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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
Commission File Number 0-20945
MEDI-JECT CORPORATION
161 Cheshire Lane, Suite 100
Minneapolis, Minnesota 55441
(763) 475-7700
A Minnesota Corporation IRS Employer ID No. 41-1350192
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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 May 15, 2000, was 1,424,869.
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1
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MEDI-JECT CORPORATION
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Balance Sheets, as of December 31, 1999 and
March 31, 2000..............................................3
Statements of Operations for the three months ended
March 31, 1999 and 2000.....................................4
Statements of Cash Flows for the three months ended
March 31, 1999 and 2000.....................................5
Notes to Financial Statements...............................6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................8
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...........................10
SIGNATURES ..................................................................13
2
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MEDI-JECT CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
----------------- -----------------
ASSETS (as restated, see (as restated, see
Note 2) Note 2)
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................. $ 85,136 $ 49,584
Accounts receivable, less allowance for doubtful accounts of
$25,000 and $23,094, respectively ...................... 167,301 98,359
Inventories ................................................ 429,472 559,321
Prepaid expenses and other assets .......................... 23,263 37,634
------------ ------------
705,172 744,898
Equipment, furniture and fixtures, net .............................. 1,002,554 925,080
Patent rights, net .................................................. 302,410 286,103
------------ ------------
$ 2,010,136 $ 1,956,081
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................... $ 337,927 $ 591,033
Accrued expenses and other liabilities ..................... 551,104 536,547
Convertible note payable ................................... -- 500,000
Note payable obligations - current maturities .............. 14,156 14,592
------------ ------------
903,187 1,642,172
Note payable, less current maturities ............................... 54,094 51,474
------------ ------------
Total liabilities ................................................... 957,281 1,693,646
------------ ------------
Mandatorily Redeemable Series B Convertible Preferred Stock:
$0.01 par; authorized 250 shares; 250 issued and outstanding at
December 31, 1999 and March 31, 2000 ........................... 250,000 250,000
------------ ------------
Shareholders' Equity:
Preferred Stock: $0.01 par; authorized 1,000,000 shares:
Series A Convertible Preferred Stock: $0.01 par; authorized
10,000 shares; 1,000 issued and outstanding at
December 31,1999, and March 31, 2000;
aggregate liquidation preference of $1 million ......... 10 10
Common Stock: $0.01 par; authorized 3,400,000 shares:
1,424,729 and 1,424,729 issued and outstanding at
December 31, 1999 and March 31, 2000, respectively ..... 14,247 14,247
Additional paid-in capital ................................. 24,936,433 24,943,799
Accumulated deficit ........................................ (24,147,835) (24,945,621)
------------ ------------
802,855 12,435
------------ ------------
$ 2,010,136 $ 1,956,081
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</TABLE>
See accompanying notes to financial statements.
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MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended
-------------------------------
March 31, 1999 March 31, 2000
-------------- --------------
(as restated, see Note 2)
Revenues:
Product sales ................. $ 551,991 $ 461,259
Licensing & product development 1,024,317 22,788
----------- -----------
1,576,308 484,047
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Operating Expenses:
Cost of sales ................. 470,469 321,571
Research and development ...... 660,522 273,868
Marketing and sales ................. 250,803 171,955
General and administrative .... 485,683 477,199
----------- -----------
1,867,477 1,244,593
----------- -----------
Net operating loss .................. (291,169) (760,546)
----------- -----------
Other Income (Expense):
Interest and other income ..... 26,099 26
Interest and other expense .... (51) (1,552)
----------- -----------
26,048 (1,526)
----------- -----------
Net loss ............................ (265,121) (762,072)
Preferred stock dividends ........... (25,000) (35,714)
----------- -----------
Net loss applicable to common shares $ (290,121) $ (797,786)
=========== ===========
Basic and diluted net loss
per common share ........... $ (.20) $ (.56)
=========== ===========
Basic and diluted weighted average
common shares outstanding ..... 1,424,736 1,424,729
=========== ===========
See accompanying notes to financial statements.
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MEDI-JECT CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For Three Months Ended
---------------------------------
March 31, 1999 March 31, 2000
-------------- --------------
(as restated,
see Note 2)
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................... $ (265,121) $ (762,072)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................. 122,052 109,360
Loss on disposal and abandonment of assets .... -- 3,646
Non-cash compensation ......................... 7,430 7,366
Changes in operating assets and liabilities:
Accounts receivable ......................... 47,814 68,942
Inventories ................................. 194,386 (129,849)
Prepaid expenses and other assets ........... (30,969) (14,371)
Accounts payable ............................ 60,324 253,106
Accrued expenses and other liabilities ...... (31,937) (50,271)
Deferred revenue ............................ (216,000) --
----------- -----------
Net cash used in operating activities ......... (112,021) (514,143)
----------- -----------
Cash flows from investing activities:
Purchases of equipment, furniture and fixtures (23,744) (19,225)
Purchases of patent rights .................... (11,202) --
----------- -----------
Net cash used in investing activities .................. (34,946) (19,225)
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Cash flows from financing activities:
Proceeds from convertible note payable ........ -- 500,000
Principal payments on capital lease obligations (555) (2,184)
----------- -----------
Net cash (provided by) used in financing activities .... (555) 497,816
----------- -----------
Net decrease in cash and cash equivalents .............. (147,522) (35,552)
Cash and cash equivalents:
Beginning of period ........................... 2,852,285 85,136
----------- -----------
End of period ................................. $ 2,704,763 $ 49,584
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
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MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 our 1999 audited
financial statements and notes thereto.
2. RESTATEMENT OF RESULTS
The Company has restated its results for the three-month period ended March
31, 2000, to eliminate accruals for incentive compensation that were not
yet earned. These accruals were for bonuses relating to an unsigned license
agreement with the company and an unrelated third party, and the Permatec
Share Transaction, both of which were anticipated to be consummated by May
2000. The company determined these accruals were contingent upon future
events and should not be recorded as an expense and related liability until
either of these transactions is consummated. As a result, operating
expenses, net loss applicable to common shares and basic and diluted loss
per share for the three-month period ended March 31, 2000, were restated
from $1,324,993, $(878,186) and $ (0.62) to $1,244,593, $ (797,786) and $
(0.56), respectively.
In addition, the Company has reclassified the Series B Convertible
Preferred Stock as a mandatorily redeemable preferred stock outside of
permanent equity. The company determined a holder of Series B Stock may
choose to convert the Series B Stock into Medi-Ject Common Stock after the
"Permissible Conversion Events," which is defined as a combination of
increasing our authorized Common Stock from 3,400,000 shares to at least
10,000,000 shares and receiving necessary approvals under the Nasdaq
listing requirements. If the Permissible Conversion Events do not occur
before December 22, 2000, the company must redeem all 250 shares at 105% of
the liquidation preference which is $1,050 per share or $262,500 in total.
As such, the Series B has been classified as mandatorily redeemable
preferred stock. This resulted in a $250,000 decrease in stockholder equity
as of March 31, 2000, and December 31, 1999.
3. INTERIM FINANCIAL STATEMENTS
Operating results for the three month period ended March 31, 2000, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
4. INVENTORIES
Inventories consist of the following:
December 31, 1999 March 31, 2000
----------------- --------------
Raw Material $219,903 $165,703
Work in-process 60,998 91,502
Finished goods 148,571 302,116
-------- --------
$429,472 $559,321
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5. STOCK OPTION REPRICING
On December 21, 1999, our Board of Directors approved the repricing, as of
January 3, 2000, of all outstanding Qualified and Non-Qualified Stock
Options held by our employees and directors, which had an exercise price
greater than $1.5625 per share. This repricing action reduced the exercise
price to $1.5625 per share for all such Stock Option Agreements
representing approximately 252,517 shares which had exercise prices ranging
from $1.75 to $25.00 per share. Following the repricing, all other terms
and conditions of these option agreements were unchanged, including the
vesting schedules.
6. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 which provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. We will be required to adopt the new standard beginning with the
second quarter of fiscal 2000. The impact of adoption on our financial
statements is not yet quantifiable.
6
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In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Opinion No. 25,
which clarifies the accounting consequence of various modifications to the
terms of a previously fixed stock option or award. Our stock option
repricing in January 2000 will be accounted for, as a variable plan, on a
prospective basis on July 1, 2000, in accordance with FIN 44. See Note 5
for further details.
7. SHARE TRANSACTION AGREEMENT
On January 25, 2000, we signed a non-binding letter of intent with Permatec
Holding AG, a privately-held drug delivery company located in Basel,
Switzerland, to combine operations. Under the terms of the letter of
intent, the parties are currently negotiating the purchase of certain
Permatec subsidiaries by us in exchange for up to approximately 60% of our
Common Stock outstanding at the completion of the business combination.
Permatec develops and licenses certain pharmaceutical formulation
technologies, including transdermal patches and topical gels.
In January and February 2000, Permatec invested a total of $500,000 in
Medi-Ject convertible notes, which will convert to common stock at the
completion of the business combination at a conversion price of $2.00 per
share. If the Permatec transaction does not close, these notes will be
payable in full on December 31, 2000. In April 2000, we negotiated a master
Convertible Note Purchase Agreement in the amount of $4 million with
Permatec with a conversion price of $2.00 per share. In April and May to
date 2000, Permatec invested a total of $750,000 in Medi-Ject convertible
promissory notes, issued under the master Convertible Note Purchase
Agreement. All these notes bear interest of 10% per annum after July 1,
2000, and may convert to common stock at a future date, at the discretion
of the note holder. If the Permatec transaction does not close, these notes
will be payable in full on July 1, 2000. Contingent interest related to the
conversion features of the convertible notes issued during the first
quarter 2000 would be approximately $106,000 and will be recorded when
contingencies are resolved at closing of the Share Transaction with
Permatec Holding AG.
8. NASDAQ LISTING REQUIREMENTS
On April 7, 2000, we were notified by Nasdaq/Amex that we no longer met
certain requirements for continued listing on The Nasdaq SmallCap Market.
As a result, our eligibility for continued listing on The Nasdaq Stock
Market is being reviewed. In May we provided to Nasdaq a plan for achieving
compliance during the second and third quarter of this year. This plan
included, among other things, the business combination agreement with
Permatec Holding AG and additional equity financing. If the plan is not
accepted by Nasdaq, our stock will be taken off the Nasdaq SmallCap Market
and we will seek to have it traded in the over-the-counter market.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1999 and 2000
Total revenues for the three months ended March 31, 1999 and 2000 were
$1,576,308 and $484,047, respectively. These figures reflect a decrease in the
quarter of $1,092,261, or 69% compared to the same period in 1999. Product sales
decreased $90,732 or 16% in the three months ended March 31, 2000 compared to
the three months ended March 31, 1999. The decrease is primarily attributable to
a 72% decrease in revenue from unit sales in the human growth hormone market,
partially offset by a 52% increase in revenue from sales of disposables.
Licensing and product development fee income decreased by $1,001,529 or 98% in
the three months ended March 31, 2000 as compared to the prior-year period. This
decrease results from having received funds from Schering-Plough Corporation
during the first quarter of 1999 to settle mutual obligations of the parties
under a contract dated January 20, 1998. We received a one-time payment from
Schering-Plough in exchange for cancellation of a product purchase order and as
reimbursement for certain non-cancelable manufacturing expenses. The Company
expects that licensing and product development fee income will fluctuate on a
quarterly basis, depending on a variety of factors; including the timing of
execution of potential 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, 1999 and 2000 decreased
$148,898 or 32%, and gross margins increased from 14.8% to 30.3% due primarily
to the Company's efforts to assemble all disposable products in house to absorb
more overhead cost.
Research and development expenses totaled $660,522 and $ 273,868 in the three
months ended March 31, 1999 and 2000, respectively. The decrease of $386,654 or
59% is mainly due to lower utilization of certain production employees for
development activities and lower clinical study expenses. Certain production
employees are utilized in either production or research and development
depending on departmental work load demand and will fluctuate from time to time.
Clinical study activity has been relatively low during this quarter but will
increase slightly for the remainder of the year.
General and administrative expenses totaled $485,683 and $477,199 in the three
months ended March 31, 1999 and 2000, respectively. These figures represent a
decrease of $8,484 or 2%.
8
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Sales and marketing expenses totaled $250,803 and $171,955 in the three months
ended March 31, 1999 and 2000, respectively. This decrease of $78,848 or 31% is
primarily due to a decrease in outside marketing services of approximately
$23,000 and a decrease in payroll expense of approximately $27,000. Payroll
decreases resulted from the staffing reassignments to the general and
administrative department and some staffing reductions as a result of
outsourcing our domestic insulin direct sales process. We anticipate these
staffing levels to remain consistent for the remainder of the year.
Net other income (expense) for the three months ended March 31, 2000 decreased
by $27,574 or 106% relative to the prior year three-month period ending March
31. This decrease primarily reflects a decrease in interest income attributable
to lower average cash balances used in short-term investments.
Liquidity and Capital Resources
Cash and cash equivalents totaled $85,136 on December 31, 1999 compared to
$49,584 on March 31, 2000. This decrease of $35,552 results primarily from a net
loss of $762,072 adjusted for charges of depreciation and amortization and
changes in operating assets and liabilities of which the significant components
were an increase in inventory of $129,849 offset by an increase in accounts
payable of $253,106.
We expect to report a net loss for the year ending December 31, 2000 as we
continue to incur marketing and development costs related to bringing future
generations of products to market. Our long term capital requirements will
depend on numerous factors, including the status of collaborative arrangements,
the progress of research and development programs and the receipt of revenues
from sales of products.
To continue our existence, we will be required to raise additional working
capital or merge with another entity or both. We are currently pursuing the
business combination transaction with Permatec Holding AG, as more fully
explained in Item 1, Note 7 above. Regarding this transaction, we have been
financing our operations through advances from Permatec under the convertible
promissory notes described above. To date, Permatec has provided $1,250,000 to
us under such notes. Even with such business combination, we will be required to
raise additional capital to continue operations. There can be no assurance that
we will be able to raise the needed additional capital on acceptable terms or at
all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosure
There have been no material changes in reported market risks that we face
since December 31, 1999.
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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.
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.(a)
3.2 Second Amended and Restated Bylaws.(a)
3.3 Certificate of Designations for Series A Convertible
Preferred Stock
3.4 Certificate of Designations for Series B Convertible
Preferred Stock
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)
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4.6 Preferred Stock, Option and Warrant Purchase Agreement,
dated January 25, 1996, with Becton Dickinson and Company
(filed herewith as Exhibit 10.7).(a)
4.7 Warrant issued to Elan International Services, Ltd. on
November 10, 1998
4.8 Warrant issued to Grayson & Associates, Inc. on September
23, 1999
10.1 Office/Warehouse/Showroom Lease, dated January 2, 1995,
including amendments thereto.(a)
10.3 Security Agreement, dated September 30, 1994, with Kelsey
Lake Limited Partnership and Kerry Lake Company, a Limited
Partnership.(a)
10.4 Exclusive License & Supply Agreement with Bio-Technology
General Corporation, dated December 22, 1999
10.5 Preferred Stock Purchase Agreement with Bio-Technology
General Corporation, dated December 22, 1999
10.6 Loan Agreement, dated December 22, 1995, with Ethical
Holdings plc, 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, with Becton Dickinson and
Company.(a)
10.8* Employment Agreement, dated January 1, 1997, with Franklin
Pass, MD.(c)
10.8.1 Employment Agreement, dated December 21, 1999, with
Franklin Pass, M.D.
10.9* Employment Agreement, dated December 21, 1999 with Lawrence
Christian
10.10* Reserved.
10.11* Employment Agreement, dated January 3, 1995, with Peter
Sadowski.(a)
10.11.1 Employment Agreement, dated December 21, 1999, with Peter
Sadowski.
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)
11
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10.20+ Development and License Agreement with Becton Dickinson
and Company, effective January 1, 1996 (terminated January
1, 1999). See Exhibit 10.24 (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 with
Geoffrey W. Guy. (d)
10.24# Agreement with Becton Dickinson dated January 1, 1999
10.25 Securities Purchase Agreement with Elan International
Services, Ltd. dated November 10, 1998
10.26# License & Development Agreement with Elan Corporation,
plc, dated November 10, 1998
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.
# Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of Exhibits 10.24 and 10.26 were deleted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
(a) Incorporated by reference to our 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 our Form 10-K for the year ended December 31,
1996.
(c) Incorporated by reference to our Form 10-Q for the quarter ended March 31,
1997.
(d) Incorporated by reference to our 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, 2000.
12
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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
May 15, 2000 /s/ Franklin Pass
---------------------------------- -------------------------------
Date Franklin Pass, MD, Chairman/CEO
May 15, 2000 /s/ Lawrence M. Christian
---------------------------------- -------------------------------
Date Lawrence M. Christian, Vice President,
Finance & Administration/CFO (principal
financial & accounting officer)
13
