<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, 1997.
[ ] 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 April 7, 1997, there were 7,903,590 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 $0.70 of these shares as of April 7,
1997) held by non-affiliates, was approximately $5,149,474.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996...............F-1
Consolidated Statements of Operations for the Three Months Ended
March 31, 1997 and March 31, 1996....................................................F-3
Consolidated Statement of Changes in Stockholders' Equity for the
Three Months Ended March 31, 1997....................................................F-4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and March 31, 1996....................................................F-5
Notes to Consolidated Financial Statements...........................................F-8
Item 2. Management's Discussion and Analysis and Plan Of Operation .........................3
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................................10
Item 2. Changes in Securities...............................................................10
Item 3. Defaults Upon Senior Securities.....................................................10
Item 4. Submission of Matters to a Vote of Security Holders.................................10
Item 5. Other Information...................................................................10
Item 6. Exhibits and Reports on Form 8-K....................................................10
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
See attached consolidated financial statements and notes therto for the
period ended March 31, 1997.
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
consolidated financial statements and the notes thereto appearing in Part 1,
Item 1 in this Form 10-QSB.
Forward-Looking Statements
- --------------------------
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking statements include,
without limitation: the Company's ability to successfully develop new products
for new markets; the impact of competition on the Company's revenues, changes in
law or regulatory requirements that adversely affect or preclude customers from
using the Company's products for certain applications; delays in the Company's
introduction of new products; and failure by the Company to keep pace with
emerging technologies.
When used in this discussion, words such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
3
<PAGE>
Description of Business
- -----------------------
Medical Device Technologies, Inc. (the "Company"), was incorporated in Utah
on February 6, 1980 and is headquartered in San Diego, California. Each of the
Company's common stock, 6% cumulative convertible Series A preferred stock and
redeemable common stock purchase warrants currently trade on the Nasdaq SmallCap
Market under the symbols MEDD, MEDDP and MEDDW, respectively. Prior to 1992, the
Company's business was the exploration and production of hydrocarbons. As of
June 1, 1992, the Company re-entered the development stage. Effective January 1,
1994, the Company completed the divestiture of all oil and gas properties and
was no longer in the hydrocarbon business. Since that time, the Company has been
exclusively a medical device company. The Company changed its name in April
1995, from Cytoprobe Corporation, to reflect the change of focus. On June 1,
1992, the Company was considered, for accounting purposes, to have re-emerged as
a development stage company.
The Company has developed three innovative medical device products. The
first product, the Fluid Alarm System (FAS), formerly called the Personal Alarm
System (PAS), is a device which monitors the integrity of infection control
barriers, such as surgical gloves and gowns worn during medical procedures. The
second product, the Cell Recovery System (CRS), is a cell "brushing" and
retrieval system using an automated biopsy brush for the collection of specimen
cells for diagnostic purposes, primarily (but not limited to) cancer detection.
The third product, the Intracranial Pressure Measuring System (ICP), is a
diagnostic device that measures pressure within the skull non-invasively. The
Company received FDA clearance for the FAS during the year ended December 31,
1995 and received FDA clearance for the CRS in March 1996.
4
<PAGE>
Risks
- -----
As development of each of its medical devices concludes, increased
marketing and sales costs will be incurred and the Company's working capital
requirements can be expected to grow accordingly. The Company's sales, general
and administrative costs include costs related to marketing, promotional and
sales activities, in addition to office, administration and overhead expenses.
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 in the coming year. The
following management discussion and analysis and plan of operation should be
read in conjunction with the consolidated financial statements and notes thereto
appearing in Part 1, Item 1 in this Form 10-QSB.
Although the Company plans on achieving sales of the FAS device during the
next twelve months, the revenue from such sales, by itself, will not be
sufficient for the Company to maintain its current level of operations,
including its current product development and research and development plans.
Accordingly, the Company will be required to seek to obtain additional sources
of financing, which cannot be assured. In the event the Company can not obtain
additional financing, the Company would have to substantially curtail product
development as well as research and development plans due to lack of funds. The
long-term viability of the Company is dependent on its ability to profitably
develop and market its current products and to obtain the financing necessary to
fund its anticipated growth.
5
<PAGE>
Results of Operations for the Three Months Ended March 31, 1997
- ---------------------------------------------------------------
Revenues
- --------
Operating revenues for the first three months of 1997 were $45,500, all
from sales of the FAS. There were no revenues in the first quarter of 1996.
Gross Profit
- ------------
Gross profit was $6,280 in the first three months of 1997, as compared to
none in 1996, due to no sales in that period. Gross profit percentage for the
first quarter 1997 was 13.8%, and was lower than the Company expects in the
future due to the costs during the period of initial product management and
production start-up caused by the Company's switch-over to a new, higher
capacity contract manufacturer. The Company expects these transition costs to
continue, at a lower proportion of sales, for the next several months.
Operating Expenses
- ------------------
Research and Development
Research and development costs in the first quarter of 1997 were $319,691,
compared to $173,445 in 1996, representing an increase of 84.3%. This increase
was principally due to the greater research cost on clinical saturation studies
for the FAS and accelerated development for comparative clinical trials for the
CRS relative to 1996.
Sales, General and Administrative
Sales, general and administrative costs were $835,161 in the first quarter
of 1997 as compared to $1,095,506 in 1996, representing a decrease of 23.8%.
This decrease was principally due to the $357,667 charge associated with the
termination in 1996 of a former officer of the Company, which was only partially
offset in 1997 by higher marketing and public relations expenses associated with
the FAS.
6
<PAGE>
Losses
The Company's net loss for the first quarter of 1997 was $1,119,444 as
compared to $1,785,284 in 1996, representing a decrease of 37.3%. This decrease
was primarily attributable elimination of interest expenses in 1997 which
aggregated $516,333 in 1996. The Company incurred this interest expense in 1996
in connection with the bridge financing effected by the Company prior to the
public offering in June 1996. Loss per common share for the first quarter of
1997 was $0.15, as compared to $0.41 in 1996, representing a decrease in loss
per share of 63.4%. This reduction was primarily attributable to the increased
average number of shares outstanding in the first quarter of 1997 as compared to
1996 and secondarily attributable to the reduced loss in 1997 as compared to
1996.
Liquidity and Capital Resources
- -------------------------------
To date, the Company has funded its capital requirements for its current
medical device operations from the public and private sale of debt and equity
securities and the issuance of common stock in exchange for services. The
Company's cash position at March 31, 1997 was $1,802,607 as compared to
$2,889,233 at December 31, 1996, representing a 37.6% decrease. In the first
three months of 1997, $1,053,142 of net cash was used for operating activities
plus $32,888 was invested in property and equipment. The Company used $596 in
net financing activities, representing payments on capital lease financing. Net
cash used in operating activities in 1997 consisted principally of a net loss of
$1,119,444, less an increase in other net assets (excluding cash) of $175,034,
plus $121,964 in common stock paid for services in lieu of cash, plus the net of
depreciation, non-cash compensation accrual recognition and loss on disposal of
fixed assets totaling $119,372.
Changes in current assets and current liabilities resulted in a decrease in
the Company's working capital position to $1,704,604 at March 31, 1997 from
$2,652,599 at December 31, 1996, representing a decrease of 35.7%.
On January 24, 1996, the Company completed a private placement and, in
connection therewith, issued additional short-term notes and an additional
93,750 shares of Series I convertible preferred stock. Of the $625,000 gross
proceeds raised in 1996 as a result of such private placement (which represented
the balance of an aggregate of $1,650,000 raised pursuant to the private
placement commenced in the fourth quarter of 1995), $234,375 was allocated to
the preferred stock and represented original issue discount on the notes. The
Company utilized these proceeds for working capital. All notes sold in this
private placement bore interest at 10% per annum and matured at the earlier of
(i) the expiration of twelve months after their issuance or (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
Subsequent to the public offering in June 1996, the Company repaid all
$1,650,000 of the private placement notes, plus accrued interest, in full.
7
<PAGE>
On June 24, 1996, the Company completed a public offering of 1,500,000
shares of 6% cumulative convertible Series A preferred stock ("Preferred Stock")
and 1,500,000 redeemable common stock purchase warrants ("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 Redeemable warrant enables the holder to
purchase two shares of common stock for a total price of $3.75. As part of the
terms of this offering, all of the holders of the Series I convertible preferred
stock exchanged their 247,500 shares of stock for the Preferred Stock on a one
for one basis at no cost. Each share of the Preferred Stock will by its terms
automatically convert into four (4) shares of common stock on July 24, 1997,
unless earlier converted by its holder.
In August 1996, the Company received net proceeds of $459,800 as the result
of the underwriter's partial exercise of its over-allotment option under the
June 24, 1996 public offering. These proceeds were offset by additional offering
costs of $93,203 related to the June 1996 public offering that were recorded in
the third quarter.
During the fourth quarter of 1996, 504,000 shares of the Preferred Stock
were converted into 2,016,000 shares of common stock and during the first
quarter of 1997, 94,920 shares of Preferred Stock were converted into 379,680
shares of common stock.
As of March 31, 1997 723,920 shares of the Preferred Stock had converted,
resulting in an additional 2,895,680 shares of common stock.
PLAN OF OPERATION
Emergence from a Development Stage Company
- ------------------------------------------
The Company anticipates emerging from a development stage and becoming an
operating company in 1997 upon achieving additional revenues from its first
medical device product, the FAS, which the Company began marketing in 1996.
The Company's Capital Requirements
- ----------------------------------
The Company's greatest cash requirements during 1997 will be for funding
the introduction associated with the continuing market introduction of the FAS,
additional clinical testing, continued development and FDA filings with respect
to the CRS and ICP. The costs and build-up of working capital associated with
the continuing market introduction of the FAS is expected to be partially funded
by anticipated sales of the FAS in 1997.
8
<PAGE>
In order to satisfy the Company's capital needs for the next 12 months, the
Company needs to increase sales of the FAS (which the Company does not presently
believe will be sufficient for the Company to maintain its current level of
operations, including its current product development and research and
development plan) and raise additional capital. At the present time the Company
does not have any arrangements or understandings with any third parties to
provide such capital to the Company and there can be no assurance that any such
capital will be available on terms and conditions acceptable to the Company, or
at all.
In the event that the Company cannot generate sufficient sales of the FAS
and/or raise the necessary capital, it would have a material adverse effect on
the Company and the Company would have to substantially curtail product
development and market introduction plans due to lack of funds.
The long-term viability of the Company is dependent on its ability to
profitably develop and market its current products and to obtain the financing
necessary to fund its anticipated growth.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to the Company's Form 10-KSB for the year ended December 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: May 14, 1997 By: /s/ Edward C. Hall
-------------------------------
Edward C. Hall
Chief Financial Officer, Secretary and
Principal Accounting Officer
10
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(unaudited)
-------------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,802,607 $ 2,889,233
Accounts receivable 52,812 8,563
Inventory (Note 2) 222,610 100,379
Prepaid expenses and other assets 72,857 134,309
- ----------------------------------------------------------------------------------------------
Total current assets 2,150,886 3,132,484
- ----------------------------------------------------------------------------------------------
Property and equipment:
Furniture and fixtures 103,617 101,854
Machinery and equipment 221,053 190,179
Equipment under capital lease 5,349 5,349
- ----------------------------------------------------------------------------------------------
330,019 297,382
Less accumulated depreciation (90,537) (76,046)
- ----------------------------------------------------------------------------------------------
Net property and equipment 239,482 221,336
- ----------------------------------------------------------------------------------------------
License agreements
(net of accumulated amortization of $977,434 and $903,149) 1,789,882 1,864,168
Other assets 15,003 15,003
- -----------------------------------------------------------------------------------------------
$ 4,195,253 $ 5,232,991
- -----------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-1
</TABLE>
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(unaudited)
---------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 195,838 $ 185,046
Accrued expenses 101,937 145,736
Current obligation under termination agreement 148,000 148,000
Current obligation under capital lease 507 1,103
- ---------------------------------------------------------------------------------------------------
Total current liabilities 446,282 479,885
Other Liabilities
Termination agreement obligation 61,667 98,667
- ---------------------------------------------------------------------------------------------------
Total other liabilities 61,667 98,667
Stockholders' Equity (Note 5)
Series I convertible preferred stock (247,500 shares
authorized, 0 issued and outstanding) - -
6% cumulative convertible Series A preferred stock,
$.01 par value (1,972,500 shares authorized, 1,248,580
and 1,343,500 shares issued and outstanding) 12,486 13,435
Preferred stock, $.01 par value (10,000,000 shares authorized,
0 shares issued and outstanding) - -
Common stock, $.15 par value (100,000,000 shares
authorized, 7,870,632 and 6,897,963 issued and outstanding) 1,180,595 1,034,694
Stock dividend distributable at $.15 par value (111,534 shares) - 16,730
Common Stock to be issued (25,000 shares) 23,440 23,440
Additional paid-in capital 20,891,548 20,650,306
Deferred stock compensation 30,345 247,500
Accumulated deficit ($14,509,816 and $13,390,372 accumulated (18,451,110) (17,331,666)
losses during the development stage through March 31, 1997
and December 31, 1996)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 3,687,304 4,654,439
- ---------------------------------------------------------------------------------------------------
$ 4,195,253 $ 5,232,991
- ---------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
</TABLE>
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
June 1,1992 to
Three Months Ended March 31, March 31,1997
1997 1996 (Cumulative)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
SALES $ 45,500 - $ 71,693
COST OF SALES 39,220 - 54,713
- -------------------------------------------------------------------------------------------------------------
GROSS PROFIT 6,280 - 16,980
OPERATING EXPENSES:
Research and development 319,691 $ 173,445 3,269,966
Sales, general and administrative 835,161 1,095,506 9,376,448
- -------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (1,148,572) (1,268,951) (12,629,434)
OTHER INCOME (EXPENSE):
Interest income 29,128 - 127,568
Interest expense (Note 4) - (516,333) (1,030,890)
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 (1,119,444) (1,785,284) (13,618,046)
DISCONTINUED OPERATIONS - - (520,396)
LOSS FROM DISPOSAL OF OIL AND GAS OPERATIONS - - (371,374)
- -------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,119,444) $ (1,785,284) $ (14,509,816)
- -------------------------------------------------------------------------------------------------------------
LOSS PER SHARE (Note 3):
LESS: CUMULATIVE PREFERRED STOCK DIVIDENDS (Note 5) - -
- ----------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (1,119,444) $ (1,785,284)
- ----------------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE $ (0.15) $ (0.41)
- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 7,573,969 4,320,705
- ----------------------------------------------------------------------------------------
See accompanying notes consolidated financial statements.
F-3
</TABLE>
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Common
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, 1997 1,343,500 $13,435 6,897,963 $1,034,694 $20,650,306 $40,170 $247,500 $(17,331,666) $4,654,439
Common stock issued for
research and development,
compensation, and other
services (Note 5) - - 206,455 30,969 90,995 - - - 121,964
Common stock issued for
conversion of 6% cumulative
convertible Series A
preferred stock (Note 5) (94,920) (949) 379,680 56,952 (56,003) - - - -
Issuance of common stock
dividend distributable to
6% cumulative convertible
Series A preferred
stockholders (Note 5) - - 111,534 16,730 - (16,730) - - -
Accrued stock issuance
(Note 5) - - 275,000 41,250 206,250 - (217,155) - 30,345
Net loss for the three months
ended March 31, 1997 - - - - - - - (1,119,444)(1,119,444)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1997 1,248,580 $12,486 7,870,632 $1,180,595 $20,891,548 $23,440 $30,345 $(18,451,110)$3,687,304
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes consolidated financial statements.
F-4
</TABLE>
<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 and Cash Equivalents Three Months Ended March 31, March 31, 1997
-------------------------------
1997 1996 (Cumulative)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (1,119,444)$ (1,785,284)$ (14,509,816)
Adjustments to reconcile net loss
to net cash provided by (used in) operations:
Loss from discontinued operations from
January 1 through May 31,1992 - - (100,599)
Stock paid for services 121,964 236,255 4,250,000
Compensation recognized relating to
accrued employee stock grants and warrants 30,345 78,644 430,845
Bad debt expense - - 394,720
Depreciation and amortization 88,805 65,689 1,692,363
Amortization of loan origination fees and
original issue discount - 479,250 942,620
Loss on disposal of fixed assets 222 - 110,190
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 (44,249) - (50,297)
Interest receivable - - 8,053
Amounts due from related party - - 1,682
Inventory (122,231) (58,304) (222,610)
Prepaid royalties - 15,000 (160,000)
Prepaid expenses and other assets 61,452 (73,401) (249,199)
Other assets - - (51,003)
Accounts payable 10,792 82,935 108,756
Termination agreement liability (37,000) 357,667 209,667
Accrued expenses and taxes (43,798) 19,188 104,838
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,053,142) (582,361) (6,922,602)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Patent and marketing licensing costs - (50,000) (906,298)
Purchase of property and equipment (32,888) (44,065) (315,534)
Other (proceeds from sale of marketable
securities and loan repayments) - - 175,188
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (32,888) (94,065) (1,046,644)
- ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents Three Months Ended March 31, June 1, 1992 to
------------------------------- March 31, 1997
1997 1996 (Cumulative)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities
Net borrowings from related party - - 22,608
Proceeds from preferred stock and warrant
issuance (net of offering costs) - - 6,431,079
Proceeds from notes payable - 562,500 2,195,000
Principal payments on notes payable - - (2,050,000)
Proceeds from common stock to be issued - - 1,237,167
Proceeds from issuing common stock - - 1,364,052
Proceeds from warrant exercise - - 275,000
Capital lease financing (596) (592) 507
Advances on private common stock placement - - 296,440
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (596) 561,908 9,771,853
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,086,626) (114,518) 1,802,607
Cash and cash equivalents, beginning of period 2,889,233 306,851 0
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,802,607 $ 192,333 $ 1,802,607
- ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Payments for:
Interest $ - $ -
Income taxes $ - $ -
Stock issued for:
Research and development $52,266 $170,842
Public relations and marketing services - 32,752
Legal, professional, and employee services 61,958 20,356
Directors' fees 7,740 12,305
------------------------------
$121,964 $236,255
------------------------------
Issuance of common stock dividends distributable, at par, to 6%
cumulative convertible Series A preferred stockholders (Note 5) $16,730 $ -
Non-cash investing activity:
Application of deposit to the purchase of property and equipment $ - $36,000
</TABLE>
Non-cash financing activity:
Short-term private placement notes in the amount of $625,000 were issued in
January 1996, along with preferred stock stated at $234,375, which was added to
the 1995 year end original issue discount.
During the second quarter of 1996, additional short-term notes in the amount of
$350,000 were issued along with common stock warrants valued at $143,870, which
was added to the 1995 year end original issue discount for a total of $762,620.
During the first quarters 1997 and 1996, deferred compensation expense of
$30,345 and $0 was recorded relating to accrued employee stock grants in order
to value such shares at the estimated fair market value at the date of grant.
Pursuant to certain employment agreements in January 1997, 275,000 shares of
accrued employee common stock grants were issued. Accordingly, deferred stock
compensation of $247,500 was reclassified to common stock and additional paid-in
capital (Note 5).
See accompanying notes to consolidated financial statements.
F-7
<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 consolidated
financial statements contain all adjustments (consisting only of normal and
recurring accruals) necessary to present fairly the Company's financial position
for the interim reporting period as of March 31, 1997, and the results of
operations and cash flows for the three month periods ended March 31, 1997 and
1996. 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 1996 Annual Report on Form 10-KSB.
The results of operations for the three month period ended March 31, 1997
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 consolidated 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 for the year ended December 31, 1996.
2. Inventory
The inventory balance shown at March 31, 1997 consisted of $30,763 of
finished goods, net of reserve of $7,900, $17,746 of work in process and
$174,101 of parts and materials. The inventory balance shown at December 31,
1996 consisted of $20,685 of finished goods, net of reserve of $7,900, $20,643
of work in process and $59,051 of parts and materials. Inventory is valued at
the lower of cost or market, on a first-in, first-out basis.
3. Loss Per Common Share
Loss per common share data is computed by dividing net loss (less any
preferred stock dividends) by the weighted average number of common shares
outstanding during each period. Warrants outstanding have not been considered in
the average number of common shares since the effect would be anti-dilutive.
Weighted average common shares outstanding includes the common stock to be
issued.
F-8
<PAGE>
4. Short-Term Notes Payable
On January 24, 1996, the Company completed its 1995 private placement (the
"1995 Private Placement") and issued additional short-term notes and an
additional 93,750 shares of Series I convertible preferred stock. Of the
additional $625,000 gross proceeds, $234,375 was allocated to the preferred
stock and represented additional original issue discount on the notes. The
Company utilized these proceeds for working capital.
All notes sold in the 1995 Private Placement bore interest at 10% per annum
and matured 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 original issue discount was fully amortized and
recorded as interest expense as of December 31, 1996. Subsequent to the public
offering of 6% cumulative convertible Series A preferred stock and redeemable
common stock purchase warrants in June 1996, the Company repaid these private
placement notes in full.
During the second quarter of 1996, the Company issued $350,000 in principal
amount of 12% short-term notes payable to four individuals and two of the
Company's directors to finance its operations until its public offering could be
completed. Subsequent to the public offering in June 1996, the Company repaid
these short-term notes in full. Total interest paid related to these notes
amounted to $10,500, which was paid in the year ended December 31, 1996. In
connection with the issuance of these short-term notes, the Company also issued
137,180 warrants to purchase 137,180 shares of common stock to the six
individuals at exercise prices from $1.26 to $1.38, which vested immediately and
expire three years from issuance. In connection with the issuance of these
warrants the Company recognized, based on a valuation of these warrants,
$143,870 as additional interest expense during the year ended December 31, 1996.
F-9
<PAGE>
5. Stockholders' Equity
Preferred Stock
In April 1995, the Company amended its Articles of Incorporation to
authorize 10,000,000 shares of $.01 par value preferred stock. In December 1995,
the Company further amended its Articles of Incorporation to authorize 187,500
of Series I convertible preferred stock in conjunction with its private
placement of short-term notes payable (Note 4). As a result of this private
placement offering, the Company issued 153,750 shares of Series I convertible
preferred stock with an assigned value of $384,375. On January 19, 1996, the
Company again amended its Articles of Incorporation to increase the authorized
shares of Series I convertible preferred stock from 187,500 to 247,500. On
January 24, 1996, the Company issued an additional 93,750 shares of Series I
convertible preferred stock. These preferred shares were considered an original
issue discount associated with the notes payable and were amortized over
approximately the first five months of 1996.
On June 24, 1996, the Company completed a public offering of 1,500,000
shares of 6% cumulative convertible Series A preferred stock (the "Preferred
Stock") and 1,500,000 redeemable common stock purchase warrants (the "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 Redeemable Warrant enables the holder
to purchase two shares for a total of $3.75. As part of the terms of this
offering, all of the holders of the Series I convertible preferred stock
exchanged their shares of preferred stock for the Preferred Stock on a one for
one basis at no cost. Each share of Preferred Stock will by its terms
automatically convert into four (4) shares of common stock on July 24, 1997,
unless earlier converted by its holder. As of March 31, 1997 723,920 shares of
the Preferred Stock had converted, resulting in an additional 2,895,680 shares
of common stock.
In August 1996, the Company received net proceeds of $459,800 as the result
of the underwriter's partial exercise of its over-allotment option under the
June 24, 1996 public offering. These proceeds were offset by additional offering
costs of $93,203 related to the June 1996 public offering that were recorded in
the third quarter.
During the fourth quarter of 1996, 504,000 shares of the Preferred Stock
were converted into 2,016,000 shares of common stock and during the first
quarter of 1997, 94,920 shares of Preferred Stock were converted into 379,680
shares of common stock.
As of March 31, 1997 723,920 shares of the Preferred Stock had converted,
resulting in an additional 2,895,680 shares of common stock.
F-10
<PAGE>
Common Stock
In June 1996, the Company effected a one-for-two reverse split of its
common stock. All share balances have been retroactively adjusted to reflect the
reverse stock split.
On September 9, 1996, the Company issued 71,658 shares of common stock as a
dividend for the period through August 31, 1996 to Preferred Stockholders of
record as of August 12, 1996. On November 11, 1996, the Company declared a
second common stock dividend of 111,534 shares to Preferred Stockholders of
record as of December 10, 1996. The shares were issued in January 1997 and,
accordingly, were recorded as common stock dividend distributable and additional
paid-in capital at December 31, 1996. The number of shares to be paid on the
Preferred Stock as a dividend is calculated based on the 10 day moving average
price of the common stock during the 30 days prior to the declaration date,
subject to a maximum price of $3.00 and minimum price of $1.20 per share.
Fractional shares are rounded up.
During the year ended December 31, 1996, as a result of individuals
exercising 162,500 private warrants, the Company issued 162,500 shares of common
stock for $275,000.
During the fourth quarter of 1996, 504,000 shares of the Preferred Stock
were converted into 2,016,000 shares of common stock and during the first
quarter of 1997, 94,920 shares of Preferred Stock were converted into 379,680
shares of common stock.
As of March 31, 1997 723,920 shares of the Preferred Stock had converted,
resulting in an additional 2,895,680 shares of common stock.
Pursuant to certain employment agreements in January 1997, 275,000 shares
of accrued employee common stock grants were issued. Accordingly, deferred stock
compensation of $247,500 was reclassified to common stock and additional paid-in
capital.
F-11
<PAGE>
In each of the four most current years, the Company's board of directors
have annually approved a stock compensation plan, the most recent which
registered 750,000 shares of common stock under Form S-8 on January 10, 1997,
whereby services are obtained in exchange for issuance of free trading stock of
the Company. Shares may be awarded under this plan until January 10, 1999.
During the quarters ended March 31, 1997 and 1996, 181,455 and 190,570 shares,
respectively, of common stock under Form S-8 registrations were issued for
directors fees, research and development, advertising and public relations, and
legal, professional and employee services provided to the Company.
Warrants
The Company has issued warrants in connection with various private
placements, the secondary public offering in 1996, and certain other agreements
with compensation to employees and consultants. The Company's private warrants
allow the holder to purchase one share of the Company's common stock at various
specified prices and the public warrants each allow the holder to purchase two
shares at $1.875 per share.
6. New Accounting Standard
On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128). This pronouncement provides a
different method of calculating earnings per share than is currently used in
accordance with APB 15, Earnings per Share. SFAS 128 provides for the
calculation of Basic and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted earnings
per share. This pronouncement is effective for fiscal years and interim periods
ending after December 15, 1997; early adoption is not permitted. The Company has
not determined the effect, if any, of adoption on its EPS computation(s).
F-12
<PAGE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10QSB
3/31/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,802,607
<SECURITIES> 0
<RECEIVABLES> 52,812
<ALLOWANCES> 0
<INVENTORY> 222,610
<CURRENT-ASSETS> 2,150,886
<PP&E> 330,019
<DEPRECIATION> 90,537
<TOTAL-ASSETS> 4,195,253
<CURRENT-LIABILITIES> 446,282
<BONDS> 0
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12,486
<COMMON> 1,180,595
<OTHER-SE> 2,494,223
<TOTAL-LIABILITY-AND-EQUITY> 4,195,253
<SALES> 45,500
<TOTAL-REVENUES> 45,500
<CGS> 39,220
<TOTAL-COSTS> 39,220
<OTHER-EXPENSES> 1,154,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29,128)
<INCOME-PRETAX> (1,119,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,119,444)
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<NET-INCOME> (1,119,444)
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