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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 March 31, 1997
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 May 1, 1997, there were 17,157,700 shares of Common Stock, $.001 par
value, outstanding.
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<PAGE>
SCANTEK MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
----------
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION ...................................... 1
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of March 31, 1997 (unaudited)
and June 30, 1996 ...................................... 2
Consolidated Statements of Operations for the Nine
Months and Three Months Ended March 31, 1997 and 1996
(unaudited) and for the Period June 10, 1988 (Date of
Formation) through March 31, 1997 ...................... 3
Consolidated Statements of Stockholders'
Equity (Deficiency) and for the Period
June 10, 1988 (Date of Formation)
through March 31, 1997 ................................. 4 - 7
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1997 and 1996 (unaudited) and
for the Period June 10, 1988 (Date of Formation)
through March 31, 1997 ................................. 8 - 9
Notes to Consolidated 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
consolidated financial statements be read in conjunction with the year-end
consolidated 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 nine months ended March 31, 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
March 31, June 30,
1997 1996
----------- -----------
(Unaudited)
Current Assets:
Cash and cash equivalents ..................... $ 337,666 $ 247,515
Marketable securities ......................... 7,985,396 638,832
Due from licensee ............................. 350,000 --
----------- -----------
Total Current Assets ....................... 8,673,062 886,347
----------- -----------
Equipment -- net ................................ 336,496 2,346
Other assets -- net ............................. 1,002,643 358,218
----------- -----------
TOTAL ASSETS ........................... $10,012,201 $ 1,246,911
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Short-term debt ............................... $ -- $ 17,000
Current portion - long-term debt .............. 350,000 --
Current portion - deferred income ............. 125,105 --
Note payable to officer ....................... 304,993 304,993
Accounts payable .............................. 277,252 351,279
Accrued interest .............................. 54,377 247,784
Accrued salaries .............................. 517,369 398,619
Accrued expenses .............................. -- 22,623
Deferred income taxes ......................... 1,267,000 --
----------- -----------
Total Current Liabilities .................. 2,896,096 1,342,298
----------- -----------
Deferred income ................................. 1,753,977 826,582
Long-term debt .................................. 568,006 938,006
----------- -----------
Total Liabilities ...................... 5,218,079 3,106,886
----------- -----------
Stockholders' Equity (Deficiency):
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
17,157,700 and 15,790,200 .................... 17,160 15,790
Additional paid-in-capital .................... 2,954,939 1,711,160
Unrealized gain on marketable
securities ................................... 6,444,064 364,500
Deficit accumulated during
development stage ............................ (4,622,041) (3,951,425)
----------- -----------
Total Stockholders' Equity
(Deficiency) .......................... 4,794,122 (1,859,975)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) ................... $10,012,201 $ 1,246,911
=========== ===========
See notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Period
June 10, 1988
Nine Months Ended Three Months Ended (Date of
March 31, March 31, Formation)
---------------------------- ---------------------------- through
1997 1996 1997 1996 March 31, 1997
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Income:
Interest income .............................. $ 17,571 $ 212 $ 6,386 $ 41 $ 23,520
Consulting ................................... -- -- -- -- 15,000
Miscellaneous ................................ -- -- -- -- 207,250
----------- ----------- ----------- ----------- -----------
Total Income ............................. 17,571 212 6,386 41 245,770
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
General and administrative expenses .......... 323,985 441,243 135,017 311,391 2,668,517
Amortization and depreciation ................ 74,171 82,676 18,486 27,559 602,811
Interest expense ............................. 78,482 133,891 25,813 74,787 444,203
Research and development ..................... 211,549 116,705 78,797 37,525 1,152,280
----------- ----------- ----------- ----------- -----------
Total Costs and Expenses ................. 688,187 774,515 258,113 451,262 4,867,811
----------- ----------- ----------- ----------- -----------
Net (Loss) ..................................... $ (670,616) $ (774,303) $ (251,727) $ (451,221) $(4,622,041)
=========== =========== =========== =========== ===========
(Loss) per common share ........................ $(.04) $(.06) $(.01) $(.03)
===== ===== ===== =====
Weighted average number of common
shares outstanding ........................... 16,668,384 13,705,111 17,117,700 15,205,405
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<CAPTION>
(Deficit)
Accumulated Unrealized
Common Stock Treasury Stock Additional During the Gain on
------------------- ------------------ Paid-In Development Marketable
Shares Amount Shares Amount Capital Stage Securities Total
--------- ------ ------ ------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Capitalization:
Sale of stock
($.023 per share) ......... 2,000,000 $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 (DEFICIENCY)
<CAPTION>
(Deficit)
Accumulated 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 $.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 40 34,960 35,000
Net (loss) ................. (924,969) (924,969)
---------- ------ -------- ------- ------- --------- ------- ----------
Balance, June 30, 1993 ....... 9,985,000 9,990 -- -- 649,729 (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 40 37,160 37,200
Net (loss) ................. (969,408) (969,408)
---------- ------ -------- ------- ------- --------- ------- ---------
Balance, June 30, 1994 ....... 10,022,200 10,030 -- -- 702,514 (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 (DEFICIENCY)
<CAPTION>
(Deficit)
Accumulated 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 10 11,990 12,000
Issuance of stock for
services rendered (valued
at $.125 per share) ........ 621,250 620 77,036 77,656
Net (loss) ................. (736,267) (736,267)
---------- ------ -------- ------- --------- --------- ------- ---------
Balance, June 30, 1995 ....... 10,655,450 10,660 -- -- 791,540 (3,134,709) - (2,332,509)
Issuance of stock exchanged
for accrued salaries
(valued at $.10
per share) ................. 4,550,000 4,550 450,450 455,000
Long-term debt (valued at
$1.00 per share) ........... 151,084 150 150,934 151,084
Issuance of stock for
services rendered (valued
at $.60 per share) ......... 433,666 430 273,236 273,666
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 15,790 -- -- 1,711,160 (3,951,425) 364,500 (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 (DEFICIENCY)
<CAPTION>
(Deficit)
Accumulated 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).................. 500,000 500 499,500 500,000
Issuance of stock in
connection with private
placement (issued at
$1.00 per share) ........... 570,000 570 569,430 570,000
Issuance of stock for
professional services
rendered (valued at
$.167 per share) ........... 60,000 60 9,940 10,000
Issuance of stock in lieu
of payment on equipment
(valued at $1.00
per share).................. 100,000 100 99,900 100,000
Stock options exercised
($.10 per share) ........... 80,000 80 7,920 8,000
Issuance of stock in lieu
of payment for rental space
(valued at $1.69
per share).................. 17,500 20 29,626 29,646
Issuance of warrants for
services rendered (valued
at $.10 per share) ......... 12,503 12,503
Stock options exercised
($.375 per share) .......... 40,000 40 14,960 15,000
Change in unrealized gain on
marketable securities ...... 6,079,564 6,079,564
Net (loss) -- nine month
period ..................... (670,616) (670,616)
---------- ------- ------- ------- ---------- ----------- ---------- ----------
Balance, March 31, 1997
(unaudited) ................. 17,157,700 $17,160 -- $ -- $2,954,939 $(4,622,041) $6,444,064 $4,794,122
========== ======= ======= ======= ========== =========== ========== ==========
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
Nine Months Ended (Date of
March 31, Formation)
------------------------------ through
1997 1996 March 31, 1997
----------- ---------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ............................................................. $ (670,616) $ (774,303) $(4,622,041)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on distribution of marketable securities .......................... -- -- (182,250)
Depreciation and amortization .......................................... 74,171 82,676 602,811
Non-employee stock based compensation .................................. -- -- 845,572
Non-cash officers compensation ......................................... -- -- 639,500
Other non-cash items ................................................... 12,503 24,600 126,787
Changes in operating assets and liabilities ............................ (144,260) 507,491 1,534,893
----------- ---------- -----------
Net Cash (Used in) Operating Activities ......................... (728,202) (159,536) (1,054,728)
----------- ---------- -----------
Cash flows from investing activities:
Purchases of patents ................................................... -- -- (76,069)
Organization costs ..................................................... -- -- (199,672)
Purchase of property, plant and equipment .............................. (237,647) -- (244,958)
----------- ---------- -----------
Net Cash (Used in) Investing Activities ......................... (237,647) -- (520,699)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from borrowings .............................................. -- 17,000 536,006
Proceeds from officer loans ........................................... -- 138,000 306,993
Repayment of officer loans ............................................ -- (2,000) (2,000)
Repayment of notes .................................................... (37,000) -- (112,000)
Proceeds from sale of options ......................................... 23,000 -- 23,000
Proceeds from sale of common and treasury stock ....................... 1,070,000 -- 1,161,094
----------- ---------- -----------
Net Cash Provided by Financing Activities ....................... 1,056,000 153,000 1,913,093
----------- ---------- -----------
Net Increase (Decrease) in Cash .......................................... 90,151 (6,536) 337,666
Cash -- beginning of period .............................................. 247,515 19,782 --
----------- ---------- -----------
Cash and Cash Equivalents -- end of period ............................... $ 337,666 $ 13,246 $ 337,666
=========== ========== ===========
See notes to consolidated financial statements. (Continued)
</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
Nine Months Ended (Date of
March 31, Formation)
------------------------------ through
1997 1996 March 31, 1997
----------- ---------- --------------
<S> <C> <C> <C>
Changes in Operating Assets and Liabilities
Consist of:
(Increase) in due from licensee ........................................ $ (350,000) $ -- $ (350,000)
(Increase) in other assets ............................................. (715,100) -- (715,100)
(Decrease) increase in accounts
payable and accrued expenses .......................................... (131,660) 464,668 997,592
Increase in deferred income ............................................ 1,052,500 50,000 1,602,500
(Decrease) in accrued franchise tax .................................... -- (7,177) (99)
----------- ---------- -----------
$ 144,260 $ 507,491 $ 1,534,893
=========== ========== ===========
Supplementary information:
Cash paid during the year for:
Interest .............................................................. $ 36,370 $ -- $ 286,378
=========== ========== ===========
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 ............................... $ 6,079,564 $ $ 6,444,064
=========== ========== ===========
Purchase of equipment for common stock ................................. $ 100,000 $ $ 100,000
=========== ========== ===========
Non-Cash Financing Activities:
Conversion of accounts payable and accrued
expenses to common stock ............................................... $ 39,646 $ 348,750 $ 882,752
=========== ========== ===========
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 $ 121,000
=========== ========== ===========
Issuance of warrants for services rendered .............................. $ 12,503 $ $ 12,503
=========== ========== ===========
See notes to consolidated financial statements.
</TABLE>
-9-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
At March 31, 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 March 31, 1997, consolidated
statements of operations and cash flows for the nine months ended March 31, 1997
and 1996, and for the period June 10, 1988 (Date of Formation) through March 31,
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 March
31, 1996 financial statements have been reclassified to conform to March 31,
1997 classifications. The information for June 30, 1996 was derived from audited
financial statements.
RECEIVABLE RECOGNITION -- Receivables due from licensee are recognized upon
the acceptance of the equipment by the licensee.
2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share", which
establishes new standards for computing and presenting net income per share and
replaces the standards previously found in Accounting Principals Board Opinion
No. 15, "Earnings Per Share". The Company will begin reporting net income (loss)
per share according to this new standard in its December 31, 1997 quarterly
report on Form 10-QSB. The Company does not expect the implementation of SFAS
No. 128 regarding the restatement of prior periods net loss per share to have a
material effect on the Company's computation of earnings (loss) per share.
3. EQUIPMENT
Equipment consists of the following:
March 31, June 30,
1997 1996
-------- -------
Equipment .................................... $ 41,646 $ 4,000
Furniture and fixtures ....................... 9,462 9,462
Deposit on equipment ......................... 300,000 --
-------- -------
351,108 13,462
Less accumulated depreciation ................ 14,613 11,116
-------- -------
Net Equipment ............................ $336,495 $ 2,346
======== =======
-10-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. 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 March 31, 1997, the Company has provided
deferred taxes of $1,267,000 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.
5. AMENDMENT TO CERTIFICATE OF INCORPORATION
On March 11, 1997, the Company, with the consent of the majority
shareholders of the issued and outstanding shares of common stock, amended the
Certificate of Incorporation as to the aggregate number of common and preferred
shares of stock the Company shall have the authority to issue. A total of
50,000,000 shares, 5,000,000 shares of preferred stock, par value $.001 per
share and 45,000,000 shares of common stock, par value $.001 per share, may be
issued. All prior periods presented have been restated to reflect this
amendment.
6. 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 March 31,
1997 and June 30, 1996, and is payable on demand. The note payable to officer
was $304,993 at March 31, 1997 and June 30, 1996. Included in accrued interest
was $21,159 at March 31, 1997. Accrued interest of $66,712 at June 30, 1996 was
paid in August, 1996.
7. COMMITMENTS
The Company has entered into 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 $1,850,000. 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. The $300,000 is shown as Deposit on Equipment
as a component of Equipment in the Company's consolidated balance sheet at March
31, 1997.
-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 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 two License Agreements whereby the licensees purchased the right to
manufacture and sell the BreastALERT in the United States of America, Canada
their territories and possessions, Chile and Singapore.
The following table sets forth for the periods indicated, the percentage
increase or decrease of items included in the Company's consolidated statement
of operations:
% Increase (Decrease) from Prior Period
------------------------------------------
Nine Months Ended Three Months Ended
March 31, 1997 March 31, 1997
compared with 1996 compared with 1996
------------------ ------------------
General and administrative expense .. (26.6) (56.6)
Amortization and depreciation ....... (10.3) (32.9)
Interest expense .................... (41.4) (65.5)
Research and development ............ 81.3 110.0
Net loss ............................ (11.1) (42.8)
NINE MONTHS 1997 VS. NINE MONTHS 1996 AND
THREE MONTHS 1997 VS. THREE MONTHS 1996
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased 26.6% for the nine month
period ending March 31, 1997 as compared with 1996. This decrease is primarily
due to one-time consulting expenses incurred in 1996 offset, in part, by
increases in accounting and legal services.
General and administrative expenses decreased 56.6% to $135,017 during the
three months ended March 31, 1997 from $311,391 during the three months ended
March 31, 1996. The Company attributes this decrease primarily to those reasons
set forth above.
AMORTIZATION AND DEPRECIATION EXPENSE
Amortization and depreciation for the nine months ended March 31, 1997 as
compared to 1996 has remained relatively constant.
Amortization and depreciation was $18,486 for the three months ended March
31, 1997 as compared to $27,559 for the three months ended March 31, 1996. The
32.9% decrease was attributable to organization cost amortization expiring at
December 31, 1996.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE
Interest expense was $78,482 for the nine months ended March 31, 1997
compared to $133,891 for the nine months ended March 31, 1996. The 41.4%
decrease was attributable to imputed interest expensed over the expected life of
bridge loans through March 31, 1996, as a result of noteholders receiving shares
of the Company's Common Stock in consideration for their promissory note.
Interest expense was $25,813 for the three months ended March 31, 1997 and
$74,787 for the three months ended March 31, 1996. The 65.5% decrease is
primarily attributed to those reasons set forth above.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense increased 81.3% to $211,549 during the
nine months ended March 31, 1997 from $116,705 during the nine months ended
March 31, 1996. The increase is primarily attributable to increased salaries
incurred by the Company in the experimental area of development of its product.
Research and development expense increased 110% to $78,797 during the third
quarter ending March 31, 1997 from $37,525 for the same period ending 1996. The
Company attributes this increase primarily to those reasons set forth above.
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 March 31, 1997 and the issuance to the Company
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), $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
accordance with their employment agreements, 225,000 shares of common stock of
Humascan was issued to officers and directors of the Company as additional
compensation.
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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.
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. 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 $1,850,000.
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.
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 and
shortly thereafter, a second location in Ireland. 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
locations.
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.
On November 19, 1996, the Company entered into a license agreement with
Health Technologies International Inc. ("HTI"), whereby HTI is to assemble
market and sell the BreastALERT in Chile and Singapore, and pay the Company a
licensing fee of $250,000 by May 15, 1997 of which $50,000 has been received.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Pursuant to the terms of the agreement, HTI agrees to pay the Company
minimum royalties of $100,000 in 1997 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. The Company is
the beneficial owner of twenty (20%) percent of HTI.
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 and the HTI license agreement, the $1,070,000 of net proceeds
received from two private placements in July and August, 1996, 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 March 31, 1997,
$121,000 of promissory notes, plus interest, were converted into 151,084 shares
and $95,000 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.
-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, 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 March 31, 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: May 13, 1997
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCANTEK
MEDICAL INC. FINANCIAL STATEMENTS AT MARCH 31, 1997 AND THE NINE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 337,666
<SECURITIES> 7,985,396
<RECEIVABLES> 350,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,673,062
<PP&E> 351,108
<DEPRECIATION> 14,613
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<CURRENT-LIABILITIES> 2,896,096
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0
0
<COMMON> 17,160
<OTHER-SE> 4,776,962
<TOTAL-LIABILITY-AND-EQUITY> 10,012,201
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<CGS> 0
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