==========================================================================================================================================================
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, 1999March 31, 2000
Commission File Number 0-20945
MEDI-JECT CORPORATION
161 Cheshire Lane, Suite 100
Minneapolis, Minnesota 55441
(612)(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[X] No ------ -----[_]
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of October 29, 1999,May 15, 2000, was 1,424,729.
-------------------
=============================================================1,424,869.
================================================================================
1
MEDI-JECT CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Balance Sheets as of December 31, 1998 and
September 30, 1999............................................ 3
Statements of Operations for the three and nine months ended
September 30, 1998 and 1999................................... 4
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1999................................... 5
Notes to Financial Statements................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.... 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 10
ITEM 2. Changes in Securities and Use of Proceeds .................. 10
ITEM 6. Exhibits and Reports on Form 8-K............................ 11
SIGNATURES............................................................. 14
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)
DECEMBERDecember 31, 1998 SEPTEMBER 30,March 31,
1999 ----------------- ------------------
ASSETS2000
------------ ------------
ASSETS
Current assets:Assets:
Cash and cash equivalents.....................................equivalents ...................................... $ 2,852,28585,136 $ 633,18749,584
Accounts receivable, less allowance for doubtful accounts of
$25,000 and $25,000, respectively......................... 275,694 208,230
Inventories................................................... 592,185 417,716$23,094, respectively .......................... 167,301 98,359
Inventories .................................................... 429,472 559,321
Prepaid expenses and other assets............................. 52,006 33,315
------------- -------------
3,772,170 1,292,448assets .............................. 23,263 37,634
------------ -------------------------
705,172 744,898
Equipment, furniture and fixtures, net................................. 1,278,456 1,196,914
------------ -------------net .................................. 1,002,554 925,080
Patent rights, net..................................................... 283,805 279,382
------------- -------------net ...................................................... 302,410 286,103
------------ ------------
$ 5,334,4312,010,136 $ 2,768,744
============= =============1,956,081
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:Liabilities:
Accounts payable..............................................payable ............................................... $ 250,512337,927 $ 387,260591,033
Accrued expenses and other liabilities........................ 236,191 285,198
Deferred Revenue.............................................. 216,000liabilities ......................... 551,104 616,947
Convertible note payable ....................................... -- Capital lease500,000
Note payable obligations - current maturities................ 1,721
------------- -------------
704,424 672,458
------------- -------------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: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 31,1998,31,1999, and September 30, 1999, respectively;March 31, 2000;
aggregate liquidation preference of $1 million..............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;
1,424,752shares:
1,424,729 and 1,424,729 issued and outstanding at
December 31, 19981999 and September 30, 1999,March 31, 2000, respectively ............ 14,247 14,247
Additional paid-in capital ................................... 24,911,694 24,883,151..................................... 25,186,430
25,193,796
Accumulated deficit........................................... (20,295,944) (22,801,122)
------------- --------------
4,630,007 2,096,286
------------- -------------deficit ............................................ (24,147,835) (25,026,021)
------------ ------------
1,052,855 182,035
------------ ------------
$ 5,334,4312,010,136 $ 2,768,744
============= =============1,956,081
============ ============
See accompanying notes to financial statements.
3
MEDI-JECT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------- ----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------- ----------------------------------------
1998 1999 1998 1999
----------------------- ----------------------- ----------------------- ----------------
Revenues:
Product sales...................... $ 594,809 $ 481,914 $ 1,828,675 $ 1,441,189
Licensing & product development.... 92,739 27,144 527,364 1,236,752
--------------- -------------- ------------- ------------
687,548 509,058 2,356,039 2,677,941
--------------- -------------- ------------- ------------
Operating Expenses:
Cost of sales...................... 500,249 412,854 1,504,851 1,233,693
Research and development........... 680,026 559,552 1,873,682 1,745,137
General and administrative......... 615,355 367,725 1,726,982 1,341,934
Sales and marketing................ 220,763 312,046 666,475 800,281
--------------- -------------- ------------- ------------
2,016,393 1,652,177 5,771,990 5,121,045
--------------- -------------- ------------- ------------
Net operating loss....................... (1,328,845) (1,143,119) (3,415,951) (2,443,104)
---------------- --------------- -------------- -------------
Other income (expense):
Interest and other income.......... 67,004 13,881 244,757 63,197
Interest and other expense......... (201) (13) (11,292) (12,472)
---------------- --------------- -------------- -------------
66,803 13,868 233,465 50,725
--------------- -------------- ------------- ------------
Net loss................................. $ (1,262,042) $ (1,129,251) $ (3,182,486) $ (2,392,379)
=============== =============== ============= =============
Preferred stock dividends................ -- (62,797) -- (112,797)
--------------- --------------- ------------- --------------
Net loss applicable to common shares..... $ (1,262,042) $ (1,192,048) $ (3,182,486) $ (2,505,176)
================ =============== ============== ==============
Basic and diluted net loss
per common share................ $ (.89) $ (.84) $ (2.24) $ (1.76)
=============== ============== ============= ==============
Basic and diluted weighted average
common shares outstanding.......... 1,424,752 1,424,729 1,419,824 1,424,731
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 NINE MONTHS ENDED
----------------------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30,For Three Months Ended
-----------------------------------
March 31, 1999 -------------------------- -------------------------March 31, 2000
-------------- --------------
Cash flows from operating activities:
Net loss......................................................loss ...................................... $ (3,182,486)(265,121) $ (2,392,379)(842,472)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............................ 332,119 328,286amortization ................. 122,052 109,360
Loss fromon disposal and abandonment of assets............................. 9,445 35,444
Interest on marketable debt securities................... (140,548)assets .... -- 3,646
Non-cash compensation.................................... -- 21,457
Other.................................................... 5,724 --compensation ......................... 7,430 7,366
Changes in operating assets and liabilities:
Accounts receivable...................................... 453,073 67,464
Inventories.............................................. (225,736) 174,469receivable ......................... 47,814 68,942
Inventories ................................. 194,386 (129,849)
Prepaid expenses and other assets........................ (11,552) 18,691assets ........... (30,969) (14,371)
Accounts payable......................................... (122,955) 136,748payable ............................ 60,324 253,106
Accrued expenses and other liabilities................... (38,247) (63,790)liabilities ...... (31,937) 30,129
Deferred revenue.........................................revenue ............................ (216,000) --
(216,000)
------------- ------------------------- -----------
Net cash used in operating activities.................................. (2,921,163) (1,889,610)
-------------- --------------activities ......... (112,021) (514,143)
----------- -----------
Cash flows from investing activities:
Purchases of marketable securities............................ (2,729,831) --
Proceeds from sales of mature marketable securities........... 3,130,779 --
Purchases of equipment, furniture and fixtures................ (574,287) (245,108)
Proceeds from sale of equipment, furniture and fixtures....... 2,200 --fixtures (23,744) (19,225)
Purchases of patent rights.................................... (50,341) (32,658)
-------------- --------------rights .................... (11,202) --
----------- -----------
Net cash used in investing activities.................................. (221,480) (277,766)
-------------- --------------activities .................. (34,946) (19,225)
----------- -----------
Cash flows from financing activities:
Proceeds from convertible note payable ........ -- 500,000
Principal payments on capital lease obligations............... (6,547) (1,722)
Proceeds from issuance of common stock ....................... 64,580 --
Offering costs................................................ -- (50,000)
------------- --------------obligations (555) (2,184)
----------- -----------
Net cash provided by (used in)(provided by) used in financing activities.................... 58,033 (51,722)
------------- --------------activities .... (555) 497,816
----------- -----------
Net decrease in cash and cash equivalents.............................. (3,084,610) (2,219,098)equivalents .............. (147,522) (35,552)
Cash and cash equivalents:
Beginning of period........................................... 3,745,851period ........................... 2,852,285 ------------- -------------85,136
----------- -----------
End of period.................................................period ................................. $ 661,2412,704,763 $ 633,187
============= =============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 the Company's 1998our 1999 audited
financial statements and notes thereto.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three month and nine month periodsperiod ended September 30, 1999,March 31, 2000, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999.2000.
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
Raw Material $ 132,884 $ 196,908
Work in-process 95,157 75,251
Finished goods 364,144 145,557
------------- -------------
$ 592,185 $ 417,716
============= =============
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. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paidSTOCK 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 nine month periods ended September
30, 1998 and 1999 was $1,328 and $96, respectively.
Cash paidfirst 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 taxes during the nine month periods ended September 30,
1998 and 1999 was $2,063 and $250, respectively.
5. REVERSE STOCK SPLIT
On January 28, 1999, the Company declared a one-for-five reverse stock
split. All common shares and per share amounts in the financial
statements have been retroactively restated to give effect to this
reverse split.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 reverse split, all fractional shares
were repurchasedbusiness 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 Company.
6Nasdaq 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 AND NINE MONTHS ENDED SEPTEMBER 30,Results of Operations
Three Months Ended March 31, 1999 AND 1998and 2000
Total revenues for the three and nine months ended September 30,March 31, 1999 and 2000 were
$509,058$1,576,308 and $2,677,941,$484,047, respectively. These figures reflect a decrease in the
quarter of $178,490,$1,092,261, or 26% for the same three month period in 1998 and an increase of
$321,902, or 14%69% compared to the same nine month period in 1998.1999. Product sales
decreased $112,895$90,732 or 19%16% in the three month period and $387,486 or 21% in the
nine month periodmonths ended September 30, 1999,March 31, 2000 compared to
the same periods in the
prior year.three months ended March 31, 1999. The decrease is primarily attributable to
a 49%72% decrease in revenue from productunit sales used within the human growth hormone market,
partially offset by a 52% increase in international markets that
had strongrevenue from sales in 1998 due to initial market entry. These strong 1998 sales
leveled off after initial demand for product was met.of disposables.
Licensing and product development fee income decreased by $65,595$1,001,529 or 71%98% in
the three month period and increased by $709,388 or 135% in the nine month periodmonths ended September 30, 1999,March 31, 2000 as compared to the prior year periods. The large
increase in the nine-month period reflects theprior-year period. This
decrease results from having received funds received from Schering-Plough Corporation
in satisfactionduring the first quarter of 1999 to settle mutual contractual obligations of the parties. The Companyparties
under a contract dated January 20, 1998. We received a one-time payment of $783,317 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 nine months ended September 30, 1999
reflect decreases of $87,3952000 decreased
$148,898 or 17%32%, and $271,158 or 18% respectively when
comparedgross margins increased from 14.8% to prior year periods. The decreases are30.3% due primarily
to the result of lower product
sales, primarily attributableCompany's efforts to assemble all disposable products used in human growth hormone
applications.house to absorb
more overhead cost.
Research and development expenses totaled $559,552$660,522 and $1,745,137$ 273,868 in the three
months ended March 31, 1999 and nine month periods ended September 30, 1999,2000, respectively. Theses figures
reflect decreasesThe 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 prior year periodsremainder of $120,474 or 18% and $128,545 or
7%, respectively, due primarily to managed reductions in employee headcount and
overhead spending.the year.
General and administrative expenses totaled $367,725$485,683 and $1,341,934$557,599 in the three
months ended March 31, 1999 and nine month periods ended September 30, 1999,2000, respectively. These figures represent a decreasean
increase of $247,630$71,916 or 40% and $385,048 or 22% when compared to the
same periods in 1998.15%. The largest component of the decreaseincrease is
attributable to staffing reductions which were completedpayroll 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 October 1998, primarily in the
product development and general & administrative segments.
7Item 1, Note 4 above,
being completed.
8
Sales and marketing expenses totaled $312,046$250,803 and $800,281$171,955 in the three months
ended March 31, 1999 and nine
month periods ended September 30, 1999,2000, respectively. These figures reflect an
increase in the three month periodThis decrease of $91,283$78,8498 or 41% and an increase in the six
month period of $133,806 or 20%. The main components of these increases are
expenses related31% is
primarily due to a new web sitedecrease in outside marketing services of approximately
$23,000 and new sales literature relateda decrease in payroll expense of approximately $27,000. Payroll
decreases resulted from the staffing reassignments to the change to "over-the-counter" sales status forgeneral and
administrative department and some staffing reductions as a result of
outsourcing our domestic insulin product anddirect sales process. We anticipate these
staffing levels to the preparationremain consistent for the launchremainder of new products.the year.
Net other income (expense) for the three and nine months ended September 30, 1999March 31, 2000 decreased
by $52,935$27,574 or 79% and $182,740 or 78%106% relative to the prior year three-month and nine-month periodsperiod ending September 30.March
31. This decrease primarily reflects a decrease in interest income attributable
to lower average cash balances.
LIQUIDITY AND CAPITAL RESOURCESbalances used in short-term investments.
Liquidity and Capital Resources
Cash and cash equivalents totaled $633,187$85,136 on September 30,December 31, 1999 compared to
$2,852,285$49,584 on DecemberMarch 31, 1998.2000. This decrease of $2,219,098$35,552 results primarily from net cash used by operating activities. Significant components of the cash
flow deficiency from operations were a net
loss of $2,392,379$842,472 adjusted for a
management-planned reductioncharges of depreciation and amortization and
changes in operating assets and liabilities of which the significant components
were an increase in inventory of $174,469 and$129,849 offset by an increase in accounts
payable of $136,748,$253,106.
We expect to report a net loss for the year ending December 31, 2000 as we
continue to incur marketing and a decline in deferred revenuedevelopment costs related to bringing future
generations of $216,000 dueproducts to income recognition as related product development was completed. Purchases of
fixed assets in the amount of $245,108 and deferred financing costs of $50,000
further reduced cash on hand.
The Company'smarket. Our 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.
The Company believes that cash on hand,
interest expectedTo continue our existence, we will be required to be earned thereon, anticipated revenues and cash management
strategies will allow the Company to meet its obligations through December 1999.
In order to meet its capital needs beyond this year, the Company has engaged a
financial advisor in an effort to secure additional working capital. The terms
of thisraise additional working
capital if any,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 determined and negotiated
directly with the investors. The terms of the agreement with the financial
advisor require a retainer of $50,000 and a warrant for 10,000 shares of Common
Stock. Additional fees will be payable upon closing of a successful financing
transaction.
The Company can provide no assurance, however, that cash available will be
sufficient to meet the Company's needs during the next three months or beyond
due to fluctuations in product development expenses and receipt of estimated
license fees, that the Company will ever become profitable, or that the Company
will be ablerequired to
raise additional capital on terms acceptable to the Company, or
at all.
IMPACT OF THE YEAR 2000
The Company had all internal systems analyzed, reprogrammed and tested by
September 30, 1999. To date, confirmations have been received from virtually all
of the Company's vendors indicating that plans are being developed to address
processing of transactions in the Year 2000.continue operations. There can be no assurance that
the
Company will not experience serious unanticipated negative
8
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal operating systems, which are composed
predominantly of third party software and hardware technology, or by the failure
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 has incurred less than $10,000 in expenses to address the Year 2000
problem to date and expects that it will incur less than $20,000 in expenses in
total. The volume of transactions and operations, processed by the Company's
automated systems, that could potentially be affected can be handled manually or
by outside vendors, if need be, to prevent any interruptions in Company
operations. To mitigate any risk associated with receiving materials from sole
source suppliers, the Companywe will be purchasingable to raise the needed additional reserve inventory
related to selected critical items. Currently, management does not foresee any
negative impact from Year 2000 issues upon the Company's operations.
REVERSE STOCK SPLIT
On January 28, 1999, the Company declared a one-for-five reverse stock split of
its outstanding common stock, applicable to shareholders of recordcapital on acceptable terms or at
close of
trading on January 28, 1999. The reverse split was affected in response to the
Nasdaq National Market listing requirements which require that the Company
maintain a minimum value of public float of $5,000,000 and a minimum bid price
of $1.00 per share. After the reverse split, the Company met the requirements
for continued listing on the Nasdaq Small Cap Market, which require the Company
to maintain a minimum bid price of $1.00 per share and to maintain a minimum
value of public float of $1,000,000. After the reverse split, the Company had
1,424,729 shares of common stock outstanding as fractional shares were paid out
in cash to respective shareholders. All common share and per share amounts in
this report have been retroactively restated to give effect to this reverse
stock split.
FORWARD LOOKING STATEMENTS
Certain statements included in this Form 10-Q are "forward looking statements"
as defined in the Private Securities Litigation Reform Act of 1995 and are
subject to risks and uncertainties. The words "may," "should," "expect," "plan,"
"anticipate," "believe," "estimate," predict," "intend," "potential," or
"continue" and similar expressions are generally intended to identify forward
looking statements. Factors that may affect future results and performance are
set forth on Exhibit 99, "Cautionary Statements," which was filed with the
United States Securities and Exchange Commission as an Exhibit to Form 10-K,
December 31, 1996.
9
all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK DISCLOSUREMarket Risk Disclosure
There have been no material changes in reported market risks faced by the
Companythat we face
since December 31, 1998.1999.
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to a license and supply agreement with
Bio-Technology General ("BTG") pursuant to which the Company agreed to
exclusively design, develop and provide to BTG certain needleless
injectors for use in connection with human growth hormone in the United
States. To date, no sales of devices by the Company to BTG have
occurred because BTG has been preliminarily enjoined from importing or
selling human growth hormone in the United States pursuant to a court
proceeding. In June of 1999, the Company notified BTG that it was in
breach of contractual obligations to use best reasonable efforts to
create a demand for the licensed products and to diligently market and
sell the licensed products in the relevant territory. The Company also
notified BTG that the license and supply agreement would terminate 90
days from the date of the letter unless BTG cured its breach of
contract. BTG subsequently demanded arbitration on August 25, 1999,
pursuant to the rules of the American Arbitration Association seeking a
determination that it is not in breach of the license and supply
agreement and seeking to maintain in force the agreement and its
exclusive rights thereunder. Both parties have requested mediation. An
initial mediation conference has not yet occurred, and while the
Company believes the actions it took were valid, the Company cannot
predict the outcome of the action at this time.None.
Item 2. Changes in Securities
and Use of Proceeds.
On September 23, 1999, the Company issued Warrants to purchase 10,000
shares of its Common Stock to a financial advisor as a retainer
pursuant to an agreement whereby financial advisor will assist the
Company in its efforts to secure additional working capital. The
Warrants are exercisable for a period of five years at an exercise
price of $2.40 per share. The Company claims an exemption under Section
4(2) of the Securities Act because the transaction was a privately
negotiated transaction with only one offeree who is highly
sophisticated and experienced in the industry.
10
None.
Item 3. Defaults Upon Senior Securities.
None.None
Item 4. Submission of Matters to a Vote of Securities Holders.
None.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 Restated Articles of Incorporation of the 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)
3.2 Second Amended and Restated Bylaws of the Company.(a)
3.3 Certificates of Designations for Series A Preferred Stock.(e)
3.4 Amendment to Second Amended and Related Articles of Incorporation. (f)
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 Phil 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)
4.7 Warrant issued to Elan International Services, Ltd. on November 10, 1998,
transferred to Elan Pharmaceutical Investments, Ltd., June 29, 1999. (e)
11
10.1 Reserved.
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 Reserved.
10.5 Reserved.
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.(c)
10.9 * Reserved
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 (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 between the Company and
Geoffrey W. Guy.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)
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10.24# Agreement with Becton Dickinson and Company dated January 1, 1999.(e)
10.25 Securities Purchase Agreement with Elan International Services, Ltd. dated
November 10, 1998, transferred to Elan Pharmaceutical Investments, Ltd., June 29,
1999.(e)
10.26# License & Development Agreement with Elan Corporation, plc, dated November 10, 1998.(e)
27 Financial Data Schedule
99 Cautionary Statement.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, which was
subsequently granted by the Securities and Exchange Commission.treatment.
(a) Incorporated by reference to the Company'sour 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 the Company'sour Form 10-K for the year ended December 31,
1996.
(c) Incorporated by reference to the Company'sour Form 10-Q for the quarter ended March 31,
1997.
(d) Incorporated by reference to the Company'sour Form 10-K for the year ended December 31,
1997.
(e) Incorporated by reference to the Company's Form 10-K for the year ended
December 31,1998.
(f) Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1999.
13March
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
October 29, 1999 /s/ Franklin Pass
- ----------------------------------------- ---------------------------------------------------
Date Franklin Pass, MD, Chairman/CEO
October 29, 1999 /s/ Lawrence M. Christian
- ----------------------------------------- ---------------------------------------------------
Date Lawrence M. Christian, Vice President-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)
1413