<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 June 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 July 31, 1996 there were 4,718,553 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 $1.44 of these shares as of July 31,
1996) held by non-affiliates, was approximately $6,512,809.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995................................................. F-1
Consolidated Statements of Operations for the Three Months and Six
Months Ended June 30, 1996 and June 30, 1995.......................... F-3
Consolidated Statements of Changes in Stockholders' Equity for the
Three Months and Six Months Ended June 30, 1996....................... F-4
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 1996 and June 30, 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..................................................... 8
ITEM 2. CHANGES IN SECURITIES................................................. 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................... 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 8
ITEM 5. OTHER INFORMATION..................................................... 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................... 8
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
See attached financial statements for the period ended June 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 Item 1 in this Form
10-QSB.
This report includes certain forward-looking statements regarding the
Company's expectations about growth, 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.
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 for the Three Months Ended June 30, 1996
- --------------------------------------------------------------
Revenues
- --------
Revenues were $12,300 in the three months ended June 30, 1996; there were
no revenues in 1995.
3
<PAGE>
Operating Expenses
- ------------------
Research and Development
Research and development costs in the second quarter of 1996 were $182,688,
a decrease of 63.7% as compared to the second quarter of 1995. The substantial
reduction of PAS development costs more than offset increased development costs
incurred on the CRS and ICP in the second quarter of 1996 as compared to 1995.
General and Administrative
General and administrative costs were $650,585 in the second quarter of
1996, a decrease of 3.7% as compared to 1995. This decrease was the result of
lower public relations and professional fees that more than offset amortization
expense of patent licenses in 1996 as well as increased salaries due to the
hiring of two regional sales managers in the second half of 1995 and hiring a
vice president of new business development and a chief financial officer in
March 1996.
Losses
The Company's net loss for the second quarter of 1996 was $1,191,728 which
was 1.1% greater than the same period in 1995. This increased loss was primarily
attributable to interest and the amortization of discount expenses of $362,891
in the second quarter of 1996 associated with short term notes, repaid in June,
1996, which more than offset lower research and development and general
administrative costs. Loss per share was $0.26 in 1996 as compared to a loss of
$0.38 in 1995, representing a 31.6% reduced loss per share.
Results of Operations for the Six Months ended June 30, 1996
- ------------------------------------------------------------
Revenues
- --------
Revenues were $12,300 in the first six months of 1996; there were no
revenues in 1995.
Operating Expenses
- ------------------
Research and Development
Research and development costs in the first six months of 1996 were
$356,133, 47.2% below the first six months of 1995, due to the reduction of PAS
development costs, which more than offset the increased development costs
incurred on the CRS and ICP in the first six months of 1996 as compared to 1995.
General and Administrative
General and administrative costs were $1,746,091 in the first six months of
1996, an increase of 52.8% compared to 1995. This increase was principally the
result of the expenses relating to the termination agreement with a former
officer, amortization of patent licenses in the first half of 1996, the addition
of two regional sales managers in the second half of 1995, and the hiring of a
vice president of new business development and a chief financial officer in
March, 1996.
4
<PAGE>
Losses
The Company's net loss for the first half of 1996 was $2,977,012 which was
63.8% above the same period in 1995. This increased loss was primarily
attributable to interest and the amortization of discount of $879,224 in the
first half of 1996 associated with short term notes repaid in June, 1996, in
addition to increased other general and administrative costs, the combined
effect of which more than offset lower research and development costs. Loss per
share was $0.67 in 1996, as compared to a loss of $0.62 in 1995, representing a
8.1% increased loss per share.
Liquidity and Capital Resources
- -------------------------------
To date, the Company has funded the capital requirements for its 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 convertible preferred stock and warrants in June, 1996. The Company's cash
and equivalents position at June 30, 1996 was $4,299,557 as compared to $306,851
at December 31, 1995, representing a fourteen-fold increase. In the first half
of 1996, $1,032,450 of net cash was used for operating activities plus $233,998
was invested in patent licenses and property and equipment. These amounts were
substantially offset by a net of $5,259,154 received by the Company in the first
half of 1996 from financing activities and the public offering in June, 1996.
Net cash used in operating activities in the first half of 1996 consisted
principally of a net loss of $2,977,012, which was offset by a decrease in other
net assets (excluding cash) of $369,005, $436,913 in common stock paid for
services in lieu of cash, and depreciation, amortization and non-cash
compensation accrual and recognition of $1,131,271.
The Company's increase in current assets in the first half of 1996, as
compared to December 31, 1995, was $4,103,326 or a 756% increase principally due
to the June, 1996 public offering. Current liabilities decreased in the first
six months of 1996 by $167,956 or 17.5% as compared to December 31, 1995,
principally due to the repayment of short term notes repaid in June, 1996,
5
<PAGE>
partially offset by accrued license fee payable associated with the buyout of
the license of a CRS patent holder. These changes in current assets and current
liabilities resulted in an increase in the Company's working capital position to
$3,854,162 at June 30, 1996 as compared to ($417,120) at December 31, 1995.
The Company had inventory at June 30, 1996 totaling $188,092 consisting of
finished goods of $85,261, work in process of $46,502, and parts and materials
of $56,329. 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 35,715 shares of common stock and
12,500 three-year warrants to purchase 12,500 shares of common stock. The
warrants are exercisable for $2.00 per share of common stock. The Company also
issued to the broker-dealer which assisted the Company in effecting the 1995
Private Placement 28,125 two-year warrants to purchase 28,125 shares of common
stock at an exercise price of $2.00 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 1.25 shares of
common stock for each $1.00 of indebtedness, or an aggregate of 343,750 shares
of common stock (the "Debt Shares"). In connection with the issuance of the
Convertible Debt, the Company also issued an aggregate of 68,750 warrants
exercisable for 68,750 shares of common stock at $1.20 per share. Prior to the
expiration of the warrants on May 28, 1996, 62,500 warrants were exercised
resulting in $75,000 proceeds to the Company.
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. Of these
net proceeds, $562,500 was received in the first quarter of 1996. The Series
I Preferred Stock did not pay any dividends and was automatically converted into
the convertible preferred stock and warrants in the public offering completed
June, 1996. The original issue discount incurred by the Company in relation to
the Series I Preferred Stock was a one-time charge related to the Private
Placement and was amortized in the first half of 1996.
6
<PAGE>
In the second quarter of 1996 the Company borrowed $350,000 from six
individuals, two of whom are directors of the Company, pursuant to a six-month,
12% non-secured promissory note that, in no event, would pay each holder thereof
less than 90 days worth of interest, regardless of when the note was actually
repaid. In connection therewith, the Company issued 137,180 three-year warrants
to purchase common stock at a weighted average price of 1.28 per share. The
Company repaid the notes in June, 1996.
The Company anticipates that its current resources, together with the net
proceeds of its recently completed public offering in June, 1996, and sales of
the PAS and CRS will be sufficient to fund the Company's currently anticipated
needs for operating and capital expenditures during 1996 and 1997.
PLAN OF OPERATION
Emergence from a Development Stage Company
- ------------------------------------------
The Company anticipates emerging in the second half of 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 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 PAS
and CRS, continued development, FDA filings and clinical testing of the ICP, and
general and administrative expenses. These working capital requirements are
expected to be partially supplemented by certain minimum anticipated sales of
the PAS and CRS in 1996 and 1997.
7
<PAGE>
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 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
- --------------------------
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
- ------------------------------
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.
On June 24, 1996 the Company completed a public offering, underwritten by First
Allied Securities, an affiliate of Josephthal 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 in net proceeds after repayment of
short-term debt and costs associated with the offering. The preferred 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. Notes sold under a
previous private placement were repaid and an associated first priority lien on
the Company's assets was then terminated.
On August 2, 1996, the Company received net proceeds of $19,800 from the
underwriters' over-allotment exercise of their right under the June 24, 1996
public offering to purchase 225,000 redeemable warrants. On August 8, 1996 the
Company was informed by the underwriter that it was exercising its
over-allotment option on 100,000 shares of Series A preferred stock. The
anticipated proceeds to the Company are estimated at $440,000 in August, 1996.
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.
8
<PAGE>
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: August 14, 1996 By: /s/ Edward C. Hall
----------------------------
Edward C. Hall
Chief Financial Officer and
Principal Accounting Officer
9
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---------- -----------
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS
Cash $4,299,557 $306,851
Accounts receivable 8,330
Inventory (Note 3) 188,092 147,593
Prepaid royalties 85,000 60,000
Prepaid expenses and other assets 64,873 28,082
- ----------------------------------------------------------------------------
Total current assets 4,645,852 542,526
- ----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 100,224 112,149
Machinery and equipment 159,181 17,136
Equipment under capital lease 5,349 5,349
- ----------------------------------------------------------------------------
264,754 134,634
Less accumulated depreciation (49,990) (37,309)
- ----------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 214,764 97,325
- ----------------------------------------------------------------------------
LICENSE AGREEMENTS
(net of accumulated amortization of
$754,577 and $627,887) 1,771,552 1,598,242
PREPAID ROYALTIES 100,000 115,000
LOAN ORIGINATION FEES (Note 4) 0 117,500
OTHER ASSETS 15,805 44,341
- ----------------------------------------------------------------------------
$6,747,973 $ 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>
June 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 425,372 $ 276,366
Accrued expenses and taxes 24,204 40,927
Short-term notes payable, net of unamortized discount
of $384,375 at December 31, 1995 (Note 4) - 640,625
Accrued license fee payable 200,000 -
Current obligation under termination agreement 140,385 -
Current obligation under capital lease 1,728 1,728
- ------------------------------------------------------------------------------------------
Total current liabilities 791,689 959,646
OTHER LIABILITIES
Termination agreement obligation 172,667 -
Capital lease obligation 567 1,755
- ------------------------------------------------------------------------------------------
Total other liabilities 173,234 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 (1,747,500 shares authorized, issued
and outstanding) 17,475 -
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, 4,564,170 and 4,196,600 outstanding) 684,625 629,490
Stock to be issued (131,250 and 25,000 shares) 230,940 23,440
Additional paid-in capital 19,899,783 12,776,389
Deferred stock compensation 421,609 247,500
Deferred stock warrant compensation 13,291 -
Accumulated deficit ($11,777,971 and $8,800,959 accumulated
during the development stage through June 30, 1996 and
December 31, 1995) (15,484,673) (12,507,661)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 5,783,050 1,553,533
- ------------------------------------------------------------------------------------------
$ 6,747,973 $ 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 June 30, Six months ended June 30, June 1, 1992 to
---------------------------- ---------------------------- June 30, 1996
1996 1995 1996 1995 (Cumulative)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES $ 12,300 $ - $ 12,300 $ - $ 12,300
Cost of Sales 8,654 - 8,654 - 8,654
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit 3,646 - 3,646 - 3,646
OPERATING EXPENSES:
Research and development 182,688 503,107 356,133 673,764 2,412,637
General and administrative 650,585 675,260 1,746,091 1,142,582 7,512,699
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (829,627) (1,178,367) (2,098,578) (1,816,346) (9,921,690)
OTHER INCOME (EXPENSE):
Interest income 790 - 790 - 6,886
Interest expense (362,891) (569) (879,224) (1,172) (886,107)
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 (1,191,728) (1,178,936) (2,977,012) (1,817,518) (10,886,201)
DISCONTINUED OPERATIONS - - - - (520,396)
LOSS FROM DISPOSAL OF OIL AND GAS OPERATIONS - - - - (371,374)
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS $(1,191,728) $(1,178,936) $(2,977,012) $(1,817,518) $(11,777,971)
- ------------------------------------------------------------------------------------------------------------------------------------
PRIMARY LOSS PER SHARE: (Note 2)
Loss from continuing operations $ (0.26) $ (0.38) $ (0.67) $ (0.62)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss $ (0.26) $ (0.38) $ (0.67) $ (0.62)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 4,555,098 3,122,825 4,425,401 2,951,459
- ------------------------------------------------------------------------------------------------------------------------------------
</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 SIX MONTHS ENDED JUNE 30, 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, 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 5) - - 190,570 28,585 179,084 - - - 236,255
Issuance of preferred stock
(Note 4) 93,750 234,375 - - - - - - 234,375
Accrued stock issuance - - - - - - 77,695 - 77,695
Accrued warrant issuance - - - - - - 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 5) - - 120,750 $ 18,113 182,544 - - - 200,657
Common stock issued for
exercise of warrants (Note 5) - - 56,250 8,437 59,063 - - - 67,500
Series 1 convertible preferred
conversion to Series A
preferred (Note 5) (247,500) (618,750) - - 618,750 - - - -
Issuance of 6% cumulative
convertible Series A
preferred (Note 5) 1,747,500 17,475 - - 5,923,367 - - - 5,940,842
Issuance of Redeemable
Warrants (Note 5) - - - - 132,000 - - - 132,000
Accrued stock issuance - - - - - - 96,414 - 96,414
Accured warrant issuance - - - - - - 12,342 - 12,342
Stock subscribed - - - - - 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)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
June 1, 1992 to
INCREASE (DECREASE) IN CASH SIX MONTHS ENDED JUNE 30, June 30, 1996
1996 1995 (Cumulative)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,977,012) $(1,817,518) $(11,777,971)
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 436,913 972,640 3,959,654
Compensation recognized relating to
accrued employee stock grants and warrants 187,400 143,828 587,900
Depreciation and amortization 145,121 118,207 1,427,829
Amortization of loan origination fees and
original issue discount 798,750 - 798,750
Loss on disposal of fixed assets 7,373 - 7,373
Other (non-cash losses related to discontinued
oil and gas operations) - - 664,503
Increase (decrease) from changes in:
Inventory (40,499) (68,003) (188,092)
Prepaid royalties (10,000) - (185,000)
Prepaid expenses and other assets (17,500) (6,691) (221,924)
Accounts payable 149,005 (50,694) 338,289
Termination agreement liability 313,052 - 313,052
Accrued expenses and taxes (16,723) (898) 27,104
Other (other assets, accounts receivable) (8,330) - (40,421)
- ---------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,032,450) (709,129) (4,389,553)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Patent and marketing licensing costs (100,000) - (625,110)
Purchase of property and equipment (133,998) (27,882) (276,372)
Other (proceeds from sale of marketable - - 175,188
securities and loan repayments)
- ---------------------------------------------------------------------------------------------------------
Net cash used in financing activities (233,998) (27,882) (726,294)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from related party 22,608
Proceeds from preferred stock and warrant issuance
(net of offering costs) 6,072,841 6,072,841
Proceeds from notes payable 912,500 262,500 2,195,000
Principal payments on notes payable (2,000,000) (2,050,000)
Proceeds from common stock to be issued 207,500 129,000 1,444,667
Proceeds from issuing common stock 1,364,052
Proceeds from warrant exercise 67,500 67,500
Capital lease financing (1,187) 2,296
Advances on private common stock placement 296,440
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,259,154 391,500 9,415,404
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 3,992,706 (345,511) 4,299,557
Cash, beginning of period 306,851 483,611 0
- ---------------------------------------------------------------------------------------------------------
Cash, end of period $ 4,299,557 $ 138,100 $ 4,299,557
- ---------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
PAYMENTS FOR:
Interest $ 90,646 $ 1,172
Income taxes 1,600 -
STOCK ISSUED FOR:
Research and development 286,312 638,340
Public relations and marketing services 65,002 195,144
Legal and professional services 60,170 78,281
Directors fees 25,429 62,407
Contract payable - 100,000
Note and prepaid expenses - 78,490
----------- ----------
$ 436,913 $1,152,662
----------- ----------
NON-CASH INVESTING ACTIVITY:
Reclassification of other assets to machinery and
equipment: $ 36,000 $ -
Reclassification of inventory to machinery
and equipment: 36,313 $ -
</TABLE>
In February, 1996 the Company purchased the license agreement
from a part owner of the CRS patent for $300,000 of which $200,000
is payable in the third quarter and is reflected as accrued license fee
payable at June 30, 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. These amounts were fully amortized in the first six months of
1996 and the notes were repaid in June, 1996 (Note 4).
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
June 30, 1996, and the results of operations and cash flows for the three and
six month periods ended June 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 six month periods ended June 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.
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 of $188,092 at June 30, 1996 consisted of
$85,261 of finished goods, $46,502 of work in process and $56,329 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 $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 convertible
preferred stock and warrants, completed in June, 1996.
In the second quarter the Company borrowed $350,000 from six individuals, two of
whom are directors of the Company, pursuant to a six-month, 12% non-secured
promissory note that, in no event, would pay each holder thereof less than 90
days worth of interest, regardless of when the note was actually repaid. In
connection therewith, the Company issued 137,180 three-year warrants to purchase
common stock at a weighted average price of 1.28 per share. The Company repaid
the notes in June, 1996.
F-8
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. 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 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 six
months of 1996, the Company issued 311,320 shares valued at $436,913 for
research and development, advertising and public relations, legal and
professional services, and directors' fees.
The Company's S-3 registration statement, which became effective on May 13,
1996, 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.
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 Josephthal Lyon and Ross, of 1,500,000 shares
of 6% cumulative convertible Series A preferred stock and 1,5000,000 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 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.
6. SUBSEQUENT EVENTS
On August 2, 1996, the Company received net proceeds of $19,800 from the
underwriters' over-allotment exercise of their right under the June 24, 1996
public offering to purchase 225,000 redeemable warrants.
On August 8, 1996 the Company was informed by the underwriter that it was
exercising its over-allotment option on 100,000 shares of Series A preferred
stock. The anticipated proceeds to the Company are estimated at $440,000 in
August, 1996.
F-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10QSB
6/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 4,299,557 4,299,557
<SECURITIES> 0 0
<RECEIVABLES> 8,330 8,330
<ALLOWANCES> 0 0
<INVENTORY> 188,092 188,092
<CURRENT-ASSETS> 4,645,852 4,645,852
<PP&E> 264,754 264,754
<DEPRECIATION> 49,990 49,990
<TOTAL-ASSETS> 6,747,973 6,747,973
<CURRENT-LIABILITIES> 791,690 791,690
<BONDS> 173,234 173,234
0 0
17,475 17,475
<COMMON> 684,625 684,625
<OTHER-SE> 5,098,424 5,098,424
<TOTAL-LIABILITY-AND-EQUITY> 6,747,973 6,747,973
<SALES> 12,300 12,300
<TOTAL-REVENUES> 12,300 12,300
<CGS> 8,654 8,654
<TOTAL-COSTS> 8,654 8,654
<OTHER-EXPENSES> 833,273 2,102,224
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 362,891 879,224
<INCOME-PRETAX> (1,191,728) (2,977,012)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,191,728) (2,977,012)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,191,728) (2,977,012)
<EPS-PRIMARY> (.26) (.67)
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