FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Quarterly Report Pursuant Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarterly Period Ended June 30, 1996
Commission File Number 0-26694
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0945003
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
655 East Medical Drive, Bountiful, Utah 84010
(Address of principal executive offices)
(Zip Code)
(801) 298-3360
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[x] Yes [ ] No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding as of August 10, 1996
Common Stock, $.02 par value 8,589,153
<PAGE>
PART I _ FINANCIAL INFORMATION
Item 1. Financial Statements.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.,
Consolidated Balance Sheets
June 30, December 31,
Assets 1996 1995
(unaudited)
----------- --------
Current assets:
Cash and cash equivalents $ 1,894,275 4,251,584
Accounts receivable 16,874 350,718
Related party receivable 129,793 122,850
Finished goods inventory 16,089 16,322
Prepaid expenses and other 217,077 34,017
---------- ---------
Total current assets 2,274,108 4,775,491
---------- ---------
Property, plant, and equipment, at cost 1,371,486 820,245
Less accumulated depreciation and
amortization 32,428 8,196
---------- ---------
Net property, plant, and equipment 1,339,058 812,049
Other assets, at cost 456,146 453,502
Less accumulated amortization 123,506 90,314
---------- ---------
Net other assets 332,640 363,188
---------- ---------
Total assets $ 3,945,806 5,950,728
=========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 69,625 134,449
Accrued expenses 64,040 446,474
--------- --------
Total current liabilities 133,665 580,923
---------- --------
Stockholders' equity:
Preferred stock, $.001 par value in 1996
and 1995. Authorized 5,000,000 shares;
no shares issued or outstanding in 1996 - -
and 1995.
Common stock, $.02 par value in 1996 and
1995. Authorized 50,000,000 shares;
issued and outstanding 8,589,153 shares 171,783 171,333
in 1996 and 8,566,653 shares in 1995.
Common stock subscription receivable (209,200) (259,500)
Additional paid-in capital 9,324,353 9,316,028
Accumulated deficit (5,474,795) (3,858,056)
----------- ----------
Net stockholders' equity 3,812,141 5,369,805
---------- ----------
Total liabilities and stockholders'
equity $ 3,945,806 5,950,728
=========== =========
See accompanying notes to consolidated financial statements
<PAGE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Operations
(unaudited)
Six month period ended
----------------------------
June 30, June 30,
1996 1995
------------ -----------
Sales $ 70,367 352,538
Cost of sales 59,889 197,321
----------- ----------
Gross profit 10,478 155,217
Expenses:
General and administrative expense 1,108,939 633,537
Research and development expense 627,178 218,496
----------- ----------
Total expenses 1,736,117 852,033
Operating loss (1,725,639) (696,816)
Interest income (expense) 83,900 (18,396)
Other Income 25,000 -
----------- ----------
Net loss $ (1,616,739) (715,212)
============ ==========
Net loss per common share $ (.19) (.52)
Weighted average number of shares used
for net loss per share computation 8,681,568 1,363,500
See accompanying notes to consolidated financial statements
<PAGE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Operations
(unaudited)
Three months period ended
--------------------------
June 30, June 30,
1996 1995
------------ ----------
Sales $ 53,746 269,926
Cost of sales 40,133 160,473
------------ ----------
Gross profit 13,613 109,453
Expenses:
General and administrative expense 645,190 325,276
Research and development expense 307,295 117,417
------------- ----------
Total expenses 952,485 442,693
Operating loss (938,872) (333,240)
Interest income (expense) 33,643 (9,370)
Other Income - -
------------- ----------
Net loss $ (905,229) (342,610)
============ =========
Net loss per common share $ (.11) (.25)
Weighted average number of shares used
for net loss per share computation 8,601,568 1,363,500
See accompanying notes to consolidated financial statements
<PAGE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(unaudited)
Six month period ended
-----------------------------
June 30, June 30,
1996 1995
----------- ----------
Cash flows from operating activities:
Net loss $ (1,616,739) (715,212)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 57,424 42,232
Common stock issued for services - 5,000
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable 333,844 (332,618)
Increase in prepaid expenses and
other assets (183,060) (16,892)
Decrease (increase) in inventory 233 (30,502)
Increase in related party receivable (6,943) -
Decrease (increase) in accounts payable
and accrued liabilities (447,258) 78,627
----------- ---------
Net cash used in operating
activities (1,862,499) (969,365)
----------- ---------
Cash flows from investing activities:
Capital expenditures (551,241) (233,026)
Acquisition of patents and technology (2,644) (44,739)
---------- ---------
Net cash used in investing
activities (553,885) (277,765)
---------- ---------
Cash flows from financing activities:
Payments on line of credit - (40,000)
Borrowings under line of credit - 99,500
Loans from stockholders - 371,500
Proceeds from issuance of common stock 8,775 -
Proceeds from issuance of preferred
stock - 604,001
Proceeds from stock subscriptions
receivable 50,300 190,000
---------- ----------
Net cash provided by financing
activities 59,075 1,225,001
---------- ----------
Net increase (decrease) in cash (2,357,309) (22,129)
Cash at beginning of period 4,251,584 (10,675)
---------- ----------
Cash at end of period $ 1,894,275 (32,804)
=========== ==========
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Dividends on redeemable preference
stock $ - 10,860
See accompanying notes to consolidated financial statements
<PAGE>
SPECIALIZED HEALTH PRODUCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Financial Statements
The accompanying financial statements have been prepared by the Company
without an audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operation and cash flows at
June 30, 1996, and for all periods presented have been made.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 1995 audited financial statements. The results of
operations for the periods ended June 30, 1996 and 1995 are not necessarily
indicative of the operating results for the full fiscal year. The accounting
policies followed by the Company are set forth in Note 1 to the Company's
financial statements in its 1995 Form 10-K.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis provides
information which management believes is relevant to an
assessment and understanding of the Company's consolidated
results of operations and financial condition. The
discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Wherever in this discussion the term "Company" is used, it
should be understood to refer to the Company and Specialized
Health Products, Inc. (a wholly owned subsidiary), on a
consolidated basis, except where the context clearly
indicates to the contrary
Overview
From its inception, the Company has incurred losses
from operations. As of June 30, 1996, the Company had
cumulative net losses totaling $5,474,795. During the six
months ended June 30, 1996, the Company's principal focus
has been the design, development, testing, and evaluation of
its Safety Cradler(R) sharps containers, SafetyStrip(TM) lancet,
ExtreSafe(TM) medical needle technology, intravenous flow gauge
system, blood collection device, and other products, and the
improvement of its molds and production processes relating
to its Safety Cradler(R) sharps containers.
Financial Position
The Company had $1,894,275 (cash and cash equivalents)
in cash as of June 30, 1996. This represented a decrease of
$2,357,309 over the fiscal year end December 31, 1995.
Working capital as of June 30, 1996 also decreased to
$2,140,443 as compared to $4,194,568 for the fiscal year
ended December 31, 1995. These decreases were largely due
to the to the Company's $1,616,739 net loss for the six
months ended June 30, 1996 and $551,241 in capital
expenditures during the six months ended June 30, 1996.
Results of Operations
During the three and six months ended June 30, 1996 the
Company had sales of $53,746 and $70,367, respectively,
compared with sales of $269,926 and $352,538 for the
comparable periods from the prior year. Substantially all
of said sales relate to the Company's sharps container
products which is the only product the Company is currently
selling. Sales during the three and six months ended June
30, 1996 were hampered due to improvements that were being
made to the molds used to produce the Company's sharps
container products which improvements were completed in the
first quarter of 1996. The Company does not expect to make
additional changes to said molds in the near future, but
unanticipated market demands or requests of potential
product distribution partners may require that the Company
make additional changes to the molds.
The Company is dependent on third parties
to market and distribute its sharps container products. The
Company has no distribution or marketing agreements with
such third parties, although negotiations are in progress.
Management of the Company believes the sharps container
products can be most effectively marketed by granting
exclusive distribution rights to a reputable distributor
with existing presence in the relevant channels. The
Company has thus far refrained from entering into
distribution agreements which would restrict its future
ability to grant such exclusive rights. As of the date of
this report, there are no distributors selling the Company's
sharps container products. If an agreement cannot be
reached with an exclusive distributor deemed suitable by
management, the Company may attempt to enter into non-
exclusive distributor arrangements. The entities the
Company has and/or is negotiating distribution agreements
with have required that the distributor be given
distribution rights for a period of time. For the reasons
set forth above, the Company has not been willing to enter
into a distribution agreement containing distribution rights
for a period of time until the Company is comfortable with
the distributor and the terms of such an agreement. Thus,
there are no distributors presently selling the Company's
<PAGE>
sharps container products. In addition, The Company does
not have a large sales force and so sales are not expected
to significantly improve until the Company is successful in
negotiating a favorable distribution agreement. There can
be no assurance, however, that the Company will be
successful in obtaining or maintaining such relationships
with marketers and distributors on terms favorable to the
Company.
The Company's trade accounts receivable were $16,874 at
June 30, 1996, compared with $350,718 at December 31, 1995.
Of the $350,718 amount, $348,266 was owed to the Company by
a single distributor of the Company's sharps container
products. The $348,266 was collected in full from the
distributor on March 15, 1996.
Research and development expenses were $307,295 and
$627,178 for the three and six months ended June 30, 1996,
respectively, compared with $117,417 and $218,496 for the
comparable periods from the prior year. The Company's
efforts in the six months ended June 30, 1996, were focused
on refining the design and molds for its Safety Cradler(R)
sharps container products, and upon the design and
development of its SafetyStrip(TM) and ExtreSafe(TM) medical
needle technology, intravenous flow gauge system, and blood
collection device. The Company's efforts in the six months
ended June 30, 1995, were focused on refining the design and
producing molds for its Safety Cradler(R) sharps container
products.
General and administrative expenses were $645,190 and
$1,108,939 for the three and six months ended June 30, 1996,
respectively, compared to $325,276 and $633,537 for the
comparable periods from the prior year. The increased costs
resulted largely from the increases in expenditures in two
principle areas. First, salaries and benefits increased
from $ 99,547 and $184,001 for the three and six month
periods ended June 30, 1995, respectively, to $ 223,842 and
$389,514 for the comparable periods for the current year.
The increase resulted primarily from the hiring of
additional product development, sales and marketing
personnel to support sales and commercialization of the
Company's products as well as pay increases granted to
certain of the Company's employees, including executive
officers. Next, legal, accounting, financial advisory and
other professional and consulting fees increased from $
50,108 and $57,72297,560 for the three and six month periods
ended June 30, 1995, respectively, compared to $ 190,700 and
$283,683173,582.72 for the comparable periods for the
current year. The increase in costs was primarily from
financial advisory, accounting and legal expenses associated
with the filing of an amended Form S-1 registration
statement and Form 10-K, the hiring and payment of the
Company's exclusive financial advisor, and expenses
associated with litigation.
Net interest income was $33,643 and $83,900 for the
three and six month periods ended June 30, 1996,
respectively, compared with net other expense of $9,370 and
$18,396 for the comparable periods from the prior year. The
other income for the three and six months ended June 30,
1996 is comprised primarily of interest earned on cash and
cash equivalents. The other expense relates primarily to
the accrued interest on certain notes payable and the
interest on the Company's line of credit.
Liquidity and Capital Resources
The Company's need for funds has increased from period
to period as it has increased its research and development
activities, expanded staff, and commenced the purchase and
construction of molds and production equipment. To date the
Company has financed its operations principally through
borrowings and private placements of equity securities and
debt. Through June 30, 19965, the Company had received net
cash from financing activities approximately $9,100,000
through financing activities and at June 30, 1996. the
Company had no long term debt.
The Company's working capital and other capital
requirements during the next year or more will vary based
upon a number of factors, including the cost to complete
development and bring the SafetyStrip(TM) and ExtreSafe(TM)
medical needle technology, intravenous flow gauge system,
phlebotomy device and other products to commercial
viability, the level of sales and marketing for the Safety
Cradler(R) sharps containers, and the resources that will be
<PAGE>
expended in SHP's lawsuit against Mold Threads, Inc. At
June 30, 1996, the Company had committed to spend $272,010
during fiscal 1996 on projects relating to the development
and manufacture of its products. At said date, the Company
had also prepaid $217,077 in expenses which primarily relate
to prepaid financial advisory fees and Officers & Directors
liability insurance.
The Company had $1,894,275 (cash and cash equivalents)
in cash as of June 30, 1996. This represented a decrease of
$2,357,309 over the fiscal year end December 31, 1995.
Working capital as of June 30, 1996 also decreased to
$2,140,443 as compared to $4,194,568 for the fiscal year
ended December 31, 1995. These decreases were largely due
to the to the Company's $1,616,739 net loss for the six
months ended June 30, 1996 and $551,241 in capital
expenditures during the six months ended June 30, 1996. The
Company believes that if sales of the Safety Cradler(R) sharps
container products increase substantially from their current
level, the working capital described above will be
sufficient to support the Company's operations and planned
capital expenditures through the second quarter of fiscal
1997. If sales do not begin to increase sufficiently by the
fourth quarter of 1996, the Company can and will cut
operation costs and capital expenditure by focusing The
Company believes that the funds described above and funds
generated from the sale of its Safety Cradler(R) sharps
container products, will be sufficient to support the
Company's operations and planned capital expenditures at
least through fiscal 1996. only on its sharps container
products and those other products that are or will shortly
be ready to sell. In addition, the Company may become less
selective in selecting its distribution partner(s) thereby
increasing the likelihood of generating sales and the
Company may attempt to raise additional funds through a
public or private offering of securities. The Company's
failure, however, either to produce or sell sufficient
quantities of Safety Cradler(R) sharps container products,
enter into a distribution agreement with a suitable
distributor, raise additional funds if needed, or
sufficiently cut the cost of operations and capital
expenditures could materially and adversely affect the
Company's cash flows. In addition, the Company's business
plans may change or unforeseen events may occur which
require the Company to raise additional funds.
Future Results
This document contains both historical facts and
forward-looking statements. Any forward-looking statements
involves risks and uncertainties, including but not limited
to risk of product demand, market acceptance, economic
conditions, competitive products and pricing, difficulties
in product development, commercialization, and technology,
and other risks. Furthermore, manufacturing delays may
result from additional mold redesigns or delays may result
from the failure to timely obtain FDA approval to sell
future products. As a result, the Company's actual future
operations could differ significantly from those discussed
in the forward-looking statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The registrant is involved in one legal proceeding which proceeding was
previously reported and no material developments have take place in connection
therewith.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to vote of Securityholders.
None
<PAGE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a)
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3(i).1 Restated Certificate of Incorporation of the Company. (Incorporated
by reference to Exhibit 3(i).1 of the Company's current report on
Form 8-K, dated July 28, 1995.)
3(i).2 Articles of Incorporation of Specialized Health Products, Inc.
("SHP") (Incorporated by reference to Exhibit 3(i).2 of the
Company's Form 10-K, dated December 31, 1995)
3(i).3 Articles of Amendment of SHP (Incorporated by reference to Exhibit
3(i).3 of the Company's Form 10-K, dated December 31, 1995)
3(i).4 Plan and Articles of Merger of Russco Resources, Inc., into SHP
(Incorporated by reference to Exhibit 3(i).1 to the Company's
current report on Form 8-K, dated July 28, 1995)
3(ii).1 Bylaws of the Company (Incorporated by reference to Exhibit 3(ii).1
of the Company's Form 10-K, dated December 31, 1995)
3(ii).2 Bylaws of SHP (Incorporated by reference to Exhibit 3(ii).2 of the
Company's Form 10-K, dated December 31, 1995)
10.1 Agreement and Plan of Reorganization dated as of June 23, 1995,
among the Company, Russco Resources, Inc., Scott R. Jensen and
Specialized Health Products, Inc. (Incorporated by reference
to Exhibit 2.1 of the Company's Current Report on Form 8-K, dated
July 28, 1995.)
10.2 Placement Agreement between the Company, SHP and U.S. Sachem
Financial Consultants, L.P., dated June 23, 1995 (Incorporated by
reference to Exhibit 10.2 of the Company's Form 10-K, dated December
31, 1995)
10.3 Form of Employment Agreement with Executive Officers (Incorporated
by reference to Exhibit 10.3 of the Company's Form 10-K, dated
December 31, 1995)
10.4 Form of Indemnity Agreement with Executive Officers and Directors
(Incorporated by reference to Exhibit 4 of the Company's Form 10-K,
dated December 31, 1995)
10.5 Form of Confidentiality Agreement (Incorporated by reference to
Exhibit 10.5 of the Company's Form 10-K, dated December 31, 1995)
10.6 Joint Venture Agreement between SHP and Zerbec, Inc., dated as of
October 30, 1995 (Incorporated by reference to Exhibit 10.6 of the
Company's Form 10-K, dated December 31, 1995)
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
SPECIALIZED HEALTH PRODUCTS
INTERNATIONAL, INC.:
Date: August 13, 1996 By /s/ David A. Robinson
David A. Robinson
President, Chief Executive
Officer, Director
Date: August 13, 1996 By /s/ J. Clark Robinson
J. Clark Robinson
Chief Financial Officer,
Director
<PAGE>
EXHIBIT 27.1
Financial Data Schedule
<PAGE>
Financial Data Schedule
For Period Ended June 30, 1996
Specialized Health Products International, Inc.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
Period Ended June 30, 1996
Cash and cash items 1,894,275
Marketable securities 0
Notes and accounts receivable-trade 16,874
Allowances for doubtful accounts 0
Inventory 16,089
Total current assets 2,274,108
Property, plant and equipment 1,371,486
Accumulated depreciation 32,428
Total assets 3,945,806
Total current liabilities 133,665
Bonds, mortgages and similar debt 0
Preferred stock-mandatory redemption 0
Preferred stock-no mandatory redemption 0
Common stock 171,783
Other stockholders' equity 3,640,358
Total liabilities and stockholders' equity 3,945,806
Net sales of tangible products 70,367
Total revenues 70,367
Cost of tangible goods sold 59,889
Total costs and expenses applicable to sale
and revenues 1,736,117
Other costs and expenses 0
Provisions for doubtful accounts and notes 0
Interest and amortization of debt discount 0
Income before taxes and other items (1,616,739)
Income tax expense 0
Income/loss continuing operations (1,725,639)
Discounted operations 0
Extraordinary items 0
Extraordinary items 0
Cumulative effect-changes in accounting
principles 0
Net income or loss (1,616,739)
Earnings per share - primary (.19)
Earnings per share - fully diluted
