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 March 31, 1999
[ ] Transition report pursuant to section 13 or 15(d) of the Exchange Act of
1934
For the transition period from_________________ to___________________.
Commission file No. 33-75236
LONGPORT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 23-2715528
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(State or other jurisdiction of IRS Employer ID No.
Incorporation or organization)
791 South Chester Rd. Swarthmore, Pa. 19081
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(Address of principal executive offices)
610-328-5006
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(Registrants telephone number, including area code)
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
----- -----
As of May 7, 1999, 17,290,949 shares of common stock were outstanding.
<PAGE>
LONGPORT, INC.
FORM 10-QSB
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
as of March 31, 1999 ......................................... 1-2
Consolidated Condensed Statements of
Operations for the three months ended
March 31, 1999 and 1998 ....................................... 3
Consolidated Condensed Statements of Cash
Flows for the three months ended March 31, 1999
and 1998 ...................................................... 4-5
Notes to Consolidated Condensed Financial Statements .......... 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations ..................................... 7-9
Part II. Other Information and Signatures ............................. 10-12
<PAGE>
LONGPORT, INC. AND SUBSIDIARY MARCH 31,1999
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
CASH $ 226,610
ACCOUNTS RECEIVABLE:
TRADE, NET OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $3,600 227,497
PREPAID EXPENSES 15,490
INVENTORIES 25,467
NOTE RECEIVABLE 3,750
-----------
TOTAL CURRENT ASSETS 498,814
-----------
PROPERTY AND EQUIPMENT, AT COST:
MEDICAL EQUIPMENT 116,638
COMPUTER EQUIPMENT 10,305
OFFICE FURNITURE AND EQUIPMENT 7,901
-----------
134,844
LESS ACCUMULATED DEPRECIATION (68,929)
-----------
NET PROPERTY AND EQUIPMENT 65,915
-----------
OTHER ASSETS:
ACCOUNTS RECEIVABLE 690,628
INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $38,333 11,667
DEPOSIT 1,175
-----------
TOTAL OTHER ASSETS 703,470
-----------
TOTAL ASSETS $ 1,268,199
===========
The accompanying notes are an integral part of these
consolidated condensed financial statements
1
<PAGE>
LONGPORT, INC. AND SUBSIDIARY MARCH 31,1999
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
- --------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 36,595
ACCRUED EXPENSES:
SALARIES AND PAYROLL TAXES 1,656
DEFERRED REVENUE 7,500
-----------
TOTAL CURRENT LIABILITIES 45,751
-----------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDER'S EQUITY:
PREFERRED STOCK: $.001 PAR VALUE
1,000,000 SHARES AUTHORIZED, NONE ISSUED
OR OUTSTANDING --
COMMON STOCK: $.001 PAR VALUE
25,000,000 SHARES AUTHORIZED,
16,160,949 SHARES ISSUED 16,161
PAID IN CAPITAL 4,771,932
ACCUMULATED DEFICIT (3,560,645)
-----------
1,227,448
LESS TREASURY STOCK, AT COST (30,000 COMMON SHARES) (5,000)
-----------
TOTAL STOCKHOLDERS' EQUITY 1,222,448
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,268,199
===========
The accompanying notes are an integral part of these
consolidated condensed financial statements
2
<PAGE>
FOR THE THREE MONTHS
ENDED MARCH 31
LONGPORT, INC. AND SUBSIDIARY 1999 1998
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
NET REVENUES:
MEDICAL SUPPLY SALES $ 7,970 $ 1,343
MEDICAL EQUIPMENT RENTALS 800 2,400
MANAGEMENT FEES 48,000 25,500
LICENSE FEES 78,000 38,000
TERRITORIAL LICENSE FEES 1,100,000 --
------------ ------------
TOTAL REVENUES 1,234,770 67,243
------------ ------------
OPERATING EXPENSES:
COST OF MEDICAL SUPPLY SALES 4,751 2,707
COST OF MEDICAL EQUIPMENT RENTALS -- 300
GENERAL AND ADMINISTRATIVE 218,485 235,877
------------ ------------
TOTAL OPERATING EXPENSES 223,236 238,884
------------ ------------
OPERATING INCOME (LOSS) 1,011,534 (171,641)
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 1,011,534 (171,641)
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ 1,011,534 $ (171,641)
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ 0.06 $ (0.01)
DILUTED $ 0.06 $ (0.01)
COMMON EQUIVALENT SHARES:
BASIC 16,130,949 14,984,671
DILUTED 16,740,971 14,984,671
The accompanying notes are an integral part of these
consolidated condensed financial statements
3
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
LONGPORT, INC. AND SUBSIDIARY 1999 1998
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (UNAUDITED)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 1,011,534 $ (171,641)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 7,075 6,000
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE (907,247) 1,863
DECREASE IN OTHER RECEIVABLES -- 1,200
DECREASE IN PREPAID EXPENSES 14,461 8,500
(INCREASE) IN INVENTORIES -- (2,500)
INCREASE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES 9,248 3,398
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 135,071 (153,180)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (36,314) --
PAYMENTS RECEIVED ON NOTES RECEIVABLE -- 3,750
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (36,314) 3,750
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PRINCIPAL PAYMENTS ON NOTES PAYABLE -- (648)
ISSUANCE OF COMMON STOCK -- 205,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 204,352
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 98,757 54,922
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 127,853 36,397
=========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 226,610 $ 91,319
=========== ===========
The accompanying notes are an integral part of these
consolidated condensed financial statements
4
<PAGE>
FOR THE THREE MONTHS ENDED
MARCH 31,
LONGPORT, INC. AND SUBSIDIARY 1999 1998
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (UNAUDITED)
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ -- $ --
INCOME TAXES -- --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
COMMON STOCK ISSUED FOR MEDICAL EQUIPMENT $ -- $ 62,500
The accompanying notes are an integral part of these
consolidated condensed financial statements
5
</TABLE>
<PAGE>
LONGPORT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying financial information of the Company is prepared in
accordance with the rules prescribed for filing condensed interim financial
statements and, accordingly, does not include all disclosures that may be
necessary for complete financial statements prepared in accordance with
generally accepted accounting principles. The disclosures presented are
sufficient, in management's opinion, to make the interim information presented
not misleading. All adjustments, consisting of normal recurring adjustments,
which are necessary so as to make the interim information not misleading, have
been made. Results of operations for the three months ended March 31, 1999 are
not necessarily indicative of results of operations that may be expected for the
year ending December 31, 1999. It is recommended that this financial information
be read with the complete financial statements included in the Company's Form
10-KSB dated December 31, 1998 previously filed with the Securities and Exchange
Commission.
2. Basic earnings per common share is calculated by dividing net income
(loss) for the period by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is calculated by
dividing net income (loss) for the period by the weighted average number of
common shares outstanding during the period, increased by the dilutive potential
common shares ("dilutive securities") that were outstanding during the period.
Dilutive securities include outstanding stock options and warrants. Dilutive
securities relating to stock options and warrants are included in the
calculation of diluted earnings per share using the treasury stock method.
The schedule below summarizes the elements included in the calculation of
basic and diluted net income (loss) per common share for the periods ended March
31, 1999 and 1998. For the period ended March 31, 1999, warrants to purchase
1,185,714 common shares were excluded from the calculation of diluted net income
per share, as their effect would have been antidilutive. For the period ended
March 31, 1998 options and warrants to purchase 1,379,714 common shares were
excluded from the calculations of diluted net (loss) per share, as their effect
would have been antidilutive.
Three Months Ended
March 31
1999 1998
Net income (loss) $1,011,534 $(171,641)
========== =========
Weighted-average common shares outstanding:
Weighted average common shares outstanding -
Basic 16,130,949 14,984,761
Dilutive securities 610,022 --
---------- ----------
Weighted-average common shares outstanding -
Diluted 16,740,971 14,984,671
========== ==========
Net income (loss) per common share:
Basic $.06 $(.01)
Diluted $.06 $(.01)
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations
The three months ended March 31, 1999 vs.
the three months ended March 31, 1998.
Revenues for 1999 were $1,234,770 compared to $67,243 for 1998. Revenues
from medical supplies and equipment sales increased $6,627. Revenues generated
from wound center management fees increased 88%, from $25,500 to $48,000.
Licensing and marketing fees increased $1,140,000, from $38,000 to $1,178,000.
This change reflects the shift in the Company's business philosophy from
reliance on sales and rentals. The Company expects licensing and marketing fees
to increase in the future.
Total expenses decreased to $223,236 in 1999 from $238,884 in 1988. This
decrease is due to the Company's efforts to reduce General and Administrative
expenses. Additionally, approximately $30,000 in legal and accounting fees
related to the preparation of a Private Placement Memorandum for 500,000 shares
of redeemable preferred stock was incurred in 1999, and will not reoccur. The
Company expects research and development expenses related to the Scanner to
increase over time, as these expenses are necessary to seeking FDA clearance to
market the Scanner.
The Company's operations have undergone a significant transformation as
management has become more focused on the development of the Scanner technology.
This has also been a driving force behind the Company's increased revenues from
licensing and marketing fees, which increased 3000% from the three-month period
for 1998. The Company's revenues from Management Fees, through the wound centers
at West Jersey Health System's Camden hospital, West Hudson Hospital, and
Accelerated Care Plus, have been far eclipsed by the licensing fees that are
related to the Company's general wound healing programs, including the scanner
and the topical hyperbaric oxygen products. The Company's regular expenses, such
as salaries and general office expenses remain essentially unchanged from month
to month.
The Company's stability and focus can be seen in the comparison of
Stockholders' Equity. There has been an increase of over $988,000 from 1998 to
1999.
Strategy to Achieve Profitable Operations
Management expects the revenues for 1999 to continue to grow over and above
those for 1998, directly as a result of the licensing relationships it now
promotes. This will likely correspond with increasing expenses related to the
development of the Scanner. The Company has filed for FDA Medical Device
marketing clearance. The Company anticipates obtaining future licensing and
consulting service clients, which should lead to additional revenues from the
rental and sales of equipment to those clients. The Company continues to
negotiate with other healthcare providers to provide consulting services.
Management continues negotiating for business relationships for the marketing of
the Scanner technology, in anticipation of FDA clearance to commercially market
the Scanner.
Cash flow problems no longer exist. Current revenues permit the Company to
meet its regular obligations, including salaries. The Company seeks outside
sources for additional Capital as needed to fund research projects or
significant portions of the Scanner development projects. Otherwise, the Company
utilizes the cash remaining on a monthly basis to support ongoing research and
marketing activities. Management intends to negotiate future relationships that
will not damage the Company's current cash flow, or incur significant expenses.
See Liquidity and Capital Resources and Part II, Legal Proceedings.
Overall, the Company anticipates growth in revenues in 1999. Management
looks to create new relationships that will increase revenues, while controlling
the Company's expenses and debt. The Company continues to explore the
possibility of additional equity financing to provide additional capital, for
the development of the Scanner technology and the expansion of the business, but
can make no assurances that financing can be obtained.
7
<PAGE>
Liquidity and Capital Resources
Management does not expect to incur significant liabilities in the future. As
for the stockholders' equity, it has increased to $1,222,448 for 1999 versus
$234,196 for 1998.
As of March 31, 1999, the Company's Current Liabilities were $45,751, with
no long-term debt. Management anticipates that it will have to sell additional
shares of restricted Common Stock to fund any expansions of the business and the
development of the Scanner technology. Management does not expect to incur any
significant short-term or long-term debt within the next twelve months.
The Company anticipates growth from additional license agreements,
management fees, and sales and rentals of equipment during 1999. New license
agreements and Wound Healing Center contracts will essentially mirror the
agreements the Company now has in place. The Company intends to continue its
practice of acting as a management consultant to healthcare providers, for a
fixed monthly fee. In addition, the Company continues to explore the possibility
of public or private placements of its common stock but cannot provide any
assurance that any such financing can be obtained.
In September 1997, the Company was notified of a Medicare Hearing Officer's
decision that the Company is liable for repayment of Medicare Benefit
overpayments of $269,120. The Overpayments are from calendar years 1994 and
1995. The Company has appealed the Hearing Officer's decision. An Administrative
Law Judge heard the Appeal on January 5, 1999. The Administrative Law Judge
reviewed fourteen cases out of approximately 500 cases in dispute. The
Administrative Law Judge rendered his decision on February 18, 1999 regarding
the fourteen cases as follows:
A. Five cases were dismissed.
B. Three cases were decided as partially unfavorable resulting in an
overpayment of $1,434 and two cases which need to be recalculated.
C. Six cases were decided as unfavorable resulting in an overpayment of
$6,420.
The other cases were not reviewed and the Company does not know if they
will be reviewed by the Administrative Law Judge. The Company has the right to
appeal the Administrative Law Judge's decision with the Appeals Council. The
Appeal must be written and filed within sixty days. The Company appealed the
Administrative Law Judge's decision in April, 1999. The Company is unable to
predict the outcome of the Appeal. However, Management believes that there were
no Medicare Benefit Overpayments in 1994 and 1995 and will vigorously defend its
position.
Payment of any judgement or settlement in connection with the Medicare
Benefit Overpayments Appeal together with the costs of defending the Appeal,
could adversely affect the Company's results of operations and financial
condition.
The Company did raise capital through the private sale of stock to current
and new shareholders through May 7, 1999. Between April 5 and May 7, the Company
sold 1,130,000 shares, at an average price of $1.03 per share, for total
proceeds of $1,162,500.
To date, there have been no sales of the Company's convertible redeemable
preferred stock which was made available through a confidential Private
Placement Memorandum.
Computer Systems - The Year 2000 Issue
Many computers, software programs and other equipment with embedded
computer chips (systems) in use today utilize two digits to specify the year,
such as "98" for 1998 (the Y2K issue). As a result of the Y2K issue, such
systems may recognize a date using "00" as the year 1900 rather than the year
2000. In some cases, the date "00" may cause system(s) failure(s) or
miscalculations causing disruptions of the Company's operations.
8
<PAGE>
In early 1998 the Company began formulating a comprehensive plan to assess
the Company's Y2K issues. The plan calls for the identification of those
systems, both internal and external, which are critical to the Company's ability
to continue normal operations, the assessment of any required remediation
(including any upgrading, modification and replacement of computer hardware and
software and adequate testing to ensure Y2K compliance), and the resources
needed to bring those critical systems into Y2K compliance.
The internal systems under evaluation include the Company's point-of-sale,
accounting, data processing, telephone and other miscellaneous information
technology systems, as well as alarm systems, printers, fax machines and modems.
The Company believes that it has identified the internal systems that are
susceptible to failure or potential processing errors as a result of theY2K
issue. The Company is concentrating its Y2K efforts on these systems. The
Company anticipates that its Y2Kidentification, assessment and remediation
efforts for critical internal systems will be completed by June 30, 1999.
However, testing for Y2K compliance will be an on-going process.
The Company believes that its computer hardware and related peripherals are
currently Y2K compliant based upon representations made by the providers of such
equipment. The Company also believes that its accounting and payroll software
systems are Y2K compliant and testing to ensure such compliance will be
completed by June 30,1999.
The Company is reviewing, and has initiated written communications with
other third parties providing goods or services, such as financial institutions
and utility companies, which may be critical to the Company's operations to; (i)
ascertain the extent to which the Company may be exposed to adverse affects for
any failure by such third parties to remediate their Y2K issues; and (ii)
resolve, to the extent practicable, such problems. However, the Company has no
control over and has only limited ability to influence such third parties Y2K
compliance. The failure of such third parties to achieve Y2K compliance in a
timely manner and the potential inability to replace such a third party
provider, could adversely impact the Company's operations.
The Company currently estimates that the total identifiable cost of its Y2K
compliance effort will not exceed $10,000.00. As of March 31, 1999, the Company
had incurred approximately $5,000.00 to upgrade it's computer hardware and
software. The Company does not track personnel costs associated with its Y2K
compliance effort. The Company expects to fund Y2K expenditures from internal
sources.
Based on the progress made to date and its time-table for further progress
in attaining Y2K compliance, the Company does not currently anticipate any
significant risks associated with its Y2K issues. However, management believes
that it is not possible to determine with absolute certainty that all Y2K issues
pertaining to the Company have or will be identified and corrected. Because the
assessment of its Y2K issues is incomplete at this time, the Company has yet to
determine the most reasonably likely worst case scenario relating to Y2K issues,
and has yet to complete a comprehensive contingency plan with respect to its Y2K
issues. The Company anticipates completing the Y2K assessment and comprehensive
contingency plan by September 30, 1999.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Statements made under the Management's Discussion and Analysis of
Financial Condition and Results of Operations, and other statements within this
document, that are not based on historical facts, are forward looking statements
that involve risks and uncertainties, including but not limited to, market
acceptance risks, the effect of economic conditions, the impact of competition
and pricing, product development, commercialization and technology difficulties,
the results of financing efforts, and other risks detailed in the Company's
Securities and Exchange Commission filings.
9
<PAGE>
Part II
Other Information
Item 1. Legal Proceedings
The Company continues in its pursuit of recovery for damages against the
attorneys who brought the federal lawsuit against the Company on behalf of Supra
Medical Corp. There have been no significant events to report during this
three-month period.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits None.
b) Reports on Form 8-K None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused the Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Swarthmore, Pennsylvania, on May 10,
1999.
Longport, Inc.
By /s/ James R. McGonigle
-----------------------------
James R. McGonigle
President
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 226,610
<SECURITIES> 0
<RECEIVABLES> 921,725
<ALLOWANCES> 3,600
<INVENTORY> 25,467
<CURRENT-ASSETS> 1,189,442
<PP&E> 134,844
<DEPRECIATION> 68,929
<TOTAL-ASSETS> 1,268,199
<CURRENT-LIABILITIES> 45,751
<BONDS> 0
0
0
<COMMON> 16,161
<OTHER-SE> 1,206,287
<TOTAL-LIABILITY-AND-EQUITY> 1,268,199
<SALES> 7,970
<TOTAL-REVENUES> 1,234,770
<CGS> 4,751
<TOTAL-COSTS> 223,236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,011,534
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,011,534
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
