================================================================================
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 June 30, 1997
( ) 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 - 7,951,570 shares Common Stock, $.01 par value,
outstanding as of August 12, 1997.
<PAGE>
THE MED-DESIGN CORPORATION
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page Number
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1 - Financial Statements
Consolidated Balanced Sheets as of June 30, 1997 (unaudited) and as of
December 31, 1996...............................................................................3
Consolidated Statements of Operations for the three and six months ended
June 30, 1997 and 1996 and Cumulative During Development Stage (unaudited)......................4
Consolidated Statements of Cash Flows for the six months ended June 30, 1997
and 1996 and Cumulative During Development Stage (unaudited)....................................5
Notes to Consolidated Financial Statements (unaudited).............................................6
Item 2 - Management's Discussion and Analysis or Plan of Operation.......................................7-11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.................................................................................12
Item 2 - Changes in Securities.............................................................................12
Item 3 - Defaults upon Senior Securities...................................................................12
Item 4 - Submission of Matters to a Vote of Security Holders...............................................12
Item 5 - Other Information.................................................................................13
Item 6 - Exhibits and Reports on Form 8-K..................................................................13
</TABLE>
2
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $137,397 $1,648,639
Short-term investment 547,878 535,248
Available-for-sale securities 7,698,063 5,638,498
Prepaid expenses and other current assets 280,328 97,461
------------ ------------
Total current assets 8,663,666 7,919,846
Property, plant, and equipment, net of accumulated
depreciation and amortization of $294,808 and $183,510
at June 30, 1997 and December 31, 1996, respectively 1,221,523 1,240,557
Patents, net of accumulated amortization of $39,124 and $34,324
at June 30, 1997 and December 31, 1996, respectively 210,863 174,623
Other assets -- 14,136
------------ ------------
$10,096,052 $9,349,162
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $4,630,500 $6,446,500
Accounts payable 302,494 172,911
Accrued expenses 60,465 128,146
Current maturities of long-term debt and capital lease obligations 220,406 237,652
------------ ------------
Total current liabilities 5,213,865 6,985,209
------------ ------------
Long-term debt and capital lease obligations, less current maturities 188,180 300,366
------------ ------------
Total liabilities 5,402,045 7,285,575
------------ ------------
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;
7,951,570 and 6,899,570 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively 79,516 68,996
Additional paid-in capital 20,680,281 15,718,504
Deficit accumulated during the development stage (16,079,082) (13,747,408)
Unrealized gain on available-for-sale securities 13,292 23,495
------------ ------------
Total stockholders' equity 4,694,007 2,063,587
------------ ------------
$10,096,052 $9,349,162
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative Three Months Ended Six Months Ended
From Inception, June 30, June 30,
December 13, 1993 ------------------------------ ------------------------------
to June 30, 1997 1997 1996 1997 1996
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating expense:
Marketing $490,705 $61,845 $49,315 $112,337 $114,394
General and administrative 6,088,605 648,195 611,123 1,433,354 1,321,240
Research and development 2,961,062 432,128 462,243 797,820 639,873
Purchased research and
development 5,932,770 -- -- --
------------- ------------ ------------ ------------ ------------
Total operating expenses 15,473,142 1,142,168 1,122,681 2,343,511 2,085,507
------------- ------------ ------------ ------------ -------------
Loss from operations (15,473,142) (1,142,168) (1,122,681) (2,343,511) (2,085,507)
Interest expense (1,423,457) (94,056) (95,352) (215,319) (161,960)
Interest income 817,517 85,746 122,413 227,156 229,903
------------- ------------ ------------ ------------ ------------
Net loss ($16,079,082) ($1,150,478) ($1,095,620) ($2,331,674) ($2,017,564)
============= ============ ============ ============ ============
Net loss per common share ($0.14) ($0.16) ($0.30) ($0.30)
============ ============ ============ ============
Weighted average common
shares outstanding 7,936,636 6,783,713 7,797,388 6,781,141
============ ============= ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
From Inception, Six Months Ended June 30,
December 13, 1993 ------------------------------
to June 30, 1997 1997 1996
----------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($16,079,082) ($2,331,674) ($2,017,564)
Adjustments to reconcile net loss to operating
cash flows (net of acquisition):
Depreciation and amortization 315,336 116,098 80,421
Issuance of common stock for services 418,800
Purchased research and development 5,932,770
Issuance of common stock for interest 29,985
Issuance of warrants for services 121,000 100,000
Amortization of original issued discount 650,000
(Gain) Loss on sale of available-for-sale securities (4,084)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (277,820) (182,867) (93,957)
Accounts payable 194,773 129,583 (130,454)
Accrued expenses (230,028) (67,681) (97,289)
------------ ----------- -----------
Net cash used by operating activities (8,928,350) (2,236,541) (2,258,843)
------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (1,471,801) (92,264) (333,324)
Additions to patents (93,583) (41,040) (10,631)
Payments for purchase of option to acquire
Med-Design Incorporated (125,000)
Investments in available-for-sale securities, net (7,680,687) (2,069,768) (78,983)
Notes receivable funded (92,500)
Purchase of short-term investment (547,878) (12,630) (12,173)
------------ ----------- -----------
Net cash used by investing activities (10,011,449) (2,215,702) (435,111)
------------ ----------- -----------
Cash flows from financing activities:
Capital lease payments (21,490) (5,644) (4,587)
Proceeds from long-term borrowings 691,685 163,712
Repayment of long-term borrowings (297,912) (123,788) (68,783)
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 798,700 254,800 127,400
Proceeds from short-term borrowing 6,630,500 184,000 2,528,000
Repayment of short-term borrowing (2,000,000) (2,000,000)
Other -- 14,136
Repayment of acquisition note (1,000,000)
Proceeds of initial public offering, net of offering costs 9,525,966
Proceeds of private placement, net of offering costs 4,617,497 4,617,497
------------ ----------- ----------
Net cash provided by financing activities 19,077,196 2,941,001 2,780,742
------------ ----------- ----------
Increase (decrease) in cash 137,397 (1,511,242) 86,788
Cash and cash equivalents, beginning of period 0 1,648,639 221,229
------------ ----------- -----------
Cash and cash equivalents, end of period $137,397 $137,397 $308,017
============ =========== ===========
Cash paid during the period:
Interest $760,910 $235,372 $147,137
============ =========== ===========
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 -- --
------------ ----------- -----------
Capital lease obligation incurred $36,303 -- --
------------ ----------- -----------
Change in unrealized gain (loss) on available-
for-sale securities $13,292 ($10,203) ($7,834)
------------ ----------- -----------
5
<PAGE>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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, except for the
balance sheet as of December 31, 1996; 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 six
month periods ending June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Form 10-QSB contains
forward-looking statements relating to such matters as anticipated business
performance, business prospects, technological developments, product
development, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, The Med-Design Corporation (the "Company") notes that these
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the sections of this Annual Report
entitled "Management's Discussion or Plan of Operation - Business Overview,"
"Management's Discussion or Plan of Operation - Results of Operations,"
"Management's Discussion or Plan of Operation - Plan of Operation,"
"Management's Discussion or Plan of Operation - Liquidity and Capital
Resources." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents that the Company files from time to time with the Securities and
Exchange Commission and in public communications made by the Company.
Business Overview
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 safety 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 Self-Contained
Pre-Filled Syringe, the Pre-Filled Vial Injector, the Butterfly Blood Collection
Needle, and the Arterial Blood Gas Syringe (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.
7
<PAGE>
Business Overview (Continued)
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. The Company entered into an Agreement of Merger on April 5, 1995 (the
"Merger Agreement") with MDC Holdings and MDI, pursuant to which MDI merged with
and into MDC Holdings, the surviving corporation (the "Merger"), and the Company
issued and delivered 1,219,742 shares of Common Stock to the MDI shareholders in
exchange for their shares of MDI common stock. In addition, the Company issued a
non-interest bearing promissory note in the principal amount of $1,000,000 (the
"Note") payable to the former MDI shareholders, which was collateralized by all
of the issued and outstanding shares of the common stock, $0.01 par value per
share, of MDC Holdings. In connection with the Merger, the Company issued and
delivered 3,572 shares of Common Stock to certain creditors of MDI to satisfy
$12,500 of outstanding obligations of MDI and 24,000 shares of Common Stock to a
former noteholder of MDI to satisfy an obligation of 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'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.
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 January 23, 1997, the Company completed a sale ("Placement") of
1,000,000 shares of Common Stock at a price of $5.00 per share pursuant to a
private placement of such securities to certain "accredited investors" (pursuant
to Regulation D of the Securities Act of 1933, as amended). The Company received
proceeds of approximately $4,617,000, net of expenses incurred in connection
with the Placement.
In connection with the Placement, for nominal consideration, the Company
agreed to sell warrants to Fine Equities, Inc., the Company's placement agent
with respect to the Placement (the "Placement Agent"), to purchase 100,000
shares of Common Stock ("Placement Agent Warrants"). The Placement Agent
Warrants are exercisable at a price of $5.50 a share of Common Stock for a
period of four years commencing January 22, 1998.
On August 6, 1997, the Company acquired two patents from John Kulli, M.D.
In connection with the acquisition of these patents, the Company paid $75,000
and issued warrants to purchase 75,000 shares of its common stock at $5.75.
These warrants are exercisable on or before August 6, 2002.
8
<PAGE>
Results of Operations
The Company has devoted substantially all of its research and development
efforts since its formation to the development related to safety needles and the
design and development of the equipment necessary to assemble the safety needle
device.
Research and development expenses amounted to $432,128 and $797,820 for the
three and six month periods ending June 30, 1997, respectively.
Plan of Operation
Although the Company's plans may change as a result of its discussions with
third parties for the manufacture and/or distribution of its products, the
Company's current plan is to produce at least 50,000 units of the Safety
Catheter and 100,000 units of the Safety Phlebotomy Set in order to demonstrate
to potential third party manufacturers the economic feasibility of the
commercial production of its products. 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 ultimately 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.
The Company intends to continue its research and development on the
Safety Syringe, Safety Phlebotomy Set and Safety Catheter to enable the Company
to improve their manufacturability and to 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.
The Federal Food, Drug and Cosmetic Act (the "FD&C Act") provides that,
unless exempted by regulation, medical devices may not be commercially
distributed in the United States unless they have been cleared by the United
States Food and Drug Administration ("FDA"). From June 1995 to June 30, 1997,
the Company focused its efforts on the preparation of a 510(k) pre-market
notification for the Safety Catheter, Safety Phlebotomy Set and Safety Syringe.
The Company filed the 510(k) pre-market 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 pre-market
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"). Subsequently, the Company received the ODE's March 13, 1996 written
request for additional information. The Company responded to these notifications
by requesting a ninety day extension, which was granted on April 18, 1996. The
Company voluntarily withdrew the 510(k) pre-market 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) pre-market
notification for the modified Safety Phlebotomy Set with the FDA during the
third quarter of 1997. The Company also anticipates that it will complete and
file a 510(k) pre-market notification with the FDA during the fourth quarter of
1997 for the second generation Safety Catheter and/or several New Products. The
Company believes that the Safety Syringe, Safety Phlebotomy Set, and other New
Products will be classified as a Class II device, and that such products will
not require a pre-market approval ("PMA") application but will be eligible for
marketing clearance through the 510(k) notification procedure based upon its
substantial equivalent to a previously marketed device. 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.
9
<PAGE>
Plan of Operation (Continued)
The facility in Ventura, California ("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 3,120 square foot Class
100,000 clean room at the Ventura Facility, which is currently being used for
the assembly of prototypes and products. The Company had originally planned to
install in the clean room a fully automated robotic assembly system to pilot
manufacture its products. The Company, however, 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 and the 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 other 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 believes 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 arrangements 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 one or more of the Company's
products at a time, and 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 devise. During the fourth quarter of 1996, the Company
partially completed the installation of the semi-automated assembly system for
the production of one of the Company's products. The Company intends to have the
system fully operational during the third quarter of 1997. In addition to having
the capability of manufacturing its products for sale, another objective of the
Company is installing the assembly system to demonstrate to potential third
party manufacturers the economic feasibility of the commercial production of its
products.
In 1997, the Company plans to hand assemble the Safety Syringes, Safety
Phlebotomy Sets, Safety Catheters, and certain of the New Products in quantities
necessary to conduct any testing required by the FDA, for internal engineering
purposes, and for market research purposes. This hand assembly process will
continue until such time as the Company has the capability of manufacturing the
products on its semi-automated assembly system, scheduled to be fully
operational during the third quarter of 1997, or a third party is manufacturing
such products.
The Company does not expect to manufacture any significant quantity of
its Safety Phlebotomy Set or any other of its products itself for commercial
sale nor to produce any significant revenue from product sales in 1997; however,
the Company may earn revenues in 1997 through a licensing or contract
manufacturing arrangement or other form of joint venture with a third party, but
the Company has not to date entered into any such arrangements and there can be
no assurance that the Company will be able to enter into such arrangements on
acceptable terms.
On April 23, 1997, the European Patent Office issued a decision to
grant the Company's European Patent Application for the Safety Syringe utilizing
its proprietary needle retraction technology. The European patent will extend
coverage for the Company's Safety Syringe to twelve countries in the European
Economic Community including: Austria, Belgium, Denmark, France, Germany,
Greece, Italy, Netherlands, Spain, Sweden, Switzerland, and the United Kingdom.
The Company will continue to seek additional patent protection for its products
in related European patent applications.
10
<PAGE>
Plan of Operation (Continued)
As of August 12, 1997, the Company employed 26 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. 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.
Liquidity and Capital Resources
In 1995, the Company issued warrants to purchase 400,000 shares of
Common Stock, of which warrants to purchase 163,000 shares have been exercised
as of August 12, 1997. As of August 12, 1997, the Company has received an
aggregate of $798,700 upon the exercise of said warrants. If the balance of
those warrants are exercised, the Company would receive approximately an
additional $1,307,000, net of registration and other costs to be paid by the
Company as required under the terms of such warrants.
On January 23, 1997, the Company completed the Placement of 1,000,000
shares of Common Stock (See Item 1. Business and Other Business Matters). In
connection with the Placement, the Company also sold to the Placement Agent, for
nominal consideration, warrants to purchase 100,000 shares of Common Stock.
These warrants are exercisable at a price of $5.50 a share of Common Stock for a
period of four years commencing January 22, 1998. If these warrants are
exercised, the Company would receive approximately $550,000.
On March 19, 1997, the Company issued warrants to purchase 100,000
shares of Common Stock at an exercise price of $7.50 per share to a director of
the Company, who was engaged to perform certain consulting services on behalf of
the Company. These warrants are exercisable on or before March 19, 2000. If
these warrants are exercised, the Company would receive approximately $750,000.
The Company believes that it will have sufficient funds to support its
planned operations and capital expenditures through March 31, 1998, but
thereafter, the Company believes that it will need to raise additional funds
through public or private financing to support its planned operations and
capital expenditures. In addition to those monies that would be received upon
the exercise of the warrants issued in 1995 and 1997, and discussed above, 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.
11
<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 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders (the "Meeting") on
June 26, 1997. The Company solicited proxies in connection with the Meeting. At
the record date of the Meeting (May 14, 1997), there were 7,924,570 shares of
Common Stock outstanding and entitled to vote. The following were the matters
voted upon at the Meeting.
1. Election of Directors. The following directors were elected at the
Meeting: James M. Donegan, John F. Kelley, John S. Marr, John A.
Botich, Joseph N. Bongiovanni III, Gilbert M. White, and William A.
Jolly. The number of votes cast and withheld from each director are
as follows:
DIRECTORS FOR WITHHELD
--------- --- --------
James M. Donegan 6,813,034 9,083
John F. Kelley 6,813,234 8,883
John S. Marr 6,813,234 8,883
John A. Botich 6,812,234 9,883
Joseph N. Bongiovanni, III 6,812,234 9,883
Gilbert M. White 6,813,034 9,083
William A. Jolly 6,813,234 8,883
2. Ratification of Auditors. The appointment of Coopers & Lybrand, LLP
as the Company's independent auditors for the year ending December
31, 1997 was ratified by the following vote of Common Stock:
FOR AGAINST ABSTAIN
--- ------- -------
6,814,107 7,089 921
12
<PAGE>
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 exhibits are 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 June 30, 1997.
* Electronic filing only.
13
<PAGE>
Signatures
In accordance with 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: August 12, 1997
/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)
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 137,397
<SECURITIES> 8,245,941
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,663,666
<PP&E> 1,516,331
<DEPRECIATION> 294,808
<TOTAL-ASSETS> 10,096,052
<CURRENT-LIABILITIES> 5,213,865
<BONDS> 188,180
0
0
<COMMON> 79,516
<OTHER-SE> 4,614,491
<TOTAL-LIABILITY-AND-EQUITY> 10,096,052
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,319
<INCOME-PRETAX> (2,331,674)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,331,674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,331,674)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
