FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to___________
Commission file number: 000-27592
SCANTEK MEDICAL, INC.
(Exact name of registrant as specified in its charter)
New Jersey 84-1090126
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26 Merry Lane
East Hanover, New Jersey 07936
(Address of principal executive offices)
(Zip Code)
201-331-1766
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
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.
At November 1, 1996, there were 17,020,200 shares of Common Stock, $.0001
par value, outstanding.
<PAGE>
SCANTEK MEDICAL, INC.
(A DEVELOPMENT STATE COMPANY)
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Part I. Financial Information 1
Item 1. Financial Statements
Consolidated Balance Sheets as
of September 30, 1996 (unaudited)
and June 30, 1996 2
Consolidated Statements of Operations for the Three
Months Ended September 30, 1996 and 1995 (unaudited)
and for the Period June 10, 1988 (Date of Formation)
through September 30, 1996 3
Consolidated Statements of Stockholders' Equity
(Deficiency) for the Years Ended June 30, 1996, 1995,
1994, 1993, 1992 and 1991, and for the Period June
10, 1988 (Date of Formation) through September 30,
1996 4 - 7
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1996 and 1995 (unaudited)
and for the Period June 10, 1988 (Date of
Formation) through September 30, 1996 8 - 9
Notes to Financial Statements
(unaudited) 10 - 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13 - 16
Part II. Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Report on Form 8-K 17
Signatures 18
</TABLE>
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that the following financial
statements be read in conjunction with the year-end financial statements and
notes thereto included in the Company's Registration Statement on Form 10-SB for
the year ended June 30, 1996.
The results of operations for the three months ended September 30, 1996,
are not necessarily indicative of the results to be expected for the entire
fiscal year or for any other period.
-1-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
1996 1996
---- ----
Current Assets: (Unaudited)
Cash and cash equivalents $ 659,742 $ 247,515
Marketable securities 4,674,378 638,832
Prepaid expenses and other current
assets 12,951 --
---------- ----------
Total Current Assets 5,347,071 886,347
---------- ----------
Equipment - net 302,017 2,346
Other assets - net 331,333 358,218
---------- ----------
TOTAL ASSETS $5,980,421 $1,246,911
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Short-term debt $ 17,000 $ 17,000
Note payable to officer 304,993 304,993
Accounts payable 253,091 351,279
Accrued interest 38,584 247,784
Accrued salaries 429,869 398,619
Accrued expenses 7,373 22,623
Deferred income taxes 102,000 --
---------- ----------
Total Current Liabilities 1,152,910 1,342,298
---------- ----------
Deferred income 826,582 826,582
Long-term debt 938,006 938,006
---------- ----------
Total Liabilities 2,917,498 3,106,886
---------- ----------
Commitments and Contingencies
Stockholders' Equity (Deficiency):
Common stock, par value $.0001
per share - authorized
500,000,000; outstanding
17,020,200 and 15,790,200 1,702 1,579
Additional paid-in-capital 2,905,248 1,725,371
Unrealized gain on marketable
securities 4,298,046 364,500
Deficit accumulated during
development stage (4,142,073) (3,951,425)
----------- -----------
Total Stockholders' Equity
(Deficiency) 3,062,923 (1,859,975)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 5,980,421 $ 1,246,911
=========== ===========
See notes to consolidated financial statements.
-2-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Period
--------------------------------------- June 10, 1988
September 30, (Date of Formation)
--------------------------------------- through
1996 1995 September 30, 1996
------------ ------------ ------------------
(Unaudited)
<S> <C> <C> <C>
Income:
Interest income $ 4,656 $ 100 $ 10,605
Consulting -- -- 15,000
Miscellaneous -- -- 207,250
------------ ------------ ------------
Total Income 4,656 100 232,855
------------ ------------ ------------
Costs and Expenses:
General and adminis-
trative expenses 75,479 78,395 2,420,012
Amortization and
depreciation 27,214 27,559 555,854
Interest expense 26,318 22,320 392,039
Research and
development 66,293 43,500 1,007,023
------------ ------------ ------------
Total Costs and
Expenses 195,304 171,774 4,374,928
------------ ------------ ------------
Net (Loss) $ (190,648) $ (171,674) $ (4,142,073)
============ ============ ============
(Loss) per common share $(.01) $(.01)
===== =====
Weighted average number
of common shares out-
standing 15,821,311 14,690,313
============ ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Accumulated
(Deficit) Unrealized
Common Stock Treasury Stock Additional During the Gain on
--------------------- --------------------- Paid - In Development Marketable
Shares Amount Shares Amount Capital Stage Securities Total
-------- -------- ------- -------- ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Capitalization:
Sale of stock
($.023 per share) 2,000,000 $ 200 -- $ -- $ 45,894 $ -- $ -- $ 46,094
Issuance of options for
services rendered (valued
at .10 per share) 5,000 5,000
Net (loss) June 10, 1988
(Date of Formation)
through June 30, 1991 -- -- -- -- -- (18,751) -- (18,751)
--------- ----- -------- --------- -------- -------- -------- ---------
Balance June 30, 1991 2,000,000 200 -- -- 50,894 (18,751) -- 32,343
.7 for 1 reverse stock
split (600,000) (60) -- -- 60 -- --
Donated stock to treasury 500,000 -- -- -- --
Issuance of stock to acquire
subsidiary ($.006 per
share) 7,100,000 710 -- -- 99,290 -- 100,000
Sale of treasury stock
($2.50 per share) (18,000) -- 45,000 45,000
Treasury stock exchanged for
services rendered (valued at
$.023 per share) (433,000) -- 10,000 10,000
Net (loss), June 30, 1992 -- -- -- -- -- (485,314) -- (485,314)
--------- ----- -------- --------- -------- -------- -------- ---------
Balance, June 30, 1992 8,500,000 850 49,000 -- 205,244 (504,065) -- (297,971)
</TABLE>
See notes to consolidated financial statements. (Continued)
-4-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Accumulated
(Deficit) Unrealized
Common Stock Treasury Stock Additional During the Gain on
--------------------- -------------------- Paid - In Development Marketable
Shares Amount Shares Amount Capital Stage Securities Total
-------- -------- ------ -------- ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Treasury stock exchanged
for services rendered
(valued at $0.125 per share) (49,000) 6,125 6,125
Issuance of stock for
professional services
rendered (valued at $.25
to $.50 per share) 1,450,000 145 -- 412,355 412,500
Issuance of stock for
contract release (valued
at $1.00 per share) 35,000 4 -- 34,996 35,000
Net (loss) -- -- -- -- -- (924,969) (924,969)
---------- ----- ------- --------- ------- ---------- -------- ----------
Balance, June 30, 1993 9,985,000 999 -- -- 658,720 (1,429,034) -- (769,315)
Issuance of callable
warrants for services
rendered (valued at
$.125 per share) -- -- -- -- 15,625 -- 15,625
Issuance of stock in
connection with bridge
loan financing (issued
at $1.00 per share) 37,200 4 -- -- 37,196 -- 37,200
Net (loss) -- -- -- -- -- (969,408) (969,408)
---------- ----- ------- --------- ------- ---------- -------- ----------
Balance, June 30, 1994 10,022,200 1,003 -- -- 711,541 (2,398,442) -- (1,685,898)
</TABLE>
See notes to consolidated financial statements. (Continued)
-5-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Accumulated
(Deficit) Unrealized
Common Stock Treasury Stock Additional During the Gain on
--------------------- -------------------- Paid - In Development Marketable
Shares Amount Shares Amount Capital Stage Securities Total
-------- -------- ------ -------- ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock in
connection with bridge
loan financing (issued
at $1.00 per share) 12,000 1 -- -- 11,999 -- 12,000
Issuance of stock for
services rendered (valued
at $.125 per share) 621,250 62 -- -- 77,594 -- 77,656
Net (loss) -- -- -- -- -- (736,267) -- (736,267)
---------- ----- ------ ------ -------- ---------- -------- ----------
Balance - June 30, 1995 10,655,450 1,066 -- -- 801,134 (3,134,709) -- (2,332,509)
Issuance of stock exchanged
for accrued salaries (valued
at $.10 per share) 4,550,000 455 -- -- 454,545 -- 455,000
Long-term debt (valued at
$1.00 per share) 151,084 15 -- -- 151,069 -- 151,084
Issuance of stock for
services rendered (valued
at $.60 per share) 433,666 43 -- -- 273,623 -- 273,666
Issuance of warrants for
services rendered (valued
at $.30 per share) -- -- -- -- 45,000 -- 45,000
Change in unrealized gain on
marketable securities -- -- -- -- -- -- 364,500 364,500
Net (loss) -- -- -- -- -- (816,716) -- (816,716)
---------- ----- ------ ------ -------- ---------- -------- ----------
Balance - June 30, 1996 15,790,200 1,579 - - 1,725,371 (3,951,425) 364,500 1,859,975)
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Accumulated
(Deficit) Unrealized
Common Stock Treasury Stock Additional During the Gain on
--------------------- -------------------- Paid - In Development Marketable
Shares Amount Shares Amount Capital Stage Securities Total
-------- -------- ------ -------- ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock in
connection with private
placement offering
(issued at 1.00 per share) 500,000 50 499,950 $ 500,000
Issuance of stock in
connection with private
placement (issued at
$1.00 per share) 570,000 57 569,943 570,000
Issuance of stock for pro-
fessional services ren-
dered (valued at $.167) 60,000 6 9,994 10,000
Issuance of stock in lieu
of payment on equipment
(valued at $1.00 per share) 100,000 10 99,990 100,000
Change in unrealized gain on
marketable securities 3,933,546 3,933,546
Net (loss) - three month
period (190,648) (190,648)
---------- ------ ------- ------- ---------- ----------- ---------- ----------
Balance - September 30,
1996 17,020,200 $1,702 -- $ -- $2,905,248 $(4,142,073) $4,298,046 $3,062,923
========== ====== ======= ======= ========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
For the Three Months Ended June 10, 1988
September 30, (Date of Formation)
-------------------------------- through
1996 1995 September 30, 1996
----------- ----------- ------------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (190,648) $ (171,674) $(4,142,073)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on distribution of marketable securities -- -- (182,250)
Depreciation and amortization 27,214 27,558 555,854
Non-employee stock based compensation -- -- 845,572
Non-cash officers compensation -- 455,000 639,500
Other non-cash items 10,000 3,000 124,284
Changes in operating assets and liabilities (304,339) (332,983) 1,374,814
----------- ----------- -----------
Net Cash (Used in) Operating Activities (457,773) (19,099) (784,299)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of patents -- -- (76,069)
Organization costs -- -- (199,672)
Purchase of property, plant and equipment (200,000) -- (207,311)
----------- ----------- -----------
Net Cash (Used) in Investing Activities (200,000) -- (483,052)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings -- -- 536,006
Proceeds from officer loans -- 5,000 306,993
Repayment of officer loans -- -- (2,000)
Repayment of notes -- -- (75,000)
Proceeds from sale of common and treasury
stock 1,070,000 -- 1,161,094
----------- ----------- -----------
Net Cash Provided by Financing Activities 1,070,000 5,000 1,927,093
----------- ----------- -----------
Net Increase (Decrease) in Cash 412,227 (14,099) 659,742
Cash - beginning of period 247,515 19,782 --
----------- ----------- -----------
Cash and cash equivalents - end of period $ 659,742 $ 5,683 $ 659,742
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements. (Continued)
-8-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
For the Three Months Ended June 10, 1988
September 30, (Date of Formation)
------------------------------ through
1996 1995 September 30, 1996
---------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Changes in Operating Assets and Liabilities
Consist of:
(Increase) in prepaid expenses and other
current assets $ (12,951) $ -- $ (12,951)
Increase (decrease) in accounts
payable and accrued expenses (291,388) (384,306) 837,864
Increase in deferred income -- 50,000 550,000
Increase (decrease) in accrued
franchise tax -- 1,323 (99)
---------- --------- -----------
$ (304,339) $(332,983) $ 1,374,814
========== ========= ===========
Supplementary information:
Cash paid during the year for:
Interest $ 235,518 $ -- $ 250,858
========== ========= ===========
Income taxes $ -- $ -- $ 13,347
========== ========= ===========
Non-cash investing activities
Debt incurred for asset transfer agreement
of patents $ -- $ -- $ 600,000
========== ========= ===========
Acquisition of subsidiary for common stock $ -- $ -- $ 100,000
========== ========= ===========
Acquisition of marketable securities
in connection with licensing agreement $ -- $ -- $ 276,582
========== ========= ===========
Unrealized (gain) on marketable securities $3,933,546 $ -- $ 4,298,046
========== ========= ===========
Non-Cash Financing Activities:
Conversion of accounts payable and accrued
expenses to common stock $ 110,000 $ -- $ 953,106
========== ========= ===========
Conversion of accounts payable to stock
options $ -- $ -- $ 5,000
========== ========= ===========
Conversion of accounts payable to warrants $ -- $ -- $ 60,625
========== ========= ===========
Conversion of accounts payable to treasury
stock $ -- $ -- $ 16,125
========== ========= ===========
Conversion of accrued officers salaries
to common stock $ -- $ 455,000 $ 457,250
========== ========= ===========
Conversion of long-term debt to common
stock $ -- $ -- $ 121,000
========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
-9-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of September 30, 1996, and the consolidated
statements of operations and cash flows for the three months ended September 30,
1996 and 1995, and for the period June 10, 1988 (Date of Formation) through
September 30, 1996 have been prepared by the Company and are unaudited. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for all periods presented have been made. Certain
items in the September 30, 1995 financial statements have been reclassified to
conform to September 30, 1996 classifications.
2. In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", which is effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees in Notes to Annual Financial Statements and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share in a note to its annual financial statements.
3. (Loss) Per Share - Loss per common share for the three months ended September
30, 1996 and 1995 were computed using the weighted average number of common
shares outstanding during the period. The effect of outstanding stock options
and warrants were not considered as their effect was antidilutive.
4. EQUIPMENT
Equipment consists of the following:
September 30, June 30,
1996 1996
-------- --------
Medical equipment $ 4,000 $ 4,000
Furniture and fixtures 9,462 9,462
Deposit on equipment 300,000 --
-------- --------
313,462 13,462
Less accumulated
depreciation 11,445 11,116
-------- --------
Net Equipment $302,017 $ 2,346
======== ========
-10-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. OTHER ASSETS
Other assets are as follows:
September 30, June 30,
1996 1996
-------- --------
Patent costs $676,069 $676,069
Organization costs 199,672 199,672
-------- --------
875,741 875,741
Less accumulated
amortization 544,408 517,523
-------- --------
$331,333 $358,218
======== ========
6. DEBT
Short-term debt consists of the following:
September 30, June 30,
1996 1996
------- -------
Unsecured note, due the
earlier of December 12,
1996 or from proceeds of
any offering of shares to
the public $17,000 $17,000
======= =======
Long-term debt consists of the following:
September 30, June 30,
1996 1996
-------- --------
Unsecured notes, due upon
completion of a secondary
public offering, interest
at 10% per year $ 50,000 $ 50,000
Unsecured note, interest at
8% per year, due December
31, 1997 and beyond per
payment terms 888,006 888,006
-------- --------
938,006 938,006
Current portion of long-term
debt -- --
-------- --------
Long-Term Debt $938,006 $938,006
======== ========
-11-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. INCOME TAXES
Financial Accounting Standards Board Statement No. 109, "Accounting
for Income Taxes" (SFAS 109), provides for the recognition of deferred
assets subject to a valuation allowance. At June 30, 1996, the Company
established a valuation allowance equal to the full amount of the tax
effect of the net operating loss carryforward. At September 30, 1996, the
Company has provided deferred taxes of $102,000 on the unrealized gain on
marketable securities after offsetting the net operating loss carryforward.
The deferred taxes are netted against the unrealized gain on marketable
securities.
8. COMMON STOCK
a. On July 2, 1996, the Company completed a private placement of its common
stock. The Company sold 500 units for gross proceeds of $500,000. Each unit
consisted of 1,000 shares of the Company's common stock (500,000 shares in
total) at a purchase price of $1.00 per share.
b. On August 15, 1996, the Company completed a sale of its common stock
with various investors. The Company sold 570,000 shares at a price of $1.00
per share, receiving $570,000 of aggregate proceeds. These shares were
issued pursuant to the exemption from the registration provisions of the
Security Act of 1933 provided by Regulation S promulgated thereunder.
9. NOTE PAYABLE TO OFFICER
The note payable to officer represents loans made to the Company by
its President and Chief Executive Officer. The promissory note bears
interest at prime plus one (1%) percent, nine and a quarter (9 1/4%)
percent at September 30, 1996 and June 30, 1996, and is payable on demand.
The note payable to officer was $304,993 at September 30, 1996 and June 30,
1996, respectively. Included in accrued interest was $7,053 at September
30, 1996. Accrued interest of $66,712 at June 30, 1996 was paid in August,
1996.
10. COMMITMENTS
In January 1991, the Company entered an agreement with Zigmed, Inc. (a
company owned and controlled by the son of Mr. Zsigmond Sagi, the Company's
President and Chief Executive Officer, who prior to 1990 owned Zigmed),
pursuant to which Zigmed Inc. will manufacture the production equipment
needed for the manufacturing of the Company's product for the contract
price of $1,750,680. Due to the fact that the Company has had insufficient
capital, the production of the manufacturing equipment has been delayed. As
a result, the contract for manufacturing the equipment has increased to
$1,950,680. In August 1996, the Company paid Zigmed Inc. an advance deposit
of $200,000 to begin production of the manufacturing equipment and in
September 1996 issued Zigmed Inc. 100,000 shares of the Company's common
stock (valued at $1.00 per share) against the contract price. The $300,000
is shown as Deposit on Equipment as a component of Equipment in the
Company's consolidated balance sheet at September 30, 1996.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
- --------
The Company is a high-tech development stage company organized to develop,
manufacture, sell and license products and devices to assist in the diagnosis
and early detection of disease. At the present time, the Company is focusing to
manufacture, sell and license the BreastAlert device. The device has been
patented and has Food and Drug Administration ("FDA") approval for sale. The
BreastAlert is a screening device which can detect breast tissue abnormalities,
including breast cancer. The Company has not generated any revenues but has
entered into a License Agreement whereby the licensee purchased the right to
manufacture and sell the BreastAlert in the United States of America, Canada and
their territories and possessions.
% Increase (Decrease) from Prior Period
Three Months Ended
September 30, 1996
Compared with Three
Months Ended
September 30, 1995
General and adminis-
trative expense (.4)
Amortization and
depreciation --
Interest expense 17.9
Research and
development 52.4
Net loss 11.0
General and Administrative
- --------------------------
General and administrative expense remained relatively constant during the
three months ended September 30, 1996 as compared to the three months ended
September 30, 1995.
Amortization and Depreciation
- -----------------------------
Amortization and depreciation for the three months ended September 30, 1996
and 1995, has remained relatively constant.
Interest Expense
- ----------------
Interest expense was $26,318 for the three months ended September 30, 1996
compared to $22,320 for the three months ended September 30, 1995. The 17.9%
increase was attributable to increases in the debt incurred by the Company
during the previous fiscal year ending June 30, 1996.
Research and Development
- ------------------------
Research and development expense increased 52.4% to $66,293 during the
three months ended September 30, 1996 from $43,500 during the three months ended
September 30, 1995. The increase is primarily attributable to increased salaries
incurred by the Company in the experimental area of development of its product.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources
- -------------------------------
The Company's need for funds has increased from period to period as it has
incurred expenses for among other things, research and development; applications
for domestic and international patent protection; licensing and pre-marketing
activities; and attempts to raise the necessary capital for initial production.
Since inception, the Company has funded these needs through private placements
of its equity and debt securities and advances from the Company's President,
Chief Executive Officer and major shareholder. In addition, the Company's
auditors' report for the year ended June 30, 1996 dated August 6, 1996,
expressed an opinion as to the Company continuing as a going concern.
On April 29, 1996, the Company entered into an Amended License Agreement
with Humascan, Inc. ("Humascan" or "Licensee"), amending the October 20, 1995
License Agreement whereby Humascan purchased the right to manufacture and sell
the BreastAlert in the United States and Canada and their respective territories
and possessions and pay the Company a licensing fee of $1,600,000, $550,000 of
which has been received as of September 30, 1996 and the issuance to the Company
1,004,063 shares (after a three for four stock split) of the outstanding common
stock of Humascan. Thereafter (subject to acceptance of various equipment
installations by Humascan), $175,000 is payable on December 31, 1997, $175,000
on March 31, 1998, $350,000 on October 31, 1998 and $350,000 on January 31,
1999.
In connection with the agreement, commencing with the first day of the
first month in which the Licensed Product is sold and for each year through and
including the termination date October 20, 2012, the Licensee agrees to pay the
Company a royalty based on net sales, ranging from three (3%) percent of the
first $2 million increasing to ten (10%) percent of net sales in excess of $10
million with a minimum royalty of $150,000 in the first year increasing to
$600,000 in the fifth year and thereafter.
United States Patent No. 4,190,058 for a "Device for Use in Early Detection
of Breast Cancer", which was granted to Mr. Sagi on February 26, 1980, and
Patent No. 4,651,749, entitled "Cancer Detection Patch Flexibility,
Thermoconductivity, Webs", a partial continuation of Patent No. 4,190,058 will
both expire on February 26, 1997. Upon expiration, the Company will no longer be
able to avail itself of the protection afforded by the patent laws. The Company
has currently filed for extensions for patent protection. Further, there is no
assurance that other companies will not create substantially similar products.
Additionally, any product manufactured or distributed by a company pursuant
to FDA clearances or approvals is subject to pervasive and continuing regulation
by FDA. There is no assurance that the FDA will not re-evaluate its basis for
granting marketing rights to the Company to sell the BreastAlert.
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources (Continued)
- -------------------------------
The Company's working capital and capital requirements will depend on
numerous factors, including the level of resources that the Company devotes to
the purchase of manufacturing equipment to support start-up production and to
the marketing aspects of its product. The Company intends to construct a
production facility abroad to manufacture, market and sell the BreastAlert to
the international market. In January 1991, the Company entered into an agreement
with Zigmed Inc. pursuant to which Zigmed Inc. will manufacture the production
equipment needed for the manufacturing of the BreastAlert for the contract price
of $1,750,680. Due to the fact that the Company has had insufficient capital,
the production of the manufacturing equipment has been delayed. As a result, the
contract for manufacturing the equipment has increased to $1,950,680. In August
1996, the Company paid Zigmed Inc. an advance deposit of $200,000 to begin
production of the manufacturing equipment and in September 1996 issued Zigmed
Inc. 100,000 shares of the Company's common stock (valued at $1.00 per share)
against the contract price.
The Company believes it must maintain a separate manufacturing facility
from its licensee to sell the BreastAlert to the international market. To have
economical and profitable endeavors the Company intends to set up its
international activities outside of the U.S. The Company is looking for a
possible manufacturing location which can give the Company good access to
shipping, tax considerations, and low manufacturing cost. Due to the nature of
the Company's product, shipping will be a major cost factor; therefore, the
Company intends to set up the first manufacturing location in central Europe.
Another major consideration is the segmental distribution of the product,
because of policing of the crossover among distributor's areas. A final
consideration is the ease of possible distribution into South East Asia and Asia
in general from the European location.
As part of the licensing agreement with Humascan, the Company can purchase
$1 million worth of the BreastAlert to sell to the international market. This
provision is valid only in the first year of Humascan's operations. This will
enable the Company to start its distribution before its own production
capability is ready. The cost to purchase the BreastAlert per the agreement is
higher than if the Company was to manufacture the BreastAlert itself.
In July and August, 1996, the Company completed two private placements of
its common stock receiving gross proceeds of $1,070,000.
-15-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources (Continued)
- -------------------------------
The Company's success is dependent on raising sufficient capital to
establish a production facility and purchase manufacturing equipment to
manufacture the BreastAlert for the international market. The Company does not
have all the financing in place at this time, nor may it ever, to meet these
objectives. However, the Company feels payments to be received on the initial
license fee, the $1,070,000 of gross proceeds received from the two private
placements and the marketable securities owned by the Company that are available
for sale will be more than sufficient to cover the operations of the Company
over the next twelve (12) months. The Company believes the BreastAlert will be
commercially accepted throughout the international market. If the proposed
production facility is not constructed, the Company, under a separate agreement,
will be able to purchase additional units from Humascan to generate profits and
cash flows to fund its current operations in the foreseeable future, despite the
higher price it will pay for these units.
As stated previously, the Company has financed its operations through
private placements of its equity and debt securities and advances from the
Company's President.
In a 1994 private placement, the Company raised $246,000 through unsecured
notes. Each noteholder did receive 2,000 shares of the Company's common stock as
additional consideration for their ten (10%) percent promissory note. The
promissory notes issued in connection with these bridge loans are due in full
upon the completion of a public offering by the Company. In March 1995, the
Company offered to convert the promissory notes into shares of the Company's
common stock at a conversion price of $1.00 per share. As of September 30, 1996,
$121,000 of promissory notes, plus interest, were converted into 151,084 shares
and $75,000 of these notes were repaid.
On June 30, 1996, the Company consolidated a $288,006 note, due June 30,
1996 and a $600,000 note, due August 20, 1996 into one note for $888,006 bearing
simple interest at eight (8%) percent per year. The note is due December 31,
1997 and beyond per payment terms.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes forward-looking statements that may or may not
materialize. Additional information on factors that could potentially affect the
Company's financial results may be found in the Company's filings with the
Securities and Exchange Commission.
-16-
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
See Item 3 of the Company's Form 10-SB for the year ended June
30, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27.1 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed by the
registrant during the quarter ended September 30, 1996.
-17-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCANTEK MEDICAL INC.
By:/s/ Zsigmond Sagi
-----------------------------------
Zsigmond Sagi, President and
Chief Financial Officer
Dated: November 12, 1996
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SCANTEK MEDICAL INC. FINANCIAL STATEMENTS AT SEPTEMBER 30, 1996 AND THE
THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 659,742
<SECURITIES> 4,674,378
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,347,071
<PP&E> 313,462
<DEPRECIATION> 11,445
<TOTAL-ASSETS> 5,980,421
<CURRENT-LIABILITIES> 1,152,910
<BONDS> 0
0
0
<COMMON> 1,702
<OTHER-SE> 3,061,221
<TOTAL-LIABILITY-AND-EQUITY> 3,062,923
<SALES> 0
<TOTAL-REVENUES> 4,656
<CGS> 0
<TOTAL-COSTS> 195,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (190,648)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (190,648)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
