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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 December 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)
DELAWARE 84-1090126
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 PALMER ROAD, DENVILLE, NEW JERSEY 07834
(973) 366-5250
------------------------------------------------------
(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 January 31, 1998, there were 17,220,200 shares of Common Stock, $.001
par value, outstanding.
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<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC.
INDEX
Page
----
<S> <C> <C>
Part I. Financial Information 1
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 (unaudited) and
June 30, 1997 2
Consolidated Statements of Operations for the Six Months and Three
Months Ended December 31, 1997 and 1996 (unaudited) and for the
Period June 10, 1988 (Date of Formation) through
December 31, 1997 3
Consolidated Statements of Stockholders'
Equity for the Period June 10, 1988
(Date of Formation) through December 31, 1997 4 - 7
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1997 and 1996 (unaudited) and for the Period June 10,
1988 (Date of Formation) through December 31, 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 - 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 Annual Report on Form 10-KSB for the
year ended June 30, 1997.
The results of operations for the six months ended December 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
December 31, June 30,
1997 1997
----------- -----------
(Unaudited)
Current Assets:
Cash $ 377,613 $ 918,393
Marketable securities 7,024,268 6,860,371
Due from licensees 1,100,000 550,000
Prepaid expenses 68,507 70,708
----------- -----------
Total Current Assets 8,570,388 8,399,472
----------- -----------
Equipment - net 541,509 391,452
Other assets - net 661,981 783,768
----------- -----------
TOTAL ASSETS $ 9,773,878 $ 9,574,692
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 962,194 $ 966,000
Current portion - long-term debt - 350,000
Current portion - deferred income 2,629,082 2,129,082
Note payable to officer 304,993 304,993
Accounts payable 151,764 121,901
Accrued interest 57,743 82,289
Accrued salaries 718,619 578,619
Accrued expenses 18,000 40,689
Deferred income taxes 475,000 609,000
----------- -----------
Total Current Liabilities 5,317,395 5,182,573
----------- -----------
Long-term debt 888,006 568,006
----------- -----------
Total Liabilities 6,205,401 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 5,903,681 5,566,615
Deficit accumulated during develop-
ment stage (5,317,850) (4,725,148)
----------- -----------
Total Stockholders' Equity 3,568,477 3,824,113
----------- -----------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY $ 9,773,878 $ 9,574,692
=========== ===========
See notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended For the Period
-------------------------- ----------------------- June 10, 1988
December 31, December 31, (Date of Formation)
-------------------------- ----------------------- through
1997 1996 1997 1996 December 31, 1997
----------- ----------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Income:
Interest income $ 16,693 $ 11,185 $ 6,712 $ 6,529 $ 46,405
Consulting -- -- -- -- 15,000
Miscellaneous 5,789 -- (2,397) -- 31,889
----------- ----------- ---------- ----------- ------------
Total Income 22,482 11,185 4,315 6,529 93,294
----------- ----------- ---------- ----------- ------------
Costs and Expenses:
General and adminis-
trative expenses 334,728 188,968 167,431 100,986 2,797,856
Amortization and
depreciation 39,077 55,685 19,981 28,471 661,101
Research and
development 149,310 132,753 75,200 66,459 1,381,053
Interest expense 92,069 52,669 45,398 26,351 571,134
----------- ----------- ---------- ----------- ------------
Total Costs and
Expenses 615,184 430,075 308,010 222,267 5,411,144
----------- ----------- ---------- ----------- ------------
Net Loss $ (592,702) $ (418,890) $ (303,695) $ (215,738) $ (5,317,850)
=========== =========== ========== =========== ============
Net loss per share -
basic $(.03) $(.03) $(.02) $(.01) $ --
===== ===== ===== ===== ============
Weighted average
number of common
shares and
equivalents out-
standing 17,220,200 16,448,609 17,220,200 15,821,311 --
============ =========== =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(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 Capitali-
zation:
Sale of stock ($.023
per share) 2,000,000 $ 2,000 -- $ -- $ 44,094 $ -- $ -- $ 46,094
Issuance of
options for
services ren-
dered (valued
at .10 per share) 5,000 5,000
Net (loss)
June 10, 1988
(Date of For-
mation) 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 ex-
changed 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)
</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 (Continued)
(UNAUDITED)
(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 call-
able 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)
</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 (Continued)
(UNAUDITED)
(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 finan-
cing (issued at
$1.00 per share) 12,000 12 11,988 12,000
Issuance of stock
for services ren-
dered (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 sal-
aries (valued at
$.10 per share) 4,550,000 4,550 450,450 455,000
Notes payable con-
versions to
common stock
(at $1.00 per
share) 151,084 151 150,933 151,084
Issuance of stock
for services ren-
dered (at $.60
per share) 433,666 434 273,232 273,666
Issuance of options
for services ren-
dered (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)
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
(UNAUDITED)
(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 pri-
vate 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 $1.00
per share) 100,000 100 99,900 100,000
Stock options exer-
cised ($.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 337,066 337,066
Net (loss) - December
31, 1997 (592,702) (592,702)
---------- ------- ------ -------- ---------- ---------- ----------- ----------
Balance, December 31,
1997 17,220,200 $17,220 -- $ -- $2,965,426 $5,903,681 $(5,317,850) $3,568,477
========== ======= ====== ======== ========== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
June 10, 1988
Six Months Ended December 31, (Date of For-
----------------------------- mation) through
1997 1996 December 31, 1997
--------- ---------- ------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (592,702) $ (418,890) $(5,317,850)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 39,077 55,686 661,099
Net (gain) on sale of mar-
ketable securities (5,789) -- (6,889)
Non-employee stock based
compensation -- -- 845,574
Non-cash officers compen-
sation -- -- 457,250
Other non-cash items -- 12,503 271,980
Changes in operating
assets and liabilities 162,812 (172,676) 1,813,825
----------- ----------- -----------
Net Cash (Used in)
Operating Activities (396,602) (523,377) (1,275,011)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of
marketable securities 168,240 -- 191,108
Purchases of patents -- -- (76,069)
Organization costs -- -- (199,672)
Purchase and deposits
of equipment (155,330) (237,647) (557,556)
Purchase of marketable
securities (123,282) -- (555,474)
----------- ----------- -----------
Net Cash (Used in)
Investing Activities (110,372) (237,647) (1,197,663)
----------- ----------- -----------
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 (33,806) (17,000) (145,806)
Proceeds from the sale of
options -- 8,000 28,000
Proceeds from sale of common
and treasury stock -- 1,070,000 1,161,094
----------- ----------- -----------
Net Cash Provided by (Used
in) Financing Activities (33,806) 1,061,000 2,850,287
----------- ----------- -----------
Net Increase (decrease) in Cash (540,780) 299,976 377,613
Cash - beginning of period 918,393 247,515 --
----------- ----------- -----------
Cash - end of period $ 377,613 $ 547,491 $ 377,613
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
-8-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Period
Six Months Ended June 10, 1988
December 31, (Date of Formation)
--------------------------- through
1997 1996 December 31, 1997
--------- --------- -----------------
<S> <C> <C> <C>
Changes in Operating Assets
and Liabilities Consist of:
(Increase) in due from licensees $(400,000) $ -- $(1,450,000)
Decrease (increase) in
prepaid expense 2,201 -- (68,507)
(Increase) in other assets (62,017) (100) (75,042)
(Decrease) increase in accounts
payable and accrued expenses 122,628 (175,076) 1,054,973
Increase in deferred income 500,000 2,500 2,352,500
(Decrease) in accrued franchise tax -- -- (99)
--------- --------- -----------
$ 162,812 $(172,676) $ 1,813,825
========= ========= ===========
Supplementary information:
Cash paid during the year for:
Interest $ 116,616 $ 850 $ 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 $(337,066) $(265,149) $(5,903,681)
========= ========= ===========
Deposit on equipment for
common stock $ -- $ 100,000 $ 100,000
========= ========= ===========
Non-Cash Financing Activities:
Conversion of accounts payable
and accrued expenses to common
stock $ -- $ 39,646 $ 121,000
========= ========= ===========
Other non-cash activities:
Conversion of accounts payable
and accrued expenses to common
stock $ $ $ 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 if accrued officers
salaries to common stock $ $ $ 457,250
========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
-9-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
At December 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 December 31, 1997, and the
consolidated statements of operations and cash flows for the six months ended
December 31, 1997 and 1996, and for the period June 10, 1988 (Date of Formation)
through December 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 December 31, 1996 financial statements have been reclassified to
conform to December 31, 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 six months ended
December 31, 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 six months ended December
31, 1997 and 1996 were not considered as their effect was antidilutive.
3. EQUIPMENT
Equipment consists of the following:
December 31, June 30,
1997 1997
------------ ---------
Equipment $ 57,439 $ 48,914
Furniture and fixtures 16,267 9,462
Deposit on equipment 490,000 350,000
--------- ---------
563,706 408,376
Less accumulated
depreciation 22,197 16,924
--------- ---------
Net Equipment $ 541,509 $ 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:
December 31, June 30,
1997 1997
------------ --------
Patent costs $ 676,069 $ 676,069
Long-term portion of amount
due from licensees 350,000 500,000
Security deposits 13,125 13,125
Other 2,017 -
Deferred charges 60,000 -
--------- ---------
1,101,211 1,189,194
Less accumulated amortization 439,230 405,426
--------- ----------
Other Assets - Net $ 661,981 $ 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 December 31, 1997, the
Company has provided deferred taxes of $475,000 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
--------------------------------------------
Six Months Ended Three Months Ended
December 31, 1997 December 31, 1997
compared with 1996 compared with 1996
------------------ -------------------
General and administrative
expense 77.1 % 65.8 %
Amortization and
depreciation (29.8) (29.8)
Research and
development 12.5 13.2
Interest expense 74.8 72.3
Net loss 41.5 38.6
SIX MONTHS 1997 VS. SIX MONTHS 1996 AND THREE MONTHS 1997 VS. THREE
MONTHS 1996
General and Administrative Expenses
General and administrative expenses increased 77.1% to $334,728 during the
six months ended December 31, 1997 compared to $188,968 during the six months
ended December 31, 1996. This increase is primarily due to the purchasing of
keyman and directors and officers insurance coupled with increases in rent for
the leasing of office and warehouse space in Denville, NJ, professional fees and
financial services. This was offset in part by decreases in consulting expenses.
General and administrative expense increased 65.8% to $167,431 during the
three months ended December 31, 1997 compared to $100,986 during the three
months ended December 31, 1996 for principally the same reasons set forth in the
six months analysis.
Amortization and Depreciation Expense
Amortization and depreciation was $39,077 for the six months ended December
31, 1997 compared to $55,685 for the six months ended December 31, 1996. The
29.8% decrease was attributable to organization cost amortization expiring at
December 31, 1996. This was offset to a much lesser extent by increases in
depreciation expense.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Amortization and Depreciation Expense (Continued)
Amortization and depreciation was $19,981 for the three months ended
December 31, 1997 compared to $28,471 for the three months ended December 31,
1996. The 29.8% decrease was attributable for the same reasons set forth in the
six months analysis.
Research and Development Expenses
Research and development expense increased 12.5% to $149,310 during the six
months ended December 31, 1997 from $132,753 during the six months ended
December 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 13.2% to $75,200 during the
three months ended December 31, 1997 from $66,459 during the six months ended
December 31, 1996 for primarily the same reasons set forth in the six months
analysis.
Interest Expense
Interest expense was $92,069 for the six months ended December 31, 1997
compared to $52,669 for the six months ended December 31, 1996. The 74.8%
increase was attributable to interest expense on the short-term debt margin
loan.
Interest expense was $45,398 for the three months ended December 31, 1997
compared to $26,351 for the three months ended December 31, 1996. The 72.3%
increase was attributable for the same reasons set forth in the six months
analysis.
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.
-13-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
Under its Second Amended License Agreement, dated as of October 20, 1995,
as amended (the "License Agreement"), by and between the Company and HumaScan,
Inc. ("HumaScan"), the Company notified HumaScan by letter dated January 9, 1998
that HumaScan was in default of certain payments aggregating between $175,000
and $375,000 due the Company under the License Agreement. The Company has the
right, however, to waive the default at any time in its sole discretion.
HumaScan paid the Company $100,000 toward the payments the Company claims are
due, without prejudice to HumaScan's claims that such payments are not due and
owing. The Company agreed that it would extend the period for HumaScan to make
the payments until March 4, 1998 in order to enable the parties to pursue a
resolution through non-binding mediation. The remaining installments under the
License Agreement in the amount of $675,000 are payable on various dates through
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 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. HumaScan commenced operations in
January 1998.
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
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
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. The
Company as of December 31, 1997, has advanced Zigmed Inc. payments of $390,000
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 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.
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. In addition, the Company's U.S. Licensee commenced
operations in January 1998 and the Company will begin receiving royalty payments
based on its agreement with HumaScan.
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 December 31, 1997,
all remaining notes have been paid.
-15-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
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 Company has renegotiated the
note with the lenders as of December 31, 1997. The note is due January 31, 1999
with interest payable quarterly.
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-KSB 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 December 31, 1997.
-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: February 13, 1998
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCANTEK
MEDICAL INC. FINANCIAL STATEMENTS AT DECEMBER 31, 1997 AND IT QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 377,613
<SECURITIES> 7,024,268
<RECEIVABLES> 1,100,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,570,388
<PP&E> 563,706
<DEPRECIATION> 22,197
<TOTAL-ASSETS> 9,773,878
<CURRENT-LIABILITIES> 5,317,395
<BONDS> 0
<COMMON> 17,220
0
0
<OTHER-SE> 3,551,257
<TOTAL-LIABILITY-AND-EQUITY> 9,773,878
<SALES> 0
<TOTAL-REVENUES> 22,482
<CGS> 0
<TOTAL-COSTS> 615,184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (592,702)
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