking nature relating to future events or the future
financial performance of the Company. Such forward-looking
statements are only predictions, and the actual events or
results may differ materially from the results discussed in the
forward looking statements. Factors that could cause or
contribute to such differences include those discussed below as
well as those discussed in "Risk Factors" of the Company's
Registration Statement on Form SB-2 filed with the Securities
and Exchange Commission (Reg. No. 333-3642).
RESULTS OF OPERATIONS
General
Historically, the Company has relied on third party
distributors for all of its sales activities. Concurrent with
the completion of its initial public offering, the Company
began efforts to build a direct sales and marketing force to
sell all of its products in the domestic market and to
strengthen its international distribution network. To date,
the Company has hired a new Vice President of Sales and
Marketing, a National Sales Manager, four Regional Sales
Managers, a Director of Marketing and several technical service
and administrative support personnel. At the same time, the
Company terminated its relationships with all of its domestic
distributors. The Company believes that the change over from a
distributor based sales force to a direct sales force had a
temporary adverse effect on sales of electrophysiology
equipment during the three month period ended September 30,
1996. However, the Company also believes its domestic direct
sales force will generate greater sales in the future than the
Company would have generated through the use of distributors.
It is likely that the Company will incur additional losses as a
result of the increased fixed costs associated with direct
sales until such time as sufficient incremental sales are
generated to cover such costs. The Company cannot determine
when or if that level of sales will be achieved.
The Company intends to continue to utilize distributors to sell
its products overseas and is in the process of adding
distributors in several countries not previously represented.
To assist in this process, the Company is appointing a Director
of International Sales to manage distributor relationships
outside of the United States. The Company has recently
received approval from the Japanese Ministry of Health to sell
electrophysiology equipment and catheters in the Japanese
market. Therefore, the Company expects to initiate sales
through its Japanese distributor during the fourth quarter of
1996.
Nine Months Ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995
Total revenues increased $484,154 (or 31.8%) from $1,524,002 to
$2,008,156 in the nine months ended September 30, 1996. The
increase was due to the initiation of sales of the EP WorkMate
in September, 1995, recognition of deferred revenue on
disposable products and development income realized through the
development, for a third party, of a new dual shock atrial
defibrillation catheter using a single catheter placed in the
coronary sinus. Catheter development income may or may not be
recurring. As discussed under Results of Operation - General
above, the Company has assembled a domestic direct sales and
marketing force to sell all of the Company's products and
terminated all of its domestic independent distributor
relationships. The Company believes that the change over from
a distributor based sales force to a direct sales force had a
temporary adverse effect on sales of electrophysiology
equipment for the three months ended September 30, 1996. It is
likely that the Company will incur additional losses as a
result of the increased fixed costs associated with direct
sales until such time as sufficient incremental sales are
generated to cover such costs. The Company cannot determine
when or if that level of sales will be achieved. The level of
1996 and 1997 sales will depend significantly on sales of the
EP WorkMate and the ability of the Company's newly created
domestic sales force to effectively market the EP WorkMate and
the Company's other products. The Company expects to continue
to utilize independent distributors to sell its products
overseas and is in the process of adding distributors in
several countries not previously represented. The Company
expects to begin shipments to Japan during the fourth quarter
of 1996.
Cost of products sold increased $112,668 (or 13.7%) from
$824,097 to $936,765. Gross margin on products sold increased
$121,486 (or 17.4%) from $699,905 to $821,391 due to higher
sales. To date, the Company has offered discounts to
purchasers of the EP WorkMate to help establish a base of
customers. In the future, the Company will attempt to reduce
its discount and increase its list price for the EP WorkMate.
However, given the competitive nature of the market there can
be no assurance that it will be successful with respect to its
pricing goals for the EP WorkMate. The use of a domestic
direct sales force may lead to an increased average net sales
price for certain of the Company's products, including the EP
WorkMate, however this may be offset by increased selling
expenses. The realization of catheter development revenue
improved operating margins during the period. This revenue may
or may not be recurring.
Sales and marketing expenses increased $104,866 (or 30.6%) from
$342,694 to $447,560. The increase was due to the initial
costs associated with hiring a direct sales force during the
third quarter, increased commissions paid to distributors and
other sales costs associated with higher sales volume. The
Company expects sales and marketing expenses to increase
significantly during the fourth quarter of 1996 and beyond to
support its increased sales efforts. These costs include, but
are not limited to, sales salaries and benefits, travel,
increased costs associated with attending trade shows and
conventions and increased marketing and promotional costs.
General and administrative expenses increased $213,658 (or
41.8%) from $511,027 to $724,685. The increase was due to
the hiring of several management personnel and increased rent,
insurance and other administrative costs associated with the
increased operating activities. The Company expects these
costs to continue to increase to support increased operations,
the upcoming clinical trials for the ALERT Catheter System and
activities associated with obtaining and maintaining ISO-9001
and CE Mark Certification for its products.
Depreciation and amortization expenses increased $11,841 (or
12.5%) from $94,495 to $106,336. The increase was due to
depreciation on new property and equipment. This was partially
offset by the elimination of depreciation on product
demonstration equipment which was fully depreciated during the
period.
Research and development expenses increased $91,275 (or 32.7%)
from $279,534 to $370,809. The increase was due to
expenditures associated with the Company's preparations for the
ALERT Catheter System clinical trials, costs for its linear
flexible catheter electrode technology which was licensed in
May, 1996 and the hiring of additional personnel in the
research and product development areas. The increase was
partially offset by a $138,000 charge to acquired research and
development expense in 1995, outside consulting expenses
associated with the steerable catheter technology and the EP
WorkMate product introduction in 1995 which were not recurring
during the nine months ended September 30, 1996. The Company
expects research and development expenses to increase
significantly in future periods in connection with the proposed
clinical evaluation of the ALERT Catheter System, the
development of new products and the enhancement of existing
products.
Write-off of intangible and other assets increased $107,500, as
the Company wrote off a loan to Falfab, a UK based manufacturer
of angioplasty catheters, due to Falfab's inability to repay
such amount.
Write-off of debenture warrants upon repayment was $49,232
during the nine months ended September 30, 1996, as the Company
expensed the value placed on the 1995 warrants due to the early
repayment of the 1995 Debentures and the concurrent exercise of
the 1995 Warrants.
Interest expense increased $12,636 (or 40.0 %) from $31,602 to
$44,238. The increase was due to interest expense associated
with the 1995 Debentures issued beginning in July, 1995. The
increase was partially offset by repayment of a portion of
indebtedness incurred in the acquisition of catheter and other
technologies. During 1996, the Company repaid the 1995
Debentures and the debt associated with the acquisition of
ProCath.
Interest income increased $174,930 from $9,018 to $183,948 due
to interest earned on the proceeds of its initial public
offering completed in June, 1996. The Company expects interest
income to increase in future periods as it continues to invest
the balance of the offering proceeds.
The Company incurred a net loss of $595,021, or $.09 per share
(per share data based upon weighted average shares outstanding
of 6,491,235), for the nine month period ending September 30,
1996, compared with a net loss of $550,429, or $.10 per share
(per share data based upon weighted average shares outstanding
of 5,789,654), for the nine months ended September 30, 1995
(see Note 6 to the Consolidated Financial Statements for a
discussion of the calculation of per share data). The increase
of $44,592 (or 8.1%) in net loss was caused by the factors
discussed above.
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
Total revenues decreased $203,919 (or 32.0%) from $637,380 to
$433,461 in the three months ended September 30, 1996. As
discussed under Results of Operation - General above, the
Company has assembled a domestic direct sales and marketing
force to sell all of the Company's products and terminated all
of its domestic independent distributor relationships. The
Company believes that the change over from a distributor based
sales force to a direct sales force had a temporary adverse
effect on sales of electrophysiology equipment for the three
months ended September 30, 1996. It is likely that the Company
will incur additional losses as a result of the increased fixed
costs associated with direct sales until such time as
sufficient incremental sales are generated to cover such costs.
The Company cannot determine when or if that level of sales
will be achieved. The level of 1996 and 1997 sales will depend
significantly on sales of the EP WorkMate and the ability of
the Company's newly created domestic sales force to effectively
market the EP WorkMate and the Company's other products. The
Company expects to continue to utilize independent distributors
to sell its products overseas and is in the process of adding
distributors in several countries not previously represented.
The Company expects to begin shipments to Japan during the
fourth quarter of 1996.
Cost of products sold decreased $93,604 (or 25.7%) from
$364,563 to $270,959. Gross margin on product sales decreased
$110,315 (or 59.6%) from $272,817 to $162,502 due to lower
sales. To date, the Company has offered discounts to purchasers
of the EP WorkMate to help establish a base of customers. In
the future, the Company will attempt to reduce its discount and
increase its list price for the EP WorkMate. However, given
the competitive nature of the market there can be no assurance
that it will be successful with respect to its pricing goals
for the EP WorkMate. The use of a domestic direct sales force
may lead to an increased average net sales price for certain of
the Company's products, including the EP WorkMate, however this
may be offset by increased selling expenses.
Sales and marketing expenses increased $83,875 (or 88.8%) from
$94,497 to $178,372. The increase was due to the initial costs
associated with hiring a direct sales force during the period.
The Company expects sales and marketing expenses to increase
significantly during the fourth quarter of 1996 and beyond to
support its increased sales efforts. These costs include, but
are not limited to, sales salaries and benefits, travel,
increased costs associated with attending trade shows and
conventions and increased marketing and promotional costs.
General and administrative expenses increased $20,602 (or 9.5%)
from $216,935 to $237,537. The increase was due to the hiring
of several management personnel and increased rent, insurance
and other administrative costs associated with the increased
operating activities. The Company expects these costs to
continue to increase to support increased operations, the
upcoming clinical trials for the ALERT Catheter System and
activities associated with obtaining and maintaining ISO-9001
and CE Mark Certification for its products.
Depreciation and amortization expenses increased $4,982 (or
16.0%) from $31,146 to $36,128. The increase was due to
depreciation on new property and equipment. This was partially
offset by the elimination of depreciation on product
demonstration equipment which was fully depreciated during the
period.
Research and development expenses increased $37,033 (or 21.2%)
from $174,504 to $211,537. The increase was due to
expenditures associated with the Company's preparations for the
ALERT Catheter System clinical trials, costs for the linear
flexible catheter electrode technology which was licensed in
May, 1996 and the hiring of additional personnel in the
research and product development areas. The increase was
partially offset by a $138,000 charge to acquired research and
development expense in 1995 which was not recurring during the
three months ended September 30, 1996. The Company expects
research and development expenses to increase significantly in
future periods in connection with the proposed clinical
evaluation of the ALERT Catheter System, the development of new
products and the enhancement of existing products.
Interest expense decreased $6,305 (or 52.3 %) from $12,062 to
$5,757. The decrease was due to the repayment of the 1995
Debentures and debt associated with the acquisition of ProCath.
Interest income increased $173,488 from $0 to $173,488 due to
interest earned on the proceeds of the Company's initial public
offering.
The Company incurred a net loss of $333,341, or $.04 per share
(per share data based upon weighted average shares outstanding
of 7,581,167, which exclude options because they are anti-
dilutive), for the three month period ending September 30,
1996, compared with a net loss of $256,327, or $.04 per share
(per share data based upon weighted average shares outstanding
of 5,789,654), for the three months ended September 30, 1995
(see Note 6 to the Consolidated Financial Statements for a
discussion of the calculation of per share data). The increase
of $77,014 (or 30.0%) in net loss was caused by the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have exceeded revenues,
resulting in an accumulated deficit of approximately $4.08
million. The Company's expects that its working capital
requirements will continue to be significant. On June 21,
1996, the Company completed an initial public offering of
2,500,000 shares at $5.50 per share, for aggregate proceeds of
approximately $11,786,000 which the Company intends to use for,
among other things, filing its IDE application, completion of
clinical trials of the ALERT Catheter System, continued
expansion of its sales and marketing capabilities, acquiring
new products and expanding its existing product line. The
Company believes, based on its currently proposed plans and
assumptions relating to its operations that the proceeds of
this offering will be sufficient to support its domestic direct
sales and marketing efforts, complete research and clinical
studies, prepare and file a IDE application and otherwise
satisfy its contemplated cash requirements for at least the
next 12 months.
Net cash (used by) operating activities for the nine months
ended September 30, 1996 was ($1,262,070) as compared to
($98,761) for the nine months ended September 30, 1995. Net
cash used was primarily to fund the net loss of $595,021, to
fund increased accounts receivable, and to repay accounts
payable, accrued expenses payable and amounts due to a related
party. Accounts receivable increased $544,308 in the nine
months ended September 30, 1996 from $446,318 to $982,428.
This increase resulted from increased product sales,
particularly EP WorkMate, which are often sold subject to
extended payment terms secured by a letter of credit, and
catheter development revenue, a portion of which is
outstanding. At September 30, 1996, the Company's accounts
payable, accrued expenses and payables to related party were
$537,656 as compared to $788,235 at December 31, 1995. At
September 30, 1996, the Company had cash and cash equivalents
of $986,706, short term investments and marketable securities
of $9,975.031 ($8,014,913 of which is classified as non-current
assets) and working capital of $3,857,532 due to the completion
of its initial public offering on June 21, 1996.
Cash used in investing activities for the nine months ended
September 30, 1996 included the purchase of $9,975,031 in short
term investments and marketable securities, representing the
proceeds of the Company's initial public offering. During the
nine months ended September 30, 1996, capital expenditures were
$46,706 as compared to $38,669 in the corresponding period in
1995. The Company is considering purchasing a building
currently leased by its ProCath subsidiary for approximately
$350,000 and expanding the available square footage at ProCath
from 5,000 to 7,500. As of this date, the Company does not
have any other material commitments for capital expenditures.
The Company expects, however, to use a portion of the proceeds
of its offering for the purchase of capital equipment, for
expansion of manufacturing and assembly and implementation of
ISO-9000 and obtaining the CE Mark for its products. During
the nine months ended September 30, 1996, the Company advanced
a $7,500 loan to Falfab, a UK based manufacturer of angioplasty
catheters. The Company elected to write off this amount plus
an additional $100,000 note receivable advanced in 1995 due to
Falfab's inability to repay the amounts due. The Company had
evaluated Falfab as a potential manufacturing facility for
catheters in Europe. Due to the anticipated expansion of the
ProCath facility and the expected CE Mark Certification for its
products, the Company is not considering the establishment of a
European based catheter manufacturing operation at this time.
Net cash provided by financing activities was $12,243,425 for
the nine months ended September 30, 1996 and included
approximately $11,786,000 net proceeds of the initial public
offering, $500,000 from the sale of 166,667 shares of common
stock at $3.00 per share in January, 1996 and the proceeds of
the exercise of 12,500 common stock options. During June, 1996,
the Company repaid $112,500 face amount of 1995 Debentures.
The holders of $1,025,000 face amount of 1995 Debentures
elected to exercise 1995 Warrants to purchase 512,500 shares of
common stock at $2.00 per share in lieu of receiving cash
repayment of the debentures. During September, 1996, the
Company repaid $96,350 plus accrued interest due on a note
payable arising from the acquisition of ProCath.
During the periods discussed above, the overall effects of
inflation and seasonality on the Company's business were not
significant.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits will be filed as part of
this Form 10-QSB:
Exhibit 11.1 * Computation of Earnings Per Share
Exhibit 27 * Financial Data Schedule
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended September 30, 1996
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.
EP MEDSYSTEMS, INC.
(Registrant)
Date: November 14, 1996 By: /s/ David A. Jenkins
David A. Jenkins,
President and
Chief Executive Officer
By: /s/ James J. Caruso
James J. Caruso,
Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Method of
Filing
11.1 * Statement regarding EDGAR
Calculation of Shares
Used in Computing Net
Loss Per Share
27 * Financial Data Schedule EDGAR
* Filed herewith
Exhibit 11.1
EP MEDSYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
Net loss $ (256,327) $ (333,341) $ (550,429) $ (595,021)
Weighted average shares
outstanding:
Common stock 4,518,667 7,581,167 4,518,667 5,648,566
(1)
Stock options 909,055 0 909,055 602,707
(2) (3)
Warrants (2) (3) 361,932 0 361,932 239,962
5,789,654 7,581,167 5,789,654 6,491,235
Historical net
loss $ (.04) $ (.04) $ (.10) $ (.09)
per share
(1) 93,500 and 166,667 shares of stock were issued in 1995 and
1996, respectively. These shares were issued within 12 months
preceding the filing of the registration statement at prices
lower than the initial public offering price. Pursuant to
Staff Accounting Bulletin No. 83 such shares have been included
in the weighted average number of shares outstanding for the
three and nine month periods ended September 30, 1995 and the
nine months ended September 30, 1996.
(2) Options and warrants at 909,055 and 361,932, respectively,
were granted at prices below the initial public offering price.
The dilutive effect of these options have been included in the
earnings per share calculation using the treasury stock method
in accordance with SAB No. 83 for the three and nine month
periods ended September 30, 1995. For the nine months ended
September 30, 1996, these options and warrants have been
included in the Company's loss per share computation through
June 30, 1996, the period during which the initial public
offering became effective, using the treasury stock method,
even though they were anti-dilutive.
Options Warrants
Options issued within 1,324,000 568,750
one year
Proceeds from $ 2,282,200 $ 1,137,500
exercise
Public offering price / $5.50 / $5.50
Treasury stock 414,945 206,818
Incremental shares 909,055 361,932
(3) Options and warrants have been excluded from the
calculation of earnings per share for the three months ended
September 30, 1996 because they are anti-dilutive.
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<CGS> 937
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