UNITED STATES
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 November 30, 1996
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
As of January 9, 1997, the number of shares outstanding of the Registrant's
common stock was 6,373,711 shares, $.10 par value.
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ELECTRO-CATHETER CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
November 30, 1996 and August 31, 1996 1
Condensed Comparative Statements of Operations -
Three Months Ended November 30, 1996
and November 30, 1995 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended November 30, 1996 and
November 30, 1995 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
INDEX TO EXHIBITS 9
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<TABLE>
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
November 30, 1996 and August 31, 1996
<CAPTION>
November 30 August 31
1996 1996
ASSETS (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 161,137 275,283
Accounts receivable, net 910,558 1,016,201
Inventories
Finished goods 1,053,344 954,997
Work-in-process 457,853 490,396
Materials and supplies 433,225 416,786
--------- ---------
Total inventories 1,944,422 1,862,179
Prepaid expenses and
other current assets 83,967 64,344
--------- ----------
Total current assets 3,100,084 3,218,007
Property, plant and equipment, net 560,832 551,698
Other assets, net 121,152 123,407
---------- ---------
Total assets 3,782,068 3,893,112
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of subordinated
debentures due to T-Partnership 300,000 300,000
Current installments of capitalized lease
obligations 8,075 7,489
Deferred revenues - 144,293
Accounts payable and accrued expenses 849,909 741,479
-------- --------
Total current liabilities 1,157,984 1,193,261
Subordinated debentures due to
T-Partnership, excluding current
installments 1,372,125 1,447,125
Capitalized lease obligation, excluding
current installments 35,334 37,756
--------- ---------
Total liabilities 2,565,443 2,678,142
--------- ---------
Stockholders' equity:
Common stock 637,371 637,371
Additional paid-in capital 10,679,316 10,679,316
Accumulated deficit (10,100,062) (10,101,717)
------------ ------------
Total stockholders' equity 1,216,625 1,214,970
--------- ---------
Total liabilities and stockholders'
equity $ 3,782,068 3,893,112
========= =========
See accompanying notes to condensed financial statements.
</TABLE>
1
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<TABLE>
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
November 30,
1996 1995
---- ----
<S> <C> <C>
Net revenues, including product sales,
research and development revenues
and license fees $ 1,677,750 1,825,993
Cost of revenues 814,995 894,897
------- -------
Gross profit 862,755 931,096
Operating expenses:
Selling, general and administrative 593,833 788,036
Research and development 212,567 277,336
------- -------
Operating income (loss) 56,355 (134,276)
Other income (expenses):
Interest income - 86
Interest expense (54,700) (43,544)
------- -------
Net profit (loss) $ 1,655 (177,734)
===== ========
Net loss per common share $ 0.00 (0.03)
==== =====
Dividends per share None None
Weighted average shares outstanding 6,373,711 6,344,584
========= =========
See accompanying notes to condensed financial statements.
</TABLE>
2
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<TABLE>
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
November 30,
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Cash received from customers $ 1,639,100 1,814,777
Cash paid to vendors and employees (1,582,599) (2,260,223)
Interest received - 86
Interest paid (53,364) (41,461)
-------- -------
Net cash provided by (used in)
operating activities 3,137 (486,821)
Cash flows from investing activities:
Cash purchases of property, plant and
equipment (40,447) (9,086)
------- ------
Net cash used in investing activities (40,447) (9,086)
------- ------
Cash flows from financing activities:
Proceeds from loan and warrants
from T-Partnership - 300,000
Repayment of debentures and capitalized
lease obligations (76,836) (13,055)
------- -------
Net cash (used in) provided by
financing activities (76,836) 286,945
------- -------
Net decrease in cash (114,146) (208,962)
Cash at beginning of period 275,283 304,385
------- -------
Cash at end of period $ 161,137 95,423
======== =========
Net profit (loss) $ 1,655 (177,734)
Adjustments:
Depreciation 31,313 30,637
Amortization 2,083 2,083
Changes in assets and liabilities:
Decrease in accounts receivable, net 105,643 799
Increase in inventories (82,243) (153,095)
Increase in prepaid expenses and
other current assets (19,623) (28,561)
Decrease in other assets 172 8,396
Decrease in deferred revenues (144,293) -
Increase (decrease) in accounts payable
and accrued expenses 108,430 (169,346)
------- --------
Net cash provided by (used in) operating
activities $ 3,137 (486,821)
======== ========
See accompanying notes to condensed financial statements.
</TABLE>
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 November 30, 1996, the results of operations
for the three months ended November 30, 1996 and November 30, 1995 and
statements of cash flows for the three months ended November 30, 1996 and
November 30, 1995, but are not necessarily indicative of the results to be
expected for the full year.
The financial statements have been prepared in accordance with the
requirements of Form 10-Q and consequently do not include disclosures normally
made in an Annual Report on Form 10-K. Accordingly, the financial statements
included herein should be reviewed in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1996.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Results of Operations
- ---------------------
Electro-Catheter Corporation has continued to investigate opportunities to
capitalize on its catheter technology and manufacturing capabilities. The
Company realized a profit in the first quarter of fiscal year 1997 as a result
of sales generated from some of these arrangements as well as from other cost
reduction measures. However, there is no assurance that such opportunities will
continue to materialize and that the Company can remain profitable.
Net revenues, which includes revenues of $144,293 from a research and
development agreement and $32,000 from a licensing agreement for certain of the
Company's technology, decreased $148,243 (8.1%) for the three months ended
November 30, 1996 as compared to the three months ended November 30, 1995.
Direct domestic sales decreased $154,756 (13.4%) for this period primarily due
to lower demand for the Company's multi-function and steerable catheters,
combined with a loss of some field sales personnel who have not yet been
replaced. International sales decreased $156,383 (26.1%) primarily due to
decreased sales of the Company's electrophysiology products.
During recent months, the Company has devoted a significant part of its
engineering efforts to its research and development customer and other long-term
projects. This strategy has adversely affected sales in the short-term, but
management anticipates that such a strategy will yield favorable results in the
longer-term. The Company continues to explore solutions for the catheter-based
problems of the electrophysiologist.
Gross profit dollars decreased $68,341 (7.3%) for the three months ended
November 30, 1996 as compared to the same period of the prior year. This
decrease is primarily attributed to the lower sales volume. The gross profit
percentage for the three months ended November 30, 1996 was 51.4% as compared to
51.0% for the same period of the prior year. In October 1996, the Company
reduced the number of its production employees in line with the decreased
demand.
Selling, general and administrative expenses decreased $194,203 (24.6%) for
the three months ended November 30, 1996 as compared to the three months ended
November 30, 1995. This decrease primarily reflects lower domestic marketing and
selling expenses as a result of the loss of some field sales personnel that have
not yet been replaced.
Research and development expenses decreased $64,769 (23.4%) for the three
months ended November 30, 1996 as compared to the same period of the prior year.
This decrease is primarily attributed to lower material purchases as well as the
allocation of engineering resources to a contracted research and development
project. The costs associated with these billable arrangements are included in
cost of revenues in the accompanying condensed comparative statement of
operations. The aforementioned decreases were partially offset by higher
expenses for new personnel.
5
<PAGE>
Interest expense increased primarily as a result of the increased
borrowings from the T-Partnership.
The net profit for the three months ended November 30, 1996 was $1,655 or
$0.00 per share as compared to a net loss of $177,734 or $0.03 per share for the
three months ended November 30, 1995.
Liquidity and Capital Resources
- -------------------------------
At November 30, 1996, working capital decreased $82,646 to $1,942,100 from
August 31, 1996. The current ratio remained at 2.7 to 1 at November 30, 1996, as
it was on August 31, 1996. Net cash provided by operating activities was $3,137
for the three months ended November 30, 1996 as compared to $486,821 used in
operating activities for the three months ended November 30, 1995. This
improvement is primarily attributed to the reduction in the Company's losses and
the decrease in accounts receivable and the increase in accounts payable. The
Company was able to satisfy its cash requirements from funds received for
research and development work, cost reduction measures, especially in the sales
and marketing area where some sales personnel have not been replaced, and cash
on hand. Expenses will increase as a result of having hired additional sales,
engineering and regulatory personnel.
The Company's ability to continue with its plans is contingent upon its
ability to obtain sufficient cash flow from operations or to obtain additional
financing. The Company continues to evaluate its plans and adopt certain cost
reduction measures, where appropriate. However, there can be no assurance that
the Company will be able to generate sufficient funding for its needs.
On August 31, 1995, the Company entered into an agreement with the
T-Partnership to borrow an additional $500,000 (Lending Agreement). In January
1996, the Company and the T-Partnership agreed to a restructuring of its
financing agreement. The T-Partnership advanced an additional $200,000 to the
Company and agreed to defer interest payments for a period of three months
(interest payments were added to the outstanding principal on the T-Partnership
indebtedness). The total indebtedness due to the T-Partnership at November 30,
1996 was $1,672,125.
The rate of interest on the debt is 12% per annum and is payable monthly on
any outstanding balance. Principal payments of $25,000 began on September 1,
1996. Any remaining balance is due on August 1, 2001. The loan is secured by the
Company's property, building, accounts receivable, inventories and machinery and
equipment. The Company is to prepay the outstanding balance in the event the
Company is merged into or consolidated with another corporation or the Company
sells all or substantially all of its assets.
In exchange for the additional advances, the Company agreed that if it is
not in compliance with certain financial covenants, to be tested on a monthly
basis, the T-Partnership may declare an Event of Default and accelerate
repayment of the indebtedness. As of August 31, 1996, the Company was not in
compliance with this financial covenant. However, on December 16, 1996, the
T-Partnership agreed not to exercise its right to accelerate the repayment of
indebtedness through September 1, 1997 as a result of non-compliance with the
aforementioned financial covenant and the nonpayment of the December principal
payment or any future principal payments due in the 1997 fiscal year.
6
<PAGE>
In June 1996, Electro-Catheter Corporation received an advance of $300,000
from an unrelated company to perform research and development and
pre-production. In September 1996, the Company reached a verbal
agreement-in-principle with this company to perform research and development and
production for a period of one year for a monthly fee of $150,000. This
arrangement has not yet been reduced to writing and remains non-binding. In
December 1996, the Company received an additional advance of $150,000 from this
company.
In October 1996, the Company reached an agreement to license certain of its
technology to another medical device company that is in a market segment in
which the Company does not participate. This agreement is currently verbal and
has not been finalized. In the first quarter of fiscal year 1996, the Company
received $32,000 in license fees from this company and in December 1996, it
received an additional $32,000. The final payment of $32,000 is to be received
upon the attainment of a milestone by the customer.
The aforementioned agreements include the opportunity to manufacture
products, which should increase plant utilization. However, there can be no
assurance that the Company will receive the manufacturing rights to these
products or be able to manufacture these products. If manufacturing rights are
not received for one of these agreements, then royalty payments are to be
received based on the customer's sales volume.
Inflation did not have a material impact on the results of the Company's
operations for the three months ended November 30, 1996.
Part II. Other Information
- --------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed or incorporated by reference as part of this
Quarterly Report on Form 10-Q are listed in the attached Index to
Exhibits.
(b) During the quarter ended November 30, 1996, the Company did not
file any current Reports on Form 8-K.
7
<PAGE>
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELECTRO-CATHETER CORPORATION
/s/Ervin Schoenblum
-------------------
Date January 14, 1997 Ervin Schoenblum
---------------- Acting President and
Chief Operating Officer
/s/Joseph P. Macaluso
---------------------
Date January 14, 1997 Joseph P. Macaluso
------------------ Chief Financial Officer
8
<PAGE>
INDEX TO EXHIBITS
27 - Financial data schedule which is submitted electronically to the
Securities and Exchange Commission for information only and is not
filed.
9
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<LEGEND>
(Replace this text with the legend)
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<CIK> 0000032120
<NAME> Electro-Catheter Corporation
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<PERIOD-END> NOV-30-1996
<CASH> 161
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<ALLOWANCES> (23)
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