U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended February 28, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For The Transition Period from ________ to _________
Commission File Number: 0-11868
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3533362
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
(858) 535-0202
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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
---- -----
As of April 10, 2002, 46,102,212 shares of common stock and no shares of
preferred stock were outstanding.
CARDIODYNAMICS INTERNATIONAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at February 28, 2002 (unaudited)
and November 30, 2001 (audited). 3
Statements of Operations (unaudited) for the three
months ended February 28, 2002 and February 28, 2001. 4
Statements of Cash Flows (unaudited) for the three
months ended February 28, 2002 and February 28, 2001. 5
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 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CARDIODYNAMICS INTERNATIONAL CORPORATION
Balance Sheets
(In thousands, except share data)
FEBRUARY 28, NOVEMBER 30,
2002 2001
ASSETS (UNAUDITED) (AUDITED)
------------ ------------
Current assets:
Cash and cash equivalents $ 6,409 $ 6,394
Accounts receivable, net of allowance for doubtful accounts
of $1,536 in 2002 and $1,425 in 2001 6,981 7,373
Inventory, net 3,175 2,821
Current portion of long-term receivables 1,620 1,663
Other current assets 538 431
------------ ------------
Total current assets 18,723 18,682
Property and equipment, net 459 490
Long-term receivables and note receivable, net 2,168 2,259
Deposits 30 30
------------ ------------
Total assets $ 21,380 $ 21,461
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,425 $ 1,338
Accrued expenses 294 277
Accrued salaries, wages and benefits 717 903
Current maturities of long-term debt 69 69
Deferred service revenue 400 411
------------ ------------
Total current liabilities 2,905 2,998
Long-term debt, less current maturities 19 40
------------ ------------
Total liabilities 2,924 3,038
------------ ------------
Shareholders' equity:
Preferred stock; no par value; 18,000,000 shares authorized; no shares
issued or outstanding at November 30, 2001 or 2000 -- --
Common stock; no par value; 100,000,000 shares authorized; issued and
outstanding 46,069,595 shares at February 28, 2002 and 45,798,322
shares at November 30, 2001 49,449 48,786
Accumulated deficit (30,993) (30,363)
------------ ------------
Total shareholders' equity 18,456 18,423
------------ ------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 21,380 $ 21,461
============ ============
See accompanying notes to financial statements.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Statements of Operations
(Unaudited - In thousands, except share and per share data)
THREE MONTHS ENDED
FEBRUARY 28,
--------------------------------
2002 2001
------------ ------------
Net sales $ 4,366 $ 3,964
Cost of sales 1,278 1,215
------------ ------------
Gross margin 3,088 2,749
------------ ------------
Operating expenses:
Research and development 642 810
Selling and marketing 2,721 2,194
General and administrative 439 450
------------ ------------
Total operating expenses 3,802 3,454
------------ ------------
Loss from operations (714) (705)
Other income (expense):
Interest income 105 190
Interest expense (18) (13)
Other, net (3) (5)
------------ ------------
Total other income 84 172
Loss before income taxes (630) (533)
Income taxes -- (1)
------------ ------------
Net loss $ (630) $ (534)
============ ============
Net loss per share, basic and diluted $ (.01) $ (.01)
============ ============
Weighted-average number of common shares
outstanding - basic and diluted 45,932,770 45,519,710
============ ============
See accompanying notes to financial statements.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Statements of Cash Flows
(Unaudited - In thousands)
THREE MONTHS ENDED
FEBRUARY 28,
-----------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net loss $ (630) $ (534)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 70 68
Provision for warranty repairs 51 2
Provision for obsolete inventory 46 58
(Reduction in) provision for demonstration inventory (10) 25
Provision for doubtful receivables 111 75
Provision for doubtful long-term receivables 19 (81)
Compensatory stock options granted 21 14
Changes in operating assets and liabilities:
Accounts receivable 281 (1,258)
Inventory (390) (357)
Other current assets (107) (519)
Long-term receivables and note receivable 115 43
Accounts payable 87 27
Accrued expenses (34) (186)
Accrued salaries, wages and benefits (186) (115)
Deferred service revenue (11) 122
-------- --------
Net cash used in operating activities (567) (2,614)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (39) (45)
-------- --------
Net cash used in investing activities (39) (45)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt (21) (34)
Exercise of warrants and options 663 3
Issuance of common stock, net (21) (57)
-------- --------
Net cash provided (used) by financing activities 621 (88)
-------- --------
Net increase (decrease) in cash and cash equivalents 15 (2,747)
Cash and cash equivalents at beginning of period 6,394 11,595
-------- --------
Cash and cash equivalents at end of period $ 6,409 $ 8,848
======== ========
See accompanying notes to financial statements.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Notes to Financial Statements
(Unaudited)
Description of Business
CardioDynamics International Corporation ("CardioDynamics", or "The Company") is
the innovator and market leader of a breakthrough technology called Impedance
Cardiography (ICG). We develop, manufacture, and market noninvasive
heart-monitoring devices using our proprietary ICG technology, DISQ(TM) (Digital
Impedance Signal Quantifier) technology, and ZMarc(TM) algorithm.
Unlike other cardiac function monitoring technologies, our monitors are
noninvasive (without cutting into the body). The Company's BioZ(R) Systems use a
proprietary technology called impedance cardiography to obtain data in a safe,
efficient and cost-effective manner not previously available in the physician's
office and many hospital settings. Just as Electrocardiography (ECG)
noninvasively measures the heart's electrical characteristics, ICG makes it
possible to noninvasively measure the heart's mechanical characteristics. Our
strategic partners include GE Medical Systems Information Technologies
(GEMS-IT), Spacelabs Medical Systems, and Vasomedical.
Our proprietary, patented technology noninvasively monitors the heart's ability
to deliver blood to the body and the amount of fluid in the chest. Our products
measure 12 hemodynamic (blood flow) parameters, the most significant of which is
cardiac output, or the amount of blood pumped by the heart each minute. Our lead
product, the BioZ.com(R), has been cleared by the Federal Drug Administration
(FDA) and carries the CE mark. We sell to US physicians and hospitals through
our own direct sales force and distribute our products to targeted international
markets through a strategic alliance with GEMS-IT and a network of international
distributors. In November 1998, Health Care Finance Administration (HCFA), now
known as the Center for Medicare & Medicaid Services (CMS), mandated Medicare
reimbursement for our BioZ(R) procedures and in January 2001, implemented
uniform reimbursement throughout the United States.
We were originally incorporated in California in June 1980 as Bomed Medical
Manufacturing, Ltd. and in October 1993 changed our name to CardioDynamics
International Corporation.
Basis of Presentation
The information contained in this report is unaudited, but in our opinion
reflects all adjustments necessary to make the financial position and results of
operations for the interim periods a fair statement of our operations and cash
flows. All such adjustments are of a normal recurring nature. These statements
should be read along with the Financial Statements and Notes that go along with
our audited financial statements, as well as the other financial information for
the fiscal year ended November 30, 2001 as presented in our Annual Report on
Form 10-K. Financial presentations for prior periods have been reclassified to
conform to current year presentation. The results of operations and cash flows
for the three months ended February 28, 2002 are not necessarily indicative of
the results that may be expected for the full fiscal year ended November 30,
2002.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Notes to Financial Statements
(Unaudited)
Inventory
Inventory consists of the following: (in thousands)
February 28, November 30,
2002 2001
------------ ------------
Electronic components and subassemblies $ 1,697 $ 1,657
Finished goods 1,495 1,100
Demonstration units 727 773
Less provision for obsolete inventory (618) (572)
Less provision for demonstration inventory (126) (137)
------------ ------------
$ 3,175 $ 2,821
============ ============
Long-Term Receivables & Note Receivable
In our third and fourth fiscal quarters of 2000, we offered no-interest
financing of our BioZ(R) Systems with maturities ranging from 24 to 60 months.
The long-term receivables are collateralized by the systems. In the first fiscal
quarter of 2001, we established a similar program through a third-party
financing company to replace the internal financing program. We are now working
with a core group of leasing companies to provide financing options to our
customers. Under certain circumstances we continue to provide in-house
financing, although the contracts now typically include market rate interest
provisions.
Long-term receivables and note consist of the following: (in thousands)
February 28, November 30,
2002 2001
------------ ------------
Long-term receivables, net of deferred interest $ 3,958 $ 4,086
Secured note receivable 362 349
Less allowance for doubtful long-term receivables (532) (513)
------------ ------------
3,788 3,922
Less current portion of long-term receivables (1,620) (1,663)
------------ ------------
$ 2,168 $ 2,259
============ ============
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Notes to Financial Statements
(Unaudited)
Net Loss Per Share
Net loss per share is computed by dividing the net loss by the weighted-average
number of shares outstanding during the period. Diluted loss per share is
calculated by including the additional shares of common stock issuable upon
exercise of outstanding options and warrants in the weighted-average share
calculation. Basic and diluted loss per share are the same for the three-month
periods as all potentially dilutive securities are antidilutive. The following
options and warrants, each convertible into one share of common stock, were not
included in the diluted earnings per share calculation as their effect was
antidilutive.
For The Three Months Ended
February 28,
---------------------------
2002 2001
--------- ---------
Stock options... 3,998,619 3,807,004
Warrants........ 2,393,364 2,472,170
--------- ---------
Total .......... 6,391,983 6,279,174
========= =========
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS: NO ASSURANCES INTENDED
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements include statements regarding our plans, goals,
strategies, intent, beliefs or current expectations. These statements are
expressed in good faith and we believe, had a reasonable basis when expressed,
but there can be no assurance that these expectations will be achieved or
accomplished. Sentences in this document containing verbs such as "plan,"
"intend," "anticipate," "target," "estimate," "expect," etc., and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.) constitute forward-looking statements that involve risks and
uncertainties. Items contemplating, or making assumptions about, actual or
potential future sales, market size, collaborations, trends or operating results
also constitute such forward-looking statements.
Although forward-looking statements in this Report reflect the good faith
judgment of management, such statements can only be based on facts and factors
currently known by management. Consequently, forward-looking statements are
inherently subject to risks and uncertainties and actual results and outcomes
may differ materially from the results and outcomes discussed in, or anticipated
by the forward-looking statements. Factors that could cause or contribute to
such differences in results and outcomes, include without limitation, those
discussed in our Annual Report on Form 10-K for the year ended November 30,
2001. Readers are urged not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Report. We undertake no
obligation to revise or update any forward-looking statements in order to
reflect any event or circumstance that may arise after the date of this Report.
Readers are urged to carefully review and consider the various disclosures made
by us in our 10-K for the year ended November 30, 2001, which attempt to advise
interested parties of the risks and factors that may affect the our business,
financial condition, results of operations and cash flows.
The following discussion should be read along with the Financial Statements and
Notes to our audited financial statements, as well as the other financial
information for the fiscal year ended November 30, 2001.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (Continued)
OVERVIEW
Cardiovascular disease is the number one killer of men and women in the United
States and in 31 of the 35 countries reporting mortality statistics. Over
60,000,000 Americans have some form of cardiovascular disease, which includes,
high blood pressure, congestive heart failure, congenital heart defects,
hardening of the arteries, stroke and other diseases of the circulatory system.
Our proprietary ICG technology provides medical professionals in the hospital
and physician's office with noninvasive access to the objective patient data
they need to effectively assess, diagnose and treat congestive heart failure and
hypertension, and to evaluate emergency, pacemaker and dialysis patients.
Currently, the primary method used to measure hemodynamic parameters is
pulmonary artery catheterization (PAC). The invasive PAC procedure requires
hospitalization and involves an incision into the patient's neck or groin region
and the insertion of a catheter (plastic tube) through the heart directly into
the pulmonary artery. Complications associated with this procedure occur in as
many as one in four reported cases and include irregular heartbeats, infection,
pulmonary artery rupture and death.
Because of the high risk of complications, physicians generally prescribe PAC
only for critically ill patients. In the non-sterile environment of a
physician's office or outpatient clinic, PAC is simply unavailable. As a result,
in the great majority of situations, the physician seeking to diagnose
cardiovascular disease must indirectly assess the patient's hemodynamic status
by measuring blood pressure, checking the pulse, looking at neck veins and
employing subjective examination techniques that are prone to human error. A
compelling need exists for objective, noninvasive measurement tools, such as our
BioZ(R) systems.
During ICG monitoring using our BioZ(R) systems, an undetectable electrical
signal is sent through our proprietary sensors on the patient's neck and chest.
Our sophisticated DISQ(TM) technology and ZMARC(TM) algorithm analyze and record
significant hemodynamic parameters. Based on this data, a physician can quickly
and safely identify underlying cardiovascular disorder, assess and diagnose,
customize and target treatment, monitor the effectiveness of prescribed
medications and more accurately identify potential complications.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (Continued)
OVERVIEW - (Continued)
Our objective is to establish the BioZ(R) product line as a standard of care in
cardiovascular medicine. Key elements of our corporate strategy include:
. accelerate market penetration through our direct sales force;
. broaden our distribution channels through strategic relationships;
. secure additional recurring revenue through enhanced proprietary sensors;
. maintain market leadership through product improvements and extensions;
. target new market opportunities through technology development; and
. develop ICG products for home healthcare.
Our objective will be achieved if and when noninvasive cardiac output, our
primary measurement, becomes the Sixth Vital Sign(TM), as oxygen saturation
became the fifth vital sign in the mid-1980's. We intend to position ICG
technology as a key diagnostic and monitoring tool in assessing and treating
congestive heart failure, hypertension, pacemaker, emergency, critically ill,
surgical, high-risk obstetric, dialysis, cardiac rehabilitation, immune
suppressed and home healthcare patients.
RESULTS OF OPERATIONS (Quarters referred to herein are fiscal quarters ended
February 28)
Revenues - Net sales for the first fiscal quarter of 2002 were $4,366,000, an
increase of 10% over the same three-month period of fiscal 2001 in which net
sales were $3,964,000. Although we did not continue our four-year record of
sequential quarterly revenue growth, it was our 15th consecutive quarter of
year-over-year quarterly revenue growth. The increase in sales during the first
fiscal quarter of 2002 when compared to the same quarter last year can be
attributed to several factors including increased per-unit average sales price
and increased recurring revenue. Included in net sales for the first quarter of
2001 was $761,000 of sales to GEMS-IT as part of their fiscal 2001 annual
purchase commitment. During the first quarter of fiscal 2002 GEMS-IT did not
purchase any products for sale in the United States because of their existing
inventory levels, however, they did purchase 16 BioZ Systems for their United
Kingdom operations. We shipped 127 BioZ Systems during the quarter, as compared
to 156 in the same quarter last year, increasing our installed base by 43% from
one year ago to nearly 1,800 systems being used in over 1,200 customer sites.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (Continued)
RESULTS OF OPERATIONS - (Continued)
Sales by our domestic direct sales force, which target physician offices and US
hospitals, increased 23% in the first quarter of 2002 over the first quarter of
2001, primarily as a result of higher average unit sales prices. The average
price per unit sold by our direct sales force has increased for several reasons,
including: greater awareness and acceptance of ICG technology, uniform
nationwide Medicare reimbursement, inclusion of additional options, warranty and
accessories in the system price, and the absence of competitive products or
cost-effective alternative technologies. During the past several quarters, we
have continued to expand our direct sales force by hiring additional territory
managers and clinical sales specialists. During the quarter, we identified a
product performance problem unique to 43 of our newly released second-generation
BioZ systems, which began shipping during the fourth quarter 2001. Our field
sales and clinical sales personnel's productivity was impacted during the
quarter as they were required to focus on regulatory and customer management
issues until a solution was implemented later in the quarter.
Each time our BioZ products are used, disposable sets of four dual sensors are
required. Recurring sensor revenue increased 69% in first quarter of 2002 to
$547,000 (13% of sales), from $324,000 (8% of sales) in the same quarter of
2001. The BioZtect(TM) sensors for our stand-alone systems have a list price of
$9.95 per application, however customers can obtain significant sensor pricing
discounts though our auto-ship sensor program in exchange for minimum monthly
sensor purchase commitments. Sensors for the ICG Module have a list price of
$19.95. Our BioZtect(TM) sensor and cable system has a proprietary interface to
ensure that customers exclusively use the BioZtect(TM) with our BioZ systems. As
the installed base of BioZ equipment grows, we expect the revenue generated by
our disposable sensors to continue to increase.
Gross Margin - We generated $3,088,000 of gross margin in the quarter, up 12%
over the same quarter last year in which our gross margin was $2,749,000. As a
percentage of sales our gross margin was 71% in the quarter, up from 69% in the
same quarter last year. Late in the fourth quarter of fiscal 2001, we commenced
shipments of our new, re-engineered lower manufactured cost BioZ.com which has a
manufactured cost that is reduced an additional 30% over the previous generation
BioZ.com system. This direct material cost reduction, along with a higher sales
volume and higher average sales price per unit accounted for the first quarter
increase in gross margin. However, we included in our cost of goods sold
research, development and clinical expenses related to the implementation of the
manufacturing solution for the 43 second generation BioZ systems that we
voluntarily retrieved from customer sites.
Research and Development - Our research and development costs for the first
three months of fiscal 2002 decreased approximately 21% to $642,000, from
$810,000 during the first three months of fiscal 2001. Much of our research,
development and clinical resources in the latter half of the quarter were
devoted to the development and implementation of a manufacturing solution for
the 43 second generation BioZ systems that we voluntarily retrieved from
customer sites, and as such, were included as a component of cost of goods sold.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (Continued)
RESULTS OF OPERATIONS - (Continued)
Research and Development (Continued) - Even though total research and
development expenses decreased as compared with the same quarter last year, our
investment in clinical studies increased primarily as a result of our
sponsorship of two clinical studies, PREDICT, which began in late 2000 and is
scheduled to complete its first phase in late 2002, and ESCAPE-BIG, which began
in mid 2001 and is scheduled to be completed in the early part of fiscal 2003.
The larger of the two studies, PREDICT, has 21 research sites participating with
over 200 patients currently enrolled.
Selling and Marketing - Selling and marketing expenses for the first fiscal
quarter of 2002 increased $527,000 or 24% over the first quarter of 2001 with
expenses of $2,721,000 and $2,194,000, respectively. The increase was primarily
due to additional sales and marketing personnel. By the end of February 2002, we
had a total of 59 field sales employees, up from 45 at the end of February 2001,
including 39 territory managers, 8 clinical sales specialists and 5
international distribution managers.
General and Administrative - Our general and administrative cost decreased 2% in
the first three months of fiscal 2002, at $439,000, compared to $450,000 for the
first three months of fiscal 2001. As a percentage of sales, general and
administrative expenses were reduced to 10% from 11% in the prior year same
quarter. We continue to focus on ongoing cost containment in all areas of our
business with additional emphasis in the areas that are not directly related to
sales growth.
Interest Income and Expense - We recorded $105,000 of interest income in the
first quarter of fiscal 2002, down from $190,000 in the first quarter of fiscal
2001. The decrease is primarily due to fewer funds available for investment
throughout the period and lower rates of interest earned on invested funds.
Interest expense, primarily related to capital leases, for the three-month
period ending February 28, 2002 was $18,000, as compared to $13,000 for the same
three-month period last year.
Net Loss - The net loss for the first quarter of fiscal 2002 was $630,000, or
$.01 per common share, compared with $534,000, or $.01 per common share for the
first quarter of fiscal 2001. The weighted average number of common shares
outstanding during the first three months of fiscal 2002, increased by 1% over
the first quarter of last year primarily due to the exercise of stock options
and warrants in the past year.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Since May of 1999, we have raised approximately $24 million through various
private placements of common stock to institutional and accredited investors. To
date, these financings, together with the line of credit and various loans, have
provided the capital required to fund initial commercialization of our BioZ(TM)
products. In the near term, cash on hand and our line of credit will be used to
fund ongoing research and development efforts, expansion of our direct sales
force and international sales presence, capital expenditures and to meet our
working capital requirements.
Net cash used in operating activities for the three months ended February 28,
2002 was $566,000, compared with $2.6 million used in the first three months of
fiscal 2001. During the three months ended February 28, 2002, increased
purchases of inventory and the net loss from operations were the main uses of
cash in operating activities. In the first quarter of 2001, increased account
receivables, other current assets, inventory and accrued expenses comprised the
majority of the operating cash used.
For the first three months of fiscal 2002, $620,000 of cash was provided from
financing activities, primarily as a result of the exercise of stock options and
warrants during the period. For the first three months of fiscal 2001, the net
cash used in financing activities was $88,000 due to the repayment of long term
debt and for the costs associated with the issuance of common stock.
In January 1999, the Company established a secured revolving credit line with
Imperial Bank. The credit line provides for borrowings of up to $3,000,000 at
the bank's prime rate. All the assets of the Company collateralize the credit
line. In June of 2001 the line of credit was renewed and increased to $4,000,000
and has been extended through June 2002. Under the terms of the agreement, the
Company is required to maintain minimum ratios of current assets to liabilities
and not to exceed certain loss levels. The Company exceeded the maximum loss
level for the first quarter 2002, however the bank has provided us a waiver of
this covenant for the quarter. At February 28, 2002 there was no outstanding
borrowing under the line of credit.
We have operating loss carryforwards of approximately $28,000,000 for federal
income tax purposes. The Tax Reform Act of 1986 contains provisions which limit
the federal net operating loss carryforwards that can be used in any given year
in the event of specified occurrences, including significant ownership changes.
If these specified events occur we may lose some or all of the tax benefits of
these carryforwards. A valuation allowance has been recognized for the full
amount of the deferred tax asset created by these carryforwards.
Our long-term liquidity will depend on our ability to further commercialize the
BioZ(R) and other diagnostic products and to raise additional funds through
public or private financing, bank loans, collaborative relationships or other
arrangements. We can give no assurance that such additional funding will be
available on terms attractive to us, or at all.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 141, Business Combinations, and 142,
Goodwill and Other Intangible Assets, which supersedes Accounting Principles
Board Opinion 17, Intangible Assets. SFAS 141 requires that all business
combinations be accounted for under the purchase method. The statement further
requires separate recognition of intangible assets that meet one of the two
criteria, as defined in the statement. This statement applies to all business
combinations initiated after June 30, 2001. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are tested
at least annually for impairment. Separable intangible assets with defined lives
will continue to be amortized over their useful lives. The provisions of SFAS
142 will apply to goodwill and intangible assets acquired before and after the
statement's effective date, fiscal years beginning after December 15, 2001 or
the beginning of the Company's fiscal year 2003. It is not anticipated that the
adoption of the provisions of SFAS 141 and 142 will have a material impact on
our results of operations or financial position.
In August 2001, the Financial Accounting Standards Board issued SFAS 143,
Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) normal use of the asset. SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
fair value of the liability is added to the carrying amount of the associated
asset and this additional carrying amount is depreciated over the life of the
asset. The liability is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than the carrying
amount of the liability, the Company will recognize a gain or loss on
settlement. We are required to adopt the provisions of Statement No. 143 for the
quarter ending February 28, 2003. It is not anticipated the adoption of SFAS 143
will have a material effect on our results of operations and financial position.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
RECENT ACCOUNTING DEVELOPMENTS - (Continued)
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement
No. 144), which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. While Statement No. 144 supersedes Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (Statement No.
121), it retains many of the fundamental provisions of Statement No. 121,
including the recognition and measurement of the impairment of long-lived assets
to be held and used, and the measurement of long-lived assets to be disposed of
by sale. Statement No. 144 also supersedes the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion No. 30), for the disposal of a segment of a business. However, it
retains the requirement in Opinion No. 30 to report separately discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. Statement No. 144 is effective for fiscal years
beginning after December 15, 2001. It is not anticipated that the financial
impact of this statement will have a material effect on our results of
operations and financial position.
OTHER ITEMS
The Company is not a party to off-balance sheet arrangements, does not engage in
trading activities involving non-exchange traded contracts, and is not a party
to any transaction with persons or activities that derive benefits, except as
disclosed herein, from their non-independent relationships with the Company.
SUBSEQUENT EVENTS
On March 22, 2002 we announced an agreement between our company and Medtronic,
Inc. the world's leading medical technology company. The agreement provides for
the evaluation of clinical utility of our proprietary IGC technology in
optimizing the programming of Medtronic's implantable device for Cardiac
Resynchronization Therapy (CRT). The agreement also addresses the potential
integration of the BioZ ICG Module with Medtronic instrumentation.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
INTEREST RATE SENSITIVITY
The primary objective of our investment activities is to preserve principal,
while at the same time, maximize the income we receive from our investments
without significantly increasing risk. In the normal course of business, we
employ established policies and procedures to manage our exposure to changes in
the fair value of our investments. Under our current policies, we do not use
interest rate derivative instruments to manage exposure to interest rate
changes. We attempt to ensure the safety and preservation of our invested
principal funds by limiting default risks, market risk and reinvestment risk. We
mitigate default risk by investing in investment grade securities. Some of the
securities that we have invested in may be subject to market risk. This means
that a change in prevailing interest rates may cause the principal amount of the
investment to fluctuate. For example, if we hold a security that was issued with
a fixed rate equal to the then-prevailing interest rate and the prevailing
interest rate later rises, the fair value of our investment will decline. To
minimize this risk, we maintain substantially all of our portfolio of cash
equivalents in commercial paper, certificates of deposit and money market funds.
Our interest income is sensitive to changes in the general level of U.S.
interest rates, however, due to the nature of our short-term investments, we
have concluded that there is no material market risk exposure.
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
None.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements include statements regarding our plans, goals,
strategies, intent, beliefs or current expectations. These statements are
expressed in good faith and we believe had a reasonable basis when expressed,
but there can be no assurance that these expectations will be achieved or
accomplished. Sentences in this document containing verbs such as "plan,"
"intend," "anticipate," "target," "estimate," "expect," etc., and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.) constitute forward-looking statements that involve risks and
uncertainties. Items contemplating, or making assumptions about, actual or
potential future sales, market size, collaborations, trends or operating results
also constitute such forward-looking statements. These statements are only
predictions and actual results could differ materially. Certain factors that
might cause such a difference as well as other risks are detailed in the
Company's annual report on Form 10-K for the fiscal year ended November 30, 2001
and any later filed SEC reports. Any forward-looking statement speaks only as of
the date we made the statement, and we do not undertake to update the
disclosures contained in this document or reflect events or circumstances that
occur subsequently or the occurrence of unanticipated events.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: April 9, 2002 By: /s/ Michael K. Perry
-------------- -----------------------------------------
Michael K. Perry
Chief Executive Officer
(Principal Executive Officer)
Date: April 9, 2002 By: /s/ Stephen P. Loomis
-------------- -----------------------------------------
Stephen P. Loomis
Vice President, Finance,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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