-----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, RUAUfvDC3xsxxXJwvdiEVsUTTKnP33Z4LEpAVkO8x/jhrn4S3z42t0YQue1zopM8 OaVNxSSUVXXyybvUZSxgEQ== 0000950131-97-003075.txt : 19970506 0000950131-97-003075.hdr.sgml : 19970506 ACCESSION NUMBER: 0000950131-97-003075 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970505 SROS: NASD 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20945 FILM NUMBER: 97595386 BUSINESS ADDRESS: STREET 1: 1840 BERKSHIRE LANE CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125531102 MAIL ADDRESS: STREET 1: 1840 BERKSHIRE LANE CITY: PLYMOUTH STATE: MN ZIP: 55431 10-K/A 1 AMENDMENT NO. 1 TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K/A-1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from __________ to __________ Commission file number 0-20945 ------- MEDI-JECT CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-1350192 - ---------------------------------- ---------------------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification Number) 1840 Berkshire Lane, Minneapolis, Minnesota 55441 ------------------------------------------------- (Address of principal executive offices) Zip Code Registrant's telephone number, including area code: (612) 553-1102 ------------- SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT; Common Stock, $.01 Par Value 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 _____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 19, 1997 was approximately $33,058,228 (based upon the last reported sale price of $4.75 per share on March 19, 1997 on the Nasdaq National Market). The number of shares outstanding of the registrant's common stock as of March 19, 1997: 6,959,627. DOCUMENTS INCORPORATED BY REFERENCE Pursuant to General Instruction G, certain responses in Part III are incorporated herein by reference to information contained in the Company's definitive Proxy Statement for its 1996 annual meeting to be filed on or before April 30, 1997. 1 Item 8. FINANCIAL STATEMENTS. MEDI-JECT CORPORATION INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report......................................................... 18 Balance Sheets as of December 31, 1995 and 1996...................................... 19 Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996........ 20 Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and 1996...................................................................... 21 Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996....... 22 Notes to Financial Statements........................................................ 23
17 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Medi-Ject Corporation: We have audited the accompanying balance sheets of Medi-Ject Corporation (the Company) as of December 31, 1995 and 1996, and the related statements of operations, shareholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medi-Ject Corporation as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Minneapolis, Minnesota February 21, 1997 18 MEDI-JECT CORPORATION BALANCE SHEETS
DECEMBER 31, -------------------------- 1995 1996 ---------- ------------ ASSETS Current Assets: Cash and cash equivalents...................................... $ 35,817 $ 9,575,240 Marketable securities.......................................... 0 1,464,277 Accounts receivable, less allowances for doubtful accounts of $4,125 and $12,983, respectively.............................. 176,240 537,755 Inventories.................................................... 280,229 351,330 Prepaid expenses and other assets.............................. 35,508 86,589 ----------- ------------ 527,794 12,015,191 ----------- ------------ Equipment, furniture and fixtures, net.............................. 477,026 595,590 ----------- ------------ Patent rights....................................................... 235,288 345,010 ----------- ------------ $ 1,240,108 $ 12,955,791 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable............................................... $ 243,281 $ 353,456 Accrued expenses and other liabilities......................... 398,232 331,446 Deferred revenue............................................... 148,563 14,019 Capital lease obligations - current maturities................. 45,534 32,747 Notes payable - current maturities............................. 342,457 96,097 ----------- ------------ 1,178,067 827,765 ----------- ------------ Long-term liabilities: Capital leases, less current maturities........................ 40,109 8,350 Notes payable, less current maturities......................... 96,097 0 ----------- ------------ 136,206 8,350 ----------- ------------ Shareholders' equity (deficit): Series B convertible preferred stock: $.01 par; authorized 3,046,459 shares: 2,090,633; and 0 issued and outstanding at December 31, 1995 and 1996, respectively................... 20,906 -- Series A convertible preferred stock: $.01 par; authorized 1,218,584 shares: 1,103,867; and 0 issued and outstanding at December 31, 1995 and 1996, respectively...................... 11,039 -- Common Stock: $0.01 par; authorized 17,000,000 shares: 218,864 and 6,925,636 issued and outstanding at December 31, 1995 and 1996, respectively...................... 2,189 69,256 Additional paid-in capital..................................... 9,193,600 23,590,887 Accumulated deficit............................................ (9,301,899) (11,540,467) ----------- ------------ Total shareholders' equity (deficit).......................... (74,165) 12,119,676 ----------- ------------ Commitments (Notes 6 and 13) $ 1,240,108 $ 12,955,791 =========== ============
See accompanying notes to financial statements. 19 MEDI-JECT CORPORATION STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1994 1995 1996 ---------- ---------- ---------- Revenues: Sales ......................................... $1,517,660 $1,653,869 $1,837,704 Licensing & product development................ 470,000 920,937 1,854,100 ---------- ---------- ---------- 1,987,660 2,574,806 3,691,804 ---------- ---------- ---------- Operating Expenses: Cost of sales.................................. 630,628 1,048,937 1,136,272 Research and development....................... 401,382 1,195,435 2,584,806 General and administrative..................... 1,118,326 1,236,681 1,397,338 Sales and marketing............................ 877,522 886,792 1,019,077 ---------- ---------- ---------- 3,027,858 4,367,845 6,137,493 ---------- ---------- ---------- Net operating loss................................ (1,040,198) (1,793,039) (2,445,689) ---------- ---------- ----------- Other income (expense): Interest and other income...................... 15,916 16,486 239,055 Interest and other expense..................... (42,180) (105,906) (31,934) ---------- ---------- ----------- (26,264) (89,420) 207,121 ---------- ---------- ----------- Net loss.......................................... $(1,066,462) $(1,882,459) $(2,238,568) ========== ========== =========== Net loss per common share......................... -- -- $ (.39) =========== Weighted average common shares outstanding.................................... -- -- 5,803,346 Proforma net loss per common share (unaudited) (Note 1)........................... -- $ (.46) -- =========== Proforma weighted average common shares outstanding (unaudited) (Note 1................ -- 4,087,360 --
See accompanying Notes to Financial Statements 20 MEDI-JECT CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK ----------------------------------------------------------------------- SERIES C SERIES B SERIES A ---------------------- --------------------- --------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ---------- --------- -------- -------- --------- Balance, December 31, 1993.......................... -- $ -- 761,615 $ 7,616 1,103,867 $ 11,039 Common stock: Shares issued as compensation.................. -- -- Shares issued for cash......................... -- -- -- -- -- -- Series B: Exercise of stock options...................... -- -- 552,171 5,522 -- Shares issued for cash......................... -- -- 175,172 1,752 -- -- Offering costs................................. -- -- -- -- -- -- Net Loss............................................ -- -- -- -- -- -- -------- --------- --------- --------- ----------- -------- Balance, December 31, 1994.......................... -- -- 1,488,958 14,890 1,103,867 11,039 Common stock: Exercise of stock options...................... -- -- -- -- -- -- Series B: Exercise of stock options...................... -- -- 228,483 2,284 -- -- Shares issued for cash......................... -- -- 373,192 3,732 -- -- Offering costs................................. -- -- -- -- -- -- Amendments to investor option agreement........ -- -- -- -- -- -- Net Loss............................................ -- -- -- -- -- -- -------- --------- --------- --------- ----------- -------- Balance, December 31, 1995.......................... -- -- 2,090,633 20,906 1,103,867 11,039 Conversion of Series A to common stock.......................................... -- -- -- -- (1,103,867) (11,039) Conversion of note payable........................ -- -- -- -- -- -- Shares issued for reverse stock split............. -- -- 43 -- -- -- Series B: Exercise of stock options and conversion of note payable................................ -- -- 380,808 3,808 -- -- Series C: Shares issued for cash......................... 761,615 7,616 -- -- -- -- Offering costs................................. -- -- -- -- -- -- Series E: Warrant issued for cash....................... -- -- -- -- -- -- Common stock: Issued common stock pursuant to the company's initial public offering.............. -- -- -- -- Offering costs.................................... -- -- -- -- -- -- Underwriter's warrant............................. -- -- -- -- -- -- Conversion of Series C to common stock.............. (761,615) (7,616) -- -- -- -- Conversion of Series B to common stock............. -- -- (2,471,484) (24,714) -- -- Issuance of Series B anti-dilution shares........... -- -- -- -- -- -- Net loss.......................................... -- -- -- -- -- -------- --------- --------- --------- ----------- -------- Balance, December 31, 1996.......................... -- $ -- -- $ -- -- $ -- ======== ========= ========= ========= =========== ======== ADDITIONAL COMMON STOCK PAID-IN ACCUMULATED --------------------------- SHARES AMOUNT CAPITAL DEFICIT TOTAL ------------ ------------ ------------ --------- ----------- Balance, December 31, 1993........................ 177,598 $ 1,776 $ 6,451,269 $(6,352,978) $ 118,722 Common stock: Shares issued as compensation................ 37,310 373 2,029 -- 2,402 Shares issued for cash....................... 2,814 28 200 -- 228 Series B: Exercise of stock options.................... -- -- 719,478 -- 725,000 Shares issued for cash....................... -- -- 548,248 -- 550,000 Offering costs............................... -- -- (77,863) -- (77,863) Net Loss.......................................... -- -- -- (1,066,462) (1,066,462) ---------- ---------- ----------- ------------ ------------- Balance, December 31, 1994........................ 217,722 2,177 7,643,361 (7,419,440) 252,027 Common stock: Exercise of stock options.................... 1,142 12 1,548 -- 1,560 Series B: Exercise of stock options.................... -- -- 347,716 -- 350,000 Shares issued for cash....................... -- -- 1,221,268 -- 1,225,000 Offering costs............................... -- -- (65,383) -- (65,383) Amendments to investor option agreement...... -- -- 45,090 -- 45,090 Net Loss.......................................... -- -- -- (1,882,459) (1,882,459) ---------- ---------- ----------- ------------ ------------- Balance, December 31, 1995........................ 218,864 2,189 9,193,600 (9,301,899) (74,165) Conversion of Series A to common stock........................................ 1,103,867 11,039 -- -- -- Conversion of note payable...................... 30,465 305 99,695 -- 100,000 Shares issued for reverse stock split........... 589 5 (5) -- -- Series B: Exercise of stock options and conversion of note payable.............................. -- -- 809,822 -- 813,630 Series C: Shares issued for cash....................... -- -- 2,992,384 -- 3,000,000 Offering costs............................... -- -- (236,022) -- (236,022) Series E: Warrant issued for cash..................... -- -- 125,000 -- 125,000 Common stock: Issued common stock pursuant to the company's initial public offering............ 2,200,000 22,000 12,078,000 -- 12,100,000 Offering costs.................................. -- -- (1,470,419) -- (1,470,419) Underwriter's warrant........................... -- -- 220 -- 220 Conversion of Series C to common stock............ 761,615 7,616 -- -- -- Conversion of Series B to common stock........... 2,471,484 24,714 -- -- -- Issuance of Series B anti-dilution shares......... 138,752 1,388 (1,388) -- -- Net loss.......................................... -- -- -- (2,238,568) (2,238,568) ---------- ---------- ----------- ------------ ------------- Balance, December 31, 1996........................ 6,925,636 $ 69,256 $23,590,887 $(11,540,467) $12,119,676 ========== ========== =========== ============ =============
See accompanying notes to financial statements 21 MEDI-JECT CORPORATION STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1994 1995 1996 -------------- ------------- ----------- Cash flows from operating activities: Net loss................................................. $(1,066,462) $(1,882,459) $(2,238,568) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation............................................. 36,945 85,960 178,526 Interest on marketable debt securities................... 0 0 (7,417) Shares issued as compensation............................ 2,402 -- -- Amendments to investor option agreement.................. -- 45,090 -- Changes in operating assets and liabilities: Accounts receivable..................................... (20,639) (86,937) (361,515) Inventories............................................. (121,547) (109,368) (71,101) Prepaid expenses and other assets....................... 3,542 (23,190) (51,081) Accounts payable........................................ 16,854 83,263 110,175 Accrued liabilities..................................... 90,026 107,193 (66,786) Deferred revenue........................................ 66,250 38,563 (134,544) ----------- ----------- ----------- Net cash used in operating activities......................... (992,629) (1,741,885) (2,642,311) ----------- ----------- ----------- Cash flows from investing activities: Purchases of marketable securities....................... 0 0 (1,456,860) Purchases of equipment, furniture and fixtures........... (256,622) (120,392) (297,090) Purchase of patent rights................................ -- (235,288) (109,722) ----------- ----------- ----------- Net cash used in investing activities......................... (256,622) (355,680) (1,863,672) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on capital lease obligations.......... (26,729) (42,138) (44,546) Proceeds from issuance of common stock................... 228 1,560 12,101,130 Proceeds from issuance of convertible preferred stock.... 1,275,000 1,575,000 3,812,500 Warrants issued.......................................... -- -- 125,220 Proceeds from issuance of notes payable.................. 100,000 125,000 187,500 Principal payments on notes payable...................... (24,967) (106,324) (429,957) Offering costs........................................... (77,863) (65,383) (1,706,441) ----------- ----------- ----------- Net cash provided by financing activities..................... 1,245,669 1,487,715 14,045,406 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents.......... (3,582) (609,850) 9,539,423 Cash and cash equivalents: Beginning of year........................................ 649,249 645,667 35,817 ----------- ----------- ----------- End of year.............................................. $ 645,667 $ 35,817 $ 9,575,240 =========== =========== ===========
See accompanying Notes to Financial Statements. 22 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business The Company is primarily a manufacturer and distributor of needle-free injection devices and disposables for the injection of insulin and human growth hormone. Products are sold throughout the United States, Europe, the Middle East, and Asia. The Company completed an initial public offering ("IPO") of 2,200,000 shares of its common stock on October 2, 1996. Simultaneously with the closing date of the IPO, all outstanding shares of preferred stock (consisting of 2,471,484 shares Series B, and 761,615 shares Series C) were automatically converted into an aggregate of 3,371,851 shares of common stock. The conversion of the Company's preferred stock to common stock, as described herein, has been reflected in the balance sheet at December 31, 1996. Reverse Stock Split In connection with the Company's IPO, the Board of Directors and shareholders approved a 1-for -1.313 reverse stock split of its common stock, effective August 6, 1996. The effect of the stock split has been retroactively reflected in the accompanying financial statements and notes thereto. Net Loss Per Share Net loss per common share is computed based upon the weighted average number of common shares outstanding. The unaudited pro forma net loss per common share information included in the statement of operations for the year ended December 31, 1995 reflects the impact of the conversion of all Preferred Shares retroactively as of the date of issuance of the Preferred Shares. Also, pursuant to the Securities and Exchange Commission regulations, all common and Preferred Shares issued and options and warrants granted by the Company during the 12-month period preceding the initial filing date of the October 1996 public offering have been included in the year end and pro forma calculation of weighted average common and common equivalent shares outstanding as if they were outstanding for all periods presented using the treasury stock method and an offering price of $5.50 per share. Cash Equivalents The Company considers highly liquid debt instruments with original maturities of ninety days or less to be cash equivalents. Marketable Securities The Company accounts for its marketable debt securities in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company's marketable debt securities are classified as available-for-sale. However, because the original maturities of the Company's debt securities are less than one year, they are reported at amortized cost which approximates fair value. 23 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Inventories Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. Equipment, Furniture, and Fixtures Equipment, furniture, and fixtures are stated at cost and are depreciated using the straight-line method over their estimated useful lives ranging from 3 to 10 years. Sales Recognition Sales and related costs are recognized upon shipment of product to customers. Sales are recorded net of provisions for returns and discounts. Licensing and Product Development Revenue Recognition Licensing and product development revenue is recognized when underlying performance criteria for payment have been met and the Company has an unconditional right to such payment. Depending on a license or product development agreement's terms, recognition criteria may be satisfied upon achievement of milestones, passage of time, or product sales by the licensee. Payments received by the Company in excess of amounts earned are classified as deferred revenue. Stock-Based Compensation Compensation expense for stock incentives granted to employees and directors is recognized in accordance with Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees." Pro forma effects on net loss and loss per share are provided as if the fair value based method defined in Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," has been applied. Product Warranty The Company recognizes the estimated cost of warranty obligations to its customers at the time the products are shipped. Research and Development Company sponsored research and development expenses related to both present and future products are expensed as incurred. Income Taxes Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases. 24 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Concentration of Credit Risk Financial instruments that may subject the Company to concentration of credit risk consist principally of marketable debt securities investments and trade accounts receivable. Risks related to marketable securities purchased are mitigated by the limitations established in the Company's investment policy. This policy requires strong issuer credit ratings and limits the amount of credit exposure from any one issuer or industry. For trade accounts receivable, risks are mitigated by the large number of individual customers, long-standing credit relationships with major distributors and a satisfactory financial evaluation of distributors carrying substantial credit balances. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Reclassifications Certain prior year amounts have been reclassified to conform with current year presentation. Fair Value of Financial Instruments All financial instruments are carried at amounts that approximate estimated fair value. 2. INVENTORIES Inventories consist of the following:
December 31, ---------------------------- 1995 1996 ---------- ---------- Raw material................... $ 145,603 $ 175,251 Work-in-process................ 80,663 119,575 Finished goods................. 53,963 56,504 ---------- ---------- $ 280,229 $ 351,330 ========== ==========
25 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 3. EQUIPMENT, FURNITURE, FIXTURES Equipment, furniture and fixtures consisted of the following:
December 31, ---------------------------------- 1995 1996 --------------- --------------- Office equipment.............................................. $ 262,847 $ 404,811 Production equipment.......................................... 753,319 822,477 Displays...................................................... 11,296 11,296 Less Accumulated Depreciation................................. (550,436) (642,994) --------- --------- $ 477,026 $ 595,590 ========= =========
4. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consisted of the following:
December 31, --------------------------------- 1995 1996 --------------- ----------- Product warranty and returns.................................. $ 71,620 $ 86,436 Payroll....................................................... 29,787 37,828 Patent rights obligation...................................... 96,500 -- Other......................................................... 200,325 207,182 --------- --------- Other......................................................... $ 398,232 $ 331,446 ========= =========
5. NOTES PAYABLE Notes payable consisted of the following:
DECEMBER 31, -------------------------- 1995 1996 ----------- ----------- Unsecured notes payable, interest at 10%............................... $ 125,000 $ -- Notes payable, due in aggregate monthly payments of $11,127 including interest at 10% through October 1997. Notes are secured by all assets of the Company.................................. 213,554 96,097 Unsecured note payable to shareholder/director, with interest at 12% payable monthly, Convertible into 30,465 shares of common stock......................................... 100,000 -- ----------- ----------- 438,554 96,097 Current maturities..................................................... (342,457) (96,097) ----------- ----------- Notes payable, less current maturities................................. $ 96,097 -- ========= ===========
On January 25, 1996, the Company converted an unsecured note payable totaling $312,500 (of which $125,000 was outstanding at December 31, 1995) into 190,404 shares of common stock. In addition, the holder of the debt purchased an additional 190,404 shares of common stock for proceeds of $500,000 in connection with a stock option exercise. On February 29, 1996 an unsecured note payable to a shareholder totaling $100,000, which was outstanding at December 31, 1995, was converted into 30,465 shares of common stock. 26 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 6. LEASES The Company has a noncancelable operating lease for its office and manufacturing facility that expires in April 1997. This lease requires the Company to pay all executory costs such as maintenance and insurance. In February, 1997, the Company executed a five year lease for a new facility, (See note 13). Rent expense incurred for the years ended December 31, 1994, 1995 and 1996 was $102,306, $107,616 and $101,139, respectively. The Company is also obligated under noncancelable leases classified as capital leases. The leases call for aggregate monthly payments of $4,302 with various expiration dates through September 1999. Equipment, furniture, and fixtures include $326,186 and $282,186 of cost and $221,341 and $221,409 of accumulated amortization as of December 31, 1995 and 1996, respectively, related to these leases. Future minimum lease payments are as follows as of December 31, 1996:
CAPITAL OPERATING LEASES LEASES -------- --------- 1997............................................................ $ 36,570 $ 27,236 1998............................................................ 7,070 -- 1999............................................................ 2,412 -- -------- -------- 46,052 $ 27,236 ======== Amount representing interest (at rates from 12% to 20.9%)....... (4,955) -------- Present value of minimum capital lease payments............. 41,097 Current maturities.............................................. (32,747) -------- Obligations under capital leases less current maturities.... $ 8,350 ========
7. INCOME TAXES The Company incurred losses for both book and tax purposes in each of the three years in the period ended December 31, 1996 and, accordingly, no income taxes were provided. Effective tax rates differ from statutory federal income tax rates in the years ended December 31, 1996, 1995, and 1994 as follows:
1994 1995 1996 ------- ------- ------- Statutory federal income tax rate........... (34.0)% (34.0)% (34.0)% Valuation allowance increase................ 36.0 36.0 39.8 State income taxes, net of federal benefit.. (2.0) (2.0) (2.0) Research and experimentation credit......... -- -- (1.6) Other....................................... -- -- (2.2) ------ ------ ------ 0.0% 0.0% 0.0% ====== ====== ======
27 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 Deferred taxes as of December 31, 1995 and 1994 consist of the following:
1995 1996 ---- ---- Deferred tax assets: Inventory reserve................ $ 72,100 $ 21,000 Net operating loss carryforward.. 3,123,600 4,012,000 Research credit carryforward..... 117,000 152,000 Other............................ 27,300 45,000 ----------- ----------- 3,340,000 4,230,000 Less valuation allowance........... (3,340,000) (4,230,000) ----------- ----------- $ 0 $ 0 =========== ===========
At December 31, 1996, the Company had net operating loss carryforwards ("NOL") of approximately $11,100,000 for federal income tax purposes, which begin to expire in 1997. Additionally, the Company had research credit carryforwards of approximately $152,000, which begin to expire in 1997. As a result of the 1996 equity changes as described in Note 8, the net operating loss will be subject to annual limitation as defined by Section 382 of the Internal Revenue Code. The annual limitation for utilization of the net operating loss carryforwards is approximately $750,000. Subsequent and future equity changes could further limit the net operating losses available. 8. SHAREHOLDERS' EQUITY Initial Public Offering On October 2, 1996, the Company completed an initial public offering ("IPO") of its common stock. In this offering 2,200,000 common shares were sold at a price of $5.50 per share. As a consequence of this offering, and in accordance with the terms of each of the various series of preferred stock that the Company had outstanding prior to the IPO, all series of preferred shares then outstanding and rights to acquire preferred shares were automatically converted into common stock or rights to purchase common stock Authorized Shares At December 31, 1996, the total number of shares authorized for all classes of stock was 18,000,000 shares: 17,000,000 common shares and 1,000,000 preferred shares unissued and undesignated as to class. Series A Preferred On January 31, 1996, the Company converted its Series A convertible preferred stock into common stock. Automatic conversion into common stock of the Series A was precipitated by the Company's net worth exceeding $1.0 million. Stock Options and Warrants The Company has issued options and warrants for common stock to various officers, directors, employees, lenders and others. These options and warrants have exercise prices ranging from $0.79 to $6.60 per share and expire from January 1997 to January 2006. 28 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 As of December 31, 1995 the Company had stock options outstanding for 380,808 shares of its Series B convertible preferred stock issued in connection with a 1993 stock purchase agreement. This option agreement, was exercised in full on February 29, 1996. The exercise price was $1.64 per share for 190,404 shares and $2.63 for the remaining 190,404 shares, all of which were converted to shares of common stock in connection with the Company's IPO. Amendments during 1995 to the Series B preferred option agreement resulted in the recognition of $45,090 in expense. This expense was associated with decreases in the exercise price of certain options in exchange for a short-term credit facility, and the cancellation of a technology license and co-development agreement. The Company's stock option plans allow for grant of options to officers, directors, and employees to purchase up to 995,050 shares of common stock at exercise prices not less than 100% of fair market value on the dates of grant. The term of the options may not exceed tens years and vest in varying periods. Stock option and warrant activity is summarized as follows:
NUMBER WEIGHTED OF AVERAGE SHARES PRICES ----------- ---------- Outstanding at December 31, 1993..................................... 1,043,282 $ 1.41 Granted............................................................ 124,995 1.61 Exercised.......................................................... (152,323) 1.31 Canceled........................................................... (7,236) 29.42 ----------- ---------- Outstanding at December 31, 1994..................................... 1,008,718 1.43 Granted............................................................ 214,776 3.16 Exercised.......................................................... (229,627) 1.45 Canceled........................................................... (2,057) 3.28 ----------- ---------- Outstanding at December 31, 1995..................................... 991,810 1.84 Granted............................................................ 2,942,915 5.61 Exercised.......................................................... (381,380) 1.64 Canceled........................................................... (19,959) 1.75 ----------- ---------- Outstanding at December 31, 1996..................................... 3,533,386 $ 5.03 =========== ==========
As of December 31, 1995 and 1996, 406,931 and 828,498 options and 584,879 and 2,704,888 warrants were outstanding, respectively. At December 31, 1996, the range of exercise prices and weighted-average remaining contractual life of outstanding options and warrants was $.79 - $6.60 and 8 years, respectively. At December 31, 1995 and 1996, currently exercisable options and warrants aggregated 238,240 and 419,875 options and 584,879 and 2,704,888 warrants, respectively and the weighted-average exercise price of those options and warrants was $1.84 and $5.03, respectively. The per share weighted-average fair value of stock options granted during 1995 and 1996 is estimated as $.95 and $4.16, respectively on the date of grant using the Black-Scholes option pricing model with the following assumptions for 1995 and 1996: expected volatility of 0 and 106 for 1995 and 1996, respectively, risk-free interest rate of 6.0%, expected dividends of $0 and expected lives of 2.5 to 7.5 years for both years. 29 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 The Company applies APB No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation, the Company's net loss and loss per share would have increased by approximately $97,000 or $.03 per share in 1995 and $375,000, or $.08 per share in 1996. Proforma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented because compensation cost is reflected over the options vesting period and compensation cost for options granted prior to January 1, 1995 is not considered. 9. EMPLOYEE SAVINGS PLAN The Company has an employee savings plan that covers all employees who have met minimum age and service requirements. Under the plan, eligible employees may contribute up to 15% of their compensation into the plan. The Company, at the discretion of the Board of Directors, may contribute elective amounts to the plan, allocated in proportion to employee contributions to the plan, employee's salary, or both. No elective contributions have been made for the years ended December 31, 1994, 1995, and 1996. 10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION During 1994, the Company entered into capital lease obligations for equipment of $111,571. Cash paid for interest during the years ended December 31, 1994, 1995, and 1996 was $67,785, $62,515 and $30,919, respectively. Cash paid for taxes during the years ended December 31, 1994, 1995 and 1996 was $300 in each year. During 1996, notes payable of $125,000 and $100,000, respectively, were converted into 190,404 shares of Series B Preferred Stock and 30,465 shares of Common Stock, respectively. 11. SALES The Company had a foreign customer, a distributor of the Company's products, who accounted for approximately 5%, 18% and 18% of sales for the years ended December 31, 1994, 1995, and 1996, respectively. Foreign sales by geography were as follows:
1994 1995 1996 -------- -------- -------- Europe (primarily Germany)...... $ 14,960 $301,277 $356,838 Other........................... 146,469 319,379 221,653 -------- -------- -------- Total....................... $161,429 $620,656 $578,491 ======== ======== ========
Other consists mainly of sales to Asia. 30 MEDI-JECT CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 12. BECTON DICKINSON ARRANGEMENT On January 25, 1996, the Company sold 761,615 shares of common stock to Becton Dickinson and Company ("Becton Dickinson") for $3,000,000. In addition, the Company granted Becton Dickinson an option to purchase 380,808 shares of common stock with an exercise price of $4.60. Warrants for 1,904,037 shares of common stock were also granted at an exercise price of $5.91 for initial consideration of $125,000. The Becton Dickinson option and warrant agreements each expire on the tenth anniversary of the agreement. In connection with the sale of equity to Becton Dickinson, the Company entered into a licensing agreement with Becton Dickinson, which provides Becton Dickinson exclusive worldwide rights to certain Medi-Ject technology. In exchange for granting this exclusive right, the Company will receive $100,000 per month for 24 months beginning January 1996 to develop the technology. 13. SUBSEQUENT EVENTS On February 11, 1997, the Company executed a lease for a new office and manufacturing facility. The new facility consists of a total of 22,968 square feet of space and is located in Plymouth, Minnesota, near the Company's existing offices. The lease term is for 60 months at an average of $14,355 per month. 31 * Indicates management contract or compensatory plan or arrangement. (a) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-6661), filed with the Securities and Exchange Commission on October 1, 1996. + Pursuant to Rule 406 of the Securities Act of 1933, as amended, confidential portions of Exhibit 10.20 were deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment, which was subsequently granted by the Securities and Exchange Commission. 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, in the City of Minneapolis, State of Minnesota, on May 5, 1997. MEDI-JECT CORPORATION /s/ Mark S. Derus --------------------- Mark S. Derus Chief Financial Officer 35 EX-23 2 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23 Independent Auditors' Consent The Board of Directors and Shareholders Medi-Ject Corporation: We consent to incorporation by reference in the Registration Statement (No. 333-20389) on Form S-8 of Medi-Ject Corporation of our report dated February 24, 1997, relating to the balance sheets of Medi-Ject Corporation as of December 31, 1995 and 1996, and the related statements of operations, shareholders' equity (defict) and cash flows for each of the years in the three-year period ended December 31, 1996, which report is incorporated by reference in the annual report on Form 10-K/A-1 of Medi-Ject Corporation. /s/ KPMG Peat Marwick LLP Minneapolis, Minnesota May 5, 1997 -----END PRIVACY-ENHANCED MESSAGE-----