SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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COMMISSION FILE NO. 0-27135
MEDSEARCH TECHNOLOIGES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-4070962
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(STATE OF OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
40 WALL STREET
NEW YORK, NEW YORK 10005
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(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 943-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $1,110,133.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the closing price of such stock as
of March 31, 2000, was approximately $12,319,960.
Number of shares outstanding of the issuer's common stock, as of March
31, 2000 was 6,534,582.
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Documents Incorporated by Reference: None
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
Certain information contained in this Form 10-KSB are 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).
Factors set forth that appear with the forward-looking statements could cause
the Company's actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company in this Form
10-KSB. Such potential risks and uncertainties include, but are not limited to,
the risk factors contained in the Form 10-KSB including those relating to the
Company's history of losses and early stage of development. See "Risk Factors"
below. The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
GENERAL/HISTORICAL INFORMATION
The Company, a medical device research/development and
distribution/marketing company, is in its early stage of development and has a
history of losses. The Company incurred net losses of $241,121 and $1,003,923
for the years ended December 31, 1998 and 1999, respectively. The Company has
generated limited revenues to date and requires additional financing to increase
its research and development activities and to develop new products. See "Risk
Factors" below.
The Company was originally incorporated in 1986 under the laws of the
State of Nevada (under the name Best Resources, Inc. which later changed its
name to Diversified Concepts, Inc.). The Company was originally organized to
engage in investments and business development operations related to the sale of
lobster which was imported from Ecuador. Due to lack of sales, the Company
ceased selling lobster and began searching for a new business.
In June 1998, the Company consummated a 1-for-100 reverse stock split
resulting in a post-split capitalization of approximately 379,600 shares of
outstanding common stock. In June 1998, Mr. Jacob Meller, the Company's
President, purchased 214,600 of such outstanding shares from certain principal
stockholders (the former directors) of the Company. As a result of such
transaction, Mr. Meller owned approximately 57% of the outstanding stock, the
three principal shareholders owned approximately 35% (131,400 shares) and the
public shareholders owned the remaining 8% (33,600 shares). Simultaneously with
this transaction, a new board of directors was appointed consisting of Mr.
Meller and Ms. Frieda Goldstein.
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The Company (the Diversified) changed its name to Medsearch, Inc. In
September 1998 to reflect its new direction as a medical device
research/development and distribution/marketing company. Medsearch Technologies,
Inc. was incorporated on April 12, 1999 pursuant to the laws of the State of
Delaware as the successor to Medsearch, Inc. It was organized to effectuate a
reincorporation of Medsearch, Inc. with and into Medsearch Technologies, Inc. On
August 11, 1999. The Company maintains its executive offices at 40 Wall Street,
New York, NY 10005 and its telephone number is (212) 943-6000.
In October 1998, the Company acquired 70% of the outstanding stock of
Meduck Technologies, Ltd. ("Meduck") in consideration for the issuance of
700,000 shares of its Common Stock valued at $175,000. Meduck is a medical
device research and development company based in Israel that holds various
patents for medical devices. There were no other assets or operations acquired
by Medsearch in the transaction.
In October 1998, the Company acquired 100% of the outstanding stock of
Optimart Imports, Inc. ("Optimart") in consideration for the issuance of 500,000
shares of its Common Stock valued at $125,000 and $250,000 cash, for a total of
$375,000. Optimart is a company that had distribution rights to sell optical
products. There were no other assets or operations acquired in the transaction.
In June 1999, the Company acquired 100% of the outstanding stock of TNJ
Products, Inc. ("TNJ") in consideration for the issuance of 600,000 shares of
its Common Stock valued at $1,050,000. TNJ is a medical product distribution
company.
In June 1999, the Company sold Optimart to its original owners for the
return of 150,000 shares of the Company's Common Stock (to the treasury) and
$250,000 (payable in installments between June 1, 2000 and December 1, 2000).
Although Optimart generated profits, the Company based this decision on its
desire to focus solely on medical devices.
In June, 1999, Meduck issued an additional 27% of its outstanding stock
to the Company (by converting $237,000 of loans to Meduck for such stock),
bringing the Company's interest in Meduck to 97%.
In August 1999, the Company acquired 100% of the outstanding stock of
M&W Medical Supply, LLC ("M&W") in consideration for the issuance of 50,000
shares of its Common Stock, 100,000 warrants with an exercise price of $2.00,
and 100,000 warrants with an exercise price of $3.00 for a total value of
$185,000. M&W holds patents and a notice of allowance for a trademark on an
existing product called the SCOPESHIELD(TM).
THE COMPANY
MedSearch has three subsidiaries: Meduck, TNJ, and M&W.
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MEDUCK: MedSearch acquired 70% of Meduck in October 1998. Based in
Israel, Meduck is a medical device research and development company specializing
in unique, non-invasive, high quality products. To date, the Company has
developed products in the field of anesthesia and urology. The Company is also
developing products in the fields of neurology and sleep medicine. In June 1999,
Meduck issued an additional 27% of its shares to Medsearch (by converting
$237,000 of loans to Meduck for such stock), bringing the Company's interest in
Meduck to 97%.
TNJ: MedSearch acquired 100% of TNJ in June 1999. TNJ is a
Chicago-based medical product distribution company with nationwide sales
representatives. TNJ offers rehabilitative breast cancer services and sells
breast cancer related products on the premises of the University to Chicago
Hospital and in central Chicago area. TNJ is licensed to distribute the Israeli
developed and manufactured "Lympha-Press" and "Ballancer" products.
M&W: MedSearch acquired 100% of M&W in August 1999. M&W holds patents
and trademarks on an existing product called the "SCOPESHIELD(TM)", a unique
disposable stethoscope cover which shields stethoscope from hazardous
microorganisms.
MEDUCK
Meduck was acquired by MedSearch in October 1998. Meduck develops
unique, non-invasive medical devices geared toward different segments of the
medical device market. Meduck's products in development include products in the
fields of urology, anesthesia, neurology and sleep medicine. Meduck has no
products in the market and no sales. The products developed by Meduck are in
varied stages of development.
Meduck's staff includes highly qualified, experienced personnel with
degrees from internationally recognized universities. Meduck's research and
development is based on the collaboration of physicians and surgeons, leading
academic researchers in the field of biomedical engineering and engineers well
experienced in the medical device industry. Meduck plays a significant role in
the expected overall operations of the Company.
PRODUCTS
SYMDEX 1000' DEPTH OF ANESTHESIA MONITOR
In December 1998, MedSearch announced the development of a unique
(patent pending) product called the 'Symdex 1000' Depth of Anesthesia Monitor
("Symdex 1000"). The 'Symdex 1000' measures the depth of anesthesia via the
sympathetic nervous system (the neurological system of the body that reacts to
pain). The activity of the sympathetic nervous system is displayed on a screen
to alert the anesthesiologist as to whether or not the patient is asleep during
anesthesia.
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Although patients may seem deeply asleep during surgery, this may not
be the case at all. At times, due to the muscle relaxants administered at the
beginning of the anesthetic process, the patient is awake and aware, but
physically paralyzed and incapable of moving to alert the anesthesiologist that
he is awake. If the patient is not deep enough asleep, he may accumulate
explicit and implicit memories which can trigger severe sleep disorders,
emotional stress of varying degree, and mental disorders.
While existing monitors measure brain waves (EEG) and muscle movements,
these measurements are, in the opinion of management, frequently inaccurate
because EEG requires the absence of outside influences such as electrical noise
caused by electrical incision tools, that are impossible to eliminate during
surgery. Because of the unreliability of existing monitors, anesthesiologists
sometimes administer extra medication. Over-administration of anesthetic
medication can prolong patient recovery rates and lengthen hospital stays. The
'Symdex 1000' utilizes temperature and other parameters to measure sympathetic
activity. This measurement of sympathetic activity provides the physician with a
more accurate measurement of patient awareness.
Medsearch's depth of anesthesia device incorporates advanced techniques
of evaluation. It evaluates on-line sympathetic activity and correlates the
information with existing parameters. Medsearch's patent pending algorithms
enable the physician to monitor `old' and `new' parameters from the
anesthesiologists perspective.
The anesthesia monitor utilizes the measurement and analysis of
peripheral sympathetic activity. Sensors composed of existing temperature and
other components measure temperature, blood flow, heart rate and various other
parameters. These parameters are analyzed in real time by unique algorithms and
filters that determine sympathetic activity. According to the American Society
of Anesthesiologists, the parameters utilized by the Symdex 1000 are standard
practice during surgery.
The information is then transmitted via small, disposable sensors that
are attached to a finger on each of the patient's hands or to the patient's
earlobes. The information can be correlated with other signals such as EEG, ECG,
and others. The basic analyzed information is displayed on a monitor screen for
professional viewing.
The 'Symdex 1000' has 2 components - The Add-On Monitor and the
Multi-Parameter Monitor. The Add-On Monitor is the basic hardware and software
incorporated into a compact unit intended as an add-on to existing monitors in
the operating room. The Multi-Parameter Monitor is a complete system; it
includes a large monitor for viewing parameter correlations between the various
data types and the ability to record the data for future viewing and analysis.
The Company is in the process of preparing the documentation necessary
for its FDA filing. The Company intends to begin pre-marketing the "Symdex 1000"
in the last quarter of 2000.
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COMPETITION - ANESTHESIA MONITORS
To date, anesthesiologists measure the depth of anesthesia utilizing a
few devices- none of which measure sympathetic activity. Though there is
constant research in this area, most efforts to develop a depth of anesthesia
monitor have failed. These efforts include the monitoring of brain waves, muscle
movement, and various physiological parameters which, in the opinion of
management, provide limited results. To management's knowledge, devices
currently on the market are based on different measurements including EEG, heart
rate, blood pressure and temperature, none of which, in management's belief, are
reliable as the measurement of sympathetic activity.
Current research is based around EEG (brain waves) and although there
is accumulated clinical data that sophisticated analysis of brain waves can, in
some cases, reliably monitor the depth of anesthesia, there are quite a few
limitations. The EEG is a good indicator of anesthetic depth only under certain
restricted conditions such as the absence of surgical stimulation, outside
influences such electrical and physiological noise. EEG monitoring involves the
precise placement of between 2 and 12 electrodes on the patient's scalp. The
existence of electrodes on the patients body can be an impediment to surgeons
who need easy access to the area.
THE MARKET FOR THE SYMDEX 1000
There has been tremendous growth in the last decade in the number of
surgical procedures performed annually. According to Time.com, over 20 million
surgical procedures are performed in the U.S. every year. This number does not
include dentistry, abortion, family planning, birthing, pain-block and small
clinic-based procedures which account for a further 9 million annual surgical
procedures.
In the cost cutting climate of healthcare industries all over the world
there has been a natural transfer to outpatient (ambulatory) surgery. Reduced
reimbursement fees are forcing more and more hospitals to perform as many
surgical procedures as possible on an outpatient basis. In order to achieve
minimal patient recovery time, surgical procedures need to be brief. An
important factor in shortening the patient recovery period is minimizing the
amount of anesthesia a patient receives. This requires precise monitoring of the
patient in order to enable precise control of anesthetics delivery.
The trend of shortening post-surgery recovery periods applies not only
to outpatients but to inpatients as well. Patients are now quickly moved out of
expensive areas such as critical care units and into step-down units in an
effort to lower costs. There is also a definite trend towards placing patients
as quickly as possible into alternate site care for post-surgical recovery and
rehabilitation. The shifting markets and the rise in the number of surgeries
have led to an increase in sales of innovative surgical equipment, driving
revenues up sharply. The anesthesia monitoring market should continue to
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provide stable and promising growth for manufacturers with innovative products
designed to meet the changing market needs.
NOCTURNAL PENILE TURNESCENCE AND RIGIDITY ("NPTR")
Over 20 million men in the United States experience complete erectile
dysfunction and over 10 million men experience partial erectile dysfunction.
Research has shown that approximately 25% of impotence cases are caused by
psychological factors while 75% of impotence cases are caused by physiological
factors. The majority of these men are 40 years of age or older. (New Insights
Into Erectile Dysfunction: A practical approach, Korenman SG am J Med 1998).
When the etiology of erectile failure is unclear, the NPTR test is
utilized to differentiate between organic (physiological) impotence and
psychogenic (psychological) impotence. The test is based on the assumption that
men with psychogenic impotence have normal erections during sleep, whereas men
with organic impotence have impaired erections during sleep. Another equally
important factor measured by the NPTR test is penile rigidity. While tumescence
indicates only penile circumference, rigidity is an equally important parameter,
indicating the patients ability to sustain an erection for a given period of
time.
In order for an NPTR test to be accurate the patient must be deeply
asleep, in a state known as REM. If the patient is not deeply asleep, the
results of the test are inaccurate and misleading, which can result in a
misdiagnosis. Since REM sleep is such a great parameter in achieving accurate
test results, Meduck has composed the sensor attachments from light material.
The sensors are easy to attach, comfortable, disposable, accurate and
inexpensive. Unlike other products which require 3 consecutive rights of testing
to gain results, the NPTR test requires only one night of usage. Additionally,
the NPTR test measures both tumescence and rigidity, recognizing that both
factors are important in the determination of erectile dysfunction.
The Company is currently building a prototype of its NPTR monitor and
intends to begin sales of the product in the second quarter of 2000.
THE MARKET FOR THE NPTR TEST
As a result of the intense study of impotence a wide variety of new
effective treatments are now available for psychologically and physiologically
derived erectile dysfunction. Since the National Institutes of Health (NIH)
Consensus Conference on Impotence in 1992 addressed the inadequate level of
public and professional understanding of erectile dysfunction (ED), major
changes have taken place in the Urology field with respect to impotence. One of
the most significant and popular advances in the cure for impotence was the 1995
FDA approval of the use of prostaglandin E1 penile injections for the treatment
of impotence. More recently, in 1998, the Viagra oral pill became the fastest
selling drug in U.S. history.
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The fact that the most applicable age group for impotence diagnosis and
treatment is over 40 has significant market size implications. Because of
western demographical changes, this is the fastest growing segment of the
population (Frost and Sullivan, Market Engineering, October 1998). Social
changes in the last two decades and the coming of age of the baby boomer
generation have cultivated a culture where men over 40 expect to live a high
quality life style in all aspects of life, including their sexual life style.
COMPETITION
The following is a summary of existing competitive products for NPTR
testing:
NTP stamp test: a simple screening test, which uses adhesive paper stamps
similar to postage stamps. A strip of four stamps is snugly wrapped around the
penis with the overlying stamp wetted and sealed. The following morning the
stamp ring is examined for breaks along the perforations. This is repeated for a
three night period.
Strain-Gauge: This device measures change in penile circumference. An elastic
loop is placed around the shaft of the penis. The loop contains a conductive
medium such as mercury. An increase in penile circumference causes a stretching
of the loop and a change in electrical signal. This is recorded on a portable
monitor.
Snap-Gauge: This measures penile rigidity, not circumference. Three plastic
elements are arranged parallel on a Velcro fastener, which is wrapped around the
penis. Each plastic film breaks at a predetermined rigidity of the penis.
Tumisensors: Penile circumference sensors, wires that operate similar to the
Strain-Gauge.
Rigiscan: This device consists of two loops surrounding the penis, attached to a
small computer with memory capacity. The Rigiscan measures both penile
tumescence and rigidity on a continuous basis.
Some of the shortcomings of the aforementioned tests include the fact
that diagnosis fails to indicate frequency and duration of any erections that
take place during sleep; diagnosis indicates either penile rigidity or
circumference but not both; when penile rigidity is diagnosed, the figure shown
indicates rigidity as compared with the average male as opposed to keeping the
number subjective to the individual being tested.
Unlike other products which require three consecutive nights of testing
in order to produce results, the MedSearch NPTR monitor requires only one night
of usage. Additionally, the NPTR monitor utilizes sensors which are disposable,
easy to put on, and comfortable to wear so as not to disrupt the ordinary
sleeping patterns of the patient. The NPTR monitor measurements both
circumference and rigidity and is relatively inexpensive because there is no
need for costly mechanical components.
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PRODUCTS IN DEVELOPMENT PHASE
SLEEP MONITOR
The Sleep Monitor utilizes the same underlying technology as the
"Symdex 1000" and is intended for the diagnosis and monitoring of sleep
disorders including parameters such as EEG and heart rate. This monitor has a
basic clinical unit which provides a wide range of analysis as well as basic
real-time viewing of the information. The sleep monitor has five compact home
units which can record many hours worth of data, and are simple to use at home.
The patient can easily attach the sensors to his fingers and record a full
nights sleep in the comfort of his own home. Recorded data can later be analyzed
in the clinic.
According to a recent survey, one third of American adults (63 million
people) scored sleep levels known to be hazardous on a scientifically validated
sleep measurement. 6% scored in the severe levels category of sleepiness. Due to
the complexity of current healthcare systems, only 5% of the population is
properly diagnosed and treated for sleeping disorders. (National Sleep
Foundation Gallup Survey).
In order to diagnose a patient with existing monitors, he must spend at
least one night, usually more, in the clinic or hospital. Sensors of various
types are attached to his head and body by a specially trained nurse or
physician. Since hospitals and clinics are not comfortable sleep environments,
test results are frequently inaccurate. Sleep testing is an uncomfortable
procedure necessary not only for initial diagnosis but also for verification of
the selected treatment effectiveness.
Sleep medicine has been recognized by the American Medical Association
as a medical specialty. There are more than 3,000 physicians specializing in
sleep medicine and approximately 400 accredited sleep disorder centers in the
U.S. Diagnosed sleep disorders include Narcolespsy (an irresistible need to
sleep), Nocturnal Myoclanus (a condition associated with involuntary leg jerks
during sleep), Insomnia (inability to gain sufficient sleep), Sleep Apnea (a
breathing disorder characterized by brief interruptions of breathing during
sleep) and sleep walking.
The response of the sympathetic nervous system is essential for the
accurate monitoring of a wide range of sleep conditions. The Sleep Monitor is
the only device which can monitor not only EEG and heart rate, but sympathetic
activity as well.
None of the existing monitors or software systems are actually direct
competitors of the Sleep Monitor since their sensors are too complex for use in
the home-care environment and do not measure sympathetic activity directly.
There are no sleep monitors intended for home use that can be easily worn by the
patient during a normal night's sleep in their own home. Existing systems are
complex monitors which are used for monitoring in sleep laboratories.
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The simplicity of the sensor attachments and the compact size and
mobility of the Sleep Monitor home unit enables the patient to be monitored at
home. It is the home care environment which holds the most potential for this
monitor.
Management believes that the full U. S. marketing potential is
estimated at 3,500 sleep monitoring systems and 35 million sensor sets annually.
This figure is based on the number of specializing physicians and sleep disorder
centers and an average number of 1000 patients per clinic/physician. The
world-wide potential market is conservatively estimated to be twice as large.
NEUROLOGICAL MONITORING
The neurological monitoring market is primarily undeveloped in terms of
existing equipment. One procedure that would greatly benefit from the
Neurological Monitor is a sympathectomy. A sympathectomy is a surgical procedure
in which the sympathetic activity of the upper limbs is disabled. The surgeon
electrically scorches the ganglia of the sympathetic nervous system which
controls the upper limbs. Sympathectomy's are commonly performed on individuals
with palmar hyperhidrosis (excess perspiration of the palms).
A surgeon utilizing the Neurological Monitor could detect instantly if
the procedure was done satisfactorily simply by monitoring the patient's hands
for sympathetic activity. If there is a need for further scorching of the
ganglia, it can be done immediately. Currently, the success of a sympathectomy
procedure can only be evaluated after patient recovery. The Neurological Monitor
measures sympathetic activity and is intended for neurological research, patient
monitoring, and the diagnosis of neurological disorders.
The neurological monitoring market is largely undeveloped in terms of
existing monitors. The MedSearch Neurological Monitor will, in management's
belief, be the first monitor of its kind.
TNJ
TNJ was acquired by MedSearch in June 1999. TNJ is a Chicago-based
medical product distribution company and a rehabilitative medical services
provider with 2 locations in Chicago, Illinois , including a new location on the
premises of the University of Chicago Hospital. The Company intends to utilize
TNJ as a distribution channel for all products currently in development. TNJ's
product distribution line includes compression equipment for sports injuries,
specialized prosthesis for postmastectomy, and lymphedema home treatments. TNJ
offers rehabilitative services on both its premises, assisting clients with
breast cancer treatment and sports injury rehabilitation. TNJ plays a
significant role in the expected overall operations of the Company.
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PRODUCTS
LYMPHA PRESS
The Lympha Press is a unique item manufactured by Mego-Afek, an
Israeli-based medical device manufacturer. A product designed to alleviate the
discomfort of Lymphedema, the Lympha Press reduces inflammation of body parts
and the aesthetic appearance of deformity. Lymphedema is a fairly common
condition, effecting roughly 1% of the U.S. population. Although Lymphedema is a
chronic and progressive condition, it can be brought under control via
consistently keeping the effected body part free from swelling.
In addition to its use for patients with Lymphedema, the Lympha Press
is renowned for its therapeutic treatment of acute inflammation, joint
effusions, and chronic overuse injuries.
BALLANCER
The Ballancer is a therapeutic electric machine invented, developed,
and manufactured by Mego Afek, an Israeli-based medical product manufacturer.
The creation of the Ballancer is the result of comprehensive research in the
fields of sports medicine, plastic surgery, and physiotherapy. Regular use of
the Ballancer will assist in the prevention and treatment of varicose veins, the
reduction of swelling, and the removal of excess fluids.
POSTMASTECTOMY PRODUCTS
TNJ's postmastectomy product line includes non-weighted breast forms,
silicone prosthesis, and customized mastectomy bras. TNJ has in-house
experienced personnel customizing products from raw materials.
M&W
M&W is a New Jersey based medical product developer acquired by
Medsearch in August 1999. M&W holds patents on an existing product called the
"SCOPESHIELD(TM)", a unique stethoscope cover which shields stethoscopes from
hazardous microorganisms. The Company believes that the SCOPESHIELD(TM) product
will become standard infection control procedure similar to the use of latex
gloves and thermometer covers. M&W and its SCOPESHIELD(TM) product play a
significant role in the expected overall operations of the Company.
Although stethoscopes come into direct contact with patients frequently
throughout the day, disinfection of stethoscopes between usage has not become an
established practice. According to the AMA, stethoscopes are often contaminated
with staphylococci and are vectors of infection transmission. Their study showed
that 89% of
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all stethoscopes cultured grew staphylococcus species of bacteria and 19%
included the more pathogenic Staphylococcus aures bacteria.
The SCOPESHIELD(TM) comes in two unique dispensers; one designed for
desk use, one designed for pocket use. The SCOPESHIELD(TM) stickers glide on
easily and are disposable, limiting cross-infection between patients. Both the
SCOPESHIELD(TM) dispensers and the SCOPESHIELD(TM) stickers can be utilized as
promotional items for pharmaceutical companies. The Company knows of no similar
or competitive products on the market.
MARKETING AND SALES
MedSearch is looking to distribute its products via its wholly owned
subsidiary, TNJ Products, Inc., and is also considering the formation of
strategic partnerships for the marketing of each product. The Company is also
considering direct marketing either through its subsidiaries or through an
independent sales team.
GOVERNMENT REGULATION; FDA REGULATION
Israel is an acknowledged site for clinical trials by the FDA. Prior to
distributing products in the U.S., it is necessary to obtain FDA approval.
MedSearch hopes to clear some of its products through FDA 510(k) premarket
notification, an expeditious approval process for new products.
RESEARCH AND DEVELOPMENT
The company currently conducts all research and development for its
product line in Israel. Estimated annual expenditures with respect to research
and development is $1 million. Currently all research and development takes
place at Meduck's offices in Tel Aviv, Israel.
INTELLECTUAL PROPERTY
The Company's ability to compete successfully and achieve future
revenue growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company has
a policy of seeking patents, when appropriate, on inventions resulting from its
ongoing research and development and manufacturing activities.
Medsearch has applied for a patent (No. 09/157,503) with the United
States Patent and Trademark Office with respect to the "Symdex 1000." M&W holds
four patents (No. 5,424,495 issued on June 13, 1995, No. 5,528,004 issued on
June 18, 1996 and No. 5,686,706 issued on November 11, 1997 and No. 5,949,032
issued on September 7, 1999. The patents relate to the invention titled
"Dispensable, Disposable Cover for Stethoscopes." The Company also received a
Notice of Allowance (No. 75/369,028) for
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its trademark Scopeshield(TM). Once the Company has submitted a final design
plan for the SCOPESHIELD(TM), the Notice of Allowance is expected to be changed
into a finalized trademark. The Company has also applied for a patent with
respect to its NPTR monitor. There can be no assurance that the Company's
applications will be granted or, if granted, that it will not be challenged or
circumvented by competitors. The Company intends to broaden its patent
protection in other countries for its existing patents and file for additional
patent protection relating to products it is currently developing.
Notwithstanding the Company's active pursuit of patent and/or trademark
protection, the Company believes that the success of its medical devices depends
more on its specification, design, uniqueness and employee expertise than on
patent protection. The Company generally enters into confidentiality and
non-disclosure agreements with its employees and limits access to its
proprietary technology. The Company may in the future be notified that it is
infringing certain patent and/or other intellectual property rights of others.
Although there are no such pending lawsuits against the Company or unresolved
notices that the Company is infringing intellectual property rights of others,
there can be no assurance that litigation or infringement claims will not occur
in the future.
EMPLOYEES
As of March 31, 2000, the Company had a total of 16 employees including
the employees of its subsidiaries. The Company has 6 employees in engineering,
research, and development, 2 employees in design, 2 employees in quality
assurance, and 6 employees in administration. In addition, TNJ has 9 sales
representatives. The Company believes its future performance will depend in
large part on its ability to attract and retain highly skilled employees. None
of the Company's employees is represented by a labor union and the Company has
not experienced any work stoppages. The Company considers its employee relations
to be good.
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS FORM 10-KSB, THE FOLLOWING
IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND
ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT ON THE
COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RECENT HISTORY OF LOSSES. The Company incurred net losses of $241,121
and $1,003,923 for the years ended December 31, 1998 and 1999, respectively. The
Company expects that losses will increase and continue until such time, if ever,
as the Company can market its products. In addition, the Company had an
accumulated deficit of $2,990,239 at December 31, 1999.
EARLY STAGE OF DEVELOPMENT. The Company has generated limited revenues
to date. While the Company is able to finance certain of its current operations
from
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revenues, it requires additional financing to increase its research and
development activities to acquire additional technologies and to develop new
products. The Company's operations are subject to all of the risks inherent in
the commercialization of new products. The likelihood of the success of the
Company must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered when developing new products.
POSSIBLE NEED FOR ADDITIONAL FINANCING. There can be no assurance that
the Company will not require additional financing in the near future There can
be no assurance that any additional financing will be available to the Company
on acceptable terms, or at all. If adequate funds are not available, the Company
may be required to delay, scale back, or eliminate its research and development
or obtain funds through arrangement with partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE UPON KEY EMPLOYEES AND CONSULTANTS; RECRUITMENT OF
ADDITIONAL PERSONNEL. The Company is dependent upon the efforts of and abilities
of Jacob Meller, its Chairman of the Board of Directors, and President, and
Frieda Goldstein, its Vice President, Secretary and Treasurer, and on other
members of its scientific and management staff of its subsidiaries. To date, the
Company has been able to attract and retain the personnel necessary for its
operations. However, there can be no assurance that the Company will be able to
do so in the future. If the Company is unable to attract and retain personnel
with necessary skills when needed, its business and expansion plans could be
adversely effected.
LIMITED SALES AND MARKETING EXPERIENCE. The Company intends to market
and sell its products in the United States and certain foreign countries, if and
when regulatory approval is obtained, through a direct sales force and
distributors. Establishing significant marketing and sales capability will
require significant resources. There can be no assurance that the Company will
be able to recruit and retain skilled sales management, direct salespersons or
distributors, or that the Company's sales effort will be successful. To the
extent that the Company enters into distribution arrangements for the sale of
its products, the Company will be dependent on the efforts of third parties.
There can be no assurance that such efforts will be successful.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS. A portion of the
Company's future products may be regulated by the United States Food and Drug
Administration (the "FDA"). Such regulations extend to manufacturing practices,
the conduct of clinical investigations, pre-market approval, record keeping and
clearance from the FDA for commercial marketing of its primary products. In
addition, other products that the Company might develop may also be subject to
FDA regulation. There can be no assurance that the Company will be able to
obtain FDA clearance for commercial marketing of its products. Even if FDA
clearance is received, government
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regulation may have an adverse impact on the timing and cost of new product
introductions, may interfere with the marketing of existing products and may
require the recall of products from customer locations.
PRODUCT RECALLS AND LIABILITY. Products such as those being developed
by the Company may be subject to recall for unforeseen reasons. In addition,
certain projected applications of the Company's products entail the risk of
product liability claims. The Company performs extensive testing of its products
at each stage of their design to minimize the risk of recall or product
liability claims. A recall or product liability claim could adversely affect the
Company's operation and reputation. The Company does not maintain any insurance
related to recalls or product liability and, accordingly, a product recall of
the Company's principle products or successful product liability claims against
the Company would have an adverse effect on the Company.
COMPETITION AND TECHNOLOGICAL CHANGES. The Company's success depends
upon establishing and maintaining a competitive position in research,
development and commercialization of products and technologies in its areas of
focus. The medical device industry is competitive and requires substantial
capital. The Company competes with, and will compete with, numerous
international, national and regional companies, many of which have significantly
larger operations and greater financial, marketing, human and other resources
than the Company. Accordingly, such competitors may have substantial competitive
advantages over the Company, including the ability to negotiate favorable supply
and distribution agreements and the ability to negotiate more favorable terms
with the developers of technology, including universities. In addition, the
Company plans to develop additional products and acquire additional technologies
in order to expand the Company's product and technology portfolio. No assurance
can be given that the Company will successfully compete in any market in which
it conducts or may conduct operations or that developments by such competitors
will not render the Company's current or future products or technologies
uncompetitive or obsolete.
LIMITED PRIOR PUBLIC MARKET; POTENTIAL LIMITED TRADING MARKET; POSSIBLE
VOLATILITY OF STOCK PRICE. There has only been a limited public market for the
securities and there can be no assurance that an active trading market in the
Company's securities will be maintained. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many smaller companies. The trading
price of the common stock is expected to be subject to significant fluctuations
in response to variations in quarterly operating results, changes in analysts'
earnings estimates, announcements of technological innovations by the Company or
its competitors, general conditions in the medical device industry and other
factors. These fluctuation, as well as general economic and market conditions,
may have a material or adverse effect on the market price of the Company's
common stock.
PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON
MARKETABILITY OF SECURITIES. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define a "penny stock" to
be any equity security that has a
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market price (as defined) of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to certain exceptions. As a result, the
Company's Common Stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in this Offering to sell the Company's
securities in the secondary market and the price at which such purchasers can
sell any such securities.
PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT. The
Company's ability to compete successfully and achieve future revenue growth will
depend, in part, on its ability to protect its proprietary technology and
operate without infringing upon the rights of others. Although there are no
pending lawsuits against the Company regarding its technology or notices that
the Company is infringing upon intellectual property rights of others, there can
be no assurance that litigation or infringement claims will not occur in the
future. Such litigation or claims could result in substantial costs, and
diversion of resources and could have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company generally
enters into confidentiality and non-disclosure agreements with its employees and
limits access to and distribution of its proprietary information. However, there
can be no assurance that such measures will provide adequate protection for the
Company's trade secrets or other proprietary information, or that the Company's
trade secrets or proprietary technology will not otherwise become known or be
independently developed by competitors. The failure of the Company to protect
its proprietary technology could have a material adverse effect on its business,
financial condition and results of operations.
NO DIVIDENDS. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable future. Any earnings which the Company may realize in
the foreseeable future will be retained to finance the growth of the Company.
ANTI-TAKEOVER PROVISIONS. Pursuant to the Company's Certificate of
Incorporation, the Board of Directors may issue up to 2,000,000 shares of
Preferred Stock
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in the future with such preferences, limitations and relative rights as the
Board may determine without stockholder approval. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying or preventing a change in control of the Company without further action
by the stockholders. The Company has no present plans to issue any shares of
Preferred Stock. In addition, following this Offering the Company will become
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the persons became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change of control of the Company.
ADDITIONAL AUTHORIZED SHARES OF COMMON STOCK AND PREFERRED STOCK
AVAILABLE FOR ISSUANCE MAY ADVERSELY AFFECT THE MARKET. The Company is
authorized to issue 50,000,000 shares of its Common Stock, $.001 par value. As
of March 31, 2000 there were 6,534,582 shares of Common Stock issued and
outstanding. However, the total number of shares of Common Stock issued and
outstanding does not include the exercise of up to 4,080,000 warrants to
purchase up to 4,080,000 shares of Common Stock at an exercise price of $1.25
per share, 411,400 shares of Common Stock issuable upon exercise of warrants at
$1.00 per share, 481,400 shares of Common Stock issuable upon exercise of the
warrants at $2.00 per share and 130,000 shares of Common Stock issuable upon
exercise of the warrants at $3.00 per share. After reserving a total of
5,102,800 shares of Common Stock for issuance upon the exercise of all options
and warrants, the Company will have at least 38,362,618 shares of authorized but
unissued Common Stock available for issuance without further shareholder
approval. As a result, any issuance of additional shares of Common Stock may
cause current shareholders of the Company to suffer significant dilution which
may adversely affect the market.
In addition to the above-referenced shares of Common Stock which may be
issued without shareholder approval, the Company has 2,000,000 shares of
authorized preferred stock, the terms of which may be fixed by the Board of
Directors. The Company presently has no issued and outstanding shares of
preferred stock and while it has no present plans to issue any shares of
preferred stock, the Board of Directors has the authority, without shareholder
approval, to create and issue one or more series of such preferred stock and to
determine the voting, dividend and other rights of holders of such preferred
stock. The issuance of any of such series of preferred stock could have an
adverse effect on the holders of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET. The
Company has 6,534,582 shares of its Common Stock issued and outstanding,
2,407,020 of which are "restricted securities". Rule 144 provides, in essence,
that a person holding "restricted securities" for a period of one year may sell
only an amount every three
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months equal to the greater of (a) one percent of the Company's issued and
outstanding shares, or (b) the average weekly volume of sales during the four
calendar weeks preceding the sale. The amount of "restricted securities" which a
person who is not an affiliate of the Company may sell is not so limited, since
non-affiliates may sell without volume limitation their shares held for two
years if there is adequate current public information available concerning the
Company. In such an event, "restricted securities" would be eligible for sale to
the public at an earlier date. The sale in the public market of such shares of
Common Stock may adversely affect prevailing market prices of the Common Stock.
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. As of March 31, 2000, there
were outstanding stock options and warrants to purchase an aggregate of
4,080,000 shares of Common Stock at an exercise price of $1.25 per Share, an
additional 411,400 shares of Common Stock at an exercise price of $1.00 per
share, an additional 481,400 shares of Common Stock at an exercise price of
$2.00 per share and an additional 130,000 shares of Common Stock at an exercise
price of $3.00 per share. None of such options or warrants are available for
public resale and such shares would be subject to Rule 144 of the Act upon
issuance thereof. The exercise of such outstanding options and warrants will
dilute the percentage ownership of the Company's stockholders, and any sales in
the public market of shares of Common Stock underlying such securities may
adversely affect prevailing market prices for the Common Stock. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of such outstanding securities can
be expected to exercise their respective rights therein at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in such securities. A
substantial number of outstanding warrants contain provisions for cashless
exercise.
LIMITATION ON DIRECTOR LIABILITY. As permitted by Delaware law, the
Company's Certificate of Incorporation limits the liability of directors to the
Company or its stockholders for monetary damages for breach of a director's
fiduciary duty except for liability in certain instances. As a result of the
Company's charter provision and Delaware law, stockholders may have limited
rights to recover against directors for breach of fiduciary duty.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE. This Form 10-KSB
contains forward-looking statements and information that are based on
management's beliefs as well as assumptions made by, and information currently
available to, management. When used in this Form 10-KSB (including Exhibits),
words such as "anticipate," "believe," "estimate," "expect," and, depending on
the context, "will" and similar expressions, are intended to identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and are subject to certain risks, uncertainties
and assumptions, including the specific risk factors described above. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
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anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements and information.
ITEM 2. PROPERTIES.
The Company rents (from an unaffiliated party), on a month to month
basis, approximately 1900 square feet at 40 Wall Street, New York, NY 10005,
which serves as the Company's executive offices. The monthly rental is $4,500.
The Company's subsidiary, Meduck Technologies, obtains rent free premises in Tel
Aviv, Israel, from Meduck's president. TNJ leases space at 5011 North Lincoln
Avenue, Chicago, IL 60625 pursuant 5-year lease which expires on February 1,
2001. The annual rental is $13,200.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation or governmental
proceedings that, management believes, would result in judgments or fines that
would have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's shares of Common Stock are currently quoted on the Pink
Sheets. From December 1993 through January 2000, the Common Stock was quoted on
the OTC Bulletin Board (originally under the symbol "BSTR"). From September 11,
1996 through September 2, 1998, the Common Stock traded under the symbol "DVCC".
Since September 2, 1998, the Common Stock has been trading under the symbol
"MDSX". However, the Company is not aware of any established trading market for
its Common Stock nor is there any record of significant trading in the Company's
Common Stock.
The following table sets forth the range of high and low bid quotations
for the Common Stock, since October 1998, as reported by the OTC Bulletin Board
or Pink Sheets, as applicable. The quotes represent inter-dealer prices without
adjustment or mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions. The trading volume of the Company's securities
fluctuates and may be extremely limited (or non-existent) during certain
periods. As a result, the liquidity of an investment in the Company's securities
may be adversely affected.
COMMON STOCK
HIGH LOW
1998
Quarter ended*
December 31, 1998 $1-1/2 $1/2
1999
Quarter ended
March 31, 1999 $3-1/2 $1-7/16
Quarter ended
June 30, 1999 $3-3/8 $2-1/4
Quarter ended
September 30, 1999 $4-1/4 $2-3/4
Quarter ended
December 30, 1999 $3.50 $1.875
* Limited trading on the OTC Bulletin Board commenced in October 1998.
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On March 31, 2000, the closing sales price as reported by the Pink
Sheets was $2.20 for each share of Common Stock. As of March 31, 2000, there
were 6,534,582 shares of Common Stock outstanding, held of record by
approximately 484 record holders.
DIVIDEND POLICY
It is the policy of the Board of Directors to retain earnings for use
in the maintenance and expansion of the Company's business. the Company has not
declared any cash dividends to the shareholders of its capital stock and does
not intend to declare such dividends in the foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MedSearch Technologies, Inc. is a research, development and
distribution company specializing in unique, diagnostic, non-invasive medical
devices. The Company's current patented, patent-pending and/or trademarked
products include (1) the "SCOPESHILED(TM)", a disposable, anti-microbial
stethoscope cover which shields stethoscope from hazardous microorganisms, (2)
the "Symdex 1000," a monitor which measures the depth of anesthesia via the
sympathetic nervous system through disposable sensors connected to the finger,
and (3) the "NPTR test," a diagnostic product utilized to differentiate between
physical and psychological impotence. The Company conducts research and
development through its subsidiaries Meduck Technologies, Ltd. and M&W Medical
Supply, LLC and conducts its marketing through its subsidiary, TNJ Products,
Inc. The Company also distributes products designed to reduce swelling in
certain body parts and products designed for postmastectomy patients.
The Company has approximately 90 unresolved Medicare claims in which
the Company provided patients with the physician-prescribed Lympha Press
product. Medicare claims that the patient's health condition did not warrant
receipt of the Lympha Press product. Based on medical documentation including
actual prescriptions, the Company believes the aforementioned to be unfounded.
The Company had previously billed and received payment for approximately 500 of
the same units from Medicare under the same regulations. The Company cannot
revoke the product from the patients as the device was deemed medically
necessary by the treating physicians. To date, the Company has paid for the
distributed products from its own resources. The Company hopes to settle the
dispute in the near future. The Company is confident that the Department of
Appeals will find in its favor.
Results of Operations
Year Ended December 31, 1999 as Compared to December 31, 1998
The Company had net sales of $1,110,000 for the year ended December 31,
1999 as compared to $405,000 for the year ended December 31, 1998. The increase
of $705,000 (74%) is attributable to optical product sales of $872,000 versus
$405,000, a change of $467,000, plus the TNJ acquisition added sales of $223,000
and the Company had consulting fees of $15,000.
Cost of sales increased during the year ended December 31, 1999 to
$859,000 from $371,000 for the year ended December 31, 1998. The increase of
$488,000 (132%) $442,000 relates to the Company's increase in sales of optical
products and $46,000 relates to medical product sales by TNJ.
Operating expenses increased to $1,270,000 from $311,000 for the year
ended December 31, 1999 as compared to 1998, an increase of $959,000 (300%). The
net
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increase is attributable to increased operations in the United States and
Israel. Meduck had $203,000 of research and development expenses vs. none in
1998, the Company expensed $183,000 in stock compensation to officers and
directors and $45,000 in goodwill vs none in 1998, the Company expensed $132,000
of contributed rent and compensation vs $63,000 in 1998 and the balance of
$459,000 is due to the Company operating for a full year vs six months in 1998.
The Company had a net loss for the year ended December 31, 1999 of
$1,004,000 as compared to a net loss of $241,000 for the year ended December 31,
1998, an increase of $763,000 (317%). The increased loss of $763,000 is
attributable to the aforementioned detailed expenses and full year operations.
Year Ended December 31, 1998 as Compared to December 31, 1997
The Company had net sales of $405,000 for the year ended December 31,
1998 as compared to $-0- for the year ended December 31, 1997. The increase is
attributable to sales of optical products verses the Company being dormant in
1997.
Cost of sales increased during the year ended December 31, 1998 to
$371,000 from $-0- for the year ended December 31, 1997. The increase
corresponds to the Company's increase in sales of optical products.
Operating expenses increased to $311,000 from $45,000 for the year
ended December 31, 1998 compared to December 31, 1997, an increase of $302,000
(86%). The increase of $266,000 is attributable to the start of operations.
The Company had a net loss for the year ended December 31, 1998 of
$277,000 as compared to a net loss of $88,000 for the year ended December 31,
1997, an increase of $189,000 (68%). The increase is attributable to the
aforementioned increased operations.
Liquidity and Capital Resources
December 31, 1999 to December 31, 1998
At December 31, 1999, the Company had cash of $368,000 as compared to
cash of $498,000 at December 31, 1998 a decrease of $130,000 (26%). The decrease
results from the Company using $593,000 in its operations of which $203,000 was
used for research and development. The Company was able to generate cash by
issuing demand notes for $400,000 and collecting $65,000 of notes and loans
receivable.
Medsearch requires substantial capital in order to continue its
research and development activities and product introductions. Due to the need
for capital the Company's operations may be adversely effected by unfavorable
capital market conditions and/or prolonged recessionary periods.
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In the short term, the Company will not have sufficient revenues to
generate positive cash flow. However, the Company believes that its cash on hand
together with additional borrowings and/or equity sales will be sufficient to
fund its capital expenditures and working capital requirements for at least the
next 12 months.
In the long term Medsearch may require additional capital for new
business activities related to its current and planned businesses, or in the
event it decides to make additional acquisitions or enter into joint ventures
and strategic alliances. Sources of additional capital may include cash flow
from operations, public or private equity and debt financings, bank debt and
vendor financings. However, we cannot assure you that Medsearch will be
successful in producing sufficient cash flow or raising debt or equity capital
to meet its strategic business objectives or that such funds, if available, will
be available on a timely basis and on terms that are acceptable to Medsearch. If
Medsearch is unable to obtain such capital, it may have to delay or curtail
business operations. In addition, Medsearch may increase the number of projects
it takes on, which in turn may accelerate Medsearch's need for additional
capital.
December 31, 1998 to December 31, 1997
At December 31, 1998, the Company had cash of $498,000 as compared to
cash of $29,000 at December 31, 1997. In August 1998, the Company completed a
unit sale whereby it received net proceeds of approximately $1,000,000. The
financing consisted of 4,000,000 units, each unit comprised of one share of
common stock and one warrant to purchase an additional one share of the
Company's common stock. The Company used $250,000 of the proceeds as part of the
purchase price of Optimart Imports. Optimart is a company that imports optical
products. The balance of the proceeds have been used to pay some offering costs,
to purchase fixed assets for $85,000 and $165,000 for working capital.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual Report on
Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT
The names and ages of the directors and executive officers of the
Company are set forth below. All Directors are elected annually by the
stockholders to serve until the next annual meeting of the stockholders and
until their successors are duly elected and qualified. Officers are elected
annually by the Board of Directors to service at the pleasure of the Board.
NAME AGE POSITION(S) WITH THE COMPANY
Jacob Meller 53 Chairman of the Board and President
David Filer, Ph.D 52 Director
Frieda Goldstein 26 Vice President, Treasurer, Secretary and
Director
Isaac Wurzburger, M.D. 44 Medical Advisor and Proposed Director
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
JACOB MELLER, has been the Chairman of the Board and President of the Company
since June 1998. Mr. Meller is an entrepreneur in the medical device industry.
After studying accounting at Bar Ilan University in Israel, he served as Chief
Financial Officer from 1973 to 1984 at Asher Foistfonger, Ltd. ("AFL"), an
Israeli public company. Following his position at AFL, Mr. Meller spent fifteen
years dealing in Israeli medical technology including seven years marketing and
distributing Israeli-manufactured medical devices in Europe. Mr. Meller was one
of the founders of TNJ, one of the Company's wholly-owned subsidiaries, and
served as its Chairman from March 1995 to June 1996. Mr. Meller is a full-time
officer of the Company.
DR. DAVID FILER, has been a Director of the Company since February 2000. Dr.
Filer is a biotechnology analyst and investment consultant to biotech and
pharmaceutical companies engaged in research and development. Dr. Filer received
his masters in Microbiology and Biochemistry and his Ph.D. in Microbiology from
Tel Aviv University and was the Senior Molecular Biologist at the Millhauser
Laboratories of NYU Medical Center for 10 years. Dr. Filer divides his time
between his private practice and his position as Director of the Company.
FRIEDA GOLDSTEIN, has been the Vice President, Secretary, and Treasurer of the
Company since June 1998. Over the past five years, Ms. Goldstein has been an
executive assistant to the vice president at Inter-Governmental Philatelic
Corporation and Abner, Herrman and Brock Investment Management. In addition to
her current position with MedSearch. Ms. Goldstein is an MBA candidate at Pace
University's Lubin School of Business. Ms.
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Goldstein received her B.A. in Sociology from Brooklyn College in 1996. Ms.
Goldstein is a full-time officer of the company.
DR. ISAAC WURZBURGER, is Board Certified by the American Association of Family
Physicians. Dr. Wurzburger is an Assistant Attending Physician at Columbia
Presbyterian Hospital and has been appointed to the facilities of Columbia
University Medical School and New York Medical College. Dr. Wurzburger is the
inventor of the SCOPESHIELD(TM)and other medical devices. Dr. Wurzburger
received his M.D. at the University of Chicago Medical School in Chicago,
Illinois. Dr. Wurzburger has agreed to join the Board upon the Company obtaining
officers/directors insurance coverage. The Company plans to procure
officers/directors insurance by June, 2000.
SUBSIDIARY MANAGEMENT
MEDUCK
SHLOMO NEVO- President and CEO
Mr. Nevo is a highly recognized industrial engineer with over 22 years
experience in the industrial field . Responsible for the long term direction of
Meduck and overseeing the day-to-day operations, Mr. Nevo supervises all product
development. Mr. Nevo has participated in product development for numerous
Global companies such as Pfizer, Inc. Prior to working at Meduck, Mr. Nevo
worked as a project manager for NCA, Ltd., an Israeli manufacturer of metal
aircraft parts. Mr. Nevo is a part -time employee of Meduck.
VERED CAPLAN- Vice President
Prior to joining Meduck in 1998, Ms. Caplan was the Project Manager at Aran
Technologies, Israel's largest engineering subcontracting company. Ms. Caplan is
in the final stages of completing her masters degree in biomedical engineering
and is an assistant to Dr. Barnea. Ms. Caplan received an MBA in marketing and
business development from Tel Aviv University and mechanical engineering from
Technion Institute at Haifa University. Ms. Caplan is a full-time employee of
Meduck.
OFER BARNEA, PH.D- Chief Scientist and Inventor
In addition to his position at Meduck, Dr. Barnea is an inventor, lecturer and
researcher of the biomedical engineering faculty at Tel Aviv University. Dr.
Barnea received his Ph.D at Drexel University in Philadelphia, Pennsylvania. Dr.
Barnea is also a renowned consultant for global marketing companies engaged in
R&D. Dr. Barnea allocates the majority of his time to his work with Meduck.
RON FLAISHON, MD- Consulting Anesthesiologist
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In addition to his position as Director of Ambulatory Anesthesiology at Sourasky
Medical Center, and as a Clinical Instructor at the Sackler School of Medicine,
Dr. Flaishon is conducting clinical trials for the 'Symdex 1000'. Dr. Flaishon
is also coordinating the US clinical trials for the 'Symdex 1000'. Dr. Flaishon
received his M.D. in anesthesiology at the Technion Institute in 1983, and
completed a clinical research fellowship in 1995 on the depth and adequacy of
anesthesia at Emory University School of Medicine in Atlanta, Georgia. Dr.
Flaishon is the physician in charge of the clinical trials for the Symdex 1000.
Dr. Flaishon is not an employee of Meduck.
TNJ
TSIONA BITTON- President and CEO
Responsible for the long term direction of TNJ and overseeing the day-to-day
operations of TNJ, Ms. Bitton has over 19 years experience in breast cancer
treatment and sports injury rehabilitation and the medical device distribution
field. Ms. Bitton is a certified orthotist (B.O.C.) and a certified compression
therapist. Ms. Bitton has been with TNJ since inception in 1995 and personally
trained all of TNJ's independent marketing team. Ms. Bitton is a member of the
"Why Me Breast Cancer Organization". Ms. Bitton received an Associate Degree in
Human Physiology from Technion Institute at Haifa University. Ms. Bitton is a
full-time employee of TNJ.
NANU BODHANWALA- Chief Financial Officer
Responsible for medical billing and accounts receivable, Mr. Bodhanwala is the
senior accountant at TNJ. Mr. Bodhanwala also assumes general office duties and
helps Ms. Bitton oversee the needs of TNJ's nationwide sales representatives.
Mr. Bodhanwala received his BA in Accounting from the BJVM University, Vallbh
Vidhya Najar, India. Mr. Bodhanwala is a full-time employee of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely upon its review of the copies
of such reports furnished to the Company during the year ended December 31,
1999, all Section 16(a) filing requirements applicable to its officers and
directors and greater than ten percent beneficial owners were satisfied.
26
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The only executive officer of the Company that received a salary during
1999 was Ms. Goldstein, the Company's Vice President, who received $36,000
during 1999. Her current salary is $36,000. In June 1999, Ms. Goldstein received
20,000 restricted shares of Common Stock. In June 1999, the Company also issued
10,000 shares of Common Stock to Dr. Tracy, a former director of the Company and
an additional 125,000 shares of Common Stock to Tsiona Bitton, a director of TNJ
(a wholly-owned subsidiary of the Company). In addition, the Company issued
300,000 shares of Common Stock to a company owned by Messrs. Barnea and Nevo,
officers of Meduck (a majority owned subsidiary of the Company). See "Financial
Statements - Note 8."
EMPLOYMENT AGREEMENTS
The Company has no employment agreements with any of its executive
officers.
27
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 31, 2000 with
respect to the beneficial ownership of the outstanding shares of the Company's
Common Stock (6,534,582 as of such date) by (i) any holder known to the Company
owning more than five percent (5%) of the outstanding shares; (ii) the Company's
officers and directors; and (iii) the directors and officers of the Company as a
group:
NUMBER OF SHARES OF
NAME OF BENEFICIAL OWNER* COMMON STOCK (1) PERCENTAGE (%) OF OWNERSHIP
- ------------------------- ---------------- ---------------------------
Jacob Meller(2) 714,600 10.58%
Frieda Goldstein(3) 50,000 .76%
David Filer (4) 30,000 .45%
Isaac Wurzburger(5) ---- ----
Clarke Holdings, Ltd. 700,000 10.80%
Bahnahafstrasse 52
Ch - 8001
Zurich, Switzerland
RMC Limited 600,000 9.25%
Box 187, Victory House
Prospect Hill
Douglas, Isle of Man
1M9 91QF, British Isles
All Officers and Directors as 804,600 11.34%
a group (4 persons) (6)
* Unless otherwise indicated, the address of all persons listed in this
section is c/o MedSearch Technologies, Inc., 40 Wall Street, New York,
NY 10005.
(1) Beneficially ownership as reported in the table above has been determined
in accordance with Instruction (4) to Item 403 of Regulation S-B of the
Securities Exchange Act.
(2) Mr. Meller is the record holder of 214,600 of such shares. Includes
500,000 warrants (250,000 of which are exercisable at $1.00 and 250,000 of
which are exercisable at $2.00).
(3) Includes 30,000 warrants exercisable at $1.25 per share.
(4) Includes 30,000 warrants exercisable at $3.00 per share.
28
<PAGE>
(5) Medical Innovations, LLC owns 50,000 shares of Common Stock and 200,000
warrants (100,000 of which are exerciseable at $2.00 and 100,000 of which
are exercisable at $3.00). Medical Innovations, LLC is an entity which is
50% owned by Dr. Wurzburger's wife, Dr. Wurzburger disclaims beneficial
ownership of such securities.
(6) Includes 500,000 warrants held by Mr. Meller and 30,000 warrants held by
each of David Filer and Ms. Goldstein. See Notes 2 and 3.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the best of management's knowledge there were no material
transactions, or series of similar transactions, or any currently proposed
transactions, or series of similar transactions, to which the Company was or is
to be a party, in which the amount involved exceeds $60,000, and in which any
director or executive officer, or any security holder who is known by the
Company to own of record or beneficially more than 5% of any class of the
Company's common stock, or any member of the immediate family of any of the
foregoing persons, has an interest.
Jacob Meller, the Company's President, served as Chairman of the Board
of TNJ from March 1995 to June 1996. At the time of the Company's acquisition of
TNJ, Mr. Meller did not own any of the TNJ capital stock.
Pursuant to the acquisition of M&W in August 1999, the Company entered
into a Royalty and Consulting Agreement ("Royalty Agreement") with Medical
Innovations, LLC ("Innovations"), an entity in which the wife of Dr. Wurzburger,
a proposed Director of the Company, has a 50% interest. Pursuant to the Royalty
Agreement, the Company has the right of first refusal on future technology
developed by Innovations, subject to certain conditions. The Royalty Agreement
provides that Innovations will be entitled to future royalties on all products
developed by the Company from Innovations (including existing M&W products) on a
sliding scale beginning at 10% and reduced to 3% after the Company has in excess
of $10,000,000 in adjusted gross revenue from such products. If the Company does
not achieve sales of $1,000,000 during each 12-month period (commencing August
2000) or if the Company fails to manufacture and sell products (within 1 year
from the time a product is ready for commercial sale), the Company may lose the
rights to such products (including existing M&W products). To secure the
Company's obligation under the Royalty Agreement, the Company granted a security
interest in and to the patents of M&W.
The Company intends to indemnify its officers and directors to the full
extent permitted by Delaware law. Under Delaware law, a corporation may
indemnify its agents for expenses and amounts paid in third party actions and,
upon court approval in derivative actions, if the agents acted in good faith and
with reasonable care. A majority vote of the Board of Directors, approval of the
stockholder or court approval is required to effectuate indemnification.
29
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by an officer, director or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such officer, director or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Transactions between the Company and its officers, directors, employees
and affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. Any such transactions will be subject to the
approval of a majority of the disinterested members of the Board of Directors.
30
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS.
The following financial statements are included in Part II, Item 7:
Index to Financial Statements F-1
Independent Auditor's Report F-2
Consolidated Balance Sheets F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Equity F-5 - F-6
Consolidated Statement of Cash Flows F- 7 - F-8
Notes to Consolidated Financial Statements F- 9 - F- 21
(A)(2) EXHIBITS
2.1 Certificate of Incorporation of the Company*
2.2 Certificate of Merger (Delaware)*
2.3 Articles of Merger (Nevada)*
2.4 Agreement and Plan of Merger*
2.5 By-Laws of the Company*
3.1 Specimen Certificate for shares of Common Stock*
3.2 Form of Private Placement Warrant*
10.1 Consent of Kempisty & Company, Independent Certified Public
Accountants.
27 Financial Data Schedule
- -----------------------
* Incorporated by reference to the Company's Form 10-SB (0-27135)
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 1999.
31
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
INDEX
PAGE
INDEPENDENT AUDITORS' REPORT F2
CONSOLIDATED BALANCE SHEETS F3
CONSOLIDATED STATEMENTS OF OPERATIONS F4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F5-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F7-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F9-21
F1
<PAGE>
KEMPISTY & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS, P.C.
- --------------------------------------------------------------------------------
15 MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272
- - FAX (212) 513-1930
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Medsearch Technologies, Inc.
We have audited the consolidated balance sheet of Medsearch Technologies, Inc.
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1999 and December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medsearch Technologies, Inc. as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1999 and December 31, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 16 to the
financial statements, the Company's recurring losses from operations and
negative cash flows from operating activities raise substantial doubt about the
Company's ability to continue as a going concern unless it is able to generate
sufficient cash flows to meet its obligations and sustain its operations.
Management's plan regarding these matters is also described in Note 16. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KEMPISTY & COMPANY CPAs, P.C.
Kempisty & Company
Certified Public Accountants PC
New York, New York
March 20, 2000
F2
<PAGE>
<TABLE>
<CAPTION>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
Consolidated Balance Sheets
December 31, December 31,
1999 1998
-------------- -------------
ASSETS
<S> <C> <C>
Current Assets
Cash and equivalents $ 367,840 $ 498,176
Accounts receivable-net (Note 11) 156,271 36,295
Note receivable (Note 8) 22,039 --
Officer loan receivable -- 15,000
Inventory 8,575 --
Other receivable 6,133 --
Prepaid expenses 1,090 --
-------------- --------------
Total Current Assets 561,948 549,471
Fixed assets-net (Note 3) 110,955 76,824
Note receivable (Note 8) 144,078 --
Other assets
Licenses-net -- 352,942
Patents-net 331,958 169,167
Goodwill-net (Note 8) 864,459 --
-------------- --------------
Total Other Assets 1,196,417 522,109
-------------- --------------
TOTAL ASSETS $ 2,013,398 $ 1,148,404
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 102,803 $ 68,205
Demand notes payable (Note 5) 400,000 --
Current portion of note payable (Note 6) 4,366 --
-------------- --------------
Total Current Liabilities 507,169 68,205
Note payable (Note 6) 34,095 --
Commitments and contingencies (Note 12) -- --
Minority interest -- --
Stockholders' Equity (Note 8)
Common stock, 50,000,000 shares authorized at $.001
par value; issued and outstanding 6,534,582 at December
31, 1999, 5,579,582 at December 31, 1998 6,534 5,579
Preferred stock 2,000,000 shares authorized at $.001 par
value; issued and outstanding none --
Capital in excess of par value 5,070,503 3,060,936
Deficit (2,990,239) (1,986,316)
Accumulated comprehensive (loss) (Note 15) (953) --
Unearned compensation (613,711) --
-------------- --------------
Total Stockholders' Equity 1,472,134 1,080,199
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,013,398 $ 1,148,404
============== ==============
</TABLE>
See Notes to Financial Statements.
F3
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
Consolidated Statements of Operations
For the Year Ended
December 31,
1999 1998
----------- -----------
Sales revenues $ 1,110,133 $ 405,180
Cost of sales 858,723 371,297
----------- -----------
Gross profit 251,410 33,883
Stock compensation (Note 7) 182,539 --
Research and development 203,337 21,279
General and administrative expenses 884,316 289,996
----------- -----------
1,270,192 311,275
Loss from operations (1,018,782) (277,392)
Other income and expenses
Interest income 8,090 12,699
Other income 13,255 10,000
Interest expense (6,486) --
Gain (loss) on investment -- 13,572
----------- -----------
Income (loss) before taxes (1,003,923) (241,121)
Provision for income taxes -- --
----------- -----------
Net (loss) (1,003,923) (241,121)
Other comprehensive (loss) (Note 15) (953) --
----------- -----------
Comprehensive (loss) (1,004,876) (241,121)
Basic and diluted (loss) per share (0.17) (0.11)
=========== ===========
Comprehensive income per share (0.17) (0.11)
=========== ===========
Basic and diluted average shares outstanding 6,051,431 2,236,294
=========== ===========
See Notes to Financial Statements.
F4
<PAGE>
<TABLE>
<CAPTION>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
Consolidated Statements of Changes in Stockholders' (Deficit)
Years ended December 31, 1999 and 1998
Accumulated
Capital in Compre- Unearned
Common Stock Preferred Stock Excess of hensive Compen-
Shares Amount Shares Amount Par Value Deficit Loss sation Total
------ --------- --------- --------- ----------- ----------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998
as previously reported 79,639 $ 79 -- $ -- $ 1,432,403 $(1,745,195) $ -- $ -- $312,713)
Fractional share adjustment
due to reverse stock split (57) -- -- -- -- -- -- -- 0
Shares issued to officers for
debt repayment 300,000 300 -- -- 231,712 -- -- -- 232,012
Forgiveness of loan interest
by officers -- -- -- -- 39,021 -- -- -- 39,021
Sales of units 4,000,000 4,000 -- -- 996,000 -- -- -- 1,000,000
Shares issued for acquisition
of Meduck 700,000 700 -- -- 174,300 -- -- -- 175,000
Shares issued for acquisition
of Optimart 500,000 500 -- -- 124,500 -- -- -- 125,000
Rent and officers
compensation adjustment -- -- -- -- 63,000 -- -- -- 63,000
Loss for year ended
December 31, 1998 -- -- -- -- -- (241,121) -- -- (241,121)
Balance December 31, 1998 5,579,582 5,579 0 0 3,060,936 (1,986,316) 0 0 1,080,199
</TABLE>
F5
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
Consolidated Statements of Changes in Stockholders' (Deficit)
Years ended December 31, 1999 and 1998
(continued)
<TABLE>
<CAPTION>
Accumulated
Capital in Compre- Unearned
Common Stock Preferred Stock Excess of hensive Compen-
Shares Amount Shares Amount Par Value Deficit Loss sation Total
------ ------- ------ ------ --------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares from sale of
Optimart received
and retired ............. (150,000) (150) -- -- (152,578) -- -- -- (152,728)
Shares issued for
acquisition of
TNJ Products ............ 600,000 600 -- -- 1,049,400 -- -- -- 1,050,000
Restricted stock
issued to officers
and directors in lieu
of cash compensation .... 155,000 155 -- -- 271,095 -- -- (218,750) 52,500
Shares issued for
compensation ............ 300,000 300 -- -- 524,700 -- -- (525,000) 0
Shares and warrants
issued for acquisition
of M & W Medical
Supplies, L.L.C. ........ 50,000 50 -- -- 184,950 -- -- -- 185,000
Amortization of
unearned compensation ... -- -- -- -- -- -- -- 130,039 130,039
Rent and officers
compensation adjustment . -- -- -- -- 132,000 -- -- -- 132,000
Loss for year ended
December 31, 1999 ....... -- -- -- -- -- (1,003,923) -- -- (1,003,923)
Comprehensive (Loss) .... -- -- -- -- -- -- (953) -- (953)
Balance December 31, 1999 6,534,582 $ 6,534 0 $ 0 $ 5,070,503 $(2,990,239) $ (953) $ (613,711) $ 1,472,134
========= ======= === === =========== =========== ====== ========== ===========
</TABLE>
See Notes to Financial Statements.
F6
<PAGE>
<TABLE>
<CAPTION>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
Consolidated Statements of Cash Flows
For the Year Ended
December 31,
------------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income or (loss) $ (1,003,923) $ (241,121)
Adjustments to reconcile net income or (loss)
to net cash used by operating activities:
Depreciation and amortization 67,182 36,158
Rent and officer compensation adjustment 132,000 63,000
Gain from sale of investments -- (13,572)
Amortization of unearned compensation 182,539 --
Changes in operating assets and liabilities net of
effects of the purchase of TNJ Products:
(Increase) decrease in accounts receivable 10,049 (36,295)
(Increase) decrease in inventory -- --
(Increase) decrease in current assets 2,244 --
Increase (decrease) in payables 16,388 21,685
-------------- --------------
Net cash (used) by operating activities (593,521) (170,145)
INVESTING ACTIVITIES
Proceeds from note receivable payment 50,000 --
Purchase of fixed assets (6,730) (85,091)
Loans made to officers -- (15,000)
Repayment of officer loans 15,000 --
Acquisition of Optimart - cash portion -- (250,000)
Cash acquired in TNJ Products acquisition 14,223 --
Proceeds from sale of investment -- 46,947
-------------- --------------
Net cash provided(used) by investing activities 72,493 (303,144)
============== ==============
FINANCING ACTIVITIES
Increase in notes payable 400,000 --
Payment of bank loan and note (9,308) (57,965)
Proceeds from sale of stock -- 1,000,000
-------------- --------------
Net cash provided by financing activities 390,692 942,035
Increase (decrease) in cash (130,336) 468,746
Cash at beginning of period 498,176 29,430
-------------- --------------
Cash at end of period $ 367,840 $ 498,176
============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash paid during year for:
Interest $ 6,486 $ 915
============== ==============
Income taxes $ -- $ --
============== ==============
</TABLE>
See Notes to Financial Statements.
F7
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
Consolidated Statements of Cash Flows (continued)
For the Year Ended
December 31,
----------------------------
1999 1998
------------- ------------
Supplemental Disclosures of Cash Flow Information
Non-cash investing and financing activities:
Issuance of common stock for
cancellation of indebtedness $ -- $ 232,012
Officers forgiveness of loan interest $ -- $ 39,021
Warrants issued for compensation $ -- $ 60,000
Issuance of common stock for
Meduck acquisition $ -- $ 175,000
Issuance of common stock for
Optimart acquisition, net of cash paid $ -- $ 125,000
Receipt of common stock and notes for
Optimart divestiture and accounts receivable $ 478,617 $ --
Issuance of common stock for TNJ
Products Acquisition $ 1,050,000 $ --
Issuance of common stock and warrants for
M & W Medical acquisition $ 185,000 $ --
Issuance of common stock for compensation $ 796,250 $ --
See Notes to Financial Statements.
F8
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 1- ORGANIZATION & OPERATIONS
Medsearch, Inc., a Nevada corporation, was organized on June 13,
1986 and changed its name to Medsearch, Inc. on June 16, 1998.
The Company and its subsidiaries are engaged in the development,
manufacturing and marketing of medical products.
On April 12, 1999 Medsearch Technologies, Inc. was incorporated
in Delaware to effectuate a reincorporation of Medsearch,
Inc.-Nevada with and into the Company. All shares of outstanding
common stock were exchanged on a one for one basis for shares of
the $0.001 par value common stock of the new Delaware
corporation. There was no change in the number of shares
authorized. The financial statements for the period prior to the
reincorporation reflect the historical results of operations for
Medsearch, Inc.
Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Meduck Technologies, LTD. ("Meduck") as of December 31, 1999 and
1998, Optimart Imports, Inc. ("Optimart"), a 100% owned
subsidiary for the period of ownership October, 1998 through its
sale in June, 1999 and TNJ Products, Inc. acquired in June,
1999. All significant intercompany accounts and transactions
have been eliminated. Subsidiary losses in excess of the
unrelated investors' interest are charged against the Company's
interest.
During June, 1999 the Company converted $237,000 of loans to
Meduck for an additional 27% interest, bringing its total
ownership percentage to 97%.
b. FOREIGN CURRENCY TRANSLATION
The Company has determined that the local currency of its
Israeli subsidiary, Meduck, is the functional currency. In
accordance with Statement of Financial Accounting Standard No.
52, "Foreign Currency Translation" ("SFAS No. 52") the assets
and liabilities denominated in foreign currency are translated
into U.S. dollars at the current rate of exchange existing at
period-end and revenues and expenses are translated at average
monthly exchange rates. Related translation adjustments are
reported as a separate component of stockholders' equity,
whereas, gains or losses resulting from foreign currency
transactions are included in results of operations.
F9
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of three
months or less at acquisition to be cash equivalents.
d. PROPERTY AND EQUIPMENT
Property and equipment are accounted for at cost and are
depreciated over their estimated useful lives on a straight-line
basis.
e. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as
incurred. Machinery, equipment and other capital expenditures
which have alternative future use beyond specific research and
development activities are capitalized and depreciated over
their estimated useful lives.
f. INCOME TAXES
The Company previously adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", ("SFAS
No.109") which requires the asset and liability method of
accounting for income taxes. Enacted statutory tax rates are
applied to temporary differences arising from the differences in
financial statement carrying amounts and the tax basis of
existing assets and liabilities. Due to the uncertainty of the
realization of income tax benefits, (Note 4), the adoption of
SFAS 109 had no effect on the financial statements of the
Company.
g. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
F10
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
h. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally of
cash investments at commercial banks and receivables from
officers and directors of the Company. Cash and cash equivalents
are temporarily invested in interest bearing accounts in
financial institutions, and such investments may be in excess of
the FDIC insurance limit.
i. GOODWILL, PATENTS AND LICENSES
Goodwill represents the excess of acquisition costs over the
fair value of net assets of TNJ Products, Inc. acquired in June,
1999. Goodwill is being amortized on a straight line basis over
the estimated useful life of ten years.
Patents are being amortized on a straight line basis over 10
years. Licenses are being amortized over the life of the license
or 34 months.
j. REVERSE STOCK SPLIT
The Company's Board of Directors effected a 1 for 100 reverse
stock split of its common stock $.001 par value on May 16, 1998.
All share and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect this
stock split.
k. COMPREHENSIVE INCOME
Effective January 1, 1998 the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 requires an entity to
report comprehensive income and its components and increases
financial reporting disclosures. This standard has no impact on
the Company's financial position, cash flows or results of
operations since the Company's comprehensive income is the same
as its reported net income for 1999 and 1998.
l. EARNINGS (LOSS) PER SHARE
During 1998 the Company adopted SFAS No. 128, "Earnings Per
Share", which requires the reporting of both basic and diluted
earnings per share. Net income per share-basic is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period.
Shares isssuable under stock warrants are excluded from
computations as their effect is antidilutive.
F11
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 3- FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Office furniture and equipment $ 74,835 $ 60,391
Vehicle 43,423 --
Telephone equipment 11,366 11,366
Computers 20,992 13,334
------------- -------------
150,616 85,091
Less: Accumulated depreciation (39,661) (8,267)
------------- -------------
$ 110,955 $ 76,824
============= =============
Note 4- INCOME TAXES
The provision (benefit) for income taxes consisted of the
following (in thousands):
Year ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
Current:
Federal tax expense $ (186) $ (86)
State tax expense (54) (25)
Deferred:
Federal tax expense 186 86
State tax expense 54 25
------------ -------------
$ - $ -
============ =============
A reconciliation of differences between the statutory U.S.
federal income tax rate and the Company's effective tax rate
follows:
Year ended December 31,
1999 1998
------------ -------------
<S> <C> <C>
Stautory federal income tax 34% 34%
State income tax-net of
federal benefit 5% 5%
Valuation allowance -39% -39%
------------ -------------
0% 0%
============ =============
</TABLE>
F12
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 4- INCOME TAXES (continued)
The components of deferred tax assets and liabilities were as
follows (in thousands):
December 31,
1999 1998
--------- -----------
Deferred tax assets:
Net operating loss carryforward $ 570 $ 330
--------- -----------
Total deferred tax assets 570 330
Valuation allowance (570) (330)
--------- -----------
Net deferred tax assets $ -- $ --
========= ===========
SFAS No, 109 requires a valuation allowance to be recorded when
it is more likely than not that some or all of the deferred tax
assets will not be realized. At December 31, 1999 and 1998, a
valuation allowance for the full amount of the net deferred tax
asset was recorded because of continuing losses and
uncertainties as to the amount of taxable income that would be
generated in future years.
The Company recognized losses for the years ended December 31,
1999 through 1994. The amount of available additional net
operating loss carry forwards are approximately $600,000 for
1999, $160,000 for 1998, $87,000 for 1997, $157,000 for 1996,
$142,000 for 1995 and $398,000 for 1994. The net operating loss
carry forwards, if not utilized, will expire in the years 2001
through 2018.
Note 5- SHORT TERM BORROWINGS
During the fourth quarter of 1999 the Company borrowed $150,000
from the President of the Company and $250,000 from Argos
Associates an unrelated investor. The loans are due on demand
and bear interest at the rate of one percent (1%) per month. The
short term loan payable to the president was repaid during
February, 2000.
Short-term borrowings consisted of the following
at December 31, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
12% Demand note payable to the president of the Company $ 150,000
12% Demand note payable to Argos Associates 250,000
----------
$ 400,000
==========
</TABLE>
At December 31, 1999 the carrying value of short-term borrowings
approximated fair values.
F13
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 6- LOANS PAYABLE LONG TERM
Long term debt consists of the following loan acquired as part
of the TNJ Products, Inc. acquisition:
December 31,
1999
-------------
Installment loan $ 38,461
Less current portion 4,336
-------------
$ 34,125
=============
The installment loan payable to a finance company is secured by
an automobile and is payable in monthly installments of $622,
which include principal and interest through March, 2001, at
which time a final balloon payment of $32,943 is due. The
interest rate on the loan is 8.5%.
As of December 31, 1999 the maturities for long term debt are as
follows:
-------------
2000 $ 4,336
2001 34,095
-------------
$ 38,431
=============
Note 7- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined
using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily
required in interpreting market data to develop the estimates of
fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------ -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 367,840 $ 367,840 $ 498,176 $ 498,176
Accounts receivable 156,271 156,271 36,295 36,295
</TABLE>
The carrying amounts of cash and cash equivalents, and accounts
receivable are a reasonable estimate of their fair values.
F14
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 8- STOCKHOLDERS' EQUITY
On May 14, 1998 the Company issued 300,000 shares of $0.001
common stock to two officers in repayment of loans to the
Company totalling approximately $232,000.
On May 16, 1998 the Company declared a one for one hundred
reverse stock split of its $.001 par value common stock. The par
value of the common stock was not changed.
On August 1, 1998 the Company sold four million (4,000,000)
units, each unit consisting of one share of common stock $.001
par value and one warrant to purchase one share of $.001 par
value common stock at $1.00, expiring August 1, 2001 at $.25 per
unit for total gross proceeds of $1,000,000. On December 24,
1998 the Board of Directors cancelled the above warrants and
issued new warrants exercisable at $1.25, which expire on
December 31, 2002.
MEDUCK TECHNOLOGIES, LTD. AQCUISITION
On October 1, 1998 the Company issued 700,000 shares of $.001
par value common stock valued at $.25 per share or $175,000 for
a seventy percent (70%) interest in Meduck, a company engaged in
the development and manufacturing of medical products.
OPTIMART IMPORTS, INC. ACQUISITION
On October 9, 1998 the Company issued 500,000 shares of $.001
par value common stock valued at $.25 per share or $125,000 plus
$250,000 for one hundred percent (100%) of Optimart. Optimart is
a company that imports optical products under a three year
rights agreement effective August 2, 1998. The cost of the
Optimart acquisition of $375,000 will be amortized over the
remaining life of the agreement or thirty four (34) months.
TNJ ACQUISITION
In June, 1999 the Company issued 600,000 shares of $0.001 par
value common stock valued at $1.75 per share or $1,050,000 for
100% of the outstanding shares of TNJ Products, Inc. common
stock, a medical product distributor and a rehabilitative
medical service provider. The acquisition was accounted for as a
purchase.
The operations and financial position of TNJ Products, Inc. were
accounted for in the consolidated financial statements of the
Company beginning July, 1999. The excess purchase price over the
estimated fair value of the assets was approximately $910,000
and is being amortized over 10 years using the straight-line
method.
F15
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 8- STOCKHOLDERS' EQUITY (Continued)
The following unaudited proforma summaries present the
consolidated results of operations of the Company as if the
business combination had occurred on January 1, 1999 and January
1, 1998:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
----------- ----------
<S> <C> <C>
Revenue $ 1,100,184 $ 803,626
Net (loss) $ (812,229) $ (238,584)
Basic and diluted (loss) per share $ (0.13) $ (0.08)
=========== ==========
Summarized results of operations of the separate companies for
the period from January 1, 1999 through June 30, 1999, the date
of acquisition, are as follows:
Medsearch TNJ
----------- ----------
<S> <C> <C>
Net sales $ 871,714 $ 142,675
=========== ==========
Net income $ (253,719) $ (215,257)
=========== ==========
The summarized assets and liabilities of the separate companies
on June 30, 1999, the date of acquisition, were as follows:
Medsearch TNJ
----------- ----------
<S> <C> <C>
Cash and cash equivalents $ 284,280 $ 14,223
Other current assets 130,252 81,542
Other assets 513,557 --
Property and equipment 68,954 48,787
----------- ----------
$ 997,043 $ 144,552
Current liabilities (80,728) (25,752)
Long-term debt -- (37,226)
----------- ----------
$ 916,315 $ 81,574
=========== ==========
</TABLE>
OPTIMART DIVESTITURE
In June 1999, the Company sold Optimart back to its original
investors for $418,597. This amount was paid by returning
150,000 shares of the Company's common stock valued at $1.75 per
share or $262,500, and a $216,117 non-interest bearing note,
payable in three installments between June 1, 2000 and December
1, 2000. $60,020 of the note was for the accounts receivable
outstanding at the date of sale. The note is secured by 100,000
shares of the Company's stock owned by the buyer.
F16
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 8- STOCKHOLDERS' EQUITY (Continued)
The following is a summary of the Optimart purchase and sale
which resulted in a dain of $109,772 that was credited to
additional paid in capital:
<TABLE>
<CAPTION>
<S> <C>
Purchase of Optimart-License Agreement: Cash $ 250,000
Stock 125,000
--------------
Total purchase price 375,000
Less: Amortization of license agreement for period owned (66,175)
Add: Optimart accounts receivable 60,020
--------------
Book value of assets sold 368,845
Selling price of Optimart plus accounts receivable 478,617
--------------
Gain on sale $ 109,772
==============
</TABLE>
The following represents the sales, cost of sales and gross
profit related to Optimart for the periods presented (in
thousands):
Year ended Year ended
December 31, December 31,
1999 1998
-------------- ---------------
Sales $ 872 $ 405
Cost of sales 812 371
------------ -------------
Gross Profit $ 60 $ 34
============ =============
M & W ACQUISITION
On August 18, 1999 the Company acquired 100% of the outstanding
membership interests of M & W Medical Supplies, L.L.C. ("M &
W"), a medical products company, for 50,000 shares of the
Company's common stock valued at $2.50 per share or $125,000,
warrants to purchase 100,000 shares of the Company's common
stock at $2.00 per share expiring August 18, 2002 valued at $.50
per warrant or $50,000 and warrants to purchase 100,000 shares
of the Company's common stock at $3.00 per share expiring August
18, 2002 valued at $.10 per warrant or $10,000 for a total
acquisition price of $185,000. The acquisition was accounted for
as a purchase.
STOCK ISSUED FOR COMPENSATION
During June, 1999 the Company issued 20,000 restricted common
shares to an officer and 10,000 restricted common shares to a
director for services rendered valued at $52,500. Additionally,
the Company issued 125,000 restricted common shares valued at
$218,750, to an officer for services to be rendered over the
next three years. The unearned compensation of $218,750 is being
amortized over 36 months. For the year ended December 31, 1999,
$42,539 of unearned compensation was charged to expense.
F17
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 8- STOCKHOLDERS' EQUITY (Continued)
On July 7, 1999 the Company issued 300,000 restricted shares of
the Company's common stock valued at $525,000 to Omnistar
Enterprises, Ltd, a company owned by an officer of the Company's
subsidiary, as additional compensation for services to be
performed over the next three years. The additional compensation
is being amortized over 36 months. For the year ended December
31, 1999, $87,500 was charged to expense.
COMMON STOCK WARRANTS
During 1999 the Company issued to its attorneys, 50,000 warrants
to purchase common stock, exercisable at $1.25 per share which
expire December 31, 2000 and issued to a director 30,000
warrants to purchase common stock, exercisable at $3.00 per
share which expire February 28, 2003.
During 1998, warrants ranging from $1.00 to $2.00 per share to
purchase 822,800 shares of common stock were granted at exercise
prices which were above the current quoted market price of the
stock on the date issued. Warrants to purchase 5,102,800 shares
of common stock were exercisable at December 31, 1999 and
warrants to purchase 4,822,800 shares of common stock were
exercisable at December 31, 1998. The per share exercise prices
of these warrants are as follows:
December 31, 1998
-----------------
Exercise Year of
Shares Price Expiration
------ ----- ----------
441,400 1.00 2000
4,000,000 1.25 2002
381,400 2.00 2001
---------
Total 4,822,800
=========
December 31, 1999
-----------------
Exercise Year of
Shares Price Expiration
------ ----- ----------
411,400 1.00 2000
4,080,000 1.25 2002
481,400 2.00 2001
100,000 3.00 2002
30,000 3.00 2003
---------
Total 5,102,800
=========
F18
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 8- STOCKHOLDERS' EQUITY (Continued)
The following is a summary of warrant transactions:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
--------- ---------
<S> <C>
Outstanding at beginning of period 4,822,800 -
Granted during the period 80,000 822,800
Issued as part of unit sale - 4,000,000
Warrants cancelled and exchanged (30,000) (4,000,000)
New warrants issued 230,000 4,000,000
Exercised during the period - -
--------- ---------
Outstanding and eligible for exercise 5,102,800 4,822,800
========= =========
</TABLE>
Note 9- GENERAL AND ADMINISTRATIVE EXPENSES
The president has waived his salary for the first year. However,
the Company has issued to the President 250,000 warrants to
purchase common stock, exercisable at $1.00 and expiring
December 31, 2000, and 250,000 warrants to purchase common stock
exercisable at $2.00 which expire on December 31, 2002. The
Company valued the warrants at $0.12 per warrant for total
compensation of $60,000.
Since October 1, 1998, the owner of the Company's Israeli
office, who is also an officer of the Company is contributing
the fair market rental of the space or $1,000 per month to the
Company. Additionally, the president of the Company is
contributing his salary of $10,000 per month to the Company for
1999. For 1999 the Company recorded $132,000 of contributed
officers compensation and rent expense and for 1998 $3,000 of
contributed rent expense.
Note 10- RELATED PARTY TRANSACTIONS
On May 14, 1998 the Company issued 300,000 shares of common
stock $.001 par value in payment of approximately $230,000 of
loans and $39,000 in accrued interest due to former officers of
the Company.
In August, 1998 the Company issued 500,000 warrants to purchase
common stock of the Company (See Note 9), valued at $0.12 per
warrant for total compensation of $60,000.
During December 1998 the Company loaned $15,000 to one of its
officers. The loan was repaid in February, 1999.
In December 1999 the president of the Company lent the Company
$150,000 payable on demand with interest at one percent (1%) per
month. The loan was repaid in February 2000.
F19
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 11- ACCOUNTS RECEIVABLE
December 31, December 31,
1999 1998
------------ ----------
Accounts receivable $ 518,328 $ 36,295
Allowance for doubtful accounts (362,057) -
------------ ----------
Accounts receivable-net $ 156,271 $ 36,295
============ ==========
The Company has fully reserved for its Medicare accounts
receivable, which are in dispute.
Note 12- COMMITMENTS AND CONTINGENCIES
The Company leases office space from an unaffiliated party on a
month to month basis. TNJ leases office space and equipment
under noncancellable leases expiring through February 1, 2001.
Rental expense for 1998 was $9,311. Rental expense for the year
ended December 31, 1999 was $61,868. The minimum future annual
operating lease commitments for leases with noncancellable terms
in excess of one year are as follows:
Year ending December 31, Amount
------------------------ ----------------
2000 $ 14,725
2001 3,725
2002 254
----------------
Total $ 18,704
================
Note 13- ACQUISITIONS
The assets acquired in the acquisitions of M & W, Meduck and
Optimart on the dates they were acquired are as follows:
<TABLE>
<CAPTION>
M & W Optimart Meduck
------------ ---------------- ------------
<S> <C> <C> <C>
License agreement $ - $ 375,000 $ -
Patents - - 175,000
Patents and Notice of
Allowance for TM 185,000 - -
------------ ---------------- ------------
Total purchase price $ 185,000 $ 375,000 $ 0
============ ================ ============
</TABLE>
The Notice of Allowance for Trademark ("NOA") refers to the
trademark of the "Scopeshield" name acquired in the M&W
acquisition. The NOA was issued December 1, 1998 and must be
extended every six months until the trade name is used. If the
trade name is not used by May 31, 2001 or a six month extension
not requested the NOA will expire. The value of the NOA is
directly related to the underlying patent and cannot be valued
separately.
F20
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
(Formerly MEDSEARCH, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 14- GOODWILL
The following summarizes the goodwill transactions for 1999:
<TABLE>
<CAPTION>
Accumulated
Goodwill Amortization Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance January 1, 1999 $ - $ - $ 0
Acquisition of TNJ products 909,957 - 909,957
1999 amortization of goodwill - (45,498) (45,498)
----------- ----------- -----------
Balance December 31, 1999 $ 909,957 $ (45,498) $ 864,459
=========== =========== ===========
</TABLE>
Note 15- COMPREHENSIVE (LOSS)
Accumulated other comprehensive (loss) consists of the
following:
December 31,
1999 1998
----------- --------
Foreign currency translation adjustment $ (953) $ -
A summary of the component of other comprehensive (loss) for the
year ended December 31, 1999 is as follows:
<TABLE>
Before-Tax Income After-Tax
Amount Tax Amount
------------ --------- -----------
<S> <C> <C> <C>
Net foreign currency translation $ (953) $ - $ (953)
Other comprehensive (loss) $ (953) $ - $ (953)
</TABLE>
Note 16- GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course
of business. As shown in the financial statements for the years
ended December 31, 1999 and 1998, the Company incurred losses
from operations of $1,018,782 and $277,392, respectively and
generated negative cash flows from operations of $593,521 and
$170,145 respectively. These factors among others indicate that
the Company will be unable to continue as a going concern.
The financial statements do not include any adjustments relating
to the recoverability and classification of liabilities that
might be necessary should the Company be unable to continue as a
going concern. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to
meet its obligations on a timely basis and to obtain additional
financing or refinancing as may be required and to ultimately
attain profitability. The Company is also actively pursuing
additional equity financing through stock sales and when
necessary management has lent the Company money for working
capital.
F21
<PAGE>
TNJ PRODUCTS INC.
INDEX
PAGE
INDEPENDENT AUDITORS' REPORT F23
BALANCE SHEETS F24
STATEMENTS OF OPERATIONS F25
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F26
STATEMENTS OF CASH FLOWS F27
NOTES TO FINANCIAL STATEMENTS F28-30
F22
<PAGE>
KEMPISTY & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS, P.C.
15 MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 - FAX
(212) 513-1930
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TNJ Products, Inc.
We have audited the balance sheets of TNJ Products, Inc. as of June 30, 1999 and
January 31, 1999, and the related statements of operations, stockholders' equity
and cash flows for the year ended January 31, 1999 and the five months ended
June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TNJ Products, Inc. as of
January 31, 1999 and June 30, 1999, and the results of its operations and its
cash flows for the periods ended January 31, 1999 and June 30, 1999 in
conformity with generally accepted accounting principles.
/s/ KEMPISTY & COMPANY, CPAS, P.C.
Kempisty & Company
Certified Public Accountants PC
New York, New York
March 20, 2000
F23
<PAGE>
<TABLE>
<CAPTION>
TNJ PRODUCTS INC.
BALANCE SHEETS
June 30, January 31,
1999 1999
------------ ------------
ASSETS
<S> <C> <C>
Current Assets
Cash and equivalents $ 14,223 $ 20,444
Accounts receivable-net (Note 3) 105,265 116,758
Inventory 8,575 8,575
Prepaid expenses 892 892
Total Current Assets 128,955 146,669
------------ ------------
Fixed assets-net (Note 4) 545 2,104
Other assets
Officer loan receivable -- 1,644
------------ ------------
Total Other Assets -- 1,644
------------ ------------
TOTAL ASSETS $ 129,500 $ 150,417
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 18,210 $ 14,728
------------ ------------
Total Current Liabilities 18,210 14,728
Commitments and contingencies -- --
Stockholders' Equity
Common stock $.01 par value, 1,000 shares
authorized, issued and outstanding 10 10
Capital in excess of par value 333,257 333,257
Retained earnings (221,977) (197,578)
------------ ------------
Total Stockholders' Equity 111,290 135,689
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 129,500 $ 150,417
============ ============
</TABLE>
See Notes to Financial Statements.
F24
<PAGE>
TNJ PRODUCTS INC.
STATEMENTS OF OPERATIONS
Five months Year ended
ended January 31,
June 30, 1999 1999
------------ ------------
Sales revenues $ 143,900 $ 366,561
Cost of sales 32,055 109,004
------------ ------------
Gross profit 111,845 257,557
General and administrative expenses 136,244 228,968
------------ ------------
Loss from operations (24,399) 28,589
Other income and expenses
Interest income -- 13
Other income -- 5,981
------------ ------------
Income (loss) before taxes (24,399) 34,583
Provision for income taxes -- --
------------ ------------
Net income (loss) (24,399) 34,583
============ ============
See Notes to Financial Statements.
F25
<PAGE>
<TABLE>
<CAPTION>
TNJ PRODUCTS INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Capital In
($0.01) Par Value Excess Of
Shares Amount Par Value Deficit Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance February 1, 1998 1,000 $ 10 $ 333,257 $(232,161) $ 101,106
Net income for the year ended
January 31, 1999 -- -- -- 34,583 34,583
--------- --------- --------- --------- ---------
Balance January 31, 1999 1,000 10 333,257 (197,578) 135,689
Loss for the five months ended
June 30, 1999 -- -- -- (24,399) (24,399)
--------- --------- --------- --------- ---------
Balance June 30, 1999 1,000 $ 10 $ 333,257 $(221,977) $ 111,290
========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
F26
<PAGE>
<TABLE>
<CAPTION>
TNJ PRODUCTS INC.
STATEMENTS OF CASH FLOWS
For the five For the year
months ended
ended January 31,
June 30, 1999 1999
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income or (loss) $ (24,399) $ 34,583
Adjustments to reconcile net income or (loss)
to net cash (used) provided by operating activities:
Depreciation and amortization 1,559 5,159
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 11,493 (61,189)
(Increase) decrease in inventory -- (4,900)
(Increase) decrease in current assets -- 44,347
Increase (decrease) in payables 3,482 2,444
------------ ------------
Net cash (used) provided by operating activities (7,865) 20,444
INVESTING ACTIVITIES
Repayment of officer loans 1,644 --
------------ ------------
Net cash provided by investing activities 1,644 0
Increase (decrease) in cash (6,221) 20,444
Cash at beginning of period 20,444 0
------------ ------------
Cash at end of period $ 14,223 $ 20,444
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during year for:
Interest $ -- $ --
============ ============
Income taxes $ -- $ --
============ ============
</TABLE>
See Notes to Financial Statements.
F27
<PAGE>
TNJ PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1999
Note 1- ORGANIZATION & OPERATIONS
TNJ Products, Inc. was incorporated in the state of Delaware on
March 1, 1995.
The Company is in the business of medical products sales.
Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Revenue
The Company records revenue when products are shipped or
services provided to customers.
b. Property and Equipment
Property and equipment are accounted for at cost and are
depreciated over their estimated useful lives on a straight-line
basis.
c. Income Taxes
The Company previously adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", ("SFAS
No.109") which requires the asset and liability method of
accounting for income taxes. Enacted statutory tax rates are
applied to temporary differences arising from the differences in
financial statement carrying amounts and the tax basis of
existing assets and liabilities. Due to the uncertainty of the
realization of income tax benefits, (Note 5), the adoption of
SFAS 109 had no effect on the financial statements of the
Company.
d. Inventories
Inventories are stated at the lower of cost or market. Cost is
computed on the first-in, first-out basis.
e. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
F28
<PAGE>
TNJ PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1999
Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
f. COMPREHENSIVE INCOME
Effective February 1, 1998 the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires
an entity to report comprehensive income and its components
and increases financial reporting disclosures. This standard
has no impact on the Company's financial position, cash flows
or results of operations since the Company's comprehensive
income is the same as its reported net income for the periods
presented.
g. CONCENTRATIONS OF CREDIT RISK
The only significant financial instrument is accounts
receivable, which is concentrated among third-party medical
reimbursement organizations, principally Medicare. By its
nature, the realization of a substantial portion of these
receivables is expected to extend beyond one year from the date
the service was rendered. Credit losses associated with the
receivables are provided for in the financial statements.
Note 3- ACCOUNTS RECEIVABLE
June 30, January 31,
1999 1999
----------- -----------
Accounts receivable $ 492,082 $ 503,575
Allowance for doubtful accounts (386,817) (386,817)
----------- -----------
$ 105,265 $ 116,758
=========== ===========
The Company has fully reserved for its Medicare accounts
receivable, which are in dispute.
Note 4- FIXED ASSETS
June 30, January 31,
1999 1999
----------- -----------
Furniture and equipment $ 12,522 $ 12,522
Leasehold improvements 1,450 1,450
----------- -----------
13,972 13,972
(13,427) (11,868)
----------- -----------
Accumulated depreciation $ 545 $ 2,104
=========== ===========
F29
<PAGE>
TNJ PRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1999
Note 4- INCOME TAXES
The provision (benefit) for income taxes consisted of the
following:
Five months Year ended
ended January 31,
June 30, 1999 1999
------------- ------------
Current:
Federal tax expense $ (7,600) $ 12,000
State tax expense (2,000) 3,000
Deferred:
Federal tax expense 7,600 (12,000)
State tax expense 2,000 (3,000)
---------- ---------
$ - $ -
========== =========
A reconciliation of differences between the statutory U.S.
federal income tax rate and the Company's effective tax rate
follows:
Five months Year ended
ended January 31,
June 30, 1999 1999
------------- ------------
Statutory federal income tax -34% 34%
Statutory income tax-net of -5% 5%
federal benefit 39% -39%
----------- ----------
Valuation allowance 0% 0%
=========== ==========
The components of deferred tax assets and liabilities were as
follows:
June 30, January 31,
1999 1999
----------- ----------
Deferred tax assets:
Net operating loss carryforward $ 17,000 $ 14,000
----------- ----------
Total deferred tax assets 17,000 14,000
Valuation allowance (17,000) (14,000)
----------- ----------
Net deferred tax assets $ -- $ --
=========== ==========
SFAS No, 109 requires a valuation allowance to be recorded
when it is more likely than not that some or all of the
deferred tax assets will not be realized. At June 30 and
January 31, 1999, a valuation allowance for the full amount of
the net deferred tax asset was recorded because of continuing
losses and uncertainties as to the amount of taxable income
that would be generated in future years.
The Company recognized a loss for the year ended January 31,
1998. The amount of available additional net operating loss
carryforward is approximately $35,000 for 1998. The net
operating loss carry forward, if not utilized, will expire in
the year 2018.
F30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MEDSEARCH TECHNOLOIGES, INC.
By: /s/ JACOB MELLER
--------------------------------
Name: Jacob Meller
Title: President, Principal Accounting
Officer and Director
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURE TITLE DATE
/s/ JACOB MELLER President, Principal Accounting May 10, 2000
- ------------------------- Officer and Director
Jacob Meller
/s/ FRIEDA GOLDSTEIN Vice President, Treasurer, May 10, 2000
- ------------------------- Secretary and Director
Frieda Goldstein
/s/ DAVID FILER Director May 10, 2000
- -------------------------
David Filer
32
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We consent to the use in this Registration Statement on Form 10-KSB of
our report included herein dated March 20, 2000, relating to the
consolidated financial statements of Medsearch Technologies, Inc. and
subsidiaries.
Kempisty & Company
Certified Public Accountants PC
New York, NY
May 10, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001093759
<NAME> MEDSEARCH TECHNOLOGIES, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 367,840
<SECURITIES> 0
<RECEIVABLES> 518,328
<ALLOWANCES> 362,057
<INVENTORY> 8,575
<CURRENT-ASSETS> 561,948
<PP&E> 150,616
<DEPRECIATION> 39,661
<TOTAL-ASSETS> 2,013,398
<CURRENT-LIABILITIES> 507,169
<BONDS> 0
0
0
<COMMON> 6,534
<OTHER-SE> 1,465,600
<TOTAL-LIABILITY-AND-EQUITY> 2,013,398
<SALES> 1,110,133
<TOTAL-REVENUES> 1,110,133
<CGS> 858,723
<TOTAL-COSTS> 1,270,192
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,003,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,003,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,003,923)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
