<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
-----------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-19567
-------
CARDIAC SCIENCE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0465681
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 HAMMOND DRIVE, SUITE 111, IRVINE, CALIFORNIA 92718
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 587-0357
Not Applicable
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 [_]
The number of shares of the Common Stock of the registrant outstanding as of May
5, 1996 was 36,546,177.
<PAGE>
CARDIAC SCIENCE, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements:
Balance Sheets
March 31, 1996 (Unaudited) and
December 31, 1995 3
Statements of Operations (Unaudited)
Three Months Ended March 31, 1996
and 1995 and period from May 20, 1991
(inception) to March 31, 1996 4
Statement of Stockholders' Equity (Deficiency) (Unaudited)
May 20, 1991 (inception) to March 31, 1996 5
Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1996 and
1995 and period from May 20, 1991 (inception) to
March 31, 1996 6
Notes to Unaudited Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
</TABLE>
PART II. OTHER INFORMATION
---------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE>
CARDIAC SCIENCE, INC.
-----------------------------
(A development stage company)
BALANCE SHEETS
--------------
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 956,171 $ 1,177,806
Prepaid expenses.................................................. 12,689 11,220
----------- -----------
Total current assets............................................ 968,860 1,189,026
Equipment, at cost................................................. 70,286 70,286
Less accumulated depreciation..................................... (35,999) (32,809)
----------- -----------
Equipment, net.................................................... 34,387 37,477
Other assets....................................................... 4,012 4,012
----------- -----------
$ 1,007,159 $ 1,230,515
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable................................................. $ 150,642 $ 164,447
Accrued interest................................................. 13,402 13,402
Accrued expenses................................................. 4,216 4,216
Accrued payroll.................................................. 29,951 37,615
----------- -----------
Total current liabilities..................................... 198,211 219,680
Note payable to related party.................................... 102,000 102,000
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized,
none issued or outstanding at December 31, 1995 or 1994
Common stock - $.001 par value:
Authorized shares - 40,000,000
Issued and outstanding shares 36,546,177
in March 31, 1996 and 31,953,677 in December 31, 1995......... 36,425 31,905
Common stock subscribed - 1,666,667 in March 31, 1996
and 6,186,667 in 1995......................................... 250,000 924,134
Additional paid-in capital...................................... 4,801,570 4,115,906
Deficit accumulated during the development stage................ (4,381,047) (4,163,110)
----------- -----------
Total stockholders' equity..................................... 706,948 908,835
----------- -----------
$ 1,007,159 $ 1,230,515
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
CARDIAC SCIENCE, INC.
(A development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Period from
Three months Three months May 20, 1991
ended ended (inception to)
March 31, March 31, March 31,
1996 1995 1996
------------ ------------ --------------
<S> <C> <C> <C>
Costs and expenses:
Research and development..................... $ 123,622 $ 107,069 $1,691,627
General and administrative................... 107,728 116,669 2,367,031
Interest expense............................. --- 2,040 192,514
Interest income.............................. (13,613) (20,080) (120,065)
------------ ------------ --------------
Total costs and expenses.................... 217,737 205,698 4,131,107
Income taxes.................................. 200 620 4,940
------------ ------------ --------------
Loss before extraordinary expense............. (217,937) (206,318) 4,136,047
Extraordinary expense from
extinguishment of debt....................... --- --- 245,000
------------ ------------ --------------
Net loss...................................... $ (217,937) $ (206,318) $4,381,047
============ ============ ==============
Loss per share................................ $ (.01) $ (.01)
============ ============
Number of shares used in the computation of
loss per share............................... 38,207,844 37,964,344
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
CARDIAC SCIENCE, INC.
(A development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
May 20, 1991 (inception) to March 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK SUBSCRIBED
-------------------- --------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------- -------- ---------- --------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash on May 20, 1991............ 6,927,448 $ 6,927 --- $ --- $ 4,073 $ --- $ --- $ 11,000
Net loss......................... --- --- --- --- --- (244,247) --- (244,247)
---------- -------- ---------- --------- ---------- ----------- ------------- -----------
Balance at December 31, 1991..... 6,927,448 6,927 --- --- 4,073 (244,247) --- (233,247)
Cancellation of common stock
at $.0016 per share............. (29,761) (30) --- --- (17) --- --- (47)
Issuance of common stock for
cash at $.03 per share.......... 70,000 70 --- --- 2,030 --- --- 2,100
Issuance of common stock
in lieu of payment of
interest payable at $.15
per share....................... 144,493 145 --- --- 21,529 --- --- 21,674
Issuance of common stock for
services at $.38 per share...... 60,000 60 --- --- 22,740 --- --- 22,800
Issuance of common stock
for services at $.4375
per share....................... 50,479 50 --- --- 22,033 --- --- 22,083
Issuance of common stock
for services at $.898
per share....................... 50,000 50 --- --- 44,872 --- --- 44,922
Issuance of common stock
for services at $2.156
per share....................... 6,611 7 --- --- 14,248 --- --- 14,255
Common stock issuable............ --- --- --- --- 831,000 --- 831,000
Net loss......................... --- --- --- --- --- (773,894) --- (773,894)
---------- -------- ---------- --------- ---------- ----------- ------------- -----------
Balance at December 31, 1992..... 7,279,270 7,279 --- --- 962,508 (1,018,141) --- (48,354)
Issuance of common stock in
lieu of payment of interest
payable at $.40 per share....... 129,473 129 --- --- 51,660 --- --- 51,789
Issuance of common stock for
cash at $.40 per share.......... 3,000,000 3,000 --- --- 130,889 --- --- 133,889
Issuance of common stock for
services at $.40 per share...... 72,699 73 --- --- 29,007 --- --- 29,080
Common stock warrants
exercised at $.40 per share..... 625,000 625 --- --- 249,375 --- --- 250,000
Common stock options
exercised at $.03 per share..... 6,667 7 --- --- 193 --- --- 200
Cancellation of common stock
at $.0016 per share............. (6,298) (6) --- --- (4) --- --- (10)
Net loss......................... --- --- --- --- --- (1,471,076) --- (1,471,076)
---------- -------- ---------- --------- ---------- ----------- ------------- -----------
Balance at December 31, 1993..... 11,106,811 11,107 --- --- 1,423,628 (2,489,217) --- (1,054,482)
Common stock warrants
exercised at $.15
per share, net.................. --- --- 4,386,667 654,134 --- --- --- 654,134
Common stock subscribed
for debt forgiveness
at $.15 per share............... --- --- 1,800,000 270,000 --- --- --- 270,000
Issuance of common stock
for cash at $.15 per
share, net...................... 20,000,000 20,000 --- --- 2,185,000 --- --- 2,205,000
Issuance of common stock in
lieu of payment of interest
payable at $.15 per share....... 370,866 370 --- --- 55,226 --- --- 55,596
Issuance of common stock for
services at $.40 per share...... 100,000 100 --- --- 39,900 --- --- 40,000
Common stock warrants
exercised at $.40 per share..... 200,000 200 --- --- 79,800 --- --- 80,000
Warrants issued at $.001 per
share for future services....... --- --- --- --- 149,000 --- (149,000) ---
Warrants issued at $.001
per share for debt
extinguishment.................. --- --- --- --- 150,000 --- --- 150,000
Amortization of unearned
compensation.................... --- --- --- --- --- --- 45,154 45,154
Net loss......................... --- --- --- --- --- (733,397) --- (733,397)
---------- -------- ---------- --------- ---------- ----------- ------------- -----------
Balance at December 31, 1994..... 31,777,677 31,777 6,186,667 924,134 4,082,554 (3,222,614) (103,846) 1,712,005
Issuance of common stock in
lieu of payment of
royalties at $.50
per share....................... 60,000 60 --- --- 29,940 --- --- 30,000
Common stock options
exercised....................... 116,000 68 --- --- 3,412 --- --- 3,480
Amortization of unearned
compensation.................... --- --- --- --- --- --- 103,846 103,846
Net loss......................... --- --- --- --- --- (940,496) --- (940,496)
---------- -------- ---------- --------- ---------- ----------- ------------- -----------
Balance at December 31, 1995..... 31,953,677 31,905 6,186,667 924,134 4,115,906 (4,163,110) --- 908,835
Common stock options
exercised....................... 35,000 35 --- --- 1,015 --- --- 1,050
Warrants exercised............... 37,500 37 --- --- 14,963 --- --- 15,000
Subscribed shares issued......... 4,520,000 4,520 (4,520,000) (674,134) 669,614 --- --- ---
Net loss......................... --- --- --- --- --- (217,937) --- (217,937)
---------- -------- ---------- --------- ---------- ----------- ------------- -----------
Balance at March 31, 1996........ 36,546,177 $36,497 1,666,667 $ 250,000 $4,801,498 $(4,381,047) --- $ 706,948
========== ======== ========== ========= ========== =========== ============= ===========
</TABLE>
See accompanying notes.
5
<PAGE>
CARDIAC SCIENCE, INC.
---------------------
(A development stage company)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Period from
Three months ended May 20, 1991
March 31, (inception) to
--------------------------- March 31,
1996 1995 1996
---------- ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (217,937) $ (206,318) $(4,381,047)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation........................................ 3,190 3,111 35,999
Accounts payable converted to notes payable
to related parties................................. --- --- 305,371
Amortization of unearned compensation
from issuance of warrants.......................... --- 38,942 149,000
Non-cash extraordinary charge........................ --- --- 245,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets.......... (1,469) 3,713 (12,689)
Accounts payable................................... (13,805) (12,889) 326,174
Accrued payroll.................................... (7,664) 7,446 29,951
Accrued interest................................... --- 2,040 142,461
Accrued expenses................................... --- --- 4,216
Other, net......................................... --- --- (4,012)
---------- ----------- --------------
Net cash used in operating activities................ (237,685) (163,955) (3,159,576)
---------- ----------- --------------
Cash flows from investing activities - purchase
of equipment....................................... --- (6,668) (70,286)
---------- ----------- --------------
Cash flows from financing activities:
Proceeds from notes payable to related parties..... --- --- 450,000
Payments of notes payable to related party......... --- --- (450,000)
Proceeds of advance from related party............. --- --- 10,600
Payments of advance from related party............. --- --- (10,600)
Proceeds from issuance of Common Stock............. 16,050 --- 4,186,033
---------- ----------- --------------
Net cash provided by financing activities.......... 16,050 --- 4,186,033
---------- ----------- --------------
Net increase (decrease) in cash and equivalents....... (221,635) (170,623) 956,171
---------- ----------- --------------
Cash and equivalents at beginning of period........... 1,177,806 1,950,641 0
---------- ----------- --------------
Cash and equivalents at end of period................. $ 956,171 $1,780,018 $ 956,171
========== =========== ==============
Supplemental cash flow disclosures:
Cash paid during the period for:
Income taxes...................................... $ 200 $ 620 $ 4,940
Interest.......................................... $ --- $ --- $ 44,851
Supplemental schedule of noncash investing
and financing activities:
Accounts payable and accrued interest paid
by issuance of Common Stock.......................... --- $ --- $ 506,162
</TABLE>
See accompanying notes.
6
<PAGE>
CARDIAC SCIENCE, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1996
R. ORGANIZATION AND OPERATIONS OF THE COMPANY
Cardiac Science, Inc. (the "Company") was incorporated on May 20, 1991 to
develop, manufacture and market a family of non-invasive (non-surgical)
Automatic External Cardioverter Defibrillator ("AECD") devices (the "Products")
---- --------
to treat persons suffering from or at high risk of life threatening arrhythmias.
The Company's Products will be designed to continuously monitor, quickly detect
and then automatically, through transmission of electrical energy charges to the
patient's heart, terminate the onset of ventricular tachyarrhythmia (dangerously
fast heart rate) and/or ventricular fibrillation (quivering of the heart
following tacharrhythmia which usually results in death). Among the
cardioverter/defibrillator devices under development by the Company will be
ambulatory (mobile) AECD devices similar in function to the Implantable
Cardioverter Defibrillator ("ICD") devices that are either currently approved
---
for sale by the U.S. Food and Drug Administration (the "FDA") or are undergoing
---
clinical trials. However, the Company's planned AECD Products will not require
surgery to implant the devices. Moreover, the Company's Products will not
require the presence of a human operator to activate the device and deliver the
defibrillator charge, as is the case in other existing devices.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Continued Existence
---------------------------------------------
The Company is in the development stage. From May 20, 1991 (inception)
through March 31, 1996 the Company has not generated any operating revenues and
has incurred losses of $4,381,047. Recovery of the Company's assets is
dependent upon future events, the outcome of which is indeterminable.
Additionally, successful completion of the Company's development program and its
transition, ultimately, to attaining profitable operations is dependent upon
obtaining additional financing adequate to fulfill its research and development
activities, and achieving a level of revenues adequate to support the Company's
cost structure. The Company is currently attempting to identify other sources
of financing. There can be no assurance that the Company will be successful in
these areas.
In September 1994, the Company completed a private placement offering (the
"Private Placement) of 20,000,000 shares of Common Stock at $.15 per share for
gross proceeds of $3,000,000. Proceeds of $2,205,000, net of issuance costs of
$795,000, were used to reduce trade payables and to provide working capital to
resume operations (which had been previously suspended).
7
<PAGE>
In connection with the Private Placement, Medstone International, Inc., a
principal shareholder of the Company ("Medstone"), exercised warrants to
purchase 2,720,000 shares of the Company's Common Stock. The proceeds of
$408,000 were used to pay down a portion of the notes payable to Medstone. The
due date for the remaining principal balance of $102,000 has been extended to
April 1, 1996. The expiration date for the remaining warrants were changed to
March 31, 1996. In addition, Medstone subscribed for 1,800,000 shares of the
Company's Common Stock and the Company issued a ten year warrant to purchase
1,000,000 shares at $.001 per share in exchange for unsecured obligations of
approximately $175,000. The difference of $245,000 between the value of the
stock and warrant issued, $270,000 and $150,000, respectively, and the
extinguished debt of $175,000 was treated as an extraordinary expense. The
2,720,000 shares underlying the warrants exercised by Medstone and the
1,800,000 shares for debt forgiveness were not issued at the time of the Private
Placement in accordance with an agreement between the Company and Medstone.
Consequently the amounts relating to these shares are shown as common stock
subscribed. As of January 22, 1996 all shares have been issued.
In connection with the Private Placement, Technology Funding, Inc., a
principal stockholder of the Company, exercised warrants to purchase 1,666,667
shares of the Company's Common Stock. The proceeds were used by the Company to
repay the note payable to Technology Funding of $250,000. The shares underlying
the warrants will not be issued until the Company completes its proposed
recapitalization. Consequently, the amounts relating to these shares are shown
as Common Stock subscribed.
In connection with the Private Placement, ten year warrants to purchase
11,000,000 shares of the Common Stock at $.001 per share were issued to the
following: 6,000,000 shares to the placement agent, 3,000,000 shares to legal
counsel of the Company, 1,000,000 shares to a financial advisor to the Company,
and 1,000,000 shares to directors of the Company.
Also in connection with the Private Placement, ten year stock options to
purchase 1,250,000 shares at $.15 per share were granted to an officer of the
Company.
In the opinion of the Company's management, the accompanying unaudited
financial statements include all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation of its financial
position at March 31, 1996 and results of operations and cash flows for the
periods presented. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted and should be read in conjunction with the
Company's audited financial statements included in the Company's 1995 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
29, 1996. Results of operations for the three months ended March 31, 1996 are
not necessarily indicative of results for the full year.
8
<PAGE>
C. PER SHARE INFORMATION
Per share information is presented in the accompanying statements of
operations based upon the weighted average number of common shares outstanding.
D. INCOME TAXES
The Company has elected to adopt Financial Accounting Standards Board
Statement No. 109. The implementation had no material impact on the Company's
financial position or results of operations.
E. NOTE PAYABLE
At March 31, 1996, the Company had a note payable to Medstone in the
principal amount of $102,000. This note bears interest at a rate of 8% per
annum, payable quarterly, is secured by the Company's assets and matures on
April 1, 1996. In connection with the issuance of this note, the Company granted
to Medstone warrants to purchase 680,000 shares of its Common Stock for an
exercise price of $.15 per share. Per an oral agreement between the Company and
Medstone, interest expense on the note was suspended in April 1995 due to prior
considerations paid during the renegotiation of the unsecured debt in 1994. As
of March 31, 1996, the Company and Medstone were working toward an agreement
whereby Medstone would exercise its 680,000 warrants for gross proceeds of
$102,000 and the Company would use these proceeds to repay the principal of the
note in the amount of $102,000. On April 26, 1996, the Company and Medstone
completed the agreement and Medstone received its shares due from the warrant
exercise and the Company paid its note in full, receiving release of the lien
held by Medstone on the Company's assets.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
- - -------
The Company is a development stage company which is primarily engaged in the
development of non-invasive automatic defibrillator devices to treat persons
suffering from, or at high risk of, life threatening arrhythmias. The Company
commenced operations in May 1991. Its operations to date have consisted
primarily of organizational activities, research and development, FDA testing,
and financing related activities. The Company has not generated any revenues to
date and is not at a commercial stage where revenues are expected in the near
future. At present, the Company does not have the Products, financing or
government approvals necessary to commence marketing activities.
RESULTS OF OPERATIONS
- - ---------------------
For the three months ended March 31, 1996, the Company had no revenues and a
net loss of $217,937 compared to no revenues and a net loss of $206,318 for the
three months ended March 31, 1995. The slightly increased net loss reflects
increased expenditures as the Company continued its clinical trials. It is
anticipated that the Company will continue to incur losses in coming periods.
The rate of loss is expected to increase, subject to availability of capital to
finance operating activities, as the Company contemplates further clinical trial
expenses.
Research and development expenses increased to $123,622 for the three months
ended March 31, 1996, from $107,069 for the three months ended March 31, 1995,
as the Company incurred a full quarter of clinical trial expenses in the more
recent period.
General and administrative expenses decreased to $107,728 for the three
months ended March 31, 1996, from $116,669 for the three months ended March 31,
1995, due to the lower administrative expenses.
Interest expense decreased to $0 for the three months ended March 31, 1996,
from $2,040 for the three months ended March 31, 1995, as debt was repaid and
suspension of interest expense was negotiated on the remaining debt.
Interest income decreased to $13,613 for the three months ended March 31,
1996, from $20,080 in the same period in the prior year, due to the decrease in
investable cash as a result of expenditures for operations.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At March 31, 1996, the Company had cash and cash equivalents and working
capital of $956,171 and $770,649, respectively, as compared to cash and cash
equivalents and working capital of $1,177,806 and $969,346, respectively, at
December 31, 1995.
The Company received cash contributions of $11,000 upon its initial share
issuances to its founding shareholders in May 1991. During the period June 1991
through December 31, 1993, the Company received loans in the aggregate principal
amounts of $510,000 and $250,000 from Medstone International, Inc. and
Technology Funding, Inc. (principal shareholders of the Company), respectively.
These loans were evidenced by promissory notes (the "Medstone Note" and the
"Technology Funding Note"), which accrued interest at a rate of 8% per annum,
payable quarterly, and which were secured by all of the Company's assets and
were scheduled to mature on the earlier of April 1, 1995 or the closing of an
initial public offering of the Company's Common Stock pursuant to an effective
registration statement under the Securities Act of 1933. In connection with
such borrowings, the Company issued to Medstone warrants to purchase 3,399,998
shares of Common Stock (the "Medstone Warrants") for an aggregate exercise price
of $510,000, and to Technology Funding warrants to purchase 1,666,667 shares of
Common Stock (the "Technology Funding Warrants") for an aggregate exercise price
of $250,000.
In January 1993, in conjunction with a private placement, the Company issued
3,000,000 shares, and warrants to purchase 3,000,000 shares, for an aggregate
net proceeds of approximately $965,000. The proceeds from the private placement
funded the Company's operations through October 1993. As of March 31, 1996, a
total of 625,000 warrants issued in the private placement had been exercised for
gross proceeds of $250,000. These warrants expired on January 31, 1996.
In February 1994, the Company substantially curtailed operations due to lack
of funds, and, in May 1994, unable to locate an immediate source for a working
capital infusion, the Company temporarily ceased all activities except in
connection with obtaining financing.
In September 1994, the Company completed a private placement (the "Private
Placement"), issuing 20,000,000 shares of Common Stock at $.15 per share for
gross proceeds of $3,000,000. Net proceeds were approximately $2,205,000, after
payment of commissions and expenses to A.R. Baron & Co., Inc., who acted as
placement agent, and legal and other expenses related to the Private Placement.
Shortly thereafter, the Company leased new premises, rehired certain of its
employees and resumed its research and development activities.
In connection with the Private Placement and concurrently with the closing
thereof, (i) Medstone exercised the Medstone Warrants to the extent of 2,720,000
shares, (ii) the Company utilized the proceeds therefrom ($408,000) to pay an
equivalent portion of the $510,000 Medstone Note, (iii) the due date for the
remaining principal balance on the Medstone Note ($102,000) was extended to
April 1, 1996, (iv) Medstone retained its current lien on the assets of the
Company until the balance of the Medstone Note was paid, (v) the expiration date
for the remaining Medstone
11
<PAGE>
Warrants to purchase 680,000 shares of Common Stock was changed to March 31,
1996, and (vi) all outstanding unsecured obligations owing by the Company to
Medstone (approximately $175,000) were satisfied by Medstone subscribing for
1,800,000 shares of Common Stock and the Company agreeing to issue a ten year
warrant to purchase 1,000,000 shares of Common Stock at $.001 per share. In
April 1995, per an oral agreement between the Company and Medstone, interest
expense on the note was suspended due to prior consideration paid during the
renegotiation of the unsecured debt in 1994. The 2,720,000 shares underlying the
warrants and the 1,800,000 shares for debt forgiveness were not issued in 1994
in accordance with an agreement between the Company and Medstone, but as of
January 22, 1996 all shares have been issued. In addition, concurrently with the
closing of the Private Placement, (i) Technology Funding exercised all of the
1,666,667 Technology Funding Warrants and (ii) the Company utilized the proceeds
therefrom ($250,000) to pay the $250,000 Technology Funding Note. The shares
underlying the warrants will not be issued until the Company completes its
proposed recapitalization. Consequently, the amounts relating to these shares
are shown as Common Stock subscribed.
Also in connection with the Private Placement, the Company entered into
agreements with each of Breslow & Walker, counsel of the Company, Howard Cooper,
Chairman of the Board of the Company, and Fran Daniels, a financial consultant
to the Company, to forego receipt of outstanding payables aggregating $126,000
until March 19, 1996. The Company paid Mr. Cooper as of April 15, 1996 and is
currently negotiating extensions on the other amounts to arrive at mutually
acceptable agreements.
The Company anticipates that its current cash balance will be sufficient to
meet the Company's cash requirements for at least the next 12 months, after
which the Company will need additional financing. In this connection, the
Company currently intends to seek to complete a public offering of its
securities. However, there can be no assurance that such public offering can be
consummated or that the Company will be able to obtain alternative financing.
In the event the Company is unable to obtain any such financing, the Company
will be unable to complete the development of its Products or to continue as a
going concern.
12
<PAGE>
CARDIAC SCIENCE, INC.
---------------------
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) Exhibit 11 - Computation of Per Share Information.
b) There were no reports on Form 8-K filed with the Commission
during the quarter ended March 31, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARDIAC SCIENCE, INC.
---------------------
Date: May 13, 1996 /s/ PRABODH MATHUR
---------------- ---------------------------------------
Prabodh Mathur
Acting President and Vice President,
Research and Development
(Principal financial and
accounting officer)
14
<PAGE>
EXHIBIT 11
CARDIAC SCIENCE, INC.
(A development stage company)
COMPUTATION OF PER SHARE INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
------------------ ------------------
<S> <C> <C>
Earnings:
Net income (loss)................................ $ (217,937) $ (206,318)
================== ==================
Computation of primary per share information:
Shares:
Weighted average number of
shares outstanding.............................. 38,207,844 37,964,344
================== ==================
Primary earnings per share:
Net income (loss)................................ $ (.01) $ (.01)
================== ==================
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 956,171
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 968,860
<PP&E> 70,286
<DEPRECIATION> 35,999
<TOTAL-ASSETS> 1,007,159
<CURRENT-LIABILITIES> 198,211
<BONDS> 0
0
0
<COMMON> 36,425
<OTHER-SE> 670,523
<TOTAL-LIABILITY-AND-EQUITY> 1,007,159
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 217,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (217,937)
<INCOME-TAX> 200
<INCOME-CONTINUING> (217,937)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217,937)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
