SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-10574
CARDIAC RESUSCITATOR CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 22-2305475
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip code)
(201)884-5800
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports 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. [ ] Yes [X] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of common stock at September 30,
1995: 17,971,775.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CARDIAC RESUSCITATOR CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
Net revenues . . . . . . . .$ 218,400 $ 101,900 $ 42,700 $ 37,300
Selling, general & administrative
expenses . . . . . . . . . 16,000 19,400 12,000 5,300
Interest expense (income) - net (4,600) 28,500 (1,800) -
11,400 47,900 10,200 5,300
Net earnings before
extraordinary gain. . . . . 207,000 54,000 32,500 32,000
Extraordinary gain on
extinguishment of debt. . . - 153,100 - 153,100
NET EARNINGS . . . . . . . $ 207,000 $ 207,100 $ 32,500 $ 185,100
Net earnings per common share:
Before extraordinary gain $ .01 $ - $ - $ -
Extraordinary gain. . . . - .01 - .01
.01 .01 - .01
Weighted average number of common
shares outstanding. . . . 17,971,775 17,971,775 17,971,775 17,971,775
The accompanying notes are an integral part of the interim financial statements.
CARDIAC RESUSCITATOR CORPORATION
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
ASSETS
Current Assets:
Cash and cash equivalents . . . . . $ 543,900 $ 315,900
Royalty receivable . . . . . . . . . 42,700 64,000
Prepaid expenses and other current
assets . . . . . . . . . . . . . . -- 300
Total current assets . . . . . . . 586,600 380,200
TOTAL . . . . . . . . . . . . . . . $ 586,600 $ 380,200
LIABILITIES
Current Liabilities:
Accounts payable and accrued
expenses . . . . . . . . . . . . . $ 700 $ 1,300
Advances from Emerson Radio Corp. . 131,700 131,700
Total current liabilities . . . . 132,400 133,000
SHAREHOLDERS' EQUITY
Preferred stock -- par value $10.00
per share; authorized 500,000
shares; issued and outstanding
500,000 shares . . . . . . . . . . . 5,000,000 5,000,000
Common stock --no par value; authorized
20,000,000 shares; issued and
outstanding 17,971,775 shares . . . 678,400 678,400
Additional paid-in capital . . . . . 20,376,300 20,376,300
Accumulated deficit . . . . . . . . . (25,600,500) (25,807,500)
Total shareholders' equity . . . . . 454,200 247,200
TOTAL . . . . . . . . . . . . . . . $ 586,600 $ 380,200
The accompanying notes are an integral part of these interim financial
statements.
CARDIAC RESUSCITATOR CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1995 1994
Cash Flows from Operating Activities:
Net cash provided by operating
activities . . . . . . . . . . . . . . . $ 228,000 $ 105,100
Cash Flows from Financing Activities:
Payment of note payable. . . . . . . . . . - (500,000)
Net cash utilized by investing
activities . . . . . . . . . . . . . . . - (500,000)
Net increase (decrease)in cash and cash
equivalents . . . . . . . . . . . . . . . 228,000 (394,900)
Cash and cash equivalents at beginning
of year . . . . . . . . . . . . . . . . . 315,900 673,000
Cash and cash equivalents at end of period . $ 543,900 $ 278,100
Supplemental disclosure of cash flow
information:
Interest paid . . . . . . . . . . . . . . $ --- $ ---
The accompanying notes are an integral part of the interim financial
statements.
CARDIAC RESUSCITATOR CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The unaudited interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) that management believes
are necessary for a fair presentation of the results of operations for the
periods being reported. The unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and consequently do not include all of the disclosures
normally made in the Cardiac Resuscitator Corporation ("the Company") annual
Form 10-K filing.
NOTE 2
As described below, the Company's liquidity had been adversely
affected by the bankruptcy of Truvel Corporation ("Truvel").
From July 1989 to June 1990, the Company had been engaged in
the performance of consulting services with respect to the strategic
marketing and sale and attendant financial considerations of medical
electronic instrumentation and devices for Truvel, a concern engaged
in the development, manufacture and sale of electronic digitizing image
scanners. Such services were performed pursuant to a two year agreement
entered into in June 1989 between the Company and Truvel providing for
the Company's performance of the aforementioned consulting services on
Truvel's behalf for an aggregate consideration of $240,000.
Contemporaneously with its entrance into such an agreement, the Company
acquired a $750,000 equity interest in Truvel. As part of the
investment, the Company received a distribution of 139,993 shares of
Vision Ten Inc. ("Vision Ten") common stock. On June 5, 1990, Truvel
instituted a voluntary proceeding under Chapter 11 of the Bankruptcy
Code for the Central District of California. On September 4, 1990, a
plan of re-organization was approved providing for the sale of Truvel's
assets and the cancellation of all common shares. Based on the
bankruptcy court decision, the Company has not received revenues from
Truvel and has written off its investment in Truvel aggregating
$708,000. Therefore, no consulting revenues have been recognized since
June 1990. In October 1991, the Company sold 12,000 shares of Vision
Ten common stock for net proceeds of $4,800, resulting in a net gain
of $1,200. The Company subsequently sold all remaining Vision Ten
common stock in January 1992 for net proceeds of $65,400, resulting in a
net gain of $27,000.
As a consequence of Truvel's insolvency proceeding, commencing
June 1990, the Company began to pursue acquisitions or other business
opportunities. There are currently no specific plans or understandings
to cause the Company to make any specific acquisition or enter into
any specific business opportunity. The Company's current operating
activities consists of licensing patents relating to the medical
electronics business which it sold in June 1988 (the "Asset Sale").
The Company's medical electronics business consisted of the development,
manufacture, and sale of portable devices that electronically
identified in human beings ventricular fibrillation and/or severe
slowing of the heart and provided such patients with appropriate
electrical treatment by means of defibrillation shock or pacing
stimulation.
As part of the terms of the Asset Sale, the Company was
entitled to receive minimum royalties of $150,000 in each of the
three years ending June 30, 1991. In the contract year ended
June 30, 1991, the Company recognized additional royalties in excess
of the minimum royalty level. The minimum royalty was not exceeded
in the contract years ended June 30, 1990 and 1989. The royalties to
be earned under the Asset Sale extend to the expiration date of the
patents.
The Company has received funding from Emerson Radio Corp. ("Emerson")
in prior years; however, on September 29, 1993, Emerson filed a
Voluntary Petition for Reorganization under Chapter 11 of the
Bankruptcy Code. Although Emerson emerged from bankruptcy on March 31,
1994, it is unlikely that the Company will receive any funding from
Emerson for the Company's operations. All advances from Emerson since
June 30, 1988 have been non-interest bearing. Emerson owns approximately
79% of the Company's outstanding common stock and approximately 92% of
the Company's voting power.
The Company believes that cash flow from operations and the
available cash balance will be sufficient to maintain the Company's
operations for the next year.
NOTE 3
Through August 15, 1994, the Company was in default of its 11-1/2%
convertible subordinated note (the "Note"), due to its inability to
maintain a minimum current ratio of 1.25 and for failure to make
required sinking fund payments due annually on May 1 from 1987 to 1991
and aggregating $500,000 through May 1, 1991. In addition, the Company
elected not to make scheduled interest and principal payments
aggregating $528,600 that were due on May 1, 1992. In April 1993, the
holder of the Note (the "Noteholder") made a formal demand for payment
of the principal sum of $500,000 plus interest of $81,300 accrued
through March 31, 1993. Accordingly, the principal balance of the Note
in the amount of $500,000 was classified as a current liability. In
August 1994, the Company and the Noteholder agreed to settle the Note
in full satisfaction of the Company's obligations for $500,000 in cash. The
Note was paid in full on August 16, 1994. As a result, the Company
recognized an extraordinary gain on the extinguishment of debt of
$153,100 in the year ended December 31, 1994. The Note was convertible
into a maximum of 166,667 shares of the Company's common stock. The
Note also contained various restrictive covenants related to the
payment of dividends and repurchase of its common stock. The Note was
guaranteed by Emerson, but Emerson was precluded from satisfying such
guarantee due to certain restrictions created in connection with its
bankruptcy proceeding and reorganization.
A 15% promissory note issued by Emerson, which was converted
to common stock on February 6, 1986, was issued with warrants of the
Company to acquire up to 450,000 shares of the Company's common stock.
The warrants were exercisable at $6 per share and expired on
May 1, 1992.
NOTE 4
(A) Statements of Cash Flows:
For purposes of the statements of cash flows, short-term invest-
ments with maturities of three months or less at the time of purchase
are considered to be cash equivalents.
(B) Income Taxes:
Emerson, as a result of owning at least 80% of the Company's
common stock, included the Company's results of operations in its
consolidated tax returns and has utilized all of the Company's
operating losses from August 30, 1979 to November 30, 1982. The Company
has not received, nor expects to receive, a benefit from Emerson for
its use of these losses. As a result, these losses are not available
to the Company to offset any taxable income which may be earned in
future years. On December 1, 1982, Emerson's ownership of the Company
decreased to approximately 74%. As a result, for Federal income tax
purposes, the Company's results of operations for the period December 1,
1982 to June 6, 1984 have not been included in Emerson's consolidated
tax return and the accumulated operating losses of $5,193,700 for the
period are available to the Company to offset any taxable income
earned through 1999. Since June 6, 1984, Emerson has controlled in
excess of 80% of the shares of the Company in terms of both voting
power and value. As a result, Emerson has included the Company's
results of operations in its consolidated tax returns for periods
subsequent to that date and has utilized substantially all of the
Company's net operating losses from June 6, 1984 to September 30,
1995. The Company has not received, nor expects to receive, a benefit
from Emerson for use of these losses. The Company has not paid any
income taxes for the nine month periods ended September 30, 1995 and
1994.
(C) Earnings Per Share:
Earnings per common share is based on the weighted average
number of shares outstanding during each of the periods.
NOTE 5
In June 1984, the Company's Board of Directors adopted a stock
grant plan pursuant to which 100,000 shares of common stock were
reserved for issuance under the Plan. At March 31, 1995 the Company
had issued 69,667 shares of common stock pursuant to the Plan.
NOTE 6
In September 1984, the Company's Articles of Incorporation were
amended to include the authority to issue 500,000 shares of preferred
stock with a par value of $10.00 per share. Each preference share shall
have 60 votes per share for each corporate matter on which shareholders
may vote. The Company may, on not less than 10 days' prior written
notice to the holders of preference shares, redeem all or any portion
of the preference shares at a redemption price of $10.00 per share plus
declared and unpaid dividends, if any. The preference shares do not have
preemptive rights. The holders of preference shares are entitled to
non-cumulative dividends at the rate of $.80 per share, payable
semiannually when, as and if declared by the Board of Directors before
any dividends are paid on common shares. In the event of any
liquidation, dissolution, or winding up of the Company, either voluntary
or involuntary, the holder of the preference shares is entitled, after
provision for payment of the Company's debts and other liabilities, to a
liquidation preference of $10.00 per share. Initially, each preference share
is convertible into 1-1/3 common shares of the Company, at any time (an
effective conversion price of $7.50 per share), subject to adjustment to
protect against dilution. Emerson purchased 150,000 shares of the preferred
stock on September 6, 1984 and converted certain notes payable into 350,000
shares of preferred stock on February 6, 1986.
CARDIAC RESUSCITATOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Net revenues for the three and nine month periods ended September
30, 1995 were $42,700 and $218,400, as compared to $37,300 and $101,900
for the same periods last year. An increase in the total units sold by
the licensee of the Company's patents and a correction of the number of
units sold in 1994 by the licensee resulted in the higher royalties
earned in 1995. The correction reported by the licensee increased
net revenues by $39,400 in the first quarter of 1995. The Company did
not incur any costs to generate these royalties.
Selling, general and administrative expenses ("S,G&A") increased
$6,700 in the three month period ended September 30, 1995 from the same
period last year, resulting from an increase in professional fees. SG&A
expenses decreased $3,400 in the nine month period ended September 30, 1995
from the same period in the prior year, resulting from a decline in insurance
expense partially offset by an increase in professional fees.
Interest expense decreased $1,800 and $33,100 in the three and
nine month periods ended September 30, 1995, respectively, as compared
to the same periods last year. In August 1994, the Company reached a
settlement with the Noteholder on its 11-1/2% note payable (see Note 3
of Notes to Interim Financial Statements). Therefore, no interest
expense was incurred in the three and nine month periods ended
September 30, 1995. The decrease also related to interest income
earned on short-term investments in 1995.
The Company recorded on extraordinary gain on the extinguishment
of debt of $153,100 in the three months ended September 30, 1994. The
gain related to the settlement and payment of the Company's 11-1/2%
convertible subordinated note (the "Note").
As a result of the foregoing factors, net earnings were $32,500
and $207,000 for the three and nine month periods ended September 30,
1995, respectively, in comparison to net earnings of $185,100 and
$207,100, respectively, for the same periods last year.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months
ended September 30, 1995 was $228,000, attributable to net earnings
and the collection of royalties.
Liquidity and Capital Resources - continued
There were no financing or investing activities for the nine
months ended September 30, 1995.
Through August 15, 1994, the Company was in default of the Note
due to its inability to maintain a minimum current ratio of 1.25 and
for failure to make required sinking fund payments due annually on
May 1 from 1987 to 1991 and aggregating $500,000 through May 1, 1991.
In addition, the Company elected not to make scheduled interest and
principal payments aggregating $528,600 that were due on May 1, 1992.
In April 1993, a formal notice of demand for payment of the principal
sum of $500,000 plus interest of $81,300 accrued through March 31,
1993 was received by the Company from the holder of the Note (the
"Noteholder"). In August 1994, the Company and the Noteholder agreed
to settle the Note in full satisfaction of the Company's obligations
for $500,000 in cash. The Note was paid in full on August 16, 1994.
The Note was guaranteed by Emerson, which currently owns approximately
79% of the Company's outstanding common stock and approximately 92% of
the Company's voting power. However, Emerson was precluded from
satisfying such guarantee due to certain restrictions created in
connection with its bankruptcy proceeding and reorganization.
From July 1989 to June 1990, the Company had been engaged in the
performance of consulting services with respect to the strategic
marketing and sale and attendant financial considerations of medical
electronic instrumentation and devices for Truvel, a concern engaged in
the development, manufacture and sale of electronic digitizing image
scanners. Such services were performed pursuant to a two year agreement
entered into in June 1989 between the Company and Truvel providing for
the Company's performance of the aforementioned consulting services on
Truvel's behalf for an aggregate consideration of $240,000. Contempor-
aneously with its entrance into such an agreement, the Company acquired
a $750,000 equity interest in Truvel. As part of the investment, the
Company received a distribution of 139,993 shares of Vision Ten Inc.
("Vision Ten") common stock. On June 5, 1990, Truvel instituted a
voluntary proceeding under Chapter 11 of the Bankruptcy Code for the
Central District of California. On September 4, 1990, a plan of
reorganization was approved providing for the sale of Truvel's assets
and the cancellation of all common shares. Based on the bankruptcy court
decision, the Company has not received revenues from Truvel and has
written off its investment in Truvel aggregating $708,000. Therefore, no
consulting revenues have been recognized since June 1990. In October
1991, the Company sold 12,000 shares of Vision Ten common stock for net
proceeds of $4,800, resulting in a net gain of $1,200. The Company
subsequently sold all remaining Vision Ten common stock in January 1992
for net proceeds of $65,400, resulting in a net gain of $27,000.
As a consequence of Truvel's insolvency proceeding, commencing
June 1990, the Company began to pursue acquisitions or other business
opportunities. There are currently no specific plans or understandings
to cause the Company to make any specific acquisition or enter into any
specific business opportunity. The Company's current operating activities
consist of licensing patents relating to the medical electronics business
which it sold in June 1988 (the "Asset Sale"). The Company's medical
electronics business consisted of the development, manufacture, and
sale of portable devices that electronically identified in human beings
ventricular fibrillation and/or severe slowing of the heart and provided
such patients with appropriate electrical treatment by means of defibrillation
shock or pacing stimulation. As part of the terms of the Asset Sale, the
Company was entitled to receive minimum royalties of $150,000 in each of the
three years ending June 30, 1991. In the contract year ended June 30, 1991,
the Company recognized additional royalties in excess of the minimum royalty
level. The minimum royalty was not exceeded in the contract years ended
June 30, 1990 and 1989. The royalties earned under the Asset Sale extend
to the expiration date of the patents.
The Company has received funding from Emerson in prior years; however,
it is unlikely that the Company will receive any funding from Emerson for
the Company's operations. The Company believes that cash flow from operations
and the available cash balance will be sufficient to maintain the Company's
operations for the next year.
As a result of the termination of its consulting activities and
the composition of its assets, the Company could be deemed to be an
investment company for the purposes of the Investment Company Act of 1940,
as amended ("1940 Act"). If such a determination were made, the Company would
be required to register as an investment company under the 1940 Act. The Act
imposes restrictions as to an investment company's name, capital structure,
issuance of its securities, investments, constitution of its board of
directors, and power to declare dividends and select accountants and
financial officers, as well as to the rights of its shareholders to vote.
In addition, the 1940 Act, if applicable, would require the Company to
register under the 1940 Act as an Investment Company, adopt a specific form
of corporate structure and comply with certain burdensome reporting,
record keeping, voting, proxy, disclosure and other rules and regulations.
If the Company were to be characterized as an investment company for purposes
of the 1940 Act, the failure by the Company to satisfy regulatory requirements,
whether on a timely basis or at all, would under certain circumstances, have a
material adverse effect on the Company.
CARDIAC RESUSCITATOR CORPORATION
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibits pursuant to provisions of Item 601 of
Regulation S-K are not applicable.
(b) Reports on Form 8-K:
During the three month period ended September 30, 1995,
no Form 8-K was filed.
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.
CARDIAC RESUSCITATOR CORPORATION
(Registrant)
Date: December , 1995 /s/ Albert G. McGrath, Jr.
Albert G. McGrath, Jr.*
* Duly authorized to execute on behalf of the Registrant.
(#75)
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