FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-28034
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CardioTech International, Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3186647
- - --------------------------- ----------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
78 E Olympia Avenue, Woburn, Massachusetts 01801
- - ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 933-4772
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11 State Street, Woburn, Massachusetts
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(Former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's class of Common Stock as of
November 12, 1998 was 4,272,916. No shares were held in treasury.
CARDIOTECH INTERNATIONAL, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
September 30, 1998, and March 31, 1998 3
Condensed Consolidated Statements of Operations
September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the six months ended
September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K
Signatures 13
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
Sept. 30, 1998 March 31, 1998
-------------- --------------
ASSETS (unaudited)
Current Assets:
Cash and Cash Equivalents $ 1,458,392 $ 2,226,691
Accounts Receivables--Trade 21,997 58,707
Accounts Receivables--Other 433,328 328,318
Prepaid Expenses 92,125 26,502
----------- -----------
Total Current Assets 2,005,842 2,640,218
Property and Equipment, net 226,972 187,654
Other non-current assets 220,888 211,766
----------- -----------
Total Assets $ 2,453,702 $3,039,638
=========== ===========
Liabilities and Stockholders Equity
Current Liabilities:
Accounts Payables $ 192,132 $161,243
Accrued Expenses 326,978 435,296
----------- -----------
Total Current Liabilities 519,110 596,539
Long Term Obligations
7% convertible senior notes due 2003 1,718,608 1,660,000
10% convertible subordinated notes due 2000 430,001
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued or outstanding
Common Stock, $.01 par value; 20,000,000
shares authorized, 4,272,916 issued and
outstanding at both September 30, 1998 and
March 31, 1998, respectively 42,729 42,729
Additional Paid in Capital 8,232,579 8,232,579
Accumulated Deficit (8,491,478) (7,495,630)
Cumulative Translation Adjustment 2,153 3,421
----------- -----------
Total Stockholders' Equity (214,017) 783,099
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,453,702 $ 3,039,638
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
Research Revenue $ 245,337 $ 234,480 $ 523,680 $ 320,062
Operating Expenses
Research and Development 464,006 354,802 949,418 657,767
Selling, General and Administrative 266,246 277,512 510,421 529,881
-------------- ------------- -------------- --------------
Total Operating Expenses 730,252 632,314 1,459,839 1,187,648
Other Income and Expenses
Interest Expense (64,574) -- (104,292) --
Interest Income 20,796 22,761 44,603 49,916
-------------- ------------- -------------- --------------
(43,778) 22,761 (59,689) 49,916
Net Loss $ (528,693) $ (375,073) $ (995,848) $ (817,670)
============== ============= ============== ==============
Net Loss Per Common Share $ (0.12) $ (0.09) $ (0.23) $ (0.19)
Basic and Diluted ============== ============= ============== ==============
Basic and Diluted
Weighted Average Number of
Shares Outstanding 4,272,916 4,272,916 4,272,916 4,272,916
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CARDIOTECH INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended September 30,
1998 1997
---- ----
Cash flows from operating activities:
Net Loss $ (995,848) $ (817,670)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Interest paid by issuance of convertible
senior notes 58,608 --
Depreciation and Amortization 49,481 30,614
Changes in Assets and Liabilities
Accounts receivable (68,300) (189,566)
Prepaid expenses (65,623) (3,632)
Accounts payable 30,889 68,044
Accrued expenses (108,318) 11,647
----------- -----------
Net cash flows from operating activities (1,099,111) (900,563)
=========== ===========
Cash flows from investing activities:
Increase in non-current assets (28,713) --
Purchase of property, plant and equipment (67,440) (12,847)
----------- -----------
Net cash flows from Investing activities (96,153) (12,847)
=========== ===========
Cash flows from financing activities:
Issuance of notes payable 430,001 --
----------- -----------
Net cash flow from financing activities 430,001 --
=========== ===========
Effect of exchange rate changes on cash (3,036) (6,569)
=========== ===========
Net increase in cash and cash equivalent (768,299) (919,979)
Cash and cash equivalent at beginning of period 2,226,691 2,346,366
----------- -----------
Cash and cash equivalents at end of period $ 1,458,392 $ 1,426,387
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
CARDIOTECH INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(UNAUDITED)
1. The unaudited consolidated financial statements included herein have been
prepared by CardioTech International, Inc. ("the Company" or "CardioTech"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and include, in the opinion of management, all adjustments,
consisting of normal, recurring adjustments, necessary for a fair presentation
of interim period results. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that its disclosures are adequate to make the
information presented not misleading. The results for the interim periods
presented are not necessarily indicative of results to be expected for the full
fiscal year. It is suggested that these statements be read in conjunction with
the Company's Consolidated Financial Statements and its notes thereto, for the
year ended March 31, 1998, included in the Company's Annual Report to
shareholders.
2. Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income." This Statement
establishes standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. This Statement requires the classification of
items of comprehensive income by their nature in a financial statement and the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. Financial statements for prior periods have been restated.
The Company's total comprehensive income was as follows:
For The Three Months Ended For The Six Months Ended
September 30 September 30
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
Net income $(528,693) $(375,073) $(995,848) $(817,670)
Other comprehensive expense, net of tax:
Currency translation adjustment 18 (2,130) (1,276) (6,569)
--------- --------- --------- ---------
Total other comprehensive expense 18 (2,130) (1,276) (6,569)
--------- --------- --------- ---------
Total other comprehensive income $(528,675) $(377,203) $(997,124) $(824,239)
========= ========= ========= =========
3. The Company computes basic and diluted earnings/loss per share ("EPS") in
accordance with Statement of Financial Accountings Standards No. 128, "Earnings
Per Share", which the Company adopted on October 1, 1997. Basic earnings/loss
per share is based upon the weighted average number of common shares outstanding
during the period. Diluted earnings/loss per share is based upon the weighted
average number of common shares outstanding during the period plus additional
weighted average common equivalent shares outstanding during the period. Common
equivalent shares result from the assumed exercise of outstanding stock options
and warrants, the proceeds of which are then assumed to have been used to
repurchase outstanding common stock using the treasury stock method. Common
equivalent shares have been excluded from the computation of diluted loss per
share for all periods presented, as their effect would have been anti-dilutive.
6
The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations shown on the Consolidated Statements of
Operations:
For The Three Months Ended For The Six Months Ended
September 30 September 30
------------ ------------
1998 1997 1998 1997
------- ------- ------- -------
In thousands, except for the per share data
BASIC AND DILUTED EPS
Numerator:
Net income (loss)............................................ $ (529) $ (375) $ (996) $ (818)
------- ------- ------- -------
Denominator:
Common shares outstanding................................... 4,273 4,273 4,273 4,273
------- ------- ------- -------
Basic and Diluted EPS............................................. $ (0.12) $ (0.09) $ (0.23) $ (0.19)
------- ------- ------- -------
Options to purchase 1,045,201 and 917,146 shares of common stock outstanding
during the periods ended September 30, 1998 and 1997, respectively, were
excluded from the calculation of diluted earnings per share because the effect
of their inclusion would have been anti-dilutive.
4. SUBSEQUENT EVENT
On November 12, 1998, the Company amended its Note Purchase Agreement
("NPA") dated March 31, 1998 between the Company and Dresdner Kleinwort Benson
Private Equity Partners LP ("DKB") and issued 500,000 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") to DKB for
consideration of $500,000. The sale of the Series A Preferred Stock resulted
from the Company's achievement of a milestone set forth in the NPA. The Series A
Preferred Stock will accrue dividends from the closing date at a rate of 10.0%
per annum, payable quarterly in arrears. Dividend payments will accrue quarterly
unless DKB elects to receive the dividends in cash. At any time DKB may convert
the Series A Preferred Stock in whole or part, plus accrued and unpaid
dividends, into shares of Common Stock at the conversion price of $1.818 per
share. The conversion price is subject to a weighted anti-dilution adjustment.
The Series A Preferred Stock is redeemable in cash prior to maturity, in
whole or part at the Company's option, at 104% of the original cost of such
shares, plus accumulated and unpaid dividends, in the first year (decreasing by
1% in each of the following years), upon at least 15 business days notice.
Should the Company elect to redeem the Series A Preferred Stock in the first
year, DKB may elect to convert the Series A Preferred Stock to shares of Common
Stock at a conversion price equal to .87 (increasing in each of the following
years) times the lower of (i) the conversion price or (ii) the market price.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
CardioTech synthesizes, designs and manufactures medical-grade
polymers, particularly polyurethanes that it believes are useful in the
development of vascular graft technology and other implantable medical devices
because they can be synthesized to exhibit compatibility with human blood and
tissue. CardioTech is using proprietary manufacturing technology to develop and
fabricate small bore synthetic vascular grafts made of ChronoFlex(R), a family
of polyurethanes that has been demonstrated to be biodurable, blood and tissue
compatible and non-toxic.
In addition to the graft research and development program, since 1990
CardioTech has been engaged in various internal programs and joint venture
programs with corporate partners and internal programs for the development and
sale of ChronoFlex and other proprietary biomaterials for use in medical devices
manufactured by third parties. This activity has generated research revenues for
CardioTech.
As CardioTech is now focusing most of its research and development
resources on the vascular graft program, period to period comparisons of changes
in research revenues are not necessarily indicative of results to be expected
for any future period.
CardioTech is headquartered in Massachusetts and operates from
manufacturing and laboratory facilities located in Woburn, Massachusetts and
Brymbo, Wrexham, United Kingdom. CardioTech was spun off by PolyMedica
Industries, Inc. (PMI) in June, 1996.
8
Results of Operations:
Comparison for the Three Months Ended September 30, 1998 and 1997.
Research revenues for the quarter ended September 30, 1998 were
$245,337, compared to $234,480 for the quarter ended September 30, 1997, an
increase of $10,857, or 4.6%. This increase was primarily generated by an
increase in royalty income of $29,000 from Bard Access Systems, offset by
lower sales of research biomaterials of $17,000.
Research and development expenses for the quarter ended September 30,
1998 were $464,006, compared to $354,802 for the quarter ended September 30,
1997, an increase of $109,204, or 30.8%. This was principally the result of
increased research and development expenses related to the clinical trial
activities of the Company's vascular access graft in Europe ($67,000), increased
travel costs associated with these trials ($10,000), and increased selling costs
($32,000).
Selling, general and administrative expenses for the quarter ended
September 30, 1998 were $266,246, compared to $277,512 for the quarter ended
September 30, 1997 a decrease of $11,266 or 4.1%. This decrease was primarily
due to lower outside consultant and service charges ($14,500), lower annual
report costs ($12,200), offset by increased advertising expense ($3,000),
increased maintenance expenses ($4,500), increased travel expenses ($4,000) and
increased salary expense ($5,000).
Other income and expenses for the quarter ended September 30, 1998 were
expenses of $43,778, compared to income of $22,761 for the quarter ended
September 30, 1997. The increase in expenses primarily resulted from interest
expenses of $64,574 on outstanding loans. Interest expense for the quarter ended
September 30, 1997 was partially offset by interest income of $20,796 during the
period. In the quarter ended September 30, 1997, the Company's other income
consisted of earned interest income of $22,761.
Comparison for the Six Months Ended September 30, 1998 and 1997.
Research revenues for the six months ended September 30, 1998 were
$523,680, compared to $320,062 for the six months ended September 30, 1997, an
increase of $203,618, or 63.6%. This increase was primarily generated by higher
research revenues earned under research grants from the National Institute of
Health ("NIH")($106,000), higher sales of medical grade polyurethanes ($34,000),
and increased earned royalty income ($66,600).
Research and development expenses for the six months ended September
30, 1998 were $949,418, compared to $657,767 for the six months ended September
30, 1997, an increase of $291,651, or 44.3%. This increase was principally due
to increased costs related to the Company's vascular access graft clinical
trials in Europe ($190,000), increased travel costs associated with clinical
trials ($17,400), and increased salary and benefit expenses ($71,800).
Selling, general and administrative expenses for the six months ended
September 30, 1998 were $510,421, compared to $529,881 for the comparable period
last year, a decrease of $19,460 or 3.7%. This decrease was primarily due to
lower outside consultant ($22,500), lower annual report costs ($12,200), and
lower travel costs ($6,600). These expense decreases were partially offset by
higher salary costs ($14,700) and increased maintenance costs ($4,000).
Other income and expenses for the six months ended September 30, 1998
were expenses of $59,689, compared to income of $49,916 for the six months ended
September 30, 1997. The increase in expenses primarily resulted from interest
expenses of $104,292 on outstanding loans. Interest expense for the six months
ended September 30, 1998 was partially offset by interest income of $44,603
during the period. In the six months ended September 30, 1997, the Company's
other income consisted of earned interest income of $49,916.
9
Liquidity and Capital Resources
The Company used $1,099,111 to fund operations during the six months
ended September 30, 1998, compared to $900,563 for the six months ended
September 30, 1997. The principal uses of funds for the six months ended
September 30, 1998 were a net loss of $995,848, increases in accounts receivable
of $68,300 relating to trade customers, increases in prepaid expenses of $65,623
and the pay down of accrued expenses of $108,318. These increases were partially
offset by increases in accounts payable of $30,889.
CardioTech's future growth will depend on its ability to raise capital
to support research and development activities and to commercialize its vascular
graft technology. To date, CardioTech has not generated revenues from the sale
of vascular grafts, although it has received a minor amount of research revenues
relating to its other biomaterial sales and from the NIH to support graft
research. Since inception, funding has come from PMI, 7% Senior Convertible
Notes (the "Senior Notes") with a face value of $1,660,000 issued on March 31,
1998, and a 10% convertible loan from Freemedic in the amount of (GBP) 252,942,
(approximately $420,000). CardioTech expects to continue to incur operating
losses unless and until product sales and/or royalty payments generate
sufficient revenue to fund its continuing operations.
CardioTech will require substantial funds for further research and
development, future pre-clinical and clinical trials, regulatory approvals,
establishment of commercial-scale manufacturing capabilities, and the marketing
of its products. CardioTech's capital requirements depend on numerous factors,
including but not limited to, the progress of its research and development
programs, the progress of pre-clinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any intellectual property rights, competing
technological and market developments, changes in CardioTech's development of
commercialization activities and arrangements, and the purchase of additional
facilities and capital equipment.
CardioTech is currently conducting its operations with approximately
$1,458,000 in cash. CardioTech estimates such amount will be sufficient to fund
its working capital and research and development activities through June 1999.
However, CardioTech's spending level may increase depending on the Company's
ability to raise additional capital.
Past spending levels are not necessarily indicative of future spending
levels. From the inception of CardioTech's business through March 31, 1996, PMI
funded approximately $4.0 million in operating losses to support CardioTech's
research activities. Future expenditures for product development, especially
relating to outside testing and clinical trials, are discretionary and,
accordingly, can be adjusted based on the availability of cash.
CardioTech will seek to obtain additional funds through public or
private equity or debt financing, collaborative arrangements, or from other
sources. There can be no assurance that additional financing will be available
at all or on acceptable terms to permit successful commercialization of
CardioTech's technology and products. If adequate funds are not available,
CardioTech may be required to curtail significantly one or more of its research
and development programs, or obtain funds through arrangements with
collaborative partners or others that may require CardioTech to relinquish
rights to certain of its technologies, product candidates or products.
Subsequent Event
On November 12, 1998, the Company issued 500,000 shares of Series A
Convertible Preferred Stock to Dresdner Kleinwort Benson Private Equity
Partners LP. See note 4 of the notes to condensed consolidated financial
statements.
Exchange Listing
The Company's common stock is currently listed on the American Stock
Exchange ("AMEX") under the symbol "CTE." However, there can be no assurance
that these shares will not be delisted by the AMEX. The determination by AMEX to
delist a company is not based on a precise mathematical formula, but rather on a
review of all relevant facts and circumstances in light of the AMEX's policies.
The AMEX will normally consider delisting securities of a company which (i) has
stockholders' equity of less than $2,000,000 if such company has sustained
losses from continuing operations and/or net losses in two of its three most
recent fiscal years; or (ii) has sustained losses which are so substantial to
its overall operations or its existing financial resources, or if its financial
condition has become so impaired that it appears questionable, in the opinion of
the AMEX, as to whether such company will be able to continue operations and/or
meet its obligations as they mature. As of September 30, 1998, the Company had
stockholders' equity of negative $214,017, and had losses in all three of its
most recent fiscal years. If the Company is unable to increase its stockholders'
equity and its net losses continue, the Company may be delisted. The Company is
attempting to increase its stockholders' equity through the private placement of
its equity securities, which include the recently consummated private placement
of $500,000 of Series A Convertible Preferred Stock to DKB described in note 4
of the notes to the condensed consolidated financial statements. However, these
financing activities may not provide the Company with sufficient stockholders'
equity to avoid being delisted. Failure of the Company to maintain the listing
of its Common Stock on AMEX will constitute an event of default under the Senior
Notes and entitle DKB to demand immediate payment of the Senior Notes, as well
as result in the dividends payable under the Series A Convertible Preferred
Stock increasing from 10% to 13%. Upon such a default, actions taken by DKB may
result in a default under the Freemedic convertible loan. At this time, the
Company is unable to repay such indebtedness.
10
Forward Looking Statements
The Company believes that this Form 10-Q contains forward-looking
statements that are subject to certain risks and uncertainties. These forward-
looking statements include statements regarding the sufficiency of the Company's
liquidity and capital and the Company's intention to sell equity to raise its
stockholders' equty. Such statements are based on management's current
expectations and are subject to a number of factors that could cause actual
results to differ materially from the forward-looking statements. The Company
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements, as a result of various factors including but
not limited to the following: the Company's ability to obtain financing (with or
without the sale of equity) to support its working capital needs on acceptable
terms, the Company's ability to avoid the delisting of its Common Stock, the
timely development of products by the Company, intense competition related to
the development of synthetic grafts and difficulties inherent in developing
synthetic grafts. As a result, the Company's further development involves an
high degree of risks. For further information, refer to the more specific risks
and uncertainties discussed throughout this report.
ChronoFlex(R) is a registered trademark of PolyMedica Corporation that has
-------------
been licensed to CardioTech.
Year 2000 Compliance
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating the date sensitive software
which uses only two digits to represent the year may recognize a date using 00
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar business activities.
The Company has conducted a review of its information systems to
determine the extent of any Year 2000 problem. Based on such review, the Company
does not currently believe that it has material exposure to the Year 2000 Issue
with respect to its own information systems, since its core existing business
information systems correctly define the year 2000.
The Company is in the process of contacting its major customers in an
effort to determine the extent to which the Company may be vulnerable to those
parties' failure to timely correct their own Year 2000 problems. To date, the
Company is unaware of any situations of noncompliance that would materially
adversely affect its operations or financial condition. There can be no
assurance, however, that instances of noncompliance which could have a material
adverse effect on the Company's operations or financial condition will not be
identified; that the systems of other companies with which the Company transacts
business will be corrected on a timely basis; or that a failure by such entities
to correct a Year 2000 problem or a correction which is incompatible with the
Company's information systems would not have a material adverse effect on the
Company's operations or financial condition.
11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On November 12, 1998, the Company issued 500,000 shares of Series A
Convertible Preferred Stock to DKB. The Series A Preferred Stock has superior
liquidation rights and dividend rights than the Common Stock. The Series A
Preferred Stock will accrue dividends from the closing date at a rate of 10.0%
per annum, payable quarterly in arrears and in preference to any payments made
on any other equity securities of the Company. Dividend payments will accrue
quarterly unless DKB elects to receive the dividends in cash. Upon the
occurrence of certain triggering events, including a change of control of the
Company, the delisting of its Common Stock or a default under the Senior Notes,
the dividend rate will increase to 13%. In the event of any liquidation or
winding up of the Company, funds available for distribution will be paid first
to the holders of the Series A Convertible Preferred Stock in preference to any
payments made on any other equity securities of the Company.
The series A Convertible Preferred stock is not entitled to vote, except on
matters required by law. DKB may convert the Series A Preferred Stock, in whole
or in part, plus accrued and unpaid dividends, into shares of Common Stock (the
"Shares") at the conversion price at any time prior to maturity, upon ten days
notice. The conversion price is $1.818 and 275,027 shares of Common Stock will
initially be issuable upon conversion of the Series A Preferred Stock. The
conversion price is subject to a weighted average anti-dilution adjustment.
The Series A Convertible Preferred Stock is redeemable in cash prior to
maturity, in whole or in part, at the Company's option at 104% of the origin,
plus accumulated and unpaid dividends, in the first year (decreasing by 1% in
each of the following years), upon at least 15 business days notice. Should the
Company elect to redeem the Series A Convertible Preferred Stock in the first
year, DKB may elect to convert the Series A Convertible Preferred Stock to
shares of Common Stock at a conversion price equal to .87 (increasing in each of
the following years) times the lower of (i) the conversion price or (ii) the
market price.
The Series A Preferred Stock were issued to DKB in reliance upon an
exemption from the registration provisions of the Securities Act of 1933, as
amended, set forth in Section 4(2) thereof relative to sales by an issuer not
involving any public offering. DKB has been granted certain registration rights
for the resale of the shares which may be issued upon conversion of the Series A
Preferred Stock.
Item 4. Submission of Matters to a Vote of Security Holders
On September 3, 1998, the Company held its annual meeting of its
stockholders. The following matters were voted on at that meeting:
1. The election of Michael Barretti as a class II director.
2. The ratification of the sale of up to $2,500,000 principal amount of 7%
senior convertible notes to Dresdner, Kleinwort Benson Private Equity
Partners, LP.
3. The ratification of the appointment of PricewaterhouseCoopers as auditors
for the Company for the fiscal year ending March 31, 1999.
The following chart shows the number of votes cast for or against, as well
as the number of abstentions and board non-votes, at to each matter voted on at
the special meeting:
Broker
Matter For Against Abstain Non-votes
------ --- ------- ------- ---------
Election of Mr. Barretti 3,920,455 148,630 n/a n/a
Ratification of Sales of 7% Senior Convertible Notes 2,798,454 42,270 15,892 1,407,840
Appointment of Pricewaterhousecoopers 4,051,113 4,674 13,298 n/a
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 3.1 Certificate of Vote of Directors Establishing a
Class or Series of Stock for Series A Preferred
Stock
Exhibit 10.1 Amendment, dated as of November 12, 1998, to Note
Purchase Agreement and Registration Rights
Agreement.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
12
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.
CARDIOTECH INTERNATIONAL, INC.
/s/ Michael Szycher
---------------------------------------------
Michael Szycher, Ph.D.
Chairman and Chief Executive Officer
/s/ John E. Mattern
-----------------------------------------------
John E. Mattern
Chief Financial Officer and Chief Operating Officer
(Principal Financial and Accounting Officer)
Dated: November 16, 1998
13
Exhibit Index
Exhibit 3.1 Certificate of Vote of Directors Establishing a
Class or Series of Stock for Series A Preferred
Stock
Exhibit 10.1 Amendment, dated as of November 12, 1998, to Note
Purchase Agreement and Registration Rights
Agreement.
Exhibit 27 Financial Data Schedule