-----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, H5u8Mb1AOj/eoyNICQ6U4Dl+00SsYFRbMQlwSOzBT7Ofz6me1/IInaZCLmwz67zC xXcLSAvlXpYJ7JvjzQbZTQ== 0001045969-00-000378.txt : 20000517 0001045969-00-000378.hdr.sgml : 20000517 ACCESSION NUMBER: 0001045969-00-000378 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000516 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: 637128 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 March 31, 2000 Commission File Number 0-20945 MEDI-JECT CORPORATION 161 Cheshire Lane, Suite 100 Minneapolis, Minnesota 55441 (763) 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 May 15, 2000, was 1,424,869. ================================================================================ 1 MEDI-JECT CORPORATION INDEX PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Balance Sheets, as of December 31, 1999 and March 31, 2000..............................................3 Statements of Operations for the three months ended March 31, 1999 and 2000.....................................4 Statements of Cash Flows for the three months ended March 31, 1999 and 2000.....................................5 Notes to Financial Statements...............................6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................8 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.................................................9 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K...........................10 SIGNATURES ..................................................................13 2 MEDI-JECT CORPORATION BALANCE SHEETS (UNAUDITED)
December 31, March 31, 1999 2000 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents ...................................... $ 85,136 $ 49,584 Accounts receivable, less allowance for doubtful accounts of $25,000 and $23,094, respectively .......................... 167,301 98,359 Inventories .................................................... 429,472 559,321 Prepaid expenses and other assets .............................. 23,263 37,634 ------------ ------------ 705,172 744,898 Equipment, furniture and fixtures, net .................................. 1,002,554 925,080 Patent rights, net ...................................................... 302,410 286,103 ------------ ------------ $ 2,010,136 $ 1,956,081 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable ............................................... $ 337,927 $ 591,033 Accrued expenses and other liabilities ......................... 551,104 616,947 Convertible note payable ....................................... -- 500,000 Note payable obligations - current maturities .................. 14,156 14,592 ------------ ------------ 903,187 1,722,572 Note payable, less current maturities ................................... 54,094 51,474 ------------ ------------ Total liabilities ....................................................... 957,281 1,774,046 ------------ ------------ Shareholders' Equity: Preferred Stock: $0.01 par; authorized 1,000,000 shares: Series A Convertible Preferred Stock: $0.01 par; authorized 10,000 shares; 1,000 issued and outstanding at December 31,1999, and March 31, 2000; aggregate liquidation preference of $1 million ............. 10 10 Series B Convertible Preferred Stock: $0.01 par; authorized 250 shares; 250 issued and outstanding at December 31, 1999, aggregate liquidation preference of $250,000 ............... 3 3 Common Stock: $0.01 par; authorized 3,400,000 shares: 1,424,729 and 1,424,729 issued and outstanding at December 31, 1999 and March 31, 2000, respectively ......... 14,247 14,247 Additional paid-in capital ..................................... 25,186,430 25,193,796 Accumulated deficit ............................................ (24,147,835) (25,026,021) ------------ ------------ 1,052,855 182,035 ------------ ------------ $ 2,010,136 $ 1,956,081 ============ ============
See accompanying notes to financial statements. 3 MEDI-JECT CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) Quarter Ended ------------------------------- March 31, 1999 March 31, 2000 -------------- -------------- Revenues: Product sales ................... $ 551,991 $ 461,259 Licensing & product development.. 1,024,317 22,788 ----------- ----------- 1,576,308 484,047 ----------- ----------- Operating Expenses: Cost of sales ................... 470,469 321,571 Research and development ........ 660,522 273,868 Marketing and sales ................... 250,803 171,955 General and administrative ...... 485,683 557,599 ----------- ----------- 1,867,477 1,324,993 ----------- ----------- Net operating loss .................... (291,169) (840,946) ----------- ----------- Other Income (Expense): Interest and other income ....... 26,099 26 Interest and other expense ...... (51) (1,552) ----------- ----------- 26,048 (1,526) ----------- ----------- Net loss .............................. (265,121) (842,472) Preferred stock dividends ............. (25,000) (35,714) ----------- ----------- Net loss applicable to common shares... $ (290,121) $ (878,186) =========== =========== Basic and diluted net loss per common share ............. $ (.20) $ (.62) =========== =========== Basic and diluted weighted average common shares outstanding ....... 1,424,736 1,424,729 =========== =========== See accompanying notes to financial statements. 4 MEDI-JECT CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
For Three Months Ended ----------------------------------- March 31, 1999 March 31, 2000 -------------- -------------- Cash flows from operating activities: Net loss ...................................... $ (265,121) $ (842,472) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ................. 122,052 109,360 Loss on disposal and abandonment of assets .... -- 3,646 Non-cash compensation ......................... 7,430 7,366 Changes in operating assets and liabilities: Accounts receivable ......................... 47,814 68,942 Inventories ................................. 194,386 (129,849) Prepaid expenses and other assets ........... (30,969) (14,371) Accounts payable ............................ 60,324 253,106 Accrued expenses and other liabilities ...... (31,937) 30,129 Deferred revenue ............................ (216,000) -- ----------- ----------- Net cash used in operating activities ......... (112,021) (514,143) ----------- ----------- Cash flows from investing activities: Purchases of equipment, furniture and fixtures (23,744) (19,225) Purchases of patent rights .................... (11,202) -- ----------- ----------- Net cash used in investing activities .................. (34,946) (19,225) ----------- ----------- Cash flows from financing activities: Proceeds from convertible note payable ........ -- 500,000 Principal payments on capital lease obligations (555) (2,184) ----------- ----------- Net cash (provided by) used in financing activities .... (555) 497,816 ----------- ----------- Net decrease in cash and cash equivalents .............. (147,522) (35,552) Cash and cash equivalents: Beginning of period ........................... 2,852,285 85,136 ----------- ----------- End of period ................................. $ 2,704,763 $ 49,584 =========== ===========
See accompanying notes to financial statements. 5 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 our 1999 audited financial statements and notes thereto. 2. INTERIM FINANCIAL STATEMENTS Operating results for the three month period ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 3. INVENTORIES Inventories consist of the following: December 31, 1999 March 31, 2000 ----------------- -------------- Raw Material $219,903 $165,703 Work in-process 60,998 91,502 Finished goods 148,571 302,116 -------- -------- $429,472 $559,321 ======== ======== 4. STOCK OPTION REPRICING On December 21, 1999, our Board of Directors approved the repricing, as of January 3, 2000, of all outstanding Qualified and Non-Qualified Stock Options held by our employees and directors, which had an exercise price greater than $1.5625 per share. This repricing action reduced the exercise price to $1.5625 per share for all such Stock Option Agreements representing approximately 252,517 shares which had exercise prices ranging from $1.75 to $25.00 per share. Following the repricing, all other terms and conditions of these option agreements were unchanged, including the vesting schedules. 5. NEW ACCOUNTING PRONOUNCEMENTS In December 1999 the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. We will be required to adopt the new standard beginning with the second quarter of fiscal 2000. The impact of adoption on our financial statements is not yet quantifiable. 6 In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 (FIN 44), Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, which clarifies the accounting consequence of various modifications to the terms of a previously fixed stock option or award. Our stock option repricing in January 2000 will be accounted for, as a variable plan, on a prospective basis on July 1, 2000, in accordance with FIN 44. 6. BUSINESS COMBINATION AGREEMENT On January 25, 2000, we signed a non-binding letter of intent with Permatec Holding AG, a privately-held drug delivery company located in Basel, Switzerland, to combine operations. Under the terms of the letter of intent, the parties are currently negotiating the purchase of certain Permatec subsidiaries by us in exchange for up to approximately 60% of our Common Stock outstanding at the completion of the business combination. Permatec develops and licenses certain pharmaceutical formulation technologies, including transdermal patches and topical gels. In January and February 2000, Permatec invested a total of $500,000 in Medi-Ject convertible notes, which will convert to common stock at the completion of the business combination at a conversion price of $2.00 per share. If the Permatec transaction does not close, these notes will be payable in full on December 31, 2000. In April 2000, we negotiated a master Convertible Note Purchase Agreement in the amount of $4 million with Permatec with a conversion price of $2.00 per share. In April and May to date 2000, Permatec invested a total of $750,000 in Medi-Ject convertible promissory notes, issued under the master Convertible Note Purchase Agreement. These notes may convert to common stock at a future date, at the discretion of the note holder. If the Permatec transaction does not close, these notes will be payable in full on July 1, 2000. Contingent imputed interest expense related to the conversion features of the convertible notes issued during the first quarter 2000 would be approximately $106,000. 7. NASDAQ LISTING REQUIREMENTS On April 7, 2000, we were notified by Nasdaq/Amex that we no longer met certain requirements for continued listing on The Nasdaq SmallCap Market. As a result, our eligibility for continued listing on The Nasdaq Stock Market is being reviewed. In May we provided to Nasdaq a plan for achieving compliance during the second and third quarter of this year. This plan included, among other things, the business combination agreement with Permatec Holding AG and additional equity financing. If the plan is not accepted by Nasdaq, our stock will be taken off the Nasdaq SmallCap Market and we will seek to have it traded in the over-the-counter market. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended March 31, 1999 and 2000 Total revenues for the three months ended March 31, 1999 and 2000 were $1,576,308 and $484,047, respectively. These figures reflect a decrease in the quarter of $1,092,261, or 69% compared to the same period in 1999. Product sales decreased $90,732 or 16% in the three months ended March 31, 2000 compared to the three months ended March 31, 1999. The decrease is primarily attributable to a 72% decrease in revenue from unit sales in the human growth hormone market, partially offset by a 52% increase in revenue from sales of disposables. Licensing and product development fee income decreased by $1,001,529 or 98% in the three months ended March 31, 2000 as compared to the prior-year period. This decrease results from having received funds from Schering-Plough Corporation during the first quarter of 1999 to settle mutual obligations of the parties under a contract dated January 20, 1998. We received a one-time payment from Schering-Plough in exchange for cancellation of a product purchase order and as reimbursement for certain non-cancelable manufacturing expenses. 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 months ended March 31, 1999 and 2000 decreased $148,898 or 32%, and gross margins increased from 14.8% to 30.3% due primarily to the Company's efforts to assemble all disposable products in house to absorb more overhead cost. Research and development expenses totaled $660,522 and $ 273,868 in the three months ended March 31, 1999 and 2000, respectively. The decrease of $386,654 or 59% is mainly due to lower utilization of certain production employees for development activities and lower clinical study expenses. Certain production employees are utilized in either production or research and development depending on departmental work load demand and will fluctuate from time to time. Clinical study activity has been relatively low during this quarter but will increase slightly for the remainder of the year. General and administrative expenses totaled $485,683 and $557,599 in the three months ended March 31, 1999 and 2000, respectively. These figures represent an increase of $71,916 or 15%. The largest component of the increase is attributable to payroll increases due to accruals for anticipated incentive payments and due to the reassignment of marketing staff to the new business development area within general and administrative expenses. The incentive payments are contingent upon new business development agreements being negotiated and the business combination, as explained in Item 1, Note 4 above, being completed. 8 Sales and marketing expenses totaled $250,803 and $171,955 in the three months ended March 31, 1999 and 2000, respectively. This decrease of $78,8498 or 31% is primarily due to a decrease in outside marketing services of approximately $23,000 and a decrease in payroll expense of approximately $27,000. Payroll decreases resulted from the staffing reassignments to the general and administrative department and some staffing reductions as a result of outsourcing our domestic insulin direct sales process. We anticipate these staffing levels to remain consistent for the remainder of the year. Net other income (expense) for the three months ended March 31, 2000 decreased by $27,574 or 106% relative to the prior year three-month period ending March 31. This decrease primarily reflects a decrease in interest income attributable to lower average cash balances used in short-term investments. Liquidity and Capital Resources Cash and cash equivalents totaled $85,136 on December 31, 1999 compared to $49,584 on March 31, 2000. This decrease of $35,552 results primarily from a net loss of $842,472 adjusted for charges of depreciation and amortization and changes in operating assets and liabilities of which the significant components were an increase in inventory of $129,849 offset by an increase in accounts payable of $253,106. We expect to report a net loss for the year ending December 31, 2000 as we continue to incur marketing and development costs related to bringing future generations of products to market. Our long term capital requirements will depend on numerous factors, including the status of collaborative arrangements, the progress of research and development programs and the receipt of revenues from sales of products. To continue our existence, we will be required to raise additional working capital or merge with another entity or both. We are currently pursuing the business combination transaction with Permatec Holding AG, as more fully explained in Item 1, Note 4 above. Regarding this transaction, we have been financing our operations through advances from Permatec under the convertible promissory notes described above. To date, Permatec has provided $1,250,000 to us under such notes. Even with such business combination, we will be required to raise additional capital to continue operations. There can be no assurance that we will be able to raise the needed additional capital on acceptable terms or at all. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Disclosure There have been no material changes in reported market risks that we face since December 31, 1999. 9 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.(a) 3.2 Second Amended and Restated Bylaws.(a) 3.3 Certificate of Designations for Series A Convertible Preferred Stock 3.4 Certificate of Designations for Series B Convertible Preferred Stock 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) 10 4.6 Preferred Stock, Option and Warrant Purchase Agreement, dated January 25, 1996, with Becton Dickinson and Company (filed herewith as Exhibit 10.7).(a) 4.7 Warrant issued to Elan International Services, Ltd. on November 10, 1998 4.8 Warrant issued to Grayson & Associates, Inc. on September 23, 1999 10.1 Office/Warehouse/Showroom Lease, dated January 2, 1995, including amendments thereto.(a) 10.3 Security Agreement, dated September 30, 1994, with Kelsey Lake Limited Partnership and Kerry Lake Company, a Limited Partnership.(a) 10.4 Exclusive License & Supply Agreement with Bio-Technology General Corporation, dated December 22, 1999 10.5 Preferred Stock Purchase Agreement with Bio-Technology General Corporation, dated December 22, 1999 10.6 Loan Agreement, dated December 22, 1995, with Ethical Holdings plc, 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, with Becton Dickinson and Company.(a) 10.8* Employment Agreement, dated January 1, 1997, with Franklin Pass, MD.(c) 10.8.1 Employment Agreement, dated December 21, 1999, with Franklin Pass, M.D. 10.9* Employment Agreement, dated December 21, 1999 with Lawrence Christian 10.10* Reserved. 10.11* Employment Agreement, dated January 3, 1995, with Peter Sadowski.(a) 10.11.1 Employment Agreement, dated December 21, 1999, with Peter Sadowski. 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) 11 10.20+ Development and License Agreement with Becton Dickinson and Company, effective January 1, 1996 (terminated January 1, 1999). See Exhibit 10.24 (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 with Geoffrey W. Guy. (d) 10.24# Agreement with Becton Dickinson dated January 1, 1999 10.25 Securities Purchase Agreement with Elan International Services, Ltd. dated November 10, 1998 10.26# License & Development Agreement with Elan Corporation, plc, dated November 10, 1998 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. # Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of Exhibits 10.24 and 10.26 were deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. (a) Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-6661), filed with the Securities and Exchange Commission on October 1, 1996. (b) Incorporated by reference to our Form 10-K for the year ended December 31, 1996. (c) Incorporated by reference to our Form 10-Q for the quarter ended March 31, 1997. (d) Incorporated by reference to our 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 March 31, 2000. 12 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 May 15, 2000 /s/ Franklin Pass - ---------------------------------- ------------------------------- Date Franklin Pass, MD, Chairman/CEO May 15, 2000 /s/ Lawrence M. Christian - ---------------------------------- ------------------------------- Date Lawrence M. Christian, Vice President, Finance & Administration/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 3-MOS DEC-31-1999 DEC-31-2000 JAN-01-1999 JAN-01-2000 DEC-31-1999 MAR-31-2000 85,136 49,584 0 0 192,301 121,453 25,000 23,094 429,472 559,321 705,172 744,898 2,406,878 2,426,103 1,404,324 1,501,023 2,010,136 1,956,081 957,281 1,774,046 0 0 0 0 13 13 14,247 14,247 1,038,595 167,775 2,010,136 1,956,081 2,100,735 461,259 3,547,880 484,073 1,785,464 321,571 5,307,372 1,003,422 154,056 0 0 0 4,427 1,552 (3,703,439) (842,472) 0 0 (3,703,439) (842,472) 0 0 0 0 0 0 (3,703,439) (842,472) (2.70) (.62) (2.70) (.62) Includes $66,018 of interest income.
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