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 June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR (15D) OF THE
EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number 0-25828
Electropharmacology, Inc.
Exact name of small business issuer as specified in its charter
Delaware 95-4315412
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2301 N.W. 33rd Court, Suite 102, Pompano Beach, FL 33069
(Address of principal executive offices)
(954) 975-9818
(Issuer's telephone number)
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 ___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Number of Shares Outstanding
Class On June 30, 1996
----- ----------------
Common Stock, $.01 par value 3,485,931
Transitional Small Business Disclosure Format:
Yes ___ No _X_
<PAGE>
ELECTROPHARMACOLOGY, INC.
<TABLE>
<CAPTION>
INDEX TO 10-QSB Page
----
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PART I. FINANCIAL INFORMATION
ITEM 1. Balance Sheets as of December 31, 1995 and June 30, 1996 2
Statements of Operations for the six months ended June 30,
1995 and 1996. 3
Statements of Operations for the three months ended June 30,
1995 and 1996. 4
Statements of Cash Flows for the six months ended June 30,
1995 and 1996. 5
Notes to Financial Statements. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the six months ended June 30,
1995 and 1996. 8
PART II. OTHER INFORMATION 12
ITEM 1. Legal Proceedings
ITEM 6. Exhibits and Reports on Form 8-K
Signatures 13
</TABLE>
<PAGE>
Item 1. Financial Statements
The interim financial statements presented in this report are
unaudited, but in the opinion of management, reflect all adjustments
necessary for a fair presentation of such information. Results for
interim periods should not be considered indicative of results for a
full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995, filed with
the Securities and Exchange Commission on April 13, 1996.
<PAGE>
ELECTROPHARMACOLOGY, INC.
Balance Sheets
(Unaudited with respect to June 30, 1996)
<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1995 1996
--------------------------------
<S> <C> <C>
Current assets :
Cash $ 3,069,748 $ 1,313,841
Trade accounts receivable, net of allowance for doubtful accounts of $85,100 256,832 330,688
Current portion of trade notes receivable 269,711 177,892
Prepaid expenses 64,659 55,719
--------------------------------
Total current assets 3,660,950 1,878,140
Deposits 12,091 17,810
Trade notes receivable, less current maturities 273,623 215,512
Property and equipment, net 876,345 1,063,639
Other intangible assets 54,171 52,414
--------------------------------
Total assets $ 4,877,180 $ 3,227,515
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 251,209 $ 114,768
Accrued expenses 266,278 327,018
Accrued commissions 83,154 83,417
Accrued payroll 60,332 60,332
Customer deposits 7,561 7,561
Notes payable to related parties 120,000 --
Current maturities of obligations under capital leases 48,226 37,462
--------------------------------
Total current liabilities 836,760 630,558
Obligations under capital leases, less current maturities 28,033 13,600
--------------------------------
Total Liabilities 864,793 644,158
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, issued and
outstanding 421,950 4,220 4,220
Common stock, $0.01 par value; 10,000,000 shares authorized, 3,496,424 shares
issued and 3,485,931 shares outstanding (note 2) 30,745 34,964
Additional paid-in capital 11,227,601 11,227,601
Treasury stock (60,000) (60,000)
Deficit (7,190,179) (8,623,428)
--------------------------------
Total shareholders' equity 4,012,387 2,583,357
--------------------------------
Total liabilities and shareholders' equity $ 4,877,180 $ 3,227,515
================================
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See accompanying notes to the financial statements.
2
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Electropharmacology, Inc.
Statements of Operations
(Unaudited)
For the six months ended
June 30,
----------------------------
1995 1996
----------- ------------
Revenues:
Sales $ 194,381 $ 55,418
Rental 707,399 718,761
----------------------------
Total Revenue 901,779 774,179
Cost of Revenues 99,472 113,967
----------------------------
Gross Profit 802,308 660,212
Selling, general and administrative expenses 1,014,584 1,699,972
Research and development 716,909 471,037
----------------------------
Loss from operations (929,185) (1,510,797)
Interest expense (268,673) (6,815)
Interest and other income (expense) (118,636) 84,363
----------------------------
Net Loss $(1,316,493) $(1,433,249)
============================
Net loss per common share $ (0.69) $ (0.46)
============================
Weighted average common shares outstanding 1,918,584 3,108,031
============================
See accompanying notes to the financial statements.
3
<PAGE>
Electropharmacology, Inc.
Statements of Operations
(Unaudited)
For the three months ended
June 30,
----------------------------
1995 1996
----------- ------------
Revenues:
Sales $ 194,381 $ 36,858
Rental 342,716 366,898
----------------------------
Total Revenue 537,096 403,756
Cost of Revenues 57,397 72,106
----------------------------
Gross Profit 479,700 331,650
Selling, general and administrative expenses 411,865 931,064
Research and development 485,100 146,344
----------------------------
Loss from operations (417,265) (745,758)
Interest income (expense) (91,861) (5,675)
Interest and other income (expense) (41,821) 45,184
----------------------------
Net Loss $ (550,946) $ (706,249)
============================
Net loss per common share $ (0.25) $ (0.23)
============================
Weighted average common shares outstanding 2,205,452 3,063,981
============================
See accompanying notes to the financial statements.
4
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Electropharmacology, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30
---------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Operating Activities
Net Loss: $(1,316,493) $(1,433,249)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 112,340 135,854
Amortization of deferred loan costs and accretion of discount
on notes payable 306,818 --
Changes in operating assets and liabilities :
Increase in net trade accounts receivable (47,706) (73,856)
Decrease (increase) in notes receivable - Net of discount (175,181) 149,930
Decrease (increase) in prepaids and other (81,152) 10,697
(Increase) in deposits -- (5,719)
(Decrease) in accounts payable and accrued expenses (195,051) (75,438)
---------------------------------
Net Cash used in operating activities (1,396,425) (1,291,781)
---------------------------------
Cash flows from investing activities:
Capital expenditures (151,202) (323,148)
---------------------------------
Net Cash used in investing activities (151,202) (323,148)
---------------------------------
Financing Activities
Proceeds from issuance of common stock & Warrants 5,103,957 4,219
Net proceeds from issuance of notes payable -- --
Decrease in notes payable (1,162,000) (120,000)
Decrease in deferred offering costs 144,543 --
Capital lease payments (22,860) (25,197)
---------------------------------
Net cash provided by financing activities 4,063,640 (140,978)
---------------------------------
Net increase in cash 2,516,013 (1,755,907)
Cash, beginning of period 478,903 3,069,748
---------------------------------
Cash, end of period $ 2,994,916 $ 1,313,841
=================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net $ 86,390 $ 6,815
Income Taxes $ -- $ --
Supplemental disclosures of noncash investing and financing activities:
Capital lease obligations incurred for new equipment $ -- $ --
=================================
</TABLE>
See accompanying notes to financial statements.
5
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ELECTROPHARMACOLOGY, INC.
Notes to Financial Statements
(1) Basis of Presentation
These statements do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments necessary to present fairly, the financial
position of Electropharmacology, Inc. (the "Company") at June 30, 1996 and
results of its operations for the six months and quarter then ended and the six
months and quarter ended June 30, 1995 and its cash flows for the six months
ended June 30, 1996 and June 30, 1995. These unaudited financial statements
should be read in conjunction with the financial statements and notes contained
in the Company's Form 10-KSB for the year ended December 31, 1995. Results of
operations for the quarters and six months ended June 30, 1996 and 1995 are not
necessarily indicative of results to be expected for the full year.
Electropharmacology, Inc. is engaged in designing, developing and marketing
proprietary medical devices incorporating pulsed radio frequency ("PRF")
therapy. To date, the Company's focus has been the application of PRF therapy to
medical devices used to treat pain and edema (the abnormal accumulation of fluid
in soft tissue resulting in swelling) associated with a variety of postoperative
medical conditions. The Company's initial product, which is marketed under the
MRT(R) sofPulse(TM) name (the "sofPulse"), is a compact, easy to operate,
non-invasive medical device designed to deliver pulsed electromagnetic energy
fields to soft tissue for the treatment of pain and edema. The Company's
principal marketing strategy is to market the sofPulse to nursing homes and
hospitals with access to substantial numbers of patients. The Company's
objective is to establish the sofPulse as a standard by which physicians and
other healthcare providers apply postoperative treatment for pain and edema.
(2) Common Stock
On June 11, 1996, the Company issued 421,950 shares of common stock as an
investor's exercise of outstanding warrants issued in connection with a private
placement in November, 1995.
6
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(3) Subsequent Event
On August 5, 1996, the Company appointed Joseph Mooibroek to Chairman of
the Board and Chief Executive Officer. Mooibroek has over twenty years of
experience in the medical products industry including the last twelve years as
founder and former Chairman and CEO of NASDAQ listed AMEI (now Orthofix Inc.,
subsidiary of Orthofix International, N.V.).
Mooibroek graduated from Iowa State University, Ames, Iowa with a BS in
Engineering Operations and is currently pursuing a doctorate in International
Business at Kennedy Western University in Boise, Idaho.
Mooibroek succeeds David Saloff, founder of the Company, who will remain
with the Company as Vice Chairman and Executive Vice President. Saloff's
responsibilities will include corporate development, sales and marketing efforts
and researching potential acquisitions.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company was organized in August 1990 and commenced marketing the
sofPulse device in early 1992. Losses incurred since inception have been
primarily attributable to costs incurred in connection with the development and
promotion of the Company's products, research and clinical studies and the
hiring of personnel necessary to support the Company's operations. Inasmuch as
the Company will continue to have a high level of operating expenses in the
future (including salaries of executive, research, technical and marketing
personnel) and will be required to make significant expenditures in connection
with research and clinical studies as well as the production of the sofPulse
devices held for rental, the Company anticipates that it will continue to incur
significant losses until, at the earliest, the Company generates sufficient
revenues to support its operations. There can be no assurance that the Company
will achieve significantly increased revenues or profitable operations.
Results of Operations
Six Months Ended June 30, 1996 Compared to the Six Months Ended June 30, 1995
Revenues for the six months ended June 30, 1996 were $774,179, compared to
$901,779 for the six months ended June 30, 1995, a decrease of $127,600, or
14.1%. This is primarily attributable to decrease in sales revenue from $194,381
for the six months ended June 30, 1995 to $55,418 for the six months ended June
30, 1996, a decrease of $138,963, or 71.5%. During 1995, the company sold forty
(40) units to a distributor, of which twelve (12) were sold during the six
months ended June 30, 1995. As the Company has historically focused its
marketing efforts on the rental of units as opposed to sales, there has been
limited sale of units during the six months ended June 30, 1996. Rentals for the
six months ended June 30, 1996 were $718,761, compared with $707,399 for the six
months ended June 30, 1995, an increase of $11,362, or 1.6%. The relative
flatness of rental revenue is due primarily to the fact that the Company had
utilized a consultant in early 1996 to manage the sales force while management
sought a qualified Vice President of Sales. An individual with executive sales
experience in the long-term care medical device market was located and hired by
the Company in May 1996. The Company has since engaged six additional
distributor groups to distribute the Company's products into its target markets.
At March 31, 1996, the company had 193 units in rental, compared to 210 units in
rental at June 30, 1996.
8
<PAGE>
Cost of revenues for the six months ended June 30, 1996 was $113,967,
compared to $99,472 for the six months ended June 30, 1995, an increase of
$14,495, or 14.6%. this increase is attributable primarily to the depreciation
on the increased fleet of sofPulse units.
Selling, general and administrative expenses were $1,699,972 for the six
months ended June 30, 1996, compared to $1,014,584 for the six months ended June
30, 1995, an increase of $685,388, or 67.6%. This increase is primarily due to
salaries for additional personnel, including clinical support services for sales
and professional fees including legal counsel to support the Company's expanded
operations.
Research and development expenses decreased to $471,037 for the six months
ended June 30, 1996, compared to $716,909 for the six months ended June 30,
1995, a decrease of $245,872, or 34.3%. This decrease is primarily attributable
to the decreased number of research and clinical studies in connection with the
Company's proposed PMA application.
Interest expense for the six months ended June 30, 1996 decreased to
$6,815, compared to $268,673 for the six months ended June 30, 1995, a decrease
of $261,858, or 97.5%. This decrease is due to the Company's paydown or
conversion of all outstanding notes payable since its initial public offering
during May, 1995.
Interest and other income (expense) for the six months ended June 30, 1996,
increased to $84,363, compared to an expense of $(118,636) for the six months
ended June 30, 1995. This increase was attributable primarily to the interest
income generated by the Company's cash balances, as well as the absence of any
amortization of any deferred loan costs during the six months ended June 30,
1996.
The above resulted in a net loss of $(1,433,249) for the six months ended
June 30, 1996, compared to a net loss of $(1,316,493) for the six months ended
June 30, 1995.
The Company is required to adopt a provision of FASB No. 121, "Accounting
for the Impairment of long-lived Assets to be Disposed of", in 1996. The
adoption of FASB No. 121 did not have a material effect on the carrying value of
the Company's long-lived assets.
The Company does not presently intend to adopt in 1996 the fair value based
method as encouraged by Statement of Financial Accounting Standards (FASB) No.
123, "Accounting for Stock-Based Compensation". Accordingly, there will be no
effect to the financial statements.
9
<PAGE>
Liquidity and Capital Resources
Net Cash used in operating activities for the six months ended June 30,
1996 was $1,291,781 compared to $1,396,425 for the six months ended June 30,
1995. The decrease in cash used in operating activities was primarily
attributable to the reduction in outstanding notes receivable during the six
months ending June 30, 1996.
Net Cash used in investing activities for the six months ended June 30,
1996 was $323,148 compared to $151,202 for the six months ended June 30, 1995.
The increase in cash used in investing activities is primarily due to
expenditures related to the manufacturing of sofPulse devices during the six
month period ended June 30, 1996.
Net Cash provided by financing activities for the six months ended June 30,
1996 was $(140,978) compared to $4,063,640 for the six months ended June 30,
1995. This was due primarily to the paydown of $120,000 in notes payable during
the six months ended June 30, 1996, in contrast to the proceeds of the public
offering consummated in May 1995.
The Company's capital requirement's have been and will continue to be
significant. Since inception, the Company has satisfied its working capital
requirements primarily through the issuance of equity securities and loans from
stockholders. At June 30, 1996, the Company had working capital of $1,247,582.
As of June 30, 1996, the Company had outstanding warrants to purchase an
aggregate to 3,012,707 shares of Common Stock (including warrants to purchase
906,250 shares of Common Stock issued in connection with the Company's initial
public offering) at an exercise price ranging from $1.00 to $9.00 per share. In
addition, the Company had outstanding 421,950 shares of Convertible Preferred
Stock. The terms upon which the Company will be able to obtain additional
financing may be adversely affected since the holders of outstanding convertible
securities can be expected to exercise or convert them at a time when, in all
likelihood, the Company would be able to obtain any needed capital on terms more
favorable to the Company than those provided by such securities.
The Company believes, based on its currently proposed growth plans and
assumptions relating to its operations, that its available caash resources,
together with projected cash flows from operations, will not be sufficient to
satisfy its cash requirements for the foreseeable future. While the Company is
currently exploring potential financing opportunities, the Company has no
agreements with respect to any additional financing. There can be no assurance
that additional financing to fund the Company's ongoing operations will be
available on commercially reasonable terms, or at all, and the failure to obtain
any such financing could possibly require the Company to implement further cost
reduction strategies.
10
<PAGE>
Legal Proceedings
In April of 1996, an individual filed an action against one of the
Company's former customers entitled Vee Cee, et al. vs. Elite Performance
Physical Therapy, et al. in Superior Court of the State of California in the
County of Orange. The Defendant filed a cross complaint in the same court naming
the Company as the cross-defendant. The plaintiff alleges sustaining burns
during therapy administered by Elite Performance Therapy, during which the
sofPulse was used adjunctively. The Company believes it has meritorious defenses
which it will vigorously pursue. There can be no assurance of the outcome of
this action or whether it will be resolved favorably to the Company.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule.
(b) During the quarter ended June 30, 1996, the Company did not file
any reports on Form 8-K.
11
<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 thereunto authorized.
ELECTROPHARMACOLOGY, INC.
Registrant
Dated: August 9, 1996 /s/ Joseph Mooibroek
---------------------------
Joseph Mooibroek
Chief Executive Officer
Dated: August 9, 1996 /s/ Donald F. Soldatis
---------------------------
Donald F. Soldatis
Chief Financial Officer
12
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM FORM 10-QSB AT JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,313,841
<SECURITIES> 0
<RECEIVABLES> 330,688
<ALLOWANCES> 85,100
<INVENTORY> 0
<CURRENT-ASSETS> 1,878,140
<PP&E> 1,063,639
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,227,515
<CURRENT-LIABILITIES> 630,558
<BONDS> 0
0
4,220
<COMMON> 34,964
<OTHER-SE> 2,544,173
<TOTAL-LIABILITY-AND-EQUITY> 3,227,515
<SALES> 55,418
<TOTAL-REVENUES> 774,179
<CGS> 113,967
<TOTAL-COSTS> 113,967
<OTHER-EXPENSES> 471,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,815
<INCOME-PRETAX> (1,433,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,433,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,433,249)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
