<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 SEPTEMBER 30, 1996 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 October 31, 1996, 2,580,799 shares of the Registrant's common stock, $.10
par value, were outstanding.
===============================================================================
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
FORM 10-QSB
SEPTEMBER 30, 1996
INDEX
- ------------------------------------------------------------------------------
Page No.
- ------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Balance Sheet at September 30, 1996 (Unaudited)..................... 3
Statements of Operations and Accumulated Deficit for
the Three Months and Six Months Ended
September 30, 1996 and 1995 (Unaudited)............................ 4
Statements of Cash Flows for the Six Months Ended
September 30, 1996 and 1995 (Unaudited)............................ 5
Notes to Financial Statements........................................ 6
Management's Discussion and Analysis of Financial Position
and Results of Operations.......................................... 9
PART II. OTHER INFORMATION.............................................. 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIAC CONTROL SYSTEMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
September 30,
1996
- -------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents.................................... $ 400,948
Accounts and notes receivable................................ 977,078
Inventories.................................................. 1,810,359
Prepaid expenses............................................. 438,949
------------
Total current assets............................ 3,627,334
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation of $3,289,790................................... 1,645,648
OTHER ASSETS.................................................... 338,550
------------
Total assets.................................... $ 5,611,532
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and debt obligations payable within one year........ $ 318,228
Accounts payable............................................ 379,498
Accrued interest............................................ 2,082
Accrued compensation........................................ 213,691
Accrued compensated absences................................ 93,669
Deposits payable............................................ 453,344
Other accrued expenses...................................... 302,745
------------
Total current liabilities....................... 1,763,257
------------
NOTES AND DEBT OBLIGATIONS PAYABLE AFTER ONE YEAR................ 1,437,961
------------
OTHER LIABILITIES................................................ 109,298
------------
DEFERRED ROYALTIES............................................... 141,500
------------
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 30,000,000 shares authorized,
2,584,370 shares issued................................ 258,437
Capital in excess of par value............................... 22,179,278
Accumulated deficit.......................................... (20,267,262)
Treasury stock at cost 3,571 shares.......................... (10,937)
------------
Total stockholders' equity...................... 2,159,516
------------
Total liabilities and stockholders' equity..... $ 5,611,532
============
</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 Six Months Ended
September 30, September 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Net sales....................................... $ 968,682 $ 1,314,899 $ 2,171,175 $ 2,586,902
Royalty income.................................. 519,350 486,850 1,213,875 988,650
---------------------------------------------------------
Total revenue........................... 1,488,032 1,801,749 3,385,050 3,575,552
---------------------------------------------------------
COSTS AND EXPENSES
Cost of products sold........................... 497,412 591,325 1,190,043 1,224,715
Selling, general and administrative expenses.... 728,195 830,674 1,549,535 1,738,236
Engineering, research and development expenses.. 462,270 317,073 907,147 576,950
---------------------------------------------------------
Total cost and expenses................. 1,687,877 1,739,072 3,646,725 3,539,901
---------------------------------------------------------
OPERATING INCOME (LOSS)................................ (199,845) 62,677 (261,675) 35,651
OTHER INCOME (EXPENSES)
Interest income................................. 5,725 1,492 16,273 8,019
Interest expense................................ (131,094) (145,083) (265,883) (282,010)
Other income.................................... - 75,006 25,000 75,054
---------------------------------------------------------
Total other income (expenses)........... (125,369) (68,585) (224,610) (198,937)
---------------------------------------------------------
NET LOSS............................................... (325,214) (5,908) (486,285) (163,286)
ACCUMULATED DEFICIT - BEGINNING OF PERIOD.............. (19,942,048) (19,676,850) (19,780,977) (19,519,472)
---------------------------------------------------------
ACCUMULATED DEFICIT - END OF PERIOD.................... $(20,267,262) $(19,682,758) $(20,267,262) $(19,682,758)
=========================================================
NET INCOME (LOSS) PER COMMON SHARE..................... $(.13) $.00 $(.19) $(.12)
=========================================================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............ 2,580,799 1,343,280 2,571,166 1,343,051
=========================================================
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Six Months Ended September 30, 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.............................................................................. $ (486,285) $(163,286)
Adjustment to reconcile net loss to net cash used for operating activities:
Depreciation and amortization.................................................... 265,059 233,167
Gain on fixed assets disposals................................................... (491) (4,274)
Cash provided by (used for):
Accounts and notes receivable............................................... 358,279 194,488
Inventories................................................................. 224,086 (355,383)
Prepaid expenses............................................................ (374,876) (45,078)
Other assets................................................................ (39,288) (2,775)
Accounts payable............................................................ 78,789 (15,725)
Accrued interest............................................................ (7,130) 71,768
Accrued compensation........................................................ 31,238 (99,170)
Accrued compensation absences............................................... (43,100) 11,553
Deposits payable............................................................ (66,250) (150,562)
Other accrued expenses...................................................... 47,385 107,539
Other liabilities........................................................... (74,093) 10,300
Deferred royalties.......................................................... (186,750) (152,100)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities..................................... (273,427) (359,538)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment............................................. (244,203) (252,881)
Proceeds from sale of equipment....................................................... 491 20,196
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities..................................... (243,712) (232,685)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and stock warrants, net of issuance expenses... 246,033 -
Proceeds from notes and debt obligations payable...................................... 32,035 68,490
Repayment of notes and debt obligations payable....................................... (525,273) (40,677)
Principal payments under capital lease obligations.................................... (1,889) (1,654)
Principal payments under installment purchase obligations............................. - (1,728)
Debt issuance costs................................................................... - (22,634)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities..................................... (249,094) 1,797
- --------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... (766,233) (590,426)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR............................................. 1,167,181 667,490
CASH AND CASH EQUIVALENTS - END OF PERIOD................................................. $ 400,948 $ 77,064
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period....................................................... $ 159,039 $ 107,756
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Reduction in accounts payable in exchange for common stock............................ $ 5,000 -
Reduction in accrued compensation in exchange for common stock........................ - $ 2,000
</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 September 30, 1996, the related statements of operations and accumulated
deficit for the three months and six months ended September 30, 1996 and 1995,
and the statements of cash flows for the six months ended September 30, 1996 and
1995 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 September 30, 1996, and
the results of operations for the three months and six months ended September
30, 1996 and 1995 and the cash flows for the six months ended September 30, 1996
and 1995.
Certain reclassifications have been made to the unaudited financial statements
previously reported for the three months and six months ended September 30, 1995
to conform with classifications used in the unaudited financial statements for
the three months and six months ended September 30, 1996.
The accompanying unaudited financial statements as of September 30, 1996 and for
the three months and six months ended September 30, 1996 and 1995 should be read
in conjunction with the Company's audited financial statements for the year
ended March 31, 1996.
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 of $486,285 for the six months ended September 30, 1996.
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 September 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
-------------------------------------------
September 30,
1996
(unaudited)
-------------
<S> <C>
Raw materials and supplies $ 314,318
Work-in-process 1,020,656
Finished goods 515,779
------------
1,850,753
Reserve for obsolescence (40,394)
------------
$1,810,359
-------------------------------------------
</TABLE>
Finished goods inventories include approximately $269,000 of products consigned
to customers and independent sales representatives at September 30, 1996.
6
<PAGE>
NOTE 3 - NOTES AND DEBT OBLIGATIONS PAYABLE
Notes and debt obligations consist of the following at September 30, 1996:
<TABLE>
<CAPTION>
----------------------------------------------------------
September 30,
1996
-------------
<S> <C>
Sirrom mortgage note, net of discount (A)..... $1,430,250
Intermedics loan (B).......................... 282,010
Other......................................... 43,929
----------
1,756,189
Amount payable within one year................ 318,228
----------
Amount payable after one year................. $1,437,961
----------------------------------------------------------
</TABLE>
(A) 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 accounts
receivable, but including general intangibles such as its patents and
royalties. 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,
reorganizations, 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.
(B) On October 20, 1995, the Company entered into a Promissory Note and
Security Agreement (the "Security Agreement") with Intermedics, Inc., a
Delaware Corporation, ("Intermedics") and executed a $1,000,000 secured
promissory note. Interest on the note is payable at 24.5% and all principal
and interest is due September 1, 1998. Payments of principal and interest
are made as sales of electrode leads are made from the Company to
Intermedics. As such sales are made, the amount paid by Intermedics to the
Company to purchase the leads is reduced by $250 for the first 4,000 leads
and $90 for additional leads. This reduction in payments is offset against
the note payable and accrued interest balance due to Intermedics. Based
upon projected sales of leads to Intermedics, the Company anticipates that
the entire loan balance will be paid by March 31, 1997 and, accordingly,
the entire balance has been classified as a current liability. The security
agreement provides for alternative payment methods in the event the Company
ceases sales of leads to Intermedics. The note is secured by a first
security interest in the proceeds of all sales of leads from the Company to
Intermedics after October 15, 1995 as well as a first security interest in
any royalties received by the Company from Intermedics after October 15,
1995. Sirrom consented to subordinate its security interest in a portion of
these sales proceeds on royalties to facilitate this transaction.
Aggregate notes and debt obligations outstanding at September 30, 1996 mature as
follows: 1997 - $318,228; 1998 - $2,236; 1999 - $5,131; 2000 - $1,430,594.
7
<PAGE>
NOTE 4 - STOCKHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK
During the six months ended September 30, 1996, the Company issued 1,428 shares
of common stock in payment of an accounts payable balance of $5,000 and 50,000
shares of common stock to Sirrom Capital Corporation at a price of $5.00 per
share plus the right to exercise a warrant to purchase 25,000 shares of common
stock at $0.01 per share, which was valued at $81,000.
8
<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 expanding its engineering, research and
design activities, building sales and marketing organizations and its capital
expenditure and debt service requirements contributed to negative cash flow
during the first half of fiscal 1997.
Cash used by operations during the first half of fiscal 1997 approximated
$273,000. Capital expenditures and repayment of debt and capital lease
obligations additionally utilized approximately $244,000 and $527,000
respectively. Proceeds from the issuance of common stock and warrants, net of
issuance expenses, approximated $246,000. Overall, negative cash flow for the
first half of fiscal 1997 approximated $766,000.
The Company has no significant commitments for the acquisition of capital
assets. It has, however, material commitments pursuant to certain inventory
procurement contracts that aggregate approximately $1,039,000 at September 30,
1996.
The Company is currently pursuing additional working capital in order to
continue its development of new technologies, continue its efforts in building a
domestic sales force and support its operations. 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 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 September 30, 1996 versus Three months Ended September 30,
1995.
OVERVIEW. The Company's total revenues for the second quarter of fiscal 1997
decreased by 17% to $1.5 million as compared to $1.8 million for the second
quarter of fiscal 1996. Sales decreased from $1.3 million in the second quarter
of fiscal 1996 to $1.0 million in the second quarter of fiscal 1997; royalty
income remained at the $0.5 million level in the second quarter of fiscal 1997,
as in the second quarter of fiscal 1996. Royalty income represents royalties
from Intermedics Inc. pursuant to a License agreement between the Company and
Intermedics. Total operating costs in the second quarter of fiscal 1997 were
some $51,000 lower than those incurred during the second quarter of fiscal 1996,
resulting in an operating loss of $200,000 in the second quarter of fiscal 1997
compared to an operating profit of $63,000 in the second quarter of fiscal 1996.
SALES. Total sales during the second quarter of fiscal 1997 decreased by
$346,217or 26% to $968,682 from the level of $1,314,899 achieved during the
second quarter of fiscal 1996. The major part of the decrease occurred in sales
of pacers in the domestic market. There were no sales of hybrid circuits to
Europe during the second quarter of fiscal 1997, but an order has been received
for $168,750 of hybrid circuits to be shipped during the second half of fiscal
1997. Following receipt of the confirmation of the Company's right to use the
European Union CE Mark, sales of pacers to Europe during the second quarter of
fiscal 1997 increased by $94,590 to $140,140 from the level of $45,550 achieved
in the second quarter of fiscal 1996.
9
<PAGE>
Sales by geographic area for the second quarters of fiscal 1997 and fiscal 1996
were as follows:
<TABLE>
<CAPTION>
---------------------------------------
Geographic Area 1997 1996
---------------------------------------
<S> <C> <C>
United States..... $792,957 $1,145,449
Europe............ 175,725 169,450
--------------------
$968,682 $1,314,899
---------------------------------------
</TABLE>
ROYALTY INCOME. 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. The future potential royalties to be recorded over
the remaining life of the agreement, which is expected to terminate in January
1998, are estimated at $2.5 million.
COST OF PRODUCTS SOLD. The cost of products sold in the second quarter of
fiscal 1997 was $497,412, compared to $591,325 in the second quarter of fiscal
1996, representing a decrease of 16% as compared with the decrease of 26% in
sales, which reduced the gross margin from 55% to 49%. This reduction was due
to a change in customer mix, with a higher proportion of sales to the
international market, where selling prices are lower than in the domestic
market, and to a reduction in production volumes better to manage inventory
levels, thus having an adverse effect on overhead absorption.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $728,195 in the second quarter of fiscal 1997,
representing a decrease of 12% from $830,674 in the second quarter of fiscal
1996. This reduction is largely due to a decrease of $125,172 in sales
commissions.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES. Engineering, research and
development costs were $462,270 in the second quarter of fiscal 1997,
representing an increase of 46% from $317,073 in the second quarter of fiscal
1996, due to the planned intensified development activities in the areas of
single pass electrode leads, bipolar dual chamber operation, rate responsive
pacing and a replacement programmer.
OTHER INCOME AND EXPENSES. Interest income was $5,725 during the second quarter
of fiscal 1997, as compared to $1,492 in the second quarter of fiscal 1996.
Total interest expense decreased from $145,083 in the second quarter of fiscal
1996 to $131,094 in the second quarter of fiscal 1997. Interest paid to Sirrom
Capital Corporation in respect of a secured loan of $1,500,000 granted on March
31, 1995 was $51,041 in each of the second quarters of fiscal years 1997 and
1996. Interest in the sum of $27,435 was paid to Intermedics Inc. during the
second quarter of fiscal 1997 in respect of the outstanding proceeds of a
promissory note in the sum of $1,000,000 executed on October 20, 1995. The
balance of principal and accrued interest outstanding pursuant to the
Intermedics' promissory note at September 30, 1996 were $282,010 and $2,082.
Debt amortization costs decreased from $55,135 in the second quarter of fiscal
1996 to $54,284 in the second quarter of fiscal 1997. Other income of $75,000
during the second quarter of fiscal 1996 represents a prior year deposit taken
into income.
Six Months Ended September 30, 1996 versus Six months Ended September 30, 1995.
OVERVIEW. The Company's total revenues for the first half of fiscal 1997
decreased by 5% to $3.4 million as compared to $3.6 million for the first half
of fiscal 1996. Sales decreased from $2.6 million in the first half of fiscal
1996 to $2.2 million in the first half of fiscal 1997; royalty income increased
from $1.0 million in the first half of fiscal 1997 to $1.2 million in the first
half of fiscal 1996. Royalty income represents royalties from Intermedics Inc.
pursuant to a License agreement between the Company and Intermedics. Total
operating costs in the first half of fiscal 1997 were some $107,000 higher than
those incurred during the first half of fiscal 1996, resulting in an operating
loss of $262,000 in the first half of fiscal 1997 compared to an operating
profit of $36,000 in the first half of fiscal 1996.
10
<PAGE>
SALES. Total sales during the first half of fiscal 1997 decreased by $415,727
or 16% to $2,171,175 from the level of $2,586,902 achieved during the first half
of fiscal 1996. Sales of hybrid circuits to Europe during the first half of
fiscal 1997 declined by $147,150 to $60,500 as compared to the level of $207,650
achieved during the first half of fiscal 1996, but an order has been received
for $168,750 of hybrid circuits to be shipped during the second half of fiscal
1997. Sales of pacers to Europe during the first half of fiscal 1997 increased
by $136,690 to $198,890 from the level of $62,200 achieved in the first half of
fiscal 1996.
Sales by geographic area for the first halves of fiscal 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------
Geographic Area 1997 1996
-----------------------------------------
<S> <C> <C>
United States..... $1,862,475 $2,294,064
Europe............ 308,700 292,838
----------------------
$2,171,175 $2,586,902
-----------------------------------------
</TABLE>
ROYALTY INCOME. 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. The future potential royalties to be recorded over
the remaining life of the Agreement, which is expected to terminate in January
1998, are estimated at $2.5 million.
COST OF PRODUCTS SOLD. The cost of products sold in the first half of fiscal
1997 was $1,190,043 compared to $1,224,715 in the first half of fiscal 1996,
representing a decrease of 3% as compared to a decrease of 16% in sales, which
reduced the gross margin from 53% to 45%. This reduction was due to a change in
customer mix, with a higher proportion of sales to the international market,
where selling prices are lower than in the domestic market, and to a reduction
in production volumes better to manage inventory levels, thus having an adverse
effect on overhead absorption.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,549,535 in the first half of fiscal 1997,
representing a decrease of 11% from $1,738,236 in the first half of fiscal 1996.
This reduction was largely due to a reduction of $177,648 in sales commissions.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES. Engineering, research and
development costs were $907,147 in the first half of fiscal 1997, representing
an increase of 57% from $576,950 in the first half of fiscal 1996 due to the
planned intensified development activities in the areas of single pass electrode
leads, bipolar dual chamber operation, rate responsive pacing and a replacement
programmer.
OTHER INCOME AND EXPENSES. Interest income was $16,273 during the first half of
fiscal 1997, as compared to $8,019 in the first half of fiscal 1996. Total
interest expense decreased from $282,010 in the first half of fiscal 1996 to
$265,883 in the first half of fiscal 1997. Interest paid to Sirrom Capital
Corporation in respect of a secured loan of $1,500,000 granted on March 31, 1995
was $101,527 in the first half of fiscal years 1997 compared to $102,082 in the
first half of 1996. Interest in the sum of $72,477 was paid to Intermedics Inc.
during the first half of fiscal 1997 in respect of the outstanding proceeds of a
promissory note in the sum of $1,000,000 executed on October 20, 1995. The
balance of principal and accrued interest outstanding pursuant to the
Intermedics' promissory note at September 30, 1996 were $282,010 and $2,082.
Debt amortization costs increased from $102,485 in the first half of fiscal 1996
to $106,845 in the first half of fiscal 1997. Other income during the first
half of fiscal 1997 and fiscal 1996 represents a prior year deposit taken into
income.
11
<PAGE>
OPERATING TRENDS AND UNCERTAINTIES
SALES. The ability of the Company to maintain a profitable level of operations
is dependent upon expansion of sales volume, both domestically and
internationally and continued development of advanced, new products. The
Company believes that with continued development and the commercial release of
its advanced, new atrial-controlled ventricular pacing systems and the
introduction of its new line of more competitive pacing products, it will have
the potential to improve its sales and the recruitment of sales representatives.
The European Union (EU) 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 EU 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 continue to sell
its product in the EU, it must obtain certification, the CE Mark. The Company
successfully passed an audit of its Quality System to the ISO 9002 in April/May
1996. The audit was conducted by a registered Notified Body of the European
Union and represented the completion of a critical step in securing the CE Mark.
The final steps of product testing and review of technical documentation were
subsequently completed, and the CE Mark was issued by the Notified Body during
the second quarter of fiscal 1996. The Company is now shipping product to
Europe.
Until recently, 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. Medtronic has also commenced marketing a new single-lead atrial-
controlled pacemaker in the United States.
Although the introduction of the new Intermedics and Medtronic pacemakers pose
competition for the Company, management believes that the Company can benefit
from such competition since they 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 competitive 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.
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 other pacemaker manufacturers
will depend on the Company's ability to supply a competitively featured product,
to recruit and increase a quality sales force, and to continue to develop and
release new advanced products. 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 and subsequent conversion of the
Debentures and the cash flow generated from Intermedics' orders and royalties
have positioned the Company to increase its research and development
capabilities, expand 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
12
<PAGE>
that terminates on August 1, 1998. 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 will be in a position to accommodate an
increase in 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.
SOURCES OF SUPPLY. Two of the Company's principal suppliers of materials used
primarily in electrode lead production, Dow Corning Corp. and E.I. DuPont de
Nemours & Company, have indicated that they will no longer supply their
materials to the medical device industry for use in implantable devices. In
July 1993, the FDA published in the Federal Register a one-time-only requirement
for medical device manufacturers to file a special notification of material
supplier changes resulting from the decision of Dow Corning to discontinue
supplying its materials to medical device manufacturers. The Company filed the
"Special Silicone Notification" for its products effected by the Dow Corning
decision in September 1993. In this notification alternate suppliers and
materials were identified and supporting technical biological test data were
provided for the alternate materials. The FDA acknowledged receiving the
Company's notification and indicated that, unless otherwise notified by FDA, the
alternate materials identified in the notification may be used in the Company's
products in place of the comparable Dow Corning materials. No further FDA
approvals of the alternate materials of such suppliers were required.
With respect to other materials changes resulting from decisions by the material
suppliers to discontinue supplying the medical device industry, e.g. E.I. DuPont
de Nemours, the FDA has indicated that such changes shall be handled on a case-
by-case basis through the established product approval processes within the FDA.
The availability of materials suitable for use in implantable medical devices is
an industry-wide problem and is not unique to the Company or to the
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.
Suppliers of custom Application Specific Integrated Circuits (ASIC's) have
advised that the technology used to produce these integrated circuits will no
longer be supported. As such, the Company placed one last bulk order to ensure
the availability of sufficient integrated circuits to satisfy projected demands
for product. The new pacing system under development will realize appropriate
ASIC's for the new system obviating the need for perpetual supply of the
currently used ASIC's.
13
<PAGE>
INFLATION AND CHANGING PRICES
In the opinion of Company management, the rate of inflation during the past two
fiscal years has not had any material impact on the Company's operations.
Because of the implementation of cost containment and new Medicare regulations,
any increase in sales revenues is expected to result from an increase in the
volume of business rather than from an increase in selling prices. The Company's
pricing structure may not reflect inflation rates, due to constraints of
Medicare regulations, market conditions and competition.
14
<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 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.
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
None
ITEM 5. OTHER INFORMATION
None
15
<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 11,
5% Convertible Debenture due 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 Registration
Qualified Stock Option Plan 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 Dow 1995, File No. 0-14653
Corning Enterprises, Inc.
4.6 Stock Puchase Warrant, dated Exhibit 4.6 to Form 10-KSB for the year ended March 31,
October 15, 1995 in favor of 1996, File No. 0-14653
Sirrom Capital Corporation
4.7 Stock Purchase Warrant, dated Exhibit 4.7 to Form 10-KSB for the year ended March 31,
March 29, 1996 in favor of 1996, File No. 0-14653
Grupo Taper, S.A.Exhibit
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
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 Cardiac 1990, File No. 0-14653
Electro-physiology and the
Company
10.2 Amended and Restated License Exhibit 10.19 to Form 8-K Current Report, dated April 2,
Agreement between Intermedics 1993, File No. 0-14653
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 between Exhibit 10.24 to Form 8-K Current Report, dated October
Bart C. Gutekunst and the 11, 1994, File No. 0-14653
Company, dated October 13,
1994
10.5 Employment Agreement between Exhibit 10.25 to Form 8-K Current Report, dated October
Alan J. Rabin and the Company, 11, 1994, File No. 0-14653
dated October 13, 1994
10.6 Employment Agreement between Exhibit 10.12 to Fom 10-Q for the Quarter Ended
Robert S. Miller and the December 31, 1994, File No. 0-14653
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 and March 2, 1995, Registration No. 33-89938
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
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
10.10 Employment Agreement between Exhibit 10.14 to Form S-1 Registration Statement filed on
Robert R. Brownlee and the March 2, 1995, Registration No. 33-89938
Company dated as of October 1,
1994
10.11 Loan and Security Agreement Exhibit 10.1 to Form 8-K Current Report, dated March 31,
between the Company and 1995, File No. 0-14653
Sirrom Capital Corporation,
dated March 31, 1995
10.12 $1,500,000 Secured Promissory Exhibit 10.2 to Form 8-K Current Report, dated March 31,
Note in favor of Sirrom Capital 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 31,
and Leases, and Security 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 31,
Agreement in favor of Bart 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 31,
between the Company Sirrom 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-QSB 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-QSB 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-QSB for the Quarter ended
Agreement between Intermedics September 30, 1995, File No. 0-14653
Inc., and the Company, dated
October 20, 1995
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
10.19 Distribution Agreement between Exhibit 10.19 to Form 10-QSB for the Quarter ended
Grupo Taper S.A. and the December 31, 1995, File No. 0-14653
Company, dated December 20,
1995
10.20 Distribution Agreement between Filed herewith
LEM Biomedica s.r.l. and the
Company, dated October 1, 1996
- --------------------------------------------------------------------------------------------------------
</TABLE>
Copies of the above described exhibits will be furnished to the
stockholders upon written request, addressed to President and Chief Executive
Officer, Cardiac Control Systems, Inc., 3 Commerce Boulevard, Palm Coast,
Florida 32164.
6(B). REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the Company during the six
months ended September 30, 1996.
19
<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: 11/7/96 By: /s/ Alan J. Rabin
--------------------------- ----------------------------------
Alan J. Rabin
President and Chief Executive Officer
Date: 11/7/96 By: /s/ W. Alan Walton
--------------------------- ---------------------------------
W. Alan Walton
Executive Vice President and Chief
Operating Officer
20
<PAGE>
EXHIBIT 10.20
AGREEMENT
---------
Effective this 1st day of October, 1996, by and between
Con inizio di decorrenza in questo giorno 1 del mese di Ottobre, 1996 da e tra
Cardiac Control Systems, Inc. (CCS), a Delaware corporation having a place of
business at 3 Commerce Blvd., Palm Coast, Florida USA, 32164, and/E
LEM Biomedica s.r.l. (LEM), an Italian corporation having a place of business at
Loc. Spedaletto, Cavallina di Mugello, 50030, Italy
WITNESS
ATTESTANO
1. CCS hereby recognizes LEM as an independent manufacturer, and agrees to sell
to LEM hybrid circuits for implantable pulse generators. The hybrid circuits
are manufactured for CCS by a third party manufacturer (the Supplier)
according to a proprietary design developed and provided by CCS.
CCS qui riconosce che LEM e un fabbricante indipendente, e concorda di
vendere a LEM circuiti ibridi per elettrostimolatori del cuore impiantabili.
I circuiti ibridi sono prodotti per CCS da una terza parte produttrice (il
Fornitore), in accordo ad un progetto sviluppato e fornito da CCS che ne e
pure la proprietaria.
2. CCS agrees to sell, and LEM agrees to purchase, hybrid circuits for a period
of two years, beginning with the effective date of this Agreement, for
pacemaker models 721 (VVI unipolar), 722 (VVI bipolar), 731 (VDD), 751 (DDD
unipolar) and 752 (DDD bipolar). LEM agrees to purchase a minimum of 1200
hybrid circuits during the term of this Agreement. LEM will define the mix of
pacemaker models for which the hybrid circuits will be used.
CCS concorda di vendere, e LEM concorda di acquistare circuiti ibridi per un
periodo di due anni ,a cominciare dalla data di sottoscrizione del presente
contratto, per pace-maker modello
<PAGE>
721 (VVI unipolare), 722 (VVI bipolare), 731 (VDD), 751 (DDD unipolare) e 752
(DDD bipolare). LEM concorda di acquistare un minimo di 1200 circuiti ibridi
per la durata del presente contratto. LEM definira il mix dei modelli di
circuiti ibridi che saranno usati per i pace-maker.
3. LEM will make payments by means of 90 days letter of credit. Such letters of
credit shall be irrevocable. Upon request by CCS and at the expense of CCS,
LEM shall have such letters of credit confirmed by a correspondent US bank,
and payable in US dollars at the counter of the US Bank. CCS will be
responsible to assure that the Supplier provides any documentation required
to satisfy the letters of credit. Other methods and forms of payment shall be
allowed under this agreement if first agreed and accepted by both parties in
writing.
LEM paghera a mezzo di lettere di credito a 90 gg. Le lettere di credito
saranno irrevocabili. Su richiesta di CCS ed a spese della stessa CCS, LEM
fara confermare tali lettere di credito da una corrispondente banca
statunitense, e pagabili in dollari USA allo sportello della banca Americana.
CCS si assume la responsabilita che il Fornitore invii alla LEM qualsiasi
documentazione necessaria a soddisfare le richieste delle lettere di credito.
Altri metodi e forme di pagamento saranno permessi per questo contratto solo
se prima concordate ed accettate per iscritto da entrambe le parti.
4. LEM shall place orders for hybrid circuits with CCS, and CCS shall have the
right to require a minimum eight (8) week lead time for such orders. CCS will
provide the hybrid circuits, together with their original Supplier test data,
to LEM. Except as provided in paragraph 12, below, CCS agrees to ship the
hybrid circuits within 10 calendar days of the date the hybrid circuits are
invoiced to CCS by the Supplier.
LEM fara gli ordini dei circuiti ibridi a CCS, e CCS avra un tempo per
evadere tali ordini di un minimo di otto (8) settimane. CCS fornira a LEM i
circuiti ibridi, assieme ai loro dati originali dei test effettuati dal
Fornitore. Eccetto che per quanto previsto nel successivo paragrafo 12, CCS
concorda di inviare a LEM 1 circuiti
<PAGE>
ibridi entro 10 giorni di calendario dalla data in cui i circuiti ibridi
saranno fatturati a CCS dal Fornitore.
5. Special orders may have special price if agreed.
While the contract will have a duration of two (2) years, the price will be
valid for twelve (12) months, after which the price may be renegotiated,
based on the state of the market and CCS costs.
The price of the hybrid circuits will be based on the quantities ordered by
LEM to CCS as follows:
Quantity ordered VVI Price VDD&DDD price
1 to 30 $800 $975
31 to 50 $760 $875
51 to 75 $700 $800
76 or more $650 $730
payable by LEM according to the terms of paragraph 3 hereof. Quantities of
VVI, VDD and DDD pacemakers can be mixed to achieve optimum price.
il prezzo dei circuiti ibridi sara basato sulle quantita ordinate da LEM a
CCS come segues: le quantita di circuiti ordinate possono essere miste di
modelli VVI, VDD O DDD.
Quantita ordinate Prezzo VVI Prezzo VDD&DDD
1 to 30 $800 $975
31 to 50 $760 $875
51 to 75 $700 $800
76 o piu $650 $730
pagabili da Lem nei termini stabilii dal paragrafo 3 del presente contratto.
ordini particolari possono avere pezzi specialise concordati.
Mentre il contratto avra una durata di due (2) anni, I prezzi saranno validi
per dodici (12) mesi dopo di che verranno ridiscussi, solo in riduzione,
basandosi sull'andamento del mercato e sui costi ccs.
<PAGE>
6. LEM shall have the right to return any hybrid circuit which fails to meet the
Supplier's electrical and mechanical specifications for hybrid circuits. LEM
must request return authorization from CCS within 15 days of release from the
Italian customs broker, and must provide adequate documentation of the
failure to CCS. Upon receipt, CCS shall have the option to repair, replace or
issue credit for any hybrid circuit which is properly returned by LEM to CCS.
Further, this right of return shall not extend to hybrid circuits which have
been modified or mishandled, nor to physical damage to the hybrid circuit.
LEM shall have the responsibility to make claims for such physical damage
against the shipping carrier.
LEM ha il diritto di restituire tutti quei circuiti ibridi che non siano
conformi alle specifiche elettriche e meccaniche del Fornitore per i circuiti
ibridi. LEM dovra richiedere l'autorizzazione al ritorno alla CCS entro 15
giorni dal ricevimento del materiale da parte del broker doganale italiano, e
dovra fornire una adeguata documentazione del guasto alla CCS. Una volta
ricevuto il pezzo guasto CCS avra l'opzione di ripararlo, rimpiazzarlo o
emettere un credito per ogni circuito che sia stato rimandato in modo proprio
dalla LEM a CCS. Questo diritto alla restituzione non e esteso a quei
circuiti ibridi che sono stati modificati o manomessi o abbiano subito danni
fisici. LEM avra la responsabilita di reclamare i danni allo spedizioniere
per tali danni fisici.
7. In the event that CCS ceases regular business activities, CCS will designate
an agent for fulfilling the obligations of CCS under this Agreement. Any
agent of CCS shall have the right to designate a successor agent.
Nel caso che CCS cessi le regolari attivita d'affari, CCS nominera un agente
per adempiere agli obblighi derivanti alla CCS da questo Contratto. Ogni
Agente della CCS avra il diritto di nominare un agente suo successore.
<PAGE>
8. LEM agrees that hybrid circuits acquired pursuant to this Agreement shall be
used only for the manufacture of implantable LEM branded pacemakers, and
shall not be resold to any third party or used in a Medico Branded
pacemaker. LEM shall not distribute any such LEM pacemakers in the United
States or Canada. Upon request by CCS, LEM will provide a summary of the
quantity of such LEM pacemakers that were shipped to each country during the
term of this agreement. CCS agree that during the term of this agreement any
CCS branded Pacemaker will be distributed in Italy.
LEM concorda che i circuiti ibridi acquistati a seguito del presente
Contratto saranno usati esclusivamente per la produzione di pace-maker
impiantabili a marchio LEM, e non saranno rivenduti a nessuna terza parte, o
utilizzati in un pacemaker a marchio medico. LEM non distribuira tali pace-
maker a marchio LEM negli Stati Uniti o Canada. A richiesta della CCS, LEM
fornira una lista delle quantita di tali pace-maker LEM spediti in ogni
paese durante la durate di questo contratto. CCS concorda di non distribuire
pacemakers a marchio CCS in Italia durante la durata di questo contratto.
9. In the event that LEM does not make invoice payments when due to CCS,
interest will accrue on late payments as the rate of 1% for each month, or
part thereof, that the payment is late. Further, if such payments become
more than 15 days delinquent, CCS may hold any shipments of hybrid circuits
until such time as the delinquent payments, together with accrued interest,
are paid in full.
Nel caso LEM non effettui il pagamento delle fatture a CCS nel momento
dovuto, verranno addebitati sui pagamenti ritardati interessi del 1% mese, o
parte di esso. Inoltre, se tali pagamenti avranno un ritardo superiore ai 15
giorni, CCS potra fermare la spedizione dei circuiti ibridi sino al momento
in cui non sia avvenuto il pagamento delle somme in ritardo, compresi gli
interessi addebitati.
10. In the event that CCS receives hybrid circuits from the Supplier, and does
not promptly ship such hybrid circuits to LEM according to the terms of
paragraph 4 hereof, CCS agrees to reimbuse LEM, in the form of a penality
<PAGE>
of 1% of the price of the hybrids for each month, or part hereof, that the
shipment is delayed.
Nel caso in cui CCS riceva dal Fornitore i circuiti ibridi e non spedisca
prontamente tali circuiti ibridi alla LEM in accordo con i termini del
paragrafo 4 di questo Contratto, CCS concorda di rimborsare LEM, con una
penale pari all' 1% del prezzo degli ibridi per ogni mese, o frazione di
esso, di ritardo nella spedizione.
11. CCS undertakes to supply the current version of the hybrid circuits covered
by this Agreement. Any version of the hybrid circuit which CCS is using, at
the time of shipment, to manufacture pacemakers shall be considered a
current version. Further, CCS agrees to provide written notification to LEM
of any significant changes to such hybrid circuits, at least 90 days in
advance of such changes. CCS shall also provide copies of reports of any
qualification testing required by such changes. Significant changes shall be
defined as changes which require approval by the US FDA.
CCS si impegna a fornire la versione corrente del circuito ibrido coperto da
questo contratto. Qualsiasi versione del circuito ibrido che CCS stia
utilizzando per produrre i suoi pace-maker, al momento della spedizione,
sara considerata versione corrente. Inoltre, CCS concorda di dare notifica
scritta a LEM di ogni cambiamento significativo a tale circuito ibrido, con
almeno 90 giorni di anticipo da tali cambiamenti. Vengono definiti
cambiamenti significativi, quei cambiamenti che richiedono l'approvazione
scritta della FDA degli U.S.A.
12. CCS agrees to provide to LEM the information necessary to use the hybrid
circuits to assemble and test implantable pulse generators. LEM agrees to
protect the confidentiality of such information and to use such information
only for the purpose of producing implantable pulse generators which
incorporate the hybrid circuits. LEM further agrees to reimburse CCS for the
cost of providing such information upon receipt by LEM of a statement for
such costs from CCS.
CCS concorda di fornire a LEM le informazioni necessarie per usare il
circuito ibrido al fine di assemblare e testare un
<PAGE>
elettrostimolatore del cuore impiantabile. LEM concorda di proteggere la
confidenzialita di tali informazioni e di usarle esclusivamente allo scopo
di produrre elettrostimolatori del cuore impiantabili che incorporino i
circuiti ibridi. LEM inoltre concorda di rimborsare a CCS i costi per la
fornitura di tali informazioni al momento del ricevimento da parte di LEM
di un rendiconto da parte di CCS di tali costi.
13. CCS agrees, during the terms of the Agreement, to provide the information
necessary to implement manufacturing process improvements or test
modifications intended to maintain the product performance and safety. LEM
agrees to reimburse CCS for the cost of providing such information upon
receipt by LEM of a statement for such costs from CCS.
CCS concorda che, per la durata del contratto, fornira le informazioni
necessarie ad implementare il processo di produzione, i miglioramenti e le
modifiche dei test intese a mantenere le prestazioni del prodotto e la sua
sicurezza.
14. Any recall actions, due to hybrid circuit problems, initiated by either
party must be communicated to the other party before public disclosure.
Qualsiasi azione di richiamo, dovuta a problemi del circuito ibrido, ed
iniziata da una qualsiasi delle due parti dovra essere comunicata all'altra
parte prima che essa venga resa di pubblico dominio.
15. This Agreement covers only those hybrid circuits listed in paragraph 2
hereof. Supply of any new hybrid circuit, other than those listed in
paragraph 2, will require a separate agreement or an addendum to this
Agreement. Both parties agree to negotiate in good faith if such an
agreement or addendum is necessary, but this Agreement shall not obligate
either party to negotiate such an agreement or addendum.
Questo contratto riguarda esclusivamente i circuiti ibridi elencati nel
paragrafo 2 del presente contratto. La fornitura di qualsiasi altro nuovo
circuito, che non sia uno di quelli elencati nel
<PAGE>
paragrafo 2, richiedera un accordo separato od un addendum al presente
Contratto. Entrambe le parti concordano di negoziare in buona fede se tale
accordo od addendum sara necessario, ma questo Contratto non obblighera
nessuna delle due parti a negoziare tale accordo od addendum.
16. This Agreement shall be governed by, and constructed in accordance with,
the laws of the State of Florida and the United States of America, without
reference to principles of choice of laws. Any controversy or claim arising
out of or relating to this Agreement, or breach thereof, shall be resolved
by arbitration in accordance with the rules, then in effect, of the
American Arbitration Association, and judgment upon the award may be
entered in any court having jurisdiction thereof. Any arbitration shall be
held in Florida (USA) unless the parties agree otherwise in writing.
Questo contratto sara governato da, e costruito in accordo con, le leggi
dello Stato della Florida e degli Stati Uniti d' America, senza riferimento
al principi di scelta delle leggi. Qualsiasi controversia sorgente da o
relativa a questo Contratto, o infrazione di questo, sara risolto da un
arbitrato in accordo con le regole, allora in vigore, della American
Arbitration Association, e il giudizio sul lodo arbitrale potra essere
presentato a qualsiasi tribunale che ne abbia giurisdizione. Qualsiasi
arbitrato sara tenuto in Florida (USA) a meno che le parti non concordino
diversamente per iscritto.
17. In the event of a suit or other legal proceeding, including mediation or
arbitration, to enforce the terms of this Agreement, the substantially
prevailing party shall be entitled to collect from the substantially non-
prevailing party its reasonable attorneys' fees, reasonable expenses and
court costs.
Nel caso di processo o di altra azione legale, inclusa la mediazione o l'
arbitrato, a rinforzare i termini di questo contratto, la parte
sostanzialmente prevalente avra il titolo di incassare dalla parte
sostanzialmente non prevalente le proprie ragionevoli spese d'avvocato,
altre spese e costi di tribunale.
<PAGE>
18. CCS shall not be liable for any failure to perform under this Agreement due
to inability to secure, on a timely basis, raw materials or supplies,
interruption of transportation, delays in delivery, government regulation,
labor disputes, strikes, civil disturbance, war, fire, flood, accidents, or
any other cause, contingency, or circumstance within or without the United
States not subject to the control of CCS which prevents or hinders the
manufacture or delivery of the goods sold hereunder. The provisions of this
paragraph shall not be limited by any provision in which time is made of
the essence.
CCS non sara responsabile di qualsiasi mancanza di esecuzione di questo
Contratto dovuta alla incapacita di assicurare, tempestivamente, le materie
prime o le forniture, dovuta a interruzione dei trasporti, ritardi nella
spedizione, regolamentazione governativa, dispute di lavoro, scioperi,
agitazione civile, guerra, fuoco, alluvione, incidenti, o qualsiasi altra
causa, contingenza, o circostanza entro o al di fuori degli Stati Uniti non
soggetta al controllo della CCS che sia di ostacolo alla produzione o alla
spedizione delle merci vendute con questo Contratto. Le clausole di questo
paragrafo non saranno limitate da nessuna clausola in cui il tempo ne sia
la sostanza.
19. In the event that any of the provisions of this Agreement, or portions
thereof, are held to be unenforceable or invalid by any court of competent
jurisdiction, the validity and enforceability of the remaining provisions,
or portions thereof, shall not be affected thereby.
Nel caso in cui qualsiasi Clausola di questo Contratto, o porzione di esso,
sia considerata inapplicabile o non valida da qualsiasi tribunale o
giurisdizione competente, non avra effetto sulla validita e l'
applicabilita delle clausole rimanenti, o sulle porzioni di queste.
20. This Agreement constitutes the entire agreement between the parties and
supersedes any prior agreements or understandings whether oral or written.
<PAGE>
No amendments or changes to this Agreement shall be binding unless made in
writing and signed by duly authorized officers of the parties.
Questo contratto costituisce l'intero accordo tra le parti e supera
qualsiasi contratto precedente o accordo sia scritto che orale. Nessun
emendamento o cambiamento a questo Contratto sara vincolante a meno che non
sia fatto per iscritto e firmato dai rappresentanti legali delle parti.
- - IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in duplicate by its proper officers as of the day and year above
written.
- - IN ATTESTAZIONE DI QUANTO SOPRA, ciascuna delle parti convenute che hanno
generato questo Contratto che e messo in esecuzione dai propri rapprensentanti
legali nel giorno, mese ed anno soprascritti.
CARDIAC CONTROL SYSTEMS, INC. LEM Biomedica S.r.l.
By: /s/ Alan J. Rabin By: /s/ Eugenio Snichelotto
----------------------------- -------------------------------
Name: Alan J. Rabin Name: Eugenio Snichelotto
--------------------------- -----------------------------
Title: President and Chief Title: Vice President
-------------------------- ----------------------------
Executive Officer
--------------------------
Date: October 1, 1996 Date: October 1, 1996
--------------------------- -----------------------------
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> JUL-01-1996 APR-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
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<INTEREST-EXPENSE> 131,094 265,883
<INCOME-PRETAX> (325,214) (486,285)
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<INCOME-CONTINUING> (325,214) (486,285)
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