U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1
to
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
Commission file no. 0-24921
Surgical Safety Products, Inc.
--------------------------------------------
(Name of small business issuer in its charter)
New York 65-0565144
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2018 Oak Terrace
Sarasota, Florida 34231
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (941) 927-7874
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None
- ----------------------------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
-----------------------------------
(Title of class)
<PAGE>
Copies of Communications Sent to:
Mercedes Travis, Esq.
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
Indicate by 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
--- ---
As of June 30, 1999, there are 11,811,373 shares of voting stock of the
registrant issued and outstanding.
<PAGE>
PART I
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1999
and December 31, 1998 F-2
Condensed Statements of Operations for
the Three and Six Months Ended June 30, 1999 and 1998 F-3
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 F-4
Notes to the Condensed Financial Statements F-6
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
CONDENSED BALANCE SHEETS
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Assets (Unaudited)
Current Assets June 30, 1999 December 31, 1998
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<S> <C> <C>
Cash $ 188,000 $ 41,191
Accounts receivable 9,981 1,941
Deposits 0 58,700
Inventory 6,119 6,555
Prepaid Expense 7,500 0
----------- -----------
Total current assets 211,600 108,837
----------- -----------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Property and equipment, net 221,524 112,772
----------- -----------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Other Assets
Intangible assets, net 45,551 49,232
Software development costs, net 129,451 92,873
Other assets 10,250 10,250
---------- -----------
Total other assets 185,252 152,355
---------- -----------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Total Assets $ 618,376 $ 373,514
============ ============
------------------------------------------------------------------------------
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Liabilities and Stockholders' Equity
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Current Liabilities
Line of credit $ 100,000 $ 0
Notes payable - related parties 77,500 0
Accounts payable and
accrued expenses 69,829 55,331
------------- -----------
Total current liabilities 247,329 55,331
------------- -----------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.001 par value,
20,000,000 shares authorized;
11,798,373 shares issued and
outstanding in 1999 and
10,786,973 in 1998 11,812 10,787
Additional paid-in capital 2,429,907 1,998,242
(2,070,672)
Accumulated deficit -------------- (1,690,846)
371,047 ----------------
Total stockholders' equity -------------- 318,183
----------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Total Liabilities and Stockholders' $ 618,376 $ 373,514
Equity ========= ========
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
----------------------------------------------------------------------
Six Months Ending June 30 Three Months Ending June
1999 1998 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
$ 52,734 $ 19,139 $ 13,157 $ 3,159
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Costs and expenses
Cost of medical products sold 8,135 1,278 7,874 1,125
Operating expenses 396,900 290,946 257,916 227,672
Research and development 20,085 9,771 13,418 4,633
expenses 7,440 13,825 5,919 12,482
Interest expense ----------- ----------- ----------- ----------
432,560 315,820 285,127 245,912
Total costs ----------- ----------- ----------- ----------
(379,826) (296,681 (271,970) (242,753)
Net loss before income taxes 0 0 0 0
Provision for income taxes ----------- ----------- ----------- ----------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Net loss $ (379,826) $ (296,681) $(271,970) $(242,753)
======== ======= ======== =======
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Net loss per share $ (0.04) $ (0.03) $ (0.02) $ (0.02)
======== ======= ======== =======
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
---------------------------------------------------------------------
1999 1998
----- -----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (379,826) $ (346,682)
---------------- -----------
Adjustments to reconcile net loss to
cash used in operating activities
Depreciation and amortization 58,013 23,345
Common stock issued for services 41,303 141,875
Stock option compensation expense (91,113)
Decrease (increase) in operating assets
Receivables (8,040) 248,740
Inventory 436 (2,869)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 14,498 (11,926)
-------------- -------------
Total adjustments (15,097) 399,165
-------------- ------------
Net cash used in operating activities (364,729) 52,483
-------------- ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities
Furniture and equipment purchased (92,039) (31,971)
Software development additions (48,923) (36,270)
Patent and trademark costs
----------- -----------
Net cash used in investing activities (140,962) (68,241)
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from related party loans 77,500
Advances (repayments) on line of
credit, net 100,000 (100,000)
Repayment of stockholder loans (233,720)
Proceeds from issuance of common stock 475,000 939,000
------------ -------------
Net cash provided by financing
activities 652,500 605,280
------------ -------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net increase (decrease) in cash 146,809 589,522
Cash at beginning of year 41,191 -
-------------- ------------
Cash at end of year $188,000 $ 589,522
======== =======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Supplemental Cash Flow Information: $ 4,647 $ 31,492
Cash paid for interest ======== ======
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE>
For the purposes of the statement of cash flows, management considers all
deposits and financial instruments with original maturities of less than three
months to be cash and cash equivalents.
Material non-cash transactions not reflected in the statement of cash flows
include:
For the Six Months Ended June 30, 1999
The Company received fixed assets in the amount of $ 58,700 for which
it had recorded deposits of such amount at December 31, 1998.
For the Six Months Ended June 30, 1998
The Company issued common stock for prepaid media consulting services
in the amount of $ 22,500.
The accompanying notes are an integral part of these
financial statements.
F-5
<PAGE>
Notes to the Condensed Financial Statements
Note 1 - Account Policies
Basis of Presentation
The condensed financial statements of Surgical Safety Products, Inc. (Company)
have been prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These consolidated financial statements should be read in
conjunction with the financial statement and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
The results of operations for the six month period ended June 30, 1999 are not
necessarily indicative of the results to be expected for any other period or for
the full year.
In the opinion of Company's management the accompanying unaudited financial
statements contain all adjustments, consisting of only normally recurring
adjustments, necessary to present fairly the financial position as of June 30,
1999, the results of operations and cash flows for the three and six months
ended June 30, 1999 and June 30, 1998.
Net Loss Per Share
Net loss per share has been computed in accordance with Statement of Financial
Accounting Standards (FASB) no. 128, "Earnings Per Share," by dividing net loss
by the weighted average number of shares outstanding during the period. Common
stock equivalents have not been include in the computation of weighted average
number of shares outstanding since the effect would have been anti-dilutive.
Reclassifications
Certain reclassifications have been made in the prior year's financial
statements to conform to the current period presentations.
Note 2 - Stock Compensation Expense
During fiscal year 1998, the Company issued stock options with an exercise price
that was below market to certain of its employees. Accordingly, the Company
recorded $91,113 of compensation expense related to the issuance for the year
ended December 31, 1998.
In the first quarter of 1999, the Company canceled these stock options and
issued options with an exercise price above that of market. Accordingly, the
Company decreased its payroll expenses by $91,113 for the cancellation of these
options for the six months ended June 30, 1999. In addition, during the three
and six months ended June 30, 1999, the Company issued common stock valued at
$39,053 to certain of its employees and $7,500 to certain consultants in lieu of
cash compensation for services. The common stock was valued based on the fair
market value for the shares on the dates the compensation would have been paid
F-6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
General
In April 1999, the Company attended the AORN convention where it
experienced more acceptance from potential content providers and users partly
because of the commencement of the arrangement with US Surgical.
In the April-June period, the Company completed the installation and
internet connection of another unit at the University of Washington in Seattle
and completed the preliminary preparation for additional units under the US
Surgical agreement at two California Pacific Medical Center sites in San
Francisco.
The Company expects to complete the installation of the last three (3)
US Surgical sites in 1999's third calendar quarter.
In April 1999 the Company commenced a self-directed private placement
offering of the Company's restricted Common Stock and warrants for an aggregate
of $500,000 in proceeds. The offering was concluded on June 30, 1999.
This offering was conducted pursuant to Section 4(2) of the Securities
Act of 1933, as amended (the "Act") and Rule 506 promulgated under Regulation D
of the Act to not more than thirty-five (35) non accredited investors; Section
517.061(11) of the Florida Code, Section 10-5-9(13) of the Georgia Code,
Regulation 130.293 to the Illinois Code, Section292.410(h) of the Kentucky Code
and Section 201.[70 P.S. 1-201] of the Pennsylvania Code. No memorandum was
being used in connection with this offering since the Company relied upon its
filing with the Securities and Exchange Commission.
The basis for reliance upon the Section 4(2) exemption in connection
with this offering is (i) the sale of the shares of Common Stock and warrants
does not constitute a public offering and (ii) investors are or will be
sophisticated investors who have access to the information on the Company
necessary to make an informed investment decision by virtue of the Company's
Registration Statement on Form 10-SB, as amended, filed with the Securities and
Exchange Commission (the "SEC") and the Company's Form 10-KSB filed with the
SEC. The Company was required to file a Form D.
The Company received gross proceeds of $475,000 under this offering for
a total of 950,000 shares of the Company's restricted Common Stock and the
issuance of warrants to purchase a total of 475,000 shares of the Company's
Common Stock at an exercise price of $1.00 within five (5) years. Directors Sam
Norton, Dr. William Saye and David Swor each purchase 50,000 shares of Common
Stock and 25,000 warrants.
<PAGE>
The basis for reliance upon Section 517.061(11) of the Florida Code in
connection with this offering is (i) sales of the shares of restricted Common
Stock and warrants has been or will be made to not more than thirty-five (35)
persons; (ii) neither the offer nor the sale of any of the shares has been or
will be accomplished by the publication of any advertisement; (iii) all of the
purchasers either have or had a pre-existing personal or business relationship
with one or more of the executive officers and directors of the Company or, by
reason of their business or financial experience, could be reasonably assumed to
have the capacity to protect their own interest in connection with the
transaction; (iv) each purchaser has or will represent that he was purchasing
for his own account and not with a view to or for sale in connection with any
distribution of shares; and (v) prior to sale, each purchaser had or will have
reasonable access to or was furnished all material books and records of the
Company, all material contracts and documents relating to the Company, and had
an opportunity to question the executive officers of the Company.
The basis for reliance upon Section 10-5-9(13) of the Georgia Code in
connection with this offering is that (i) there were 15 or less purchasrs in the
state in a 12-month period, (ii) there was no form of general solicitation or
advertising, (iii) any certificate or other document representing the security
bears the Georgia restrictive legeng, and (iv) each investor confirmed in
writing that they were purchasing with investment intent.
The basis for reliance upon Regulation 130.293 to is that Illinois does
not required registration of federally exempted Rule 506 securities.
The basis for reliance upon Section 292.410(h) of the Kentucky Code in
connection with this offering is (i) neither the offer nor the sale of any of
the shares has been or will be accomplished by any form of general solicitation;
(ii) the Company has received or will receive a written representation from the
purchaser that he is acquiring the securities for his own investment and is
aware of any and all restrictions imposed on transferability and that the
certificates and warrants do and shall bear a restrictive legend; (iii) sales of
the shares of restricted Common Stock and warrants has been or will be made to
not more than fifteen (15) persons in Kentucky all of whom will be or are
accredited investors; and (iv) there are no commissions, finders fees or other
remuneration being paid in connection with the sales.
The basis for reliance upon Section 201.[70 P.S. 1.201] is that
Pennsylvania does not require registration of federally exempted Rule 506
securities.
<PAGE>
In April, 1999, the Company executed a Consulting and Assistance
Agreement with Koritz Group LLC, a Connecticut limited liability company
("Koritz"). The company exercised its right to cancel the agreement on July 30,
1999. Under the terms of this agreement, Koritz had been engaged to identify
sources of capital or potential business relationships and to assist the Company
in (i) raising equity or debt financing in the amount of $15,000,000 (ii)
arranging for trade financing for production, sale, lease, rental or other
disposal of the Company's products; and (iii) arranging for the sale, merger, or
consolidation of the Company or for joint ventures or strategic alliances with
other appropriate business. This agreement is non-exclusive. In the event Koritz
was successful, the Company was to pay compensation to Koritz equal to 2.5% for
any trade financing and 10% of the value of each business arrangement. In the
event Investment Financing was secured, the Company was to pay compensation
equal to 10% for any investment financing to the person or entity placing such
investment; provided such person or entity was qualified to receive such
compensation in the state of residence of the investor. The Company was free to
reject any offered financing or arrangements; however, in the event that the
Company entered any arrangement within 180 days of its written rejection, on
terms less favorable to the Company, Koritz was to receive a flat fee of
$100,000. In addition to the cash compensation, in the event the Company secured
investment financing, then the qualified, placing person or entity was to
receive warrants to purchase the Company's Common Stock exercisable for 36
months after the closing at the same price as the investment financing source
received, the number of which warrants would be equal to the amount of the
financing divided by the exercise price. Such warrants were to have
anti-dilution and piggy-back registration rights. In the event the Company
"shopped" any offer of financing presented to it to other potential sources and
accepted such other financing, the Koritz was entitled to a success fee. Koritz
was to be reimbursed pre-approved disbursements and expenses. The agreement
provided for confidentiality and cross-indemnification . The agreement was
subject to cancellation by either party with five (5) days written notice. It
was under this provision that the Company terminated this agreement on July
30,1999. Any disputes under the agreement were required to be submitted to
arbitration, with costs payable by the losing party. In April 1999, the Company
entered into an agreement with KJS Investment Corporation of Tampa Florida
("KJS") to provide consulting services. The agreement is on a non-exclusive
basis and has no defined term. The agreement provides for such services to be
performed in two phases. Under phase one, KJS is to assist in the development of
a comprehensive business plan and assist the Company in positioning such plan
with the capital markets with a view towards finding potential business
combinations, mergers and compressed time tables for the Company's business
strategy. The estimated cost of this phase is $5,000. Under phase two, KJS is to
identify appropriate financial institutions and distribute the plan, analyze the
initial feedback, arrange meetings, evaluate all proposals, provide management
with each proposal and assist in the negotiations. Upon execution, the Company
was required to commit to pay a $5,000 retainer to cover the estimated phase one
costs. KJS agreed to accept 7,000 shares of the Company's common stock valued at
the current bid price of $.50 towards such retainer and the balance of $1,500 to
be paid in cash at such time as KJS introduces the Company to five institutional
funding sources. Phase two compensation will be paid in the form of common stock
equal to 1.5% of the funds raised from the capital markets in the form of a
spin-off of the OASiS division and 10% of any mezzanine financing from any
source introduced by KJS.
<PAGE>
In May 1999, the Company entered into an agreement with Ten Peaks
Capital Corp. of Berkeley, California ("Ten Peaks") to pay a finder's fee for
successfully securing specifically defined financing for the Company. Such
financing includes finding a strategic partner and/or financial partner who
secures equity in the Company or a stake in future revenues. Ten Peaks is to
provide advice on long-term business, financial and strategic decisions. The
term of the agreement is for three (3) months from the execution date and it
expired on August 13, 1999. Upon execution of the agreement, the Company was
required to commit to pay a retainer of $4,000 to cover all anticipated out of
pocket expenses during the term. Ten Peaks agreed to accept 6,000 shares of the
Company's common stock in lieu of such retainer provided such stock has a fair
market value as reported on Bloomberg, LLP on the date of execution of not less
than $.66. In the event the Company's shares were trading for less, the
difference between $4,000 and the value of the shares was to be paid in cash. In
the event the Company receives gross proceeds of up to $2,000,000, Ten Peaks is
to receive an amount equal to 5% of such proceeds in the form of cash, equity or
some combination thereof. Thereafter, Ten Peaks will receive a sliding scale
equal to 4% of the next million, 3% of the fourth million, 2% of the fifth
million and 1% for each additional million. In the event the Company enters into
a transaction as a result of this agreement, it shall enter into a consulting
agreement with Ten Peaks for a term of six months under which Ten Peaks will
receive $5,000 in cash or equity.
Other than the initial retainers, no other payments have been made to
either KJS or Ten Peaks. Since execution of the KJS agreement the Company has
been advised that fees and commissions related to transactions in securities may
only be paid to those legally qualified to receive such payments in accordance
with regulations under Federal and state securities laws. The Company is in the
process of modifying this agreement such that only appropriate payments will be
made in the event of place of any equity in the Company from sources identified
by KJS. The Ten Peaks agreement expired without any additional payments.
In April 1999, the Company issued 2,000 shares each to two consultants
of the Company for services relating to their production of a CD-Rom disc to be
used promote OASiS in lieu of cash. Such 4000 shares were valued at $2,250 which
was based upon the closing price for the shares on the dates the salaries would
have been paid. Such offering was made in reliance to Section 4(2) of the Act
and Rule 506 and Section 517.061(11) of the Florida Code. The basis for reliance
on these sections is the same as that set forth under the April 1999 offering
described above.
In May and June 1999, the Company issued a total of 57,400 shares of
its Common Stock to officers and employees in lieu of salaries due and owing.
Under this arrangement, Mr. Clark, the Company's President received 12,000
shares and Mr. Collins, the Company's Acting Chief Financial Officer received
34,000 shares. Such shares were valued at $39,053.00 which was based upon the
closing price for the shares on the dates the salaries would have been paid.
Such offering was made in reliance to Section 4(2) of the Act and Rule 506 and
Section 517.061(11) of the Florida Code. The basis for reliance on these
sections is the same as that set forth under the April 1999 offering described
above.
<PAGE>
Discussion and Analysis
The Company was founded in 1992 to combat the potential spread of
bloodborne pathogenic infections such as HIV and hepatitis. It has broadened its
mission to research, develop, manufacturing, marketing and selling medical
products and services to the healthcare community.
The Company was in the development stage until 1993 when it began
commercial shipments of SutureMate(R), its first product. From inception in
June, 1992 through December 31, 1998, the Company generated revenues of
approximately $1,100,000 from a limited number of customers. Since inception
through December 31, 1998, the Company has generated cumulative losses of
approximately $1,690,000. Although the Company has experienced a significant
percentage growth in revenues from fiscal 1992 to fiscal 1998, the Company does
not believe prior growth rates are indicative of future operating results,
especially in light of the contract with US Surgical to assist in the
introduction of OASiS. Due to the Company's operating history and limited
resources, among other factors, there can be no assurance that profitability or
significant revenues on a quarterly or annual basis will occur in the future.
Moreover, the Company expects to continue to incur operating losses through at
least the first half of 2000, and there can be no assurance that losses will not
continue after such date.
With the implementation of its agreement with US Surgical and in the
event of the reactivation of its various distribution agreements and/or with the
establishment of one or more strategic alliances in addition to US Surgical, the
Company expects to experience a period of growth, which requires it to
significantly increase the scale of its operations. This increase will include
the hiring of additional personnel in the areas of (i) customer service to
provide technical support for the hospitals where installations are located and
(ii) technical staff to make changes requested by those hospitals. This will
result in significantly higher operating expenses. The increase in operating
expenses is expected to be partially funded by an increase in revenues. However,
the Company's net loss may continue to increase. Expansion of the Company's
operations may cause a significant strain on the Company's management, financial
and other resources. The Company's ability to manage recent and any possible
future growth, should it occur, will depend upon a significant expansion of its
sales and marketing, research and development, accounting and other internal
management systems and the implementation and subsequent improvement of a
variety of systems, procedures and controls. There can be no assurance that
significant problems in these areas will not occur. Any failure to expand these
areas and implement and improve such systems, procedures and controls in an
efficient manner at a pace consistent with the Company's business could have a
material adverse effect on the Company's business, financial condition and
results of operations. As a result of such expected expansion and the
anticipated increase in its operating expenses, as well as the difficulty in
forecasting revenue levels, the Company expects to continue to experience
significant fluctuations in its revenues, costs and gross margins, and therefore
its results of operations.
<PAGE>
The Company's plan of operations for the next twelve months is to focus
on building revenue from the installation of the OASiS system in the ten (10)
hospitals designated by US Surgical and to install additional OASiS systems in
hospitals not under the US Surgical agreement but with whom the Company has
begun negotiations and in some cases reached a commitment. Additionally, the
Company intends to install the inservice modules from US Surgical and other
medical product manufacturers at both the US Surgical and the other hospitals.
The Company also is aggressively seeking strategic alliances with targeted
industry partners such as manufacturers of devices, manufacturers of
pharmaceuticals, professional organizations such as nursing associations and
hospital group purchasing organizations and integrated health networks.
The Company estimates that if it is successful in consummating new
strategic alliances, the agreements will provide for infusion of sufficient
capital to fund ongoing operations for the balance of the year. The Company
estimates revenues from an expanded base of content providers and individual
installations may grow to the level where they can support ongoing operations.
The Company estimates that revenues will be sufficient to fund ongoing
operations at the current level when the number of OASiS installations reaches
approximately 100 to 125 and the total number of inservice modules reaches
approximately 150. The Company has purchased 20 OASiS units from Kiosk
Information Systems, Inc., 8 of which were installed under the US Surgical
agreement, 3 of which were installed at St. Francis Hospital, and the balance of
which are dedicated to its commitment to US Surgical for hospitals it has ready
for installation and to other hospitals which are committed to proceed, which
installations are scheduled on or before September 30, 1999. Based upon
potential additional commitments, the Company believes that if it were to order
20 more units, that all such units would be placed by the end of 1999. The
Company already has 32 inservice modules under the US Surgical agreement and is
in discussion with various manufacturers interested in using OASiS to inservice
more than 50 of their products. The Company believes that each of the initial
installations should have a position as to long term acceptance within three (3)
to six (6) months and that this initial time is the test period to determine the
potential for market acceptance at that hospital. In the case of US Surgical
hospitals, this period will be for nine (9) months by contract. At the end of
such test period, the Company believes it will be in a position to execute three
(3) year leases and finance such leases through a leveraged leasing arrangement
with Rockford or a similar funding source.
In the short term, to fund operations through the fourth quarter, 1999,
the Company will be required to seek additional funds from strategic alliances
with potential clients its shareholders, from a limited number of accredited
investors in a private placement of its restricted securities, from additional
third party financing or seek third party debt or equity financing other than
those planned by the current anticipated private placement. In the event no such
funding is available or only partial funding is available, the Company will be
required to scale back operations and to reduce its breakeven point by such
measures as salary reductions, staffing cuts, or the licensing or sale of some
of the Company's assets or product lines to third parties. Provided such funding
or scale back is successful, the Company believes that it can meet its capital
needs through the testing period and until such time as the Company has
sufficient additional long-term capital to expand. There can be no assurance
that the Company will be successful in these efforts.
<PAGE>
Once the testing period is over, the Company will require between $2
and $5 million in additional capital in the form of debt or equity to fund the
continued expansion of the OASiS system and its development to meet increased
demand and to implement its plans for increased marketing of its medical device
products. The Company has met with several venture capital firms, investment
bankers, factoring companies and traditional lending sources, each of whom have
expressed early interest and many of whom are awaiting the conclusion of the
testing period. The Company has accepted no definite offer. There can be no
assurance that such long-term financing will be available to the Company or that
it will be on terms that the Company may seek.
Results of Operations for the Three and Six Months Ended June 30, 1999 and 1998
Overview
From its inception, the Company has incurred losses from operations. As
of June 30, 1999, the Company had cumulative net losses totaling approximately
$2,070,000. Through fiscal 1997, the Company focused primarily on the design and
development of its propriety products, as well as providing consulting services.
During fiscal 1998, management shifted its focus to aggressively marketing its
proprietary products.
Financial Position
Working capital as of June 30, 1999 was a deficit of $35,729, as
compared to working capital of $53,056 at December 31, 1998. This decrease is
primarily due to additional borrowings on the Company's line of credit and
increases in Notes payable-related parties, the transfer of deposits to property
and equipment, reduced by an increase in cash on hand from the receipts of the
securities sold in the private placement.
Revenues
For the three months ended June 30, 1999 and 1998, the Company had
total revenues of $13,157.00 and $3,159.00, respectively. For the three months
ended June 30, 1999, revenues were comprised primarily of fees received for
Oasis unit rentals and production fees for inservice modules. For the six months
ended June 30, 1999, total revenues were $52,734.00 compared to $19,139.00 in
the same period last year. The increase of $33,595.00 or176% is due to revenue
from the 1999 launch of Oasis. In 1998, Oasis was still under development.
Selling, General, and Administrative Expenses
For the three months ended June 30, 1999, operating expenses increased
by $30,244 or 13% from $227,672 for the three months ended June 30, 1998. This
increase is primarily related to marketing support expenditures to sustain the
launch of the Company's Oasis system. In accordance with the Company's marketing
plan for fiscal 1999, expenses related to promotion, trade shows, and
conventions were increased to enhance the industry awareness of the company's
products and services.
<PAGE>
In the past, the Company has focused on the design and development of
proprietary products. For fiscal 1999, the Company has launched an aggressive
marketing plan that is designed to increase worldwide sales of its products.
Surgical believes that the increased operating expenses incurred during the six
[]months ended June 30, 1999 will position the Company to generate increased
revenue in the fourth quarter of the 1999 fiscal year and throughout 2000.
Liquidity and Capital Resources
The Company's operations are being funded primarily from the $475,000
proceeds of the private placement and from cash flow of $177,500 from
shareholder loans and advances on the line of credit during the six months ended
June 30, 1999. This allowed the Company to purchase capital assets, enhance its
OASiS software and fund current operations. At June 30, 1999, the Company has a
$188,000 cash position.
The Company has a line of credit in the amount of $100,000 that expires
in May 2017 and is guaranteed by Dr. Swor and his wife. The line of credit also
has been used to fund operations on a short-term basis and $100,000 is currently
outstanding.
Net cash used for investing for the six months ended June 30, 1999 was
approximately $140,962, representing primarily OASiS units purchased and costs
related to the new version of OASiS which have been capitalized.
Revenue of $13,157 for the quarter ended June 30, 1999 has been
generated primarily from the leasing of OASiS units to various hospitals
pursuant to the Agreement with US Surgical. For the quarter ended June 30, 1998,
revenue totaled $3,159.
It is the Company's intention to pursue additional debt and or equity
financing in the range of $2,000,000 to $5,000,000 during the remainder of
fiscal 1999, however, there can be no assurance that they will be successful in
their efforts. Surgical believes that cash flows generated from operations and
borrowing capacity, combined with proceeds from future debt or equity financing
and equipment financing support from either potential future strategic alliances
or firms that specialize in equipment financing will provide adequate
flexibility for funding the Company's working capital obligations.
Impact of the Year 2000 Issue
The Year 2000 Issues is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just a two digits (e.g. 98 for 1998). On January 1, 2000, any
clock or date recording mechanism including date sensitive software which uses
only two digits to represent the year, may recognize the date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
<PAGE>
The Company determined that the Year 2000 impact is not material to
Surgical and that it will not impact its business, operations or financial
condition since all of the internal software utilized by the Company is being
upgraded to support Year 2000 versions. Further, the Year 2000 will not impact
upon the operation of the OASiS system since the software for this system does
not rely on legacy applications or subsystems. OASiS is designed to handle dates
in the form of two digit months and days and a four-digit year, thus avoiding
the Year 2000 problem
The Company believes that it has disclosed all required information
relative to Year 2000 issues relating to its business and operations. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely also will be timely converted or that any such failure to
convert by another company would not have an adverse affect on the Company's
systems.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Form 10-QSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
demand for the Company's products and services, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results or developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, general economic
market and business conditions; the business opportunities (or lack thereof)
that may be presented to and pursued by the Company; changes in laws or
regulation; and other factors, most of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-QSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
The Company assumes no obligations to update any such forward-looking
statements.
PART II
Item 1. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject, which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending June 30, 1999,
covered by this report to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated herein by
reference, as follows:
<PAGE>
Exhibit No. Description
- -------------------------------------------------------------------------------
3.(I).1 Articles of Incorporation of Surgical Safety Products, Inc., a
Florida corporation filed May 15, 1992
3.(I).2 Articles of Amendment filed December 9, 1992
3.(I).3 Articles of Amendment filed July 19, 1994
3.(I).4 Articles of Amendment filed October 11, 1994
3.(I).5 Articles of Incorporation of Sheffeld Acres, Inc., a New York
Corporation filed May 7, 1993
3.(I).6 Articles of Merger filed in the State of Florida October 12, 1994
3.(I).7 Certificate of Merger filed in the State of New York February 8,1995
3.(I).8 Certificate to Do Business in the State of Florida
filed April 11, 1995
3.(I).9 Certificate of Amendment filed May 1, 1998
3.(II).1 Bylaws of Sheffeld Acres, Inc.,
now known as Surgical Safety Products, Inc.
3.(II).2 Amended Bylaws of Surgical Safety Products, Inc.
10.1 Acquisition of Endex Systems, Inc.
d/b/a/ InterActive PIE dated December 8, 1997
10.2 Prepaid Capital Lease Agreement with Community Health Corporation
relative to Sarasota Medical Hospital OASiS Installation
dated January 30, 1998
10.3 Letter of Intent with United States Surgical Corporation
dated February 12, 1998
10.4 Form of Rockford Industries, Inc. Rental Agreement and Equipment
Schedule to Master Lease Agreement
10.5 Ad-Vantagenet Letter of Intent dated June 19, 1998
10.6 Distribution Agreement with Morrison International Inc.
dated September 30, 1996
10.7 Distribution Agreement with Hospital News dated August 1, 1997
10.8 Clinical Products Testing Agreement with Sarasota Memorial Hospital
dated January 30, 1998
<PAGE>
10.9 Real Estate Lease for Executive Offices effective June 1, 1998
10.10 Employment Agreement with Donald K. Lawrence dated April 1, 1997
10.11 Employment Agreement with G. Michael Swor dated June 15, 1998
10.12 Employment Agreement with Frank M. Clark dated June 15, 1998
10.13 Agreement for Consulting Services with Stockstowatch.com Inc.
dated March 30, 1988
10.14 Form of Employee Option Agreement dated July 1994
10.15 Form of Employee Option Agreement dated 1998
10.16 Form of Consultants Option Agreement dated July 1994
10.17 Form of Consultants Option Agreement dated 1998
10.18 Confidential Private Offering Memorandum dated May 30, 1995
10.19 Supplement to Private Offering Memorandum dated October 30, 1995
10.20 Stock Option Agreement with Bay Breeze Enterprises LLC
dated April 9, 1998
10.21 Revolving Loan Agreement, Revolving Note,
Security Agreement with SouthTrust Bank dated May 2, 1997
10.22 Agreement between the Company and T. T. Communications, Inc.
dated October 15, 1998
10.23 Agreement between the Company and U.S. Surgical Corporation
dated October 28, 1998.
10.24 Collaborative Agreement between the Company and Dr. William B. Saye
dated November 16, 1998.
10.25 Kiosk Information System, Inc. Purchase Order dated November 3, 1998
10.26 Surgical Safety Products 1999 Stock Option Plan adopted January 1999
10.27 Form of the Employee Option Agreement under the Surgical Safety
Products 1999 Stock Option Plan dated January 1999
<PAGE>
10.28 Form of the Director, Consultant and Advisor Option Agreement under
the Surgical Safety Products 1999 Stock Option Plan dated
January 1999
10.29 Verio, Inc. Access Service Agreement dated February 16, 1999.
10.30 Form of Investor Subscription Documents and Agreements
relative to the April 1999 Self Directed Private Placement Offering
under Rule 506 of Regulation D.
10.31 Form of the Warrant issued pursuant to the April 1999
Self Directed Private Placement Offering
under Rule 506 of Regulation D.
10.32 Consulting Agreement dated April 1999 with Koritz Group, LLC.
10.33 Agreement dated April 1999 with KJS Investment Corporation.
10.34 Agreement dated May 1999 with Ten Peaks Capital Corp.
23.2 Publisher's Consent and Article - Michael W. Bebbington, MD,
MHSc and Mark J. Treissman, MD. The Use of a Surgical Assist
Device to Reduce Glove Perforations in Postdelivery Vaginal
Repair: A Randomized Controlled Trial. American Journal of
Obstetrics and Gynecology, Vol.
175, No. 1, Part I, October 1996
23.3 Author's Consent and Abstract - Donna J. Haiduven, BSN, MSN,
CIC and Maria D. Allo, MD. Evaluation of a One-Handed Surgical
Suturing Device to Decrease Intraoperative Needlestick
Injuries and Glove Perforations: Phases I & II, Conference on
Prevention of Transmission of Bloodborne Pathogens in Surgery
and Obstetrics Sponsored by the American College of Surgeons
and the Center for Disease Control and Prevention, February
13-15,
1994, Atlanta, GA.
23.4 Publisher's Consents and Article - Mark S. Davis, MD.
Sharps Management in Surgery. Infection
Control & Sterilization Technology, Vol. 1, No. 4, April 1995.
27.1 * Financial Data Street
- ----------------
(* Filed herewith, all other exhibits previously filed as exhibits to the
Company's Form 10-SB, Form 10-SB Amendment No. 1, its Form 10QSB for the quarter
ended March 31, 1999 or its Form 10QSB for the quarter ended June 30, 1999.)
(b) No Reports on Form 8-K were filed during the quarter ended June 30,
1999.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
<PAGE>
Surgical Safety Products, Inc.
Registrant)
Date: October 13, 1999 By:/s/ Frank M. Clark
--------------------------------
Frank M. Clark, President and CEO
By:/s/ Donald K. Lawrence
------------------------------
Donald K. Lawrence
Vice President and Secretary
By:/s/ G. Michael Swor
------------------------------
G. Michael Swor
Treasurer
By:/s/ David Collins
------------------------------
David Collins
Acting Chief Financial Officer
[sign page SSP 10QSB/A 6.30.99]
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