<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 March 31, 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 May 3, 1996 there were 8,949,839 shares of the company's common stock issued
and outstanding. The aggregate market value of such shares (based on an average
of the bid and offered price of $0.90 of these shares as of May 3, 1996) held by
non-affiliates, was approximately $7,715,974.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995................................................. F-1
Consolidated Statement of Operations for the Three Months Ended
March 31, 1996 and 1995............................................... F-3
Consolidated Statement of Changes in Stockholders' Equity for the
Three Months Ended March 31, 1996..................................... F-4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1996 and 1995............................................... F-5
Notes to Consolidated Financial Statements............................ F-7
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 March 31, 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 Item 1 in this Form
10-QSB.
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 believes that its research and development costs will continue
to be its largest single operating expense in 1996 as the Company completes the
development of the CRS and ICP. As development of these devices concludes,
increased marketing and sales costs will be incurred and the Company's working
capital requirements can also be expected to grow accordingly.
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.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto referred to in Part 1, Item 1.
Results of Operations
- - ---------------------
Three months ended March 31, 1996 compared to three months ended March 31,
1995.
Revenues
- - --------
There were no operating revenues in the first quarters of 1996 or 1995.
3
<PAGE>
Operating Expenses
- - ------------------
Research and Development
Research and development costs in the first quarter of 1996 were $173,445
as compared to $170,657 in the first quarter of 1995, representing an increase
of 1.6%. Reduction of PAS development costs were more than offset
by increased development costs incurred on the CRS and ICP, in the first
quarter of 1996 as compared to 1995.
General and Administrative
General and administrative costs were $1,095,506 in the first three months
of 1996, an increase of 134.4% as compared to 1995. This increase was the result
of the expense relating to the termination agreement with a former officer,
amortization of patent licenses in the first quarter 1996, the hiring of two
regional sales managers in the second half of 1995, hiring a vice president of
new business development and a chief financial officer in March 1996, as well as
higher auditing, legal, office expense in 1996 as compared to 1995.
Losses
The Company's net loss for the first quarter of 1996 was $1,785,284 which
was 179.6% above 1995. This increased loss was primarily attributable to accrued
interest and the amortization of discount of $516,333 in the first quarter
of 1996 associated with short term notes anticipated to be repaid with the
Company's public offering anticipated in 1996, in addition to increased other
general and administrative costs. Loss per share was $0.21 in 1996 as compared
to $0.11 in 1995, representing an 90.9% increased loss. Loss per share would
have been 55.5% greater if the weighted average of shares outstanding was the
same in the first quarter 1996 as in 1995.
Liquidity and Capital Resources
- - -------------------------------
To date, the Company has funded its capital requirements for its current
medical device operations from the private sales of debt and equity securities
and the issuance of common stock in exchange for services. The Company's cash
position at March 31, 1996 was $192,333 as compared to $306,851 at December 31,
1995, representing a decrease of 37.3%. In the first quarter of 1996, $582,361
of net cash was used for operating activities plus $94,065 was invested in
patent licenses and property and equipment. These amounts were not fully offset
by a net of $561,908 received by the Company in the first quarter of 1996 from
financing activities. Net cash used in operating activities in the first quarter
of 1996 consisted principally of a net loss of $1,703,737, which was offset by a
decrease in other net assets (excluding cash) of $343,085, $236,255 in common
stock paid for services in lieu of cash, and depreciation, amortization and non-
cash compensation accrual and recognition of $623,583.
The Company's increase in current assets in the first quarter of 1996, as
compared to December 31, 1995, was $17,187 or 3.2%. This was offset by an
increase in current liabilities of $1,261,998, or 131.5%, from December 31, 1995
to March 31, 1996, principally due to increased short term notes payable, which
are anticipated to be paid with the proceeds of the public
4
<PAGE>
offering expected in 1996, accrued license fee payable associated
with the buyout of the license of a CRS patent holder, and an employee
termination agreement obligation incurred in the first quarter. These changes in
current assets and current liabilities resulted in an increase in the Company's
negative working capital position to $1,661,931 at March 31, 1996 as compared to
($417,120) at December 31, 1995. Management expects to meet its 1996 working
capital requirements from its anticipated public offering of convertible
preferred shares in 1996. However, the successful completion of the Company's
anticipated public offering can not be assured.
The Company's recurring losses from operations, negative working capital
and limited capital resources raise substantial doubt about the Company's
ability to continue as a going concern.
The Company had inventory at March 31, 1996 totaling $205,887 consisting of
finished goods of $59,700, work in process of $16,000, and parts and materials
of $130,197. The Company's inventory at December 31, 1995 consisted of parts and
materials.
In the second quarter of 1995, the Company completed a private placement
(the "1995 Private Placement") of its securities and received net proceeds of
$974,769 in connection with the sale of 20.75 units at a purchase price of
$50,000 per unit. Each unit consisted of 71,429 shares of common stock and
25,000 three-year warrants to purchase 25,000 shares of common stock. The
warrants are exercisable for $1.00 per share of common stock. The Company also
issued to the broker-dealer which assisted the Company in effecting the 1995
Private Placement 56,250 two-year warrants to purchase 56,250 shares of common
stock at an exercise price of $1.00 per share.
In June and July 1995, the Company issued an aggregate of $275,000 of
short-term convertible debt which, if not converted into common stock, was to
mature in six months and bore interest at the rate of 48% per annum (the
"Convertible Debt") payable on maturity. As of December 27, 1995, all of the
Convertible Debt had converted into common stock at the rate of 2.5 shares of
common stock for each $1.00 of indebtedness, or an aggregate of 687,500 shares
of common stock (the "Debt Shares"). In connection with the issuance of the
Convertible Debt, the Company also issued an aggregate of 137,500 warrants
exercisable for 137,500 shares of common stock at $.60 per share. The warrants
expire 10 days after May 13, 1996, the effective date of the Company's S-3
Registration Statement.
On January 24, 1996, the Company completed a private placement (the
"Private Placement") pursuant to which it sold 33 units (the "Units") to non-
affiliated, accredited investors, each Unit consisting of (i) a secured, one
year, 10%, $50,000 promissory note (the "Note"); and (ii) 7,500 shares of the
Company's Series I convertible preferred stock, par value $.01 per share (the
"Series I Preferred Stock") and received net proceeds of $1,470,000. The Series
I Preferred Stock does not pay any dividends and is anticipated to be
automatically convertible into the convertible preferred stock which is
anticipated to be offered to the public in 1996. In the event that the Company
fails to effect an offering of common stock within six months after December 14,
1995, each share of the Series I Convertible Preferred Stock will convert into
common stock based upon the price of the Company's common stock on June 14, 1996
(less a discount of 20%) in an amount equal to the number of shares of common
stock equal to $5, plus any declared but unpaid dividends. The original issue
discount incurred by the Company is a one-time charge related to the Private
Placement and is being amortized over the first five months of 1996.
5
<PAGE>
On April 22, 1996 the Company borrowed $150,000 from a director of the
Company, pursuant to a six-month, 12% non-secured promissory note provided,
however, in no event will the Company pay less than 90 days worth of interest,
regardless of when the note is actually repaid. In connection therewith, the
Company issued 75,000, subject to adjustment, three-year warrants to purchase
common stock at 15% below the lower of its average bid and asked price on April
22, 1996 or its lowest five days average market price during the term of the
note. The Company intends to repay the note with the proceeds of the Company's
anticipated public offering in 1996.
The Company's S-3 Registration Statement which relates to, among other
securities, all of the shares of common stock, and the shares of common stock
underlying the warrants issued in the 1995 Private Placement and the Convertible
Debt became effective on May 13, 1996.
The Company anticipates that its current resources, together with the net
proceeds of its anticipated public offering, will be sufficient, in addition to
certain minimum PAS sales, to finance the Company's currently anticipated needs
for operating and capital expenditures during 1996. However, the successful
completion of the Company's anticipated public offering in 1996 can not be
assured.
PLAN OF OPERATION
Emergence from a Development Stage Company
- - ------------------------------------------
The Company anticipates emerging in 1996 from a development stage to an
operating company upon achieving revenues from its first medical device product,
the PAS, which the Company began marketing in January 1996.
The Company's Capital Requirements
- - ----------------------------------
The Company's greatest cash requirements during 1996 will be for funding
the introduction and working capital associated with the market introduction of
the PAS and CRS, continued development, FDA filings and clinical testing of the
ICP, and general and administrative expenses. The funding for costs and build-up
of working capital associated with the market introduction of the PAS are
expected to be partially supplemented by certain minimum anticipated sales in
1996.
In order to satisfy the Company's capital needs in 1996, the successful
completion of the anticipated public offering of convertible preferred stock and
the Company achieving certain minimum sales in 1996 of the recently-introduced
PAS, are essential. The public offering is subject to favorable market
conditions, which cannot be assured.
If the anticipated public offering of convertible preferred stock is not
completed, the Company will be required to seek alternative financing sources
which cannot be assured. Consequently, the Company might have to substantially
curtail product development and market introduction plans due to lack of funds.
6
<PAGE>
Subsequent to 1996, the Company currently plans to finance its long-term
operations and capital requirements with the profits and funds generated from
the sales of its products as well as through new private financings 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - --------------------------
The Company has been involved in a legal dispute with Chandler Church &
Company ("Chandler Church"), which is more fully described under Legal
Proceedings in the Company's 1995 10-KSB, as amended. Chandler Church's
complaint was dismissed on April 9, 1996 by the Superior Court of San Diego
County, California. A default has been entered against Chandler Church on the
Company's cross-complaint against Chandler Church. Damages against Chandler
Church on the cross-complaint has not been assessed by the Court as of the date
of this filing. The Company believes that it has no liability under any of these
actions.
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
- - -----------------------------------------
Not applicable.
7
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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.
Dated: May 15, 1996 By: /s/ Edward C. Hall
----------------------------
Edward C. Hall
Chief Financial Officer and
Principal Accounting Officer
8
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MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
---------- -----------
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash $ 192,333 $306,851
Inventory (Note 3) 205,897 147,593
Prepaid royalties 60,000 60,000
Prepaid expenses and other assets 101,483 28,082
- - ----------------------------------------------------------------------------
Total current assets 559,713 542,526
- - ----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 113,263 112,149
Machinery and equipment 96,086 17,136
Equipment under capital lease 5,349 5,349
- - ----------------------------------------------------------------------------
214,698 134,634
Less accumulated depreciation (43,498) (37,309)
- - ----------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 171,200 97,325
- - ----------------------------------------------------------------------------
LICENSE AGREEMENTS
(net of accumulated amortization of
$687,386 and $627,887) 1,838,743 1,598,242
PREPAID ROYALTIES 100,000 115,000
LOAN ORIGINATION FEES 72,000 117,500
OTHER ASSETS 8,341 44,341
- - ----------------------------------------------------------------------------
$2,749,997 $ 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>
March 31 December 31
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 359,301 $
Accrued expenses and taxes 60,115 40,927
Short-term notes payable, net of unamortized discount
of $247,500 in 1996 and $384,375 in 1995 (Note 4) 1,402,500 640,625
Accrued license fee payable 250,000 -
Current obligation under termination agreement 148,000 -
Current obligation under capital lease 1,728 1,728
- - ------------------------------------------------------------------------------------------
Total current liabilities 2,221,644 959,646
OTHER LIABILITIES
Termination agreement obligation 209,667 -
Capital lease obligation 1,163 1,755
- - ------------------------------------------------------------------------------------------
Total other liabilities 210,830 1,755
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY (Note 6)
Series I convertible preferred stock (247,500 shares
authorized, issued and outstanding) 618,750 384,375
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, 8,774,339 and 8,393,199 outstanding) 1,316,151 1,258,980
Stock to be issued (50,000 shares) 23,440 23,440
Additional paid-in capital 12,325,983 12,146,899
Deferred stock compensation 325,195 247,500
Deferred stock warrant compensation 949 -
Accumulated deficit ($10,586,243 and $8,800,959 accumulated
during the development stage through March 31, 1996 and
December 31, 1995) (14,292,945) (12,507,661)
- - ------------------------------------------------------------------------------------------
Total stockholders' equity 317,523 1,553,533
- - ------------------------------------------------------------------------------------------
$ 2,749,997 $ 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
<TABLE>
<CAPTION>
Three months ended March 31, June 1, 1992 to
---------------------------- March 31, 1996
1996 1995 (Cumulative)
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 173,445 $ 170,657 $ 2,229,949
General and administrative 1,095,506 467,322 6,862,114
- - ------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (1,268,951) (637,979) (9,092,063)
OTHER INCOME (EXPENSE):
Interest income - - 6,096
Interest expense (516,333) (603) (523,216)
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 (1,785,284) (638,582) (9,694,473)
DISCONTINUED OPERATIONS - - (520,396)
LOSS FROM DISPOSAL OF OIL AND GAS OPERATIONS - - (371,374)
- - ------------------------------------------------------------------------------------------------
NET LOSS $(1,785,284) $ (638,582) $(10,586,243)
- - ------------------------------------------------------------------------------------------------
PRIMARY LOSS PER SHARE: (Note 2)
Loss from continuing operations $ (0.21) $ (0.11)
- - ------------------------------------------------------------------------------------------------
Net loss $ (0.21) $ (0.11)
- - ------------------------------------------------------------------------------------------------
Weighted average shares outstanding 8,641,410 5,557,070
- - ------------------------------------------------------------------------------------------------
</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 ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Stock Deferred
----------------- -------------------- Paid-In To Be Compen- Retained
Shares Amount Shares Amount Capital Issued sation Deficit Total
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 153,750 $384,375 8,393,199 $1,258,980 $12,146,899 $ 23,440 $247,500 $(12,507,661) $1,553,533
Common stock issued for:
(Note 6) Purchases,
research and development,
compensation, and services - - 381,140 $ 57,171 179,084 - - - 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 8,774,339 $1,316,151 $12,326,932 $23,440 $325,195 $(14,292,945) $ 317,523
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
June 1, 1992 to
INCREASE (DECREASE) IN CASH THREE MONTHS ENDED MARCH 31, March 31,1996
1996 1995 (Cumulative)
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,785,284) $(638,582) $(10,586,243)
Adjustments to reconcile net loss
to net cash used by operations:
Loss from discontinued operations from
January 1 through May 31,1992 - - (100,599)
Stock paid for services 236,255 152,734 3,758,996
Compensation recognized relating to
accrued employee stock grants and warrants 78,644 81,875 479,144
Depreciation and amortization 65,689 58,970 1,348,397
Amortization of loan origination fees and
original issue discount 479,250 - 479,250
Other (non-cash losses related to discontinued - - 664,503
oil and gas operations)
Increase (decrease) from changes in:
Inventory (58,304) (22,921) (205,897)
Prepaid royalties 15,000 - (160,000)
Prepaid expenses and other assets (73,401) (42,757) (277,825)
Accounts payable 82,935 (39,121) 272,219
Termination agreement liability 357,667 - 357,667
Accrued expenses and taxes 19,188 - 63,015
Other (other assets, accounts receivable) - - (32,091)
- - -------------------------------------------------------------------------------------------------------
Net cash used in operating activities (582,361) (449,802) (3,939,464)
- - -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Patent and marketing licensing costs (50,000) (26,940) (575,110)
Purchase of property and equipment (44,065) - (186,439)
Other (proceeds from sale of marketable - - 175,188
securities and loan repayments)
- - -------------------------------------------------------------------------------------------------------
Net cash used in financing activities (94,065) (26,940) (586,361)
- - -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 562,500 - 1,845,000
Proceeds from stock subscriptions - 67,500 1,364,052
Capital lease financing (592) - 2,891
Other (advances on stock to be issued) - - 1,506,215
- - -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 561,908 67,500 4,718,158
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (114,518) (409,242) 192,333
Cash, beginning of period 306,851 483,611 306,851
- - -------------------------------------------------------------------------------------------------------
Cash, end of period $ 192,333 $ 74,369 $ 192,333
- - -------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
PAYMENTS FOR:
Interest $ - $ -
Income taxes - -
STOCK ISSUED FOR:
Research and development 170,842 92,250
Advertising and public relations 32,752 33,750
Legal services 20,356 8,453
Directors fees 12,305 18,281
Contract payable - 25,000
---------- ----------
$ 236,255 $ 177,734
---------- ----------
NON-CASH INVESTING ACTIVITY:
Reclassification of other assets to machinery and
equipment: $36,000 $ -
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
In February, 1996 the Company purchased the license agreement
from a part owner of the CRS patent for $300,000 of which $250,000
is payable in the second and third quarters and is reflected as
accrued license fee payable at March 31, 1996.
Additional short term notes in the amount of $625,000 were added in
January, 1996. These notes were issued net of loan origination fees of
$62,500, along with preferred stock stated at $234,375 which amount
was added to the year end original issue discount for a total of
$618,750 (Note 4).
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. STATEMENT OF INFORMATION FURNISHED
In the opinion of management the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal and recurring
accruals) necessary to present fairly the Company's financial position as of
March 31, 1996, and the results of operations and cash flows for the three month
period ended March 31, 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 month period ended March 31, 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.
F-7
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 March 31, 1996 and 1995 include
the stock to be issued.
3. INVENTORY
During the year ended December 31, 1995, the Company began production of the PAS
device. The inventory balance shown at March 31, 1995 consisted of $59,700 of
finished goods, $16,000 of work in process and $130,197 of parts and materials.
The 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 represents the original issue discount on the notes. Of these
amounts, 93,750 shares of Series I convertible preferred stock, $625,000 of
gross proceeds and $234,375 of original issue discount were added in the three
months ended March 31, 1996. The unamortized original issue discount on the
notes was $247,500 and $384,375 at March 31, 1996 and December 31, 1995,
respectively. The proceeds of the private placement are being used to provide
working capital to the Company.
The loan origination fees associated with the above private placement totaled
$180,000, of which $62,500 was incurred in the first quarter of 1996. The
unamortized loan fees were $72,000 and $117,500 at March 31, 1996 and December
31, 1995, respectively.
The original issue discount and loan fees are being amortized over five months,
which is the expected term of the notes to be repaid with the proceeds of the
Company's public offering of convertible preferred stock, anticipated to be
completed in 1996.
Notes sold under the private placement bear interest at 10% per annum and mature
at the earlier of (i) the expiration of twelve months after their issuance, (ii)
receipt by the Company of at least $3,000,000 in gross proceeds from (a) a
public or private sale of its securities, (b) a joint venture, or (C) a
licensing agreement. The notes issued are secured by a first priority lien on
all assets of the Company. This security interest will terminate upon repayment
of the notes.
F-8
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS
On March 15, 1996, the Company entered into employment agreements with the Vice
President of New Business Development and Chief Financial Officer which combined
included common stock which vests 37,500 shares on March 15, 1997 and 37,500
shares on March 15, 1998. The agreements also provide for a combined 31,250
warrants at an exercise price of $.40 per share to be issued on each of March
15, 1997, 1998, 1999 and 2000. The warrants are exercisable for a period of five
years from the date of issuance. Compensation expense for the three months ended
March 31, 1996 was recorded for the common stock and warrants based on the pro-
rata shares and warrants earned and the market value of the stock at March 31,
1996.
On March 29, 1996, the Company and the former Executive Vice President entered
into a termination agreement which terminated the existing employment and
severance agreement and settled any and all claims between the two parties.
Under the termination agreement, the former Executive Vice President was issued
75,000 warrants to purchase stock at $0.40 and will receive a total of $357,667
through twenty-nine equal monthly payments commencing on April 1, 1996 and
ending August 31, 1998. The amount of the cash obligation and expense related
to the warrants was charged to operations in the first quarter of 1996.
6. STOCKHOLDERS' EQUITY
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 950,000
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
quarter of 1996, the Company issued 381,140 shares valued at $236,255 for
research and development, advertising and public relations, legal services, and
directors fees.
7. SUBSEQUENT EVENTS
On April 22, 1996 the Company borrowed $150,000 from a director of the Company,
pursuant to a six-month, 12% non-secured promissory note, provided, however, in
no event will the Company pay less than 90 days worth of interest, regardless
of when the note is actually repaid. In connection therewith, the Company issued
75,000, subject to adjustment, three-year warrants to purchase common stock at
15% below the lower of its average bid and asked price on April 22, 1996 or its
lowest five days average market price during the term of the note. The Company
intends to repay the note with the proceeds of the Company's anticipated public
offering in 1996.
F-9
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The Company's S-3 registration statement, which became effective on May 13,
1996, allows 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 $.60 per share for a period of 10
days after such effective date.
F-10
