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, 2000
( ) 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 77-0404919
- ------------------------ ------------------------
(State of Incorporation) (IRS Employer ID Number)
2810 Bunsen Avenue, Ventura, CA 93003
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(805) 339-0375
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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 - 9,695,853 shares of Common Stock, $.01 par value,
outstanding as of May 13, 2000.
<PAGE>
THE MED-DESIGN CORPORATION
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page Number
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1- Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and as of
December 31, 1999 ...................................................................3
Consolidated Statements of Operations (unaudited) for the three months ended
March 31, 2000 and 1999..............................................................4
Consolidated Statements of Comprehensive Loss (unaudited) for the
three months ended March 31, 2000 and 1999...........................................5
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 2000 a........................................................6
Notes to Consolidated Financial Statements (unaudited) ..............................7-8
Item 2- Management's Discussion and Analysis of Plan of Operation .............................10-13
PART II - OTHER INFORMATION
Item 1- Legal Proceedings......................................................................14
Item 2- Changes in Securities..................................................................14
Item 3- Defaults upon Senior Securities........................................................14
Item 4- Submission of Matters to a Vote of Security Holders ...................................14
Item 5- Other Information......................................................................14
Item 6- Exhibits and Reports on Form 8-K.......................................................14
</TABLE>
2
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 942,871 $ 682,120
Available-for-sale securities 3,433,491 4,180,262
Prepaid expenses and other current assets 193,596 172,680
------------ ------------
Total current assets 4,569,958 5,035,062
Property, plant, and equipment, net of accumulated depreciation
of $889,265 and $843,598 at March 31, 2000 and
December 31, 1999, respectively 642,386 698,571
Patents, net of accumulated amortization of $166,430
and $132,276 at March 31, 2000 and
December 31, 1999, respectively 1,558,004 1,110,013
Debt issue costs, net of accumulated amortization of
$121,560 and $151,560 at March 31, 2000 and
December 31, 1999, respectively 77,031 413,640
------------ ------------
Total Assets $ 6,847,379 $ 7,257,286
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ -- $ 250,000
Current maturities of long-term debt and capital lease obligations 12,251 12,251
Accounts payable 257,344 277,031
Accrued expenses 110,983 191,650
Licensing Fee Advance -- 1,500,000
------------ ------------
Total current liabilities 380,578 2,230,932
Long-term debt and capital lease obligations, less current maturities 345,013 1,073,797
------------ ------------
Total liabilities 725,591 3,304,729
------------ ------------
Commitments and Contingencies
Stockholders' equity
Preferred stock, $.01 par value, 5,000,000 shares authorized;
300,000 shares issued and outstanding as of December 31, 1999 -- 3,000
Common stock, $.01 par value, 20,000,000 shares authorized;
9,695,853 and 8,604,637 shares issued and outstanding as of
March 31, 1999, respectively 96,957 86,045
Additional paid-in capital 29,997,798 26,165,377
Accumulated deficit (23,989,270) (22,331,825)
Accumulated other comprehensive income 16,303 29,960
------------ ------------
Total stockholders' equity 6,121,788 3,952,557
------------ ------------
Total Liabilities and Stockholders' Equity $ 6,847,379 $ 7,257,286
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
-----------------------------
2000 1999
----------- -----------
Revenue:
Licensing Revenue $ 1,500,000
----------- -----------
Total Revenue 1,500,000
----------- -----------
Operating expense:
General and administrative $ 848,106 $ 652,556
Research and development 373,342 299,927
Stock based compensation 1,648,270
----------- -----------
Total operating expenses 2,869,718 952,483
Loss from operations (1,369,718) (952,483)
Interest expense (31,852) (65,458)
Investment income 80,734 55,310
----------- -----------
Net loss before extraordinary item (1,320,836) ($ 962,631)
Extraordinary loss on extinguishment of debt (336,609)
----------- -----------
Net loss ($1,657,445) ($ 962,631)
=========== ===========
Basic and dilutive earnings per common share
Loss before extraordinary item ($0.15) ($0.12)
Extraordinary item loss (0.04)
Net loss ($0.19) ($0.12)
Weighted average common shares outstanding 8,885,592 7,951,570
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MED-DESIGN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
Three Months Ended March 31,
-----------------------------
2000 1999
----------- -----------
Net loss ($1,657,445) ($ 962,631)
Other comprehensive loss:
Unrealized holding losses on securities (13,657) --
----------- -----------
Comprehensive loss ($1,671,102) ($ 962,631)
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
THE MED-DESIGN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,657,445) ($ 962,631)
Adjustments to reconcile net loss to operating
cash flows:
Depreciation and amortization 92,451 66,108
Issuance of warrants for services
Amortization of debt issue costs 24,460
Interest in connection with private
investor loan 24,401
Stock based compensation 1,648,270 10,560
Licensing fee advance (1,500,000)
Changes in operating assets and liabilities
Prepaid expenses and other current (20,916) 41,959
Extraordinary loss on extinguishment
of debt 336,609
Accounts payable (19,687) 9,150
Accrued expenses (80,667) (48,710)
----------- -----------
Net cash used in operating activities (1,176,984) (859,104)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (2,114) (6,429)
Additions to patents (246,083) (53,232)
Sale of available-for-sale securities 733,114 1,306,956
----------- -----------
Net cash provided by investing activities 484,917 1,247,295
----------- -----------
Cash flows from financing activities:
Capital lease payments (3,782) (3,343)
Warrants and stock options exercised 1,206,600 --
Repayment of short-term borrowings (250,000) --
----------- -----------
Net cash used in financing activities 952,818 (3,343)
----------- -----------
Increase in cash 260,751 384,848
Cash and cash equivalents, beginning of period 682,120 32,883
----------- -----------
Cash and cash equivalents, end of period $ 942,871 $ 417,731
----------- -----------
Noncash investing and financing activities:
Change in unrealized gain (loss) on
Available-for-sale securities ($ 13,657) --
Issuance of stock in connection with the
acquisition of patents $ 236,062 --
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial information included herein is unaudited, except for the
balance sheet as of December 31, 1999; 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.
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.
The financial statements included herein have been prepared in accordance
with generally accepted accounting principles and the instructions to Form
10-QSB and Rule 310 (b) of Regulation S-B. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These consolidated financial statements should be read in conjunction
with the Company's audited financial statements for the year ended December 31,
1999, which were included as part of the Company's Annual Report on Form 10-KSB.
Operating results for the three-month period ending March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000.
2. Revenue Recognition
On December 13, 1999, The Med-Design Corporation signed an option agreement
with Becton Dickinson related to certain of the Company's patented products
("the optioned products"). In connection with this agreement, Med-Design
received a payment of $1.5 million. On March 12, 2000, Med-Design signed a
Binding Term Letter ("the Letter") with BD that detailed the major terms under
which the optioned products would be licensed to BD, the letter also provided
that the parties would begin to negotiate and prepare a license agreement
consistent with the letter and that any disputes pertaining to the drafting of
such agreement would be resolved through arbitration.
The letter was approved by the Board of Directors of Med-Design and BD
prior to March 31, 2000. In connection with the binding term letter, the $1.5
million option payment became non refundable and under the terms of the binding
agreement, Med-Design has no further obligations regarding this payment,
accordingly the Company recognized $1.5 million in revenue for the period ended
March 31, 2000.
On May 11, 2000, Med-Design and BD signed a license agreement consistent
with the binding letter, the agreement allows for a further up-front non
refundable payment of $2.5 million and future royalty payments based on sales of
the licensed products by BD.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
3. Basic and Diluted Loss Per Share
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------
2000 1999
----------- ---------
<S> <C> <C>
Net loss before extraordinary item ($1,320,836) ($962,631)
Extraordinary loss from debt issue costs (336,609)
----------- ---------
Net loss ($1,657,445) ($962,631)
=========== =========
Basic and dilutive earnings per common share
Loss before extraordinary item (0.15) (0.12)
Extraordinary item (0.04)
Net Loss ($0.19) ($0.12)
Weighted average common shares outstanding 8,885,592 7,951,570
</TABLE>
Options and warrants to purchase 1,721,600 shares of common stock as of March
31, 2000 and 1,718,000 as of March 31, 1999, were not included in computing
diluted earnings per share as the effect was antidilutive.
Convertible debentures with an option to purchase 260,000 shares of common stock
and a promissory note issued in connection with a loan payment with a commitment
to issue 33,000 shares of common stock as of March 31, 2000 were not included in
computing diluted earnings per share as the effect was antidilutive.
4. Patents
On February 18, 2000 Med-Design purchased a safety syringe patent issued to
Dr. Edward Allard in June 1989. Med-Design, for consideration of the patents,
issued Dr. Edward Allard and Daniel Longmire, the co-inventor, 14,416 shares of
common stock and cash of $220,000. The Company capitalized $456,062 for the
acquisition of this patent.
5. Debt Issue Costs
The Company completed a $1,550,000 private placement of convertible
debentures collateralized by the Company's intellectual properties with a
five-year term in July 1998. The debentures are convertible into common stock at
a price of $1.25 or 1,240,000 shares. The Company also recorded $565,200 in debt
issue costs with respect to this placement. During the first quarter of 2000,
$1,225,000 of the debentures converted to common stock, or 980,000 shares. Debt
issue costs, in the amount of $336,609 that was previously being amortized over
a five year period, was expensed in the first quarter for the debentures that
converted. This amount is presented as an extraordinary item on the Company's
Consolidated Statement of Operations.
8
<PAGE>
6. Debt
The Company obtained a loan from a private investor, who is a director of
the Company in the amount of $250,000 on May 29, 1998. The loan principal and
accrued interest of $5,142.12 was paid on February 29, 2000.
7. Preferred Stock
Med-Design signed a license, option and equity agreement with Becton,
Dickinson and Company on December 11, 1998. Under the terms of this agreement
Becton, Dickinson and Company invested $1.5 million in Med-Design through the
purchase of 300,000 shares of Series A Convertible Preferred Stock. The Series A
Convertible Preferred Stock is convertible into Med-Design Common Stock at $5.00
per share. Becton, Dickinson and Company converted the Preferred Stock to Common
on March 28, 2000. These were the only shares of Preferred Stock outstanding.
Dividends are payable semi-annually at a rate of 8% per annum in cash or in
additional shares of Preferred Stock (at the option of Med-Design). There had
been no dividend payments made on Preferred Stock, however, dividends are due BD
in the amount of $155,666. The Board of Directors has not declared a dividend
therefore no dividend has been accrued in the financial statements.
8. Stock Based Compensation
In connection with the termination agreement of certain employees, in
February 2000, the Company extended the date of expiration of certain vested and
unvested options. As a result of these modifications the Company recognized a
charge of $825,000 in the period ended March 31, 2000, based on the theoretical
fair value calculation, in accordance with APB 25, Accounting for Stock Issued
to Employees.
On August 15, 1995, Med-Design issued a warrant to a consultant who was not
an officer, director or employee of the Company to purchase shares of Common
Stock at $7.50 per share, in consideration for the execution of an agreement for
investment banking consulting services. The warrants were exercisable upon
issuance and expired on August 15, 1998, however in January 2000, the expiration
date of these warrants was extended to August 15, 2000, for which the Company
recognized a charge of $823,270 in the period ended March 31, 2000, based on the
theoretical fair value calculation, in accordance with SFAS 123, Accounting for
Stock-Based Compensation.
The above charges will have no negative effect on the Company's cash
position and will not be additionally dilutive to its common stock.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report 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. Words such as "may," "should," "anticipate," "believe," "plan,"
"estimate," "expect, and "intend" and other similar expressions are intended to
identify forward-looking statements. 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
("Med-Design") 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 Quarterly Report entitled "Business Overview -
"Management's Discussion and Analysis or Plan of Operation - Results of
Operation," "Management's Discussion and Analysis or Plan of Operation - Plan of
Operation," "Management's Discussion and Analysis 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. Med-Design 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 Med-Design files from time to
time with the Securities and Exchange Commission and in public communications
made by Med-Design.
Business Overview
The Company was incorporated in Delaware on November 14, 1994. The Company
formed a wholly owned subsidiary, MDC Investment Holdings, Inc. also a Delaware
Corporation, which is the owner of the intellectual property of the Company. MDC
Research Limited is a California Company, which is a wholly owned subsidiary of
MDC Investment Holdings, Inc.
The Company is solely focused on designing and developing safety medical
needle devices intended to reduce the incidence of accidental needle sticks to
patients and health care workers. This has been the primary focus of the Company
since inception. The Company recognized the need for superior devices to help
eliminate what is becoming a growing menace to patients and health care workers
alike. Studies have estimated that as many as 800,000 accidental needle sticks
occur yearly in the United States. Many authorities believe that this number
should be much higher since many accidental needle sticks are not reported.
As a result of the Company's focus, it has designed and developed 21 safety
needle products all utilizing similar patented proprietary technology. All of
these devices are designed to reduce or eliminate the possibility of an
accidental needle stick. These products include the Safety Hypodermic Syringe,
Safety Blood Collection Needle, Safety Intravenous Catheter Insertion Device,
Safety PICC Introducer Catheter Insertion Device, Safety Guidewire Introducer,
Safety Winged Set Blood Collection Needle, Safety Arterial Blood Gas Syringe,
Safety Pre-Filled Vial Injector, Safety Pre-Filled Glass Syringe, Safety Wing
Needle Set/Catheter, Safety Blood Donor Needle, Safety Y-Port Infusion Needle,
and Safety Winged Fistula Needle, and a number of additional products in early
stages of development. These products are similar in appearance and size to the
standard devices in use. Such products incorporate the Company's novel
proprietary needle retraction technology that enables a health care professional
with no substantial change in operating technique in using one hand to
permanently retract the needle into the body of the device that can then be
safely discarded.
The Company's primary facility is located at 2810 Bunsen Avenue, Ventura,
California 93003. This location houses the research and development staff,
machine shop, model making facilities, office space, a clean room and pilot
manufacturing facilities. The manufacturing facilities are primarily designed
for pilot manufacturing to test and prove the manufacturability of the Company's
product design. The Company has the potential for commercial manufacturing from
this site should it so choose.
10
<PAGE>
Business Overview (continued)
In June 1995, the Company completed its initial public offering of
3,450,000 shares of common stock, par value .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 all shareholders of record
as of February 12, 1996.
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.
From June 29, 1998 to July 22, 1998 the Company completed a $1,550,000
Private Placement of certain convertible debentures secured by the Company's
intellectual properties. The net proceeds to the Company were $1,474,000.
On December 11, 1998, The Med-Design Corporation signed a Multi-Product
Licensing Agreement, an Option Licensing Agreement and an Equity Agreement with
Becton, Dickinson and Company, ("Becton Dickinson"); a New Jersey based global
medical technology company. The Med-Design Corporation granted Becton Dickinson
the exclusive worldwide rights to manufacture and sell Med-Design's Safety Blood
Collection Needle, Safety Winged Set Blood Collection Needle, Safety I.V.
Catheter, Safety Wing Needle Set/Catheter and Safety PICC Introducer Catheter
Insertion Device and a one year option, with terms and conditions to be
negotiated, to license the Safety Hypodermic Syringe (luer type), the Safety
Arterial Blood Gas Syringe (add-on type), the Safety Pre-Filled Glass Syringe
(fixed or stake needle type), and the Safety Pre-Filled Glass Syringe (luer
type). Under the terms of the agreements, Med-Design received an initial,
non-refundable payment of $4.5 million, an equity investment of $1.5 million and
continuing royalty payments for the life of the patents payable on Becton
Dickinson's net sales of licensed products. Becton Dickinson invested $1.5
million in Med-Design through the purchase of 300,000 shares of Series A
Convertible Preferred Stock, convertible into Med-Design's common shares at
$5.00 per share. Becton Dickinson is entitled to designate one member on
Med-Design's Board of Directors. Med-Design previously signed a development and
licensing agreement for its proprietary Safety I.V. Catheter with Graphic
Controls Corporation, which was canceled by mutual agreement with no obligation
to either party.
Thereafter, the Company entered into a second contract with Becton
Dickinson on July 27, 1999 whereby the Company agreed to perform certain
additional services for Becton Dickinson to prepare for FDA 510(k) Pre-Market
Notification for certain products licensed to Becton Dickinson.
On December 13, 1999, The Med-Design Corporation signed an option agreement
with Becton, Dickinson and Company. Under the terms of the agreement Med-Design
agreed to extend the initial option agreement covering five products until
January 25, 2000 allowing BD to acquire worldwide licenses to manufacture and
sell these five safety devices in return for $1.5 million, up-front licensing
payments and ongoing royalties, to be negotiated. Med-Design also agreed to
expand the number of products under licensing consideration to include an
additional nine safety needle devices. On January 25, the option was extended to
grant BD the right, until March 24, 2000, to acquire worldwide licenses to
manufacture and sell these devices in return for up-front licensing payments and
ongoing royalties to be negotiated.
On April 14, 2000, Med-Design announced that the Company was unable to
reach an agreement that was acceptable to both companies regarding the optioned
products prior to the expiration date of the option agreement. The Company,
therefore opened discussions and negotiations for products optioned to Becton,
Dickinson and Company to all market participants.
The Company has completed the transfer of technology for all of the
licensed products for which Becton, Dickinson and Company plans to move forward
into production.
On March 12, 2000, The Med-Design Corporation executed a binding letter of
agreement for the licensing of the Company's patents for the retractable syringe
products with BD. The agreement specified that the $1.5 option payment,
previously paid
11
<PAGE>
Business Overview (continued)
to Med-Design, be non-refundable and Med-Design has no further obligations
regarding this payment. The Company accordingly recognized $1.5 million in
Revenue for the period ended March 31, 2000.
On May 11, 2000, Med-Design and BD signed a license agreement consistent
with the binding letter. The agreement allows for a future up front
non-refundable payment of $2.5 million and royalty payments from the sales of
the licensed product.
The Company is cognizant of growing legislative initiative in many states
and the federal government to mandate a conversion to safety needle devices. To
date, nine states (California, Texas, Maryland, Tennessee, New Jersey,
Minnesota, West Virginia, Maine, Georgia) have passed legislation to mandate or
explore the compulsory need for safety needle products. A federal act to
accomplish the same purpose has been introduced in both the House and Senate.
OSHA has issued new Compliance Directives to enforce the use of available
approved and effective safety engineered needles in virtually every health care
workplace in the United States. The Company feels that the attention of
legislative bodies all over the country to the pressing need for the adoption of
safety medical devices will focus increased attention on the Company's products.
The Company is in a unique position to capitalize on this increased attention
because the portfolio of safety products that it has developed or is developing
covers a broad spectrum of medical use.
Results of Operations
The Company has devoted substantially all of its research and development
efforts since its formation to development related to safety needles and the
designs and development of the equipment necessary to assemble the safety needle
device.
Research and development expenses amounted to $373,342 and $299,927 for the
three month period ending March 31, 2000 and 1999, respectively.
In connection with the termination agreement of certain employees, in
February 2000, the Company extended the date of expiration of certain vested and
unvested options. As a result of these modifications the Company recognized a
charge of $825,000 in the period ended March 31, 2000 based on the theoretical
fair value calculation in accordance with APB 25, Accounting for Stock Issued to
Employees.
On August 15, 1995, Med-Design issued a warrant to a consultant who was not
an officer, director or employee of the Company to purchase shares of Common
Stock at $7.50 per share, in consideration for the execution of an agreement for
investment banking consulting services. The warrants were exercisable upon
issuance and expired on August 15, 1998, however in January 2000, the expiration
date of these warrants was extended to August 15, 2000 for which the Company
recognized a charge of $823,270 in the period ended March 31, 2000, based on the
Black-Scholes Model, in accordance with SFAS 123, Accounting for Stock-Based
Compensation.
The stock-based Compensation charges will have no negative effect on the
Company's cash position and will not be additionally dilutive to its common
stock.
Plan of Operation
Med-Design plans to focus on the following two areas of activity in 2000:
the further development and licensing of additional products; the development of
incremental revenues related to design and development and manufacturing
agreements with licensing partners.
Med-Design plans to advance concept development and modeling of certain
other products that are not currently under licensing agreements, such as the
Safety Pre-Filled Vial Injector. Med-Design also plans to continue discussions
and negotiations with third parties regarding the licensing or joint venture of
these products. Med-Design plans to support
12
<PAGE>
Plan of Operation (continued)
such product development programs, discussions, and negotiations, including the
building of necessary prototypes with currently available funds.
Med-Design is investigating opportunities with third parties to
manufacture, market and distribute Med-Design's products. Med-Design anticipates
that entering into alliances and licensing arrangements with third parties would
enable Med-Design to increase market penetration of its products more quickly
than Med-Design could achieve on its own. Med-Design has entered into such
arrangements with Beckon Dickinson as mentioned.
Other Business
Med-Design is currently in negotiations with third parties to provide
additional design, development and manufacturing in furtherance of the
commercialization of the products. Med-Design has sufficient facilities to
perform these tasks. Med-Design's facility in Ventura, California 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 fabrication of prototype molds and test fixtures. Med-Design also
installed a 3,120 square foot Class 100,000 clean room at the facility, which is
capable of being used for the semi-automated assembly of both prototypes and
products intended for sale.
As a result of discussions with third parties, Med-Design has installed a
semi-automated assembly system at the facility to pilot manufacture its products
in an effort to demonstrate to potential third party manufacturers the economic
feasibility of the commercial production of its products. The semi-automated
assembly system, which consists of a series of manual and semi-automatic
stations, with additions and modifications, is capable of producing up to
6,000,000 units of commercial products per year. The assembly system will
produce one or more of Med-Design's products at a time, and has the capability
of being converted at a reasonable cost with minimal delay to manufacture a
different product at such time as Med-Design may decide. Med-Design completed
the system during the third quarter of 1997.
Med-Design anticipates earning revenues in 2000 from one or more of the
following: licensing or optioning of additional products; third party
manufacturing agreement, third party development agreements and royalty payments
in association with licensed products.
As of March 31, 2000, Med-Design employed 18 people on a full-time basis
and one person on a part-time basis. Med-Design anticipates increasing employees
in certain strategic areas pending the outcome of continued discussions and
negotiations with third parties regarding the licensing or joint venture of its
early stage development products. Med-Design will however reassess its personnel
requirements as business activity dictates.
Liquidity and Capital Resources
At March 31, 2000, Med-Design was party to a revolving line of credit
totaling $3,000,000 with its principal lending institution. This facility can be
used to fund working capital needs and finance capital equipment purchases;
provided, however, that advances for capital equipment financing don't exceed
$600,000. Borrowings to meet working capital needs bear interest at LIBOR plus
2.25 basis points, while borrowings to finance capital equipment purchases bear
interest at prime plus 2.5%. Pursuant to the terms of the facility, all
borrowings must be fully collateralized by available-for-sale securities, cash,
cash equivalents, equipment financed, and general intangibles of Med-Design.
There was no obligation outstanding under the agreement at March 31, 2000. The
facility expires on May 30, 2001 and there is no assurance that Med-Design will
be successful in negotiating a continuation of the availability of the Loan
Agreement and what terms will be made available to Med-Design.
Management believes that Med-Design has sufficient funds to support its
planned operations and capital expenditure for the next twelve months.
Thereafter Med-Design will rely on negotiating licensing and royalty agreements
with its current and future strategic partners. If Med-Design is unsuccessful in
negotiating future agreements, Med-Design may be required to
13
<PAGE>
Liquidity and Capital Resources (continued)
reduce substantially, or eliminate certain areas of its product development
activities, limit its operations significantly, or otherwise modify its business
strategy.
Med-Design'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, pilot manufacturing
capability, and the costs associated with protecting its patents and other
proprietary rights.
Subsequent Events
On March 12, 2000, The Med-Design Corporation executed a binding letter of
agreement for the licensing of the Company's patents for the retractable syringe
products with BD. The agreement specified that the $1.5 option payment,
previously paid to Med-Design, be non-refundable and Med-Design has no further
obligations regarding this payment. The Company accordingly recognized $1.5
million in Revenue for the period ended March 31, 2000.
On May 11, 2000, Med-Design and BD signed a license agreement consistent
with the binding letter. The agreement allows for a future up front
non-refundable payment of $2.5 million and royalty payments from the sales of
the licensed product.
14
<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) No reports on Form 8-K have been filed during the quarter ended
March 31, 2000.
* Electronic filing only.
15
<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 behalf by the
undersigned, thereunto duly authorized.
The Med-Design Corporation
Date: May 13, 2000
/s/ James M. Donegan
---------------------------
James M. Donegan
Chief Executive Officer
/s/ Lawrence D. Ellis
---------------------------
Lawrence D. Ellis
Chief Financial Officer
16
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