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, 2000.
[ ] 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 X No
----- -----
The number of outstanding shares of the issuer's common stock, $0.001 par value
(the only class of voting stock), as of November 13, 2000 was 15,531,464.
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 LEFT BLANK INTENTIONALLY]
2
<PAGE>
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, 2000 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>
NOVAMED, INC.
Index to Consolidated Financial Statements
--------------------------------------------------------------------------------
Page
Consolidated balance sheet at September 30, 2000 (unaudited).................F-2
Consolidated statement of operations for three months
and nine months ended September 30, 2000 and 1999 (unaudited)................F-3
Consolidated statement of cash flows for the nine months
ended September 30, 2000 and 1999 (unaudited)................................F-4
Notes to consolidated financial statements...................................F-5
<PAGE>
NOVAMED, INC.
Consolidated Balance Sheet
September 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ -
Receivables, net 186,000
Inventories 477,000
Prepaid expense -
------------------
Current assets 663,000
Property and equipment, net 56,000
Other assets 24,000
------------------
$ 743,000
==================
--------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Cash overdraft $ 33,000
Note payable 20,000
Accounts payable and accrued liabilities 461,000
Related party payables 209,000
------------------
Total current liabilities 723,000
------------------
Commitments and contingencies -
------------------
Total liabilities 723,000
------------------
Stockholders' equity:
Common stock, par value $.001 per share;
authorized 50,000,000 shares, issued and
outstanding 15,531,464 shares 16,000
Additional paid-in capital 5,334,000
Stock subscription receivable (418,000)
Cumulative translation adjustment 112,000
Accumulated deficit (5,024,000)
------------------
Total stockholders' equity 20,000
------------------
Total liabilities and stockholders' equity $ 743,000
==================
</TABLE>
--------------------------------------------------------------------------------
F-2
<PAGE>
NOVAMED, INC.
Consolidated Statement of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
-----------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 245,000 $ 319,000 $ 990,000 $ 1,305,000
-----------------------------------------------------------------
Costs and expenses:
Cost of sales 116,000 174,000 486,000 715,000
Selling, general and administrative 213,000 368,000 1,011,000 1,166,000
Research and development 4,000 3,000 60,000 208,000
-----------------------------------------------------------------
333,000 545,000 1,557,000 2,089,000
-----------------------------------------------------------------
Operating loss (88,000) (226,000) (567,000) (784,000)
Other income 8,000 - 8,000 101,000
-----------------------------------------------------------------
Loss before income taxes (80,000) (226,000) (559,000) (683,000)
Income taxes - - - -
-----------------------------------------------------------------
Net loss $ (80,000) $ (226,000) $ (559,000) $ (683,000)
=================================================================
Loss per common shares -
basic and diluted $ (.01) $ (.02) $ (.04) $ (.05)
=================================================================
Weighted average shares basic and
diluted 15,516,000 13,513,000 15,400,000 13,634,000
=================================================================
</TABLE>
--------------------------------------------------------------------------------
F-3
<PAGE>
NOVAMED, INC.
Consolidated Statement of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Unaudited)
-----------------------------------
2000 1999
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (559,000 $ (683,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 21,000 4,000
Stock issued for services 20,000 220,000
Stock based compensation - 128,000
Royalty expense 21,000 -
(Increase) decrease in:
Receivables 46,000 (14,000)
Inventories 281,000 (187,000)
Prepaid expenses - 1,000
Other 35,000 (74,000)
Increase (decrease) in:
Cash overdraft (7,000) -
Accounts payable and accrued liabilities (359,000) 524,000
Related party payable 209,000 (110,000)
-----------------------------------
Net cash provided by (used in)
operating activities (292,000) (191,000)
-----------------------------------
Cash flows from investing activities-
purchase of property and equipment - (12,000)
-----------------------------------
Cash flows from financing activities:
Proceeds from note payable 20,000 -
Issuance of common stock 145,000 165,000
-----------------------------------
Net cash provided by
financing activities 165,000 165,000
-----------------------------------
Effect of exchange rate changes on cash 111,000 (19,000)
-----------------------------------
Net increase (decrease) in cash (16,000) (57,000)
Cash, beginning of period 16,000 130,000
-----------------------------------
Cash, end of period $ - $ 73,000
===================================
</TABLE>
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, 2000 and the results of
operations for the nine months and three months ended September 30, 2000
and 1999 and cash flows for the nine months ended September 30, 2000 and
1999. The results of operations and cash flows for the nine months and
three months ended September 30, 2000 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, 2000 and 1999, 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 NOVAGOLDTM and the NOVASALINETM .
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
not obtained FDA approval to sell any of its products in the United States.
The NOVAGOLDTM product has been submitted to the FDA for review and approval
under the Investigational Device 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. The FDA has advised the Company to perform additional testing prior to
any decision as to whether the Company can proceed with a clinical trial. The
Company is yet to commence any additional testing. 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 NOVAGOLDTM 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.
The NOVAGOLD(TM) breast implant is produced subject to patented technology
licensed to the Company. Currently, the Company is in default of its license
agreement. The Company is now in negotiations to remedy that default with the
owners of the patented technology. The default arose from the Company's failure
to satisfy a semi-annual royalty payment of $21,000. Should the Company be
unable to remedy the default, the owners of the licensed technology are entitled
to cause the Company to cease and desist from any further production of the
NOVAGOLD(TM) breast implant and to seek any other remedies available to them to
recover amounts due.
4
<PAGE>
The Company is unable to provide any assurance that a resolution of this default
is forthcoming.
The Company has funded its cash needs from inception through September 30, 2000
with a revenues from operations, a series of debt and equity transactions,
including several private placements and a loan. The Company is currently in the
process of obtaining new funding and expects to satisfy its cash needs over the
next twelve months from the proceeds of new funding and revenues from
operations. However, the Company can provide no assurance that expected funding
will be realized and cannot guarantee that revenues generated from operations
will meet the Company's cash needs over the next twelve (12) months. Should the
Company fail to realize new funding and be unable to generate enough revenues
from operations to meet cash requirements, the Company is prepared to seek out
alternative funding sources which might include debt or equity funding. However,
there can be no assurance that alternative funding sources are available or that
in the absence of new funding, that the Company will continue as a going
concern.
Results of Operations
Net sales for the three and nine months ended September 30, 2000 were $245,000
and $990,000 respectively as compared to $319,000 and $1,305,000 for the same
periods in 1999. Net sales for the three month period ended September 30, 2000
decreased 23% from the three month period ended September 30, 1999. Net sales
for the nine month period ended September 30, 2000 decreased 24% from the nine
month period ended September 30, 1999. The decrease in net sales over the three
and nine month periods as compared to those periods in 1999 was due to a drop in
the number of orders for the Company's products outside of Germany by
independent distributors and the introduction of competitive European hydrogel
breast implant products.
Cost of Sales
Cost of sales for the three and nine months ended September 30, 2000 were
$116,000 and $486,000 respectively, as compared to $174,000 and $715,000 for the
same periods in 1999. Cost of sales for the three month period ended September
30, 2000 decreased 33% from the three month period ended September 30, 1999.
Cost of sales for the nine month period ended September 30, 2000 decreased 32%
from the nine month period ended September 30, 1999. The decrease in cost of
sales over the three and nine month periods as compared to those periods in 1999
was the result of a reduction in manufacturing activities due to the decrease in
sales and corresponding rise in product inventory levels.
Losses
The Company recorded net losses for the three and nine months ended September
30, 2000 of $80,000 and $559,000 respectively, as compared to $226,000 and
$683,000 for the same periods in 1999. Net losses for the three month period
ended September 30, 2000 decreased 65% from the three month period ended
September 30, 1999. Net losses for the nine month period ended September 30,
2000 decreased 18% from the nine month period ended September 30, 1999. The
decrease in losses over the three and nine month periods as compared to those
periods in 1999 was the result of limited research and development expenditures
, a decrease in the cost of sales for the period, reduction in payables and a
decrease in the number of employees.
The Company expects to continue to incur losses at least through fiscal 2001 and
there can be no assurance that the Company will achieve profitability or that
revenue growth can be sustained in the future.
5
<PAGE>
Expenses
Selling, general and administrative expenses for the three and nine month
periods ending September 30, 2000, were $213,000 and $1,011,000 respectively as
compared to $368,000 and $1,166,000 for the same periods in 1999. Selling,
general and administrative expenses for the three month period ended September
30, 2000, decreased 42% from the three month period ended September 30, 1999.
Selling, general and administrative expenses for the nine month period ended
September 30, 2000, decreased 13% from the nine month period ended September 30,
1999. The decrease in selling, general and administrative costs over the three
and nine month periods as compared to those periods in 1999 was the result of a
decrease in costs related to international marketing efforts.
Capital Resources and Liquidity
Historically, the Company has expended significant resources on research and
development which includes regulatory compliance expenses and marketing. The
trend is likely to continue into the near future as new products seek
introduction in the United States and new expenses are incurred in marketing the
Company's products outside of North America. Therefore, the Company does not
expect a change from using cash in operating activities to providing cash from
operating activities until the third quarter in 2001 when sales are anticipated
to increase over costs.
At September 30, 2000, the Company had current assets of $663,000 and total
assets of $743,000 as compared to $1,065,614 and $1,142,394 respectively at the
year ended December 31, 1999. At September 30, 2000, the Company had a working
capital deficit of $60,000 as compared to a working capital surplus of $205,450
at the year ended December 31, 1999. The decrease in net assets and working
capital from the period is due to a decrease in sales, receivables and
inventories.
Net shareholders equity in the Company was $20,000 as of September 30, 2000, as
compared to $282,015 at the year ended December 31, 1999. The large decrease is
attributable to the decrease in net assets.
Net cash flow used in operations was $292,000 for nine months ended September
30, 2000, as compared to cash flows used in operations of $191,000 for the
comparable period in 1999. The increase in cash flows used in operations for the
nine months ended September 30, 2000, caused a decrease in accounts payable and
accrued liabilities.
Cash flow generated from financing activities was $165,000 for the nine months
ended September 30, 2000 and $165,000 for the comparable period in 1999. The
cash flow was generated from the exercise of common stock options and the
proceeds of a short term loan.
The Company has funded its cash needs from inception through September 30, 2000,
with a revenues from operations, a series of debt and equity transactions,
including several private placements and a loan. The Company expects to fund its
cash needs in this varied manner over the next twelve months until such time as
product sales exceed our expenses.
6
<PAGE>
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 8 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.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
7
<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, this 14th day of November 2000.
NOVAMED, INC.
/s/ Ruairidh Campbell November 14 , 2000
------------------------------------
Ruairidh Campbell
President, Chief Executive Officer and Director
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
8
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
------- ---- -----------
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 10-SB filed on August 4, 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
10-SB filed on August 4, 1999 as exhibit 2(iv)).
27 9 Financial Data Schedule "CE"
MATERIAL CONTRACTS
No Material Contracts were entered into during the quarter ended September 30,
2000.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
9
<PAGE>
