U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
Commission File Number: 0-27380
EchoCath, Inc.
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(Exact Name of Small Business Issuer as specified in its charter)
New Jersey 22-3273101
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 7224, Princeton, NJ 08543
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(Address of Principal Executive Offices)
Issuer's Telephone Number. . .(609) 987-8400
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Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report
Check whether 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) has been
subject to such filing requirements for the past 90 days.
YES X NO
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date:
CLASS OF COMMON EQUITY OUTSTANDING AT JANUARY 12, 2001
- --------------- --------------------------------------
Class A common stock (No Par Value) 10,164,025
Transitional Small Business Disclosure Format (check one)
YES NO X
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PART 1: FINANCIAL INFORMATION
PART 2: OTHER INFORMATION
ECHOCATH, INC.
INDEX
Item 1: Financial Statements Page
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Balance Sheets,
August 31, 2000 and November 30, 2000 (Unaudited) 3
Statements of Operations for the three months ended
November 30, 1999 (Unaudited), and November 30, 2000 (Unaudited) 4
Statements of Cash Flows for the three months ended
November 30, 1999 (Unaudited), and November 30, 2000 (Unaudited) 5
Notes to Financial Statements 6 - 10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operation 10 - 13
Signatures 14
2
Item 1: Financial Statements
ECHOCATH, INC.
BALANCE SHEETS
ASSETS
August 31, 2000 November 30, 2000
--------------- -----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 822,704 $ 970,097
Inventory 115,392 106,701
Prepaid expenses and other current assets 68,024 54,467
------------ -----------
Total current assets 1,006,120 1,131,265
Furniture, equipment and leasehold improvements, net 133,795 110,983
Intangible assets, net 325,528 333,732
Debt issuance cost, net 693,807 560,042
Other assets 26,393 26,393
------------ -----------
Total assets $ 2,185,643 $ 2,162,415
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable $ 150,000 $ 150,000
Obligations under capital leases 14,119 11,250
Accounts payable 127,423 89,529
Accrued expenses 709,864 696,993
Deferred revenue 50,000 50,000
------------ -----------
Total current liabilities 1,051,406 997,772
Note payable, less current portion 126,000 26,569
Convertible notes 2,112,500 2,016,500
Obligations under capital leases, less current portion 6,566 6,937
Other liabilities 261,146 233,143
------------ -----------
Total liabilities 3,557,618 3,280,921
------------ -----------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, no par value, 5,000,000 shares authorized;
280,000 shares of Series B cumulative convertible
issued and outstanding, (liquidation value $1,400,000) 1,393,889 1,393,889
Class A common stock, no par value, 50,000,000 shares authorized;
9,323,856 issued and outstanding as of November 30, 2000 and
7,809,731 as of August 31, 2000 14,993,092 16,049,827
Accumulated deficit (17,758,956) (18,562,222)
------------ -----------
Total stockholders' deficit (1,371,975) (1,118,506)
------------ -----------
Total liabilities and stockholders' deficit $ 2,185,643 $ 2,162,415
============ ===========
See accompanying notes to financial statements.
3
ECHOCATH, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1999 AND
NOVEMBER 30, 2000
(UNAUDITED)
1999 2000
--------- ---------
Revenues:
License and development fees and royalties $ 30,000 $ 40,000
Operating expenses:
Research and development 365,322 449,684
Marketing, general and administrative 276,567 257,069
--------- ---------
Total operating expenses 641,889 706,753
--------- ---------
Loss from operations (611,889) (666,753)
Interest income 7,447 7,461
Interest expense (134,348) (125,074)
--------- ---------
Net loss (738,790) (784,366)
Preferred stock dividends (18,900) (18,900)
--------- ---------
Net loss to common stockholders $(757,690) $(803,266)
========= =========
Basic and diluted net loss per share $ (.28) $ (.11)
Weighted average shares outstanding 2,691,000 7,450,000
See accompanying notes to financial statements.
4
EchoCath, Inc.
Statements of Cash Flows
Three Months ended November 30, 1999 and 2000
(Unaudited)
1999 2000
---------- ----------
Cash flows from operating activities:
Net loss $ (738,790) $ (784,366)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 26,504 35,369
Amortization of debt issuance costs 63,222 87,315
Change in operating assets and liabilities:
(Increase) decrease in inventory (8,261) 8,691
Decrease in prepaid expenses and other current assets 20,846 13,557
Decrease in other assets 44,988 --
Decrease in accounts payable (53,762) (37,894)
Decrease in accrued expenses (207,241) (24,028)
Decrease in other liabilities (5,203) (28,003)
Increase in deferred revenue 10,000 --
---------- ----------
Net cash used in operating activities (847,697) (729,359)
---------- ----------
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold improvements -- (1,775)
Purchases of intangible assets (4,158) (18,985)
---------- ----------
Net cash used in investing activities (4,158) (20,760)
---------- ----------
Cash flows from financing activities:
Principal payments on capital lease obligations (4,832) (2,488)
Principal payments on note payable (75,000) (100,000)
Gross proceeds from convertible notes 1,150,000 --
Proceeds from issuance of shares of and warrants for Class A
common stock and the exercise of warrants -- 1,000,000
---------- ----------
Net cash provided by financing activities 1,070,168 897,512
---------- ----------
Net increase in cash and cash equivalents 218,313 147,393
Cash and cash equivalents, beginning of year 26,264 822,704
---------- ----------
Cash and cash equivalents, end of period $ 244,577 $ 970,097
========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 1,723 $ 562
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Supplemental disclosure of non-cash information:
Debt issuance cost incurred in connection with issuance of Class A
common stock warrants $ 798,794 $ --
========== ==========
Class B dividend payable offset against royalties receivable 18,900 18,900
---------- ----------
Conversion of Convertible Promissory Notes into Class A common stock $ -- $ 96,000
---------- ----------
See accompanying notes to financial statements.
5
ECHOCATH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A: GENERAL AND BUSINESS
The interim financial statements included herein have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. 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, although the Management of EchoCath, Inc. (the "Company") believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these interim financial statements are read in
conjunction with the financial statements and the notes thereto included in the
Company's Form 10-KSB for the fiscal year ended August 31, 2000.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the continuation of operations, realization of assets
and liquidation of liabilities in the ordinary course of business. See Note I
for discussion of the Company's Need for Additional Financing. The financial
statements do not include any adjustments that might result from the outcome of
this certainty. In the opinion of management, all adjustments (consisting solely
of normal recurring adjustments) necessary to present fairly the financial
position as of November 30, 2000 and the results of operations and cash flows
for the three months ended November 30, 1999 and 2000 have been made.
NOTE B:
Inventory as of August 31, 2000 and November 30, 2000 consists entirely of raw
materials.
NOTE C:
1999 Private Placement Offering
On October 29, 1999 the Company completed a private placement offering. The
offering consisted of Units of (i) a $25,000 convertible promissory note and
(ii) a three-year warrant to purchase 33,333 shares of Class A Common Stock. A
total of 3,366,633 warrants were issued. The notes bear interest at 6.5% per
annum and mature three-years from the date of the final closing October 29,
1999, unless previously converted into Class A Common Stock. A total of
$2,525,000 of notes were issued through the private placement, of which
$1,250,000 are convertible into shares of Common Stock at the option of the
holder, at any time prior to the maturity date, at a rate of one share of Class
A Common Stock for each $0.75 of debt (plus accrued and unpaid interest) and
$1,275,000 of which are convertible at the market price on the date of
conversion, but not less than $0.25 (plus accrued and unpaid interest); the
notes are also convertible at the option of the Company, one year after October
29, 1999 at a conversion price equal to the lesser of $0.75 or the average
closing sale price of the share of Class A Common Stock over the five day period
immediately prior to the maturity date, but not less than $0.25 per share. Each
warrant entitles the holder to purchase one share of Class A Common Stock at an
exercise price of $0.75 per share. The offering resulted in net proceeds of
$1,784,000, and the conversion of $525,000 of 6.5% convertible debentures into
the same convertible debt offered under the private placement described above.
In connection with the warrants issued, the Company recorded debt issuance costs
totaling $673,327, plus $30,642 of other debt issuance costs. The warrants were
valued at $.20 per share using the Black-Scholes pricing model. The debt
issuance costs will be amortized over the life of the debt.
The holders of the Company's Class B Common Stock maintain "super voting"
rights, whereby they are entitled to 5 votes per Class B common share. As a
condition to the private placement offering, holders of a minimum of 900,000
shares of the Company's Class B Common Stock were required to convert their
shares into Class A Common Stock at a ratio of 1 to 1. Additionally, each Class
B Common stockholder converting their shares received a three-year warrant to
purchase shares of Class A Common Stock for an equal number of shares,
exercisable at $.75 per share. A total of 1,172,018 warrants were issued. During
fiscal 2000, all shares of Class B Common Stock have been converted into Class A
Common Stock. In connection with the warrants issued, the
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Company recorded issuance costs totaling $234,000. The warrants were valued at
$.20 per warrant using the Black-Scholes pricing model. The issuance cost will
be amortized over the life of the debt.
The Placement Agents for the private placement offering are entitled to cash
compensation equal to 10% of the gross proceeds of the offering and 400,000
five-year warrants to purchase up to 400,000 shares of Class A Common Stock at
$0.75 per share. In connection with the warrants issued, the Company recorded
issuance costs totaling $80,000, plus $200,000 for the placement agent fees. The
warrants were valued at $0.20 per warrant using the Black-Scholes pricing model.
The issuance costs will be amortized over the life of the debt.
Pursuant to the terms of the private placement, the Company filed a current
effective Form S-3 Registration Statement with the US Securities Exchange
Commission in February 2000 registering the underlying Class A common shares.
In August 2000, holders of the convertible promissory notes converted $412,500
of principal and $33,945 of accrued interest into 1,035,133 shares of Class A
common stock. Approximately $155,339 of debt issuance cost was charged to the
Class A Common Stock balance as a result of the conversion.
During the first quarter of fiscal 2001, holders of the convertible promissory
notes converted $96,000 of principal and $7,185 of accrued interest into 180,792
shares of Class A common stock. Approximately $46,445 of debt issuance cost was
charged to the Class A common stock balance as a result of the conversion.
2000 Private Placement Offering
On February 23, 2000, the Company offered its 6.5% convertible promissory
noteholders the opportunity to purchase four shares of Class A Common Stock at
$0.75 per share for every warrant they exercise at the same price. The Company
issued a total of 1,500,000 shares in this offering. The number of shares that
were offered were proportional to the number of units purchased in the 6.5%
convertible promissory note offering. For each unit purchased in the 6.5%
convertible promissory note offering, the noteholder purchased up to 14,850 new
shares at $0.75 per share and exercised warrants for 3,712 shares at $0.75 per
share. If a noteholder did not purchase the shares available to them, those
shares were made available to the other noteholders participating in this
offering. The Company received proceeds of $1,405,888, including the proceeds
from the exercise of 375,000 warrants.
Sale of Units
In July 2000, a Director of the Company purchased 1,333,333 units from the
Company for $0.75 per unit for which the Company received $1,000,000 in net
proceeds. Each unit consisted of a share of Class A common stock and a
three-year warrant to purchase an additional share of Class A common stock at
$0.75 per share.
On November 15, 2000 a Director of the Company purchased 1,333,333 units for
$0.75 per unit for which the Company received $1,000,000 in net proceeds. Each
unit consisted of a share of Class A common stock and a three-year warrant to
purchase an additional share of Class A common stock at $0.75 per share.
NOTE E:
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which, as amended, became effective for our
financial statements for the fiscal year beginning September 1, 2000. SFAS No.
133 requires a Company to recognize all derivative instruments as assets or
liabilities in its balance sheet and measure them at fair value. The adoption of
this Statement did not have any material impact on the financial statements.
In December 1999 the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 requires the Company to adopt its guidance not later than the fourth
quarter of its fiscal year 2001 with a cumulative effect of
7
change in accounting principle calculated as of September 1, 2000. We are
evaluating SAB 101 and the effect it may have on our financial statements and
its current revenue recognition policy.
NOTE F :
Net Loss Per Share
Basic and diluted net loss per common share for the quarters ended November 30,
1999 and 2000 is calculated based upon net loss after cumulative Series B
preferred stock dividends of $18,900 in both quarters, divided by the weighted
average number of shares of common stock outstanding during that period. For
purposes of the diluted loss per share calculation, the exercise or conversion
of all potential common shares is not included since their effect would be
antidilutive for all periods presented.
NOTE G :
Comprehensive Loss
The net loss of $738,790 and $784,366 recorded for the quarters ended November
30, 1999 and 2000, respectively, is equal to the comprehensive loss for those
periods.
NOTE H :
Note Payable
On September 24, 1993, the Company entered into an exclusive worldwide
development, supply and license agreement with Bard Radiology, C.R. Bard, Inc.
(Bard). As part of this agreement, Bard provided to the Company an advance of
$540,000 in order to assist the Company with its manufacturing obligations.
On November 23, 1999, the Company reached an agreement to refinance its Bard
debt. In order to satisfy the Bard debt obligation, the Company was required to
make principal payments of $75,000 immediately, 10% of net funds that are
received from subsequent financing, licensing and royalty activity beginning
January 1, 2000 with a minimum payment of $150,000 for calendar 2000, and
beginning with the first quarter of 2001 and continuing thereafter 7.5% of net
revenue and financing received in that quarter, with a minimum payment of
$75,000 every six months until the indebtedness is repaid. Interest on the
unpaid balance of the debt shall accrue at the rate of prime plus 1% and
continue to accrue until full payment of all principal and interest outstanding.
The note is secured by virtually all of the Company's inventory, furniture and
equipment. The principal and accrued interest due as of November 30, 2000 is
$392,878.
NOTE I :
Need for Additional Financing
At November 30, 2000 the Company had a working capital of $133,493. As of
January 5, 2001, the Company sold certain of its state net operating loss
carryforwards under the New Jersey Corporation Business Tax Benefit Certificate
Transfer Program for $283,051. The report of the Company's independent auditors
on the Company's fiscal year ended August 31, 2000 financial statements included
an explanatory paragraph which stated that the Company's recurring losses from
operations, its net capital deficiency, and negative working capital raises
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustment that might result from
the outcome of this uncertainty. The Company is in need of additional financing
and does not expect its existing cash, together with funds anticipated to be
generated through operations, to be sufficient to meet the Company's cash
requirements beyond April 30, 2001.
The Company's ability to continue with its plans is contingent upon its ability
to obtain sufficient cash flow from operations or to obtain additional financing
from external sources. The Company expects that additional cash resources will
be available either through financing provided by the completion of license
agreements and strategic alliances, sale of Class A common stock or, if
necessary, by reducing the level of its operational expenses by deferring
certain research and development or marketing expenses. There can be no
assurances that the Company
8
will be able to complete the aforementioned license agreements and strategic
alliances on acceptable terms or at all. The Company will need substantial
additional financing in order to continue development of and commercialize
certain of its proposed products and other potential products. The Company has
no binding commitments from any third parties to provide funds to the Company.
While the Company anticipates funding from private equity placements and other
sources, there can be no assurances that the Company will be able to obtain
financing from any other sources on acceptable terms or at all.
NOTE J :
Segment Information
The Company is managed and operated as one business. A single management team
that reports to the Chief Executive Officer comprehensively manages the entire
business. The Company does not operate separate lines of business or separate
business entities with respect to any of its products. In addition, the Company
does not directly conduct any of its operations outside of the United States.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas or by location and does not have separate
reportable segments as defined by SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information.
NOTE K :
Increase in the authorized number of shares of Class A Common Stock:
On September 29, 2000 the stockholders of the Company approved an increase in
the authorized number of shares of Class A Common Stock available for issuance
to 50,000,000.
NOTE L :
Subsequent Event
Sale of Tax Benefits:
As of January 5, 2001, the Company sold certain of its state net operating loss
carryforwards under the New Jersey Corporation Business Tax Benefit Certificate
Transfer Program for $283,051.
Legal Proceedings:
On October 16, 1997, EP MedSystems delivered to the Company a complaint
subsequently amended (the "Complaint") filed in the United States District Court
for the District of New Jersey (the "Court") in connection with the Company's
sale of securities to EP MedSystems pursuant to a Subscription Agreement, dated
as of February 27, 1997, by and between the Company and EP MedSystems. In the
Complaint, EP MedSystems alleges that the Company violated Section 10(b) of the
Exchange Act and committed common law fraud in connection with EP MedSystems'
purchase of securities from the Company. EP MedSystems requested unspecified
compensatory damages, costs, attorneys' fees and punitive damages. On November
26, 1997, pursuant to an order of the Court, the Company filed an Answer,
without prejudice to its right to move to dismiss the Complaint, denying the
material allegations of the Complaint, and asserting a counterclaim against EP
MedSystems seeking its costs and expenses in the action, including its
attorneys' fees, based on EP MedSystems' breach of the Subscription Agreement.
On December 3, 1997, EP MedSystems filed an amended complaint, also alleging
violations of ss.10(b) of the Exchange Act, and common law fraud. Pursuant
to Court order, the Company's answer was due December 10, 1997, also without
prejudice to the Company's right to move to dismiss. On December 10, 1997, the
Company filed an answer to the amended complaint; again denying the material
allegations of the complaint, and asserting a counterclaim against EP MedSystems
based on EP MedSystems' breach of the Subscription Agreement. On December 17,
1997, the Company served on EP MedSystems a motion to dismiss the Complaint. On
October 20, 1998, the Court dismissed the suit with prejudice, but did not
decide on the Company's outstanding counterclaims against EP MedSystems. On June
9, 1999 EP MedSystems filed an appeal of that dismissal. The appellate court on
December 7, 1999 heard oral arguments of the appeal. On December 26, 2000, the
third circuit court of appeals reversed in part the Court's
9
orders dismissing the action. There can be no assurance that the Company will
prevail in this matter, which could have a material adverse effect on the
Company's operations, financial position and cash flows.
Conversion of 6 1/2% Notes to Class A Common Stock:
Subsequent to November 30, 2000, the Company has received conversion notices
from holders of convertible promissory notes to convert notes in principal
amounts totaling $263,961 into 840,069 shares of Class A Common Stock.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
GENERAL
Certain statements in this Report on Form 10-QSB ("Report") under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and elsewhere constitute "forward-looking statements" within the
meaning of Private Securities Litigation Reform Act of 1995, including, without
limitation, statements regarding future cash requirements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: limited
commercial operations; no assurances of success; need for additional financing;
uncertainty of market acceptance; reliance on collaborative agreements;
competition and rapid technological change; failure to receive or delays in
receiving regulatory approval; limited manufacturing and assembly experience;
limited marketing and sales experience; dependence upon, and need for, key
personnel; uncertain protection of patent and proprietary rights; lack of
reimbursement; general economic and business conditions; industry capacity;
industry trends; demographic changes; changes in business strategy or
development plans; quality of management; availability, terms and deployment of
capital; potential adverse impact of FDA and other government regulations;
limitations on third party reimbursement; potential adverse impact of
anti-remuneration laws; potential product liability; risk of loss in lawsuit;
risk of low prices stocks; and other factors referenced in this Report. When
used in this Report, statements that are not statements of material fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "anticipates," "plans," "intends," "estimates," "projects," "believes,"
"expects" and similar expressions are intended to identify such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
Three Months Ended November 30, 1999 and 2000.
Revenue:
The Company had revenues of $40,000 from royalties for the quarter ended
November 30, 2000, and revenues of $30,000 from royalties for the quarter ended
November 30, 1999.
Research and Development:
Research and Development expenses increased $84,362 or 23.1% during the three
months ended November 30, 2000 versus the quarter ended November 30, 1999
primarily attributable to increased payroll, consultants and materials.
10
Marketing, General and Administrative:
Marketing, General and Administrative expenses decreased $19,498 or 7.0%
primarily attributable to lower legal costs in the current quarter that was
partially offset by the increase in sales consultants in the current quarter.
Interest Expense:
Interest expense decreased $9,274 or 6.9% primarily attributable to the
conversions of some of the 6.5% Convertible Promissory Notes to Class A Common
Stock and partial repayment of the Bard debt.
LIQUIDITY AND CAPITAL RESOURCES
Need For Additional Financing
At November 30, 2000 the Company had a working capital of $133,493. As of
January 5, 2001, the Company sold certain of its state net operating loss
carryforwards under the New Jersey Corporation Business Tax Benefit Certificate
Transfer Program for $283,051. The report of the Company's independent auditors
on the Company's fiscal year ended August 31, 2000 financial statements included
an explanatory paragraph which stated that the Company's recurring losses from
operations, its net capital deficiency, and negative working capital raises
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustment that might result from
the outcome of this uncertainty. The Company is in immediate need of additional
financing and does not expect its existing cash, together with funds anticipated
to be generated through operations, to be sufficient to meet the Company's cash
requirements beyond April 30, 2001.
The Company's ability to continue with its plans is contingent upon its ability
to obtain sufficient cash flow from operations or to obtain additional financing
from external sources. The Company expects that additional cash resources will
be available either through financing provided by the completion of license
agreements and strategic alliances, sale of Class A common stock or, if
necessary, by reducing the level of its operational expenses by deferring
certain research and development or marketing expenses. There can be no
assurances that the Company will be able to complete the aforementioned license
agreements and strategic alliances on acceptable terms or at all. The Company
will need substantial additional financing in order to continue development of
and commercialize certain of its proposed products and other potential products.
The Company has no binding commitments from any third parties to provide funds
to the Company. While the Company anticipates funding from private equity
placements and other sources, there can be no assurances that the Company will
be able to obtain financing from any other sources on acceptable terms or at
all.
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
On October 16, 1997, EP MedSystems delivered to the Company a complaint
subsequently amended (the "Complaint") filed in the United States District Court
for the District of New Jersey (the "Court") in connection with the Company's
sale of securities to EP MedSystems pursuant to a Subscription Agreement, dated
as of February 27, 1997, by and between the Company and EP MedSystems. In the
Complaint, EP MedSystems alleges that the Company violated Section 10(b) of the
Exchange Act and committed common law fraud in connection with EP MedSystems'
purchase of securities from the Company. EP MedSystems requested unspecified
compensatory damages, costs, attorneys' fees and punitive damages. On November
26, 1997, pursuant to an order of the Court, the Company filed an Answer,
without prejudice to its right to move to dismiss the Complaint, denying the
material allegations of the Complaint, and asserting a counterclaim against EP
MedSystems seeking its costs and expenses in the action, including its
attorneys' fees, based on EP MedSystems' breach of the Subscription Agreement.
On December 3, 1997, EP MedSystems filed an amended complaint, also alleging
violations of ss.10(b) of the Exchange Act, and common law fraud. Pursuant
to Court order, the Company's answer was due December 10, 1997, also without
prejudice to the Company's right to move to dismiss. On December 10, 1997, the
Company filed an answer to the amended complaint; again denying the
11
material allegations of the complaint, and asserting a counterclaim against EP
MedSystems based on EP MedSystems' breach of the Subscription Agreement. On
December 17, 1997, the Company served on EP MedSystems a motion to dismiss the
Complaint. On October 20, 1998, the Court dismissed the suit with prejudice, but
did not decide on the Company's outstanding counterclaims against EP MedSystems.
On June 9, 1999 EP MedSystems filed an appeal of that dismissal. On December 7,
1999, the appellate court heard oral arguments of the appeal. On December 26,
2000, the third circuit court of appeals reversed in part the Court's orders
dismissing the action. There can be no assurance that the Company will prevail
in this matter, which could have a material adverse effect on the Company's
operations, financial position and cash flows.
Item 2: Changes in Securities and Use of Proceeds - None
Item 3: Defaults Upon Senior Securities - None
Item 4: Submission of Matters to a Vote of Security Holders
A. The Annual Meeting of Stockholders of the Company was held on
September 29,2000;
B The following is a list of all of the Directors of the Company
who were elected at the Meeting and whose term of office
continued after the meeting until the next annual meeting
Frank A. DeBernardis
Anthony J. Dimun
Daniel M. Mulvena
Joseph J. Prischak
Irwin M. Rosenthal
David Vilkomerson
Malcolm Dale
C. There were present at the Meeting, in person or by proxy,
4,478,610 shares of Class A Common Stock and 0 shares of
Series B Convertible Preferred Stock entitled to vote at the
Meeting. In the aggregate there were 4,478,610 shares
represented at the Meeting out of a total of 7,024,598 shares
entitled to vote. Common Stock and Preferred Stock voted
together as a single class on all matters presented at the
Meeting;
D. To ratify the appointment of KPMG LLP, as the Company's
independent public accountants for the fiscal year ending
August 31, 2001;
E. To approve and ratify the adoption of an amendment to the
Company's Restated Certificate of Incorporation, as amended,
increasing the total number of shares of authorized capital
stock of the Company from twenty-five million (25,000,000)
shares to fifty-five million (55,000,000) shares, increasing
the total number of shares of the Company's Class A Common
Stock, no par value (the "Class A Common Stock"), from
eighteen million five hundred thousand (18,500,000) shares to
fifty million (50,000,000) shares;
F. To approve an amendment to the Company's 1995 Stock Option
Plan, as amended (the "1995 Stock Plan"), to increase the
maximum number of shares of Class A Common Stock available for
issuance under the 1995 Stock Plan from 1,020,000 shares of
Class A Common Stock to 3,000,000 shares;
G. To approve and ratify the termination of forfeiture provisions
of 833,000 of the Company's Class A Common Stock, which were
formerly 833,000 shares of Class B Common Stock, no par value.
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H. The results of the vote taken at the Meeting by ballot and by proxy
as solicited by the Company on behalf of the Board of Directors
were as follows:
1. The results of the vote taken at the Meeting for the election of
the nominees for the Board of Directors were as follows:
Nominee For Withheld
------- --- --------
Frank A DeBernardis 4,470,910 7,700
Anthony Dimun 4,470,910 7,700
Daniel M. Mulvena 4,470,910 7,700
Joseph J. Prischak 4,470,910 7,700
Irwin M. Rosenthal 4,331,303 147,307
David Vilkomerson 4,470,910 7,700
Malcolm Dale 4,470,910 7,700
2. A vote was taken on the proposal to ratify the appointment of
KPMG LLP as independent auditors of the Company for the year
ending August 31,2001. The results of the vote taken were as
follows:
For Against Abstain
--- ------- -------
4,459,110 500 19,000
3. The proposal to approve and ratify the adoption of an amendment
to the Company's Restated Certificate of Incorporation. The
results of the vote taken were as follows:
For Against Abstain
--- ------- -------
4,453,410 10,000 15,200
4. The proposal to amend the 1995 Stock Option Plan to increase the
maximum number of shares of Class A Common Stock available for
issuance under the 1995 Stock Option Plan for 1,020,000 shares of
Class A Common Stock to 3,000,000 shares. The results of the vote
taken were as follows:
For Against Abstain
--- ------- -------
4,455,331 10,079 13,200
5. The proposal to approve and ratify the termination of forfeiture
provisions of 833,000 shares of the Company's Class A Common
Stock, which were formerly 833,000 shares of Class B Common
Stock. The results of the vote taken were as follows:
For Against Abstain
--- ------- -------
1,277,077 3,145,433 27,500
Item 5: Other Information - None
Item 6: Exhibits and Reports on Form 8-K
a) 27) Financial Data Schedule
b) None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: January 16, 2001
EchoCath, Inc.
----------------------------------
(Registrant)
By: /s/ Frank DeBernardis
------------------------------
Frank DeBernardis
President, Chief Executive Officer,
Principal Financial and Accounting
Officer
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