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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended March 31, 1997
Commission File Number 0-20945
MEDI-JECT CORPORATION
161 Cheshire Lane, Suite 100
Minneapolis, Minnesota 55441
(612) 475-7700
A Minnesota Corporation IRS Employer ID No. 41-1350192
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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 (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
--- ---
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of April 30, 1997 was 6,994,664.
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MEDI-JECT CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Balance Sheets, as of December 31, 1996 and
March 31, 1997....................................... 3
Statements of Operations for the three months ended
March 31, 1996 and 1997.............................. 4
Statements of Cash Flows for the three months ended
March 31, 1996 and 1997.............................. 5
Notes to Financial Statements........................ 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K..................... 8
SIGNATURES..................................................... 11
2
MEDI-JECT CORPORATION
BALANCE SHEETS
(UNAUDITED)
December 31, March 31,
1996 1997
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 9,575,240 $ 6,303,217
Marketable securities...................... 1,464,277 3,963,906
Accounts receivable, less allowances
for doubtful accounts of $12,983........... 537,755 856,653
Inventories................................ 351,330 386,167
Prepaid expenses and other assets.......... 86,589 203,643
------------ ------------
12,015,191 11,713,586
------------ ------------
Equipment, furniture and fixtures, net.......... 595,590 616,552
------------ ------------
Patent rights................................... 345,010 366,093
------------ ------------
$ 12,955,791 $ 12,696,231
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable........................... $ 353,456 504,137
Accrued expenses and other liabilities..... 331,446 480,179
Deferred revenue........................... 14,019 39,019
Capital lease obligations - current
maturities................................. 32,747 24,797
Notes payable - current maturities......... 96,097 64,858
------------ ------------
827,765 1,112,990
------------ ------------
Long-term liabilities:
Capital lease obligations, less
current maturities......................... 8,350 5,267
Notes payable, less current maturities..... -- --
------------ ------------
8,350 5,267
------------ ------------
Shareholders' equity (deficit):
Common Stock: $0.01 par; authorized
17,000,000 shares:
6,925,636 and 6,959,627 issued and
outstanding at December 31, 1996 and
March 31, 1997, respectively.............. 69,256 69,596
Additional paid-in capital................. 23,590,887 23,631,135
Accumulated deficit........................ (11,540,467) (12,122,757)
------------ ------------
Total shareholders' equity............... 12,119,676 11,577,974
------------ ------------
$ 12,955,791 $ 12,696,231
============ ============
See accompanying notes to financial statements.
3
MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Year Ended
----------------------
March 31, March 31,
1996 1997
---------- ----------
Revenues:
Sales............................................. $ 443,825 $ 406,081
Licensing & product development................... 325,323 564,944
---------- ----------
769,148 971,025
---------- ----------
Operating Expenses:
Cost of sales..................................... 292,511 270,048
Research and development.......................... 449,732 645,290
General and administrative........................ 389,334 407,830
Sales and marketing............................... 212,654 366,362
---------- ----------
1,344,231 1,689,530
---------- ----------
Net operating loss................................. (575,083) (718,505)
---------- ----------
Other income (expense):
Interest and other income......................... 35,548 139,995
Interest and other expense........................ (13,481) (3,780)
---------- ----------
22,067 136,215
---------- ----------
Net loss........................................... $ (553,016) $ (582,290)
========== ==========
Net loss per common share.......................... -- $ (.08)
Weighted average common shares
outstanding....................................... -- 6,947,245
Proforma net loss per common share
(unaudited) (Note 3).............................. $ (.14)
Proforma weighted average common shares
outstanding (unaudited) (Note 3).................. 4,087,360
See accompanying Notes to Financial Statements
4
MEDI-JECT CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended
------------------------
March 31, March 31,
1996 1997
---------- -----------
Cash flows from operating activities:
Net loss......................................... $ (553,016) $ (582,290)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation..................................... 32,304 56,356
Interest on marketable debt securities........... -- (35,676)
Shares issued as compensation.................... -- --
Amendments to investor option agreement.......... -- --
Changes in operating assets and liabilities:
Accounts receivable............................ (149,289) (318,898)
Inventories.................................... (16,028) (34,837)
Prepaid expenses and other assets.............. (43,805) (117,054)
Accounts payable............................... 119,611 150,681
Accrued liabilities............................ (77,627) 148,733
Deferred revenue............................... 60,678 25,000
---------- -----------
Net cash used in operating activities................ (627,172) (707,985)
---------- -----------
Cash flows from investing activities:
Purchases of marketable securities............... -- (2,463,953)
Purchases of equipment, furniture and fixtures... (78,868) (67,021)
Purchase of patent rights........................ (60,308) (31,380)
---------- -----------
Net cash used in investing activities................ (139,176) (2,562,354)
---------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations.. (11,994) (11,033)
Proceeds from issuance of common stock........... -- 46,279
Proceeds from issuance of convertible preferred
stock........................................... 3,812,500 --
Warrants issued.................................. 125,000 --
Proceeds from issuance of notes payable.......... 187,500 --
Principal payments on notes payable.............. (339,936) (31,239)
Offering costs................................... (231,770) (5,691)
---------- -----------
Net cash provided by (used in) financing activities.. 3,541,300 (1,684)
---------- -----------
Net increase (decrease) in cash and cash equivalents. 2,774,952 (3,272,023)
Cash and cash equivalents:
Beginning of period.............................. 35,817 9,575,240
---------- -----------
End of period.................................... $2,810,769 $ 6,303,217
========== ===========
See accompanying Notes to Financial Statements.
5
MEDI-JECT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. 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. The accompanying financial
statements and notes should be read in conjunction with the Company's 1996
audited financial statements and notes thereto.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
3. PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is computed by dividing the net loss
attributable to common shareholders by the weighted average number of
shares of common stock and common stock equivalents outstanding, after
applying the treasury stock method and after giving effect to the reverse
stock split and the automatic conversion of all outstanding shares of
convertible preferred stock in accordance with the Company's initial public
offering.
Pursuant to certain requirements of the Securities and Exchange Commission,
common stock equivalents include the impact of the issuance of stock,
options and warrants within one year prior to the date of the initial
filing of the Company's initial public offering ("IPO") at exercise prices
less than the initial public offering price per share, whether or not the
effects are antidilutive.
4. Inventories consist of the following:
December 31, 1996 March 31, 1997
----------------- --------------
Raw Material $175,251 $208,799
Work in-process 119,575 107,738
Finished goods 56,504 69,630
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$351,330 $386,167
======== ========
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1996 and 1997
Total revenues for the three months ended March 31, 1996 and 1997 were $769,148
and $971,025 respectively. This represents an increase of $201,877 or 26%. Sales
of injector products and services decreased by $37,744 in the three months ended
March 31, 1997, compared to the three months ended March 31, 1996. This decrease
resulted primarily from a decrease in the number of injectors sold (811 and 629
in the first quarters of 1996 and 1997, respectively) partially offset by
increased sales of supplies and services. The decrease in sales of injectors in
the quarterly periods is primarily attributable to the shipment of a significant
order to a corporate customer in the first quarter of 1996 that did not occur in
the 1997 period.
Licensing and product development fee income increased by $239,621 in the three
months ended March 31, 1997 as compared to the prior year period. This increase
relates to development and licensing fees received from agreements with
corporate partners that were not in existence in the first quarter of 1996. The
Company expects that licensing and product development fee income will fluctuate
on a quarter to quarter basis, depending on a number of factors, including the
timing of the execution of new development and licensing agreements and the
timing, nature and size of fee payments to be made under existing and new
agreements. In addition, since the Company does not, in general, recognize
project-based fee income until related development work has been performed,
quarterly results will fluctuate with the timing of the Company's research and
development efforts.
Cost of sales in the three months ended March 31, 1996 and 1997 were $292,511
and $270,048, respectively. This represents a decrease of $22,463. The decrease
in cost of sales is primarily attributable to decreased sales in the first
quarter of 1997.
Research and development expenses totaled $449,732 and $645,290 in the three
months ended March 31, 1996 and 1997, respectively. This increase is primarily
attributable to expenditures related to development projects underway in the
first quarter of 1997 for corporate partners that were not in existence in the
first quarter of 1996.
General and administrative expenses totaled $389,334 and $407,830 in the three
months ended March 31, 1996 and 1997, respectively. These figures reflect an
increase of $18,496 or 5%. This increase is primarily attributable to increased
auditing and amoritzation expense in 1997. The amortization expense relates to
the initiation of patent amortization charges following the allowance by the
U.S. Patent Office of one of the Company's patent filings in February, 1997.
Sales and marketing expenses totaled $212,652 and $366,362 in the three months
ended March 31, 1996 and 1997, respectively. These figures reflect a year to
year increase of $153,710 or 72%. This increase is primarily attributable to
personnel additions, increased travel expense and expenditures related to the
launch of the new Medi-Jector Choice product in January 1997.
7
Interest expense totaled $13,481 and $3,780 in the three month periods ended
March 31, 1996 and 1997, respectively. The decrease is attributable to lower
overall indebtedness in 1997. Interest income increased relative to the prior
year for these same periods as a result of increased cash on hand following the
Company's inital public offering in October, 1996.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities totaled $11,039,517 on December
31, 1996 compared to $10,267,123 on March 31, 1997. This decrease results
primarily from an operating loss of $582,290 and an increase in accounts
receivable and prepaid expenses totaling $435,952, during the period, which were
partially offset by an increase in current liabilities of $285,225.
The Company's long term capital requirements will depend on numerous factors,
including the status of the Company's collaborative arrangements, the progress
of the Company's research and development programs and the receipt of revenues
from the sales of the Company's products. The Company believes that cash on
hand, interest expected to be earned thereon and anticipated revenues, will meet
its needs through 1997. In order to meet its capital needs beyond this period,
the Company may be required to raise additional capital through public or
private offerings, including equity offerings.
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 Securities Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Second Amended and Restated Articles of Incorporation of the
Company.(a)
8
3.2 Second Amended and Restated Bylaws of the Company.(a)
4.1 Form of Certificate for Common Stock.(a)
4.2 Stock Warrant, dated January 25, 1996, issued to Becton
Dickinson and Company.(a)
4.3 Stock Option, dated January 25, 1996, issued to Becton
Dickinson and Company.(a)
4.4 Warrant, dated March 24, 1995, issued to Robert Fullerton.(a)
4.5 Warrant, dated March 24, 1995, issued to Michael Trautner.(a)
4.6 Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company (filed herewith as Exhibit 10.7).(a)
10.1 Office/Warehouse/Showroom Lease, dated January 2, 1995,
including amendments thereto.(a)
10.3 Security Agreement, dated September 30, 1994, by and between
the Company and Kelsey Lake Limited Partnership and Kerry Lake
Company, a Limited Partnership.(a)
10.4 Promissory Note, dated September 30, 1994, issued to Kelsey
Lake Limited Partnership.(a)
10.5 Promissory Note, dated September 30, 1994, issued to Kerry
Lake Company, a Limited Partnership.(a)
10.6 Loan Agreement, dated as of December 22, 1995, by and between
Ethical Holdings plc and the Company, including the related
Promissory Note, dated December 22, 1995, issued to Ethical
Holdings plc.(a)
10.7 Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company.(a)
10.8 * Employment Agreement, dated as of January 1, 1997, between the
Company and Franklin Pass, MD.
10.9 * Employment Agreement, dated as of January 3, 1995, between the
Company and Mark Derus.(a)
10.10 * Employment Agreement, dated as of January 3, 1995, between
the Company and Todd Leonard.(a)
9
10.11 * Employment Agreement, dated as of January 3, 1995, between
the Company and Peter Sadowski.(a)
10.12 * 1993 Stock Option Plan.(a)
10.13 * Form of incentive stock option agreement for use with 1993
Stock Option Plan.(a)
10.14 * Form of nonqualified stock option agreement for use with 1993
Stock Option Plan.(a)
10.15 * 1996 Stock Option Plan, with form of stock option
agreement.(a)
+10.20 Development and License Agreement between Becton Dickinson
and Company and the Company, effective January 1, 1996.(a)
10.21 Office-Warehouse lease with Carlson Real Estate Company,
dated February 11, 1997.
27 Financial Data Schedule
* Indicates management contract or compensatory plan or arrangement.
(a) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-6661), filed with the Securities and Exchange Commission
on October 1, 1996.
+ Pursuant to Rule 406 of the Securities Act of 1933, as amended,
confidential portions of Exhibit 10.20 were deleted and filed separately
with the Securities and Exchange Commission pursuant to a request for
confidential treatment, which was subsequently granted by the Securities and
Exchange Commission.
10
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.
MEDI-JECT CORPORATION
May 14, 1997 /s/ Franklin Pass
- ----------------------------------- ------------------------------------------
Date Franklin Pass, MD, Chairman/CEO
May 14, 1997 /s/ Mark S. Derus
- ----------------------------------- ------------------------------------------
Date Mark S. Derus, Vice President Finance, CFO
Principal Financial & Accounting Officer
11