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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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
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(Address and telephone number, including area code, of
registrant's principal executive office)
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(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 April 30, 1999, there were 18,070,200 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
March 31, 1999 (unaudited) and
June 30, 1998 ............................................... 2
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Nine Months and Three Months
Ended March 31, 1999 and 1998 (unaudited) and for the
Period June 10, 1988 (Date of Formation) through
March 31, 1999 .............................................. 3 - 5
Consolidated Statements of Stockholders'
Equity (Deficiency) for the Period June 10,
1988 (Date of Formation) through March
31, 1999 (unaudited) ........................................ 6 - 11
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1999 and 1998 (unaudited) and for the
Period June 10, 1988 (Date of Formation) through
March 31, 1999 .............................................. 12 - 13
Notes to Financial Statements (unaudited) ...................... 14 - 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............. 17 - 24
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ........................................... 25
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K ............................. 25
SIGNATURES ............................................................ 26
<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
financial statements and notes thereto included in the Company's Registration
Statement on Form 10-KSB for the year ended June 30, 1998.
The results of operations for the nine months ended March 31, 1999, 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,
1999 1998
---------- ------------
(Unaudited)
Current Assets:
Cash .......................................... $ 84,171 $ 55,929
Marketable securities ......................... 473,041 2,295,253
Inventory ..................................... 1,017,632 --
Due from licensees ............................ 400,000 726,900
Prepaid expenses .............................. 165,325 23,517
----------- -----------
Total Current Assets ....................... 2,140,169 3,101,599
----------- -----------
Property and equipment - net ..................... 1,875,761 822,043
Marketable securities - non-current .............. -- 901,520
Other assets - net ............................... 319,825 383,275
----------- -----------
TOTAL ASSETS .................................. $ 4,335,755 $ 5,208,437
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Short-term debt ............................... $ 300,000 $ 100,000
Current portion - deferred income ............. -- 752,500
Note payable to officer ....................... 871,493 621,993
Accounts payable .............................. 1,233,764 266,869
Accrued interest .............................. 154,960 110,470
Accrued salaries .............................. 1,036,119 841,119
Accrued expenses .............................. 74,013 65,785
----------- -----------
Total Current Liabilities .................. 3,670,349 2,758,736
----------- -----------
Long-term debt ................................... 1,738,006 888,006
----------- -----------
Total Liabilities ............................. 5,408,355 3,646,742
----------- -----------
Commitments and Contingencies
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 18,070,200 and 17,220,200 ...... 18,070 17,220
Additional paid-in-capital .................... 3,287,285 2,993,206
Unrealized gain (loss) on marketable
securities ................................. (102,116) 2,621,616
Deficit accumulated during develop-
ment stage ................................. (4,275,839) (4,070,347)
----------- -----------
Total Stockholders' Equity (Deficiency) .... (1,072,600) 1,561,695
----------- -----------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY (DEFICIENCY) ............... $ 4,355,755 $ 5,208,437
=========== ===========
See notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<CAPTION>
For the Period
Nine Months Ended Three Months Ended June 10, 1988
March 31, March 31, (Date of Formation)
----------------------------- ----------------------------- Through
1999 1998 1999 1998 March 31, 1999
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales ..................... $ 127,775 $ -- $ -- $ -- $ 127,775
License fees .................. 1,127,500 1,901,582 375,000 1,901,582 2,929,082
----------- ----------- ----------- ----------- -----------
Total Revenues ........... 1,255,275 1,901,582 375,000 1,901,582 3,056,857
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales ................. 101,363 -- 3,554 -- 101,363
General and adminis-
trative expenses ............ 701,530 599,212 308,926 264,484 4,141,205
Amortization and
Depreciation ................ 199,968 59,690 88,688 20,613 906,211
Research and
Development ................. 290,689 261,587 73,673 112,277 1,861,469
Interest expense .............. 167,366 138,966 77,748 46,897 830,320
----------- ----------- ----------- ----------- -----------
Total Costs and
Expenses ................. 1,460,916 1,059,455 552,589 444,271 7,840,568
----------- ----------- ----------- ----------- -----------
Net Operating
Earnings(Loss) ................ (205,641) 842,127 (177,589) 1,457,311 (4,783,711)
----------- ----------- ----------- ----------- -----------
(continued)
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (continued)
(Unaudited)
<CAPTION>
For the Period
Nine Months Ended Three Months Ended June 10, 1988
March 31, March 31, (Date of Formation)
----------------------------- ----------------------------- Through
1999 1998 1999 1998 March 31, 1999
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Other income:
Interest and
Dividends ................... $ 149 $ 18,768 $ 14 $ 2,075 $ 51,368
Consulting .................... -- -- -- -- 15,000
Gain on sale of
marketable
securities .................. -- -- -- -- 414,604
Miscellaneous ................. -- 3,185 -- (2,604) 26,900
----------- ----------- ----------- ----------- -----------
Total Other
Income (loss) ........... 149 21,953 14 (529) 507,872
----------- ----------- ----------- ----------- -----------
Net Earnings (Loss) .............. $ (205,492) $ 864,080 $ (177,575) $ 1,456,782 $(4,275,839)
=========== =========== =========== =========== ===========
Earnings (Loss) per common
share - basic ................. $ (.01) $ .05 $ (.01) $ .08
=========== =========== =========== ===========
Earnings (Loss) per common
share - diluted ............... $ (.01) $ .05 $ (.01) $ .08
=========== =========== =========== ===========
Weighted average number
of common shares
outstanding - basic ........... 17,566,035 17,220,200 17,406,659 17,220,200
=========== =========== =========== ===========
Weighted average number
of common shares
outstanding - diluted ......... 17,668,829 17,322,994 17,406,659 17,245,898
=========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (continued)
(Unaudited)
<CAPTION>
For the Period
Nine Months Ended Three Months Ended June 10, 1988
March 31, March 31, (Date of Formation)
----------------------------- ----------------------------- Through
1999 1998 1999 1998 March 31, 1999
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net earnings (loss) .............. $ (205,492) $ 864,080 $(177,575) $ 1,456,782 $(4,275,839)
Other comprehensive income
(expense), net of income
taxes:
Unrealized gain (loss)
on marketable
securities ................. (2,723,732) 1,311,655 (168,727) (1,648,721) (102,116)
----------- ----------- ----------- ----------- --------------
Comprehensive
income (loss) .................. $(2,929,224) $2,175,735 $(346,292) $ (191,939) $(4,377,955)
=========== ========== ========= =========== ===========
See notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Deficit)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain (loss) During the
------------------ ----------------- Paid-In on Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
------ ------ ------ ------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original
Capitalization:
Sale of stock ($.023
per share) 2,000,000 $2,000 -- $ -- $44,094 $ -- $ -- $46,094
Issuance of
options for
services 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)
See notes to consolidated financial statements
</TABLE>
-6-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Deficit) (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain (loss) During the
------------------ ----------------- Paid-In on 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)
See notes to consolidated financial statements
</TABLE>
-7-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Deficit) (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain (loss) During the
------------------ ----------------- Paid-In on Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
------ ------ ------ ------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock in
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)
See notes to consolidated financial statements
</TABLE>
-8-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Deficit) (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain (loss) During the
------------------ ----------------- Paid-In on 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
See notes to consolidated financial statements(Continued)
</TABLE>
-9-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Deficit) (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain (loss) During the
------------------ ----------------- Paid-In on Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
------ ------ ------ ------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of warrants
for services ren-
dered (at $.55 to
$1.125 per share) 27,780 27,780
Net unrealized (loss)
on marketable
securities (2,944,999) (2,944,999)
Net earnings-
June 30, 1998 654,801 654,801
---------- ------- ---- ---- ---------- ---------- ----------- -----------
Balance, June 30,
1998 17,220,200 $17,220 -- $ -- $2,993,206 2,621,616 $(4,070,347) $ 1,561,695
Issuance of stock
for salaries (at
$.1875 per share) 350,000 350 65,275 65,625
Sale of common stock
(at $.3333 per share) 300,000 300 99,700 100,000
Issuance of stock in
connection with
loan financing
(at $.1875 per share) 75,000 75 13,988 14,063
Issuance of warrants
for services ren-
dered (at $.1875 to
$1.125 per share) 44,929 44,929
Issuance of stock in
connection with
loan financing
(at $.5625 per share) 125,000 125 70,187 70,312
See notes to consolidated financial statements(Continued)
</TABLE>
-10-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Deficit) (Continued)
(Unaudited)
<CAPTION>
(Deficit)
Unrealized Accumulated
Common Stock Treasury Stock Additional Gain (loss) During the
------------------ ----------------- Paid-In on Marketable Development
Shares Amount Shares Amount Capital Securities Stage Total
------ ------ ------ ------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net unrealized (loss)
on marketable
securities -- -- -- -- -- (2,723,732) -- (2,723,732)
Net loss -
March 30, 1999 (205,492) ( 27,917)
---------- ------- ---- ---- ---------- ---------- ----------- -----------
Balance,
March 31, 1999 18,070,200 $18,070 $ -- $ -- $3,287,285 $ (102,116) $(4,275,839) $(1,072,600)
========== ======= ==== ==== ========== ========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
-11-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Period
June 10, 1988
(Date of
Nine Months Ended March 31, Formation)
-------------------------- through
1999 1998 March 31, 1999
----------- ----------- --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss) ................... $ (205,492) $ 864,080 $(4,275,839)
Adjustments to reconcile net
Earnings (loss) to net
cash used in operating
activities:
Depreciation and amortization ........ 199,967 59,690 906,209
Net gain on sale of mar-
ketable securities .................. -- (3,185) (414,604)
Non-employee stock based
Compensation ........................ 84,375 -- 929,949
Non-cash officers compensation ....... 65,625 -- 522,875
Other non-cash items ................. 44,929 13,562 344,689
Changes in operating
assets and liabilities .............. (356,480) (1,493,728) 279,459
----------- ----------- -----------
Net Cash (Used in)
Operating Activities .................. (167,076) (559,581) (1,707,262)
----------- ----------- -----------
Cash flows from investing
activities:
Proceeds from sale of
marketable securities ............... -- 209,967 1,191,313
Purchases of patents ................. -- -- (76,069)
Organization costs ................... -- -- (199,672)
Purchase and deposits
of equipment ........................ (1,202,980) (400,868) (2,052,409)
Purchase of marketable
Securities .......................... -- (303,487) (777,534)
----------- ----------- -----------
Net Cash (Used in)
Investing Activities .................. (1,202,980) (494,388) (1,914,371)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ............. 1,050,000 352,298 2,653,208
Proceeds from officer loans .......... 249,500 -- 873,493
Repayment of officer loans ........... -- -- (2,000)
Repayment of notes ................... (1,202) (30,000) (1,107,991)
Proceeds from the sale of
Options ............................. -- -- 28,000
Proceeds from sale of common
and treasury stock .................. 100,000 -- 1,261,094
----------- ----------- -----------
Net Cash Provided by
Financing Activities .................. 1,398,298 322,298 3,705,804
----------- ----------- -----------
Net Increase (decrease) in Cash .......... 28,242 (731,671) 84,171
Cash - beginning of period ............... 55,929 918,393 --
----------- ----------- -----------
Cash - end of period ..................... $ 84,171 $ 186,722 $ 84,171
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-12-
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Period
June 10, 1988
(Date of
Nine Months Ended March 31, Formation)
-------------------------- through
1999 1998 March 31, 1999
----------- ----------- --------------
<S> <C> <C> <C>
Changes in Operating Assets
and Liabilities Consist of:
(Increase) in inventory .............. $ (1,017,632) $ -- $(1,017,632)
Decrease in due from
licensees ............................ 401,900 75,000 100,000
(Increase) decrease in
prepaid expenses ..................... (141,808) 12,273 (165,325)
(Increase) in marketable
securities - non-current ............ -- -- (300,000)
(Increase) in other assets ........... (62,255) (462,017) (667,395)
Increase in accounts
payable and accrued
expenses ............................ 1,215,815 257,598 2,606,492
(Decrease) in
deferred income .................... (752,500) (1,376,582) (276,582)
(Decrease) in accrued
franchise taxes .................... -- -- (99)
------------ ------------- -----------
$ (356,480) $ (1,493,728) $ 279,459
============ ============= ===========
Supplementary information:
Cash paid during the year for:
Interest .......................... $ 94,668 $ 135,724 $ 544,555
============ ============= ===========
Income taxes ...................... $ 5,637 $ -- $ 5,637
============ ============= ===========
Non-cash investing activities:
Debt incurred for asset
transfer agreement of
patents ............................. $ -- $ -- $ 600,000
============ ============= ===========
Acquisition of subsidiary
for common stock .................... $ -- $ -- $ 100,000
============ ============= ===========
Acquisition of mar-
ketable securities in
connection with
licensing agreement ................. $ -- $ -- $ 276,582
============ ============= ===========
Unrealized gain (loss)
on marketable
securities .......................... $ (2,723,732) $ 1,311,655 $ (102,116)
============ ============= ===========
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 ............ $ 84,375 $ -- $ 985,177
============ ============= ===========
Conversion of accounts
payable to stock
options ............................. $ -- $ -- $ 50,000
============ ============= ===========
Conversion of accounts
payable to warrants ................. $ 44,929 $ 13,562 $ 88,334
============ ============= ===========
Conversion of accounts
payable to treasury
stock ............................... $ -- $ -- $ 16,125
============ ============= ===========
Conversion of accrued
officers' salaries to
common stock ........................ $ 65,625 $ -- $ 522,875
============ ============= ===========
</TABLE>
See notes to consolidated financial statements.
-13-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Planned principal operations of Scantek Medical Inc. (the "Company" or
"Scantek") have commenced.The Company manufactured and distributed units of the
BreastCare(TM) device to customers in Brazil, Uruguay, Argentina and Paraguay
during the first and second quarters of its current fiscal year.The Company
expects its manufacturing and distribution operations to be in full operation
during the first quarter of fiscal year 2000.The Company's continued existence
is dependent not only upon cash flow to be derived from operations during 1999
but upon its ability to obtain needed working capital through additional equity
and/or debt financing.Management is actively seeking additional capital to
ensure the continuation of its development and marketing activities as well as
its manufacturing and distribution operations; accordingly, the Company is
considered a development stage company.
The consolidated balance sheet as of March 31, 1999, consolidated
statements of operations and cash flows for the nine months ended March 31, 1999
and 1998, and for the period June 10, 1988 (Date of Formation) through March 31,
1999 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, 1998 financial statements have been reclassified to conform to March 31,
1999 classifications.The information for June 30, 1998 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.
LICENSE REVENUE RECOGNITION -- Revenues will be recognized in income when
the licensees commence operations, since substantial performance is presumed to
occur at that point.
2. HUMASCAN AGREEMENT/SETTLEMENT
On March 15, 1999 pursuant to a Settlement Agreement ("Agreement") dated as
of the 11th day of March, 1999 between Scantek and HumaScan, Inc. ("HumaScan"),
Scantek regained the rights to market and sell its BreastCare(TM)/
BreastAlert(TM) in the United States and Canada.
Pursuant to the Agreement, all licensing agreements between Scantek and
HumaScan which gave HumaScan the right to manufacture, market and sell the
BreastCare(TM)/BreastAlert(TM) were terminated.Pursuant to the original and
amended licensing agreements, HumaScan was indebted to Scantek for failure to
pay license fees, royalties and other sums of money.In exchange for the
cancellation of $750,000 of indebtedness due to it by Humascan and for the
payment by Scantek to HumaScan of an additional $340,000, HumaScan agreed to
assign certain special manufacturing equipment, furniture, raw materials, tools,
materials, laboratory equipment and inventory of HumaScan for the manufacture of
the BreastCare(TM)/BreastAlert(TM).
-14-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scantek recognized $375,000 as license fee income in it's statement of
operations for the period ended March 31, 1999 that was previously reversed
during the year ended June 30, 1998 in accordance with the amended licensing
agreement.Scantek recorded raw materials and finished goods in the amount of
approximately $850,000, which represents the fair market value of the inventory
received.Equipment with an initial acquisition cost of approximately $2.5
million has been recorded for approximately $200,000, which represents the cost
the Company paid HumaScan as part of the Agreement.
3 (LOSS) PER SHARE
Basic (loss) per common share is computed using the weighted average number
of common shares outstanding during the period.Diluted (loss) per common share
is computed using the weighted average number of common shares and common stock
equivalent shares outstanding during the period.
4. MARKETABLE SECURITIES
Estimated Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
-------- ---------- ---------- ----------
March 31, 1999:
Marketable Securities
-- Current
Common stock ........ $275,157 $ 473,041 $1,498,000 $1,695,884
Marketable Securities
-- Non-current
Warrants ............ $300,000 $ -- $ -- $ 300,000
June 30, 1998:
Marketable Securities
-- Current
Common stock ........ $275,157 $2,295,253 $2,020,096 $ --
Marketable Securities
-- Non-current
Warrants ............ $300,000 $ 901,520 $ 601,520 $ --
5.INVENTORIES
Inventories consist of the following:
March 31, June 30,
1999 1998
---------- --------
Raw materials ................... $ 897,945 $ --
Work-in-process ................. 2,800 --
Finished goods .................. 116,887 --
---------- --
$1,017,632 $ --
========== =====
-15-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EQUIPMENT
Equipment consists of the following:
March 31, June 30,
1999 1998
---------- ----------
Equipment ............................... $2,014,545 $ 101,565
Furniture and fixtures .................. 27,489 27,489
Deposit on equipment .................... -- 710,000
Leasehold improvements .................. 16,525 16,525
---------- ----------
2,058,559 855,579
Less accumulated depreciation ........... 182,798 33,536
---------- ----------
Net Equipment ............................. $1,875,761 $ 822,043
========== ==========
7. OTHER ASSETS
Other assets consist of the following:
March 31, June 30,
1999 1998
---------- ----------
Patent costs ............................ $ 676,069 $ 676,069
Long-term portion of amount
due from licensees .................... -- 75,000
Security deposits ....................... 13,125 13,125
Other ................................... 154,370 92,114
---------- ----------
843,564 856,308
Less accumulated amortization ........... 523,739 473,033
---------- ----------
Other Assets -- Net ..................... $ 319,825 $ 383,275
========== ==========
8. 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, 1999, the Company has provided no
deferred taxes on the unrealized gain on marketable securities after off-setting
the net operating loss carryforward, which offsets any gain.
9. NEW ACCOUNTING PRONOUNCEMENTS
During June 1997, the Financial Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments for
Enterprises and Related Information".This statement requires the disclosure of
financial and descriptive information about reportable operating
segments.Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly in
deciding how to allocate resources and in assessing performance.The Company has
not yet completed its evaluation of this Statement.This Statement is effective
for the Company's fiscal year end financial statements.
-16-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 13 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities".The Company is required to adopt the
provisions of this Statement in the 2000 year-end financial statements.This
Statement requires that all derivatives be recorded in the balance sheet as
either an asset or liability measured at fair value.The Statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.The Company is in the process
of evaluating this Statement and has not yet determined the future impact on the
Company's consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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
Nine Months Ended Three Months Ended
March 31, 1999 March 31, 1999
compared with 1998 Compared with 1998
------------------ ------------------
General and administrative
expense .......................... 17.1% 16.8%
Amortization and Depreciation ...... 235.0 330.3
Research and development ........... 11.1 (34.4)
Interest expense ................... 20.4 65.8
Net (loss) ......................... 123.8 112.2
NINE MONTHS 1999 VS. NINE MONTHS 1998 AND THREE MONTHS 1999
VS. THREE MONTHS 1998
REVENUES
Net sales increased to $127,775 during the nine months ended March 31, 1999
from $0 during the nine months ended March 31, 1998 as the Company commenced
initial shipments of it Breast Care(TM) device during the first quarter of its
current fiscal year.The Company expects its manufacturing and distribution
operations to be in full operation during the third quarter of calendar 1999.
License fee revenue decreased to $1,127,500 during the nine months ended
March 31, 1999 from $1,901,582 during the nine months ended March 31, 1998 as
the Company recognized the smaller license fees for Sandell and D-Lanz as
compared to the license fee recognition of HumaScan during the nine months ended
March 31, 1998.
-17-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
License fee revenue for the three months ended March 31, 1999 was $375,000
as the Company reversed the previously reduced license fee amount as per the
settlement agreement with HumaScan dated March 11, 1999.License fee revenue was
$1,901,582 for the three months ended March 31, 1998 as the Company recognized
the deferred license fee from Humascan.
COST OF SALES
Cost of sales increased $101,363 and $3,554 during the nine months and
three months ended March 31, 1999 from $0 during the nine months and three
months ended March 31, 1998 primarily due to the initial shipments of its Breast
Care(TM) device during the first quarter of its current fiscal year.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 17.1% for the nine-month
period ending March 31, 1999 as compared with the nine-month period ended March
31, 1998.This increase is primarily due to increases in consulting, travel and
outside services mainly attributible to its South American operations offset in
part by decreased legal fees.
General and administration expenses increased 16.8% to $308,926 during the
three months ended March 31, 1999 compared to $264,484 during the three months
ended March 31, 1998 for principally the same reasons set forth in the
nine-month analysis.
AMORTIZATION AND DEPRECIATION EXPENSE
Amortization and depreciation expense was $199,968 for the nine months
ended March 31, 1999 as compared to $59,690 for the nine months ended March 31,
1998. The 235.0% increase was attributable to increases in depreciation expense
on production equipment purchased for $1,850,680 and put into service.
Amortization and depreciation expense was $88,688 for the three months
ended March 31, 1999 compared to $20,613 for the three months ended March 31,
1998.The 330.3% increase was attributable for the same reasons set forth in the
nine months analysis.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense increased 11.1% to $290,689 during the
nine months ended March 31, 1999 from $261,587 during the nine months ended
March 31, 1998.The increase is primarily attributable to stock based bonuses
given to two of the officers for deferring salaries so the Company could use
these funds as working capital.
Research and development expense increased 34.4% to $73,673 during the
three-month period ended March 31, 1999 from $112,277 during the three months
ended March 31, 1998 due to approximately $30,000 worth of samples sent to South
America during the three months ended March 31, 1998 for research and
development.
-18-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
INTEREST EXPENSE
Interest expense was $167,366 for the nine months ended March 31, 1999
compared to $138,966 for the nine months ended March 31, 1998.The 20.4% increase
was attributable to the evaluation on the short-term debt margin loan offset, in
part, by interest expense on increased short term loans and officer loans,
coupled with imputed interest on stock issued in consideration for short term
loans.
Interest expense was $77,748 for the three months ended March 31, 1999
compared to $46,897 for the three months ended March 31, 1998.The 65.8% increase
was attributable for the same reasons set forth in the nine month 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 trademarks 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 Mr. Zsigmond Sagi ("Sagi"), the Company's President, Chief Executive
Officer and major shareholder as well as other investors.The Company has entered
into various license agreements that have raised additional funds and borrowed
money against common stock received in connection with the license agreements.In
addition, the Company's auditors' report for the year ended June 30, 1998 dated
September 1, 1998, expressed an opinion as to the Company continuing as a going
concern.
During September 1998, the Company commenced the sale of its BreastCare(TM)
device in Brazil, Uruguay and Paraguay through its South American licensee.In
February, the Brazilian economy turned downward and with it the Brazilian
currency lost fifty (50%) percent of its value.To stop the downslide, Brazil
increased the import and value-added tax from twenty-one (21%) percent in
December to seventy-four (74%) percent in February.Due to these factors, sales
practically halted in Brazil, which represents about eighty (80%) percent of
present revenue.The Company plans to move the production facility from Uruguay
to Brazil.This will overcome the high taxation, eliminate the cost problem and
will be able to restart sales.The Company expects to expand its distribution and
be fully operational during the third quarter of calendar 1999.However, until
that time, the Company needs financing to fund its current overhead and various
capital requirements.As of March 31, 1999, the Company borrowed $1,050,000 from
unaffiliated third parties, and in December 1998 the Company borrowed an
additional $100,000 from a director of the Company.These loans are payable by
the Company in mid 1999 through July 2000.In addition, Sagi advanced the Company
an additional $237,000 during the first three quarters of its fiscal year.These
loans will support the Company through the fiscal year, and the Company expects
the cash flow from sales commencing in the latter part of 1999 to cover the
operations of the Company providing the Company is successful in raising the
initial capital.
-19-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Company's working capital and capital requirements will depend on
numerous factors, including the level of resources that the Company devotes to
the purchase of manufacturing equipment to support start-up production and to
the marketing aspects of its products.The Company intends to construct
production and/or assembly centers abroad to manufacture, market and sell the
BreastCare(TM) in the international market.The Company entered into an agreement
with Zigmed Inc. pursuant to which Zigmed Inc will manufacture the production
equipment needed for manufacturing of the BreastCare(TM) for the contract price
of $1,850,680.The Company as of March 31, 1999, has advanced Zigmed Inc.
payments of $815,500 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 balance of $935,180 will be paid when the Company raises the
additional capital.
The Company has also executed 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.The acquisition is subject to the Company obtaining financing for the
purchase of the Hungarian manufacturer.
On March 15, 1999 pursuant to a Settlement Agreement ("Agreement") dated as
of the 11th day of March, 1999 between Scantek and HumaScan, Inc. ("HumaScan"),
Scantek regained the rights to market and sell its BreastCare(TM)/
BreastAlert(TM) in the United States and Canada.
Pursuant to the Agreement, all licensing agreements between Scantek and
HumaScan which gave HumaScan the right to manufacture, market and sell the
BreastCare(TM)/ BreastAlert(TM) were terminated.Pursuant to the original and
amended licensing agreements, HumaScan was indebted to Scantek for failure to
pay license fees, royalties and other sums of money.In exchange for the
cancellation of $750,000 of indebtedness due to it by Humascan and for the
payment by Scantek to HumaScan of an additional $340,000, HumaScan agreed to
assign certain special manufacturing equipment, furniture, raw materials, tools,
materials, laboratory equipment and inventory of HumaScan for the manufacture of
the BreastCare(TM)/ BreastAlert(TM). Scantek recognized $375,000 as license fee
income in it's statement of operations for the period ended March 31, 1999 that
was previously reversed during the year ended June 30, 1998 in accordance with
the amended licensing agreement.Scantek recorded raw materials and finished
goods in the amount of approximately $850,000, which represents the fair market
value of the inventory received.Equipment with an initial acquisition cost of
approximately $2.5 million has been recorded for approximately $200,000, which
represents the cost the Company paid HumaScan as part of the Agreement.
In addition the Company received 150,000 shares of Humascan common stock as
part of the Agreement.
-20-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Company entered into an exclusive license agreement, dated September
22, 1997, and amended February 18, 1998, 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 forty-five (45) days
after shipment of the first product in 1999, and (iii) $200,000 on or before
January 30, 2000.Sandell is also required to make minimum purchases of the
BreastCare(TM) as follows: (i) 20,000 units per month during the first six
months of calendar 1999 (ii) 35,000 units per month during the balance of 1999,
(iii) 65,000 units during 2000, and (iv) 90,000 units per month during 2001 and
thereafter during the term of the license.
Due to the economic problems in Brazil and the economic slowdown in other
countries in South America that ocurred as a result of the Brazilian economy,
Sandell was forced to reorganize its operations.Working with Scantek, the
minimum purchases of 20,000 units per month has been rescheduled to begin in
August, 1999.The payment to Scantek that was due forty-five(45) days after the
initial shipment of the product in 1999 has been mutually agreed to be extended
to forty-five (45) days after the shipment of the product in August 1999.
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 BreastCare(TM) in Chile and Singapore and pay the Company a
licensing fee of $250,000, all of which has been received.HTI was acquired by
D-Lanz Development Group, Inc. ("D-Lanz") in November 1997.As part of the
licensing agreement, the Company received 2,000,000 shares of D-Lanz common
stock which is publicly traded on the Electronic Bulletin Board under the symbol
DLNZ.Pursuant to the terms of the agreement, HTI agreed to pay the Company
minimum royalties of $100,000 in 1999 with increasing royalties leveling out at
a minimum of $400,000 in the year 2000 and thereafter.D-Lanz has signed a letter
of intent for Sandell to distribute the BreastCare(TM) in Chile.
The Company's success is dependent on raising sufficient capital to
establish a production and assembly facility to manufacture the BreastCare(TM)
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.The Company
believes the BreastCare(TM) 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.
-21-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued
In a 1994 private placement, the Company raised $246,000 through unsecured
notes.Each noteholder received 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.
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 ten (10%) percent per year.The Company has
renegotiated the note with the lenders as of March 31, 1998.The note is due
September 30, 2000; all remaining notes have been paid.
In July and August 1996, the Company completed two private placements of
the Company's common stock, raising proceeds of $1,070,000.
During May 1998, the Company was obligated on its short-term debt to repay
approximately $900,000.The common stock of HumaScan owned by the Company pledged
as collateral for the loan fell below $3.00 per share requiring the Company
either to sell the HumaScan shares or use alternative means to liquidate the
short-term debt.The Company sold marketable securities other than the HumaScan
stock, sold approximately 120,000 shares of HumaScan stock, and the balance of
the funds to liquidate the debt of approximately $317,000 was advanced by Sagi.
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.
OTHER MATTERS
YEAR 2000
BACKGROUND
The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable years.Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
-22-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued
The Company will rely heavily on computer technologies to operate its
business.In 1998, the Company conducted an initial assessment of its information
technology to determine which Year 2000 related problems might cause processing
errors or computer system failures.The Company also did a complete analysis of
its present computer system and its needs for the future.Based on the results of
that analysis, the Company's executive management identified the Year 2000
problem as a top corporate priority and established an internal group to provide
a solution.
The following discussion of the implications of the Year 2000 problem for
the Company contains numerous forward-looking statements based on inherently
uncertain information.The cost of the project and the date on which the Company
plans to complete its internal Year 2000 modifications are based on the
Company's best estimates, which were derived utilizing a number of assumptions
of future events including the continued availability of internal and external
resources, third party modifications and other factors.However, there can be no
guarantee that these estimates will be achieved, and actual results could
differ.Moreover, although the Company believes it will be able to make the
necessary modifications in advance, there can be no guarantee that failure to
modify the systems would not have a material adverse effect on the Company.
In addition, the Company places a high degree of reliance on computer
systems of third parties, such as customers, trade suppliers and computer
hardware and commercial software suppliers.Although the Company is assessing the
readiness of these third parties and preparing contingency plans, there can be
no guarantee that the failure of these third parties to modify their systems in
advance of December 31, 1999, would not have a material adverse effect on the
Company.
READINESS
The Year 2000 project is intended to ensure that all critical systems,
devices and applications, as well as data exchanged with customers, trade
suppliers and other third parties have been evaluated and will be suitable for
continued use into and beyond the Year 2000.
The Company is a development stage company and expects to be fully
operational in the latter part of 1999.All computers the Company operates now
are compatible with the Year 2000.The Company expects to vastly upgrade its
computer system as it becomes fully operational in 1999.
Since early 1998, the Company has required Year 2000 compliance statements
from all suppliers of the Company's computer hardware and commercial
software.Regardless of the compliance statements, all third party hardware and
software will also be subjected to testing to reconfirm the Year 2000 readiness.
-23-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued
COST
The Company estimates that the total cost of achieving Year 2000 readiness
for its internal systems, devices and applications and a complete upgrade of its
computer system is approximately $250,000.The cost of the Year 2000 problem is
not material but the extent of upgrading the computer system will absorb most of
the cost.Year 2000 project costs are difficult to estimate accurately, and the
projected cost could change due to unanticipated technological difficulties and
Year 2000 readiness of third parties
CONTINGENCY PLANS
In the event that the efforts of the Company's Year 2000 project do not
address all potential systems problems, the Company is currently developing
business interruption contingency plans.The Company believes, however, that due
to the widespread nature of potential Year 2000 issues, the contingency planning
process is an ongoing one which will require further modifications as the
Company obtains additional information regarding (1) the Company's internal
systems during the remediation and testing phases of its Year 2000 project and
(2) the status of third party Year 2000 readiness.Contingency planning for
possible Year 2000 disruptions will continue to be defined, improved and
implemented.
RISKS
The Company believes that completed and planned modifications and
conversions of its critical systems, devices and applications will allow it to
be Year 2000 compliant in a timely manner.There can be no assurances, however,
that the Company's internal systems, devices and applications or those of third
parties on which the Company relies will be Year 2000 compliant by year 2000 or
that the Company's or third parties' contingency plans will mitigate the effects
of any noncompliance.An interruption of the Company's ability to conduct its
business due to a Year 2000 readiness problem could have a material adverse
effect on the Company.
Certain statements in this report with respect to future expectations and
plans may be regarded as "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, Section 21F of the Securities
Exchange Act of 1934, and as that term is defined in the Private Securities
Litigation Reform Act of 1995.Such statements including, but not limited to,
statements with respect to future earnings, and all other forward-looking
statements involve risks and uncertainties and are subject to change at any
time. The Company's actual results could differ materially from such statements.
-24-
<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, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated March 15,1999 describing
(under Items 2 and 7) the acquisition of certain assets of HumaScan Inc
("HumaScan") for approximately $1,090,000.The purchase price consisted of
$340,000 paid from cash on hand and $750,000 in exchange for the cancellation of
indebtedness due by HumaScan to Scantek.HumaScan was indebted to Scantek for
failure to pay license fees, royalties and other sums of money.
-25-
<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 14, 1999
-26-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCANTEK
MEDICAL INC. FINANCIAL STATEMENTS AT MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 84,171
<SECURITIES> 473,041
<RECEIVABLES> 400,000
<ALLOWANCES> 0
<INVENTORY> 1,017,632
<CURRENT-ASSETS> 2,140,169
<PP&E> 2,058,559
<DEPRECIATION> 182,798
<TOTAL-ASSETS> 4,335,755
<CURRENT-LIABILITIES> 3,670,349
<BONDS> 0
<COMMON> 18,070
0
0
<OTHER-SE> (1,090,670)
<TOTAL-LIABILITY-AND-EQUITY> 4,335,755
<SALES> 127,775
<TOTAL-REVENUES> 1,255,275
<CGS> 101,363
<TOTAL-COSTS> 1,293,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,366
<INCOME-PRETAX> (205,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (205,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (205,492)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
