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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 December 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.
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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)
(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, 2000 there were 18,335,920 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
December 31, 1999 (unaudited) and
June 30, 1999 2
Consolidated Statements of Operations
and Comprehensive Income (Loss) for the
six and three Months Ended December
31, 1999 and 1998 (unaudited) 3 - 4
Consolidated Statements of Cash Flows
for the Six Months Ended December 31,
1999 and 1998 (unaudited) 5 - 6
Notes to Financial Statements (unaudited) 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Report on Form 8-K 16
Signatures 17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that the following
consolidated financial statements be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1999.
The results of operations for the six months ended December 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31, June 30,
1999 1999
----------- --------
(Unaudited)
Current Assets:
Cash $ 6,499 $ 5,516
Marketable securities 210,481 409,272
Inventory 892,001 898,796
Due from licensees 55,000 -
Prepaid expenses 63,919 84,287
---------- ---------
Total Current Assets 1,227,900 1,397,871
---------- ---------
Property and equipment - net 1,654,250 1,803,974
Other assets - net 627,175 160,179
---------- ---------
TOTAL ASSETS $ 3,509,325 $3,362,024
========== =========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current Liabilities:
Short-term debt $ 1,408,028 $1,274,271
Accounts payable 1,220,214 1,210,861
Accrued interest 358,415 224,279
Accrued salaries 1,229,472 1,106,119
Accrued expenses 330,846 84,213
---------- ---------
Total Current Liabilities 4,546,975 3,899,743
---------- ---------
Long-term debt 1,935,009 1,827,009
---------- ---------
Total Liabilities 6,481,984 5,726,752
---------- ---------
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 18,335,920
and 18,070,200 shares 18,336 18,070
Additional paid-in-capital 3,551,364 3,433,002
Deficit (6,377,048) (5,649,915)
Cumulative other comprehensive (loss) (165,311) (165,885)
---------- ---------
Total Stockholders' (Deficiency) (2,972,659) (2,364,728)
---------- ---------
TOTAL LIABILITIES AND STOCK-
HOLDERS' (DEFICIENCY) $ 3,509,325 $3,362,024
========== =========
See notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Six Months Ended December 31, Three Months Ended December 31,
----------------------------- -------------------------------
1999 1998 1999 1998
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 5,775 $ 127,775 $ 5,775 $ 32,983
License fees 597,500 752,500 -- 252,500
----------- ---------- ----------- ---------
Total Revenues 603,275 880,275 5,775 285,483
----------- ---------- ----------- ---------
Costs and Expenses:
Cost of sales 182,940 163,905 97,665 40,394
General and administrative expenses 884,902 437,788 451,228 308,954
Research and development 140,000 217,016 70,000 135,625
----------- ---------- ----------- ---------
Total Costs and Expenses 1,207,842 818,709 618,893 484,973
----------- ---------- ----------- ---------
Net operating income (loss) (604,567) 61,566 (613,118) (199,490)
----------- ---------- ----------- ---------
Other income (expense):
Interest and dividends 150 135 77 16
Gain on sale of marketable securities 76,644 -- -- --
Interest expense (199,360) (89,618) (29,470) (49,079)
----------- ---------- ----------- ---------
(122,566) (89,753) (29,393) (49,095)
----------- ---------- ----------- ---------
Net (loss) $ (727,133) $ (27,917) $ (642,511) $(248,553)
=========== ========== =========== =========
Loss per common share - basic $(.04) $ -- $(.04) $ (.01)
===== ====== ===== ======
Loss per common share - diluted $(.04) $ -- $(.04) $ (.01)
===== ====== ===== ======
Weighted average number of common
shares outstanding - basic 18,328,420 17,366,033 18,328,420 17,511,867
=========== ========== ========== ==========
Weighted average number of common
shares outstanding - diluted 18,328,420 17,366,033 18,328,420 17,511,867
=========== ========== ========== ==========
(Continued)
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED) (CONTINUED)
Six Months Ended December 31, Three Months Ended December 31,
1999 1998 1999 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net loss $ (727,133) (27,917) $ (642,511) $ (248,553)
Other comprehensive income (expense) net of income taxes:
Unrealized gain (loss) on marketable securities (165,311) 66,601 (29,588) (1,171,772)
----------- ---------- ----------- ------------
Comprehensive income (loss) $ (892,444) $ 38,684 $ (672,099) $ (1,420,325)
=========== ========== =========== ============
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended December 31,
-----------------------------
1999 1998
---------- --------------
Cash flows from operating activities:
Net (loss) $ (727,133) $ (27,917)
Adjustments to reconcile net
(loss) to net cash used in
operating activities:
Depreciation and amortization 183,528 111,280
Net gain on sale of marketable securities (76,644) --
Non-cash officers compensation 55,943 65,625
Other non-cash items (194,815) 29,005
Changes in operating assets and liabilities 233,664 342,175
----------- -----------
Net Cash Provided by (Used in)
Operating Activities (525,457) 534,231
----------- -----------
Cash flows from investing activities:
Proceeds from sale of
marketable securities 276,009 --
Purchase and deposits
of equipment -- (1,140,680)
----------- -----------
Net Cash Provided by
(Used in) Investing
Activities 276,009 (1,140,680)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 115,528 300,000
Proceeds from officer loans 112,000 184,000
Repayment of officer loans (28,271) --
Repayment of notes 41,174 (1,202)
Proceeds from sale of common stock 10,000 100,000
----------- -----------
Net Cash Provided by
Financing Activities 250,431 582,798
----------- -----------
Net Increase (decrease) in Cash 983 (23,651)
Cash - beginning of period 5,516 55,929
----------- -----------
Cash - end of period $ 6,499 $ 32,278
=========== ===========
(Continued)
See notes to consolidated financial statements.
-5-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Six Months Ended December 31,
------------------------------
1999 1998
------------ ------------
Changes in Operating Assets
and Liabilities Consist of:
Decrease (increase) in inventory $ 6,795 $ (159,132)
(Increase) decrease in
due from licensees (305,000) 200,000
(Increase) decrease in
prepaid expenses 20,368 (79,157)
(Increase) in other assets (3,300) (92,583)
Increase in accounts payable
and accrued expenses 514,801 1,225,547
(Decrease) in deferred income -- (752,500)
----------- -----------
$ 233,664 $ 342,175)
=========== ===========
Supplementary information:
Cash paid during the year for:
Interest $ 32,831 $ 90,668
=========== ===========
Income taxes $ 200 $ --
=========== ===========
Non-cash investing activities:
Acquisition of investment in
connection with
licensing agreement $ (247,500) $ --
=========== ===========
Unrealized (loss)
on marketable securities $ (574) $(1,171,772)
=========== ===========
Other Non-Cash Activities:
Conversion of accrued
expenses to common stock $ 20,837 $ 14,063
=========== ===========
Conversion of accounts
payable to stock options $ 31,848 $ 29,005
=========== ===========
Conversion of accrued officers'
salaries to common stock $ -- $ 65,625
=========== ===========
Conversion of common stock
issued to officers for loan
financing $ 55,943 $ --
=========== ===========
See notes to consolidated financial statements.
-6-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
The consolidated balance sheet as of December 31, 1999, and the
consolidated statements of operations and comprehensive income (loss) and cash
flows for the six months ended December 31, 1999 and 1998 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 income (loss) and
cash flows for all periods presented have been made. Certain items in the
December 31, 1998 financial statements have been reclassified to conform to
December 31, 1999 classifications. The information for June 30, 1999 was derived
from audited financial statements.
2. 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 a normal course of business.
The Company has experienced losses during its development stage. The
Company is no longer a development stage Company but losses and negative cash
flows from operations have continued in the current fiscal year. As of December
31, 1999, the Company has a working capital deficit of approximately $3 million.
The activities of the Company are being financed through the sale of its
common stock and debt securities and the sale of marketable securities owned by
the Company. 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)) device throughout the
world. This uncertainty 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.
3. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share are computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share are computed using the weighted average number of common shares
and potential common shares outstanding during the period.
-7-
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SEGMENTS - GEOGRAPHIC AREAS
The Company does not have reportable operating segments as defined in
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" (SFAS 131). 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.
One hundred (100%) percent of the sales ($127,775) of the BreastCare(TM)
device for the six months ended December 31, 1998 were to the Company's
former South American licensee, Sandell Corporation S.A. Sales of the
BreastCare(TM) device were not recorded by the Company until Sandell Corporation
S.A. shipped the BreastCare(TM) device to unrelated entities. Revenues include
license fees received by the Company in connection with various arrangements
contracted throughout the world. The following is a summary of key financial
data:
Six Months Ended
December 31,
--------------------------
1999 1998
-------- --------
Total Revenues:
United States $ 597,500 $ 752,500
South America -- 127,775
Europe 5,775 --
Less intergeographic revenue -- (75,436)
--------- ---------
$ 603,275 $ 804,839
========= =========
Income (loss) from operations:
United States $(327,273) $ 28,108
South America (277,294) 33,458
--------- ---------
$(604,567) $ 61,566
========= =========
-8-
<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, 1999, 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.
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 maintaining of 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 the Company's President, Chief Executive Officer and major
shareholder. 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, 1999 dated August 24, 1999 expressed an
opinion as to the Company continuing as a going concern.
-9-
<PAGE>
During September 1998, the Company commenced the sale of its BreastCare(TM)
device 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 revenue. The Company plans to establish a
production facility in Brazil. This will eliminate the high value - added tax
and will be able to facilitate sales. The Company terminated its license
agreement with its former licensee in South America but all key personnel for
the licensee have joined Scantek. The Company's Brazilian subsidiary plans to
import, manufacture, market and distribute the BreastCare(TM) device in Brazil.
The Company expects to commence its distribution operations in South
America during the first quarter of calendar 2000 while shipments to Ireland
commenced in October 1999 and shipments to other parts of Europe will commence
during the first quarter of calendar 2000. 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 December 31, 1999, the Company borrowed
$1,400,000 from unaffiliated third parties. These loans are payable by the
Company on various dates through December 2000. In addition, the Company's
president advanced the Company an additional $108,000 since July 1999. These
loans have supported the Company through the prior fiscal year and the current
six months, and the Company expects the cash flow from sales commencing in the
second quarter of calendar 2000 to cover the operations of the Company in
calendar 2000 providing the Company is successful in raising additional capital
to support the operations until cash flows generated for the sales of the
BreastCare(TM) device 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) device throughout South America through the Company's South
American subsidiaries.
In July 1999 the Company, through its Brazilian subsidiary Scantek do
Brazil 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) device in Brazil. After completing its due diligence the Company
terminated the letter of intent.
-10-
<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 is also
the most desirable location for production, shipping, financing and tax
incentives. The Company plans to establish a 2,550 square meter manufacturing
facility in Recife, Pernambuco at the new port of Suape. The Company plans to
start construction in early 2000 and anticipates construction to be completed by
June 2000. The Company will ship the production equipment in March for arrival
in early April.
The State of Penambuco has offered various incentives including acreage to
build the facility, a 75% reduction in taxes for 11 years, 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) device from the United States
until the production facility in Brazil is operational.
On July 29, 1999 the Company granted an exclusive license to Nugard
Healthcare Ltd, an Irish company,, ("Nugard") to market Scantek's BreastCare(TM)
device in Ireland and the United Kingdom. Nugard will pay a non-refundable
licensing fee of $350,000 in various stages, of which $45,000 was received as of
December 31, 1999, and the Company received common shares equivalent to fifteen
(15%) percent of Nugard's total outstanding common shares. The agreement
requires minimum purchase of 5,000 units per month. The purchase price will
range from $10 to $15 per unit based on shipment of the BreastCare(TM) device to
the government or private physicians. Sales commenced to Nugard on a pilot basis
through December 1999 and in 2000 began fulfilling its minimum purchase
agreement.
The Company executed a letter of intent on August 20, 1997 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. It is the Company's intention to use this facility as a production
center for the BreastCare(TM) device for Eastern Europe. The acquisition is
subject to the Company obtaining financing for the purchase of the Hungarian
manufacturer.
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) device for
the contract price of $1,850,680. The Company as of December 31, 1999, has
advanced Zigmed Inc. payments of $920,104 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 $830,576 will be paid when the Company raises the
additional capital.
-11-
<PAGE>
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 believes the BreastCare(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.
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
------------------------------------------
Six Months Ended Three Months Ended
December 31, 1999 December 31, 1999
compared with 1998 compared with 1998
------------------- ----------------------
Sales (1) (92.5)% (1)%
License fee revenue (20.6) (1)
Cost of sales 11.6 141.8
General and administrative
expense 102.1 46.1
Research and development (35.5) (48.4)
Interest expense 122.5 (39.9)
Net earnings (loss) (2504.6) (158.5)
(1) Percentage not meaningful
SIX MONTHS ENDED DECEMBER 31,1999 VS.
SIX MONTHS ENDED DECEMBER 31,1998
Revenues
Net sales decreased to $5,775 during the six months ended December 31, 1999
from $127,775 during the six months ended December 31, 1998 as the Company is
re-focusing its South American marketing strategy in Brazil. The Company will
ship the BreastCare(TM) device from the United States during the first quarter
to South America until the manufacturing facility in Brazil is completed.
Shipments to Ireland commenced in October 1999 and shipments to other parts of
Europe will commence during the first quarter of calendar 2000. Manufacturing in
Brazil is planning to commence during the second quarter of calendar 2000 after
the Company completes construction of its new manufacturing facility in Brazil.
Until then the Company will manufacture the BreastCare(TM) device in its U.S.
facilities. Manufacturing for Europe will continue in its U.S. facilities until
the Company establishes a manufacturing facility in Europe.
-12-
<PAGE>
Net sales decreased to $5,775 during the three months ended December 31,
1999 from $32,983 during the three months ended December 31, 1998 due to the
same reasons presented in the six month analysis.
License fee revenue decreased to $597,500 during the six months ended
December 31, 1999 from $752,500 for the six months ended December 31, 1998 as
the Company recognized license fees from Nugard Healthcare Ltd. as compared to
higher license fees from Sandell Corp. and D-Lanz Corp from the preceding year.
License fee revenue decreased to $-0- during the three months ended
December 31, 1999 from $252,500 during the three months ended December 31, 1998.
The Company recognized license fee income from D-Lanz Corp during 1998 but
received no license fee income during 1999.
Cost of Sales
Cost of sales increased to $182,940 during the six months ended December
31, 1999 from $163,905 during the six months ended December 31, 1998 primarily
due to depreciation expense of $138,422 on the production equipment compared to
the cost of sales of the initial shipments of its product during the first six
months of the Company's prior year.
Cost of sales increased 141.8% to $97,665 during the three month period
ended December 31, 1999 from $40,394 during the three months period ended
December 31, 1998 for primarily the same reasons set forth in the six month
analysis.
General and Administrative Expenses
General and administrative expenses increased 102.1% to $884,902 during the
six months ended December 31, 1999 compared to $437,788 during the six months
ended December 31, 1998. This increase is primarily due to increases in
consulting services in connection with the Company's South American marketing
strategies in Brazil.
General and administrative expenses increased 46.1% to $451,228 during the
three months ended December 31, 1999 compared to $308,954 during the three
months ended December 31, 1998 for principally the same reasons set forth in the
six month analysis.
Research and Development Expenses
Research and development expense decreased 35.5% to $140,000 during the six
months ended December 31, 1999 from $217,015 during the six months ended
December 31, 1998. The decrease is primarily attributable to decreased salaries
incurred by the Company in the experimental area of development of its product.
Research and development expenses decreased 48.4% to $70,000 during the
three month period ended December 31, 1999 from $135,625 during the three months
ended December 31, 1998 for primarily the same reasons set forth in the six
month analysis.
-13-
<PAGE>
Interest Expense
Interest expense was $199,360 for the six months ended December 31, 1999
compared to $89,618 for the six months ended December 31, 1998. The 122.5%
increase was attributable to the increase on the Company's short-term debt.
Interest expense was $29,470 for the three months ended December 31, 1999
compared to $49,079 for the three months ended December 31, 1998. The 39.9%
decrease was attributed to imputed interest on stock issued in consideration of
short term loans recorded in the three months ended September 30, 1999 as
opposed to the six months ended December 31, 1999.
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.
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.
-14-
<PAGE>
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 was formerly a development stage company and became fully
operational in early 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 the year 2000.
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.
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 a
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.
-15-
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
See Item 3 of the Company's Annual Report on Form 10-KSB
for the year ended June 30, 1999.
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, 1999.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCANTEK MEDICAL INC.
By:/s/ ZSIGMOND SAGI
-------------------------------
Zsigmond Sagi, President and
Chief Financial Officer
Dated: February 14, 2000
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACED FROM SCANTEK
MEDICAL INC. FINANCIAL STATEMENTS AT DECEMBER 31, 1999 AND THE SIX MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 6,499
<SECURITIES> 210,481
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 892,001
<CURRENT-ASSETS> 1,227,900
<PP&E> 2,058,560
<DEPRECIATION> 404,310
<TOTAL-ASSETS> 3,509,325
<CURRENT-LIABILITIES> 4,546,975
<BONDS> 0
18,336
0
<COMMON> 0
<OTHER-SE> (2,990,995)
<TOTAL-LIABILITY-AND-EQUITY> 3,509,325
<SALES> 5,775
<TOTAL-REVENUES> 603,275
<CGS> 182,940
<TOTAL-COSTS> 1,207,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,360
<INCOME-PRETAX> (727,133)
<INCOME-TAX> 0
<INCOME-CONTINUING> (727,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (727,133)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
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