<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
NOVEMBER 30, 1996
OR
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANE ACT OF 1934
COMMISSION FILE NUMBER: 33-5384
DERMARX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3301899
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
400 SOUTH COLORADO BLVD., SUITE 420
DENVER, COLORADO 80222
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)333-4600
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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 7,125,969
(as of December 1, 1996) of common stock, par value $.01 per share.
<PAGE>
DERMARx CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet - November 30, 1996 1
Statements of Operation - 2
Three Months and Nine Months
Ended November 30, 1996 and 1995
Statements of Cash Flows - 3
Nine Months Ended November 30, 1996 and 1995
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis 5
of Financial Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of 6
Securities Holders
Item 6. Exhibits and Reports on Form 8-K 6
Signature 7
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
DERMARx CORPORATION
BALANCE SHEET
NOVEMBER 30, 1996
ASSETS
<S> <C>
Current Assets
Cash $173,380
Accounts receivable 13,242
Inventory - Raw materials & finished goods 128,970
Prepaid expense 8,230
-----------
Total current assets 323,821
-----------
Property and equipment, net of accumulated
depreciation of $5,141 $15,163
-----------
Other assets:
Security Deposits $3,286
Patents, net of accumulated
amortization of $37,654 113,037
-----------
$455,308
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Note payable - bank $1,381
Notes payable - other 0
Accounts payable and accrued expenses 48,367
Accrued interest - notes payable 0
-----------
Total current liabilities 49,748
-----------
Long-term debt:
Notes payable - net of discounts 34,337
Note payable - related party, net of discounts 49,196
Accrued interest - note payable 4,783
Accrued interest - note payable, related party 7,551
-----------
Total long-term debt 95,867
Commitments and contingencies:
Contingent liability 228,917
-----------
Total long-term debt, commitments and contingencies 324,784
-----------
Common stockholders' equity (deficiency):
Common stock, $.05 par value; 12,000,000 shares
authorized; 7,125,969 shares issued and
outstanding 361,298
Additional paid - in capital 3,955,745
Accumulated (deficit) (4,236,268)
-----------
80,776
-----------
$455,308
===========
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
DERMARX CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
November 30, November 30,
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Sales $11,990 $8,422 $25,133 $40,548
Cost of goods sold (4,379) (1,958) (9,022) (12,028)
---------- --------- --------- ---------
Gross profit 7,611 6,464 16,112 28,520
Operating expenses 131,066 129,303 491,280 316,774
Operating profit (loss) (123,455) (122,839) (475,168) (288,254)
Other income (expense)
Interest income 2,872 - 15,362 -
Interest expense (5,921) (8,850) (17,910) (26,839)
Extraordinary expenses - 111,450 - 111,450
---------- ---------- ---------- ----------
Net profit (loss) from continuing operations (126,504) (243,139) (477,716) (426,543)
Net profit (loss) from discontinued operations - - - -
---------- ---------- ---------- ----------
Net profit (loss) attributable to common
stock ($126,504) ($243,139) ($477,716) ($426,543)
========== ========== ========== ==========
Net profit (loss) per common share:
From continuing operations $(.02) $(.05) $(.05) $(.04)
From discontinued operations - - - -
---------- ---------- ---------- ----------
$(.02) $(.05) $(.05) $(.04)
========== ========== ========== ==========
Weighted-average number of common
shares outstanding 7,125,969 5,218,897 7,113,701 3,867,713
========== ========== ========== ==========
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DERMARx CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months Ended
November 30
1996 1995
--------- ---------
<S> <C> <C>
(Unaudited)
Cash Flows from operating activities:
Net (loss) ($477,716) ($448,538)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Accounts payable, accrued expenses and accrued $8,680
interest converted to common stock
Amortization of discounts on notes 2,250 7,866
Expenses paid by issuance of stock
Depreciation and amortization 10,444 7,138
Changes in assets and liabilities
(Increase) decrease in accounts receivable (7,547) (3,923)
(Increase) decrease in inventory (66,293) 12,029
(Increase) decrease in other assets 4,423 (7,002)
Increase (decrease) in accounts payable, accrued (6,044) (59,315)
interest and accrued expenses
Increase (decrease) in dividends in arrears - -
--------- ---------
Net cash (used) by operating activities (531,804) (491,745)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (7,209) -
--------- ---------
Net cash (used) by investing activities (7,209) -
--------- ---------
Cash flows from financing activities:
Net proceeds of equity sale 1,650,120
Net proceeds from debt obligations
Purchase of treasury shares
Repayment of debt obligations (250,389)
--------- ----------
Net cash provided by financing activities 0 1,399,731
--------- ----------
Net increase in cash and cash equivalents ($539,013) $907,986
Cash and cash equivalents, March 1, 1996 $712,392 5,730
--------- ----------
Cash and cash equivalents, November 30, 1996 $173,380 $913,716
========= ==========
</TABLE>
3
<PAGE>
DERMARx CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS
The balance sheet as of November 30, 1996, the statements of
operations for the nine months ended November 30, 1996 and 1995 and
the statements of cash flows for the nine months ended November 30,
1996 and 1995 have been prepared by the Company, without audit. In
the opinion of management, all adjustments (which include only normal
recurring adjustments), necessary to present fairly the financial
position, results and cash flows as of November 30, 1996 and for all
periods presented have been made. The results of operations, for the
nine months ended November 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and note thereto included in the Company's Form 10-K for
its fiscal year ended February 29, 1996, which was filed with the
Securities and Exchange Commission.
NOTE 2 - OUTSTANDING SHARES
Shares issued and outstanding decreased from 7,225,969 to 7,125,969 as
a result of the cancellation of a 100,000 share certificate issued in
duplicate.
4
<PAGE>
DERMARX CORPORATION AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MANAGEMENT PLANS
The most immediate plan of the Company is to establish a
distribution network throughout the United States, Australia and
Mexico, and to obtain additional working capital through a private
placement.
RESULTS OF OPERATIONS
The primary focus has been on establishing distribution of the
newly developed line of wound care products. The Company is
negotiating with several potential distributors and anticipates a
distribution network to be in place throughout the United States,
Mexico and Australia by year end. The Company is continuing to seek a
consumer oriented partner to market its diaper rash product.
On November 5, 1996, the Company was notified by the Federal Drug
Administration that its amorphous hydrogel product had received
marketing approval. A patent application has been filed with the U.S.
Patent Office for this product.
The Company's revenues increased to $11,990 in its fiscal quarter
ended November 30, 1996 from $8,422 in its fiscal quarter ended
November 30, 1995, an increase of $2,568. This negligible increase is
attributable to initial sales of the wound care products. The Company
does not expect an appreciable increase in revenues until its
distribution network for the wound care line is fully in place.
Limited resources have been devoted to marketing. The Company's cost
of goods sold as a percentage of revenues increased to 36% from 23% in
the three months ended November 30, 1996 as compared to the comparable
period one year ago. Total expenses were $136,987, a decrease of
$112,616 from the comparable period one year ago. The higher expense
in 1995 was primarily attributable to extraordinary costs related to a
private placement. Interest expense decreased by $2,929 for the
quarter ended November 30, 1996, compared to the same period in 1995.
For the third quarter of fiscal year 1996, the Company had a net loss
of $126,504, or $.02 per share as compared to a net loss of $243,135
or $.05 per share for the previous comparable period.
SUBSEQUENT EVENT
None
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its capital requirements to increase
significantly as marketing efforts and inventory requirement increase.
5
<PAGE>
The ability to secure additional working capital and the ability to
obtain successful distribution for its products are reasonably likely
to have a material impact on the Company's short-term and long-term
liquidity.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITIES HOLDERS
The Company's annual shareholder meeting was held on Monday,
November 18, 1996, at the Company's headquarters in Denver, Colorado.
A new Board of Directors was elected which includes Maryanne Carroll,
Thomas M. Dean, Peter G. Martin, Gerit P. Mulder, Judy Papen and Pedro
H. Valdes. The shareholders approved an increase in authorized shares
of common stock form 8,000,000 to 12,000,000 and approved the
appointment of Paul C. Roberts as auditor for the 1996 fiscal year
ending February 28, 1997. There were no other matters submitted to a
vote of security holders, through the solicitation of proxies or
otherwise, during the fiscal quarter ended November 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
6
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed don its
behalf by the undersigned thereunto duly authorized.
DERMARx CORPORAITON
(Registrant)
Dated: December 6, 1996
/S/ Maryanne Carroll
------------------------
Maryanne Carroll
Chief Executive Officer
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> NOV-30-1996
<CASH> 173,380
<SECURITIES> 0
<RECEIVABLES> 13,242
<ALLOWANCES> 0
<INVENTORY> 128,970
<CURRENT-ASSETS> 323,821
<PP&E> 15,163
<DEPRECIATION> 0
<TOTAL-ASSETS> 455,308
<CURRENT-LIABILITIES> 49,748
<BONDS> 324,784
<COMMON> 361,298
0
0
<OTHER-SE> (280,522)
<TOTAL-LIABILITY-AND-EQUITY> 455,308
<SALES> 25,133
<TOTAL-REVENUES> 25,133
<CGS> (9,022)
<TOTAL-COSTS> (9,022)
<OTHER-EXPENSES> 491,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,910
<INCOME-PRETAX> (477,716)
<INCOME-TAX> 0
<INCOME-CONTINUING> (477,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<NET-INCOME> (477,716)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<CHANGES> 0
</TABLE>
