<PAGE>
US Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the quarterly period ended March 31, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
Commission File Number 0-12365
MEDICAL DEVICE TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Utah 58-1475517
---------------- ---------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9191 Towne Centre Drive, Suite 420, San Diego, California 92122
(Address of principal executive offices)
Issuer's telephone number: (619) 455-7127
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ___
State issuer's revenues for its most recent fiscal year $1,869,374.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of April 30, 1999, was $2,219,057.
As of April 30, 1999, Registrant had outstanding 5,406,149 shares of common
stock, 0 shares of 6% cumulative convertible Series A preferred stock and 56,386
redeemable common stock purchase warrants.
Transitional Small Business Disclosure Format (check one): Yes ___ No. X
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 F-1
Consolidated Statements of Operations for the Three Months
Ended March 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1999 F-4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-7
Item 2. Management's Discussion and Analysis and Plan of Operation 2
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................................................ 9
Item 6. Exhibits and Reports on Form 8-K................................. 9
1
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PART I
PART I
ITEM 1. FINANCIAL STATEMENTS
See attached consolidated financial statements and notes thereto for the period
ended March 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion of the Company's financial condition and results of
operations 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 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 services for certain applications; ability to acquire
additional medical diagnostic imaging centers; 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.
Description of the Business
- ---------------------------
Medical Device Technologies, Inc. (the "Company") was incorporated on February
6, 1980, under the laws of the State of Utah, initially under the name of Gold
Probe, Inc. In September 1981, the Company and the Hailey Oil Company, Inc., a
Mississippi corporation, entered into an Agreement and Plan of Reorganization
whereby the Company acquired Hailey Oil Company, Inc. and exchanged 4,500,000
shares of its Common Stock for all the issued and outstanding shares of Hailey
Oil Company, Inc. Also, pursuant to the reorganization in January 1982, the
Company changed its name to Hailey Energy Corporation, effected a one (1) for
five (5) reverse split of its Common Stock, and decreased its authorized number
of shares to 25,000,000. In October 1986, the number of authorized shares of the
Company was increased to 100,000,000. In November 1990, the Company effected a
one (1) for thirty (30) reverse split of its Common Stock and increased the par
value of its Common Stock to $0.15 per share. In November 1992, the Company
changed its name from "Hailey Energy Corporation" to "Cytoprobe Corporation". In
January 1994, the Company effected a one (1) for six (6) reverse split of its
Common Stock. In April 1995, the Company changed its name to Medical Device
Technologies, Inc. to reflect the Company's broadening base of medical products.
In June 1996, the Company effected a one (1) for two (2) reverse split of its
Common Stock. On March 6, 1998, the Company effected a one (1) for thirty-five
(35) reverse split of its Common Stock. The par value of the Company's Common
Stock remained at $0.15 per share and the number of authorized shares of Common
Stock (100,000,000) remained unchanged.
2
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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. As of March
31, 1998, the Company's Common Stock, par value $.15 per share (the "Common
Stock") is traded over-the-counter under the symbol "MEDD". The Company's
Redeemable Common Stock Purchase Warrants (the "Redeemable Warrants") and Common
Stock, which previously traded on the National Association of Securities Dealers
Automated Quotation (NASDAQ) SmallCap Market under the symbols MEDDW and MEDD
were delisted by NASDAQ on September 30, 1997 and March 26, 1998, respectively.
The Company's 6% Cumulative Convertible Series A Preferred Stock, par value $.01
per share (the "Preferred Stock"), which previously traded on the NASDAQ
SmallCap Market under the symbol "MEDDP", converted to Common Stock at a ratio
of 4/35 (four thirty-fifths) shares of Common Stock to 1 (one) share of
Preferred Stock on July 24, 1997. There were no shares of Preferred Stock
outstanding at March 31, 1999.
>From its incorporation in 1980 until June 1992, the Company was engaged
exclusively in oil and gas activities. In June 1992, the Company commenced
certain initial activities with respect to the medical device business.
Thereafter, the Company continued to increase its activities in the medical
device field while simultaneously decreasing its oil and gas activities.
Effective as of January 1, 1994, the Company having disposed of all its oil and
gas interests and ceased all activities related thereto, commenced on a
full-time basis its current medical device operations. The Company changed its
name in May 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. In third quarter 1998, the Company
narrowed its focus to medical diagnostic imaging centers. The Company has
emerged in 1998 from a development stage to an operating company through a
corporate acquisition of Vision Diagnostics and affiliates.
On July 14, 1998, the Company acquired either the stock or substantially all of
the assets and liabilities of Vision Diagnostics, Inc. and Affiliates (Vision).
Vision Diagnostics, Inc. and Affiliates is in the business of providing
radiologic diagnostic services. The affiliated group of companies includes
Vision Diagnostic, Inc., Regional MRI of Orlando, Inc., Regional MRI of
Jacksonville, Ltd. and Regional MRI of Toledo, Inc. In addition, Vision is the
general partner in West Regional MRI Limited Partnership located in Oak Brook,
Illinois.
The Company consummated the acquisition of certain assets (primarily related to
accounts receivable and property and equipment) and the assumption of certain
liabilities (primarily accounts payable and debt) from Regional MRI of Orlando,
Inc., Regional MRI of Jacksonville, Ltd. and Regional MRI of Toledo, Inc. for a
purchase price of 1,893,356 shares of Restricted Rule 144 common stock. The
Company has accounted for the acquisition using the purchase method of
accounting with the assets acquired and the liabilities assumed recorded at fair
value, and the results of the acquired entities included in the Company's
consolidated financial statements from July 14,1998. Goodwill associated with
this transaction amounted to $2,170,550.
Additionally, on this date, the Company acquired 100% of the stock of Vision
Diagnostics, Inc. with the issuance of 1,568,000 shares of Restricted Rule 144
common stock. The Company has accounted for the acquisition using the purchase
method of accounting with the results of operations of the acquired entity
included in the Company's consolidated financial statement from the date of
acquisition. Goodwill associated with this transaction amounted to $1,577,477.
During the first quarter of 1999, an additional 200,000 shares of Restricted
Rule 144 common stock, valued at $87,500, were issued in connection with the
acquisition of Vision Diagnostics, Inc. Accordingly, goodwill associated with
this transaction was increased by $87,500.
3
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Vision Diagnostics, Inc. is the 50% general partner in West Regional MRI Limited
Partnership. The consolidated financial statements reflect all of the assets,
liabilities, revenues and expenses of the partnership. The limited partners'
share of the partner's capital has been reflected as a minority interest on the
accompanying consolidated balance sheet at March 31, 1999. The limited partners'
share of the partnership's net income has been presented as minority partners
share of income consolidated partnership interest in the accompanying
consolidated statement of operations for the three months ended March 31, 1999
In the immediate future, the Company needs to obtain additional financing for
its working capital requirements associated with the costs of providing services
in its MRI centers.
Risks
- -----
As the Company acquires additional businesses including MRI centers with
existing revenue streams, the working capital requirements of the Company can be
expected to increase. The Company's ability to collect the accounts receivable
associated with providing MRI services will be a significant factor in meeting
its working capital needs.
The Company has not been profitable for the last 10 years and expects to incur
additional operating losses in the coming year. In the immediate future, in
order to fund its current negative working capital position and to continue to
operate, the Company currently intends to seek to complete additional private
placements of debt and/or equity. The Company's ability to obtain additional
sources of financing cannot be assured. The long-term viability of the Company
is dependent on its ability to obtain additional funding to acquire additional
MRI centers and to obtain the financing necessary to fund its operations.
Results of Operations
- ---------------------
The three months ended March 31, 1999 compared to the three months ended March
31, 1998.
Revenues
- --------
Net revenues for the three months ended March 31, 1999 were $803,686 compared to
$1,900 for the three months ended March 31, 1998. The increase of 422 fold is
the result of the acquisition of Vision Diagnostics, Inc. and affiliates which
consists of three wholly owned MRI centers and the general partnership of a
fourth center. Revenue from the MRI centers accounted for all of the net
revenues in 1999. Such revenues were generated from providing scanning and
reading services for the medical industry. The product sales from the Fluid
Alarm System (FAS) represented $1,900 of the sales revenue in 1998.
Operating Expenses
- ------------------
Research and Development
Research and development costs in the first quarter of 1999 were $0 as compared
to $(3,394) in the first quarter of 1998. In the first quarter of 1998, research
and development activities were postponed and refunds on clinical trials and the
related insurance were received. There were no current year costs associated
with research and development because in 1998 all activity related to the FAS
and Cell Recovery System ceased and the associated licenses were written-off to
reflect the Company's focus on medical diagnostic imaging centers.
Sales, General and Administrative
Sales, general and administrative costs were $1,168,826 for the first quarter of
1999 as compared to $291,689 for the first quarter of 1998, representing an
increase of 3 fold. This increase was primarily the result of the activity from
the MRI centers which were acquired during the third quarter of 1998.
Losses
The Company's net loss for the three months ended March 31, 1999 was ($417,821)
as compared to ($296,610) for the three months ended March 31, 1998,
representing a 40.9% increase in the net loss. The increase in loss was
primarily attributable to the costs associated with providing services to the
acquired MRI centers coupled with the costs associated with operating such
centers. Loss per common share for the first quarter of 1999 was ($.11) as
compared to a ($.64) loss per common share for the same period in 1998. This
reduction in loss per common share was attributable to the increase in the
weighted average number of common shares outstanding for the first quarter of
1999 as compared to the first quarter of 1998.
4
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Liquidity and Capital Resources
- -------------------------------
To date, the Company has funded its capital requirements for its current medical
diagnostic imaging 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, 1999 was $19,122 as compared to $26,468 at
March 31, 1998, representing a 27.8% decrease.
During the first quarter of 1999, $121,782 of net cash was used for operating
activities. The Company received $100,000 from the proceeds of a note payable
and $135,000 from the proceeds of the issuance of Restricted Rule 144 Common
Stock. Net cash used in operating activities during the first three months of
1999 consisted principally of a net loss of $417,821. This net loss was
partially offset by $253,138 in common stock paid for services in lieu of cash
plus depreciation of $163,893. Contributing to net cash used in operating
activities was a decrease in other net assets (excluding cash) of $101,343 and
the change in minority interest of $19,649. Changes in current assets and
current liabilities resulted in a deficit in the Company's working capital
position of $1,271,915 at March 31, 1999 as compared to a negative working
capital of $1,258,564 at December 31, 1998. The Company's current deficit in
working capital requires the Company to obtain funds in the short-term to be
able to continue in business, and in the longer term to continue to provide
services in its' current MRI centers and to acquire additional MRI centers. The
Company is seeking to fund these and other operating needs in the next 12 months
from funds to be obtained through the proceeds of additional private placements
or public offerings of debt or equity securities, or both.
In the immediate future, in order to fund its current negative working capital
position and to continue to operate, the Company intends to seek to complete
additional private placements of debt and/or equity. The Company's ability to
complete to obtain additional sources of financing cannot be assured. The
long-term viability of the Company is dependent on its ability to obtain
additional funding necessary to fund its operations surrounding the MRI centers.
During the fourth quarter of 1997, the Company issued $100,000 ($50,000 to three
of the Company's directors) in principal amount of 36% short-term convertible
notes payable, due May 18, 1998, to five individuals to finance operations until
a corporate acquisition could be completed. Until payment in full, the unpaid
principal amount of these notes, or any portion may, at the election of the
noteholder at any time, be converted at the conversion price per share of fifty
(50%) percent of the previous thirty day average trading bid price as of the
date of conversion (as amended). As additional consideration for these loans,
the individual lenders, including the directors, were awarded an aggregate of
warrants to purchase 1,429 shares of Common Stock for every $12,500 loaned to
the Company at an exercise price of $4.20 per share. In connection with the
issuance of the warrants to the individuals, the Company did not recognize
additional interest expense, as the value of the warrants was deemed to be
immaterial. The interest rate and terms of these notes were made at arms length.
On June 19, 1998, 164,096 shares of Restricted Rule 144 Common Stock were issued
in order to convert all of these 1997 notes including principal and accrued
interest payable. Cash paid to these individuals and to the directors for
interest was $0 at December 31, 1997 and December 31, 1998. Restricted Rule 144
Common Stock paid to these individuals and to the directors for interest was $0
at December 31, 1997 and $21,300 at December 31, 1998. Accrued interest amounted
to $4,400 for the year ended December 31, 1997 to $0 as of December 31, 1998.
All of the noteholders did not elect to exercise the related warrants, thus, all
such warrants expired on May 18, 1998.
5
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During the year ended December 31, 1998, the Company issued $240,020 in
principal amount of short-term convertible notes payable, due one year from the
date of the related note or the date the Company receives funding from any
offering or merger with another corporation, to four individuals to finance
operations until a corporate acquisition could be completed. Until payment in
full, the unpaid principal and accrued interest amounts of these notes, may be
converted, at the option of the noteholder, into common shares of the Company at
any time prior to repayment thereof at a conversion price per share of fifty
(50%) percent of the previous thirty day average trading bid price as of the
date of conversion. These notes accrue interest at a rate per annum equal to one
(1%) percent over the referenced prime lending rate announced from time to time
by Bank of America in San Francisco, California. As additional consideration for
these loans, the individual lenders were awarded 6,250 Restricted Rule 144
Common Stock for every $12,500 loaned to the Company.
During the second and third quarters of 1998, 391,858 shares (including the
additional consideration shares) of Restricted Rule 144 Common Stock were issued
in order to convert all of these 1998 short-term convertible notes, including
principal and accrued interest payable, except for one note for $15,000, which
was still outstanding at December 31, 1998. Cash paid to these individuals for
interest was $0 as of December 31, 1998. Restricted Rule 144 Common Stock paid
to these individuals for interest was $13,708 as of December 31, 1998. Accrued
interest amounted to $1,248 as of December 31, 1998.
During the first quarter of 1999, 55,119 shares (including the additional
consideration shares) of Restricted Rule 144 common stock were issued in order
to convert the remaining 1998 short-term convertible note, principal and accrued
interest payable. Cash paid to this individual for interest was $0 as of March
31, 1999. Restricted Rule 144 common stock paid to this individual for interest
was $1,408 as of March 31, 1999. Accrued interest related to these notes was $0
as of March 31, 1999.
Pursuant to an investment letter dated June 26, 1998 with an individual, the
Company received $55,000 for the purchase of 55,000 shares of Restricted Rule
144 Common Stock at a purchase price of $1.00 per share. As of December 31,
1998, all such shares had been issued.
Pursuant to an investment letter dated February 23, 1999 with an individual, the
Company received $25,000 for the purchase of 62,500 shares of Restricted Rule
144 Common Stock at a purchase price of $.40 per share. As of March 31, 1999,
such shares had not been issued.
Pursuant to an investment letter dated March 8, 1999 with an individual, the
Company received $100,000 for the purchase of 250,000 shares of Restricted Rule
144 Common Stock at a purchase price of $.40 per share. As of March 31, 1999,
all such shares had been issued.
Pursuant to an investment letter dated March 12, 1999 with an individual, the
Company received $10,000 for the purchase of 25,000 shares of Restricted Rule
144 Common Stock at a purchase price of $.40 per share. As of March 31, 1999,
all such shares had been issued.
PLAN OF OPERATION
Emergence from a Development Stage Company
- ------------------------------------------
The Company emerged in 1998 from a development stage to an operating company
through the corporate acquisition of Vision Diagnostics, Inc. and affiliates.
The Company's Capital Requirements
- ----------------------------------
The Company's greatest cash requirements during 1999 will be for funding, in the
immediate future, its deficit in working capital, and in the longer term,
obtaining the working capital necessary for future acquisitions of additional
medical diagnostic imaging centers.
The Company is seeking to fund these and other operating needs in the next 12
months from funds to be obtained through a corporate acquisition or merger with
another entity with greater financial resources or from the proceeds of
additional private placements or public offerings of debt or equity securities.
If a corporate acquisition or merger with another entity or private placement is
not completed, the Company will be required to reduce costs and seek alternative
financing sources which cannot be assured. Consequently, the Company's operating
outlook is not assured.
6
<PAGE>
Subsequent to the next 12 months, the Company currently plans to finance its
long-term operations and capital requirements with the profits and funds
generated from the revenues of its MRI centers as well as through new private
financings and public offerings of debt and equity securities.
These financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has recurring losses from operations,
negative working capital and is in default with respect to the terms of certain
obligations. Further, the continued viability of the Company is dependent on the
success of its MRI centers which were acquired in July 1998. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company is seeking to fund its immediate and longer-term working capital
needs from funds to be obtained through a corporate acquisition or merger with
another entity with greater financial resources or from the proceeds of
additional private placements or public offerings of debt or equity securities.
However, neither the consummation nor the success of an acquisition or merger,
nor the receipt of additional funds can be assured. Therefore, the long-term
viability of the Company is dependent on its ability to profitably operate its
MRI centers and to obtain the financing necessary to fund its anticipated
growth.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount of
liabilities that might be necessary should the Company be unable to continue in
existence.
7
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Year 2000 Compliance
- ---------------------
Background:
In the past, many computers, software programs, and other information technology
("IT systems"), as well as other equipment relying on microprocessors or similar
circuitry ("non-IT systems"), were written or designed using two digits, rather
than four, to define the applicable year. As a result, date-sensitive systems
(both IT systems and non-IT systems) may recognize a date identified with "00"
as the Year 1900, rather than the year 2000. This is generally described as the
Year 2000 issue. If this situation occurs, the potential exists for system
failures or miscalculations, which could impact business operations.
The Securities and Exchange Commission ("SEC") has asked public companies to
disclose four general types of information related to Year 2000 preparedness:
the Company's state of readiness, costs, risks, and contingency plans. See SEC
Release No. 33-7558 (July 29, 1998). Accordingly, the Company has included the
following discussion in this report, in addition to the Year 2000 disclosures
previously filed with the SEC.
State of Readiness:
The Company believes that it has identified all significant IT systems and
non-IT systems that require modification in connection with Year 2000 issues.
Internal and external resources have been used and are continuing to be used, to
make the required modifications and test Year 2000 readiness. The required
modifications are under way. The Company plans on completing the modifications
to and testing of all significant systems by July 1999.
In addition, the Company has been communicating with customers, suppliers,
banks, vendors and others with whom it does significant business (collectively)
its "business partners") to determine their Year 2000 readiness and the extent
to which the Company is vulnerable to any other organization's Year 2000 issues.
Based on these communications and related responses, the Company is monitoring
the Year 2000 preparations and state of readiness of its business partners.
Although the Company is not aware of any significant Year 2000 problems with its
business partners, there can be no guarantee that the systems of other
organizations on which the Company's system rely will be converted in a timely
manner, or that a failure to convert by another organization, or a conversion
that is incompatible with the Company's systems, would not have a material
adverse effect on the Company.
Costs:
The total cost to the Company of Year 2000 activities has not been and is not
anticipated to be material to its financial position or results of operations in
any given year. The total costs to the company of addressing Year 2000 issues
are estimated to be less than $40,000. These total costs, as well as the date on
which the Company plans to complete the Year 2000 modification and testing
processes, are based on management's best estimates. However, there can be no
guarantee that these estimates will be achieved, and actual results could differ
from those estimates.
Risks:
The company utilizes IT systems and non-IT systems in various aspects of its
business. Year 2000 problems in some of the Company's systems could possibly
disrupt operations, but the Company does not expect that any such disruption
would have a material adverse impact on the Company's operating results.
8
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The Company is also exposed to the risk that one or more of its customers,
suppliers or vendors could experience Year 2000 problems that could impact the
ability of such customers to transact business or such suppliers or vendors to
provide goods and services. Although this risk is lessened by the availability
of alternative suppliers, the disruption of certain services, such as utilities,
could, depending upon the extent of the disruption, potentially have a material
adverse impact on the Company's operations.
Contingency Plans:
The Company is in the process of developing contingency plans for the Company's
IT systems and non-IT systems requiring Year 2000 modification. In addition, the
Company is developing contingency plans to deal with the possibility that some
suppliers or vendors might fail to provide goods and services on a timely basis
as a result of Year 2000 problems. These contingency plans will include the
identification, acquisition and/or preparation of backup systems, suppliers and
vendors.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the Company's Form 10-KSB for the year ended December 31, 1998.
In March 1998, a lawsuit was filed against the Company for "false designation"
in connection with the use of the name Medical Device Technologies, Inc. During
the first quarter of 1999, the lawsuit was settled whereby the Company agreed to
cease using the name of Medical Device Technologies, Inc. effective on June 18,
1999.
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
None
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
PART IV
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule
Reports on Form 8-K The company filed current reports on Forms 8-K which
were issued on February 3, 1999 and April 15, 1999.
9
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SIGNATURES
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ M. Lee Hulsebus Chief Executive Officer, President, May 23, 1999
- ------------------------ Chief Financial Officer,
M. Lee Hulsebus, Chairman, Principal Accounting Officer
and Secretary
10
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<TABLE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS March 31, December 31,
- ------ 1999 1998
--------------- ---------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,122 $ 77,906
Accounts receivable (net of allowance of $1,363,675
and $1,487,172 2,378,083 2,536,042
Prepaid expenses and other assets 267,346 72,180
--------------- ---------------
Total current assets 2,664,551 2,686,128
--------------- ---------------
Property and equipment:
Furniture and fixtures 33,799 33,799
Machinery and equipment 188,546 188,546
Equipment under capital leases 2,380,038 2,380,038
Leasehold improvements 406,082 406,082
--------------- ---------------
3,008,465 3,008,465
Less accumulated depreciation (1,323,119) (1,197,268)
--------------- ---------------
Net property and equipment 1,685,346 1,811,197
Intangible assets (note 3):
Goodwill 4,025,878 3,938,378
Organization costs 160,930 160,930
Less accumulated amortization (213,748) (175,867)
--------------- ---------------
3,973,060 3,923,441
Other assets 146,957 134,822
--------------- ---------------
Total assets $ 8,469,914 $ 8,555,588
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
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<TABLE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
- ------ 1999 1998
--------------- ---------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 922,672 $ 917,368
Accrued expenses 1,199,244 1,256,549
Current obligation under capital lease obligations 873,703 897,629
Short-term notes payable and line of credit (note 4) 940,847 873,146
--------------- ---------------
Total current liabilities 3,936,466 3,944,692
--------------- ---------------
Other liabilities:
Convertible debt - 15,000
Capital lease obligations, less current portion 1,435,352 1,552,378
--------------- ---------------
Total liabilities 5,371,818 5,512,070
--------------- ---------------
Minority interest 623,605 643,252
--------------- ---------------
Commitments and contingencies (notes 4 and 5)
Stockholders' equity (notes 5)
Series I convertible preferred stock (247,500 shares
authorized; 0 issued and outstanding) - -
6% cumulative convertible Series A preferred stock,
and $.01 par value (1,972,500 shares authorized;
0 shares issued and outstanding) - -
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; 5,138,124 and 4,370,905 outstanding) 770,719 655,636
Common stock to be issued (924,894 and 862,394 shares) 891,162 866,162
Additional paid-in capital 25,959,877 25,607,914
Deferred stock compensation 25,443 25,443
Accumulated deficit (25,172,710) (24,754,889)
--------------- ---------------
Total stockholders' equity 2,474,491 2,400,266
--------------- ---------------
Total liabilities and stockholders' equity $ 8,469,914 $ 8,555,588
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Patient service revenue $ 1,093,560 $ -
Product sales - 1,900
Discounts and allowances (289,874) -
--------------- ---------------
Net revenues 803,686 1,900
Cost of sales - (619)
--------------- ---------------
Gross profit 803,686 1,281
Operating expenses:
Research and development - (3,394)
Sales, general and administrative 1,168,826 291,689
--------------- ---------------
Total operating expenses 1,168,826 288,295
--------------- ---------------
Loss from operations (365,140) (287,014)
Other income (expense):
Other income 11,932 -
Interest income - -
Interest expense (84,262) (9,596)
--------------- ---------------
Loss before minority interest (437,470) (296,610)
Minority interest 19,649 -
--------------- ---------------
Net loss $ (417,821) $ (296,610)
=============== ===============
Basic and diluted loss per common share $ (0.09) $ (0.64)
=============== ===============
Weighted average common shares outstanding 4,782,417 465,937
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED March 31, 1999
(unaudited)
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL COMMON
------------------------- ------------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL TO BE ISSUED
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 - $ - 4,370,905 $ 655,636 $ 25,607,914 $ 866,162
Common stock issued for compensation and services - - 178,700 26,805 187,627 -
Restricted Rule 144 common stock issued for the
conversion of principal and accrued interest
on convertible notes payable - - 55,119 8,268 8,140 -
Restricted Rule 144 common stock issued for
Compensation and services - - 58,400 8,760 29,946 -
Restricted Rule 144 common stock issued for acquistion
of Vision Diagnostics, Inc. & affiliates - - 200,000 30,000 57,500 -
Restricted Rule 144 common stock issued for cash - - 275,000 41,250 68,750 -
Restricted Rule 144 common stock to be issued - - - - - 25,000
Net loss for three months ended March 31, 1999 - - - - - -
------------ ------------ ------------ ------------ ------------- ------------
Balance, March 31, 1999 - $ - 5,138,124 $ 770,719 $ 25,959,877 $ 891,162
============ ============ ============ ============ ============= ============
</TABLE>
(continued below)
<TABLE>
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance, January 1, 1999 $ 25,443 $ (24,754,889) $ 2,400,266
Common stock issued for compensation and services - - 214,432
Restricted Rule 144 common stock issued for the
conversion of principal and accrued interest
on convertible notes payable - - 16,408
Restricted Rule 144 common stock issued for
compensation and services - - 38,706
Restricted Rule 144 common stock issued for
acquisition of Vision Diagnostics, Inc. &
affiliates - - 87,500
Restricted Rule 144 common stock issued for cash - - 110,000
Restricted Rule 144 common stock to be issued - - 25,000
Net loss for three months ended March 31, 1999 - (417,821) (417,821)
--------------- --------------- ---------------
Balance, March 31, 1999 $ 25,443 $ (25,172,710) $ 2,474,491
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three months ended March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (417,821) $ (296,610)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock paid for services 253,138 87,915
Compensation recognized relating to
accrued employee stock grants and warrants - 2,651
Minority interest (19,649)
Bad debt expense - -
Depreciation and amortization 163,893 65,164
Loss (gain) on disposal of fixed assets - -
Increase (decrease) from changes in assets and liabilities:
Accounts receivable 157,959 -
Inventory - 564
Prepaid expenses and other assets (195,166) 33,514
Other assets (12,135) -
Accounts payable and accrued expenses (52,001) (12,235)
--------------- ---------------
Net cash used in operating activities (121,782) $ (119,037)
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment $ - $ -
Proceeds from sale of property and equipment - -
--------------- ---------------
Net cash used in investing activities - -
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable 100,000 100,000
Principal payments on notes payable and line of credit (33,396) -
Proceeds from issuing common stock 135,000 -
Principal payments on capital lease obligations (138,606) -
--------------- ---------------
Net cash provided by financing activities 62,998 100,000
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (58,784) (19,037)
Cash and cash equivalents, beginning of period 77,906 45,505
--------------- ---------------
Cash and cash equivalents, end of period $ 19,122 $ 26,468
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
PAYMENTS FOR:
Interest $ 69,617 $ -
Income taxes $ - $ -
STOCK ISSUED FOR:
Research and development $ - $ 2,597
Public relations and marketing services - -
Legal, professional, and employee services 243,388 82,974
Directors' fees 9,750 469
Termination agreement - 1,875
--------------- ---------------
$ 253,138 $ 87,915
--------------- ---------------
</TABLE>
NON-CASH FINANCING ACTIVITY:
During the first quarter of 1999 and 1998, deferred compensation expense of $0
and $2,657, respectively, were recorded relating to accrued employee stock
grants in order to value such shares at the estimated fair market value at the
date of grant.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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, 1999, and the results of operations for
the three month period ended March 31, 1999 and 1998 and cash flows for the
three month period March 31, 1999 and 1998. 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 1998 Annual
Report on Form 10-KSB.
The results of operations for the three month period ended March 31, 1999 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, 1998.
(2) LOSS PER COMMON SHARE
Loss per common share have been computed based upon the weighted average number
of common shares outstanding during the periods presented. Common stock
equivalents resulting from the issuance of the stock options and warrants have
not been included in the per share calculations because such inclusion would be
antidilutive.
(3) GOODWILL
In connection with the Vision acquisition, consideration paid exceeded the
estimated fair value of the assets acquired (including estimated liabilities
assumed as part of the transaction) by approximately $3,800,000. The excess of
the consideration paid over the fair value of the net assets acquired has been
recorded as goodwill and is being amortized on a straight line basis over 40
years.
(4) SHORT-TERM NOTES PAYABLE AND LINE OF CREDIT
<TABLE>
Notes payable and line of credit consist of the following at March 31:
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Line of credit with finance company at prime plus 3% under which the Company
may borrow up to $1,500,000 or the "borrowing base" as defined.
Balance due August 1999, renewable for consecutive one-year periods. $ 528,566 $ 562,538
Note payable originally due June 1997. Outstanding balance currently due
with interest at 12.5%. 61,499 59,619
Note payable to bank, with interest at 9.95%, due August 1998. 81,368 79,689
Note payable to bank, with interest at prime plus 2%. Balance was due August
1998, collateralized by MRI machine and second lien on accounts
receivable. 94,129 94,129
Note payable to bank, with interest due quarterly at 4% above discount
rate, principal due June 1999. 76,559 77,171
Note payable to finance company, with interest at 10.5%, payable in sixty
Consecutive monthly installments of $2,149.39, final payment due February 2004. 98,726
---------- ----------
$ 940,847 $ 873,146
========== ==========
</TABLE>
F-7
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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
offering, the Company issued 153,750 shares of Series I convertible preferred
stock with an assigned value of $384,375 (see note 3). 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 thirty-fifths (4/35)
share of common stock $43.75 per share and for a total of $131.25. As part of
the terms of this offering, the holders of the Series I convertible preferred
stock exchanged their preferred stock for the Preferred Stock on a one for one
basis at no cost. Each share of Preferred Stock, by its terms, automatically
converted into four thirty-fifths (4/35) share of common stock on July 24, 1997.
During the first quarter of 1997, 94,920 shares of Preferred Stock were
converted into 10,848 shares of common stock; and during the second quarter of
1997, 31,927 shares of Preferred Stock were converted into 3,649 shares of
common stock. On July 24, 1997, each of the then-outstanding shares of Preferred
Stock, by their terms, automatically converted into four thirty-fifths (4/35)
share of common stock.
COMMON STOCK
On June 20, 1996, the directors of the Company approved a one-for-two reverse
split of the common stock. On March 6, 1998, the directors of the Company
approved an additional one-for-thirty-five reverse split of the Common Stock of
the Company. All share balances have been retroactively restated in the
accompanying consolidated financial statements to reflect the reverse stock
splits.
On September 9, 1996, the Company issued 2,047 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.
F-8
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(5) CONTINUED
---------
COMMON STOCK
On November 11, 1996, the Company declared a common stock dividend of 3,186
shares to Preferred Stockholders of record as of December 10, 1996. On June 12,
1997 the Company declared a common stock dividend of 4,345 shares to Preferred
Stockholders of record as of June 27, 1997 and on July 24, 1997 declared a
common stock dividend of 571 shares to Preferred Stockholders of record as of
July 24, 1997. The shares for 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 20, 1997, respectively. The
number of shares paid on the Preferred Stock as a dividend was 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 $105.00 and minimum price
of $42.00 per share. Fractional shares were rounded up.
During the year ended December 31, 1996, as a result of individuals exercising
4,643 private warrants, the Company issued 4,643 shares of common stock for
$275,000. No warrants were exercised in 1998 or 1997.
Pursuant to certain employment agreements in January and September 1997, 7,856
and 536 shares of accrued employee common stock grants were issued,
respectively. Accordingly, deferred stock compensation of $247,500 and $25,444
was reclassified to common stock and additional paid-in capital in the first and
third quarters of 1997, respectively.
Effective March 6, 1998, the Directors of the Company approved a one (1) for
thirty-five (35) reverse split of the common stock. There was no change in the
common stock voting rights, par value or authorized shares. All share balances
have been retroactively adjusted to reflect the reverse stock split.
Pursuant to an investment letter dated June 26, 1998 with an individual, the
Company received $55,000 for the purchase of 55,000 shares of Restricted Rule
144 Common Stock at a purchase price of $1.00 per share. As of December 31,
1998, all such shares had been issued.
On July 14, 1998, the Company acquired either the stock or substantially all of
the assets and liabilities of Vision Diagnostics, Inc. and Affiliates for a
total of 3,461,356 Restricted Rule 144 common shares. At December 31, 1998,
2,599,677 shares have been issued and 861,679 are to be issued upon the
completion of escrow requirements.
F-9
<PAGE>
MEDICAL DEVICE TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(5) CONTINUED
During the first quarter of 1999, an additional 200,000 shares of Restricted
Rule 144 common stock, valued at $87,500, were issued in connection with the
acquisition of Vision Diagnostics, Inc. Accordingly, goodwill associated with
this transaction was increased by $87,500.
Pursuant to an investment letter dated February 23, 1999 with an individual, the
Company received $25,000 for the purchase of 62,500 shares of Restricted Rule
144 Common Stock at a purchase price of $.40 per share. As of March 31, 1999,
such shares had not been issued.
Pursuant to an investment letter dated March 8, 1999 with an individual, the
Company received $100,000 for the purchase of 250,000 shares of Restricted Rule
144 Common Stock at a purchase price of $.40 per share. As of March 31, 1999,
all such shares had been issued.
Pursuant to an investment letter dated March 12, 1999 with an individual, the
Company received $10,000 for the purchase of 25,000 shares of Restricted Rule
144 Common Stock at a purchase price of $.40 per share. As of March 31, 1999,
all such shares had been issued.
In each of the five most current years, the Company's board of directors have
annually approved a stock compensation plan, the most recent which registered
500,000 shares of common stock under Form S-8 on March 17, 1999, whereby
services are obtained in exchange for issuance of free trading stock of the
Company. Shares may be awarded under this plan until February 1, 2004. During
the three months ended March 31, 1999 and 1998, 178,700 and 80,381 shares,
respectively, of common stock under Form S-8 registrations were issued for
directors fees, research and development, advertising and public relations,
compensation and legal and professional services provided to the Company.
(6) NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) issued by the FASB is effective for financial statements with
fiscal years beginning after December 15, 1997. Earlier application is
permitted. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Company adopted SFAS 130 on January 1, 1998 and it had
no effect on its financial position or results of operations.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" (SFAS 131) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. The new standard requires that public business enterprises report
certain information about operating segments of the enterprise and in condensed
financial 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 adopted SFAS 131 on January 1, 1998 and it had no effect
on its financial position or results of operations.
(7) SUBSEQUENT EVENTS
On April 7, 1999, the Company acquired the West Regional MRI Limited
Partnership, of which the Company was the General Partner, at a purchase price
of $1,300,000. At March 31, 1999, $150,000 of the purchase price was placed in a
prepaid escrow account which is included on the accompanying 1999 Consolidated
Balance Sheet in Prepaid Expenses and Other Assets.
In February 1999, the Company entered into a lease for a new MRI machine to be
used at Regional MRI of Orlando. The terms of this lease call for sixty monthly
payments in the amount of $16,747 and does not begin until the equipment is
available for first patient use. As of May 1999, the equipment is still in the
installment process.
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10QSB
03/31/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,122
<SECURITIES> 0
<RECEIVABLES> 3,741,758
<ALLOWANCES> 1,363,675
<INVENTORY> 0
<CURRENT-ASSETS> 2,664,551
<PP&E> 3,008,465
<DEPRECIATION> 1,323,119
<TOTAL-ASSETS> 8,469,914
<CURRENT-LIABILITIES> 3,936,466
<BONDS> 0
0
0
<COMMON> 770,719
<OTHER-SE> 1,703,772
<TOTAL-LIABILITY-AND-EQUITY> 8,469,914
<SALES> 1,096,560
<TOTAL-REVENUES> 803,686
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,168,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,262
<INCOME-PRETAX> (417,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (417,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (417,821)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
