<PAGE>
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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 MARCH 31, 1998
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 April 22, 1998 was 7,094,438.
==================================
1
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MEDI-JECT CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Balance Sheets, as of December 31, 1997 and
March 31, 1998.................................................. 3
Statements of Operations for the three months ended
March 31, 1997 and 1998......................................... 4
Statements of Cash Flows for the three months ended
March 31, 1997 and 1998......................................... 5
Notes to Financial Statements................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 6
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................ 10
SIGNATURES.............................................................. 12
2
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MEDI-JECT CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................. $ 3,745,851 $ 3,724,801
Marketable securities.................................. 3,537,483 3,075,216
Accounts receivable, less allowances
for doubtful accounts of $22,284..................... 760,948 378,088
Inventories............................................ 397,072 443,760
Prepaid expenses and other assets...................... 71,495 97,304
----------- -------------
8,512,849 7,719,169
----------- -------------
Equipment, furniture and fixtures, net................... 1,165,213 1,344,675
----------- -------------
Patent rights, net....................................... 369,406 355,495
----------- -------------
$10,047,468 $ 9,419,339
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 321,758 $ 461,182
Accrued expenses and other liabilities................. 379,776 356,457
Deferred revenue....................................... 0 106,847
Capital lease obligations - current maturities......... 7,083 2,113
----------- -------------
708,617 926,599
----------- -------------
Capital leases, less current maturities.................. 1,721 1,166
Shareholders' equity:
Common Stock: $0.01 par; authorized 17,000,000 shares:
7,071,589 issued and outstanding at
December 31, 1997 and March 31, 1998................. 70,716 70,716
Additional paid-in capital............................. 23,778,648 23,778,648
Accumulated deficit.................................... (14,512,234) (15,357,790)
----------- -------------
9,337,130 8,491,574
----------- -------------
$10,047,468 $ 9,419,339
=========== =============
</TABLE>
See accompanying notes to financial statements.
3
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MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------
MARCH 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
Revenues:
Sales............................................... $ 406,081 $ 609,195
Licensing & product development..................... 564,944 303,778
----------- -----------
971,025 912,973
----------- -----------
Operating Expenses:
Cost of sales....................................... 270,048 467,823
Research and development............................ 645,290 592,486
General and administrative.......................... 407,830 544,812
Sales and marketing................................. 366,362 246,843
----------- -----------
1,689,530 1,851,964
----------- -----------
Net operating loss..................................... (718,505) (938,991)
----------- -----------
Other income (expense):
Interest and other income........................... 139,995 94,593
Interest and other expense.......................... (3,780) (1,158)
----------- -----------
136,215 93,435
----------- -----------
Net loss............................................... $ (582,290) $ (845,556)
=========== ===========
Basic and diluted net loss per common share............ $ (.08) $ (.12)
Basic and diluted weighted average common shares
outstanding......................................... 6,947,245 7,071,589
</TABLE>
See accompanying Notes to Financial Statements
4
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MEDI-JECT CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
MARCH 31, MARCH 31,
1997 1998
-------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (582,290) $ (845,556)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization....................... 56,356 102,677
Interest on marketable debt securities.............. (35,676) (48,288)
Changes in operating assets and liabilities:
Accounts receivable............................... (318,898) 382,860
Inventories....................................... (34,837) (46,688)
Prepaid expenses and other assets................. (117,054) (25,809)
Accounts payable.................................. 150,681 139,424
Accrued liabilities............................... 148,733 (23,319)
Deferred revenue.................................. 25,000 106,847
------------ ----------
Net cash used in operating activities................... (707,985) (257,852)
------------ ----------
Cash flows from investing activities:
Purchases of marketable securities.................. (2,463,953) (1,519,715)
Proceeds from sales of marketable securities........ -- 2,030,271
Purchases of equipment, furniture and fixtures...... (67,021) (268,228)
Purchases of patent rights.......................... (31,380) --
------------ ----------
Net cash provided by (used in) investing activities..... (2,562,354) 242,328
------------ ----------
Cash flows from financing activities:
Principal payments on capital lease obligations..... (11,033) (5,526)
Proceeds from issuance of common stock.............. 46,279 --
Principal payments on notes payable................. (31,239) --
Offering costs...................................... (5,691) --
------------ ----------
Net cash used in financing activities................... (1,684) (5,526)
------------ ----------
Net increase (decrease) in cash and cash equivalents.... (3,272,023) (21,050)
Cash and cash equivalents:
Beginning of period................................. 9,575,240 3,745,851
------------- ---------
End of period....................................... $6,303,217 $3,724,801
============= ==========
</TABLE>
See accompanying Notes to Financial Statements.
5
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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 1997
audited financial statements and notes thereto.
2. INTERIM FINANCIAL STATEMENTS
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.
3. Inventories consist of the following:
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Raw Material $196,579 $196,127
Work in-process 78,220 107,925
Finished goods 122,273 139,708
------------- -------------
$397,072 $443,760
============= =============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1998
Total revenues for the three months ended March 31, 1997 and 1998 were $971,025
and $912,973, respectively. This represents a decrease of $58,052 or 6%. Sales
of injector products and services increased by $203,114 or 50% in the three
months ended March 31, 1998, compared to the three months ended March 31, 1997.
This increase resulted primarily from an increase in the number of injectors
sold (629 and 1,143 in the first quarters of 1997 and 1998, respectively). The
increase in sales of injectors in the quarterly periods is primarily
attributable to the shipment of significant orders to three distributors in the
first quarter of 1998 that did not occur in the 1997 period.
6
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Licensing and product development fee income decreased by $261,166 or 46% in the
three months ended March 31, 1998 as compared to the prior year period. This
decrease is related to the completion in December 1997 of a two-year development
funding contract with Becton Dickinson and Company. The Company expects that
licensing and product development fee income will fluctuate on a
quarter-to-quarter basis, depending on a number 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 months ended March 31, 1997 and 1998 were $270,048
and $467,823, respectively. This represents an increase of $197,775, or 73%. The
increase in cost of sales is primarily attributable to an increase in the amount
of product sold. In addition, manufacturing expenses were higher as a result of
additional engineering personnel, higher rent and increased depreciation
expense, much of which relates to planning for higher volumes in future periods.
Research and development expenses totaled $645,290 and $592,486 in the three
months ended March 31, 1997 and 1998, respectively. This represents a decrease
of $52,804, or 8%, which is primarily attributable to a transition of the
development program to an internally staffed program in 1998 compared to a
program conducted largely through contracted engineering services in 1997.
General and administrative expenses totaled $407,830 and $544,812 in the three
months ended March 31, 1997 and 1998, respectively. These figures reflect an
increase of $136,982, or 34%. The largest component of this increase is
attributable to the development of a Regulatory and Quality Assurance
department. These expenses totaled $66,644 in the first quarter of 1998 compared
to $8,891 in the same period of 1997. The balance of the increase relates to
moderate increases in facilities, personnel, depreciation, insurance and legal
expenses.
Sales and marketing expenses totaled $366,362 and $246,843 in the three months
ended March 31, 1997 and 1998, respectively. These figures reflect a
year-to-year decrease of $119,519, or 33%. This decrease relates primarily to a
scaleback of expenses relating to a sales and marketing program in the U.S.
insulin market announced by the Company in October 1997.
Net other income (expense) decreased by $42,780 relative to the prior year
three-month period ending March 31. This decrease is attributable to lower
average cash balances as the proceeds from the initial public offering completed
in October 1996 are used to fund current operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities totaled $7,283,334 on December
31, 1997 compared to $6,800,017 on March 31, 1998. This decrease results
primarily from an operating loss of $845,556, offset in part by a $382,860
reduction in accounts receivable.
7
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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
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities (Use of proceeds from public offering)
The Company's initial Registration Statement on Form S-1, file no.
333-6661, was declared effective by the Securities and Exchange Commission
on October 10, 1996. The offering of the Company's Common Stock covered by
such Registration Statement commenced on October 2, 1996. Rodman & Renshaw
and R.J. Steichen & Company acted as the managing underwriters ("the
Representatives") for the offering. A total of 2,750,000 shares of Common
Stock, including 330,000 shares subject to the Representatives
over-allotment option and 220,000 shares subject to the warrants issued to
the Representatives were registered. In addition, warrants to purchase
220,000 shares of Common Stock issued to the Representatives were also
registered. The aggregate offering price of the registered Common Stock and
warrants was $15,367,220. Of this amount, $12,100,000 representing
2,200,000 shares of Common Stock and warrants to purchase 220,000 shares of
Common Stock have been sold. The underwriter's over-allotment option has
expired and these shares were not sold. The Representative's warrant has
not yet been exercised and consequently the offering has not yet
terminated.
The amount of expenses incurred for the Company's account in connection
with the issuance and distribution of the securities registered are as
follows:
Underwriting discounts and commissions:.............. $ 907,500
Finder's fees........................................ 0
Expenses paid to or for the underwriters:............ 12,786
Other expenses:...................................... 549,833
----------
Total expenses............................. $1,470,119
==========
All such expenses were paid directly or indirectly to others.
The net offering proceeds to the Company after deducting expenses were
$10,629,881.
9
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The amount of net offering proceeds to the Company used for the following
purposes is as follows:
Purchase and installation of machinery and equip....... $ 1,267,913
Repayment of indebtedness.............................. 184,167
Working capital........................................ 108,774
Temporary investments, marketable securities........... 3,075,216
Other : -market development expenses......... 2,066,101
-product development expenses........ 3,927,710
-----------
Total............................... $10,629,881
===========
All such payments were made directly or indirectly to others.
The use of proceeds contained herein does not represent a material change
in the use of proceeds described in the prospectus
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Securities Holders.
None
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)
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 Reserved.
10
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4.5 Reserved.
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)
10.3 Reserved.
10.4 Reserved.
10.5 Reserved.
10.6 Reserved.
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)
10.13* 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)
10.22* 1998 Stock Option Plan for Non-Employee Directors. (d)
10.23* Letter consulting agreement dated February 20, 1998 between the
Company and Geoffrey W. Guy. (d)
11
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27 Financial Data Schedule
99 Cautionary Statement (b)
* Indicates management contract or compensatory plan or arrangement.
+ 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.
(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.
(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.
(d) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDI-JECT CORPORATION
April 30, 1998 /s/ Franklin Pass
- ----------------------------- -----------------------------------------
Date Franklin Pass, MD, Chairman/CEO
April 30, 1998 /s/ Mark S. Derus
- ----------------------------- -----------------------------------------
Date Mark S. Derus, Vice President Finance/CFO
(principal financial & accounting officer)
12
<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>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 3745851 3724801
<SECURITIES> 3537483 3075216
<RECEIVABLES> 783232 400372
<ALLOWANCES> 22284 22284
<INVENTORY> 397072 443760
<CURRENT-ASSETS> 8512849 7719169
<PP&E> 1967113 2235341
<DEPRECIATION> 801900 890666
<TOTAL-ASSETS> 10047468 9419339
<CURRENT-LIABILITIES> 708617 926599
<BONDS> 1721 1166
0 0
0 0
<COMMON> 70716 70716
<OTHER-SE> 9266414 8420858
<TOTAL-LIABILITY-AND-EQUITY> 10047468 9419339
<SALES> 1686588 609195
<TOTAL-REVENUES> 4222318 1007566<F1>
<CGS> 1221051 467823
<TOTAL-COSTS> 5935894 1384141
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 37140 1158
<INCOME-PRETAX> (2971767) (845556)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2971767) (845556)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2971767) (845556)
<EPS-PRIMARY> (.42) (.12)
<EPS-DILUTED> (.42) (.12)
<FN>
<F1>INCLUDES INTEREST INCOME OF $505,295 FOR PE 12-31-97 AND $94,593 FOR PE
3-31-98.
</FN>
</TABLE>
