SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
APRIL 30, 2000 0-9922
--------------- ------
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 of
Incorporation or Organization)
238 Littleton Road, Westford, Massachusetts 01886
-------------------------------------------------
(Address and Zip Code of Principal Executive Offices)
Issuer's telephone number, including area code: 978-692-6680
------------
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
------------
(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
---
As of June 9, 2000, there were outstanding 16,128,933 shares of the Issuer's
Common Stock, $.10 par value.
<PAGE>
EQUIDYNE CORPORATION
Index
-----
The registrant hereby amends its Quarterly Report on Form 10-Q for the
quarter ended April 30, 2000 to (a) correct a change in the number of
outstanding shares of the registrant's Common Stock, (b) correct certain errors
in the registrant's unaudited consolidated balance sheets and unaudited
consolidated statements of operations, (c) correct certain errors in the
unaudited financial statements under "4. Income Taxes", "5. Equity" and "6.
Earnings Per Common and Common Equivalent Shares", and (d) correct certain
errors under Item 2. Changes in Securities. In accordance with the instructions
for Form 10-Q, Item 1 is included herein in its entirety and a revised financial
data schedule is attached as Exhibit 27.1. No other changes have been made to
the Quarterly Report on Form 10-Q for the period ended April 30, 2000.
Page
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, April 30, 2000 and July 31, 1999 .................3
Consolidated Statements of Operations for the Three and
Nine Months Ended April 30, 2000 and April 30, 1999............................4
Consolidated Statements of Cash Flows for the Nine
Months Ended April 30, 2000 and April 30, 1999.................................5
Notes to Consolidated Financial Statements ....................................6
Item 2. Management's Discussion and Analysis or Plan of Operation ..........10
PART II - OTHER INFORMATION
Item 2. Changes in Securities ..............................................12
Item 6. Exhibits and Reports on Form 8-K ...................................12
SIGNATURES ...................................................................13
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2000 July 31, 1999
-------------- -------------
(Unaudited)
ASSETS (Thousands)
------ -----------
Current Assets:
Cash and cash equivalents................. $ 8,868 $ 210
Accounts receivable....................... 23 897
Inventories............................... 90 1,480
Deferred income taxes..................... 162 -
Prepaid and other current assets.......... 112 196
--------- ---------
Total current assets...................... 9,255 2,783
Property and equipment.................... 1,001 745
Accumulated depreciation.................. (218) (115)
--------- ---------
783 630
Deposits on tooling and machinery......... 899 -
Goodwill.................................. 694 715
Patents................................... 1,962 2,897
Investment in affiliate................... 8,487 -
Deferred income taxes, net of current..... 940 -
Other..................................... 134 216
--------- ---------
$ 23,154 $ 7,241
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank debt................................. $ - $ 1,073
Accounts payable.......................... 784 1,784
Accrued liabilities....................... 744 815
Dividends payable......................... - 373
--------- ---------
Total current liabilities............ 1,528 4,045
Minority interest in consolidated
subsidiary................................ - 440
Stockholders' equity:
Preferred Stock, $.01 par value;
Authorized - 1,000,000 shares;
Series A Convertible Preferred -
Outstanding
None at April 30, 2000 and 2,400 at
July 31, 1999............................. - 1,909
Series B Convertible Preferred -
Outstanding
None at April 30, 2000 and 1,170 at
July 31, 1999............................. - 982
Common stock, $.10 par value;
Authorized - 35,000,000 shares;
Outstanding - 16,128,933 shares at April
30, 2000 and 9,637,621 at July 31, 1999... 1,613 963
Additional paid-in capital................ 28,426 14,837
Retained deficit.......................... (8,261) (15,541)
Accumulated other comprehensive loss...... - (200)
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21,778 2,950
Deferred compensation..................... (152) (194)
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Total stockholders' equity................ 21,626 2,756
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$ 23,154 $ 7,241
========= =========
See accompanying notes.
3
<PAGE>
EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
April 30, April 30, April 30, April 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales................................ $ - $ 1,756 $ 802 $ 6,132
Cost of goods sold....................... - 1,343 502 4,024
----------- ----------- ----------- -----------
Gross profit............................. - 413 300 2,108
Selling, general and administrative...... 3,248 1,765 5,624 5,616
Research and development................. 315 78 676 283
Write-down of goodwill................... - 3,196 - 3,196
----------- ----------- ----------- -----------
Total operating expenses................. 3,563 5,039 6,300 9,095
----------- ----------- ----------- -----------
Operating loss........................... (3,563) (4,626) (6,000) (6,987)
Other income (expenses):
Loss on sale of audiometrics assets...... - (98) - (98)
Gain on sale of affiliate capital stock.. 10,819 - 12,684 -
Equity in losses of affiliate............ (150) - (409) -
Minority interest in affiliate........... - - 113 -
Interest, net............................ 69 (114) 90 (197)
Other.................................... 31 (95) 21 (293)
10,769 (307) 12,499 (588)
----------- ----------- ----------- -----------
Income (loss) before income tax
benefit.................................. 7,206 (4,933) 6,499 (7,575)
Income tax benefit....................... (781) - (781) -
----------- ----------- ----------- -----------
Net income (loss)........................ $ 7,987 $ (4,933) $ 7,280 $ (7,575)
=========== =========== =========== ===========
Net income (loss) attributable to
common stockholders*..................... $ 7,987 $ (5,001) $ 7,262 $ (7,898)
=========== =========== =========== ===========
Income (loss) per common and
common equivalent share:
Basic $ .51 $ (.64) $ .55 $ (1.07)
=========== =========== =========== ===========
Diluted $ .47 $ (.64) $ .47 $ (1.07)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
* The three and nine months ended April 30, 2000 includes the impact of
$-0- and $141,000, respectively, of dividends on Preferred Stock. The three and
nine months ended April 30, 2000 also includes the impact of $-0- and $123,000,
respectively, of preferred stock redemption discounts. The three and nine months
ended April 30,1999 includes the impact of $68,000 and $323,000, respectively,
of dividends on Preferred Stock. All of the remaining outstanding Preferred
Stock was redeemed/converted during the second quarter of the fiscal year ending
July 31, 2000.
4
<PAGE>
EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
-----------------
APRIL 30, APRIL 30,
2000 1999
----------- -----------
(Thousands)
OPERATING ACTIVITIES:
Net income (loss) $ 7,280 $ (7,575)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 375 435
Loss on disposal of fixed assets 47 -
Deferred compensation amortization 517 964
Deferred income taxes (1,102) -
Stock compensation 1,003 -
Equity in loss of unconsolidated affiliate 409 -
Minority interest in affiliate (113) -
Gain on sale of affiliate capital stock (12,684) -
Loss on sale of audiometrics assets - 98
Write-down of goodwill - 3,196
Changes in operating assets and liabilities:
Accounts receivable 105 (381)
Inventories,prepaid and other current assets (126) (209)
Accounts payable and accrued liabilities (601) 694
----------- -----------
Net cash used in operating activities (4,890) (2,778)
INVESTING ACTIVITIES:
Purchase of property and equipment, net (962) (246)
Deposits on tooling and machinery (899) -
Proceeds from sale of affiliate stock 14,305 -
Proceeds from sale of audiometrics assets - 625
----------- -----------
Net cash provided by investing activities 12,444 379
FINANCING ACTIVITIES:
Payments on redemption of preferred stock (2,010) -
Net proceeds (payments) on debt and
bank line of credit (1,249) 157
Issuance of capital stock by
unconsolidated affiliate 1,635 -
Net proceeds from related party debt - 231
Dividends paid - (15)
Issuance of common stock, net 2,422 485
Issuance of preferred stock, net - 1,498
Proceeds from exercise of stock options
and warrants 505 22
----------- -----------
Net cash provided by financing activities 1,303 2,378
----------- -----------
Effect of exchange rate changes on
cash and cash equivalents (12) 16
Decrease in cash due to change in
method of accounting from consolidation
to equity method (187) -
----------- -----------
Increase (decrease)in cash and cash equivalents 8,658 (5)
Cash and cash equivalents, beginning of period 210 396
----------- -----------
Cash and cash equivalents, end of period $ 8,868 $ 391
=========== ===========
NON-CASH ACTIVITIES:
Common stock issued for services $ 300 $ 188
=========== ===========
Common stock issued in connection with
employment agreements $ 1,003 $ -
=========== ===========
Common stock issued under cashless
conversion provision of options/warrants $ 74 $ 59
=========== ===========
Common stock issued upon conversions and
redemptions of convertible preferred
stock $ 808 $ 135
=========== ===========
Short-term debt issued in connection with
Preferred stock redemptions $ 700 $ -
=========== ===========
See accompanying notes.
5
<PAGE>
EQUIDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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 and nine month periods ended April 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending July 31, 2000. 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, 1999.
Foreign Currency Translation
Effective November 1, 1999, the Company changed its method of accounting
for its foreign affiliate, Rosch AG Medizintechnik ("Rosch AG"), from the
consolidated basis to the equity method, due to the decrease in the Company's
ownership percentage (see Note 3). Through October 31, 1999, the foreign
affiliate was accounted for on the consolidated basis, and accordingly, its
financial statements were translated into U.S. dollars in accordance with
Statement of Financial Standards No. 52, Foreign Currency Translation. All
balance sheet amounts were translated using the exchange rates in effect at the
balance sheet date. Statement of Operations amounts were 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 were
reported separately as a component of stockholders equity. For periods
subsequent to October 31, 1999, in accordance with the equity method of
accounting, the Company reports its percentage share of the foreign affiliate's
results of operations as a separate component in its statement of operations.
This amount is determined by translating the results of operations of the
foreign affiliate to U.S. dollars using average exchange rates for the period.
The aggregate transaction gains and losses are insignificant.
Comprehensive Income (Loss)
Effective August 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130
establishes new rules for the reporting and display of comprehensive income or
loss and its components, however, the adoption of this statement had no impact
on the Company's net income or shareholders' equity. For the three months ended
April 30, 2000, there were no items of other comprehensive income. For the nine
months ended April 30, 2000, the Company's only item of other comprehensive
income was the foreign currency translation adjustment recognized in
consolidation of its partially-owned German affiliate, Rosch AG. This affiliate
ceased to be consolidated effective November 1, 1999 (see Note 3). SFAS 130
requires such adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
The foreign currency translation adjustment and comprehensive income for
the three months ended April 30, 2000 was $0 and $7,987,000, respectively. The
foreign currency translation adjustment and comprehensive income for the nine
months ended April 30, 2000 was $(40,000) and $7,280,000, respectively.
2. DEBT
The Company's method of accounting for its German affiliate, Rosch AG was
changed from consolidation to the equity method effective November 1, 1999 (see
Note 3). As a result, the debt of Rosch AG is no longer included in the
consolidated balance sheet of Equidyne Corporation and Subsidiaries.
6
<PAGE>
In November 1999, in connection with the redemption of the Company's Series
A Preferred Stock, the Company issued a Promissory Note and Security Agreement
(the "Secured Note") in the principal amount of $1,050,000. The Secured Note was
non-interest bearing and secured by certain intellectual property rights of the
Company. The Secured Note was due in full on the earlier to occur of (i) five
business days of the closing date of the initial public offering in Germany of
Rosch AG or (ii) April 30, 2000. The initial public offering took place on
February 24, 2000 (see Note 3), thus the Secured Note matured on February 29,
2000. The terms of the Secured Note provided that the principal amount would be
reduced to $700,000 if the average closing bid price of the Company's Common
Stock for the five trading days prior to maturity exceeded $3.00 per share. As
this provision was met, the balance of the Secured Note was adjusted to
$700,000. The Secured Note was paid in full on March 7, 2000.
3. INVESTMENT IN AFFILIATE
On February 24, 2000, Rosch AG completed an Initial Public Offering ("IPO")
of its shares on the Neuer Market, a segment of the Frankfurt (Germany) Stock
Exchange. Rosch AG sold 1,263,950 newly issued shares in the IPO, which, along
with the Company's sale of certain of its shares of Rosch AG in the IPO, reduced
the Company's ownership of Rosch AG to 26.43%. The Company received proceeds of
approximately $11.1 million from the sale of its shares, and has recognized a
pre-tax gain of approximately $10.8 million.
Effective November 1, 1999, the Company accounts for its investment in
Rosch AG under the equity method of accounting. Under the equity method of
accounting, the Company's percentage share of Rosch AG's operating results are
reported as a single line item in its Statement of Operations. For the three and
nine months ended April 30, 2000, the Company's share of the net loss of Rosch
AG was approximately $150,000 and $409,000, respectively.
For the three months ended October 31, 1999, the Company consolidated the
operating results of Rosch AG and recognized the minority stockholders' share of
Rosch AG's net losses of approximately $113,000.
The following is summarized unaudited financial information of Rosch AG as
of and for the three months ended April 30, 2000:
(000's)
Gross sales $ 1,022
Cost of goods sold 523
Net income (loss) (567)
Total assets 33,750
Total liabilities 1,638
At April 30, 2000, the quoted market value of the Company's investment in
Rosch AG was approximately $79 million. The valuation represents a mathematical
calculation based on a closing quotation published by the Neuer Market and Euro
to U.S. Dollar conversion rates at that date. The valuation is not necessarily
indicative of the amount that could be realized upon sale. Furthermore, the
Company is prohibited from selling any its shares of Rosch AG until August 24,
2000, under the terms of an agreement between the Frankfurt Stock Exchange and
the Company.
4. INCOME TAXES
The Company's deferred tax assets (which result primarily from net
operating loss carryforwards) as of April 30, 2000 and July 31, 1999 were
$1,102,000 and $4,095,000, respectively. SFAS No. 109 requires a valuation
allowance against deferred tax assets if it is more likely than not that some or
all of the deferred tax assets will not be realized. As of July 31, 1999,
uncertainty existed about the realization of the Company's deferred tax assets,
and a valuation allowance of $4,095,000 was recognized.
SFAS No. 109 sets forth several possible sources of future taxable income
to be used to evaluate the likelihood of realization of deferred tax assets. One
such source is the availability of tax planning strategies that could be used to
accelerate future taxable income in order to utilize expiring carryforwards.
Management believes that sufficient tax planning strategies, as defined by SFAS
No. 109, are available such that it is more likely than not that the deferred
tax assets will be realized, and therefore, the valuation allowance against
deferred tax assets has been adjusted to $-0-, thereby recognizing approximately
$1.1 million of net deferred tax assets at April 30, 2000.
As of April 30, 2000, the Company has net operating loss carryforwards
available totaling approximately $2.5 million, after utilization of
approximately $6.2 million for the three months ended April 30, 2000. These
carryforwards expire from 2004 through 2020, and are subject to annual
limitations under Internal Revenue Code Section 382. Based upon an evaluation of
these limitations, the Company expects to offset all of its Federal taxable
income for the fiscal year ending July 31, 2000 by utilizing its net operating
loss carryforwards. However, the Company will be subject to alternative minimum
tax, and has recognized a current provision for Federal income taxes based upon
estimated alternative minimum taxable income for its fiscal year ending July 31,
2000. In addition, due to limitations on net operating loss carryforward usage
imposed by certain states, a current provision for State income taxes has also
been recognized based upon estimated taxable income for State income tax
purposes.
7
<PAGE>
Significant components of the Company's deferred tax assets are as follows:
April 30, 2000 July 31, 1999
-------------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 842,000 $3,582,000
Accrued expenses 30,000 83,000
Inventory 115,000 139,000
Other 15,000 10,000
Deferred compensation - 281,000
Alternative minimum tax credit carryforward 100,000 -
----------- -----------
Total deferred tax assets 1,102,000 4,095,000
Valuation allowance for deferred tax assets - (4,095,000)
----------- -----------
Net deferred tax assets $1,102,000 $ -
=========== ===========
Following is a summary of the tax provision (benefit) recognized for the three
and nine months ended April 30, 2000:
Current Deferred
-------- ----------
Federal $100,000 $(1,066,000)
State 221,000 (36,000)
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Total $321,000 $(1,102,000)
========= ============
For the three and nine months ended April 30, 1999, the net provision for
Federal and State income taxes was $-0-, due to the Company's net losses for the
periods, and the valuation allowance recognized against the deferred tax assets,
as described above.
A reconciliation of income taxes computed at the federal statutory rates to
income tax expense for the nine months ended April 30, 2000 is as follows:
Amount Percent
-------- -------
Benefit at Federal Statutory Rates $2,210,000 34.0%
State Income Taxes, net of
Federal Benefit 122,000 1.9
Change in Valuation Reserve (3,146,000) (48.4)
Other 33,000 .5
----------- ----------
Total $(781,000) (12.0)%
=========== ==========
5. EQUITY
During the three months ended April 30, 2000, the Company closed on a
private placement of 62,500 shares of Common Stock with six investors for a
total of $250,000.
Effective February 17, 2000, the Company issued 150,000 shares of Common
Stock to two executives pursuant to the terms of their respective employment
agreements. The common stock was valued at its quoted fair market value at the
close of business on February 17, 2000, or $6.69 per share, resulting in the
recognition of compensation expense of $1,003,000.
In addition, during the three months ended April 30, 2000, the Company
issued 1,073,153 shares of Common Stock pursuant to the exercise of outstanding
stock options and warrants.
8
<PAGE>
6. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss).................... $ 7,987 $ (4,933) $ 7,280 $ (7,575)
Preferred stock redemption premium... - - 123 -
Preferred stock dividends............ - (68) (141) (323)
----------- ----------- ----------- -----------
Numerator for basic earnings per
share-income available to common
stockholders........................ $ 7,987 $ (5,001) $ 7,262 $ (7,898)
Effect of dilutive securities:
Preferred stock redemption premium.. - - (123) -
Preferred stock dividends........... - - 141 -
----------- ----------- ----------- -----------
- - 18 -
----------- ----------- ----------- -----------
Numerator for diluted earnings
per share-income available
to common shareholders after
assumed conversions................. $ 7,987 $ (5,001) $ 7,280 $ (7,898)
Denominator:
Denominator for basic earnings per
share-weighted average share........ 15,653,170 7,806,813 13,142,154 7,413,750
Effect of dilutive securities:
Stock options....................... 895,814 - 565,900 -
Warrants............................ 499,857 - 178,328 -
Convertible preferred stock......... - - 1,513,942 -
----------- ----------- ----------- -----------
Dilutive potential common shares..... 1,395,671 - 2,258,170 -
----------- ----------- ----------- -----------
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions......................... 17,048,841 7,806,813 15,400,324 7,412,750
=========== =========== =========== ===========
Basic earnings (loss) per share........ $ 0.51 $ (0.64) $ 0.55 $ (1.07)
=========== =========== =========== ===========
Diluted earnings (loss) per share...... $ 0.47 $ (0.64) $ 0.47 $ (1.07)
=========== =========== =========== ===========
</TABLE>
Dilutive securities were not included in the calculation of diluted weighted
average shares for the three and nine months ended April 30, 1999, due to their
anti-dilutive effect.
For additional disclosure regarding the stock options and the warrants, see
Note 5.
Options to purchase 235,000 shares of common stock at prices ranging from $5.94
to $7.00 per share were outstanding at April 30, 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.
7. COMMITMENTS
Effective February 15, 2000, Equidyne Systems, Inc. relocated its principal
offices within San Diego, California, terminating its month-to-month lease, and
entering into a new 36-month lease. The new lease provides for monthly rent
beginning at $6,282 and increasing annually to $8,077 and $8,301 per month in
years two and three, respectively. In addition, in December 1999, the Company
entered into a lease amendment for its Aliso Viejo, California facility, adding
new space within the same office complex. The amended lease has a 39 month term,
expiring February 2003, and provides for monthly rent of $6,528 through February
2001. Monthly rent for the subsequent two twelve-month periods is fixed at
$6,854 and $7,197, respectively.
In January 2000, the Company relocated from its Amherst, New Hampshire
offices to Westford, Massachusetts, entering into a three year lease at the rate
of $2,606 per month.
In May 2000, the Company entered into an amendment to its San Diego office
lease for additional space adjacent to its San Diego office facility. The
amended lease will commence upon completion of improvements for a term of 36
months. The monthly rent for the additional space is $4,832 for the first year,
and increasing to $5,025 and $5,227 for years two and three, respectively.
9
<PAGE>
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 regulation and
reimbursements, changes in foreign economic conditions or currency translation,
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 success of the IPO of Rosch AG in February 2000 provided the Company
with an infusion of working capital that has allowed the Company to aggressively
pursue its goal of a full-scale market introduction of the INJEX(TM) System to
the U.S. market in July 2000. The INJEX(TM) System is a hand-held,
spring-powered device that injects drugs from a needle-free syringe through the
skin as a narrow, high-pressure stream of liquid. The INJEX(TM) System has
received U.S. FDA 510(k) clearance to market the system in the U.S.
During the quarter ended April 30, 2000, the Company has made significant
investments in the automated, low-cost production systems capable of fulfilling
the anticipated demand for the product. The Company has also added key operating
and sales executives, hired nearly all of its 50-person dedicated sales force,
and has forged alliances with outside firms for assistance in the areas of
public relations and diabetes education. In addition, the Company has made
significant investments in its marketing materials, including product literature
and a new logo. These achievements have put the Company in position to launch
the INJEX(TM) System as planned this July. However, there can be no assurance
that the Company will be able to successfully manufacture, market, sell and
deliver the INJEX(TM) System, as it has yet to be introduced into the U.S.
market, and has not yet been commercially accepted.
RESULTS OF OPERATIONS
---------------------
Net sales for the three and nine month periods ended April 30, 2000 were
$-0- and $802,000, respectively, compared to $1,756,000 and $6,132,000 for the
three and nine month periods ended April 30, 1999, respectively. Cost of sales
for the three and nine month periods ended April 30, 2000 were $-0- and
$502,000, respectively, compared to $1,343,000 and $4,024,000 for the three and
nine month periods ended April 30, 1999, respectively. The decrease in net sales
and cost of sales is attributable to three major factors: (1) the Company's sale
of its audiometrics business assets in April 1999 resulted in a decrease in
sales of approximately $31,000 and $618,000 for the three and nine month
periods, respectively, as compared to the same period in the prior fiscal year;
(2) The cessation of the operations of the Company's wholly-owned subsidiary,
Dynamic Dental Systems (DDS), resulted in net sales of DDS for the three and
nine months ended April 30, 2000 decreasing by $254,000 and $1,078,000,
respectively; and (3) The Company's change from the consolidation basis to the
equity method of accounting for its German affiliate, Rosch AG, resulted in a
change in the method of reporting the operations of Rosch AG in the Company's
Consolidated Statements of Operations. Under the consolidation basis, the Rosch
AG Statement of Operations is consolidated with the Statement of Operations of
the Company. Under the equity method of accounting, the Company's Statement of
Operations only reflects its share of the net income or loss of Rosch AG as a
separate component of the Company's Statement of Operations. As a result, the
Statements of Operations for the three and nine months ended April 30, 2000 do
not include the net sales and cost of sales of Rosch AG, whereas the Statements
of Operations for the three and nine months ended April 30, 1999 include Rosch
AG net sales of $1,306,000 and $3,959,000, respectively.
Selling, general and administrative expenses for the three and nine month
periods ended April 30, 2000 were $3,248,000 and $5,624,000, respectively,
compared to $1,765,000 and $5,616,000, respectively, for the comparable prior
year periods. The increase for the three months ended April 30, 2000 is due
primarily to the recognition of approximately $1 million for compensation
associated with common stock issued to two executives of the Company in
accordance with the terms of their respective employment agreements. Other
increases resulted from an increased number of employees at the Company's
wholly-owned subsidiary, Equidyne Systems, Inc. ("ESI"), recruiting fees
associated with the hiring of 50 new ESI sales representatives, and increased
market research activity. The increase for the quarter and decrease for the nine
month period ended April 30, 2000 reflects the impact of the Company's sale of
its audiometrics business assets in April 1999, and cost savings associated with
ceasing the operations of DDS. The change in accounting method described above
resulted in a reduction in the selling, general and administrative expense
reported in the consolidated Statement of Operations for the three and nine
month periods of $560,000 and $1,616,000, respectively. Also contributing to the
change was a reduction for the three and nine month periods ended April 30, 2000
of approximately $295,000 and $964,000, respectively of amortization expense due
primarily to deferred compensation recognized in connection with the
acquisitions of DDS and ESI. These expenses became fully amortized during the
fiscal year ended July 31, 1999.
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Research and development expenses for the three and nine months ended April
30, 2000 were $315,000 and $676,000, respectively, compared to $78,000 and
$283,000, respectively, for the comparable prior year periods. The increase
reflects the availability of working capital at the Company, and management's
decision to allocate a greater portion of the Company's resources towards the
development of new products and improved product features.
Net income for the three and nine month periods ended April 30, 2000 was
$7,987,000 and $7,280,000, respectively, compared to a net (loss) of
$(4,933,000) and $(7,575,000), respectively, for the same periods in the prior
fiscal year. The change is primarily the result of the gains recognized on the
partial sales of the Company's ownership in Rosch AG, which were $10,819,000 and
$12,684,000 for the three and nine months ended April 30, 2000, respectively.
The sale of the audiometrics business assets in April 1999 and ceasing the
operations of DDS also caused reductions to the Company's net losses for the
periods, as both operations incurred significant losses during the three and
nine months ended April 30, 1999. The net income for the three and nine month
periods ended April 30, 2000 were further increased by the recognition of a net
income tax benefit of $781,000 relating primarily to a reduction in the
Company's valuation allowance against a portion of its deferred tax assets. The
increase in net income for the three and nine months ended April 30, 2000 was
also offset by increased costs (described above)incurred in connection with ESI
and its preparation for full-scale U.S. market introduction of the INJEX(TM)
System.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital (deficit) of the Company at April 30, 2000 was $7,727,000,
compared to $(1,262,000) at July 31, 1999. The increase of approximately $9
million primarily resulted from the proceeds from the sale of a portion of the
Company's ownership in Rosch AG of approximately $11.1 million, partially offset
by the net effect of the Company's operating losses. In addition, the change in
the accounting treatment for the Company's investment in Rosch AG from
consolidation to equity method had the impact of removing the working capital of
Rosch AG from the consolidated balance sheet of the Company. Rosch AG's working
capital at July 31, 1999 was approximately $400,000.
The Company has significantly improved its working capital position, and
currently has sufficient working capital to sustain the Company through the next
twelve months. Of the proceeds from the IPO described above, $700,000 was used
to pay-off the Company's $700,000 note payable outstanding at January 31, 2000
(see Note 2). The balance of the proceeds are being used to fund the acquisition
of the high-volume, fully-automated production tools that are necessary to fill
the anticipated demand for the INJEX(TM) System. In addition, the funds are
being used to build the infrastructure necessary to support the business,
including the hiring of a full-time dedicated sales force, a customer support
team, and various other personnel requirements. The proceeds are also being used
to implement strategic marketing initiatives, continued research and development
initiatives, and general corporate purposes.
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PART II. - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
During the three months ended April 30, 2000, the Company closed a private
placement of 62,500 shares of Common Stock with six "accredited investors", as
such term is defined in Regulation D under the Securities Act, for a total of
$250,000.
In addition, the Company issued 1,073,153 shares of Common Stock pursuant
to the exercise of outstanding stock options and warrants, and issued 150,000
shares of Common Stock to two executives pursuant to the terms of their
respective employment agreements.
The issuance of these shares was claimed exempt from the registration
requirements of the Securities Act of 1933, as amended, by reason of Section
4(2) thereof.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarterly period ended
April 30, 2000.
Exhibits:
10.1 - Amended and Restated Employment Agreement dated January 1, 2000 by
and between the registrant and Thomas A. Slamecka
10.2 - Amended and Restated Employment Agreement dated January 1, 2000 by
and between the registrant and Michael T. Pieniazek
27. Financial Data Schedule
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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
Dated: August 29, 2000 /s/ J. Randall Nelson
---------------------------------------
J. Randall Nelson
Chief Executive Officer
Dated: August 29, 2000 /s/ Michael T. Pieniazek
---------------------------------------
Michael T. Pieniazek
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Description
------- -----------
10.1 Amended and Restated Employment Agreement dated January 1,
2000 by and between the registrant and Thomas A. Slamecka
10.2 Amended and Restated Employment Agreement dated January 1,
2000 by and between the registrant and Michael T. Pieniazek
27 Financial Data Schedule
