<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
____________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 0-14653
CARDIAC CONTROL SYSTEMS, INC.
(Exact Name of Registrant as specified in its charter)
_____________________________
DELAWARE 74-2119162
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3 COMMERCE BOULEVARD, PALM COAST, FLORIDA 32164
(Address of Principal Executive Offices) (Zip Code)
_____________________________
Registrant's telephone number, including area code: (904) 445-5450
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 31, 1995, 1,377,564 shares of the Registrant's common stock, $.10
par value, were issued and outstanding.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
FORM 10-Q
DECEMBER 31, 1995
INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Page No.
- --------------------------------------------------------------------------------
<S> <C>
PART I. FINANCIAL INFORMATION
Balance Sheets at December 31, 1995 (Unaudited)
and March 31, 1995 ...................................................... 3
Statements of Operations and Accumulated Deficit for the Three
Months and Nine Months Ended December 31, 1995 and 1994 (Unaudited)...... 4
Statements of Cash Flows for the Nine Months Ended
December 31, 1995 and 1994 (Unaudited) .................................. 5
Notes to Financial Statements ........................................... 6
Management's Discussion and Analysis of Financial Position
and Results of Operations .............................................. 10
PART II. OTHER INFORMATION ............................................... 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIAC CONTROL SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
December 31, March 31,
1995 1995
- --------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................................ $ 345,801 $ 667,490
Certificate of deposit............................................. 40,000 40,000
Accounts and notes receivable...................................... 1,465,633 1,403,276
Inventories........................................................ 2,190,693 1,755,432
Prepaid expenses .................................................. 109,426 57,659
------------ ------------
Total current assets.................................. 4,151,553 3,923,857
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation of $3,176,361 and $3,039,211 ......................... 1,528,446 1,410,259
OTHER ASSETS ......................................................... 368,695 463,822
------------ ------------
Total assets ....................................... $ 6,048,694 $ 5,797,938
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES
Other notes and debt obligations payable within one year ....... $ 975,973 $ 46,538
Accounts payable.................................................. 310,247 474,877
Accrued interest ................................................. 46,353 555
Accrued compensation ............................................. 190,023 279,367
Accrued compensated absences ..................................... 129,296 112,477
Deposits payable ................................................. 25,000 351,147
Other accrued expenses ........................................... 268,387 213,594
------------ ------------
Total current liabilities ............................ 1,945,279 1,478,555
------------ ------------
NOTES AND DEBT OBLIGATIONS PAYABLE AFTER ONE YEAR ..................... 4,221,525 4,119,782
------------ ------------
OTHER LIABILITIES ..................................................... 190,840 169,311
------------ ------------
DEFERRED ROYALTIES .................................................... 426,750 690,050
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES ............................... - -
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.10 par value, 30,000,000 shares authorized,
1,370,253 and 1,342,819 shares issued and outstanding...... 137,383 134,282
Treasury stock ................................................... (10,938) -
Capital in excess of par value ................................... 18,745,509 18,725,430
Accumulated deficit .............................................. (19,607,654) (19,519,472)
------------ ------------
Total stockholders' equity (deficit) ................ (735,700) (659,760)
------------ ------------
Total liabilities and stockholders' equity (deficit). $ 6,048,694 $ 5,797,938
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Net sales............................................ $ 1,426,507 $ 1,146,492 $ 4,013,409 $ 3,590,017
Royalty income....................................... 722,800 205,725 1,711,450 654,875
------------ ------------ ------------ ------------
Total revenue..................................... 2,149,307 1,352,217 5,724,859 4,244,892
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of products sold................................ 643,447 533,823 1,868,163 1,863,883
Selling, general and administrative expenses......... 1,022,806 646,449 2,874,504 1,750,950
Engineering, research and development expenses....... 215,925 90,061 679,412 320,028
------------ ------------ ------------ ------------
Total cost and expenses.......................... 1,882,178 1,270,333 5,422,079 3,934,861
------------ ------------ ------------ ------------
OPERATING INCOME........................................ 267,129 81,884 302,780 310,031
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income...................................... 3,128 7,850 11,147 8,910
Interest expense..................................... (183,018) (84,901) (465,028) (206,954)
Other income (expense)............................... (12,135) 38 62,919 870
------------ ------------ ------------ ------------
Total other income (expenses).................... (192,025) (77,013) (390,962) (197,174)
------------ ------------ ------------ ------------
NET INCOME (LOSS)....................................... 75,104 4,871 (88,182) 112,857
ACCUMULATED DEFICIT - BEGINNING OF PERIOD................ (19,682,758) (20,786,457) (19,519,472) (20,894,443)
------------ ------------ ------------ ------------
ACCUMULATED DEFICIT - END OF PERIOD...................... $(19,607,654) $(20,781,586) $(19,607,654) $(20,781,586)
============ ============ ============ ============
NET INCOME ( LOSS) PER COMMON SHARE...................... $.06 $.00 $(.07) $.09
============ ============ ============ ============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.............. 1,363,142 1,324,538 1,349,769 1,246,718
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Nine Months Ended December 31, 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................. $ (88,182) $ 112,857
Adjustment to reconcile net income (loss) to
net cash used by operating activities:
Depreciation..................................................... 181,761 122,503
Amortization..................................................... 172,932 10,296
Gain on sale of equipment........................................ (4,701) -
Increase in accounts receivable.................................. (73,295) (481,941)
Increase in inventories.......................................... (435,261) (243,617)
Increase in prepaid expenses..................................... (51,767) (3,188)
Increase in other assets......................................... (13,884) -
Decrease in accounts payable..................................... (164,630) (411,566)
Increase in stockholder advances................................ - 4,305
Increase in accrued interest..................................... 130,372 186,829
Decrease in accrued compensation................................ (87,344) (75,330)
Increase in accrued compensated absences......................... 16,819 16,706
Decrease in deposits payable................................... (326,147) (25,586)
Increase (decrease) in other accrued expenses................... 54,793 (26,502)
Increase in other liabilities.................................... 21,529 8,320
Decrease in deferred royalties................................... (263,300) (188,250)
----------- -----------
Net cash used by operating activities............................ (930,305) (994,164)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment.......................... (316,138) (136,737)
Proceeds from the sale of equipment................................ 20,891 1,120
----------- -----------
Net cash used by investing activities............................ (295,247) (135,617)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock................................. - 7,003
Proceeds from notes and debt obligations payable................... 1,068,490 2,693,995
Debt issuance costs................................................ (22,690) (224,459)
Repayment of notes and debt obligations payable.................... (136,757) (199,778)
Principal payments under capital lease obligations................. (2,523) (2,209)
Principal payments under installment purchase obligations.......... (2,657) (2,188)
----------- -----------
Net cash provided by financing activities........................ 903,863 2,272,364
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (321,689) 1,142,583
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD..................... 667,490 106,231
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD........................... $ 345,801 $1,248,814
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period.................................... $ 177,036 $ 9,829
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Reduction in accounts payable in exchange for common stock......... $ - $ 2,344
Reduction in accrued compensation in exchange for common stock..... 2,000 -
Reduction in accrued interest in exchange for common stock......... 84,574 -
Reduction in accounts receivable in exchange for treasury stock.... 10,938 -
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The accompanying balance sheet of Cardiac Control Systems, Inc. (the "Company")
as of December 31, 1995, the related statements of operations and accumulated
deficit for the three months and nine months ended December 31, 1995 and 1994,
and the statements of cash flows for the nine months ended December 31, 1995 and
1994 are unaudited. In the opinion of management, such financial statements
reflect all adjustments, consisting only of normal recurring items, necessary to
present fairly the financial position of the Company at December 31, 1995 and
the results of operations and cash flows for the three months and nine months
ended December 31, 1995 and 1994.
Certain reclassifications have been made to the unaudited financial statements
previously reported for the three months and nine months ended December 31, 1994
to conform with classifications used in the unaudited financial statements for
the three months and nine months ended December 31, 1995.
The accompanying unaudited financial statements as of December 31, 1995 and for
the three months and nine months ended December 31, 1995 and 1994 should be read
in conjunction with the Company's audited financial statements for the year
ended March 31, 1995.
The accompanying unaudited financial statements have been prepared assuming that
the Company will continue operations on a going-concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. However, the Company has a history of net losses
and incurred a net loss for the nine months ended December 31, 1995 of $88,182.
The Company's ability to continue as a going concern is dependent upon the
attainment of a profitable level of operations. The Company believes that sales
growth is critical to attaining a profitable level of operations. Therefore, the
Company is continuing its efforts to expand its sales volume, both domestically
and internationally. Management believes that the Company has the potential to
increase sales and ultimately achieve a profitable level of operations. However,
there is no assurance that the Company will be able to attain profitable
operations and continue operations as a going concern.
NOTE 2 - INVENTORIES
Inventories at December 31, 1995 and March 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
December 31, March 31,
1995 1995
------------ ----------
<S> <C> <C>
(unaudited)
Raw materials and supplies.... $ 560,455 $ 867,492
Work-in-process............... 1,068,456 436,647
Finished goods................ 634,837 571,293
---------- ----------
2,263,748 1,875,432
Reserve for obsolescence...... (73,055) (120,000)
---------- ----------
$2,190,693 $1,755,432
- -------------------------------------------------------
</TABLE>
Finished goods inventories include approximately $409,000 and $306,000 of
products consigned to customers and independent sales representatives at
December 31, 1995 and March 31, 1995, respectively.
6
<PAGE>
NOTE 3 - NOTES AND DEBT OBLIGATIONS PAYABLE
Notes and debt obligations payable at December 31, 1995 and March 31, 1995
consist primarily of a $1.5 million promissory note dated March 31, 1995 (the
"Sirrom mortgage note") payable to Sirrom Capital Corporation; $2,885,000 in 5%
Convertible Debentures; and a $1 million promissory note to Intermedics Inc.
(the "Intermedics promissory note") dated October 20, 1995. Notes and debt
obligations payable at December 31, 1995 and March 31, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 31, March 31,
1995 1995
------------ ----------
<S> <C> <C>
(unaudited)
Sirrom mortgage note, net of discount.... $1,325,625 $1,221,000
5% Convertible Debentures................ 2,885,000 2,885,000
Intermedics promissory note.............. 925,000 -
Other.................................... 61,873 60,320
---------- ----------
5,197,498 4,166,320
Amount payable within one year.......... (975,973) (46,538)
---------- ----------
Amount payable after one year............ $4,221,525 $4,119,782
- ------------------------------------------------------------------
</TABLE>
Pursuant to a private placement, the Company sought to raise up to $3.5 million
pursuant to a Convertible Debenture offering. Between October 11, 1994, and
December 31, 1994, the Company issued $2,885,000 in 5% Convertible Debentures
(the "Debentures") due October 31, 1999. Interest is payable in cash or, at the
Company's option, common stock of the Company on each March 31 and October 31
commencing March 31, 1995. At December 31, 1995, accrued interest outstanding
pursuant to the Debentures approximated $24,000, and there was no accrued
interest outstanding pursuant to the Debentures at March 31, 1995. The cash
value of any interest payments made in common stock will be at the conversion
price of $2.80. The conversion price of the debenture is $2.80, which is
subject to adjustment in accordance with certain anti-dilution terms of the
Debenture. The Debentures may be converted to common stock at anytime at the
option of the Debenture holder. Under the terms of the Debenture, the Company
was obligated to file a registration statement with the SEC registering the
common stock into which the Debentures are convertible and to keep such
registration statement effective for a maximum of three years from its effective
date. The Company filed such Registration Statement and it became effective
April 27, 1995. The Debentures will be automatically converted to common stock
in the event the Company has in effect with the SEC a registration statement
registering the Common Stock underlying the Debentures and one of the following
events occurs: (i) the Company effects a registration statement with the SEC for
the sale of common stock or securities convertible to common stock, which equals
or exceeds $5 million, and the price per share (or the conversion, exchange or
exercise price per share, if Convertible Securities) is not less than 120% of
the conversion price for the Debentures, or (ii) the Company's common stock
closes at a price per share not less than 2.5 times the conversion price for
thirty consecutive days within twelve months of the date of issuance of the last
Debenture, or (iii) 66% of the Debenture principal amount has been converted
to common stock. As long as more than 25% of the principal amount of the
Debentures are outstanding, the Company must obtain consent of the holders of
51% of such principal amount to effect a merger, consolidation, or sale of
substantially all of the assets of the Company. Further, the Company shall use
its best efforts to seek shareholder approval of a director designated by those
holders.
On March 31, 1995, the Company entered into a Loan and Security Agreement (the
"Loan Agreement") with Sirrom Capital Corporation, a Tennessee corporation
("Sirrom") and executed a $1,500,000 secured promissory note. Interest on the
note is payable monthly at 13.5% and principal is due on March 31, 2000. The
note is secured by a first mortgage lien on all the Company's real and personal
property, excluding inventory and
7
<PAGE>
accounts receivable, but including general intangibles such as its patents and
royalties from Intermedics Inc. The Loan Agreement restricts the Company from
incurring additional indebtedness in excess of $200,000 annually without the
lender's consent. In addition, the Company must give the lender advance notice
of certain events, such as dividend payments, certain new stock issues,
reorganization, and merger or sale of substantially all assets.
In connection with the Loan Agreement, the Company granted the lender a warrant
to purchase, initially, 100,000 shares of the Company's common stock at $.01 per
share. Upon issuance of the warrant in March 1995, the Company recorded
$279,000 as a discount, representing the difference between the estimated fair
market value of the underlying stock and $.01 per share. This resulted in an
effective interest rate of 28% on the Sirrom debt. The warrant expires on March
31, 2000. The Loan Agreement also provides that in the event the loan is not
paid off by March 31, 1997, or any anniversary thereafter, the lender has the
right to purchase an additional 50,000 shares of common stock at $.01 per share
upon such date and upon each anniversary that any amount is owed under the Loan
Agreement through March 31, 1999. The warrant also provides for certain piggy-
back registration rights regarding the underlying shares in the event the
Company files a registration statement of a form suitable for a secondary
offering.
Under the terms of the Company's outstanding 5% Convertible Debentures (the
"Debentures"), the Company had given a negative pledge not to encumber its
patents or royalties while the Debentures were outstanding. To consummate the
mortgage financing, the Company obtained a consent and waiver from the
Debentureholders and in exchange therefor, under a certain Second Mortgage and
Security Agreement dated March 31, 1995 ("Second Mortgage") and pursuant to
related documentation, the Company gave the Debentureholders a second lien on
the same collateral in which Sirrom took a first security interest. The
Debentureholders' security interest in the Company's real and personal property
will terminate upon the first to occur of: (a) the payment in full of the Sirrom
loan, or (b) at such time as there remains no amount owing to Debentureholders
under the Debentures.
Pursuant to a Subordination Agreement between the Debentureholders, the Company
and Sirrom dated March 31, 1995 (the "Subordination Agreement"), the
Debentureholders agreed with Sirrom to subordinate their Debentures to Sirrom's
Loan Agreement with the Company. Under the Subordination Agreement, the Company
may not make payments on the Debentures (interest or principal) if the Company
is in default of its obligations to Sirrom which default would subject the
Sirrom Note to acceleration. Further, in the event of the acceleration of the
amounts owed on the Debentures (as a result of the Company's default
thereunder), or in the event of any payment or distribution of assets of the
Company to creditors upon any dissolution, winding up, or total or partial
liquidation or reorganization of the Company, the principal and interest owed to
Sirrom shall be paid in full prior to any assets being retained by, or payments
made to Debentureholders.
On October 20, 1995, the Company executed a $1 million promissory note with
Intermedics Inc. to assist the Company in meeting the demand of Intermedics
future electrode lead orders pursuant to the Supply Contract between Intermedics
and the Company. The loan will be amortized at a given ratio against future
lead sales to Intermedics. The note bears interest at 24.5% annually and is
secured by future proceeds from sales to Intermedics and royalties to be
received from Intermedics pursuant to the License Agreement with Intermedics.
Any unpaid principal and accrued interest will be due and payable September 1,
1998. Accrued interest outstanding pursuant to the Intermedics promissory note
at December 31, 1995 approximated $22,000.
NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES
PURCHASE CONTRACTS
During the year ended March 31, 1989, the Company entered into an agreement for
the procurement of hybrid microelectronic circuits. The development of circuits
for the Company's atrial-controlled ventricular and
8
<PAGE>
single-chamber pacing products was completed in fiscal 1992. Development of the
circuits for the Company's dual-chamber devices was completed in fiscal 1993. As
of December 31, 1995, the Company's future maximum purchase obligation
approximated $1,399,000.
During the year ended March 31, 1990, the Company entered into an agreement for
the procurement of integrated circuits. The development of these circuits was
completed in fiscal 1992. As of December 31, 1995, the Company's future maximum
purchase obligation approximated $27,000.
DESIGN AND DEVELOPMENT CONTRACT
In August 1995, the Company entered into a fixed-cost contract for the
development of technological enhancements to its second generation of hybrid
microelectronic circuits. Total development costs under the terms of the
contract approximate $73,000. As of December 31, 1995, the Company's remaining
outstanding commitment under the development contract approximates $13,000.
FINANCIAL CONSULTING AGREEMENT
In October 1992, the Company entered into an agreement (the "Agreement") with a
financial brokering and consulting firm to assist the Company in its financing
efforts. Pursuant to this Agreement, the Company was required to pay the
broker/consultant $8,000 per month for a period of 24 months. The Company
deferred payment of 50% of the monthly fee and accrued interest thereon at a
rate of 10%, pursuant to the Agreement. If at the end of 12 months the
broker/consultant had not performed a financial service as defined in the
Agreement, the Company could terminate this Agreement, including the remaining
monthly accrued fees and interest thereon. In October 1993, the Company
terminated this Agreement, based on non-performance as defined in the Agreement.
On January 4, 1994, the financial brokering and consulting firm filed suit
against the Company in the Circuit Court of the 11th Judicial Circuit in and for
Dade County, Florida (the "Court"), alleging that the Company had breached
certain contractual duties and obligations. The suit requests a judgment
requiring the Company to deliver warrants to purchase 15% of the Company's
common stock, and damages in excess of $15,000. The Company has denied
liability and filed a counterclaim alleging that the brokering firm fraudulently
induced the Company into the Agreement then breached the Agreement and certain
fiduciary duties. Management plans to vigorously defend the lawsuit and pursue
its counterclaims. In the opinion of management, this action has no merit and
the ultimate outcome is not expected to materially affect the financial position
of the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
FINANCIAL POSITION AND LIQUIDITY
The Company's continuing efforts towards building a sales and marketing
organization, expanding its research and design efforts, and its capital
expenditure and debt service requirements continue to have an unfavorable impact
on the Company's financial position and liquidity. Historically, the Company's
operating losses, capital expenditure and debt service requirements have been
financed through external sources, consisting primarily of equity and debt
placements. The Company's external sources of funds during the nine months ended
December 31, 1995 consisted of short-term borrowings aggregating $1,068,000.
The Company's operating and capital expenditure cash requirements exceeded its
external sources of liquidity during the nine months ended December 31, 1995.
Accordingly, the Company experienced negative cash flow.
Cash used by operations during the nine months ended December 31, 1995
approximated $930,000. Capital expenditures and repayment of debt obligations
during the nine months ended December 31, 1995 approximated $316,000 and
$142,000, respectively. Short-term borrowings during the nine months ended
December 31, 1995 aggregated $1,068,000. Overall, negative cash flow for the
nine months ended December 31, 1995 approximated $322,000.
Cash used by operations during the nine months ended December 31, 1994
approximated $994,000. Capital expenditures and repayment of debt obligations
during the nine months ended December 31, 1994 approximated $137,000 and
$204,000, respectively. Short-term borrowings during the nine months ended
December 31, 1994 aggregated $44,000. Long-term borrowings during the nine
months ended December 31, 1994 aggregated $2,426,000 net of debt issuance costs.
Overall, positive cash flow for the nine months ended December 31, 1994
approximated $1,143,000.
The Company has no significant commitments for the acquisition of capital
assets. It has, however, entered into material commitments pursuant to certain
development and inventory procurement contracts with a remaining obligation
aggregating approximately $1,439,000 at December 31, 1995. As of December 31,
1995, the Company's incurred and unpaid obligations pursuant to these contracts
approximates $41,000 (see "Note 4 -Commitments and Contingent Liabilities" of
the "Notes to Financial Statements").
On December 20, 1995, the Company executed a Distribution Agreement (the
"Agreement") with Grupo Taper, S.A., a Spanish distributor of medical and
electronic products. The Agreement grants Grupo Taper exclusive rights to
distribute the Company's products in Europe, the Middle East and Africa for a
ten-year period, with the exception of three companies with which the Company
has previously signed distribution agreements. In January 1996, the Company
received a $500,000 deposit to be applied at a ratio of 50% against future sales
which are anticipated to exceed 6,500 pacemakers over the next three years. In
addition, Grupo Taper will purchase 100,000 shares of the Company's common stock
at $5 per share, which will represent approximately 7% of the total outstanding
shares of the Company. In return, the Company appointed a Grupo Taper executive
to its Board of Directors.
The ability of the Company to generate adequate amounts of cash either through
external financing sources or operations to meet its working capital, capital
expenditure and debt service requirements on a long-term basis is dependent upon
the attainment of a profitable level of operations. The Company believes that
sales growth is critical to the attainment of a profitable level of operations.
Accordingly, the Company is continuing its efforts to expand the volume of its
business, both domestically and internationally. The Company believes that it
has the potential to increase its sales and ultimately achieve a profitable
level of operations. However, there is no assurance that the Company's
operations will improve and/or generate the cash flow required to meet the
10
<PAGE>
Company's liquidity needs, or that the Company will be able to continue its
operations as a going concern.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 VERSUS THREE MONTHS ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
OVERVIEW. Overall, the Company's total revenues for the third quarter of
fiscal 1996 increased 59% to $2.1 million as compared to $1.4 million for the
third quarter of fiscal 1995. Sales increased 24% from $1.1 million to $1.4
million and royalties increased from $206,000 to $723,000 for the third quarter
of fiscal 1996 as compared to the third quarter of fiscal 1995. Royalty income
represents royalties from Intermedics Inc. pursuant to a License Agreement
between the Company and Intermedics. This increase in revenue was slightly
offset by a 48% increase in operating expenses as a result of increased
investments in sales and marketing and research and design, and increased
interest expense, resulting in net income of $75,000 for the third quarter of
fiscal 1996, as compared to net income of $5,000 for the third quarter of fiscal
1995.
SALES. Although overall sales have increased 24%, pacer unit sales declined
24%. However, this decline in pacer unit sales was offset by a 73% increase in
lead unit sales and increased sales of hybrid circuits to an Italian
manufacturer. The decline in overall pacer unit sales for the third quarter of
fiscal 1996 as compared to the third quarter of fiscal 1995 is the result of a
decline in international sales. The decline in international sales is the
result of the Company not having obtained the CE Mark required to sell product
in Europe. The increased lead sales are a result of increased lead sales to
Intermedics Inc. pursuant to a Supply Agreement between the Company and
Intermedics.
Sales by geographic area for the third quarter of fiscal 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------
Geographic Area 1996 1995
-----------------------------------------
<S> <C> <C>
United States.... $1,314,882 $ 862,522
Europe........... 111,625 283,970
---------- ----------
$1,426,507 $1,146,492
-----------------------------------------
</TABLE>
The Company's domestic sales for the third quarter of fiscal 1996 increased 52%
as compared to the third quarter of fiscal 1995. The increase in domestic
sales is a result of an 80% increase in lead unit sales resulting from increased
lead sales to Intermedics Inc. Domestic pacer unit sales also increased 38%.
European sales declined 61% for the third quarter of fiscal 1996 as compared to
the third quarter of fiscal 1995. The Company ceased sales of pacers to
European distributors effective January 1, 1995 as the Company has not yet
obtained the CE Mark required to sell product in Europe. Although there is no
assurance the Company will succeed in obtaining the CE Mark, the Company is
preparing to obtain the CE Mark in the first quarter of fiscal 1997. However,
the Company executed a new contract with its Italian distributor and the Company
now sells hybrid circuits to this supplier instead of the pacemaker sub-
assemblies it historically sold to this distributor. The Company is not
required to have the CE Mark in order to sell components to European suppliers.
11
<PAGE>
Sales by product line for the third quarter of fiscal 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Product Line 1996 1995
------------------------------------------------------------------
<S> <C> <C>
Single-chamber pacemakers.................. $ 251,084 $ 162,142
Dual-chamber pacemakers.................... 87,031 4,796
Atrial-controlled ventricular pacemakers... 391,869 578,637
Hybrid circuits............................ 55,125 36,625
Electrode leads............................ 641,398 360,716
Other...................................... - 3,576
---------- ----------
$1,426,507 $1,146,492
------------------------------------------------------------------
</TABLE>
The Company received approval from the Food and Drug Administration ("FDA") for
its downsized dual-chamber device at the end of September 1995. Sales of the
new downsized dual-chamber device are expected to continue to have a favorable
impact on domestic sales in the fourth quarter of fiscal 1996. The Company is
continuing its efforts to increase its sales domestically through the
recruitment of new sales representatives. Further, the Company is also
continuing its efforts to obtain the CE Mark in order to re-establish its
presence in the European market; and it continues to pursue other
international markets.
ROYALTY INCOME. Royalty income increased 251% in the third quarter of fiscal
1996 as compared to the third quarter of fiscal 1995. Royalty income represents
royalty fees from Intermedics Inc. pursuant to a License Agreement between the
Company and Intermedics, whereby the Company licensed the technology relating to
its single-pass atrial-controlled ventricular pacing system. Intermedics began
marketing this pacing system domestically in March 1995. The future potential
royalties to be recorded over the life of the License Agreement are estimated at
$3.4 million.
COSTS OF PRODUCTS SOLD. As compared to the 24% increase in sales, cost of
products sold increased 21% to $643,000 for the third quarter of fiscal 1996 as
compared to $534,000 for the third quarter of fiscal 1995, resulting in an
increase in the gross margin to 55% for the third quarter of fiscal 1996 as
compared to 53% for the same period last year. Increased production levels are
having a favorable impact on the Company's manufacturing costs, reducing
overhead and scrap rates. However, these factors are being slightly offset by
the less favorable margin being incurred for lead sales to Intermedics which
account for 38% of sales for the third quarter of fiscal 1996 as compared to 19%
for the third quarter of fiscal 1995. However, the Company also receives a $325
royalty per lead unit sold by Intermedics which incorporates the Company's
single-pass technology, pursuant to the License Agreement with Intermedics.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 58% for the third quarter of fiscal 1996 as
compared to the third quarter of fiscal 1995 as a result of increased
commission expense as a result of the support of new sales representatives;
increased salary and benefits expense primarily for new sales and marketing
personnel; increased travel expense for the new senior management and new sales
and marketing personnel; and increased consulting and professional services
expense for management consultants and assistance in obtaining CE Mark/ISO
certifications.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES. The 140% increase in
engineering, research and development expenses for the third quarter of fiscal
1996 as compared to the third quarter of fiscal 1995 is primarily a result of
the Company hiring new engineering personnel to resume its developments in
single-pass lead, dual-chamber operation and rate-responsive pacing, and related
outside professional services for those development projects.
12
<PAGE>
OTHER INCOME AND EXPENSES. Interest expense for the third quarter of fiscal
1996 increased 116% as compared to the third quarter of fiscal 1995 as a result
of higher debt balances, primarily due to the $2,885,000, 5% debenture
financing, the $1 million promissory note from Intermedics, and the amortization
of debt costs associated with the debenture and mortgage financings.
NINE MONTHS ENDED DECEMBER 31, 1995 VERSUS NINE MONTHS ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------
OVERVIEW. Overall, the Company's total revenues for the nine months ended
December 31, 1995 increased 35% to $5.7 mllion as compared to $4.2 million for
the nine months ended December 31, 1994. Sales increased 12% to $4.0 million as
compared to $3.6 million for the same period last year. Royalty income
increased 161% to $1.7 million for the year to date fiscal 1996 as compared to
$655,000 for the year to date fiscal 1995. However, as a result of increases in
operating expenses due to increased investments in sales and marketing and
research and design, and increased interest expense, the Company incurred a net
loss of $88,000 for the nine months ended December 31, 1995, as compared to net
income of $113,000 for the same period last year.
SALES. Although overall sales increased 12%, pacer unit sales declined 40%.
However, this decline in pacer unit sales was offset by a 48% increase in lead
unit sales and increased sales of hybrid circuits to an Italian manufacturer.
The decline in overall pacer unit sales for the year to date of fiscal 1996 as
compared to the year to date fiscal 1995 is the result of a decline in
international sales. The decline in international sales is the result of the
Company not having obtained the CE Mark required to sell product in Europe. The
increased lead sales are a result of increased lead sales to Intermedics Inc.
pursuant to a Supply Agreement between the Company and Intermedics. Sales by
geographic area for the year to date fiscal 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
-----------------------------------------
Geographic Area 1996 1995
-----------------------------------------
<S> <C> <C>
United States..... $3,608,946 $2,778,344
Europe............ 404,463 811,673
---------- ----------
$4,013,409 $3,590,017
-----------------------------------------
</TABLE>
The Company's domestic sales for the year to date fiscal 1996 increased 30% as
compared to the year to date fiscal 1995. The increase in domestic sales is a
result of a 53% increase in lead unit sales resulting from increased lead sales
to Intermedics Inc. Domestic pacer unit sales also increased 8%. European
sales declined 50% for the year to date fiscal 1996 as compared to the same
period last year. The Company ceased sales of pacers to European distributors
effective January 1, 1995 as the Company has not yet obtained the CE Mark
required to sell product in Europe. Although there is no assurance the Company
will succeed in obtaining the CE Mark, the Company is preparing to obtain the CE
Mark in the first quarter of fiscal 1997. However, the Company executed a new
contract with its Italian distributor and the Company now sells hybrid circuits
to this supplier instead of the pacemaker sub-assemblies it historically sold to
this distributor. The Company is not required to have the CE Mark in order to
sell components to European suppliers.
13
<PAGE>
Sales by product line (including product assemblies) for the year to date fiscal
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------
Product Line 1996 1995
---------------------------------------------------
<S> <C> <C>
Single-chamber pacemakers... $ 549,543 $ 734,368
Dual-chamber pacemakers..... 87,031 83,386
Atrial-controlled
ventricular pacemakers..... 1,284,396 1,528,516
Hybrid circuits............. 254,750 58,125
Electrode leads............. 1,810,309 1,092,974
Other....................... 27,380 92,648
---------- ----------
$4,013,409 $3,590,017
---------------------------------------------------
</TABLE>
The Company received approval from the Food and Drug Administration ("FDA") for
its downsized dual-chamber device at the end of September 1995. Sales of the
new downsized dual-chamber device are expected to continue to have a favorable
impact on domestic sales in the fourth quarter of fiscal 1996. The Company is
continuing its efforts to increase its sales domestically through the
recruitment of new sales representatives. Further, the Company is also
continuing its efforts to obtain the CE Mark in order to re-establish its
presence in the European market; and it continues to pursue other
international markets.
ROYALTY INCOME. Royalty income increased 161% for the year to date fiscal 1996
as compared to the year to date fiscal 1995. Royalty income represents royalty
fees from Intermedics Inc. pursuant to a License Agreement between the Company
and Intermedics, whereby the Company licensed the technology relating to its
single-pass atrial-controlled ventricular pacing system. Intermedics began
marketing this pacing system in March 1995. The future potential royalties to
be recorded over the life of the License Agreement are estimated at $3.4
million.
COSTS OF PRODUCTS SOLD. As compared to the 12% increase in sales, cost of
products sold remained constant at $1.9 million for the year to date fiscal 1996
as compared the year to date fiscal 1995, resulting in an increase in the gross
margin to 53% for the year to date fiscal 1996 as compared to 48% for the same
period last year. Increased production levels are having a favorable impact on
the Company's manufacturing costs, reducing overhead and scrap rates; further,
the Company is incurring reduced per-unit manufacturing costs for the downsized
generation pacers. However, these factors are being slightly offset by the less
favorable margin being incurred for lead sales to Intermedics which account for
38% of sales for the year to date fiscal 1996 as compared to 24% for the year to
date fiscal 1995. However, the Company also receives a $325 royalty per lead
unit sold by Intermedics which incorporates the Company's single-pass
technology, pursuant to the License Agreement with Intermedics.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 64% for the year to date fiscal 1996 as
compared to the year to date fiscal 1995 primarily as a result of increased
commission expense as a result of the support of new sales representatives;
increased salary and benefits expense for new senior management and sales and
marketing personnel; and increased travel expense for the new senior management
and sales and marketing personnel as they recruit, train and manage the new
sales force and market the Company's product at trade conventions.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES. The 112% increase in
engineering, research and development expenses for the year to date fiscal 1996
as compared to the year to date fiscal 1995 is a result of the Company hiring
new engineering personnel to resume its developments in single-pass lead, dual-
chamber operation and rate-responsive pacing, and related outside professional
services for those development projects.
14
<PAGE>
OTHER INCOME AND EXPENSES. Interest expense for the year to date fiscal 1996
increased 125% as compared to the year to date fiscal 1995 as a result of higher
debt balances, primarily due to the $2,885,000, 5% debenture financing, the $1
million promissory note to Intermedics, and the amortization of debt costs
associated with the debenture and mortgage financings.
OPERATING TRENDS AND UNCERTAINTIES
SALES. The ability of the Company to attain a profitable level of operations is
dependent upon expansion of sales volume, both domestically and internationally.
The Company believes that with the commercial release of its atrial-controlled
ventricular pacing system, which is a system capable of attracting a significant
market share, and the introduction of its new line of smaller, more competitive
pacing products, it now has the potential to improve its sales and the
recruitment of sales representatives. The Company received clearance by the FDA
to commercially distribute this new line of products in fiscal 1994 for its
single-chamber and atrial-controlled ventricular devices. The PMA Supplement
for the new dual-chamber device was submitted to the FDA in February 1995 and
clearance was received in September 1995. Working capital constraints had
delayed the procurement of sufficient quantities of the dual-chamber hybrid
circuits to complete testing and production requirements for the submission to
the FDA prior to that time. The availability of the new dual-chamber device is
expected to have a favorable impact on domestic sales.
The Company's sales during fiscal 1995 had been restricted as a result of
production limitations resulting from working capital constraints. However, the
Company has secured financing that management believes will enable it to meet
and expand its demand in the domestic market, and expand into additional
international markets.
The European Community ("EC") nations have adopted universal standards in order
to provide simplified trade among the member nations and to assure free access
to trade while maintaining quality standards for products sold. All companies
doing business in these nations must be certified to these standards set forth
by the EC which is evidenced by being granted the CE Mark. Standards for
active implantable medical products were implemented January 1, 1993, with a
transition period ending December 31, 1994. In order for the Company to resume
the sale of its product in the EC, it must obtain certification, the CE Mark.
These standards have been developed by the International Organization for
Standardization ("ISO"). The Company is preparing for certification during the
first quarter of fiscal 1997. From January 1, 1995, until it receives such
certification, the Company will lose sales to its European distributors, to
which the Company sells completed devices. However, the Company anticipates
that increased sales in the domestic market will reduce the overall adverse
effect of this loss of European sales. Further, the Company continues to sell
hybrid circuit components to its customer in Italy and continues to export its
products to Greece.
Until March 1995, the Company was the only manufacturer commercially marketing
single-lead atrial-controlled ventricular pacemakers. However, Intermedics
Inc., a competitor of the Company, received FDA clearance to commercially market
a single-lead atrial-controlled ventricular pacemaker that it developed
utilizing the Company's technology pursuant to license and supply agreements
with the Company. Intermedics commenced marketing its new pacemakers in March
1995.
Although the introduction of the new Intermedics pacemakers poses competition
for the Company, management believes that the Company will benefit from such
competition since the new Intermedics pacemaker will increase the visibility of
single-lead atrial-controlled ventricular pacemakers in the marketplace and
thereby increase market acceptance of the product. Further, management
believes that there is a sufficient market to accommodate both the Company's and
Intermedics pacemakers. The Company estimates that its market share of
pacemakers generally is less than 1% of an estimated total worldwide market of
$2 billion per year.
15
<PAGE>
Various factors impact on a firm's ability to increase market share including,
but not limited to, the financial strength of the firm, the ability of the firm
and its competitors, and the time involved in obtaining FDA clearance for new or
improved products. Therefore, although management believes that the Company is
well poised for viable growth, management cannot predict the degree of market
share the Company can obtain. Factors beyond the Company's control may impede
its progress and in such event, its business and operations would be adversely
impacted.
The Company's ability to successfully compete with Intermedics and other
pacemaker manufacturers will depend on the Company's ability to supply product
and recruit and increase a quality sales force. The Company historically has
been restricted in its marketing capabilities due to financial constraints
impeding its ability to supply products and recruit and train a sales force.
However, the availability of capital from the Debenture financing, the resulting
reduction in debt made possible from those funds and from the Sirrom loan, and
the cash flow generated from Intermedics' orders and royalties have positioned
the Company to increase its sales force and provide an uninterrupted supply of
products.
As discussed above, the manufacture and sale of leads to Intermedics produce
income for the Company. The Company sells electrode leads to Intermedics for
its new systems under an Amended and Restated Supply Contract that terminates on
August 1, 1998, unless renewed for an additional two year period. The Company
also receives royalties from Intermedics sales of its products incorporating
the licensed technology under an Amended and Restated License Agreement. The
Company anticipates supplying components to Intermedics under the supply
agreement for the next several years. An increase in demand for components by
Intermedics will put further demands on the Company to supply the products;
however, with the anticipated cash flow from such orders that would be generated
under the license and supply agreements, plus anticipated positive cash flow
from sales of other products by the Company, management believes that the
Company could be in a position to accommodate an increase in orders. Further,
in October 1995, Intermedics loaned the Company $1,000,000 to assist the Company
in meeting the demand of its future orders, such loan to be amortized at a given
ratio against future orders.
It is anticipated that Intermedics will eventually develop its own manufacturing
capability for electrode leads necessary for its new pacemakers. However, any
such development will take time. Although the Company does not know how long it
will take Intermedics to develop its own manufacturing capability, added to any
such development period would be the time necessary to obtain FDA clearance of
its manufacturing process. Thus, although the Company cannot guarantee that it
will continue to supply Intermedics with products, the Company anticipates
providing Intermedics with components for the next few years. However, in the
event Intermedics receives FDA approval in a shorter time-frame than
anticipated, or other events occur which causes a decrease in Intermedics'
orders, the Company's business and operating results would be adversely
affected.
In an effort to gain competitive access to the European market, on December 20,
1995, the Company executed a Distribution Agreement (the "Agreement") with Grupo
Taper, S.A., a Spanish distributor of medical and electronic products. The
Agreement grants Grupo Taper exclusive rights to distribute the Company's
products in Europe, the Middle East and Africa for a ten-year period, with the
exception of three companies with which the Company has previously signed
distribution agreements. In January 1996, the Company received a $500,000
deposit to be applied at a ratio of 50% against future sales which are
anticipated to exceed 6,500 pacemakers over the next three years.
SOURCES OF SUPPLY. One of the Company's principal suppliers of material used
primarily in electrode lead production, E.I. DuPont de Nemours & Company, has
indicated that they will no longer supply their material to the medical device
industry for use in implantable devices. The availability of this material
suitable for use in implantable medical devices is an industry-wide problem and
is not unique to the Company or to the
16
<PAGE>
cardiovascular device segment of the industry. A tentative replacement for the
DuPont supplied material has been identified which meets manufacturing
requirements. Biocompatibility studies have been initiated on the replacement
candidate. Since the candidate replacement material is comprised of the same
chemical composition as the DuPont material, it is expected that it will be
comparable with respect to the performance characteristics and biocompatibility
of the current material in use. Similarly, FDA approval of this replacement
material is anticipated to be forthcoming based upon a satisfactory outcome of
the testing in progress. The Company believes, however, that it has a
sufficient quantity of the DuPont material on supply to meet the Company's
anticipated demand for the next several years.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 4, 1994, a financial brokering and consulting firm filed suit
against the Company in the Circuit Court of the 11th Judicial Circuit in and for
Dade County, Florida (the "Court"), alleging that the Company had breached
certain contractual duties and obligations. The suit requests a judgment
requiring the Company to deliver warrants to purchase 15% of the Company's
common stock, and damages in excess of $15,000. The Company has denied
liability and filed a counterclaim alleging that the brokering firm fraudulently
induced the Company into the Agreement then breached the Agreement and certain
fiduciary duties. Management plans to vigorously defend the lawsuit and pursue
its counterclaims. In the opinion of management, this action has no merit and
the ultimate outcome is not expected to materially effect the financial position
of the Company.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
None
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on December 14, 1995, for
the purposes of: (1) electing the Company's Board of Directors; (2) ratifying
the appointment of BDO Seidman, LLP as the Company's independent auditors for
the year ended March 31, 1996; and (3) approving an amendment to the Company's
Certificate of Incorporation authorizing the issuance of up to 3,000,000 shares
of preferred stock. Proxies were solicited by the Company under Regulation 14A
of the Securities and Exchange Commissions' proxy rules, and there was no
solicitation in opposition to management's nominees for directores listed in the
Proxy Statement. A summary of the votes cast for and against each of the
matters set forth in the Proxy Statement is set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Votes Votes
For Against
----------------------
<S> <C> <C>
Election of Directors:
Robert R. Brownlee........................... 947,896 87,394
William H. Burns............................. 948,111 87,179
Bart C. Gutekunst............................ 947,917 87,372
Larry Haimovitch............................. 948,328 86,961
Alan J. Rabin................................ 950,678 84,612
Robert T. Rylee.............................. 988,542 46,747
Tracey E. Young.............................. 950,206 85,084
Ratification of Independent Accountants.......... 1,016,374 16,457
Authorization of an Issuance of Preferred Stock.. 389,063 358,900
- ---------------------------------------------------------------------
</TABLE>
The number of votes cast for the amendment to the Comapny's Certificate of
Incorporation were not sufficient to approve such amendment.
ITEM 5. OTHER INFORMATION
None
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
6(A). EXHIBITS
Exhibits filed in Part II of this Report are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
3.0 Certificate of Incorporation of Exhibit 3.0 to Amendment No. 1 to Form S-1 Registration
the Company, as amended Statement filed on February 1, 1988, Registration No. 33-
16490 and Form 10-K for the year ended March 31, 1990,
File No. 0-14653
3.1 Amendment to Certificate of Exhibit 3.1 to Form S-1 Registration Statement filed on
Incorporation March 2, 1995, Registration No. 33-89938
3.2 By-Laws of the Company Exhibit 3.1 to Form S-18 Registration Statement filed on
October 16, 1985, Registration No. 33-9208
3.3 Amendment to Bylaws Exhibit 3.3 to Form S-1 Registration Statement filed on
March 2, 1995, Registration No. 33-89938
4.0 Form of Common Stock Exhibit 4.0 to Form S-1 Registration Statement filed on
Certificate March 2, 1995, Registration No. 33-89938
4.1 Form of Sales Representative Exhibit 4.13 to Form 10-Q for the Quarter Ended
Stock Option Agreement September 30, 1988, File No. 0-14653
4.2 Cardiac Control Systems, Inc. Exhibit 4.15 to Form 8-K Current Report dated October
5% Convertible Debenture due 11, 1994, File No. 0-14653
October 31, 1999
4.3 Combined 1987-1992 Non- Exhibit 4.8 to Amendment No. 1 to Form S-1
Qualified Stock Option Plan Registration Statement filed on April 17, 1995,
Registration No. 33-89938
4.4 Stock Purchase Warrant dated Exhibit 4.1 to Form 8-K Current Report, dated March 31,
March 31, 1995 in favor of 1995, File No. 0-14653
Sirrom Capital Corporation
4.5 Stock Purchase Warrant, dated Exhibit 4.2 to Form 8-K Current Report, dated March 31,
March 31, 1995 in favor of 1995, File No. 0-14653
Dow Corning Enterprises, Inc.
10.0 License Agreement between Exhibit 10.1 to Form 10-Q for the Quarter Ended
Hughes/Bertolet and the September 30, 1986, File No. 0-14653
Company
10.1 Settlement Agreement and Exhibit 10.2 to Form 10-K for the Year Ended March 31,
Release between Applied 1990, File No. 0-14653
Cardiac Electro-physiology
and the Company
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
10.2 Amended and Restated License Exhibit 10.19 to Form 8-K Current Report, dated April 2,
Agreement between 1993, File No. 0-14653
Intermedics Inc. and the
Company, dated April 2, 1993
10.3 Amended and Restated Supply Exhibit 10.20 to From 8-K Current Report, dated April 2,
Contract between Intermedics 1992, File No. 0-14653
Inc. and the Company, dated
April 2, 1993
10.4 Employment Agreement Exhibit 10.24 to Form 8-K Current Report, dated October
between Bart C. Gutekunst 11, 1994, File No. 0-14653
and the Company, dated
October 13, 1994
10.5 Employment Agreement Exhibit 10.25 to Form 8-K Current Report, dated October
between Alan J. Rabin and the 11, 1994, File No. 0-14653
Company, dated October 13,
1994
10.6 Employment Agreement Exhibit 10.12 to Form 10-Q for the Quarter Ended
between Robert S. Miller and December 31, 1994, File No. 0-14653
the Company, dated December
12, 1994
10.7 Agreement between LEM Exhibit 10.13 to Form 10-Q for the Quarter Ended
Biomedica, s.r.l. and the December 31, 1994, File 0-14653
Company, dated October 1,
1994
10.8 Agreement between the Exhibit 10.12 to Form S-1 Registration Statement filed on
Company and Alan J. Rabin March 2, 1995, Registration No. 33-89938
and Bart C. Gutekunst, dated
July 1, 1994
10.9 Form of Indemnification Exhibit 10.13 to Form S-1 Registration Statement filed on
Agreement between the March 2, 1995, Registration No. 33-89938
Company and each Director,
executed December 1994
10.10 Employment Agreement Exhibit 10.14 to Form S-1 Registration Statement filed on
between Robert R. Brownlee March 2, 1995, Registration No. 33-89938
and the Company dated as of
October 1, 1994
10.11 Loan and Security Agreement Exhibit 10.1 to Form 8-K Current Report, dated March
between the Company and 31, 1995, File No. 0-14653
Sirrom Capital Corporation,
dated March 31, 1995
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
10.12 $1,500,000 Secured Promissory Exhibit 10.2 to Form 8-K Current Report, dated March
Note in favor of Sirrom Capital 31, 1995, File No. 0-14653
Corporation, dated March 31,
1995
10.13 Mortgage, Assignment of Rents Exhibit 10.3 to Form 8-K Current Report, dated March
and Leases, and Security 31, 1995, File No. 0-14653
Agreement in favor of Sirrom
Capital Corporation, dated
March 31, 1995
10.14 Second Mortgage and Security Exhibit 10.4 to Form 8-K Current Report, dated March
Agreement in favor of Bart 31, 1995, File No. 0-14653
Gutekunst, as trustee, dated
March 31, 1995
10.15 Subordination Agreement Exhibit 10.5 to Form 8-K Current Report, dated March
between the Company Sirrom 31, 1995, File No. 0-14653
Capital Corporation, and the
Debentureholders, dated March
31, 1995
10.16 Promissory Note and Security Exhibit 10.16 to Form 10-Q for the Quarter Ended
Agreement between Intermedics September 30, 1995, File No. 0-14653
Inc. and the Company, dated
October 20, 1995
10.17 Amendment 2 to Supply Exhibit 10.17 to Form 10-Q for the Quarter Ended
Contract between Intermedics September 30, 1995, File No. 0-14653
Inc. and the Company, dated
October 20, 1995
10.18 Amendment 2 to License Exhibit 10.18 to Form 10-Q for the Quarter Ended
Agreement between Intermedics September 30, 1995, File No. 0-14653
Inc. and the Company, dated
October 20, 1995
10.19 Distribution Agreement between
Grupo Taper, S.A. and the
Company, dated December 20,
1995
11.0 Statement re Computation of
Income (Loss) per share
</TABLE>
- --------------------------------------------------------------------------
6(B). REPORTS ON FORM 8-K
The Company did not file a current report on Form 8-K in the quarter ended
December 31, 1995.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CONTROL SYSTEMS, INC.
(Registrant)
Date: February 13, 1996 By: /s/ Alan J. Rabin
----------------- ------------------------------------
Alan J. Rabin
President and Chief Executive Officer
Date: February 13, 1996 By: /s/ Lauri Mitchell
----------------- -----------------------------------
Lauri Mitchell
Controller
22
<PAGE>
EXHIBIT 10.19
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (the "Agreement") is made effective as of
the 20th day of December, 1995 by and between Cardiac Control Systems, Inc., a
Florida corporation having its principal place of business at 3 Commerce
Boulevard, Palm Coast, Florida, the United States of America, 32164 ("CCS"),
and Grupo Taper, S.A., an entity organized under the laws of Madrid, Spain and
having its principal place of business at Avda. Via dos Castillas 33, Atica 7
Edificio 3, 28224 Pozuelo de Alarcon, Madrid.
W I T N E S S E T H:
That in consideration of the mutual covenants and agreements hereinafter
set forth, Grupo Taper and CCS hereby expressly agree as follows:
SECTION 1. EXCLUSIVE DISTRIBUTION RIGHTS.
(a) CCS hereby designates and appoints Grupo Taper as its sole agent to
distribute the Product (as hereinafter defined) in the territory described on
EXHIBIT A attached hereto and incorporated herein by this reference (the
"Territory"), subject to and conditioned upon the following exceptions:
(i) agreement by and between CCS and LEM Biomedica s.r.l.
("LEM"), dated October 24, 1994, governing the sale by CCS of hybrid circuits
for implantable pulse generators to LEM for use in the manufacture and world-
wide sale of LEM's implantable pacemakers (the "LEM Agreement"); and
(ii) agreement by and between CCS and Intermedics Inc.
("Intermedics") for the sale of electrode leads by CCS to Intermedics for use in
the manufacture and world-wide sale of Intermedics' ventricular cardiac pacing
systems, (the "Intermedics Agreement"); and
(iii) agreement by and between CCS and Holland Medical, B.V., for
the distribution of CCS products in the Netherlands ("Holland Medical
Agreement") (the LEM Agreement, Intermedics Agreement and Holland Medical
Agreement, collectively, the "Exception Agreements")
Grupo Taper agrees to participate in this Agreement with the knowledge
of the existence of, and consents to the continued effectiveness of the
Exception Agreements.
(b) Grupo Taper agrees to purchase, import and coordinate distribution
and sales of the Product in the Territory in accordance with the terms and
conditions of this
1
<PAGE>
Agreement Grupo Taper shall not distribute or sell the Product outside the
Territory. Grupo Taper shall use its best efforts to ensure that purchasers of
the Product do not redistribute or resell the Product outside the Territory.
(c) Grupo Taper agrees to represent CCS exclusively, and agrees not to
work for, manufacture for, or represent a competitor of CCS in the Territory
during the Term (as defined herein) of this Agreement without the express
written consent of CCS.
SECTION 2. TERM
(a) Initial Term. The initial term of this Agreement shall commence
------------
on the Effective Date and shall terminate ten (10) years after such date (the
"Initial Term"), unless earlier terminated as provided elsewhere in this
Agreement.
(b) Automatic Renewal. Upon expiration of the Initial Term, this
-----------------
Agreement shall renew automatically for a five (5) year period (such renewal
period shall be defined as a "Renewal Period") (the Initial Term and the Renewal
Period, hereinafter collectively called the "Term"), unless and until either
party shall notify the other party in writing, on or before the one hundred
eightieth (180th) day prior to the expiration of the Initial Term or
commencement of such Renewal Period, of the notifying party's desire to
terminate this Agreement. CCS and Grupo Taper agree to negotiate in good faith
Renewal Period terms and condition, including Product prices and minimum
purchase requirements, on or before the one hundred eightieth (180th) day prior
to the expiration of the Initial Term or the commencement of the Renewal Period.
If CCS and Grupo Taper do not come to an agreement concerning the Renewal Period
terms and conditions, either party may terminate this Agreement, however, if
neither party terminates this Agreement, the Agreement shall continue on the
then current terms and conditions, subject to the minimum increase in purchase
requirements provision and the price increase provision set forth in Section 5
and 6(c), respectively.
Section 3. Description of Products. During the Term, CCS shall supply
-----------------------------------
Grupo Taper with those cardiovascular pacemaker products and related accessories
set forth on EXHIBIT B attached hereto and incorporated herein by this
reference (the "Products"). Grupo Taper agrees to purchase, import and
coordinate the sale and distribution of the Products in the Territory in
accordance with the terms and conditions of this Agreement. Grupo Taper shall
have the right of first refusal to distribute new cardiovascular products as
they are introduced by CCS to the market place in the Territory. The wholesale
price shall be reasonable and not artificially increased to dissuade Grupo Taper
for distribution the Product.
Section 4. Product Warranties. The terms and conditions of CCS's
-------------------------------
Product warranties are set out in the labeling associated with the Products, and
Product warranties are limited to those terms and conditions. Those terms and
conditions expressly prohibit Grupo Taper from making any alterations or
additions to the published war-
2
<PAGE>
ranties on Products. Grupo Taper is required to return Products for replacement
under Product warranties to CCS in a timely manner, or CCS's obligation under
applicable product warranties shall become null and void. If any product is
determined by Grupo Taper and CCS (such determination to be made with due regard
for patient safety and industry standards) to be defectively manufactured, CCS
shall replace Product at no charge and pay for shipping to the world port of
Grupo Taper's choice.
In the event a CCS Product shall be recalled by any government having
jurisdiction over such matter and CCS's manufacturing or product design is
proven to be at fault, or in the event of a voluntary recall on the part of CCS,
the following policies will apply: (i) merchandise recall will be credited at
actual cost to Grupo Taper; (ii) merchandise recall shall be shipped prepaid by
CCS to CCS, or destroyed locally as instructed by CCS; and (iii) Grupo Taper
will assume the logistical responsibility for any recall under the direction of
CCS.
Section 5. Minimum Sales Performance. During the term of this
------------------------------------
Agreement, Grupo Tape agrees to biannual (2 Year) minimum purchase quotas as
agreed to by the parties. Enforcement of these quotas will begin upon receipt of
ISO & CE approvals. Any purchases made prior to receipt of such ISO & CE
approvals will be allocated toward quotas. Quotas for the first three (3) years
of this agreement are listed on EXHIBIT C attached hereto and incorporated
herein by this reference. For the years four (4) through ten (10), CCS and Grupo
Taper shall use their best efforts to negotiate mutually acceptable minimum
purchase requirements for each year. However, should CCS and Grupo Taper be
unable to determine mutually agreeable minimum purchase requirements for any
year, the minimum purchase requirement for such year shall equal the minimum
purchase requirement for the immediately preceding year increased by 7% on a
cumulative basis.
This Agreement may, at the option of CCS, upon 90 days notice in
writing, be terminated if Grupo Taper fails to meet minimum biannual (2 year)
purchase requirements for any 2 years of the term, provided such notice is given
within thirty (30) days after the end of the year of the Term in which Grupo
Taper failed to meet the stipulated minimum purchase requirement. In the event
of the failure of CCS to provide Products ordered by Grupo Taper for any reason,
of if CCS provides Products that do not conform to CCS specification, the
specified minimum sales/purchase quota for each two years of the term in which
such events occur shall be reduced proportionately. In the event of the failure
of CCS to provide Products ordered by distributor for any reason, or if CCS
provides Products that do not conform to CCS specifications, the specified
minimum sales/purchase quota for each two years of the Term in which such events
occur shall be reduced proportionately.
Section 6. Distribution, Sales and Marketing Expenses. Grupo Taper
------------------------------------------------------
agrees to bear all distribution, sales and marketing and regulatory costs and
expenses in the Territory incurred by or imposed upon Grupo Taper by reason of,
or on account of, this
3
<PAGE>
Agreement, including, but not limited to: (i) Shipping; (ii) Customs and Duties;
(iii) Sales and Marketing Literature; (iv) Advertising and Promotion; and (v)
Modification to Packaging and/or Labeling, if any. CCS will provide initial
sales training and will provide one (1) each of each piece of literature or
other advertising material developed for Grupo Taper's reproduction. CCS will be
responsible for and will bear expenses associated with obtaining ISO and CE
regulatory approvals, and such other governmental approvals that may reasonably
be required for market entrance in the Territory.
Section 7. Payment Terms.
------------------------
(a) Method of Payment. During the Term, Grupo Taper shall pay for
-----------------
orders accepted by CCS in cash in United States dollars, net ninety (90) days.
(b) Initial Inventory Payment and Equity Investment. Concurrently with
-----------------------------------------------
the execution of this Agreement (i) Grupo Taper shall pay Five Hundred Thousand
and No/100 Dollars ($500,000.00) in cash in United States dollars (the "Initial
Inventory Payment") to CCS to offset a portion of the cost of Products to be
purchased by Grupo Taper from CCS; and (ii) Grupo Taper will pay to CCS Five
Hundred Thousand and No/100 Dollars ($500,000.00) (at $5.00 per share) in
exchange for which CCS will issue to Grupo Taper the number of shares of common
stock of CCS that are then equal in total value to $500,000.00 (at $5.00 U.S.
per share), pursuant to the terms of a stock purchase agreement to be signed by
the parties at the time of signing of this Agreement. As soon as practicable
following the execution of this Agreement CCS will issue Grupo Taper a warrant
(in form and substance mutually acceptable to each party hereto) to purchase
100,000 shares of common stock of CCS at an exercise price of $0.80 U.S. per
share. This warrant would be exercisable in accordance with the following
schedule; (i) 50,000 shares would be exercisable one (1) year after CCS achieves
ISO and CE approval if the Agreement is still in force and if Grupo Taper has
achieved at least 60% of its forecasted sales commitment of 500 units; (ii)
25,000 shares exercisable after the end of the second year of this Agreement if
the Agreement is still in force and if Grupo Taper has achieved at least 60% of
its forecasted sales commitment of 500 units; and (iii) 25,000 shares
exercisable three (3) years after the third year of the Agreement if the
Agreement is still in force and if Grupo Taper has achieved its forecasted sales
commitment of 5,500 units over the last two (2) year period.
(c) Product Pricing and Manner of Payment. The prices to be paid for
-------------------------------------
Products by Grupo Taper during the first three (3) years of this Agreement are
set forth on EXHIBIT B. Grupo Tape shall pay fifty percent (50%) of the price of
each Product delivered by CCS, the remaining fifty percent (50%) of the price to
be credited against the Initial Inventory Payment until the Initial Inventory
Payment is entirely offset. Thereafter, Grupo Taper shall pay the full price of
the Product as payment becomes due upon delivery. During the Term, CCS may in
good faith modify the prices set forth on EXHIBIT B, should CCS's cost to
purchase or manufacture Products increase or
4
<PAGE>
decrease by five percent (5%) or more, cumulatively since the price was
established or last modified. EXHIBIT B shall be updated to reflect
modifications to Product prices if and when they are modified by CCS pursuant to
this Section 6(c). Grupo Taper or their representative has the option to audit
product cost records every six (6) months during the life of this contract.
Section 8. Trademarks and Trade Names. Grupo Taper acknowledges CCS's
--------------------------------------
exclusive right, title and interest in and to the trademarks and trade names
used by CCS, including but not limited to the name "Cardiac Control Systems,
Inc." Grupo Taper may use CCS trademarks and trade names but only a separately
approved by CCS in writing. Grupo Taper agrees that Grupo Taper will not, during
the Term or thereafter, do or cause to be done any act which impairs or intends
to impair CCS's right, title and interest in such trademarks and trade names,
nor shall it represent that it has any ownership interest therein. Grupo Taper
has no authority to license or sublicense the trademarks or trade names of CCS.
Section 9. Non-Performance by Grupo Taper. Subject to the provisions
-------------------------------------------
set forth in Section 5 hereof, in the event Grupo Taper fails to perform any of
its obligations under this Agreement, then CCS, in its sole discretion, shall
have the right to suspend all Product shipments until Grupo Taper has cured its
breach or default hereunder, and/or to terminate this Agreement. The
non-defaulting party shall give the defaulting party sixty (60) days' notice of
its intent to terminate this Agreement. During the sixty (60) day cure period,
the Agreement shall remain in full force. If the defaulting party substantially
cures the default within sixty (60) days, the Agreement will remain in full
force.
Section 10. Director. CCS shall upon execution of this Agreement
--------------------
appoint any one director designated by Grupo Taper to serve on CCS's Board of
Directors (the "Board") until the next annual meeting of shareholders of CCS. At
future annual meetings, CCS shall continue to nominate a Grupo Taper designated
director, for as long as Grupo Taper holds at least 50% of its initial
investment, or has any of its original working capital investment outstanding.
Any nomination by CCS of such Grupo Taper designated director shall be made in
the same manner and on equal standing as other director nominees comprising
management's slate.
However, if Grupo Taper's designee is not elected as a director by CCS
shareholders, such designee shall nevertheless be permitted to attend all Board
and executive staff meetings and shall be entitled to receive copies of all
information available to members of the Board of Directors and executive staff,
as a non-voting member of the Board.
Grupo Taper's designee shall be entitled to the same compensation as
other Board members during his tenure on the Board of Directors, either as an
elected or non elected member.
5
<PAGE>
Section 11. Force Majeurs. Neither CCS nor Grupo Taper shall be liable
--------------------------
for any failure to deliver, failure to sell or delay in delivery or sale of
Products due to: (i) acts of God, fires, floods, and other casualties; (ii)
strikes or other labor disputes, including but not limited to, hospital strikes,
accidents to machinery, acts of sabotage, riots, (iii) instruction of any
federal, foreign, state or municipal government or any department or agency
thereof; (iv) export or import restrictions, delays in transportation or lack of
transportation facilities, customer allocations put into effect on account of
demand for the Products exceeding its productive capacity; or (v) any other
cause beyond the control of either party, including failure of suppliers to
provide components for Products.
Section 12. Entire Agreement. This Agreement constitutes the entire
-----------------------------
agreement between the parties hereto with respect to the transactions
contemplated herein, and it supersedes all prior understandings or agreements
between the parties with respect to the subject matter hereof.
Section 13. Notices. All notices, requests, demands and other
--------------------
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered or mailed first class, postage prepaid to the following:
To CCS: Cardiac Control Systems, Inc.
3 Commerce Boulevard
Palm Coast, Florida 32164
Attention: President and Chief Executive Officer
With a copy to: Greenberg Traurig
11 North Orange Avenue
Suite 875
Orlando, Florida 32801
Attention: Randolph H. Fields, Esq.
To Grupo Taper: Grupo Taper, S.A.
Avda. Via dos Castillas 33
Atica 7 Edificio 3
28224 Pozuelo de Alarcon
Madrid, Spain
Section 14. Assignment. Grupo Taper may not assign to a third party,
-----------------------
with the exception of its affiliates, distributors or sales agents, any of its
rights or benefits under this Agreement nor delegate any duties or obligations
hereunder without the prior written consent of CCS, which consent may be
withheld in the sole discretion of CCS.
Section 15. Amendment. This Agreement may not be amended or modified
----------------------
except by a written instrument executed by CCS and Grupo Taper.
6
<PAGE>
Section 16. Assistance in Accessing Components. In the event CCS
-----------------------------------------------
ceases operations or is in voluntary or involuntary bankruptcy for more than
ninety (90) days and cannot manufacture and provide pacemakers for Grupo Taper,
CCS shall assist Grupo Taper by purchasing proprietary and critical components
for the manufacture of pacemakers from CCS's vendors and reselling them to Grupo
Taper at its cost plus margin prior to ceasing operations. In addition, in such
event, CCS shall provide all documentation and test results in our possession to
assist Grupo Taper in achieving its own CE mark for manufacture of such
pacemakers. In addition, in such event, CCS shall provide assistance setting up
manufacturing procedures for the Product. Actual costs associated with providing
this assistance in setting up manufacturing procedures for the Product will be
the responsibility of Grupo Taper. In the event that CCS does not exist as an
entity, Grupo Taper may attempt to purchase proprietary components directly from
CCS' vendors.
Section 17. Counterparts. This Agreement may be executed in
--------------------------
counterparts, each of which shall constitute an original, but all taken together
shall constitute one and the same Agreement.
Section 18. No Partnership or Joint Venture. This Agreement shall not
---------------------------------------------
be construed to create any joint venture or partnership by or between the
parties hereto.
Section 19. Governing Law. This Agreement shall not be construed under
--------------------------
the laws of the State of Florida, without regard to Florida conflicts of laws
principles. Any suit as to this Agreement shall be brought in the federal courts
located in Orange County, Florida. The parties agree that the United Nations
Convention on Contracts for the International Sales of Goods, The Hague
Convention, and other treaties shall not apply to the construction or
interpretation of this Agreement or affect any of its provisions.
Section 20. Arbitration. Any claim or controversy arising out of, or
------------------------
related to this Agreement, or the making of performance or interpretation
thereof, except for any actions brought with respect to ownership or use of the
proprietary marks, shall be finally settled by binding arbitration pursuant to
the then prevailing Rules of the American Arbitration Association, by a three
arbitrator panel appointed in accordance with such rules. Any such arbitration
proceeding shall take place within the State of Florida, or any other such
location as may be mutually agreed to by the parties.
Section 21. Severability. In the event that any provision, or portion
-------------------------
thereof, of this Agreement is held to be unenforceable or invalid by any court
of competent jurisdiction, the validity and enforceability of the remaining
provisions or portions of the Agreement shall not be affected.
Section 22. Disposition of Inventory. In the event that this Agreement
-------------------------------------
terminates prior to the end of its 10-year term, Grupo Taper may resell all
remaining Product inventory in the Territory, or at the Grupo Taper's option,
CCS will accept in return for
7
<PAGE>
credit any Product that is saleable. In such instance, credit given shall be the
purchase price, minus any costs associated with inspection, repair and shipment
of returned Product. A Product is "saleable" when it has intact packaging and
seal, is in good physical and functional condition, and has a minimum of eight
(8) months remaining prior to its expiration date for implant.
Section 23. Other Merchandise. Additional merchandise from Grupo Taper
------------------------------
may be offered for sale through the CCS sales force. Such merchandise would be
subject to a separate agreement between CCS and Grupo Taper. The additional
merchandise that may be sold and the terms of representation shall be subject to
CCS's prior written approval.
Section 24. Binding Successors. This Agreement shall be binding upon,
-------------------------------
and inure to the benefit of, the parties hereto and, as applicable, their
personal representative, successors in interest, heirs, assigns or transferees.
Section 25. Hold Harmless. CCS agrees to hold Grupo Taper, nd its
--------------------------
sub-distributors, affiliates and agents harmless from any claim for injuries or
damage resulting from a defective product supplies by CCS to Grupo Taper for
sale. Grupo Taper agrees to hold CCS harmless from any claim for injuries or
damage resulting from Grupo Taper's negligence in the promotion or distribution
of products.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
instrument in Orange County, Florida as of the date first set forth hereinabove.
CARDIA CONTROL SYSTEMS, INC.
Attest:
/s/ Lauri Mitchell By: /s/ Alan J. Rabin
- --------------------------------- -------------------------------
Secretary Alan J. Rabin
Its: President and
Chief Executive Officer
Attest: GRUPO TAPER, S.A.
By: /s/ Jose Antonio Tarin Fabregas
- --------------------------------- -------------------------------
Secretary Jose Antonio Tarin Fabregas
Its: Chairman and
Chief Executive Officer
8
<PAGE>
EXHIBIT A
THE TERRITORY
The following countries are covered under the terms of this contract.
EUROPE
Germany, Spain, France, United Kingdom, Belgium, Italy, Switzerland, Russia,
Algeria, Croatia, Lithuania, Austria, Netherlands, Estonia, Slovenia, Portugal,
Ex-Yugoslavia, Hungary, Bulgaria, Romania, Chechnia, Slovachia, Latvia, Poland,
Greece.
NON EUROPE:
New Zealand, Cuba, Mauritius, Tunisia, South Africa, Pakistan, Jordan, Syria,
Egypt, Phillippines.
LATIN AMERICA:
A separate agreement will be written covering the countries to be included in
Central and South America.
9
<PAGE>
EXHIBIT B
PRODUCTS AND PRICING
This Exhibit B sets forth the Products covered by the Distribution
Agreement by and between Cardiac Control Systems, Inc. ("CCS") and Grupo Taper,
S.A. ("Grupo Taper") and the negotiated Product prices to be paid to CCS from
December 31, 1995 through December 31, 1998.
MODEL PRODUCT DESCRIPTION PRICE*
- ----- ------------------- ------
Maestro II 231 Unipolar single-chamber $1,500.00
Multi-programmable pacemaker,
telemetry plus, 3.2 mm IS-1
connector port, 6 mm, with lead
Maestro II 232 Bipolar single-chamber $1,500.00
Multi-programmable pacemaker,
telemetry plus, 3.2 mm IS-1
connector port, 6 mm, with lead
Maestro II Unipolar atrial rate responsive $1,500.00
SAVVI/T/ 333 multi-programmable ventricular
pacemaker, telemetry plus,
3.2 mm IS-1 connector ports,
6 mm, with lead
1006 Maestro Pacemaker release III $1,500.00
programmer, with detachable
programming wand and power cable
*All prices listed are FCA CCS's premises at Palm Coast, Florida.
10
<PAGE>
In addition, the following new products are expected to be added during the
next 2 years. These products would also be made available to Grupo Taper.
Pricing for these products will be determined upon date of product release.
1. Model 533 & 534 dual-chamber, multi-programmable pacemakers
2. Single Lead External Temporary Pacemaker System
3. Redesigned computerized programmer
4. Enhanced Single Lead VDD pacing system.
Also as referenced in Section 3 of this Agreement any other Cardiovascular
products that are developed and released to the market place during the term of
this Agreement will be offered to Grupo Taper for sale in the Territory.
11
<PAGE>
EXHIBIT C
MINIMUM SALES PERFORMANCE
FOR THE "INITIAL TERM"
Year Pacemakers
---- ----------
One and Two 1,000 Total Pacemakers
Two and Three 5,500 Total Pacemakers
If registration (other than ISO / CE requirements) has not been obtained by the
beginning of year three, then quota for the third year will be reduced by 1000
units.
12
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
COMPUTATION OF INCOME (LOSS )PER SHARE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER SHARE:
Net income (loss).......................... $ 75,104 $ 4,871 $ (88,182) $ 112,857
========== ========== ========== ==========
Weighted average number
of common shares outstanding............ 1,363,142 1,324,538 1,349,769 1,246,718
Net common shares issuable
on exercise of certain stock
options and warrants (a)................ 102,550 - - -
---------- ---------- ---------- ----------
Weighted average number
of common shares outstanding,
as adjusted............................. 1,465,692 1,324,538 1,349,769 1,246,718
========== ========== ========== ==========
Income (loss) per common share............ $.05 $.00 $(.07) $.09
========== ========== ========== ==========
FULLY DILUTED INCOME (LOSS) PER SHARE:
Net income (loss)........................ $ 75,104 $ 4,871 $ (88,182) $ 112,857
Adjustment for interst assuming
conversion of 5% debentures............. 36,359 - - -
---------- ---------- ---------- ----------
Net income (loss), as adjusted............. $ 111,463 $ 4,871 $ (88,182) $ 112,857
========== ========== ========== ==========
Weighted average number
of common shares outstanding,
as adjusted per primary
computation above...................... 1,465,692 1,324,538 1,349,769 1,246,718
Net common shares issuable
on exercise of certain stock
options and warrants (a)................ (54) - - -
Net common shares issuable on
conversion of 5% convertible
debentures.............................. 1,030,357 - - -
---------- ---------- ---------- ----------
Weighted average number
of common shares outstanding,
as adjusted............................. 2,495,995 1,324,538 1,349,769 1,246,718
========== ========== ========== ==========
Fully diluted income (loss) per
common share............................ $.04 $.00 $(.07) $.09
========== ========== ========== ==========
</TABLE>
(a) Net common shares issuable on exercise of outstanding stock options,
warrants and convertible debentures have not been included in the computation
for the nine months ended December 31, 1995 and 1994, and the three months ended
December 31, 1994 since inclusion thereof would have an anti-dilutive or
immaterial effect on the income (loss) per common share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 385,801
<SECURITIES> 0
<RECEIVABLES> 1,505,633
<ALLOWANCES> 40,000
<INVENTORY> 2,190,693
<CURRENT-ASSETS> 4,151,553
<PP&E> 4,704,807
<DEPRECIATION> 3,176,361
<TOTAL-ASSETS> 6,048,694
<CURRENT-LIABILITIES> 1,945,279
<BONDS> 4,221,525
126,445
0
<COMMON> 0
<OTHER-SE> (862,145)
<TOTAL-LIABILITY-AND-EQUITY> 6,048,694
<SALES> 4,013,409
<TOTAL-REVENUES> 5,724,859
<CGS> 1,868,163
<TOTAL-COSTS> 5,422,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 465,028
<INCOME-PRETAX> (88,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (88,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (88,182)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
