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 December 31, 1995
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: 0-8632
MEDICAL DYNAMICS, INC.
Exact name of Registrant as specified in its charter
Colorado 84-0631765
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
99 INVERNESS DRIVE EAST, ENGLEWOOD, CO 80112
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 303-790-2990
Former name, former address and former fiscal year, if changed
since last report: NA
Indicate by check mark whether the Registrant (1) has filed an annual, quarterly
and other 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 periods
that the Registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
The number of shares outstanding of each of the issuer's classes of common
stock, as of December 31, 1995 is 6,879,511 shares, $.001 par value.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS December September
31, 1995 30, 1995
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 864,400 $1,071,700
Short term investments 10,000 10,000
Trade receivables, less
allowance for doubtful
accounts of $45,000 and $45,000 280,200 391,600
Note receivable 110,000 110,000
Inventories, net of allowance
for obsolescence of $200,000
and $200,000 (Note 3) 941,200 948,500
Prepaid expenses 13,900 25,100
---------- ----------
Total Current Assets $2,219,700 $2,556,900
---------- ----------
EQUIPMENT
Loaner equipment $ 701,300 $ 678,100
Machinery and equipment 346,400 343,100
Furniture and fixtures 270,600 270,200
Leasehold improvements 54,500 54,500
---------- ----------
$1,372,800 $1,345,900
Less accumulated deprecia-
tion and amortization (1,230,400) (1,202,000)
---------- ----------
$ 142,400 $ 143,900
---------- ----------
OTHER ASSETS
Patents, patents pending and
trademarks, net of accumulated
amortization of $620,800
and $609,400 $ 150,300 $ 155,500
Other 16,900 29,400
---------- ---------
$ 167,200 $ 184,900
---------- ----------
$2,529,300 $2,885,700
========== ==========
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
December September
31, 1995 30, 1995
---------- -----------
CURRENT LIABILITIES
Accounts payable $ 140,900 $ 188,400
Accrued expenses 51,300 50,900
Product warranty costs 25,000 25,000
Accrued royalties 90,000 90,000
---------- -----------
Total Current Liabilities $ 307,100 $ 354,300
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001
par value; authorized
5,000,000 shares; none
issued and outstanding $ -- $ --
Common stock, $.001 par
value; authorized
15,000,000 shares;
issued 6,895,411
and 6,885,411 shares 6,900 6,900
Additional paid-in capital 16,585,500 16,585,500
Accumulated deficit (14,291,000) (13,981,700)
----------- -----------
$ 2,301,400 $ 2,610,700
----------- -----------
Treasury stock at cost
15,900 shares (79,300) (79,300)
----------- -----------
$ 2,222,100 $ 2,531,400
----------- -----------
$ 2,529,300 $ 2,885,700
=========== ===========
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter ended Three months
December 31, ended December 31,
--------------------------------- ----------------------------------
1995 1994 1995 1994
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 163,400 $ 308,200 $ 163,400 $ 308,200
Cost of goods sold 173,000 261,800 173,000 261,800
---------- ----------- ---------- -----------
Gross profit $ (9,600) $ 46,400 $ (9,600) $ 46,400
---------- ----------- ---------- -----------
Other operating
revenue $ 30,600 $ 30,900 $ 30,600 $ 30,900
---------- ----------- ---------- -----------
Operating expenses:
Selling, general
and administrative $ 294,500 $ 432,300 $ 294,500 $ 432,300
Research and
development 51,100 31,100 51,100 31,100
---------- ----------- ----------- -----------
$ 345,600 $ 463,400 $ 345,600 $ 463,400
---------- ----------- ----------- -----------
Operating (loss) $ (324,600) $ (386,100) $ (324,600) $ (386,100)
---------- ----------- ----------- -----------
Financial income
(expense):
Interest income 15,400 25,700 15,400 25,700
Interest expense -- -- -- --
---------- ----------- ----------- -----------
$ 15,400 $ 25,700 $ 15,400 $ 25,700
---------- ----------- ----------- -----------
(Loss) before
income taxes $ (309,200) $ (360,400) $ (309,200) $ (360,400)
Income tax expense
(Note 2) -- -- -- --
---------- ----------- ----------- -----------
Net (loss) $ (309,200) $ (360,400) $ (309,200) $ (360,400)
========== =========== =========== ===========
Fully diluted loss
per share (Note 1)
Net (loss) per share $ (.04) $ (.05) $ (.04) $ (.05)
=========== ============ =========== ============
See Notes to Consolidated Financial Statements.
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</TABLE>
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months ended December 31,
-------------------------------
1995 1994
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(309,200) $(360,400)
Adjustments to reconcile net
(loss) to net cash (used in)
operating activities:
Depreciation and
amortization 44,900 66,800
Gain on sale of loaner
equipment (4,500) (20,400)
Change in assets and liabilities:
Decrease in accounts receivable 111,400 70,800
Decrease in trade
notes receivable -- --
(Increase) Decrease in
inventories 7,300 (13,700)
Increase in reserve for
inventory obsolescence -- --
Decrease in other assets 23,700 13,500
(Decrease) in accounts
payable, accrued expenses
and product warranty costs (47,100) (18,500)
----------- ----------
Net cash (used in)
operating activities $ (173,500) $ (261,900)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of
loaner equipment $ 4,500 $ 22,100
Note advances to
Micro-Medical Devices -- --
Changes in other assets (23,300) (11,700)
Purchase of investments -- (496,100)
Purchase of equipment (15,000) (4,100)
----------- -----------
Net cash (used in)
investing activities $ (33,800) $ (489,800)
----------- -----------
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three months ended December 31,
--------------------------------
1995 1994
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common
stock arising from exercise
of options $ -- $ --
Proceeds from stock offerings -- --
Net cash provided by
financing activities $ -- $ --
----------- -----------
(Decrease) Increase in cash
and cash equivalents $ (207,300) $ (751,700)
Cash and cash equivalents:
Beginning 1,071,700 1,151,600
----------- -----------
Ending $ 864,400 $ 399,900
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period
for interest $ -- $ --
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Loaner equipment transferred
from inventory $ 23,300 $ --
=========== ===========
See Notes to Consolidated Financial Statements.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. MANAGEMENT ADJUSTMENTS
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Registrant's September 30, 1995 Form
10-KSB. The results of operations for the periods ended December 31, 1995 and
December 31, 1994 are not necessarily indicative of operating results for the
full years.
The Consolidated Financial Statements and other information furnished
herein reflect all adjustments which are, in the opinion of management of the
Registrant, necessary for a fair presentation of the results of the interim
periods covered by this report. Adjustments to the financial statements were of
a normal recurring nature.
For the three months ended December 31, 1995 and 1994, both primary and
fully-diluted earnings per share are calculated based upon 6,879,511 and
6,869,511, respectively, average common shares outstanding. Shares issuable
under common stock options were excluded from the computation of earnings per
share because the effect was deemed to be anti-dilutive. At December 31, 1995
and 1994, the Registrant had 1,251,250 and 951,700, respectively, common stock
options outstanding.
NOTE 2. INCOME TAXES
Under the provisions of the Internal Revenue Code, the Registrant has
available net operating loss and business tax credit carryforwards of
approximately $14,500,000 and $188,000, respectively, which expire in varying
amounts from 1996 through 2010.
The net operating loss and business tax credit carryforwards described
above give rise to a deferred tax asset of approximately $5,500,000. This asset
is recorded net of a valuation allowance of the same amount, therefore no
amounts are reflected in the accompanying balance sheet.
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3. INVENTORIES
Inventories consist of the following at December 31, 1995 and September
30, 1995:
December 31, September 30,
1995 1995
------------ ------------
Raw materials, purchased and
replacement parts $ 455,600 $ 466,200
Finished goods 671,300 656,300
Work in process 14,300 26,000
Allowance for obsolescence (200,000) (200,000)
--------- ---------
$ 941,200 $ 948,500
========= =========
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<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Financial Condition. (December 31, 1995 as compared to September 30,
1995) During the three months ended December 31, 1995, the Registrant's net
working capital decreased approximately $290,000, due primarily to the use of
cash in operations and the resulting operating loss. Cash has been used
primarily to fund the general operations of the Registrant including research
and development, and to promote the sales and marketing of products.
Principal changes in the components of net working capital for the
three months ended December 31, 1995 consist of a decrease in the accounts
receivable balance by $111,400, a decrease in total inventory levels by $7,300,
a reduction in prepaid expenses of $11,200, and a reduction in current
liabilities by $47,100.
During the three month period ended December 31, 1995, the Registrant
experienced a negative cash flow from operations of approximately $173,500 as
compared to a negative cash flow from operations of approximately $261,900
during the comparable period of the prior fiscal year 1995. This aggregate
decrease in cash used for operations of $88,400 was a result of the following
factors: Inventory levels were reduced by $7,300 during FY 1996 compared to cash
used of $13,700 in FY 1995 for an overall reduced cash expenditure of $21,000.
Accounts payable and accrued expenses were reduced during FY 1996 and FY 1995
requiring cash outlays of $47,100 and $18,500 respectively. Trade accounts
receivable cash collections totalled $111,400 during FY 1996 versus cash
collections of $70,800 during FY 1995.
To continue the Registrant's objective of curtailing operating losses,
negative cash flow from operations and liquidity erosion further, management is
continually reviewing product profit margins and general expense accounts, and
will reduce or eliminate all non-essential expenditures. Purchasing procedures
have also been implemented to ensure minimized product costs and to avoid excess
inventory levels. A distribution agreement signed last fiscal year with Micro
Medical Devices, Inc. will allow the Registrant more flexibility in matching
inventory requirements and purchases with currently anticipated sales of USES
products, thereby reducing inventory carrying costs. Sales pursuant to this
distribution have been minimal to date. Management of the Registrant is also
continuing to seek OEM customers for all product lines.
-9-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
The Company also entered into a revised license agreement with Dr.
Edwin Adair during fiscal 1995 in an effort to reduce patent maintenance costs
and other associated costs. In a related agreement, the Registrant's Chairman
has agreed to forego his cash royalty payment for fiscal 1996 and instead has
accepted stock options as a replacement in an effort to help conserve the
Company's capital. See the Registrant's September 30, 1995 form 10-KSB for
additional information. Without significant sales increases, the Registrant
still anticipates negative cash flow from operations for fiscal 1996 and beyond.
The Registrant's future viability depends on its ability to generate cash to
fund it's operations. In the short term, this was accomplished through equity
placements during fiscal 1994, and in previous fiscal years through loans from
the company's chairman. However, the Registrant's ability to fund its operations
will be dependant upon achieving profitability and in generating a positive cash
flow from operations. Unless the Registrant is able to increase sales revenues
and maintain profitability during fiscal 1996, the Registrant may be facing
significant working capital shortages beginning and during fiscal year 1996.
There can be no assurance that the Company will be able to achieve this goal.
The Registrant believes that its existing capital resources are
sufficient for the current fiscal year, and the Registrant has planned no
significant capital expenditures. The Registrant is not seeking additional debt
or equity capital at this time. If, however, the Registrant does obtain
additional capital (of which there can be no assurance), the Registrant will be
able to allocate more resources to sales and marketing efforts (including
negotiations with prospective OEM relationships), and research and development.
Results of Operations. As an aid to understanding the Registrant's
operating results, the following table indicates the percentage relationships of
principal revenue and expense items to total net sales included in the
Consolidated Statements of Operations for the three months ended December 31,
1995 and 1994 and the percentage changes in those items for the same years.
-10-
<PAGE>
<TABLE>
<CAPTION>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
As a percent of
total revenue
for the three Percentage
month period change from
ended December 31, the prior years
1995 1994 Revenue/Expense Items comparable period
---- ---- --------------------- -----------------
<S> <C> <C> <C>
100.0% 100.0% Net sales (47.0%)
105.9% 84.9% Cost of goods (33.9%)
(5.9%) 15.1% Gross profit (120.7%)
18.7% 10.0% Other operating revenue (1.0%)
180.2% 140.3% Selling, general and admin (31.9%)
31.3% 10.1% Research and development +64.3%
(198.7%) (125.3%) Operating (loss) (15.9%)
9.7% 8.3% Other income/(expense) (40.1%)
(189.2%) (116.9%) Net (loss) (14.2%)
</TABLE>
Revenue. Total Sales for the three months ended December 31, 1995 and
1994 were $163,400 and $308,200, respectively, for a decrease of approximately
$144,800 or 47.0%. The following product groups incurred significant sales
decreases over the comparable period of fiscal 1995 in the following amounts:
general accessories $77,900, electronic video laparoscope (EVL's) $35,100,
optical catheters & accessories $20,200, and model 5970's $16,200. Domestic,
non-OEM sales accounted for 61% and 46% of total sales, foreign sales accounted
for 27% and 36% of total sales, and OEM sales accounted for 12% and 18% of the
total sales for the comparable quarters ended December 31, 1995 and 1994,
respectively.
Total domestic, non-OEM sales for the three months ended December 31,
1995 and 1994 were $99,300 and $141,600, respectively, decreasing by $42,300
from the fiscal 1994 comparable quarter. The Registrant believes that the
capital equipment market will rebound somewhat during fiscal 1996 due to both
the deferral of the Health Plan and hospitals needing to replace outdated
endoscopy equipment, but is currently taking steps to introduce products such as
the Universal Sterile Endoscopy System(TM) (USES), and Coupler/Drape(TM) which
will address the combined issues of cost and sterility that plague the capital
tight hospital market, but no assurances of the success of that strategy can be
given.
Foreign sales for the three months ended December 31, 1995 and 1994
were $44,800 and $110,300, respectively, for a decrease of $65,500 or 59%. This
decrease is due primarily to a lack of significant sales by the Registrant's
South American distributor for this first quarter of fiscal 1996, whereas during
fiscal 1995 sales by this distributor totaled $89,600. In the long run the
-11-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
Registrant expects continued expansion of the foreign distribution network as
evidenced by the addition of distributors in countries such as Hong Kong /
China, South Korea, and Saudi Arabia. It is expected that an eventual increase
in revenues will be provided from these distributors as they become established,
although no assurances can be given as to the success of those efforts.
Total OEM sales for the three months ended December 31, 1995 and 1994
were $19,400 and $56,300, respectively, for a decrease of $36,900 or 65%. This
reduction is primarily attributable to the Registrants significantly reduced
shipments of model 5990's to Endosurgical Development Corporation (EDC) and also
as a result of reduced accessory sales to Weck Endoscopy over the comparable
quarter of the prior fiscal year. The Registrant is attempting to replace the
OEM base lost during fiscal 1992 by expanding existing business with current OEM
customers and cultivating new relationships that are in the beginning stages of
sales such as Origin Medsystems, Inc., a subsidiary of the Eli Lilly Company.
The Registrant expects to expand revenues from all OEM customers as well as
attempt to add others in the areas of general laparoscopy, arthroscopy,
cardiovascular surgery, dental endoscopy, as well as add a national distributor
for the Registrants Lap-Wrap product although no assurances can be given as to
the success of those efforts.
Cost of Goods Sold. Cost of goods sold for the three months ended
December 31, 1995 and 1994 totalled $173,000 and $261,800, respectively, for a
decrease of approximately $88,800 or 34%. Total cost of goods sold as a percent
of sales was 106% and 85%, respectively, for the same periods. This total cost
of goods sold amount for fiscal 1996 is greater than total sales for the same
period as it includes a significant underapplied overhead amount charged by
management for under utilized manufacturing capacity. The increase as a percent
of sales is primarily due to lower production volumes and charging excess
overhead (excess manufacturing capacity) to cost of goods sold. Varying sales
mixes and sales discounts allowed OEM and foreign distributors are other factors
contributing to the cost of sales percentage increase. Under utilized overhead
variances will continue to adversely affect cost of goods sold as a percentage
of net sales until such time that the Registrant increases its sales and
production volume or takes additional steps to reduce its fixed costs currently
included in overhead.
-12-
<PAGE>
MEDICAL DYNAMICS, INC. AND SUBSIDIARY
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. (Continued)
Selling, General and Administrative Expenses (SG&A). SG&A expenses for
the first three months ended December 31, 1995 and 1994 were $294,500 and
$432,300, respectively, for a decrease of approximately $137,800 or 32%. This
decrease is primarily due to the lack of royalty, insurance and other expenses
ordinarily incurred on behalf of the Registrant's Chairman foregone in fiscal
1996 in exchange for 120,000 of the Registrant's common stock options, per the
amended and restated license agreement with the Chairman (see fiscal 1995 form
10-KSB for a detailed discussion). Other significant expense reductions during
fiscal 1996 versus the comparable period of fiscal 1995 include significantly
fewer inventory and patent writeoffs, reduced depreciation and amortization
charges as a substantial amount of loaner equipment became fully depreciated
during fiscal 1995, and cost cutting measures instituted by Management
precipitated by lower sales and production values. The registrant continues to
reduce or eliminate expenses in all areas when practical.
Research and Development Costs. For the three months ended December
31, 1995 and 1994 R&D expenses were $51,100 and $31,100, respectively, for an
increase of approximately $20,000 or 64%. A significant portion of this increase
is due to projects related to electrical compatibility testing required to
achieve TUV and CE approval markings which are required to successfully market
products in the European common market countries. Additional research and
development expense was incurred on projects related to the Optical Catheter
System(TM) as it applies to a new cardio vascular system, and a new and improved
version of the Lap-Wrap(TM) products continues to be funded. The Registrant will
continue to fund research and development as it deems appropriate to maintain or
gain a competitive advantage.
-13-
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 1996 /s/ VAN A. HORSLEY
---------------------------------
Van A. Horsley, President,
Principal Executive Officer,
and Principal Financial Officer
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 864,400
<SECURITIES> 10,000
<RECEIVABLES> 325,200
<ALLOWANCES> (45,000)
<INVENTORY> 941,200
<CURRENT-ASSETS> 2,219,700
<PP&E> 1,372,800
<DEPRECIATION> (1,230,400)
<TOTAL-ASSETS> 2,529,300
<CURRENT-LIABILITIES> 307,100
<BONDS> 0
0
0
<COMMON> 6,900
<OTHER-SE> 2,294,500
<TOTAL-LIABILITY-AND-EQUITY> 2,529,300
<SALES> 163,400
<TOTAL-REVENUES> 209,400
<CGS> 173,000
<TOTAL-COSTS> 345,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (309,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (309,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (309,200)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
