<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Transition Period from ________ to _________
Commission File Number: 0-11868
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-3533362
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
</TABLE>
(858) 535-0202
(Registrant's telephone number)
Check whether the registrant (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
--- ---
As of July 7, 2000, 42,211,393 shares of common stock were outstanding.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
--- ---
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CARDIODYNAMICS INTERNATIONAL CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at May 31, 2000 (unaudited) and
November 30, 1999 (audited). 3
Statements of Operations (unaudited) for the three and
six months ended May 31, 2000 and May 31, 1999. 4
Statements of Cash Flows (unaudited) for the six
months ended May 31, 2000 and May 31, 1999. 5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
May 31, November 30,
2000 1999
(Unaudited) (Audited)
--------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,978,462 $ 2,405,710
Accounts receivable, net of allowance for doubtful accounts
and returns of $663,487 in 2000 and $552,648 in 1999 4,449,946 4,226,470
Inventory, net 1,701,542 1,344,527
Other current assets 412,738 116,070
-------------- --------------
Total current assets 10,542,688 8,092,777
-------------- --------------
Property and equipment, net 430,484 335,760
Long-term receivables and note receivable 227,115 25,973
Deposits 42,500 42,500
-------------- --------------
Total assets $ 11,242,787 $ 8,497,010
============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 998,612 $ 1,125,068
Accrued expenses 162,125 183,910
Accrued salaries, wages and benefits 393,071 309,083
Line of credit -- 1,000,000
Current maturities of long-term debt 1,082,933 885,932
Note payable - related parties 1,000,000 1,000,000
-------------- --------------
Total current liabilities 3,636,741 4,503,993
Long-term debt, less current maturities 966,579 1,350,425
-------------- --------------
Total liabilities 4,603,320 5,854,418
Shareholders' equity:
Common stock, no par value; 50,000,000 shares authorized;
issued and outstanding 42,194,943 shares at May 31, 2000
and 39,888,811 shares at November 30, 1999 29,130,997 24,079,981
Accumulated deficit (22,491,530) (21,437,389)
-------------- --------------
Total shareholders' equity 6,639,467 2,642,592
-------------- --------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 11,242,787 $ 8,497,010
============== ==============
</TABLE>
See accompanying notes to financial statements.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
---------------------------------------- --------------------------------------
2000 1999 2000 1999
------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Net sales $ 3,072,827 $ 1,528,481 $ 5,697,263 $ 2,603,407
Cost of sales 1,059,949 558,327 1,849,287 965,398
------------- ------------- ------------- -------------
Gross margin 2,012,878 970,154 3,847,976 1,638,009
Operating expenses:
Research and development 640,592 370,302 1,146,129 841,825
Selling, general, and administrative 1,863,483 1,304,863 3,716,826 2,553,610
------------- ------------- ------------- -------------
Total operating expenses 2,504,075 1,675,165 4,862,955 3,395,435
------------- ------------- ------------- -------------
Loss from operations (491,197) (705,011) (1,014,979) (1,757,426)
Other income (expense):
Interest income 62,978 8,077 114,203 29,501
Interest expense (66,649) (83,984) (148,758) (163,498)
Other, net (1,441) (413) (3,807) (1,025)
------------- ------------- ------------- -------------
Total other income (expense) (5,112) (76,320) (38,362) (135,022)
Loss before income taxes (496,309) (781,331) (1,053,341) (1,892,448)
Income taxes -- -- (800) (800)
------------- ------------- ------------- -------------
Net loss before preferred
stock dividends (496,309) (781,331) (1,054,141) (1,893,248)
Preferred stock dividends -- (15,405) -- (31,720)
------------- ------------- ------------- -------------
Net loss to common shareholders $ (496,309) $ (796,736) $ (1,054,141) $ (1,924,968)
============= ============= ============= =============
Net loss per common share, basic
and diluted $ (.01) $ (.02) $ (.03) $ (0.6)
============= ============= ============= =============
Weighted-average number of common shares
outstanding 42,110,502 33,053,278 41,791,996 32,879,748
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
May 31,
--------------------------------------
2000 1999
----------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,054,141) $ (1,893,248)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 85,412 44,897
Change in allowance for warranty repairs (17,156) 115,248
Change in allowance for doubtful accounts 110,839 57,584
Change in allowance for inventory reserves (242,176) 38,897
Non-cash stock compensation expense 23,370 --
Other non cash items (19,313) --
Changes in operating assets and liabilities:
Accounts receivable (334,315) (1,427,030)
Inventory (114,839) (302,715)
Other current assets (296,668) (16,769)
Deposits -- (2,611)
Accounts payable (126,456) 180,923
Accrued expenses (4,629) 140,098
Accrued salaries, wages and benefits 83,988 (17,341)
-------------- -------------
Net cash used in operating activities (1,906,084) (3,082,067)
-------------- -------------
Cash flows from investing activities:
Long-term receivables and note (201,142) --
Purchases of property and equipment (114,168) (19,561)
-------------- -------------
Net cash used in investing activities (315,310) (19,561)
-------------- -------------
</TABLE>
See accompanying notes to financial statements. (Continued)
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Statements of Cash Flows - (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
May 31,
--------------------------------------
2000 1999
----------------- -------------------
<S> <C> <C>
Cash flows from financing activities:
Repayment of long-term debt (208,120) (2,018,903)
Repayment of revolving line of credit (1,000,000) --
Borrowings on revolving line of credit -- 815,615
Proceeds from bank borrowing -- 2,000,000
Preferred stock issuance costs -- (7,070)
Exercise of warrants and options 1,932,487 12,390
Issuance of common stock, net 3,069,779 5,060,500
------------- ------------
Net cash provided by financing activities 3,794,146 5,862,532
------------- ------------
Net increase in cash and cash equivalents 1,572,752 2,760,904
Cash and cash equivalents at beginning of period 2,405,710 2,633,086
------------- ------------
Cash and cash equivalents at end of period $ 3,978,462 $ 5,393,990
============= =============
</TABLE>
See accompanying notes to financial statements.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Notes to Financial Statements
(Unaudited)
Description of Business
CardioDynamics International Corporation is a medical technology and information
solutions company that develops, manufactures, and markets noninvasive
heart-monitoring devices using our proprietary patented impedance cardiography
(ICG) technology. Our devices noninvasively monitor the heart's ability to
deliver blood to the body by measuring 12 significant hemodynamic (blood flow)
parameters. The most prevalent parameter is cardiac output, or the amount of
blood pumped by the heart each minute. Our lead product, the BioZ.com(R), has
been cleared by the FDA and carries the CE mark. We sell to US physicians
through a 27-person direct sales force. We distribute our products to domestic
hospitals and targeted international markets through a strategic alliance with
General Electric Marquette Medical Systems (GEMMS). In September 1998, the
Health Care Financing Administration (HCFA) mandated Medicare reimbursement for
our BioZ(R) procedures. We have an installed base of over 775 units in nearly
450 physician offices and hospital sites throughout the world.
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 the information
and footnotes which would be presented if these financial statements had been
prepared in accordance with generally accepted accounting principles.
These statements should be read along with the Financial Statements and Notes
that go along with our audited financial statements, as well as the other
financial information for the fiscal year ended November 30, 1999 as presented
in our Annual Report on Form 10-KSB. Financial presentations for prior periods
have been reclassified to provide consistency in reporting.
In our opinion, the information contained in this report reflects all
adjustments necessary to make the financial position and results of operations
for the interim periods a fair statement of our operations and cash flows. All
such adjustments are of a normal recurring nature. The results of operations and
cash flows for the three and six months ended May 31, 2000 are not necessarily
indicative of the results that may be expected for the full fiscal year ended
November 30, 2000. Options and warrants to purchase 6,102,538 and 4,297,048
shares of common stock were outstanding at May 31, 2000 and May 31, 1999,
respectively. These shares were not included in the computation of loss per
share because the effect would be anti-dilutive.
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<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
Notes to Financial Statements
(Unaudited)
Common Stock Private Placement
On December 3, 1999 we completed a $3.3 million dollar private placement of
common stock to four European institutional investors which purchased
unregistered shares with a four-month holding restriction for $2.50 per share,
representing a 9% discount from the 30-day average closing bid price.
Debt
In February of 2000 we renewed our secured revolving credit line with Imperial
Bank. The credit line provides for borrowing of up to $3,000,000 at the bank's
prime rate through January 2001. The credit line is collateralized by all the
assets of our company and subject to certain covenants. At May 31, 2000, we had
no borrowings under the credit line.
In February of 1999 we entered into a three-year $2,000,000 unsecured term loan
agreement with City National Bank. Under the terms of the agreement we borrowed
$2,000,000 with monthly interest only payments for the first 12 months at the
bank's prime rate. During the second fiscal quarter of 2000 we began making
monthly principal installments of $83,333 each, plus interest at one percent
above the bank's prime rate. In connection with the loan, we issued to the bank
50,000 warrants to purchase our common stock at $2.20 per share. The co-chairmen
of our Board of Directors guaranteed the loan. At May 31, 2000, $1,833,333 is
outstanding under this agreement.
-8-
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read along with the Financial Statements and
Notes that go along with our audited financial statements, as well as the other
financial information for the fiscal year ended November 30, 1999. Some of our
discussion is forward-looking and involve risks and uncertainties. For
information regarding risk factors that could have a material adverse effect on
the Company's business, refer to our November 30, 1999 Form 10-KSB and page 16
of this report.
CardioDynamics International Corporation is a medical technology and information
solutions company that develops, manufactures, and markets noninvasive
heart-monitoring devices using our proprietary patented impedance cardiography
(ICG) technology. Our devices noninvasively monitor the heart's ability to
deliver blood to the body by measuring 12 significant hemodynamic (blood flow)
parameters. The most prevalent parameter is cardiac output, or the amount of
blood pumped by the heart each minute. Our lead product, the BioZ.com(R), has
been cleared by the FDA and carries the CE mark. We sell to US physicians
through a 27-person direct sales force. We distribute our products to domestic
hospitals and targeted international markets through a strategic alliance with
General Electric Marquette Medical Systems (GEMMS). In September 1998, the
Health Care Financing Administration (HCFA) mandated Medicare reimbursement for
our BioZ(R) procedures. We have an installed base of over 775 units in nearly
450 physician offices and hospital sites throughout the world.
Our products help physicians assess, diagnose and treat cardiovascular disease,
which is the number one killer of adults in the United States. According to the
American Heart Association (AHA), approximately one in five Americans have some
form of cardiovascular disease. The AHA estimates that over $300 billion will be
spent in the United States during 2000 as a result of cardiovascular disease and
stroke. This figure includes both the direct costs associated with physicians
and other professionals, hospital and nursing home services and medication and
the indirect costs associated with lost productivity resulting from morbidity
and mortality.
Electrocardiography (EKG or ECG) is a widely used noninvasive assessment of the
heart. Its limitation is that it only measures the electrical characteristics of
the heart. Our ICG technology now makes it possible to noninvasively measure
the mechanical function of the heart. Conditions that can interfere with the
proper mechanical functioning of the heart include hypertension (high blood
pressure), congestive heart failure, pulmonary disease, high-risk pregnancy and
kidney dysfunction. Our technology complements the EKG and supplements
information obtained through the five vital signs - heart rate, respiration
rate, body temperature, blood pressure and oxygen saturation - immediately,
safely and cost effectively. We consider noninvasive cardiac output to be the
"Sixth Vital Sign(TM)."
-9-
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Currently, the primary method used to measure hemodynamic parameters is
pulmonary artery catheterization (PAC). The invasive, costly and risky PAC
procedure requires hospitalization and involves an incision into the patient's
neck or groin region and the insertion of a catheter (plastic tube) through the
heart directly into the pulmonary artery. Complications associated with this
procedure occur in as many as one in four reported cases and include irregular
heartbeats, infection, pulmonary artery rupture and death.
Because of the high risk of complications, physicians generally prescribe PAC
only for critically ill patients. In the non-sterile environment of a
physician's office or outpatient clinic, PAC is simply unavailable. As a result,
in the great majority of situations the physician seeking to diagnose
cardiovascular disease must indirectly assess the patient's hemodynamic status
by measuring blood pressure, checking the pulse, looking at neck veins and
employing subjective examination techniques that are prone to human error. A
compelling need exists for objective, safe, cost-effective, noninvasive
measurement tools, such as our BioZ(R) systems, that physicians can safely
prescribe more frequently and at an earlier stage in treatment.
During ICG monitoring using our BioZ(R) systems, an undetectable electrical
signal is transmitted through the chest via four proprietary sensors on the
patient's neck and chest. Our sophisticated Digital Impedance Signal Quantifier
(DISQ(TM)) technology and impedance modulating aortic compliance (ZMARC(TM))
algorithm analyze and record 12 hemodynamic parameters. Based on this data, a
physician can assess the patient's condition, customize treatment, monitor
patient compliance, analyze the effectiveness of prescribed medications and more
accurately identify potential complications.
Results of Operations (Quarters referred to herein are fiscal quarters ended May
---------------------
31.)
Net sales for the second fiscal quarter of 2000 exceeded three million dollars
at $3,072,827. This is an increase of 101% over last year's same quarter sales
of $1,528,481. Net sales for the first six months of fiscal 2000 were
$5,697,263, a 118% increase over last year's level of $2,603,407.
As of May 31, 2000, our direct sales force had increased to 27 representatives
from 21 representatives a year earlier. Our direct sales force targets physician
offices and hospitals in the US with fewer than 100 beds. We plan to continue to
expand our direct sales force at an increasingly rapid rate throughout the
balance of fiscal 2000. GE Marquette Medical Systems has exclusive rights to
market and sell our BioZ.com(TM) internationally and in US hospitals with more
than 100 beds. GE Marquette has a significant presence in the hospital market
and is widely recognized for their success at introducing new technologies,
particularly in the areas of diagnostic cardiology, clinical information
systems, and patient monitoring systems. We shipped 26 BioZ systems to GE
Marquette during our second fiscal quarter.
In March 2000, we entered into a license and purchase agreement with Profiles in
Health, Inc., a California corporation that provides a variety of healthcare
data and support services for many disease states, infection control, and
exposure management. Under the terms of the agreement, we will provide 5,300
custom ICG monitors and 21.5 million disposable sensor sets over a five-year
period. The contract contemplates a three-phase development program whereby we
will develop and provide custom ICG components and sensors for their profiling
system for use by health care providers and managed care organizations
throughout the US. During the second fiscal quarter of 2000, we shipped 35 phase
one BioZ monitors to Profiles in Health, which represented just over 11% of our
second quarter revenues. Under the terms of the contract, in the first year,
Profiles in Health may defer 50% of the purchase price on the monitors and 40%
on the disposable sensors in the form of a three-year convertible secured
promissory note. In the second year, the deferral amounts drop to 15% to 23% on
the monitors and 20% to 25% on the disposable sensors. There is no deferral
after the second year.
The note bears interest at 9% per annum and is convertible, at our option, into
a maximum of three percent of Profiles in Heath stock, based on their next round
of financing valuation. The note is secured by certain assets of Profiles in
Health as well as their contract revenue stream resulting from the installed
base of profiling systems. Under the terms of the contract, we have a right to
suspend performance should Profiles in Health become delinquent on any amounts
due us. Amounts receivable under this note are included in "long-term
receivables and note" on our balance sheet.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
---------------------
On July 6, 2000, we received FDA 510(k) clearance for the BioZ.pc(TM) System.
The BioZ.pc(TM) is the central element of the phase two ICG monitoring solution
for integration into the Profiles in Health Proveillance(TM) System. Initial
shipments of the BioZ.pc(TM) are expected to commence in our third fiscal
quarter.
Our direct sales force accounted for 63% of our net sales during the second
fiscal quarter of 2000, 13% was sold through our international distributors, 11%
to Profiles in Health, and the remaining 13% was sold to our domestic
distributors. The BioZ.com(TM) accounted for 88% of our overall equipment sales
in the second quarter of fiscal 2000.
Each time our BioZ products are used, disposable sets of four dual sensors are
required. The disposable sensors have a list price of $9.95 per application.
Recurring revenue, which is primarily related to sensor sales, for the quarter
ended May 31, 2000, was $226,000, an increase of 335% over last year's same
quarter revenue of $52,000. This brings the total for the first six months of
fiscal 2000 to $438,000, as compared to the first six months of fiscal 1999,
with recurring revenues of $89,000, an increase of 392%.
In May 2000 we received 510(k) approval from the Food and Drug Administration
(FDA) for our new proprietary "BioZtect(TM)" sensor. The BioZtect sensor offers
notable improvements in performance and safety. It's unique shape, chemical
composition, adhesion characteristics and more user-friendly design, optimize
signal transmission and detection sensitivity. The new sensor and cable system
has a proprietary interface to ensure that users exclusively utilize the
BioZtect with our BioZ systems. As the installed base of BioZ equipment grows,
we expect the revenue generated by our disposable sensors to comprise an
increasingly larger percentage of overall sales.
Our gross margin for the quarter ended May 31, 2000 increased to $2,012,878, or
66% of sales, up from the second quarter of fiscal 1999's gross margin of
$970,154 or 64% of sales. For the six months ended May 31, 2000, our gross
margin was $3,847,976, or 68% of sales, up from $1,638,009, or 63% of sales, for
the six months ended May 31, 1999. The improvement in our gross margin
percentage during the quarter is attributable to: (i) improved operating
efficiencies based on the increased volume of units produced, (ii) the higher
priced BioZ.com(TM) comprising a greater percentage of our overall product mix
and, (iii) reduced direct material costs due to higher quantity purchases and
concerted cost reduction efforts.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
---------------------
We continue to invest a significant portion of our resources into research,
clinical studies, further enhancements to the BioZ.com(TM) systems and new
product development, and as a result, our research and development expenses
continue to comprise a substantial portion of our overall expense structure.
Over the past year we have increased our internal capabilities for research and
development, and thereby decreased our reliance on outside engineering
consulting services. During the second fiscal quarter of 2000, we incurred
$640,592 of research and development expenses, up 73% from the same quarter last
year of $370,302. In first six months of this fiscal year we increased our
investment in research and development to $1,146,129, an increase of 35% over
the first six months of fiscal 1999 of $841,825.
Selling, general and administrative expenses for the second fiscal quarter of
2000 were $1,863,483, a 43% increase over the $1,304,863 incurred in the same
period in 1999. For the six months ended May 31, 2000 selling, general and
administrative expenses increased 46% to $3,716,827 over the same period of
fiscal 1999. The majority of the increase is the result of continued expansion
of both our domestic direct sales force and our distribution capabilities. By
the second quarter of fiscal 2000, we had 27 direct sales representatives, up
from 21 at the end of the second quarter of fiscal 1999. We plan to continue to
expand our direct sales force and increase our investment in sales and marketing
activities during the balance of fiscal 2000 and beyond. Selling and marketing
expenses comprised 80% and 76% of total selling, general and administrative
expenses in the second quarter of fiscal 2000 and 1999, respectively.
Included in selling, general and administrative expense in the second quarter of
fiscal 2000 was $365,004 of administrative expenses related to the overall
infrastructure and management of the company, an increase of 18% over general
and administrative expenses of $310,310 incurred during the second fiscal
quarter of 1999. We continue to target our investments to areas of the business
that directly contribute to revenue growth, as a result, our general and
administrative expenses decreased as a percentage of sales, from 20% in the
second fiscal quarter of 1999, to 12% in the first fiscal quarter of 2000. For
the six months ended May 31, 2000 general and administrative costs were 13% of
sales as compared to general and administrative expenses for the first six
months of fiscal 1999 at 24% of sales.
In August 1999, we issued two million premium priced warrants to GE Marquette in
conjunction with the commencement of our strategic alliance. In the third
quarter of 1999 we recorded a non-cash charge, in research and development, of
$350,479 related to the vesting of the first million warrants issued to obtain
access to their technology. This access has allowed us to commence development
and integration of our proprietary ICG technology into GE Marquette's patient
monitoring systems. The second one million warrants are performance based, and
will vest and be expensed in our fourth fiscal quarter based on the then fair
value, provided GE Marquette meets the minimum sales objectives contemplated in
its distribution agreements with us. Each warrant represents the right to
purchase one share of our common stock for $4.10, through August 25, 2004.
-12-
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
---------------------
We incurred interest expense of $66,649 in the second fiscal quarter of 2000,
down from the same period in 1999 in which we incurred $83,984 of interest
expense. For the six months ended May 31, 2000, interest expense was $148,758
compared to $163,498 for the six months ended May 31, 1999. We earned $62,978 of
interest income on our invested funds in the second quarter of fiscal 2000, up
from the $8,077 earned in the second quarter of 1999. For the first half of
fiscal 2000, interest income was $114,203, compared to $29,501 for the first
half of fiscal 1999. The increases in both periods are primarily due to higher
rates of interest earned and increased funds available for investment throughout
the periods.
The net loss to common shareholders for the second quarter of fiscal 2000 was
reduced to $496,309 or $.01 per common share, from $781,331, or $.02 per common
share for the quarter ended May 31, 1999. For the six months ended May 31, 2000
our net loss to common shareholders was $1,054,141, or $.03 per common share
down from $1,924,968, or $.06 per common share for the first six months of
fiscal 1999. The weighted average number of common shares outstanding during the
first six months of 2000 increased by 27%, primarily due to the conversion
during fiscal 1999 of 2,240 shares of Series A preferred stock and shares issued
in the May 28, 1999 and December 3, 1999 private placements, as well as the
exercise of various warrants and options during the period.
Liquidity and Capital Resources
-------------------------------
In May of 1999, we raised $5.2 million through a private placement of common
stock to institutional and accredited investors and on December 3, 1999, we
completed a $3.3 million dollar private placement of common stock to
institutional investors. To date, these financings, together with the bank loans
and lines of credit described below, have provided the capital required to fund
initial commercialization of our BioZ products, ongoing research and development
efforts, expansion of our direct sales force and international sales presence,
capital expenditures and to meet our working capital requirements. Based on our
historical return experience and the mix of our receivables aging, we increased
our allowance for doubtful accounts and returns to $663,487 from $552,648 at
November 30, 1999.
In March 1998, we entered into an 18-month unsecured private line of credit
agreement with the co-chairmen of our Board of Directors. Under the terms of the
agreement we can borrow up to $3,000,000 on an as-needed basis with at an annual
interest rate of 10.0%. In August of 1998 the Company borrowed $1,000,000. In
February 1999, this line of credit was extended to September 30, 2000. At May
31, 2000, $1,000,000 was outstanding under this agreement.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources - (Continued)
-------------------------------
On February 26, 1999 we entered into a three-year $2,000,000 unsecured term loan
agreement with City National Bank at the bank's prime rate. The co-chairmen of
our Board of Directors guaranteed the loan. Under the terms of the agreement we
made interest only payments through March 2000. During the quarter ended May 31,
2000, we began making monthly principal installments of $83,333 each, plus
interest at one percent above the bank's prime rate. At May 31, 2000, $1,833,333
was outstanding under this agreement.
In January 1999, we established a secured revolving credit line with Imperial
Bank. The credit line provides for borrowings of up to $3,000,000 at the bank's
prime rate. Under the terms of the agreement, we are required to meet certain
loan covenants, including maximum quarterly losses. All the assets of our
company collateralize the credit line. In February 2000, the credit line was
renewed through January 14, 2001 at the bank's prime rate with the same
borrowing limit of $3,000,000. At May 31, 2000 there were no borrowings under
the line of credit.
Without additional debt or equity financing, our ability to continue expansion
of our direct sales strategy will be constrained, due to the strategy's high
cash requirements. We expect our operating losses to continue through at least
the short term. Longer term, our liquidity will depend on our ability to
successfully commercialize the BioZ(TM) systems and other diagnostic products
and raise additional funds through public or private financings, bank loans,
collaborative relationships or other arrangements. We can give no assurance that
such additional funding will be available on terms attractive to us, or at all.
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<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1* License and Purchase Agreement between CardioDynamics
International Corporation and Profiles in Health, Inc.
dated March 1, 2000.
27 Financial Data Schedule.
-----------------------------------------------------------------------
* Confidential treatment has been requested as to certain portions of
this Exhibit pursuant to Rule 406 promulgated under the Securities Act.
Such portions have been omitted and filed separately with the
Securities and Exchange Commission.
(b) Reports on Form 8-K:
None.
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<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include statements regarding our plans,
goals, strategies, intent, beliefs or current expectations. These statements are
expressed in good faith and we believe had a reasonable basis when expressed,
but there can be no assurance that these expectations will be achieved or
accomplished. Sentences in this document containing verbs such as "plan,"
"intend," "anticipate," "target," "estimate," "expect," etc., and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.) constitute forward-looking statements that involve risks and
uncertainties. Items contemplating, or making assumptions about, actual or
potential future sales, market size, collaborations, trends or operating results
also constitute such forward-looking statements. These statements are only
predictions and actual results could differ materially. Certain factors that
might cause such a difference as well as other risks are detailed in the
Company's annual report on Form 10-KSB for the fiscal year ended November 30,
1999 and any later filed SEC reports. Any forward-looking statement speaks only
as of the date we made the statement, and we do not undertake to update the
disclosures contained in this document or reflect events or circumstances that
occur subsequently or the occurrence of unanticipated events.
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.
Date: July 14, 2000 By: /s/ Michael K. Perry
------------- --------------------
Michael K. Perry
Chief Executive Officer
Date: July 14, 2000 By: /s/ Stephen P. Loomis
------------- ---------------------
Stephen P. Loomis
Vice President, Finance
Chief Financial Officer and
Corporate Secretary
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