SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1999.
[ ]Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ------------ to ------------------.
COMMISSION FILE NUMBER: 0-26927
NOVAMED, INC.
---------------
(Exact name of small business issuer as specified in its charter)
NEVADA 77-0443643
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
623 HOOVER STREET, MINNEAPOLIS, MINNESOTA 55413
----------------------------------------- -----
(Address of principal executive office) (Zip Code)
(612)378-1437
---------------
(Issuer's telephone number)
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 NO XX
The number of outstanding shares of the issuer's common stock, $0.001
par value (the only class of voting stock), as of November 10, 1999 was
13,845,852.
1
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS..................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..................................4
PART II
ITEM 1. LEGAL PROCEEDINGS.....................................................6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................6
SIGNATURES.....................................................................7
INDEX TO EXHIBITS..............................................................8
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
2
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ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Company" refers to NovaMed, Inc., a Nevada
corporation, and its subsidiaries and predecessors unless otherwise indicated.
Consolidated, unaudited, condensed interim financial statements including a
balance sheet for the Company as of the quarter ended September 30, 1999 and
statements of operations, and statements of cash flows for the interim period up
to the date of such balance sheet and the comparable period of the preceding
year are attached hereto as Pages F-1 through F-5 and are incorporated herein by
this reference.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.]
3
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PAGE
Consolidated balance sheet at September 30, 1999 (unaudited).................F-2
Consolidated statement of operations for three months
and nine months ended September 30, 1999 and 1998 (unaudited)...........F-3
Consolidated statement of cash flows for the nine months
ended September 30, 1999 and 1998 (unaudited)...........................F-4
Notes to consolidated financial statements...................................F-5
F-1
<PAGE>
NOVAMED, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 72,905
Receivables, net 344,658
Inventories 670,439
Prepaid expense -
------------------
Current assets 1,088,002
Property and equipment, net 44,580
Other assets 73,768
------------------
$ 1,206,350
------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 964,842
Related party payables 69,622
------------------
Total current liabilities 1,034,464
------------------
Commitments and contingencies -
------------------
Total liabilities 1,034,464
------------------
Stockholders' equity:
Common stock, par value $.001 per share;
authorized 50,000,000 shares, issued and
outstanding 13,845,852 shares 13,846
Additional paid-in capital 4,266,480
Stock subscription receivable (55,000)
Cumulative translation adjustment 65,615
Accumulated deficit (4,119,055)
------------------
Total stockholders' equity 171,886
------------------
Total liabilities and
stockholders' equity $ 1,206,350
------------------
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
F-2
<PAGE>
NOVAMED, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
----------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 318,511 $ 237,433 $ 1,304,638 $ 871,564
----------------------------------------------------------------
Costs and expenses:
Cost of sales 173,920 178,417 714,892 650,571
Selling, general and administrative 367,761 611,274 1,165,750 825,342
Research and development 3,456 - 207,556 -
----------------------------------------------------------------
545,137 789,691 2,088,198 1,475,913
----------------------------------------------------------------
Operating loss (226,626) (552,258) (783,560) (604,349)
Other income 210 - 100,597 -
----------------------------------------------------------------
Loss before income taxes (226,416) (552,258) (682,963) (604,349)
Income taxes - - - -
----------------------------------------------------------------
Net loss $ (226,416 $ (552,258) $ (682,963) $ (604,349)
----------------------------------------------------------------
Loss per common shares -
basic and diluted $ (.02) $ (.07) $ (.05) $ (.13)
----------------------------------------------------------------
Weighted average shares basic and
diluted 13,513,000 7,492,000 13,634,000 4,692,000
----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
F-3
<PAGE>
NOVAMED, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Unaudited)
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (682,963) $ (604,349)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 3,803 6,762
Stock issued for services 220,000 -
Stock based compensation 127,803 -
(Increase) decrease in:
Receivables (13,832) (103,010)
Inventories (187,139) 69,932
Prepaid expenses 1,707 24,318
Other (73,768) (17,902)
Increase (decrease) in:
Accounts payable and accrued liabilities 523,538 92,078
Related party payable (109,778) (3,226,441)
-----------------------------------
Net cash provided by (used in)
operating activities (190,629) (3,758,612)
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES-
purchase of property and equipment (12,307) (9,995)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - -
Issuance of common stock 165,000 4,067,752
-----------------------------------
Net cash provided by
financing activities 165,000 4,067,752
-----------------------------------
Effect of exchange rate changes on cash (18,913) (27,786)
-----------------------------------
Net increase (decrease) in cash (56,849) 271,359
Cash, beginning of period 129,754 46,465
-----------------------------------
Cash, end of period $ 72,905$ 317,824
-----------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
F-4
<PAGE>
NOVAMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) The unaudited consolidated financial statements include the accounts of
NovaMed, Inc. and include all adjustments (consisting of normal recurring
items) which are, in the opinion of management, necessary to present fairly
the financial position as of September 30, 1999 and the results of
operations for the nine months and three months ended September 30, 1999
and 1998 and cash flows for the nine months ended September 30, 1999 and
1998. The results of operations and cash flows for the nine months and
three months ended September 30, 1999 are not necessarily indicative of the
results to be expected for the entire year.
(2) Loss per share is based on the weighted average number of shares
outstanding at September 30, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
F-5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENT
This Quarterly Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to continue its expansion strategy,
changes in costs of raw materials, labor, and employee benefits, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Quarterly Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
GENERAL
As used herein the term Company refers to NovaMed, Inc., its subsidiaries and
predecessors, unless the context indicates otherwise. The Company is a medical
device holding company that develops, manufactures, and markets hydrogel and
saline filled breast implant products that are used in primary augmentations,
revisions, or reconstructive procedures.
The Company manufactures and markets two different pre-filled single lumen
mammary prostheses (breast implants), THE NOVAGOLD(TM) AND THE NOVASALINE(TM).
These products are designed to address the safety concerns associated with
silicone gel-filled implants, as voiced by the FDA's decision in April of 1992
which mandated that silicone gel implants would thereafter only be available
under controlled clinical studies. Both products are used for routine cosmetic
breast augmentation and for breast reconstruction following either subcutaneous
or modified radical mastectomy. The company's flagship product is the novagoldtm
breast implant, which utilizes a unique water based filling material that is
designed to be biocompatible and therefore safe for human use. The Company has
further developed an inflatable novasalinetm breast implant product. The Company
has not obtained FDA approval to sell any of its products in the United State.
The Company had anticipated being able to sell the NOVASALINE(TM) implants into
the United States by the end of 1999. However, the FDA announced on August 19,
1999 (21 CFR Part 878) that all saline filled implants sold in the United States
must evidence the collection of sufficient clinical information through the
submission to the FDA of a Pre-Market Approval (PMA) document by November 17,
1999 in order to continue distribution of saline filled implants. The Company is
yet to place either the pre-filled or inflatable NOVASALINE(TM) implants into
production for distribution in the United States and as a result does not have
the requisite clinical information that would satisfy the FDA's call for a PMA.
Therefore, the Company does not expect to be able to market in the United States
either the pre-filled NovaSaline(TM) product nor the inflatable NovaSaline(TM)
product prior to 2002. The Company intends to file an IDE for the pre-filled
NovaSaline(TM) product which will require at least eighteen months of clinical
study and submission to the FDA prior to receiving clearance to market this
product in the United States. The Company has no present intention of conducting
a clinical trial for the inflatable NovaSaline(TM) though this decision is
subject to ongoing regulatory and competitive marketing developments. Further,
the Company must pass a FDA audit of the Minneapolis, Minnesota facility prior
to manufacturing products for sale in the United States. The Company reasonably
expects to pass an FDA audit prior to obtaining clearance for marketing its
products in the United States.
THE NOVAGOLD(TM) product has been submitted to the FDA for review and approval
4
<PAGE>
under an InvestigationDevice Exemption ("IDE")/Pre-Market Approval ("PMA")
process. The IDE includes the clinical protocol, a risk assessment, and a
strategic plan as to how risks are minimized and handled in the event of device
failure. Upon FDA acceptance of the IDE and the collection of sufficient
clinical data from controlled clinical trials, a PMA summary will be submitted
to the FDA. The FDA reviews the PMA and grants or withholds approval. If
approved, the NOVAGOLD(TM) may be sold freely in the United States. The Company
anticipates that the product could be cleared for full market release in the
U.S. by 2004. There is no guarantee the Company will obtain approval by 2004 or
may never be able to obtain FDA approval
RESULTS OF OPERATIONS
Net sales were $318,511 and $1,304,638 for the three and nine months ended
September 30, 1999, compared to $237,433 and $871,564 for the comparable period
in 1998, an increase of 34% for the three month period and 50% for the nine
period ended September 30 ,1999. The increase in net sales was the result of an
increased demand for the Company's product in Germany.
COST OF SALES
Costs of sales were $173,920 and $714,892 for the three and nine months ended on
September 30, 1999, compared to $178,417 and $650,571 for the comparable periods
in 1998. The costs of sales decreased in relation to net sales as a result of a
decrease in selling, general and adminstrative expenses.
LOSSES
The Company recorded net losses of $226,416 and $682,963 for the three and nine
months ended September 30, 1999 as compared to net losses $552,258 and $604,349
for the comparable period in 1998. The substantial decrease in losses for the
three months ended September 30, 1999, were attributable to an increase in sales
and a substantial decrease in selling, general and administrative expenses for
the quarter.
The Company expects to continue to incur losses at least through fiscal 1999 and
there can be no assurance that the Company will achieve or maintain
profitability or that its revenue growth can be sustained in the future.
EXPENSES
Selling, general and administrative expenses were $367,761 and $1,165,750 for
the three and nine months ended September 30, 1999 as compared to $611,274 and
$825,342 for the comparable period in 1998. The selling, general and
administrative costs decreased $243,513or 40% for the three months ended
September 30, 1999 over the comparable period as a result of a decrease in
outside consulting fees paid. However, selling, general and administrative costs
increased $340,408 or 41% for the nine months ended September 30, 1999, over the
comparable period in 1998 as result of increased marketing activities.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has expended significant resources on Research and
Development which includes regulatory compliance expenses. The trend is likely
to continue into the near future as new products seek introduction in the United
States. However, sales are now rising significantly, therefore, the Company
expects a swing from using cash in operating activities to providing cash from
operating activities for the last quarter in 1999.
At September 30, 1999, the Company had current assets of $1,088,002 and total
assets of $1,206,350 as compared to $945,587 and $981,663, respectively at
December 31, 1998. At September 30, 1999, the Company had net working capital of
$53,538.
Net cash flow used in operations were $190,629 for nine months ended September
30, 1999 as compared to cash flows used in operation of $3,758,612 for the
comparable period in 1998. The substantial decrease in cash flows used in
operations for the nine months ended September 30, 1999, was primarily
attributable to a $3,648,834 decrease in related party payables.
5
<PAGE>
Cash flow generated from financing activities was $165,000 for the nine months
ended September 30, 1999 and $4,067,752 for the comparable period in 1998. The
Company's financing activities primarily consisted of private placements of its
common stock.
The Company has funded its cash needs from inception through September 30, 1999
with a revenues from operations, a series of debt and equity transactions,
including several private placements and a convertible bond issuance. The
Company expects its cash needs to be primarily satisfied from sales of its
products over the next twelve months.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS Exhibits required to be attached by Item 601 of Regulation S-B
are listed in the Index to exhibits on page of this Form 10-QSB, and
are incorporated herein by this reference.
(B) REPORTS ON FORM 8-K. No reports were filed on Form 8-K during the quarter.
6
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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, this day of November 1999.
NOVAMED, INC.
/s/
- --------------------
Ruairidh Campbell November 15 , 1999
President, Chief Executive Officer and Director
/s/ November 15 , 1999
- --------------------
Ruairidh Campbell
Chief Financial Officer
7
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE DESCRIPTION
NO. NO.
3(I) * Articles of Incorporation of the Company formerly known
as Conceptual Technologies, Inc., a Nevada corporation
dated November 26, 1996. (Incorporated herein by reference
to the Company's Form 10SB/A-1 filed on November 2, 1999
as exhibit 2(i)).
3(II) * By-laws of the Company adopted on November 12,
1996.(Incorporated herein by reference to the Company's
Form 10SB/A-1 filed on as exhibit 2(iv)).
MATERIAL CONTRACTS
NO MATERIAL CONTRACT WERE ENTERED INTO DURING THE QUARTER ENDED SEPTEMBER 30,
1999.
27 9 Financial Data Schedule "CE"
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS FILED WITH THE
COMPANY'S SEPTEMBER 30, 1999, QUARTERLY REPORT ON FORM 10-QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001036478
<NAME> NovaMed, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 72,905
<SECURITIES> 0
<RECEIVABLES> 344,658
<ALLOWANCES> 0
<INVENTORY> 670,439
<CURRENT-ASSETS> 1,088,439
<PP&E> 62,980
<DEPRECIATION> 18,400
<TOTAL-ASSETS> 1,206,350
<CURRENT-LIABILITIES> 1,034,464
<BONDS> 0
0
0
<COMMON> 13,846
<OTHER-SE> 158,040
<TOTAL-LIABILITY-AND-EQUITY> 1,206,350
<SALES> 1,304,638
<TOTAL-REVENUES> 1,304,638
<CGS> 714,892
<TOTAL-COSTS> 2,088,198
<OTHER-EXPENSES> (100,963)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (682,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (682,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (682,963)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
