SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
X
________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR
________ 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7578
ELECTRO-CATHETER CORPORATION
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1733406
(State of Incorporation) (I.R.S. Employer ID Number)
2100 Felver Court, Rahway, New Jersey 07065
--------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No. Including Area Code: 908-382-5600
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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
6,347,345 shares of Common stock, $.10 par value as of January 9, 1996.
ELECTRO-CATHETER CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited):
Condensed Comparative Balance Sheets
November 30, 1995 and August 31, 1995 1
Condensed Comparative Statements of Operations -
Three Months Ended November 30, 1995
and November 30, 1994 2
Condensed Comparative Statements of Cash Flows -
Three Months Ended November 30, 1995
and November 30, 1994 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 5 - 7
PART II. OTHER INFORMATION
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 7
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE BALANCE SHEETS
(Unaudited)
November 30, 1995 and August 31, 1995
November 30 August 31
1995 1995
----------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 95,423 304,385
Accounts receivable, net 1,205,489 1,206,288
Inventories
Finished goods 1,068,275 938,224
Work-in-process 657,362 644,957
Materials and supplies 520,537 509,898
--------- --------
Total inventories 2,246,174 2,093,079
Prepaid expenses and
other current assets 71,591 43,030
---------- ----------
Total current assets 3,618,677 3,646,782
Property, plant and equipment, net 577,236 598,787
Other assets, net 125,468 135,947
---------- ---------
Total assets 4,321,381 4,381,516
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of subordinated
debentures due to T-Partneership 75,000 -
Current installments of long-term debt - 13,055
Accounts payable and accrued expenses 947,229 1,128,310
-------- -----------
Total current liabilities 1,022,229 1,141,365
Subordinated debentures due to
T-Partnership, excluding current
installments 1,425,000 1,200,000
--------- ---------
Total liabilities 2,447,229 2,341,365
--------- ---------
Stockholders' equity:
Common stock 634,734 633,630
Additional paid-in capital 10,625,929 10,615,298
Accumulated deficit (9,386,511) (9,208,777)
----------- -----------
Total stockholders' equity 1,874,152 2,040,151
--------- ---------
Total liabilities and stockholders'
equity $ 4,321,381 4,381,516
========= =========
See accompanying notes to condensed financial statements.
1
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
November 30,
1995 1994
---- ----
Net sales $ 1,825,993 1,626,721
Cost of goods sold 894,897 876,685
------- -------
Gross profit 931,096 750,036
Operating expenses:
Selling, general and administrative 788,036 709,184
Research and development 277,336 231,434
------- -------
Operating loss (134,276) (190,582)
Other income (expenses):
Interest income 86 305
Interest expense (43,544) (28,294)
------- -------
Net loss $ (177,734) (218,571)
======== ========
Net loss per common share $ (0.03) (0.04)
===== =====
Dividends per share None None
Weighted average shares outstanding 6,344,584 5,762,324
See accompanying notes to condensed financial statements.
2
ELECTRO-CATHETER CORPORATION
CONDENSED COMPARATIVE STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
November 30,
1995 1994
---- ----
Increase (decrease) in cash:
Cash flows from operating activities:
Cash received from customers $ 1,814,777 1,718,826
Cash paid to vendors and employees (2,260,223) (1,922,860)
Interest received 86 305
Interest paid (41,461) (20,996)
------ -------
Net cash used in operating activities (486,821) (224,725)
Cash flows from investing activities:
Cash purchases of property, plant and
equipment (9,086) (4,739)
------ ------
Net cash used in investing activities (9,086) (4,739)
------ -------
Cash flows from financing activities:
Proceeds from loan and warrants
from T-Partnership 300,000 125,000
Repayment of debt (13,055) (4,390)
------- -------
Net cash provided by financing activities 286,945 120,610
------- -------
Net decrease in cash (208,962) (108,854)
Cash at beginning of period 304,385 376,388
------- -------
Cash at end of period $ 95,423 267,534
====== =======
Net loss $ (177,734) (218,571)
Adjustments:
Depreciation 30,637 34,857
Amortization 2,083 7,298
Changes in assets and liabilities:
Decrease in accounts receivable, net 799 92,105
Increase in inventories (153,095) (107,968)
(Increase) decrease in prepaid
expenses and other current assets (28,561) 20,569
Decrease (increase) in other assets 8,396 (1,145)
Decrease in accounts payable and accrued expenses (169,346) (51,870)
-------- -------
Net cash used in operating activities $ (486,821) (224,725)
======== ========
See accompanying notes to condensed financial statements.
3
ELECTRO-CATHETER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position of
Electro-Catheter Corporation as of November 30, 1995, the results of operations
for the three months ended November 30, 1995 and November 30, 1994 and
statements of cash flows for the three months ended November 30, 1995 and
November 30, 1994, but are not necessarily indicative of the results to be
expected for the full year.
These statements should be read in conjunction with the Company's Annual
Report to the Securities and Exchange Commission on Form 10-K for the fiscal
year ended August 31, 1995.
Note 2 Subordinated Debentures
The Company and the T-Partnership, to whom the Company has had an
indebtedness of $1,500,000, agreed in January 1996 to a restructuring of their
financing agreement. The T-Partnership has advanced an additional $100,000 to
the Company and has agreed to defer all interest payments due from the Company
for a period of three months (interest payments to be added to outstanding
principal on the T-Partnership indebtedness). The assets of the Company will
secure these new advances and will continue to secure preexisting indebtedness
due from the Company to the T-Partnership. In exchange for these advances, the
Company has agreed that if it is not in compliance with certain financial
covenants, to be tested on a monthly basis, the T-Partnership may declare an
Event of Default and accelerate repayment of indebtedness. The Company is
currently in compliance with this covenant. The T-Partnership indebtedness
otherwise is to be repaid in equal monthly payments from September 1, 1996
through August 1, 2001.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Net sales for the three months ended November 30, 1995 increased $199,272
(12.2%) as compared to the three months ended November 30, 1994. Total domestic
sales increased $41,746 (3.4%) and international sales increased $157,526
(35.6%) for the three months ended November 30, 1995 as compared to the same
period in the prior year. The increase in domestic sales is attributed to
shipments to an OEM customer for a special-design catheter and higher volume in
the northeast region previously handled by a distributor. The increase in sales
in the northeast region is also a result of the increase in the selling prices
which now exclude the distributor discount. This sales increase was partially
offset by declines in the other regions. International sales reflects the
increase in the Company's traditional as well as electrophysiology products.
The Company continues to investigate other potential opportunities for
increased sales, including alignment with buying groups and increasing the
Company's OEM business. Also, the Company continues to devote a significant
portion of its engineering and sales activities to electrophysiology. However,
there can be no assurance that the Company will be successful in its efforts to
increase sales.
Gross profit dollars increased $181,060 (24.1%) for the three months ended
November 30, 1995 as compared to the three months ended November 30, 1994. This
increase is primarily attributed to the increase in operating yields and volume.
The gross profit percentages for the three months ended November 30, 1995 and
November 30, 1994 were 51.0% and 46.1%, respectively. Gross profit for this past
quarter was also favorably impacted by the increase in sales in the northeast
region as a result of selling directly to hospitals as well as sales not
including the distributor discount. In December 1995, the Company reduced its
manufacturing staff as a result of lower than anticipated product demand.
Selling, general and administrative expenses increased $78,852 (11.1%) for
the three month period ended November 30, 1995 as compared to the same period in
the prior year. This increase is primarily attributed to a rise in selling
expenses associated with the addition of new sales representatives to cover the
territory previously represented by a distributor and the addition of an
International Marketing Manager. This increase was partially offset by lower
administrative costs.
Research and development expenditures increased $45,902 (19.8%) for the
three months ended November 30, 1995 as compared to the three months ended
November 30, 1994. The increase is attributed to an increase in personnel and
purchases of research and development materials.
Interest expense increased as a result of increased borrowings from the
T-Partnership.
5
The net loss for the three months ended November 30, 1995 was $177,734 or
$.03 per share as compared to a loss of $218,571 or $.04 per share for the three
months ended November 30, 1994.
Liquidity and Capital Resources
Working capital decreased $91,031 to $2,596,448 from August 31, 1995. The
current ratio was 3.5 to 1 at November 30, 1995 as compared to 3.2 to 1 at
August 31, 1995. Net cash used in operating activities was $486,821 for the
first three months of fiscal year 1996 as compared to $224,725 for the first
three months of fiscal year 1995, primarily as a result of the loss from
operations, increase in inventories and decrease in current liabilities. During
the first three months of fiscal year 1996, the Company was able to satisfy its
cash shortfall from operating activities with the borrowings from the
T-Partnership and cash on hand. The Company continues to devote significant
resources to the development of new products and sales activities.
On August 31, 1995, the Company entered into an agreement with the
T-Partnership to borrow an additional $500,000 and combine such loan with the
original $1,000,000 for a total loan due to the T-Partnership of $1,500,000. The
T-Partnership agreed to lend the Company $200,000 on the execution of the
agreement and, at the Company's request, an additional sum of $300,000. As of
November 30, 1995, the Company had borrowed all of the $500,000. The rate of
interest is 12% per annum and is payable monthly on any outstanding balance.
Principal payments of $20,000 were scheduled to commence on September 1, 1995
for the original $1,000,000. However, the new agreement provides for repayment
to begin on September 1, 1996 with installments of $25,000 each month. Any
remaining balance is due on August 1, 2001. The loan is secured by the Company's
property, building, accounts receivable, inventories and machinery and
equipment. The Company must prepay the outstanding balance in the event the
Company is merged into or consolidated with another corporation or the Company
sells all or substantially all of its assets. Ervin Schoenblum, the Company's
Acting President and director and another member of the Company's Board of
Directors are members of the T-Partnership.
Under the provisions of the original agreement, the T-Partnership was
granted purchase warrants which permitted the T-Partnership to purchase 166,667
shares of the Company's common stock at a price of $3.25 per share. The new
agreement states that the T-Partnership will surrender its original purchase
warrant to purchase 166,667 shares of common stock and be granted a new purchase
warrant to purchase 500,000 shares of the Company's common stock at a price of
$0.9875 per share. The warrants are immediately exercisable.
The Company and the T-Partnership, to whom the Company has had an
indebtedness of $1,500,000, agreed in January 1996 to a restructuring of their
financing agreement. The T-Partnership has advanced an additional $100,000 to
the Company and has agreed to defer all interest payments due from the Company
for a period of three months (interest payments to be added to outstanding
principal on the T-Partnership indebtedness). The assets of the Company will
secure these new advances and will continue to secure preexisting indebtedness
due from the Company to the T-Partnership. In exchange for these advances, the
Company has agreed that if it is not in compliance with certain financial
covenants, to be tested on a monthly basis, the T-Partnership may declare an
Event of Default and accelerate repayment of indebtedness. The Company is
currently in compliance with this covenant. The T-Partnership indebtedness
otherwise is to be repaid in equal monthly payments from September 1, 1996
through August 1, 2001.
6
The Company's ability to continue in business is dependent upon its ability
to generate sufficient cash flow from operations or to obtain additional
financing. The Company continues to re-evaluate its plans and adopt certain cost
reduction measures. In December, 1995, the Company reduced its manufacturing
staff as a result of lower than anticipated product demand. The Company is also
attempting to increase sales by examining and, where appropriate, modifying its
distribution network, utilizing aggressive pricing and introducing new products
to market.
Inflation did not have a material impact on the results of the Company's
operations for the three months ended November 30, 1995.
Part II. Other Information
Item 5. Other Information
Dr. Robert I. Bernstein and Michael Bernstein, M.D. have recently resigned
from the Board of Directors for health reasons. The Company will consider
adding, on a timely basis, one or more members to the Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
None.
Reports on Form 8-K
None.
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 duly authorized.
ELECTRO-CATHETER CORPORATION
/s/Ervin Schoenblum
Date: January 16, 1996 Ervin Schoenblum
Acting President and
Chief Operating Officer
/s/Joseph P. Macaluso
Date: January 16, 1996 Joseph P. Macaluso
Chief Financial Officer
7