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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
Commission file number: 0-28154
SMLX TECHNOLOGIES, INC.
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(Name of small business issuer in its Charter)
Colorado 84-1337509
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Ansin Boulevard, Hallandale, Florida 33009
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(Address of principal executive offices, including zip code)
(954) 455-0110
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(Issuer's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock,
$.0001 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year were $962,836.
As of April 6, 2000, 12,104,648 shares of the Registrant's common stock were
outstanding, and the aggregate market value of the shares held by non-affiliates
was approximately $4,119,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
SMLX Technologies, Inc. (the "Company") was incorporated under Colorado
law on October 26, 1987, under the name The Trader's Edge Ltd. On March 28,
1996, the name was changed to Music Tones Ltd. The Company was generally
inactive through December 31, 1996. On March 28, 1997, the Company's
shareholders approved changing the Company's name to Simplex Medical Systems,
Inc., and on August 20, 1998, the Company's shareholders approved changing the
Company's name to SMLX Technologies, Inc.
In April 1996, the Company filed a registration statement with the
Securities and Exchange Commission on Form 10-SB, which registered its Common
Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended.
On March 5, 1997, the Company completed a reverse acquisition of 100% of
the outstanding common stock of Simplex Medical Systems, Inc., a Florida
corporation ("Simplex-Florida") in exchange for 3,453,000 shares of the
Company's Common Stock which resulted in the shareholders of Simplex-Florida
acquiring approximately 46.04% of the shares outstanding after the
transaction. In connection with the closing of this transaction, several
shareholders agreed to cancel a total of 31,953,000 shares of Common Stock.
As a result, after the acquisition of Simplex-Florida there were a total of
7,500,000 shares outstanding.
Unless the context otherwise requires, the term "Company" herein refers
to the Company and its wholly-owned subsidiaries, Simplex-Florida, Analyte
Diagnostics, Inc. ("ADI"), and IRT Management Corp. ("IRT"). Simplex-Florida
was incorporated in Florida in September 1995, ADI was incorporated in Florida
on June 6, 1995, and IRT was incorporated in Florida on January 14, 1997.
Simplex-Florida changed its name to SMLX Technologies of Florida, Inc. during
November 1998.
VECTOR MEDICAL AGREEMENT
In April 1999, the Company entered into an Exclusive Licensing Agreement
with Vector Medical Technologies, Inc. ("Vector") with regard to the Company's
assets and technologies involving certain drug delivery system products.
Vector received a ten year exclusive license for any products sold by this
subsidiary in exchange for a royalty of 3% to 4% net revenues. Vector is also
required to pay the Company non-refundable advances against future royalties
of at least $900,000 per year to be used solely for feasibility studies
relating to the technologies to be performed by the Company or its subsidiary.
Vector has the right to discontinue the payments and terminate its rights in
the event that adverse reaction to the technologies occur in patients or
should efficacy not qualify for submission to the FDA for subsequent approval.
Also, in the event that Vector fails to make payments, and does not cure the
default upon notice from the Company, the agreement will become null and void
and the license terminated without further obligation or liability of either
company.
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The Company also granted to Vector a right to purchase the subsidiary or
its assets for a four year period at a price ranging from $3.6 to $6.6 million
(less amounts paid) depending on the amount of gross sales from the assets
during the prior 12 months. The purchase price could be paid all or part in
shares of Vector's common stock under certain circumstances if such shares are
traded on Nasdaq or the American or New York Stock Exchange. However, Vector
is not currently publicly-held.
During 1999, the Company received $600,000 in advance royalties under the
agreement with Vector.
AGREEMENT WITH HELVESTAR
Effective May 3, 1999, the Company entered into a Joint Venture Agreement
with HelveStar S.A., a Swiss corporation based in Fribourg, Switzerland.
Pursuant to the Agreement, a new Swiss corporation named "BioStar, S.A." was
formed, owned 60% by HelveStar and 40% by the Company. HelveStar contributed
the initial capital of 100,000 Swiss Francs for BioStar and is advancing
working capital to BioStar for the first 24 months or until BioStar achieves
positive cash flow from operating revenues, whichever first occurs. The
Company contributed to BioStar three license agreements for its core
technologies, namely its Bioven, Saliva Test and Airbrator products. In
addition, the Company agreed to sell its rights to certain non-core
technologies to BioStar in exchange for $2,400,000 payable in monthly
installments of $100,000. During 1999, only $300,000 of such payments were
made, and as of the date of this Report, no installments have been received in
2000.
The agreement states that in the event that BioStar fails to make its
payments in connection with its purchase of the non-core technologies, all
non-core technologies not paid for will revert to the Company and the
exclusive worldwide licenses related to certain core technologies will be
terminated. In March 2000, the Company sent default letters to BioStar
informing them of their non-payment under the terms of the agreement and
giving them twenty days to cure the default. The default was not subsequently
cured during this twenty day period.
Under the terms of the Agreement, the Company is responsible for all
research and development, new product evaluations and new product training for
BioStar, HelveStar and their affiliates. The Company has ceased all marketing
activities for products covered by the joint venture except for existing
agreements with distributors.
HelveStar has assigned individuals to serve as officers, employees and
representatives of BioStar. The Board of Directors of BioStar consists of six
members, of which four have been designated by HelveStar and two have been
designated by the Company. In addition, the Company has agreed to allow
HelveStar to designate two persons to become Directors of the Company and
support their election.
In connection with the Joint Venture Agreement, the Company granted
HelveStar options to purchase 900,000 shares of its Common Stock at $1.58 per
share. In addition, HelveStar or its designees has the right to purchase
2,250,000 shares of the Company's Common Stock at 50% of the market price on
the last day prior to purchase that at least 5,000 shares were traded until
May 3, 2001. During the year ended December 31, 1999, six persons designated
by HelveStar purchased an aggregate of 375,204 shares under this option.
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DESCRIPTION OF BUSINESS
GENERAL
SMLX is engaged in the business of developing technological solutions for
the medical, dental and other industries and then bringing the technologies to
the marketplace.
In October 1999, the Company's quality management system was approved for
ISO 9001, BS EN 9001, and ANSI/ASQC Q9001-1994 certification for the design,
development and manufacture of dental air abrasion devices. In January 2000,
the Company also received EN 46001:1996 certification in this category.
ISO (the International Organization for Standardization) is a worldwide
federation of national standards bodies dealing with quality system
requirements. The mission of ISO is to create a system that, when adhered to,
prevents deviations from specific quality requirements at all product stages
from design to service.
The Company has also met all of the requirements and has been self-
certified to stamp dental air abrasion products shipped into the European
Union ("EU") with a "CE" symbol called the "CE Marking", which certifies that
the products meet the requirements of all relevant EU directives. Products
can no longer be sold in the EU without the "CE" mark.
THE COMPANY'S PRODUCTS
Our products can be organized as follows:
1. Medical diagnostic tests - Development completed.
(a) Rapid saliva tests (cleared for use in certain
foreign countries; not in the U.S.).
2. Medical diagnostic tests - In development.
(a) Rapid saliva tests for mumps, measles and rubella.
(b) Blood or saliva test for periodontal disease.
3. Drug Delivery Systems - Licensed to Vector Medical
Technologies, Inc.
4. Dental products.
(a) Airbrator(R) for polishing, cleaning and abrading teeth
(cleared for marketing by FDA and for "CE" mark for
marketing in EU).
(b) Saliva Collector (dental use).
(c) Airbrator(R) for use in cavity preparation (510(k) sub-
mitted to FDA; cleared for "CE" mark for marketing in
EU).
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5. Equine products in testing.
(a) Bioven - anti-inflammatory drug (submitted to USDA).
(b) Equine infectious anemia rapid test.
6. Other miscellaneous products.
(a) Flea and tick shampoo for small animals.
(b) Organic garden spray (in final testing).
(c) Flavor enhancement.
(d) Cosmetic line developed under contract with Vector
(in final testing).
A. THE SALIVA COLLECTION DEVICE. The Company's saliva collector is
designed to replace the more traditional methods of specimen collection for
clinical testing. Blood collection has the obvious disadvantage of being an
invasive procedure with associated fear and pain; but most importantly
requires trained personnel to collect the specimen. Urine and fecal matter
have unsavory characteristics as well as the troublesome handling and disposal
problems associated with these biological specimens. All of these specimens
have the disadvantage of being potentially infectious and are treated as bio-
hazardous materials. Saliva collected by the Company's collector can be used
in all routine laboratory equipment and analyzers; can be used by unskilled
personnel; requires little training in its use; and is well tolerated by
patients. Literature references and data obtained by the Company indicates
that saliva collected by its collection system provides a biological specimen
which compares to blood in many of the routinely tested components, such as
HIV, hepatitis, therapeutic drugs, and drugs of abuse, to name only a few.
Currently, outside the United States, the saliva collector, when married
to the Company's rapid testing devices, provides the user with a rapid point-of-
care test system which requires little training, is stored at room
temperature, needs no complicated lab equipment, and provides results in ten
to 15 minutes. This combination provides users such as public health
officials, prisons and the military with an effective, rapid testing system.
In relatively undeveloped countries, the on-site saliva testing system
provides a means of population screening and effective disease management
through rapid definitive identification of affected individuals.
In clinical tests, it has proven both safe and effective for the
collection of a clinically acceptable sample of saliva from a donor's mouth,
and the recovery thereof for constituent analysis. Because of the metabolic
constituents of saliva, the sample collector can be used with a number of
diagnostic tests, including analysis for antibodies which indicate certain
diseases (such as HIV, hepatitis, measles and mumps).
During April 1998 the Company received a letter from the FDA stating that
the FDA had reviewed the Company's 510(k) notification regarding the saliva
collector and had approved marketing of the product in the United States for
use as a saliva absorber during dental procedures.
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The fluid collection device to be manufactured and distributed by the
Company may also be used with a variety of screening tests for on-site
determination of the presence of pollutants in drinking water, waste streams
and environmentally sensitive habitats.
The countries which have approved or permitted the sale of these test
kits include Hong Kong, Spain, Peru, Costa Rica, Italy, Kuwait, New Zealand,
and Dominican Republic.
B. DRUG DELIVERY SYSTEMS. On April 13, 1999 the Company entered into an
Exclusive Licensing Agreement and Purchase Option Agreement with Vector
Medical Technologies, Inc. pursuant to which the Company agreed to transfer to
a newly-formed, wholly-owned subsidiary, all of its proprietary technical
know-how, patent applications and other assets related to the technologies for
the delivery of drugs and other natural and synthetic materials, and to grant
to Vector an exclusive ten year license to these assets. In return, Vector
agreed to pay to the Company non-refundable advances against future royalties
of $900,000 per year payable monthly in payments of $75,000. The Company will
receive a royalty of 3% to 4% of the net sales derived from the assets
transferred, depending on whether or not the assets giving rise to the sales
are covered by a patent. Vector may pay the advance royalties for a period of
four years subject to the option to purchase the subsidiary. Commencing on
April 13, 2000 Vector has the option to purchase the subsidiary and cease
paying the advance royalties for a purchase price ranging from $3.6 million to
$6.6 million depending on the amount of gross sales attributable to the assets
in the preceding twelve-month period. As of the date of this Report, the
subsidiary has not been formed. The subsidiary to be formed will be devoted
to research and development work on the technology transferred to the
subsidiary.
C. DENTAL AIRBRATOR(R). The Company has developed and applied for
patents and FDA approval on a disposable handpiece which attaches to standard
air abrasive etching devices used by dentists for tooth bonding procedures.
The product effectively abrades the surface of teeth, but has no effect at all
on soft tissue. Because it is disposable and there is no need for extensive
sterilization procedures, the product expedites the handling of patients.
During April 1997 the Company received a letter from the FDA stating that
the FDA had completed the scientific review portion of the Company's 510(k)
premarket notification regarding the Airbrator(R), and the Airbrator(R) was
cleared for marketing in the United States for the use of abrading the surface
of teeth. Subsequently, in response to the Company's second 510(k) premarket
notification regarding the Airbrator(R), the Company was informed verbally
that the Airbrator(R) was technically cleared for use in cavity preparation
and management expects it to be cleared for marketing once the FDA has
inspected the manufacturing site and determined that it complies with the
FDA's requirements. The Company's contract manufacturer is currently an FDA
registered manufacturing facility.
During July 1997, the Company entered into a Distribution Agreement with
Sybron Dental Specialties, Inc. ("Sybron") which appointed Sybron as the
exclusive worldwide distributor for the Airbrator(R). Several of the terms of
this agreement were amended during December 1997. Sybron paid a $30,000 one-
time license fee to the Company during 1997 for the grant of this
distributorship. This agreement was terminated effective December 31, 1998.
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D. BIOVEN is an injectable, anti-inflammatory drug which is currently
being tested as a treatment for joint inflammation in horses. These tests are
being conducted at three sites in Florida. One of the Company's officers
developed BIOVEN after fifteen years of extensive research in the field of
immunology. BIOVEN is a result of years of experimentation, evaluation and
historical study in the field of peptide use. The BIOVEN mode of action is
believed to function by reversing the chemical/immunological imbalances that
are present in inflamatory processes.
E. FLAVOR ENHANCEMENT. The Company has developed a proprietary process
which allows the incorporation of flavor essences into an edible support
material using food grade materials and approved printable inks. This process
would allow a new form of advertising sampler which would let a consumer
sample new food and beverages through newspaper ads, point of sale displays or
direct mailings. The encapsulation process and method of manufacturing are
proprietary.
F. FLEA AND TICK SHAMPOO. The Company has developed a proprietary flea
and tick shampoo for small animals, which is being marketed by the Company
under the name Neemodex(R). The active ingredient, Neem Oil, is an extract of
the Neem tree, a tropical evergreen that grows in Asia. This product is all
natural, non-insecticidal, non-toxic and environmentally safe. The Company is
the manufacturer of this product and expects to expand on its formulation line
by adding new pet grooming products in the future.
G. ORGANIC GARDEN SPRAY. The Company has recently acquired the rights
to an organic garden spray which is in the final stages of research and
development and field testing. This product is an all natural insecticide and
fungicide containing Neem Oil. It will be sold ready to use on ornamental and
vegetable plants. It controls aphids, spider mites, whitefly, thrips and
scale insects. It is environmentally safe and can be used on indoor or
outdoor plants.
H. EQUINE INFECTIOUS ANEMIA RAPID TEST. This is a rapid serum test for
equine infectious anemia. It utilizes a procedure that is simpler to run than
the other two available tests (the Coggin's test or the ELISA test), and it
does not require a trained technician to perform. It can be easily performed
at the stables. The Company has completed development of this test and is
currently working with a distributor in Brazil which has received approval
from Brazilian regulatory authorities to market the product in Brazil. The
Company is planning to submit this test product to the U.S. Department of
Agriculture for their approval.
RESEARCH AND DEVELOPMENT
The Company spent $177,712 and $178,238 on research and development of
new products during the years ended December 31, 1999 and December 31, 1998,
respectively, and it expects to spend an increased amount in the current
fiscal year on development of the products described above in addition to
others.
THE MARKET
The Company believes that the saliva diagnostic market is in its infancy
and could become an extremely large industry. However, no market or
feasibility study has been undertaken by the Company. Commercial development
of immunoassays in diagnostic medicine commenced in the 1960's and has
increased significantly since then, due to the high degree of sensitivity and
specificity of such techniques.
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Tests for many diseases currently use blood as the source of the
specimen. These tests, while effectively performed in the clinical setting,
are expensive, time consuming and, at the least, painful for the patient.
The skill and expertise of the physician or other highly trained individual
needed to obtain the sample of blood for these tests also adds to the high
cost of the testing.
The saliva collection and test system tends to solve these problems and
reduces the overall cost of immunological testing and provides immediate
results. The Company believes that testing with saliva specimens has many
potential advantages compared to testing with blood and urine specimens.
Unlike blood specimens, saliva specimens can be collected at any time in any
location. The sampling procedure is easy to administer and monitor, and may
be conducted on a group basis. The Company believes that, unlike blood
collection, the use of its products will not require special training. Blood
specimen testing requires the use of needles, which may accidentally injure or
infect the technician collecting the specimen or the person giving the
specimen. Saliva specimen collection does not require the use of sharp
objects. Additionally, after collection, blood specimens remain potentially
infectious (for example they can contain live HIV virus) whereas saliva
specimens are believed not to be infectious. The use of saliva specimens also
has advantages compared to the use of urine specimens since the integrity of
the saliva specimen can be maintained, chain of custody concerns can be
addressed and saliva collection can be used without significant invasion of
privacy.
Disadvantages of saliva collection include the stability of saliva as a
specimen and the impact of the subject's diet and enzymes on saliva.
Provisions must be made to assure that a sufficient amount of saliva is
collected, the specimen is adequately stabilized and bacterial growth does not
cause test interference.
Saliva based testing has been recognized by the World Health Organization
("WHO") and the FDA as efficacious and practical. Several tests have been
approved to be used in the clinical market based on saliva samples. Countries
such as Thailand, Brazil, Mexico, Russia and many others have already made
policy changes which allow for the use of saliva tests for HIV in their health
programs.
The market currently is divided into three major components: the
"government" sector; the "captive audience" sector (military, criminal,
institutional, etc.); and the "private" sector or individual patient.
International markets for the Company's products include both government
and private business sectors. Subject to government approvals, the Company's
introduction of its saliva collector will be with an HIV diagnostic screening
test. The HIV test kit is initially planned for distribution and use by
governmental public health agencies and by foreign military establishment. In
certain foreign markets, the Company's HIV test kits are expected to be
advertised for sale directly to private physicians and the consuming public.
The Company already has products under evaluation in a number of
countries. Several countries have begun testing the HIV saliva test with the
goal of introducing the product to their military to replace the currently
used blood test. Public health institutions in several foreign countries have
reviewed and tested the Company's HIV saliva collectors. Their goal is to use
the test to screen "at risk" populations in major cities and tourist areas.
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These include legal prostitutes, drug addicts, the homosexual population and
the prison population. Results of this testing will be used to develop policy
for the education programs which must be implemented along with testing to
halt the rapid spread of this infection. Additionally, many of these countries
will use the results of this testing and mass screening to plan for the future
health needs of their countries.
GOVERNMENT REGULATION
The development, manufacture, testing and marketing of the Company's
diagnostic products and the Airbrator(R) are subject to regulation by the FDA
and other federal, state and foreign agencies. Under the FDC Act, the FDA
regulates almost all aspects of development, marketing and sale, including the
introduction, clinical trials, advertising, manufacturing, labeling,
distribution of and record keeping for the products in the United States.
Diagnostic products marketed for testing for drug abuse are regulated as
medical devices under the FDC Act for which FDA approval is required. The
Company may attempt to obtain marketing clearance through 510(k) Premarket
Notification for certain of its products used in connection with testing for
drug abuse. Following submission of a 510(k) Premarket Notification, the
manufacturer or distributor may not place the device into commercial
distribution until an order is issued by the FDA. The FDA has no specific time
limit by which it must respond to a 510(k) Premarket Notification. The FDA may
declare that the device is "substantially equivalent" to another legally-
marketed device, and allow the device to be marketed in the United States. The
FDA may, however, determine that the proposed device is not substantially
equivalent, or may require further information, such as additional test data,
before it is able to make a determination.
Other than the dental products, no FDA approval has yet been received for
any of the Company's products and there can be no assurance that such approval
will ultimately be obtained. Although the saliva collection device received
FDA approval in April 1998 for dental use only (see "The Company's Products"
above), the test kit which incorporates the collection device has not been
approved by the FDA for sale within the United States. It is however, the
Company's proposal to export the test kit in compliance with applicable laws
and regulations administered by the FDA. Initially, because the test device
has not been approved for use in the United States, the Company would have to
comply with the FDC Act if it wishes to export the device in its finished
form. To export the completed saliva test kit from the United States, the
Company does not only need to receive permission to export the product into
the foreign country, it also had to submit to the FDA, basic data regarding
the safety of the finished device in order for the agency to determine that
export is not contrary to public health and safety. The FDA cleared the
export of the saliva collection device and some of the test kits, provided
that the appropriate regulatory agency of the country to which the product is
exported has approved the importation and use of the product.
During April 1997 the Company received a letter from the FDA stating that
the FDA had completed the scientific review portion of the Company's first
510(k) Premarket Notification regarding the Airbrator(R), and that the
Airbrator(R) was released for marketing in the United States for the use of
abrading, polishing and cleaning the surface of teeth. Subsequently, in
response to the Company's second 510(k) Premarket Notification regarding the
Airbrator(R), the Company was informed verbally that the Airbrator(R) was
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technically cleared for use in cavity preparation, and management expects it
to be cleared for marketing once the FDA has inspected the manufacturing site
and determined that it complies with the FDA's requirements. The Company's
contract manufacturer is currently an FDA registered manufacturing facility.
FOREIGN REGULATION
Agencies similar to the FDA regulate medical devices in some foreign
countries, whereas other countries allow unregulated marketing of such
devices. The Company's products will be required to meet the regulations, if
any, of the foreign countries in which they are marketed. Once a product has
been registered in a foreign country, the Company is required to obtain a
certificate of exportability from the FDA before the product can be shipped
from the U.S. to that country.
MANUFACTURING
The Company will manufacture the key components of its rapid saliva test
products because of the need to maintain quality control standards coupled
with the need to closely guard the technology. The saliva collector is being
manufactured by a contract manufacturer for the Company.
Certain sub-assemblies of the Airbrator(R) are manufactured by East Coast
Plastics, a contract molding company and these and other components are then
filled, assembled and packaged and shipped by East Coast Plastics.
The other products described above will generally be manufactured by the
Company.
The Company believes that most components used in the manufacture of its
current and proposed products are currently available from numerous suppliers
located in the United States, Europe and Asia. However, certain components are
available only from a limited number of suppliers. Although the Company
believes that it will not encounter difficulties in obtaining these
components, there can be no assurance that the Company will be able to enter
into satisfactory agreements or arrangements for the purchase of commercial
quantities of such components.
The Company anticipates that it will not be required to maintain
significant inventory levels of products until the Company's products are
deemed acceptable for sale. The Company does not currently have any material
backlog. Until the Company is able to market its products on a broad basis, it
does not anticipate that its backlog or inventory level will be material. At
that time, the Company intends to cause these products to be manufactured for
it shortly before they are required for shipment. The Company does not
foresee that an extensive period of time will be required from the time of its
manufacturing order to the time of final delivery of its products.
MAJOR CUSTOMERS
During the year ended December 31, 1999, the Company's revenues were
primarily derived from two sources. Vector Medical paid the Company $600,000
under a license agreement, which represented 62% of the Company's revenues,
and BioStar paid the Company $300,000 under a joint venture agreement,
representing 31% of the Company's revenues. The Company is dependent on these
two sources of revenue.
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COMPETITION
The markets in which the Company participates are highly competitive. The
Company is aware of specialized biotechnology firms, universities and other
research institutions which have patented, developed, or are developing
technologies and products which are competitive with the Company's products
and technologies. These entities, most of which are established, have
substantially greater research, marketing and financial resources than the
Company. The Company expects that the number of products competing with its
saliva-based test products will increase as the potential benefits of saliva-
based testing become more widely recognized.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company owns the rights to U.S. Patent Number 6004191, dated December
21, 1999, which relates to its Airbrator(R) product. The Company has licensed
its rights under this Patent to BioStar, S.A. The Company also owns the
rights to U.S. Patent Number 5424219 dated June 13, 1995, which relates to the
"Method of Performing Assays for Biomolecules and Solid Supports for Use in
Such Methods." The Company has licensed its rights under this Patent to
Polyfiltronics, Inc. (See "License Agreement with Polyfiltronics, Inc."
below.)
The Company presently has pending, two (2) patent applications in the
United States, on certain aspects of its saliva collection testing device.
Since the Company plans to sell its products in foreign markets it intends to
seek foreign patent protection on such products and technologies. The patent
laws of other countries may differ from those of the United States as to the
patentability of the Company's products and technologies and the degree of
protection afforded.
The Company also has pending patent applications in the United States
relating to three other applications for other technologies which the Company
is developing.
Much of the technology developed or owned by the Company is subject to
trade secret protection. To reduce the risk of loss of trade secret protection
through disclosure, the Company generally enters into confidentiality
agreements with its employees. There can be no assurance that the Company will
be successful in maintaining such trade secret protection or that others will
not capitalize on certain of the Company's technology.
The Company has also registered four trademarks with the U.S. Patent and
Trademark Office. These include the trademarks "Simplex," "Neemodex,"
"Airbrator(R)," and "Cytech."
LICENSE AGREEMENT WITH POLYFILTRONICS, INC.
In June 1998, the Company entered into an agreement with Polyfiltronics,
Inc. which grants Polyfiltronics an exclusive license of the Company's rights
under a patent owned by the Company relating to a micro titer filter plate
technology and an opaque wall micro strip system. Polyfiltronics paid the
Company $40,000 for the license and certain related tools and molds, and will
pay a royalty to the Company based on a percentage of sales of products using
the technology. The term of the license is for twenty years or the life of
the patent, whichever is shorter.
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Polyfiltronics is a U.S. subsidiary of Whatman PLC, an English company,
with a worldwide presence in research laboratories, academic and teaching
facilities and industrial laboratories. Polyfiltronics is a technical leader
in filter plate technology. Filter plates are commonly used in medical
diagnostics, forensic medicine, DNA research, drug discovery and other
scientific fields for the analysis of small quantities of chemical or
biological components.
ACQUISITION OF MINORITY INTEREST IN AUTOMATED HEALTH TECHNOLOGIES, INC.
During May 1998, the Company acquired a 19% interest in Automated Health
Technologies, Inc. ("AHT") in exchange for 500,000 shares of the Company's
Common Stock. The shares were exchanged pursuant to the terms of a Share
Exchange Agreement dated May 20, 1998, between the Company and AHT. The Share
Exchange Agreement provides that AHT has the right to require the Company to
exchange an additional 1,000,000 shares of Common Stock for all of the
remaining outstanding shares of AHT under certain conditions. AHT may
exercise this right prior to May 20, 2003, if, at the time of exercise, AHT
has a net worth of at least $200,000, no debt other than up to $25,000 in
trade payables, and year-to-date positive cash flow. In addition, AHT may
exercise this right if it sells the business of its subsidiary - Rx Automation
Incorporated, and escrows $1,000,000 from the proceeds of such a sale. In the
event that AHT exercises its right, the Company and AHT will in good faith
negotiate a merger or other exchange agreement necessary to effect the
additional exchange, and file a registration statement on Form S-4 to register
the transaction.
AHT is a medical services company that processes pharmacy and retail drug
store expired drug returns.
FLORIDA INTERNATIONAL UNIVERSITY FELLOWSHIP
During 1999, the Company agreed to fund a five year graduate fellowship
grant of $15,000 per year to Florida International University.
The Company has also entered into a contract with Florida International
University for it to provide certain advance research services relating to the
Company's Airbrator[TM] technology.
EMPLOYEES
The Company currently has 7 employees. The Company is not subject to any
collective bargaining agreement and believes that its relationships with its
employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company presently maintains its corporate offices and warehouse
facilities at 376 Ansin Boulevard, Hallandale, Florida 33009. The five year
lease on these facilities commenced April 1, 1998, and requires monthly rental
payments of $4,000 plus tax. The Company has the option to renew the lease
for five additional years.
ITEM 3. LEGAL PROCEEDINGS.
Other than the law suits described below, there are no pending legal
proceedings in which the Company is a party, and the Company is not aware of
any threatened legal proceedings involving the Company.
12
<PAGE>
In June 1999, Americare Transtech, Inc. and two other parties instituted
suit in the Circuit Court of Broward County, Florida, against the Company and
two of its employees requesting a judicial determination on whether the terms
of the Company's corporate documents require the Company to indemnify its two
employees for a judgment entered on December 30, 1998 for damages for
violation of Florida's Trade Secret Act. These damages were awarded for
misappropriation of trade secrets and interference with business
relationships. The Company believes that the complaint is without merit since
no corporate documents require the Company to indemnify anyone for judgments
entered. The Company intends to aggressively defend the case and seek an
award of its costs and attorney's fees.
In October 1998, Americare Transtech, Inc. and four other parties filed
an amended complaint filed in the U.S. District Court for the Southern
District of Florida naming the Company as one of five co-defendants. This
suit alleges patent infringement, misappropriation of trade secrets, breach of
contract, breach of fiduciary duty as agent, breach of confidential relations,
breach of trust, unfair competition, and conversion. Americare is seeking
damages for an undisclosed amount in excess of $75,000. The Company intends
to aggressively defend the suit and has filed a motion to dismiss because it
lacks merit. The Company is currently awaiting the court's ruling on the
motion to dismiss.
In July 1998, Superior Wholesale Products, Inc. ("SWP") instituted suit
against SMLX, in the Eleventh Judicial Circuit in and for Miami-Dade County,
Florida, alleging breach of contract and interference with its relationship
with a third party claiming damages in the amount of $2,500,000. SWP claims
that it had entered into a distribution agreement with SMLX for the
distribution of HIV saliva test kits and that the Company breached this
agreement by selling the product directly to one of SWP's clients. The
Company is aggressively defending their position that a distribution agreement
was never finalized because SWP did not perform under the provisions of the
proposed contract. The Company has filed a counterclaim against SWP for
interfering with their relationship with the customer and for defamation.
During 1999, a suit was filed in the Court of Common Pleas of Lancaster
County, Pennsylvania by Mary Burton, a purchaser of the Company's stock. This
suit alleges that the Company never issued the 10,000 shares of stock that she
paid $16,100 for in October, 1997. Mrs. Burton is seeking return of her
investment. The Company believes that this suit is without merit and intends
to aggressively defend its position.
In September 1998, John Faro filed a complaint against the Company and
four other co-defendants in the Circuit Court of Miami-Dade County alleging
various causes of action and contending that Mr. Faro is entitled to 460,000
shares of the Company's common stock. The stock in question was to be issued
as part of a consulting agreement between the Company and Mr. Faro. On
December 8, 1999, the appellate court directed the trial court to issue a writ
of mandamus recognizing Mr. Faro's ownership of the subject stock. Following
the appellate court's direction, the trial court issued a writ of mandamus
directing the stock transfer agent to issue the stock in Mr. Faro's name but
to hold the stock in escrow until such time as various claims against Mr. Faro
have been adjudicated. The Company has filed a motion for rehearing with the
appellate court requesting reversal of the order to the trial court on
numerous grounds. The Company intends to aggressively defend its position and
is pursuing a counterclaim against Mr. Faro.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's Common Stock trades in the over-
the-counter market, under the symbol "SMLX". Other than a few sporadic trades
during November 1996, the trading commenced during February 1997. The
following table sets forth the high and low bid prices for the Company's
Common Stock for the periods indicated as reported by the OTC Bulletin Board.
These prices are believed to be inter-dealer quotations and do not include
retail mark-ups, mark-downs, or other fees or commissions, and may not
necessarily represent actual transactions.
QUARTER ENDED HIGH BID LOW BID
-------------- -------- -------
March 31, 1998 $1.78125 $ .75
June 30, 1998 $4.3125 $ .625
September 30, 1998 $3.375 $1.03125
December 31, 1998 $1.875 $ .875
March 31, 1999 $1.875 $ .8125
June 30, 1999 $2.25 $1.0625
September 30, 1999 $1.3125 $ .8125
December 31, 1999 $1.00 $ .50
(b) HOLDERS. As of April 7, 2000, the Company had approximately 94
shareholders of record. This does not include shareholders who hold stock in
their accounts at broker/dealers.
(c) DIVIDENDS. The Company has never paid a cash dividend on its common
stock and does not expect to pay a cash dividend in the foreseeable future.
(d) RECENT SALES OF UNREGISTERED SECURITIES. The Company did not sell
any securities that were not registered under the Securities Act of 1933
during the fourth quarter of the fiscal year ended December 31, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
During the year ended December 31, 1999, the Company had revenue of
$962,836 as compared to $390,410 in the prior year. The increase in revenues
is a result of revenues received under license and joint venture agreements
entered into during 1999. Cost of research and development services and
product sales represented 30% of revenues as compared to 109% of revenues in
the prior year. The improved gross profit margin is a reflection of the new
license and joint venture agreements.
Operating expenses during 1999 were $1,099,671 as compared to $904,085 in
1998. The increase was primarily in selling, general and administrative
expenses which increased due to legal expenses incurring during 1999.
14
<PAGE>
The net loss for 1999 was $386,547 as compared to a net loss of $868,125
during 1998. The reduction in the net loss was primarily due to the increased
revenues resulting from the license and joint venture agreements entered into
during 1999.
During the year ended December 31, 1998, the Company had $390,410 in
revenue compared to $71,461 in revenue during the prior year. The increase in
revenue was the result of international sales of saliva tests. These revenues
were lower than expected due to the longer than anticipated delays in getting
the Company's registration approval in various countries for the rapid saliva
tests, and the lack of performance on a major contract.
Expenses for the year ended December 31, 1998, increased to $1,082,323 as
compared to $511,179 in the prior year due to having to pay rent in two
locations for five months, while remodeling a new facility to move into;
increased commissions; increased payroll due to the addition of a President, a
lab technician and a marketing manager; hiring a public relations firm and
gearing up for new product information.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had a working capital deficit of
$(14,124) as compared to $(243,504) at December 31, 1998. The decrease in the
working capital deficit was primarily due to an increase in cash.
The report of the Company's auditors in the financial statements for the
year ended December 31, 1999, contains a going concern qualification. Since
inception, the Company has experienced losses aggregating $2,060,568 and has
been dependent upon loans from stockholders and other third parties in order
to fund operations to date. Management believes that the revenues generated
from licensing and joint venture agreements in place will provide the Company
with sufficient cash flow resources to fund the operations of the Company
through the current year.
The Company currently has no material commitments for capital
expenditures.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-18 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
15
<PAGE>
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and executive officers of the Company and its wholly-owned
subsidiary, their ages and positions held in the Company are as follows:
NAME AGE POSITIONS HELD AND TENURE
---- --- -------------------------
Colin N. Jones 78 President and Chairman of the Board
Henry B. Schur 55 Vice President - Business Development
and Director of the Company; Vice
President and a Director of
Simplex-Florida
Joel Marcus 59 Chief Financial Officer and Director
Kenneth H. Robertson 65 Director
Gerald M. Wochna 57 Director
Khalid Hossain 43 Director
Sherman O. Jones 70 Director
There is no family relationship between any Director or Executive Officer
of the Company.
The Company has audit, compensation, executive and insurance committees.
The Audit Committee currently consists of Kenneth Robertson and Gerald
Wochna. The primary functions of the Audit Committee are: to recommend the
selection of independent auditors; review the scope and results of the last
audit with the independent auditors; review with management and the
independent auditors the Company's last year end audit; and make
recommendations as to changes needed in the Company's internal accounting and
audit procedures.
The Compensation Committee currently consists of Sherman Jones and
Kenneth Robertson. The primary functions of the Compensation Committee are
to: recommend compensation packages for each Executive Officer and recommend
and/or approve the granting of stock options, cash bonuses and other benefit
plans for employees in accordance with the Company's stock option plan.
The Executive Committee currently consists of Colin Jones, Kenneth
Robertson and Henry Schur. The primary function of the Executive Committee is
to review certain issues relating to SMLX's business between meetings of the
full Board of Directors.
The insurance Committee currently consists of Joel Marcus and Gerald
Wochna. The primary functions of the Insurance Committee are to: review
current insurance policy coverage; recommend additional coverage and/or
additional type of insurance, needed to properly protect the Company's assets;
and recommend changes in organizational structure that will serve to give
further protection to the Company's assets.
16
<PAGE>
Set forth below are the names of all directors and executive officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
COLIN N. JONES has served as the President and Chairman of the Board of
the Company since April 10, 1998. Mr. Jones served as CEO and Chairman of
Automated Health Technologies from November 1996 to April 1998 and was a
consultant to that firm from February 1996 to November 1996. From July 1994
until January 1996, he served as Chairman, International of INTEC, an
international consulting firm specializing in reengineering. From February
1983 until March 1988, he served as Chairman of Proximity Technologies and
continued as Vice President, International until July 1994 for Franklin
Electronics, which had purchased Proximity Technologies. From June 1974 until
February 1983, he owned and operated his own merger and acquisition firm.
From January 1970 until June 1974, he was President and CEO of Sensormatic
Electronics and remained a consultant until June 1984. From September 1950
until January 1970, he was employed by IBM in various positions with his final
position being Manager of Sales Programs for the Office Products Division.
Mr. Jones received a BSME Degree from the University of Texas in 1949.
HENRY SCHUR has served as the Company's Vice President of Marketing and a
Director since March 5, 1997. He has served as President of Analyte
Diagnostics, Inc., a wholly owned subsidiary of Simplex-Florida since June
1995. He is the Company's principal scientist and one of the principal
inventors of the Company's products. Mr. Schur has an undergraduate degree in
Health Sciences from Florida International University and post graduate
studies in Business Management at the University of Oklahoma. In the course
of Mr. Schur's professional career, he has occupied responsible positions with
companies engaged in the manufacture of diagnostics products and biochemicals,
including specifically, Arcade, Inc., Chattanooga, Tennessee (1986 to 1987),
and Cordis Corporation, Miami, Florida (1966 to 1968). Mr. Schur, in 1991,
was formerly employed by Americare, with whom Mr. Schur is now in litigation.
Mr. Schur is a principal inventor of a number of the Company's products and
has a number of issued U.S. and foreign patents to his credit.
JOEL MARCUS has served as of the Company's Chief Financial Officer since
July 1999, and as a Director of the Company since December 1997. He has been
self-employed as a certified public accountant in Florida since 1974 when he
became a licensed CPA. Mr. Marcus received a Bachelor of Science Degree in
Business Administration from Hofstra University in New York in 1960 and
completed graduate studies at CW Post Tax Institute in 1963.
KENNETH H. ROBERTSON has been a Director of the Company since August
1998. Mr Robertson is President and CEO of Conference-Call USA, Inc., a
successful teleconferencing company which he co-founded in 1987 and sold in
December 1996 to Citizens Utilities, Inc. Following the sale, he has
continued as CEO of that entity, and it has continued to grow under his
leadership. Mr. Robertson has extensive experience in a diverse range of
business activities with special emphasis on sales and financial management.
In 1981 he moved to Florida as President and CEO of Alo-Scherer Healthcare
(now Scherer Healthcare, Inc.) and held that position until 1983 at which time
he resigned and has remained a director of this NASDAQ-listed company. Mr.
Robertson received a Bachelor's Degree in Economics from Wabash College in
1956.
17
<PAGE>
GERALD M. WOCHNA has been a Director of the Company since August 1998.
Since 1984, he has been involved in the formation, financing and development
of several small businesses, both individually and as a member/manager of
Robertson & Partners, L.L.C. Since 1984, Mr. Wochna has been involved in land
development and the development, construction, leasing and financing of
retail, warehouse and office properties. From 1973 to 1984, he practiced law
with a law firm he established in Boca Raton, Florida. Mr. Wochna continued
to practice law on an "of counsel" basis from 1984 to 1989, when he retired
from that profession. Mr. Wochna received his Bachelor's Degree from John
Carroll University, Cleveland, Ohio in 1964, and he graduated from Cleveland
State University Law School in 1968.
KHALID HOSSAIN has been a Director of the Company since June 1999. He is
Chairman of HelveStar S.A., a Swiss investment holding company. He is also
Chairman and CEO of Asia Star Group, an industrial holding company in
Malaysia.
SHERMAN O. JONES has been a Director of the Company since January 2000.
He is owner of Camelback Clearing Company, a divesting company that purchases
and sells large quantities of grocery products throughout the Western U.S.,
which he founded in 1990. Mr. Jones was previously employed by IBM for 17
years in various sales positions and as President of Kansas City Securities,
an institutional brokerage firm. Mr. Jones is also a director of Automated
Health Technologies, Inc. He received a Bachelor's Degree in
Accounting/Business from the University of Buffalo in 1951.
The Company's executive officers hold office until the next annual
meeting of the Directors of the Company. Except as described below, there are
no known arrangements or understandings between any director or executive
officer and any other person pursuant to which any of the above-named
executive officers or directors or nominees was selected as an officer or
director or nominee for director of the Company.
Colin N. Jones, Gerald M. Wochna, Kenneth R. Robertson and Sherman O.
Jones were nominated for election as directors of the Company pursuant to the
terms of a Stockholders' Agreement dated May 15, 1998, among the Company and
certain shareholders of the Company. Kahlid Hossain was nominated for
election as a director pursuant to the terms of a Joint Venture Agreement
between the Company and HelveStar S.A.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
Director, Officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year except as follows: Khalid
Hossain did not file a Form 3 or a Form 5 late.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President for the years ended December 31,
1999, 1998 and 1997. No executive officer had total annual salary and bonus
in excess of$100,000 during such years.
18
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------- -------------------------- -------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- ------- ----- ------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Colin N. Jones, 1999 $80,000 -- -- -- 100,000 -- --
President<FN1> 1998 $57,231 -- -- -- -- -- --
Nicholas G. 1998 $75,615 -- -- -- -- -- --
Levandoski, Ph.D. 1997 $43,500 -- $19,400 -- 250,000 -- --
__________________
<FN>
<FN1>
Colin Jones has served as President since April 10, 1998.
</FN>
</TABLE>
AGGREGATE OPTION EXERCISES IN YEAR ENDED
DECEMBER 31, 1999 AND DECEMBER 31, 1999 OPTION VALUES
SECURITIES UNDER- VALUE OF UNEXER-
SHARES LYING UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON AT 12/31/99 AT 12/31/99
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ---------------- ----------------
Colin Jones -0- -0- 300,000 / 0 $0 / $0
OPTIONS GRANTS IN LAST FISCAL YEAR
Individual Grants
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE
---- ------------ ------------ ----------- ----------
Colin Jones 100,000 31% $0.875 1/4/04
19
<PAGE>
EMPLOYMENT AGREEMENTS
Effective July 1, 1998, the Company entered into two-year employment
agreements with Colin Jones, Nicholas Levandoski and Henry Schur, Executive
Officers of the Company. Nicholas Levandoski retired at the end of 1999.
Under these agreements, each of these persons are entitled a base salary of
$80,000 per year (which amount is to be reviewed annually) plus one-third of a
bonus pool. The bonus pool will be equal to a percentage of the audited pre-
tax profit of the Company, or a minimum of $40,000, if the corporate
achievements set forth below are met. The determination of the bonus pool is
summarized below:
Achievement
Year Profit (Loss)(1) Percentage Estimated Pool
---- ---------------- ---------- --------------
1998 $ (300,000) 12% $ 40,000 (minimum)
1999 $1,200,000 10% $120,000
2000 $2,900,000 8% $232,000 (2)
______________
(1) No bonus pool will be created unless the audited pre-tax profit (loss)
is equal to or better than the achievement level for that year.
(2) Since the employment agreements will end on June 30, 2000, any bonuses
paid for 2000 will be one-half of the amount determined and will not
be paid until completion of the year-end audit.
Each of the employment agreements provide that in the event of a
termination of employment by the Company without cause (as defined in the
agreements), the Company will be required to pay the terminated officer a lump
sum equal to the base salary remaining under the agreement, up to one year,
plus an amount equal to one years' base salary. If such a termination occurs
within six months of a change in control of the Company, the terminated
officer will receive a lump sum equal to the base salary remaining under the
agreement (without a one year limitation) plus one years' base salary.
STOCK OPTION PLAN
During March 1997, the Board of Directors adopted a Stock Option Plan
(the "Plan"), and on March 28, 1997, the Corporation's shareholders approved
the Plan. The Plan authorizes the issuance of options to purchase up to
2,000,000 shares of the Company's Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. The Board has
the power to determine at the time that the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option. Vesting provisions are determined by the Board at the
time options are granted. The option price for any option will be no less
than the fair market value of the Common Stock on the date the option is
granted and unless otherwise stated on the option, each option is exercisable
for 10 years.
20
<PAGE>
Since all options granted under the Plan must have an exercise price no
less than the fair market value on the date of grant, the Company will not
record any expense upon the grant of options, regardless of whether or not
they are incentive stock options. Generally, there will be no federal income
tax consequences to the Company in connection with Incentive Stock Options
granted under the Plan. With regard to options that are not Incentive Stock
Options, the Company will ordinarily be entitled to deductions for income tax
purposes of the amount that option holders report as ordinary income upon the
exercise of such options, in the year such income is reported.
The Company has outstanding options to purchase a total of 1,276,000
shares of common stock at prices ranging from $0.875 to $3.26 per share under
the Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 15, 1999, the stock ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each officer and director individually,
and all officers and directors as a group. Each person has sole voting and
investment power over the shares except as noted:
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
- ------------------------- ---------------- --------
Henry B. Schur 1,252,500 (1) 10.2%
376 Ansin Boulevard
Hallandale, FL 33009
Debra L. Ross 1,252,500 (2) 10.2%
376 Ansin Boulevard
Hallandale, FL 33009
Colin N. Jones 330,000 (3) 2.7%
193 Cove Road
West Palm Beach, FL 33413
Joel Marcus 290,000 (4) 2.4%
676 West Prospect Road
Fort Lauderdale, FL 33309
Kenneth H. Robertson 2,650,000 (5) 21.8%
No. 206
855 S. Federal Highway
Boca Raton, FL 33432
Gerald M. Wochna 2,650,000 (6) 21.8%
No. 206
855 S. Federal Highway
Boca Raton, FL 33432
Khalid Hossain 2,774,796 (7) 18.6%
56 Grande Rue
CH-1700 Friburg
Switzerland
21
<PAGE>
Sherman O. Jones 104,500 (8) 0.9%
12026 N. 81st Street
Scottsdale, AZ 85206
Software & Healthcare 1,000,000 8.3%
Technology Fund, LLC
No. 206
855 S. Federal Highway
Boca Raton, FL 33432
Robertson & Partners, L.L.C. 1,600,000 13.2%
No. 206
855 S. Federal Highway,
Boca Raton, FL 33432
International Technologies 700,000 5.8%
Ltd.
c/o William Smith
P.O. Box F-40729
Freeport, Bahamas
All Directors and Executive 7,451,796 47.5%
Officers as a Group
(7 Persons)
_______________________
(1) Includes 862,500 shares held of record by Mr. Schur's wife, Debra Ross,
80,000 shares held by Mr. Schur's daughter, 100,000 shares held in trust
for Mr. Schur's daughter, 200,000 shares underlying options held by
Mr. Schur, and 10,000 shares underlying options held by Mr. Schur's wife.
(2) Includes 862,500 shares held directly by Mrs. Ross, 80,000 shares held
by Mrs. Ross' daughter, 100,000 shares held in trust for Mrs. Ross'
daughter, 200,000 shares underlying options held by Mrs. Ross' husband,
and 10,000 shares underlying options held by Mrs. Ross.
(3) Includes 30,000 shares held directly and 300,000 underlying options held
by Mr. Jones.
(4) Includes 90,000 shares held directly and 200,000 shares underlying stock
options held by Mr Marcus.
(5) Represents 50,000 shares underlying options held by Mr. Robertson;
1,600,000 shares held by Robertson & Partners, L.L.C. ("R&P") and
1,000,000 shares held by Software & Healthcare Technology Fund, L.L.C.
("SHTF"). Mr. Robertson is a majority owner and a manager of R&P and R&P
is the manager of SHTF. Mr. Robertson is also an investor in SHTF. Mr.
Robertson therefore has shared voting and shared investment control over
the 2,600,000 shares.
(6) Represents 50,000 shares underlying options held by Mr. Wochna; 1,600,000
shares held by Robertson & Partners, L.L.C. ("R&P") and 1,000,000 shares
held by Software & Healthcare Technology Fund, L.L.C. ("SHTF"). Mr.
Wochna is a 20% owner and a manager of R&P and R&P is the manager of
SHTF. Mr. Wochna, therefore, has shared voting and shared investment
control over the 2,600,000 shares.
(7) Represents shares underlying options held by HelveStar S.A., of which
Mr. Hossain is Chairman.
22
<PAGE>
(8) Includes 102,500 shares held directly by Mr. Jones and 2,000 shares held
by Mr. Jones' wife.
Robertson & Partners L.L.C. ("R&P") is affiliated with the Company in
that Kenneth H. Robertson, who is a manager and a majority owner of R&P, is a
Director of the Company. Gerald M. Wochna, who is a manager and 20% owner of
R&P, is also a Director of the Company. Software & Healthcare Technology
Fund, LLC ("SHTF") is managed by R&P and Kenneth H. Robertson is an investor
in SHTF.
SHTF, R&P, Automated Health Technologies, Inc., Jennifer J. Schur Trust,
Joel Marcus, Debra L. Ross, Jennifer J. Schur, and the Joel Marcus Irrevocable
Trust have agreed to vote the shares which they hold on the conditions and
subject to the terms of a Stockholders' Agreement dated May 15, 1998.
There are no known agreements, the operation of which may at a subsequent
date result in a change in control of the Company.
The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ACQUISITION OF SIMPLEX-FLORIDA
On March 5, 1997, the Company completed the acquisition of 100% of the
outstanding common stock of Simplex Medical Systems, Inc. ("Simplex-Florida")
in exchange for 3,453,000 shares of the Company's Common Stock (approximately
46.04% of the shares now outstanding). The shares were exchanged on the basis
of one share of the Company's common stock for one share of Simplex-Florida
common stock. In connection with the closing of this transaction, several
current shareholders submitted for cancellation a total of 31,953,000 shares
of common stock. As a result, after the acquisition of Simplex-Florida, there
are a total of 7,500,000 shares outstanding.
The stock issuances were made pursuant to an Agreement ("Agreement")
between the Company and Simplex-Florida. The terms of the Agreement were the
result of negotiations between the managements of the Company and Simplex-
Florida. However, the Board of Directors did not obtain any independent
"fairness" opinion or other evaluation regarding the terms of the Agreement,
due to the cost of obtaining such opinions or evaluations.
TRANSACTIONS INVOLVING THE COMPANY
On March 20, 1996, the Company issued to each of Mesdames Colleen E.
Schmidt, a Director of the Company, and a Company Director, and Sandra S.
Steinberg, a Director of the Company, 15,000,000 shares of the Company's
common stock, $.0001 par value per share (a total of 30,000,000 shares of
common stock), in consideration, in each case, for the sum of $5,000 in cash
(a total of $10,000 in cash). These shares collateralized two non-interest
bearing promissory notes in the principal amount of $2,500 each (an aggregate
face amount of $5,000), due and payable on May 31, 1996, of which each of
Mesdames Schmidt and Steinberg are the makers and the Company is the holder.
23
<PAGE>
During the year ended December 31, 1997, the Company entered into several
short term notes payable with Joel Marcus, a director of the Company, totaling
$294,990, bearing interest at 10% per annum. Joel Marcus subsequently
assigned these notes to International Technologies Ltd., a shareholder. As a
of December 31, 1997, $284,990 of these notes payable had expired terms. On
April 2, 1998, the Company entered into an agreement with International
Technologies Ltd. to extend the terms of the notes for a three year period
with interest at 10% per annum. These notes will be amortized over the three
year period with payments on principal to be made only if the Company records
pre-tax earnings in excess of the principal amount due. If an additional
extension of time is necessary, this agreement grants an extension until such
time as pre-tax profits are sufficient to amortize the loans over the three
year period. Interest incurred under these notes totaled $34,170 and $29,499
during the years ended December 31, 1999 and 1998, respectively.
STOCK SALES IN MAY AND JUNE 1998 AND STOCKHOLDERS' AGREEMENT
On May 15, 1998, the Company sold 1,000,000 shares of Common Stock to
Software & Healthcare Technology Fund, L.L.C. ("SHTF") for $400,000 in cash
and on June 30, 1998, the Company sold 1,600,000 shares of Common Stock to
Robertson & Partners, L.L.C. ("R&P") for $600,000 in cash. These sales were
made pursuant to subscription agreements dated May 15, 1998. R&P is the
managing member of SHTF. The Company also granted SHTF a 20-day right of
first refusal with regard to any offerings of the Company's securities.
In connection with these stock sales, SHTF, R&P, Automated Health
Technologies, Inc. ("AHT"), Jennifer Shur, the Jennifer Shur Trust, Joel
Marcus, The Joel Marcus Irrevocable Trust and Debra L. Ross, shareholders of
the Company, entered into a Stockholders' Agreement dated May 15, 1998, which
provides, among other things, that the shareholders who are parties to the
Shareholders' Agreement will vote their shares for certain director nominees
selected by SHTF, R&P and AHT, and in such a manner as is necessary to carry
out the intent of the Stockholders' Agreement. For the Annual Meeting of
Shareholders held on August 20, 1998, the nominees selected were Gerald M.
Wochna, Kenneth H. Robertson and Colin N. Jones. (Colin Jones was added to
the Board on April 10, 1998.) The Stockholders' Agreement also provides that
during the term of that agreement none of the shareholders who are parties
thereto will transfer their shares except in accordance with the terms of the
agreement.
The Company is also a party to the Stockholders' Agreement and has agreed
that it will not sell any of its securities in any transactions unless it
provides the shareholders who are parties to the Stockholders' Agreement a
preemptive right to purchase a pro rata portion of such securities on the same
terms and conditions. This preemptive right will not apply to securities
issued to any officer, director or employee of the Company under a benefit or
compensation plan, or for services or assets (other than cash or notes).
The Company also granted "piggy-back" registration rights to SHTF and R&P
with respect to their shares of Common Stock under certain conditions.
Certain provisions of the Stockholders' Agreement, including those
related to the preemptive rights and piggyback registration rights will
terminate on the later of May 15, 2000, or on the 90th consecutive day on
which the bid price of the Company's Common Stock exceeds $4.00 per share.
The remaining provisions will terminate on May 15, 2005.
24
<PAGE>
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.1 Articles of Incorporation, Incorporated by reference to
as Amended Exhibits 2.1, 2.2 and 2.3 to
the Registrant's Form 10-SB
Registration Statement filed
on April 4, 1996
3.2 Bylaws Incorporated by reference to
Exhibit 2.4 to the Registrant's
Form 10-SB Registration State-
ment filed on April 4, 1996
3.3 Articles of Amendment to Incorporated by reference to
Articles of Incorporation Exhibit 3.3 to Registrant's
dated March 28, 1997 Form SB-2 Registration Statement
(SEC File No. 333-67087)
3.4 Articles of Amendment to Incorporated by reference to
Articles of Incorporation Exhibit 3.4 to Registrant's
dated August 20, 1998 Form SB-2 Registration Statement
(SEC File No. 333-67087)
10.1 1997 Stock Option Plan Incorporated by reference to
Exhibit 10.1 to Registrant's
Form SB-2 Registration Statement
(SEC File No. 333-67087)
10.2 Share Exchange Agreement Incorporated by reference to
with Automated Health Exhibit 10.2 to Registrant's
Technologies, Inc. Form SB-2 Registration Statement
(SEC File No. 333-67087)
10.3 Employment Agreement with Incorporated by reference to
Colin N. Jones Exhibit 10.3 to Registrant's
Form SB-2 Registration Statement
(SEC File No. 333-67087)
10.4 Employment Agreement with Incorporated by reference to
Nicholas Levandoski Exhibit 10.4 to Registrant's
Form SB-2 Registration Statement
(SEC File No. 333-67087)
10.5 Employment Agreement with Incorporated by reference to
Henry Schur Exhibit 10.5 to Registrant's
Form SB-2 Registration Statement
(SEC File No. 333-67087)
25
<PAGE>
10.6 Software Agreement with Incorporated by reference to
Software & Healthcare Exhibit 10.6 to Registrant's
Technology Fund, L.L.C., Form SB-2 Registration Statement
et al. (SEC File No. 333-67087)
10.7 Business Lease with Incorporated by reference to
Wedgewood Properties, FL, Exhibit 10.7 to Registrant's
Inc. Form SB-2 Registration Statement
(SEC File No. 333-67087)
10.8 Distribution Agreement with Incorporated by reference to
Sybron Dental Specialties, Exhibit 10.8 to Registrant's
Inc., as amended Form SB-2 Registration Statement
(SEC File No. 333-67087)
10.9 Exclusive Licensing Agree- Incorporated by reference to
ment with Vector Medical Exhibit 10.9 to Registrant's
Technologies, Inc. dated Annual Report on Form 10-KSB
April 13, 1999 for the year ended December 31,
1998
10.10 Joint Venture Agreement Incorporated by reference to
with HelveStar, S.A. Exhibit 10.1 to the Registrant's
Report on Form 8-K dated May 10,
1999.
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to Registrant's
Form SB-2 Registration Statement
(SEC File No. 333-67087)
23 Consent of Schmidt, Raines, Filed herewith electronically
Trieste, Dickenson & Adams,
P.L.
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed during the
fourth quarter of the Company's fiscal year ended December 31, 1999.
26
<PAGE>
<PAGE>
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT F-1
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6-F-18
27
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors and Stockholders
SMLX Technologies, Inc. and Subsidiaries
Hallandale, Florida
We have audited the accompanying consolidated balance sheets of SMLX
Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related statements of operations, changes in stockholders' equity (deficit)
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SMLX
Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the
consolidated financial statements, the Company incurred a net loss of $386,547
during the year ended December 31, 1999, and has incurred substantial net
losses for each year since its inception. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans regarding these matters are described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Schmidt & Co.
SCHMIDT, RAINES, TRIESTE,
DICKENSON & ADAMS, P. L.
March 8, 2000
Boca Raton, Florida
F-1
<PAGE>
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
ASSETS
Current assets:
Cash $ 215,026 $ 47,594
Accounts receivable, net of allowance for
uncollectible accounts of $2,786 and
$16,733 for 1999 and 1998, respectively 6,071 1,113
Employee receivables -0- 1,229
Prepaid expenses 23,299 19,411
Inventory 129,398 141,572
----------- -----------
Total current assets 373,794 210,919
----------- -----------
Equipment and leasehold improvements,
less accumulated depreciation 1999 $197,336;
1998 $96,600 418,547 385,935
----------- -----------
Other assets:
Patents and trademarks, less accumulated
amortization of $969 in 1999 and $504 in 1998 88,309 58,267
Deposits 8,192 8,192
Other intangible assets, net of accumulated
amortization of $1,076 in 1999 and $538 in 1998 814 1,352
Investment in common stock 200,000 200,000
----------- -----------
297,315 267,811
----------- -----------
$ 1,089,656 $ 864,665
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 190,164 $ 160,755
Current portion of notes payable 16,913 184,970
Customer and other deposits 180,841 108,698
----------- -----------
Total current liabilities 387,918 454,423
----------- -----------
Notes payable, net of current portion 310,636 237,119
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.0001 par value, 100,000,000
shares authorized, 11,544,648 and 10,600,000
shares issued and outstanding at December
31, 1999 and 1998, respectively 1,154 1,060
Preferred stock, $.0001 par value, 10,000,000
shares authorized, no shares issued or
outstanding -0- -0-
Additional paid-in capital 2,450,516 1,846,084
Accumulated deficit (2,060,568) (1,674,021)
----------- -----------
391,102 173,123
----------- -----------
$ 1,089,656 $ 864,665
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Operating revenues:
Research and development services $ 899,985 $ -0-
Product sales and services 62,851 390,410
----------- -----------
Total operating revenues 962,836 390,410
Cost of research and development services
and product sales:
Research and development services 177,712 178,238
Product sales and services 110,550 247,001
----------- -----------
Total cost of research and development
services and product sales 288,262 425,239
Gross profit (loss) 674,574 (34,829)
Operating expenses:
Selling, general and administrative expenses 997,932 857,180
Depreciation and amortization expense 101,739 46,905
----------- -----------
Total operating expenses 1,099,671 904,085
----------- -----------
Net loss from operations (425,097) (938,914)
Other income (expense):
Forfeiture of customer deposits 73,285 -0-
License fees -0- 115,000
Other income (expense) 478 17
Loss on disposal of assets -0- (1,580)
Interest expense (35,213) (42,648)
----------- -----------
Total other income (expense) 38,550 70,789
----------- -----------
Net loss before income taxes (386,547) (868,125)
Income taxes -0- -0-
----------- -----------
Net loss $ (386,547) $ (868,125)
=========== ===========
Loss per common share $ (0.03) $ (0.09)
=========== ===========
Weighted average number of shares 11,291,705 9,549,315
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Total
Stockholders'
Common stock Paid-in Accumulated Equity
Issued Amount Capital Deficit (Deficit)
---------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 7,500,000 $ 750 $ 658,197 $ (805,896) $ (146,949)
Shares issued for cash in
March 1998 500,000 50 199,950 -0- 200,000
Shares issued for cash in May
1998 2,100,000 210 799,790 -0- 800,000
Shares issued for 19% invest-
ment in the common stock of
a privately held company in
May 1998 500,000 50 199,950 -0- 200,000
Stock issuance costs -0- -0- (11,803) -0- (11,803)
Net loss -0- -0- -0- (868,125) (868,125)
---------- ------ ---------- ----------- ----------
Balance, December 31, 1998 10,600,000 1,060 1,846,084 (1,674,021) 173,123
Shares issued for cash in March
1999 444,444 44 199,956 -0- 200,000
Shares issued for cash in
connection with the Joint
Venture Agreement with
HelveStar, S.A. in May 1999 375,204 37 283,063 -0- 283,100
Conversion of note payable in
May 1999 25,000 3 24,997 -0- 25,000
Conversion of note payable in
May 1999 50,000 5 49,995 -0- 50,000
Conversion of note payable in
May 1999 50,000 5 49,995 -0- 50,000
Stock issuance costs -0- -0- (3,574) -0- (3,574)
Net loss -0- -0- -0- (386,547) (386,547)
---------- ------ ---------- ----------- ----------
Balance, December 31, 1999 11,544,648 $1,154 $2,450,516 $(2,060,568) $ 391,102
========== ====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
OPERATING ACTIVITIES
Net loss $ (386,547) $ (868,125)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 101,739 46,905
Loss on disposal of assets -0- 1,580
Provision for bad debts (13,947) 14,412
Loss on write-off of patents -0- 8,594
Forfeiture of customer deposits (73,285) -0-
(Increase) decrease in:
Accounts receivable 8,989 (11,643)
Prepaid expenses (3,888) (19,411)
Inventory 12,174 (7)
Deposits -0- (1,500)
Increase (decrease) in:
Accounts payable and accrued expenses 25,559 84,431
Customer and other deposits 145,428 38,605
----------- -----------
Net cash used in operating activities (183,778) (706,159)
----------- -----------
INVESTING ACTIVITIES
Advances to employees 1,229 (1,229)
Acquisition of other intangible assets -0- (1,887)
Acquisition of fixed assets and patents (110,355) (345,181)
----------- -----------
Net cash used in investing activities (109,126) (348,297)
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of stock 483,100 1,000,000
Payments for stock issuance costs (3,224) (11,803)
Payments on notes payble (19,540) (2,890)
Proceeds from notes payable -0- 75,000
----------- -----------
Net cash provided by financing activities 460,336 1,060,307
----------- -----------
Net increase in cash 167,432 5,851
Cash - beginning of year 47,594 41,743
----------- -----------
Cash - end of year $ 215,026 $ 47,594
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SMLX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
SMLX Technologies, Inc. (f/k/a Simplex Medical Systems, Inc.) was formed
on June 6, 1995 and was in the development stage through December 31, 1997.
The year ended December 31, 1998 was the first year during which it was
considered an operating company.
Since inception, SMLX Technologies, Inc. (the "Company") has been engaged
in research and development activities. The Company's primary focus has been
on the development, acquisition, marketing and manufacture of medical
diagnostic and dental products, biological products for blood banking, bulk
pharmaceuticals and specialty chemicals. In addition, they pursue regulatory
clearance and patent protection for many of their products. The Company has
patented and proprietary technology in the fields of: point of use medical
and veterinary diagnostics; dental therapeutic devices; pharmaceutical
products; and consumer products. The Company utilizes its own manufacturing
facilities for the production of proprietary or quality sensitive materials
and contracts out the other products and final packaging to third parties.
The Company currently has products approved in several foreign countries and
is actively marketing its products in those areas. Within the United States,
the Company has received FDA registration on one of its major products. The
Company's major source of revenue during the year ended December 31, 1999 was
derived from research and development contracts with outside third parties.
The financial statements include the accounts of the Company's
wholly-owned subsidiaries, Analyte Diagnostics, Inc. and IRT Management Corp.
Analyte Diagnostics, Inc. was a predecessor corporation to SMLX Technologies,
Inc. which was formed on September 15, 1995. The two companies were merged
into SMLX Technologies, Inc., on October 31, 1995, with all account balances
recorded at cost. At the time, the Company had a 1 to 200 reverse stock
split. Subsequently, the Company had a 2 for 1 stock split. All share
references give effect to the post split plans. IRT Management Corp. was
incorporated on January 14, 1997 with the sole purpose of obtaining FDA
approval on the Company's products.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of SMLX
Technologies, Inc., and its wholly-owned subsidiaries Analyte Diagnostics,
Inc., and IRT Management Corp. All intercompany accounts and transactions
have been eliminated in consolidation.
F-6
<PAGE>
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATION
The Company has retroactively reclassified certain expenses in the
Consolidated Statements of Operations for the year ended December 31, 1998 and
changed the presentation of certain revenue and cost of revenue accounts to
conform to the classifications and presentation adopted for the year ended
December 31, 1999. The Company believes the new classifications and
presentation more accurately reflect the results of operations. The
reclassifications have no effect on net income for the year ended December 31,
1998.
INVENTORY
Inventory consists of raw materials as of December 31, 1999 and finished
goods as of December 31, 1998 and is stated at the lower of cost (first-in,
first-out method) or market.
EQUIPMENT
Equipment is stated at cost and is depreciated using the straight-line
method over the estimated useful lives of the respective assets. Expenditures
for maintenance and repairs are charged against operations as incurred.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
PATENTS AND TRADEMARKS
The cost of patents and trademarks acquired are being amortized on a
straight-line basis over their estimated useful lives, ranging from 17 to 40
years, beginning when the trademarks and patents are approved.
OTHER INTANGIBLE ASSETS
The cost of other intangible assets are being amortized on a
straight-line basis over three years.
INVESTMENT IN COMMON STOCK
Investments in companies in which the Company has less than a 20%
interest are carried at cost.
F-7
<PAGE>
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION
Revenue from research and development services is deemed earned when
received. Revenue from product sales is recognized upon shipment of goods to
the customer. License fee revenue is recognized upon receipt.
Revenue is recognized from the forfeiture of customer deposits based upon
the individual terms contained in the International Distribution agreements
with each customer. These deposits are non-refundable and are considered
forfeited when the customer fails to perform certain requirements as described
in their contract.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations when incurred
and are included in cost of research and development services.
ADVERTISING COSTS
The Company expenses the production costs of advertising the first time
the advertising takes place.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews its long-lived assets and certain
identifiable intangibles in order to determine if such assets are impaired.
When an asset is determined to be impaired, it is written down to its
estimated fair market value.
STOCK BASED COMPENSATION
The Company accounts for its stock based compensation in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 123 which allows the
Company to account for all stock based compensation arrangements under which
employees receive shares of the Company's stock under Accounting Principles
Board ("APB") Opinion No. 25 and make the related disclosures under SFAS 123.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements related to stock options.
EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share", in 1997. SFAS
128 establishes accounting standards for the computation, presentation, and
disclosure of earnings per share information for entities with publicly held
common stock or potential common stock.
NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average
number of shares actually outstanding during the years ended December 31, 1999
and 1998. Options to purchase 1,726,000 and 881,000 shares of common stock
during the years ended December 31, 1999 and 1998, respectively, and notes
convertible to 125,000 shares of common stock during the year ended December
31, 1998, were not included in computing net loss per share because the effect
of such inclusion would be to decrease the reported net loss per share.
F-8
<PAGE>
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Deferred income taxes are determined based
upon the difference between the financial statement carrying amount and the
tax basis of assets and liabilities using tax rates expected to be in effect
in the years in which the differences are expected to reverse.
NOTE 2 - BASIS OF PRESENTATION AND CONTINUED EXISTENCE
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. Since inception, the Company
has experienced losses aggregating $2,060,568 and has been dependent upon
loans from stockholders and other third parties, as well as sale of stock, in
order to fund operations to date.
Management believes that the funds raised through its exclusive license
agreement with Vector Medical Technologies, Inc. (Note 8), joint venture
agreement with HelveStar, S.A. (Note 9) and income generated from the sale of
several recently developed products will provide the Company with sufficient
cash flow resources to fund the operations of the Company.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the
possible inability of the Company to continue as a going concern.
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consists of the following at
December 31, 1999 and 1998:
Useful Life
(in Years) 1999 1998
----------- -------- --------
Computer equipment 5 $ 39,270 $ 11,569
Office furniture and equipment 5-7 27,330 24,950
Shop equipment 5-7 268,843 169,897
Computer software 3 5,779 1,458
Molds 5 85,855 85,855
Leasehold improvements 10 188,806 188,806
-------- --------
615,882 482,535
Less: accumulated depreciation (197,336) (96,600)
-------- --------
$418,547 $385,935
======== ========
Depreciation expense totaled $100,736 and $46,367 for the years ended
December 31, 1999 and 1998, respectively.
F-9
<PAGE>
NOTE 4 - NOTES PAYABLE
During the year ended December 31, 1997, the Company entered into several
short term notes payable with a director/shareholder totaling $294,990,
bearing interest at 10% per annum. These notes were subsequently assigned to
another shareholder. On April 2, 1998, the Company entered into an agreement
with the shareholder to extend the terms of the notes for a three year period
with interest at 10% per annum. These notes shall be amortized over the three
year period with payments on principal to be made only if the Company records
pre-tax earnings in excess of the principal amount due. If an additional
extension of time is necessary, this agreement grants an extension until such
a time as pre-tax profits are sufficient to amortize the loans over the three
year period. Due to the fact that the Company does not anticipate pre-tax
earnings sufficient to require repayment of these loans in the year 2000,
these notes payable have been classified as long-term debt as of December 31,
1999.
Notes payable as of December 31, 1999 and 1998 consisted of the
following:
1999 1998
-------- --------
Note payable, third party, due in monthly
payments of $1,648, including interest
which is calculated at 11.46% per annum,
final payment due October, 2001; collater-
alized by equipment with a net book value
of $59,418 as of December 31, 1999. $ 32,559 $ -0-
Note payable, vendor, due in monthly payments
of $318, including interest which is cal-
culated at 18% per annum, final payment due
July, 1999. -0- 2,099
Notes payable, shareholder, interest payable
at 10% per annum; payable as described above. 294,990 294,990
Convertible note payable, individual,
interest payable at 10% per annum on December
18, 1999 and upon maturity on June 18, 1999;
convertible into common stock at $1.00 per
share (See Note 15). -0- 50,000
Convertible note payable, individual, interest
payable at 10% per annum on January 21, 1999
and upon maturity on July 21, 1999; convertible
into common stock at $1.00 per share (See Note
15). -0- 50,000
Convertible note payable, individual, interest
payable at 10% per annum on January 21, 1999
and upon maturity on July 21, 1999; convertible
into common stock at $1.00 per share (See Note
15). -0- 25,000
-------- --------
327,549 422,089
Less: current maturities 16,913 184,970
-------- --------
$310,636 $237,119
======== ========
F-10
<PAGE>
NOTE 4 - NOTES PAYABLE (CONTINUED)
Aggregate annual maturities of the notes payable at December 31, 1999 are
as follows:
During the year ending December 31,
-----------------------------------
2000 $ 16,913
2001 310,636
--------
$327,549
========
Interest expense totaled $35,213 and $42,648 during the years ended December
31, 1999 and 1998, respectively.
NOTE 5 - CUSTOMER AND OTHER DEPOSITS
Included in customer and other deposits at December 31, 1999 and 1998 is
$16,100 received from an individual as a deposit on stock to be issued at
$1.00 per share.
NOTE 6 - ADVERTISING COSTS
During the year ended December 31, 1998, the Company employed the
services of a public relations consulting firm to assist them in their
advertising efforts, including designing the Company's brochure and logo.
Advertising expense incurred during the years ended December 31, 1999 and 1998
totaled $29,449 and 36,558, respectively.
NOTE 7 - LEASES
The Company is currently renting office and warehouse space in
Hallandale, Florida pursuant to a five year lease agreement which began April
1, 1998. This five year lease agreement requires monthly rental payments of
$4,000 plus sales tax. The Company has the option at the end of the lease
term to renew the lease for an additional five years.
Minimum annual rental payments are as follows:
During the year ending December 31,
-----------------------------------
2000 $ 48,000
2001 48,000
2002 48,000
2003 12,000
--------
$156,000
========
Rent expense for the years ended December 31, 1999 and December 31, 1998
amounted to $53,159 and $50,868, respectively.
F-11
<PAGE>
NOTE 8 - EXCLUSIVE LICENSING AGREEMENT
On April 13, 1999, the Company entered into an exclusive licensing
agreement with Vector Medical Technologies, Inc. ("Vector"). This agreement
grants Vector exclusive license, subject to the payment of royalties, to
certain drug delivery systems, including intangible and tangible assets. In
exchange for this exclusive license, Vector has agreed to pay the Company
royalties as follows: 4% of its net sales or other net revenues derived from
assets in which the Company holds the patent; and 3% of its net sales or other
net revenues derived from the portion of assets that are not covered by a
patent held by the Company. These royalty payments are due quarterly within
45 days from the end of each calendar quarter for which royalties are payable.
Vector has also agreed to pay the Company non-refundable advances against
future royalties for a period of four years from the date of the agreement.
These payments shall amount to at least $900,000 per year, payable in monthly
installments of at least $75,000. In regard to these advances, the companies
have agreed to meet at least 90 days prior to the beginning of each calendar
year to consider the ongoing feasibility of the relationship and to determine
the appropriate amount of non-refundable advances to be made by Vector to the
Company. Notwithstanding any agreement to the contrary, this agreement shall
be in existence for 10 years. In the event that Vector fails to make its
payments, the agreement shall be deemed null and void and the exclusive
license and option granted under this agreement shall be terminated without
further obligation or liability of either company. Furthermore, this license
agreement gives Vector the option to purchase 100% of certain SMLX assets
within four years from the date of the agreement, with any royalty payments
credited towards the purchase price. The total purchase price will vary based
on gross sales during the preceding twelve month period attributable to the
assets and ranges between $3.6 and $6.6 million.
As of December 31, 1999, the Company had received $600,000 in connection
with this agreement, which is included in the Company's research and
development revenue. Revenue from this contract comprises approximately 62%
of the Company's total revenue for the year ended December 31, 1999.
NOTE 9 - JOINT VENTURE AGREEMENT
On May 3, 1999, the Company entered into a joint venture agreement with
HelveStar, S.A., a Swiss technology commercialization, financial and holding
company. This agreement outlines the formation and capitalization of BioStar,
S.A. for the purposes of commercializing, manufacturing, developing, marketing
and selling the Company's present and future technologies and products.
BioStar will initially be funded by HelveStar who will own sixty percent.
Upon the execution of this agreement, the Company granted HelveStar a
stock option for 900,000 shares of the Company's stock at an exercise price of
$1.58 per share. Within 24 months of the execution of this agreement,
HelveStar shall have the right to purchase a total of 2,250,000 shares of the
Company's stock. The purchase price of the shares on the date of purchase
will be equal to 50% of the closing price of the Company's stock on the latest
price trading date on which at least 5,000 shares were traded.
F-12
<PAGE>
NOTE 9 - JOINT VENTURE AGREEMENT (CONTINUED)
In addition, this agreement grants BioStar a 99-year exclusive worldwide
license for the commercialization, marketing and production of all the
Company's core products and technology. However, BioStar will honor all of
the Company's valid existing distributorship agreements. In addition, the
Company has transferred its non-core technologies to BioStar which has agreed
to purchase them for $2,400,000 payable in monthly installments of $100,000
for 24 months commencing in May 1999. As of December 31, 1999, the Company
had received $300,000, which is included in research and development services
revenue.
The agreement states that in the event that BioStar fails to make its
payments in connection with its purchase of the non-core technologies, all
non-core technologies not paid for will revert to the Company and the
exclusive worldwide licenses related to certain core technologies will be
terminated. In March 2000, the Company's Board of Directors approved the
sending of default letters to BioStar informing them of their non-payment
under the terms of the agreement and giving them twenty days to cure the
default. The default was not subsequently cured during this twenty day
period.
NOTE 10 - RELATED PARTY TRANSACTIONS
REVENUE
During the year ended December 31, 1999, the Company received $300,000
from its affiliate, BioStar, for research and development services pursuant
to the terms of the Joint Venture Agreement described in Note 9. This
represents approximately 31% of the Company's total revenue during the year
ended December 31, 1999.
NOTES PAYABLE
A director and shareholder loaned the Company a total of $294,990 at
various times during the year ended December 31, 1997. These notes were
subsequently assigned to another shareholder of the Company. These notes were
outstanding as of December 31, 1999 and 1998 and are discussed in Note 5.
Interest expense incurred in connection with these loans totaled $34,170 and
$29,499 for the years ended December 31, 1999 and 1998, respectively.
STOCKHOLDERS'AGREEMENT
During 1998, the Company entered into a Stockholders' Agreement with
eight shareholders. Among other things, this agreement provides that the
Company will not sell any of its securities in any transactions unless it
provides the shareholders who are parties to the agreement a preemptive right
to purchase a pro rata portion of such securities on the same terms and
conditions. This preemptive right will not apply to securities issued to any
officer, director or employee of the Company under a benefit or compensation
plan or for services or assets, other than cash or notes. In addition, the
Company granted "piggy-back" registration rights to Software & Healthcare
Technology Fund, L.L.C. ("SHTF") and Robertson & Partners, L.L.C. with respect
to their shares of common stock under certain conditions as outlined in the
agreement. These provisions terminate on the later of May 15, 2000 or the
ninetieth consecutive day on which the bid price of the Company's common stock
exceeds $4.00 per share on the publicly traded market. All other provisions
of the agreement terminate on May 15, 2005.
F-13
<PAGE>
NOTE 11 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the years ended December 31, 1999 and 1998 cash paid by the
Company for interest totaled $41,581 and $35,212, respectively.
During the year ended December 31, 1999, the Company purchased equipment
costing $50,000 with a note payable.
As of December 31, 1999, stock issuance costs and capitalized patent
costs totaling $350 and $3,500 were included in accounts payable.
During the year ended December 31, 1999, three notes payable totaling
$125,000 were converted into common stock at $1.00 per share.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
NOTES PAYABLE
The carrying amount approximates fair value because the same terms and
interest rates could be obtained for similar maturities.
STOCK OPTIONS
It is not practicable to estimate the fair value of the Company's stock
options because they are subject to trading restrictions and lack quoted
market prices.
NOTE 13 - STOCK OPTIONS
In August 1997, the Board of Directors granted certain employees,
directors and consultants of the Company stock options pursuant to the
Company's 1997 Stock Option Plan. A total of 2,000,000 shares of the
Company's stock have been reserved for the options to be granted under this
plan. Eligible participants include any employee, officer, director or
consultant that the Board of Directors, in its sole discretion, designates is
eligible to participate in this Plan. The option exercise price is stated on
the option grant and shall not be less than 100% of the fair market value of
the shares on the date of the grant or the par value, whichever is greater.
Unless otherwise stated on the option, each option is exercisable for ten
years. As of December 31, 1999, the options granted under this plan totaled
1,276,000 shares exercisable between five and ten years at prices ranging from
$0.88 to $3.26 per share.
In addition to the options outstanding under the Company's 1997 Stock
Option Plan, during October 1998, the Company granted an option to purchase
1,000 shares of the Company's common stock at $1.50 per share through October
2, 2003.
F-14
<PAGE>
NOTE 13 - STOCK OPTIONS (CONTINUED)
The following summarizes the status of the Company's stock options for
the years ended December 31, 1999 and 1998:
Weighted-Average
Shares Exercise Price
--------- ----------------
Outstanding at January 1, 1998 490,000 $1.58
Granted and exercisable 391,000 $2.11
Exercised -0-
Forfeited -0-
--------- -----
Outstanding at December 31, 1998 881,000 $1.82
Granted and exercisable 420,000 $0.88
Exercised -0-
Forfeited (25,000) $2.87
--------- -----
Outstanding at December 31, 1999 1,276,000 $1.49
========= =====
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements related to stock options. The weighted average fair
value of options granted during the years ended December 31, 1999 and 1998 was
$0.59 and $0.68, respectively. These values were computed using the
Black-Scholes option pricing model with the following assumptions: expected
life of 3 years; expected volatility of 376% and 163% for the years ended
December 31, 1999 and 1998, respectively; and a risk free interest rate of 6%.
Had compensation cost for the Company's stock options been determined based on
the fair value at the grant dates consistent with the method of FASB No. 123,
"Accounting for Stock-Based Compensation", the Company's net loss for the
years ended December 31, 1999 and 1998 would have been $635,296 ($0.06 per
share) and $1,134,005 ($0.12 per share), respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
use of highly subjective assumptions. Because the Company's stock options
have characteristics that are significantly different from traded options and
because changes in the valuation assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
NOTE 14 - INCOME TAXES
The Company has incurred tax operating losses and therefore has generated
no income tax liabilities. As of December 31, 1999, the Company has generated
net tax operating loss carryforwards totaling $2,060,568 which are available
to offset future taxable income, if any. These loss carryforwards expire
beginning in 2010. Due to limitations on the utilization of loss
carryforwards resulting from ownership changes and separate return limitations
and the uncertainty that the Company and its subsidiaries will be able to
utilize the net operating losses, a 100% valuation allowance has been recorded
against the deferred tax assets.
F-15
<PAGE>
NOTE 14 - INCOME TAXES (CONTINUED)
The following summarizes the components of the net deferred tax asset at
December 31, 1999 and 1998:
1999 1998
--------- ---------
Deferred tax assets:
Net operating loss carryforward $ 700,593 $ 569,168
Valuation allowance (700,593) (569,168)
--------- ---------
Net deferred tax asset $ -0- $ -0-
========= =========
NOTE 15 - STOCKHOLDERS' EQUITY (DEFICIT)
SHARE EXCHANGE AGREEMENT
In connection with a Share Exchange Agreement dated May 20, 1998, the
Company acquired a 19% interest in Automated Health Technologies, Inc.
("AHT"), a privately held company, in exchange for 500,000 shares of the
Company's common stock. This agreement gives AHT shareholders a five year put
option on an additional 1,000,000 shares of the Company's common stock in
exchange for the remaining 81% of AHT's common stock under certain conditions
as outlined in the agreement.
SHARES ISSUED FOR CASH
On May 15, 1998, the Company sold 1,000,000 shares of common stock to
SHTF for $400,000 in cash. In addition, the Company sold 1,600,000 shares of
common stock to Robertson & Partners, L.L.C. for $600,000 in cash on June 30,
1998. These sales were made pursuant to subscription agreements dated May 15,
1998. Robertson & Partners, L.L.C. is the managing member of SHTF. The
Company also granted SHTF a 120-day right of first refusal with regard to any
offerings of the Company's securities.
During December 1998, the Companies' Board of Directors voted to accept
the offer of Robertson & Partners Venture Fund II to purchase an additional
444,445 shares of stock for $200,000 ($0.45 per share). This amount was
received in $50,000 installments during January through April 1999.
In May 1999, the Company issued 375,204 shares of stock for $283,100.
These shares were issued to individuals affiliated with HelveStar and are
considered deductions from HelveStar's right to purchase 2,250,000 shares as
described in Note 9.
CONVERTIBLE NOTES PAYABLE
On December 18, 1997 the Company issued an unsecured convertible note
payable to an individual in the face amount of $50,000, bearing interest at
10% per annum. This note matured on June 18, 1999, at which time the
principal amount was converted into 50,000 fully paid and non-assessable
shares of $0.0001 par value common stock at $1.00 per share.
On January 21, 1998 the Company issued an unsecured convertible note
payable to an individual in the face amount of $50,000, bearing interest at
10% per annum. This note matured on July 21, 1999, at which time the
principal amount was converted into 50,000 fully paid and non-assessable
shares of $0.0001 par value common stock at $1.00 per share.
F-16
<PAGE>
NOTE 15 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
On January 21, 1998 the Company issued an unsecured convertible note
payable to an individual in the face amount of $25,000, bearing interest at
10% per annum. This note matured on July 21, 1999 at which time the principal
amount was converted into 25,000 fully paid and non-assessable shares of
$0.0001 par value common stock at $1.00 per share.
NOTE 16 - LEGAL PROCEEDINGS
In June 1999, Americare Transtech, Inc. and two other parties instituted
suit against the Company and two of its employees requesting a judicial
determination on whether the terms of the Company's corporate documents
require the Company to indemnify its two employees for a judgment entered into
on December 30, 1998 for damages for violation of Florida's Trade Secret Act.
These damages were awarded for misappropriation of trade secrets and
interference with business relationships. The Company believes that the
complaint is without merit since no corporate documents require the Company to
indemnify anyone for judgments entered. The Company intends to aggressively
defend the case and seek an award of its costs and attorney's fees.
Americare Transtech, Inc. and four other parties filed an amended
complaint in October 1998 naming the Company as one of five co-defendants.
This suit alleges patent infringement, misappropriation of trade secrets,
breach of contract, breach of fiduciary duty as agent, breach of confidential
relations, breach of trust, unfair competition, and conversion. Americare is
seeking damages for an undisclosed amount in excess of $75,000. The Company
intends to aggressively defend the suit and has filed a motion to dismiss
because it lacks merit. The Company is currently awaiting the court's ruling
on the motion to dismiss.
In July 1998, Superior Wholesale Products, Inc. ("SWP") instituted a suit
against the Company alleging breach of contract and interference with its
relationship with a third party claiming damages in the amount of $2,500,000.
SWP claims that they entered into an exclusive distribution agreement for the
distribution of the Company's HIV saliva test kits and that the Company
breached this agreement by selling the product directly to one of SWP's
clients. The Company is aggressively defending their position that a
distribution agreement was never finalized because SWP did not perform under
the provisions of the proposed contract. The Company has filed a counterclaim
against SWP for interfering with their relationship with the customer and for
defamation.
During 1999, a suit was filed in Pennsylvania by Mary Burton, a purchaser
of the Company's stock. This suit alleges that the Company never issued the
10,000 shares of stock that she paid $16,100 for in October, 1997. Mrs.
Burton is seeking return of her investment. The Company believes that this
suit is without merit and intends to aggressively defend its position.
In September 1998, John Faro filed a complaint against the Company and
four other co-defendants alleging various causes of action and contending that
Mr. Faro is entitled to 460,000 shares of the Company's common stock. The
stock in question was to be issued as part of a consulting agreement between
the Company and Mr. Faro. On December 8, 1999, the appellate court directed
the trial court to issue a writ of mandamus recognizing Mr. Faro's ownership
of the subject stock. Subsequent to year-end, following the appellate court's
F-17
<PAGE>
NOTE 16 - LEGAL PROCEEDINGS (CONTINUED)
direction, the trial court has issued a writ of mandamus directing the stock
transfer agent to issue the stock in Mr. Faro's name but to hold the stock in
escrow until such time as various claims against Mr. Faro have been
adjudicated. The Company has filed a motion for rehearing with the appellate
court requesting reversal of the order to the trial court on numerous grounds.
The Company intends to aggressively defend its position and is pursuing a
counterclaim against Mr. Faro.
NOTE 17 - COMMITMENTS
On July 1, 1998, the Company entered into two-year employment contracts
with its president and a vice president. These agreements expire on July 1,
2000 and provide for a minimum annual salary, and incentives based upon the
Company's attainment of specified levels of pre-tax earnings. At December 31,
1999, the total commitment, excluding incentives, was $80,000.
On September 6, 1999, the Company entered into a sub-contract agreement
with Florida International University ("FIU") in which FIU will provide
assistance in product testing and research services for the Company as
specifically outlined in the contract. The fixed fee for these services was
$16,387. This contract was modified to include additional product testing and
research services for a fixed fee of $2,841 due upon completion of the
project, which is estimated at February 29, 2000.
On November 12, 1999, the Company pledged $75,000 to Florida
International University to be paid in equal amounts over a five year period
of time. This pledge is to be used to establish a grant to a graduate student
in Biomedical Engineering. This pledge may be discontinued or cancelled by
the Company at anytime.
NOTE 18 - CONCENTRATIONS
VENDOR CONCENTRATION
Two major vendors represented approximately 28% ($20,700) and 27%
($19,973), respectively, of the Company's total purchases of inventory during
the year ended December 31, 1999. The Company believes that most components
used in the manufacture of its current and proposed products are currently
available from numerous suppliers located in the United States, Europe and
Asia. However, certain components are available only from a limited number of
suppliers. Although the Company believes that it will not encounter
difficulties in obtaining these components, there can be no assurance that the
Company will be able to enter into satisfactory agreements or arrangements for
the purchase of commercial quantities of such components.
CASH CONCENTRATION
The Company maintains cash balances at a national bank in excess of the
amount insured by the Federal Deposit Insurance Corporation. As of December
31, 1999, the Company had cash balances exceeding this insured limit by
$115,026.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: May 2, 2000 SMLX TECHNOLOGIES, INC.
By:/s/ Colin N. Jones
Colin N. Jones, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Colin N. Jones President (Chief Executive May 2, 2000
Colin N. Jones Officer) and Director
/s/ Henry B. Schur Vice President of Marketing May 2, 2000
Henry B. Schur and Director
/s/ Joel Marcus Chief Financial Officer and May 2, 2000
Joel Marcus Director
/s/ Kenneth H. Robertson Director May 2, 2000
Kenneth H. Robertson
/s/ Gerald M. Wochna Director May 2, 2000
Gerald M. Wochna
__________________________ Director
Khalid Hossain
/s/ Sherman O. Jones Director May 2, 2000
Sherman O. Jones
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated March 8, 2000,
appearing in the Annual Report on Form 10-KSB of SMLX Technologies, Inc. for
the fiscal year ended December 31, 1999, in the Company's Registration
Statement on Form S-8, SEC File No. 333-31300.
/s/ Schmidt & Co.
SCHMIDT, RAINES, TRIESTE,
DICKENSON & ADAMS, P.L.
Boca Raton, Florida
May 3, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-2 and F-3 of
the Company's Form 10-KSB for the fiscal year ended December 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 215,026
<SECURITIES> 0
<RECEIVABLES> 8,857
<ALLOWANCES> 2,786
<INVENTORY> 129,398
<CURRENT-ASSETS> 373,794
<PP&E> 615,883
<DEPRECIATION> 197,336
<TOTAL-ASSETS> 1,089,656
<CURRENT-LIABILITIES> 387,918
<BONDS> 0
0
0
<COMMON> 1,154
<OTHER-SE> 389,948
<TOTAL-LIABILITY-AND-EQUITY> 1,089,656
<SALES> 62,851
<TOTAL-REVENUES> 962,836
<CGS> 110,550
<TOTAL-COSTS> 288,262
<OTHER-EXPENSES> 1,099,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,213
<INCOME-PRETAX> (386,547)
<INCOME-TAX> 0
<INCOME-CONTINUING> (386,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (386,547)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
