<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 SEPTEMBER 30, 2000
--------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 0-19567
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CARDIAC SCIENCE, INC.
--------------------
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 33-0465681
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16931 MILLIKAN AVENUE, IRVINE, CALIFORNIA 92606
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(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 587-0357
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
----- -----
The number of shares of the Common Stock of the registrant outstanding as of
November 8, 2000 was 24,144,764.
<PAGE>
CARDIAC SCIENCE, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Condensed Statements of Operations (Unaudited) for the
three and nine months ended September 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 2000 and 1999 5
Consolidated Condensed Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 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>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
CARDIAC SCIENCE, INC.
---------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
------------------ -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,176,207 $ 5,901,934
Accounts receivable 1,500,721 102,900
Inventory 2,430,061 438,592
Prepaid expenses 154,322 59,646
------------------ -------------------
Total current assets 29,261,311 6,503,072
Equipment, net 1,451,560 391,085
Goodwill and other intangibles, net 8,539,177 ---
Other assets 129,249 150,178
------------------ -------------------
$ 39,381,297 $ 7,044,335
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,694,751 $ 2,092,903
Current portion of loan payable 80,431 ---
Current portion of capital lease obligation 47,043 25,717
------------------ -------------------
Total current liabilities 4,822,225 2,118,620
------------------ -------------------
Long term portion of loan payable 66,792 ---
Long term portion of capital lease obligation 159,571 103,507
------------------ -------------------
226,363 103,507
------------------ -------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized, none
issued or outstanding --- ---
Common stock - $ 0.001 par value; 20,000,000 shares authorized, 24,144,764
issued and outstanding at September 30, 2000 and 12,031,252
at December 31, 1999 24,145 12,031
Common stock subscribed - 300,000 shares at September 30, 2000 1,551,000 ---
Unearned compensation (775,500) ---
Additional paid-in capital 78,031,802 23,748,322
Accumulated deficit (44,498,738) (18,938,145)
------------------ -------------------
Total stockholders' equity 34,332,709 4,822,208
------------------ -------------------
$ 39,381,297 $ 7,044,335
================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 1,209,682 $ --- $ 2,759,286 $ ---
Cost of goods sold 1,060,102 --- 2,452,693 ---
----------------- ----------------- ----------------- ----------------
Gross profit 149,580 --- 306,593 ---
Operating expenses:
Research and development 3,066,953 1,126,098 5,490,834 2,795,408
Selling 957,134 252,871 2,783,600 932,792
General and administrative 1,699,081 342,917 3,144,222 1,092,542
Acquired in-process research and development 13,587,026 --- 13,587,026 ---
Amortization of goodwill and other intangibles 567,952 --- 567,952 ---
Amortization of unearned compensation 775,500 --- 775,500 ---
----------------- ----------------- ----------------- ----------------
Loss from operations (20,359,159) (1,721,886) (25,897,634) (4,820,742)
Interest income (expense), net 314,718 (2,918) 338,642 (6,550)
----------------- ----------------- ----------------- ----------------
Loss from operations before provision for
income taxes (20,044,441) (1,724,804) 25,558,992 (4,827,292)
Provision for income taxes --- --- 1,600 1,600
----------------- ----------------- ----------------- ----------------
Net loss $(20,044,441) $ (1,724,804) $(25,560,592) $ (4,828,892)
================= ================= ================= ================
Net loss per share (basic and diluted) $ (0.88) $ (0.18) $ (1.47) $ (0.52)
================= ================= ================= ================
Weighted average number of shares used in the
computation of net loss per share 22,884,154 9,517,750 17,391,455 9,208,182
================= ================= ================= ================
</TABLE>
The accompanying notes are an integral part of the finanacial statements.
4
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (25,560,592) $ (4,828,892)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 122,416 44,976
Amortization of goodwill and other intangibles 567,952 ---
Amortization of unearned compensation 775,500 ---
In process research and development 13,587,026 ---
Compensation related to fair value of options granted to non-
employees 886,252 14,100
Expenses paid with common stock 55,500 421,680
Changes in operating assets and liabilities (net of
Cadent Medical Corporation assets and liabilities acquired):
Accounts receivable (1,397,821) ---
Inventory (1,991,469) ---
Prepaid expenses (62,212) (35,092)
Other assets 22,328 (20,366)
Accounts payable and accrued expenses 2,231,351 (681,091)
---------------------- ----------------------
Net cash used in operating activities (10,763,769) (5,084,685)
---------------------- ----------------------
Cash flows from investing activities:
Purchase of equipment (873,354) (70,785)
Cash acquired in Cadent Medical Corporation acquisition, net
of costs of $189,705 19,969 ---
---------------------- ----------------------
Net cash used in investing activities (853,385) (70,785)
---------------------- ----------------------
Cash flows from financing activities:
Payments on loan payable (18,683) ---
Payments on capital lease (6,626) (193,753)
Proceeds from issuance of common stock 30,972,274 7,250,000
Proceeds from exercise of common stock warrants 137,981 2,101,600
Proceeds from exercise of common stock options 248,796 ---
Costs of equity issuances (442,315) (431,504)
---------------------- ----------------------
Net cash provided by financing activities 30,891,427 8,726,343
---------------------- ----------------------
Net increase in cash and cash equivalents 19,274,273 3,570,873
Cash and cash equivalents at beginning of period 5,901,934 1,247,602
---------------------- ----------------------
Cash and cash equivalents at end of period $ 25,176,207 $ 4,818,475
====================== ======================
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
CARDIAC SCIENCE, INC.
CONSOLIDATED CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
1. ORGANIZATION AND CAPITALIZATION OF THE COMPANY
Cardiac Science, Inc. (the "Company") was incorporated on May 20, 1991
to develop, manufacture and market software driven non-invasive (non-surgical)
Automatic External Cardioverter Defibrillator ("AECD") devices to treat persons
suffering from or at high risk of life-threatening arrhythmias. The Company has
developed proprietary tachyarrhythmia detection and discrimination software
technology -- RHYTHMx ECD(TM)-- designed to be incorporated into external
defibrillator and patient monitoring devices. RHYTHMx ECD enables these devices,
which are attached prophylactically to hospitalized patients who are determined
to be at temporary risk of cardiac arrest, to continuously monitor their heart
rhythms, accurately and instantly detect life-threatening ventricular
tachyarrhythmias and, when appropriate and without the aid of hospital staff,
automatically deliver potentially life saving defibrillation shocks within
seconds to convert a patient's heart back to its normal rhythm.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company and of its wholly-owned subsidiaries, Cadent Medical Corporation and
Diagnostic Monitoring. All inter-company accounts and transactions have been
eliminated in consolidation.
In the opinion of the Company's management, the accompanying
consolidated condensed unaudited financial statements include all adjustments
(which consist only of normal recurring adjustments) necessary for a fair
presentation of its financial position at September 30, 2000 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 1999 Annual Report on Form 10-K. Results of operations for the nine
months ended September 30, 2000 are not necessarily indicative of results for
the full year.
3. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or
market value. Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------- -------------------
<S> <C> <C>
Finished goods $ 1,644,438 $ 438,592
Raw materials 785,623 ---
--------------------- -------------------
$ 2,430,061 $ 438,592
--------------------- -------------------
</TABLE>
6
<PAGE>
4. ACQUISITION OF CADENT MEDICAL CORPORATION
On July 1, 2000 the Company acquired Cadent Medical Corporation
("Cadent"), a privately-held company. As consideration, the Cadent
shareholders received an aggregate of 4,200,000 shares of restricted common
stock of the Company, 420,000 shares of which are being held in escrow
pursuant to an escrow agreement. Additionally 300,000 shares shall be issued
to certain employees of Cadent on January 2, 2001 or shall be added to the
shares being held in escrow. These escrow shares are the sole and exclusive
remedy for any losses incurred by the Company for any breach of
representation or warranty by Cadent. These shares shall be released from
escrow on June 30, 2001 providing that all claims, if any, have been resolved.
The acquisition was accounted for as a purchase under Accounting
Principles Board Opinion No. 16 ("APB 16"). In accordance with APB 16, the
Company allocated the purchase price of Cadent based on the fair value of the
assets acquired and liabilities assumed. Portions of the purchase price,
including intangible assets, were identified by an independent appraiser. These
intangible assets include approximately $13.6 million for acquired in-process
research and development ("IPR&D") which was expensed in the quarter ending
September 30, 2000. Other acquired intangibles include patent applications and
the assembled workforce, together valued at approximately $1.3 million. The
patent applications are being amortized over an estimated life of 20 years while
the assembled workforce is being amortized over six months. Goodwill resulting
from the Cadent acquisition of approximately $6.9 million is being amortized
over an estimated life of seven years.
Significant portions of the Cadent acquisition were identified as
intangible assets. Valuation techniques were employed that reflect recent
guidance from the Securities and Exchange Commission on approaches and
procedures to be followed in developing allocations to IPR&D. At the date of
acquisition, technological feasibility of the IPR&D project had not been reached
and the technology had no alternative future uses. Accordingly, the Company
expensed the portion of the purchase price allocated to IPR&D in accordance with
generally accepted accounting principles.
IPR&D is comprised of technological development efforts aimed at
developing a fully automatic external personal wearable defibrillator consisting
of a belt-worn monitoring and control device with disposable electrodes. The
amount of the acquisition consideration allocated to IPR&D was determined by
estimating the stage of completion of the IPR&D project at the date of the
acquisition, estimating cash flows resulting from the future research and
development and release of products employing this technology and discounting
the net cash flows back to their present values.
The estimated stage of completion for the project was approximately
75.5% as of the acquisition date. As of that date, the estimated remaining costs
to bring the project under development to technological feasibility and to
regulatory approval was approximately $5 million. The cash flow estimates from
sales of products incorporating this technology commence in the year 2002, with
revenues increasing for the first seven years, followed by declines in
subsequent periods as other new products are expected to be introduced.
The cash flows from revenues forecasted in each period are reduced by
related expenses, capital expenditures, the cost of working capital, and taxes
to estimate after-tax earnings from the technology. The discount rate applied to
the technology's net cash flows was 27.0%. This discount rate reflects a "risk
premium" of 7% over the estimated weighted average cost of capital of 20%
computed for the Company.
As discussed above, a portion of the Cadent acquisition consideration
was allocated to identifiable intangibles. The identifiable intangibles consist
primarily of patent applications and the assembled workforce.
7
<PAGE>
As with the IPR&D, the fair value for these identifiable intangibles was valued
using the future income approach.
The components of the purchase price and allocation are as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price Value
Stock consideration $ 21,714,000
(4,200,000 shares @ $5.17 per share)
Plus: Assumed liabilities 427,104
Acquisition costs 189,705
--------------------
Total consideration $ 22,330,809
====================
Allocation of purchase price:
Current assets $ 242,140
Property & equipment, net 225,521
Other assets 32,672
In process research & development 13,587,026
Goodwill 6,909,710
Other intangibles 1,333,740
-------------------
Total purchase price $ 22,330,809
===================
</TABLE>
The remaining 300,000 shares to be distributed to employees of
Cadent on January 2, 2001, were valued at $1,551,000 or $5.17 per share and
were recorded as common stock subscribed on the accompanying consolidated
condensed balance sheet with the offsetting debit recorded as unearned
compensation which is being amortized over six months beginning July 1, 2000.
Accordingly, $775,500 was expensed in the quarter ending September 30, 2000.
The following unaudited pro forma data summarizes the results of
operations for the periods indicated as if the Cadent acquisition had been
completed as of the beginning of the periods presented. The pro forma data gives
effect to actual operating results prior to the acquisition, adjusted to include
the pro forma effect of amortization of intangibles and in process research and
development.
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
------------------------ -------------------------
<S> <C> <C>
Revenues $ 2,759,286 $ ---
Net loss $ (30,519,091) $ (27,412,385)
Net loss per share (basic and diluted) $ (1.50) (2.00)
</TABLE>
5. LOAN PAYABLE
In July 1998, Cadent entered into an equipment loan agreement under
which Cadent borrowed $300,199 to finance previously purchased property and
equipment. Borrowings under the loan are
8
<PAGE>
collateralized by the financed property and equipment with a net book value of
$267,340. The loan is to be repaid over a 48-month period commencing on July 10,
1998 and bears interest at a rate of 9.8%.
6. EQUITY ISSUANCES
For the quarter ending September 30, 2000, the Company sold 2,814,265
shares of common stock at $4.50 per share, for an aggregate purchase price of
$12,664,166 to foreign investors in an offshore transaction pursuant to
Regulation S promulgated under the Securities Act of 1933. The Company is
obligated to pay a finder fee equal to 7.5 percent of the gross proceeds of the
sale, payable in cash or common stock.
The Company also sold 1,918,887 shares of common stock at $4.50 per
share, for an aggregate purchase price of $8,634,992, to U. S. investors. The
shares were sold pursuant to Section 4(2) of the Securities Act of 1933.
For the quarter ending September 30, 2000, the Company issued 339,794
shares of common stock to finders in consideration for $1,529,077 of services
rendered. These services were in connection with a private placement completed
in August 2000.
On July 1, 2000 the Company purchased all rights in and to U.S. Patent
number 4,576,170 from Lindell Bradley, M.D. and Thang-Quang Nguyen in exchange
for 165,000 shares of restricted common stock of the Company for a total
consideration of $825,000. This patent was previously under exclusive license to
the Company.
On August 17, 2000, the Company issued 9,250 shares of common stock to
consultants in consideration for $55,500 of services rendered.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto set forth elsewhere in this
Quarterly Report on Form 10-Q.
Cardiac arrest is the single largest cause of death in the United
States and Europe. Our mission is to increase the survival rate of cardiac
arrest victims and create a new standard of care through the development and
commercialization of our proprietary technology.
We have developed proprietary tachyarrhythmia detection and
discrimination software technology -- RHYTHMx ECD(TM)-- designed to be
incorporated into external defibrillator and patient monitoring devices. RHYTHMx
ECD enables these devices, which are attached prophylactically to hospitalized
patients who are determined to be at temporary risk of cardiac arrest, to
o continuously monitor their heart rhythms,
o accurately and instantly detect life-threatening ventricular
tachyarrhythmias, and
o when appropriate and without the aid of hospital staff,
automatically deliver potentially life saving defibrillation shocks
within seconds to convert a patient's heart back to its normal rhythm.
9
<PAGE>
We commenced operations in May 1991. Our operations consisted primarily
of research and development activities and clinical FDA testing until our
acquisition of Diagnostic Monitoring in April 1997. Diagnostic Monitoring
manufactured PC-based Holter Electrocardiogram systems and Ambulatory Holter
recorders and distributed these products in over 40 countries. We sold
substantially all of the assets of Diagnostic Monitoring on December 31, 1998.
On July 1, 2000 we acquired Cadent Medical Corporation of Bedford,
Mass., a privately held company that has developed a cell phone size
defibrillator designed to be worn by mobile cardiac patients. We plan to
integrate our proprietary software into the new device to assure that a patient,
whether in a hospital or at home going about daily activities automatically
receives an immediate defibrillation shock should he suffer a life-threatening
heart rhythm. We believe Cadent Medical also offers additional technology for
use in Cardiac Science's existing and planned product line. As consideration,
Cardiac Science issued 4.2 million shares of restricted common stock to Cadent
Medical shareholders for a total purchase price of $22.3 million.
We have three products, two of which are still under development, that
utilize our proprietary technology. Our initial product, the Powerheart(R), is a
fully automatic external bedside defibrillator-monitor designed for bedside
in-hospital use. The Powerheart attaches prophylactically to "at-risk" cardiac
patients for the purpose of providing fully automatic detection and treatment of
life-threatening heart rhythms (ventricular tachyarrhythmias) that lead to
cardiac arrest.
In December 1998, we entered into a five-year exclusive distribution and
licensing agreement with the world leader in external defibrillation, Medtronic
Physio-Control, a subsidiary of Medtronic, Inc. Medtronic Physio-Control will
market the Powerheart in the U.S., Canada and selected European countries, and
also has been licensed to integrate RHYTHMx ECD into Medtronic's LIFEPAK(R) line
of in-hospital external defibrillators. We have signed distribution agreements
to date giving us representation in over 40 countries.
We received 510(k) clearance from the U.S. Food and Drug Administration
for the clinical version of the Powerheart in October 1997. We received European
regulatory clearance for Powerheart in late 1999 and we made our first
commercial shipment in December 1999. We subsequently received 510(k) clearance
from the FDA for the commercial version of the Powerheart in January 2000.
Shipments of Powerhearts to Medtronic Physio-Control, as well as our
international distributors, began in the first quarter of 2000.
In September 1998, we entered into a development and manufacturing
agreement with Zevex International, Inc. ("Zevex"), a contract medical device
manufacturer, to manufacture the commercial version of the Powerheart. Effective
July 1, 2000 we have mutually agreed with Zevex to terminate this relationship
and we will begin manufacturing the Powerheart at our site in Irvine, California
in the fourth quarter of 2000.
The second product, currently under development, is a fully automatic
defibrillator module that is designed for integration into third party
manufactured bedside patient monitoring systems. Functionally, this module is
designed to extend patient monitoring systems beyond diagnostics to provide
patients who suffer life-threatening tachyarrhythmias with the added protection
of automatic therapy delivery without the aid of hospital staff. The third
product, also under development, is a small, wearable, fully automatic
defibrillator that is designed to be worn by patients who are ambulatory in
either a hospital or home environment.
We have been issued one patent and we have acquired one additional
patent. In addition, we have thirteen patents pending and we intend to file
additional patents relating to our proprietary technology.
10
<PAGE>
RESULTS OF OPERATIONS
Sales were $1,209,682 and $2,759,286 respectively, for the three and
nine months ended September 30, 2000, as compared to no sales for the three and
nine months ended September 30, 1999. Sales consisted primarily of Powerheart
defibrillator-monitors that were sold to both Medtronic Physio-Control and our
international distributors.
Cost of sales were $1,060,102 and $2,452,693 respectively, for the
three and nine months ended September 30, 2000, as compared to no cost of sales
for the three and nine months ended September 30, 1999. This amount was
attributable primarily to the sale of Powerhearts.
Research and development expenses increased to $3,066,953 and
$5,490,834, respectively, for the three and nine months ended September 30,
2000, from $1,126,098 and $2,795,408, respectively, for the three and nine
months ended September 30, 1999. Increases in research and development expenses
included increased expenditures in project costs and engineering personnel
associated with the development of our Automatic Defibrillation Module, Wearable
Cardioverter Defibrillator as well as ongoing support for our Powerheart
product. In addition to these increases we recognized compensation cost of
$551,442 using a Black-Scholes option pricing model for stock options granted to
consultants.
Selling expenses increased to $957,134 and $2,783,600, respectively,
for the three and nine months ended September 30, 2000, from $252,871 and
$932,792, respectively, for the three and nine months ended September 30, 1999.
The increase was a result of marketing expenditures relating to the sale of the
Powerheart in the United States and international countries. These increase
included personnel and travel costs associated with five regional sales managers
and five clinical application specialists involved in supporting the Medtronic
Physio-Control efforts to market the Powerheart in the United States. Marketing
expense relating to direct mail, trade shows, marketing literature and marketing
studies also increased in the periods.
General and administrative expenses increased to $1,699,081 and
$3,144,222, respectively, for the three and nine months ended September 30,
2000, from $342,917 and $1,092,542, respectively, for the three and nine months
ended September 30, 1999. The increase in expenses for the quarter and nine
months ended September 30, 2000 as compared to the same periods in 1999 included
personnel costs and related fringes, facility costs, consulting, professional
fees and costs associated with the Cadent facility in Bedford, Massachusetts. In
addition to these increases we recognized compensation cost of $259,810 using a
Black-Scholes option pricing model for stock options granted to consultants.
For the quarter and nine months ended September 30, 20000 we recorded
certain non-cash charges in connection with our acquisition of Cadent. These
non-cash charges consisted of: acquired in-process research and development of
$13,587,026; amortization of goodwill and other intangibles of $567,952; and
amortization of restricted stock of $775,500.
Interest income, net, increased to $314,718 and $338,642 for the three
month and year to date periods ended September 30, 2000 as compared to interest
expense net of $2,918 and $6,550, respectively, for the same periods in the
prior year due to the investment of the proceeds from private placements.
Net loss increased to $20,044,441 or $0.88 per share and $25,560,592
or $1.47 per share, respectively, for the three month and year to date
periods ended September 30, 2000 as compared to $1,724,804 or $0.18 per share
and $4,828,892 or $0.52 per share, respectively, for the three and nine
months ended September 30, 1999. The net loss for the quarter and nine months
ending September 30, 2000 included non-cash charges associated with the
purchase of Cadent, which aggregated $14,785,571 or $0.65 per share and $0.85
per share, respectively.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had cash and cash equivalents of $25,176,207
and working capital of $24,439,086 as compared to cash and cash equivalents of
$5,901,934 and working capital of $4,384,452 at December 31, 1999. From
inception, our sources of funding for operations were derived from equity
placements aggregating approximately $52 million. We have incurred losses of
$44,498,738 since inception, and we expect to incur substantial additional
operating losses as a result of expenditures related to marketing and sales
efforts, research and product development activities. The timing and amounts of
these expenditures will depend upon many factors, some of which are beyond our
control, such as the requirements for and time required to obtain approval of
510(k) applications or other regulatory approvals, the progress of research and
development programs, and market acceptance of our products.
Successful completion of our development program for our products and
transition to attain profitable operations is dependent upon achieving a level
of revenues adequate to support the required cost structure.
We anticipate that the current cash balance will be sufficient to meet
our cash requirements for at least the next fifteen months. From time to time,
we may also consider the acquisitions of, or evaluate investments in, certain
products and businesses complementary to our business. Any such acquisitions or
investments may require additional capital resources. There can be no assurance
that such additional resources will be available on terms satisfactory to us, or
at all, or that any financing transaction will not be dilutive to current
stockholders.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, including statements regarding:
o products under development;
o in-process research and development
o technological and competitive advantages;
o future cash requirements and the adequacy of cash on hand;
o our ability to improve patient care, increase survival rates, decrease
recovery time, lessen patient debilitation, and reduce patient care
costs and
o strategic alliances.
These forward-looking statements are based on current expectations that
involve numerous risks and uncertainties, including those risks and
uncertainties discussed in this Form 10-Q and in our Annual Report on Form 10-K
for the year ended December 31, 1999. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive, and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
our control. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, we cannot assure you that the results discussed or
implied in such forward-looking statements will prove to be accurate. In light
of the significant uncertainties inherent in such forward-looking statements,
the inclusion of such statements should not be regarded as a representation by
us or any other person that our objectives and plans will be achieved. Words
such as "believes," "anticipates," "expects," "intends," "may," and similar
expressions are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. We undertake no obligation to
revise any of these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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CARDIAC SCIENCE, INC.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three-month period ending September 30, 2000, we sold
2,814,265 shares of common stock at $4.50 per share, for an
aggregate purchase price of $12,664,166 to foreign investors in
an offshore transaction pursuant to Regulation S promulgated
under the Securities Act of 1933. In connection with the
offering, we are obligated to pay a finder a fee equal to 7
percent of the gross proceeds of the sale, payable in cash or
common stock.
During the three-month period ending September 30, 2000, we sold
1,918,887 shares of common stock at $4.50 per share, for an
aggregate purchase price of $8,634,992 to U.S. investors. The
shares were sold pursuant to Section 4(2) of the Securities Act
of 1933.
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:
27.1 Financial Data Schedule.
b) Reports on Form 8-K:
The Company filed reports on Form 8-K dated July 11, 2000,
as amended on Form 8K/A dated August 11, 2000, relating to
the acquisition of Cadent Medical Corporation.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
CARDIAC SCIENCE, INC.
---------------------
Date: NOVEMBER 13, 2000 /s/ Brett L. Scott
------------------- --------------------------
Brett L. Scott
(Authorized Officer and Principal
Financial Officer)
14
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Index to Exhibits
27.1 Financial Data Schedule.
