SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
OCTOBER 31, 2000 0-9922
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EQUIDYNE CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
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(State or Other Jurisdiction (IRS Employer ID No.)
of Incorporation or Organization)
238 LITTLETON ROAD, WESTFORD, MA 01886
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(Address and Zip Code of Principal Executive Offices)
Issuer's telephone number, including area code: 978-692-6680
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Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
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Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
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As of December 11, 2000, there were outstanding 16,347,959 shares of the
Issuer's Common Stock, $.10 par value.
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EQUIDYNE CORPORATION AND SUBSIDIARIES
Index
Page
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, October 31, 2000 and
July 31,2000...........................................................3
Consolidated Statements of Operations for the Three
Months Ended October 31, 2000 and October 31, 1999.....................4
Consolidated Statements of Cash Flows for the Three
Months Ended October 31, 2000 and October 31, 1999.....................5
Notes to Consolidated Financial Statements.............................6
Item 2. Management's Discussion and Analysis or Plan of Operation............9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................11
SIGNATURES...................................................................12
2
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PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2000 July 31, 2000
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(Unaudited)
Assets (Thousands)
Current Assets:
Cash and cash equivalents........................ $ 38,450 $ 2,010
Restricted cash ................................. - 354
Held to maturity investments..................... 4,862 -
Accounts receivable.............................. 124 15
Inventories...................................... 1,182 998
Deferred costs................................... 59 -
Deferred income taxes............................ 318 345
Prepaid and other current assets................. 261 33
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Total current assets..................... 45,256 3,755
Property and equipment........................... 1,435 1,265
Accumulated depreciation......................... (399) (292)
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1,036 973
Deposits on tooling and machinery................ 2,648 2,655
Held to maturity investments..................... 3,002 -
Patents.......................................... 1,928 1,971
Goodwill......................................... - 687
Investment in affiliate.......................... - 8,297
Deferred income taxes............................ 172 2,190
Deposits and other assets........................ 136 71
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$ 54,178 $20,599
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Liabilities & Stockholders' Equity
Current Liabilities:
Accounts payable................................. $ 931 $ 934
Accrued liabilities.............................. 255 748
Accrued income taxes............................. 15,170 -
Deferred revenue................................. 130 -
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Total current liabilities..................... 16,486 1,682
Stockholders' Equity:
Common stock, $.10 par value; Authorized -
35,000,000 shares; Outstanding - 16,317,959
and 16,170,459 shares at October 31, 2000 and
July 31, 2000, respectively................... 1,632 1,617
Additional paid-in capital...................... 25,473 28,595
Retained earnings (deficit)..................... 11,580 (11,023)
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38,685 19,189
Treasury stock, at cost (259,000 shares
at October 31, 2000).......................... (925) -
Deferred compensation........................... (68) (272)
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Total stockholders' equity............. 37,692 18,917
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$54,178 $20,599
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See accompanying notes.
3
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EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended October 31
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2000 1999
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(Thousands, except per share amounts)
Net sales................................... $ 4 $ 802
Cost of goods sold.......................... 2 502
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Gross profit............................. 2 300
Selling, general and administrative expenses 3,414 1,253
Research and development.................... 242 136
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Total operating expenses................. 3,656 1,389
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Operating loss.............................. (3,654) (1,089)
Other income (expenses):
Gain on sale of affiliate stock........... 40,263 -
Gain on sale of subsidiary capital stock.. - 862
Interest, net............................. 94 (12)
Minority interest in affiliate............ - 113
Other..................................... - 6
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40,357 969
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Net income (loss) before provision for
income taxes............................... $ 36,703 $ (120)
Provision for income taxes.................. 14,100 -
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Net income (loss)........................... $ 22,603 $ (120)
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Net income (loss) attributable
to common stockholders*.................... $ 22,603 $ (261)
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Net income (loss) per share, basic.......... $ 1.39 $ (.03)
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Net income (loss) per share, diluted........ $ 1.27 $ (.03)
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See accompanying notes.
* The quarter ended October 31, 1999 includes the impact of $141,000 of
dividends on Preferred Stock.
4
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EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended October 31
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2000 1999
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(Thousands)
Operating activities:
Net income (loss)............................. $ 22,603 $ (120)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization............... 148 185
Deferred compensation amortization.......... 204 87
Deferred income taxes....................... 2,045 87
Gain on sale of affiliate stock............. (40,263) -
Gain on sale of subsidiary capital stock.... - (862)
Minority interest .......................... - (113)
Changes in operating assets and liabilities:
Decrease in cash restricted for purchase of
inventory................................. 354 -
Accounts receivable........................ (109) 108
Inventories, prepaid and other assets...... (536) (120)
Accounts payable and other current liabilities 11,688 (622)
Other...................................... 12 -
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Net cash used in operating activities......... (3,854) (1,457)
Investing activities:
Proceeds from sale of affiliate stock....... 49,245 1,638
Purchase of held to maturity securities..... (7,864) -
Purchase of treasury stock.................. (925) -
Purchase of property and equipment, net..... (170) (494)
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Net cash provided by investing activities..... 40,286 1,144
Financing activities:
Net payments on debt and bank lines-of-credit - (549)
Issuance of common stock, net............... - 100
Issuance of capital stock by consolidated
subsidiary................................. - 1,635
Proceeds from exercise of common stock options 8 -
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Net cash provided by financing activities..... 8 1,186
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Effect of exchange rate on cash............... - (12)
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Increase in cash and cash equivalents......... 36,440 861
Cash and cash equivalents, beginning of period. 2,010 210
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Cash and cash equivalents, end of period....... $ 38,450 $ 1,071
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Noncash transactions:
Exercise of stock options................... $ 14 -
Common Stock issued for services............ - $75
See accompanying notes.
5
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EQUIDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the three month period ended October 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
July 31, 2001. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended July 31, 2000.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. During Fiscal 2000, as a result
of various transactions, the Company's ownership of its formerly consolidated
subsidiary, Rosch AG Medizintechnik ("Rosch AG"), was reduced from 75% to
26.43%. In August and October 2000, the Company sold all of its remaining
ownership in Rosch AG (see Note 3). At October 31, 1999, the Company owned
50.01% of Rosch AG and included the accounts of Rosch AG in its consolidated
financial statements. Effective November 1, 1999, the Company accounted for its
investment in Rosch AG under the equity method of accounting. See Note 3 for
further information. All material intercompany transactions have been
eliminated.
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
all highly liquid debt instruments with original maturities of three months or
less. The carrying amount reported in the balance sheets for cash and cash
equivalents approximates its fair value.
Restricted Cash
At July 31, 2000, $354,000 of cash was pledged as collateral on an
outstanding letter of credit related to inventory purchased and was classified
as restricted cash on the balance sheet.
Investments in Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. At October 31, 2000,
all of the Company's investments are classified as held-to-maturity. See Note 2.
The amortized cost of debt securities classified as held-to-maturity is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Interest and dividends are
included in interest income. Realized gains and losses , and declines in value
judged to be other than temporary are included in net securities gains (losses),
if any. The cost of securities sold is based on the specific identification
method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
6
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Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with Statement of Financial Standards
No. 52, Foreign Currency Translation through October 31, 1999 (See Note 3). All
balance sheet amounts have been translated using the exchange rates in effect at
the balance sheet date. Statement of Operations amounts have been translated
using average exchange rates. The gains and losses resulting from the changes in
exchange rates from the date of acquisition of Rosch AG to October 31, 1999 have
been reported separately as a component of stockholders' equity. The aggregate
transaction gains and losses are insignificant.
Revenue Recognition
The Company's products are sold subject to rights of return of up to 90
days, depending on the type of customer. As the Company has no significant sales
history on which to base an estimated rate of returns, revenue is not recognized
until the expiration of the stated return period. As of October 31, 2000,
deferred revenue was $130,000. The related cost of the inventory shipped of
approximately $59,000 at October 31, 2000 has also been deferred, to be
recognized concurrent with the recognition of the related revenue.
Comprehensive Income (Loss)
For the three months ended October 31, 1999, the Company's only item of
other comprehensive income was the foreign currency translation adjustment
recognized in consolidation of its partially-owned German subsidiary, Rosch AG.
Statement of Financial Accounting Standards No. 130 requires such adjustments to
be included in other comprehensive income. There were no items of other
comprehensive income for the three months ended October 31, 2000. The foreign
currency translation adjustment and comprehensive loss for the three months
ended October 31, 1999 was $(40,000) and ($160,000), respectively. As of October
31, 1999, the cumulative translation adjustment and accumulated other
comprehensive loss was ($240,000).
2. INVESTMENTS
At October 31, 2000, all of the Company's investments are classified as
held-to-maturity. The Company's investments are comprised of U.S Corporate debt
securities with a total cost of $7,864,000. The estimated fair market value of
these securities at October 31, 2000 was $7,853,000, resulting in an unrealized
loss of $11,000.
3. INVESTMENT IN AFFILIATE
In September 1999, a minority shareholder of Rosch AG acquired an
additional 24.99% of Rosch AG through two transactions consisting of (1) a
capital contribution into Rosch AG of approximately $1.6 million, and (2) a
direct purchase of a portion of the Company's ownership interest in Rosch AG for
approximately $1.6 million. These transactions resulted in the recognition of a
gain on the sale of Rosch AG capital stock of approximately $862,000, and a
reduction in the Company's ownership percentage of Rosch AG from 75% to 50.01%.
As the Company maintained a controlling interest in Rosch AG, it continued to
consolidate the operations of Rosch AG through October 31, 1999. The
transactions also resulted in the recognition of an increase in the minority
interest in the consolidated subsidiary in the amount necessary to bring that
interest up to the current minority ownership percentage of 49.99% of Rosch AG's
net assets as of October 31, 1999, or $1,067,000. This amount includes the
minority stockholders' share of Rosch AG's net losses for the three month period
ended October 31, 1999, which was approximately $113,000.
During the fiscal year ended July 31, 2000, through a series of
transactions, the Company's ownership in Rosch AG was reduced to 26.43%, and in
August and October 2000, the Company sold all of its remaining ownership in
Rosch AG. Aggregate net proceeds received on the sales during the three months
ended October 31, 2000 was $49,245,000, and the resulting gain on the sales was
$40,263,000.
7
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4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Three Months Ended October 31
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2000 1999
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(Thousands, except share and
per share amounts)
Numerator:
Net income (loss) $ 22,603 $ (120)
Preferred stock dividends - (141)
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Numerator for basic earnings per share-income
available to common stockholders 22,603 (261)
Effect of dilutive securities - -
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Numerator for diluted earnings per share-income
available to common shareholders after assumed
conversions $ 22,603 $ (261)
Denominator:
Denominator for basic earnings per
share-weighted-average shares 16,244,209 9,798,732
Effect of dilutive securities:
Stock options 1,174,334 -
Warrants 317,772 -
Convertible preferred stock - -
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Dilutive potential common shares 1,492,106 -
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Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions 17,736,315 9,798,732
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Basic earnings (loss) per share $ 1.39 $ (.03)
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Diluted earnings (loss) per share $1.27 $ (.03)
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Dilutive securities were not included in the calculation of diluted
weighted average shares for the three months ended October 31, 1999, due to
their anti-dilutive effect.
For additional disclosure regarding the stock options, see Note 5.
Options to purchase 1,126,000 shares of common stock at prices ranging from
$3.81 to $7.00 per share were outstanding at October 31, 2000, but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares
and, therefore, the effect would be anti-dilutive.
5. EQUITY
Stock Options
During the three month period ended October 31, 2000, the Company issued
147,500 shares of Common Stock pursuant to the exercise of outstanding stock
options. Total proceeds received from these exercises aggregated $7,500.
Treasury Stock
In August 2000, the Board of Directors approved a stock repurchase plan
authorizing the Company to purchase, over the next six months, up to 1,000,000
shares of Common Stock on the open market from time to time at management's
discretion, based upon market conditions. Under the plan, the Company has
repurchased 259,000 shares through October 31, 2000, for a total cost of
approximately $925,000.
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Report contains or refers to forward-looking information made pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. That information covers future revenues, products and income and is
based upon current expectations that involve a number of business risks and
uncertainties. Among the factors that could cause actual results to differ
materially from those expressed or implied in any forward-looking statement
include, but are not limited to, technological innovations of competitors,
delays in product introductions, changes in health care regulations and the
ability to obtain favorable insurance reimbursement coverage for the Company's
products, product acceptance or changes in government regulation of the
Company's products, as well as other factors discussed in other Securities and
Exchange Commission filings for the Company.
OVERVIEW
The Company's focus for its fiscal year ending July 31, 2001 ("Fiscal
2001") is centered on the sales and marketing of its current INJEX(TM)30 product
line, and the planned introduction of the INJEX(TM)50 System. The Company
launched its INJEX(TM)30 product line to the U.S. diabetes market in July 2000
utilizing a 50-person direct sales force, and since then has obtained retail
pharmacy availability for the product, as a result of the Company entering into
an agreement with Rite Aid Corporation, one of the largest retail pharmacy
chains in the United States.
RESULTS OF OPERATIONS
Net sales for the three month period ended October 31, 2000 were $4,000,
compared to $802,000 for the three month period ended October 31, 1999. Net
sales for the three months ended October 31, 1999 consists primarily of Rosch
AG's net sales for the period. During the three months ended October 31, 2000,
the Company commenced sales activities following its July 2000 market launch of
the INJEX(TM)30 System. Standard sales terms provide rights of returns to its
customers of up to 90 days, depending on the customer type. As the Company has
no significant sales history on which to base an estimated rate of returns, the
Company's policy is to defer the recognition of revenue until the expiration of
the stated return period. Approximately $130,000 of sales revenue was deferred
at October 31, 2000.
Cost of sales for the three month periods ended October 31, 2000 and
October 31, 1999 were 50.0% and 62.6% of net sales, respectively. Cost of sales
for the three months ended October 31, 2000 consists of INJEX(TM)30 System
sales, while the October 31, 1999 cost of sales primarily represents the
consolidated cost of sales of Rosch AG for the period. At October 31, 2000, the
Company has deferred recognition of approximately $59,000, representing the cost
of sales related to all shipments for which revenue recognition has been
deferred at October 31, 2000, based upon the relative return periods.
Selling, general and administrative expenses for the three month period
ended October 31, 2000 were $3,414,000, compared to $1,253,000 for the
comparable prior year period. The increase reflects the impact of the costs
incurred in connection with the completion of the Company's preparation for its
July 2000 full-scale U.S. market introduction of the INJEX(TM) System. Such
costs include the July 2000 hiring of a fifty-person sales force, and the
related additional training, travel and overhead costs and additions to the
Company's infrastructure necessary to support the increase in headcount. The
three months ended October 31, 2000 also include bonus payments to two
executives totaling approximately $500,000, based upon their respective
employment agreements. Research and development expenses for the three month
period ended October 31, 2000 were $242,000, compared to $136,000 for the
comparable prior year period. The increase resulted directly from the
availability of working capital, and additional development projects in process,
such as the development of the INJEX(TM)50 and single-use disposable INJEX(TM)
System.
Net income for the three month period ended October 31, 2000 was
$22,603,000, compared to a net loss of $120,000, for the same period in the
prior fiscal year. The net income for the three month period ended October 31,
2000 consists of a gain on the sale of the Company's investment in Rosch AG of
$40.3 million, offset by net operating losses of approximately $3.7 million, and
a provision for income taxes of approximately $14.1 million. The net loss for
the three month period ended October 31, 1999 consists of the net losses of
Rosch AG for the period and the costs incurred in connection with the Company's
preparation for full-scale market introduction of the INJEX(TM) System
9
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LIQUIDITY AND CAPITAL RESOURCES
Working capital of the Company at October 31, 2000 was $28,770,000,
compared to $2,073,000 at July 31, 2000. The increase of approximately $27
million resulted from the proceeds from the sales of the remaining portion of
the Company's ownership in Rosch AG of approximately $49.2 million, partially
offset by the net effect of the Company's operating losses, the accrual of $15.1
million for income taxes and the investment of approximately $3 million in
securities with maturity dates greater than one year from the balance sheet
date.
The Company now has sufficient working capital for the implementation of
its strategic marketing initiatives, expansion of its sales force as demand for
the product rises, and expansion of its marketing and research and development
initiatives. The Company will also use its working capital to fund the
acquisition of additional production tools and automation machinery necessary
for high-volume, fully-automated assembly of the INJEX(TM) System components to
meet market demands. As of October 31, 2000, the Company has paid deposits for
this tooling and machinery totaling approximately $2.6 million, which represents
approximately one-half of the total completed cost.
The Company is considering future growth through acquisitions of companies
or business segments in related lines of business, as well as through expansion
of the existing line of business. There is no assurance that management will
find suitable candidates or effect the necessary financial arrangements for such
acquisitions and obtain necessary working capital for the acquired entities.
10
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PART II. - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a report on Form 8-K for an event on October 4, 2000 to report
that the Company sold its 19.52% holding in Rosch AG Medizintechnik ("Rosch AG")
through a placement to a number of major European institutional investors. The
Company received proceeds of approximately $40 million from the sale its 936,750
shares of Rosch AG.
Exhibits -
27. Financial Data Schedule
11
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EQUIDYNE CORPORATION
/s/Joseph R. Nelson Dated: December 15, 2000
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Joseph R. Nelson
President, Chief Executive Officer
And Chairman
/s/Michael T. Pieniazek Dated: December 15, 2000
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Michael T. Pieniazek
Executive Vice President
And Chief Financial Officer
12
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EXHIBIT INDEX
Exhibit Description
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27 Financial Data Schedule
