SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
X
- - - - ---------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1995
- - - - ---------- TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7578
ELECTRO-CATHETER CORPORATION
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1733406
(State of Incorporation) (I.R.S. Employer ID Number)
2100 Felver Court, Rahway, New Jersey 07065
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No. including Area Code: 908-382-5600
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.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
6,336,300 shares of Common stock, $.10 par value as of July 10, 1995.
<PAGE>
ELECTRO-CATHETER CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
May 31, 1995 and August 31, 1994 1
Condensed Comparative Statements of Operations -
Three and Nine Months Ended May 31, 1995
and May 31, 1994 2
Condensed Comparative Statements of Cash Flows -
Nine Months Ended May 31, 1995 and
May 31, 1994 3
Notes to Condensed Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 7
PART II. OTHER INFORMATION
Not Applicable
Signatures 7
<PAGE>
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited)
May 31, 1995 and August 31, 1994
<TABLE>
<CAPTION>
May 31, August 31,
1995 1994
------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 217,597 $ 376,388
Accounts receivable, net 1,128,290 1,064,774
Inventories
Finished goods 829,120 805,120
Work-in-process 678,535 512,525
Materials and supplies 534,701 485,645
----------- -----------
Total inventories 2,042,356 1,803,290
Prepaid expenses and
other current assets 51,121 139,779
------------ ------------
Total current assets 3,439,364 3,384,231
Property, plant and equipment, net 630,224 723,750
Other assets, net 199,745 162,432
------------ -----------
Total assets 4,269,333 4,270,413
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of subordinated
debentures due to T-Partnership 180,000 --
Current installments of long-term debt 17,742 18,196
Accounts payable and accrued expenses 1,019,207 1,004,182
------------ ------------
Total current liabilities 1,216,949 1,022,378
Subordinated debentures due to
T-Partnership, excluding current
installments 695,000 625,000
Long-term debt, excluding current
installments -- 13,043
------------ -----------
Total liabilities 1,911,949 1,660,421
------------ ------------
Stockholders' equity:
Common stock 633,630 576,232
Additional paid-in capital 10,565,298 10,106,647
Accumulated deficit (8,841,544) (8,072,887)
------------ ----------
Total stockholders' equity 2,357,384 2,609,992
Total liabilities and stockholders'
equity $ 4,269,333 $ 4,270,413
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 1,774,495 $ 1,823,681 $ 5,274,631 $ 5,309,162
Cost of goods sold 921,956 1,033,283 2,845,558 3,013,297
----------- ----------- ----------- ---------
Gross profit 852,539 790,398 2,429,073 2,295,865
Operating expenses:
Selling, general and administrative 964,244 924,308 2,461,947 2,564,248
Research and development 230,996 305,726 654,183 960,253
Operating loss (342,701) (439,636) (687,057) (1,228,636)
Other income (expenses):
Interest income 1,244 147 3,844 1,997
Interest expense (28,246) (33,817) (85,444) (56,088)
----------- ----------- ----------- ---------
Net loss $ (369,703) $ (473,306) $ (768,657) $(1,282,727)
=========== =========== ========= ==========
Net loss per common share $ (0.06) $ (0.08) $ (0.13) $ (0.23)
=========== =========== ========= ==========
Dividends per share None None None None
Weighted average shares outstanding 6,078,011 5,712,149 5,934,517 5,700,473
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31,
1995 1994
---- ----
Increase (decrease) in cash:
Cash flows from operating activities:
Cash received from customers $ 5,211,115 $ 5,299,319
Cash paid to vendors and employees (6,017,760) (5,793,847)
Interest received 3,844 2,852
Interest paid (84,111) (31,594)
------------ ------------
Net cash used in operating activities (886,912) (523,270)
Cash flows from investing activities:
Cash purchases of property, plant and
equipment (10,681) (46,936)
------------ ------------
Net cash used in investing activities (10,681) (46,936)
------------ ------------
Cash flows from financing activities:
Proceeds from the issuance of stock 500,063 --
Proceeds from exercise of stock options -- 24,512
Proceeds from Stock Purchase Plan 2,236 15,731
Proceeds from loan on officer's life
insurance policy -- 100,000
Proceeds from loan from and issuance
of warrants to T-Partnership 250,000 625,000
Repayment of debt (13,497) (238,098)
------------ ------------
Net cash provided by (used in)
financing activities 738,802 527,145
Net decrease in cash (158,791) (43,061)
Cash at beginning of period 376,388 424,912
------------ ------------
Cash at end of period 217,597 381,851
============ ============
Net loss $ (768,657) $ (1,282,727)
Adjustments:
Depreciation 104,207 104,704
Amortization 9,298 15,409
Changes in assets and liabilities:
Increase in accounts receivable, net (63,516) (9,843)
Increase (decrease) in inventories (239,066) 556,252
Decrease in prepaid expenses and
other current assets 88,658 88,106
Increase in other assets (32,861) (5,183)
Increase in accounts payable
and accrued expenses 15,025 10,012
------------ ------------
Net cash used in operating activities $ (886,912) $ (523,270)
============ ============
See accompanying notes to condensed financial statements.
3
<PAGE>
ELECTRO-CATHETER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position of
Electro-Catheter Corporation as of May 31, 1995, the statements of operations
for the three and nine months ended May 31, 1995 and May 31, 1994 and statements
of cash flows for the nine months ended May 31, 1995 and May 31, 1994, but are
not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the Company's Annual
Report to the Securities and Exchange Commission on Form 10-K for the fiscal
year ended August 31, 1994.
Note 2 Contingency
During the third quarter of fiscal year 1995 the Company received approval
on four of its five outstanding 510(k) pre-market notification applications. The
Company has supplied all the necessary information on the remaining 510(k) and
hopes to obtain approval in the next few months. The Company believes that it is
in compliance with GMP and that all issues with the FDA have been satisfactorily
resolved.
Note 3 Long-Term Debt
During June 1995, the Company borrowed $25,000 against the cash surrender
value of the life insurance policy of the Chairman of the Company. Interest on
the loan is 6% per year.
During July 1995, the Company borrowed the final $125,000 available under
the agreement with the T-Partnership and issued additional warrants to purchase
20,833 shares of the Company's common stock at an exercise price of $3.25 per
share.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net sales for the three and nine months ended May 31, 1995 decreased
$49,186 (2.7%) and $34,531 (0.7%), respectively, as compared to the three and
nine months ended May 31, 1994. Total domestic sales decreased $187,456 (12.9%)
and $276,989 (6.7%) for the same three and nine month periods, respectively.
International sales increased $138,270 (36.9%) and $242,458 (20.3%) for the
three and nine months ended May 31, 1995 as compared to the same periods in the
prior year. The decline in domestic sales is predominantly attributed to a
decline in the volume of business from the Company's sole domestic distributor.
The decrease in domestic sales was partially offset by shipments to an OEM
customer of a special-design catheter to be used in its clinical trials for its
own product. There is no assurance that the sales to the OEM customer will
continue. The increase in international sales is attributed to an increase in
sales of certain of the Company's traditional and electrophysiology products.
The Company terminated its agreement with its sole domestic distributor as
of May 31, 1995, pursuant to the terms of the agreement. The Company currently
sells in this territory by means of direct sales representatives. The Company,
having changed to direct distribution, expects to retain the majority of the
customers in this territory. As a result of this change, the Company's sales in
this territory should show an increase as the selling prices will exclude the
distributor discount. This change should also modestly improve the Company's
gross profit. However, marketing and sales expenses will increase since the
Company hired sales representatives in the territory to replace the distributor.
The Company also intends to place additional emphasis on its pacing and
monitoring products. However, the major focus will continue to be in the
electrophysiology market.
Gross profit dollars increased $62,141 (7.9%) and $133,208 (5.8%) for the
three and nine months ended May 31, 1995 as compared to the three and nine
months ended May 31, 1994. This increase is primarily attributed to the increase
in operating yields. The gross profit percentages for the three and nine months
ended May 31, 1995 were 48.0% and 46.1%, respectively, as compared to 43.3% and
43.2%, respectively, for the same period last year. Gross profit has been
adversely affected by the Company's aggressive pricing policy.
Selling, general and administrative expenses increased $39,936 (4.3%) for
the three month period ended May 31, 1995 as compared to the same period last
year. This increase is primarily attributed to a rise in selling expenses
associated with the addition of new sales representatives to cover the territory
previously represented by the former distributor, as well as higher convention
expenses. This increase was partially offset by lower administrative salaries as
a result of reduction in personnel, legal costs and consulting fees. Selling,
5
<PAGE>
general and administrative expenses decreased $102,301 (4.0%) for the nine month
period ended May 31, 1995 as compared to the same period last year. This
decrease is associated with lower administrative salaries as a result of a
reduction in personnel, lower legal costs and consulting fees and expenses
associated with the Company's Chief Executive Officer who retired on March 1,
1994. These decreases were partially offset by increased sales and marketing
expenses associated with the hiring of a Director of Clinical Development and a
National Sales Manager in addition to filling existing vacancies among the
direct sales force.
Research and development expenditures decreased $74,730 (24.4%) and
$306,070 (31.9%) for the three and nine months ended May 31, 1995 as compared to
the three and nine months ended May 31, 1994. The decrease is attributed to a
reduction in personnel, decreased purchases of research and development
materials and supplies and a reduction in support from manufacturing for new
product development.
Interest expense increased as a result of increased borrowings from the T
Partnership and higher interest rates, including the amortization of warrants
issued in conjunction with these borrowings.
The net loss for the three months ended May 31, 1995 was $369,703 or $.06
per share as compared to a loss of $473,306 or $.08 per share for the three
months ended May 31, 1994. The net loss for the nine months ended May 31, 1995
was $768,657 or $.13 per share as compared to a loss of $1,282,727 or $.23 per
share for the nine months ended May 31, 1994.
For matters concerning the Company and the Food and Drug Administration
(FDA) see note 2 to the condensed financial statements.
Liquidity and Capital Resources
Working capital decreased $139,438 to $2,222,415 from August 31, 1994. The
current ratio was 2.8 to 1 at May 31, 1995 as compared to 3.3 to 1 at August 31,
1994. Net cash used in operating activities was $886,912 for the first nine
months of fiscal year 1995 as compared to $523,270 for the first nine months of
1994 as a result of the loss from operations and increases in accounts
receivable and inventories. During the first nine months of 1995 the Company was
able to satisfy its cash shortfall from operating activities with the borrowings
from the T-Partnership and cash on hand.
In March 1995 the Company received from the T-Partnership approximately
$500,000 for the purchase of 571,500 shares of restricted common stock, $.10 par
value, in a private placement at $.875 per share. In connection with this
private placement, the Company also issued to the T-Partnership a warrant to
purchase 83,344 shares of the Company's common stock at an exercise price of
$1.425 per share. This warrant expires on February 23, 2000. Ervin Schoenblum,
the Company's Acting President and director and Abraham H. Nechemie, another
member of the Company's Board of Directors, are members of the T-Partnership.
6
<PAGE>
The Company believes that it has adequate working capital to fund ongoing
operations for the remainder of the fiscal year, but lacks sufficient resources
to fund planned growth in the Company's operations. The Company continues to
re-evaluate its plans and adopt certain cost reduction measures. The Company is
attempting to increase sales by examining and, where appropriate, modifying its
distribution network, utilizing aggressive pricing and introducing new products
to market.
The Company's ability to continue with its current plans is contingent upon
increasing cash flow from operations and obtaining additional financing.
Inflation did not have a material impact on the results of the Company's
operations for the nine months ended May 31, 1995.
Exhibits and Reports on Form 8-K
Exhibits
None.
Reports on Form 8-K
None.
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.
ELECTRO-CATHETER CORPORATION
Date: July 14, 1995 /S/ Ervin Schoenblum
--------------------
Ervin Schoenblum
Acting President
Date: July 14, 1995 /S/ Joseph P. Macaluso
----------------------
Joseph P. Macaluso
Chief Financial Officer
7
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