================================================================================
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, 1997
OR
[X] 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)
DELAWARE 84-1090126
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 PALMER ROAD, DENVILLE, NEW JERSEY 07834
(201) 331-1766
------------------------------------------------------
(Address and telephone number, including area code, of
registrant's principal executive office)
---------------------------------------------------------------
(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 October 31, 1997, there were 17,220,200 shares of Common Stock, $.001
par value, outstanding.
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<PAGE>
SCANTEK MEDICAL INC.
----------
INDEX
Page
------
PART I. FINANCIAL INFORMATION .......................................... 1
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 30, 1997 (unaudited) and
June 30, 1997 .............................................. 2
Consolidated Statements of Operations for the Three Months
Ended September 30, 1997 and 1996 (unaudited) and for the
Period June 10, 1988 (Date of Formation) through
September 30, 1997 ......................................... 3
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1997, 1996, 1995, 1994, 1993, 1992
and 1991, for the Period June 10, 1988 (Date of Formation)
through September 30, 1997 .................................. 4 - 7
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1997 and 1996 (unaudited) and for the
Period June 10, 1988 (Date of Formation)
through September 30, 1997 .................................. 8 - 9
Notes to Financial Statements (unaudited) .................... 10 - 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 12 - 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................ 16
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K .............................. 16
SIGNATURES ............................................................. 17
<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, 1997.
The results of operations for the three months ended September 30, 1997,
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,
1997 1997
------------ ------------
(Unaudited)
Current Assets:
Cash ......................................... $ 653,869 $ 918,393
Marketable securities ........................ 8,388,716 6,860,371
Due from licensees............................ 850,000 550,000
Prepaid expenses ............................. 71,168 70,708
----------- -----------
Total Current Assets .................. 9,963,753 8,399,472
----------- -----------
Equipment -- net ............................... 389,258 391,452
Other assets -- net ............................ 966,866 783,768
----------- -----------
TOTAL ASSETS .......................... $11,319,877 $ 9,574,692
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt .............................. $ 941,069 $ 966,000
Current portion -- long-term debt ............ 350,000 350,000
Current portion -- deferred income ........... 2,629,082 2,129,082
Note payable to officer ...................... 304,993 304,993
Accounts payable ............................. 139,660 121,901
Accrued interest ............................. 37,491 82,289
Accrued salaries ............................. 648,619 578,619
Accrued expenses ............................. 22,174 40,689
Deferred income taxes ........................ 1,140,000 609,000
----------- -----------
Total Current Liabilities ............. 6,213,088 5,182,573
----------- -----------
Long-term debt ................................. 538,006 568,006
----------- -----------
Total Liabilities ..................... 6,751,094 5,750,579
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.001
per share -- authorized 5,000,000
shares; none issued ........................ -- --
Common stock, par value $.001 per
share -- authorized 45,000,000;
outstanding 17,220,200 ..................... 17,220 17,220
Additional paid-in-capital ................... 2,965,426 2,965,426
Unrealized gain on marketable securities ..... 6,600,292 5,566,615
Deficit accumulated during development stage . (5,014,155) (4,725,148)
----------- -----------
Total Stockholders' Equity ............ 4,568,783 3,824,113
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .............................. $11,319,877 $ 9,574,692
=========== ===========
See notes to consolidated financial statements.
2
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
June 10, 1988
(Date of
Three Months Ended Formation)
September 30, Through
------------------------- September 30,
1997 1996 1997
----------- ----------- -----------
Income:
Interest income .................. $ 9,981 $ 4,656 $ 39,693
Consulting ....................... -- -- 15,000
Miscellaneous .................... 8,186 -- 34,286
----------- ----------- -----------
Total Income ................ 18,167 4,656 88,979
----------- ----------- -----------
Costs and Expenses:
General and administrative
expenses ....................... 167,297 75,479 2,630,425
Amortization and
depreciation ................... 19,096 27,214 641,120
Research and development ......... 74,110 66,293 1,305,853
Interest expense ................. 46,671 26,318 525,736
----------- ----------- -----------
Total Costs and Expenses .... 307,174 195,304 5,103,134
----------- ----------- -----------
Net Loss ........................... $ 289,007 $ 190,648 $ 5,014,155
=========== =========== ===========
Net loss per share ................. $.02 $.01 $ --
==== ==== =======
Weighted average number of
common shares outstanding ........ 17,220,200 15,821,311 --
=========== =========== ===========
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ------------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
---------- ------- -------- ------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Capitalization:
Sale of stock ($.023
per share) ............. 2,000,000 $ 2,000 -- $ -- $ 44,094 $ -- $ -- $ 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 2,000 -- -- 49,094 -- (18,751) 32,343
.7 for 1 reverse
stock split ............ (600,000) (600) 600 --
Donated stock to
treasury ............... 500,000 -- --
Issuance of
stock to acquire
subsidiary ($.006
per share) ............. 7,100,000 7,100 -- 92,900 100,000
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 8,500 49,000 -- 197,594 -- (504,065) (297,971)
See notes to consolidated financial statements. (Continued)
</TABLE>
4
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ------------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage 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 1,450 411,050 412,500
Issuance of stock
for contract
release (valued at
$1.00 per share) ....... 35,000 35 34,965 35,000
Net (loss),
June 30, 1993 .......... (924,969) (924,969)
---------- ------- -------- ------- ---------- ---------- ----------- ----------
Balance, June 30, 1993 ..... 9,985,000 9,985 -- -- 649,734 -- (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 37 37,163 37,200
Net (loss),
June 30, 1994 .......... (969,408) (969,408)
---------- ------- -------- ------- ---------- ---------- ----------- ----------
Balance, June 30, 1994 ..... 10,022,200 10,022 -- -- 702,522 -- (2,398,442) (1,685,898)
See notes to consolidated financial statements. (Continued)
</TABLE>
5
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ------------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage 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 12 11,988 12,000
Issuance of stock
for services rendered
(valued at
$.125 per share) ....... 621,250 621 77,035 77,656
Net (loss),
June 30, 1995 .......... (736,267) (736,267)
---------- ------- -------- ------- ---------- ---------- ----------- ----------
Balance, June 30, 1995 ..... 10,655,450 10,655 -- -- 791,545 -- (3,134,709) (2,332,509)
Issuance of stock
for accrued salaries
(valued at
$.10 per share) ........ 4,550,000 4,550 450,450 455,000
Notes payable
conversions to
common stock
(at $1.00 per share) ... 151,084 151 150,933 151,084
Issuance of stock
for services rendered
(at $.60 per share) .... 433,666 434 273,232 273,666
Issuance of options
for services rendered
(at $.30 per share) .... 45,000 45,000
Net unrealized gain
on marketable
securities ............. 364,500 364,500
Net (loss),
June 30, 1996 .......... (816,716) (816,716)
---------- ------- -------- ------- ---------- ---------- ----------- ----------
Balance, June 30, 1996 ..... 15,790,200 15,790 -- -- 1,711,160 364,500 (3,951,425) (1,859,975)
See notes to consolidated financial statements. (Continued)
</TABLE>
6
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain on During the
--------------------- ------------------- Paid-In Marketable Development
Shares Amount Shares Amount Capital Securities Stage 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) ....... 1,070,000 1,070 1,068,930 1,070,000
Issuance of stock
for professional
services rendered
(at $.167 to $1.00
per share) ............. 72,500 73 22,427 22,500
Issuance of stock in
lieu of payment on
equipment (at $1.00
per share) ............. 100,000 100 99,900 100,000
Stock options exercised
($.10 to $.375
per share) ............. 170,000 170 27,830 28,000
Issuance of stock
for rent (at $2.01
per share) ............. 17,500 17 35,179 35,196
Net unrealized gain
on marketable
securities ............. 5,202,115 5,202,115
Net (loss),
June 30, 1997 .......... (773,723) (773,723)
---------- ------- -------- ------- ---------- ---------- ----------- ----------
Balance, June 30, 1997 ..... 17,220,200 17,220 -- -- 2,965,426 5,566,615 (4,725,148) 3,824,113
Net unrealized gain on
marketable securities .... 1,033,677 1,033,677
Net (loss),
September 30, 1997 ....... (289,007) (289,007)
---------- ------- -------- ------- ---------- ---------- ----------- ----------
Balance, September 30, 1997. 17,220,200 $17,220 -- $ -- $2,965,426 $6,600,292 $(5,014,155) $4,568,783
========== ======= ======== ======= ========== ========== =========== ==========
See notes to consolidated financial statements.
</TABLE>
7
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Period
June 10, 1988
Three Months Ended (Date of
September 30, Formation) through
---------------------------- September 30,
1997 1996 1997
----------- ----------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................. $ (289,007) $ (190,648) $(5,014,155)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ...... 19,096 27,214 641,118
Net gain on sale of marketable
securities ....................... (8,186) -- (9,286)
Non-employee stock based
compensation ..................... -- -- 845,574
Non-cash officers compensation ..... -- -- 457,250
Other non-cash items ............... -- 10,000 271,980
Changes in operating
assets and liabilities ........... 23,986 (304,339) 1,674,999
----------- ----------- -----------
Net Cash (Used in)
Operating Activities ........ (254,111) (457,773) (1,132,520)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of
marketable securities .............. 116,701 -- 139,569
Purchases of patents ................. -- -- (76,069)
Organization costs ................... -- -- (199,672)
Purchase and deposits of equipment ... -- (200,000) (402,226)
Purchase of marketable securities .... (72,183) -- (504,375)
----------- ----------- -----------
Net Cash Provided by (Used in)
Investing Activities ........ 44,518 (200,000) (1,042,773)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ............. -- -- 1,502,006
Proceeds from officer loans .......... -- -- 306,993
Repayment of officer loans ........... -- -- (2,000)
Repayment of notes ................... (54,931) -- (166,931)
Proceeds from the sale of options .... -- -- 28,000
Proceeds from sale of common
and treasury stock ................. -- 1,070,000 1,161,094
----------- ----------- -----------
Net Cash Provided by (Used in)
Financing Activities ........ (54,931) 1,070,000 2,829,162
----------- ----------- -----------
Net Increase (decrease) in Cash ........ (264,524) 412,227 653,869
Cash -- beginning of period ............ 918,393 247,515 --
----------- ----------- -----------
Cash -- end of period .................. $ 653,869 $ 659,742 $ 653,869
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
8
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Period
June 10, 1988
Three Months Ended (Date of
September 30, Formation) through
---------------------------- September 30,
1997 1996 1997
----------- ----------- ----------------
<S> <C> <C> <C>
Changes in Operating Assets
and Liabilities Consist of:
(Increase) in due from licensees..... $ (300,000) $ -- $ (850,000)
(Increase) in prepaid expenses ...... (460) -- (71,168)
(Increase) in other assets .......... (200,000) (12,951) (713,025)
Increase (decrease) in accounts
payable and accrued expenses ...... 24,446 (291,388) 956,791
Increase in deferred income ......... 500,000 -- 2,352,500
(Decrease) in accrued franchise tax . -- -- (99)
----------- ----------- -----------
$ 23,986 $ (304,339) $ 1,674,999
=========== =========== ===========
Supplementary information:
Cash paid during the year for:
Interest .......................... $ 93,469 $ 235,518 $ 387,647
=========== =========== ===========
Income taxes ...................... $ -- $ -- $ --
=========== =========== ===========
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 .............. $ 1,033,677 $ 3,933,546 $ 6,600,292
=========== =========== ===========
Deposit on equipment for
common stock ....................... $ -- $ -- $ 100,000
=========== =========== ===========
Non-Cash Financing Activities:
Conversion of long-term debt
to common stock .................... $ -- $ -- $ 121,000
=========== =========== ===========
Other Non-Cash Activities:
Conversion of accounts payable
and accrued expenses to common
stock .............................. $ -- $ 110,000 $ 900,802
=========== =========== ===========
Conversion of accounts payable
to stock options ................... $ -- $ -- $ 50,000
=========== =========== ===========
Conversion of accounts payable
to warrants ........................ $ -- $ -- $ 15,625
=========== =========== ===========
Conversion of accounts payable
to treasury stock .................. $ -- $ -- $ 16,125
=========== =========== ===========
Conversion of accrued officers
salaries to common stock ........... $ -- $ -- $ 457,150
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
9
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
At September 30, 1997, planned principal operations of Scantek Medical Inc.
(the "Company" or "Scantek") have not yet commenced and no revenue has been
derived therefrom; accordingly, the Company is considered a development stage
company.
The consolidated balance sheet as of September 30, 1997, consolidated
statements of operations and cash flows for the three months ended September 30,
1997 and 1996, and for the period June 10, 1988 (Date of Formation) through
September 30, 1997 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, 1996 financial statements have been reclassified to
conform to September 30, 1997 classifications. The information for June 30, 1997
was derived from audited financial statements.
RECEIVABLE RECOGNITION -- Receivables due from licensees are recognized
either upon the acceptance of the equipment by the licensee or upon the signing
of the definitive agreement.
REVENUE RECOGNITION -- Revenues will be recognized in income when the
licensees commence operations, since substantial performance is presumed to
occur at that point.
2. LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Loss per common and common equivalent share for the three months ended
September 30, 1997 and 1996 was computed using the weighted average number of
common shares outstanding during each period. The dilutive effect of outstanding
options, warrants and common stock equivalents for the three months ended
September 30, 1997 and 1996 were not considered as their effect was
antidilutive.
3. EQUIPMENT
Equipment consists of the following:
September 30, June 30,
1997 1997
------------- --------
Equipment .............................. $ 48,914 $ 48,914
Furniture and fixtures ................. 9,462 9,462
Deposit on equipment ................... 350,000 350,000
-------- --------
408,376 408,376
Less accumulated depreciation .......... 19,118 16,924
-------- --------
Net Equipment ...................... $389,258 $391,452
======== ========
10
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. OTHER ASSETS
Other assets consist of the following:
September 30, June 30,
1997 1996
------------- ----------
Patent costs ........................... $ 676,069 $ 676,069
Long-term portion of amount
due from licensees ................... 700,000 500,000
Security deposits ...................... 13,125 13,125
---------- ----------
1,389,194 1,189,194
Less accumulated amortization .......... 422,328 405,426
---------- ----------
Other Assets -- Net .................... $ 966,866 $ 783,768
========== ==========
5. 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, 1997, the Company has provided
deferred taxes of $1,140,000 on the unrealized gain on marketable securities
after off-setting the net operating loss carryforward. The deferred taxes are
netted against the unrealized gain on marketable securities.
6. RECENT DEVELOPMENTS
The Company has entered into a letter of intent with respect to the
acquisition of a Hungarian based manufacturer of plastic medical packaging
products and the manufacturing facility for an aggregate purchase price of
$1,750,000 and a number of shares of the Company, based upon the exchange rate
and the market price of the Company's shares at closing. The acquisition is
subject to the execution of a definitive agreement and the obtaining of
financing for the purchase of the Hungarian manufacturer.
11
<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 Breast Abnormality Indicator ("BAI"). The
device has been patented and has Food and Drug Administration ("FDA") approval
for sale. The BAI is a screening device which can detect breast tissue
abnormalities, including breast cancer. The Company has not generated any
revenues but has entered into three License Agreements whereby the licensees
purchased the right to manufacture and/or sell the BAI in the United States of
America, Canada their territories and possessions, South America and Singapore.
The following table sets forth for the periods indicated, the percentage
increase or (decrease) of certain items included in the Company's consolidated
statement of operations:
% Increase (Decrease)
from Prior Period
---------------------
Three Months Ended
September 30, 1997
compared with three
months ended
September 30, 1996
------------------
General and administrative expense ................. 121.6
Amortization and depreciation ...................... (29.8)
Interest expense ................................... 77.3
Research and development ........................... 11.8
Net loss ........................................... 50.4
THREE MONTHS 1997 VS. THREE MONTHS 1996
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 121.6% for the three month
period ending September 30, 1997 as compared with the three month period ended
September 30, 1996. This increase is primarily due to the purchasing of keyman
and directors and officers insurance coupled with increases in rent,
professional fees and financial services. This was offset in part by decreases
in consulting expenses.
AMORTIZATION AND DEPRECIATION EXPENSE
Amortization and depreciation was $19,096 for the three months ended
September 30, 1997 as compared to $27,214 for the three months ended September
30, 1996. The 29.8% decrease was attributable to organization cost amortization
expiring at December 31, 1996. This was offset in part by increases in
depreciation expense.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
INTEREST EXPENSE
Interest expense was $46,671 for the three months ended September 30, 1997
compared to $26,318 for the three months ended September 30, 1996. The 77.3%
increase was attributable to interest expense on the short-term debt margin
loan.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense increased 11.8% to $74,110 during the
three months ended September 30, 1997 from $66,293 during the three months ended
September 30, 1996. The increase is primarily attributable to increased salaries
incurred by the Company in the experimental area of development of its product.
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, 1997 dated September 29, 1997,
expressed an opinion as to the Company continuing as a going concern.
During 1996, the Company amended the October 20, 1995 License Agreement
whereby Humascan purchased the right to manufacture and sell the BAI 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, 1997 and the issuance to the Company of 1,004,063
shares (after a three for four stock split) of the outstanding common stock of
Humascan. The amount receivable from the licensing fee from Humascan is payable
to the Company (subject to acceptance of various equipment installations by
Humascan) as follows: $300,000 is due immediately as the patents for the BAI
have been extended to 2003, $75,000 on December 31, 1997, $175,000 on March 31,
1998, $350,000 on October 31, 1998 and $150,000 on January 31, 1999. The Company
shall also be entitled to an advance payment if certain threshold financing
creates surplus cash flows for Humascan as defined in the agreement.
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 as follows: three (3%) percent of the first
$2 million of net sales 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.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
On August 15, 1996, the Company entered into a license agreement with
Health Technologies International Inc. ("HTI"), whereby HTI is to assemble
market and sell the BAI in Chile and Singapore, and pay the Company a licensing
fee of $250,000, all of which has been received as of June 30, 1997. Pursuant to
the terms of the agreement, HTI agrees to pay the Company minimum royalties of
$100,000 in 1998 with increasing royalties leveling out at a minimum of $400,000
in the year 2000 and thereafter. Additionally, HTI has agreed to pay the Company
a one-hundred (100%) percent mark-up on product cost for the Company's services
in operating HTI's manufacturing line. As part of the licensing agreement, the
Company received a twenty (20%) percent equity interest in HTI.
The Company entered into an exclusive license agreement, dated September
22, 1997 with Sandell Corp. S.A. (the "Sandell Agreement"), a Uruguayan
corporation ("Sandell"), pursuant to which the Company granted to Sandell an
exclusive license to market and distribute the product in Brazil, Venezuela,
Columbia, Costa Rica, Ecuador, Nicaragua, Paraguay, Panama, Peru, Bolivia,
Argentina and Uruguay. Sandell is required to maintain operations in Uruguay's
Free Trade Zone. The Sandell Agreement is for a term of fourteen (14) years.
Under the Sandell Agreement, Sandell is to pay the Company a non-refundable
license fee of (i) $500,000 and (ii) thirty-five (35%) percent of the
outstanding shares of Sandell on a fully diluted basis. The cash portion of the
fee is payable (i) $100,000 upon execution of the Sandell Agreement, which was
paid by Sandell on October 14, 1997, (ii) $200,000 on or before April 30, 1998
and (iii) $200,000 on or before January 30, 1999. Sandell is also required to
make minimum purchases of the BAI as follows: (i) $20,000 per month during
calendar 1998, (ii) $35,000 per month during 1999, (iii) $65,000 during 2000 and
(iv) $90,000 per month during 2001 and thereafter during the term of the
license.
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 BAI to the
international market. 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 BAI for the contract price of $1,850,000. 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. An additional $50,000 was paid in May 1997.
The Company has entered into a letter of intent with respect to the
acquisition of a Hungarian based manufacturer of plastic medical packaging
products and the manufacturing facility for an aggregate purchase price of
$1,750,000 and a number of shares of the Company, based upon the exchange rate
and the market price of the Company's shares at closing. The acquisition is
subject to the execution of a definitive agreement and the obtaining of
financing for the purchase of the Hungarian manufacturer.
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 success is dependent on raising sufficient capital to
establish a production facility and purchase manufacturing equipment to
manufacture the BAI 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 fees,
combined with the capital raised from two private placements and proceeds from
borrowing against the Humascan common stock, will be more than sufficient to
cover the operations of the Company over the next twelve (12) months. The
Company believes the BAI will be commercially accepted throughout the
international market.
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. $121,000 of the notes
were converted, including accrued interest of $30,084. As of September 30, 1997,
all the remaining notes have been paid.
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 first payment of the note is
due December 31, 1997 and the additional payments are subsequently due per the
payment terms of the note.
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.
15
<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, 1997.
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, 1997.
16
<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 13, 1997
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCANTEK
MEDICAL INC. FINANCIAL STATEMENTS AT SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 653,869
<SECURITIES> 8,388,716
<RECEIVABLES> 850,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,963,753
<PP&E> 408,376
<DEPRECIATION> 19,118
<TOTAL-ASSETS> 11,319,877
<CURRENT-LIABILITIES> 6,213,088
<BONDS> 0
<COMMON> 17,220
0
0
<OTHER-SE> 4,551,563
<TOTAL-LIABILITY-AND-EQUITY> 11,319,877
<SALES> 0
<TOTAL-REVENUES> 18,167
<CGS> 0
<TOTAL-COSTS> 307,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,671
<INCOME-PRETAX> (289,007)
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<NET-INCOME> (289,007)
<EPS-PRIMARY> (.02)
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