-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IzhMBuGq4CNUY2v0pAFkiIQGAmmweKegtVbimQIjxyNKsY1ZvOEbg3N7BK5I0gF/ JkTgVp1oOm2fHqEUMVdPOA== 0001045969-98-000792.txt : 19981110 0001045969-98-000792.hdr.sgml : 19981110 ACCESSION NUMBER: 0001045969-98-000792 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDI JECT CORP /MN/ CENTRAL INDEX KEY: 0001016169 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411350192 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20945 FILM NUMBER: 98740380 BUSINESS ADDRESS: STREET 1: 161 CHESHIRE LANE STREET 2: SUITE 100 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6124757700 MAIL ADDRESS: STREET 1: 161 CHESHIRE LANE STREET 2: SUITE 100 CITY: MINNEAPOLIS STATE: MN ZIP: 55441 10-Q 1 FORM 10-Q =============================================================================== 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 September 30, 1998 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 -------------------------------------------- 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 October 27, 1998 was 7,192,315. -------------------------------------------- 1 MEDI-JECT CORPORATION INDEX PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Balance Sheets, as of December 31, 1997 and September 30, 1998........................................ 3 Statements of Operations for the nine months and three months ended September 30, 1997 and 1998........ 4 Statements of Cash Flows for the nine months ended September 30, 1997 and 1998............................... 5 Notes to Financial Statements............................. 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 6 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K.......................... 11 SIGNATURES........................................................ 13 2 MEDI-JECT CORPORATION BALANCE SHEETS (UNAUDITED)
December 31, September 30, 1997 1998 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents ........................................ $ 3,745,851 $ 661,241 Marketable securities ............................................ 3,537,483 3,277,083 Accounts receivable, less allowance for doubtful accounts of $22,284 and $21,209, respectively .............................. 760,948 307,875 Inventories ...................................................... 397,072 622,805 Prepaid expenses and other assets ................................ 71,495 83,047 ------------ ------------ 8,512,849 4,952,051 ------------ ------------ Equipment, furniture and fixtures, net ............................... 1,165,213 1,439,631 ------------ ------------ Patent rights ........................................................ 369,406 375,854 ------------ ------------ $ 10,047,468 $ 6,767,536 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................................... $ 321,758 $ 198,803 Accrued expenses and other liabilities ........................... 379,776 341,529 Capital lease obligations - current maturities ................... 7,083 2,257 ------------ ------------ 708,617 542,589 ------------ ------------ Capital leases, less current maturities .............................. 1,721 -- Shareholders' equity: Common Stock: $0.01 par; authorized 17,000,000 shares: 7,071,589 and 7,192,315 issued and outstanding at December 31, 1997 and September 30, 1998, respectively ......... 70,716 71,923 Additional paid-in capital ....................................... 23,778,648 23,847,745 Accumulated deficit .............................................. (14,512,234) (17,694,721) ------------ ------------ 9,337,130 6,224,947 ------------ ------------ $ 10,047,468 $ 6,767,536 ============ ============
See accompanying notes to financial statements. 3 MEDI-JECT CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED)
For Nine Months Ended For Three Months Ended ---------------------------- ----------------------------- September 30, September 30, September 30, September 30, 1997 1998 1997 1998 ---------------------------- ----------------------------- Revenues: Sales ......................... $ 1,223,630 $ 1,867,864 $ 340,456 $ 609,928 Licensing & product development 1,238,602 527,364 269,372 92,739 ----------- ----------- ----------- ----------- 2,462,232 2,395,228 609,828 702,667 ----------- ----------- ----------- ----------- Operating Expenses: Cost of sales ................. 811,122 1,502,438 263,114 501,068 Research and development ...... 1,797,994 1,873,682 495,693 680,026 General and administrative .... 1,384,566 1,726,982 498,946 615,355 Sales and marketing ........... 1,167,370 708,077 401,385 235,063 ----------- ----------- ----------- ----------- 5,161,052 5,811,179 1,659,138 2,031,512 ----------- ----------- ----------- ----------- Net operating loss ................ (2,698,820) (3,415,951) (1,049,310) (1,328,845) ----------- ----------- ----------- ----------- Other income (expense): Interest and other income ..... 396,639 244,757 124,318 67,004 Interest and other expense .... (24,959) (11,292) (1,795) (201) ----------- ----------- ----------- ----------- 371,680 233,465 122,523 66,803 ----------- ----------- ----------- ----------- Net loss .......................... $(2,327,140) $(3,182,486) $ (926,787) $(1,262,042) =========== =========== =========== =========== Basic and diluted net loss per common share ................ $ (.33) $ (.45) $ (.13) $ (. 18) Basic and diluted weighted average common shares outstanding ....... 6,999,152 7,141,055 7,057,035 7,192,315
See accompanying notes to financial statements. 4 MEDI-JECT CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
For Nine Months Ended ---------------------------- September 30, September 30, 1997 1998 ---------------------------- Cash flows from operating activities: Net loss .............................................. $(2,327,140) $(3,182,486) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ......................... 190,463 332,119 Loss from disposal of assets .......................... 17,080 9,445 Interest on marketable debt securities ................ (191,228) (140,548) Other ................................................. -- 5,724 Changes in operating assets and liabilities: Accounts receivable ............................... 221,147 453,073 Inventories ....................................... (68,853) (225,736) Prepaid expenses and other assets ................. (26,467) (11,552) Accounts payable .................................. (106,065) (122,955) Accrued expenses and other liabilities ............ 84,342 (38,247) ----------- ----------- Net cash used in operating activities ..................... (2,206,721) (2,921,163) ----------- ----------- Cash flows from investing activities: Purchases of marketable securities .................... (5,436,679) (2,729,831) Proceeds from sales of mature marketable securities ... 2,093,286 3,130,779 Purchases of equipment, furniture and fixtures ........ (609,062) (574,287) Proceeds from sale of equipment, furniture and fixtures 715 2,200 Purchases of patent rights ............................ (63,312) (50,341) ----------- ----------- Net cash used in investing activities ..................... (4,015,052) (221,480) ----------- ----------- Cash flows from financing activities: Principal payments on capital lease obligations ....... (27,034) (6,547) Proceeds from issuance of common stock ................ 180,892 64,580 Principal payments on notes payable ................... (96,096) -- Offering costs ........................................ (5,692) -- ----------- ----------- Net cash provided by financing activities ................. 52,070 58,033 ----------- ----------- Net decrease in cash and cash equivalents ................. (6,169,703) (3,084,610) Cash and cash equivalents: Beginning of period ................................... 9,575,240 3,745,851 ----------- ----------- End of period ......................................... $ 3,405,537 $ 661,241 =========== ===========
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 1997 audited financial statements and notes thereto. 2. INTERIM FINANCIAL STATEMENTS Operating results for the three month and nine month periods ended September 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 3. INVENTORIES Inventories consist of the following: December 31, 1997 September 30, 1998 ----------------- ------------------ Raw Material $ 196,579 $ 212,097 Work in-process 78,220 123,664 Finished goods 122,273 287,044 ---------- ----------- $ 397,072 $ 622,805 ========== =========== ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three and Nine Months Ended September 30, 1997 and 1998 Total revenues for the three and nine months ended September 30, 1998, were $702,667 and $2,395,228, respectively. These figures reflect an increase in the quarter of $92,839, or 15%, and a decrease of $67,004, or 3% in the nine month period compared to the same periods in 1997. In each 1998 period, licensing and development fee income decreased and product sales increased compared to the same periods in 1997. Product sales increased by $269,372, or 79% in the quarter and by $644,234, or 53% in the nine months ended September 30, 1998, as compared to the same periods in 1997. These increases 6 were driven by an increase in the number of injector units and related disposables sold in each period. The average selling price of injector units decreased approximately 7% in the nine months ended September 30, 1998, compared to the prior year period, as a result of increased unit sales at a lower selling price in the human growth hormone market. Product sales decreased in the U.S. insulin market as a consequence of the reduced selling efforts in that market, which is discussed more fully in the sales and marketing section below. Licensing and product development fee income decreased by $176,633, or 66% in the quarter and $711,238, or 57% in the nine months ended September 30, 1998, compared to the same periods in 1997. These decreases relate primarily to the completion in December 1997 of a two-year product development funding contract with Becton Dickinson and Company. The Company expects that licensing and product development fee income will fluctuate on a quarterly basis, depending on a variety of factors; including the timing of execution of potential 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 and nine months ended September 30, 1998, were $501,068 and $1,502,438, respectively. These figures reflect increases of $237,955, or 90% and $691,316, or 85% from the three and nine month periods of the prior year, respectively. These increases relate primarily to an increase in the amount of product sold in each period, along with higher overall manufacturing overhead expenses. Manufacturing overhead expenses increased as a result of additional engineering personnel, higher rent and increased depreciation expense. Research and development expenses totaled $680,026 and $1,873,682 in the three and nine months ended September 30, 1998, respectively. These figures reflect increases of $184,333, or 37% in the quarter and $75,688, or 4% in the nine months ended September 30, 1998, compared to the same period in 1997. These increases were attributable to increased compensation and clinical studies expenses relating to ongoing development projects. Consulting expenses declined in each period due to a transfer of responsibilities from outside consultants to internal personnel. General and administrative expenses totaled $615,355 and $1,726,982 in the three and nine months ended September 30, 1998, respectively. In comparison to the prior year, these figures reflect increases of $116,409, or 23% and $342,416, or 25% in the three and nine months ended September 30, 1998, respectively. In the quarterly period, a majority of the increase is attributable to a one-time expense relating to the Company's repurchase of certain distribution rights in the human growth hormone market from one of its distributors. The repurchase of these rights has allowed the Company to sign a new agreement that is expected to generate fee income and product sales in the future. The most significant components of the expense increase in the nine months ended September 30, 1998 include regulatory and quality assurance related items, the repurchase of marketing rights as discussed above, as well as moderate increases in compensation, business insurance and depreciation. The regulatory and quality assurance expense increase relates to both one-time ISO 9000 certification expenses in 1998, and an increase in on-going quality assurance efforts. 7 Sales and marketing expenses totaled $235,063 and $708,077 in the three and nine months ended September 30, 1998, respectively. These figures reflect decreases of $166,322, or 41% and $459,293, or 39% compared to the three and nine months ended September 30, 1997, respectively. These decreases relate primarily to a reduction of expenses in the sales and marketing program in the U.S. insulin market initiated by the Company in October 1997. This reduction in expenses is consistent with the Company's long term strategy of selling product through pharmaceutical companies with a focus on higher priced pharmaceuticals. Net other income (expense), decreased by $55,720 and $138,215 compared to the prior year in the three and nine month periods ended September 30, 1998, respectively. These decreases primarily reflect a decrease in interest income attributable to lower average cash balances. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and marketable securities totaled $7,283,334 on December 31, 1997, compared to $3,938,324 on September 30, 1998. This decrease of $3,345,010 results primarily from an operating loss of $3,182,486 in addition to increases in inventory of $225,736, increases in capital equipment of $574,287 related primarily to tooling investment on next generation products, and was offset in part by a $453,073 reduction in accounts receivable. The reduction in accounts receivable was primarily due to the collection of certain licensing and development fee receivables that were outstanding at year end. 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 sales of the Company's products. In October, 1998 the Company took certain actions to reduce its operating expenses. These actions included both voluntary and involuntary staff reductions. The Company believes that cash on hand, interest expected to be earned thereon and anticipated revenues, will meet its needs through the next twelve months. In order to meet its capital needs beyond this period, the Company may be required to raise additional capital through public or private debt or equity offerings. IMPACT OF THE YEAR 2000 The Company is addressing the issue associated with the programming code in existing computer systems as the millennium (Year 2000) approaches. The "Year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way. The Company is aware of the computing difficulties that the millennium issue presents for the Year 2000. The Company has identified a team to address the information technology (IT) systems used for internal purposes at the Company and to also address the non-IT systems. It is anticipated that all reprogramming efforts for internally used IT systems will be complete by December 31,1998, allowing adequate time for testing. The non-IT systems generally require third-party assurances as to compliance with Year 2000. To date, confirmations have been received from approximately 80% of the Company's vendors indicating that plans are being developed to address processing of transactions in the Year 2000. There can be no assurance that the Company will not experience serious unanticipated negative consequences and/or material costs caused by undetected errors or 8 defects in the technology used in its internal operating systems, which are composed predominantly of third party software and hardware technology or by the inability of vendors to correct their Year 2000 issues. The majority of the Company's current standard product lines and manufacturing equipment are not date sensitive and therefore are not affected by the Year 2000 issues. The Company incurred approximately $5,000 of expense to address the Year 2000 problem during fiscal 1998 to date and will incur approximately $20,000 in total expense. The Company is in the process of establishing a contingency plan if the Company's IT and non-IT systems are not Year 2000 compliant. It is anticipated that the contingency plan will be completed by December 31,1998. NEW ACCOUNTING PRONOUNCEMENTS Effective January 1,1998, the Company adopted FASB Statement No. 130 (SFAS No. 130), "Reporting Comprehensive Income". SFAS No. 130 requires that an entity report a total for comprehensive income or loss in condensed financial statements of interim periods issued to shareholders. For the three and nine month periods ended September 30,1998, the comprehensive loss is equal to the net loss as reported in the Statements of Operations. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities (Use of proceeds from public offering) The Company's initial Registration Statement on Form S-1, file no. 333-6661, was declared effective by the Securities and Exchange Commission on October 10, 1996. The offering of the Company's Common Stock covered by such Registration Statement commenced on October 2, 1996. Rodman & Renshaw and R.J. Steichen & Company acted as the managing underwriters ("the Representatives") for the offering. A total of 2,750,000 shares of Common Stock, including 330,000 shares subject to the Representatives over-allotment option and 220,000 shares subject to the warrants issued to the Representatives were registered. In addition, warrants to purchase 220,000 shares of Common Stock issued to the Representatives were also registered. The aggregate offering price of the registered Common Stock and warrants was $15,367,220. Of this amount, $12,100,000 representing 2,200,000 shares of Common Stock and warrants to purchase 220,000 shares of Common Stock have been sold. The underwriter's over-allotment option has expired and these shares were not sold. The Representative's warrant has not yet been exercised and consequently the offering has not yet terminated. The amount of expenses incurred for the Company's account in connection with the issuance and distribution of the securities registered are as follows: Underwriting discounts and commissions:...... $ 907,500 Finder's fees................................ 0 Expenses paid to or for the underwriters:.... 12,786 Other expenses:.............................. 549,833 ---------- Total expenses..................... $1,470,119 ========== All such expenses were paid directly or indirectly to others. The net offering proceeds to the Company after deducting expenses were $10,629,881. The amount of net offering proceeds to the Company used for the following purposes is as follows: Purchase and installation of machinery and equip.................................. $ 1,573,972 Repayment of indebtedness.................... 184,669 Working capital ........................... 740,069 Temporary investments, marketable securities. 394,930 Other : -market development expenses........ 2,527,335 -product development expenses....... 5,208,906 ----------- Total.............................. $10,629,881 =========== 10 All such payments were made directly or indirectly to others. The use of proceeds contained herein does not represent a material change in the use of proceeds described in the prospectus 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) 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 Reserved. 4.5 Reserved. 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) 10.3 Reserved. 10.4 Reserved. 10.5 Reserved. 11 10.6 Reserved. 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.(c) 10.9* Employment Agreement, dated as of January 3, 1995, between the Company and Mark Derus.(a) 10.10* Reserved. 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 non-qualified 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.(b) 10.22* 1998 Stock Option Plan for Non-Employee Directors.(d) 10.23* Letter consulting agreement dated February 20, 1998 between the Company and Geoffrey W. Guy.(d) 27 Financial Data Schedule 99 Cautionary Statement.(b) * Indicates management contract or compensatory plan or arrangement. + 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. (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. 12 (b) Incorporated by reference to the Company's Form 10-K for the year ended December 31, 1996. (c) Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 1997. (d) Incorporated by references to the Company's Form 10-K for the year ended December 31, 1997. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1998. 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. MEDI-JECT CORPORATION November 9,1998 /s/ Franklin Pass ------------------------------- Date Franklin Pass, MD, Chairman/CEO November 9,1998 /s/ Mark S. Derus ------------------------------- Date Mark S. Derus, Vice President Finance/CFO (principal financial & accounting officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED AND UNAUDITED INTERNAL FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS 9-MOS DEC-31-1997 DEC-31-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 SEP-30-1998 3,745,851 661,241 3,537,483 3,277,083 783,232 329,084 22,284 21,209 397,072 622,805 8,512,849 4,952,051 1,967,113 2,510,074 801,900 1,070,443 10,047,468 6,767,536 708,617 542,589 1,721 0 0 0 0 0 70,716 71,923 9,266,414 6,153,024 10,047,468 6,767,536 1,686,588 1,867,864 4,222,318 2,639,985 1,221,051 1,502,438 5,935,894 4,308,741 0 0 0 0 37,140 1,328 (2,971,767) (3,182,486) 0 0 (2,971,767) (3,182,486) 0 0 0 0 0 0 (2,971,767) 3,182,486 (.42) (.44) (.42) (.44) Includes interest income of $505,295 for PE 12-31-97 and $244,757 for PE 9-30-98.
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