U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ___to___
Commission file number 0-25852
THE MED-DESIGN CORPORATION
Delaware 23-2771475
(State of Incorporation) (IRS Employer ID Number)
121 South Broad Street, Suite 310, Philadelphia, PA 19107
(215) 735-2700
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) for the Exchange Act during the past 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___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock - 6,899,570 shares Common Stock, $.01 par value,
outstanding as of November 8, 1996.
<PAGE>
THE MED-DESIGN CORPORATION
FORM 10-QSB
INDEX
Page Number
-----------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balanced Sheets as of September 30, 1996
(unaudited) and as of December 31, 1995...................... 1
Consolidated Statements of Operations for the three
and nine months ended September 30, 1996 and 1995
and Cumulative During Development Stage (unaudited).......... 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 and
Cumulative During Development Stage (unaudited).............. 3
Notes to Consolidated Financial Statements (unaudited)....... 4
Item 2 - Management's Discussion and Analysis or Plan of Operation.... 5-10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................................ 11
Item 2 - Changes in Securities........................................ 11
Item 3 - Defaults upon Senior Securities.............................. 11
Item 4 - Submission of Matters to a Vote of
Security Holders............................................. 11
Item 5 - Other Information............................................ 11
Item 6 - Exhibits and Reports on Form 8-K............................. 11
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------- ----------------
(Unaudited) (a)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 196,646 $ 221,229
Short-term investments 524,081 511,908
Available-for-sale securities 7,142,987 7,112,286
Prepaid expenses and other current assets 129,967 65,185
------------ ------------
Total current assets 7,993,681 7,910,608
Property, plant, and equipment, net of accumulated
depreciation and amortization 1,138,448 831,955
Patents, net of accumulated amortization 149,671 140,748
------------ ------------
$ 9,281,800 $ 8,883,311
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 5,404,500 $ 2,128,500
Accounts payable 150,179 289,914
Accrued expenses 104,602 200,819
Due to officer 35,374
Current maturities of long-term debt and capital lease obligations 166,393 140,681
------------ ------------
Total current liabilities 5,825,674 2,795,288
------------ ------------
Long-term debt and capital lease obligations, less current maturities 301,599 277,483
------------ ------------
Total liabilities 6,127,273 3,072,771
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares outstanding
Common stock, $.01 par value, 20,000,000 shares authorized;
6,889,570 issued and outstanding 68,896 67,786
Additional paid-in capital 15,669,604 15,140,814
Deficit accumulated during the development stage (12,576,029) (9,424,539)
Unrealized gain (loss) on available-for-sale securities (7,944) 26,479
------------ ------------
Total stockholders' equity 3,154,527 5,810,540
------------ ------------
$ 9,281,800 $ 8,883,311
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
(1)
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
During Three Months Ended Nine Months Ended
Development September 30, September 30,
Stage 1996 1995 1996 1995
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating expense:
Marketing $ 329,200 $ 55,629 $ 170,023
General and administrative 3,996,004 602,240 $ 578,728 1,933,480 $ 945,475
Research and development 1,716,725 467,706 114,281 1,107,579 119,676
Purchased research and
development 5,932,770 5,932,770
------------ ------------ ------------ ------------ ------------
Total operating expenses 11,974,699 1,125,575 693,009 3,211,082 6,997,921
------------ ------------ ------------ ------------ ------------
Loss from operations (11,974,699) (1,125,575) (693,009) (3,211,082) (6,997,921)
Interest expense (1,078,709) (109,260) (3,613) (271,220) (439,392)
Interest income 477,379 100,909 31,462 330,812 55,732
------------ ------------ ------------ ------------ ------------
Net loss ($12,576,029) ($ 1,133,926) ($ 665,160) ($ 3,151,490) ($ 7,381,581)
============ ============ ============ ============ ============
Net loss per common share ($ 0.17) ($ 0.10) ($ 0.46) ($ 1.69)
============ ============ ============ ============
Weighted average common
shares outstanding 6,863,429 6,778,570 6,808,771 4,377,664
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
(2)
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative During
Development Nine Months Ended September 30,
Stage 1996 1995
----- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($12,576,029) $ (3,151,490) ($ 7,381,581)
Adjustments to reconcile net loss to operating cash flows:
Depreciation (net of acquisition) and amortization 179,650 130,749 15,412
Issuance of common stock for services 418,800
Purchased research and development 5,932,770 5,932,770
Issuance of common stock for interest 29,985
Issuance of warrants for services 21,000
Amortization of original issued discount 650,000 407,143
Gain on sale of available-for-sale securities (4,425)
Changes in operating assets and liabilities, net
of effect of acquired business: (270,890) (336,108) (27,903)
------------ ------------ ------------
Net cash used by operating activities (5,619,139) (3,356,849) (1,054,159)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,267,937) (430,042) (366,844)
Additions to patents (25,191) (16,123)
Payments for purchase of option to acquire
Med-Design Incorporated (125,000)
Investments in available-for-sale securities, net (7,146,506) (65,124)
Notes receivable funded (92,500) (2,500)
Purchase of short-term investment (524,081) (12,173)
------------ ------------ ------------
Net cash used by investing activities (9,181,215) (523,462) (369,344)
------------ ------------ ------------
Cash flows from financing activities:
(Repayment of) advances from related parties (144,302)
(Repayment of) proceeds from short-term borrowing (650,000)
Capital lease payments (12,961) (6,928) (3,386)
Proceeds from long-term borrowings 575,210 163,712 102,986
Repayment of long-term borrowings (122,865) (106,956)
Proceeds from issuance of common stock, prior
to initial public offering 97,250
Proceeds from exercise of options 35,000 35,000
Proceeds from issuance of common stock in
connection with exercise of warrants 494,900 494,900
Proceeds from short-term borrowing 5,404,500 3,276,000 1,150,000
Repayment of acquisition note (1,000,000) (1,000,000)
Proceeds of initial public offering, net of offering costs 9,525,966 9,548,965
------------ ------------ ------------
Net cash provided by financing activities 14,997,000 3,855,728 9,004,263
------------ ------------ ------------
Increase in cash 196,646 (24,583) 7,580,760
Cash and cash equivalents, beginning of period 221,229 100,059
------------ ------------ ------------
Cash and cash equivalents, end of period $ 196,646 $ 196,646 $ 7,680,819
============ ============ ============
Cash paid during the period:
Interest $ 382,289 $ 235,220 $ 64,497
============ ============ ============
Noncash financing activities:
Issuance of common stock for rights under
option to acquire Med-Design, Inc. $ 100,000 -- --
============ ============ ============
Issuance of common stock in connection
with short-term borrowing $ 650,000 -- $ 150,000
============ ============ ============
Capital lease obligation incurred $ 28,606 -- $ 28,606
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim period. Operating results for the
three and nine month periods ending September 30, 1996 is not necessarily
indicative of the results that may be expected for the year ended December
31, 1996.
The accompanying financial statements include The Med-Design
Corporation (hereinafter, including its subsidiaries as the context
requires, the "Company") and its wholly-owned subsidiaries MDC Investment
Holdings, Inc. ("MDC Holdings") and MDC Research Ltd. All significant
intercompany transactions and accounts are eliminated.
2. Weighted Average Shares of Common Stock Outstanding
The calculations of weighted average shares of common stock excludes
outstanding options and warrants, since these securities have an
anti-dilutive effect on per share data.
3. Stock Split
On January 31, 1996, the Board of Directors authorized a one-for-one
stock dividend that was distributed on February 26, 1996 to shareholders of
record as of February 12, 1996. The information contained in the
consolidated financial statements and the notes thereto have been adjusted
to reflect this stock dividend.
(4)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Business Overview
The Med-Design Corporation, a Delaware corporation (hereinafter, including
its subsidiaries as the context requires, the "Company") was incorporated in
Delaware on November 14, 1994. On February 28, 1995, The Med-Design Corporation,
a Pennsylvania corporation, incorporated on December 13, 1993, was merged with
and into the Company. The Company is a development stage enterprise as defined
by Financial Accounting Standards ("FAS") No. 7, "Accounting and Reporting by
Development Stage Enterprise."
The Company designs and develops safety medical devices intended to reduce
the incidence of accidental needlesticks. The Company has three core products
under development: the Retractable Needle Hypodermic Syringe (the "Safety
Syringe"), the Retractable Needle Vacuum Tube Phlebotomy Set (the "Safety
Phlebotomy Set"), and the Retractable Needle Intravenous Catheter Insertion
Device (the "Safety Catheter"). These products are similar in appearance and
size to the standard devices in use. Such products incorporate the Company's
novel proprietary retraction technology that enables a health care professional,
with no substantial change in operating technique and using one hand, to
permanently retract the needle of the device into the body of the device that
can be safely discarded.
The Company also has several new products which are in the beginning stages
of development. These new product developments include the In-Line Y-Port
Injectable Access Needle, the Pre-filled Ampule Injector, the MDC Closed
Injection System Injector, the Self-Contained Pre-Filled Syringe and the
Pre-Filled Vial Injector (collectively, the "New Products"). These products also
incorporate the Company's proprietary retraction technology and are designed to
reduce the incidence of accidental needlesticks. The Company has developed
various sizes and designs of these products to accommodate the specific
requirements of potential strategic allies for medical and dental applications.
On March 14, 1995, the Company organized a wholly-owned subsidiary, MDC
Investment Holdings, Inc. ("MDC Holdings"), under the laws of the State of
Delaware. On April 5, 1995, the Company entered into the Merger Agreement with
MDC Holdings and Med-Design, Inc. ("MDI"), pursuant to which MDI merged with and
into MDC Holdings, the surviving corporation (the "Merger"). The Company issued
1,219,742 shares of Common Stock and a non-interest bearing promissory note in
the principal amount of $1,000,000 (the "Note") to the MDI shareholders in
exchange for their shares in MDI. The Note was fully paid from a portion of the
net proceeds of the Company's initial public offering of 3,450,000 shares of its
Common Stock in June 1995 ("Initial Public Offering"). The Company also issued
3,572 shares of Common Stock to certain creditors of MDI and 24,000 shares of
Common Stock to a former noteholder of MDI. The Company's acquisition of MDI was
accounted for in accordance with the purchase method, under which the purchase
price was allocated to the assets of MDI based on the fair market value of such
assets. The excess of the purchase price over the fair market value of the net
assets acquired was treated as purchased research.
Immediately following the consummation of the Merger, MDC Holdings
transferred all of the assets it acquired in the Merger, other than its patents
and other intellectual property, and all of its liabilities to MDC Research
Ltd., a California corporation and wholly-owned subsidiary of MDC Holdings.
As a result of the Merger, MDC Holdings became the sole owner of all the
intellectual property rights worldwide including patents, patent applications,
trademarks and trademark applications relating to the Safety Syringe, Safety
Phlebotomy Set and Safety Catheter.
(5)
<PAGE>
Business Overview (Continued)
In June 1995, the Company completed its Initial Public Offering of
3,450,000 shares of Common Stock, par value $0.01 per share. The net proceeds to
the Company were approximately $9,526,000.
On January 31, 1996, the Board of Directors authorized a one-for-one stock
dividend that was distributed on February 26, 1996 to shareholders of record as
of February 12, 1996. The information contained in the consolidated financial
statements and the notes thereto and in this report have been adjusted to
reflect this stock dividend.
On March 25, 1996, the European Patent Office approved the Company's
European patent application for its Safety Syringe, which was based on an
international application filed November 7, 1990. The European application
designates the countries of Austria, Belgium, Switzerland, Liechtenstein,
Germany, Denmark, Spain, France, Great Britain, Greece, Italy, Netherlands, and
Sweden for protection, and the Company will undertake to register the allowed
European patent application in the designated European countries. The European
patent coverage will compliment the patents that have already been allowed in
Romania and Bulgaria. The Company will continue to seek additional patent
protection for its products in related European patent applications.
In June 1995, the Company entered into an agreement with the underwriter of
its Initial Public Offering, pursuant to which the Company issued and sold to
the underwriter, as part of its compensation arrangement warrants to purchase an
aggregate of 300,000 shares of Common Stock at $4.90 per share. All of the
foregone warrants are immediately exercisable. The Company registered the resale
of such shares by the underwriter by filing a Registration Statement on Form
S-3, which was declared effective by the Securities and Exchange Commission on
July 11, 1996.
Results of Operations
In 1995, the Company leased with an option to purchase approximately 26,000
square feet of space in Ventura, California ("Ventura Facility"). In addition to
administrative offices, the Ventura Facility contains a research and development
laboratory equipped with assembly and test equipment for concept modeling and
product development and a machine shop equipped with machine tools for
fabrication of new product parts for concept modeling and assembly and test
fixtures. The Company also installed a 3,130 square foot class 100,000 clean
room at the Ventura Facility, which is currently being used for the hand
assembly of prototypes of the Company's products and will ultimately be used in
connection with the pilot manufacturing of the Company's products on a
semi-automated assembly system. For the three and nine month period ended
September 30, 1996, the Company's expenses for research and development were
$467,706 and $1,107,579, respectively.
The Company intends to continue its research and development on the Safety
Syringe, Safety Phlebotomy Set and Safety Catheter in order to improve their
manufacturability and reduce manufacturing costs. The Company also intends to
continue its research and development of the New Products, which are in the
initial stages of development, design and prototyping. In addition, the Company
intends to devote resources to the research and development of additional safety
needle devices and products which incorporate the Company's proprietary
retraction technology for use in the healthcare industry.
(6)
<PAGE>
Plan of Operation
The Federal Food, Drug and Cosmetic Act requires that a medical device must
(unless exempted by regulation) be cleared by the United States Food and Drug
Administration ("FDA") before being commercially distributed in the United
States. From June 1995 to December 1995, the Company focused its efforts on the
preparation of a 510(k) premarket notification to be filed with the FDA for the
Safety Catheter, Safety Phlebotomy Set and Safety Syringe. The Company filed the
510(k) premarket notification for the Safety Catheter and Safety Phlebotomy Set
with the FDA on December 28, 1995. On February 13, 1996 the FDA notified the
Company that it may begin marketing the Safety Catheter. On March 15, 1996, the
FDA notified the Company that it was holding the premarket notification 510(k)
for the Safety Phlebotomy Set for 30 days pending receipt of the additional
information requested by the Office of Device Evaluations ("ODE"). The request
for additional information from the ODE was received by the Company on March 13,
1996. The Company responded by requesting a ninety day extension, which was
granted on April 18, 1996. The Company voluntarily withdrew the 510(k) premarket
notification because of modifications and improvements made to the original
design of the Safety Phlebotomy Set. The Company presently intends to file a new
510(k) premarket notification for the modified Safety Phlebotomy Set with the
FDA within the next 120 days.
The Company also anticipates that it will complete and file the 510(k)
premarket notification for the Safety Syringe with the FDA within the second
quarter of 1997. The Company believes that the Safety Syringe and the Safety
Phlebotomy Set will be classified as a Class II device, and that such products
will not require a premarket approval ("PMA") application but will be eligible
for marketing clearance through the 510(k) notification procedure based upon its
substantial equivalence to a previously marketed device or devices. If any of
the Company's products do not qualify for the 510(k) procedure the Company will
be required to submit a PMA application with the FDA which is typically a more
complex submission, usually including results of clinical studies. By statute
and regulation, the FDA may take 180 days to review a PMA application, however,
such time may be extended. There can be no assurance that a PMA application will
be reviewed within 180 days or that a PMA application will be approved.
The Company had originally planned to install a fully automated robotic
assembly system at the Ventura Facility to pilot manufacture its products. The
Company, however, has elected not to install the fully automated robotic
assembly system at this time because it is currently investigating opportunities
with third parties in the United States and abroad to manufacture the Safety
Syringe, the Safety Phlebotomy Set, Safety Catheter and certain of its other
products under development either on a contract manufacturing basis, under
licensing agreements, or through other forms of joint ventures. The Company has
entered into several confidentiality agreements with companies for the purpose
of exploring such opportunities. The Company is also investigating opportunities
with third parties to market and distribute the Company's products. The Company
anticipates that entering into alliances and licensing arrangements with third
parties would enable the Company to increase the market penetration of its
products more quickly than the Company could achieve on its own. The Company has
not to date entered into any such arrangements and there can be no assurance the
Company will be able to enter into any such arrangement on acceptable terms.
Pending the outcome of such discussions with third parties, the Company has
decided to install a semi-automated assembly system at the Ventura Facility to
pilot manufacture its products, which is estimated to cost approximately
$300,000. The semi-automated assembly system, which will consist of a series of
manual and semi-automatic stations, will be capable of producing up to 3,000,000
units per year. The assembly system will produce only one of the Company's
products at a time, but will have the capability of being converted at a
reasonable cost with minimal delay to manufacture a different product at such
time as the Company may desire. The Company intends to complete the installation
of the assembly system in the fourth quarter of 1996 and to begin production of
one of its products by the end of the fourth quarter of 1996.
(7)
<PAGE>
Plan of Operation (Continued)
The Company has been hand assembling the number of Safety Syringes, Safety
Phlebotomy Sets and Safety Catheters needed to conduct any testing required by
the FDA and as necessary for internal engineering purposes. The Company has also
hand assembled a limited quantity of its Safety Phlebotomy Sets and Safety
Catheters for market research purposes. The Company plans to continue hand
assembling such products and to hand assemble new products until such time as
the Company has the capability of manufacturing the products on its
semi-automated assembly system or a third party is manufacturing such products.
Although the Company's plans may change as a result of its discussions with
potential strategic allies as described above, the Company's current plan is to
produce on the semi-automated assembly system at least 200,000 units of the
Safety Catheter and Safety Phlebotomy Set in order to demonstrate to potential
third party manufacturers the economic feasibility of the commercial production
of its products and such number of its products necessary for FDA clearance.
Thereafter, the Company will determine whether it will mass manufacture the
Safety Phlebotomy Set or the Safety Catheter or any of its other products or
components of its products for commercial sale. Although the Company originally
planned to manufacture and distribute the Safety Phlebotomy Set and Safety
Catheter directly, the Company may contract with third parties for all or a
portion of the needed production of such products on a contract manufacturing
basis, licensing arrangement or other form of joint venture. To the extent the
Company decides to mass manufacture any of its products or components, the
Company may need to expand its current facilities and/or lease or purchase
additional manufacturing facilities and equipment.
Initially, the Company decided not to introduce its Safety Syringe in the
United States because of concerns over potential patent infringement conflicts.
Since going public, the Company has continued to improve and refine the design
of its Safety Syringe. As a result of improving the syringe design, the Company
intends to supplement its patent filings to cover the improved syringe design.
The Company now believes that its improved syringe design is free from the
potential patent infringement conflicts it previously identified. Accordingly,
the Company is considering marketing a Safety Syringe in accordance with its
improved design in the United States and entering into mutually beneficial
licensing arrangements as necessary to resolve any further potential patent
conflicts with third parties. The Company is continuing to conduct infringement
studies of its core products, including the Safety Syringe.
As of November 1, 1996, the Company employed 28 people on a full-time basis
and one person on a part-time basis. The Company anticipates increasing the
number of employees in the areas of product development, manufacturing, sales
and marketing; however, the number of employees that the Company will need to
hire will vary according to the progress made in the development of the
Company's pilot manufacturing plant and the extent to which the Company
undertakes the manufacture, marketing and distribution of its products.
(8)
<PAGE>
Summary of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results for the three and nine months ended September 30, 1996 and
September 30, 1995. The Company is in the development stage and to date has not
generated any revenues from its operations.
Net Loss
Net loss for the three and nine month periods ended September 30, 1996
was $1,133,926 and $3,151,490, respectively, an increase of $468,766 and
$1,702,679 for the comparable periods in 1995, after excluding $5,932,770
of purchased research and development cost included in the nine month
period of 1995. The $468,766 increase in net loss for the three month
period ended September 30, 1996 is primarily attributable to a $432,566
increase in operating expenses, an increase of $105,647 in interest
expense, partially offset by an increase of $69,447 in interest income. The
$1,702,679 increase in net loss for the nine month period ended September
30, 1996 is primarily the result of a $2,145,931 increase in operating
expenses, partially offset by a $168,172 decrease in interest expense and a
$275,080 increase in interest income. Interest expense for the nine month
period ended September 30, 1995 included $407,143 for amortization of
original issue discount on debt.
The increase in operating expenses for the three and nine month periods
ended September 30, 1996 is primarily attributable to (1) expenses incurred
in connection with research and development activities, (2) compensation
and related expenses associated with the hiring of new personnel, (3) legal
and other professional expenses, (4) depreciation expenses recorded as a
result of new equipment purchases, (5) market research activity, and (6)
other general administrative expenses associated with the overall increase
in general business activity resulting from the commencement of the
Company's plan of operations following the acquisition of MDI. Through
September 30, 1996, the Company has a cumulative net loss of $12,576,029.
Liquidity and Capital Resources
For the nine month periods ended September 30, 1996 and 1995, cash
flows used for operations were $3,356,849 and $1,054,159, respectively. At
September 30, 1996, cash and cash equivalents, short-term investments, and
available-for-sale securities were $7,863,714, while working capital was
$2,168,007. The current ratio at September 30, 1996 was 1.4 to 1.
Of the $7,863,714 in cash and cash equivalents, short-term investments,
and available-for-sale securities at September 30, 1996, $5,856,854 is
restricted to collateralize borrowings the Company has made under its line
of credit and equipment financing agreements. The Company is currently in
negotiations with its lenders to reduce the amount of collateral required
to support these credit facilities. There is no assurance, however, that
the Company will be successful in its efforts to reduce the amount of
collateral currently required by its lenders and on what terms such
reduction may be negotiated by the Company.
At September 30, 1996, the Company had a line of credit with one
commercial bank ("Loan Agreement") for $6,000,000 and an equipment
financing facility with a second commercial bank ("Equipment Facility") for
$500,000. The Company had additional availability against its line of
credit and equipment financing facility of $465,110 and $181,036,
respectively, at September 30, 1996. The Loan Agreement provides for a
credit facility which can be used to (1) fund working capital needs and (2)
finance capital equipment purchases. Pursuant to the terms of the Loan
Agreement, all borrowings must be fully collateralized by
available-for-sale securities. Under the terms of the Equipment Facility,
all borrowings must be fully collateralized by a short-term investment in
the form of a certificate of deposit. Also, both the Loan Agreement and
Equipment Facility provide that all borrowings for equipment financing must
be further collateralized by applicable equipment financed. The Loan
Agreement expires May 1, 1997. The Company is currently negotiating an
increase in the availability under the Loan Agreement. There is no
assurance that the Company will be successful in negotiating the
availability under the Loan Agreement and on what terms such any increase
will be made available to the Company.
(9)
<PAGE>
Liquidity and Capital Resources (Continued)
In addition, in 1995 the Company issued warrants (including warrants
discussed in "Business Overview" above) to purchase 400,000 shares of
Common Stock, of which, warrants to purchase 111,000 shares have been
exercised as of November 8, 1996, of which 101,000 were exercised as of
September 30, 1996. The Company has received an aggregate of $543,900 upon
the exercise of such warrants. If the remainder of the warrants are
exercised, the Company will receive approximately an additional $1,606,000,
net of registration and other costs to be paid by the Company as required
under the terms of such warrants.
The Company believes that it will have sufficient funds to support its
planned operations and capital expenditures through February 28, 1997, but
thereafter the Company believes that it will need to raise additional funds
through public or private financings to support its planned operations and
capital expenditures. In addition to those monies that would be received
upon the exercise of the foregone warrants, the Company believes that it
will require additional capital before it reaches profitability and
positive cash flow, if at all. No assurance can be given that the
outstanding warrants will be fully exercised or that additional financing
will be available or that, if available, it will be available on terms
favorable to the Company or its stockholders. If adequate funds are not
available to satisfy short-term or long-term capital requirements, the
Company may be required to reduce substantially, or eliminate, certain
areas of its product development activities, limit its operations
significantly, or otherwise modify its business strategy. The Company's
capital requirements will depend on many factors, including but not limited
to, the progress of its research and development programs, the development
of regulatory submissions and approvals, manufacturing capability, the
costs associated with protecting its patents and other proprietary rights,
the rate of which the Company is able to manufacture and introduce its
products, and the levels of promotion and advertising required to launch
and market such products.
There are no other material commitments at this time.
(10)
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submissions of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) List of Exhibits filed pursuant to Item 601 of Regulation S-B.
The following exhibit is filed with this Report on Form 10-QSB.
Exhibit
Number Description
------ -----------
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the
quarter ended September 30, 1996.
(11)
<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.
The Med-Design Corporation
Date: November 8, 1996
/s/ James M. Donegan
------------------------------
James M. Donegan
Chief Executive Officer
/s/ Patrick E. Rodgers
------------------------------
Patrick E. Rodgers
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
(12)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27 Financial Data Schedule.
(13)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 196,646
<SECURITIES> 7,667,068
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,993,681
<PP&E> 1,304,769
<DEPRECIATION> 166,051
<TOTAL-ASSETS> 9,281,800
<CURRENT-LIABILITIES> 5,825,674
<BONDS> 301,599
0
0
<COMMON> 68,896
<OTHER-SE> 3,093,575
<TOTAL-LIABILITY-AND-EQUITY> 9,281,800
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271,220
<INCOME-PRETAX> (3,151,490)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,151,490)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,151,490)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
