U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended: September 30, 2000
Commission file no. 0-24921
Surgical Safety Products, Inc.
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(Name of small business issuer in its charter)
New York 65-0565144
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2018 Oak Terrace
Sarasota, Florida 34231
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(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
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(Title of class)
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
<PAGE>
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 September 30, 2000, there are 14,715,373 shares of voting stock of the
registrant issued and outstanding.
<PAGE>
PART I
Item 1. Financial Statements
Condensed Balance Sheets F-1
Condensed Statements of Operations F-2
Condensed Statements of Cash Flows F-3
Notes to the Financial Statements F-5
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
September December
30, 31,
2000 1999
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<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 376,765 $ 516,799
Accounts receivable 14,760 17,086
Prepaids and other 84,682 118,569
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Total current assets 476,207 652,454
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Property and equipment, net 173,579 203,533
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Other Assets
Intangible assets, net 459,652 270,487
Software development costs, net 179,496 139,382
Other assets 9,750 10,250
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Total other assets 648,898 420,119
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Total Assets $ 1,298,684 $ 1,276,106
================= ==============
Liabilities and Stockholders' (Deficit)Equity
Current Liabilities
Line of credit $ 100,000 $ 100,000
Notes payable - related parties 37,500 52,500
Deferred revenue 150,000
Accounts payable and accrued expenses 199,515 438,057
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Total current liabilities 487,015 590,557
Long-term Liabilities
Notes payable 1,091,026 650,000
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Total liabilities 1,578,041 1,240,557
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Stockholders' (Deficit) Equity
Common stock, $.001 par value,
20,000,000 shares authorized; 14,715,373 and 14,515,373
shares issued and outstanding in 2000 and 1999 14,716 14,516
Common stock held in escrow (2,076) (2,700)
Additional paid-in capital 3,527,968 2,804,020
Accumulated deficit (3,819,965) (2,780,287)
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Total stockholders' (deficit) equity (279,357) 35,549
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Total Liabilities and Stockholders' (Deficit) Equity $ 1,298,684 $ 1,276,106
================ ==============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-1-
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenue
Net sales $ - $ 720 $ - $ 240
License and production fees 507,507 162,577 55,841 111,264
Other income 10,534 1,924 2,715 984
---------------- -------------- ---------------- --------------
Total revenue 518,041 165,221 58,556 112,488
---------------- -------------- ---------------- --------------
Costs and expenses
Cost of medical products sold - 14,271 - 5,866
Production and license fees 50,437 - 27,065 -
Operating expenses 1,166,571 602,555 415,505 207,321
Research and development expenses 44,431 40,287 11,250 20,202
Interest expense 237,082 9,755 25,385 2,315
Loss on disposal of assets 59,197 - 59,197 -
---------------- -------------- ---------------- --------------
Total costs 1,557,718 666,868 538,402 235,704
---------------- -------------- ---------------- --------------
Net loss before income taxes (1,039,677) (501,647) (479,846) (123,216)
Provision for income taxes
Net loss $ (1,039,677) $ (501,647) $ (479,846) $ (123,216)
================ ============== ================ ==============
Net loss per share $ (0.085) $ (0.045) $ (0.038) $ (0.010)
================ ============== ================ ==============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-2-
<PAGE>
<TABLE>
<CAPTION>
SURGICAL SAFETY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 200 AND 1999
(UNAUDITED)
Nine months ended
September 30,
2000 1999
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<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (1,039,677) $ (501,647)
------------------ ------------------
Adjustments to reconcile net loss to cash
used in operating activities
Depreciation and amortization 200,007 86,680
Common stock issued for services and
employee compensation 53,120 41,303
Stock option compensation expense 4,682 (91,113)
Interest expense - convertible debt 167,143
Accrued interest added to notes payable 59,468
Loss on disposal of assets 59,197
Decrease (increase) in operating assets
Receivables 2,326 (14,559)
Prepaids and other 34,387
Inventory - 654
Increase (decrease) in operating liabilities
Deferred revenue 150,000 6,874
Accounts payable and accrued expenses (238,542) 16,674
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Total adjustments 491,788 46,513
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Net cash used in operating activities (547,889) (455,134)
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Cash Flows From Investing Activities
Furniture and equipment purchased (23,271) (93,239)
Software development additions (133,874) (57,348)
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Net cash used in investing activities (157,145) (150,587)
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Cash Flows From Financing Activities
Proceeds from related party loans - 77,500
Proceeds from issuance of notes payable 650,000
Deferred finance costs (70,000)
Advances/(repayments) on line of credit, net - 50,000
Repayment of stockholder loans (15,000) (25,000)
Proceeds from issuance of common stock - 475,000
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Net cash provided by financing activities 565,000 577,500
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Net increase (decrease) in cash (140,034) (28,221)
Cash and cash equivalents at beginning of year 516,799 41,191
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Cash and cash equivalents at end of year $ 376,765 $ 12,970
================== ==================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3-
<PAGE>
<TABLE>
<S> <C> <C>
2000 1999
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Supplemental Cash Flow Information:
Cash paid for interest $ 7,496 $ 5,474
============== ==============
</TABLE>
For 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 Nine Months Ended September 30, 2000
- Deferred financing costs of $231,385 related to the issuance of warrants in
conjunction with the issuance of notes payable in March 2000
- Common stock and additional paid in capital of $268,442 issued for the
conversion of notes payable
For the Nine Months Ended September 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.
The accompanying notes are an integral
part of these financial statements.
F-4-
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
Notes to Consolidated Financial Statements
Note 1 - Accounting 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 statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
The results of operations for the nine month period ended September 30, 2000 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 positions of September
30, 2000, the results of operations and cash flows for the nine months ended
September 30, 2000 and September 30, 1999.
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 included in the computation of weighted average
number of shares outstanding since the effect would have been anti-dilutive.
Note 2 - Stock Compensation Expense
During fiscal year 1998, the Company issued stock options with an exercise price
that was below market price 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 expense by $91,113 for the cancellation of these
options for the quarter ended March 31, 1999.
F-5
<PAGE>
SURGICAL SAFETY PRODUCTS, INC.
Notes to Consolidated Financial Statements
Note 3 -Conversions of Debt
During the nine months ended September 30, 2000, the investment banking firm
that holds the notes payable related to the convertible line of credit, elected
to Convert $268,442 of principal and interest outstanding into 624,617 shares of
common stock at prices ranging from $0.375 to $0.5625 per share. These shares
were released from the shares held in escrow by the firm.
On October 24, 2000, the firm converted another $266,219 of principal and
interest into 709,918 shares of common stock at a price of $0.375 per share.
Note 4 - Commitments
On June 29, 2000, the Company entered into an agreement with a clinical
organization to license various components of its educational material to host
on the Company's website for a three-year period. The contract provides for the
Company to pay a base license fee of $117,000 per year, plus additional fees on
the number of users that access the material on the Company's website. The total
amount of fees paid each year by the Company inclusive of both the basic license
fees and user fees are capped at $1,426,000.
On October 15, 2000, the financial institution that holds the Company's line of
credit extended the maturity date for such to December 31, 2000. In order to
facilitate this extension, the Company has pledged certificates of deposit
totaling $50,000 against the line of credit.
F-6
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations.
General
The Company's (OTC BB: SURG) overall mission is the research, development,
production and distribution of innovative products and services for healthcare.
Consisting of both traditional products and innovative business-to-business
e-solutions, the common goal is a safer and more efficient environment for
healthcare workers, manufacturers and patients. Originally formed as a medical
device company, Surgical shifted focus to being an e-company when the Company's
management recognized an untapped market niche: responding to the critical need
for immediate communication and access to information in healthcare.
Now, the Company operates two divisions providing products and services to
the medical industry. The Information Systems Division, formerly referred to as
Oasis@work, through its Oasis Information Exchange product line provides
business-to-business on-demand safety and efficiency driven e-business and
information for healthcare workers. The Medical Products and Services Division
develops, manufactures and distributes medical devices.
About Oasis Information Exchange
The Oasis Information Exchange ("OIX") strategy is healthcare e-business
content aggregation and applications integration through a virtual private
network. It links the entire healthcare continuum, which includes healthcare
workers, administration, patients, and healthcare and pharmaceutical
manufacturers. Oasis Information Exchange is a true healthcare data center with
multiple access points. It is an Internet-based virtual private network
consisting of points-of-access via intranets, the Internet, internet appliances,
and through TouchPorts located throughout healthcare facilities across the
country. Although the Company is now focusing on providing its services through
the Internet, TouchPorts remain available as an alternative and are
user-friendly touch-access internet appliances which allow healthcare
professionals access to high quality clinical reference and agency mandated
information services.
OIX consists of three lines of e-business. The primary product produced by
OIX is a service that creates customized training applications for virtually any
topic. These web browser-based educational modules are designed to provide the
end-user with succinct, current information on any topic within practically any
industry. As a second line of business, OIX builds on-line communities in
specific target markets positioned as information exchanges. The third line of
business, a natural by-product of the first two, is Internet application
development and support services
During the second quarter of 2000, the Company realized that they were
focusing too much attention to the installation of hardware rather than focusing
its attention on its real product - information. In July 2000, the Company
signed an agreement with the Association of periOperative Registered Nurses
("AORN"), one of the largest nursing organizations in the United States, to
license their content - AORN Journal Online, OR Product Directory, Standards
Recommended Practices and Guidelines (SRPG) and other content. See "Corporate
Developments".
<PAGE>
AORN has 43,000 members and other mailing lists comprising of an
additional 100,000 people. As part of this initiative, the Company will be
producing a CD-ROM that will be mailed to approximately 150,000 people in
December 2000. This CD-ROM will feature OASiS. The CD will be mailed in the AORN
Journal for members and as a separate mailing to others.
Due to the increase and availability of PC's and Internet
accessibility in the heathcare environment, the Company realizes that, while in
some cases its OASiS network is needed in a particular environment, by an large,
its larger market is for its content. Essentially the Company is changing from a
hardware network supplier to an information broker which will create an
information exchange network for a defined healthcare community that links the
end-users to the industry while adding value to both parties. This is
essentially what the Company was doing all along; however, it had focused on the
delivery system for its product rather than the product itself.
Under the AORN arrangement, the Company's product will be delivered
through the Internet via its website or information exchange which will be
called OasisOR.com. The data center will have the same type of content from
device manufacturers, clinical associations and other relevant resources;
however it will be for OR employees only, with the information relevant to them.
Although the Company pays AORN a licensing fee, the Company expects
to generate revenue from sponsorships of the CD and from user fees and
advertising on its website. The Company has negotiated its first sponsorship
agreement with US Surgical in lieu of the previous
agreement which required massive expenditures for hardware installations.
The Company plans to scale the concept for other niche markets by
creating websites that cater to a particular speciality. The Company will focus
on providing website and intranet development.
Corporate Developments
The Company entered into an agreement with IBM Global Services
effective January 3, 2000 which included an IBM Customer Agreement and a
Statement of Work (the "IBM Global Agreement"). Under the terms of the IBM
Global Agreement IBM agreed to provide complete implementation and support
service solutions for 1,200 OASiS terminals in an estimated 400 end user
locations during the 12 month period commencing December 1, 1999. On February 3,
2000, IBM Global Services and the Company finalized the Statement of Work. The
services to be provided under the agreement included project planning, site
surveys, product acquisition, network design, web-site hosting services,
premises wiring, OASiS TouchPort Implementation, help desk support and
consulting services. The estimated cost for performing the work was
approximately $10 million. In addition, IBM Global Services agreed to bill the
Company a monthly service charge for pre and post installation support services,
including 24-7 support, and for labor, travel and out of pocket expenses. The
Company was to provide technical resources and oversee the IBM Global's
activities. Due to the new Internet focus, the Company has chosen to pursue for
the delivery of its product, there is no longer any need for the services to be
provided by IBM. Effective July 14, 2000, this contract was terminated.
<PAGE>
In February 2000, the Company executed an Investment Banking Services
Agreement with Dunwoody Brokerage Services Inc. d/b/a Swartz Institutional
Finance ("Swartz"). Under the agreement, Swartz agreed to introduce entities to
the Company for potential strategic partnerships, licensing arrangements,
mergers, acquisitions, investments or funding. For such services, Swartz was to
receive a scaled fee based upon the value of any completed transaction. Said fee
was payable in cash or stock at Swartz's option and by the issuance of warrants,
the number of which were to be based upon the fee divided by the market price of
the Company's Common Stock. There was no obligation on the part of the Company
to accept any transaction offered by the Swartz to the Company. Since no funding
was provided, pursuant to the terms of the contract, the Company sent notice of
cancellation effective July 31, 2000.
In February 2000, the Company executed a Consulting Agreement with
Global Development Advisors, Inc. ("GDA"); however, shortly thereafter, further
negotiations ensued and the agreement never became effective. Under the
agreement, GDA was to provide business and marketing consulting services, assist
in the implementation of a strategic plan and assist, coordinate and monitor the
Company's investor relations program. The agreement was for a term of six (6)
months and could have been extended by the Company. In lieu of cash payments for
services, GDA agreed to accept 50,000 shares of the Company's Common Stock under
the Company's 2000 Stock Plan approved by its shareholders on February 28, 2000
and options to purchase an additional 50,000 shares at an exercise price of
$1.09. Due to the further negotiations, the issuance was never made. The parties
have canceled this Agreement.
On February 29, 2000, the Company entered into a contract with Steel
Beach Productions, Inc. ("Steel Beach") to design, develop, implement and test
the OASiS Version 3.0 web based application. The contract is for a total of
$160,100 and is to be paid $80,500 in cash and $80,500 in stock options. The
Company paid a deposit of $20,012.50 and the balance is to be paid upon delivery
of the prototype, preliminary product and final product. The options are due at
the time of delivery of the final product. The common stock option number will
be calculated based on the average closing share price ("ACSP") in the twenty
(20) days of trading prior to deliver of the final product. The exercise price
will be 50% of the twenty (20) day average closing price as quoted on the OTC
BB. The number of options issued will be calculated by multiplying $80,050 times
two (2) and dividing by the ACSP. The options are to have a term of five (5)
years and are to conform to Company's consultant option policy as far as
additional terms and details. This agreement with Steel Beach replaces two
earlier agreements; specifically, one agreement for Version 2.0 dated December
30, 1999 in the amount of $37,800 in cash and $37,800 in stock options, and one
agreement for Version 3.0 dated December 30, 1999 in the amount of $42,250 in
cash and $42,250 in stock options. All efforts expended by Steel Beach
Productions under these two earlier contracts are compensated under the terms of
this agreement. The Company retains all propriety rights in the application.
Steel Beach is responsible for its own costs and expenses. The agreement may be
canceled by either party on thirty (30) days written notice. The product was
delivered and the parties are in the process of reconciling amounts owed between
them.
On May 16, 2000, the Company entered into a contract with Horizon
Marketing Group ("Horizon") for the strategic planning, design and development
for sales and marketing presentations by the Company and for the Company's
website. The contract was amended on June 30, 2000. The initial contract was for
$18,300 which was increased in the amendment by $14,405,
<PAGE>
for a total contract price of $32,705 of which the Company has thus far paid
approximately $14,000. The contract is for a designated schedule of work which
is paid under a fee schedule and by a reward bonus. Under the reward bonus,
Horizon will, as the last payment, receive the greater of 2% of the value of
each contract with a partner secured by virtue of the work performed or $17,705
by December 1, 2000. Further, Horizon can be engaged to provide ongoing
development services at the rate of $1000 per month. The contract terminates
when the project is completed.
On May 25, 2000, the Company entered a staff leasing agreement with
EPIX IV, Inc. ("EPIX") as a replacement for comparable services previously
provided by Staff Leasing. Like the Staff Leasing arrangement, the EPIX
arrangment creates a co-employment relationship between EPIX and the Company
relative to the employees who work at the Company.
Effective June 7, 2000, the Company's line of credit with SouthTrust
renewed through August 12, 2000, with an option to extend the maturity until
October 15, 2000 if the Company pledges a certificate of deposit in the amount
of $25,000. The interest rate is prime plus 1.5% and the line is secured by the
Company's equipment, receivables and inventory. The line is guaranteed
personally by Dr. Swor. The line of credit was renewed on October 15, 2000 and
the maturity date is December 31, 2000. The Company pledged an additional
$25,000 certificate of deposit to secure the line. The outstanding amount on the
line is $100,000.
Effective June 28, 2000, the Company negotiated a new contract with
US Surgical. This agreement supercedes all prior agreements between the parties.
Under the terms of the new agreement, US Surgical will pay through June 30, 2000
the Company $300,000 in settlement for all amounts owed to the Company under the
previous agreements and will pay the Company an additional sum of $200,000 for
future services under the OasisOR.com initiative. This new arrangement is
principally due to the ineffective introduction by US Surgical of OASiS into the
healthcare environment through hardware installations. Both companies realize
that the value of OASiS is the content and product it delivers. This new content
agreement emphasizes US Surgical's continued belief in the information exchange
network which the Company now had embarked upon as its focus.
Effective July 1, 2000, the Company entered into an agreement with
AORN under which AORN will provide certain of its proprietary content on a
non-exclusive license basis to the Company. Under the agreement, AORN will
deliver to the Company certain of its content for which it grants the Company a
non-exclusive license to market and promote. The Company receives a substantial
credit toward advertising in the AORN Journal and other AORN publications. The
Company is required to provide the software and hardware to promote and market
the AORN content. The Company is required to pay AORN $117,000 as the license
fee and contact hours fee for the first year of the agreement. The Company is
required to pay one-half of the license fee by December 15, 2000. To date, the
Company has made payments related to the license fee in the amount of $25,000.
AORN will reimburse the Company for certain conversion costs and to pay the cost
of web enabling Home Study Courses sponsored by AORN. The agreement is for a
term of three (3) years and it may be terminated by either party on 180 day
notice. If terminated without cause, the Company is entitled to a refund of any
unused license and user fees. AORN retains ownership of its intellectual
property while the Company retains the ownership of its OASiS intellectual
property.
<PAGE>
On July 6, 2000, the Company entered into an agreement with Carver
Cross Securities Corp. ("CCSC") for investment banking services, including
financial advisory services and efforts to secure equity or debt financing. TK
has given verbal approval for this arrangement, subject to final approval of any
financing package. The CCSC agreement is exclusive for a term of 120 days
commencing the later of September 6, 2000 or the date a placement memorandum is
ready for distribution. Under the agreement, CCSC receives a retainer of $6,000,
plus a warrant to purchase 40,000 shares of the Company's common stock for a
period of 5 years at an exercise price of $0.625 per share and monthly payments
of $2,500 plus warrants for 40,000 shares of common stock.. In any case, under
the agreement, CCSC will not receive warrants to purchase more than 120,000
shares. CCSC will receive compensation for equity financing arranged by CCSC,
the sale of assets or a public offering placement. In the case equity financing
is arranged, CCSC will receive complete warrants exercisable for 5 years at an
exercise price equal to 101% of the amount paid by the investors. In addition,
CCSC receives approved expenses. This agreement has been terminated effective
September 2000. No warrants have been issued related to this agreement; however,
the Company made payments to CCSC totaling $11,000.
On August 16, 2000, the Company finalized a consulting agreement with GDA.
Under the agreement, GDA is to provide business and marketing consulting
services, assist in the implementation of a strategic plan and assist,
coordinate and monitor the Company's investor relations program. The agreement
was for a term of three (3) months, which term can be extended by the Company.
In lieu of cash payments for services, GDA agreed to accept 200,000 shares of
the Company's Common Stock under the Company's 2000 Stock Plan approved by its
Shareholders on February 28, 2000. On October 25, 2000, the Company executed a
second agreement with GDA which, effectively, extends its initial agreement with
GDA for another term of three (3) months. In lieu of cash payments, for its
services, GDA agreed to accept an additional 150,000 shares of the Company's
Common Stock under the Company's 2000 Stock Plan.
In September 2000, the Company entered into agreements with three
healthcare companies as sponsors for its AORN/OasisOR.com CD-ROM launch in
December 2000. Sponsorships range from $15,000 - $50,000 and provide the
companies with advertising on the CD-ROM and AORN Journal ads, as well as the
production of in-service Trainlets to be hosted on OasisOR.com. The companies
are Haemacure Corporation, Imagyn Medical Technologies, and Karl Storz
Corporation. In addition, the Company has entered into an agreement with Stryker
Corporation, another healthcare company, to produce in-service Trainlets for its
products. The Trainlets will be hosted on OasisOR.com with links to the Stryker
website. This contract is for $32,500. Each of these contracts are for a
one-year period.
On October 6, 2000, the Company entered into an agreement with
Quantumm Internet Services, Inc.,("Quantumm"), an Internet access provider.
Under the terms of this agreement, Quantumm provides the Company with customized
Internet services that enable the Company to be a virtual Internet service
provider ("ISP"). Also, Quantumm has contracted to design the Company's CD-ROM
for OasisOR.com that will be mailed out to AORN members in December 2000. The
CD- ROM will provide users the option to sign up for Internet access branded as
OasisOR..com. The total cost of the contract was $15,995 which the Company has
paid.
<PAGE>
Effective October 15, 2000, the Company moved its corporate office to
3665 Bee Ridge Road, Suite 300, Sarasota, Florida 34233. The Company entered
into a six (6) month lease with two (2) renewal options of six (6) months each.
The monthly rent is $3700, inclusive of common area maintenance.
In December 1999, the Company executed a Loan Agreement with Thomson
Kernaghan & Co., Ltd. ("TK"), as Agent and Lender, whereby TK agreed to make
loans to the Company of up to $5,000,000 in installments for a period commencing
with the date of the agreement and ending on November 30, 2002 (the "TK Loan
Commitment"). The Company may request additional draws of no less than $500,000
provided its Common Stock has traded for a minimum of $1.00 for 20 consecutive
days and the stock has had an average trading volume of 25,000 shares for the
same period. Due to the Company's current share price, it does not qualify for
additional draws at this time. Under the terms of the TK Loan Commitment, each
installment is supported by a convertible note and security agreement and the
Agent and Lender are granted warrants to purchase shares of the Company's Common
Stock. Further, 2,700,000 shares are held by TK in escrow for the potential
conversion under the notes or exercise of the warrants. Under the terms of the
TK Loan Agreement, an initial loan of $650,000 was made on December 30, 1999. On
March 31, 2000 the Company received a second installment under the TK Commitment
in the amount of $650,000. On April 28, 2000, TK elected to convert $100,000 of
outstanding principal and $2,630 of the accrued interest into shares of Common
Stock at a price of $0.5625 per share which represents 182,453 shares. On June
9, 2000, TK elected to convert $120,000 of outstanding principal and $4,129 of
the accrued interest into shares of Common Stock at a price of $0.375 per share
which represents 331,010 shares. On July 11, 2000, TK elected to convert $40,000
of outstanding principal and $1,683.13 of the accrued interest into shares of
Common Stock at a price of $0.375 per share which represents 111,155 shares. On
October 24, 2000, TK elected to convert $250,000 of outstanding principal and
$16,219 of the accrued interest into shares of Common Stock at a price of $0.375
per share which represents 709,918 shares. The Company granted TK registration
rights and was obligated to file a Form S-3 within sixty (60) days of the
agreement. The Company filed a registration statement on Form S-3 on March 2,
2000 covering initially 20,038,097 shares of its Common Stock. The issuance of
the securities was made pursuant to Regulation S of the Act. The Form S-3
registration statement was declared effective on April 11, 2000. Since the
Company did not meet financial projections which were an integral part of the
transaction, TK and the Company are re-negotiating an arrangement which it is
anticipated will be in the form of an amendment to the TK Loan Commitment
relative to future installments.
The TK Loan Commitment, as draw downs are taken and as interest
accrues, will increase the long term debt of the Company. The Company is
currently seeking other potential funding. With the TK Loan Commitment and in
the event additional debt is raised, the Company will incur future interest
expense. The TK Loan Commitment, if fully converted and all warrants are
exercised, will dilute the interest of existing shareholders and in the event
additional equity is raised, management may be required to dilute the interest
of existing shareholders further or forego a substantial interest in revenues,
if any. In the event that the Company is successful in securing additional debt
financing, the amount of such financing, depending upon its terms, would
increase either the short or long term debt of the Company or both.
<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, 1999, the Company generated revenues of
approximately $1,275,000 from a limited number of customers. Since inception
through December 31, 1999, the Company has generated cumulative losses of
approximately $2,780,000. Although the Company has experienced a significant
percentage growth in revenues from fiscal 1992 to fiscal 1999, the Company does
not believe prior growth rates are indicative of future operating results,
especially in light of the contract with AORN and its new Internet-based site,
OASiSOR.com and the anticipated contract with US Surgical. 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 through fiscal 2000, and there can be no
assurance that losses will not continue after such date.
As discussed in the independent auditors' report, the operating
losses incurred by the Company raise doubt about its ability to continue as a
going concern. In addition, with the implementation of its agreement with AORN,
and its new arrangement with US Surgical and/or with the establishment of one or
more strategic alliances in addition to AORN and US Surgical, the Company
expects to experience a period of growth, which requires it to significantly
increase the scale of its operations. 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.
The Company's plan of operations for the next twelve months is to
focus on building revenue from production of its web-enabled training
applications called Trainlets that it is currently marketing to healthcare
companies. In addition, it anticipates additional revenues from the development
of its website and registered user base. 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
<PAGE>
purchasing organizations and integrated health networks along the lines created
with the AORN contract.
The Company estimates that revenues will be sufficient to fund
ongoing operations at the current level when the website is functional and its
registered users base reach levels of 75,000 or more. The Company is also
aggressively marketing its web-enabled Trainlets to healthcare companies for
which it has already received contracts totaling approximately $350,000.
In the short term, to fund operations through fiscal 2000, the
Company will seek to draw upon the funds available under the TK Commitment, to
seek additional funds from strategic alliances with potential clients, its
shareholders, from additional third party financing or seek third party debt or
equity financing other than those planned by the current anticipated agreements.
Currently, the Company has available its existing lines of credit. The Company
has increased its staff from six (6) at fiscal 1999 year end to nine (9) as of
September 30, 2000. Provided that the TK Commitment and other funding is
available when needed, the Company believes that it can meet its capital needs
through year end. There can be no assurance that the Company will be successful
in these efforts.
As discussed in Note 10 to the Financial Statements, if the financing
referred to above is not secured, the recoverability of the recorded asset
amounts may be impaired.
In 2001, the Company will require between $3 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. This
reduction is due to the new initiative which is less hardware intensive and
requires less maintenance. Under the TK Commitment, $3,700,000 remains available
under the terms of the agreement provided the Company can maintain its share
price. Other than the TK Commitment, the Company has accepted no definite offer
from any other source. 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 Nine Months Ended September 30, 2000 and
1999
Overview
From its inception, the Company has incurred losses from operations.
As of September 30, 2000, the Company had cumulative net losses totaling
approximately $3,800,000. During fiscal 1999, management shifted its focus to
aggressively marketing its proprietary products, especially those associated
with Oasis Information Exchange.
Financial Position
As of September 30, 2000, the Company had a deficit of working
capital of $10,808, as compared to a deficit of working capital of $145,258 at
September 30, 1999. This decrease in deficit is primarily due to additional
borrowings on the TK Commitment and revenues received from US Surgical.
<PAGE>
Revenues
For the nine months ended September 30, 2000 and 1999, the Company
had total revenues of $518,041 and $165,221, respectively. For the nine months
ended September 30, 2000, revenues were comprised primarily of license and
production fees provided to US Surgical pursuant to the contract dated July
1999. For the three months ended September 30, 2000 and 1999, the Company
generated revenues of $58,556 and $112,488, respectively. Revenues for the three
months ended September 30, 2000 consist of Trainlet production and sponsorship
fees related to the Company's information exchange portal, OasisOR.com. For the
three months ended September 30, 1999, revenues were derived from the Company's
contract with US Surgical dated July 1999.
Selling, General, and Administrative Expenses
For the nine months ended September 30, 2000, operating expenses
increased by $564,016 or 94% from $602,555 for the nine months ended September
30, 1999. This increase is primarily related to marketing support expenditures
to sustain the launch of the Company's Oasis Information Exchange. For the three
months ended September 30, 2000 and 1999, operating expenses increased $208,184
from $207,231 in 1999 to $415,505 in 2000 due to increased personnel and
marketing. In accordance with the Company's marketing plan for fiscal 2000,
expenses related to promotion, trade shows, and conventions were increased to
enhance the industry awareness of the company's products and services.
In the past, the Company has focused on the design and development of
proprietary products. For fiscal 2000, 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 nine
months ended September 30, 2000 will position the Company to generate increased
revenue in the 2001 fiscal year.
Liquidity and Capital Resources
The financial condition, liquidity and capital resources of the
Company should be assessed in context with the ability of the Company to
continue as a going concern as discussed in the independent auditors' report.
The Company's operations have been funded primarily from the
$1,300,000 proceeds of draw downs under the TK Commitment completed in the
fourth quarter 1999 and from cash flow of approximately $500,000 from licensing
and production fees from US Surgical for Oasis during the nine months ended
September 30, 2000. This allowed the Company to enhance its Oasis software and
data base and fund current operations. At September 30, 2000, the Company has a
$376,765 cash position.
In addition to the balance of $3,700,000 available under the TK
Commitment, the Company has a line of credit in the amount of $100,000 that
matured on October 15, 2000 and has been renewed through December 31, 2000. It
is guaranteed by Dr. Swor. In the past, the line of credit also has been used to
fund operations on a short-term basis and $100,000 is currently
<PAGE>
outstanding. As of September 30, 2000, the Company pledged a certificate of
deposit in the amount of $25,000 to secure the line of credit. On October 15,
2000, the Company pledged an additional certificate of deposit in the amount of
$25,000 to renew the line of credit through December 31, 2000.
Net cash used for investing for the nine months ended September 30,
2000 was approximately $157,000, representing primarily enhancements to the
current version of Oasis.
In the short term, to fund operations through the balance of fiscal
2000, the Company will be required to make additional draw downs under the TK
Commitment, seek additional funds from strategic alliances with potential
clients, its shareholders, from additional third party financing or seek third
party debt or equity financing other than those planned by the current
agreements. Additionally, the Company anticipates that revenues will begin to be
generated in the third and fourth quarter of 2000 and that such revenues will
help to fund operations. Provided that additional funding is secured, the
Company believes that it can meet its capital needs through year end. There can
be no assurance that the Company will be successful in these efforts.
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.
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.
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
At a meeting of the Board of Directors held on June 6, 2000, a
resolution was passed to modify the Company's 2000 Stock Option and Awards Plan
by providing of the 10,000,000 shares authorized under the plan, that in any
calendar year, options and awards to acquire no more than 1,000,000 shares will
be granted.
Further, at the same meeting, the Board adopted a resolution
regarding lock-up provisions on holders of existing options and approved a form
of voluntary restriction agreement. Under this arrangement, certain holders of
such options, particularly current and certain prior members of the Board and
current and certain prior officers of the Company, have agreed to specific
lock-up provisions which restrict resale and provide for the placement of a
legend upon their shares acquired under the options granted under the plans in
force in 1994, 1998, and 1999. Voluntary restriction agreements have been
executed by the parties to which it applied.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the Security Holders for a vote during
the quarter ended September 30, 2000.
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:
<TABLE>
<S> <C>
Exhibit No. Description
----------- -----------------------------------------------------------------
3.(I).1 Articles of Incorporation of Surgical Safety Products, Inc., a Florida corporation
filed May 15, 1992 [1]
3.(II).1 Bylaws of Sheffeld Acres, Inc., now known as Surgical Safety Products, Inc. [1]
3.(II).2 Amended Bylaws of Surgical Safety Products, Inc. [2]
4.1 Voluntary Restriction Agreement between the Company and holders of Options
under the 1994, 1998 and 1999 Stock Option Plan [10]
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.1 Acquisition of Endex Systems, Inc. d/b/a/ InterActive PIE dated December 8, 1997
[1]
10.2 Prepaid Capital Lease Agreement with Community Health Corporation relative to
Sarasota Medical Hospital OASiS Installation dated January 30, 1998 [1]
10.3 Letter of Intent with United States Surgical Corporation dated February 12, 1998 [1]
10.4 Form of Rockford Industries, Inc. Rental Agreement and Equipment Schedule to
Master Lease Agreement [1]
10.5 Ad-Vantagenet Letter of Intent dated June 19, 1998 [1]
10.6 Distribution Agreement with Morrison International Inc. dated September 30, 1996
[1]
10.7 Distribution Agreement with Hospital News dated August 1, 1997 [1]
10.8 Clinical Products Testing Agreement with Sarasota Memorial Hospital dated January
30, 1998 [1]
10.9 Real Estate Lease for Executive Offices effective June 1, 1998 [1]
10.10 Employment Agreement with Donald K. Lawrence dated April 1, 1997 [1]
10.11 Employment Agreement with G. Michael Swor dated June 15, 1998 [1]
10.12 Employment Agreement with Frank M. Clark dated June 15, 1998 [1]
10.13 Agreement for Consulting Services with Stockstowatch.com Inc. dated March 30,
1988 [1]
10.14 Form of Employee Option Agreement dated July 1994 [1]
10.15 Form of Employee Option Agreement dated 1998 [1]
10.16 Form of Consultants Option Agreement dated July 1994 [1]
10.17 Form of Consultants Option Agreement dated 1998 [1]
10.18 Confidential Private Offering Memorandum dated May 30, 1995 [1]
10.19 Supplement to Private Offering Memorandum dated October 30, 1995 [1]
10.20 Stock Option Agreement with Bay Breeze Enterprises LLC dated April 9, 1998 [1]
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.21 Revolving Loan Agreement, Revolving Note, Security Agreement with SouthTrust
Bank dated May 2, 1997 [1]
10.22 Agreement between the Company and T. T. Communications, Inc. dated October 15,
1998 [2]
10.23 Agreement between the Company and U.S. Surgical Corporation dated October 28,
1998. [2]
10.24 Collaborative Agreement between the Company and Dr. William B. Saye dated
November 16, 1998. [2]
10.25 Kiosk Information System, Inc. Purchase Order dated November 3, 1998 [2]
10.26 Surgical Safety Products 1999 Stock Option Plan adopted January 1999 [2]
10.27 Form of the Employee Option Agreement under the Surgical Safety Products 1999
Stock Option Plan dated January 1999 [2]
10.28 Form of the Director, Consultant and Advisor Option Agreement under the Surgical
Safety Products 1999 Stock Option Plan dated January 1999 [2]
10.29 Verio, Inc. Access Service Agreement dated February 16, 1999. [2]
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. [3]
10.31 Form of the Warrant issued pursuant to the April 1999 Self Directed Private
Placement Offering under Rule 506 of Regulation D. [3]
10.32 Consulting Agreement dated April 1999 with Koritz Group, LLC. [3]
10.33 Agreement dated April 1999 with KJS Investment Corporation. [4]
10.34 Agreement dated May 1999 with Ten Peaks Capital Corp. [4]
10.35 Private Partner Network Agreement dated July 30, 1999 with US Surgical [5]
10.36 Staff/Client Leasing Agreement dated October 16, 1999, as amended September 15,
1999 [5]
10.37 Agreement dated July 15, 1999 with Triton Capital Inc.[6]
10.38 Effective December 30, 1999, Loan Agreement, Note, Security Agreement, Lender's
Warrant, Agent's Warrant, Registration Rights Agreement and Escrow Agreement
relative to the December 1999 transaction with Thomson Kernaghan & Co., Inc. and
Amendment thereto. [7]
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.39 Effective January 3, 2000 IBM Customer Agreement and Statement of Work. [7]
10.40 Investment Banking Services Agreement dated February 2, 2000 with Dunwoody
Brokerage Services Inc. [8]
10.41 Consulting Agreement dated February 15, 2000 with Global Development Advisors
Inc. [8]
10.42 Surgical Safety Products 2000 Stock Option and Award Plan [8]
10.43 Agreement with Steel Beach Productions dated February 29, 2000 [9].
10.44 Agreement with Horizon Marketing Group dated May 16, 2000 [10]
10.45 Agreement with EPIX dated May 25, 2000 [10]
10.46 Amendment to the Company's 2000 Stock Option and Awards Plan dated June 6,
2000 [10]
10.47 Revolving Loan Agreement, Revolving Note, Security Agreement with SouthTrust
Bank dated June 7, 2000 [10]
10.48 Agreement with AORN effective July 1, 2000 [10]
10.49 Agreement with Carver Cross dated July 6, 2000 [10]
10.50 Agreement with U.S. Surgical effective June 28, 2000 [11]
10.51 * Agreement with Imagyn dated September 18, 2000
10.52 * Agreement with Haemacure dated September 19, 2000
10.53 * Agreement with Storz dated September 29, 2000
10.54 * Agreement with Quantum dated October 6, 2000
10.55 * Agreement with Stryker dated October 9, 2000
10.56 * Property Lease dated October 13, 2000
10.57 * Agreement with GDA dated October 25, 2000
13.1 Definitive Proxy Statement filed February 28, 2000 [8]
27.1 * Financial Data Sheet
----------------
</TABLE>
<PAGE>
[1] Previously filed with the Company's Form 10SB
[2] Previously filed with the Company's Amendment No. 1 to the Form 10SB
[3] Previously filed with the Company's Form 10QSB for the Quarter ended March
30, 1999
[4] Previously filed with the Company's Form 10QSB for the Quarter ended June
30, 1999
[5] Previously filed with the Company's Amendment No. 2 to the Form 10SB
[6] Previously filed with the Company's Form 10QSB for the Quarter ended
September 30, 1999
[7] Previously filed with the Company's Form S-3 on March 2, 2000.
[8] Previously filed with the Company's Form 10KSB for the fiscal year ended
December 31, 1999.
[9] Previously filed with the Company's Form 10QSB for the Quarter ended March
31, 2000.
[10] Previously filed with the Company's Form 10QSB for the Quarter ended June
30, 2000.
[11] Previously filed with the Company's Amendment 3 to the Form 10QSB for the
Quarter ended June 30, 2000.
* Filed herewith
(b) No Reports on Form 8-K were filed during the quarter ended September
30, 2000.
<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.
Surgical Safety Products, Inc. (Registrant)
Date: November 11, 2000 By:/s/ Pauline J. Parrish
---------------------------------------
Pauline J. Parrish, Chief
Financial Officer
