================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-27135
MEDSEARCH TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-4070962
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
40 Wall Street
New York, New York 10005
-----------------------------------------------------
(Address of principal executive offices and zip code)
(212) 943-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 6,534,582 shares of common
stock, no par value, as of September 30, 2000.
================================================================================
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Page
----
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
Nine months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Signatures 13
Schedule 27 14
2
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
ASSETS (Unaudited)
------
<S> <C> <C>
Current Assets
Cash and equivalents $ 795,745 $ 367,840
Accounts receivable-net 203,268 156,271
Note receivable 22,039 22,039
Inventory 11,231 8,575
Other receivable 3,523 6,133
Prepaid expenses 1,090 1,090
Officer loan receivable 28,800 --
----------- -----------
Total Current Assets 1,065,696 561,948
Fixed assets-net 102,375 110,955
Note receivable 144,078 144,078
Deferred financing charges 138,614 --
Other assets
Patents-net 305,708 331,958
Goodwill-net 796,212 864,459
----------- -----------
Total Other Assets 1,101,920 1,196,417
----------- -----------
TOTAL ASSETS $ 2,552,683 $ 2,013,398
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
Bridge loan payable $ 853,698 $ --
Accounts payable and accrued expenses 290,455 102,803
Note payable officer -- 150,000
Current portion of note payable 35,224 4,366
----------- -----------
Total Current Liabilities 1,179,377 257,169
Note's payable 500,000 284,095
Commitments and contingencies -- --
Minority interest -- --
Stockholders' Equity
Common stock, 50,000,000 shares authorized at $.001
par value; issued and outstanding 6,534,582 at
September 30, 2000 and December 31, 1999 6,534 6,534
Preferred stock 2,000,000 shares authorized at $.001 par
value; issued and outstanding none
Capital in excess of par value 5,295,395 4,960,731
Deficit (4,012,856) (2,880,467)
Accumulated comprehensive (loss) (6,012) (953)
Unearned compensation (409,755) (613,711)
----------- -----------
Total Stockholders' Equity 873,306 1,472,134
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,552,683 $ 2,013,398
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales revenues $ 144,794 $ 71,162 421,945 $ 942,876
Cost of sales 37,059 13,785 123,217 825,479
----------- ----------- ----------- -----------
Gross profit 107,735 57,377 298,728 117,397
Stock compensation 70,985 94,979 212,955 114,479
Research and development 84,601 66,476 234,303 150,689
General and administrative expenses 446,390 281,027 928,804 659,945
----------- ----------- ----------- -----------
601,976 442,482 1,376,062 925,113
Loss from operations (494,241) (385,105) (1,077,334) (807,716)
Other income and expenses
Interest income 166 -- 440 --
Other income 4,730 13,096 25,216 13,096
Interest expense (60,702) (50) (83,833) (125)
Gain on sale of Optimart -- -- -- 131,829
----------- ----------- ----------- -----------
Income (loss) before taxes (550,047) (372,059) (1,135,511) (662,916)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net (loss) (550,047) (372,059) (1,135,511) (662,916)
Other comprehensive income (loss) (4,068) 7,107 (5,059) 11,488
----------- ----------- ----------- -----------
Comprehensive (loss) (554,115) (364,952) (1,140,570) (651,428)
Basic (loss) per share (0.08) (0.07) (0.17) (0.12)
=========== =========== =========== ===========
Comprehensive (loss) per share (0.08) (0.07) (0.17) (0.12)
=========== =========== =========== ===========
Basic average shares outstanding 6,534,582 5,588,044 6,534,582 5,583,836
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income or (loss) $ (550,047) $ (372,059) $(1,135,511) $ (662,916)
Adjustments to reconcile net income or (loss)
to net cash used by operating activities:
Foreign currency adjustment -- -- 2,688 --
Stock and warrant compensation -- -- 9,000 52,500
Rent and compensation adjustment 66,000 33,000 99,000 99,000
Depreciation and amortization 66,085 40,413 110,825 133,030
Amortization of deferred finance charges 35,674 -- 35,674 --
Amortization of unearned compensation 70,986 61,979 203,956 61,979
Gain from sale of Optimart -- -- -- (131,829)
Changes in operating assets and liabilities net
of effects of the purchase of TNJ Products:
(Increase) decrease in accounts receivable (41,884) 20,443 (46,997) 56,738
(Increase) decrease in inventory (4,331) -- (2,656) --
(Increase) decrease in current assets 28,097 (22,015) 2,610 (38,205)
Increase (decrease) in payables 107,306 (52,943) 187,652 (4,827)
----------- ----------- ----------- -----------
Net cash (used) by operating activities (222,114) (291,182) (533,759) (434,530)
INVESTING ACTIVITIES
Note receivable exchanged for accounts receivable -- -- -- (60,020)
Cash acquired in TNJ acquisition -- -- -- 14,223
Payment of note receivable -- 50,000 -- 50,000
Loan to officer (15,000) -- (28,800) --
Repayment of officer loan -- -- (150,000) (15,000)
Purchase of fixed assets (445) (1,144) (7,314) (1,144)
----------- ----------- ----------- -----------
Net cash provided(used) by investing activities (15,445) 48,856 (186,114) (11,941)
FINANCING ACTIVITIES
Foreign currency adjustment (4,068) 7,107 (5,059) 11,488
Increase in demand note payable -- -- 250,000 --
Bridge loan 906,074 -- 906,074 --
Payment of bank loan (1,100) -- (3,237) --
----------- ----------- ----------- -----------
Net cash used by financing activities 900,906 7,107 1,147,778 11,488
----------- ----------- ----------- -----------
Increase (decrease) in cash 663,347 (235,219) 427,905 (434,983)
Cash at beginning of period 132,398 298,412 367,840 498,176
----------- ----------- ----------- -----------
Cash at end of period $ 795,745 $ 63,193 795,745 $ 63,193
=========== =========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Interest $ 26,767 $ 50 30,474 $ 125
=========== =========== =========== ===========
Income taxes $ -- $ -- -- $ --
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. ("Medsearch") 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.
The accompanying unaudited financial statements have been prepared by
Medsearch in accordance with the rules and regulations of the
Securities and Exchange Commission for interim financial statements.
Accordingly, certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management of the
Company, the unaudited financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position at September 30, 2000,
its operating results for the three months and nine months ended
September 30, 2000 and 1999 and cash flows for the three months and the
nine months ended September 30, 2000 and 1999. The balance sheet at
December 31, 1999 has been derived from the Company's audited
consolidated financial statements as of that date. These financial
statements and the notes should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto
contained in the Company's Form 10-KSB filed with the Securities and
Exchange Commission.
The results of operations for the three and nine months ended September
30, 2000 are not necessarily indicative of the results that may be
expected for future quarters or the year ending December 31, 2000.
6
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Meduck
Technologies, LTD. ("Meduck"), Optimart Imports, Inc. ("Optimart"), a
100% owned subsidiary for the period of ownership October, 1998 through
its sale in June, 1999, TNJ Products, Inc. acquired in June, 1999 and
M&W Medical Supply, LLC acquired in August, 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%.
REVENUE
The Company records revenue when products or services are provided to
customers.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is based on the weighted average
number of common shares outstanding during the period presented. Fully
diluted loss per share has not been disclosed as it is anti-dilutive.
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.
COMPREHENSIVE INCOME
Comprehensive income is the total of (1) net income plus (2) all other
changes in net assets arising from non-owner sources. The Company has
presented a statement of operations that includes other comprehensive
income.
DEFERRED FINANCE CHARGES
Deferred finance charges include the costs associated with the issuance
of the bridge notes and are recognized using the straight-line method
over the term of the related debt, and are included in net interest
expense.
7
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3- SHORT TERM BORROWINGS
<TABLE>
<CAPTION>
Short-term borrowings consisted of the following: September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
10% bridge loan payable August 31, 2001 $ 1,107,500 $ -
Less unamortized discount (253,802) -
12% Demand note payable to the president of
the Company $ -- $ 150,000
------------ ------------
$ 853,698 $ 150,000
============ ============
</TABLE>
On August 31, 2000 the Company sold 11.075 bridge units (the "units")
for net proceeds of $906,074. Each unit consists of a $100,000 face
value note payable one year from the date of issue with 10% interest or
at the fixed closing of any equity or debt financing by the Company in
which gross proceeds equal at least $5,000,000, if earlier, and 50,000
five year warrants ("Bridge Warrants") to purchase common stock. Each
warrant allows the holder to buy one share of the Company's common
stock at a price equal to the offering price of common stock included
in a proposed equity offering, and if there is no equity offering prior
to one year from the warrant issue date the exercise price is $1.00
subject to certain anti-dilutive provisions.
During the fourth quarter of 1999 the Company borrowed $150,000 from
the President of the Company. The loan is due on demand and bears
interest at the rate of one percent (1%) per month. The short term loan
payable to the president was repaid during February, 2000.
At September 30, 2000 and December 31, 1999 the carrying value of
short-term borrowings approximated fair values.
Note 4- NOTES PAYABLE LONG TERM
Notes payable consisted of the following: September 30, December 31,
2000 1999
------------ ------------
12% note payable to Argos Associates $ 500,000 $ 250,000
Installment loan 35,224 38,431
------------ ------------
535,224 288,431
Less current portion (35,224) (4,336)
------------ ------------
$ 500,000 $ 284,095
============ ============
The note payable to Argos Associates ("Argos") was originally payable
twelve months from the date of the last advance or May 25, 2001. The
Company has exercised its option and extended the due date of the note
to May 25, 2003. The total note payable is $500,000 with interest at
12% per annum. Additionally, Argos has agreed to lend the Company an
additional $500,000 when needed on terms to be determined at closing.
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%.
8
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5- STOCKHOLDERS' EQUITY
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.
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.
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. Additionaly, 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.
BRIDGE WARRANTS
As part of the bridge unit sale discussed in Note 3 the selling broker
purchased 193,809 Bridge Warrants for $.001 per warrant.
9
<PAGE>
MEDSEARCH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6- COMPREHENSIVE INCOME
Accumulated other comprehensive income consists of the following:
September 30, December 31,
2000 1999
------------ ------------
Foreign currency translation $ (6,012) $ (953)
adjustment ============ ============
A summary of the components of other comprehensive income for the nine
months ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Before-Tax Income After-Tax
Amount Tax Amount
------------ ------------ ------------
2000
<S> <C> <C> <C>
Net foreign currency translation $ (5,059) $ -- $ (5,059)
------------ ------------ ------------
Other comprehensive income $ (5,059) $ -- $ (5,059)
============ ============ ============
1999
Net foreign currency translation $ 11,488 $ -- $ 11,488
------------ ------------ ------------
Other comprehensive income $ 11,488 $ -- $ 11,488
============ ============ ============
</TABLE>
A summary of the components of other comprehensive income for the
quarter ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Before-Tax Income After-Tax
Amount Tax Amount
------------ ------------ ------------
2000
<S> <C> <C> <C>
Net foreign currency translation $ (4,068) $ -- $ (4,068)
------------ ------------ ------------
Other comprehensive income $ (4,068) $ -- $ (4,068)
============ ============ ============
1999
Net foreign currency translation $ 7,107 $ -- $ 7,107
------------ ------------ ------------
Other comprehensive income $ 7,107 $ -- $ 7,107
============ ============ ============
</TABLE>
Note 7- SUBSEQUENT EVENT
On October 20, 2000 the Company sold an additional 2.25 of bridge units
for net proceeds of approximately $192,000.
10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS-THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1999
Net sales for the three month period ended September 30, 2000 were $144,794
while sales for the three months ended September 30, 1999 were $71,162, an
increase of $73,632 or 103%. Sales represent sales of TNJ Products, Inc. which
was acquired on June 30, 1999. The increase results from TNJ opening an
additional sales office during the quarter.
Gross profit for the three months ended September 30, 2000 amounted to $107,735
(74% of sales), compared to $57,377 (80% of sales) for the corresponding three
months of 1999. This decrease in gross margin is principally attributable to
increased costs on the items sold by TNJ Products in 2000 versus 1999.
Research and development costs increased by approximately $18,000 for the third
quarter of 2000 from the corresponding three month period of 1999. This trend
will continue as the Company continues to develop products to bring to market.
Stock compensation charges of $70,985 were recorded in 2000, related to stock
and warrants issued to officers and directors, versus $94,979 in 1999.
As a result of the foregoing, The Company incurred net losses of ($550,047) or
($.08) per share for the three months ended September 30, 2000 compared to net
losses of ($372,059) or ($.07) per share for the same period in 1999.
RESULTS OF OPERATIONS-NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net sales for the nine month period ended September 30, 2000 were $421,945 while
sales for the nine months ended September 30, 1999 were $942,876. Sales for 2000
represent sales of TNJ Products, Inc. which was acquired on June 30, 1999. TNJ's
sales of $421,945 for 2000 increased from sales of $218,061 for the same period
last year. This increase results from TNJ opening an additional sales office
during the third quarter.
Sales for the nine months ended September 30, 1999 were $942,876 which included
$871,714 of sales of optical products from Optimart Products, Inc. which was
sold in June 1999.
Gross profit for the nine months ended September 30, 2000 amounted to $298,728
(71% of sales), compared to $117,397 (12% of sales) for the corresponding nine
months of 1999. This increase in gross margin is principally attributable to
higher gross profits on the items sold by TNJ Products.
11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS-NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999 (continued)
Research and development costs increased by approximately $84,000 for the first
nine months of 2000 from the corresponding nine month period of 1999. This trend
will continue as the Company continues to develop products to bring to market.
Stock compensation charges of $212,955 were recorded in 2000 related to stock
and warrants issued to officers and directors versus $114,479 in 1999.
As a result of the foregoing, The Company incurred net losses of ($1,135,511) or
($.17) per share for the nine months ended September 30, 2000 compared to net
losses of ($662,916) or ($.12) per share for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash and cash equivalents of $795,745
principally due to the bridge unit financing on August 29, 2000. The Company
issued its common stock in lieu of cash payments for compensation and consulting
fees where possible during 1999. This trend is expected to continue in the
fourth quarter of 2000.
The Company believes that the net proceeds of the Company's loans will meet its
working capital obligations and fund further development of its business for the
next twelve months. There can be no assurance that any additional financing will
be available to the Company on acceptable terms, or at all.
For the long term the Company has extended the maturity of its loans and is
seeking additional equity capital to fund operations.
12
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Medsearch Technologies, Inc.
Dated: November 15, 2000 By: /s/ JACOB MELLER
-----------------------------
Name: Jacob Meller
Title: President
13
