================================================================================
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 March 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ___to___
Commission file number 0-25852
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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 - 7,924,570 shares Common Stock, $.01 par value, outstanding as of
May 13, 1997.
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<PAGE>
THE MED-DESIGN CORPORATION
FORM 10-QSB
<TABLE>
<CAPTION>
INDEX
Page Number
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1- Financial Statements
Consolidated Balanced Sheets as of March 31, 1997 (unaudited) and as of
December 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the three months ended March
31, 1997 and 1996 and Cumulative During Development Stage (unaudited) . . . . . . . . . . . . . . . . . . .2
Consolidated Statements of Cash Flows for the three months ended March
31, 1997 and 1996 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 . . . . . . . . . . . . . . . . . . . . . . . .5-9
PART II - OTHER INFORMATION
Item 1- Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 2- Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 3- Defaults upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 4- Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 5- Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 6- Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
</TABLE>
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $133,787 $1,648,639
Short-term investment 535,248 535,248
Available-for-sale securities 8,928,432 5,638,498
Prepaid expenses and other current assets 56,991 97,461
----------- ----------
Total current assets 9,654,458 7,919,846
Property, plant, and equipment, net of accumulated
depreciation and amortization of $238,683 and $183,510
at March 31, 1997 and December 31, 1996, respectively 1,241,262 1,240,557
Patents, net of accumulated amortization of $36,724 and $34,324
at March 31, 1997 and December 31, 1996, respectively 176,649 174,623
Other assets -- 14,136
----------- ----------
$11,072,369 $9,349,162
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $4,630,500 $6,446,500
Accounts payable 245,446 172,911
Accrued expenses 50,423 128,146
Current maturities of long-term debt and capital lease obligations 221,064 237,652
----------- ----------
Total current liabilities 5,147,433 6,985,209
----------- ----------
Long-term debt and capital lease obligations, less current maturities 243,971 300,366
----------- ----------
Total liabilities 5,391,404 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;
7,921,570 and 6,899,570 shares issued and outstanding
at March 31, 1997 and December 31, 1996, respectively 79,216 68,996
Additional paid-in capital 20,535,437 15,718,504
Deficit accumulated during the development stage (14,928,604) (13,747,408)
Unrealized (loss) gain on available-for-sale securities (5,084) 23,495
----------- ----------
Total stockholders' equity 5,680,965 2,063,587
----------- ----------
$11,072,369 $9,349,162
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
From Inception, Three Months Ended March 31,
December 13, 1993 -------------------------------------
to March 31, 1997 1997 1996
-------------------------- ------------ ------------
<S> <C> <C> <C>
Operating expense:
Marketing $428,860 $50,492 $65,079
General and administrative 5,440,410 785,159 720,117
Research and development 2,528,934 365,692 177,630
Purchased research and development 5,932,770 -- --
------------ ------------ ------------
Total operating expenses 14,330,974 1,201,343 962,826
------------ ------------ ------------
Loss from operations (14,330,974) (1,201,343) (962,826)
Interest expense (1,329,401) (121,263) (66,608)
Interest income 731,771 141,410 107,490
------------ ------------ ------------
Net loss ($14,928,604) ($1,181,196) ($921,944)
============ ============ ============
Net loss per common share ($0.15) ($0.14)
============ ============
Weighted average common 7,656,592 6,778,570
shares outstanding ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
(a development stage company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
From Inception, Three Months Ended March 31,
December 13, 1993 --------------------------------
to March 31, 1997 1997 1996
----------------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($14,928,604) ($1,181,196) ($921,944)
Adjustments to reconcile net loss to operating
cash flows (net of acquisition):
Depreciation and amortization 256,438 57,200 38,242
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 (54,483) 40,470 18,477
Accounts payable 137,725 72,535 (158,587)
Accrued expenses (240,070) (77,723) (126,385)
------------ ------------ ------------
Net cash used by operating activities (7,680,523) (988,714) (1,150,197)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,435,415) (55,878) (126,249)
Additions to patents (56,969) (4,426)
Payments for purchase of option to acquire
Med-Design Incorporated (125,000)
Investments in available-for-sale securities, net (8,929,091) (3,318,172) (73,111)
Notes receivable funded (92,500)
Purchase of short-term investment (535,248)
------------ ------------ ------------
Net cash used by investing activities (11,174,223) (3,378,476) (199,360)
------------ ------------ ------------
Cash flows from financing activities:
Capital lease payments (18,649) (2,803) (2,276)
Proceeds from long-term borrowings 691,685 18,540
Repayment of long-term borrowings (244,272) (70,148) (25,404)
Proceeds from issuance of common stock, prior to
initial public offering 97,250
Proceeds from exercise of options 35,000
Proceeds from issuance of common stock in connection
with exercise of warrants 651,700 107,800
Proceeds from short-term borrowing 6,630,500 184,000 1,280,000
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 4,619,353 4,619,353
------------ ------------ ------------
Net cash provided by financing activities 18,988,533 2,852,338 1,270,860
------------ ------------ ------------
Increase (decrease) in cash 133,787 (1,514,852) (78,697)
Cash and cash equivalents, beginning of period 0 1,648,639 221,229
------------ ------------ ------------
Cash and cash equivalents, end of period $133,787 $133,787 $142,532
============ ============ ============
Cash paid during the period:
Interest $666,897 $141,359 $61,785
============ ============ ============
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 ($5,084) ($28,579) ($5,867)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
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, 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 month period ending
March 31, 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.
4
<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 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.
5
<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 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.
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 $4,619,000, 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.
6
<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 $365,692 and $177,630 for the
three month periods ending March 31, 1997 and 1996, 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 March 31, 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
second 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 Safety Syringe 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.
7
<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 second 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 second 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.
8
<PAGE>
Plan of Operation (Continued)
As of May 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 136,000 shares have been exercised as of
May 12, 1997. As of May 12, 1997, the Company has received an aggregate of
$666,400 upon the exercise of said warrants. If the balance of those warrants
are exercised, the Company would receive approximately an additional $1,492,000,
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 financings 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.
9
<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
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 exhibits are filed with this Report on Form 10-QSB.
Exhibit
Number Description
------ -----------
27* Financial Data Schedule.
(b) The Company filed a Report on Form 8-K dated January 23, 1997 with the
Securities and Exchange Commission on February 7, 1997 in order to
report the sale of 1,000,000 shares of Common Stock, $.01 par value per
share, on January 23, 1997 to certain accredited investors
("Offering"), together with warrants to purchase 100,000 shares of its
Common Stock to the placement agent of the Offering. No financial
statements were filed with such report on Form 8-K.
* Electronic filing only.
10
<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: May 13, 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)
11
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 133,787
<SECURITIES> 9,463,680
<RECEIVABLES> 0
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<CURRENT-ASSETS> 9,654,458
<PP&E> 1,479,945
<DEPRECIATION> 238,683
<TOTAL-ASSETS> 11,072,369
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<BONDS> 243,971
0
0
<COMMON> 79,216
<OTHER-SE> 5,391,404
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