SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
APRIL 30, 2001 0-9922
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EQUIDYNE CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
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(State or Other Jurisdiction (IRS Employer ID No.)
of Incorporation or Organization)
238 LITTLETON ROAD, WESTFORD, MA 01886
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(Address and Zip Code of Principal Executive Offices)
Issuer's telephone number, including area code: 978-692-6680
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Securities registered pursuant to Section 12(b) of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Exchange Act: NONE
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Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
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As of June 12, 2001, there were outstanding 14,953,659 shares of the Issuer's
Common Stock, $.10 par value.
EQUIDYNE CORPORATION AND SUBSIDIARIES
Index
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, April 30, 2001 and July 31, 2000...............3
Consolidated Statements of Operations for the Three and Nine
Months Ended April 30, 2001 and April 30, 2000..............................4
Consolidated Statements of Cash Flows for the Nine
Months Ended April 30, 2001 and April 30, 2000..............................5
Notes to Consolidated Financial Statements..................................6
Item 2. Management's Discussion and Analysis or Plan of Operation...........10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................12
SIGNATURES...................................................................13
2
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, JULY 31,
--------------------
2001 2000
--------------------
(UNAUDITED)
ASSETS (THOUSANDS)
Current Assets:
Cash and cash equivalents......................... $ 12,901 $ 2,010
Restricted cash................................... - 354
Held to maturity investments...................... 15,050 -
Accounts receivable............................... 50 15
Inventories....................................... 651 998
Deferred costs.................................... 37 -
Deferred income taxes............................. 318 345
Prepaid and other current assets.................. 973 33
--------------------
Total current assets......................... 29,980 3,755
Property and equipment............................ 1,627 1,265
Accumulated depreciation.......................... (584) (292)
--------------------
1,043 973
Deposits on tooling and machinery................. 3,314 2,655
Patents........................................... 1,854 1,971
Goodwill.......................................... - 687
Investment in affiliate........................... - 8,297
Deferred income taxes............................. 172 2,190
Deposits and other assets......................... 7 71
--------------------
$ 36,370 $ 20,599
====================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 1,609 $ 934
Accrued liabilities............................... 478 748
Accrued income taxes.............................. 5,161 -
Deferred revenue.................................. 62 -
--------------------
Total current liabilities.................... 7,310 1,682
Stockholders' Equity:
Preferred stock, $.01 par value; Authorized -
1,000,000 shares; Outstanding - none............ - -
Common stock, $.10 par value; Authorized -
35,000,000 shares; Issued - 16,450,759 and
16,170,459 shares at April 30, 2001 and
July 31, 2000, respectively..................... 1,645 1,617
Additional paid-in capital........................ 25,867 28,595
Retained earnings (deficit)....................... 6,997 (11,023)
--------------------
34,509 19,189
Treasury stock, at cost (1,497,100 shares)........ (5,313) -
Deferred compensation............................. (136) (272)
--------------------
Total stockholders' equity................... 29,060 18,917
--------------------
$ 36,370 $ 20,599
====================
See accompanying notes.
3
EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30 APRIL 30
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2001 2000 2001 2000
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(Thousands, except per share amounts)
Net sales.................................... $ 166 $ - $ 219 $ 802
Cost of goods sold........................... 142 - 179 502
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Gross profit............................... 24 - 40 300
Selling, general and administrative.......... 2,768 3,248 9,379 5,624
Research and development..................... 1,112 315 1,797 676
Inventory write-down......................... - - 656 -
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Total operating expenses................... 3,880 3,563 11,832 6,300
----------------------------------------
Operating loss............................... (3,856) (3,563) (11,792) (6,000)
Other income (expenses):
Gain on sale of subsidiary capital stock... - 10,819 40,263 12,684
Equity in losses of affiliate.............. - (150) - (409)
Interest, net.............................. 505 69 1,294 113
Minority interest in affiliate............. - - - 90
Other...................................... - 31 - 21
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505 10,769 41,557 12,499
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Net income (loss) before provision for
income taxes................................ $(3,351) $ 7,206 $29,765 $ 6,499
Provision (benefit) for income taxes......... (1,100) (781) 11,745 (781)
----------------------------------------
Net income (loss)............................ $(2,251) $ 7,987 $18,020 $ 7,280
========================================
Net income (loss) attributable
to common stockholders*..................... $(2,251) $ 7,987 $18,020 $ 7,262
========================================
Net income (loss) per share, basic........... $ (.15) $ .51 $ 1.16 $ .55
========================================
Net income (loss) per share, diluted......... $ (.15) $ .47 $ 1.08 $ .47
========================================
See accompanying notes.
* The three and nine months ended April 30, 2000 includes the impact of $-0-
and $141,000, respectively, of dividends on Preferred Stock. The three and
nine months ended April 30, 2000 also includes the impact of $-0- and
$123,000, respectively, of preferred stock redemption discounts.
4
EQUIDYNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
APRIL 30
2001 2000
-------------------
OPERATING ACTIVITIES: (THOUSANDS)
Net income................................................ $ 18,020 $ 7,280
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization............................. 409 375
Loss on disposal of fixed assets.......................... - 47
Deferred compensation amortization........................ 463 517
Stock Compensation........................................ - 1,003
Deferred income taxes..................................... 2,045 (1,102)
Equity in loss of unconsolidated affiliate................ 409
Gain on sale of affiliate stock........................... (40,263) (12,684)
Minority interest ........................................ - (113)
Changes in operating assets and liabilities:
Decrease in cash restricted for purchase of inventory... 354 -
Accounts receivable..................................... (35) 105
Inventories, prepaid and other current assets........... (630) (126)
Accounts payable and other current liabilities.......... 2,579 (601)
-------------------
Net cash used in operating activities..................... (17,058) (4,890)
INVESTING ACTIVITIES:
Proceeds from sale of affiliate stock..................... 49,245 14,305
Purchase of held to maturity securities................... (15,050) -
Purchase of treasury stock................................ (5,313) -
Deposits on tooling and machinery......................... (659) (899)
Purchase of property and equipment, net................... (362) (962)
-------------------
Net cash provided by investing activities................. 27,861 12,444
FINANCING ACTIVITIES:
Payment on redemption of preferred stock.................. - (2,010)
Net payments on debt and bank lines-of-credit............. - (1,249)
Issuance of common stock, net............................. - 2,422
Issuance of capital stock by consolidated subsidiary...... - 1,635
Proceeds from exercise of stock options and warrants...... 88 505
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Net cash provided by financing activities................. 88 1,303
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Effect of exchange rate on cash........................... - (12)
Decrease in cash due to change in method of accounting
from consolidation to equity method..................... - (187)
-------------------
Increase in cash and cash equivalents..................... 10,891 8,658
Cash and cash equivalents, beginning of period............ 2,010 210
-------------------
Cash and cash equivalents, end of period.................. $ 12,901 $ 8,868
===================
Noncash transactions:
Common stock issued in connection with employment
agreements............................................ - $ 1,003
Stock options issued for services....................... $ 328 -
Common stock issued for services........................ - $ 300
Common stock issued upon exercise of options and
warrants.............................................. $ 20 $ 74
Short-term debt issued in connection with preferred
stock redemptions..................................... - $ 700
Common Stock issued in preferred stock redemptions...... - $ 808
See accompanying notes.
5
EQUIDYNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2001
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the three and nine month periods ended April 30, 2001
are not necessarily indicative of the results that may be expected for the year
ending July 31, 2001. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended July 31, 2000.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. During fiscal 2000, as a result
of various transactions, the Company's ownership of its formerly consolidated
subsidiary, Rosch AG Medizintechnik ("Rosch AG"), was reduced from 75% to
26.43%. In August and October 2000, the Company sold all of its remaining
ownership in Rosch AG (see Note 3). Effective November 1, 1999, the Company
accounted for its investment in Rosch AG under the equity method of accounting.
See Note 3 for further information. All material intercompany transactions have
been eliminated.
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
all highly liquid debt instruments with original maturities of three months or
less. The carrying amount reported in the balance sheets for cash and cash
equivalents approximates its fair value.
Restricted Cash
At July 31, 2000, $354,000 of cash was pledged as collateral on an
outstanding letter of credit related to inventory purchased and was classified
as restricted cash on the balance sheet.
Investments in Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. At April 30, 2001, all
of the Company's investments are classified as held-to-maturity. See Note 2.
The amortized cost of debt securities classified as held-to-maturity is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income from investments. Interest and
dividends are included in interest income from investments. Realized gains and
losses, and declines in value judged to be other than temporary are included in
net securities gains (losses), if any. The cost of securities sold is based on
the specific identification method.
6
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with Statement of Financial Standards
No. 52, Foreign Currency Translation through October 31, 1999 (See Note 3). All
balance sheet amounts have been translated using the exchange rates in effect at
the balance sheet date. Statement of Operations amounts have been translated
using average exchange rates. The gains and losses resulting from the changes in
exchange rates from the date of acquisition of Rosch AG to October 31, 1999 have
been reported separately as a component of stockholders' equity. The aggregate
transaction gains and losses are insignificant.
Revenue Recognition
The Company's products are sold subject to rights of return of up to 90
days, depending on the type of customer. As the Company has no significant sales
history on which to base an estimated rate of returns, revenue is not recognized
until the expiration of the stated return period. As of April 30, 2001, deferred
revenue was $62,000. The related cost of the inventory shipped of approximately
$37,000 at April 30, 2001 has also been deferred, to be recognized concurrent
with the recognition of the related revenue.
Comprehensive Income (Loss)
There were no items of other comprehensive income (loss) for the nine
months ended April 30, 2001. For the nine months ended April 30, 2000, the
Company's only item of other comprehensive income was the foreign currency
translation adjustment recognized in consolidation of its partially-owned German
subsidiary, Rosch AG, through October 31, 1999. Statement of Financial
Accounting Standards No. 130 requires such adjustments to be included in other
comprehensive income. The foreign currency translation adjustment and
comprehensive income for the three months ended April 30, 2000 was $0 and
$7,987,000, respectively. The foreign currency translation adjustment and
comprehensive income for the nine months ended April 30, 2000 was $(40,000) and
$7,280,000, respectively.
2. INVESTMENTS
-----------
At April 30, 2001, all of the Company's investments are classified as
held-to-maturity. The Company's investments are comprised of U.S. corporate debt
securities with a total amortized cost of $15,050,000. The estimated fair market
value of these securities at April 30, 2001 was $15,049,000, resulting in an
unrealized loss of approximately $1,000.
3. INVESTMENT IN AFFILIATE
-----------------------
Through a series of transactions during the three months ended October 31,
1999, the Company's ownership percentage of Rosch AG was reduced from 75% to
50.01%. As the Company maintained a controlling interest in Rosch AG, it
continued to consolidate the operations of Rosch AG through October 31, 1999.
Thus, the Company recognized an increase in the minority interest in the
consolidated subsidiary in the amount necessary to bring that interest up to the
then current minority ownership percentage of 49.99% of Rosch AG's net assets as
of October 31, 1999, or $1,067,000. This amount included the minority
stockholders' share of Rosch AG's net losses for the three month period ended
October 31, 1999, which was approximately $113,000. During the three months
ended January 31, 2000, through additional sales of its ownership interest in
Rosch AG, the Company further reduced it ownership share to 41.43%. As a result,
7
effective November 1, 1999, the Company changed its method of accounting for its
investment in Rosch AG to the equity method and accordingly, recognized its
share of Rosch AG's net loss for the three and nine months ended April 30, 2000,
or approximately $150,000 and $409,000, respectively. Following is summarized
unaudited financial information of Rosch AG as of and for the three months ended
April 30, 2000:
(000's)
-------
Net sales $ 1,022
Net loss (567)
Total assets 33,750
Total liabilities 1,638
During the nine month period ended July 31, 2000, through a series of
transactions, the Company's ownership in Rosch AG was reduced to 26.43%, and in
August and October 2000, the Company sold all of its remaining ownership in
Rosch AG. Aggregate net proceeds received on the sales during the nine months
ended April 30, 2001 was $49,245,000, and the resulting gain on the sales was
$40,263,000.
4. INVENTORY WRITE-DOWN
--------------------
During Fiscal 2001, the Company has made certain improvements to its
INJEX30(TM) injector and reset box. As a result of these improvements,
management made a decision to only sell the improved versions in the future,
which resulted in the Company writing-down the value of this inventory, which
had originally been purchased for resale, to its net realizable value. This
write-down resulted in a charge to operations of $656,000 for the nine months
ended April 30, 2001.
5. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
-----------------------------------------------
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Three Months Ended Nine Months Ended
April 30 April 30
-----------------------------------------------------
2001 2000 2001 2000
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(Thousands, except share and per share amounts)
Numerator:
Net income (loss) $ (2,251) $ 7,987 $ 18,020 $ 7,280
Preferred stock redemption premium -- -- -- 123
Preferred stock dividends -- -- -- (141)
-----------------------------------------------------
Numerator for basic earnings per share-income
available to common stockholders (2,251) 7,987 18,020 7,262
Effect of dilutive securities:
Preferred stock redemption premium -- -- -- (123)
Preferred stock dividends -- -- -- 141
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-- -- -- 18
-----------------------------------------------------
Numerator for diluted earnings per share-income
available to common shareholders after assumed
conversions $ (2,251) $ 7,987 $ 18,020 $ 7,280
Denominator:
Denominator for basic earnings per share-weighted-
average shares 15,024,009 15,653,170 15,571,792 13,142,154
8
Effect of dilutive securities:
Stock options -- 895,814 829,722 565,900
Warrants -- 499,857 258,277 178,328
Convertible Preferred Stock -- -- -- 1,513,942
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Dilutive potential common shares -- 1,395,671 1,087,999 2,258,170
-----------------------------------------------------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions 15,024,009 17,048,841 16,659,791 15,400,324
=====================================================
Basic earnings (loss) per share $ (.15) $ .51 $ 1.16 $ .55
=====================================================
Diluted earnings (loss) per share $ (.15) $ .47 $ 1.08 $ .47
=====================================================
Dilutive securities were not included in the calculation of diluted weighted
average shares for the three months ended April 30, 2001, due to their
anti-dilutive effect.
For additional disclosure regarding stock options, see Note 6.
Options to purchase 1,087,858 shares of common stock at prices ranging from
$3.00 to $7.00 per share were outstanding at April 30, 2001, but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares
and, therefore, the effect would be anti-dilutive.
6. EQUITY
------
Stock Options
During the nine month period ended April 30, 2001, the Company issued
280,300 shares of Common Stock pursuant to the exercise of outstanding stock
options and warrants. Total proceeds received from these exercises aggregated
$87,500.
Treasury Stock
In August 2000, the Board of Directors approved a stock repurchase plan
authorizing the Company to purchase, over the next six months, up to 1,000,000
shares of Common Stock on the open market from time to time at management's
discretion, based upon market conditions. In January 2001, the Board of
Directors extended the repurchase plan authorizing the purchase through July 31,
2001 and authorized the purchase of up to 500,000 additional shares. Under the
plan, the Company has repurchased 1,497,100 shares through April 30, 2001, for a
total cost of approximately $5,313,000.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
This Report contains or refers to forward-looking information made pursuant to
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. That information covers future revenues, products and income and is based
upon current expectations that involve a number of business risks and
uncertainties. Among the factors that could cause actual results to differ
materially from those expressed or implied in any forward-looking statement
include, but are not limited to, technological innovations of competitors,
delays in product introductions, changes in health care regulation and
reimbursements, changes in foreign economic conditions or currency translation,
product acceptance or changes in government regulation of the Company's
products, as well as other factors discussed in other Securities and Exchange
Commission filings for the Company.
OVERVIEW
- --------
The Company's focus for its fiscal year ending July 31, 2001 ("fiscal
2001") is centered on the sales and marketing of its current INJEX(TM)30 product
line, the planned introduction of the INJEX(TM)50 System, which in March 2001
received marketing clearance from the U.S. Food and Drug Administration, and
building automated production capabilities. The Company launched its INJEX(TM)30
product line to the U.S. diabetes market in July 2000 utilizing a 50-person
direct sales force.
Though initial sales of the INJEX(TM)30 have been lower than originally
planned, management has identified the major contributing factors. First, it
took the Company longer than expected to obtain retail pharmacy distribution for
the INJEX(TM) System. This factor was significantly alleviated in October 2000,
when the Company entered into an agreement with Rite Aid Corporation, providing
the retail distribution necessary to allow for sales growth through one of the
largest retail pharmacy chains in the United States. The second contributing
factor was the lack of adequate insurance reimbursement for the INJEX(TM)
System. It took approximately four months longer than anticipated to obtain a
Generic Product Indicator ("GPI") code from First Data Bank, the national
repository of drug and drug delivery device information, that provides GPI codes
used by most insurance companies and Pharmacy Benefit Managers ("PBMs") in the
United States. Without this code, the INJEX(TM) product could not receive
reimbursement in the marketplace. Today, primarily as a result of obtaining the
GPI code, the Company now has over 70 million lives covered for reimbursement of
the INJEX(TM) System through four of the top six PBMs in the United States.
Finally, based on the Company's experience in the marketplace since the July
2000 product launch and its continuing market research, management believes that
the initial marketing strategy, which targeted physicians, diabetes educators
and pharmacists in the U.S. diabetes market, required changes. In April 2001,
the Company announced a new marketing strategy focused on the worldwide Clinical
and Pharmaceutical markets and direct-to-consumer marketing in the domestic
diabetes market. Implementation of the new strategy included the reduction,
restructuring and refocusing of the Company's sales force, and reallocation of
the Company's marketing resources and objectives towards clinical distribution,
pharmaceutical partnerships and direct-to-consumer advertising and sales
support. In support of the new direct-to-consumer marketing effort, the Company
announced in May 2001 that it had entered into a joint marketing agreement with
CVS Corporation ("CVS") to market and distribute the INJEX(TM) products through
CVS's approximately 4,100 retail pharmacies and the internet site "CVS.com". CVS
will sell the INJEX(TM) products and implement a consumer-oriented marketing
program.
Now that distribution and reimbursement for the INJEX(TM) System is in
place, along with a new worldwide marketing strategy, the Company anticipates
increased penetration into the diabetes market in the coming months. The Company
also continues to target new therapies, such as the Human Growth Hormone
treatment, and anticipates sales in many other therapies with the planned
introduction of the INJEX(TM)50 System into the market in August 2001.
10
The Company continues to develop its automated production capabilities
utilizing Nypro, Inc. ("Nypro"), a leading worldwide manufacturer in precision
injection molding for the healthcare industry. Nypro is in the process of
building high-volume, low-cost automated production systems to supply the
component parts of the INJEX(TM) System. Once completed, the Company will
maintain ownership of the tooling and machinery, but Nypro will utilize it to
perform the production of component parts. The system is expected to come
on-line before the end of 2001. While the automated system is being built, the
Company plans to continue to meet current and future demand for the product by
utilizing its current production tooling and semi-automated assembly
capabilities.
RESULTS OF OPERATIONS
- ---------------------
Net sales for the three and nine month periods ended April 30, 2001 were
$166,000 and $219,000, respectively, compared to $-0- and $802,000 for the three
and nine month periods ended April 30, 2000, respectively. Cost of sales for the
three and nine month periods ended April 30, 2001 were $142,000 and $179,000,
respectively, compared to $-0- and $502,000 for the three and nine month periods
ended April 30, 2000, respectively. During the nine months ended April 30, 2001,
the Company's wholly-owned subsidiary, Equidyne Systems, Inc. ("ESI"), commenced
sales activities following its July 2000 market launch of the INJEX(TM)30
System. ESI's standard sales terms provide rights of returns to its customers of
up to 90 days, depending on the customer type. As the Company has no significant
sales history on which to base an estimated rate of returns, the Company's
policy is to defer the recognition of revenue until the expiration of the stated
return period. Approximately $62,000 of sales revenue was deferred at April 30,
2001. In addition, the Company has deferred recognition of approximately
$37,000, representing the cost of sales related to all shipments for which
revenue recognition has been deferred at April 30, 2001, based upon the relative
return periods. Net sales and cost of sales for the three and nine months ended
January 31, 2000 consist primarily of the Company's former consolidated
subsidiary, Rosch AG Medizintechnik's net sales for these periods.
Selling, general and administrative expenses for the three and nine month
periods ended April 30, 2001 were $2,768,000 and $9,379,000, respectively,
compared to $3,248,000 and $5,624,000, respectively, for the comparable prior
year periods. The decrease for the three month period is due to the recognition,
during the three months ended April 30, 2000, of approximately $1 million for
compensation associated with common stock issued to two executives of the
Company in accordance with the terms of their respective employment agreements.
This decrease is partially offset by the increased costs associated with the
Company's internal sales force, most of which was hired in July 2000. The
increase for the nine month period reflects the impact of the full-scale U.S.
marketing activities of the INJEX(TM) System commenced in July 2000. Such costs
include the July 2000 hiring of a fifty-person sales force, and the related
additional training, travel and overhead costs and additions to the Company's
infrastructure necessary to support the increase in headcount. The nine month
period ended April 30, 2001 also includes bonus payments to two executives
totaling approximately $500,000, based upon their respective employment
agreements.
Research and development expenses for the three and nine months ended April
30, 2001 were $1,112,000 and $1,797,000, respectively, compared to $315,000 and
$676,000, respectively, for the comparable prior year periods. The increase
resulted directly from the availability of working capital, continuous
improvements to the INJEX(TM)30 and INJEX(TM)50 system components, and
additional development projects in process, such as the development of the
single-use disposable INJEX(TM) System.
During the nine month period ended April 30, 2001, the Company made certain
improvements to the INJEX(TM)30 injector and reset box. As a result of these
improvements, management made a decision to only sell the improved versions in
the future, which resulted in the Company writing-down the value of this
inventory, which had originally been purchased for resale, to its net realizable
value. This write-down resulted in a charge to operations of $656,000 for the
nine months ended April 30, 2001.
11
Net income (loss) for the three and nine month periods ended April 30, 2001
was $(2,251,000) and $18,020,000, respectively, compared to net income of
$7,987,000 and $7,280,000, respectively, for the same periods in the prior
fiscal year. The net loss for the three month period ended April 30, 2001
resulted from the net operating loss, partially offset by interest income of
approximately $505,000, and the recognition of income tax benefit of $1,100,000
million. The net income for the nine month period ended April 30, 2001 consists
primarily of a gain on the sale of the Company's investment in Rosch AG of $40.3
million and interest income of approximately $1,294,000, offset by net operating
losses of approximately $11.8 million, and a provision for income taxes of
approximately $11.7 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital of the Company at April 30, 2001 was $22,670,000, compared
to $2,073,000 at July 31, 2000. The increase of approximately $20.6 million
resulted from the proceeds from the sales of the remaining portion of the
Company's ownership in Rosch AG of approximately $49.2 million, partially offset
by the net effect of the Company's operating losses and the provision of $11.7
million for income taxes.
The Company now has sufficient working capital for the implementation of
its strategic marketing initiatives, expansion of its sales force as demand for
the product rises, and expansion of its marketing and research and development
initiatives. The Company will also use significant working capital to fund the
completion of the manufacture of the production tools and automation machinery
necessary for high-volume, fully-automated production of the INJEXTM System
components. As of April 30, 2001, the Company has deposits for this tooling
and machinery totaling approximately $3.3 million, which represents
approximately two-thirds of the total completed cost.
The Company is considering future growth through acquisitions of companies
or business segments in related lines of business or other lines of business, as
well as through expansion of the existing line of business. There is no
assurance that management will find suitable candidates or effect the necessary
financial arrangements for such acquisitions and obtain necessary working
capital for the acquired entities.
PART II. - OTHER INFORMATION
-----------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
Exhibits:
10.1 - Amended and Restated By-Laws of Equidyne Corporation adopted on
January 22, 2001.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EQUIDYNE CORPORATION
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/s/Joseph R. Nelson Dated: June 14, 2001
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Joseph R. Nelson
Chairman, Chief Executive Officer
and President
/s/Michael T. Pieniazek Dated: June 14, 2001
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Michael T. Pieniazek
Executive Vice President
and Chief Financial Officer
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