UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2003
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-28260
EP MEDSYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-3212190
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
575 Route 73 N. Building D, West Berlin, New Jersey 08091
(Address of principal executive offices) (Zip Code)
(856) 753-8533
(Issuer's telephone number)
Check whether the issuer (1) has 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)
been subject to such filing requirements for the past 90 days. X Yes ___No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. ___ Yes ___ No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at August 1, 2003
Common Stock, without par value 18,544,490 shares
Transitional Small Business Disclosure Format (check one): Yes__ No X
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB
CONTENTS
PART I -- FINANCIAL INFORMATION Page
-----------
Item 1. Financial Statements.
Consolidated Balance Sheets at June 30, 2003
(unaudited) and December 31, 2002 3
Consolidated Statements of Operations for three months
ended June 30, 2003 and 2002 (unaudited) 4
Consolidated Statements of Operations for the six
months ended June 30, 2003 and 2002 (unaudited) 5
Consolidated Statements of Changes in Shareholders' Equity for the
six months ended June 30, 2003 (unaudited)
6
Consolidated Statements of Cash Flows for the six
months ended June 30, 2003 and 2002 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis or Plan of
Operation. 15
Item 3. Controls and Procedures. 20
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings. 21
Item 2. Changes in Securities. 21
Item 3. Defaults Upon Senior Securities. 21
Item 4. Submission of Matters to a Vote of Security Holders. 21
Item 5. Other Information. 21
Item 6. Exhibits and Reports on Form 8-K. 21
Signatures 23
Exhibit Index 24
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 2003 December 31,
(unaudited) 2002
-------------------- -----------------
Current assets:
Cash and cash equivalents $ 1,834,844 $ 2,012,809
Accounts receivable, net of allowances for doubtful
accounts of $98,600 1,809,793 3,438,980
Inventories, net of reserves 2,219,835 2,037,100
Prepaid expenses and other current assets 314,606 361,782
Deferred tax asset, net of valuation allowance -- 438,000
-------------------- -----------------
-------------------- -----------------
Total current assets 6,179,078 8,288,671
Property, plant and equipment, net 1,929,236 2,250,327
Intangible assets, net 352,378 358,282
Other assets 17,463 31,198
-------------------- -----------------
Total assets $ 8,478,155 $ 10,928,478
==================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Promissory note payable $ -- $ 995,585
Current portion of notes payable 2,700,000 --
Accounts payable 1,110,035 2,586,050
Accrued expenses 1,145,780 623,681
Deferred warranty revenue and prepaid rent income 128,308 223,245
-------------------- -----------------
Total current liabilities 5,084,123 4,428,561
Accrued interest on long term debt - non-current -- 520,162
Deferred warranty revenue - non-current 411,920 326,773
Notes payable -- 3,950,000
-------------------- -----------------
Total liabilities $ 5,496,043 $ 9,225,496
-------------------- -----------------
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized, 373,779 shares issued and outstanding at
June 30, 2003 and December 31, 2002, respectively
618,161 618,161
Common stock, $.001 stated value, 25,000,000 shares authorized,
18,370,758 and 15,098,736 shares issued and outstanding at
June 30, 2003 and December 31, 2002, respectively
18,370 15,099
Additional paid-in capital 37,601,548 32,372,087
Accumulated other comprehensive (loss) income (95,085) 613
Treasury stock (100,000) --
Receivable from officer -- (100,000)
Accumulated deficit (35,060,882) (31,202,978)
-------------------- -----------------
Total shareholders' equity 2,982,112 1,702,982
-------------------- -----------------
Total liabilities and shareholders' equity $ 8,478,155 $ 10,928,478
==================== =================
The accompanying notes are an integral part of this statement.
3
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
June 30, June 30,
2003 2002
--------------------- -------------------
--------------------- -------------------
Net sales $ 2,338,432 $ 3,095,109
Cost of products sold 1,102,613 1,302,737
--------------------- -------------------
--------------------- -------------------
Gross profit 1,235,819 1,792,372
Operating costs and expenses:
Sales and marketing expenses 1,287,956 1,085,210
General and administrative expenses 549,155 461,476
Research and development expenses 590,804 832,265
Mortgage conversion expense 222,084 --
--------------------- -------------------
Loss from operations (1,414,180) (586,579)
Interest expense, net (53,894) (52,680)
Other income, net -- 5,194
--------------------- -------------------
--------------------- -------------------
Net loss $ (1,468,074) $ (634,065)
==================== ===================
==================== ===================
Basic and diluted loss per share $ (0.08) $ (0.04)
==================== ===================
==================== ===================
Weighted average shares outstanding used
to compute basic and diluted loss per share 18,160,652 14,838,377
===================== ===================
The accompanying notes are an integral part of these statements.
4
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Six Months Ended
June 30, June 30,
2003 2002
--------------------- -------------------
--------------------- -------------------
Net sales $ 4,628,948 $ 6,084,084
Cost of products sold 2,264,714 2,527,926
--------------------- -------------------
--------------------- -------------------
Gross profit 2,364,234 3,556,158
Operating costs and expenses:
Sales and marketing expenses 2,605,842 2,193,456
General and administrative expenses 1,092,391 1,038,698
Research and development expenses 1,184,062 1,557,912
Mortgage conversion expense 222,084 --
--------------------- -------------------
Loss from operations (2,740,145) (1,233,908)
Interest expense, net (117,759) (107,144)
Interest expense, debt conversion (1,000,000) --
--------------------- -------------------
Other income, net -- 5,370
--------------------- -------------------
--------------------- -------------------
Net loss $ (3,857,904) $ (1,335,682)
==================== ===================
==================== ===================
Basic and diluted loss per share $ (0.22) $ (0.09)
==================== ===================
==================== ===================
Weighted average shares outstanding used
to compute basic and diluted loss per share 17,398,394 14,673,804
===================== ===================
The accompanying notes are an integral part of these statements.
5
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(unaudited)
Accumulated Receivable
Other from
Common Common Preferred Preferred Additional Comp- Officer/
Stock Stock Stock Stock Paid-in rehensive Treasury Accumulated
Shares Amount Shares Amount Capital Income Stock Deficit Total
---------- -------- --------- --------- ------------ ------------ ------------ --------------- -----------
Balance, December 31,
2002 15,098,736 $15,099 373,779 $618,161 $32,372,087 $613 $(100,000) $ (31,202,978) $1,702,982
----------- -------- --------- --------- ------------ ------------ ------------ --------------- -----------
Issuance of common
stock in connection
with joint development
contract, net of
offering costs 669,313 669 -- -- 984,317 -- -- -- 984,986
Issuance of common
stock in private
placement including
conversion of
promissory note, net of
offering costs 2,007,475 2,007 -- -- 2,071,155 -- -- -- 2,073,162
Conversion of
convertible promissory
bridge notes,
beneficial conversion
feature -- -- -- -- -- 1,000,000 -- -- 1,000,000
Foreign currency
translation -- -- -- -- -- (95,968) -- -- (95,698)
Issuance of common 202,500
stock in private
placement, net of
offering costs 120,000 120 -- -- 202,380 -- -- --
Issuance of common 972,084
stock in connection
with conversion of
mortgage to equity
including non-cash debt
conversion costs of
$222,084 475,234 475 -- -- 971,609 -- -- --
Net Loss -- -- -- -- -- -- -- (3,857,904) (3,857,904)
----------- -------- --------- --------- ------------ ------------ ------------ --------------- -----------
Balance, June 30, 2003 18,370,758 $18,370 373,779 $618,161 $37,601,548 $(95,085) $(100,000) $(35,060,882) $2,982,112
=========== ======== ========= ========= ============ ============ ============ =============== ===========
The accompanying notes are an integral part of these statements.
6
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
June 30, June 30,
2003 2002
------------------ ------------------
------------------ ------------------
Cash flows from operating activities:
Net loss $ (3,857,904) $ (1,335,682)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 380,235 344,828
Interest expense. debt conversion 1,000,000 --
Mortgage conversion expense 222,084 --
Compensation expense related to employee agreement -- 27,000
Changes in assets and liabilities:
Decrease in accounts receivable 1,629,187 739,192
Increase in inventories (148,499) (301,502)
Decrease (increase) in prepaid expenses and other current assets 47,176 (115,839)
Decrease in deferred tax asset 438,000 474,688
Decrease (increase) in other assets 13,735 (5,437)
Decrease (increase) in accounts payable (1,476,015) 121,972
Decrease in accrued expenses, deferred revenue, and accrued
interest (7,877) (138,218)
------------------ ------------------
------------------ ------------------
Net cash used in operating activities $ (1,759,878) $ (188,998)
------------------ ------------------
------------------ ------------------
Cash flows from investing activities:
Capital expenditures (80,936) (94,290)
Patent costs (6,540) (7,311)
------------------ ------------------
------------------ ------------------
Net cash used in investing activities $ (87,476) $ (101,601)
------------------ ------------------
------------------ ------------------
Cash flows from financing activities:
Payments under term notes payable (500,000) (436,111)
Proceeds from issuance of common stock, net of offering expenses
2,265,087 -
------------------ ------------------
------------------ ------------------
Net cash provided by (used in) financing activities $ 1,765,087 $ (436,111)
------------------ ------------------
------------------ ------------------
Effect of exchange rate changes (95,698) (5,851)
------------------ ------------------
Net decrease in cash and cash equivalents (177,965) (732,561)
Cash and cash equivalents, beginning of period 2,012,809 2,343,303
------------------ ------------------
Cash and cash equivalents, end of period $ 1,834,844 $ 1,610,742
================== ==================
-================= ==================
The accompanying notes are an integral part of these statements.
7
EP MEDSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States for interim financial information and in accordance with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
financial information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (including normal recurring adjustments) considered necessary for a
fair presentation have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
The results of operations for the respective interim periods are not
necessarily indicative of the results to be expected for the full year. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in EP MedSystems, Inc.'s (the "Company" or "EP MedSystems")
Annual Report on Form 10-KSB for the year ended December 31, 2002 filed with the
Securities and Exchange Commission (the "SEC" or the "Commission").
Note 2. Inventories
Inventories are valued at the lower of cost or market with cost being
determined on a first-in, first-out basis. Inventories at June 30, 2003 consist
of the following:
Raw materials $ 1,059,254
Work in process 590,937
Finished goods 705,344
Reserve for obsolescence (135,700)
-------------
$ 2,219,835
=============
Note 3. Notes Payable
The Company has outstanding a $2.7 million note payable to Medtronic Asset
Management, Inc., an affiliate of Medtronic, Inc. ("Medtronic"), one of EP
MedSystems' shareholders. On March 12, 2003, Medtronic agreed to an extension of
the due date of this Note from November 15, 2003 to April 1, 2004. In connection
with that extension, the Company agreed to increase the interest rate by 1% to
the prime rate plus 3% per annum and to prepay up to $1 million of the principal
amount of the note, contingent upon receipt of certain equity proceeds. The note
is collateralized by a pledge by David Jenkins, the Chairman of the Board of the
Company, of shares of common stock of a privately-held corporation owned by him.
8
On November 21, 2002, the Company entered into a mortgage on its facility
in West Berlin, New Jersey and received $750,000 in exchange for issuing
promissory notes for that aggregate amount. Interest on the promissory notes is
payable quarterly at 8% per annum and the promissory notes are collateralized by
the building. The promissory notes are convertible into common stock of the
Company, at the option of the holder of the promissory notes over their three
- -year term, as follows:
- November 21, 2002 through December 31, 2003 convertible at $2.14 per share
- January 1, 2004 through December 31, 2004 convertible at $2.50 per share
- January 1, 2005 through December 31, 2005 convertible at $3.00 per share
On April 2, 2003, the holders of the mortgage notes which are secured by
the $750,000 mortgage on EP MedSystems' facility in West Berlin, converted an
aggregate of $375,000 of the mortgage notes into 300,000 shares of common stock
of EP MedSystems. In connection with the conversion, the Company reduced the
conversion price from $2.14 per share to $1.25 per share, which resulted in the
recording of a non-cash mortgage conversion charge of $222,084. On June 30,
2003, the holders of the mortgage notes converted the final portion of the
mortgage notes into 175,234 shares of common stock at a conversion price of
$2.14 as stated in the agreement.
On December 30, 2002, the Company issued convertible promissory bridge
notes, in an aggregate amount of $1,000,000, to EGS Private Healthcare
Partnership L.P. and EGS Private Healthcare Counterpart L.P. (the "EGS
Entities"). The maturity date of those promissory notes was June 30, 2003, and
interest accrued at 10% per annum, payable upon maturity. In connection with
that financing, the Company issued warrants to the EGS Entities to purchase an
aggregate of 50,000 shares of the common stock of the Company at 105% of the
closing trading price of its common stock on December 30, 2002. On January 31,
2003, the Company issued common stock in a private placement. The entire
principal amount of the promissory notes issued to the EGS Entities and all
accrued and unpaid interest thereon were converted into 819,783 shares of common
stock and warrants to purchase 327,913 shares of the common stock of the Company
in and on the same terms as the private placement. In connection with the
conversion, the warrants to purchase 50,000 shares of common stock issued to the
EGS Entities on December 30, 2002 were cancelled and the Company recorded a
$1,000,000 non-cash charge in connection with the conversion. The charge is for
interest expense in connection with the conversion of the convertible promissory
bridge notes as a result of certain beneficial conversion features and the
intrinsic value of embedded conversion options within the promissory notes. A
managing member of the EGS Entities is also a member of the Board of Directors
of the Company.
EP MedSystems entered into a financing arrangement with a bank in March
1999, consisting of a $2,000,000 revolving line of credit and a $500,000 term
loan, collateralized by EP MedSystems' facility in West Berlin, New Jersey and
the machinery, equipment and inventory located at the facility. EP MedSystems
borrowed approximately $2,000,000 under the revolving line of credit, which was
subsequently repaid with the proceeds of the Medtronic note payable discussed
above. The related term loan was repaid in March 2002.
9
Note 4. Shareholder's Equity
Preferred Stock
On October 23, 2001, EP MedSystems consummated the private sale and
issuance of newly-designated Series A convertible preferred stock to Medtronic,
a shareholder and creditor of EP MedSystems, and Century Medical, Inc. ("CMI"),
EP MedSystems' Japanese distributor. An aggregate of 1,259,717 preferred shares
were issued in those transactions. On December 31, 2001, each preferred share
became convertible into one share of EP MedSystems common stock, at the option
of the holder. The transaction with CMI involved the sale of the shares of
preferred stock at a price of $2.048 per share, as well as an amendment to EP
MedSystems' Distribution Agreement with CMI. The transaction with Medtronic
involved the sale of preferred stock at a price of $1.781 per share. EP
MedSystems received aggregate gross proceeds of $2,400,000 from those two
transactions. The preferred stock is recorded in shareholders' equity, net of
issuance costs. In the first quarter of 2002, CMI converted all of its 585,938
shares of preferred stock into an equal number of shares of EP MedSystems'
common stock. In the second quarter of 2002, Medtronic converted 300,000 of its
shares of preferred stock into an equal number of EP MedSystems' common stock.
The remaining 373,779 preferred shares held by Medtronic are currently
convertible into 387,946 common shares of the Company.
Common Stock
On September 5, 2002, EP MedSystems entered into a stock purchase agreement
and license agreement with Boston Scientific Corporation ("BSC") in connection
with a strategic joint development project. The agreement provides that if EP
MedSystems abandons the project without cause, an abandonment fee of $1 million
in cash or EP MedSystems stock would be payable to BSC. Following the completion
of the development, EP MedSystems will have marketing rights to the technology
and pay royalties to BSC based on the market value of the technology at the time
of sale. The stock purchase agreement with BSC allows for the sale of up to
$3,000,000 of common stock based on the achievement by the Company of milestones
in the development of certain cardiac electrophysiology technology. The common
stock is sold at the lesser of the ten-day trailing average trading price per
share prior to the closing of each installment purchase, and $5.00 per share.
Upon signing of the agreement, EP MedSystems received $500,000 for 210,084
shares issued at the ten-day trailing average trading price of $2.38 per share.
On February 4, 2003, the Company issued 311,915 shares of common stock in
exchange for $500,000. These shares were registered for resale on Form S-3 on
April 2, 2003. On April 21, 2003, the Company issued 357,398 shares of common
stock in exchange for another payment of $500,000. Subsequent to the end of the
second quarter, the Company issued 173,732 shares of common stock in exchange
for another payment of $500,000.
On January 31, 2003, the Company completed a $2,470,000 private placement
of its common stock to various accredited investors. The Company issued
2,007,475 shares of its common stock for a purchase price of $1.23 per share and
warrants to purchase 802,990 shares of common stock at an exercise price per
share of 110% of the closing trading price on the date of closing of that
transaction, or $1.6943. In the private placement, the Company received
approximately $1,570,000 in cash, net of offering costs. The balance of the
private placement included the conversion of the entire principal amount of, and
accrued interest on, the promissory notes from the EGS Entities into common
stock of the Company and the securities issued in that private placement were
issued on the same terms and conditions as those of the other investors. In
connection with that conversion, the 50,000 warrants issued to the EGS Entities
on December 30, 2002 were cancelled and the Company recorded a $1,000,000
non-cash charge in connection with the conversion. The charge is for interest
conversion expense associated with certain beneficial conversion features and
the intrinsic value of embedded conversion options within the promissory notes.
With prior notice to the holders of the warrants, the warrants may be
repurchased by the Company at $.01 per warrant at any time after the average
closing price of the Company's common stock, for any twenty consecutive trading
days, has equaled or exceeded $2.54. Subsequent to the end of the second quarter
the closing price requirement for repurchase of the warrants was met, and notice
to repurchase the warrants was given to the warrant holders by the Company on
July 23, 2003.
10
On April 4, 2003, the principal amount of, and all accrued and unpaid
interest on, the note receivable from a Company officer were repaid by that
officer through return to treasury of the 50,000 shares of common stock to the
Company which collateralized that loan. The market price of the Company's common
stock on the date of such return was $2.08. The shares are recorded on the
balance sheet under the caption "Treasury stock."
On April 11, 2003, the Company completed a $210,000 private placement of
its common stock with various accredited investors. The Company issued 120,000
shares of its common stock for a purchase price of $1.75 per share.
Note 5. Sale of State Net Operating Losses
During the six months ended June 30, 2003 and 2002, EP MedSystems received
approximately $438,000 and $475,000, respectively, from the sale of a portion of
its cumulative unused New Jersey State Net Operating Loss ("State NOL")
carryforwards for its statutory subsidiaries. The sales of the cumulative net
operating losses are a result of a New Jersey State law enacted January 1, 1999
allowing emerging technology and biotechnology companies to transfer or "sell"
their unused State NOL carryforwards and New Jersey research and development tax
credits to any profitable New Jersey company qualified to purchase them for
cash. As of December 31, 2002 and 2001, EP MedSystems had recorded approximately
$438,000 and $475,000, respectively, in deferred tax assets related to these
sales. These deferred tax assets were realized upon receipt of cash from the
sales of these benefits to third parties in the six months ended June 30, 2003
and 2002.
Note 6. Industry Segment and Geographic Information
EP MedSystems manages its business based on one reportable segment, the
manufacture and sale of cardiac electrophysiology products. EP MedSystems' chief
operating decision-makers use consolidated results to make operating and
strategic decisions.
The following table sets forth product sales by geographic segment for the
six months ended June 30, 2003 and 2002.
For The Six Months
Ended June 30,
2003 2002
United States $2,756,000 $3,705,000
Europe/Middle East 1,235,000 1,309,000
Asia and Pacific Rim 638,000 1,070,000
$4,629,000 $6,084,000
11
Sales of EP MedSystems' cardiac electrophysiology equipment and related
catheters aggregated approximately $4,081,000 and $548,000 respectively, for the
six months ended June 30, 2003, and $5,487,000 and $597,000, respectively, for
the comparable period in 2002. EP MedSystems' long-lived assets are primarily
located in the U.S.
Net sales for the three months ended June 30, 2003 were billed in two
currencies: $4,483,000 in U.S. dollars and the equivalent of $146,000 in Euros.
Management has determined the impact of foreign currency risk on sales to be
minimal since a majority of sales are billed in U.S. dollars. EP MedSystems does
incur translation gains/losses, which are recorded in shareholders' equity.
Cumulative translation losses amounted to approximately $96,000 as of June 30,
2003. EP MedSystems had not entered into any derivative financial instruments
for hedging or other purposes.
Note 7. Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of
shares of common stock outstanding for the period. Due to the losses incurred
for the quarter, diluted net loss per share does not differ from basic net loss
per share, since potential shares of common stock issuable upon the exercise of
stock options, warrants, convertible preferred shares, and convertible debt are
anti-dilutive for all periods presented. Accordingly, potential common shares of
approximately 4,062,000 and 3,054,000 for the six months ended June 30, 2003 and
2002, respectively, have been excluded from the diluted per share calculation.
Note 8. Comprehensive Income
For the three and six months ended June 30, 2003 and 2002, EP MedSystems'
comprehensive loss approximated net loss, except for foreign currency
translation adjustments. The comprehensive losses for the three months ended
June 30, 2003 and 2002 were approximately $1,537,000 and $584,000, respectively.
The comprehensive losses for the six months ended June 30, 2003 and 2002, were
approximately $3,954,000 and $1,342,000, respectively.
Note 9. Stock Based Compensation
EP MedSystems accounts for stock options granted to employees and
non-employee directors in accordance with the "intrinsic value" method set forth
in Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees", with supplemental pro forma disclosures of "fair
value" as required by Statement of Financial Accounting Standards No. 123 ("SFAS
No.123"), "Accounting for Stock Based Compensation."
EP MedSystems records the fair value of stock issuances to non-employees
based on the market price on the date issued. The amount is expensed,
capitalized or recorded as a reduction of paid-in capital, depending on the
purpose for which the stock is issued, based upon SFAS No. 148 "Accounting For
Stock-Based Compensation-Transition and Disclosure-an Amendment to FASB
Statement No. 123", and the fair value is measured using the Black-Scholes
option pricing model under SFAS No. 123. EP MedSystems has not issued stock
options to non-employees for any of the periods presented.
12
The following disclosure complies with the adoption of SFAS No. 123,
amended by SFAS No. 148 and includes proforma net loss as if fair value based
method of accounting had been used.
For the Three
For the Six Months Months Ended
Ended June 30, June 30,
2003 2002 2003 2002
Net loss, as reported $(3,857,904) $(1,335,682) $(1,468,074) $(634,065)
Add: Stock-based employee
compensation expense included in
reported net income
-- -- -- --
Deduct: Total stock-based
employee compensation expense
determined under fair value based
method for all options
(214,930) (91,974) (107,465) (91,064)
------------------- -----------------
----------------- -----------------
Pro forma net loss $(4,072,834) $(1,427,656) $(1,575,539) $(725,129)
=================== ================= ================= =================
================= =================
Earnings per share:
Basic and diluted - as
reported $(0.22) $(0.09) $(0.08) $(0.04)
------------------- ----------------- ----------------- -----------------
Basic and diluted - pro
forma $(0.23) $(0.10) $(0.09) $(0.05)
------------------- ----------------- ----------------- -----------------
Note 10. Recently Issued Accounting Standards
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS No. 143"), "Accounting for Asset Retirement Obligations." This
standard requires that obligations associated with the retirement of tangible
long-lived assets be recorded as liabilities when those obligations are
incurred, with the amount of the liability initially measured at fair value.
Upon initially recognizing a liability for an asset retirement obligation, an
entity must capitalize the cost by recognizing an increase in the carrying
amount of the related long-lived asset. Over time, this liability is accreted to
its present value, and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS No. 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. EP MedSystems adopted this statement on January
1, 2003. The adoption had no impact on its results of operations, financial
position or cash flows.
13
On April 30, 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS No. 145"), "Rescission of FASB Statements No. 4, 44,
64, Amendment of FASB No. 13 and Technical Corrections". This statement
eliminates the requirement that gains and losses from the extinguishment of debt
be aggregated and classified as an extraordinary item, net of the related income
tax. In addition, SFAS No.145 requires that capital leases that are modified so
that the resulting lease agreement is classified as an operating lease be
accounted for in the same manner as sale-lease back transactions. SFAS No. 145
is generally effective for transactions occurring after May 15, 2002. EP
MedSystems adopted this standard. The adoption had no impact on its results of
its operations, financial position or cash flows.
On July 30, 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS No. 146"), "Accounting for Costs Associated with Exit
or Disposal Activities." This statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. SFAS No. 146 also establishes that fair value is the objective for the
initial measurement of the liability. SFAS No. 146 will be effective for exit or
disposal activities that are initiated after December 31, 2002. EP MedSystems
adopted this standard on January 1, 2003. The adoption had no impact on its
results of its operations, financial position or cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123." This standard provides alternate methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation and requires more prominent disclosure about the method used. This
statement is effective for fiscal years ending after December 15, 2002. For EP
MedSystems, this means it is effective for December 31, 2002. Currently EP
MedSystems applies the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" and we do not expense our stock options. The
adoption of the disclosure provisions of SFAS No. 148 had no impact on EP
MedSystems' results of operations, financial position or cash flows.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that an entity
issuing a guarantee (including those embedded in a purchase or sales agreement)
must recognize, at the inception of the guarantee, a liability equal to the fair
value of the guarantee. FIN 45 also requires detailed information about each
guarantee or group of guarantees even if the likelihood of making a payment is
remote. The disclosure requirements of this interpretation are effective for
financial statements of periods ending after December 15, 2002, which makes them
effective for EP MedSystems for December 31, 2002. The recognition and
measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. EP MedSystems
adopted this standard on January 1, 2003. FIN 45 could have an impact on the
future results of the Company, depending on guarantees issued; however, at this
time the adoption of FIN 45 has not had an impact on our results of operation,
financial position or cash flows.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities -- an Interpretation of Accounting Research Bulletin (ARB) No.
51." FIN 46 requires the primary beneficiary to consolidate a variable interest
entity ("VIE") if it has a variable interest that will absorb a majority of the
entity's expected losses if they occur, receive a majority of the entity's
expected residual returns if they occur, or both. FIN 46 applies immediately to
VIEs created after January 31, 2003, and to VIEs in which the entity obtains an
interest after that date. For VIEs acquired before February 1, 2003, the
effective date for EP MedSystems is July 1, 2003. The Company does not expect
FIN 46 will have a material impact on our results of operations, financial
position, or cash flows.
14
Note 11. Subsequent Event
Subsequent to the end of the quarter, the Company issued 173,732 shares of
common stock for a payment of $500,000 in connection with the previously
discussed joint development project with Boston Scientific Corporation.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview.
EP MedSystems was incorporated in January 1993 and operates in a single
industry segment. We develop, manufacture, market and sell a line of products
for the cardiac electrophysiology market used to diagnose, monitor and treat
irregular heartbeats known as arrhythmias. Since EP MedSystems' inception, we
have acquired technology and marketing rights, have developed new products and
have begun marketing various electrophysiology products, including the
EP-WorkMate(R) computerized electrophysiology workstation, the EP-3(TM)
Stimulator, diagnostic electrophysiology catheters and the ALERT(R) System,
including the ALERT(R) Companion and ALERT(R) internal cardioversion catheters
and related disposable supplies. To date, these products have generated nearly
all of EP MedSystems' sales.
EP MedSystems' leading diagnostic product is the EP-WorkMate(R), a
computerized electrophysiology workstation that monitors, displays and stores
cardiac electrical activity and arrhythmia data. The EP-WorkMate(R) offers,
among other features, display and storage of up to 192 intracardiac signals,
real-time analysis and integration with our own proprietary systems, such as the
EP-3(TM) Stimulator, as well as with other technologies and systems. The
EP-3(TM) Stimulator is a computerized signal generator and processor which, when
integrated with the EP-WorkMate(R), is used to stimulate the heart with
electrical impulses in order to produce, and thereby locate, an arrhythmia. For
the six months ended June 30, 2003, the EP-WorkMate(R) and EP-3(TM) Stimulator
accounted for approximately 88% of total sales. EP MedSystems also markets a
line of diagnostic electrophysiology catheters for stimulation and sensing of
electrical signals during electrophysiology studies, which represented
approximately 5% of EP MedSystems' total sales revenues for the six months ended
June 30, 2003.
We have identified the diagnosis and treatment of atrial fibrillation, a
particular type of arrhythmia, as a primary focus for our ongoing development
efforts. Atrial fibrillation is a condition where erratic electrical signals are
present within the atria, the upper chambers of the heart, causing fibrillation
of the atria, which prevents the atria from providing appropriate blood flow
output. In an effort to address this medical condition, we have developed a
product for internal cardioversion of atrial fibrillation known as the ALERT(R)
System, which uses a patented electrode catheter to deliver measured, low-energy
bi-phasic electrical impulses directly to the inside of the heart to convert
atrial fibrillation to a normal heart rhythm. We have obtained Class III Design
Examination Certification from a European Notified Body allowing us to label the
ALERT(R) System with a CE Mark, an international symbol of adherence to quality
assurance standards, design reviews and hazard analysis, which permits us to
sell the ALERT(R) System in the European Community. In November 2002, we
received pre-market approval from the FDA to sell the ALERT(R) System in the
United States. Sales of the ALERT(R) System and related catheters accounted for
approximately 7% of EP MedSystems' total sales revenues for the six months
ending June 30, 2003.
15
We have also developed the ViewMate(R) intracardiac ultrasound catheter
system consisting of ViewMate(R) ultrasound imaging console and Viewflex(TM)
intracardiac imaging catheters. These products offer high-resolution, real-time
ultrasound capability designed to improve a physician's or clinician's ability
to visualize the inside of the chambers of the heart. We believe that the
ViewMate(R) ultrasound system may play an important diagnostic role allowing
more effective treatment of complex cardiac arrhythmias such as ventricular
tachyarrhythmia and atrial fibrillation. We filed for CE Mark authorization in
January 2003 and filed for 510(K) approval to sell the system in the United
States on April 2, 2003. On May 1, 2003, the Company received approval from the
European Notified Body allowing the sale of the system in the European
Community. We do not anticipate receiving approval to sell the ViewMate(R)
ultrasound system in the United States until the third quarter of 2003, if
approved at all.
EP MedSystems has a history of operating losses and we expect to continue
to incur operating losses in the near future as we continue to expend
substantial funds for research and development, clinical trials in support of
regulatory approvals, increased manufacturing activity and expansion of sales
and marketing activities. The amount and timing of future losses will be
dependent upon, among other things, increased sales of our existing products,
the timing of regulatory approval and market acceptance of the ALERT(R) System
and ultrasound products, developmental, regulatory and market success of new
products under development, and EP MedSystems' ability to establish, preserve
and enforce intellectual property rights to its products. There can be no
assurance that any of our development projects will be successful or that, if
development is successful, the products will generate any sales.
Six Months Ended June 30, 2003 and 2002.
The Company had net sales of $4,629,000 for the six months ended June 30,
2003 as compared to $6,084,000 for the comparable period in 2002. This
$1,455,000 (or 24%) decrease was primarily due to a slower first quarter than
expected in the U.S. The second quarter revenue was impacted by lower sales in
Asia, excluding Japan, due to the impact of SARS on medical spending in that
region.
Gross profit on sales for the six months ended June 30, 2003 was $2,364,000
as compared with $3,556,000 for the same period in 2002. Gross profit as a
percentage of sales decreased from 58% to 51%, primarily the result of the above
mentioned decrease in sales and a higher percentage of sales outside the United
States where overall margins are lower. We anticipate improvement in the
Company's overall gross profit percentage as sales of the ALERT(R) System, the
ViewMate(R) System and other catheter products increase, which should offset the
fixed costs associated with maintaining a catheter manufacturing operation.
16
Sales and marketing expenses increased $412,000 or (19%) to $2,606,000 for
the six months ended June 30, 2003 as compared to the same period in 2002. This
increase was primarily related to an increase in head count in connection with
the rollout of new products, partially offset by lower variable selling cost
with lower overall sales in 2003.
General and administrative expenses increased $54,000 (or 5%) to $1,092,000
for the six months ended June 30, 2003 as compared to the same period in of
2002. This increase in general and administrative expenses was primarily due to
an increase in business insurance and legal and accounting services partially
offset by a higher foreign exchange gain in 2003 versus 2002 due to the
strengthening of the Euro against the dollar, coupled with the favorable impact
of the consolidation of our executive offices with our manufacturing facility.
Research and development expenses decreased $374,000 (or 24%) to $1,184,000
for the six months ended June 30, 2003 as compared to the same period in 2002.
This decrease was primarily due to decreases in (i) professional fees related to
our latest development initiatives around the ALERT(R) System, ViewMate(R)
ultrasound imaging console and intracardiac imaging catheters and (ii) costs
related to regulatory and submission requirements.
Interest expense increased $11,000 to $118,000 for the six months ended
June 30, 2003 as compared to the same period in 2002. This increase can be
attributed to the fact that, while the overall interest rate was lower during
the period, the amount of debt increased.
For the six months ended June 30, 2003, EP MedSystems recorded a non-cash
interest expense, debt conversion in connection with the conversion of the
$1,000,000 convertible promissory bridge notes which converted into common stock
of the Company on January 31, 2003.
Three Months Ended June 30, 2003.
The Company had net sales of $2,338,000 for the three months ended June 30,
2003, as compared to $3,095,000 for the comparable period in 2002. This $757,000
(or 25%) decrease was primarily a result of significantly lower sales of
WorkMate units in Asia. Sales to Asia, excluding Japan, were impacted by the
recent SARS epidemic in that region.
Gross profit on sales for the three months ended June 30, 2003 was
$1,236,000, as compared to $1,792,000 for the same period in 2002. The gross
profit as a percentage of sales decreased from 58% to 53% due to lower overall
sales in the quarter and a higher percentage of sales from Europe, where overall
margins are lower.
Sales and marketing expenses increased $203,000 (or 19%) to $1,288,000 for
the three months ended June 30, 2003, as compared to the same period in 2002.
Costs as a percentage of total sales increased from 35% for the second quarter
of 2002 to 55% for the same period in 2003. This increase was primarily due to
an increase in headcount in the EP MedSystems' sales and service departments,
net of lower variable selling costs as a result of lower sales.
General and administrative expenses increased $88,000 (or 19%) to $549,000
for the three months ended June 30, 2003, as compared to the same period in
2002. This increase was primarily due to an increase in business insurance and
legal and accounting services partially offset by the consolidation of our
executive offices with our manufacturing facility.
17
Research and development expenses decreased $241,000 (or 29%) to $591,000
for the three months ended June 30, 2003, as compared to the same period in
2002. This decrease was primarily due to a reduction in professional fees
related to the completion of the development projects around the ALERT(R) System
and ViewMate(R) intracardiac ultrasound catheter system.
Interest expense was approximately the same for the three month periods
ended June 30, 2003 and June 30, 2002.
Liquidity and Capital Resources.
From EP MedSystems' incorporation in January 1993, to December 31, 2002,
the Company accumulated a deficit of approximately $31,203,000. As of June 30,
2003, the Company's accumulated deficit was approximately $35,061,000.
We have a history of operating losses and the Company expects to continue
to incur operating losses in the near future as substantial funds are expended
for research and development, increased manufacturing activity and expansion of
sales and marketing activities. The amount and timing of future losses will
depend upon, among other things, volume of sales of existing products, the
timing of regulatory approval and market acceptance of the ALERT System and
ultrasound products, developmental, regulatory and market success of new
products under development, and EP MedSystems' ability to establish, preserve
and enforce intellectual property rights related to our products. There can be
no assurance that any of the Company's development projects will be successful
or that, if development is successful, the products will generate any sales. The
Company has a $2.7 million note outstanding to Medtronic which is payable, plus
interest, in April 2004. Estimated operating cash flows through the maturity
date of the note are not sufficient to meet this obligation. The Company intends
to seek refinancing of that note prior to its maturity date. However, there is
no assurance that the Company will be able to identify or close a financing
transaction to generate proceeds to repay the note, or that any such
transactions will provide sufficient funds to repay the note.
In October 2001, EP MedSystems consummated the private sale and issuance of
newly-designated Series A convertible preferred stock to Medtronic and CMI, the
Company's Japanese distributor. An aggregate of 1,259,717 shares were issued in
the transactions. The preferred shares were issued to CMI at a price of $2.048
per share, and in connection with that transaction, an amendment to EP
MedSystems' Distribution Agreement was entered into with CMI, which included an
extension of the original Distribution Agreement. The transaction with Medtronic
involved the sale of the shares of preferred stock at a price of $1.781 per
share. EP MedSystems received aggregate gross proceeds of $2.4 million from
those two transactions.
CMI converted all of its shares of Series A Preferred Stock into common
shares of EP MedSystems in the first quarter of 2002. Medtronic converted
300,000 of its shares of Series A Preferred Stock into common stock of EP
MedSystems in April 2002. The converted shares of both CMI and Medtronic were
registered for resale by EP MedSystems pursuant to a registration statement on
Form S-3, which was declared effective by the SEC in May 2002.
In January 2003, EP MedSystems received approximately $438,000 in cash
related to the sale of a portion of its unused cumulative State NOL
carryforwards.
18
On September 5, 2002, EP MedSystems entered into a stock purchase agreement
and license agreement with Boston Scientific Corporation ("BSC") in connection
with a strategic joint development project by EP MedSystems and BSC in the field
of cardiac electrophysiology. It is expected that this development plan will be
completed during 2003. Should EP MedSystems abandon the project without cause,
an abandonment fee of $1 million in cash or EP MedSystems stock would be payable
to BSC. Following the successful completion of the development plan, EP
MedSystems will have marketing rights to the technology and will pay royalties
to BSC based on the market value of the technology at the time of sale. This
stock purchase agreement with BSC allows for the sale of up to $3,000,000 of
common stock based on milestones in the development of certain cardiac
electrophysiology technology. The common stock is sold at the lesser of the
ten-day trailing average trading price per share prior to the closing of each
installment purchase, and $5.00 per share. Upon execution of the agreement, EP
MedSystems received $500,000 for 210,084 shares issued at the ten-day trailing
average trading price of $2.38 per share. On February 4, 2003, the Company
issued 311,915 shares of common stock at the ten-day trailing average trading
price of $1.60 per share in exchange for $500,000. These shares were registered
for resale on Form S-3 on April 2, 2003. In April 2003,the Company issued
357,398 shares of common stock in exchange for another payment of $500,000 at
the ten-day trailing average trading price of $1.39 per share.
Subsequent to the end of the quarter, the Company issued 173,732 shares of
common stock for a payment of $500,000 in connection with the previously
discussed joint development project with Boston Scientific Corporation.
On November 21, 2002, the Company entered into a mortgage on its facility
in West Berlin, New Jersey and received $750,000 in exchange for issuing
promissory notes for that aggregate amount. Interest on the promissory notes is
payable quarterly at 8% per annum and the promissory notes are collateralized by
the building. The promissory notes are convertible into common stock of the
Company, at the option of the holder of the promissory notes over their
three-year term, as follows:
- - November 21, 2002 through December 31, 2003 convertible at $2.14 per share
- - January 1, 2004 through December 31, 2004 convertible at $2.50 per share
- - January 1, 2005 through December 31, 2005 convertible at $3.00 per share
On April 2, 2003, the holders of the mortgage notes which are secured by
the $750,000 mortgage on EP MedSystems' facility in West Berlin, converted an
aggregate of $375,000 of the mortgage notes into 300,000 shares of common stock
of EP MedSystems, Inc. In connection with the conversion, the Company reduced
the conversion price from $2.14 per share to $1.25 per share. In accordance with
SFAS No. 84, "Induced Conversions of Convertible Debt", the Company recorded a
non-cash charge of $222,084. On June 30, 2003, the holders of the mortgage notes
converted the final portion of the mortgage notes into an aggregate of 176,234
shares of common stock at a conversion price of $2.14 as stated in the
agreement.
Net cash used in operating activities in the six months ended June 30, 2003
was approximately $1,760,000 as compared with a net cash used of $189,000 in the
same period in 2002. The increase in our net use of cash in operations during
2003 was primarily due to a net loss of $3,858,000, a $1,476,000 decrease in
accounts payable, partially offset by a $1,629,000 decrease in accounts
receivable and the collection of $438,000 from the sale of State NOL
carryforwards and the non-cash interest expense, debt conversion and mortgage
conversion expense of $1,222,000. Payments to related parties are made on terms
similar to those of other suppliers. Capital expenditures, net of disposals,
were $81,000 for the six months ended June 30, 2003, as compared to $94,000 in
the same period in 2002. We expect to purchase capital equipment and to expand
our manufacturing and assembly capabilities as we continue to grow, however, we
currently do not have any commitments for purchases. We lease office and
manufacturing space and certain office equipment under operating leases.
19
Assets decreased $2,450,000 from $10,928,000 at December 31, 2002 to
$8,478,000 at June 30, 2003. The change in assets was primarily due to a
decrease in accounts receivable. Accounts receivable decreased approximately
$1,629,000 as a result of an increased effort in collections and lower sales for
the six months ended June 30, 2003, as compared to the same period in 2002.
Liabilities decreased $3,729,000 from $9,225,000 at December 31, 2002 to
$5,496,000 at June 30, 2003. Of that balance, accounts payable decreased by
$1,476,000 to $1,110,000 at June 30, 2003 as the result of the use of cash from
the January 2003 private placement to pay accounts payable, lower purchases, and
lower research and development costs. In connection with that private placement,
the promissory notes payable to the EGS Entities of $996,000 were converted into
equity. In addition, since the note payable and accrued interest due to
Medtronic is due in April, 2004, it was reclassified to current liabilities.
EP MedSystems evaluates the collectability of its receivables quarterly.
The allowance for bad debts is based upon specific identification of customer
accounts for which collection is doubtful and EP MedSystems' estimate of the
likelihood of potential loss. To date, EP MedSystems has experienced only modest
credit losses with respect to its accounts receivable. To date, EP MedSystems
has experienced insignificant inventory write-downs, and the reserve is
consistent with management's expectations.
Item 3. Controls and Procedures.
As of the end of the period covered by this report, the Company conducted
an evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15 and
15d-15 of the Exchange Act). Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures are effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission rules and forms. It should be noted
that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.
There was no change in the Company's internal control over financial
reporting during the Company's most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
(c) In July 2003, the Company issued 173,732 shares of common stock
to BSC in exchange for the payment of $500,000 in accordance
with a previously disclosed joint development project in a
private transaction pursuant to Rule 506 of Regulation D
promulgated under the Securities Act of 1933.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On April 28, 2003, the Company issued a press release stating that it had
received notice from Nasdaq confirming Nasdaq's conditional transfer of, and
resulting continued listing of, the Company's common stock on The Nasdaq
SmallCap Market and that the hearing file had been closed. Nasdaq's confirmation
was based on the Company's demonstration, through a filing by the Company on
Form 8-K on April 14, 2003, of compliance with a $4,000,000 stockholders' equity
condition required by an April 1, 2003 determination by Nasdaq. The rules of the
Nasdaq SmallCap Market require the Company to maintain shareholders' equity of
at least $2,500,000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The exhibits are listed in the Exhibit Index appearing at page 24
herein.
(b) Reports on Form 8-K.
The following reports on form 8-K were filed during the quarter ended
June 30, 2003:
April 8, 2003, under Item 9, Regulation FD Disclosure, attaching a
press release regarding the Company's submittal of its ViewMate(R)
intracardiac ultrasound catheter system 510(K) filing to the U.S.
Food and Drug Administration.
21
April 14, 2003, under Item 9, Regulation FD Disclosure, filing
required by Nasdaq to demonstrate compliance with Nasdaq's stated $4
million stockholders' equity condition for continued listing of the
Company's common stock on The Nasdaq SmallCap Market. The Form 8-K
furnished historical pro forma balance sheet information of the
Company, as of February 28, 2003, demonstrating compliance with the
condition.
May 13, 2003, under Item 9, Regulation FD Disclosure, attaching a
press release regarding the Company's first quarter operating results
and receipt of a CE approval for one of the Company's products.
22
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.
EP MEDSYSTEMS, INC.
(Registrant)
Date: August 19, 2003 By: /s/ Reinhard Schmidt
Reinhard Schmidt
President and Chief Executive Officer
and Director
(Principal Executive Officer)
Date: August 19, 2003 By: /s/ Matthew C. Hill
Matthew C. Hill
Chief Financial Officer
(Principal Financial Officer)
23
EXHIBIT INDEX
Exhibit Number Description
3.1 Amended and Restated Certificate of Incorporation
of EP MedSystems, Inc., filed with the Secretary of
State of the State of New Jersey on April 8, 1996.(1)
3.2** Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of EP MedSystems,
Inc., filed with the Secretary of State of the
State of New Jersey on November 6, 1998.
3.3 Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of EP MedSystems,
Inc., filed with the Secretary of State of the
State of New Jersey on October 23, 2001. (2)
4.1** Agreement made as of June 27, 2003, by and between
EP MedSystems, Inc. and Anthony Varrichio.
4.2** Agreement made as of June 27, 2003, by and between
EP MedSystems, Inc. and William Winstrom.
4.3** Notice of EP MedSystems' Right to Repurchase Warrant,
dated July 23, 2003.
10.6* EP MedSystems, Inc. Amended and Restated 1995
Long-Term Incentive Plan. (3)
10.7* EP MedSystems, Inc. Amended and Restated 1995
Director Option Plan. (3)
10.8* Amendment to EP MedSystems, Inc. 1995 Director
Option Plan. (4)
31.1** Certification Pursuant to Rule 13a-14(a) and
15d-14(a) under the Securities Exchange
Act of 1934, as amended.
31.2** Certification Pursuant to Rule 13a-14(a) and
15d-14(a) under the Securities Exchange
Act of 1934, as amended.
32.1** Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2** Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
______________________
*Denotes management contract or compensatory plan or arrangement.
**Filed herewith.
24
(1) Incorporated by reference from EP MedSystems, Inc.'s
Registration Statement on Form SB-2 and Pre-Effective Amendments
No. 1 and 2 thereto previously filed with the Commission on April 18,
1996, May 28, 1996 and June 13, 1996, respectively.
(2) Incorporated by reference from exhibit 3.1 of EP MedSystems, Inc.'s
Quarterly Report on Form 10-QSB for the quarter ended September 30,
2001, previously filed with the Commission.
(3) Incorporated by reference from EP MedSystems, Inc.'s Proxy
Statement for the Annual Meeting of Shareholders held on July
18, 2000, previously filed with the Commission.
(4) Incorporated by reference from EP MedSystems, Inc.'s Proxy
Statement for the Annual Meeting of Shareholders held on August
29, 2002, previously filed with the Commission.