<PAGE> 1
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 September 30, 1995
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 November 14, 1995
Common Stock, $.02 par value 8,566,653
<PAGE> 2
PART I _ FINANCIAL INFORMATION
Item 1. Financial Statements.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.,
Consolidated Balance Sheets
September 30, 1995 and December 30, 1994
September 30 December 31, 1995
1995 1994
Assets (unaudited) (audited)
Current assets:
Cash and cash equivalents $ 5,278,973 -
Accounts receivable 350,546 4,471
Related party receivable 38,793 -
Finished goods inventory 32,862 -
Prepaid expenses and other 54,933 5,436
-------------- -------------
Total current assets 5,756,107 9,907
-------------- -------------
Property, plant, and equipment, at cost 947,320 287,523
Less accumulated depreciation and 9,614 1,753
amortization
-------------- -------------
Net property, plant, and equipment 937,706 285,770
-------------- -------------
Other assets, at cost 449,488 388,752
Less accumulated amortization 78,687 27,564
-------------- -------------
Net other assets 370,801 361,188
-------------- -------------
Total assets $ 7,064,614 656,865
============== =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Bank overdraft $ - 10,675
Accounts payable 165,454 84,655
Accrued liabilities - 7,800
Due to stockholders - 194,500
-------------- -------------
Total current liabilities 165,454 297,630
Stockholder loans - 358,333
Due to stockholder - 100,000
-------------- -------------
Total liabilities 165,454 755,963
-------------- -------------
9% cumulative redeemable preference
stock, $1.50 par value. Authorized
250,000 shares; 160,000 shares
issued and outstanding in 1994 - 256,780
Stockholders' equity (deficit):
Preferred stock, $.001 par value in
1995 and $.389 par value in 1994.
Authorized 5,000,000 shares; no shares
issued in 1995 and 1,440,000 shares
issued and outstanding in 1994 - 560,000
Common stock, $.02 par value in 1995 and
no par value in 1994. Authorized
50,000,000 shares; issued and
outstanding 8,566,653 shares in 1995
and 1,363,500 shares in 1994 171,333 209,800
Common stock subscription receivable (349,500) (198,500)
Additional paid-in capital 9,316,028 -
Accumulated deficit (2,238,701) (927,178)
------------- ------------
Net stockholders' equity (deficit) 6,899,160 (355,878)
--------------- ------------
Total liabilities and stockholders' $ 7,064,614 656,865
equity =============== ============
<PAGE> 3
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1995 and
September 30, 1994
Three months ended Nine months ended
(unaudited) (unaudited)
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
Sales $ 89,804 6,083 442,341 24,154
Cost of sales 55,480 1,466 252,801 14,974
Gross profit 34,324 4,617 189,540 9,180
Expenses:
General and
administrative 448,152 138,566 1,006,290 306,678
expense
Research and
development 238,643 69,278 532,537 156,931
expense ------------ -------------- ------------- ----------
Total expenses 686,795 207,844 1,538,827 463,609
------------ -------------- ------------- ----------
Operating loss (652,471) (203,227) (1,349,287) (454,429)
Interest income
(expense) 67,549 (474) 49,153 (363)
------------- --------------- -------------- ----------
Net loss $ (584,922) (203,701) (1,300,134) (454,792)
============= =============== ============== ===========
Net loss per
common share $ (.10) (.17) (.46) (.39)
============= =============== ============== ===========
Weighted average
number of shares
used for net loss
per share computation 5,688,123 1,191,033 2,820,883 1,177,088
<PAGE> 4
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and 1994
Nine months ended
(unaudited)
------------------
September 30 September 30,
1995 1994
------------- -------------
Cash flows from operating activities:
Net loss $(1,300,134) (454,792)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 56,984 20,071
Common stock issued for services 8,500 10,000
Changes in operating assets and liabilities:
Increase in accounts receivable (346,075) (6,774)
(Increase) decrease in prepaid expenses and (49,497) 146
other assets
Decrease (increase) in inventory (32,862) 6,104
Decrease in related party receivable 38,793
Decrease in due to stockholders (229,419)
Increase in accounts payable and accrued 75,794 79,066
liabilities ------------ -----------
Net cash used in operating activities (1,777,916) (346,179)
------------ -----------
Cash flows from investing activities:
Capital expenditures (659,797) (262,548)
Acquisition of patents and technology (58,736) (282,024)
------------ -----------
Net cash used in investing activities (718,533) (544,572)
------------ -----------
Cash flows from financing activities:
Borrowings under line of credit 134,500 -
Payments on line of credit (177,295) -
Loans from stockholders 41,500 180,000
Payments on loans to stockholders (17,500) (18,700)
Proceeds from issuance of common stock 7,279,060
Proceeds from issuance of preferred stock 604,001 554,400
Proceeds from issuance of redeemable
preference stock - 237,600
Payments on redeemable preference
stock and dividends (268,169) -
Proceeds from stock subscriptions receivable 190,000 -
------------- -----------
Net cash provided by financing activities 7,786,097 953,300
------------- -----------
Net increase (decrease) in cash 5,289,648 62,549
Cash at beginning of year (10,675) 300
------------- -----------
Cash (bank overdraft) at end of year $5,278,973 62,849
============= ===========
Supplemental Disclosures of Noncash Investing
and Financing Activities
Dividends on redeemable preference stock $ 11,389 11,262
Common stock issued for subscription receivable 349,500 198,500
Related party receivable for issuance of
common stock 158,000 -
Conversion of notes payable to common stock 485,000 -
<PAGE> 5
SPECIALIZED HEALTH PRODUCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED), AND YEAR
ENDED DECEMBER 31, 1994
(1) Financial Statements
The accompanying financial statements have been prepared by the
Company without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position,
results of operation and cash flows at September 30, 1995, 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, 1994 audited
financial statements. The results of operations for the
periods ended September 30, 1995 and 1994 are not necessarily
indicative of the operating results for the full fiscal year.
(2)Summary of Significant Accounting Policies
(a) Organization and Business Description
Specialized Health Products, Inc. (Specialized
Health) was organized November 19, 1993, with a
commercial objective to develop, manufacture, and market
safe, easyto-use and cost-effective products for the
health care industry. Initial development has
focused on products that limit or prevent the spread
of blood-borne diseases. Specialized Health's
activities since inception have principally
consisted of obtaining financing, recruiting personnel,
conducting research and development, acquiring
products, and manufacturing preparation.
Specialized Health entered into a Business Combination
in July 1995 with Russco, Inc. (Russco) wherein
Specialized Health became a wholly-owned subsidiary
of Russco and Russco's name was changed to
Specialized Health Products International, Inc. (the
Company). Russco was organized in February 1986 as
a public blind pool company to evaluate, structure,
and complete a merger with, or acquisition of, any
privately held business seeking to obtain the perceived
advantages of being a publicly owned Company. At the time
of the Business Combination, Russco had no significant
operations and minimal capital with which to conduct its
operations.
At the closing of the Business Combination, (a)
the 300,000 shares of Russco's common stock
previously outstanding (as adjusted for a reverse
stock split) remained outstanding as common stock of
the Company and (b) Russco issued 3,604,403 shares
of its common stock for all of the issued and
outstanding shares of Specialized Health's common stock
and preferred stock. The Business Combination is treated for
accounting purposes as a "reverse merger" wherein
Specialized Health has been shown as the acquiring
company even though Russco issued its common shares
to acquire Specialized Health because the
stockholders of Specialized Health received the
significant majority of the outstanding common
stock of the Company. Because Russco had limited
operations, the Business Combination has been
accounted for as a purchase transaction with the net
assets of Russco (which were insignificant) being
recorded at their fair value at the date of closing
and operating results of Russco prior to the
Business Combination not being included with the
historical operating results of Specialized Health.
Contemporaneously with the Business Combination, Specialized
Health engaged in a private placement of securities wherein
the purchasers acquired 4,376,250 shares of the Company's common
stock, net of offering costs, for consideration of
$7,519,060 as more fully discussed in note 6.
The accompanying financial statements include the
accounts of the Company and its wholly-owned
subsidiary Specialized Health. All intercompany
accounts and transactions have been eliminated in consolidation.
<PAGE> 6
(b) Equipment and Furnishings
Equipment and furnishings are stated at cost and
consist primarily of manufacturing molds.
Depreciation is computed using the straight-line
method based on the estimated useful lives of the related assets
with the exception of manufacturing equipment which is
depreciated on the units-of-production method.
(c) Income Taxes
Income taxes are recorded using the asset and
liability method for all periods presented. Deferred
tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, and
operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(d) Other Assets
The Company has included in other assets
at September 30, 1995 and December 31, 1994, the
cost of purchased technology and patents, and
related patent costs amounting to $449,488 and
$388,752, respectively, which is being amortized
using the straight-line method over seven years.
In addition, management evaluates the recoverability
of these costs on a periodic basis.
(e) Revenue Recognition
Revenues are recognized upon shipment of
products. All sales recorded in the year ended
December 31, 1994 relate to products received on
acquisition of technology and patents.
(f) Research and Development Costs
Research and development costs are expensed as incurred.
(g) Inventory
Inventories are stated at the lower of
cost or market. Cost is determined using the first-
in first-out method.
(3) Stockholders' Loans
During 1995 and 1994, certain existing stockholders
made direct loans to the Company aggregating $385,000
and bearing interest at ten percent under a bridge
loan agreement. Subscriptions under the bridge loan
agreement were offered proportionately to stockholders
based on the number of shares held. The subscribers
to the bridge loan agreement were issued a total of
346,500 warrants permitting them to acquire an equal
number of shares of common stock at $1.11 per share on
or before December 31, 1996. No value was ascribed to
the warrants. In connection with the Business
Combination discussed in note 2, the 346,500 warrants
were exercised through conversion of the outstanding
loans.
<PAGE> 7
(4) Leases
The Company leases office space, equipment, and vehicles
under noncancelable operating leases. Future minimum
lease payments under these leases are as follows:
Fiscal year ending December 31:
1995 $ 30,042
1996 94,040
1997 82,338
1998 36,000
----------
$ 242,420
==========
Rental expense was $50,360 for the nine months in 1995 and $52,051 in 1994.
(5) Stock Options
On September 1, 1995, the Company adopted a nonqualified
stock option plan whereby it has reserved 1,284,998
shares of its common stock for issuance to officers,
directors, and employees. At the time of adoption, the
Company granted options to acquire 1,151,810 shares of
common stock at $2.00 per share, 1,060,000 of which vest
immediately and 34,810 of which vest at various times
over the next three years. The options expire five
years from date of grant.
During 1994 the Board of Directors of Specialized Health
approved a nonqualified stock option plan for its
officers, directors, and employees and reserved 396,000
shares of common stock for issuance upon the exercise of
options granted under this plan. The exercise price of
the options is equivalent to the estimated fair market
value of the stock as determined by the Board of
Directors at the date of grant. The number of shares,
terms, and exercise period are determined by the Board
of Directors on an option-by-option basis. During 1994,
options to acquire 396,000 common shares were granted at
a price range of $.39 to $1.11 per share. No options
were exercised or lapsed during 1994. On September 1,
1995, options to acquire 288,000 shares were exercised
from which the Company received $209,500 in a common
stock subscription receivable. The remaining 108,000
shares will become exercisable over the next eighteen
months and have an option price of .39 per share.
(6) Preferred Stock and Common
The Company has authorized 50,000,000 shares of common
stock with $.02 par value and 5,000,000 shares of
preferred stock with a par value of $.001 per share.
In connection with the Business Combination discussed in
note 2, Specialized Health completed a 9 for 1 forward
stock split of both its common and preferred stock. The
number of common and preferred shares and per share
amounts presented in the accompanying financial
statements have been restated for the effect of this
split.
Specialized Health and the Company engaged in a private
placement of securities in July 1995 wherein 860.25
units were sold for $10,000 per unit for total
consideration, net of expenses of $7,519,060. This
consideration was comprised of $7,279,260 of cash and
$100,000 of debt converted to common stock and common
stock subscription receivable of $140,000. The private
placement was completed contemporaneously with the
Business Combination. Each unit consisted of 5,000
shares of the Company's $.02 par value common stock and
Series A warrants to purchase an aggregate of 2,580,750
shares of the Company's common stock at a price of $3.00
per share, exercisable for a period of two years from
the date of effectiveness of a registration statement
covering the issuance of the shares of common stock
underlying the Series A warrants.
<PAGE> 8
For services provided in connection with the private
placement of securities, the underwriter received a
commission of $860,251 in cash, 75,000 shares of common
stock, Series A warrants to purchase 530,125 shares of
common stock for $3.00 per share, and Series B warrants
to purchase 1,290,375 shares of common stock for $2.00
per share. The warrants expire on the earlier of (a)
two years from the effective date of a registration
statement under the Securities Act covering the issuance
of the shares of common stock underlying such warrants
or (b) the date specified in a notice of redemption from
the Company in the event that the closing price of the
common stock for any ten consecutive trading days
preceding such notice exceeds $6.00 per share and
subject to the availability of a current prospectus
covering the underlying shares. The Company may redeem
all or a portion of the warrants, in each case at $.001
per warrant upon at least 20 days prior written notice
to the warrant holders. The warrants may only be
redeemed if a current prospectus is available with
respect to the issuance of shares of common stock upon
the exercise thereof.
Each preferred and common share of Specialized Health
was converted into one common share of the Company in
connection with the Business Combination.
The Company has granted to certain officers and
directors the right to receive up to an aggregate of
2,000,000 shares of common stock based upon the level of
pre-tax consolidated net income (PTNI) for 1996, 1997 or
1998. If PTNI equals or exceeds $1,500,000, $5,000,000
or $8,000,000 in any of these years, these individuals
will receive an aggregate of 350,000, 1,100,000 or
2,000,000 common shares, respectively less shares
previously received but no more than an aggregate of
2,000,000.
The Company expects that the issuance of such shares
will be deemed to be the payment of compensation to the
recipients and will result in a change to the earnings
of the Company in the year or years the shares are
earned, in an amount equal to the fair market value of
the shares. This charge to earning could have a
substantial negative impact on the earnings of the
Company in the year or years in which the compensation
expense is recognized.
The effect of the charge to earnings associated with the
issuance of the shares could place the Company in a net
loss position for the relevant year, even though the
PTNI was at a level requiring the issuance of the
shares. Because the shares are issuable based on the
results of a single year, the PTNI in a particular year
could require the issuance of shares even though the
cumulative PTNI for the three years 1996, 1997 and 1998,
or any combination of those years, could reflect a lower
amount of PTNI that would not require the Company to
issue such shares or even a loss at the PTNI line.
(7) Preference Stock
Specialized Health had authorized 250,000 shares of
redeemable preference stock with a par value of $1.50
per share, of which 160,000 shares were issued and
outstanding at December 31, 1994. Each redeemable
preference share was entitled to a cumulative annual
dividend of nine percent of the par value from the date
of original issue. Dividends were payable when and as
declared by the Board of Directors. The preference
stock and related dividends were paid in cash at the
time of the Business Combination.
<PAGE> 9
(8) Income Taxes
There was no income tax expense in 1995 and 1994, due to
net operating losses. The difference between the expected
tax benefit and the actual tax benefit is primarily
attributable to the effect of start-up costs and net
operating losses being offset by an increase in the
Company's valuation allowance. The tax effects of
temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax
liabilities at September 30, 1995 and December 31, 1994,
are presented below:
1995 1994
Deferred tax assets:
Organization costs $ 4,300 5,138
Start-up costs 780 1,030
Net operating loss carryforwards 735,0 275,8
00 43
Accrued compensation 9,500 57,62
9
Total gross deferred tax assets 749,5 339,6
80 40
Less valuation allowance (748, (339,
580) 579)
Net deferred tax assets 1,000 61
Deferred tax liability - equipment,
principally due to differences in 1,000 61
depreciation
Total gross deferred tax liability 1,000 61
Net deferred tax liability $ - -
The net change in the total valuation allowance for the
nine months ended September 30, 1995 and year ended
December 31, 1994, was an increase of $409,001 and
$338,292, respectively. Subsequently recognized tax
benefits relating to the valuation allowance for
deferred tax assets will be recognized as an income tax
benefit to be reported in the statement of operations.
At September 30, 1995, the Company had total tax net
operating losses of approximately $1,934,000, which can
be carried forward to reduce federal income taxes. If
not utilized, the tax loss carryforwards expire
beginning in 2009.
Under the rules of the Tax Reform Act of 1986, the
Company has undergone a greater than 50 percent change
of ownership. Consequently, a certain amount of the
Company's net operating loss carryforward available to
offset future taxable income in any one year may be
limited. The maximum amount of carryforward available
in a given year is limited to the product of the
Company's value on the date of ownership change and the
federal long-term tax-exempt rate, plus any limited
carryforward not utilized in prior years.
(9) Commitments and Contingencies
The Company is party to litigation and claims arising in
the normal course of business. Management, after
consultation with legal counsel, believes that such
matters will not have a material impact on the Company's
financial position or results of operations.
<PAGE> 10
(10) Related Party Receivable and Due to Stockholders
Related party receivable at September 30, 1995 represent
advances to certain related parties.
Amounts due to stockholders in 1994 consisted of unpaid
consulting expenses of $154,500 and a $40,000 note
payable. The note payable was replaced subsequent to
year-end with a line of credit from a commercial bank in
the amount of $100,000 due November 1995 bearing
interest at prime plus two percent. Long-term amounts
due to a stockholder related to the acquisition of
purchased technology, and are noninterest bearing.
These amounts were repaid in 1995.
(11) Accounting Standard Issued Not Yet Adopted
In December of 1991, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 107, disclosures about fair value of financial
instruments. The Company is required to adopt the
provisions of this statement for the years ended
December 31, 1995. This statement requires all entities
to disclose the fair value of financial instruments,
both assets and liabilities recognized and not
recognized in the statement of financial position, for
which it is practicable to estimate fair value. If
estimating fair value is not practicable, this statement
requires disclosure of descriptive information pertinent
to estimating the value of the financial instrument.
The impact of statement 107 is not expected to have a
material affect on the Company.
<PAGE> 11
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 unaudited
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 SHP, on a consolidated
basis, except where the context clearly
indicates to the contrary. Prior to the business combination
wherein the Company acquired SHP (See notes 2(a) and 6 to the
consolidated financial statements) the Company had no
operations.
Financial Position
The Registrant had $5,289,648 (including
bank overdraft, cash and cash equivalents) in cash as of
September 30, 1995. This represented an increase of
$5,278,973 over the fiscal year end December 31, 1994.
Working capital as of September 30, 1995 also increased to
$5,730,653 as compared to ($287,723) for the fiscal year
ended December 31, 1994. These increases were largely due
to the to the raising of proceeds in connection with the
business combination, net of offering costs, of $7,279,060
from the sale of equity securities (See notes 2(a) and 6 to
the consolidated financial statements).
Results of Operations
The Registrant had revenues of $89,804 and
$442,341 for the three months and nine month periods ending
September 30, 1995, respectively, compared to revenues of
$6,083 and $24,154 for the prior comparable periods. These
revenues were derived largely from the sale of sharps
containers that were produced on a limited basis during 1994.
Commercial manufacture and sale of additional sizes and
versions of the Registrant's sharps containers occurred at
various times during 1995 and is continuing to occur.
Research and development expenses were
$238,643 and $532,537 for the three months and nine month
periods ending September 30, 1995, respectively, compared to
expenses of $69,278 and $156,931 for the prior comparable
periods. The Registrant's efforts during the three and nine
month periods ending September 30, 1995 were focused on
refining the design and producing molds for its sharps
container products, and upon the design and development of
its Safetylance (TM), Extresafe (TM) medical needle technology,
intravenous flow gauge system, and blood collection system.
General and administrative expenses were
$448,152 and $1,006,290 for the three months and nine month
periods ending September 30, 1995, respectively, compared to
expenses of $138,566 and $306,678 for the prior comparable
periods. The increase in costs resulted primarily from the
hiring of additional product development, sales and marketing
personnel to support sales and commercialization of the
Registrant's products.
Interest income was $67,549 and $49,153 for
the three months and nine month periods ending September 30,
1995, respectively, compared to net interest expense of $474
and $363 for the prior comparable periods. The interest
income for the three and nine months ended September 30,
1995, relates largely to the interest earned on the proceeds
received from the sale of equity securities (See notes 2(a)
and 6 to the consolidated financial statements).
<PAGE> 12
Liquidity and Capital Resources
During the nine months ended September 30,
1995, the Registrant generated $7,786,097 in cash from
financing activities (See notes 2(a) and 6 to the
consolidated financial statements). The Registrant's working
capital and other capital requirements will vary based upon a
number of factors, including the cost to complete development
and bring the SafetylanceO, ExtresafeO medical needle
technology, intravenous flow gauge system, blood collection
system and other products to commercial viability, and the
level of sales and marketing for the sharps containers.
Management believes the Registrant's current working capital
is sufficient to support the Registrant's current overhead
structure and planned capital expenditures for the next
twelve months. The Registrant's business plans may change or
unforeseen events may occur, however, which require that the
Registrant to raise additional funds.
<PAGE> 13
PART II _ OTHER INFORMATION
Item 1. Legal Proceedings.
During 1994, a wholly owned subsidiary of
the Registrant, Specialized Health Products, Inc. ("SHP"),
entered into various agreements with Mold Threads, Inc., a
Connecticut corporation ("MT"), whereby MT agreed construct
various molds and manufacture sharps containers for SHP. SHP
alleges that MT did not complete its obligations in a timely
or satisfactory manner. When SHP attempted to move the mold
work and production to another mold maker/manufacturer MT
refused to release SHP's molds. In January 1995, SHP filed
suit in the United States District Court for the District of
Utah against MT alleging breach of contract, conversion, and
intentional interference with business relations.
Thereafter, MT agreed to released SHP's molds. The time for
MT to answer SHP's complaint has not run. SHP anticipates
that MT will counterclaim in the amount of $22,328, exclusive
of attorney's fees and costs, for funds it alleges are owed
on a purchase order. SHP believes that MT waived its right
to assert any additional counterclaims. The litigation is in
the early stages, is subject to all of the risks and
uncertainties of litigation and the outcome cannot presently
be predicted. Specifically, there is no assurance that SHP
will be successful in this lawsuit or that the lawsuit will
be resolved on acceptable terms, and SHP may incur
significant costs in asserting its claims.
The Registrant is not engaged in any other legal proceedings.
Item 2. Changes in Securities.
(a) In conjunction with the Business
Combination (See notes 2(a) and 6 to the consolidated
financial statements), a Restatement to the Registrant's
Certificate of Incorporation (which became effective on July
28, 1995), was filed which (1) changed the Registrant's name
from Russco, Inc., to its current name, Specialized Health
Products International, Inc.; (2) provided that the
Registrant's Board of Directors be divided into three
classes, with one class of directors to be elected each year
beginning with the 1996 annual meeting of shareholders; (3)
provided that a two-thirds vote of the shares outstanding
shall be necessary to amend the Certificate of Incorporation
or Bylaws of the Registrant relating to the organization and
operation of the Board of Directors of the Registrant; (4)
provided that action may only be taken by shareholders at an
annual or special meeting of the Registrant, that special
meetings of the shareholders may only be called by the Board
of Directors, the Chairman of the Board, the Chief Executive
Officer or the President of the Registrant and that action
shall not be taken by shareholder consent; and (5) provided
for the indemnification and limitation of liability of the
officers and directors of the Registrant to the fullest
extent permitted by Delaware law.
(b) The Registrant adopted a non
qualified stock option plan wherein the Registrant is
authorized to grant options ("Plan Options") to purchase up
to 1,284,998 shares of common stock of the Registrant.
Pursuant to said stock option plan, on September 1, 1995,
the Registrant granted Plan Options to purchase 1,151,810
shares of common stock at $2.00 per share, which Plan
Options are immediately exercisable.
In conjunction with the Business
Combination, all outstanding options of SHP became
outstanding options of the Registrant ("Pre-Plan Options").
As of September 30, 1995, the Registrant has Pre-Plan
Options outstanding which entitled the holders thereof to
purchase 108,000 shares of the Registrant's common stock.
During the third quarter Pre-Plan Options were exercised to
acquire 288,000 shares of the Registrant.
As part of the private placement, which
was completed on August 18, 1995, the Registrant issued
Series A Warrants to purchase 3,110,875 shares of the
Registrant's common stock and Series B Warrants to purchase
1,290,375 shares of the Registrant's common stock. The
Series A Warrants are immediately exercisable for shares of
the Registrant at a price of $3.00 per share, and expire on
the earlier of (a) two years from the date of effectiveness
of a registration statement under the Securities Act of 1933
covering the issuance of the shares underlying such Warrants
upon issuance by the Registrant or for resale of such shares
by the holder, which period shall be extended day-for-day
for any time that a prospectus meeting the requirements of
the Securities Act of 1933 is not available, or (b) the date
specified in a notice of redemption from the Registrant
(subject to the prior right of the holder to exercise the
Series A Warrants for a least 20 days following the date of
such notice) in the event that the closing price of the
shares for any ten consecutive trading days preceding such
notice exceeds $6.00 per share and subject to the
availability of a current prospectus covering the underlying
shares. The Series B Warrants have the same terms as the
Series A warrants, except the Series B Warrants are
exercisable at $2.00 per share.
<PAGE> 14
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Securityholders.
At a special meeting of stockholders of the
Registrant held on July 25, 1995, the Stockholders of the
Registrant approved:
(a) A 1 for 4.875 reverse stock split of all
outstanding shares of the Registrant's Common Stock,
resulting in a decrease in the number of outstanding shares
of Common Stock of the Registrant from 1,787,500 to 300,000
shares, effective July 26, 1995.
(b) A Restatement to the Registrant's Certificate of
Incorporation (which became effective on July 28, 1995), to
(1) change its corporate name from Russco, Inc., to its
current name, Specialized Health Products International,
Inc.; (2) provide for a board of directors that is divided
into three classes, with one class of directors to be
elected each year beginning with the 1996 annual meeting of
shareholders; (3) provide that a two-thirds vote of the
shares outstanding shall be necessary to amend the
Certificate of Incorporation or Bylaws of the Registrant
relating to the organization and operation of the board of
directors of the Registrant; (4) provide that action may
only be taken by shareholders at an annual or special
meeting of the Registrant, that special meetings of the
shareholders may only be called by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer or
the President of the Registrant and that action shall not be
taken by shareholder consent; and (5) provide for the
indemnification and limitation of liability of the officers
and directors of the Registrant to the fullest extent
permitted by Delaware law.
(c) The private placement and Business Combination
(See notes 2(a) and 6 to the consolidated financial
statements), pursuant to which the Registrant issued the
following securities: (1) 3,602,403 shares of Common Stock
to the historical shareholders of SHP, (2) 4,301,250 shares
of Common Stock to certain purchasers of securities in the
private placement, a portion of which closed simultaneously
with the Business Combination (the "Private Placement
Investors"), (3) 75,000 shares of Common Stock to U.S.
Sachem Financial Consultants, L.P. ("Sachem") for services
rendered, (4) options and warrants to acquire 441,000 shares
of Common Stock, in exchange for similar outstanding
securities of SHP, (5) Series A Warrants to purchase
3,110,875 shares of Common Stock and (6) Series B Warrants
to purchase up to 1,290,375 shares of Common Stock.
<PAGE> 15
(d) The election of the following nominees to serve as
the directors of the Registrant subsequent to the
Acquisition for the terms indicated:
Name Term Expires
David A. Robinson 1996
Bradley C. Robinson 1996
John T. Clarke 1997
Gail H. Thorne 1997
Gary W. Farnes 1998
Robert R. Walker 1998
Item 5. Other Information.
Changes in Registrant's Certifying Accountant.
On November 10, 1995 the Registrant's
Board of Directors elected to retain KPMG Peat Marwick, LLP
("KPMG") as its independent auditor. Heretofore Nielson,
Grimmett & Company ("NGC") had acted as the Registrant's
independent auditor. The decision to change auditors was
recommended by the Registrant's Board of Directors, in part,
because KPMG had acted as SHP's auditor prior to the
Business Combination.
The reports of NGC on the financial
statements of the Registrant for each of the two fiscal
years in the period ended December 31, 1994, did not contain
any adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles.
During the Registrant's two most recent
fiscal years and all subsequent interim periods preceding
such change in auditors, there were no disagreements with
NGC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or
procedure, which disagreements(s), if not resolved to the
satisfaction of the former accountant, would have caused it
to make a reference to the subject matter of the
disagreements(s) in connection with its report; nor has NGC
ever presented a written report, or otherwise communicated
in writing to the Registrant or its Board of Directors the
existence of any "disagreement" or "reportable event" within
the meaning of Item 304 of Regulation S-K.
The Registrant has authorized NGC to
respond fully to the inquiries of the Registrant's successor
accountant and has requested that NGC provide the Registrant
with a letter addressed to the SEC, as required by Item
304(a)(3) of Regulations S-K, so that the Registrant can
file such letter with the SEC with this report within ten
business days after the filing of this report.
Item 6. Exhibits and Reports on Form 8-K.
(a)
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
NO.
2 Agreement and Plan of Merger dated as of June 23,
1995, among the Registrant, Russco Resources, Inc. , a
certain shareholder of the Registrant and
Specialized Health Products, Inc., filed as Exhibit
2.1 to the Registrant's July 28, 1995 report on Form 8K,
and incorporated herein by reference.
3 Amendment to Certificate of Incorporation of
Registrant filed as Exhibit 3(i).1 to the Registrant's
July 28, 1995 report on Form 8-K, and incorporation
herein by reference.
10 Specialized Health Products International, Inc. Stock
Option Plan , dated as of September 1, 1995.
27 Financial Data Schedule for the period ending
September 30, 1995.
<PAGE> 16
(b) Reports on Form 8-K:
1. In a report filed on Form 8-K, dated July 28,
1995, the Registrant reported on the Registrant's acquisition
of SHP, the change in control of the Registrant, the special
meeting of the Registrant's shareholder, the resignation of
the Registrant's sole director, election of new directors and
pro forma financial information.
2. In a report filed on Form 8-K, dated August 18, 1995,
the Registrant reported on the completion of the
Registrant's private placement and the change in control of
the Registrant.
3. In a report filed on Form 8-K/A (Amendment Number 1),
dated August 18, 1995, the Registrant corrected certain
typographical errors contained in the prior Form 8-K.
4. In a report filed on Form 8-K/A (Amendment Number 2),
dated August 18, 1995, the Registrant reported on new pro
forma financial information to reflect the Registrant's business
acquisition and private placement.
5. In a report filed on Form 8-K, dated September, 1,
1995, the Registrant reported on adoption of the
Registrant's non-qualified stock option plan.
6. In a report filed on Form 8-K/A (Amendment Number 1),
dated September, 1, 1995, the Registrant provided unaudited
historical financial statements, dated August 31, 1995 and December
31, 1995, to reflect the acquisition of SHP by the Registrant and
corrected certain information relating to the beneficial ownership
of the Registrant.
<PAGE> 17
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: November 13, 1995 By /s/ David A. Robinson
-------------------------------
David A. Robinson President,
Chief Executive Officer,
Director
Date: November 13, 1995 By /s/ J. Clark Robinson
-------------------------------
J. Clark Robinson
Chief Financial Officer,
Director
Specialized Health Products International, Inc.
Stock Option Plan
This Stock Option Plan (the "Plan") is executed this 1st day of September,
1995, by Specialized Health Products International, Inc., a Delaware
corporation ("SHPI").
Whereas, the compensation committee of SHPI (the "Committee") believes it
is in the best interest of SHPI to establish a plan for the purpose of
providing certain benefits for the participants described hereunder; and
Whereas, SHPI wishes to offer an inducement to such participants in the
form of additional compensation for services which they have rendered or will
hereafter render.
Therefore, it is resolved as follows:
ARTICLE I - GENERAL
1.01. Administration.
(a) The Plan shall be administered by SHPI's Compensation Committee
(the "Committee").
(b) The Committee shall have the authority, in its sole discretion
and from time to time to:
(i) designate the consultants, independent contractors, employees,
officers and directors of SHPI who have or will provide bona fide services to
SHPI (collectively "Participants") or classes of Participants eligible to
participate in the Plan which Participants may be natural persons or entities;
(ii) grant awards provided in the Plan in such form and amount as the
Committee shall determine;
(iii) impose such limitations, restrictions and conditions upon any such
award as the Committee shall deem appropriate; and
(iv) interpret the Plan, adopt amend and rescind rules and regulations
relating to the Plan, and make all other determinations and take all other
action necessary or advisable for the implementation and administration of
the Plan.
(c) Decisions and determinations of the Committee on all matters relating
to the Plan shall be in its sole discretion and shall be conclusive. No
member of the Committee shall be liable for any action taken or decision
made in good faith relating to the Plan or any award thereunder.
1.02. Eligibility for Participation.
Participants in the Plan shall be selected by the Committee. In making
this selection and in determining the form and amount of awards, the Committee
shall consider any factors deemed relevant, including the Participant's
functions, responsibilities, value of services to SHPI and past and potential
contributions to SHPI's profitability and sound growth.
1.03. Types of Awards Under Plan.
Awards under the Plan will be in the form of stock options, as describe in
Article II ("Stock Options").
1.04. Aggregate Limitation on Awards.
The maximum aggregate number shares of underlying shares of common stock
of SHPI that may be subject to Stock Options issued pursuant to the Plan is
1,284,998, which number may be adjusted from time to time by the Committee.
1.05. Term of Plan.
The Stock Options issued pursuant to the Plan shall not be exercisable
more than five (5) years from the date of grant.
ARTICLE II - STOCK OPTIONS
2.01. Award of Stock Options.
The Committee may, from time to time and subject to the provisions of the
Plan and such other terms and conditions as the Committee may prescribe,
grant to any participant in the Plan one or more Stock Options to purchase
common stock of SHPI for cash or other consideration approved by the
Committee. The date a Stock Option is granted shall mean the date selected
by the Committee as of which the Committee allots a specific number of shares
to a participant pursuant to the Plan.
2.02. Stock Option Agreements.
The grant of a Stock Options shall be evidenced by a written stock option
agreements, executed by SHPI and the holder of a Stock Option (the "Optionee"),
stating the number of shares of stock subject to the Stock Option evidenced
thereby, and in such form as the Committee may from time to time determine.
2.03. Stock Option Price.
The option price per share shall be at least equal to the fair market
value of the underlying common subject to the Stock Options being granted,
which fair market value shall be determined, in each circumstance, in the
sole and absolute discretion of the Committee.
2.04. Term and Exercise.
Each Stock Option shall be exercisable upon the date(s) so provided by the
Committee. Notwithstanding the foregoing, no Stock Option may be exercised
after the expiration of the terms set forth in Section 1.05. (the "Option
Term").
2.05. Manner of Payment.
Each Stock option agreement shall set forth the procedure governing the
exercise of the Stock Option granted thereunder. In each circumstance, the
Optionee may make payment to SHPI of the full option price in cash or in any
manner that the Committee, in its sole and absolute discretion, finds
appropriate.
2.06. Retirement, Disability or Death of Optionee.
(a) Upon a termination of the Optionee's employment by reason of retire-
ment, disability or death, the Option may be exercised during the following
periods, but only to the extent that the Option was outstanding on any such
date of retirement, disability or death; (1) the one-year period following
the date of such termination of the Optionee's employment with SHPI in the
case of a disability (within the meaning of Section 22(e)(3) of the I.R.C.),
(2) the thirty (30) day period following the date of issuance of letters
testamentary or letters of administration to the executor or administrator of
a deceased Optionee, in the case of the Optionee's death during his employment
with SHPI, but not latter than one year after the Optionee's death, and (3)
the three-month period following the date of such termination in the case of
retirement on or after attainment of age 65, or in the case of disability
other than as described in (1) above. In no event, however, shall any such
period extend beyond the Option Term in the case of retirement. In the case
of disability or death such period may extend beyond the Option Term to the
extent set forth in this Section 2.06(a).
(b) In the event of the death of the Optionee, the Option may be exercised
by the Optionee's legal representative(s), but only to the extent that the
Option would otherwise have been exercisable by the Optionee.
(c) Notwithstanding any other provisions set forth herein, if the Optionee
shall (1) commit any act of malfeasance or wrongdoing affecting SHPI or any
subsidiary of SHPI, (2) breach any covenant not to compete or employment
contract with SHPI or any subsidiary of SHPI, or (3) engage in conduct that
would warrant the Optionee's discharge for cause (excluding general dissatis-
faction with the performance of the Optionee's duties, but including any act
of disloyalty or any conduct clearly tending to bring discredit upon or any
subsidiary of SHPI), any unexercised portion of the Option shall immediately
terminate and be void.
2.07. Termination for Other Reasons.
Except as provided in Section 2.06 or except as otherwise determined by
the Committee, all Stock Options shall terminate upon the termination of the
Optionee's employment.
ARTICLE III - MISCELLANEOUS
3.01. General Restriction.
Each award under the Plan shall be subject to the requirement that, if at
any time the Committee shall determine that (1) the listing, registration or
qualification of the shares of stock subject or related thereto upon any
securities exchange or under any state or Federal law, (2) the consent or
approval of any government regulatory body, or (3) an agreement by the Optionee
of an award with respect to the disposition of shares of stock, is necessary
or desirable as a condition of, or in connection with, the granting of such
award or the issue or purchase of shares of stock thereunder, such award may
not be consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Committee.
3.02. Non-Assignability.
No award under the Plan shall be assignable or transferable by the
recipient thereof, except by will or by the laws of descent and distribution.
During the life of the recipient, such award shall be exercisable only by such
person or by such person's guardian or legal representative.
3.03. Withholding Taxes.
Whenever SHPI proposes or is required to issue or transfer shares of stock
or other property under the Plan, SHPI shall have the right to require the
Optionee to remit to SHPI an amount sufficient to satisfy any Federal, state
and/or local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. Alternatively, SHPI may issue
or transfer such shares of stock net of the number of shares sufficient to
satisfy the withholding tax requirements. For withholding tax purposes, the
shares of stock shall be valued on the date the withholding obligation is
incurred.
3.04. Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the Plan
shall confer upon any participant the right to continue in the employment of
SHPI or effect any right which SHPI may have to terminate the employment of
such participant. Specifically, all Participant's shall be at will employee's
of SHPI unless SHPI has made other arrangements with a Participant.
3.05. Non-Uniform Determinations.
The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and timing
of such awards, the terms and provisions of such awards and the agreements
evidencing the same) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan,
whether or not such persons are similarly situated.
3.06. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for shares of
stock are issued to him.
3.07. Leaves of Absence.
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any award. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine (1)
whether or not any such leave of absence shall constitute a termination of
employment within the meaning of the Plan and (2) the impact, if any, of any
such leave of absence on awards under the Plan theretofore made to any
recipient who takes such leave of absence.
3.08. Newly Eligible Participants.
The Committee shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any
employee who becomes eligible to participate in the Plan or any
portion thereof after the commencement of an award or period.
3.09. Adjustments.
In the event of any change in the outstanding stock by reason of a stock
dividend or distribution, recapitalization, merger, consolidation, split-up,
combination, exchange of shares or the like, the Committee shall appropriately
adjust the number of shares of stock which may be issued under the Plan.
The adjustment that shall be made to each outstanding Stock Option will be
such that each such Option shall thereafter be exercisable for such cash,
stock or property as would have been received in respect of the Stock Option
had such Option been exercised in full immediately prior to such change, and
such an adjustment shall be made successively each time any such change shall
occur.
3.10. Amendment of the Plan.
(a) The Committee may, without further action by the shareholders
and without receiving further consideration from the participants, amend
this Plan or condition or modify awards under this Plan in response to
changes in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect.
3.11. Distribution of the Plan.
A copy of the Plan shall be given to each Plan participant at or before the
date the Committee grants the participant Stock Options.
CERTIFICATION OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of SHPI, Inc.,
a Delaware corporation; and
2. That the foregoing Stock Option Plan, comprising six (6) pages, was
duly adopted by the Compensation Committee on the 1st day of September, 1995.
____/s/_____________________________
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the period ended September 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 5,278,973
<SECURITIES> 0
<RECEIVABLES> 350,546
<ALLOWANCES> 0
<INVENTORY> 32,862
<CURRENT-ASSETS> 5,756,107
<PP&E> 947,320
<DEPRECIATION> 9,614
<TOTAL-ASSETS> 7,064,614
<CURRENT-LIABILITIES> 165,454
<BONDS> 0
0
0
<COMMON> 171,333
<OTHER-SE> 6,727,827
<TOTAL-LIABILITY-AND-EQUITY> 7,064,614
<SALES> 442,341
<TOTAL-REVENUES> 491,494
<CGS> 252,801
<TOTAL-COSTS> 1,791,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,300,134)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,300,134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,300,134)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
