UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _______________ TO ______________.
Commission File Number 0-21015
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HUMASCAN INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 22-3345046
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 Moen Avenue, Cranford, New Jersey 07016
-------------------------------------------
(Address of principal executive offices)
(908) 709-3434
------------------------------------------------
(Issuer's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) 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 .
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 13, 1998, Issuer had
outstanding 7,783,646 shares of common stock, par value $.01 per share.
<PAGE>
HumaScan Inc.
(A Development Stage Enterprise)
Condensed Balance Sheet
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
3/31/98 12/31/97
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 159,932 1,443,839
Investments 5,633,921 6,443,559
Accounts Receivable 5,260 8,396
Inventory 654,603 337,754
Prepaid expenses 114,094 63,829
----------- -----------
Total current assets 6,567,810 8,297,377
Property, plant and equipment, net 2,260,657 2,282,873
Other assets 313,367 132,780
----------- -----------
Total assets $ 9,141,834 10,713,030
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 401,788 355,245
Accrued expenses 1,280,529 1,305,553
Obligations under capital lease 9,912 9,563
----------- -----------
Total current liabilities 1,692,229 1,670,361
Obligations under capital lease, noncurrent portion 23,482 26,094
Stockholders' Equity:
Common Stock, $0.01 par value, 25,000,000 shares authorized;
in 1998, 7,783,094 shares issued and outstanding; in 1997,
7,738,313 shares issued and outstanding 77,831 77,384
Additional paid-in capital 15,095,730 14,932,869
Deficit accumulated during the development stage (7,747,438) (5,993,678)
----------- -----------
Total stockholders' equity 7,426,123 9,016,575
----------- -----------
Total liabilities and stockholders' equity $ 9,141,834 $10,713,030
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
- 2 -
<PAGE>
HumaScan Inc.
(A Development Stage Enterprise)
Condensed Statements of Operations
For the Three Months Ended March 31, 1998 and 1997
and for the period from December 27, 1994 (date of inception) to March 31, 1998
<TABLE>
<CAPTION>
(UNAUDITED)
For the Period
Three Months Ended from 12/27/94
----------------------------- (date of inception)
3/31/98 3/31/97 to 3/31/98
----------- --------- -------------------
<S> <C> <C> <C>
Net sales $ 62,914 $ 0 $ 70,494
Operating Expenses:
Product and facility costs 467,984 178,324 1,738,903
Sales and marketing expenses 825,949 155,851 2,374,830
General and administrative expenses 430,280 295,060 3,077,236
Clinical development expenses 166,356 132,971 1,149,972
Interest expense 1,262 1,663 384,847
----------- --------- -----------
1,891,831 763,869 8,725,788
----------- --------- -----------
Income from operations (1,828,917) (763,869) (8,655,294)
Interest income 75,157 160,224 907,856
----------- --------- -----------
Net loss $(1,753,760) $(603,645) $(7,747,438)
=========== ========= ===========
Net loss per common share ($0.23) ($0.08) ($1.22)
=========== ========= ===========
Shares used in computing
net loss per share 7,760,980 7,720,313 6,355,359
=========== ========= ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
-3-
<PAGE>
HumaScan Inc.
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
For the three months ended March 31, 1998 and 1997
and for the period from December 27, 1994 (date of inception)
to March 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Period from
ended December 31, December 27, 1994
----------------------------- (date of inception)
1998 1997 to March 31, 1998
----------- ----------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,753,760) $ (603,645) $(7,747,438)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash miscellaneous expenses -- -- 17,000
Issuance of stock options to non-employees -- -- 50,317
Noncash interest expense -- -- 343,485
Depreciation expense 94,396 24,062 261,497
Changes in operating assets and liabilities:
Increase in inventory (316,849) -- (654,603)
Increase in other assets (180,587) (26,227) (313,367)
Increase in prepaid expenses (50,265) (4,843) (114,094)
Decrease (increase) in accounts receivable 3,136 -- (5,260)
Increase (decrease) in accounts payable 46,543 (110,380) 401,788
(Decrease) increase in accrued expenses (25,024) (45,288) 220,529
----------- ---------- -----------
Net cash used in operating activities (2,182,410) (766,321) (7,540,146)
----------- ---------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (72,180) (130,215) (2,472,165)
Payments for production line -- (6,452) --
Payments in connection with license agreement -- -- (550,000)
Sale (purchases) of investments 809,638 (83,978) (5,633,921)
----------- ---------- -----------
Net cash provided by (used in) investing activities 737,458 (220,645) (8,656,086)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 208,600
Proceeds from issuance of common stock in connection with
exercise of employee options 163,308 -- 271,308
Proceeds from officer loan -- -- 125,000
Payments on officer loan -- -- (91,000)
Proceeds from borrowings of notes payable -- -- 810,000
Principal payments on obligation under capital lease (2,263) (1,961) (16,595)
Proceeds from initial public offering -- -- 14,001,418
Proceeds from private placement -- -- 1,047,433
----------- ---------- -----------
Net cash provided by (used in) financing activities 161,045 (1,961) 16,356,164
----------- ---------- -----------
Net (decrease) increase in cash and cash equivalents (1,283,907) (988,927) 159,932
Cash and cash equivalents, beginning of period 1,443,839 6,413,062 --
----------- ---------- -----------
Cash and cash equivalents, end of period $ 159,932 $5,424,135 $ 159,932
=========== ========== ===========
Supplemental disclosure of noncash transactions:
Amounts due in connection with license agreement $1,050,000 $ 1,050,000
========== ===========
Dollar value of common stock issued in connection with license agreement $ 3,291 $ 3,291
========== ===========
Dollar value of equipment acquired under capital lease $ 49,989 $ 49,989
========== ===========
Conversion of notes payable to preferred stock $ 810,000 $ 810,000
========== ===========
Conversion of officer loan to preferred stock $ 34,000 $ 34,000
========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
- 4 -
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying unaudited financial statements of HumaScan Inc. (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
rule 10-01 of Regulation S-X. All adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial condition and
results operations have been included. Operating results for the three month
period ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
These interim consolidated financial statements should be read in conjunction
with the Company's latest Annual Report on Form 10-KSB for the year ended
December 31, 1997.
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<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1998 and 1997
(UNAUDITED)
(1) Basis of Presentation
The unaudited condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with generally accepted
accounting principles. 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. These unaudited financial statements should be read in conjunction
with the 1997 financial statements and notes thereto included in the Company's
annual report on Form 10-KSB.
In the opinion of the Company's management, the accompanying unaudited condensed
financial statements have been prepared on a basis substantially consistent with
the audited financial statements and contain adjustments, all of which are of a
normal recurring nature, necessary to present fairly its financial position as
of March 31, 1998 and its results of operations and cash flows for the three
months ended March 31, 1998 and 1997 and for the period December 27, 1994 (date
of inception) to March 31, 1998. Interim results are not necessarily indicative
of results for the full fiscal year.
Net loss per share was calculated by dividing the net loss by the weighted
average number of common shares outstanding for the period adjusted for the
dilutive effect of common stock equivalents which consist of stock options and
warrants using the treasury stock method.
(2) Net Loss Per Share
Basic loss per share is determined based on the weighted average number of
common shares assumed to be outstanding during each period. Dilutive loss per
share is the same as basic loss per share as all common share equivalents are
excluded from the calculation as their effect is anti-dilutive. The weighted
average number of common shares assumed to be outstanding for the three month
periods ended March 31, 1998 and 1997 is 7,760,980 and 7,720,313, respectively.
(3) Inventory
Inventory consists of the following:
1998 1997
---- ----
Raw Materials $588,058 --
Work-in-process 10,000 --
Finished Goods 56,545 --
-------- ----
$654,603 --
(4) Stock Options
On March 13, 1998, the Company granted a director nonqualified stock options to
purchase an aggregate of 15,000 shares of common stock at an exercise price of
$9.094 per share. These options vest immediately and have a ten year term.
On April 28, 1998, the Company granted an officer and a consultant stock options
to purchase an aggregate of 42,500 shares of common stock at an exercise price
of $5.375 per share. Options for 15,000 shares vest on April 27, 1998, options
for 7,500 shares vest on April 27, 1999 and options for 7,500 shares vest on
April 27, 2000. The options expire five years after the date they vest. Options
for 12,500 shares vest 33-1/3 percent upon grant and 33-1/3 percent each year
for two years and have a ten year term.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations for the Three Month Periods Ended March 31, 1998 and 1997
Revenues
Net sales for the three month period ended March 31, 1998 were $62,914 as
compared to $0 in the same period in 1997. The Company commenced shipments of
its BreastAlert Differential Temperature Sensor ("BreastAlert") on December 29,
1997 to the distribution facilities of Physician Sales & Service Inc., the
national distributor of BreastAlert.
Operating Expenses:
Operating expenses consist of product and facility costs, sales and marketing
expenses, general and administrative expenses, clinical development expenses and
interest expense. These expenses increased $1,127,962, or 148%, due to planned
increases for the production ramp-up, expanded marketing for the launch of
BreastAlert and for the continuing post-marketing clinical studies.
Interest Income
Interest income for the three month period ended March 31, 1998 decreased
$85,067, or 53%, from the same period in 1997. This decrease is due to the
Company's use of proceeds from the Company's August 1996 initial public offering
to fund operations during 1996, 1997 and 1998.
Liquidity and Capital Resources
On August 19, 1996, the Company completed an initial public offering of
2,700,000 shares of its common stock at a price of $6.00 per share, which
generated net proceeds to the Company of approximately $14.0 million after
underwriting fees and offering expenses. At March 31, 1998, the Company had cash
and cash equivalents of $159,932 and investments of $5,633,921. Cash balances in
excess of those required to fund operations have been invested in
interest-bearing government securities or short-term investment grade
securities. The Company's working capital of $4.9 million at March 31, 1998
reflected a decrease of $1.7 million from March 31, 1997.
As of March 31, 1998, the Company had $33,394 outstanding on an obligation under
a capital lease. No lines of credit were outstanding at March 31, 1998.
The Company anticipates, based on its currently proposed plans and assumptions
relating to its operations, that its existing cash resources will be sufficient
to satisfy its contemplated cash requirements through at least the fourth
quarter of 1998. The Company's future liquidity and capital funding requirements
will depend on numerous factors, including the following: the progress of
manufacturing activities, results of clinical trials, the extent to which the
BreastAlert device gains market acceptance, the costs and timing of expansion of
sales and marketing and competition. There can be no assurances that any
required additional financing can be obtained, or if obtained, will be on
reasonable terms.
Forward-looking Statements
When used in this and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "will likely result," "plans," "will continue," "is anticipated,"
"estimated," "project" or "outlook" or similar expressions (including
confirmations by an authorized executive officer of the Company of any such
expressions made by a third party with respect to the Company) are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. This report contains a forward-looking
statement regarding the effect of certain objections the FDA has raised
regarding, primarily, the Company's product labeling and advertising. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, each of which speaks only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or
-7-
<PAGE>
projected. These factors include the uncertain effect of governmental regulation
on the Company and the other factors set forth under the caption "Risk Factors"
in the Company's annual report on Form 10-KSB and other filings with the
Securities and Exchange Commission. The Company has no obligation to release
publicly the results of any revisions that may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On January 9, 1998, the Company received a letter from Scantek Medical Inc.
("Scantek"), the licensor of the technology relating to the BreastAlert,
alleging that the Company was in default of certain payments aggregating between
$175,000 and $375,000 due to Scantek under the License Agreement. The Company
paid Scantek $100,000 towards the payments Scantek claims are due without
prejudice to the Company's claims that such amounts are not due and owing.
Scantek agreed to extend the period for the Company to make the payments until
May 15, 1998 and the parties are currently pursuing a resolution through
non-binding mediation.
Item 2. Changes in Securities and Use of Proceeds
Since February 3, 1998, the Company has granted options to an officer and a
consultant to purchase an aggregate of 42,500 shares of Common Stock. All of
such options were granted on April 27, 1998. Options for 15,000 shares vest on
April 27, 1998, options for 7,500 shares vest on April 27, 1999 and options for
7,500 shares vest on April 27, 2000. The options expire five years after the
date they vest. Options for 12,500 shares vest 33-1/3 percent upon grant and
33-1/3 percent each year for two years and have a ten year term. The issuances
of all of these options are claimed to be exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 as transactions by an issuer not
involving a public offering.
On August 9, 1996, the Securities and Exchange Commission declared the Company's
registration statement on Form SB-2, File No. 333-6607, effective, and the
offering commenced on August 14, 1996. Such registration statement registered
the sale at an offering price of $6.00 per share of 2,700,000 shares of common
stock by the Company and the sale, pursuant to an over-allotment option granted
to the underwriters, of up to an additional 405,000 shares of common stock by
the Company. In addition, such registration statement registered the sale to
Keane Securities Co., Inc., the managing underwriter of the offering, of common
stock purchase warrants to purchase 270,000 shares of common stock at $7.80 per
share during the four year period commencing August 19, 1997. On August 19,
1996, the Company sold 2,700,000 shares of the Company's common stock for an
aggregate of $16,200,000. The underwriters' over-allotment of 405,000 shares was
not exercised; these shares were deregistered by the post-effective amendment
filed on October 25, 1996.
Total expenses incurred were approximately $6.8 million, consisting of $1.3
million of underwriting discounts and commissions, and an estimated $0.9 million
of accounting, legal and other expenses. After deducting the Company's
underwriting commissions and other expenses, the net proceeds to the Company
were approximately $14.0 million. None of such expenses were paid, directly or
indirectly, to directors or officers of the Company or to any person owning 10%
or more of any class of equity securities of the Company or to any affiliates of
the Company.
Of the approximately $14.0 million of net proceeds to the Company from the
offering, $3.6 million has been spent on capital equipment and facility costs,
$2.3 million on sales and marketing expenses, $1.1 million for clinical studies,
$0.7 for inventory, and $2.6 for working capital. Approximately $3.7 million of
the proceeds have been temporarily invested in short-term investment grade
securities. Except for amounts paid to officers and directors as compensation
for services in such capacities, none of the net proceeds were paid, directly or
indirectly, to directors or officers of the Company or to any person owning 10%
or more of any class of equity securities of the Company or to any affiliates of
the Company.
-8-
<PAGE>
Item 5. Other Events
On April 24, 1998, the Company received a "warning letter" from the Office of
Compliance, Promotion and Advertising Policy Staff of the Food and Drug
Administration ("FDA") in connection with certain statements made in the
Company's advertising and product labeling. The FDA's letter objects principally
to statements in the labeling and advertising that the FDA staff believes
represent BreastAlert as a stand-alone test that is able to detect breast
disease. The letter notes that BreastAlert has been cleared only for use by
physicians "as an adjunct to routine physical examination including palpation,
mammography and other established procedures for the detection of breast
disease." The Company is in the process of revising its labeling and advertising
materials and is preparing a response. The Company does not expect the FDA's
objections to the Company's labeling and advertising, or the changes sought by
the FDA, to have a significant effect on the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule (3/31/98)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
on Form 10-Q is filed.
-9-
<PAGE>
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.
HUMASCAN INC.
Registrant
May 14, 1998 /s/ Kenneth S. Hollander
-------------------------------
Kenneth S. Hollander
Chief Financial Officer (Principal
Financial and Accounting Officer)
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 159,932
<SECURITIES> 5,633,921
<RECEIVABLES> 5,260
<ALLOWANCES> 0
<INVENTORY> 654,603
<CURRENT-ASSETS> 6,567,810
<PP&E> 2,522,154
<DEPRECIATION> (261,497)
<TOTAL-ASSETS> 9,141,834
<CURRENT-LIABILITIES> 1,692,229
<BONDS> 0
0
0
<COMMON> 77,831
<OTHER-SE> 7,348,292
<TOTAL-LIABILITY-AND-EQUITY> 9,141,834
<SALES> 62,194
<TOTAL-REVENUES> 75,157
<CGS> 0
<TOTAL-COSTS> 1,891,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,753,760)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,753,760)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,753,760)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
