<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
COMMISSION FILE NUMBER 0-11868
CARDIODYNAMICS INTERNATIONAL CORPORATION
CALIFORNIA 95-3533362
6155 CORNERSTONE COURT EAST, SUITE 125
SAN DIEGO, CALIFORNIA 92121
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 535-0202
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ____
Check whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes __X__ No ____
As of July 1, 1996, 29,209,384 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
1
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Balance Sheets as of May 31, 1996
(Unaudited) and November 30, 1995 (Audited) 3
Statements of Operations (Unaudited) for the Three Months Ended
May 31, 1996 and 1995 and for the Six Months Ended May 31, 1996
and 1995 5
Statements of Cash Flows (Unaudited) for the Six Months Ended
May 31, 1996 and May 31, 1995 6
Statements of Changes in Stockholders' Equity (Deficit) for
the Six Months Ended May 31, 1996 (Unaudited) and Fiscal
Year Ended November 30, 1995 (Audited) 7
Notes to the Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
BALANCE SHEETS
ASSETS
May 31, November 30,
1996 1995
(Unaudited) (Audited)
----------- ------------
Current assets:
Cash & cash equivalents $59,624 $7,441
Accounts receivable, less allowance
for doubtful accounts of $32,354
in 1996 and $32,354 in 1995 10,786 75,861
Short-term marketable securities 433,381 173,883
Inventory, net 388,508 263,382
Prepaid expenses 2,600 642
---------- --------
Total current assets 894,899 521,209
---------- --------
Property and equipment, net 165,041 166,304
---------- --------
Other assets:
Deposits 4,250 6,615
Long-term marketable securities -- 85,268
---------- --------
Total other assets 4,250 91,883
---------- --------
Total assets $1,064,190 $779,396
========== ========
3
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
May 31, November 30
1996 1995
(Unaudited) (Audited)
----------- -----------
Current liabilities:
Accounts payable 84,563 186,027
Accrued expenses 4,056 84,532
Accrued compensation 21,806 47,857
Customer deposits 13,050 26,075
Current portion of long-term debt 14,430 14,231
Redemption value of marketable
securities for preferred shareholders 6,418 --
---------- --------
Total current liabilities 144,323 358,722
Long-term debt, less current maturities 655,846 48,496
---------- --------
Commitments and contingencies:
Redeemable preferred stock, no par,
500,000 shares authorized; issued
246,793 shares -- 616,986
---------- --------
Stockholder's equity (deficit):
Common stock, no par, 50,000,000
shares authorized; issued and
outstanding 22,044,433 shares
in 1996 and 17,951,320 shares
in 1995 5,618,334 4,594,858
Common stock subscribed 10,799 325,000
Preferred stock, no par,
500,000 shares authorized; issued
235,994 shares 589,985 --
Accumulated deficit (6,046,373) (5,071,928)
Unrealized gain (loss) on investment
securities, no net tax provision 91,276 92,738
---------- --------
Total stockholder's equity
(deficit) 264,021 (244,808)
---------- --------
Total liabilities and
stockholders' equity $1,064,190 $779,396
========== ========
4
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CARDIODYNAMICS INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31 May 31, May 31
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $11,771 $131,688 $72,716 $206,254
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 32,052 136,407 64,783 213,884
Selling, general and administrative
expenses 480,153 656,292 744,187 927,346
Provision for doubtful accounts -- -- -- 9,000
Research and development 159,832 15,039 233,192 29,316
--------- --------- --------- ---------
Total costs and expenses 672,037 807,738 1,042,162 1,179,546
Other (expenses) income:
Interest expense (4,715) (611) (4,892) (4,288)
Other income 693 -- 693 11,669
--------- --------- --------- ---------
Total other income (expenses) (4,022) (611) (4,199) 7,381
--------- --------- --------- ---------
Loss before income taxes (664,288) (676,661) (973,645) (965,911)
Provision for income taxes 0 -- (800) (800)
--------- --------- --------- ---------
Net loss ($664,288) ($676,661) ($974,445) ($966,711)
========= ========= ========= =========
Net loss per common share ($0.03) ($0.06) ($0.05) ($0.09)
========= ========= ========= =========
</TABLE>
5
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CARDIODYNAMICS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
For The Six Months Ended
May 31, May 31,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net loss ($974,445) ($966,711)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 21,987 11,250
Provision for doubtful accounts -- 18,000
Issuance of Common Stock for services -- 75,000
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable 65,075 (28,647)
(Increase) decrease in inventories (125,126) 315
Decrease in deposits 2,365 --
(Increase) in other current assets (1,958) (17,553)
(Decrease) increase in accounts payable (101,464) 130,335
(Decrease) increase in accrued expenses (80,476) 52,021
(Decrease) in accrued compensation (26,051) (4,028)
(Decrease) in deferred revenue -- (14,100)
(Decrease) in customer deposits (13,025) --
---------- ---------
Net cash used in operating activities (1,233,118) (744,118)
---------- --------
Cash flows from investing activities:
Capital expenditures (20,724) (109,974)
---------- ---------
Net cash used in investing activities (20,724) (109,974)
---------- ---------
Cash flows from financing activities:
Repayment of long-term borrowings (17,451) (133,901)
Increases in long-term borrowings 625,000 480,797
Proceeds from exercise of Class A Warrants 226 --
Proceeds from sale of common stock 698,250 934,319
---------- ---------
Net cash provided by financing activities 1,306,025 1,281,215
---------- ---------
Net increase in cash and cash equivalents 52,183 427,123
Cash and cash equivalents at beginning of period 7,441 17,386
---------- ---------
Cash and cash equivalents at end of period $ 59,624 $444,509
========== =========
6
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CARDIODYNAMICS INTERNATIONAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Unrealized
Common Stock Preferred Stock Gain (Loss)
Issued and Issued and Common Stock on Investment
Outstanding Outstanding Subscribed in Accumulated
Shares Amount Shares Amount Shares Amount Securities Deficit Total
---------- ---------- -------- -------- --------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
November 30, 1994 8,912,813 2,479,119 -- (2,669,455) (190,336)
Issuance of
common stock 8,688,507 87,500 2,028,239
Issuance of
common stock for
professional
services 350,000 87,500 87,500
Common stock
subscribed 1,300,000 325,000 325,000
Unrealized loss
on investment
securities, no
net tax
provision (92,438) (92,438)
Net loss (2,402,473) (2,402,473)
---------- ---------- ------- -------- --------- ------- -------- ----------- ----------
Balance at
November 30, 1995 17,951,320 $4,594,858 0 $0 $325,000 ($92,438) ($5,071,928) ($244,508)
---------- ---------- ------- -------- --------- -------- -------- ----------- ---------
Issuance of
common stock 4,093,000 1,023,250 (1,300,000) (325,000) 698,250
Preferred Stock 235,994 589,985 589,985
Preferred Stock
Redemption 10,799 10,799 10,799
Unrealized gain
on investment
securities, no
net tax
provision 183,714 183,714
Exercise of
Class A
warrants 133 226 226
Net loss (974,445) (974,445)
---------- ---------- ------- -------- ---------- ------- ------- ----------- --------
Balance at
May 31, 1996 22,044,433 $5,618,334 235,994 $589,985 (1,289,201) $10,799 $91,276 ($6,046,373) $264,021
========== ========== ======= ======== ========== ======= ======= =========== ========
</TABLE>
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MAY 31, 1996
Note 1: Basis of Presentation:
The accompanying financial statements have been prepared in
accordance with the requirements for Form 10-QSB and therefore do not include
all information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting
principles. These statements should be read in conjunction with the Company's
audited financial statements as presented in the Company's Form 10-KSB for
the fiscal year ended November 30, 1995. In the opinion of management, the
information contained herein reflects all adjustments necessary to make the
results of operations for the interim periods a fair statement of such
operations. All such adjustments are of a normal recurring nature.
8
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
REPORT ON FORM 10-QSB
PART I: FINANCIAL INFORMATION (CONTINUED)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the attached
financial statements and notes thereto, and with the Company's audited
financial statements for the fiscal year ended November 30, 1995.
RESULTS OF OPERATIONS
After the end of the second quarter of fiscal 1995, the Board of Directors
concluded that spending at the levels directed by the Chief Executive Officer
was unwise, replaced him, and instituted different strategies for marketing,
sales, administration and cash conservation. New management then determined
that selling efforts were inefficient, that inventory of saleable machines
was inadequate, that substantial product redesign was necessary and that
quality control and component supply issues needed to be resolved. New
management devoted the third and fourth quarters of fiscal 1995 and the first
and second quarters of fiscal 1996 toward attempting to put the Company's
house in order internally on these matters. In the second quarter of fiscal
1996, the Company focused increasingly on development of the BioZ system, a
digital signal processor-based noninvasive cardiac output monitor, using the
Company's proprietary Thoracic Electrical Bioimpedance technology.
As a result, the Company's second quarter revenue was minimal (even less than
the second quarter revenues of fiscal 1995), and the Company incurred an
operating loss.
Selling, general and administrative costs were approximately 27% lower in the
second quarter of fiscal 1996 than in the second quarter of fiscal 1995,
primarily due to curtailment of selling efforts related to the Company's
analog product line. However, the research and development increased over
tenfold in the second quarter of fiscal 1996 as compared to the second
quarter of fiscal 1995, due to the substantial activity on the BioZ
development/product redesign effort. In January 1996 the Company hired Dr.
Markus Osypka to head its research and development efforts.
The Company's number of shares outstanding increased significantly during
fiscal 1995 and the first and second quarters of fiscal 1996 due to the
necessity of selling unregistered shares to CardioDynamics Holdings, LLC and
to its individual members in order to finance the Company's operating losses.
CardioDynamics Holdings, LLC obtained control of the Company in the first
quarter of fiscal 1995.
9
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
REPORT ON FORM 10-QSB
PART I: FINANCIAL INFORMATION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Working capital at May 31, 1996 was $750,576 compared to $162,487 at November
30, 1995. Such working capital levels are inadequate to sustain the Company
long at present sales levels. In the fiscal 1995 year-end audit reports, the
Company's auditors expressed substantial doubt about the Company's ability to
continue as a going concern. The Company was in bankruptcy proceedings from
March 6, 1992 to October 21, 1993.
To fund its operating losses, the Company was relying at May 31, 1996 on
periodic purchases of unregistered common stock, and/or advances under a
secured convertible promissory note, by members of the Board of Directors
and/or CardioDynamics Holdings, LLC. There are no binding obligations for
such purchases or advances to continue.
10
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
REPORT ON FORM 10-QSB
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES.
See Item 6.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
Item 5. OTHER INFORMATION.
The Company began clinical testing of the BioZ System at leading medical
centers in Summer 1996, and intends to apply in Summer 1996 to the Food and
Drug Administration for 510(K) premarket notification clearance for the BioZ
System. There can be no assurance that the clinical trials will be successful
or that 510(K) clearance will be obtained timely or at all.
Under the Company's Articles of Incorporation, the holders of Preferred stock
had the optional right to redeem their shares of Preferred Stock (but only
during the Redemption Period from January 23, 1996 through April 22, 1996)
for one share of CardioDynamics International Corporation Common Stock and
cash from the sale of certain Portfolio Securities held by CardioDynamics
International Corporation. Three (3) Preferred Shareholders, with a total of
10,799 shares, elected to redeem their Preferred Stock. Under the Articles
of Incorporation the Company may, but is not obligated to, accept any future
requests for redemption.
In June of 1996, CardioDynamics Holdings, LLC invested an additional
$1,180,000 in the Company by making optional advances under a secured
convertible promissory note, and then converted $1,800,000 of the outstanding
principal amount of the note into 7,200,000 shares of Common Stock.
11
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CARDIODYNAMICS INTERNATIONAL CORPORATION
REPORT ON FORM 10-QSB
PART II: OTHER INFORMATION (CONTINUED)
On May 30, 1996, the Company's Board of Directors lowered the exercise price
of the Series B Warrants from $4.00 to $3.50 and the exercise price of the
Series C Warrants from $6.00 to $3.50, in each case effective only through
July 8, 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
10.1 Amendment of Purchase Agreement, dated March 31, 1996, between
the Company and CardioDynamics Holdings, LLC.
10.2 Third Amended and Restated Secured Convertible Promissory Note,
dated March 31, 1996, in favor of CardioDynamics Holdings, LLC.
27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CARDIODYNAMICS INTERNATIONAL CORPORATION
Date: July 9, 1996 By: /s/ RICHARD E. OTTO
-------------------
Richard E. Otto
President and CEO
Date: July 9, 1996 By: /s/ STEPHENSON M. DECHANT
-------------------------
Stephenson M. Dechant
CFO (Principal Financial Officer)
13
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CARDIODYNAMICS INTERNATIONAL CORPORATION
REPORT ON FORM 10-QSB
EXHIBIT INDEX
Page
Exhibit 10.1 Amendment of Purchase Agreement, dated March 31,
1996, between the Company and CardioDynamics
Holdings, LLC 15
Exhibit 10.2 Third Amended and Restated Secured Convertible
Promissory Note, dated March 31, 1996, in favor of
CardioDynamics Holdings, LLC 18
Exhibit 27 Financial Data Schedule 25
14
<PAGE>
AMENDMENT OF PURCHASE AGREEMENT
This Amendment of Purchase Agreement is entered into as of March 31, 1996,
between CardioDynamics International Corporation (the "Company" and
CardioDynamics Holdings, LLC ("LLC"). It amends the Purchase Agreement dated
February 7, 1995, between the Company and LLC and contemplates amendment of the
Secured Convertible Promissory Note (as amended to date, the "Note") issued by
the Company to LLC thereunder.
1. The Note shall be amended to implement an optional advance note
format.
2. The maximum Optional Advance (as defined in Section 3 of the Purchase
Agreement) above the initial $100,000 principal amount of the Note shall be
amended to be $1,875,000; inasmuch as an additional $75,000 advance has already
been made and $150,000 of principal has already been converted, this means the
maximum additional advances after today shall be $1,800,000 and the maximum
principal amount of the Note after today shall be $1,825,000.
3. The scheduled maturity date of the Note shall be March 31, 1998.
4. LLC shall have the right (but not the obligation) to make any or all
of the Optional Advance (i.e., up to $1,800,000 additional advances after today)
at any time or times through March 31, 1998, regardless of whether or not the
Company desires to borrow additional sums.
5. Beginning March 31, 1996, the Conversion Price of the Note shall be
$0.25 and shall continue to be subject to adjustment as provided in Section 2.2
of the original Note, but shall no longer be subject to automatic percentage
increases.
6. In view of the amendments of the Purchase Agreement set forth in
Sections 1 through 5 of this Amendment, the Company will execute and deliver to
LLC a Third Amended and Restated Secured Convertible Promissory Note in the form
attached hereto as Exhibit A, against surrender (for voiding) of the outstanding
Second Amended and Restated Convertible Promissory Note.
7. Except as expressly set forth herein, the Purchase Agreement shall
remain unchanged and in full force and effect.
1
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IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
of Purchase Agreement as of March 31, 1996.
CARDIODYNAMICS INTERNATIONAL
CORPORATION
By: /s/ Richard E. Otto
-------------------
Richard E. Otto
President/CEO
CARDIODYNAMICS HOLDINGS, LLC
By: /s/ Allen E. Paulson
--------------------
Allen E. Paulson
Member
2
<PAGE>
THIRD AMENDED AND RESTATED
SECURED CONVERTIBLE
PROMISSORY NOTE
(OPTIONAL ADVANCE NOTE)
$1,975,000.00 FEBRUARY 7, 1995, AS
AMENDED MARCH 30, 1995,
MAY 19, 1995
AND MARCH 31, 1996
FOR VALUE RECEIVED, CardioDynamics International Corporation, a California
corporation ("Maker"), 6155 Cornerstone Court East, Suite 125, San Diego,
California 92121, hereby promises to pay to the order of CardioDynamics
Holdings, LLC, a California limited liability company ("Lender"), 5067 Shore
Drive, Carlsbad, California 92008, TWENTY-FIVE THOUSAND DOLLARS ($25,000.00),
plus such other and further sums as Lender may hereafter loan or advance to or
for the benefit of Maker in accordance with the terms hereof, at such address of
Lender, in lawful money of the United States together with interest (from and
after the date of the respective advances) on the principal balance outstanding
at a lesser of (a) eight percent per annum, or (b) if less, the maximum rate
permissible for applicable law. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed, and shall be payable in
arrears on each March 31, June 30, September 30 and December 31. The principal
amount of and all unpaid accrued interest under the Note shall become due and
payable in full on March 31, 1998. This Note is an amendment and restatement of
a certain Secured Convertible Promissory Note dated February 7, 1995 in the
original principal amount of $100,000.
The unpaid balance of this obligation at any time shall be the total
amounts advanced hereunder by Lender, less the amount of payments made hereon
by or for Maker, which balance may be endorsed hereon from time to time by
Lender.
Advances hereunder may be made by Lender at Lender's sole discretion at any
time regardless of whether or not Maker desires to borrow additional sums.
1. ADDITIONAL PROVISIONS RELATING TO DEBT CHARACTERISTICS
This Note may not be prepaid in full or in part.
This Note is secured by the collateral identified and described as security
therefor in that certain Security Agreement, dated as of February 7, 1995, by
and between Maker and Lender and the collateral identified and described as
security therefor in that certain Patent Security Agreement, dated as of
February 7, 1995, by and between Maker and Lender (collectively, the "Security
Agreement").
1
<PAGE>
Upon the happening of any of the following events, Lender may at it option,
declare immediately due and payable the entire unpaid principal amount of this
Note, together with all interest thereon, plus any other amounts payable at the
time of such declaration pursuant to this Note. Such events are the following:
(1) failure to make any interest payment as it falls due, (2) Maker shall admit
in writing its inability to pay its debts as they become due, shall make a
general assignment for the benefit of creditors or shall file any petition or
action for relief under any bankruptcy, reorganization, insolvency or moratorium
law, or any other law or laws for the relief of, or relating to, debtors; or (3)
an involuntary petition shall be filed against Maker under any bankruptcy,
reorganization, insolvency or moratorium law, or any other law or laws for the
relief of, or relating to, debtors unless such petition shall be dismissed or
vacated within sixty (60) days of the date thereof. Lender shall further be
entitled to the remedies provided in the event of default provided in the
Security Agreement.
Maker hereby waives diligence, presentment, demand, protest or other notice
of any kind.
2. CONVERSION.
2.1 CONVERSION PRIVILEGE. Lender has the right, at Lender's option,
at any time after February 6, 1996, and prior to payment in full of the
principal balance of this Note, to convert this Note, in accordance with
provisions hereof, in whole or in part, into fully paid and nonassessable shares
of Common Stock of Maker. The number of shares of Common Stock into which this
Note may be converted shall be determined by dividing the aggregate principal
amount together with all accrued interest to the date of conversion by the
COnversion Price (as defined below) in effect at the time of such conversion.
The initial Conversion Price shall be equal to $0.50. On March 31, 1996,
the Conversion Price shall decrease to $0.25, subject to further possible
adjustment under subsection 2.2 hereof.
Before Lender shall be entitled to convert this Note into shares of Common
Stock, it shall surrender this Note at the office of Maker and shall give
written notice by mail, postage prepaid, to Maker at its principal corporate
office, of the election to convert the same, and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. Maker shall, as soon as practicable thereafter, issue and deliver at
such office to the holder of this Note a certificate or certificates for the
number of shares of Common Stock to which the holder of this Note shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of this
Note, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
3
<PAGE>
Upon the conversion of this Note, Lender shall surrender this Note, duly
endorsed, at the principal office of Maker. At its expense, Maker shall, as
soon as practicable thereafter, issue and deliver to such Lender at such
principal office a certificate or certificates for the number of shares of such
Common Stock to which the Lender shall be entitled upon such conversion (bearing
such legends as may be required by applicable state and federal securities laws
in the opinion of counsel to Maker), together with any other securities and
property to which Lender is entitled upon such conversion under the terms of
this Note. If less than the entire Note is converted, maker shall issue to
Lender a new Note, of like tenor, for the remaining principal amount.
2.2 CONVERSION PRICE ADJUSTMENTS. In the event Maker should at any time
or from time to time after the date of issuance hereof fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of this Note shall be appropriately decreased so that the
number of shares of Common Stock issuable upon conversion of this Note shall be
increased in proportion to such increase of outstanding shares.
If the number of shares of Common Stock outstanding at any time after the
date hereof is decreased by a combination of the outstanding shares of Common
Stock, then, following the record of such combination, the Conversion Price for
this Note shall be appropriately increased so that the number of shares of
Common Stock issuable on Conversion hereof shall be decreased in proportion to
such decrease in outstanding shares.
In the event Maker shall declare a distribution payable in securities of
other persons, evidences of indebtedness issued by Maker or other persons,
assets (excluding cash dividends) or options or rights, then, in each such case
for the purpose of this subsection 2.2, the holder hereof shall be entitled to a
proportionate share of any such distribution as though such holder was the
holder of the number of shares of Common Stock of Maker into which this Note is
convertible as of the record date fixed for the determination of the holders of
Common Stock of Maker entitled to receive such distribution.
3
<PAGE>
2.3 NOTICES OF RECORD DATE, ETC. In the event of:
- any taking by Maker of a record of the holders of any class of
securites of Maker for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
cask dividend payable out of earned surplus at the same rate as
that of the last such cash dividend theretofore paid) or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares or stock of any class or any other
securities or property, or to receive any other right; or
- any capital reorganization of Maker, any reclassification or
recapitalization of the capital stock of Maker or any transfer of
all or substantially all of the assets of Maker to any other
person or any consolidation or merger involving Maker; or
- any voluntary or involuntary dissolution, liquidation or
winding-up of Maker,
Maker will mail to the holder of this Note at least ten (10) days prior to the
earliest date specified therein, a notice specifying:
(a) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and,
(b) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining
shareholders entitled to vote theron.
2.4 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. Maker shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of the Note
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other remedies as shall be available to the holder of this
Note, Maker will use its reasonable best efforts to take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
4
<PAGE>
3. MATCHING RIGHT.
If during the term of this Note, Maker shall issue any Common Stock to any
person in any circumstances, Lender shall have the right (exercisable by written
notice of exercise delivered to Maker no later than 60 days after Maker's
written notice to Lender of such issuance to such other person, accompanied by a
cashier's check for payment in full), but not the obligation, to purchase from
Maker (at the Conversion Price in effect on the date of the issuance to the
other person) the same number of shares of Common Stock issued to the other
person. This right may be exercised any number of times, and no non-exercise
shall affect such right in future instances.
4. MISCELLANEOUS.
The rights and obligations of Maker and Lender shall be binding upon and
benefit the successors, assigns, heirs, administrators, and transferees of Maker
and Lender.
Lender shall not be deemed by any act or omission or commission to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and expressly stated as such and signed by Lender and then only to the extent
specifically set forth in the writing. A waiver of one event shall not be
construed as continuing or a bar to or waiver of any right or remedy as to a
subsequent event. Maker expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and consents to the acceptance of
security, if any, or the release of security, if any, from this Note, all
without in any way affecting the liability of Maker.
Any notice that Maker or Lender desires to give to the other related to
this Note shall be in writing and shall be deemed delivered when personally
delivered by any courier service which obtains a receipt upon delivery to an
officer or registered agent of the respective corporation, or two business days
after deposit in the United States mail, certified mail, return receipt
requested, postage prepaid, addressed to the party being notified at its
respective address specified in this Note.
If Lender should institute collection efforts, of any nature whatsoever, to
attempt to collect any and all amounts due hereunder upon the default of Maker
on this Note or under the Security Agreement, or any other efforts to enforce
any of its rights under this Note, Maker shall be liable to pay to Lender
immediately and without demand all reasonable costs and expenses of collection
incurred by Lender, including without limitation reasonable attorneys fees,
whether or not suit or other action or proceeding be instituted and specifically
including but not limited to collection efforts that may be made on appeal or
through a bankruptcy court, and all such sums shall be fully secured by all
instruments securing this Note.
5
<PAGE>
The provisions of this Note are intended by Maker to be severable and
divisible and the invalidity or unenforceability of a provision or term
herein shall not invalidate or render unenforceable the remainder of this
Note or any part thereof.
This Note shall be construed in accordance with the laws of the State of
California without giving effect to principles of conflict of laws.
IN WITNESS WHEREOF, Maker has executed this instrument in San Diego,
California.
MAKER:
CARDIODYNAMICS INTERNATIONAL
CORPORATION
By: /s/ Richard E. Otto
-------------------
Richard E. Otto
President/CEO
By: /s/ Stephenson M. Dechant
-------------------------
Stephenson M. Dechant
Secretary/CFO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719722
<NAME> CARDIODYNAMICS INTERNATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 62,224
<SECURITIES> 433,381
<RECEIVABLES> 10,786
<ALLOWANCES> 0
<INVENTORY> 388,508
<CURRENT-ASSETS> 894,899
<PP&E> 424,931
<DEPRECIATION> 259,890
<TOTAL-ASSETS> 1,064,190
<CURRENT-LIABILITIES> 144,323
<BONDS> 0
589,985
0
<COMMON> 5,629,133
<OTHER-SE> 91,276
<TOTAL-LIABILITY-AND-EQUITY> 1,064,190
<SALES> 11,771
<TOTAL-REVENUES> 11,771
<CGS> 32,052
<TOTAL-COSTS> 672,037
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,715
<INCOME-PRETAX> (664,228)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (664,228)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
