<PAGE>
-------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1997
Commission File Number 0-20945
MEDI-JECT CORPORATION
161 Cheshire Lane, Suite 100
Minneapolis, Minnesota 55441
(612) 475-7700
A Minnesota Corporation IRS Employer ID No. 41-1350192
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of August 5, 1997 was 7,051,786.
-------------------------
1
<PAGE>
MEDI-JECT CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Balance Sheets, as of December 31, 1996 and
June 30, 1997...................................... 3
Statements of Operations for the six months ended
June 30, 1996 and 1997............................. 4
Statements of Cash Flows for the six months ended
June 30, 1996 and 1997............................. 5
Notes to Financial Statements...................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................... 9
SIGNATURES................................................... 11
</TABLE>
2
<PAGE>
MEDI-JECT CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 9,575,240 $ 3,463,876
Marketable securities.................. 1,464,277 6,016,093
Accounts receivable, less allowances
for doubtful accounts of $12,983...... 537,755 363,163
Inventories............................ 351,330 359,517
Prepaid expenses and other assets...... 86,589 94,267
------------ ------------
12,015,191 10,296,916
------------ ------------
Equipment, furniture and fixtures, net...... 595,590 741,979
------------ ------------
Patent rights............................... 345,010 380,782
------------ ------------
$ 12,955,791 $ 11,419,677
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................... $ 353,456 $ 211,060
Accrued expenses and other liabilities. 331,446 339,040
Deferred revenue....................... 14,019 --
Capital lease obligations - current
maturities............................ 32,747 17,314
Notes payable - current maturities..... 96,097 32,833
------------ ------------
827,765 600,247
------------ ------------
Long-term liabilities:
Capital lease obligations, less
current maturities.................... 8,350 2,972
Shareholders' equity (deficit):
Common Stock: $0.01 par; authorized
17,000,000 shares: 6,925,636 and
6,994,664 issued and outstanding at
December 31, 1996 and June 30, 1997,
respectively......................... 69,256 69,947
Additional paid-in capital............. 23,590,887 23,687,331
Accumulated deficit.................... (11,540,467) (12,940,820)
------------ ------------
Total shareholders' equity............ 12,119,676 10,816,458
------------ ------------
12,955,791 11,419,677
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For Six Months Ended For Three Months Ended
----------------------------- -----------------------------
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues:
Sales.................................. $ 814,244 $ 883,174 $ 370,419 $ 477,093
Licensing & product development........ 686,038 969,230 360,715 404,286
----------- ----------- ---------- ----------
1,500,282 1,852,404 731,134 881,379
----------- ----------- ---------- ----------
Operating Expenses:
Cost of sales.......................... 501,718 548,008 209,207 277,960
Research and development............... 1,093,087 1,342,434 643,355 697,144
General and administrative............. 672,079 845,487 282,745 437,657
Sales and marketing.................... 466,880 765,985 254,226 399,623
----------- ----------- ---------- ----------
2,733,764 3,501,914 1,389,533 1,812,384
----------- ----------- ---------- ----------
Net operating loss......................... (1,233,482) (1,649,510) (658,399) (931,005)
----------- ----------- ---------- ----------
Other income (expense):
Interest and other income.............. 69,485 272,321 33,937 132,326
Interest and other expense............. (20,181) (23,164) (6,700) (19,384)
----------- ----------- ---------- ----------
49,304 249,157 27,237 112,942
----------- ----------- ---------- ----------
Net loss................................... $(1,184,178) $(1,400,353) $ (631,162) $ (818,063)
=========== =========== ========== ==========
Net loss per common share.................. $(.20) $(.12)
Weighted average common shares
outstanding............................ 6,969,730 6,991,969
Proforma net loss per common share
(unaudited) (Note 3)................... $(.23) $(.12)
Proforma weighted average common shares
outstanding (unaudited) (Note 3)....... 5,260,880 5,260,880
</TABLE>
See accompanying Notes to Financial Statements
4
<PAGE>
MEDI-JECT CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For Six Months Ended
-------------------------------------
June 30, 1996 June 30, 1997
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(1,184,178) $(1,400,353)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............................... 69,881 123,359
Loss from disposal of asset................................. -- 16,664
Interest on marketable debt securities...................... -- (117,812)
Changes in operating assets and liabilities:
Accounts receivable....................................... 48,022 174,592
Inventories............................................... (54,306) (8,187)
Prepaid expenses and other assets......................... (75,433) (7,678)
Accounts payable.......................................... (7,330) (142,396)
Accrued liabilities....................................... (149,602) 7,595
Deferred revenue.......................................... 308,461 (14,019)
----------- -----------
Net cash used in operating activities............................ (1,044,485) (1,368,235)
----------- -----------
Cash flows from investing activities:
Purchases of marketable securities.......................... -- (4,947,230)
Proceeds from purchases of marketable securities............ -- 513,225
Purchases of equipment, furniture and fixtures.............. (173,789) (260,969)
Proceeds from sale of equipment, furniture and fixtures..... -- 300
Purchases of patent rights.................................. (82,613) (61,514)
----------- -----------
Net cash used in investing activities............................ (256,402) (4,756,188)
----------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations............. (23,079) (20,811)
Proceeds from issuance of common stock...................... 101,130 102,826
Proceeds from issuance of convertible preferred stock....... 3,812,500 --
Warrants issued............................................. 125,000 --
Proceeds from issuance of notes payable..................... 187,500 --
Principal payments on notes payable......................... (469,299) (63,264)
Offering costs.............................................. (236,022) (5,692)
----------- -----------
Net cash provided by (used in) financing activities.............. 3,497,730 13,059
----------- -----------
Net increase (decrease) in cash and cash equivalents............. 2,196,843 (6,111,364)
Cash and cash equivalents:
Beginning of period............................................ 35,817 9,575,240
----------- -----------
End of period.................................................. $ 2,232,660 3,463,876
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE>
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The accompanying financial
statements and notes should be read in conjunction with the Company's 1996
audited financial statements and notes thereto.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the six month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
3. PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is computed by dividing the net loss
attributable to common shareholders by the weighted average number of
shares of common stock and common stock equivalents outstanding, after
applying the treasury stock method and after giving effect to the reverse
stock split and the automatic conversion of all outstanding shares of
convertible preferred stock in accordance with the Company's initial public
offering.
Pursuant to certain requirements of the Securities and Exchange Commission,
common stock equivalents include the impact of the issuance of stock,
options and warrants within one year prior to the date of the initial
filing of the Company's initial public offering ("IPO") at exercise prices
less than the initial public offering price per share, whether or not the
effects are antidilutive.
4. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
Raw Material $175,251 $185,141
Work in-process 119,575 103,315
Finished goods 56,504 71,061
-------- --------
$351,330 $359,517
======== ========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three and Six Months Ended June 30, 1997 and 1996
Total revenues for the three and six months ended June 30, 1997 were 881,379 and
$1,852,404, respectively. These figures reflect increases of $150,245 or 21%
and $352,122 or 23% over the same periods in 1996. Sales of injector products
and services increased by $106,674 in the three months ended June 30, 1997,
compared to the three months ended June 30, 1996. This increase resulted
primarily from an increase in the number of injector units sold during the 1997
period. Sales of injector products and services increased by $68,930 or 8% in
the six months ended June 30, 1997 compared to the same period in the prior
year. This increase was the result of an increase of a $41,785 in sales of
supplies and services and an increase of $27,145 in injector sales. The number
of injector units sold in the six months ended June 30, 1997 totaled 1,854,
compared to 1,363 in the same period in the prior year. This 36% increase in
unit sales was not reflected in the dollar figures due to a decrease in the
average unit selling price from $389 in the six months ended June 30, 1996, to
$301 during the same period in 1997. This represents a decrease of 23% from the
1996 to the 1997 period.
Licensing and product development fee income increased by $43,571 or 12% in the
three months ended June 30, 1997 and by $283,192 or 41% in the six months ended
June 30, 1997 compared to the same periods in 1996. These increases relate to
fee income received from Teva Pharmaceuticals, new development and licensing
agreements executed during the first six months of 1997 and a similar amount of
fee income received from Becton Dickinson and Company during both the 1996 and
1997 periods. The Company expects that licensing and product development fee
income will fluctuate on a quarter to quarter basis, depending on a variety of
factors, including the timing of the execution of new development and licensing
agreements and the timing, nature and size of fee payments to be made under
existing and new agreements. In addition, since the Company does not, in
general, recognize project-based fee income until related development work has
been performed, quarterly results will fluctuate with the timing of the
Company's research and development efforts.
Cost of sales in the three and six months ended June 30, 1997 were $277,960 and
$548,008, respectively. These figures reflect increases of $68,753 or 33% and
$46,290 or 9% in the three and six month periods of the prior year,
respectively. While these increases approximately reflect the product sales
increases experienced in each period, unit sales increases are
disproportionately greater in each period, reflecting lower per unit
manufacturing costs.
Research and development expenses increased 8% to $697,144 in the three months
ended June 30, 1997, from $643,355 during the same period in 1996. Research and
development expenses increased to $1,342,434 in the first six months of 1997,
from $1,093,087 in the first six months of 1996, an increase of approximately
23%. These increases are attributable to research and development expenses
related to new projects underway in the 1997 periods and a continuation of
expenses under the collaboration with Becton Dickinson and Company in both
periods.
7
<PAGE>
General and administrative expenses totaled $437,657 and $845,487 in the three
and six months ended June 30, 1997. In comparison to the prior year, these
figures reflect increases of $154,912 or 55% and $173,408 or 26%, in the three
and six months ended June 30, 1997, respectively. The increases during the 1997
periods principally reflect expenses related to being a publicly traded company,
as well as increased salaries, travel, consulting and amortization expenses.
Sales and marketing expenses totaled $399,623 and $765,985 in the three and six
months ended June 30, 1997, respectively. These figures reflect year to year
increases of $145,397 or 57%, and $299,105 or 64%, in the three and six months
ended June 30, 1997, respectively. These increases are principally attributable
to expenses of a new field sales force and other promotional activities in the
U.S. diabetes market.
Net other income (expense), increased by $85,705 and $199,853 relative to the
prior year in the three and six month periods ended June 30, 1997, respectively.
These increases are attributable to both increased interest income as a result
of higher cash balances and lower interest expense due to lower overall
indebtedness in the 1997 periods. Higher cash balances are the result of an
initial public offering completed in October 1996.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities totaled $11,039,517 on December
31, 1996 compared to $9,479,969 on June 30, 1997. The decrease results
primarily from an operating loss of $1,400,353, in addition to a reduction of
$232,896 in liabilities offset in part by a $174,592 reduction in accounts
receivable.
The Company's long term capital requirements will depend on numerous factors,
including the status of the Company's collaborative arrangements, the progress
of the Company's research and development programs and the receipt of revenues
from sales of the Company's products. The Company believes that cash on hand,
interest expected to be earned thereon and anticipated revenues, will meet its
needs through the next twelve months. In order to meet its capital needs beyond
this period, the Company may be required to raise additional capital through
public or private offerings, including equity offerings.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Securities Holders.
On May 15, 1997 an annual meeting of shareholders was held at the
offices of the Company. The first item submitted to Shareholders at the
meeting was for the election of two Class I directors, Louis Cosentino,
Ph.D. and Kenneth Evenstad. Dr. Cosentino was re-elected to the Board
of Directors with votes cast in favor totaling 4,774,510 and votes
withheld totaling 4,474. Mr. Evenstad was re-elected to the Board of
Directors with votes in favor totaling 4,773,510 and votes withheld
totaling 5,474. Continuing directors of the Company that did not stand
for re-election at this meeting are; Chairman, Franklin Pass, Geoffrey
Guy, Fred Shapiro, Norman Jacobs, and Peter Sjostrand. The second item
submitted to the Shareholders at the meeting was the ratification of
the Company's independent auditors for the year ending December 31,
1997. This item was approved with votes cast for totaling 4,761,562,
votes against totaling 2,500, abstentions totaling 14,922 and broker
non-votes of 0. The third and final item submitted to shareholders at
the meeting was a proposal to increase the number of shares of Common
Stock available for issuance under the Company's 1996 Incentive and
Stock Option Plan. This proposal was approved by shareholders with
votes for totaling 3,596,964, votes against totaling 616,521,
abstentions totaling 16,862 and broker non-votes of 0.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Second Amended and Restated Articles of Incorporation of the
Company.(a)
3.2 Second Amended and Restated Bylaws of the Company.(a)
9
<PAGE>
4.1 Form of Certificate for Common Stock.(a)
4.2 Stock Warrant, dated January 25, 1996, issued to Becton
Dickinson and Company.(a)
4.3 Stock Option, dated January 25, 1996, issued to Becton
Dickinson and Company.(a)
4.4 Warrant, dated March 24, 1995, issued to Robert Fullerton.(a)
4.5 Warrant, dated March 24, 1995, issued to Michael Trautner.(a)
4.6 Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company (filed herewith as Exhibit 10.7).(a)
10.1 Office/Warehouse/Showroom Lease, dated January 2, 1995,
including amendments thereto.(a)
10.3 Security Agreement, dated September 30, 1994, by and between
the Company and Kelsey Lake Limited Partnership and Kerry Lake
Company, a Limited Partnership.(a)
10.4 Promissory Note, dated September 30, 1994, issued to Kelsey
Lake Limited Partnership.(a)
10.5 Promissory Note, dated September 30, 1994, issued to Kerry
Lake Company, a Limited Partnership.(a)
10.6 Loan Agreement, dated as of December 22, 1995, by and between
Ethical Holdings plc and the Company, including the related
Promissory Note, dated December 22, 1995, issued to Ethical
Holdings plc.(a)
10.7 Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company.(a)
10.8* Employment Agreement, dated as of January 1, 1997, between the
Company and Franklin Pass, MD. (c)
10.9* Employment Agreement, dated as of January 3, 1995, between the
Company and Mark Derus.(a)
10.10* Employment Agreement, dated as of January 3, 1995, between
the Company and Todd Leonard.(a)
10.11* Employment Agreement, dated as of January 3, 1995, between
the Company and Peter Sadowski.(a)
10.12* 1993 Stock Option Plan.(a)
10
<PAGE>
10.13* Form of incentive stock option agreement for use with 1993
Stock Option Plan.(a)
10.14* Form of non-qualified stock option agreement for use with
1993 Stock Option Plan.(a)
10.15* 1996 Stock Option Plan, with form of stock option
agreement.(a)
+10.20 Development and License Agreement between Becton Dickinson
and Company and the Company, effective January 1, 1996.(a)
10.21 Office-Warehouse lease with Carlson Real Estate Company, dated
February 11, 1997. (b)
27 Financial Data Schedule
* Indicates management contract or compensatory plan or arrangement.
(a) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-6661), filed with the Securities and Exchange Commission
on October 1, 1996.
+ Pursuant to Rule 406 of the Securities Act of 1933, as amended, confidential
portions of Exhibit 10.20 were deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment, which was subsequently granted by the Securities and Exchange
Commission.
(b) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1996.
(c) Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
Pursuant to the requirements of the securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDI-JECT CORPORATION
August 12, 1997 /s/ Franklin Pass
- ------------------------------------ -------------------------------------
Date Franklin Pass, MD, Chairman/CEO
August 12, 1997 /s/ Mark S. Derus
- ------------------------------------ -------------------------------------
Date Mark S. Derus, Vice President Finance,
CFO Principal Financial & Accounting
Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
audited and unaudited internal financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001016169
<NAME> Medi-Ject Corporation
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 9575240 3463876
<SECURITIES> 1464277 6016093
<RECEIVABLES> 550738 376146
<ALLOWANCES> 12983 12983
<INVENTORY> 351330 359517
<CURRENT-ASSETS> 12015191 10296916
<PP&E> 1238584 1369931
<DEPRECIATION> 642994 631016
<TOTAL-ASSETS> 12955791 11419677
<CURRENT-LIABILITIES> 827765 600247
<BONDS> 8350 2972
0 0
0 0
<COMMON> 69256 69947
<OTHER-SE> 12050420 10746511
<TOTAL-LIABILITY-AND-EQUITY> 12955791 11419677
<SALES> 1837704 883174
<TOTAL-REVENUES> 3930859<F1> 2124725<F1>
<CGS> 1136272 548008
<TOTAL-COSTS> 5001221 2970569
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 31934 6501
<INCOME-PRETAX> (2238568) (1400353)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2238568) (1400353)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2238568) (1400353)
<EPS-PRIMARY> (.39) .20
<EPS-DILUTED> (.39) .20
<FN>
<F1> Includes interest income of $230,655 for PE 12-31-96 and $272,321 for PE
6-30-97.
</FN>
</TABLE>
