UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-27028
EMBRYO DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3832099
(State or other jurisdiction of (State or I.R.S. Employer
incorporation of organization) Identification Number)
750 Lexington Avenue, Suite 2750
New York, New York 10022
(Address of principal executive offices)
10022
(Zip Code)
(212) 355-8484
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Class Outstanding at December 6, 1996
Common Stock 4,695,000
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
FORM 10-QSB
QUARTERLY REPORT
For the Six Months Ended October 31, 1996
TABLE OF CONTENTS
Page to Page
Financial Statements:
Balance sheet..........................................1
Statements of operations...............................2
Statements of cash flows...............................3
Notes to financial statements........................4-5
Management's discussion and analysis
of financial condition and result
of operations........................................6-7
Part II. - Other information...........................8
Signatures.............................................9
<PAGE>
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
October 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 165,091
Investments in available-for-sale securities 1,065,982
Accounts receivable 30,539
Interest receivable 38,373
Inventories 67,768
Prepaid expenses and other current assets 82,160
Total current assets 1,449,913
INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES 1,549,224
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $3,754 21,445
LICENSED TECHNOLOGY, net of accumulated
amortization of $332,025 1,277,975
OTHER ASSETS 86,667
$ 4,385,224
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 95,889
Total current liabilities 95,889
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; authorized 30,000,000
shares; 4,695,000 issued and outstanding 470
Preferred stock, $.0001 par value; authorized 15,000,000
shares; 6,000,000 issued and outstanding 600
Additional paid-in-capital 8,403,638
Unearned compensation (1,695,000)
Deficit accumulated during the development stage (2,420,373)
Total equity 4,289,335
$ 4,385,224
</TABLE>
-1-
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
SIX MONTHS ENDED THREE MONTHS ENDED Cumulative
OCTOBER 31, OCTOBER 31, During
1996 1995 1996 1995 Development
Stage
(Unaudited) (Unaudited)(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 31,831 $ 54,481 $ 25,266 $ 19,481 $ 179,604
COSTS AND EXPENSES:
Cost of sales 22,483 5,046 17,406 5,046 114,533
General, selling
and administrative 641,552 40,650 319,676 16,650 1,078,978
Research and development 93,782 37,500 55,254 18,750 626,548
Amortization 115,000 88,215 57,500 46,786 332,025
Interest and other
(income)expense (43,684) 554,500 (5,249) 270,000 447,893
829,133 725,911 444,587 357,232 2,599,977
NET LOSS $ (797,302) $ (671,430) $ (419,321) $ (337,751) $(2,420,373)
NET LOSS PER SHARE $ (.17) $ (.22) $ (.09) $ (.11) $ (.62)
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING 4,693,342 3,030,000 4,695,000 3,030,000 3,874,737
</TABLE>
-2-
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
SIX MONTHS ENDED Cumulative
OCTOBER 31, During
1996 1995 Development
Stage
(Unaudited)(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (797,302) $ (671,430) $(2,420,373)
Adjustments to reconcile net loss to net
cash(used in) pprovided by
operating activities:
Depreciation and amortization 117,820 618,715 875,780
Non-cash consideration - consulting 265,000 - 362,500
Non-cash consideration - research
and development - - 440,000
Changes in operating assets
and liabilities:
(Increase) decrease in assets:
Accounts receivable (4,779) - (30,539)
Interest receivable (5,748) - (38,373)
Royalties receivable - (12,500) -
Inventories (45,492) (31,272) (67,768)
Prepaid expenses and other
current assets 3,284 - (82,160)
Other assets (15,001) - (86,667)
Increase (decrease) in liabilities:
Accounts payable
and accrued expenses 57,231 100,171 95,889
Total adjustments 372,315 675,114 1,468,662
Net cash (used in) provided by
operating activities (424,987) 3,684 (951,711)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (purchase) sale of investments 189,098 - (2,615,206)
Purchase of licensed technology - (45,000) (450,000)
Purchase of property and equipment (7,887) - (25,200)
Net cash (used in) provided by
investing activities 181,211 (45,000) (3,090,406)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 175,000 300,000
Proceeds from issuance of stock - - 120,000
Repayment of debt - - (550,000)
Proceeds of stock offering, net of
deferred costs - (52,627) 4,337,208
Net cash provided by financing
activities - 122,373 4,207,208
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (243,776) 81,057 165,091
CASH AND CASH EQUIVALENTS at
beginning of period 408,867 245,000 -
CASH AND CASH EQUIVALENTS
at end of period $ 165,091 $ 326,057 $ 165,091
</TABLE>
-3-
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED OCTOBER 31, 1996
1. Basis of Presentation:
The interim financial statements furnished reflect all adjustments which
are, in the opinion of management, necessary to present a fair statement of
the financial position and results of operations for the six and three month
periods ended October 31, 1996 and October 31, 1995. The financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to financial statements included in the
Company's Form 10-KSB for the fiscal year ended April 30, 1996. The results
of operations for the six month periods ended October 31, 1996 and 1995 are
not necessarily indicative of the results to be expected for the full year.
2. Inventories:
Inventories at October 31, 1996 consist principally of finished goods.
3. Investments in Available-for-Sale Securities:
Investments in available-for-sale securities consist of the following at
October 31, 1996:
Current:
Guaranteed by the U.S. Government:
Federal Farm Credit Notes $ 259,873
Federal Home Loan Notes 509,567
Federal National Mortgage Notes 296,542
$1,065,982
Non-current:
Guaranteed by the U.S. Government:
Federal National Mortgage Notes $ 299,062
Federal Farm Credit Notes 250,000
U.S. Treasury Notes 1,000,162
$1,549,224
4. Stockholders' Equity:
Net loss per share was computed by dividing net loss by the weighted
average number of shares outstanding. Common stock equivalents have been
excluded as their effect would be anti-dilutive.
-4-
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED OCTOBER 31, 1996
(Continued)
5. Litigation:
In November 1996 a class action complaint was filed in the Supreme Court
of the State of New York naming as defendants five companies and three
individuals, including the Company and its Chairman of the Board. The Class
Action asserts inter alia that Sterling Foster & Co., Inc., underwriter of
the Company's initial public offering, the Company and its Chairman, engaged
in various violations of the federal securities laws. The Company and its
Chairman deny that they engaged in any improper conduct or any violations of
any federal securities laws and intend to vigorously defend the action.
6. Supplementary Information - Statements of Cash Flows:
The Company paid interest of $138 and -0- for the six months ended
October 31, 1996 and 1995, respectively, and $25,836 cumulative during the
development stage.
The Company paid income taxes of $8,088 and -0- for the six months ended
October 31, 1996 and 1995, respectively, and $8,380 cumulative during the
development stage.
In July 1996, the Company issued 5,000 shares of common stock to its
medical advisory board for services. The value of the common stock granted
($17,500) was charged to operations in July 1996.
-5-
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had net working capital of $1,354,024 at October 31, 1996
which is primarily due to the receipt of the proceeds from the public
offering which was completed in November 1995. Additionally, the Company has
invested approximately $1,500,000 of these proceeds in long-term investments.
The Company remains in its development stage as it has not yet derived
significant revenues from the sale of its products.
The Company's statement of cash flows for the six months ended October
31, 1996 reflects cash used in operating activities of approximately
$425,000. This use of cash is primarily attributable to general and
administrative expenses and product development. Net cash provided by
investing activities approximated $181,000 representing the sale of
short-term investments which was used to fund current operations.
The Company expects to incur substantial expenditures over the next 12
months for product development and to implement its sales and marketing
plans. The Company's management believes that the Company's short and
long-term investments will be sufficient to fund its liquidity needs for at
least the next 12 months.
Results of Operations
Since its inception, the Company's primary activities have consisted of
obtaining the exclusive license to seven (7) medical devices developed by Dr.
Lloyd Marks and of developing a marketing strategy for the C.F. Medical
Devices.
The Company has not derived significant revenues since its inception in
March 1995. The total revenue earned from inception of $179,604 is primarily
a result of the sale of the C.F. Medical Devices. As a result of the
Company's start-up expenses and acquisition of licenses and royalty rights
for the products in the development stage, the Company had an accumulated
deficit of $2,420,373 as of October 31, 1996. The Company expects to
continue to incur operating losses until such time it can generate
significant revenues from the sale of its products.
-6-
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Plan of Operation
In May of 1996 the Company entered into contracts with two different
firms to commence final design and manufacture of the Safety Needle, one of
the medical devices developed by Dr. Lloyd Marks. Toward that end, the
Company has implemented the manufacture of prototypes for this medical device
and has held focus groups with various medical professionals to refine and
enhance the device. The Company anticipates the development of a marketing
strategy and seeking FDA approval for this device in the next six (6) - nine
(9) months.
During the next six (6) months, the Company will also continue to
conduct market research studies on the other six (6) medical devices it has
licensed from Dr. Marks in order to determine which of the devices are most
commercially marketable. The review will also include an analysis of the
most efficient way to market each of the devices. The Company will determine
if it is more efficient to license the products to third parties for
development or to develop and market the products itself. Within 12 months
the Company intends to implement the development and marketing of the most
commercially viable and potentially profitable medical devices. The Company
also intends to undertake clinical and beta tests to evaluate the products as
they are being developed. The Company may enter into discussions with
unaffiliated third parties that may be able to utilize, develop or market the
devices in either a cooperative joint venture or as a licensee. The
relationship may also assist the Company in the preparation of applications
to the Food and Drug Administration in order to receive approval to market
the devices in the United States.
The Company is also seeking to increase revenues from the sale of the
C.F. Medical Devices primarily through increased advertising and
demonstrations to the appropriate interest groups. The Company is also
investigating the possibility of acquiring additional products which pertain
to the emergency and other niche medical sectors.
The Company believes it has sufficient capital to fund the Company's
operations for the next 12 months.
-7-
PART II- OTHER INFORMATION
Item 1. - Legal Proceedings
In November 1996 a class action complaint was filed in the Supreme Court
of the State of New York naming as defendants five companies and three
individuals, including the Company and its Chairman of the Board. The Class
Action asserts inter alia that Sterling Foster & Co., Inc., underwriter of
the Company's initial public offering, the Company and its Chairman, engaged
in various violations of the federal securities laws. The Company and its
Chairman deny that they engaged in any improper conduct or any violations of
any federal securities laws and intend to vigorously defend the action.
Item 2. - Changes in Securities.
Not applicable.
Item 3. - Defaults Upon Senior Securities.
Not applicable.
Item 4. - Submission Of Matters To A Vote Of Security Holders.
Not applicable.
Item 5. - Other Information.
Not applicable.
Item 6. - Exhibits And Reports on Form 8-K.
(A) Exhibits:
27 Financial data schedule
(B) Reports on Form 8-K:
None
-8-<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMBRYO DEVELOPMENT CORPORATION
By: /s/ Donn M. Gordon
Donn M. Gordon
Chief Executive Officer
By: /s/ Matthew L. Harriton
Matthew L. Harriton
Chief Financial Officer
Dated: December 6, 1996
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION THAT IS EXTRACTED FROM
FORM 10-QSB FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> OCT-31-1996
<CASH> 165,091
<SECURITIES> 1,065,982
<RECEIVABLES> 30,539
<ALLOWANCES> 0
<INVENTORY> 67,768
<CURRENT-ASSETS> 1,449,913
<PP&E> 25,199
<DEPRECIATION> 3,754
<TOTAL-ASSETS> 4,385,224
<CURRENT-LIABILITIES> 95,889
<BONDS> 0
0
600
<COMMON> 470
<OTHER-SE> 4,288,265
<TOTAL-LIABILITY-AND-EQUITY> 4,385,224
<SALES> 31,831
<TOTAL-REVENUES> 31,831
<CGS> 22,483
<TOTAL-COSTS> 22,483
<OTHER-EXPENSES> 208,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (797,302)
<INCOME-TAX> 0
<INCOME-CONTINUING> (797,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (797,302)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
