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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998, COMMISSION FILE NO. 333-68167
CARDIA, INC.
(Exact Name of Registrant as specified in its Charter)
MINNESOTA 41-1923885
(State of Incorporation) (I.R.S. Employer Identification No.)
13770 FRONTIER COURT, BURNSVILLE, MINNESOTA 55337
(Address of Principal Executive Offices) (Zip Code)
(612) 997-2100
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
PURSUANT TO RULE 15d-2 UNDER THE SECURITIES ACT OF 1933, THIS REPORT ONLY
CONTAINS FINANCIAL STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1998.
Check whether the Issuer (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
twelve months (or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation SB and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State Issuer's revenues for its most recent fiscal year: $167,240
The aggregate market value of voting stock held by nonaffiliates of the Issuer
on May 1, 1999 was $645,000.
The number of shares outstanding of the Issuer's only class of common stock on
May 1, 1999, was 1,000,000.
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<PAGE>
PART II
ITEM 7 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants 3
Balance Sheets as of December 31, 1997 and 1998 4
Statements of Operations for the years ended December 31, 1997 and 1998 5
Statements of Advances by Parent and Shareholders' Equity 6
for the years ended December 31,1997 and 1998
Statements of Cash Flows for the years ended December 31, 1997 and 1998 7
Notes to Financial Statements for the years ended December 31, 1997 and 1998 8
See accompanying notes to the financial statements.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Cardia, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of advances by parent and shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Cardia, Inc.
(the Company; formerly the Transcatheter Closures Business of Applied
Biometrics, Inc.) as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the year ended December 31, 1998 and the
period from November 2, 1997 (inception) to December 31, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
March 18, 1999
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<PAGE>
Balance Sheet
DECEMBER 31,
1997 1998
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 500
Accounts receivable -- 92,917
Inventories -- 50,888
Prepaid expenses and other current assets -- 11,285
----------- -----------
Total current assets -- 155,590
Property and equipment, net -- 27,371
Intangible assets 100,000 83,332
----------- -----------
Total assets $ 100,000 $ 266,293
=========== ===========
LIABILITIES AND NET INVESTMENT BY
APPLIED BIOMETRICS, INC.
Current liabilities:
Trade accounts payable $ -- $ 63,651
Total current liabilities -- 63,651
Commitments and contingencies
Advances by parent and shareholders' equity:
Advances from Applied Biometrics, Inc. 557,866 1,496,894
Accumulated deficit (457,866) (1,294,252)
----------- -----------
Net investment by Applied Biometrics, Inc. 100,000 202,642
----------- -----------
Total liabilities and net investment by
Applied Biometrics, Inc. $ 100,000 $ 266,293
=========== ===========
See accompanying notes to the financial statements.
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<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM
NOVEMBER 2, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
Net sales $ -- $ 167,240
Cost of sales -- 33,652
--------- ---------
Gross profit -- 133,588
Operating expenses:
Selling, general and administrative 16,409 564,826
Research and development -- 405,148
Acquisition of in-process research
and development 441,457 --
--------- ---------
457,866 969,974
--------- ---------
Net loss $(457,866) $(836,386)
========= =========
See accompanying notes to the financial statements.
-5-
<PAGE>
STATEMENT OF ADVANCES BY PARENT AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADVANCES NET INVESTMENT
FROM APPLIED ACCUMULATED BY APPLIED
BIOMETRICS, INC. DEFICIT BIOMETRICS, INC.
<S> <C> <C> <C> <C>
November 2, 1997 (inception) $ -- $ -- $ --
Purchase of the Transcatheter Closure
Product Line 557,866 -- 557,866
Net loss -- (457,866) (457,866)
----------- ----------- -----------
Balances at December 31, 1997 557,866 (457,866) 100,000
Advances by Applied Biometrics, Inc. 939,028 -- 939,028
Net loss -- (836,386) (836,386)
----------- ----------- -----------
Balances at December 31, 1998 $ 1,496,894 $(1,294,252) $ 202,642
=========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
-6-
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
NOVEMBER 2, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
<S> <C> <C>
Cash flows from operating activities: $(457,866) $(836,386)
Net loss
Adjustments to reconcile net loss to net cash
from operating activities:
Non-cash acquisition of in-process research
and development 441,457 --
Depreciation and amortization -- 19,709
Cash flows provided by (used for) changes in:
Accounts receivable -- (92,917)
Inventories -- (50,888)
Prepaid expenses and other current assets -- (11,285)
Accounts payable -- 63,651
--------- ---------
Net cash flows used for operating activities (16,409) (908,116)
--------- ---------
Cash flows from investing activities:
Cash expended for purchase of product line (31,457) --
Purchase of property and equipment -- (30,412)
--------- ---------
Net cash flows used for investing activities (31,457) (30,412)
--------- ---------
Cash flows from financing activities:
Cash received from Applied Biometrics, Inc. 47,866 939,028
--------- ---------
Net cash flows provided by financing activities 47,866 939,028
--------- ---------
Net increase in cash -- 500
Cash and cash equivalents:
Cash, beginning of period -- --
--------- ---------
Cash, ending of period $ -- $ 500
========= =========
</TABLE>
See accompanying notes to the financial statements.
-7-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
BACKGROUND
Cardia, Inc. (Cardia or the Company) was formed in October of 1998 as a
subsidiary of Applied Biometrics, Inc. (ABI). Prior to that time, the entity was
operated as the Transcatheter Closures Business (the Business) of ABI. Cardia
was formed to develop, manufacture, and market Transcatheter Closure Devices
(TCDs) which are based on intellectual property rights ABI acquired in November
1997.
TCDs are a new generation of implantable device technologies which are
delivered through a catheter to permanently repair certain cardiac defects in
children and adults.
In December 1998, the Board of Directors of ABI approved a plan to distribute
ABI's interest in the Company as a dividend to the shareholders of ABI (the
Distribution). Under the plan, ABI shareholders received one share of Cardia for
every 11.563 shares of ABI common stock. The Distribution to shareholders
occurred on February 11, 1999, with a total distribution of 375,000 shares.
ACQUISITION OF TECHNOLOGY
ABI acquired the rights to the TCD technology in an acquisition consummated in
November 1997. The purchase price for the acquired technology was approximately
$542,000 and was comprised of 85,000 shares of ABI stock and $32,000 of related
acquisition costs. The acquired technologies consisted of a pediatric product
which has been subsequently market released internationally on a limited basis
and rights to another product with therapeutic applications to adults which
required substantial additional development. The purchase price allocation
included approximately $100,000 to capitalizable intangible assets related to
the developed product and $442,000 to in-process research and development which
was charged to expense in 1997 as the underlying research and development
projects had not reached technological feasibility and had no alternative future
use.
The purchase agreement also requires the payment of royalties equal to 3% of the
net sales price of Vessel/Septal Occluder devices sold, payable on a quarterly
basis for a period of six years.
BASIS OF PRESENTATION
The accompanying financial statements include the specifically identifiable net
assets of the transcatheter closure operations of ABI and the results of
operations of that business from the point of ABI's acquisition of the
underlying technology in November 1997.
Costs related to functions performed by ABI have been charged to the Business.
Such costs allocated by the parent include certain general and administrative
costs such as personnel costs, legal costs and costs of the finance function.
These allocations of costs were determined in a manner which management
considers to reflect the incremental costs of providing these services. The
terms of these transactions and allocations of costs were determined between
related parties and may therefore differ from terms which
-8-
<PAGE>
would have occurred between wholly unrelated parties or had the Business
operated as a completely autonomous entity since inception.
The Business' financing requirements have been funded by Applied Biometrics,
Inc. No interest expense has been allocated or charged to the Business for
financing provided by ABI.
The financial information included herein may not necessarily be indicative of
the financial position, results of operations or cash flows of the Business in
the future or what the financial position, results of operations or cash flows
would have been if the Business had been a separate, independent company during
the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company operates in one industry segment and is engaged in the development,
manufacturing and marketing of Transcatheter Closure Devices.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Business' financial instruments consist of short-term trade receivables and
payables for which the current carrying amounts approximate fair market value.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of 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 these estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid marketable securities with original
maturities of three months or less.
INVENTORY
Inventory is stated at the lower of cost (first-in-first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost with depreciation computed using the
straight-line method over the estimated useful lives of the assets. Expenditures
for additions and improvements are capitalized while repair and maintenance
costs are expensed as incurred.
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<PAGE>
INTANGIBLE ASSETS
The cost of acquired intangible assets is capitalized and amortized on a
straight-line basis over an estimated useful life of six years. The
recoverability of unamortized intangible assets is assessed on an ongoing basis
by comparing discounted future cash flows from the related product to net book
value.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers.
CONCENTRATION OF CREDIT RISK
The Company does not believe it is subject to a concentration of credit risk.
RESEARCH AND DEVELOPMENT
The costs of research and development are expensed as incurred.
INCOME TAXES
Income taxes are accounted for using the liability method. The liability method
requires the recognition of deferred tax assets and liabilities for differences
between the financial reporting and income tax bases of the Company's assets and
liabilities.
NET LOSS PER SHARE
Earnings (loss) per share is computed by dividing net loss by the
weighted-average number of shares of common stock outstanding during the year.
For periods prior to the spin-off of Cardia from ABI, weighted-average shares
outstanding have been determined as if the distribution of shares in the
spin-off had occurred as of the inception of the Company. Common stock
equivalents, consisting of shares which might be issued upon exercise of stock
options are not included in weighted-average common shares for purposes of
determining diluted earnings per share in years where losses are reported since
their inclusion would be antidilutive. Pro forma loss per share is as follows:
1997 1998
Pro forma:
Basic and diluted loss per share $ (1.22) $ (2.23)
Shares used in computing pro forma loss per share 375,000 375,000
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company must adopt this standard no
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<PAGE>
later than fiscal year 2000. Management believes that adoption of SFAS No. 133
will not have a material effect on the Company's financial statements.
3. PROPERTY AND EQUIPMENT
The cost of property and equipment and the estimated useful lives are as
follows:
ESTIMATED
USEFUL LIFE 1997 1998
Furniture and fixtures 5 years $ -- $ 7,496
Machinery and equipment 5 years -- 22,916
--------- ---------
-- 30,412
Less accumulated depreciation -- (3,041)
--------- ---------
$ -- $ 27,371
========= =========
4. INTANGIBLE ASSETS
Intangible assets are comprised as follows:
ESTIMATED
USEFUL LIFE 1997 1998
Intangible assets 6 years $ 100,000 $ 100,000
Less accumulated amortization -- (16,668)
$ 100,000 $ 83,332
========= =========
5. STOCK OPTION PLAN
On January 27, 1999, the Board of Directors and sole shareholder of the Company
adopted the Cardia, Inc. 1999 Omnibus Stock Incentive Plan to provide for the
granting of stock-based incentives to officers, key employees and directors of
the Company. The Company has reserved 200,000 shares of its common stock for
issue in connection with awards granted pursuant to the plan. Subsequent to
December 31, 1998, the Company issued options to purchase an aggregate of
132,500 shares of its common stock at exercise prices varying from $1.00 to
$1.10 per share.
6. INCOME TAXES
The Business has not been allocated any tax benefit on the results of its
operations since inception. As the Business was part of the consolidated tax
return of ABI until spin-off as a separate company in February 1999, no losses
prior to that date are available for carryforward to future periods.
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<PAGE>
At the spin-off date, the Company will have available net temporary differences
to offset taxable income in future periods. For tax purposes, all acquired
technology of the Business is capitalized and amortized over a life of 15 years.
Such future tax benefits approximate $140,000.
7. SUBSEQUENT EVENTS - CAPITALIZATION AND FINANCING
The Distribution of 375,000 shares of the Company's common stock to ABI
shareholders occurred on February 11, 1999. At that date, Cardia had authorized
10,000,000 shares of its $0.01 par value common stock. Concurrent with the
Distribution, the Company sold 125,000 shares of Cardia common stock at a price
of $1 per share to an officer of the Company.
Subsequent to the Distribution, the Company completed a rights offering of its
common stock to sell an aggregate of 500,000 shares of common stock at a
subscription price of $1 per share, on the basis of one right for each share of
Cardia common stock held by a shareholder immediately after the Distribution.
-12-
<PAGE>
PART III
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The following exhibits are included with this annual report on
Form 10-KSB as required by Item 601 of Regulation S-B.
27 Financial Data Schedule
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on May 10, 1999.
CARDIA, INC.
By /s/ Joseph A. Marino
---------------------------
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
stated on May 10, 1999.
Signature Title
--------- -----
/s/ Joseph A. Marino Chief Executive Officer, Treasurer and Director
- --------------------------- (principal executive officer, principal financial
officer, and principal accounting officer)
/s/ Thomas E. Brust Director
- ---------------------------
/s/ Christopher J. Turnbull Director
- ---------------------------
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 500
<SECURITIES> 0
<RECEIVABLES> 92,917
<ALLOWANCES> 0
<INVENTORY> 50,888
<CURRENT-ASSETS> 155,590
<PP&E> 30,412
<DEPRECIATION> 0
<TOTAL-ASSETS> 266,293
<CURRENT-LIABILITIES> 63,651
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 202,642
<TOTAL-LIABILITY-AND-EQUITY> 266,293
<SALES> 167,240
<TOTAL-REVENUES> 167,240
<CGS> (33,652)
<TOTAL-COSTS> (33,652)
<OTHER-EXPENSES> (969,974)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (836,386)
<INCOME-TAX> (836,386)
<INCOME-CONTINUING> (836,386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (836,386)
<EPS-PRIMARY> (2.23)
<EPS-DILUTED> (2.23)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 100,000
<TOTAL-LIABILITY-AND-EQUITY> 100,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (457,866)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (457,866)
<INCOME-TAX> (457,866)
<INCOME-CONTINUING> (457,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (457,866)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>