<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, 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
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(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, 1997 there were 13,482,497 shares of the company's common stock
issued and outstanding. The aggregate market value of such shares (based on the
average of the closing bid and offered price of $0.27 of these shares as of July
31, 1997) held by non-affiliates, was approximately $3,484,000.
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and December 31,1996..............................................F-1
Consolidated Statements of Operations for the Three Months and Six Months Ended
June 30, 1997 and June 30, 1996...................................................................................F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months and Six Months Ended June 30, 1997...........................................................F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and June 30, 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.......................................................................................... 9
Item 2. Changes in Securities...................................................................................... 9
Item 3. Defaults Upon Senior Securities............................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders........................................................ 9
Item 5. Other Information..........................................................................................10
Item 6. Exhibits and Reports on Form 8-K...........................................................................10
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
See attached consolidated financial statements and notes thereto for the
period ended June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
- ------------------------------------------------------------------
The following discussion of the financial condition of Medical Device
Technologies, Inc. (the "Company"), results of operations and plan of operation
should be read in conjunction with the consolidated financial statements and the
notes thereto appearing in Part I, 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. These risks are discussed in the Company' Registration
Statement on Form S-3/A (File No. 333-31767) filed with the Securities and
Exchange Commission on August 6, 1997.
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. 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
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Description of Business
- -----------------------
Medical Device Technologies, Inc., was incorporated in Utah on February 6,
1980 and is headquartered in San Diego, California. 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 Company's 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 is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed with the Commission can be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street NW,
Washington, DC 20549. Such material may also be accessed electronically by means
of the Commission's home page on the Internet at http://www.sec.gov.
The Company's common stock, par value $ .15 per share (the "Common Stock")
and redeemable common stock purchase warrants (the "Redeemable Warrants") are
traded on the National Association of Securities Dealers Automated Quotation
(Nasdaq) SmallCap Market under the symbols "MEDD" and "MEDDW", respectively.
Each share of the Company's 6% Cumulative Convertible Series A Preferred Stock
par value $.01 per share (the "Preferred Stock") issued and outstanding as of
July 24, 1997, was converted automatically, by its terms, into four (4) shares
of Common Stock.
The Company has developed three innovative medical device products and has
entered into an agreement (the "Boehringer Agreement") to purchase a fourth
product line from Boehringer Mannheim Corporation ("Boehringer"), whereby the
consummation of the Boehringer Agreement is subject to the Company obtaining the
requisite financing. 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.
The fourth product, anticipated to be purchased from Boehringer, is a diagnostic
device utilized in conjunction with a disposable test cartridge in physician's
offices, clinics and hospitals to determine, in a short period of time, the
manner in which a patient has metabolized certain drugs. Currently, the
diagnostic device, known as the Biotrack, is cleared by the FDA to analyze
Theophylline, a drug used to treat asthma, and Carbamezepine and Phenetoin,
which are drugs used to treat seizures. Last year Boehringer achieved $3 million
in sales of the Biotrack and associated disposables. The Company has received a
guarantee from a division of Boehringer for $6 million of sales, in aggregate,
over a five year period whereby the consummation of the Boehringer Agreement is
subject to the Company obtaining the requisite financing.
4
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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 I, Item 1 in this Form 10-QSB.
Although the Company plans on achieving sales of the FAS device and the
Biotrack product line, which is anticipated to be purchased from Boehringer,
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 cannot 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 and new products and to obtain the financing
necessary to fund its anticipated growth.
The Company's risks are further discussed in the Company's Registration
Statement on Form S-3/A (File No. 333-31767) filed with the Securities and
Exchange Commission on August 6, 1997.
5
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Results of Operations for the Three Months Ended June 30, 1997
- --------------------------------------------------------------
Revenues
- --------
Revenues were $13,200 in the three months ended June 30, 1997; as compared
to $12,300 during the same period in 1996. Revenues were obtained solely from
sales of the FAS.
Gross Profit
- ------------
Gross profit was ($16,181) in the three months ended June 30, 1997; as
compared to a positive $3,646 during the same period in 1996 due to increased
manufacturing overhead and allocated costs in the second quarter 1997 as
compared to 1996.
Operating Expenses
- ------------------
Research and Development
Research and development costs in the second quarter of 1997 were $176,021,
representing a decrease of 3.6% as compared to the second quarter of 1996. This
was principally due to reduction in FAS and ICP development costs in the second
quarter of 1997, as compared to 1996 which more than offset the increased costs
on the Cell Recovery System (CRS) in 1997.
Sales, General and Administrative
Sales, general and administrative costs were $879,132 in the second quarter
of 1997 representing an increase of $228,547 or 35.1% as compared to 1996. This
increase was principally the result of a $170,000 increased promotion expense
for the FAS, an increase of royalty expenses with respect to the CRS and ICP and
acquisition expenses associated with the anticipated purchase of the Biotrack
product line in the second quarter of 1997 as compared to 1996.
Losses
The Company's net loss for the second quarter of 1997 was $1,029,918
representing a $161,810 or 13.6% reduced loss as compared to the same period in
1996. This reduced loss was primarily attributable to $362,891 of interest
expense incurred in the second quarter of 1996 on interim debt financing not
fully offset in 1997 by negative sales gross margin and increased general and
administrative costs.
Loss per share after the payment of preferred dividends of $182,506 was
$0.15 in the second quarter of 1997 as compared to a loss per share of $0.26 in
1996, when there were no payments of preferred dividends. This represents a
42.3% reduced loss per share as compared to 1996. This reduced loss per share
was due to a reduced loss in the second quarter of 1997 as compared to 1996, as
well as a 73% increase in the number of weighted average shares outstanding in
the second quarter of 1997 as compared to 1996, due to the subsequent
conversions into Common Stock of the Preferred stock issued in the Company's
public offering in June 1996.
6
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Results of Operations for the Six Months Ended June 30, 1997
- ------------------------------------------------------------
Revenues
- --------
Revenues were $58,700 in the first six months of 1997, representing
approximately 4.8 times revenues in the first six months of 1996, principally
due to increased sales of the FAS.
Gross Profit
- ------------
Gross profit was ($9,901) in the first six months of 1997 as compared to
$3,646 in 1996, due to due to increased manufacturing overhead and allocated
costs in 1997 as compared to 1996.
Operating Expenses
- ------------------
Research and Development
Research and development costs in the first six months of 1997 were
$495,712 representing an increase of 39.2% as compared to the first six months
of 1996, due to higher CRS and FAS development costs in the first six months of
1997 as compared to 1996.
Sales, General and Administrative
Sales, general and administrative costs were $1,714,293 in the first six
months of 1997, representing a decrease of 1.8% as compared to 1996. Higher
stock compensation expense and the one time expense associated with the
termination of the employment contract of a former executive officer in 1996
more than offset cost increases in 1997 due to marketing and promotion expense,
increased royalty payments, increased payroll and benefits and stockholder
expense.
Losses
The Company's net loss for the first six months of 1997 was $2,149,362
representing a 27.8% reduced loss as compared to the same period in 1996. This
reduced loss was primarily attributable to the absence in 1997 of a total of
$879,224 of interest and amortization of discount expenses associated with short
term notes repaid in June 1996, as well as lower sales, general and
administrative expense that more than offset increased research and development
expense, and lower gross profit in the first six months of 1997 as compared to
1996.
Loss per share, after the payment of preferred dividends, was $0.30 in the
first six months of 1997 as compared to a loss of $0.67 in 1996, when there were
no payments of preferred dividends. This represents a 55.2% reduced loss per
share as compared to 1996, which was due to a 27.8% reduced loss in the first
half of 1997 as compared to 1996, as well as an increase of 76.8% in the number
of weighted average shares outstanding in the first half of 1997 as compared to
1996, due to the subsequent conversions into common stock of the 6% cumulative
convertible Series A preferred stock issued in the public offering in June 1996.
7
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Liquidity and Capital Resources
- -------------------------------
To date, the Company has funded the capital requirements for its current
medical device operations from the private sales of debt and equity securities,
the issuance of common stock in exchange for services and from the public
offering of 6% cumulative convertible Series A preferred stock and redeemable
purchase warrants in June 1996.
The Company's cash and cash equivalents totalled $698,516 at June 30, 1997
compared to $2,889,233 at December 31, 1996. In the first six months of 1997,
$2,110,390 of net cash was used for operating activities plus $79,224 for
property and equipment. There were no financing activities in the first six
months of 1997, other than a capital lease financing of $1,103. Net cash used in
operating activities in the first six months of 1997 consisted principally of a
net loss of $2,149,362, which was reduced by $443,956 from cash provided from
common stock paid for services in lieu of cash, depreciation, amortization and
non-cash compensation accrual and recognition; and increased $404,984 by other
net assets (excluding cash).
The Company's current assets at June 30, 1997 were $1,256,887 compared to
$3,132,484 at December 31, 1996 primarily due to losses during the period.
Current liabilities were $462,918 as compared to $479,885 at December 31, 1996.
As a result of the foregoing, working capital decreased to $793,969 from
$2,652,599 at year end 1996.
PLAN OF OPERATION
Emergence from a Development Stage Company
- ------------------------------------------
The Company anticipates emerging in 1997 from a development stage to an
operating company upon achieving revenues from the Biotrack product line, which
the Company intends to acquire from Boehringer and from the FAS, which the
Company is currently marketing in the US and anticipates marketing in Europe
through a marketing arrangement currently being negotiated with a Swiss medical
products company.
The Company's Capital Requirements
- ----------------------------------
The Company currently needs to raise additional funds to complete the
acquisition of and provide working capital for the Biotrack product line and to
continue the Company's existing operations including marketing the FAS;
completing comparative clinical trials for the CRS; continued development, FDA
filings and clinical testing of the ICP; and sales, general and administrative
expenses. These working capital requirements are expected to be partially
supplemented by certain minimum anticipated sales from the Biotrack product
line, the FAS and the CRS in 1997 and 1998. The Company is currently in the
process of seeking funds from various potential debt and equity financing
sources to purchase the Biotrack product line and for working capital purposes,
but has not yet obtained any commitments. There can be no assurance that the
Company will be able to obtain such required funds, or that such funds will be
sufficient in the event such funds are obtained.
Subsequent to 1997, the Company plans to finance its operations and capital
requirements with the profits and funds generated from the sales of its
products, as well as through new private financing and public offerings of debt
and equity securities.
The long-term viability of the Company is dependent on its ability to
profitably develop and market its current products and to identify, develop and
profitably market additional products, as well as to obtain the financing
necessary to fund this anticipated growth.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
- --------------------------
Refer to the Company's Form 10-KSB for the period 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
- ------------------------------------------------------------
The annual meeting of shareholders was held on May 23, 1997 and was
adjourned until June 19, 1997. The following are votes received which resulted
in the passing of all proposals:
1. Election of four Directors: For Withheld
Don L. Arnwine 10,615,881 77,635
Scott A. Weisman 10,615,881 77,635
Arthur E. Bradley 10,615,881 77,635
Thomas E. Glasgow 10,615,881 77,635
The other two directors currently in office and not up for reelection are
M. Lee Hulsebus and William A. Clarke.
2. Proposal to ratify the Board of Directors' appointment of BDO Seidman,
LLP to serve as the Company's independent certified public accountants
for the coming year.
For Against Abstain
10,664,394 14,433 14,689
3. Approval of the merger of the Company with and into Medical Device
Technologies, Inc. (Delaware), a Delaware Corporation.
For Against Abstain
6,698,052 61,094 58,789
4. Approval of the adoption of a stock option plan providing for the
issuance of up to 1,500,000 shares of Common Stock to officers,
directors, employees and consultants to the Company.
For Against Abstain
4,981,678 1,707,977 128,280
9
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Item 5. OTHER INFORMATION
- --------------------------
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) Exhibits
2.0 Asset Purchase Agreement associated with a purchase of the
Biotrack product line from Boehringer Mannheim Corporation (1)
3.1 Articles of Incorporation of Gold Probe, Inc. a Utah corporation,
filed February 6, 1980 (3)
3.2 Certificate of Amendment to the Articles of Incorporation of Gold
Probe, Inc. filed January 27, 1982 (3)
3.3 Certificate of Amendment to the Articles of Incorporation of Hailey
Energy Corporation filed October 26, 1986 (3)
3.4 Certificate of Amendment to the Articles of Incorporation of Hailey
Energy Corporation filed November 2, 1990 (3)
3.5 Certificate of Amendment to the Articles of Incorporation of Hailey
Energy Corporation filed November 17, 1992 (3)
3.6 Certificate of Amendment to the Articles of Incorporation of Cytoprobe
Corporation filed May 18, 1995 (3)
3.7 Certificate of Amendment to the Articles of Incorporation of Medical
Device Technologies, Inc. filed December 14, 1995 (4)
3.8 Certificate of Amendment to the Articles of Incorporation of Medical
Device Technologies, Inc. filed January 17, 1996 (5)
3.9 Certificate of Amendment to the Articles of Incorporation of Medical
Device Technologies, Inc. filed January 19, 1996 (3)
3.10 By-Laws of Medical Device Technologies, Inc. (3)
10
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
- -----------------------------------------
4.1 Form of Representative's Warrant Agreement, including form of Specimen
Certificate for Representative's Warrant. (2)
4.2 Form of Warrant Agreement dated October 31, 1994 by and between the
Company and the holders of the 1994 Unit Warrants for the purchase of
259,375 shares. (3)
4.3 Form of Warrant Agreement with Rator of North America. (3)
27 Financial Data Schedule
----------------------------
(1) Previously filed as an exhibit to Form 8-K, dated June 24, 1997.
(2) Previously filed as an exhibit to Registration Statement on Form S-1,
dated June 24, 1996, registration no. 333-02727.
(3) Previously filed as an exhibit to Registration Form S-3, dated May 15,
1996, Registration no. 333-1150.
(4) Incorporated by reference from the Company's Form 8-K Report dated
January 15, 1996.
(5) Incorporated by reference from the Company's Form 8-K Report dated
January 31, 1996
b) Reports on Form 8-K
Form 8-K Report dated June 24, 1997.
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: August 14, 1997
By: /s/ Edward C. Hall
- -------------------------------
Edward C. Hall
Chief Financial Officer and
Principal Accounting Officer
11
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MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(unaudited)
-------------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 698,516 $ 2,889,233
Accounts receivable 63,738 8,563
Inventory (Note 2) 253,355 100,379
Prepaid royalties 50,000 -
Prepaid expenses and other assets 191,278 134,309
- ----------------------------------------------------------------------------------------------
Total current assets 1,256,887 3,132,484
- ----------------------------------------------------------------------------------------------
Property and equipment:
Furniture and fixtures 105,188 101,854
Machinery and equipment 265,818 190,179
Equipment under capital lease 5,349 5,349
- ----------------------------------------------------------------------------------------------
376,355 297,382
Less accumulated depreciation (105,865) (76,046)
- ----------------------------------------------------------------------------------------------
Net property and equipment 270,490 221,336
- ----------------------------------------------------------------------------------------------
License agreements
(net of accumulated amortization
of $1,051,720 and $903,149) 1,715,597 1,864,168
Other assets 15,003 15,003
- -----------------------------------------------------------------------------------------------
$ 3,257,977 $ 5,232,991
- -----------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-1
</TABLE>
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MEDICAL DEVICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(unaudited)
---------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 177,588 $ 185,046
Accrued expenses 137,330 145,736
Current obligation under termination agreement 148,000 148,000
Current obligation under capital lease - 1,103
- ---------------------------------------------------------------------------------------------------
Total current liabilities 462,918 479,885
Other Liabilities
Termination agreement obligation 24,667 98,667
- ---------------------------------------------------------------------------------------------------
Total other liabilities 24,667 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, 1,216,653
and 1,343,500 shares issued and outstanding) 12,167 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, 8,175,927 and 6,897,963 issued and outstanding) 1,226,389 1,034,694
Stock dividend distributable at $.15 par
value (152,088 and 111,534 shares) 22,813 16,730
Common Stock to be issued (25,000 shares) 23,440 23,440
Additional paid-in capital 21,107,241 20,650,306
Deferred stock compensation 41,876 247,500
Accumulated deficit ($15,539,734 and $13,390,372 accumulated (19,663,534) (17,331,666)
losses during the development stage through June 30, 1997
and December 31, 1996)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 2,770,392 4,654,439
- ---------------------------------------------------------------------------------------------------
$ 3,257,977 $ 5,232,991
- ---------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
</TABLE>
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MEDICAL DEVICE TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
June 1,1992 to
Three Months Ended June 30, Six Months Ended June 30, June 30,1997
1997 1996 1997 1996 (Cumulative)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
SALES $ 13,200 $ 12,300 $ 58,700 $ 12,300 $ 84,893
COST OF SALES 29,381 8,654 68,601 8,654 84,094
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS): (16,181) 3,646 (9,901) 3,646 799
OPERATING EXPENSES:
Research and development 176,021 $ 182,688 495,712 $ 356,133 3,445,987
Sales, general and administrative 879,132 650,585 1,714,293 1,746,091 10,255,580
- ----------------------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (1,071,334) (829,627) (2,219,906) (2,098,578) (13,700,768)
OTHER INCOME (EXPENSE):
Other income 25,000 25,000 25,000
Interest income 16,416 790 45,544 790 143,984
Interest expense (362,891) (879,224) (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 (1,029,918) (1,191,728) (2,149,362) (2,977,012) (14,647,964)
DISCONTINUED OPERATIONS (520,396)
LOSS FROM DISPOSAL OF OIL AND GAS OPERATIONS (371,374)
- ----------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,029,918) $ (1,191,728) (2,149,362) $ (2,977,012) $ (15,539,734)
- ----------------------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE:
LESS: CUMULATIVE PREFERRED STOCK DIVIDENDS (Note 5) 182,506 - 182,506 -
- ----------------------------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCK (1,212,424) $ (1,191,728) (2,331,868) $ (2,977,012)
- ----------------------------------------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE $ (0.15) $ (0.26) $ (0.30) $ (0.67)
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 7,899,024 4,555,098 7,823,152 4,425,401
- ----------------------------------------------------------------------------------------------------------------
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 SIX MONTHS ENDED JUNE 30, 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
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock issued for
research and development,
compensation, and other
services (Note 5) - - 177,587 26,638 74,837 - - - 101,475
Common stock issued for
conversion of 6% cumulative
convertible Series A
preferred stock (Note 5) (31,927) (319) 127,708 19,156 (18,837) - - - -
Common stock dividend
distributable to
6% cumulative convertible
Series A preferred
stockholders (Note 5) - - - - 159,693 22,813 - (182,506) -
Accrued stock issuance
(Note 5) - - - - - - 11,531 - 11,531
Net loss for the three months
ended March 31, 1997 - - - - - - - (1,029,918)(1,029,918)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1997 1,216,653 $12,167 8,175,927 $1,226,389 $21,107,241 $46,253 $41,876 $(19,663,534)$2,770,392
- ------------------------------------------------------------------------------------------------------------------------------------
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 Six Months Ended June 30, June 30, 1997
-------------------------------
1997 1996 (Cumulative)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,149,362) $ (2,977,012) $ (15,539,734)
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 223,439 436,913 4,351,475
Compensation recognized relating to
accrued employee stock grants and warrants 41,876 187,400 442,376
Bad debt expense - - 394,720
Depreciation and amortization 178,419 145,121 1,781,977
Amortization of loan origination fees and
original issue discount - 798,750 942,620
Loss on disposal of fixed assets 222 7,373 110,190
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 (55,175) - (61,223)
Interest receivable - - 8,053
Amounts due from related party - - 1,682
Inventory (152,976) (40,499) (253,355)
Prepaid royalties (50,000) (10,000) (160,000)
Prepaid expenses and other assets (56,969) (17,500) (367,620)
Other assets - (8,330) (51,003)
Accounts payable (7,458) 149,005 90,506
Termination agreement liability (74,000) 313,052 172,667
Accrued expenses and taxes (8,406) (16,723) 140,230
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,110,390) (1,032,450) (7,929,850)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Patent and marketing licensing costs - (100,000) (906,298)
Purchase of property and equipment (79,224) (133,998) (361,870)
Other (proceeds from sale of marketable
securities and loan repayments) - - 175,188
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (79,224) (233,998) (1,092,980)
- ------------------------------------------------------------------------------------------------------------------------
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 Six Months Ended June 30, June 1, 1992 to
------------------------- June 30, 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) - 6,072,841 6,431,079
Proceeds from notes payable - 912,500 2,195,000
Principal payments on notes payable - (2,000,000) (2,050,000)
Proceeds from common stock to be issued - 207,500 1,237,167
Proceeds from issuing common stock - - 1,364,052
Proceeds from warrant exercise - 67,500 275,000
Capital lease financing (1,103) (1,187) -
Advances on private common stock placement - - 296,440
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (1,103) 5,259,154 9,771,346
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,190,717) 3,992,706 748,516
Cash and cash equivalents, beginning of period 2,889,233 306,851 -
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 698,516 $ 4,299,557 $ 748,516
- ------------------------------------------------------------------------------------------------------------------------
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>
Six Months Ended June 30,
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Payments for:
Interest $ - $ 90,646
Income taxes $ 800 $ 1,600
Stock issued for:
Research and development $100,074 $ 286,312
Public relations and marketing services 22,651 65,002
Legal, professional, and employee services 76,568 60,170
Directors' fees 24,146 25,429
------------------------------
$223,439 $436,913
------------------------------
Common stock dividends distributable, to 6% cumulative
convertible Series A preferred stockholders (Note 5) $182,506 $ -
Non-cash investing activity:
Application of deposit to the purchase of property and equipment $ - $ 36,000
Reclassification of inventory to property and equipment $ - $ 36,313
</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 six months of 1997 and 1996, deferred compensation expense
of $41,876 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. During the year 1996, there was no deferred compensation expense
recorded.
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 June 30, 1997, and the results of
operations and cash flows for the three month and six month periods ended June
30, 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 and six month periods ended
June 30, 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 June 30, 1997 consisted of $86,480 of
finished goods, net of reserve of $9,649, $18,135 of work in process and
$148,740 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 a
net of approximately $4 million after repayment of short-term debt and costs
associated with the offering. The Preferred Stock was 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. The holders of the Series I convertible preferred stock
agreed to hold their the Preferred Stock for thirteen (13) months until July 24,
1997.
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, during the first quarter
of 1997, 94,920 shares of Preferred Stock were converted into 379,680 shares of
common stock, and during the second quarter of 1997, 31,927 shares of Preferred
Stock were converted into 127,708 shares of common stock. Therefore, as of June
30, 1997 630,847 shares of the Preferred Stock had converted, resulting in an
additional 2,523,388 shares of common stock.
On July 24, 1997, all of the then outstanding shares of Preferred Stock by
their terms automatically converted into four (4) shares of common stock. This
resulted in a total of 13,482,497 shares of common stock outstanding at July 31,
1997.
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 for the Preferred Stockholders
of record as of August 12, 1996.
On November 11, 1996, the Company declared a common stock dividend of
111,534 shares to Preferred Stockholders of record as of December 10, 1996. On
June 12, 1997 the Company declared a common stock dividend of 152,088 shares to
Preferred Stockholders of record as of June 27, 1997 and on July 24, 1997
declared a common stock dividend of .0164 shares for each share of preferred
stock to Preferred Stockholders of record as of July 24, 1997. The shares for
the November 1996 dividend and for the June 1997 dividend were issued in January
1997 and July 1997, respectively and, accordingly, were recorded as common stock
dividend distributable and additional paid-in capital at December 31, 1996 and
at June 30, 1997, respectively. 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. No warrants were exercised to date in 1997.
During the fourth quarter of 1996, 504,000 shares of the Preferred Stock
were converted into 2,016,000 shares of common stock, during the first quarter
of 1997, 94,920 shares of Preferred Stock were converted into 379,680 shares of
common stock, during the second quarter of 1997, 31,927 shares of Preferred
Stock were converted into 127,708 shares of common stock. Therefore, as of June
30, 1997, 630,847 shares of the Preferred Stock had converted, resulting in an
additional 2,523,388 shares of common stock.
On July 24, 1997, all of the then outstanding shares of Preferred Stock by
their terms automatically converted into four (4) shares of common stock. This
resulted in a total of 13,482,497 shares of common stock outstanding at July 31,
1997.
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 1,500,000 shares of common stock under Form S-8 on August 6, 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 six months ended June 30, 1997 and 1996, 359,042 and 311,320 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 Standards
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).
Statement of Financial Accounting Standards No. 129 "Disclosure of
Information about Capital Structure" (SFAS No. 129) issued by the FASB is
effective for financial statements ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company does not expect adoption of SFAS No. 129
to have a material effect, if any, on its financial position or results of
operations.
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company has not determined the
effect on its financial position or results of operations, if any, from the
adoption of this statement.
Statements of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financials statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company does not expect
adoption of SFAS No. 131 to have a material effect, if any, or its Results of
Operations.
F-12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10QSB
6/30/97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 698,516 698,516
<SECURITIES> 0 0
<RECEIVABLES> 63,738 63,738
<ALLOWANCES> 0 0
<INVENTORY> 253,355 253,355
<CURRENT-ASSETS> 1,256,887 1,256,887
<PP&E> 376,355 376,355
<DEPRECIATION> 105,865 105,865
<TOTAL-ASSETS> 3,257,977 3,257,977
<CURRENT-LIABILITIES> 462,918 462,918
<BONDS> 0 0
0 0
12,167 12,167
<COMMON> 1,226,389 1,226,389
<OTHER-SE> 1,531,836 1,531,836
<TOTAL-LIABILITY-AND-EQUITY> 3,257,977 3,257,977
<SALES> 58,700 13,200
<TOTAL-REVENUES> 58,700 13,200
<CGS> 68,601 29,381
<TOTAL-COSTS> 68,601 29,381
<OTHER-EXPENSES> 2,210,005 1,055,153
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (45,544) (16,416)
<INCOME-PRETAX> (2,149,362) (1,029,918)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,149,362) (1,029,918)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,149,362) (1,029,918)
<EPS-PRIMARY> (.30) (.15)
<EPS-DILUTED> 0 0
</TABLE>
