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 September 30, 2000
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.
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(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 October 30, 2000 there were 18,889,690 shares of Common Stock, $.001 par
value, outstanding.
<PAGE>
SCANTEK MEDICAL INC.
INDEX
Page
----
Part I. Financial Information 1
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 2000 (unaudited) and
June 30, 2000 2
Consolidated Statements of Operations
and Comprehensive (Loss) for the
Three Months Ended September 30, 2000 and
1999 (unaudited) 3 - 4
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
2000 and 1999 (unaudited) 5 - 6
Notes to Financial Statements (unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Report on Form 8-K 15
Signatures 16
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that the following
consolidated financial statements be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 2000.
The results of operations for the three months ended September 30,
2000, 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
----------------------- -----------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,409 $ 2,898
Marketable securities 14,252 20,735
Accounts receivable 24,000 24,000
Inventories 661,672 721,315
Prepaid expenses 245 8,511
----------- -----------
Total Current Assets 701,578 777,459
----------- -----------
Property and equipement - net 1,473,150 1,548,016
Other assets - net 84,272 101,174
----------- -----------
TOTAL ASSETS $ 2,259,000 $ 2,426,649
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Short-term debt $ 864,516 $ 860,593
Current portion of long-term debt 850,000 300,000
Accounts payable 1,294,444 1,263,095
Accrued interest 644,194 539,333
Accrued salaries 1,402,472 1,332,472
Accrued expenses 615,931 528,406
----------- -----------
Total Current Liabilities 5,671,557 4,823,899
----------- -----------
Long-term debt 2,171,109 2,604,609
----------- -----------
Total Liabilities 7,842,666 7,428,508
----------- -----------
Commitments and Contingencies
Stockholders' 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
shares; outstanding 18,889,690 and
18,810,540 shares 18,890 18,810
Additional paid-in-capital 3,767,263 3,726,976
Cumulative other comprehensive loss (287,748) (281,265)
Deficit (9,082,071) (8,466,380)
----------- -----------
Total Stockholders' Deficiency (5,583,666) (5,001,859)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 2,259,000 $ 2,426,649
=========== ===========
</TABLE>
-2-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Revenues:
Net sales $ - $ -
License fees - 597,500
----------- -----------
- 597,500
----------- -----------
Costs and expenses:
Cost of sales 149,860 85,275
General and administrative
expenses 242,951 433,674
Research and development 70,000 70,000
----------- -----------
462,811 588,949
----------- -----------
Income (loss) from operations (462,811) 8,551
----------- -----------
Other income (expense):
Interest and dividends 14 73
Gain on sale of marketable
securities - 76,644
Interest expense (152,894) (169,890)
----------- -----------
(152,880) (93,173)
----------- -----------
Net loss $ (615,691) $ (84,622)
=========== ===========
Loss per common share - basic $ (0.03) $ -
=========== ===========
Loss per common share - diluted $ (0.03) $ -
=========== ===========
Weighted average number of
common shares outstanding - basic 18,862,867 18,328,420
=========== ===========
Weighted average number of
common shares outstanding - diluted 18,862,867 18,328,420
=========== ===========
</TABLE>
(Continued)
See notes to consolidated financial statements.
-3-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited) (continued)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Net loss $ (615,691) $ (84,622)
Other comprehensive income (expense) net of income taxes:
Unrealized gain (loss) on marketable securities (6,483) 30,162
----------- -----------
Comprehensive loss $ (622,174) $ (54,460)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (615,691) $ (84,622)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 91,768 91,764
Net gain on sale of marketable securities - (76,644)
Non-cash officers compensation 40,367 55,943
Other non-cash items - (211,264)
Changes in operating assets
and liabilities 361,644 (106,848)
----------- -----------
Net Cash (Used in)
Operating Activities (121,912) (331,671)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of marketable securities - 276,009
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings - 60,000
Proceeds from officer loans 121,500 25,000
Repayment of officer loans - (10,000)
Repayment of notes (1,077) (1,326)
Proceeds from sale of common stock - 10,000
----------- -----------
Net Cash Provided by Financing Activities 120,423 83,674
----------- -----------
Net increase (decrease) in Cash (1,489) 28,012
Cash - beginning of period 2,898 5,516
----------- -----------
Cash - end of period $ 1,409 $ 33,528
=========== ===========
</TABLE>
(Continued)
See notes to consolidated financial statements.
-5-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Changes in operating assets and liabilities consist of:
Decrease in inventory $ 59,643 $ -
Decrease in due from licenses - (305,000)
(Increase) decrease in prepaid
expenses 8,266 (165)
(Increase) in other assets - (3,300)
Increase in accounts payable
and accrued expenses 293,735 201,617
----------- -----------
$ 361,644 $ (106,848)
=========== ===========
Supplementary information:
Cash paid during the year for:
Interest $ 533 $ 30,783
=========== ===========
Income Taxes $ 200 $ -
=========== ===========
Non-cash investing activities:
Acquisition of investment in connection with
licensing agreement $ - $ (247,500)
=========== ===========
Unrealized gain (loss) on
marketable securities $ (6,483) $ 30,162
=========== ===========
Non-cash financing activities:
Conversion of accounts payable
and accrued expenses to common
stock $ - $ 20,312
=========== ===========
Conversion of accounts payable and accrued
expenses to stock options and warrants $ - $ 15,924
=========== ===========
Common stock issued to officers for
loan financing $ 40,367 $ 55,943
=========== ===========
</TABLE>
(Continued)
See notes to consolidated financial statements.
-6-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The consolidated balance sheet as of September 30, 2000, and the
consolidated statements of operations and comprehensive (loss) and cash
flows for the three months ended September 30, 2000 and 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
comprehensive (loss) and cash flows for all periods presented have been
made. Certain items in the September 30, 1999 financial statements have been
reclassified to conform to September 30, 2000 classifications. The
information for June 30, 2000 was derived from audited financial statements.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company has experienced losses during and subsequent to its development
stage. Losses and negative cash flows from operations have continued in the
current fiscal year and subsequent to June 30, 2000. As of September 30,
2000, the Company has a working capital deficit of approximately $5.0
million.
The activities of the Company are being financed through the sale of its
common stock and debt securities. In October 2000, the Company sold 36% of
its Brazilian subsidiary to a Brazilian investment firm for $2 million. The
Company will reinvest the proceeds in Scantek Medical do Brasil Ltda. The
Company's continued existence is dependent upon its ability to obtain needed
working capital through additional equity and/or debt financing, and the
commercial acceptability of the BreastCare(TM)/BreastAlert(TM) to create
sales that will help the Company achieve a profitable level of operations.
However, there is no assurance that additional capital will be obtained or
the BreastCare(TM)/BreastAlert(TM) will be commercially successful. This
raises substantial doubt about the ability of the Company to continue as a
going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Earnings (Loss) Per Common Share
Basic and diluted loss per common share are computed by dividing net loss by
the weighted average number of common shares outstanding during the year.
Potential common shares used in computing diluted earnings per share relate
to stock options and warrants which, if exercised, would have a dilutive
effect on earnings per share. During the three months ended September 30,
2000 and 1999, potential common shares were not used in the computation of
diluted loss per common share, as their effect would be antidilutive.
-7-
<PAGE>
2. SALE OF SUBSIDIARY
On October 1, 2000, the Company and its Brazilian subsidiary executed an
agreement with a Brazilian investment group. Scantek Medical Inc. sold 36%
of its equity in Scantek do Brasil Ltda for $2 million ($2,000,000) dollars
to such Brazilian investment group. The Company will reinvest the total
proceeds in Scantek Medical do Brasil Ltda.
The new partner will play a major roll in expediting the Brazilian
operations, including the construction of the new manufacturing facility,
expanding Scantek Medical do Brasil Ltda's operations, marketing and sales.
The $2,000,000 will be funded in various stages and milestones until the
Sudene Federal Funding from the government is completed.
The agreement by the Brazilian investment group to purchase shares of
Scantek Medical Inc. common stock, as previously announced, has been
terminated.
3. SEGMENTS - GEOGRAPHIC AREAS
The Company does not have reportable operating segments as defined in the
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information". The method for
attributing revenues to individual countries is based on the destination to
which finished goods are shipped. The Company operates facilities in the
United States and South America. Revenues include license fees received by
the Company in connection with various arrangements contracted throughout
the world.
Three Months Ended
September 30,
--------------------------------
2000 1999
---- ----
Total Revenues:
United States $ - $ 597,500
Less: intergeographic revenue - -
--------------- -----------
$ - $ 597,500
=============== ===========
Income (loss) from operations:
United States $ (350,124) $ 160,427
South America (112,687) (151,876)
--------------- -----------
$ (462,811) $ 8,551
=============== ===========
-8-
<PAGE>
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities"(SFAS 133). This standard was
amended by Statement of Financial Accounting Standards No. 137 "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of FASB Statement No. 133" and changed the effective date for SFAS 133
to all fiscal quarters of fiscal years beginning after June 15, 2000.In June
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, ("SFAS 133"). SFAS 133 and 138
requires that all derivative instruments be recorded on the balance sheet at
their respective fair values. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on the designation of the hedge transaction. For fair value hedge
transactions in which the Company is hedging changes in the fair value of
assets or liabilities, changes in the fair value of the derivative
instrument will generally be offset by changes in the hedged item's fair
value. For cash flow hedge transactions in which the Company is hedging the
variability of cash flows related to a variable rate asset, liability or
forecasted transaction, changes in the fair value of the derivative
instrument will be reported in other comprehensive income. The gains and
losses on the derivative instrument that are reported in other comprehensive
income will be recognized in earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
Company will adopt SFAS 133 and 138 in the first quarter of 2001 and does
not expect such adoption to have a material effect on the Company's
consolidated results of operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company adopted the provisions of SAB 101 during the fourth
quarter ending December 31, 2000 and it is not expected to have a material
impact on the Company's consolidated results of operations, financial
position or cash flows.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect revenues and
profitability, including competition from other suppliers; changes in the
regulatory and trade environment; changes in consumer preferences and
spending habits; the inability to successfully manage growth; seasonality;
the ability to introduce and the timing of the introduction of new products
and the inability to obtain adequate supplies or materials at acceptable
prices. As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. Furthermore, this document
and other documents filed by the Company with the Securities and Exchange
Commission (the "SEC") contain certain forward-looking statements under the
Private Securities Litigation Reform Act of 1995 with respect to the
business of the Company. These forward-looking statements are subject to
certain risks and uncertainties, including those mentioned above, and those
detailed in the Company's Annual Report on Form 10-KSB for the year ended
June 30, 2000, which may cause actual results to differ significantly from
these forward-looking statements. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be necessary to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events. An
investment in the Company involves various risks, including those mentioned
above and those which are detailed from time to time in the Company's SEC
filings.
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
---------------------------------------
Three Months Ended
September 30, 2000
compared with three
months ended
September 30, 1999
------------------
Sales (1) - %
License fee revenue (100.0)
Cost of sales 75.7
General and administrative expense (44.0)
Research and development -
Interest expense (10.0)
Net earnings (loss) (1)
----------
(1) Percentage not meaningful
-10-
<PAGE>
Three Months Ended September 30,2000 vs.
Three Months Ended September 30,1999
Revenues
There were no sales during the three months ending September 30, 2000 and
1999 as the Company is re-focusing its South American marketing strategy in
Brazil. The Company will ship the BreastCare(TM)/BreastAlert(TM) from the
United States during the fourth quarter of calendar 2000 to South America
until the manufacturing facility in Brazil is completed and operational.
License fee revenue decreased to $-0- during the three months ended
September 30, 2000 from $597,500 for the three months ended September 30,
1999 as the Company recognized license fees from Nugard Healthcare Ltd. from
the preceding year.
Cost of Sales
Cost of sales increased to $149,860 during the three months ended September
30, 2000 from $85,275 during the three months ended September 30, 1999
primarily due to an inventory write off of $59,643 for expired product at
the South American location.
General and Administrative Expenses
General and administrative expenses decreased to $242,951 during the three
month period ending September 30, 2000 from $433,674 the three months ended
September 30, 1999. This decrease is primarily due to decreases in
consulting services in the Company's South American subsidiary in Uruguay.
Interest Expense
Interest expense was $152,894 for the three months ended September 30, 2000
compared to $169,890 for the three months ended September 30, 1999. The 10%
decrease was attributable to the decrease on the Company's long-term debt.
Research and Development Expense
Research and development expense of $70,000 stayed the same for the three
months ended September 30, 2000 and 1999. Salaries incurred by the Company
in the experimental area of development of its product remained constant.
-11-
<PAGE>
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 and maintenance of domestic and international trademarks
and international patent protection; licensing and pre-marketing activities;
and, attempts to raise the necessary capital to expand the Company's
production capacity. 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.
The Company has entered into various license agreements that have raised
additional funds. In addition, the Company's auditors' report for the year
ended June 30, 2000 dated August 17, 2000, expressed an opinion as to the
Company continuing as a going concern.
During September 1998, the Company commenced the sale of its
BreastCare(TM)/BreastAlert(TM) in Brazil, Uruguay and Paraguay through its
South American licensee. During February 1999, the Brazilian economy
declined and the Brazilian currency lost fifty (50%) percent of its value.
Brazil increased the import and value - added tax from approximately twenty
- one (21%) percent in December 1998 to approximately seventy - four (74%)
percent in February 1999. Due to these factors, sales substantially
decreased in Brazil, which represents approximately eighty (80%) percent of
the Company's expected revenue. The Company is establishing a production
facility in Brazil. This will eliminate the high value - added tax and
hopefully will be able to facilitate sales. The Company terminated its
license agreement with its former licensee in South America but key
personnel for the former licensee have joined Scantek. The Company's
Brazilian subsidiary plans to manufacture, market and distribute the
BreastCare(TM)/BreastAlert(TM) in Brazil and export to other South American
countries.
The Company commenced its distribution operations in South America during
the second half of calendar 2000, while shipments to Ireland commenced in
October 1999 for test marketing and shipments to other parts of Europe will
commence during the first half of calendar 2001. However, until cash flow
generated from the shipment of the BreastCare(TM) device is sufficient to
support the Company's operations, the Company needs financing to fund its
current overhead and various capital requirements. As of September 30, 2000,
the Company borrowed $1,644,715 from unaffiliated third parties. These loans
are payable by the Company on various dates through December 2001. In
addition, as of November 1, 2000, the Company's President advanced the
Company an additional $116,500 since July 2000. These loans have supported
the Company through the prior fiscal year and the current fiscal year, and
the Company expects the cash flow from sales commencing in the first quarter
of calendar 2001 to cover the operations of the Company in calendar 2001 and
2002, providing the Company is successful in raising additional capital to
support the operations until cash flows generated for the sales of the
BreastCare(TM)/BreastAlert(TM) commences.
As previously noted, the Company terminated its license agreement with its
South American licensee. The Company will manufacture, market and distribute
the BreastCare(TM)/BreastAlert(TM) throughout South America through the
Company's South American subsidiaries.
In July 1999, the Company, through its Brazilian subsidiary Scantek Medical
do Brasil Ltda, executed a letter of intent with another entity to create a
joint venture with exclusive rights to import, manufacture, market and
distribute the BreastCare(TM)/BreastAlert(TM) in Brazil. After completing
its due diligence, the Company terminated the letter of intent.
-12-
<PAGE>
Through its Brazilian subsidiary, the Company signed an agreement with the
State of Pernambuco in December 1999. The State of Pernambuco has the second
largest concentration of hospitals in Brazil offering quality care and
management believes that the location is also the most desirable for
production, shipping, financing and tax incentives. The Company is
establishing a 2,550 square meter manufacturing facility in Recife,
Pernambuco at the new port of Suape. The Company has broken ground, and
anticipates construction to be completed by the first half of calendar 2001.
The Company will ship the production equipment for arrival by the time
construction is complete.
The State of Penambuco has offered various incentives, including acreage, at
a reduced price, to build the facility, a 75% reduction in taxes through
2013, free shipping outside the state, and in connection with the federal
programs offered in Northeast Brazil, financing programs to help fund the
operations and capital improvements.
The Company plans to ship the BreastCare(TM)/BreastAlert(TM) from the United
States until the production facility in Brazil is operational.
On October 1, 2000, the Company and its Brazilian subsidiary executed an
agreement with a Brazilian investment group. Scantek Medical Inc. will sell
36% of its equity in Scantek Medical do Brasil Ltda for two million
($2,000,000) dollars to the Brazilian investment group. The Company will
reinvest the total proceeds in Scantek Medical do Brasil Ltda.
Management believes that the new partner will play a major roll in
expediting the Brazilian operations, including the construction of the new
manufacturing facility, expanding Scantek Medical do Brasil Ltda's
operations, marketing and sales. The $2,000,000 will be funded in various
stages and milestones until the Sudene Federal Funding from the government
is completed.
The agreement by the Brazilian investment group to purchase shares of
Scantek Medical Inc. common stock, as previously announced, has been
terminated.
On July 14, 1999, the Company granted an exclusive license to NuGard
HealthCare Ltd. ("NuGard"), an Irish Company; to market Scantek's
BreastCare(TM)/BreastAlert(TM) in Ireland and the United Kingdom. Pursuant
to the licensing agreement, NuGard will pay a non-refundable licensing fee
of $350,000 in various stages, of which $59,000 was received as of June 30,
2000, and the Company received common shares equivalent to fifteen (15%)
percent of NuGard's total outstanding common shares. The purchase price will
range from $10 to $15 per unit - FOB US. The licensing agreement requires
minimum purchases of 5,000 units a month and payments of licensing fees
which have been postponed until the license agreement can be renegotiated.
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)/BreastAlert(TM) in the international market. The
Company entered into an agreement with Zigmed Inc., pursuant to which Zigmed
Inc. will manufacture the sensor production equipment needed for
manufacturing of the BreastCare(TM)/BreastAlert(TM) device for the contract
price of $1,850,680. The Company, as of September 30, 2000, has advanced
Zigmed Inc. payments of $1,097,904 and 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 $752,776 will be paid when the Company raises the
additional capital.
-13-
<PAGE>
The Company's success is dependent on raising sufficient capital to
establish a fully operable production and assembly facility to manufacture
the BreastCare(TM)/BreastAlert(TM) for the international market. The Company
believes the BreastCare(TM)/BreastAlert(TM) will be commercially accepted
throughout the international market. The Company does not have all the
financing in place at this time, nor may it ever, to meet these objectives.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities"(SFAS 133). This standard was
amended by Statement of Financial Accounting Standards No. 137 "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of FASB Statement No. 133" and changed the effective date for SFAS 133
to all fiscal quarters of fiscal years beginning after June 15, 2000.In June
2000, the FASB issued SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, ("SFAS 133"). SFAS 133 and 138
requires that all derivative instruments be recorded on the balance sheet at
their respective fair values. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on the designation of the hedge transaction. For fair value hedge
transactions in which the Company is hedging changes in the fair value of
assets or liabilities, changes in the fair value of the derivative
instrument will generally be offset by changes in the hedged item's fair
value. For cash flow hedge transactions in which the Company is hedging the
variability of cash flows related to a variable rate asset, liability or
forecasted transaction, changes in the fair value of the derivative
instrument will be reported in other comprehensive income. The gains and
losses on the derivative instrument that are reported in other comprehensive
income will be recognized in earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
Company will adopt SFAS 133 and 138 in the first quarter of 2001 and does
not expect such adoption to have a material effect on the Company's
consolidated results of operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company adopted the provisions of SAB 101 during the fourth
quarter ending December 31, 2000 and it is not expected to have a material
impact on the Company's consolidated results of operations, financial
position or cash flows.
-14-
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
The Company is not presently subject to any legal proceedings which are
material to the consolidated results of operations or financial condition
of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27.1 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed by the registrant
during the quarter ended September 30, 2000.
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<PAGE>
SIGNATURES
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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
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Zsigmond Sagi, President and
Chief Financial Officer
Dated: November 13, 2000
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