<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
[ ] 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: 0-12365
MEDICAL DEVICE TECHNOLOGIES, INC.
--------------------------------
(exact name of small business issuer as specified in charter)
Utah 58-1475517
------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
9171 Towne Centre Drive - Suite 355 - San Diego, California - 92122
-------------------------------------------------------------------
(Address of principal executive offices)
(619) 455-7127
--------------
(Issuer'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
----- -----
At October 31, 1996 there were 4,853,613 shares of the company's common
stock issued and outstanding. The aggregate market value of such shares (based
on the average of the bid and offered price of $0.94 of these shares as of
October 31, 1996) held by non-affiliates, was approximately $4,378,379.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995........................................F-1
Consolidated Statements of Operations for the Three Months and Nine Months Ended
September 30, 1996 and September 30, 1995.........................................................................F-3
Consolidated Statements of Changes in Stockholders' Equity for the Three Months and Nine Months Ended
September 30, 1996 ...............................................................................................F-4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and September 30, 1995.........F-6
Notes to Consolidated Financial Statements........................................................................F-9
Item 2. Management's Discussion And Analysis And Plan Of Operation .................................................3
PART II OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................................... 7
Item 2. Changes in Securities...................................................................................... 7
Item 3. Defaults Upon Senior Securities............................................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders........................................................ 7
Item 5. Other Information.......................................................................................... 7
Item 6. Exhibits and Reports on Form 8-K........................................................................... 7
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
See attached financial statements for the period ended September 30, 1996.
Item 2. Management's Discussion and Analysis and Plan of Operation
- -------------------------------------------------------------------
The following discussion of the Company's financial condition, results of
operations and plan of operation should be read in conjunction with the
Financial Statements and the Notes thereto appearing in Part 1, Item 1 in this
Form 10-QSB.
This report includes certain forward-looking statements regarding the
Company's expectations about growth, financing and new and existing products
that involve risks and uncertainties. These risks are discussed in the Company's
Registration Statement on Form S-1 (File No. 333-02727) filed with the
Securities and Exchange Commission on June 24, 1996.
General
- -------
From its incorporation in 1980 until June of 1992, the Company was engaged
exclusively in oil and gas activities. In June 1992 the Company commenced
certain initial activities with respect to the medical device business.
Thereafter, the Company continued to increase its activities in the medical
device field while simultaneously decreasing its oil and gas activities.
Effective as of January 1, 1994, the Company having disposed of all its oil and
gas interests and ceased all activities related thereto, commenced on a
full-time basis its current medical device operations. On June 1, 1992, the
Company was considered, for accounting purposes, to have re-emerged as a
development stage company. In the fourth quarter of 1995, the Company changed
its method of amortizing its license agreements from commencement of product
shipments to the estimated useful life of the license agreement which is ten
years.
The Company, which is still in the development stage with respect to its
current medical device operations, has not been profitable for the last 10 years
and expects to incur additional operating losses for the foreseeable future.
3
<PAGE>
Results of Operations for the Three Months Ended September 30, 1996
- -------------------------------------------------------------------
Revenues
- --------
Revenues were $13,142 in the three months ended September 30, 1996; there
were no revenues in 1995. Revenues were obtained solely from the Fluid Alarm
System (FAS), formerly called the Personal Alarm System (PAS).
Gross Profit
- ------------
Gross profit was $8,708 in the three months ended September 30, 1996; there
were no product sales in 1995.
Operating Expenses
- ------------------
Research and Development
Research and development costs in the third quarter of 1996 were $357,648,
an increase of 122% as compared to the third quarter of 1995 due to the
increased development costs incurred on the Cell Recovery System (CRS) and
Intracranial Pressure Monitor (ICP) in the third quarter of 1996 as compared to
1995, which more than offset the reduction in FAS development costs.
Sales, General and Administrative
Sales, general and administrative costs were $403,289 in the third quarter
of 1996, a decrease of 40.7% as compared to 1995. This decrease was principally
the result of a negative $124,401 stock compensation expense (due to the
accounting associated with the drop in common stock price relative to June 30,
1996) in 1996 as compared to $75,234 in 1995 and $91,268 lower public relations
costs in 1996 versus 1995; these more than offset the addition of amortization
expense of patent licenses in 1996.
Losses
The Company's net loss for the third quarter of 1996 was $706,693 which was
a 16% smaller loss than the same period in 1995. This reduced loss was primarily
attributable to lower sales, general and administrative costs and interest
earned on cash balances which more than offset increased research and
development costs in the third quarter of 1996 as compared to 1995. Loss per
share was $0.15 in the third quarter of 1996 as compared to a loss of $0.23 in
1995, representing a 34.8% reduced loss per share.
4
<PAGE>
Results of Operations for the Nine Months Ended September 30, 1996
- ------------------------------------------------------------------
Revenues
- --------
Revenues were $25,442 in the first nine months of 1996; there were no
revenues in 1995.
Gross Profit
- ------------
Gross profit was $12,354 in the first nine months of 1996; there were no
product sales in 1995.
Operating Expenses
- ------------------
Research and Development
Research and development costs in the first nine months of 1996 were
$713,781, 14.5 % below the first nine months of 1995, due to the reduction of
FAS development costs in 1996, which more than offset the increased development
costs incurred on the CRS and ICP in the first nine months of 1996 as compared
to 1995.
Sales, General and Administrative
Sales, general and administrative costs were $2,149,380 in the first nine
months of 1996, an increase of 17.9% as compared to 1995. This increase was
principally the result of the one time $357,667 expense associated with the
termination of the employment contract of a former executive officer as well the
$200,975 additional expense of amortization of patent licenses in 1996 which
more than offset a negative $156,063 stock compensation expense (due to the
accounting associated with the drop in the stock price relative to December 31,
1995) and a $37,040 reduction in public relations cost in 1996 as compared to
1995.
Losses
The Company's net loss for the first nine months of 1996 was $3,683,705
which was a 38.5% greater loss than in the same period in 1995. This increased
loss was primarily attributable to interest and the amortization of discount
expenses of $880,137 associated with short term notes repaid in June 1996, as
well as higher sales, general and administrative expense that more than offset
lower research and development expense, interest income and gross profit in the
first nine months of 1996 as compared to 1995. Loss per share was $0.81 in 1996
as compared to a loss of $0.83 in 1995, representing a 2.4% reduced loss per
share.
5
<PAGE>
Liquidity and Capital Resources
- -------------------------------
To date, the Company has funded the capital requirements for its current
medical device operations from the private sales of debt and equity securities,
the issuance of common stock in exchange for services and from the public
offering of cumulative convertible Series A preferred stock and redeemable
warrants in June 1996. The Company's cash position at September 30, 1996
increased to $3,773,379, approximately 12.3 times the $306,851 balance at
December 31, 1995. In the first nine months of 1996, $1,671,841 of net cash was
used for operating activities plus $485,085 was invested in patent licenses and
property and equipment. Cash used in operations and for investment activities
was substantially offset by a net of $5,623,454 received by the Company in the
first nine months of 1996 from financing activities and the public offering in
June 1996. Net cash used in operating activities in the first nine months of
1996 consisted principally of a net loss of $3,683,705, which was offset by cash
provided from a reduction in other net assets (excluding cash) of $335,982,
$573,571 in common stock paid for services in lieu of cash, and depreciation,
amortization and non-cash compensation accrual and recognition of $1,102,312.
The Company's current assets at September 30, 1996 were $3,989,381,
approximately 7.35 times the balance at December 31, 1995, principally due to
net proceeds received from the June 1996 public offering. Current liabilities
decreased in the first nine months of 1996 by $407,851 or 42.5% as compared to
December 31, 1995, principally due to the repayment of short term notes in June,
1996. As a result, working capital increased to $3,438,086 from a negative
$417,120 at year end 1995.
PLAN OF OPERATION
Emergence from a Development Stage Company
- ------------------------------------------
The Company anticipates emerging in 1997 from a development stage to an
operating company upon achieving revenues from its first medical device product,
the FAS, which the Company began marketing in the first half of 1996.
The Company's Capital Requirements
- ----------------------------------
The Company's greatest cash requirements during 1996 and 1997 will be for
funding the working capital associated with the market introduction of the FAS
and CRS, continued development, FDA filings and clinical testing of the ICP, and
sales, general and administrative expenses. These working capital requirements
are expected to be partially supplemented by certain minimum anticipated sales
of the FAS and CRS in 1996 and 1997.
Subsequent to 1996, the Company plans to finance its operations and capital
requirements with the profits and funds generated from the sales of its products
as well as through new private financing and public offerings of debt and equity
securities.
The long-term viability of the Company is dependent on its ability to
profitably develop and market its current products and to identify, develop and
profitably market additional products as well as to obtain the financing
necessary to fund this anticipated growth.
6
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
- --------------------------
Refer to the Company's Form 10-QSB for the period ended March 31, 1996.
There are no other legal proceedings to which the Company is a party which
could have a material adverse effect on the Company.
Item 2. CHANGES IN SECURITIES
- ------------------------------
Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
Item 5. OTHER INFORMATION
- --------------------------
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibit 27.
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDICAL DEVICE TECHNOLOGIES, INC.
Date: November 14, 1996 By: /s/ Edward C. Hall
-------------------------------
Edward C. Hall
Chief Financial Officer and
Principal Accounting Officer
7
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash $ 3,773,379 $ 306,851
Accounts receivable 10,093 -
Inventory (Note 3) 131,216 147,593
Prepaid royalties - 60,000
Prepaid expenses and other assets 75,193 28,082
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 3,989,881 542,526
- -----------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 100,009 112,149
Machinery and equipment 155,650 17,136
Equipment under capital lease 5,349 5,349
- -----------------------------------------------------------------------------------------------------------------------------------
261,008 134,634
Less accumulated depreciation (62,674) (37,309)
- -----------------------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 198,334 97,325
- -----------------------------------------------------------------------------------------------------------------------------------
LICENSE AGREEMENTS
(net of accumulated amortization of $828,862 and $627,887) 1,938,455 1,598,242
PREPAID ROYALTIES - 115,000
LOAN ORIGINATION FEES - 117,500
OTHER ASSETS 15,003 44,341
- -----------------------------------------------------------------------------------------------------------------------------------
$ 6,141,673 $ 2,514,934
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 339,156 $ 276,366
Accrued expenses and taxes 70,555 40,927
Short-term notes payable, net of unamortized discount of
$384,375 at December 31, 1995 (Note 4) - 640,625
Current obligation under termination agreement 140,385 -
Current obligation under capital lease 1,699 1,728
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 551,795 959,646
OTHER LIABILITIES
Termination agreement obligation 135,667 -
Capital lease obligation - 1,755
- -----------------------------------------------------------------------------------------------------------------------------------
Total other liabilities 135,667 1,755
STOCKHOLDERS' EQUITY (Note 5)
Series I convertible preferred stock(247,500 shares authorized,
0 and 153,750 issued and outstanding) - 384,375
6% cumulative convertible Series A preferred stock; $.01 par
value(1,847,500 shares authorized, issued and outstanding) 18,475 -
Preferred stock, 10,000,000 shares authorized, $.01 par value,
0 shares issued and outstanding - -
Common stock, $.15 par value (100,000,000 shares authorized,
4,835,788 and 4,196,600 outstanding) 725,368 629,490
Stock to be issued (50,000 shares) 23,440 23,440
Additional paid-in capital 20,669,596 12,776,389
Deferred stock compensation 293,563 247,500
Deferred stock warrant compensation 15,886 -
Accumulated deficit ($12,484,664 and $8,800,959 accumulated losses
during the development stage through September 30, 1996
and December 31, 1995) (16,292,117) (12,507,661)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,454,211 1,553,533
- -----------------------------------------------------------------------------------------------------------------------------------
$ 6,141,673 $ 2,514,934
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30, June 1,1992 to
-------------------------------- ------------------------------- September 30,1996
1996 1995 1996 1995 (Cumulative)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES $ 13,142 $ - $ 25,442 $ - $ 25,442
Cost of sales 4,434 - 13,088 - 13,088
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 8,708 - 12,354 - 12,354
OPERATING EXPENSES:
Research and development 357,648 161,404 713,781 835,168 2,770,285
Sales, general and administrative 403,289 680,194 2,149,380 1,822,776 7,915,988
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (752,229) (841,598) (2,850,807) (2,657,944) (10,673,919)
OTHER INCOME (EXPENSE):
Interest income 46,449 - 47,239 - 53,335
Interest expense (913) (184) (880,137) (1,356) (887,020)
Loss on sale of marketable securities - - - - (20,790)
Net unrealized loss on marketable securities - - - - (64,500)
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE DISCONTINUED OPERATIONS
AND DISPOSAL OF OIL AND GAS OPERATIONS (706,693) (841,782) (3,683,705) (2,659,300) (11,592,894)
DISCONTINUED OPERATIONS - - - - (520,396)
LOSS FROM DISPOSAL OF OIL AND GAS OPERATIONS - - - - (371,374)
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (706,693) $ (841,782) $(3,683,705) $ (2,659,300) $(12,484,664)
- ------------------------------------------------------------------------------------------------------------------------------------
PRIMARY LOSS PER SHARE (Note 2):
Loss from continuing operations $ (0.15) $ (0.23) $ (0.81) $ (0.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $ (0.15) $ (0.23) $ (0.81) $ (0.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 4,774,252 3,632,129 4,534,141 3,191,751
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Stock
----------------- --------------- Paid-In To Be Deferred Retained
Shares Amount Shares Amount Capital Issued Compensation Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996 153,750 $384,375 4,196,600 $629,490 $12,776,389 $23,440 $247,500 $(12,507,661) $1,553,533
Common stock issued for
research and development,
compensation, and services
(Note 6) - - 190,570 28,585 207,670 - - - 236,255
Issuance of preferred stock
(Note 4) 93,750 234,375 - - - - - - 234,375
Accrued stock issuance
(Note 5) - - - - - - 77,695 77,695
Accrued warrant issuance
(Note 5) - - - - - - 949 949
Net loss for three months
ended March 31, 1996 (1,785,284)(1,785,284)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1996 247,500 $618,750 4,387,170 $658,075 $12,984,059 $23,440 $326,144 $(14,292,945) $317,523
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock issued for
research and development,
compensation, and services
(Note 6) - - 120,750 18,113 182,544 - - - 200,657
Common stock issued for
exercise of warrants - - 56,250 8,437 59,063 - - - 67,500
Series I Convertible Preferred
conversion to Series A
Preferred (247,500) (618,750) - - 618,750 - - - -
Issuance of 6% Cumulative
Convertible Series A
Preferred 1,747,500 17,475 - - 5,923,367 - - - 5,940,842
Issuance of Redeemable
Warrants - - - - 132,000 - - - 132,000
Accrued stock issuance
(Note 5) - - - - - - 96,414 - 96,414
Accrued warrant issuance
(Note 5) - - - - - - 12,342 - 12,342
Stock subscribed (Note 5) - - - - - 207,500 - - 207,500
Net loss for three months
ended June 30, 1996 (1,191,728)(1,191,728)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1996 1,747,500 $17,475 4,564,170 $684,625 $19,899,783 $230,940 $434,900 $(15,484,673)$5,783,050
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Stock
----------------- --------------- Paid-In To Be Deferred Retained
Shares Amount Shares Amount Capital Issued Compensation Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1996 1,747,500 $ 17,475 4,564,170 $684,625 $19,899,783 $230,940 $434,900 $(15,484,673) $5,783,050
Common stock issued for
research and development,
compensation, and services
(Note 6) - - 93,710 14,056 123,652 - - - 137,708
Common stock issued for
Exercise of warrants
(Note 5) - - 106,250 15,938 191,562 - - - 207,500
Common stock dividend
issued to 6% Cumulative
Series A Preferred Stock
(Note 5) - - 71,658 10,749 90,002 - - (100,751) -
Issuance of 6% Cumulative
Convertible Series A
Preferred (Note 5) 100,000 1,000 - - 344,797 - - - 345,797
Issuance of Redeemable
Warrants (Note 5) - - - - 19,800 - - - 19,800
Accrued stock issuance (Note 5) - - - - - - (128,046) - (128,046)
Accrued warrant issuance (Note 5) - - - - - - 2,595 - 2,595
Stock subscribed (Note 5) - - - - - (207,500) - - (207,500)
Net loss for three months
ended September 30, 1996 (706,693) (706,693)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, September,30 1996 1,847,500 $18,475 4,835,788 $725,368 $20,669,596 $23,440 $309,449 $(16,292,117)$5,454,211
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
June 1, 1992 to
INCREASE (DECREASE) IN CASH Nine Months Ended September 30, September 30, 1996
1996 1995 (Cumulative)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,683,705) $(2,659,300) $(12,484,664)
Adjustments to reconcile net loss
to net cash provided by operations:
Loss from discontinued operations from
January 1 through May 31,1992 - - (100,599)
Stock paid for services 573,571 1,497,404 4,096,312
Compensation recognized relating to
accrued employee stock grants & warrants 62,999 219,062 463,499
Bad debt expense - - 394,720
Depreciation and amortization 233,190 17,072 1,515,898
Amortization of loan origination fees and
original issue discount 798,750 - 798,750
Loss on disposal of fixed assets 7,373 - 109,968
Reversal of litigation outstanding at end of prior year - - (286,996)
Loss on sale of marketable securities - - 48,290
Net unrealized loss on marketable securities - - 37,000
Loss on disposal of oil and gas operations - - 368,894
Increase (decrease) from changes in:
Accounts receivable (10,093) - (7,578)
Interest receivable - - 8,053
Amounts due from related party - - 1,682
Inventory 16,377 (65,637) (131,216)
Prepaid royalties 15,000 - (160,000)
Prepaid expenses and other current assets (47,111) (5,764) (251,535)
Other assets (6,662) - (51,003)
Accounts payable 62,790 26,594 252,074
Termination agreement liability 276,052 - 276,052
Accrued expenses and taxes 29,628 (409) 73,455
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,671,841) (970,978) (5,028,944)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Patent and marketing licensing costs (381,188) - (906,298)
Purchase of property and equipment (104,382) (29,519) (246,756)
Proceeds from sale of property and equipment 485 - 485
Other (proceeds from sale of marketable
securities and loan repayments) - - 175,188
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities $(485,085) $(29,519) $(977,381)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
June 1, 1992 to
INCREASE (DECREASE) IN CASH Nine Months Ended September 30, September 30, 1996
1996 1995 (Cumulative)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from related party - - 22,608
Proceeds from preferred stock and warrant
issurance (net of offering costs) 6,437,738 - 6,437,738
Proceeds from notes payable 912,500 365,000 2,195,000
Principal payments on notes payable (2,000,000) - (2,050,000)
Proceeds from common stock to be issued - 129,000 1,237,167
Proceeds from issuing common stock - 30,000 1,364,052
Proceeds from warrant exercise 275,000 - 275,000
Capital lease financing (1,784) - 1,699
Advances on private common stock placement - - 296,440
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,623,454 524,000 9,779,704
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 3,466,528 (476,497) 3,773,379
Cash, beginning of period 306,851 483,611 -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $3,773,379 $7,114 $3,773,379
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
PAYMENTS FOR:
Interest $ 91,559 $ 1,356
Income taxes 1,600 -
STOCK ISSUED FOR:
Research and development 319,808 762,369
Public relations and marketing services 86,252 369,298
Legal and professional services 124,270 151,260
Directors' fees 43,241 63,839
Contract payable 0 50,000
Note payable 0 50,000
Prepaid expenses and inventory 0 50,638
------- ---------
$573,571 $1,497,404
------- ---------
Common Stock dividend issued to 6% Culumlative
Convertible Series A Preferred Stockholders $100,751 -
NON-CASH INVESTING ACTIVITY:
Application of prepaid royalties to the purchase of license agreements: $160,000 -
Application of deposit to the purchase of property and equipment: $ 36,000 -
</TABLE>
Additional short term notes in the amount of $625,000 were added in
January, 1996 along with preferred stock stated at $234,375 which was added to
the year end original issue discount for a total of $618,750.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Statement Of Information Furnished
In the opinion of management the accompanying unaudited financial
statements contain all adjustments (consisting only of normal and recurring
accruals) necessary to present fairly the Company's financial position as of
September 30, 1996, and the results of operations and cash flows for the three
and nine month periods ended September 30, 1996, and 1995. These results have
been determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's 1995 Annual Report on Form 10-KSB/A, as amended.
The results of operations for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results to be expected
for any other period or for the full year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying financial statements should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB/A, as
amended, for the year ended December 31, 1995.
Certain reclassifications have been made to the December 31, 1995 financial
statements to conform to the September 30, 1995 presentation.
2. Loss Per Share
Loss per share data has been computed on the weighted average number of
shares of common stock outstanding in each period. Warrants outstanding have not
been considered in the average number of shares since the effect would be
anti-dilutive. Weighted average shares outstanding at September 30, 1996 and
1995 include common stock to be issued.
3. Inventory
The inventory balance shown at September 30, 1995 consisted of $61,985 of
finished goods, net of reserve of $7,840, $26,441 of work in process and $42,790
of parts and materials. The inventory balance at December 31, 1995 consisted of
parts and materials.
4. Short-Term Notes Payable
Pursuant to a Confidential Private Placement Memorandum dated October 27,
1995, the Company effected between December 14, 1995 and January 24, 1996, a
private placement of notes and 247,500 shares of Series I convertible preferred
stock. Of the $1,650,000 of gross proceeds, $618,750 was allocated to the
preferred stock and represented the original issue discount on the notes. The
unamortized original issue discount on the notes was $384,375 at December 31,
1995. Notes sold under the private placement bore interest at 10% per annum and
were secured by a first priority lien on all assets of the Company, which
security interest terminated upon repayment of the notes in June, 1996. The
proceeds of the private placement were used to provide working capital to the
Company prior to the public offering completed in June 1996.
The original issue discount and loan fees of $180,000 associated with the
private placement were amortized during the first six months of 1996. The notes
were repaid with the proceeds of the Company's public offering of cumulative
convertible Series A preferred stock and redeemable warrants, completed in June
1996.
F-9
<PAGE>
5. Stockholders' Equity
The Company's S-3 registration statement, which became effective on May 13,
1996, in addition to registering common stock and common stock underlying
warrants issued under private placements completed in 1995, allowed holders of
warrants of the convertible debentures issued in June 1995 (converted as of
December 27, 1995 to common stock) to exercise their right to purchase common
shares of the Company at $1.20 per share for a period of 10 business days after
such effective date. Of the 68,750 warrants, 62,500 were exercised and the
remaining expired. The Company received $75,000 proceeds from the S-3 warrant
exercise.
On June 20, 1996, the directors of the Company approved a one for two
reverse split of the common stock in order to meet NASDAQ listing requirements
associated with the Company's public offering of convertible preferred stock and
redeemable warrants. There was no change in the common stock voting rights, par
value or authorized shares. All share balances have been retroactively adjusted
to reflect the reverse stock split.
On June 24, 1996 the Company completed a public offering, underwritten by
First Allied Securities, an affiliate of Josepthal Lyon and Ross, Incorporated
of 1,500,000 shares of 6% cumulative convertible Series A preferred stock and
1,500,000 redeemable warrants resulting in gross proceeds of $7.65 million. The
Company received approximately $4 million after repayment of short-term debt and
costs associated with the offering. The preferred stock is convertible into four
(4) shares of common stock at $1.25 per share and each warrant enables the
holder to purchase two shares at $3.75.
In August 1996, the Company received net proceeds of $459,800 as the result
of the underwriter's exercise of its over-allotment option under the June 24,
1996 public offering to purchase an additional 225,000 redeemable warrants and
an additional 100,000 shares of 6% cumulative convertible Series A preferred
stock. These proceeds were offset by additional offering costs of $93,203
related to the June 1996 public offering that were recorded during the third
quarter.
On September 9, 1996, the Company issued 71,658 shares of common stock as a
dividend for the period through August 31, 1996 under its 6% cumulative
convertible Series A preferred stock for preferred stockholders of record on
August 12,1996. The dividend was .041 shares of common stock for every share of
Series A preferred stock, valued on the 10 day moving average stock price of the
common stock during the 30 days prior to the declaration date (same as the
record date). Fractional shares were rounded up.
In each of the four most current years, the Company's board of directors
has approved a stock compensation plan, the most recent which registered 475,000
shares under Form S-8 on January 16, 1996, whereby services are obtained in
exchange for issuance of free trading stock of the Company. During the first
nine months of 1996, the Company issued 405,030 shares valued at $573,571 for
research and development, advertising and public relations, legal and
professional services, and directors fees.
Compensation recognized relating to accrued employee stock grants and
warrants is based on the pro-rata common stock and warrants earned and the
market value of the Company's stock at the end of the period. Stock subscribed
reflects warrants exercised in the second quarter and issued in the third
quarter of 1996.
F-10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10QSB
9/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 3,773,379 3,773,379
<SECURITIES> 0 0
<RECEIVABLES> 10,093 10,093
<ALLOWANCES> 0 0
<INVENTORY> 131,216 131,216
<CURRENT-ASSETS> 3,989,881 3,989,881
<PP&E> 261,008 261,008
<DEPRECIATION> 62,674 62,674
<TOTAL-ASSETS> 6,141,673 6,141,673
<CURRENT-LIABILITIES> 551,795 551,795
<BONDS> 0 0
0 0
18,475 18,475
<COMMON> 725,368 725,368
<OTHER-SE> 4,710,368 4,710,368
<TOTAL-LIABILITY-AND-EQUITY> 6,141,673 6,141,673
<SALES> 13,142 25,442
<TOTAL-REVENUES> 13,142 25,442
<CGS> 4,434 13,088
<TOTAL-COSTS> 4,434 13,088
<OTHER-EXPENSES> 760,937 2,863,161
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 913 880,137
<INCOME-PRETAX> (706,693) (3,683,705)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (706,693) (3,683,705)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (706,693) (3,683,705)
<EPS-PRIMARY> (.15) (.81)
<EPS-DILUTED> 0 0
</TABLE>
