SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File Number 2-94117-D
------------- ---------
MICROTECH MEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-0867911
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 North Cascade Avenue, Suite 330, Colorado Springs, Colorado 80903
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (719) 520-1800
--------------
401 Laredo Street, Unit I, Aurora, Colorado, 80011
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check whether the registrant (1) has filed Yes X
all reports required to be filed by Section 13 or 15(d) --------
of the Securities Exchange Act of 1934 during the pre-
ceding 12 months (or for such shorter period that the No
registrant was required to file such reports), and (2) --------
has been subject to such filing requirements for the
past 90 days.
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
Number of shares outstanding
Class at Aug 12, 1996
------------------------------- -----------------------------
Common stock, $.0005 par value 59,080,900 shares
<PAGE>
FORM 10-Q
2nd QUARTER
INDEX
-----
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements*
Balance Sheets - June 30, 1996 (Unaudited) and
December 31, 1995 3
Statements of Operations - Three months ended
June 30, 1996 and 1995 and six months ended
June 30, 1996 and 1995 (Unaudited) 4
Statement of Cash Flows - Six months ended
June 30, 1996 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis (Unaudited) 8
PART II - OTHER INFORMATION
Items 1 through 6. 9
SIGNATURES 10
* The accompanying financial statements are not covered by an independent
certified public accountant's report.
2
<PAGE>
<TABLE>
MICROTECH MEDICAL SYSTEMS, INC.
BALANCE SHEETS
(Unaudited)
<CAPTION>
JUNE 30 DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,054,942 $ 506,519
Marketable securities 156,975 104,065
Current assets of discontinued operations 132,572 172,905
----------- -----------
Tota current assets 1,344,489 783,489
OTHER ASSETS:
Deferred taxes -- 69,000
Assets of discontinued operations 28,733 31,420
----------- -----------
28,733 100,420
----------- -----------
TOTAL ASSETS $ 1,373,222 $ 883,909
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ -- $ --
Income tax payable 99,746 --
Current Liabilities of discontinued operations 47,166 77,670
----------- -----------
Total current liabilities 146,912 77,670
STOCKHOLDERS' EQUITY:
Common stock, $.0005 par value; 200,000,000 shares authorized,
59,080,900 shares issued and outstanding 33,290 29,540
Additional paid-in capital 1,023,358 1,010,605
Retained earnings (accumulated deficit) 169,662 (233,906)
----------- -----------
Total stockholders' equity 1,226,310 806,239
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,373,222 $ 883,909
=========== ===========
<FN>
See accompanying notes to these financial statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
MICROTECH MEDICAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ * $ * $ * $ *
Less cost of goods sold * * * *
----------- ----------- ----------- -----------
GROSS PROFIT * * * *
OPERATING EXPENSES 27,383 5,862 30,693 15,022
(LOSS) FROM CONTINUING OPERATIONS (27,383) (5,862) (30,693) (15,022)
OTHER INCOME (EXPENSE):
Interest income 6,340 6,099 12,846 10,927
Unauthorized transactions 499,346 * 532,437 *
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND 478,303 237 514,590 (4,095)
DISCONTINUED OPERATIONS
PROVISION FOR INCOME TAXES
Current expense (72,000) * (72,000) (32,000)
Deferred tax (61,000) * (69,000) *
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS 345,303 237 373,590 (36,095)
DISCONTINUED OPERATIONS,
NET OF INCOME TAXES 6,424 23,776 29,979 91,074
----------- ----------- ----------- -----------
NET INCOME $ 351,727 $ 24,013 $ 403,569 $ 54,979
=========== =========== =========== ===========
NET INCOME PER SHARE $ * $ * $ * $ *
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 71,020,900 69,018,995 70,425,900 68,979,948
=========== =========== =========== ===========
<FN>
- -------------
* Less than $.01 per share
See accompanying notes to these financial statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
MICROTECH MEDICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<CAPTION>
JUNE 30,
----------------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 403,569 $ 54,979
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 4,686 3,257
Unauthorized transaction losses (recoveries) (532,437) --
Deferred taxes 69,000 --
Changes in assets and liabilities related to
Discontinued operations:
Other assets (2,910) --
Discontinued operations 9,829 21,162
Income tax payable 99,746 (11,100)
---------- ----------
Net cash provided by (used in) operating activities 51,483 68,298
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayments, former president 532,437
Purchase of property and equipment (1,998) (22,000)
Purchase of certificate of deposit (50,000) --
---------- ----------
Net cash used in investing activities 480,439 (22,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Stock options exercised 16,501 --
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 548,423 46,298
CASH AND CASH EQUIVALENTS, beginning of period 506,519 509,400
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $1,054,942 $ 555,698
========== ==========
<FN>
See accompanying notes to these financial statements
</FN>
</TABLE>
5
<PAGE>
MICROTECH MEDICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL:
Microtech Medical Systems, Inc. (the Company) has elected to omit
substantially all other notes to the financial statements. These interim
financial statements should be read in conjunction with the Company's annual
report and report Form 10-KSB for the year ended December 31, 1995.
2. UNAUDITED INFORMATION:
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary to reflect properly results of interim periods presented.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the year.
3. STOCKHOLDERS EQUITY:
In February 1996 the Board of Directors granted 3,000,000 options to the
Company's two board members. The options are exercisable at $.02 per share for
five years.
4. SALE OF FORMER OFFICERS' COMMON STOCK:
On June 27, 1996, the Company's former president, (Kilgore) sold 26,835,000
shares of his common stock, representing 40.3% of the Company's outstanding
common stock, to a new control group for approximately $562,000 in cash. Kilgore
used $498,346 of the proceeds to repay a then outstanding note receivable and
related interest from the Company to him. This note receivable had been
previously fully reserved, which along with other prior payments by Kilgore
resulted in other income of $532,000 being recorded in the financial statements.
In connection with the sale agreement, the two prior members of the Company's
Board of Directors resigned and four new Board members and three new officers
affiliated with the new control group were appointed. The prior directors and
Kilgore retained their currently outstanding options to purchase an aggregate of
7,000,000 shares of common stock (4,000,000 options exercisable at $.001 and
3,000,000 options exercisable at $.02).
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONT.
As additional consideration for the sale of shares, the new control group agreed
to submit to the shareholders for approval the sale of the Company's medical
test kit manufacturing operations to Kilgore (see Note 5).
5. DISCONTINUED CONTINUAL OPERATIONS:
As part of the sale of common stock by Kilgore, the Company entered into an
asset purchase agreement dated June 27, 1996, pursuant to which the Company has
agreed to sell, subject to shareholder approval, its medical test kit
manufacturing operations, including all licenses, inventories, and operating
assets to Kilgore for $251,000. In payment for the assets, Kilgore will deliver
$1,000 in cash and a note for $250,000. The note will bear interest at prime
plus 1%, and will be due and payable on June 1, 2001. The note will be
collateralized by Kilgore's options and certain other collateral paper held by
Kilgore.
As the Company intends to divest itself of the medical test kit operations, such
operations and related assets and liabilities have been reflected as
discontinued operations in the accompanying financial statements. Income from
the medical test kit manufacturing operations from June 12, 1996 (the proposed
effective date of the sale), have been deferred. Such amount has been immaterial
through June 30, 1996. If the sale is approved by the shareholders, the related
gain from the sale will be deferred until the note receivable is collected.
6. SUBSEQUENT EVENT:
In July 1996, the Company made the following cash advances to affiliated
corporations for the following purposes:
* Galley Rodeo International (a public company in which the control group
managed the corporation) - $ 450,000 purchase of $ 500,000 note receivable.
* InnerCircle Group Incorporated (a management company owned by the control
group) - $130,000 for management fees pursuant to management service contract.
* Galley Rodeo International (a public company in which the control group
managed the corporation) - $ 200,000 purchase of $ 208,000 note receivable.
The Company has also purchased and sold various real estate lots which have
resulted in a gain to the Company.
7
<PAGE>
MICROTECH MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
GENERAL:
The Company's financial condition and results of operations are directly
affected by the following transactions.
On June 27, 1996, the Company's former president, (Kilgore) sold 26,835,000
shares of his common stock, representing 40.3% of the Company's outstanding
common stock, to a new Control Group for approximately $562,000 in cash. Kilgore
used approximately $500,000 of these proceeds to repay a then outstanding note
receivable and related interest from the Company to him. This note receivable
had been previously fully reserved, which along with other prior payments by
Kilgore, resulted in other income of $532,000 being recorded in the financial
statements.
In connection with the sale agreement, the two prior members of the Company's
Board of Directors resigned and four new Board members and three new officers
affiliated with the new Control Group were appointed. As part of the sale of
common stock by Kilgore, the Company has agreed to sell, subject to shareholder
approval, its medical test kit manufacturing operations, including all licenses,
inventories, and operating assets to Kilgore for a note of $250,000, plus $1,000
in cash.
As the Company intends to divest itself of the medical test kit operations, such
operations and related assets and liabilities have been reflected as
discontinued operations in the accompanying financial statements.
The Company intends to take advantage of real estate markets and opportunities,
especially those in Colorado for its planned future operations.
FINANCIAL CONDITION
As of June 30, 1996, the Company's working capital was approximately $1,200,000,
an increase of approximately $500,000 from December 31, 1995. The increase is
primarily attributable to the repayment by the Company's former president
(Kilgore) a note receivable of $532,000, which had been previously fully
reserved by the Company. Subsequent to June 30, 1996, working capital decreased
by the following disbursements:
o $65,000 per month for services provided by an entity owned by
Control Group commencing July 1996 under a management services
contract.
o $450,000 to purchase a $500,000 mortgage note receivable due
from an unaffiliated company. This note was previously held by
a public company, which is managed by the Control Group.
o Purchase of approximately $300,000 in undeveloped real
property. The substantial portion of this property has been
subsequently resold at a profit or is under contract for sale.
8
<PAGE>
RESULT OF OPERATIONS:
As the Company's Board of Directors has decided to sell the medical test kit
manufacturing business, the statement of operations has been restated to reflect
these operations as discontinued operations. The other remaining operating
expenses relate primarily to professional fees paid by the Company associated
with being a public entity. Other income represents interest from investments
and recovery of previously reserved amounts, plus interest and related costs,
related to the prior unauthorized transactions by Kilgore.
Discontinued operations represent income through June 12, 1996 related to the
prior medical test kit manufacturing operations. Income after June 12, 1996,
which has not been significant, related to the medical test kit business has
been deferred as it will be retained by Kilgore, if the sale is approved. No
gain will be recognized on the sale to the medical business to Kilgore, but
rather deferred until cash is received on the underlying note given by Kilgore
as consideration of the purchase of the business.
Income tax expense differs from the expected Federal income tax rate due to
recovery of the valuation allowance previously provided on the deferred tax
asset related to the allowance for amounts previously due from Kilgore.
PART II - OTHER INFORMATION
Item 1 Through 5 - No response required.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits
27* Financial Data Schedule.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
June 30, 1996.
* This exhibit will be filed by amendment.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROTECH MEDICAL SYSTEMS, INC.
(Registrant)
DATE: 8/16/96 BY: /s/ Kenneth M. Cahill
------------------ ---------------------------------------
KENNETH M. CAHILL, PRESIDENT
DATE: 8/16/96 BY: /s/ J. Royce Renfrow
------------------ ---------------------------------------
J. ROYCE RENFROW, SECRETARY
DATE: 8/16/96 BY: /s/ James A. Humpal
------------------ ---------------------------------------
JAMES A. HUMPAL, TREASURER
Principal Financial Officer
10
