As filed with the Securities and Exchange Commission on
April 25 June 18, 1996.
Registration Statement No. 33-80247
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
AMENDMENT NO. 2
to
FORM S-1 REGISTRATION STATEMENT
Under the Securities Act of 1933
_______________
Specialized Health Products International, Inc.
(Exact Name of Registrant as specified in its charter)
Delaware 3841 93-0945003
(State or other (Primary Standard (I.R.S. Employer's
jurisdiction Industrial Identification Number)
of incorporation or Classification Code)
organization)
_______________
Specialized Health Products International, Inc.
655 East Medical Drive
Bountiful, UT 84010 (801) 298-3360
(Address, including zip code and telephone number, including area
code, of Registrant's principal executive office)
_________________
David A. Robinson
Specialized Health Products International, Inc.
655 East Medical Drive
Bountiful, UT 84010 (801) 298-3360
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
_______________
Copies to:
Eric L. Robinson
Paul J. Graf
Blackburn & Stoll, LC
77 West Second South, Suite 400
Salt Lake City, UT 84101 (801) 521-7900
_______________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box.
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Amount Maximum Maximum Amount of
Each Class to be Offering Aggregate Registration
of Registered Price Offering Fee
Securities Per Share(1) Price(1)
to be
Registered
Common 4,376,250 $8.50(3) $37,198,125 $12,826.93
Stock(2)
Common 4,401,250 $8.50(3) $37,410,625 $12,900.21
Stock(4)
Total $25,727.14(5)
Common 3,912,903 $8.875(6) $34,727,014 $11,974.83
Stock(2)
Common 1,279,810 $8.875(6) $11,358,314 $3,917.66
Stock(4)
Series B
Warrants 918,040 --(7) --(7) --(7)
Total (7) $15,892.49
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this Registration Statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may
determine.
(Footnotes continued from previous page)
(1) Estimated solely for the purpose of
determining the registration fee.
(2) Outstanding shares of Common Stock offered
for sale from time to time by Selling Security
holders.
(3) Represents the average of the bid and asked
prices of the Common Stock on the NASDAQ Small Cap
Market on December 4, 1995. Fees were calculated
under Rule 457(c) under the Securities Act of
1933.
(4) Issuable by the Registrant from time to time
upon the exercise of outstanding warrants and
stock options.
(5) Previously paid on December 11, 1995.
(6) Represents the average of the bid and asked
prices of the Common Stock on the NASDAQ Small Cap
Market on April 18, 1996. Fees were calculated
under Rule 457(c) under the Securities Act of
1933.
(7) Pursuant to Rule 457(g) under the
Securities Act of 1933, no separate
registration fee is required.
(7) The Series B Warrants previously listed are
withdrawn by this amendment.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
Item Number of Caption Location or Heading in Prospectus
1.Forepart of Registration
Statement and Outside Front Outside Front Page of Registration
Cover of Prospectus Statement and Outside Front Cover Page
of Prospectus
2.Inside Front and Outside
Back Cover Pages of Inside Front and Outside Back Cover
Prospectus Page of Prospectus
3.Summary Information, Risk
Factors and Ratio of Prospectus Summary, Risk Factors,
Earnings to Fixed Charges Summary Selected Financial Information
and Selected Financial Data
4.Determination of Offering Outside Front Cover Page and Plan of
Price Distribution
5.Selling Security Holders Principal and Selling Securityholders;
Management
6.Plan of Distribution Outside Front Cover Page of
Prospectus; Prospectus Summary and
Description of Securities
7.Description of Securities
to be Outside Front Cover Page of
Registered Prospectus, Prospectus Summary and
Description of Securities
8.Interest of Named Experts Not Applicable
and Counsel
9.Information With Respect
to the Registrant Prospectus Summary, Risk Factors,
Capitalization, Dividend Policy,
Selected Financial Data, Share Price
History, Management's Discussion and
Analysis of Financial Condition and
Results of Operations, Business,
Management, Principal and Selling
Securityholders, Certain Relationships
and Transactions, Description of
Securities and Financial Statements
10. Disclosure of Commission
Position on Indemnification
for Securities Act Management
Liabilities
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
state.
<PAGE> 1
SUBJECT TO COMPLETION, DATED APRIL 25 JUNE _18__, 1996.
PRELIMINARY PROSPECTUS
13,682,213 Shares of Common Stock
918,040 Series B Warrants
Specialized Health Products International, Inc.
This prospectus relates to (1) the offer and sale from time to
time of up to 8,001,153 shares of common stock, $.02 par value
("Common Stock"), of Specialized Health Products International, Inc.
(the "Company") by certain stockholders of the Company named herein
(the "Selling Stockholders"); (2) the offer and sale from time to time
by the warrantholders named herein of up to 4,446,250 shares of Common
Stock (the "Secondary Warrant Stock") issuable to such warrantholders
upon exercise of the Series A Warrants, Series B Warrants and other
warrants (collectively, the"Warrants") during the term of the
Warrants; (3) the offer and sale from time to time of up to 918,040
Series B Warrants of the Company by a warrantholder of the Company
named herein (the "Selling Warrantholder"); and (3) the offer and
sale from time to time by the stock option holders named herein (the
"Selling Option Holders") of up to 1,234,810 shares of Common Stock
(the "Option Stock") issuable to such stock option holders upon
exercise of the stock options. The Common Stock, Warrants,
Secondary Warrant Stock and Option Stock are referred to
collectively as the "Securities." The Selling Stockholders,
Selling Warrantholder, selling Secondary Warrant Stockholders and
Selling Option Holders named herein are referred to collectively as
the "Selling Securityholders." See "Description of Securities" and
"Principal and Selling Securityholders."
At commencement of this Offering, there will be (a) 8,589,153
shares of Common Stock outstanding, of which 8,001,153 shares of
Common Stock are being registered hereby, 10,256 shares of Common
Stock were previously registered for sale pursuant to a prior
registration statement and 284,616 294,872 shares of Common
Stock are freely tradable under are effectively free
trading Rule 144 of the Securities Act of 1933 or a similar
exemption, and (b) Warrants and Option Stock exercisable for 5,681,060
shares of Common Stock. All of the shares of Common Stock underlying
these Warrants and Option Stock, are being registered hereby. In
addition, 918,040 of the 1,290,375 outstanding Series B Warrants are
being registered hereby. Thus, upon completion of this Offering,
assuming that all of the Warrants and Option Stock are exercised,
there will be 14,270,213 shares of Common Stock outstanding, of which
13,977,085 shares will be registered or effectively free trading. The
sale of a substantial part of these securities could adversely affect
the market price of the Common Stock, which may hinder any future
efforts of the Company to raise capital. See "Securities Available
for Future Sale" and "Principal and Selling Securityholders."
The Common Stock is quoted on the NASD Automated Quotation
("Nasdaq") Small-Cap Market under the trading symbol "SHPI." On
April 15 June 11, 1996, the closing price of the Common Stock,
as reported by Nasdaq was $7.25 $9.00 per share. See "Share
Price History."
_______________
The Securities offered hereby involve a high degree of risk. See
"Risk Factors" on page 8 of the Prospectus.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________
The Common Stock offered hereby may be sold from time to time on
Nasdaq through brokers, dealers, underwriters or agents, and also in
privately-negotiated sales by the Selling Securityholders named
herein, on terms to be determined at the times of such sales. See
"Principal and Selling Securityholders." There is no market for
the Warrants nor does the Company expect an active trading market to
develop. See "Plan of Distribution." The Series B Warrants offered
hereby are being offered by the Selling Warrantholder to forty-nine
<PAGE> 2
persons named herein on a basis described herein. See "Principal and
Selling Securityholders." The Company is registering the Common
Stock pursuant to the Company's obligations under certain registration
rights agreements and is registering the Series B Warrants pursuant
to a request by a Selling Warrantholder , but the registration of
the Securities does not necessarily mean that any of the Securities
will be offered or sold by the Selling Securityholders hereunder. To
the extent required, the specific Securities to be sold, the names of
the Selling Securityholders, the respective purchase prices and public
offering prices, the names of any broker, dealer, underwriter or
agent, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying Prospectus
Supplement or, if appropriate, a post-effective amendment to the
Registration Statement to which this Prospectus is a part. See "Plan
of Distribution."
The Selling Securityholders and any dealers or agents that
participate in the distribution of the Securities offered hereby may
be deemed to be "underwriters" as defined in the Securities Act of
1933, as amended (the "Securities Act") and any profit on the sale of
the Securities offered hereby by them and any discounts, commissions
or concessions received by any such dealers or agents might be deemed
to be underwriting discounts and commissions under the Securities Act.
The Company will receive no proceeds from the sale of the
Securities by the Selling Securityholders hereunder, but the Company
has agreed to bear certain expenses of registration of such Securities
under federal and state securities laws. The Company will receive
proceeds when and if the Warrants and Option Stock are exercised.
_______________
<PAGE> 3
The date of this Prospectus is April 25 June 18, 1996
TABLE OF CONTENTS
Prospectus Summary 4
Risk Factors 8
Dividend Policy 15
Share Price History 15
Capitalization 16
Selected Financial Data 17
Management's Discussion and Analysis
of Financial Condition and Results of Operations 18
Business 23
Management 35
Certain Relationships and Related Transactions 40
Description of Securities 41
Securities Eligible for Sale 44
Principal and Selling Securityholders 44
Plan of Distribution 53
Experts 53
Additional Information 53
Index to Financial Statements F-1
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information included elsewhere in this Prospectus. Unless
the context otherwise requires, all references in this Prospectus to
the "Company" shall mean Specialized Health Products International,
Inc., and its subsidiaries on a consolidated basis and, where the
context so requires, shall include its predecessors.
The Company
The Company primarily develops health care products that limit or
prevent the risk of accidental needle sticks which may cause the
spread of blood-borne diseases such as HIV and hepatitis B, and
secondarily develops other products for use in the health care
industry. The Company intends to principally use third parties to
manufacture, market and distribute its products.
The Company has created a portfolio of proprietary, safety health
care products that are in various stages of production, pre-
production, development and research. The Company is presently
developing a line of products using the Company's ExtreSafe(TM)
medical needle technology (the "ExtreSafe(TM) Products"), which
incorporates a system to allow a contaminated needle to be
automatically retracted and immediately encapsulated without exposure
to the health care worker. The technology retracts the inserted
needle into a safe housing quickly and automatically, minimizing the
chance of an inadvertent stick by a "dirty" needle. Retraction is
initiated by a simple depression of a designated distortable portion
of the housing assuring that there is no action directed toward or
away from the patient which might affect the depth of needle
penetration.
The Company's ExtreSafe(TM) Products are aimed at addressing the
growing concerns of health care institutions and workers concerning
the spread of infectious diseases caused by the estimated 800,000
accidental needle sticks that occur each year. Products under
development that incorporate the ExtreSafe(TM) medical needle
technology include the ExtreSafe(TM) phlebotomy device, ExtreSafe(TM)
catheter and several different ExtreSafe(TM) syringe applications.
The Company expects to introduce additional products using this
technology. Prototypes of the first product using the ExtreSafe(TM)
medical needle technology were completed in April, 1995 and commercial
production is anticipated to commence in 1997, provided the necessary
FDA approvals are obtained, of which there is no assurance.
Prototypes of the ExtreSafe(TM) catheter and ExtreSafe(TM) syringe
were completed in the second half of 1995. The Company's concepts for
a safety intravenous flow gauge and blood collection device are in the
research stage.
The Company is developing a safety lancet (the
"SafetyStrip(TM)"), a small hand-held device for penetrating the skin
to obtain blood for analysis. The Company's SafetyStrip(TM) lancet is
designed to provide protection from accidental exposure to infectious
blood borne diseases. The SafetyStrip(TM) lancets will be provided
in cartridge strip housings of six lancets per strip, a configuration
that is patent protected. The strip housing is loaded into a
convenient low-cost hand held carrier which also provides a means for
safely and conveniently triggering each lancet. After penetrating the
skin, the SafetyStrip(TM) blade automatically returns inside its
housing and cannot be reused. The used blade, encased by its
protective housing, is then broken off from the cartridge strip and
appropriately discarded. A prototype of the SafetyStrip(TM) lancet
was completed in 1996 and the Company anticipates that commercial
production will begin in 1996.
The Company's earliest safety product line is its Safety
Cradle(R) sharps container products designed to reduce the risk of
accidental needle sticks and exposure to contaminated instruments when
disposing of contaminated "sharps" (i.e., needles, syringes, blood
collection systems, intravenous catheters, surgical blades, lancets,
etc.). The Safety Cradle(R) products allow for disposal of sharps in
a container that incorporates a self closing sharps containment flap,
open/close/lock mechanism. The Safety Cradle(R) sharps containers are
specifically designed for alternate site use and to provide
convenience and safety for portable applications. In December 1994,
the Company introduced the first in its line of Safety Cradle(R)
sharps containers and additional sizes and versions of the containers
were released in the third and fourth quarters of 1995.
At commencement of this Offering, there will be outstanding (a)
8,589,153 shares of Common Stock, of which 8,001,153 shares of Common
Stock are being registered hereby, 10,256 shares of Common Stock were
previously registered for sale pursuant to a prior registration
statement and 284,616 294,872 shares of Common Stock are freely
tradable effectively free trading under Rule 144 of the
Securities Act of 1933 or a similar exemption, and (b) Warrants and
Option Stock exercisable for 5,681,060 shares of Common Stock. All of
the shares of Common Stock underlying these Warrants and Option Stock,
are being registered hereby. In addition, 918,040 of the 1,290,375
outstanding Series B Warrants are being registered hereby. Thus,
upon completion of this Offering, assuming that all of the Warrants
and Option Stock are exercised, there will be 14,270,213 shares of
Common Stock outstanding, of which 13,977,085 shares will be
registered or effectively free trading. The sale of a substantial part
of these securities could adversely affect the market price of the
Common Stock, which may hinder any future efforts of the Company to
raise capital. See "Securities Available for Future Sale" and
"Principal and Selling Securityholders."
The Company is a Delaware corporation with its principal
executive offices at 655 East Medical Drive, Bountiful, UT 84010. Its
telephone number is (801) 298-3360.
Risk Factors
An investment in the Securities of the Company involves various
risks, including but not limited to risks that: the Company will be
unable to profitably sell its products; the Company may be unable to
effectively compete with manufacturers of similar products; the
Company may find itself unable to compete with other manufacturers as
a result of changes or improvements in technology which have the
effect of making the Company's products obsolete; the possible lack of
availability of patent and other intellectual property protection for
some of the Company's products, the Company's possible inability to
raise additional funds if need develops for such funding; the
Company's possible inability to obtain approval of the United States
Food and Drug Administration ("FDA") for some or all of its products
which require such approval; the value of the Company's stock will
decrease as a result of the registration and sale of additional
outstanding shares of the Company's Common Stock. In addition, an
investment in the Securities offered hereby involves risks that:
certain provisions of applicable law, and certain contractual, charter
and bylaw provisions of the Company, will have the effect of limiting
officer and director liability and will have the effect of restricting
the ability of stockholders to effect a merger or business combination
or obtain control of the Company; and risks associated with
investments in small companies in volatile industries, such as the
Company. Prospective investors should carefully read and consider
the matters discussed under "Risk Factors" prior to any investment in
the Company. See "Risk Factors."
The Offering
The principal terms of the Securities offered hereunder are
summarized below. For a more complete description, see "Description
of Securities." The Selling Securityholders will receive all the
proceeds from the sale of the Common Stock. The Company will
receive the proceeds from the exercise of the Series B Warrants when
and if the Series B Warrants are exercised.
Common Stock:
Securities Offered 13,682,213 shares of Common Stock,
including 8,001,153 shares of outstanding
Common Stock which may be sold by Selling
Securityholders, up to 4,446,250 shares
of Common Stock which may be sold by the
holders of outstanding Warrants following
exercise of such Warrants, and up to
1,234,810 shares of Common Stock which
may be sold by the holder of the
outstanding stock options following the
exercise of such stock options.
Rights of Common Stock The shares of Common Stock share equally
in all rights of the Common Stock,
including, without limitation dividend
and voting rights.
Quotation The Common Stock is quoted on the Nasdaq
Small-Cap Market.
<PAGE> 6
Trading Symbol "SHPI"
Series B Warrants:
Securities Offered 918,040 Series B Warrants, each entitling
the holder to purchase one share of
Common Stock at an exercise price of
$2.00 per share.
Series B Warrants 1,290,375<
Outstanding
Term The Series B Warrants are currently
exercisable and expire two years after
the effective date of the Registration
Statement of which this Prospectus is a
part. Such term is subject to
acceleration or extension under certain
circumstances. See "Description of
Securities."
Call Provision The Company may accelerate the expiration
of the Series B Warrants in the event
that the average market price of the
Common Stock for 10 consecutive trading
days exceeds $6.00 per share. In the
event that the Company accelerates the
expiration of the Series B Warrants, the
holders of such warrants would be
permitted to exercise the Warrants during
a period of not less than 20 days
following notice of such event.
Voting Rights The Series B Warrants carry no voting
rights.
Quotation No active trading market exists for the
Series B Warrants nor does the Company
expect an active trading market to
develop. See "Plan of Distribution."
Summary Selected Financial Information
The following data have been derived from the Company's
consolidated financial statements that have been audited by KPMG Peat
Marwick LLP, independent auditors. The information set forth below is
not necessarily indicative of the results of future operations and
should be read in conjunction with the Financial Statements and
related Notes appearing elsewhere herein:
<TABLE>
<CAPTION>
Period Ended
Fiscal Year Ended (1) 3 Months Ended
(1)
Nov.
19, Dec. Dec. March March
1993 31, 31, 31, 31,
(incep 1994 1995 1996 1995
tion)
to
Dec. 3
1,
1993
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Sales $ -- 33,256 447,844 16,621 82,612
Cost of sales -- 21,669 294,171 19,756 36,848
------------------------------------------------
Gross profit -- 11,587 153,673 (3,135) 45,764
Expenses:
Research and -- 290,950 804,639 319,883 101,079
development
Selling, general and 3,450 620,022 2,133,021 463,749 308,261
administrative
Write off of operating -- -- 255,072 -- --
assets
------------------------------------------------
Total expenses 3,450 910,972 3,192,732 783,632 409,340
------------------------------------------------
Operating loss (3,450) (899,385)(3,039,059)(786,767)(363,576)
Net other income -- (7,563) 119,570 75,257 (9,026)
(expense) -------------------------------------------------
Net loss (3,450) (906,948)(2,919,489)(711,510)(372,602)
Dividends on preference -- (16,780) (11,389) -- --
stock
Net loss attributable $ (3,450) (923,728)(2,930,878)(711,510)(372,602)
to common stockholders ================================================
Net loss per common $ -- (.75) (.69) (.08) (.27)
share =================================================
Weighted average number
of shares used for net 1,170,000 1,224,074 4,269,131 8,566,653 1,363,500
loss per share ==================================================
computation (2)
Balance Sheet Data
(at period end):
Working capital $ (12,150) (287,723) 4,194,568 3,315,726 18,232
Total assets 16,550 656,865 5,950,728 5,198,50 1,109,440
Long-term debt, less -- 458,333 -- -- 485,000
current maturities
Total stockholders (2,150) (355,878 5,369,805 4,708,595 68,621
equity (deficit)
_________________________________________________________
Notes:
<F1>
(1) Excludes Specialized Health Products International, Inc.
(formerly, Russco, Inc.) which had no operations prior to the
acquisition on July 28, 1995 wherein the Company acquired
Specialized Health Products, Inc. (the "Acquisition"), and is
immaterial.
<F2>
(2) Net loss per common share is based on the weighted average
number of common shares outstanding. Stock options and warrants,
and preferred shares prior to conversion, are not included in the
calculation because this inclusion would be anti-dilutive and
reduce the net loss per share amount.
</TABLE>
<PAGE> 8
RISK FACTORS
An investment in the Securities of the Company is speculative in
nature, involves a high degree of risk and should only be made by an
investor who can afford the loss of his entire investment. The
following factors should be considered carefully by potential
purchasers in evaluating an investment in the Common Stock of the
Company offered hereby.
History of Losses/Uncertain Profitability. At December
March 31, 1996 5 , the Company had an accumulated deficit of
approximately $4,569,566 $3,858,056. The Company has only
limited sales of its only commercialized product, its SafetyCradle
sharps containers. The Company's products are in various stages of
production, pre-production, development and research. There is no
assurance the products will ever be commercially viable and no
assurance can be given that the Company will ever have sufficient
sales or a sufficient customer base to become profitable. In addition,
the business prospects of the Company will be affected by expenses,
operational difficulties and other factors frequently encountered in
the development of a business enterprise in a competitive environment,
many of which may be unforeseen and beyond the Company's control.
Market Overhang. At commencement of this Offering, there will be
(a) 8,589,153 shares of Common Stock outstanding, of which 8,001,153
shares of Common Stock are being registered hereby, 10,256 shares of
Common Stock were previously registered for sale pursuant to a prior
registration statement and 284,616 294,872 shares of Common
Stock are freely tradable effectively free trading under Rule
144 of the Securities Act of 1933 or a similar exemption, and (b)
Warrants and Option Stock exercisable for 5,681,060 shares of Common
Stock. All of the shares of Common Stock underlying these Warrants
and Option Stock, are being registered hereby. In addition, 918,040
Series B Warrants are being registered hereby. Thus, upon
completion of this Offering, assuming that all of the Warrants and
Option Stock are exercised, there will be 14,270,213 shares of Common
Stock outstanding, of which 13,977,085 shares will be registered or
effectively free trading. The sale of a substantial part of these
securities could adversely affect the market price of the Common
Stock, which may hinder any future efforts of the Company to raise
capital. See "Securities Available for Future Sale" and "Principal
and Selling Securityholders."
Dependence on Single Product and Single Manufacturer. The
Company's SafetyCradle sharps containers is the only current product
the Company is selling. It is produced by a single manufacturer. If
the Company's manufacturer fails to perform its obligations in a
timely and satisfactory manner or if there is a change in the
Company's manufacturer, it could have a material adverse effect on the
Company. See "Risk Factors -- Pending Litigation." There can be no
assurance that the Company would be successful in replacing its
current manufacturer on terms favorable to the Company. Likewise,
there can be no assurance that the Company will be successful in
finding additional manufacturers to manufacture its products on terms
favorable to it, should product demand increase.
Dependence On Third Party Relationships. The Company is
dependent on third parties for the production and distribution of its
Safety Cradle(R) sharps containers and anticipates that it will be
dependent on third parties for the production and distribution of its
follow-on products. The Company has no distribution agreements.
There can be no assurance that the Company will be successful in
obtaining or maintaining such relationships with manufacturers and
distributors on terms favorable to the Company.
No Distribution Agreement with Largest Customer/Distributor.
During 1995 $418,509 or ninety-three percent of the Company's sales
were through Moore Medical Corp., a non-exclusive distributor for the
Safety Cradle(R) sharps container products. The Company does not have
and has not had a distribution agreement with Moore Medical Corp.
requiring Moore Medical Corp. to buy or sell any of the Company's
products. The failure of Moore Medical Corp. to continue to purchase
products from the Company could adversely affect the business of the
Company. There can be no assurance that Moore Medical Corp. will
purchase any products from the Company in the future.
Negative Pricing of Pressures on the Company's Safety
Products. Pricing for the Company's products may be higher than for
their conventional counterparts which are not designed to provide the
protection afforded by the Company's products. Continuing pressure
from third party payors to reduce costs in the health care industry as
well as increasing competition from other protective products could
affect the Company's ability to sell its products at premium prices.
Reductions in selling prices could adversely affect operating margins
if the Company cannot achieve corresponding reductions in
manufacturing costs.
<PAGE> 9
Price Fluctuations of Resins. The Company uses polypropylene and
other resins in the manufacture of its products. Prices are subject
to fluctuations caused in part by changes in supply and demand.
Significant increases in the prices of these resins could have a
material adverse effect on the financial condition of the Company.
Rapidly Changing Technology. The Company is presently in various
stages of production, pre-production, development and research with
respect to its Safety Cradle(R) sharps containers, SafetyStrip(TM)
safety lancet, ExtreSafe(TM) medical needle retraction technology,
intravenous flow gauge system, blood collection needle, filmless
digitized imaging technology and other products. There is no
assurance that development of superior competing products and changes
in technology will not eliminate the need for the Company's products.
The introduction of competing products could adversely affect the
Company's attempts to develop and market its products successfully.
Lack of Market Acceptance. The use of safety medical products,
including the Company's products, is relatively new. The Company's
products may not be accepted by the market. Market acceptance of the
Company's products will depend in large part upon the Company's
ability to demonstrate the operational advantages, safety, efficacy,
and cost-effectiveness of its products compared to competing products
and its ability to distribute through major medical distributors.
There can be no assurance that the Company's products will achieve
market acceptance or that major medical distributors will sell the
Company's products.
Dependence on Continued Research and Development. The
ExtreSafe(TM) medical needle technology, SafetyStrip(TM), intravenous
flow gauge system, phlebotomy device and filmless digitized imaging
technology are still in various stages of development. The Company is
also exploring additional applications for all of its products. The
continued development of its products and development of additional
applications therefore is important to the long-term success of the
Company. There can be no assurance that any of such applications or
products will be developed or, if developed, that they will be
successful.
Dependence on Patents and Proprietary Rights. The Company's
future success depends in part on its ability to protect its
intellectual property and maintain the proprietary nature of its
technology through a combination of patents and other intellectual
property arrangements. There can be no assurance that the protection
provided by patents and patent applications, if issued, will be broad
enough to prevent competitors from introducing similar products or
that such patents, if challenged, will be upheld by the courts of any
jurisdiction. Patent infringement litigation, either to enforce the
Company's patents or defend the Company from infringement suits, would
be expensive and, if it occurs, could divert Company resources from
other planned uses. Any adverse outcome in such litigation could have
a material adverse effect on the Company. Patent applications filed
in foreign countries and patents in such countries are subject to laws
and procedures that differ from those in the United States. Patent
protection in such countries may be different from patent protection
under U.S. laws and may not be as favorable to the Company. The
Company also attempts to protect its proprietary information through
the use of confidentiality agreements and by limiting access to its
facilities. See "Risk Factors -- Dependence on Third Party
Relationships." There can be no assurance that the Company's program
of patents, confidentiality agreements and restricted access to its
facilities will be sufficient to protect the Company's proprietary
technology from competitors.
Ability to Manage Expanding Operations. The Company intends to
pursue a strategy of rapid growth. The Company plans to significantly
expand its product lines and to devote substantial resources to
operations and research and development support areas, including
marketing and administrative services. There can be no assurance that
the Company will obtain sufficient manufacturing capacity on favorable
terms, attract qualified personnel or successfully manage such
expanded operations. The failure to properly manage growth could have
a material adverse effect on the Company.
Potential Inability of the Company to Compete. The Company is
engaged in a highly competitive business and will compete directly
with firms that have much longer operating histories, substantially
greater financial resources and experience, greater size, more
substantial research and development and marketing organizations and
established distribution channels and that are better situated in the
market than the Company. Such competitors may use their economic
strength to influence the market to continue to buy their existing
products. The Company does not have an established customer base and
is likely to encounter a high degree of competition in developing a
customer base. One or more of these competitors could use such
resources to improve their current products or develop new products
that may compete more effectively with the Company's products. New
competitors may arise and may develop products which compete with the
Company's products. No assurance can be given that the Company will be
successful in competing in its business.. See "Business --
Competition".
<PAGE> 10
Need for Additional Funds. The Company believes that its current
cash reserves, together with operating revenues and existing financing
commitments, will be sufficient to support its operations for the next
12 months. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company's need for capital
during the next year or more will vary based upon a number of factors,
including the rate at which demand for products expands, the level of
sales and marketing activities for the Safety Cradle(R) sharps
container products, and the level of effort needed to develop and
commercialize the Safety Cradle(R), SafetyStrip(TM), and ExtreSafe(TM)
medical needle technology, intravenous flow gauge and phlebotomy
device. In addition, the Company's business plans may change or
unforeseen events may occur which require the Company to raise
additional funds. Additional funds may not be available on terms
acceptable to the Company when the Company needs such funds, if at
all. The lack of additional funds when needed could have a material
adverse effect on the Company.
Product Liability. The sale of medical devices entails an
inherent risk of liability in the event of product failure or claim of
harm caused by product operation. There can be no assurance that the
Company will not be subject to such claims, that any claim will be
successfully defended or if the Company is found liable, that the
claim will not exceed the limits of the Company's insurance. The
Company does not currently maintain product liability insurance.
There is no assurance that the Company will obtain product liability
insurance on acceptable terms in the future. Product liability claims
could have a material adverse effect on the Company.
Pending Litigation. During 1994, Specialized Health Products,
Inc. ("SHP"), a wholly owned subsidiary of the Company, entered into
various agreements with Mold Threads, Inc., a Connecticut corporation
("MT"), whereby MT agreed to construct various molds and to
manufacture sharps container products for SHP. SHP alleges that MT
did not fulfill its contractual 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 a lawsuit 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 release SHP's molds.
SHP's claims are in excess of $50,000, exclusive of attorney's fees
and costs. In January 1996, MT counterclaimed for $22,328, exclusive
of attorney's fees and costs, representing amounts MT alleges are owed
by SHP. SHP believes that MT has waived the 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, that the
lawsuit will be resolved on acceptable terms, or that SHP and the
Company will not incur significant costs in asserting its claims and
defending its position.
Adverse Effect of Regulation Relating to Medical Products.
Regulation is a significant factor in the development and marketing of
the Company's products and in the Company's ongoing manufacturing and
research and development activities.
The Company's Safety Cradle(R) sharps container products are
Class II devices under the regulatory structure of the Federal Food,
Drug, and Cosmetic Act (the "FD&C Act") which is administered by the
United States Food and Drug Administration ("FDA"). The Company has
previously acquired FDA approval of a 510(k) pre-market clearance
submission on its Safety Cradle(R) sharps container which supports its
marketing and selling of its Safety Cradle(R) sharps container
products subject to ongoing regulatory controls by the FDA. Among
other things, the FDA requires adherence to certain "Good
Manufacturing Practices" ("GMP") regulations that include validation
testing, quality assurance, quality control and documentation
procedures. In addition, performance standards could be promulgated
by the FDA that the Company's Safety Cradle(R) sharps containers would
be required to meet. Failure to meet those standards would require
the Company to discontinue the marketing of the product. In addition,
future regulations may be imposed which might have a material adverse
effect on the Company and/or one or more of its products.
Furthermore, since the FDA continually regulates and inspects medical
devices and their manufacture, any actual or potential product failure
could result in the imposition of administrative and/or judicial
sanctions, including product recall, which might have a material
adverse effect on the Company.
In addition to the foregoing, the Occupational Safety and Health
Administration ("OSHA") requires, in part, that sharps containers be
closeable, disposable, puncture-resistant, leak proof on the sides and
bottom, and appropriately labeled. Future regulations may be imposed
which might have a material adverse effect on the Company and/or one
or more of its products.
The Company's follow-on products (the SafetyStrip(TM) and the
ExtreSafe(TM) medical needle technology, intravenous flow gauge and
phlebotomy device) are still in the development stage. The Company
expects the SafetyStrip(TM) to be a Class I device and be subject to
the same types of limitations and controls as imposed on its sharps
<PAGE> 11
containers. The Company expects its other follow-on products to be
Class II devices. The Company expects that its follow-on products
will not require pre-market approval applications but will be eligible
for pre-market clearance through the 510(k) notification procedure
based upon their substantial equivalence to previously marketed
devices There can be no assurance that the Company will obtain 510(k)
pre-market clearance to market its follow-on products, or that the
Company's follow-on products will be classified as described above, or
that, in order to obtain 510(k) pre-market clearance, the Company will
not be required to submit additional data or meet additional FDA
requirements that may substantially delay the 510(k) process and add
to the Company's expenses. Moreover, such 510(k) pre-market
clearance, if obtained, may be subject to conditions on the marketing
or manufacturing of the corresponding products that may impede the
Company's ability to market and/or manufacture such products.
If any of the Company's follow-on products do not qualify for the
510(k) procedure (either because it is not substantially equivalent to
a legally marketed device or because it is a Class III device), the
FDA must approve a pre-market approval ("PMA") application before
marketing can begin. PMA applications must demonstrate, among other
matters, that the medical device is safe and effective. A PMA
application is typically a complex submission, usually including the
results of clinical studies, and preparing an application is a
detailed and time-consuming process. Once a PMA application has been
submitted, the FDA's review may be lengthy and may include requests
for additional data. By statute and regulation, the FDA may take 180
days to review a PMA application, although such time may be extended.
Furthermore, there can be no assurance that a PMA application will be
reviewed within 180 days or that a PMA application will be approved by
the FDA.
In March 1995, the FDA issued a draft guidance document on 510(k)
notifications for medical devices with sharps injury prevention
features, a category that would cover the Company's follow-on
products. The draft guidance provisionally placed this category of
products into Tier 3 for purposes of 510(k) review, meaning that such
products will be subject to the FDA's most comprehensive and rigorous
review for 510(k) products. However, review under this classification
is expedited. The draft guidance also states that in most cases, FDA
will accept, in support of a 510(k) notification, data from tests
involving simulated use of such a product by health care
professionals, although in some cases that agency might require actual
clinical data.
The process of obtaining required regulatory clearances or
approvals can be time-consuming and expensive, and compliance with the
FDA's GMP regulation and other regulatory requirements can be
burdensome. Moreover, there can be no assurance that the required
regulatory clearances will be obtained, and such clearances, if
obtained, may include significant limitations on the uses of the
follow-on products in question. In addition, changes in existing
regulations or guidelines or the adoption of new regulations or
guidelines could make regulatory compliance by the Company more
difficult in the future. The Venture must also meet FDA requirements
before marketing the filmless digitized imaging technology. The
failure to comply with applicable regulations could result in fines,
delays or suspensions of clearances, seizures or recalls of products,
operating restrictions and criminal prosecutions, and would have a
material adverse effect on the Company. See "Business -- Government
Regulation."
Distribution of the Company's products in countries other than
the United States may be subject to regulation in those countries.
There can be no assurance that the Company will obtain the approvals
necessary to market any of its products outside the United States.
Uncertainty in the Health Care Industry. The health care
industry is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operations of
health care facilities. During the past several years, the health
care industry has been subject to increased government regulation of
reimbursement rates and capital expenditures. Among other things,
third party payors are increasingly attempting to contain health care
costs by limiting both coverage and reimbursement levels for health
care products and procedures. Because the price of the Company's
products may exceed the price of conventional products the cost
control policies of third party payors, including government agencies,
may adversely affect use of the Company's products.
There are numerous proposals to reform the U.S. health care
system and health care systems of various states. Many of these
proposals seek to increase government involvement in health care,
lower reimbursement rates, contain costs and otherwise change the
operating environment for the Company's customers. Health care
providers may react to these proposals and the uncertainty surrounding
such proposals by curtailing or deferring investments in new
technology, including the Company's products. The Company cannot
predict what impact, if any, such proposals or health care reforms
might have on the Company's financial condition and results of its
operations.
<PAGE> 12
Dependence on Key Personnel. The success of the Company depends
upon the skills, experience and efforts of its management. Should the
services of one or more members of its present management become
unavailable to the Company for any reason, the business of the Company
could be adversely affected. The Company does not have noncompetition
agreements in place with its key personnel.
Market Volatility. Market prices of securities of medical
technology companies are highly volatile from time to time. The
market price of the Company's securities may be significantly affected
by factors such as the announcement of new product or technical
innovations by the Company or its competitors, changes in the
regulatory environment, or by other factors that may or may not relate
directly to the Company. The availability of 13,682,213 shares of
Common Stock for sale under this Prospectus, which represents a
significant increase in the public float prior to this offering, may
be expected to negatively impact the market value.
Potential Negative Impact of Shares Eligible for Sale. No
prediction can be made as to the effect, if any, that sales of stock,
the availability of stock for future sales, will have on the market
price of the Common Stock prevailing from time to time following this
offering (the "Offering"). Sales of substantial amounts of Common
Stock (including stock which may be issued upon exercise of Warrants
and/or Stock Options), or the perception that such sales may occur,
could adversely affect prevailing market prices for the Common Stock.
See "Securities Eligible for Future Sale."
Potential Negative Impact of Earn-Out Shares. John T. Clarke,
David A. Robinson and Bradley C. Robinson, who are respectively a
former Director; the President, Chief Executive Officer, Chairman of
the Board and a Director; and a Vice President and Director of the
Company, have the opportunity to receive up to an aggregate of
2,000,000 additional shares of common stock (the "Earn-Out Shares").
Any issuance of Earn-Out Shares would be based upon the level of pre-
tax consolidated net income, adjusted to exclude any expense arising
from the obligation to issue or the issuance of the Earn-Out Shares
and any income or expense associated with non-recurring or
extraordinary items as determined in accordance with generally
accepted accounting principles ("Adjusted PTNI"). See "Description of
Securities -- Earn-Out Shares."
The Company expects that the issuance of Earn-Out Shares will be
deemed to be the payment of compensation to the recipients and will
result in a charge to the earnings of the Company in the year or years
the Earn-Out Shares are earned, in an amount equal to the fair market
value of the Earn-Out Shares. This charge to earnings 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 Earn-Out Shares could place the Company in a net loss position for
the relevant year, even though the Adjusted PTNI was at a level
requiring the issuance of Earn-Out Shares. Because Earn-Out Shares
are issuable based on the results of a single year, the Adjusted PTNI
in a particular year could require the issuance of Earn-Out Shares
even though the cumulative Adjusted PTNI for the three years 1996,
1997 and 1998, or any combination of those years, could reflect a
lower amount of Adjusted PTNI that would not require the Company to
issue such Earn-Out Shares or even a loss at the Adjusted PTNI. There
is no assurance that years subsequent to the year or years in which
Earn-Out Shares are issued will produce the same level of Adjusted
PTNI or will be profitable. The management of the Company may have
the discretion to accelerate or defer certain transactions that could
shift revenue or expense between years or otherwise affect the
Adjusted PTNI in any year or years.
The Company has agreed to file a registration statement under the
Securities Act with respect to the Earn-Out Shares, when issued. The
issuance of the Earn-Out Shares, or the perception that the issuance
of such stock may occur, could adversely affect prevailing market
prices for the Common Stock.
No Dividends. The Company has not paid dividends since its
inception and does not intend to pay any dividends in the foreseeable
future. No assurance can be given that it will pay dividends at any
time. The Company presently intends to retain future earnings, if
any, for financing the growth and expansion of the Company.
Limitations on Director Liability. The Company's Certificate of
Incorporation provides, as permitted by governing Delaware law, that a
director of the Company shall not be personally liable to the Company
or its stockholders for monetary damages for any action or failure to
take any action, with certain exceptions. These provisions may
discourage stockholders from bringing suit against a director for
breach of duty and may reduce the likelihood of derivative litigation
brought by stockholders on behalf of the Company against a director.
In addition, the Company has agreed and its Certificate of
Incorporation and Bylaws provide, for mandatory indemnification of
directors and officers to the fullest extent permitted by Delaware law
and has entered into contracts with its directors and officers
providing for such indemnification.
<PAGE> 13
Possible Delisting of Securities from Nasdaq System. Trading of
294,872 shares of the Company's Common Stock is currently conducted on
the Nasdaq Small-Cap Market System. In order to continue to qualify
its Common Stock for quotation on the Nasdaq Small-Cap Market, a
company must have, among other things, at least $2,000,000 in total
assets, $1,000,000 in capital and surplus and a minimum bid price for
its common stock of $1.00 per share. The Company may be unable to
satisfy the continued listing criteria under the rules, inasmuch as it
might have less than $2,000,000 in total assets or $1,000,000 in
capital and surplus, or the minimum bid price for its common stock
might be less than $1.00 at some time in the future, in which event
any listed security of the Company will be subject to delisting.
In the event of such delisting, trading, if any, in the Company's
securities would be expected to be conducted on the over-the-counter
market in what is commonly referred to as the "pink sheets" or the
"Electronic Bulletin Board." As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to
the price of, the Company's securities. The loss of continued
quotation on the Nasdaq System may also cause a decline in share
price, loss of news coverage of the Company and difficulty in
obtaining subsequent financing.
No Control Over Market Making. No person is under any obligation
to make a market in the Company's Common Stock and any person making a
market in the Common Stock may discontinue market making activities at
any time without notice. There can be no assurance that an active
public market for the Common Stock will continue.
Placement Agent Warrants; Risk of Further Dilution. The Company
has provided Capital Growth International L.L.C. formerly U.S. Sachem
Financial Consultants, LP ("Capital Growth"), the Company's placement
agent in a private placement, and various sub-placement agents, with
Series A Warrants to purchase shares of Common Stock at the price of
$3.00 per share and Series B Warrants to purchase shares of Common
Stock at the price of $2.00 per share. Except for the exercise price,
the terms of the Series B Warrants are the same as the Series A
Warrants. See "Description of Securities." For the life of these
Warrants, the holders thereof are given the opportunity to profit from
the difference, if any, between the exercise price of these Warrants
and the value of or market price, if any, of the Common Stock with a
resulting dilution in the interest of existing stockholders. The
terms on which the Company could obtain additional capital during the
exercise period of the Warrants may be adversely affected by these
Warrants.
Anti-Takeover Provisions of Certificate and Bylaws. The
Certificate of Incorporation of the Company provides for division of
the Board of Directors into three substantially equal classes.
Beginning in 1996, one class of directors will be elected at each
annual meeting for a three-year term. Amendments to this provision
must be approved by a two-thirds vote of all the outstanding stock
entitled to vote, and the number of directors may be changed by a
majority of the entire Board of Directors or by a two-thirds vote of
the outstanding stock entitled to vote. Meetings of the stockholders
may be called only by the Board of Directors, the Chief Executive
Officer or the President, and stockholder action may not be taken by
written consent. Stockholder proposals, including director
nominations, may be considered at a meeting only if written notice of
the proposal is delivered to the Company from 50 to 75 days in advance
of the meeting, or within 10 days after notice of the meeting is given
to stockholders if the meeting was not publicly disclosed at least 60
days prior to the meeting. These provisions could have the effect of
discouraging takeover attempts or delaying or preventing a change of
control of the Company.
Anti-Takeover Effect of the Issuance of Preferred Stock. The
Company has an authorized class of 5,000,000 shares of preferred stock
which may be issued by its Board of Directors on such terms and with
such rights, preferences and designations as the board may determine.
Issuance of such preferred stock, depending upon the rights,
preferences and designations thereof, may have the effect of delaying,
deterring or preventing a change in control of the Company. In
addition, certain "anti-takeover" provisions of the Delaware General
Corporation Law, among other things, may restrict the ability of
stockholders to effect a merger or business combination or obtain
control of the Company and may be considered disadvantageous by a
stockholder. See "Description of Securities -- Anti-Takeover
Provisions" and "Description of Securities -- Certain Certificate and
Bylaw Provisions." Management of the Company presently does not
intend to issue any shares of preferred stock. The preferred stock
may, however, be issued at some future date which stock might have
substantially more than one vote per share or other provisions
designed to deter a change in control of the Company. The issuance of
such stock to a limited group of management Stockholders may vest in
such persons absolute voting control of the Company, including, among
other things, the ability to elect all of the directors, and to
control certain matters submitted to a vote of Stockholders and to
prevent any change in management despite performance. Also, the
shares of preferred stock may have the right to vote upon certain
matters as a separate class.
<PAGE> 14
Joint Venture Risks. In October, 1995, the Company entered
into an agreement with a third party to form a joint venture (the
"Venture"), in the form of a corporation (Quantum Imaging Corporation)
to develop an improved filmless digitized imaging system. For a fifty
percent interest in the Venture (before dilution by financing
investors), the Company is obligated to pay the Venture $15,000 per
month for a twelve month period. The Company contributed total
capital of $83,624 to the Venture during 1995. The Company's
obligations to the Venture are cancelable upon thirty (30) days
written notice or failure of the other Venture partner to meet
requirements as specified in the Venture agreement. In the opinion of
Company management, in order to be successful the Venture must raise
between $3,000,000 and $6,000,000. The Company contributed total
capital of $83,624 to the Venture during 1995. It is anticipated that
at least one-third of the outstanding shares of the Venture will be
sold to fund development through initial production of related
filmless digitized imaging systems. No assurance can be given that
research and development will be successful or that the system will
find profitable acceptance in the marketplace.
<PAGE> 15
DIVIDEND POLICY
To date, the Company has not paid dividends on its respective
common stock. The payment of dividends, if any, in the future is
within the discretion of the Board of Directors and will depend upon
the Company's earnings, its capital requirements and financial
condition, and other relevant factors. The Board of Directors does
not intend to declare any dividends in the foreseeable future, but
instead intends to retain all earnings, if any, for use in the
Company's operations.
SHARE PRICE HISTORY
The Company's common stock (the "Common Stock") has been quoted
on Nasdaq Small-Cap Market since October 1995 under the trading symbol
"SHPI." From July 1995 through October 1995 the Common Stock was
quoted on the NASD Over-the-Counter market. Prior to July 1995,
10,256 shares of the Common Stock was registered for sale pursuant to
a registration statement and 284,616 294,872 shares of Common
Stock became freely tradable pursuant to Rule 144 or a similar
exemption from registration effectively free trading, although
no active trading market existed for the Company's Common Stock. On
April 15 June 11, 1996, the reported high ask and low bid price
of the Common Stock was $9.125 8.00 and $9.00 7.25 ,
respectively. The following table sets forth the high and low bid
information of the Common Stock for the periods indicated. It should
be understood that only 294,872 shares of Common Stock have been
available for trading to date, and that such over the counter market
quotations reflect inter-dealer prices without retail markup, markdown
or commission, and the quotations may not reflect any actual market
transactions in the Common Stock.
Quarter Ended High Low
1995
September 30 $5.25 $2.50
December 31 $10.50 $5.25
8.625 $8.25
1996
March 31 $12.25 $7.375 10.75
June 30 (through $11.75 $6.25
June 11 9.125 9.00
April 15)
Holders of Record
At April 15 June 3, 1996 there were 348 0 holders of
record of the Company's Common Stock.
<PAGE> 16
<TABLE>
CAPITALIZATION
The following table sets forth actual capitalization of the
Company at March 31, 1996 December 31, 1995, and as adjusted to
reflect the effect that would take place if all the Warrants were
exercised and converted. There can be no assurance that all or any
Warrants will be exercised.
<CAPTION>
March 31,1996
December 31, 1995
Actual As Adjusted
<S> <C> <C>
Long-term debt $ - $ -
- -
Stockholders' Equity:
Preferred Stock, $.001 par value - -- --
5,000,000 shares authorized;
no shares outstanding
Common Stock, $.02 par value - 50,000,000
shares authorized, 171,333 259,358
8,566,653 (12,967,903, as adjusted)
outstanding (1)
Common Stock Subscriptions Receivable (209,200) (209,200)
(259,500) (259,500)
Additional Paid-in Capital 9,316,028 21,141,378
Accumulated Deficit (4,569,566) (4,569,566)
(3,858,056) (3,858,056)
Total Stockholders' Equity 4,708,595 16,621,970
5,369,805 17,283,180
Total Capitalization $4,708,595 $16,621,970
5,369,805 17,283,180
_______________
<F1>
(1) Adjusted to give effect to the issuance of 3,110,875 shares of
Common Stock issuable upon the exercise of the Series A Warrants at
$3.00 per share and 1,290,375 shares of Common Stock issuable upon
the exercise of the Series B Warrants at $2.00 per share. The
Warrants are callable by the Company under certain conditions. See
"Description of Securities." Does not include up to 2,000,000
shares of Common Stock (the "Earn-Out Shares") that may be issued
pursuant to certain agreements with members of management,
1,284,998 shares of Common Stock that may be granted under the
Company's non-qualified stock option plan, including 1,171,810
shares of stock subject to options now outstanding, 63,000 shares
of Common Stock issuable upon the exercise of options now
outstanding issued under SHP's non-qualified stock option plan
which was assumed by the Company in connection with the Company's
acquisition of SHP, or 45,000 shares of Common Stock issuable upon
the exercise of certain warrants issued to a single investor by SHP
which were assumed by the Company in connection with the Company's
acquisition of SHP. See "Description of Securities."
</TABLE>
<PAGE> 17
SELECTED FINANCIAL DATA
The following data have been derived from the Company's
consolidated financial statements that have been audited by KPMG Peat
Marwick LLP, independent auditors. The information set forth below is
not necessarily indicative of the results of future operations and
should be read in conjunction with the Financial Statements and
related Notes appearing elsewhere herein:
<TABLE>
<CAPTION>
Period 3 Months Ended
Fiscal Year Ended (1)
Nov.
19, Dec. Dec. March March
1993 31, 31, 31, 31,
(incep 1994 1995 1996 1995
tion)
to
Dec. 3
1,
1993
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Sales $ -- 33,256 447,844 16,621 82,612
Cost of sales -- 21,669 294,171 19,756 36,848
-------------------------------------------------
Gross profit -- 11,587 153,673 (3,135) 45,764
Expenses:
Research and -- 290,950 804,639 319,883 101,079
development
Selling, general and 3,450 620,022 2,133,021 463,749 308,261
administrative
Write off of operating -- -- 255,072 -- --
assets
--------------------------------------------------
Total expenses 3,450 910,972 3,192,732 783,632 409,340
--------------------------------------------------
Operating loss (3,450)(899,385)(3,039,059) (786,767)(363,576)
Net other income -- (7,563) 119,570 75,257 (9,026)
(expense) --------------------------------------------------
Net loss (3,450)(906,948)(2,919,489)(711,510)(372,602)
Dividends on preference -- (16,780) (11,389) -- --
stock
-------------------------------------------------
Net loss attributable $ (3,450)(923,728)(2,930,878)(711,510)(372,602)
to common stockholders ==================================================
Net loss per common $ -- (.75) (.69) (.08) (.27)
share ===================================================
Weighted average number
of shares used for net 1,170,000 1,224,074 4,269,131 8,566,653 1,363,500
loss per share =====================================================
computation (2)
Balance Sheet Data (at
period end):
Working capital $ (12,150) (287,723) 4,194,568 3,315,726 18,232
Total assets 16,550 656,865 5,950,728 5,198,505 1,109,440
Long-term debt, less -- 458,333 -- -- 485,000
current maturities
Total stockholders (2,150) (355,878) 5,369,805 4,708,595 68,621
equity (deficit)
__________________________________________________________
<F1>
(1) Excludes Specialized Health Products International, Inc.
(formerly, Russco, Inc.) which had no operations prior to the
Acquisition on July 28, 1995, and is immaterial.
<F2>
(2) Net loss per common share is based on the weighted average
number of common shares outstanding. Stock options and warrants,
and preferred shares prior to conversion, are not included in the
calculation because this inclusion would be anti-dilutive and
reduce the net loss per share amount.
<PAGE> 18
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 SHP, on a consolidated basis, except where
the context clearly indicates to the contrary. Prior to the
Acquisition wherein the Company acquired SHP (See note 1 to the
consolidated financial statements) the Company had no operations.
Overview
From its inception, the Company has incurred losses from
operations. As of March 31 December 31, 1996 5 , the
Company had cumulative net losses totaling $4,569,566
$3,858,056. To date, the Company's principal focus has been
the design, development, testing, and evaluation of its Safety
Cradle(R) sharps containers, SafetyStrip(TM) lancet, ExtreSafe(TM)
medical needle technology, intravenous flow gauge system, blood
collection device, and other products, and the design and development
of its molds and production processes relating to its Safety Cradle(R)
sharps containers.
In 1994, the Company had limited sales of its sharps containers
due, in part, to the fact the molds used to produce the sharps
containers had not been completed and come on line. Certain of the
Company's Safety Cradle(R) sharps container molds were completed in
the first half of 1995, and additional Safety Cradle(R) sharps
container molds were completed in the second half of 1995. As molds
were completed, the Company's sales increased from $33,256 for 1994 to
$447,844 for 1995. During the fourth quarter of 1995 and first
quarter of 1996 the Company had sales of $5,503 and $16,621,
respectively. The decrease in sales during the fourth quarter of 1995
and first quarter of 1996 was related to the Company's inability to
use the molds during a good part of said periods the fourth
quarter of 1995 due to improvements that were being made to the
molds. Said improvements were completed in the first quarter of
1996. and will affect sales during the first quarter of 1996.
During the fourth quarter of 1995, the aggregate effect of year
end adjustments, which relate to prior quarters, increased the net
loss by approximately $457,000. These adjustments were primarily the
result of a write off of operating assets and amounts capitalized as
research and development and adjustments to consulting and expense
reimbursement.
The Company anticipates that commercial production of its
SafetyStrip(TM) lancet, will commence in 1996. Provided the necessary
FDA approvals are obtained, of which there is no assurance, the
Company anticipates commercial production of the ExtreSafe(TM)
catheter, ExtreSafe(TM) phlebotomy device and ExtreSafe(TM) syringe
will commence in 1997. The Company's other ExtreSafe(TM) medical
needle technology products, intravenous flow gauge and blood
collection device are conceptual ideas in the research stage. No
assurance can be given, however, that the Company will be able to
adhere to these time frames or that such products will ever go to
market.
Three Months Ended March 31, 1996 and March 31, 1995.
During the three months ended March 31, 1996 the Company had
sales of $16,621 compared with sales of $82,612 during the three
months ended March 31, 1995. 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 months ended
March 31, 1996 were hampered due to improvements that were being made
to the molds used to produce the Company's sharps container products
which improvements have been completed.
The Company's trade accounts receivable were $12,717 at March 31,
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.
<PAGE> 19
Research and development expenses were $319,883 for the three
months ended March 31, 1996, compared with $101,079 for the three
months ended March 31, 1995. The Company's efforts in the three
months ended March 31, 1996, were focused on refining the design and
molds for its Safety Cradle(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 three months ended
March 31, 1995, were focused on refining the design and producing
molds for its Safety Cradle(R) sharps container products.
General and administrative expenses were $463,749 for the three
months ended March 31, 1996, compared to $308,261 for the three months
ended March 31, 1995. The increased costs resulted largely from the
increases in expenditures in two principle areas. First, salaries and
benefits increased from $84,454 for the three months ended March 31,
1995 to $165,672 for the three months ended March 31, 1996. 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 $47,452 for the three
months ended March 31, 1995 to $92,982 for the three months ended
March 31, 1996. The increase in costs was primarily from 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 $50,257 for the three months ended March
31, 1996 compared with net other expense of $9,026 for the three
months ended March 31, 1995. The other income for the three months
ended March 31, 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.
Years Ended December 31, 1995 and December 31, 1994
The Company had sales of $447,844 for the year ended December 31,
1995, and sales of $33,256 for the year ended December 31, 1994.
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 Company's
sharps containers were introduced in the third and fourth quarters of
1995. At present, the only product the Company is selling is its
Safety Cradle(R) sharps container products. Moreover, during 1995
$418,509 or ninety-three percent of the Company's sales were through
Moore Medical Corp., a non-exclusive distributor for the Safety
Cradle(R) sharps container products. The Company does not have and
has not had a distribution agreement with Moore Medical Corp.
requiring Moore Medical Corp. to buy or sell any of the Company's
products.
The Company's trade accounts receivable were $350,718 at December
31, 1995, compared with $4,471 at December 31, 1994. 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. The Company believes
the remaining trade accounts receivable owing as of December 31, 1995
are collectible.
Research and development expenses were $804,639 for the year
ended December 31, 1995, compared with $290,950 for the year ended
December 31, 1994. The Company's efforts in the year ended December
31, 1995, were focused on refining the design and molds for its Safety
Cradle(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 year ended December 31, 1994,
were focused on refining the design and producing molds for its
Safety Cradle(R) sharps container products.
General and administrative expenses were $2,133,021 for the year
ended December 31, 1995, compared to $620,022 for the year ended
December 31, 1994. The increased costs resulted largely from the
following increases in expenditures. First, selling costs increased
from $4,563 for the year ended December 31, 1994 to $360,694 for the
year ended December 31, 1995. The increase in selling costs were
primarily a result of an increase in the expenditures made by the
Company to market and sell its Safety Cradle(R) sharps container
products. Next, salaries and benefits increased from $201,328 for the
year ended December 31, 1994 to $592,642 for the year ended December
31, 1995. 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. Next,
legal, accounting and other professional and consulting fees increased
from $179,674 for the year ended December 31, 1994 to $548,034 for the
year ended December 31, 1995. The increase in costs was primarily
from accounting and legal expenses associated with the Acquisition,
the filing of a Form S-1 registration statement, increased financing
activities and expenses associated with litigation. Finally, travel
and entertainment costs increased from $56,812 for the year ended
December 31, 1994 to $182,989 for the year ended December 31, 1995.
The increase resulted primarily from increased costs associated with
financing, manufacturing, selling and marketing activities.
<PAGE> 20
Net other income was $119,570 for the year ended December 31,
1995, compared with net other expense of $7,563 for the year ended
December 31, 1994. The other income for year ended December 31, 1995,
relates primarily to interest earned on funds derived from the sale of
the Company's equity securities in a private placement which closed in
August 1995 wherein the Company raised gross proceeds of $8,602,500
(net proceeds of $7,519,060). Net other expense was $7,563 for the
year ended December 31, 1994. The other expense relates to the
accrued interest on certain notes payable and the interest on the
Company's line of credit.
Year Ended December 31, 1993
SHP was formed in November of 1993. SHP had no revenues from
inception to December 31, 1993. The principal activity of SHP during
this period was negotiation and acquisition of the certain
intellectual property relating to the sharps containers. SHP had no
research and development or financing expenses. The general and
administrative expenses of SHP totaled $3,450, which were devoted
largely to activities relating to the acquisition of the Sharp-Trap(R)
patents, (See "Business") patent applications and related intellectual
property.
During the periods prior to November 1993, the Company (not
including SHP) had no operations and its financial results were
immaterial
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 December March 31, 1996 5 ,
the Company had received net cash from financing activities
approximately $9,100,000 through financing activities. The bulk of
the proceeds from the Company's financing activities resulted from the
sale of equity securities. As of March December 31,
1996 5 , the Company's liabilities totaled $489,910 580,923 . All
of these liabilities are current liabilities. The Company had working
capital at the year ended December March 31, 1996 5 of
$3,315,726 4,194,568 and the Company used net cash in operating
activities of $510,407 2,605,616 during the three months ended
March 31, 1996. in 1995.
The Company has 3,110,875 Series A Warrants and 1,290,375 Series
B Warrants outstanding which are exercisable for shares of Common
Stock of the Company at a price of $3.00 per share in the case of
Series A Warrants and $2.00 per share in the case of Series B
Warrants, and expire on the earlier of (a) two years from the date of
effectiveness of a registration statement under the Securities Act
covering the Common Stock underlying such Warrants, which period shall
be extended day-for-day for any time that a prospectus meeting the
requirements of the Securities Act is not available, or (b) the date
specified in a notice of redemption from the Company (subject to the
prior right of the holder to exercise the Warrants for at least 20
days following the date of such notice) 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 stock.
Thus, the Company may accelerate the expiration of the Warrants in the
event that the average market price of the Common Stock exceeds $6.00
per share, in which event the holders of the Warrants would be
permitted to exercise the Warrants during a period of not less than 20
days following notice of such an event. The exercise of all the
Series A and Series B Warrants would result in a gross cash inflow to
the Company of $11,913,375. The Company presently intends to
accelerate the expiration of the Warrants when and if such conditions
are met. All of the Warrants are currently outstanding. There can be
no assurance, however, that any of the Warrants will be exercised.
Prior to the Acquisitions, SHP issued to a nonaffiliated
shareholder a warrant to purchase 45,000 shares of Common Stock at
$1.67 per share. Said warrant was issued by SHP in exchange for cash.
This warrant expires in 1996 and became an outstanding obligation of
the Company, rather than of SHP, on July 28, 1995 (the date of the
Acquisition).
On September 1, 1995, the Company adopted a Company's non-
qualified stock option plan ("NQSOP") wherein the Company is
authorized to grant options to purchase up to 1,284,998 shares of
Common Stock of the Company. Pursuant to the NQSOP, in September
1995, the Company granted stock options to purchase 1,151,810 shares
of Common Stock, and in November , the Company issued stock options to
purchase 20,000 shares of Common Stock. All of these stock options
are immediately exercisable. These options expire in 2000.
<PAGE> 21
In addition to the options outstanding under the NQSOP, the
Company also has 108,000 options outstanding that were issued under
the SHP NQSOP and that became obligations of the Company pursuant to
the terms of the Acquisition. The SHP NQSOP options allows the
holders thereof to purchase 108,000 shares of the Company's common
stock at $0.39 per share. In April 1996, 22,500 of options issued
under the SHP NQSOP expired and 22,500 such options were exercised.
The remaining 63,000 outstanding SHP NQSOP options expire in 2004.
The Company also gave certain officers and directors of the Company
the opportunity to receive up to an aggregate of 2,000,000 shares of
Common Stock (the "Earn-Out Shares"). Any issuance of Earn-Out Shares
would be based upon the level of pre-tax consolidated net income,
adjusted to exclude any expense arising from the obligation to issue
or the issuance of the Earn-Out Shares and any income or expense
associated with non-recurring or extraordinary items as determined in
accordance with generally accepted accounting principles ("Adjusted
PTNI"). See "Description of Securities - Earn-Out Shares."
The Company expects that the issuance of Earn-Out Shares will be
deemed to be the payment of compensation to the recipients and will
result in a charge to the earnings of the Company in the year or years
the Earn-Out Shares are earned, in an amount equal to the fair market
value of the Earn-Out Shares. This charge to earnings 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 Earn-Out Shares could place the Company in a net loss position for
the relevant year, even though the Adjusted PTNI was at a level
requiring the issuance of Earn-Out Shares. Because Earn-Out Shares
are issuable based on the results of a single year, the Adjusted PTNI
in a particular year could require the issuance of Earn-Out Shares
even thought he cumulative Adjusted PTNI for the three years 1996,
1997 and 1998, or any combination of those years, could reflect a
lower amount of Adjusted PTNI that would not require the Company to
issue such Earn-Out Shares or even a loss at the Adjusted PTNI. There
is no assurance that years subsequent to the year or years in which
Earn-Out Shares are issued will produce the same level of Adjusted
PTNI or will be profitable. The management of the Company may have
the discretion to accelerate or defer certain transactions that could
shift revenue or expense between years or otherwise affect the
Adjusted PTNI in any year or years.
The Company has agreed to file a registration statement under the
Securities Act with respect to the Earn-Out Shares, when issued. The
issuance of the Earn-Out Shares, or the perception that the issuance
of such stock may occur, could adversely affect prevailing market
prices for the Common Stock.
In October, 1995, the Company entered into an agreement with a
third party to form a joint venture (the "Venture"), in the form of a
corporation (Quantum Imaging Corporation) to develop an improved
filmless digitized imaging system. For a fifty percent interest in
the Venture (before dilution by financing investors), the Company is
obligated to pay the Venture $15,000 per month for a twelve month
period. The Company contributed total capital of $83,624 to the
Venture during 1995. The Company's obligations to the Venture are
cancelable upon thirty (30) days written notice or failure of the
other Venture partner to meet requirements as specified in the Venture
agreement. In the opinion of Company management, in order to be
successful the Venture must raise between $3,000,000 and $6,000,000.
The Company contributed total capital of $83,624 to the Venture during
1995. It is anticipated that at least one-third of the outstanding
shares of the Venture will be sold to fund development through initial
production of related filmless digitized imaging systems. No
assurance can be given that the system will find profitable acceptance
in the marketplace. See "Business -- Products Under Development."
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 cost and effort needed to complete
production of the Sharp-Trap(R) molds, the level of sales and
marketing for the Safety Cradle(R) sharps containers, and the
resources that will be expended in SHP's lawsuit against Mold Threads,
Inc. See "Risk Factors -- Litigation." At present, the Company has
committed to spend $103,805 during fiscal 1996 on projects relating to
the development and manufacture of its products. The Company believes
that the funds described above and funds generated from the sale of
its Safety Cradle(R) sharps container products, will be sufficient to
support the Company's operations and planned capital expenditures at
least through fiscal 1996. The Company's failure either to produce or
sell sufficient quantities of Safety Cradle(R) sharps container
products 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.
<PAGE> 22
Inflation
The Company does not expect the impact of inflation on operations
to be significant.
Backlog
There are no material backlog of unfilled orders of the Company's
products.
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. As a result, the Company's actual future
operations could differ significantly from those discussed in the
forward-looking statements.
<PAGE> 23
BUSINESS
General
The Company primarily develops health care products that limit or
prevent the risk of accidental needle sticks which may cause the
spread of blood-borne diseases such as HIV and hepatitis B, and
secondarily develops other products for use in the health care
industry.
The Company has created a portfolio of proprietary health care
products that are in various stages of production, pre-production,
development and research. The Company's products include those being
currently commercialized, those utilizing the ExtreSafe(TM) medical
needle technology and those relating to certain filmless digitized
imaging technology. In December 1994, the Company introduced the
first in its line of newly developed containers for the disposal of
contaminated "sharps" (i.e., needles, syringes, blood collection
systems, intravenous catheters, surgical blades, lancets, etc.).
Additional sizes and versions of its Safety Cradle(R) sharps
containers were released in the third and fourth quarters of 1995.
The Company is developing a safety lancet (the "SafetyStrip(TM)"), a
small hand-held device for penetrating the skin to obtain blood for
analysis. Commercial production of the SafetyStrip(TM) is
anticipated to commence in 1996.
The Company is also developing a line of products using the
Company's ExtreSafe(TM) medical needle technology (the "ExtreSafe(TM)
Products"), which incorporates a system to allow a contaminated needle
to be automatically retracted and immediately encapsulated without
exposure to the health care worker. Products under development that
incorporate the ExtreSafe(TM) medical needle technology include the
ExtreSafe(TM) phlebotomy devise, ExtreSafe(TM) catheter and several
different ExtreSafe(TM) syringe applications. The Company expects to
introduce additional products using this technology. Prototypes of the
first product using the ExtreSafe(TM) medical needle technology were
completed in April 1995 and commercial production is anticipated to
commence in 1997, provided the necessary FDA approvals are obtained,
of which there is no assurance. Prototypes of the ExtreSafe(TM)
catheter and ExtreSafe(TM) syringe were completed in the second half
of 1995. The Company's concepts for a safety intravenous flow gauge
and blood collection are in the research stage.
The Company has also entered into a joint venture to design and
produce an improved filmless digitized imaging technology to be used
in the medical field (the "Imaging Products") which is in the research
stage.
Company Background and 1995 Reorganization
The Company was incorporated in 1986 as Santian Ventures, Inc. as
a Utah corporation. Santian Ventures, Inc. was organized to engage in
the business of acquiring assets and properties of any kind without
regard to any specific type of business or industry. In 1989 the
Company changed its name to Ware/Hadley Ventures, Inc. Subsequently,
the Company's corporate domicile was changed to the State of Delaware,
and its name was changed to Russco, Inc., effective December 20, 1990,
by merger into a newly created Delaware corporation. The Company had
no operations until July 28, 1995. On that date and pursuant to the
terms of a Placement Agreement, the terms of which were proposed by
Capital Growth, the Company acquired Specialized Health Products,
Inc., a Utah corporation, through a merger with a subsidiary of the
Company, and the Company changed its name to "Specialized Health
Products International, Inc." Pursuant to an Agreement and Plan of
Merger dated June 23, 1995, among the Company, SHP and Scott R.
Jensen, the sole officer and director of the Company prior to the
Acquisition (the "Merger Agreement"), Scott R. Jensen resigned as the
sole officer and director of the Company effective upon consummation
of the Acquisition wherein SHP became a wholly owned subsidiary of the
Company. The persons serving as officers and directors of SHP
immediately prior to the consummation of the Acquisition were elected
to the same offices with the Company and retained their positions as
directors and officers of SHP. In addition, the outstanding
securities of SHP became outstanding securities of the Company. Prior
to the Acquisition, neither SHP nor any affiliate of SHP had an
interest in Russco, Inc.
<PAGE> 24
Products
Sharps Containers
In January 1994, SHP acquired the Sharp-Trap(R) name and all
technology developed by Sharp-Trap, Inc., a Michigan corporation,
relating to a patented container entry system that is designed to
reduce the risk of accidental needle sticks and exposure to
contaminated instruments when disposing of contaminated instruments.
At the time of SHP's purchase of the Sharp-Trap(R) technology, Sharp-
Trap, Inc. was already manufacturing two sharps container product
configurations, a 0.5 quart and a 1.5 quart (the "Sharp-Trap(R)"
containers).
Following additional research and discussions with medical
product distributors and end users, SHP designed an improved line of
Safety Cradle(R) sharps containers (the "Safety Cradle(R)") which
retained the basic container closure technology and incorporated
improvements to make them safer, higher quality, easier to use and
less costly to manufacture than the Sharp-Trap(R) containers. The
self-closing Safety Cradle(R) containers allow for disposal of sharps
in a container that incorporates a self-closing sharps containment
flap, and open/close/lock mechanism. Especially adapted for alternate
site use, SHP's new line of Safety Cradle(R) sharps containers provide
convenience and safety for portable applications. In addition, each
of SHP's sharps containers is designed to be used as a self-contained
shipping container, used in the transport of unused medical products,
and readily converted at a user's site for use as a safe and
efficacious sharps container. The Safety Cradle(R) sharps container's
novel, single-molded-part lid fits three sizes of container wells to
fill a broad spectrum of sharps containment applications, especially
alternate site use which includes emergency vehicle, in-home and
insurance testing. As each Safety Cradle(R) sharps container is
formed from only two molded parts, unit manufacturing cost places
SHP's sharps containers in a competitive position, while the special
design for transportability permits the Safety Cradle(R) container to
fill a unique market niche. These containers are made of
environmentally safe polypropylene material.
SHP has developed three sizes of the Safety Cradle(R) container
wells. Each container well uses the same top, but the bottom section
varies in size to allow different volumes to be accommodated (i.e., a
3 inch, a 5 inch and a 9 inch ). By manufacturing the top separately,
savings in manufacturing cost are achieved. Also, the containers may
be used not only as Safety Cradle(R) sharps containers and
transporters, but also as recyclers.
The Safety Cradle(R) products can be used for a variety of
purposes, including:
Safety Cradle(R) Sharps Container - all three sizes will be used
as Safety Cradle(R) sharps containers to contain and dispose of
contaminated sharps. Sale of the 3 inch and the 5 inch sizes began in
March 1995 with earlier models. Sales of the latest models began in
December of 1995.
Transporter - all three sizes are designed to house medical kits
and new syringes for shipping to the customer. Upon arrival at a
customer site, each Safety Cradle(R) sharps container can be utilized
as a sharps disposal container. The first sales of Safety Cradle(R)
products as transporter/sharps containers are anticipated to take
place this year.
Recycler - all three sizes are designed for use by medical
product manufacturers as a secured container, so that discarded sharps
may be shipped back to the manufacturer or to a sharps disposer for
recycling. The Company anticipates that it will be prepared to
execute orders for its SafetyCradle(R) products used as recyclers by
this year.
Products Under Development
The SafetyStrip(TM) Lancet
Lancets are small devices used to penetrate the skin, usually a
finger, to obtain a few drops of blood for analysis. Lancets are used
by health care workers and can be self-administered by individuals,
especially insulin users. The same safety concerns exist with the
handling of lancets as with needles, because lancets become
contaminated after they come into contact with blood.
<PAGE> 25
There are a number of lancets on the market today, the most
common of which is a small "nail" type instrument which is pressed
against the finger, and the "nail" is then triggered to penetrate the
skin by hand pressure. Some lancets penetrate the skin with a blade,
which is commonly considered to be less painful to the patient than
the "nail" and generally is more successful in blood production.
The nail type lancet is often inserted into a spring loaded hand held
device, about the size of a large pen. The device is pressed against
the skin of the patient's finger which is penetrated when the spring
is triggered. After triggering, the lancet handle must be emptied and
then reloaded with another single lancet for use on the next patient.
The Company is unaware of any lancets on the market today that provide
absolute protection against being used more than once on different
patients. Furthermore, existing lancet handle parts may become
contaminated by blood splattering when the finger is pierced. To help
prevent contamination, contaminated lancet parts should be sterilized
or disposed of after each use. In practice, however, sterilization
usually does not take place on all such parts after each use and some
lancet parts are commonly used more than once.
The Company's SafetyStrip(TM) lancets will be easy-to-use and
provide protection against being used more than once. SafetyStrip(TM)
lancets will be provided in cartridge strip housings of six lancets
per strip, a configuration that is patent protected. Lancets are used
one at a time, by breaking off and discarding lancets immediately
after use. A strip housing is loaded into a convenient low-cost hand
held carrier which also provides a means for safely and conveniently
triggering each lancet. After penetrating the skin, the blade
automatically returns inside its housing and cannot be reused. The
used blade, encased by its protective housing, is then broken off from
the cartridge strip and appropriately discarded. Reloading the handle
with another cartridge is a simple process. In the opinion of Company
management, Use of the Company's use of the SafetyStrip(TM) lancet
will be easier and faster than use of existing lancets. This is an
assumption by management, as no testing has been performed to verify
management's belief. The blade of the Company's SafetyStrip(TM)
lancet has revolutionary design and its rotary spring motion drives
the blade both outward to lance and inward for retraction. In the
opinion of Company management, the SafetyStrip(TM) lancet's design
makes it less painful than nail type lancets, although no formal
comparison testing has been conducted. Testing performed and funded
by an entity owned in part by Dr. Gale H. Thorne (an officer and
director of the Company) has shown the Company's SafetyStrip(TM) to be
less painful to the patient than traditional lancets because of the
revolutionary design of the blade and its rotary spring motion which
drives the blade both outward to lance and inward for retraction.
It is also noteworthy that part of the lancet in contact with the
patient's skin prior to lancing is sterile until contaminated by use.
A prototype of the SafetyStrip(TM) lancet was completed earlier this
year and the Company anticipates that commercial production will begin
in 1996.
ExtreSafe(TM) Phlebotomy Device
For certain blood tests it is necessary to draw blood from the
patient for analysis. The present method for obtaining a draw of
blood involves the insertion of a needle into a blood vessel and the
drawing of blood by way of vacuum pressure most often into a small
evacuated tube-like container commonly known as a Vacutainer(R) (the
Vacutainer(R) is not a trademark of the Company). After the blood
draw, the needle is manually removed from the patient and, while
continuing to attend to the patient, the Vacutainer(R) and needle are
often placed on a tray or set aside. Afterward, the needle is usually
unscrewed and discarded into a sharps container. The Company's
ExtreSafe(TM) phlebotomy device provides a safer method. The device
retracts the inserted needle into a safe housing quickly and
automatically, minimizing the chance of an inadvertent stick by a
"dirty" needle. Retraction is initiated by a simple depression of a
designated distortable portion of the housing assuring that there is
no action directed toward or away from the patient which might affect
the depth of needle penetration. The Company's ExtreSafe(TM)
technology has a number of other applications, including an
ExtreSafe(TM) catheter and ExtreSafe(TM) syringe described hereafter.
Prototypes of the ExtreSafe(TM) phlebotomy device needle were
completed in 1995 and the Company anticipates that commercial
production will begin in 1997 provided the necessary FDA approvals are
obtained, of which there is no assurance.
ExtreSafe(TM) Catheter
Contemporary catheter use has problems similar to those faced in
blood draw. Inserting a catheter involves a percutaneous needle stick
followed by threading the catheter over the needle into a patient's
vein or artery. This method is unsafe in two respects. First, when
the needle is pulled out of the catheter there is a discharge of blood
which could contaminate the health care worker. Second, needle sticks
occur when the needle is withdrawn from the catheter because, in some
instances, the needle is temporarily left exposed while the patient is
being attended to by the health care worker. Like the ExtreSafe(TM)
phlebotomy device , the Company's ExtreSafe(TM) catheter retracts a
<PAGE> 26
contaminated needle from a patient and encloses the needle in a safe
housing when a health care worker depresses a portion of the housing
at the time the needle is to be extracted from the patient and
catheter. Further, in one version of the ExtreSafe(TM) catheter, a
manually closeable portion of the catheter stem permits the catheter
channel to be held closed until a connection is made to a medical line
thereby restricting blood loss. Prototypes of one version of the
ExtreSafe catheter were completed earlier this year and the Company
anticipates that commercial production will begin in 1997 provided the
necessary FDA approvals are obtained, of which there is no assurance.
ExtreSafe(TM) Syringe
Another area where there is significant risk of needle sticks is
in syringe use. Contemporarily, there are many different aspects of
syringe use which range from integral units which combine a filled
syringe and attached needle for unit dose applications to syringe
needles which are attached to separate syringes by leur-lock
connectors. Generally, access to the needle for a medical procedure
involves removing a protective needle cover just prior to performing
the procedure. In the past, medical personnel attempted needle
protection by replacing the needle cover after performing the
procedure, but the volume of accidental needle sticks related to
needle replacement resulted in the banning of such needle cover
replacement. Medical personnel then began disposing of needles by
carrying the exposed needles to sharps containers (normally found
within each patient care room) and by providing needle/syringe
apparatus having a shroud which can be extended over the exposed
needle after the procedure. The ExtreSafe(TM) syringe provides an
extendible needle which is retractable into a safe housing in a manner
similar to the retraction of the ExtreSafe(TM) blood draw and catheter
systems described above. Prototypes of the ExtreSafe(TM) syringe were
completed in 1995. Production is forecast for 1997 provided the
necessary FDA approvals are obtained, of which there is no assurance.
Filmless Digitized Imaging Technology
The procedure for taking a large area x-ray image having
generally acceptable resolution and presenting the x-ray to the
attending physician for interpretation, has changed little over the
past forty years. The most common x-ray image today is taken by way
of a film which requires development in a darkroom. The physician
personally handles the x-ray, which is generally imprinted on a 14" x
17" film sheet. For record keeping purposes, hospitals usually
maintain an inventory of x-rays for a least six years. X-ray storage
and retrieval is a costly problem for many medical facilities. While
some filmless x-ray systems have recently been introduced, none
fulfill desired and necessary resolution requirements of commonly
performed x-ray procedures.
In October 1995, the Company entered into a joint venture with
Zerbec, Inc., a Texas corporation, to develop, manufacture, distribute
and market products and technologies using a patented solid state
filmless digitized imaging technology through Quantum Imaging
Corporation, a newly formed Utah corporation. The filmless digitized
imaging technology involves a method of directly producing an
electrical signal from an image recorded on an x-ray plate. The
signal is instantly digitized and stored on a CD-ROM and the same x-
ray plate is then available for a later procedure. The filmless
digitized imaging technology eliminates film as the x-ray image
recording form and enables x-ray films to be translated to a CD-ROM
format to simplify their storage, retrieval and handling. The Company
believes the filmless digitized imaging technology will provide a
unique method for revolutionizing the way in which x-ray images are
taken, interpreted and stored, while also providing clearer images
having high resolution that are more easily interpreted than x-ray
films. Furthermore, the technology will provide a breakthrough for
the use of x-ray facilities in mobile medical emergency units which
has not been achieved to date because of the necessity for local
chemical handling equipment associated with film processing.
Under the terms of the joint venture agreement, Zerbec, Inc. and
the Company formed Quantum Imaging Corporation, a Utah corporation, to
finish the development and commercialize the filmless digitized
imaging technology. A research prototype of the filmless digitized
imaging technology has been demonstrated. A new prototype which is
being produced to demonstrate picture resolution compatible with
breast cancer diagnosis is being fabricated for demonstration in 1996,
provided timely funding is obtained. An alpha test system is
scheduled for completion in 1996. A beta test system is scheduled for
completion in 1997 and production is scheduled for 1998.
At present, the Company and Zerbec, Inc. are the sole and equal
owners of Quantum Imaging Corporation. Pursuant to the terms of the
joint venture agreement, Zerbec, Inc. assigned the patented filmless
digitized imaging technology to Quantum Imaging Corporation, and will
provide ongoing support in the development and commercialization of
the technology. The joint venture agreement also provides that the
Company will support the development and commercialization of the
<PAGE> 27
technology by contributing up to $30,000 per month for a twelve month
period to Quantum Imaging Corporation, which funds shall be used to
support the company's operations. For Quantum Imaging Corporation to
be successful, the Company estimates that between $3,000,000 and
$6,000,000 will have to be raised through available financing
channels, if any. It is anticipated that at least one-third of the
outstanding shares of Quantum Imaging Corporation will be sold to fund
development through initial production of related filmless digitized
imaging systems. The Company and Zerbec, Inc., are seeking to bring
in additional venturers to provide funding, depending on financing
needs. As a result, the Company's ownership interest may decrease,
but its financial and other obligations to support the development and
commercialization of the technology may not decrease.
Company Strategy
The Company's primary objective is to establish itself as a
leading developer of safety medical products. The manufacture of
these products will be subcontracted to reputable manufacturers. To
achieve this objective, the Company's growth strategy is focused on
the following four principal elements.
- Capturing significant market share of the sharps
container, lancet, phlebotomy device, IV catheter and syringe markets.
- Broadening the Company's existing products lines and
developing product lines to increase penetration into closely
related markets.
- Seeking additional market opportunities based on the
Company's proprietary technology.
- Developing agreements with large medical product
marketing and distributing organizations.
Sharps Containers
The Company was only able to produce sharps containers on a
limited basis in 1995 because the related molds had not been
completed. Full scale production of the Company's Safety Cradle(R)
sharps containers is currently beginning and the Company anticipates
significantly expanding its production of Safety Cradle(R) sharps
container products in 1996. The Company believes the manufacture and
sale of its Safety Cradle(R) products should find a significant niche
in home health care and alternate site use and combined new instrument
transport/sharps container applications.
The Company also intends to develop license/joint venture
agreements in international markets. Entrance into such markets is
not anticipated until after the Company's Safety Cradle(R) sharps
container products are being successfully marketed in the United
States.
Products in Development
The Company's SafetyStrip(TM), ExtreSafe(TM) phlebotomy device ,
ExtreSafe(TM) catheter, ExtreSafe(TM) syringe, intravenous flow
gauge, blood collection device, other ExtreSafe(TM) medical needle
technology products and the filmless digitized imaging technology are
in various stages of research and/or development. The Company plans
to continue development of each of these products/systems. The
necessary production equipment and testing, however, must be completed
before such products are brought to market.
The Company intends to minimize the cost and time necessary to
bring these products to market by using the information and experience
gained in the design, development and assembly of its Safety Cradle(R)
sharps containers. In addition, the Company is seeking alliances with
large medical product marketing, sales and distribution companies to
sell its Safety Cradle(R) sharps container products and these follow-
on products. There can be no assurance, however, that the Company
will be able to form an alliance and that the Company will be able to
complete development of these products.
<PAGE> 28
Future Market Opportunities
The Company will seek to enter additional markets in situations
where it believes that it can gain significant market share based on
patent protected intellectual properties or by capitalizing on its
sales channels for complementary products. There are a number of
possible future applications for the Company's technology, but there
can be no assurance that the Company will commence development of any
such products.
Marketing and Sales
The Company currently intends to market and sell its products in
the United States and possibly in select foreign countries through
third party manufacturers and distributors. The Company's plan for
the distribution and sales of its products will target major segments
of the respective markets for those products, including, major
hospital and institutional buying groups, pharmaceutical companies,
distributors and wholesalers, and government and military agencies.
The Company intends to market and distribute its products through one
or more companies that have a major presence in these markets.
The Company will not sell its ExtreSafe(TM) medical needle
technology for commercial use in the United States until proper
regulatory approval is obtained. See "Business -- Regulation." The
Company must also comply with the laws and regulations of the various
foreign countries in which the Company plans to sell its products
prior to selling such products in such foreign countries. Certain
foreign countries may only require the Company to submit evidence of
the FDA's pre-market clearance of the relevant products prior to
selling in such countries. However, some foreign countries may have
more stringent requirements and require additional testing and
approvals. See "Business -- Regulation."
The Company currently plans to hire a limited number of sales and
marketing personnel; however, the number will vary depending on the
extent to which the Company contracts with third parties or forms
strategic alliances with other parties to market and sell its
products. The Company may seek third parties to market and distribute
its products in select foreign countries. The Company will seek third
parties to market and distribute its products in the United States.
The Company may enter into contracts, licensing agreements and joint
ventures with such third parties whereby the Company would receive a
licensing fee and/or royalty payments based on the licensee's
revenues. The Company would likely enter into such licensing
arrangements with several companies, possibly by country, geographical
regions and/or product types but may enter into an exclusive
arrangement with a single company having a major presence in all
markets the Company seeks to penetrate. The Company has not entered
into any such licensing arrangements and there can be no assurance
that the Company will be able to enter into such licensing
arrangements on acceptable terms.
The Company intends to market its products by, among other
things, attending trade shows and advertising in industry
publications. The Company intends to distribute samples of some or
all of its products free of charge to various health care institutions
and professionals in the United States and in selected foreign
countries to introduce and create a demand for the products in the
marketplace.
Industry
Market
Health care is one of the largest industries in the world and
continues to grow. There is increasing demand in the health care
market for products that are safer, more efficacious and cost-
effective. The Company's products target segments of this market.
While traditional, non-safety, products in the market segments which
the Company seeks to address compete primarily on the basis of price,
the Company expects to compete on the basis of healthcare worker
safety, ease of use, reduced cost of disposal, patient comfort and
compliance with OSHA regulations, but not on the basis of purchase
price except to the extent it will be competitive with other safety
devices. However, the Company believes that when all indirect costs
(disposal of needles, and testing , treatment and workers compensation
expense related to needle stick injuries) are considered, the
Company's products will compete effectively both with "traditional"
products and the safety products of the Company's competitors.
<PAGE> 29
Accidental Needle Sticks
Needles for hypodermic syringes, phlebotomy sets and
intravenous catheters are used for introducing drugs and other fluids
into the body and drawing out blood and other bodily fluids. Among
the applications for needles are the injection of drugs (hypodermic
needles), the drawing of blood (phlebotomy sets) and the infusion of
drugs and nutrients (catheters). There is an increasing awareness of
the potential danger of infections and illness that result from
accidental needle sticks and of the need for safer needle devices
which reduce the number of accidental needle sticks that occur each
year.
Infections contracted as a result of accidental needle sticks are
a major concern to health care institutions, health care workers,
sanitation and environmental services workers and the regulatory
agencies charged with the task of making their working environment
safe. Accidental needle sticks may result in the spread of infectious
diseases such as hepatitis B, HIV, which may lead to AIDS, diphtheria,
gonorrhea, typhus, herpes, malaria, rocky mountain spotted fever,
syphilis and tuberculosis. According to The American Hospital
Association's (the "AHA") report dated December 1992, an estimated
800,000 occupational needle sticks occur nationwide each year. The
number of reported needle sticks, however, is believed to be only a
portion of the actual number of occurrences. The AHA report estimates
that the direct costs (excluding costs such as time lost from work and
other administrative activities) for medical evaluation and follow-up
treatment after a single needle stick injury range from $200 to
$1,200. While it is difficult to estimate the total costs associated
with treating accidental needle stick injuries with any degree of
confidence, Theta Corporation, in its Report No. 346 on Medical
Needles and Syringes dated January 1994 (the "Theta Corporation
Report"), estimates that the total cost associated with treating
accidental needle sticks in the United States averages $3 billion each
year. The AHA and other authorities have also stated that the benefits
resulting from the prevention of accidental needle sticks (and the
resulting incidence of infection, illness, time lost from work and
death) cannot be measured solely by savings in the costs of medical
treatment. Currently available safety needle devices are priced at
approximately two to twelve times that of standard devices.
Notwithstanding the price differential, the Company believes that,
based upon the estimated costs associated with accidental needle
sticks, its products should be considered cost-effective by the
marketplace.
The possibility of health care workers becoming infected from
contaminated needles has caused and continues to cause a great deal of
concern in the health care field and the agencies regulating that
area. OSHA has adopted regulations requiring employers to institute
universal precautions to prevent contact with blood and other
potentially infectious materials. OSHA's regulations also require
employers to establish engineering controls (e.g., sharps disposal
containers and self-sheathing needles) and safe work practices to
insure compliance with these universal precautions. OSHA does not
mandate specific technologies; rather, employers are permitted to
choose the most appropriate and effective safety control devices to
meet their specific institutional needs. According to OSHA
guidelines, while employers do not have to institute the most
sophisticated engineering controls, it is the employer's
responsibility to evaluate the effectiveness of existing controls and
the evaluate the feasibility of instituting more advanced engineering
controls. OSHA specifically prohibits the recapping, bending or
removal of needles, unless there is no feasible alternative or if
required for a specific medical procedure.
In April 1992, the FDA issued a safety alert to hospitals warning
of the risks of needle stick injuries from the use of hypodermic
needles with intravenous equipment. Among other things, the safety
alert stated that although the FDA could not recommend specific
products, it urged the use of needleless systems or recessed needle
system devices with a fixed safety feature. According to the alert,
(1) a fixed safety feature should provide a barrier between the hands
and needle after use; (2) the safety feature should allow or require
the worker's hand to remain behind the needle at all times; (3) the
safety feature should be an integral part of the device, and not an
accessory; (4) the safety feature should be in effect before
disassembly and remain in effect after disposal to protect the users
and trash haulers and for environmental safety; and (5) the safety
feature should be as simple as possible, and require little or no
training to use effectively.
The majority of health care workers' adverse exposures to blood
are either product-mediated (e.g., needle sticks) or could be
prevented by the use of appropriate products (e.g., sharps
containers). Increasing pressure is mounting from the government and
private sectors for the health care industry to develop medical
devices that will provide a safer working environment for health care
workers and their patients. The Company's products attempt to address
the growing demand for medical devices that reduce the risk of
accidental exposure to blood-borne diseases.
<PAGE> 30
Disposal of Sharps
There is extensive everyday use of "sharps" (i.e., needles,
syringes, blood collection systems, intravenous catheters, surgical
blades, lancets, etc.) by doctors, nurses and other health care
workers who are in danger of accidental exposure to transmittable
blood-borne diseases such as AIDS and hepatitis B. The most
extensively used sharp is the medical needle. The Theta Corporation
Report estimates that approximately five and one half billion needles
and syringes will be sold in the United States in 1996. About six
billion needles a year are used in U.S. hospitals. Needle stick
injuries are the most common cause of disease transmission in the
health care industry and Approximately every thirty nine seconds,
about eight hundred thousand one million times a year, a health
care worker is accidentally injured by a potentially contaminated
needle. Based on source material from 1988 and 1989, it is estimated
that every year as many as 12,000 health care workers become infected
by accidental exposure to hepatitis B. , which is more contagious
than AIDS.
OSHA mandates the use of special containers for sharps disposal
purposes to reduce the incidence of accidental transmission of blood-
borne diseases. OSHA requires that the design of sharps containers
meet certain minimum standards of safety. It also make
recommendations with respect to the safe handling of needles. One of
the most common causes of accidental needle sticks occurs when a
worker tries to recap a needle. The most recent OSHA regulations
require that needles not be recapped or purposely bent or broken.
After they are used, disposable syringes, needles, and other sharp
items should be placed in closeable, disposable, puncture-resistant
containers that are leak proof on the sides and bottom and labeled
according to OSHA guidelines.
Facilities now being affected by current state and federal
legislation regarding the disposal of biohazardous items include
hospitals, laboratories, clinics, nursing homes, blood banks,
physicians' offices and mortuaries. Stricter legislation may be
introduced that relates to all environments where sharps can be found
(e.g., homes, public facilities, etc.). In addition, some states have
passed legislation and others are considering legislation relating to
the disposal of sharps.
Patents and Proprietary Rights
The Company owns four United States patents and has other patent
applications pending in the United States and in other countries which
are directly applicable to the Company's Safety Cradle(R) sharps
container products. The Company also owns two United States patent
relating to its SafetyStrip(TM), and four United States patent and
allowed patent applications relating to its ExtreSafe(TM) medical
needle technology. The Company has three additional United States
patent applications pending relating to its safe-needle retraction
technology. None of the above referenced patents expire before April
1, 2006.
Quantum Imaging Corporation, an affiliate of the Company, owns
three United States patents and has three Canadian patents relating to
the filmless digitized imaging technology. These patents expire in
May 2001, September 2002 and September 2005. The Company expects that
additional patents will be applied for relating to the technology
owned by Quantum Imaging Corporation.
The future success of the Company may depend upon the strength of
its intellectual property. The Company believes that the scope of its
patents/patent applications is sufficiently broad to prevent
competitors from introducing devices of similar novelty and design to
compete with its current products and that such patents and patent
applications are or will be valid and enforceable. This belief,
however, may prove to be incorrect if such patents are challenged. In
addition, patent applications filed in foreign countries and patents
granted in such countries are subject to laws, rules and procedures
which differ from those in the United States. Patent protection in
such countries may be different from patent protection provided by
U.S. laws and may not be as favorable to the Company. The Company
plans to timely file international patents in all countries in which
the Company is seeking market share. See "Risk Factors -- Dependence
on Patents and Proprietary Rights."
The Company is not aware of any patent infringement claims
against the Company. Litigation to enforce patents issued to the
Company, to protect proprietary information owned by the Company, or
to defend the Company against claimed infringement of the rights of
others, may occur. Such litigation would be costly and could divert
the resources of the Company from other planned activities. There can
be no assurance that the Company would be successful in any such
litigation.
<PAGE> 30
The Company's policy is to seek patent protection for all
developments, inventions and improvements that are patentable and
which have potential value to the business of the Company and to
protect as trade secrets other confidential and proprietary
information. The Company intends to vigorously defend its
intellectual property rights.
Manufacturing
The Company has designed and paid for the construction of various
molds and machinery used to manufacture its Safety Cradle(R) sharps
containers. The Company owns all molds used to manufacture its Safety
Cradle(R) sharps containers. The Company contracts for the manufacture
of its Safety Cradle(R) sharps containers from outside sources.
Presently a single corporation is manufacturing the Company's Safety
Cradle(R) sharps container products. In the past, polypropylene
resin, the major plastic material used in the Company's Safety
Cradle(R) sharps containers, has been in short supply for limited
periods of time. While alternative manufacturers exist, changes in
the Company's manufacturer or an unforeseen short supply of
polypropylene could disrupt production schedules and could materially
and adversely affect the Company. See "Risk Factors -- Dependence on
Single Manufacturer" and "Risk Factors -- Availability of Resins."
Final arrangements have not been made for the manufacture of the
SafetyStrip(TM), ExtreSafe(TM) phlebotomy device , ExtreSafe(TM)
catheter, ExtreSafe(TM) syringe, intravenous flow gauge, blood
collection device, other ExtreSafe(TM) medical needle technology
products or filmless digitized imaging technology although one molding
company has been preliminarily selected to build pre-production molds
for the ExtreSafe(TM) phlebotomy device. A company has also been
selected to produce molds and pre-production parts for the
SafetyStrip(TM) lancet. Effective May 1995, prototype drawings for
lancet molds were approved. The company chosen to produce molds for
the ExtreSafe phlebotomy device is targeting completion of
preproduction prototypes for the ExtreSafe(TM) phlebotomy device for
1996. The materials that the Company plans to use to produce these
products are generally widely available. The Company does not
anticipate difficulty in obtaining such materials. At present, there
are a number of manufacturers that could produce lancet and needle
retraction products and a number of suppliers could supply necessary
parts. Any difficulties that may arise, however, with respect to the
availability of manufacturers and/or suppliers could disrupt the
planned production of each such product and could materially and
adversely affect the Company.
Competition
The leading manufacturers in the sharps container market are Sage
Products, Inc., Devon Industries, Inc., Becton Dickinson and Company,
and Baxter International, Inc. There are also numerous smaller
manufacturers. A variety of sharps disposal products have been
introduced into the marketplace. Some of these disposal containers
accommodate only the needle while others accommodate the needle,
syringe and limited surgical instruments. The majority of the sharps
containers on the market, however, allow contaminated instruments to
fall out when inverted. Many of the products are unstable if not
supported by wall supports or other apparatus. The Company believes
its products are more stable, safer and more effective than
competitively priced products on the market. In addition, there are
no sharps disposable transporters or recycler/transporter type
products on the market today.
The leading manufacturers in the lancet market are Becton
Dickinson and Company, Surgicutt, Inc., Miles, Inc., Diagnostic
Corporation, Boehringer Mannheim, Inc., and Sherwood Medical Company,
a subsidiary of American Home Products Corporation. There are also
numerous smaller manufacturers. To the best of the Company's
knowledge, there are no safety lancets on the market today that
operate in a manner similar to the Company's SafetyStrip(TM) lancet.
The leading manufacturers of standard needles are Becton
Dickinson and Company, Sherwood Medical Company, Inc. and Terumo
Medical Corporation of Japan. The Company is aware of no products on
the market today that are comparable to the ExtreSafe(TM) phlebotomy
device (i.e., that is transversely activated to automatically extract
a contaminated needle and immediately retracts the needle into a safe
housing). Applications for the Company's needle retraction
technologies may also be found in percutaneous catheter insertion,
syringes, and other medical needle devices.
While traditional, non-safety, products in the market segments
which the Company seeks to address compete primarily on the basis of
price, the Company expects to compete on the basis of health care
worker safety, ease of use, reduced cost of disposal, patient comfort
and compliance with OSHA regulations, but not on the basis of purchase
price except with respect to comparable safety products. However, the
Company believes that when all indirect costs (disposal of needles,
and testing, treatment and workers' compensation expense related to
needle stick injuries) are considered, the Company's products will
compete effectively both with "traditional" products and the safety
products of the Company's competitors.
<PAGE> 32
It should be noted, however, that the health care products market
is highly competitive. Many of the Company's competitors have longer
operating histories and are substantially larger, better financed and
better situated in the market than the Company. See "Risk Factors --
Competition."
Acquisition of Technology/Research and Development
The Company has devoted substantially all of its efforts since
the formation of SHP to acquiring its health care products and
research and development relating thereto. Research and development
costs were $290,950 for the year ended December 31, 1994 and $804,639 for the
year ended December 31, 1995.
The Company plans to acquire additional technologies that it
determines are appropriate to acquire. In addition, the Company plans
to continue research and development on its current products.
Government Regulation
The Company and its products are regulated by the FDA, pursuant
to various statutes, including the FD&C Act, as amended and
supplemented by the Medical Device Amendments of 1976 (the "1976
Amendments") and the Safe Medical Devices Act of 1990. Pursuant to
the 1976 Amendments, the FDA classifies medical devices intended for
human use into three classes, Class I, Class II and Class III. The
controls applied to the different classifications are those the FDA
believes are necessary to provide reasonable assurance that a device
is safe and effective. Class I devices are products not requiring pre-
market notification, which can be adequately regulated by the same
types of controls the FDA has used on devices since the passage of the
FD&C Act in 1938. These "general controls" include provisions related
to labeling, producer registration, defect notification, records and
reports and good manufacturing practices ("GMPs"). GMPs include
implementation of quality assurance programs, written manufacturing
specifications and processing procedures, written distribution
procedures and record keeping requirements. Class II devices are
products for which the general controls of Class I devices are deemed
not sufficient to assure the safety and effectiveness of the device
and require special controls. Special controls for Class II devices
include performance standards, post-market surveillance, patient
registries and the use of FDA guidelines. Standards may include both
design and performance requirements. Class III devices have the most
restrictive controls and require pre-market approval by the FDA.
Generally, Class III devices are limited to life-sustaining, life-
supporting or implantable devices.
Section 510(k) of the FD&C Act requires individuals or companies
manufacturing medical devices intended for human use to file a notice
with the FDA at least ninety (90) days before introducing the product
into the marketplace. The notice (a "510(k) Notification") must state
the class in which the device is classified and the actions taken to
comply with performance standards or pre-market approval which may be
needed if the device is a Class II or Class III device, respectively.
If the registrant states the device is unclassified, it must explain
the basis for that determination.
In some cases obtaining pre-market approval can take several
years. Clearance pursuant to a 510(k) Notification can be obtained in
much less time. In general, clearance of a 510(k) Notification for a
Class II device may be obtained if the registrant can establish that
the new device is "substantially equivalent" to another device of such
Class that is already on the market. This requires the new device to
have the same intended use as a legally marketed predicate device and
have the same technological characteristics as the predicate device.
If the technological characteristics are different, the new device can
still be found to be "substantially equivalent" if information
submitted by the applicant (including clinical data if requested)
supports a finding that the new device is as safe and effective as a
legally marketed device and does not raise questions of safety and
efficacy that are different from the predicate device.
The Company has a notification from the FDA that its Sharp
Trap(R) sharps containers are substantially equivalent to legally
marketed predicate devices. The Company's Safety Cradle(R) sharps
containers are subject to the general controls of the FD&C Act and the
additional controls applicable to Class II devices. The Company
believes that its Safety Cradle(R) sharps container is sufficiently
similar to the Sharp Trap(R) container to preclude necessity for
another FDA submittal.
OSHA also insists, in part, that sharps containers are closeable,
disposable, puncture-resistant, leak proof on the sides and bottom and
appropriately labeled. The Company's Safety Cradle(R) sharps
containers are in compliance with present OSHA regulations. Future
<PAGE> 33
regulations, however, may be imposed which might have a material
adverse effect on the Company and/or one or more of its products.
The Company's follow-on products (i.e., the SafetyStrip(TM),
ExtreSafe(TM) medical needle technology, intravenous flow gauge and
blood collection device) are still in the development stage. The
Company expects the SafetyStrip(TM) to be a Class I device and to be
subject to lower level controls than are imposed on its Safety
Cradle(R) sharps containers.
In March 1995, the FDA issued a draft guidance document on 510(k)
Notifications for medical devices with sharps injury prevention
features, a category that would cover most of the Company's
ExtreSafe(TM) technology products. The draft guidance provisionally
placed this category of products into Class II Tier 3 for purposes of
510(k) review, meaning that such products will be subject to the FDA's
most comprehensive and rigorous review for 510(k) products. However,
review under this classification is expedited. The draft guidance
also states that in most cases, FDA will accept, in support of a
510(k) notification, data from tests involving simulated use of such a
product by health care professionals, although in some cases the
agency might require actual clinical data.
The Company expects its other follow-on products to be Class II
devices. The Company also expects that its follow-on products will
not require pre-market approval applications but will be eligible for
marketing clearance through the 510(k) notifications procedure based
upon its substantial equivalence to a previously marketed device or
devices. Although the 510(k) pre-market clearance process is
ordinarily simpler and faster than the pre-market approval application
process, there can be no assurance that the Company will obtain 510(k)
pre-market clearance to market its follow-on products, or that the
Company's follow-on products will be classified as set forth above, or
that, in order to obtain 510(k) clearance, the Company will not be
required to submit additional data or meet additional FDA requirements
that may substantially delay the 510(k) process and add to the
Company's expenses. Moreover, such 510(k) pre-market clearance, if
obtained, may be subject to conditions on the marketing or
manufacturing of the corresponding follow-on products that may impede
the Company's ability to market and/or manufacture such products.
In addition to the requirements described above, the FD&C Act
requires that all medical device manufacturers and distributors
register with the FDA annually and provide the FDA with a list of
those medical devices which they distribute commercially. The FD&C
Act also requires that all manufacturers of medical devices comply
with labeling requirements and manufacture devices in accordance with
GMPs, which require that companies manufacture their products and
maintain their documents in a prescribed manner with respect to
manufacturing, testing, and quality control activities. The FDA's
Medical Device Reporting regulation requires that companies provide
information to the FDA on death or serious injuries alleged to have
been associated with the use of their products, as well as product
malfunctions that would likely cause or contribute to death or serious
injury if the malfunction were to recur. The FDA further requires
that certain medical devices not cleared for marketing in the United
States have FDA approval before they are exported.
The FDA inspects medical device manufacturers and distributors,
and has broad authority to order recalls of medical devices, to seize
noncomplying medical devices, to enjoin and/or to impose civil
penalties on manufacturers and distributions marketing non-complying
medical devices, and to criminally prosecute violators.
In addition to laws and regulations enforced by the FDA and OSHA,
the Company is subject to government regulations applicable to all
businesses, including, among others, regulations related to
occupational health and safety, workers' benefits and environmental
protection.
Distribution of the Company's products in countries other than
the United States may be subject to regulations in those countries.
There can be no assurance that the Company will be able to obtain the
approvals necessary to market its phlebotomy devise or any other
product outside the United States.
Facilities
The Company's offices are located at 655 East Medical Drive,
Bountiful, Utah, under terms of a lease with an unaffiliated lessor
which expires in June 1998, with an annual rent of approximately
$72,000. The lease covers approximately 4,400 square feet of space.
<PAGE> 34
Seasonality of Business
The Company products sales are not subject to seasonal
variations.
Backlog
There are no material backlog of unfilled orders of the Company's
products.
Employees
As of April 8 June 11, 1996, the Company employed twelve
people, including five research and development employees, two sales
and marketing employees and five administrative employees. The
Company expects to add to the number of employees, principally in the
areas of sales and marketing. The planned increase in personnel is
based primarily on expected increases in production and sales. The
Company's employees are not represented by a labor union, and the
Company believes its employee relations are good.
Legal Proceedings
During 1994, SHP entered into various agreements with Mold
Threads, Inc., a Connecticut corporation ("MT"), whereby MT would
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 release SHP's molds. In January
1996, MT counterclaimed 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.
Environmental Matters
The Company believes its operations are currently in compliance
in all material respects with applicable Federal, state, and local
laws, rules, regulations and ordinances regarding the discharge of
materials into the environment. Such compliance has no material
impact upon the Company's capital expenditures, earnings or
competitive position, and no capital expenditures for environmental
control facilities are planned.
<PAGE> 35
MANAGEMENT
Executive Officers and Directors
In connection with the Acquisition, the individual serving as the
sole director and officer of the Company at the effective date
resigned on July 28, 1995. The persons serving as directors and
officers of SHP immediately prior to that date were elected to the
same offices with of the Company and retained their positions as
directors and officers of SHP. In addition, Stanley Hollander and J.
Clark Robinson were subsequently appointed to fill vacancies on the
Company's Board of Directors. Mr. Hollander then resigned from the
Board of Directors in March 1996 for personal reasons.
Set forth below is certain information concerning each of the
directors and executive officers of the Company as of April
15 June 11, 1996:
</TABLE>
<TABLE>
<CAPTION>
With
SHP and
Name Age Position Company
Since
<S> <C> <S> <C>
David A. 52 President, Chairman of the 1993
Robinson (1) Board, Chief Executive
Officer and Director
Bradley C. 27 Vice President, Operations 1993
Robinson (1) and Investor Relations, and
Director
Dr. Gale H. 63 Vice President, Product 1994
Thorne Development and Director
J. Clark 54 Vice President, Chief 1995
Robinson Financial Officer, Secretary
and Director
Gary W. Farnes 54 Director 1995
(2)
Robert R. 65 Director 1994
Walker
_______________
<F1>
(1) Member of Executive Committee.
<F2>
(2) Member of Compensation Committee.
</TABLE>
David A. Robinson. Mr. Robinson is the President, Chief
Executive Officer and Chairman of the Board of the Company. He has
been a Director and officer of the Company since November 1993. From
November 1992 to November 1993, Mr. Robinson was President of EPC
Products, Inc., a packaging company based in Bountiful, Utah. From
1981 to 1992, Mr. Robinson was President of Royce Photo/Graphics
Supply, Inc., a distributor of photographic and graphic arts equipment
and supplies and parts based in Glendale, California. He holds a
Masters degree in Business Administration and a Masters degree in
Management Science from the University of Southern California. Mr.
Robinson is the brother of J. Clark Robinson, Vice President, Chief
Financial Officer, Secretary and a Director of the Company, and an
uncle of Bradley C. Robinson, Vice President, Operations and Investor
Relations and a Director of the Company.
Bradley C. Robinson. Mr. Robinson is the Vice President,
Operations and Investor Relations, of the Company. He has been a
Director and officer of the Company since November 1993. From November
1992 to November 1993, Mr. Robinson was Vice President of EPC
Products, Inc., a packaging company based in Bountiful, Utah. From
1990 to 1992, Mr. Robinson was employed by Cargo Link, a Salt Lake
City, Utah, import-export broker. Mr. Robinson is the son of J. Clark
Robinson, Vice President, Chief Financial Officer, Secretary and a
Director of the Company, a nephew of David A. Robinson, President,
Chief Executive Officer, Chairman of the Board and a Director of the
Company, and a son-in-law of Gary W. Farnes, a Director of the
Company.
<PAGE> 36
Gale H. Thorne. Dr. Thorne is the Vice President, Product
Development, for the Company. He has been a Director since January
1995, and has held his present position as Vice President, Product
Development, since October 1994. From 1993 to 1994, Dr. Thorne was a
Vice President, Engineering, of Eneco, Inc., a Salt Lake City, Utah,
corporation engaged in the business of developing cold-fusion
products. During Dr. Thorne's tenure at Eneco, Inc. the company was
engaged primarily in the business of prosecuting patent applications
relating to the cold-fusion technology. From 1989 to 1993, Dr. Thorne
was employed as a patent consultant and patent agent with Foster &
Foster, a Salt Lake City intellectual property law firm. Dr. Thorne
holds eighteen patents and has published numerous technical
publications. He has been a technical consultant and a member of
Board of the Small Business Innovation Program of the State of Utah.
Dr. Thorne manages all the patent and product development work for the
Company. He holds a Ph.D. in Biophysics from the University of Utah.
J. Clark Robinson. Mr. Robinson became a Vice President, Chief
Financial Officer, Secretary and Director of the Company in September
1995. From 1974 to the present, Mr. Robinson has been General Manager
of Lagoon Corporation, which operates an amusement park in the Salt
Lake City, Utah, area. At present, Mr. Robinson spends approximately
one-half of his time working for the Company and one-half of his time
working for Lagoon Corporation. Mr. Robinson has also been President
of the International Association of Amusement Parks and Attractions,
an international industry trade group. He holds a Masters degree in
Business Administration from the University of Utah. Mr. Robinson is
the brother of David A. Robinson, President, Chief Executive Officer,
Chairman of the Board and a Director of the Company, and the father of
Bradley C. Robinson, Vice President Operations and Investor Relations,
and a Director of the Company.
Gary W. Farnes. Mr. Farnes is a Director of the Company. He
has been a Director since 1995 and is currently the Senior Executive
Vice President of Holy Cross Health System, a multi-hospital health
care system headquartered in South Bend, Indiana. From 1977 to 1995,
Mr. Farnes was employed by Intermountain Health Care, a regional
hospital company. At the time that Mr. Farnes left Intermountain
Health Care, he held the position of Vice President, Hospital
Division. He holds a Bachelors degree in Business and Psychology from
Brigham Young University and a Masters degree in Business
Administration from George Washington University. Mr. Farnes is the
father-in-law of Bradley C. Robinson, Vice President Operations and
Investor Relations, and a Director of the Company.
Robert R. Walker. Mr. Walker is a Director of the Company. Mr.
Walker has been a Director since March 1994. He is currently self-
employed as a consultant in the health care industry primarily in the
area of start-up medical device companies. From 1976 to 1992, Mr.
Walker was employed by IHC Affiliated Services Division of
Intermountain Health Care, a regional hospital company, from which he
retired as President of IHC Affiliated Services. He recently retired
as the Chairman of the Board of AmeriNet, Inc., which is a national
group purchasing organization for hospitals, clinics, detox/drug
centers, emergency, nursing homes, private laboratories, psychiatric
centers, rehabilitation facilities, surgical centers and institutions
such as schools and prisons. Mr. Walker is a member of the American
Hospital Association and the Hospital Financial Management
Association. He holds a Bachelor of Science degree in Business
Administration.
Mr. Hollander was nominated to serve as a Director of the Company
in August 1995, pursuant to an agreement between the Company and
Capital Growth, as placement agent for certain securities of the
Company. The agreement provided that Mr. Hollander, or another person
nominated by Capital Growth, be elected for at least three one-year
terms. Mr. Hollander resigned from the Board of Directors for
personal reasons in March 1996. In addition, Mr. John T. Clark, who
was a Director of the Company since November 1993, also resigned from
the Board of Directors for personal reasons on March 5, 1996. The
Company's Board is currently reviewing independent persons to fill the
two vacancies existing on the Board. Other than as described above,
there are no family relationships among any of the executive officers
or directors of the Company.
Executive officers of the Company are elected by the Board of
Directors on an annual basis and serve at the discretion of the Board.
The Company's Board of Directors is divided into three classes.
Beginning with the annual meeting of stockholders in 1996, one class
of directors will be elected at each annual meeting of stockholders
for a three-year term. Each year a different class of directors will
be elected on a rotating basis. The terms of Gary W. Farnes and
Robert R. Walker will expire in 1996. The terms of Gale H. Thorne and
Brad C. Robinson will expire in 1997 and the term of David A. Robinson
and J. Clark Robinson will expire in 1998.
<PAGE> 37
The Board of Directors has an Executive Committee and
Compensation Committee. The Executive Committee has the authority to
act on various matters requiring Board of Directors action. The
Compensation Committee makes decisions regarding salaries and other
compensation. As part of its responsibilities, the Compensation
Committee administers the Company's non-qualified stock option plan
("NQSOP").
EXECUTIVE COMPENSATION
Included below are tables which set forth certain information
concerning compensation paid by the Company to its Chief Executive
Officer and all other executive officers with annual compensation in
excess of $100,000 (determined as of December 31, 1995) (the "Named
Executive Officers"). The tables include columns related to stock
options.
Summary Compensation Table. The following table provides certain
summary information regarding compensation paid by the Company to the
Named Executive Officers. The amounts set forth were paid by SHP for
services rendered to SHP. The Company had no operations and paid no
compensation to management prior to July 28, 1995, when the Company
acquired SHP. On that date, the previous management of the company
resigned and the current management, as described herein, assumed
their present positions.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
Awards
Restr Stock All
Name and Other icted Optio LTIP Other
Principal Ye Salary Bonus Annual Stock ns/ Payou Compe
Position YEAR ($)(1) ($)(2) Compens Award SAR(# ts($) nsation($)
ation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David A. 1993 --- --- --- --- --- --- ---
Robinson, 1994 120,000 --- --- --- 90,000(4) --- ---
President, 1995 193,590 25,000 ---666,666(3)300,000(5) --- 1,876
CEO, Chairman
of the Board
and Director
Bradley C. 1993 --- --- --- --- --- --- ---
Robinson, VP, 1994 89,128 --- --- --- 90,000(4) --- ---
Operations 1995 148,590 25,000 ---666,666(3)300,000(5) --- 625
and Investor
Relations and
Director
Dr. Gale H. 1993 --- --- --- --- --- --- ---
Throne, VP 1994 16,958 --- --- --- 36,000(4) --- ---
Product 1995 128,333 25,000 --- --- 57,000(5) --- 2,758
Development
and Director
___________________
<F1>
(1) All amounts paid to as salary were paid pursuant to the Company's
obligations under employment contracts with the above referenced
individuals. Said employment contracts were amended from time to time
during the periods set forth above. The annual salaries of the Named
Executive Officers for 1996, as set forth in their employment
contracts, are $240,000 for Mr. David A. Robinson, $160,000 for Mr.
Brad C. Robinson and $150,000 for Dr. Gale H. Thorne.
<F2>
(2) The cash bonuses were awarded by the Company in recognition of
the recipients' contributions toward the successful Acquisition and
the private placement which closed on August 18, 1995.
<F3>
(3) These are Earn-Out shares. See "Description of Securities - Earn-
Out Shares." David A. Robinson, Bradley C. Robinson and John T.
Clarke, who are respectively the President, Chief Executive Officer,
Chairman of the Board and a Director; a Vice President and Director;
and a former Director of the Company have the opportunity to receive
up to an aggregate of 2,000,000 additional shares of common stock.
Any issuance of Earn-Out Shares would be based upon the level of pre-
tax consolidated net income, adjusted to exclude any expense arising
from the obligation to issue or the issuance of the Earn-Out Shares
and any income or expense associated with non-recurring or
extraordinary items as determined in accordance with generally
accepted accounting principles ("Adjusted PTNI"). At the date the
Earn-Out Shares agreement was adopted the value of the Common Stock
was $2.00 per share. At December 31, 1995, the Company's common stock
was trading at $8.63.
The Earn-Out Shares have not vested. No dividends will be
paid on the Earn-Out Shares unless and until they vest. The Earn-
Out Shares will vest as follows. If Adjusted PTNI for 1996, 1997
or 1998 equals or exceeds $1,500,000, then an aggregate of 350,000
Earn-Out Share will be issued, but only one issuance of 350,000
Earn-Out Shares will be made based on the $1,500,000 level of
Adjusted PTNI.
<PAGE> 38
If Adjusted PTNI for 1996, 1997 or 1998 equals or exceeds
$5,000,000 then there will be issued that aggregate number of Earn-
Out Shares calculated by subtracting the number of Earn-Out Shares
previously issued or issuable based on the attainment of a lesser
Adjusted PTNI in the same year (if any) from 1,100,000, provided
that only one issuance of Earn-Out Shares will be made based on the
$5,000,000 level of Adjusted PTNI.
If Adjusted PTNI for 1996, 1997 and 1998 equals or exceeds
$8,000,000, then there will be issued that aggregate number of Earn-
Out Shares calculated by subtracting the number of Earn-Out Shares
previously issued or issuable based on the attainment of a lesser
Adjusted PTNI in the same year (if any) from 2,000,000, provided
that in no event will an aggregate of more than 2,000,000 Earn-Out
Shares be issued.
<F4>
(4) These options were exercised on September 1, 1995 and were issued
under the SHP NQSOP.
<F5>
(5) These options were issued pursuant to the NQSOP. See
"Description of Securities -- Outstanding Options."
<F6>
(6) Options to purchase 18,000 shares of the Company's Common Stock
were exercised on September 1, 1995 and options to purchase 18,000
shares of the Company's Common Stock become exercisable in July 1996.
Said options were issued under the SHP NQSOP.
<F7>
(7) These amounts represent the amounts paid by the Company for term
life insurance for the benefit of the Named Executive Officer. The
related insurance policies have no cash surrender values.
</TABLE>
Option Grants in Fiscal Year 1995. The following table sets
forth certain information with respect to stock option grants during
the year ended December 31, 1995 to Named Executive Officers.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
(Adjusted to Reflect a Recapitalization of the Company's Common Stock
See "Description of Securities")
<CAPTION>
Individual Grants
Potential
Number Percent Realizable
of of Total Exerc Value at
Shares Options ise Assumed Annual
Underlyi Granted or Expira Rate of Stock
ng to Base tion Price
Options Employee Price Appreciation
s in for Option
Term
Name Granted Fiscal Date 5% 10%
(#) Year ($/Sh)
<S> <C> <C> <C> <C> <C> <C>
David A. 300,000 25.6% 2.00 9/1/2000 $165,769 $366,306
Robinson
Bradley C. 300,000 25.6% 2.00 9/1/2000 $165,769 $366,306
Robinson
Dr. Gale H. 57,000 4.9% 2.00 9/1/2000 $ 31,496 $ 69,598
Thorne
_______________
<F1>
(1) These options were issued pursuant to the NQSOP and were
exercisable on the date of grant. See "Description of Securities --
Outstanding Options."
</TABLE>
Option Exercises and Year-End Holdings. The following table sets
forth certain information with respect to stock option exercises
during the year ended December 31, 1995, and the number of shares of
stock covered by both exercisable and unexercisable stock options held
by each of the Named Executive Officers.
<PAGE> 39
<TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Shares Options/SARs at Fiscal
Acquire Value at Fiscal Year-End($)
Name d On Realize Year-End($)
Exercis d ($) Exercisable/
e (#) Exercisable/ Unexercisable
Unexercisable (3)
<S> <C> <C> <C> <C>
David A. 90,000 180,000 300,000(1) $2,700,000
Robinson
Bradley C. 90,000 180,000 300,000(1) $2,700,000
Robinson
Gale H. 18,000 36,000 57,000(1)/, $675,000
Thorne 18,000(2)
_______________
<F1>
(1) Options exercisable at $2.00 per share.
<F2>
(2) Options become exercisable in July, 1996 at an exercise price of
$.39 per share.
<F3>
(3) The trading price of the Company's common stock on December 31,
1995 was $9.00 per share.
</TABLE>
Compensation of Directors
During 1994, the non-employee members of the Board of Directors
received a total of 9,000 shares of common stock as compensation for
serving as directors of SHP. For 1995, the Company granted stock
options under the NQSOP to purchase 20,000 shares of Common Stock for
$2.00 per share to the non-executive members of the Board of
Directors. The Company has made no other agreements regarding the
compensation of non-executive members of the Board of Directors.
Directors of the Company who are also officers of the Company receive
no additional compensation for their service as directors. All
directors are entitled to reimbursement for reasonable expenses
incurred in the performance of their duties as Board members.
Employment and Indemnity Agreements
On September 1, 1995, the Company entered into employment
agreements with each of Mr. David A. Robinson, Mr. Bradley C. Robinson
and Dr. Gale H. Thorne (collectively, the "Senior Executives"). The
terms of these employment agreements provide that (i) Mr. David
Robinson receive a salary of $240,000 per year, Dr. Gale Thorne
receive a salary of $150,000 per year and Mr. Bradley Robinson receive
a salary of $160,000 per year; (ii) the Senior Executives' employment
agreements are for terms of three years, expiring on September 1,
1998; (iii) the Senior Executives are entitled to a reasonable car
allowance; (iv) if the Senior Executives are terminated by reason of
disability or for other than cause, the salary of such Senior
Executives will continue for the full term of the agreement; (v) if a
Senior Executive is terminated for cause, the salary of such Senior
Executive cease as of the date of termination; (vi) the Company will
provide the Senior Executives with $1,000,000 of term life insurance
while employed by the Company; and (vii) the Senior Executives shall
keep all proprietary information relating to the business confidential
both during and after the term of the agreements.
The Company does not currently have employment agreements with
any of its other executive officers or key employees. The Company has
entered into Indemnity Agreements with each of its executive officers
and directors pursuant to which the Company agrees to indemnify the
officers and directors to the full extent permitted by law for any
event or occurrence related to the service of the indemnitee as an
officer or director of the Company that takes place prior to or after
the execution of the agreement. The Indemnity Agreements obligate the
Company to reimburse or advance expenses relating to any proceeding
arising out of an indemnifiable event. Under these agreements, the
officers and directors of the Company are presumed to have met the
relevant standards of conduct required by Delaware law for
indemnification. In the absence of the Indemnity Agreements,
indemnification of these officers and directors may be discretionary
in certain cases.
<PAGE> 40
Indemnification for Securities Act Liabilities
The Delaware General Corporation Law authorizes, and the
Company's Bylaws and Indemnity Agreements provide for, indemnification
of the company's directors and officers against claims, liabilities,
amounts paid in settlement and expenses in a variety of circumstances.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Stock Options and Warrants
During 1994 the Board of Directors of SHP approved a non-
qualified stock option plan for its officers, directors and key
employees ("SHP NQSOP"). 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. As of November 15, 1995,
options to acquire an aggregate of 63,000 shares of Common Stock at
$.39 per share were outstanding under the SHP NQSOP. Also, in
February 1995 (prior to the Acquisition) SHP issued to Max Lewinsohn,
a nonaffiliated shareholder of the Company, a warrant to purchase
45,000 shares of Common Stock at $1.67 per share. Said warrant were
issued to Mr. Lewinsohn in consideration for funds paid to SHP. The
options issued under the SHP NQSOP expire in 1999 and the warrant
issued to Mr. Lewinsohn expires in 1996.
On September 1, 1995, the Company adopted the NQSOP. In
addition, on the date of the Acquisition, all of the options issued
under SHP's NQSOP become outstanding obligations of the Company and
the SHP NQSOP was terminated. As of April 15, 1996, options to
acquire an aggregate of 1,171,810 shares of Common Stock at $2.00 per
share had been granted and are presently outstanding, including the
options granted to David A. Robinson, Bradley C. Robinson and Gale H.
Thorne.
Compensation Committee Interlocks and Insider Participation
No executive officers of the Company serve on the Compensation
Committee (or in a like capacity) for the Company or any other entity.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1994 (prior to the Acquisition), certain
shareholders of SHP made direct loans to SHP in the amount of
approximately $385,000 under a bridge loan agreement. Subscriptions
under the bridge loan were offered proportionately to shareholders of
SHP based on the number of shares held. The subscribers to the bridge
loan were issued warrants permitting them to acquire up to an
aggregate of 346,500 shares of common stock at $1.11 per share on or
before December 31, 1995. These warrants were exercised in July, 1995
in consideration for the conversion of this loan.
Stanley Hollander, a former director of the Company, is an
officer and director of the corporate managing member of Capital
Growth, which holds 75,000 shares of Common Stock 530,125 Series A
Warrants, 1,290,375 Series B Warrants and options to purchase 20,000
shares of the Company's Common Stock. Capital Growth received the
Common Stock, Series A Warrants and Series B Warrants, together with a
gross fee of $860,251, as consideration for placement agent services
rendered on behalf of the Company during 1995.
<PAGE> 41
DESCRIPTION OF SECURITIES
The Company's authorized capital stock currently consists of
50,000,000 shares of Common Stock, $0.02 par value per share and
5,000,000 shares of preferred stock, $0.001 par value per share.
Common Stock
Holders of the Company's Common Stock are entitled to one vote
per share for each share held of record on all matters submitted to a
vote of stockholders. Subject to preferential dividend rights with
respect to any outstanding preferred stock, holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available
therefor. Upon liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in the assets of
the Company legally available, subject to any prior rights of any
outstanding preferred stock. Holders of Common Stock have no
cumulative voting rights, no preemptive, subscription, redemption or
conversion rights. All outstanding shares of Common Stock are validly
issued, fully paid and non-assessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any
series of preferred stock which the Company may designate and issue in
the future.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred
stock, par value $.001 per share. The Company does not have any
shares of preferred stock issued. The Board of Directors of the
Company is empowered, without further action by the stockholders, to
issue from time to time one or more series of preferred stock, with
such designations, rights, preferences and limitations as the Board of
Directors may determine by resolution. The rights, preferences and
limitations of separate series of preferred stock may differ with
respect to such matters as may be determined by the Board of
Directors, including, without limitation, the rate of dividends,
method and nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions (if any),
conversion rights (if any) and voting rights. The potential exists,
therefore, that preferred stock may be issued which would grant
dividend preferences and liquidation preferences to preferred
stockholders. The issuance of the preferred stock may also have the
effect of delaying or preventing a change in control of the Company.
Management of the Company has no present intent of issuing any of
the preferred stock. If and when the stock is issued it might have
substantially more than one vote per share or other provisions
designed to deter a change in control of the Company. If such stock
is issued to a limited group of management such persons may gain
absolute voting control of the Company, including, among other things,
the ability to elect all of the directors, and to control certain
matters submitted to a vote of stockholders and to prevent any change
in management despite performance. Also, the shares of preferred
stock may have the right to vote upon certain matters as a separate
class.
Warrants
The Series A Warrants and Series B Warrants are exercisable for
shares of Common Stock of the Company at a price of $3.00 per share in
the case of Series A Warrants and $2.00 per share in the case of
Series B Warrants, and expire on the earlier of (a) two years from the
date of effectiveness of a registration statement under the Securities
Act covering the issuance of the shares of Common Stock underlying
such Warrants upon issuance by the Company or for resale of such stock
by the holder, which period shall be extended day-for-day for any time
that a prospectus meeting the requirements of the Securities Act is
not available, or (b) the date specified in a notice of redemption
from the Company (subject to the prior right of the holder to exercise
the Warrants for at least 20 days following the date of such notice)
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 stock. Thus, the Company may accelerate the expiration of
the Warrants in the event that the average market price of the Common
Stock exceeds $6.00 per share, in which event the holders of the
Warrants would be permitted to exercise the Warrants during a period
of not less than 20 days following notice of such an event. The
Company presently intends to accelerate the expiration of the Warrants
when and if such conditions are met. All of the Warrants are
currently outstanding.
<PAGE> 42
The Series A Warrants were sold to accredited investors in the
Company's private placement that closed on August 18, 1995. As part
of Capital Growth's fee for acting a placement agent in said private
placement, the Company issued to Capital Growth 1,290,375 Series B
Warrants which warrants comprise all of the Company's outstanding
Series B Warrants.
Prior to the Acquisition, SHP issued to a nonaffiliated
shareholder a warrant to purchase 45,000 shares of Common Stock at
$1.67 per share. Said warrant was issued by SHP in exchange for cash.
This warrant expires in 1996 and became an outstanding obligation of
the Company, rather than of SHP, on July 28, 1995 (the date of the
Acquisition).
Outstanding Options
On September 1, 1995, the Company adopted the NQSOP wherein the
Company is authorized to grant options to purchase up to 1,284,998
shares of Common Stock of the Company. Pursuant to the NQSOP, in
September 1995, the Company granted stock options to purchase
1,151,810 shares of Common Stock, and in November , the Company issued
stock options to purchase 20,000 shares of Common Stock. All of these
Stock Options are immediately exercisable. These options expire in
2000.
In addition to the options outstanding under the NQSOP, the
Company also has 63,000 options outstanding that were issued under the
SHP NQSOP and that became obligations of the Company pursuant to the
terms of the Acquisition. The SHP NQSOP options allows the holders
thereof to purchase 63,000 shares of the Company's common stock at
$0.39 per share. The SHP NQSOP options expire in 2004.
Earn-Out Shares
John T. Clarke, David A. Robinson and Bradley C. Robinson, who
are respectively a former Director; the President, Chief Executive
Officer and a Director; and a Vice President and Director of the
Company, have the opportunity to receive up to an aggregate of
2,000,000 additional shares of Common Stock (the "Earn-Out Shares").
Any issuance of Earn-Out Shares would be based upon the level of pre-
tax consolidated net income, adjusted to exclude any expense arising
from the obligation to issue or the issuance of the Earn-Out Shares
and any income or expense associated with non-recurring or
extraordinary items as determined in accordance with generally
accepted accounting principles ("Adjusted PTNI").
If Adjusted PTNI for 1996, 1997 or 1998 equals or exceeds
$1,500,000, then an aggregate of 350,000 Earn-Out Share will be
issued, but only one issuance of 350,000 Earn-Out Shares will be made
based on the $1,500,000 level of Adjusted PTNI.
If Adjusted PTNI for 1996, 1997 or 1998 equals or exceeds
$5,000,000 then there will be issued that aggregate number of Earn-Out
Shares calculated by subtracting the number of Earn-Out Shares
previously issued or issuable based on the attainment of a lesser
Adjusted PTNI in the same year (if any) from 1,100,000, provided that
only one issuance of Earn-Out Shares will be made based on the
$5,000,000 level of Adjusted PTNI.
If Adjusted PTNI for 1996, 1997 and 1998 equals or exceeds
$8,000,000, then there will be issued that aggregate number of Earn-
Out Shares calculated by subtracting the number of Earn-Out Shares
previously issued or issuable based on the attainment of a lesser
Adjusted PTNI in the same year (if any) from 2,000,000, provided that
in no event will an aggregate of more than 2,000,000 Earn-Out Shares
be issued.
If Adjusted PTNI amounts set forth above are never reached, then
the Earn-Out Shares will not vest and no person shall have a right to
receive any of the Earn-Out Shares.
The Company expects that the issuance of Earn-Out Shares will be
deemed to be the payment of compensation to the recipients and will
result in a charge to the earnings of the company in the year or years
the Earn-Out Shares are earned, in an amount equal to the fair market
value of the Earn-Out Shares. This charge to earnings could have a
substantial negative impact on the earnings of the Company in the year
or years in which the compensation expense is recognized.
<PAGE> 43
The effect of the charge to earnings associated with the issuance
of Earn-Out Shares could place the Company in a net loss position for
the relevant year, even though the Adjusted PTNI was at a level
requiring the issuance of Earn-Out Shares. Because Earn-Out Shares
are issuable based on the results of a single year, the Adjusted PTNI
in a particular year could require the issuance of Earn-Out Shares
even thought he cumulative Adjusted PTNI for the three years 1996,
1997 and 1998, or any combination of those years, could reflect a
lower amount of Adjusted PTNI that would not require the Company to
issue such Earn-Out Shares or even a loss at the Adjusted PTNI. There
is no assurance that years subsequent to the year or years in which
Earn-Out Shares are issued will produce the same level of Adjusted
PTNI or will be profitable. The management of the Company may have
the discretion to accelerate or defer certain transactions that could
shift revenue or expense between years or otherwise affect the
Adjusted PTNI in any year or years.
The Company has agreed to file a registration statement under the
Securities Act with respect to the Earn-Out Shares, when issued.
Anti-Takeover Provisions
The Company is governed by the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law enacted in
1988. In general, the law prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder,
unless the business combination is approved in a prescribed manner.
"Business Combination" is defined to include mergers, asset sales and
certain other transactions resulting in financial benefit to the
stockholders. An "interested stockholder" is defined as a person who,
together with affiliates and associates, owns (or, within the prior
three years, did own) 15% or more of a corporation's voting stock. As
a result of the application of Section 203, potential acquirers of the
Company may be discouraged from attempting to effect an acquisition
transaction with the Company, thereby possibly depriving holders of
the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above market prices pursuant to such
transactions.
Limitation on Liability of Directors
The Company's Certificate of Incorporation provides that a
director of the company will not be personally liable to the company
or its stockholders for monetary damages for the breach of his or her
fiduciary duty of care as a director. In accordance with the Delaware
General Corporation Law, however, this provision does not eliminate or
limit the liability of a director of the company (i) for breach of the
director's duty of loyalty to the company or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or
negligent conduct in paying dividends or repurchasing stock out of
other than lawfully available funds, or (iv) for any transaction from
which the director derived an improper personal benefit.
Certain Certificate and Bylaw Provisions
The Certificate of Incorporation of the Company provides for
dividing the Board of Directors into three classes. Beginning in
1996, one class of directors will be elected at each annual meeting
for a three-year term. Amendments to this provision must be approved
by a two-thirds vote of all the outstanding stock entitled to vote,
and the number of directors may be changed by a majority of the entire
Board of Directors or by a two-thirds vote of the outstanding stock
entitled to vote. Meetings of the stockholders may be called only by
the Board of Directors, the Chief Executive Officer or the President,
and shareholder action may not be taken by written consent.
Shareholder proposals, including director nominations, may be
considered at a meeting only if written notice of the proposal is
delivered to the Company from 50 to 75 days in advance of the meeting,
or within 10 days after notice of the meeting is given to stockholders
if the meeting was not publicly disclosed at least 60 days prior to
the meeting. These provisions could have the effect of discouraging
takeover attempts or delaying or preventing a change of control of the
Company.
Transfer Agent and Registrar
The stock transfer agent, registrar and warrant agent for the
Company's Common Stock is Colonial Stock Transfer, Inc., Salt Lake
City, Utah.
<PAGE> 44
SECURITIES ELIGIBLE FOR SALE
Upon completion of this Offering, assuming (a) the exercise of
all of the Warrants, (b) the exercise of all options and warrants
currently outstanding (other than the Warrants), and (c) issuance of
the Earn-Out Shares, the Company will have outstanding 16,270,213
shares of Common Stock.
Not all of the Company's outstanding securities are being
registered hereby. Of the 16,270,213 shares of Common Stock
outstanding upon completion of this Offering, (assuming the exercise
of all of the Warrants, the exercise of all other outstanding options
and warrants, and the issuance of the Earn-Out Shares), 13,682,213
outstanding shares of Common Stock are being registered hereby and
300,000 outstanding shares of Common Stock are not being registered
hereby. Of the 300,000 outstanding shares of Common Stock not
registered hereby, 10,256 shares of Common Stock were previously
registered for sale pursuant to a prior registration statement and
284,616 shares of Common Stock became freely tradable under Rule 144
or the Securities Act of 1933 or a similar exemption. 294,872 are
effectively free trading. All 5,681,060 shares issuable upon the
exercise of the Warrants and Option Stock are being registered hereby.
No prediction can be made as to the effect, if any, that future
sales of stock, or the availability of stock for future sales, will
have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock (including stock
which may be issued upon exercise of Warrants or Stock Option), or the
perception that such sales may occur, could adversely affect
prevailing market prices for the Common Stock.
PRINCIPAL AND SELLING SECURITYHOLDERS
Principal Securityholders
The following table sets forth certain information with respect
to the beneficial ownership of the common stock of the Registrant as
of April 15, June 11 1996, for: (i) each person who is known by
the Registrant
to beneficially own more than 5 percent of the Registrant's common
stock, (ii) each of the Registrant's directors, (iii) each of the
Registrant's Named Executive Officers, and (iv) all directors and
Named E executive O officers as a group. As of June
11 April 15 , 1996 the Company had 8,589,153 shares of common
stock outstanding.
<TABLE>
<CAPTION>
Name and Shares Percentage of
Address Beneficially Shares Position
of Beneficial Owned(2) Beneficially
Owner(1) Owned
<S> <C> <C> <S>
David A. 630,219 7% President, Chief
Robinson(3) Executive Officer
Chairman of the
Board and Director
Bradley C. 630,219 7% Vice President
Robinson(3) Operations and
Investor Relations
and Director
Gale H. 149,700 2% Vice President,
Thorne(4) 137,700 Product Development
and Director
J. Clark 245,000 3% Vice President ,
Robinson(5) Chief Financial
Officer, Treasurer,
Secretary and
Director
Gary W. 86 1% Director
Farnes(6) 70,000
Robert R. 83,000 1% Director
Walker(7)
Named Executive 1,824,138 20%
Officers and
Directors as a
Group (6 Persons)
John T. 647,465 7%
Clarke(8)
4 Butterworth
Gardens
Woodford, Essex
England
Capital Growth
International(9)
11601 Wilshire
Boulevard, 1,915,500 18%
Suite 500
Los Angeles, CA
90025
__________________________
<F1>
(1) Except where otherwise indicated, the address of the
beneficial owner is deemed to be the same address as the
Registrant.
<F2>
(2) Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally
includes voting and investment power with respect to the
securities. Shares of common stock subject to options or warrants
currently exercisable, or exercisable within sixty (60) days, are
deemed outstanding for computing the percentage of the person
holding such options but are not deemed outstanding for computing
the percentage of any other person.
<F3>
(3) Includes 330,219 shares and stock options to purchase 300,000
shares for each of these two persons. Does not include 666,666
Earn-Out Shares for each of these two persons which shares have not
vested.
<F4>
(4) Includes 63,000 shares, stock options to purchase 57,000
shares and Series A Warrants to purchase 15,000 27,000
shares. Also includes 2,700 shares that Mr. Thorne is deemed to
beneficially own as a result of their being owned in joint tenancy
with his spouse. Does not include stock options to purchase 18,000
shares that become exercisable in July, 1996.
<F5>
(5) Includes 90,000 shares and stock options to purchase 75,000
shares. Also includes 50,000 shares and Series A Warrants to
purchase 30,000 shares that Mr. Robinson is deemed to beneficially
own as a result of their being owned by a controlled entity.
<F6>
(6) Includes 50,000 61,500 shares, and stock options to
purchase 20,000 shares. and Series A Warrants to purchase 4,500
shares.
<F7>
(7) Includes stock options to purchase 20,000 shares. Also
includes 63,000 shares of which Mr. Walker is deemed to be the
beneficial owner as a result of their ownership by a trust of which
he is a trustor.
<F8>
(8) Includes 231,362 163,000 shares, stock option to
purchase 300,000 shares and Series A Warrants to purchase
21,000 3,000 shares. Also includes 18,000 shares that Mr.
Clarke is deemed to beneficially own as a result of their being
owned by a controlled entity, 127,465 59,103 shares and
18,000 Series A Warrants owned by his spouse, and 18,000 shares
owned by a minor child, which he is deemed to beneficially own.
Does not include 666,666 Earn-Out Shares which shares have not
vested.
<F9>
(9) Includes 75,000 shares, stock options to purchase 20,000
shares, Series A Warrants to purchase 530,125 shares and Series B
Warrants to purchase 1,290,375, of which 430,125 Series A Warrants
are to be transferred to distributors that assisted Capital Growth
in the private placement completed on August 18, 1995, and as to
which Capital Growth disclaims beneficial ownership.
</TABLE>
<PAGE> 46
The Registrant is not aware of any arrangements, the operation of
which may at a subsequent date result in a change in control of the
Registrant.
Selling Securityholders
The following table provides the names of and number of shares of
Common Stock offered for sale by each Selling Securityholder. The
Selling Securityholders may sell all, some or none of their shares of
Common Stock. The following entries to the table represent,
respectively, the total number of shares which each stockholder may
sell pursuant to the registration statement. Assuming that all of the
stock offered hereby is sold, no Selling Securityholder would own more
than 1% of the outstanding common stock of the Company. See also
"Principal Securityholders."
The shares of Common Stock and Series B Warrants offered
by this Prospectus may be offered from time to time by the Selling
Securityholders named below. Unless otherwise noted, no Selling
Securityholder is an executive officer of the Company.
<TABLE>
<CAPTION>
Percentage Stock
Stock of Common Underlying
Name(1) Owned as Stock Stock Warrants
of Owned Offered and Stock
April Before Hereby Options
22 Offering Offered
June 11, Hereby
1996
<S> <C> <C> <C> <C>
A/S Kapitalutvikling 10,000 * 10,000 6,000
Magne F. Aaby 50,000 1% 50,000 30,000
AHM Eiendoms AS 10,000 * 10,000 6,000
Celia Allsop 05,000 * 5,000 3,000
Nadine Amon * 8,334
Emanuel Arbib * 16,667
John G. Argitis 10,000 * 10,000 6,000
Arimo Corporation 5,000 * 5,000 3,000
Dennis & Marilyn 5,000 * 5,000 3,000
Astrella
Caroline Bandlien 38,250 * 38,250
Charlotte Bandlien 38,250 * 38,250
Einar H. Bandlien 203,000 3% 203,000 30,000
Gunn Bandlien * 6,667
Karl Bandlien 9,000 * 9,000
Banisa Corp. * 25,000
Pension Plan
Trust
Beatrice Barnett 5,000 * 5,000 3,000
Gary Barnett 10,000 * 10,000 6,000
Josef A. Bauer 50,000 1% 50,000 30,000
Dennis Malcolm Baylin 12,500 * 12,500 7,500
Michael Roy Bichan 34,497 * 34,497
Susie Elizabeth 9,000 * 9,000
Bichan
Stewart & Debbie 0 * 0 9,000
Blake
BO Shipping AS 182,500 3% 182,500 109,500
Bostar A.S. 50,000 1% 50,000 30,000
Boyd Financial Corp. 71,186 1% 71,186
Harvey R. Brice BSCC 15,000 * 15,000 9,000
M/P Plan A/C #13-
3604093
Harvey R. Brice * 16,667
BSSC Master Defined
Contribution
Money/Pruchase
Pension Plan
Butler Investments 137,000 2% 137,000 73,200
Ltd.
Cameo Trust Corp. 33,000 * 33,000 19,800
Limited
The Canada Trust 10,000 * 10,000
Company
Capital Growth 75,000 8% 75,000 1,584,661
International 666,621
Gregory W. Carlisle 5,000 * 5,000 3,000
M.J. Carter 10,000 * 10,000 6,000
Castle Rock Land & 5,000 * 5,000 3,000
Livestock, L.C.
Central Investments 50,000 1% 50,000 30,000
Limited
Charles Chamberlain 5,000 * 5,000 3,000
Louise Chamberlain 5,000 * 5,000 3,000
Chesham Consultants 18,000 * 18,000
Ltd
Cristofer Clarke 18,000 * 18,000
John T. Clarke (2) 163,000 231,362 5% 73,000 303,000 321,000
Michelle M.G. Clarke 44,000 1% 44,000 7,500
Thomas & Edna Clarke 70,803 1% 70,803
Willaim F. Coffin 8,800 * 8,800 5,280
Robert E. Colby Jr. 38,000 1% 38,000 57,000
Corner Bank Ltd. 85,000 2% 85,000 51,000
Cowan and Co., 15,000 * 15,000 9,000
Custodian for Stanely
Hollander IRA
Martin & Susan Cox 2,600 * 2,600
Credit Suisse 65,000 1% 65,000 39,000
(Guernesy) Limited
Demachy Worms & Co. 125,000 2% 125,000 75,000
International Ltd.
John Dillaway 5,000 * 5,000 3,000
DWR Custodial for * 12,500
Gary Barnett IRA STD
Rollover 4/6/83
Edgeport Nominees 65,000 1% 65,000 43,550
Limited
Egger & Co. 2% 151,500
147,000
Moises Egozi * 10,000
Mark Emelfarb * 16,667
Eurocapital Ltd * 23,100
Failor Family Trust 45,000 1% 45,000
Anders Farestveit 300,000 5% 300,000 180,000
Walter Smith * 16,667
Farms, LTD
Farnes, Gary c/f 1,000 * 1,000
Trent Farnes
Gary Farnes c/f 1,000 * 1,000
Trevor Farnes
Gary Wm. Farnes (2) 50,000 1% 50,000 20,000
24,500
Tami Farnes 1,000 * 1,000
Tara Farnes 1,000 * 1,000
Timothy L. Farnes 6,100 * 6,100 11,500
Tyler Farnes 2,500 * 2,500 1,500
M, Farrel 32,000 * 32,000 3,000
Alan Field 25,000 * 25,000 15,000
Alan & Susan Field 22,500 * 22,500
Burton C. Firtel 27,000 * 27,000
David Floor 5,000 * 5,000 3,000
Fred C. Follmer 10,000 * 10,000 6,000
Foster, Elaine 22,500 * 22,500
Foster
Nigel Foster 135,000 2% 135,000
Deborah May Fowler 2,250 * 2,250
Richard Fowler 2,250 * 2,250
Freed Investment 10,000 * 10,000 6,000
Company
David L. Freed Family 5,000 * 5,000 3,000
Trust
David W. Freed 10,000 * 10,000 6,000
John & Karen Freed 10,000 * 10,000 6,000
Paul L. Freed 5,000 * 5,000 3,000
Peter Q. Freed 10,000 * 10,000 6,000
Robert E. Freed 10,000 * 10,000 6,000
Family Trust
Jack Freidman 25,000 * 25,000 15,000
G-Men, Inc. 20,000 * 20,000 12,000
Galway Capital 180,000 2% 180,000
Limited
Genevalor Trusteeship 190,214 3% 190,214 30,000
& Management Corp.
Jeremy A. Gilbert 5,000 * 5,000 3,000
Glass & Rosen * 10,000
Profit Sharing Plan
FBO Paul Glass
Paul W. & Susan V. 7,500 * 7,500 4,500
Glass, Co-Trustees
Bernard Goldfinger * 3,334
and Muriel Goldfinger
Jtnros
Judy Goodstein 14,400 * 14,400
John J. Gottsman 25,000 * 25,000 15,000
Graco Holdings, * 16,667
Inc., Stacie Greene,
President
Gillian Margaret Gray 25,000 * 25,000 15,000
Michael John Gray 25,000 * 25,000 15,000
David Greenberg * 8,334
and Susan Greenberg
Jtnros
David Greenberg * 8,333
IRA
Susan Greenberg 10,000 * 10,000 6,000
Greenburg & Parish * 8,334
Defined Benefit
Plan
Gruntal & Co., 15,000 * 15,000 9,000
Inc., Custodian for
Stanely Hollander IRA
Tad Gygi 9,000 * 9,000
Arnfin Haavik 123,000 1% 123,000
Turid Nordal Haavik 18,000 * 18,000 9,000
Arnfin Harvik * 10,000
Stephen S. Haas * 8,334
and Barbara B. Hass
Jtnros
Gail Healey 123,465 2% 123,465 18,000
55,103 55,103
Kevin Healey 1,000
Pearl Healey 1,000
Timothy Healey 1,000
John & Lenore Heckler 5,000 * 5,000 3,000
Helix Investments 1% 90,738
Limited
Arne Hellesto 50,000 1% 50,000 30,000
Tom Henriksen 5,000 * 5,000 3,000
Heptagon Investments 25,000 * 25,000 15,000
Ltd.
Daniel M. Herscher, 5,000 * 5,000 3,000
Trustee, Daniel M.
Herscher, Esq.,
Retirement Plan Trust
Hill Oldridge Ltd. 8,500 * 8,500
Pension Fund
Julian Hill 3,600 * 3,600
Hollis Holding A/S 10,000 * 10,000 6,000
Nils Otto Holmen 25,000 * 25,000 15,000
Fiona & James 3,500
Hoyfield
Simen Horne 10,000 * 10,000 6,000
Charlotte Horowitz 15,000 * 15,000 9,000
14,000
Svein Huse 50,000 1% 50,000 30,000
Hutton International 50,000 1% 50,000
SA
Intl. Asso. of 45,000 1% 45,000
Christian Prof.
Isenberg 1989 * 10,000
Trust, Gerald I.
Isenberg and Carole
Issenberg,
Trustees
George Anthony 22,500 * 22,500
Jackson
Mary Jackson 22,500 * 22,500
Michael S. Jacobs 15,000 * 15,000 9,000 12,334
Allan D. Jacobson IRA 12,500 * 12,500 7,500 24,167
Lenard E. Jacobson, 15,000 * 15,000 9,000
M.D.
Jennings Asset Group 12,500 * 12,500 7,500
III
Jennings Asset 1% 75,000
Group III c/o
Christopher D.
Jennings
Steinar Schei 13,500 * 13,500
Johansen
Svein E. Johansen 109,000 1% 109,000 6,000
Svin Egil Johansen * 10,000
and Turid Schei
Johasen Jtnros
Torgeir Schei 13,500 * 13,500
Johansen
Anne Johnston 144,000 2% 144,000
Maria Elizabeth Jones 1,000
Alfred Joseph 6,300 * 6,300
Margaret Joseph 6,300 * 6,300
Ted Kaminer & Hillary 5,000 * 5,000 3,000
Kahn Jtnros
Ted I. Kaminer and * 5,000
Hillary M. Kahn, as
Joint Tenants
Mark E. Karp 9,000 * 9,000
Kaufman & Leinberger 5,000 * 5,000 3,000
Investments, Inc.
Inga Jane Kempton 9,000 * 9,000
John W. Kennedy * 25,000
Vance Kirby 15,000 * 15,000 9,000
Ronald B. Koenig 27,500 1% 27,500 16,500
Howard Kozinn * 8,500
Pierre & Francoise 10,000 * 10,000 6,000
Lambert
Andrew Paul Lampert 10,000 * 10,000 6,000
Barbara C. Langham 3 5,000 * 3 5,000 3,000
Charles J. Charlayne 10,000 * 10,000 6,000
E. Lasky
Legal and Equitable 15,000 * 15,000 9,000
Pension Fund
J. Matt Lepo 5,000 * 5,000 3,000
Dr. J. K. Lewinsohn 43,143 1% 43,143
M.R. Lewinsohn 75,500 2% 75,500 65,000
Claus Lian 25,000 * 25,000 15,000
Richard B. * 16,667
Liroff
Lloyds Bank Geneva * 15,000
c/o Brown Brothers
Harriman
Rabbe E. Lund 50,000 1% 50,000 30,000
Mamimu Ltd. 12,500 * 12,500 7,500
K Mason 8,000 * 8,000
Joseph & Lillian 5,000 * 5,000 3,000
Matulich
Metropolitan Finance 53,000 1% 53,000 15,000
Limited
Eugene J. Meyers 12,500 * 12,500 7,500
Neil P. Micklethwaire 15,000 * 15,000 1 9,000
Miller Investment * 16,500
Company, Inc.
George H. Miller 32,000 * 32,000 3,000
Peter Mills 15,000 * 15,000 9,000
Wenche Moe 15,000 * 15,000 9,000
Marie-Pascale Molema 25,000 * 25,000 15,000
Michael & Nancy * 1,563
Morris
Frank & Tracy Moss 24,000 * 24,000 12,000
Joe & Sandra Motzkin 12,500 * 12,500 7,500
Nap Enterprises 32,357 * 32,357
Limited
Napier Brown Holdings 75,000 1% 75,000 45,000
Ltd.
Nancy and Clyde 2,500 * 2,500 1,500
Needham
Anne & Harry Newman 10,000 * 10,000 6,000
Norman Assuranse AS 182,500 3% 182,500 109,500
Harald Norman 180,000 3% 180,000 108,000
Patricia & Oistein 15,000 * 15,000 9,000
Nyberg
Joan O'Gorman 13,500 * 13,500
Sigurd Olsvold 5,000 * 5,000 3,000
Oral & Maxillofacial 96,333 1% 96,333
Surgical Association
Bonita Michelle 11,700 * 11,700
Overlander
Clive Overlander 16,700 * 16,700 3,000
Carolyn Owen 2,500 * 2,500 1,500
Owen, Charles V. 2,500 * 2,500 1,500
Raymond H. Owen 5,000 * 5,000 3,000
Asher Plaut and * 3,334
Evelyn Plaut
Jtnros
Mark Peterson 46,200 1% 46,200 27,720
Morten Poulsson 25,000 * 25,000 15,000
PQF Investments 5,000 * 5,000 3,000
Prime Grieb & Co., 5,000 * 5,000 5,100
Limited
Prodeco Capital 150,000 3% 150,000 90,000
Corporation
Elizabeth Diane 2,500 * 2,500 1,500
Pummell
Martyn James Pummell 25,000 * 25,000 15,000
Derek Reddin-Clancy 7,200 * 7,200
Mary-Pat Reddin- 10,800 * 10,800
Clancy
David A. Rees 25,000 * 25,000 15,000
John E. Reihl 5,000 * 5,000 3,000
Republic National 5,000 * 5,000 30,000
Bank of New York
(France) Monaco
Republic National 1% 75,000
Bank of New York
(Luxenbourg) SA
John Laurence 5,000 * 5,000 3,000
Richardson
Patrick George 50,000 2% 50,000 30,000 92,500
Ridgwell
Andrew Kent Robertson 50,000 1% 50,000 30,000
Brad Robinson(2) 330,219 7% 240,219 300,000
David Robinson(2) 330,219 7% 240,219 300,000
J. Clark Robinson(2) 90,000 2% 90,000 75,000
J. Clark Robinson, 50,000 1% 50,000 30,000
Trustee Robinson
Family Trust(2)
Steffanie Robinson * 5,000
Stephen L. Robinson 12,500 * 12,500 7,500
Charles & Marilyn 5,000 * 5,000 3,000
Roellig
Josephine F. Rose 5,000 * 5,000 3,000
Family Trust
Ruth W. Rose 900 * 900
Gerald Rosen 7,500 * 7,500 4,500
12,500
Brian Roth and * 6,667
Susan Roth Jtnros
Brian Stuart Roth- 5,000 * 5,000 3,000 6,333
Special Account 1
Brian Stuart Roth- 2,500 * 2,500 1,500 4,000
Special Account 2
Brian Stuart Roth 42,300 * 42,300
Brian Stuart Roth in 8,000 * 8,000
Trust 1 FBO Laura
Jane Roth
Brian Stuart Roth in 8,000 * 8,000
Trust 2 FBO Lucie
Claire Roth
Laura Jane Roth 6,750 * 6,750
Lucie Claire Roth 6,750 * 6,750
Nicholas Leigh Roth 11,500 * 11,500
9,000 9,000
Nigel James Roth 11,500 * 11,500
9,000 9000
Suzan Irene Roth 48,550 1% 48,550 3,750
Michel Roy 5,000 * 5,000 3,000
Cheryl Lynn Rubin 32,000 * 32,000 3,000
Pierre Rudman * 3,063
Allan Rudnick * 10,000
Allan Rudnick IRA 10,000 * 10,000 6,000
Rollover
Rush & Co. c/o 1% 2,000
Swiss American
Securities, Inc.
S.P. Angel Nominees 12,500 * 12,500 7,500
Saracen Int. Inc. 25,000 * 25,000 15,000
Barry A. Saunders 27,000 * 27,000
Martin Singer * 1,700
Skull Valley Company, 10,000 * 10,000 6,000
Ltd.
Karen Elizabeth Smith 119,500 2% 119,500 20,000
Phillip Smith 9,000 * 9,000
Fred Snitzer 15,000 * 15,000 9,000
Snowboard Stiftung 50,000 1% 50,000 30,000
Robert & Claudia 43,667 1% 43,667 15,000
Sorrentino
Spellord, Inc. 25,000 1% 25,000 15,000
73,334
Standard Acre SA * 3,125
Svien Erik Stiansen 25,000 * 25,000 15,000
Torill Stiansen 9,000 * 9,000
Stolzoff Family Trust 50,000 1% 50,000 30,000
Gary Stolzoff 12,500 * 12,500 7,500
Martin S. Stolzoff * 13,500
and Barbara R.
Stolzoff Jtnros
Karl Sivert Sunde 10,000 * 10,000 6,000
Swiss American Sec., 45,000 1% 45,000
Ltd
The Chase Manhattan 252,500 3% 252,500
Bank NA
The First National 45,000 1% 45,000 27,000
Bank of Chicago
The Joseph 9,000 * 9,000
Accumulation &
Maintenance
Settlement
Theta K. Partners * 28,334
L.P. c/o Alan D.
Jacobson, General
Partner
Bruce W. Thorne 900 * 900
Craig N. Thorne 900 * 900
David L. Thorne 5,900 * 5,900 19 22,810
Gale H. Sr. & Donna 2,700 * 2,700
L. Thorne, with full
rights of
survivorship(2)
Gale H. Throne, 25,000 * 25,000
Trustee of Gale H.
Throne Trust(2)
Gale H. Thorne (2) 18 1% 5,000 90,000
23,000 102,000
Gale H. Thorne, Jr. 900 * 900 23,000
Kendall P. Thorne 900 * 900
Michael L. Thorne 900 * 900
Steven D. Thorne 900 * 900
Leslie Thorne 10,000 * 10,000 6,000
Olve Torvanger 126,000 2% 126,000 0,000
Townsley & 1% 57,831
Company
Richard Trew 11,800 * 11,800
Nils N. Trulsvik 142,500 2% 142,500 4,500
21,000
U.B.S. * 4,500
Nominees
Michael Vanderhoof 5,000 * 5000 3,000
Vital Milj AS 75,000 3% 75,000 172,600
Robert R. Walker(2) * 20,000
Robert R. Walker, 63,000 1% 63,000
Gen. Partner of
Robert R. Walker
Investment LTD
Partnership(2)
Sidsel O.Walker 16,500 * 16,500 4,500
Steve Wallitt 5,000 * 5,000 3,000
David J. Walsh * 8,334
Kilian R. Walsh 10,000 *
10,000 6,000
George Weisenfeld * 10,000
and Myrna Weisenfeld
Jtnros
Allan Weissglass 25,000 1% 25,000 15,000
32,500
Joel S. Weissglass 20,000 * 20,000 12,000
Anthony Neal Wenham 4,500 * 4,500
David John Wenham 23,000 * 23,000 3,000
James Robert Wenham 4,500 * 4,500
Valerie Ann Wenham 23,000 * 23,000 3,000
Lago Wernstedt 20,000 * 20,000 12,000
Ann Marie Whiting 5,400 * 5,400
Audrey Doreen Whiting 5,400 * 5,400
John Wilkinson 31,500 * 31,500
Joseph A. Wilkinson 10,000 * 10,000 6,000
Kathryn Wilson 4,500 * 4,500
David & Susan 25,000 * 25,000 15,000
Wilstein, Trustees of
Century Trust
Winston Navigation * 30,000
S.A.
Malcolm Seaton * 4,500
Wood
Roy Vincent Wright 15,000 * 15,000 9,000
Jim Yardley 4,000 * 4,000
Seymour Zwickler * 8,000
IRA
- -------------------------------------------------------------------------
Totals 8,289,153 8,001,153 5,681,060
* Less than 1%
_______________
<F1>
(1) For purposes of this table, ownership with respect to a
Securityholder does not include shares of Common Stock beneficially
owned but held by other persons shown in this table. For such
information relating to directors and officers of the Company, see
"Principal and Selling Securityholders -- Principal
Securityholders."
<F2>
(2) Indicates employee or director of the Company or of SHP during
the past three years. See "Principal and Selling Securityholders --
Principal Securityholders."
<F3>
(3) Not included in the above table are the 1,290,375
outstanding Series B Warrants, all of which are owned by Capital
Growth. Of said Series B Warrants, 918,040 or seventy-one percent
(71%) of the Series B Warrants are hereby being offered for resale.
If all of the Series B Warrants offered hereby are sold, Capital
Growth would own 29% of the outstanding Series B Warrants.
</TABLE>
<PAGE> 52
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby may be sold from time
to time by the Selling Securityholders on the Over-the-Counter market
or on Nasdaq on terms to be determined at the time of such sales. The
Selling Securityholders may also make private sales directly or
through a broker or brokers. Alternatively, the Selling
Securityholders may from time to time offer shares of Common Stock
offered hereby to or through underwriters, dealers or agents, who may
receive consideration in the form of discounts and commissions; such
compensation, which may be in excess of normal brokerage commissions,
may be paid by the Selling Securityholders and/or purchasers of the
shares of Common Stock offered hereby for whom such underwriters,
dealers or agents may act. The Selling Securityholders and any dealers
or agents that participate in the distribution of the shares of Common
Stock offered hereby may be deemed to be "underwriters" as defined in
the Securities Act and any profit on the sale of such shares of Common
Stock offered hereunder by them and any discounts, commissions or
concessions received by any such dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act.
The aggregate proceeds to the Selling Securityholders from sales of
the Securities offered by the Selling Securityholders hereby will be
the purchase price of the Securities less any broker's commissions.
The Common Stock issuable upon exercise of the Warrants and
Option Stock and offered hereby will be issued by the Company to
holders of Warrants and Option Stock from time to time pursuant to
exercise of such Warrants and Option Stock in accordance with the
terms thereof. The Company has entered into "Lock-up" agreements with
the holders of not less than 2,000,000 shares of Common Stock whereby
such stockholders are prohibited from selling such stock until sixty
days after the effective date of this Registration Statement.
Capital Growth owns all 918,040 Series B Warrants being
registered for resale hereby. Such Series B Warrants are being
registered at the request of Capital Growth with a view towards the
distribution of such Series B Warrants by Capital Growth to forty-nine
clients of Capital Growth (the "Capital Growth Clients"), who were
selected by Capital Growth for reasons wholly unrelated to whether the
Capital Growth Clients are or were stockholders of the Company or have
or had any other relationship with the Company. Capital Growth
expects to distribute the Series B Warrants to the Capital Growth
Clients without requesting or receiving any specific consideration in
exchange therefor. Capital Growth recognizes, however, that it may
receive some indirect benefit from such distribution, such as the good
will of the Capital Growth Clients. The Capital Growth Clients are
listed as Selling Securityholders herein with respect to the shares of
Common Stock they may acquire through exercise of the Series B
Warrants, even though Capital Growth does not propose to transfer the
Series B Warrants to the Capital Growth Clients prior to the effective
date of this Registration Statement.
The Company anticipates keeping this Registration Statement
current until all of the Securities are sold or effectively become
freely tradable. The Company may from time to time notify the Selling
Security holders that the Registration Statement is not current and
that as sales of the Securities may not occur until the Prospectus is
supplemented by sticker or amendment, as is appropriate.
To the extent required, the specific Securities to be sold, the
names of the Selling Securityholders, the respective purchase prices
and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect
to a particular offer will be set forth in an accompanying Prospectus
Supplement or, if appropriate, a post-effective amendment to the
Registration Statement of which this Prospectus is a part.
The Securities offered hereby may be sold from time to time in
one or more transactions at a fixed price, which may be changed, or at
varying prices determined at the time of such sale or at negotiated
prices.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers.
In addition, in certain Securities may not be sold unless they have
been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), any person
engaged in the distribution of the Common Stock offered hereby may not
simultaneously engage in market making activities with respect to the
Securities for a period of two business days prior to the commencement
of such distribution. In addition, without limiting the foregoing,
<PAGE> 53
the Selling Securityholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-2, 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of Securities
by Selling Securityholders.
The Company will pay substantially all the expenses incurred by
the Selling Securityholders and the Company incident to the Offering
and sale of Securities offered hereby to the public, but excluding any
underwriting discounts, commissions or transfer taxes. The expenses
are estimated to be approximately $192,119.63.
The Company has agreed to indemnify certain Selling
Securityholders against certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by
Blackburn & Stoll, LC, Salt Lake City, Utah.
CHANGE IN INDEPENDENT AUDITORS
On November 10, 1995 the Company's Board of Directors elected to
retain KPMG Peat Marwick, LLP ("KPMG") as its independent auditor.
Prior to that time Nielson, Grimmett & Company ("NGC") had acted as
the Company's independent auditor. The decision to change auditors
was recommended by the Company's Board of Directors, in part, because
KPMG had acted as SHP's independent auditor prior to the Acquisition.
The reports of NGC on the financial statements of the Company 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 Company'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 Company or its Board of Directors the
existence of any "disagreement" or "reportable event" within the
meaning of Item 304 of Regulation S-K.
The Company authorized NGC to respond fully to the inquiries of
the Company's successor accountant and NGC provided the Company with a
letter addressed to the SEC, as required by Item 304(a)(3) of
Regulations S-K, which letter has been filed with the SEC.
EXPERTS
The consolidated financial statements of the Company for the
period from November 19, 1993 (date of inception) to December 31,
1993, and for the years ended December 31, 1994 and 1995, have been
included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent auditors, appearing
elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the U.S. Securities and Exchange
Commission (the "SEC") a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does
not contain all of the information contained in the Registration
Statement and exhibits thereto on file with the SEC pursuant to the
Securities Act and the rules and regulations of the SEC thereunder.
For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement
and such exhibits. Statements contained in this Prospectus as to the
content of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all
respects by reference to the full text of contract or document. All
material elements of the subject documents or descriptions are,
however, set forth in the disclosure contained herein.
<PAGE> 54
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports and proxy statements and other
information with the SEC. Such reports, proxy statements and other
information and the Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the public
reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC. Copies of such materials may be obtained
from the SEC at such offices upon payment of prescribed rates.
<PAGE> F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheet for three months ended March 31,
1996 and 1995 F-2
Consolidated Statement of Operations for three months ended
March 31, 1996 and 1995 F-3
Consolidated Statement of Cash Flows for three months ended
March 31, 1996 and 1995 F-4
Notes to Consolidated Financial Statements for three months
ended March 31, 1996 F-5
Independent Auditors' Report F-6
Consolidated Balance Sheets as of December 31, 1994, and
1995 F-7
Consolidated Statements of Operations for the period from
November 19, 1993
(date of inception) to December 31, 1993, and for the years
ended December 31, 1994 and 1995 F-8
Consolidated Statements of Stockholders' Equity (Deficit) for
the period from November 19, 1993
(date of inception) to December 31, 1993, and for the years
ended December 31, 1994 and 1995 F-9
Consolidated Statements of Cash Flows for the period
from November 19, 1993 (date of
inception) to December 31, 1993, and for the years ended
December 31, 1994 and 1995 F-10
Notes to Consolidated Financial Statements F-12
<PAGE> F-2
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.,
Consolidated Balance Sheets
<CAPTION>
March 31, December
Assets 1996 31,
1995
------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,551,243 4,251,584
Accounts receivable 12,717 350,718
Related party receivable 107,418 122,850
Finished goods inventory 19,187 16,322
Prepaid expenses and other 115,071 34,017
------------------------
Total current assets 3,805,636 4,775,491
------------------------
Property, plant, and equipment, at cost 1,057,835 820,245
Less accumulated depreciation and 14,201 8,196
amortization -----------------------
Net property, plant, and equipment 1,043,634 812,049
Other assets, at cost 456,146 453,502
Less accumulated amortization 106,911 90,314
-----------------------
Net other assets 349,235 363,188
------------------------
Total assets $ 5,198,505 5,950,728
========================
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable 87,665 134,449
Accrued expenses 402,245 446,474
--------------------------
Total current liabilities 489,910 580,923
Stockholders' equity:
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
Common stock, $.02 par value in 1995 and
no par value in 1994. Authorized
50,000,000 shares; issued and 171,333 171,333
outstanding 8,566,653 shares in 1995
and 1,363,500 shares in 1994
Common stock subscription receivable (209,200) (259,500)
Additional paid-in capital 9,316,028 9,316,028
Accumulated deficit (4,569,566) (3,858,056)
--------------------------
Net stockholders' equity 4,708,595 5,369,805
---------------------------
Total liabilities and stockholders' $ 5,198,505 5,950,728
equity ===========================
</TABLE>
<PAGE> F-3
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Operations
<CAPTION>
Three Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
Sales $ 16,621 82,612
Cost of sales 19,756 36,848
---------------------------
Gross profit (loss) (3,135) 45,764
Expenses:
General and administrative expense 463,749 308,261
Research and development expense 319,883 101,079
----------------------------
Total expenses 783,632 409,340
Operating loss (786,767) (363,576)
Interest income (expense) 50,257 (9,026)
Other Income 25,000 -
----------------------------
Net loss $ (711,510) (372,602)
==============================
Net loss per common share $ (.08) (.27)
Weighted average number of shares used
for net loss per share computation 8,566,653 1,363,500
</TABLE>
<PAGE> F-4
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
<CAPTION>
Three months ended
March 31, March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (711,510) (372,602)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 22,602 16,495
Common stock issued for services - 5,000
Changes in operating assets and
liabilities:
Decrease (increase) in accounts 338,001 (74,822)
receivable
Increase in prepaid expenses and (81,054) (16,892)
other assets
Increase in inventory (2,865) (23,010)
Decrease in related party 15,432
receivable
Decrease in accounts payable and (91,013) (649)
accrued liabilities ---------------------------
Net cash used in operating (510,407) (466,480)
activities ---------------------------
Cash flows from investing activities:
Capital expenditures (237,590) (112,952)
Acquisition of patents and technology (2,644) (25,654)
-------------------------
Net cash used in investing (240,234) (138,606)
activities -------------------------
Cash flows from financing activities:
Payments on line of credit - (40,000)
Loans from stockholders - 49,000
Proceeds from issuance of common - 190,000
stock
Proceeds from issuance of preferred - 604,001
stock
Proceeds from stock subscriptions 50,300 -
receivable
Payments on bank overdraft - (10,675)
-------------------------
Net cash provided by financing 50,300 792,326
activities --------------------------
Net increase (decrease) in cash (700,341) 187,240
Cash at beginning of period 4,251,584 -
---------------------------
Cash at end of period $ 3,551,243 187,240
==========================
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Dividends on redeemable preference $ - 5,400
stock
</TABLE>
<PAGE> F-5
SPECIALIZED HEALTH PRODUCT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For three months ended March 1, 1996 and 1995
(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 March 31, 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 March 31, 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 that follow.
<PAGE> F-6
Independent Auditors' Report
The Board of Directors and Stockholders
Specialized Health Products International, Inc.:
We have audited the accompanying consolidated balance sheets of
Specialized Health Products International, Inc. and subsidiary as
of DecemberE31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and
cash flows for the years then ended and for the period from
November 19, 1993 (date of inception) to DecemberE31, 1993.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Specialized Health Products International, Inc. and
subsidiary as of December 31, 1994 and 1995, and the results of
their operations and their cash flows for the years then ended
and for the period from November 19, 1993 (date of inception) to
December 31, 1993, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
February 2, 1996
<PAGE> F-7
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Balance Sheets
December 31, 1994 and 1995
<CAPTION>
Assets 1994 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - 4,251,584
Trade Accounts receivable 4,471 350,718
Related party receivable (note 11) - 122,850
Inventories - 16,322
Prepaid expenses and other 5,436 34,017
Total current assets ------------------------
9,907 4,775,491
------------------------
Equipment and furnishings, net of accumulated
depreciation 285,770 812,049
of $1,753 in 1994 and $8,196 in 1995 (note3)
Other assets, net of accumulated amortization of
$27,564 in 361,188 363,188
1994 and $90,314 in 1995 ----------------------
$656,865 5,950,728
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Bank overdraft $ 10,675 -
Accounts payable 84,655 134,449
Accrued expenses 7,800 446,474
Due to stockholders (note 11) 194,500 -
Total current liabilities 297,630 580,923
Stockholder loans (note 4) 358,333 -
Due to stockholders - long-term (note 11) 100,000 -
-----------------------
Total liabilities 755,963 580,923
-----------------------
9% cumulative redeemable preference stock, $1.50
par value. Authorized 250,000 shares;160,000 256,780 -
shares issued and outstanding in 1994 (
Liquidation value $256,780) (note 8)
Stockholders' equity (deficit) (notes 6 and 7):
Preferred stock, $.389 par value in 1994 and
$.001 par value in 1995. Authorized
5,000,000 shares; 1,440,000 560,000 -
shares issued and outstanding in 1994
(liquidation value $560,000) and no shares
issued and outstanding as of December 31, 1995
Common stock, no par value in 1994 and $.02
par value in 1995. Authorized 50,000,000
shares; issued and 209,800 171,333
outstanding 1,363,500 shares in 1994
and 8,566,653 shares in 1995
Common stock subscriptions receivable (note6) (198,500) (259,500)
Additional paid-in capital - 9,316,028
Accumulated deficit (927,178) (3,858,056)
---------------------
Total stockholders' equity (deficit) (355,878) 5,369,805
Commitments and contingencies (notes 2, 5, 7, 10,
and 12)
$656,865 5,950,728
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE> F-8
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Operations
For the period from November 19, 1993 (date of inception) to
December 31, 1993,
and for the years ended December 31, 1994 and 1995
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Sales $ - 33,256 447,844
Cost of sales - 21,669 294,171
-----------------------------------
Gross profit - 11,587 153,673
Expenses:
Research and development - 290,950 804,639
Selling, general and 3,450 620,022 2,133,021
administrative
Write off of operating assets - - 255,072
------------------------------------
Total expenses 3,450 910,972 3,192,732
-----------------------------------
Operating loss (3,450) (899,385) (3,039,059)
Other Income (expense):
Interest income - 237 135,428
Interest expense - (7,800) (15,858)
-----------------------------------
Total other income (expense) - (7,563) 119,570
-----------------------------------
Net loss (3,450) (906,948) (2,919,489)
Dividends on preference stock - (16,780) (11,389)
------------------------------------
Net loss attributable to common $ (3,450) (923,728) (2,930,878)
stockholders ====================================
Net loss per common share $ - (.75) (.69)
====================================
Weighted average number of shares used
for net loss per share 1,170,000 1,224,074 4,269,131
computation
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> F-9
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
For the period from November 19, 1993 (date of inception) to
December 31, 1993,
and for the years ended December 31, 1994 and 1995
<CAPTION>
Net
Common Addit Accu stock
stock ional mu holde
subsc paid- lated rs'
Preferred Common ripti in equity
Stock Stock on
Shares Amount Shares Amount receivable capital deficit (deficit)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock - - 1,170,000 1,300 - - - 1,300
for cash at
inception
Net Loss - - - - - - (3,450) (3,450)
-------------------------------------------------------------------------
Balances at - $ - 1,170,000 $ 1,300 - - (3,450) (2,150)
December 31,
1993
Issuance of
preferred 1,440,000 560,000 - - - - - 560,000
stock for cash
Issuance of
common stock
for services - - 193,500 208,500 (198,500) - - 10,000
and stock
subscription
receivable
Unpaid - - - - - - (16,780) (16,780)
dividends on
preference
stock
Net loss - - - - - - (906,948)(906,948)
----------------------------------------------------------------------------
Balances at 1,440,000 560,000 1,363,500 209,800 (198,500) - (927,178)(355,878)
December 31,
1994
Issuance of
preferred 362,403 604,001 - - - - - 604,001
stock for cash
Cash received
for stock - - - - 190,000 - - 190,000
subscriptions
receivable
Services
provided for - - - - 8,500 - - 8,500
stock
subscriptions
receivable
Unpaid dividends
on preference - - - - - - (11,389) (11,389)
stock
Conversion of
debt for common - - 346,500 385,000 - - - 385,000
stock (note 4)
Issuance of
additional
common shares - - 90,000 180,000 - (180,000) - -
to stockholders
under
antidilution
provisions
Business (1,802,403)(1,164,001)2,102,403(696,752) - 1,860,753 - -
combination
(noteE1)
Issuance of
common stock - - 4,256,250 85,125 - 7,193,935 - 7,279,060
for cash net of
expenses (note
7)
Conversion of
debt for common - - 50,000 1,000 - 99,000 - 100,000
stock (note 7)
Issuance of
common stock
for stock - - 70,000 1,400 (140,000) 138,600 - -
subscription
receivable
(note 7)
Cash received
for stock - - - - 90,000 - - 90,000
subscription
receivable
Exercise of
stock options
for common - - 288,000 5,760 (209,500) 203,740 - -
stock
subscription
receivable
Net loss - - - - - -(2,919,489)(2,919,489)
---------------------------------------------------------------------------------
Balances at - $ - 8,566,653 $171,333 (259,500) 9,316,028 (3,858,056) 5,369,805
December 31,
1995
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> F-11
<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Statements of Cash Flows
For the period from November 19, 1993 (date of inception) to
December 31, 1993,
and for the years ended December 31, 1994 and 1995
<CAPTION>
1993 1994 1995
---------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,450) (906,948) (2,919,489)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization - 29,317 74,542
Common stock issued for services - 10,000 8,500
Loss on sale of equipment - - 1,291
Write off of operating assets - - 255,072
Changes in operating assets and
liabilities:
Increase in trade accounts receivable - (4,471) (346,247)
Increase in prepaid expenses and other (146) (5,290) (28,581)
assets
Decrease (increase) in inventories (6,104) 6,104 (16,322)
Increase in related party receivable - - (122,850)
Increase in accounts payable and accrued - 92,455 488,468
expenses ------------------------------
Net cash used in operating activities (9,700)(778,833) (2,605,616)
Cash flows from investing activities:
Proceeds from the sale of equipment - - 2,943
Capital expenditures - (287,523)(797,377)
Payments to acquire patents and technology (10,000) (278,752) (64,750)
-----------------------------
Net cash used in investing activities (10,000) (566,275)(859,184)
----------------------------
Cash flows from financing activities:
Borrowings on due to stockholders - 194,500 -
Payments on due to stockholders - - (194,500)
Proceeds from issuance of stockholder loans 18,700 339,633 44,167
Payments on stockholder loans - - (17,500)
Proceeds from issuance of common stock 1,300 - 7,279,060
Proceeds from issuance of preferred stock - 560,000 604,001
Proceeds from issuance of redeemable - 240,000 -
preference stock
Payments on redeemable preference stock and - - (268,169)
dividends
Proceeds (payments) on bank overdraft - 10,675 (10,675)
Proceeds from stock subscriptions - - 280,000
receivable ------------------------------
Net cash provided by financing activities 20,000 1,344,808 7,716,384
------------------------------
Net increase (decrease) in cash 300 (300) 4,251,584
------------------------------
Cash at beginning of year - 300 -
Cash at end of year $ 300 - 4,251,584
Supplemental Disclosure of Cash Flow
Information
Cash paid during the year for interest $ - - 15,858
Supplemental Disclosures of Noncash
Investing and Financing Activities
Dividends on redeemable preference stock $ - 16,780 11,389
Common stock issued for subscription - 198,500 349,500
Conversion of stockholder loans and due to - - 485,000
stockholders to common stock
Acquisition of purchased technology and
patents for stockholder payable - 100,000 -
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> F-12
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to December
31, 1993,
and for the years ended December 31, 1994 and 1995
(1) Summary of Significant Accounting Policies
<PAGE> F-14
(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, easy-to-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. The Company has several
products currently in the production or development stage.
The sharps container is the only product which is currently in
the production stage. This device is designed to provide
means for disposing of sharps in order to reduce the potential
for accidental needle sticks. The other two major product
lines are the lancet and the needle withdrawal technology;
both are in the development stage. The lancet device is
designed to provide a nonreusable, safer, and less painful way
of obtaining small blood samples from patients. The needle
withdrawal technology is designed to automatically retract
needles while providing permanent and safe containment of the
needle. Specialized Health's activities since inception have
principally consisted of obtaining financing, recruiting
personnel, conducting research and development, developing
products, and identifying and contracting with manufacturers.
The Company conducts its operations primarily in the
Continental United States.
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. 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 3,602,403
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 has been 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 and management of Specialized
Health became the management 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
4,376,250 shares of the Company's common stock were issued,
net of offering costs, for consideration of $7,519,060, as
more fully discussed in note 7.
<PAGE> f-15
(a) Organization and Business Description (continued)
The accompanying consolidated financial statements subsequent to
the business combination include the accounts of the Company
and its wholly-owned subsidiary Specialized Health. All
intercompany accounts and transactions have been eliminated in
consolidation. Prior to the business combination Specialized
Health had no subsidiary.
(b) Cash and Cash Equivalents
Cash and cash equivalents are comprised of a checking and money
market account. The Company considers all investments with
original maturities of three months or less to be cash
equivalents.
(c) Inventories
Inventories which consist primarily of finished goods are
stated at the lower of cost or market. Cost is determined
using the first-in first-out method.
(d) Other Assets
The Company has included in other assets at December 31,
1994 and 1995, the cost of purchased technology and patents,
and related patent costs amounting to $388,752 and $453,502,
respectively, which is being amortized using the straight-line
method over seven years. These assets include the following
technologies: acquisitions from third parties include a
catheter closure patent; lancet patent; the sharps container
technology acquired from Sharp-Trap, Inc.; and an Automatic
Needle Withdrawing and Securing System purchased from Gale H.
Thorne, a director and employee. Management evaluates the
recoverability of these costs on a periodic basis, based on
sales of the product related to the technology, revenue
trends, and projected cash flows based on estimates of future
sales.
(e) Equipment and Furnishings
Equipment and furnishings are stated at cost and consist
primarily of manufacturing molds and equipment, and office
furniture and fixtures. Depreciation is computed using the
straight-line method based on the estimated useful lives of
the related assets which is 5 years with the exception of
manufacturing equipment which is depreciated on the straight-
line method over 7 years or the units-of-production method
whichever is greater.
(f) Revenue Recognition
Revenues are recognized upon shipment of products. Sales
recorded in the year ended DecemberE31, 1994, relate primarily
to products received upon acquisition of technology and
patents.
(g) Research and Development Costs
Research and development costs are expensed as incurred.
(h) Income Taxes
Income taxes are recorded using the asset and liability method
for all periods presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. 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 basis, 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.
(i) Net Loss Per Common Share
Net loss per common share is based on the weighted average number
of common shares outstanding. Stock options, warrants, and
preferred shares prior to conversion are not included in the
calculation because their inclusion would be antidilutive and
reduce the net loss per share amount.
(j) Reclassification
Certain amounts in 1994 have been reclassified to conform with
1995 classifications.
(k) Fair Value Disclosure
At December 31, 1995, the book value of the CompanyOs financial
instruments approximates fair value.
(l) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
<PAGE> f-16
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to December
31, 1993,
and for the years ended December 31, 1994 and 1995
(2) Investments
In October 1995, the Company entered into an agreement with a
third party to form a joint venture Quantum Imaging Corporation
(Venture) to develop an improved filmless X-Ray system. For a
fiftyEpercent interest in the Venture (before dilution by
financing investors), the Company is obligated to pay to the
Venture $15,000 a month, which is paid to the other Venture
partner to perform research and development on the VentureOs
behalf. Additionally, the Company is obligated to pay the general
and administrative expenses of the Venture up to $15,000 per
month. These obligations continue through September of 1996, and
are cancelable only upon 30 days written notice and failure of the
other Venture partner to meet requirements as specified in the
Venture agreement. Unless this agreement is terminated, the
Company is obligated at December 31, 1995 for a minimum of
$135,000 and up to an additional $135,000 as general and
administrative expenses are incurred by the Venture. In
managementOs opinion, for the Venture to be successful, it must
raise between $3,000,000 and $6,000,000. The Company contributed
total capital of $83,624 to the joint venture during 1995, all of
which the Company expensed and the Venture used to fund research
and development and administrative expenses. Assets and
liabilities as of December 31, 1995 were immaterial.
(3) Equipment and Furnishings
Equipment and furnishings consist of the following:
1994 1995
Assembly and manufacturing equipment $ 750 33,605
Manufacturing molds 276,370 245,753
Office furnishings and fixtures 10,403 144,992
Construction-in-progress - 395,895
-----------------------
287,523 820,245
Less accumulated depreciation (1,753) (8,196)
------------------------
$ 285,770 812,049
========================
During 1995, operating assets comprised primarily of
manufacturing molds totaling $255,072 were written off. The molds
became obsolete due to design changes in the sharp container
technology.
<PAGE> F-17
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to December
31, 1993,
and for the years ended December 31, 1994 and 1995
(4) Stockholders' Loans
During 1994 and 1995, prior to the business combination certain
existing stockholders made direct loans to Specialized Health
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 1, the 346,500 warrants were exercised through
conversion of the outstanding loans.
(5) 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:
1996 $ 107,972
1997 93,132
1998 38,718
$ 239,822
Rent expense was $1,881 for the period from November 19, 1993
(date of inception) to December 31, 1993, $52,051 in 1994, and
$67,091 in 1995.
(6) Stock Options
In 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 1,171,810 shares
of common stock at $2.00 per share of which 1,117,000 vested
immediately, and 54,810 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 authorized 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 SeptemberE1, 1995, options to acquire 288,000
shares were exercised from which the Company received $209,500 in
a common stock subscription receivable. All common stock
subscription receivables are due within one year. The remaining
108,000 shares will become exercisable over the next eighteen
months, have an option price of $.39 per share, and expire in
2004.
<PAGE> F-18
(7) Preferred and Common Stock
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 1,
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 consolidated financial statements have been restated
for the effect of this split. In addition, the Company issued
90,000 shares of common stock to non-affiliated shareholders
existing at the time of the private placement under antidilutive
provisions.
Specialized Health and the Company engaged in a private placement
of securities in JulyE1995, 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 $7,279,060 of
cash, $100,000 of debt converted to common stock, and a common
stock subscription receivable of $140,000. The private placement
was completed contemporaneously with the business combination. In
the private placement, the Company sold an aggregate of 4,301,250
shares of the Company's $.02Epar 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.
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. At
December 31, 1995 the Company has a common stock subscription
receivable amounting to $50,000 from the underwriter.
The underwriter had a continuing relationship with the Company
pursuant to which the underwriter was to provide financial
advisory and investment banking services to the Company through
July 1997. The Company was to pay the underwriter $4,000 per
month for such services. Additionally, the underwriter had the
right of first refusal to undertake any financings of the Company
during this period. Subsequent to year end, the Company amended
their agreement with the underwriter canceling the monthly service
fees and the underwriters right of first refusal. The Company
signed a new agreement with PaineWebber to act as its exclusive
financial advisor and to assist in the development of strategic
alliances.
Also, during 1995 the Company issued a warrant to a nonaffiliated
stockholder of the Company to purchase 45,000 shares of common
stock at $1.67 per share. This warrant expires in 1996.
<PAGE> f-19
(7) Preferred and Common Stock (continued)
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 a director and certain officers the
right to receive up to an aggregate of 2,000,000 additional shares
of common stock based upon the level of pre-tax consolidated net
income (PTNI) for 1996, 1997, or 1998. If PTNI equals of 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 shares.
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 charge 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 earnings 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 pre-tax net
loss.
(8) Redeemable 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 DecemberE31, 1994.
Each redeemable preference share was entitled to a cumulative
annual dividend of nineEpercent 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> f-20
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
For the period from November 19, 1993 (date of inception) to December
31, 1993,
and for the years ended December 31, 1994 and 1995
(9) Income Taxes
There was no income tax expense in 1993, 1994, and 1995, 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 DecemberE31, 1994 and December 31, 1995, are presented below:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Deferred tax assets:
Organization costs $ 5,138 3,854
Start-up costs 1,030 720
Patent costs - 19,244
Net operating loss carryforwards 275,843 1,374,198
Accrued compensation 57,629 -
Accrued vacation - 19,894
---------------------
Total gross deferred tax assets 339,640 1,417,910
Less valuation allowance (339,579)(1,417,910)
---------------------
Net deferred tax assets 61 -
Deferred tax liability - equipment,
principally due to differences in 61 -
depreciation
---------------------
Total gross deferred tax 61 -
liability -----------------------
Net deferred tax liability $ - -
========================
</TABLE>
The net change in the total valuation allowance for the years
ended December 31, 1994 and 1995, was an increase of $338,292 and
$1,078,331, 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 December 31, 1995, the Company had total tax net operating
losses of approximately $3,684,177, that 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 50Epercent 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 carryforwards
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 carryforwards not
utilized in prior years.
<PAGE> F-21
(10) 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.
As a result of the acquisition of certain product rights and
related patents the Company is required to pay a specified royalty
on future sales of products related to these rights and patents.
(11) Related Party Transactions
Related party receivables at December 31, 1995 represent advances
to certain related parties. During 1995 the Company paid to an
entity, owned in part by a shareholder of the Company, $231,475 as
reimbursement for expenses it expended on behalf of the Company
and as consulting fees.
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 non-interest bearing. These amounts
were repaid in 1995, and as of December 31, 1995 there were no
remaining amounts due.
(12) Business and Credit Concentrations
During 1995, the CompanyOs revenues were solely from the sale of
the sharps container of which $418,509 represented sales to a
single distributor. At December 31, 1995, the Company had
$348,266 of trade accounts receivable due from this customer for
which payment was received subsequent to year-end.
The Company currently buys all of its sharp containers, the
CompanyOs only device in production, from one supplier. Although
there are a limited number of manufacturers who could manufacture
this device, management believes that other suppliers could
provide similar services on comparable terms. A change in
suppliers, however, could cause a delay in manufacturing and a
possible loss of sales.
Additionally, the Company has a limited direct sales force and no
third party agreements to distribute its products which may result
in limited sales of the CompanyOs products.
(13) Fourth Quarter Results
During the fourth quarter, the aggregate effect of year end
adjustments, which related to prior quarters, increased the net
loss approximately $457,000.
<PAGE> F-22
(14) Accounting Standards Issued Not Yet Adopted
In March of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of (FASB 121). The Company is required to adopt the
provisions of this statement for years beginning after December
15, 1995. This statement requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at
the lower of carrying amount or fair value less cost to sell. The
impact of FASB 121 is not expected to have a material affect on
the Company.
In October of 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (FASB 123). The Company
is required to adopt the provisions of this statement for years
beginning after December 15, 1995. This statement encourages all
entities to adopt a fair value based method of accounting for
employee stock options or similar equity instruments. However, it
also allows an entity to continue to measure compensation cost for
those plans using the intrinsic-value method of accounting
prescribed by APB opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income
and earnings per share as if the fair value based method of
accounting defined in this statement had been applied. It is
currently anticipated that the Company will continue to account
for employee stock options or similar equity instruments in
accordance with APB 25 and provide the disclosures required by
FASB 123.
No dealer, sales represenative
representative, or any other
person has been authorized to
give any information or to make
any representations in
connection with this offering
other than those contained in 13,682,213 Shares of Common
this Prospectus, and if given Stock
or made, such information or 918,040 Series B
representation must not be Warrants
relied upon as having been
authorized by the Company or
any of the Selling
Securityholders. This
Prospectus does not constitute Specialized Health Products
an offer to sell or a International, Inc.
solicitation of an offer to buy
any securities other than the
securities to which it relates
or an offer to, or a
solicitation would be unlawful.
Neither the delivery of this
Prospectus nor any sale made _____________
hereunder shall, under any
circumstances, create an PROSPECTUS
implication that there has been ____________
no change in the affairs of the
Company or that information
contained herein is correct as
of any time subsequent to the
date hereof.
______________________
TABLE OF CONTENTS
Page
Prospectus Summary 4
Risk Factors 8
Dividend Policy 15
Share Price History 15
Capitalization 16
Selected Financial Data 17
Management's Discussion and
Analysis ____________________________
of Financial Condition and
Results of Operation 18 __________ , 19__
Business 23
Management 35
Certain Relationships and
Related Transactions 40
Description of Securities
41
Securities Eligible for Sale
44
Principal and Selling
Securityholders 44
Plan of Distribution 53
Experts
53
Additional Information
53
Index to Financial Statements
F-1
______________________
Until __________ , 19__
(25 days after the commencement
of the Offering), all dealers
effecting transactions in the
Common Stock, whether or not
participating in this
distribution, may be required
to deliver a Prospectus. This
delivery requirement is in addi
tion to the obligation of
dealers to deliver a Prospectus
when acting as Underwriters and
with respect to their unsold
allotments or subscriptions.
PART II
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the fees and expenses payable by
the Company in connection with the issuance and distribution of the
shares of Common Stock:
Securities and Exchange Commission registration fee$41,619.63
NASDAQ listing fee 0
Blue Sky fees and expenses 2,500*
Printing expenses 5,000*
Legal fees and expenses 100,000*
Accounting fees and expenses 35,000*
Transfer Agent fees 5,000*
Miscellaneous 3,000*
Total $192,119.63*
_______________
* Estimated
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL")
permits the Company to indemnify its directors, officers, employees
and agents, subject to certain conditions and limitations. Article
Ninth of the Company's Restated Certificate of Incorporation, a copy
of which is filed as Exhibit 3.1 to this Registration Statement,
states:
To the fullest extent permitted by the laws of the State of
Delaware now or hereafter in force, no director of this
corporation shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director. Any repeal or modification of the foregoing
provisions of this Article NINTH shall not adversely affect any
right or protection hereunder of any person in respect of any
act or omission occurring prior to the time of such repeal or
modification. The provisions of this Article NINTH shall not be
deemed to limit or preclude indemnification of a director by the
corporation for any liability of a director which has not been
eliminated by the provisions of this Article NINTH.
Article VII of the Company's Bylaws, a copy of which is filed as
Exhibit 3.2 to this Registration Statement, requires the Company to
indemnify officers, employees and agents (collectively "Agents") to
the full extent permitted by the DGCL. The Company has also entered
into Indemnity Agreements with its officers pursuant to which the
Company has agreed to indemnify them. (The form of the Indemnity
Agreement with officers of the Company is filed as Exhibit 10.4 to
this Registration Statement.) The Indemnity Agreements require
payment of any amount which an indemnitee is legally obligated to pay
because of claims relating to his or her service as an officer,
although in many circumstances such indemnification would be
discretionary. The Indemnity Agreements also provide that the Company
will have the burden of proving that the applicable standard of
conduct has not been met. However, Company is not obligated to make
any payment prohibited by law or to pay where payment is made to an
indemnitee under an insurance policy or otherwise.
Company's Bylaws, together with the Indemnity Agreements, expand the
Company's indemnity obligations to the full extent permitted by law.
While Delaware law contemplates some expansion of indemnification
beyond what is specifically authorized by the DGCL, the courts have
not yet established the boundaries of permissible indemnification.
The Company and its directors and officers currently have no
liability insurance. As of the date hereof, the Company is making
inquiries concerning the terms of such insurance.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this Registration
Statement, the Company has issued the following securities:
<PAGE> II-1
The Company sold 51,282 shares of its common stock in December 1993
for $5,000 and 71,795 shares for $7,000 in December 1994. Said sales
were to a single accredited investor. The Company relied on Section
4(2) of, and/or Regulation D under, the Securities Act of 1933, as
amended, in effecting aforementioned transactions. The Company has
reason to believe that the investor was familiar with or had access to
information concerning the operations and financial condition of the
Company, and that the investor acquired his shares for investment and
not with a view to the distribution thereof. At the time of issuance,
all of the foregoing shares of common stock of the Company were deemed
to be restricted securities for purposes of the Securities Act and the
certificates representing such securities bore legends to that effect.
In September 1994, sixteen existing shareholders of SHP made direct
loans to SHP in the amount of approximately $385,000 under a bridge
loan agreement. The subscribers to the bridge loan were issued
warrants permitting them to acquire up to an aggregate of 346,500
shares of SHP common stock at $1.11 per share on or before December
31, 1995. These warrants were exercised in July, 1995, prior to the
Acquisition whereby SHP became a wholly owned subsidiary of the
Company (the "Acquisition"), in consideration for the cancellation of
this loan. SHP relied on Section 4(2) of, and/or Regulation D and
Regulation S under, the Securities Act of 1933, as amended, in
effecting aforementioned transactions. The Company has reason to
believe that the investor was familiar with or had access to
information concerning the operations and financial condition of the
Company, and that the investors acquired the securities for investment
and not with a view to the distribution thereof. Prior to the
cancellation of the loan notes and exercise of the warrants none of
the loan notes and warrants were assigned and/or transferred by any
the holders thereof. At the time of issuance and at all times during
which said securities were outstanding, all of the foregoing
securities deemed to be restricted securities for purposes of the
Securities Act and the certificates representing such securities bore
legends to that effect.
On July 28, 1995, the Company acquired all of the outstanding
capital stock of Specialized Health Products, Inc., ("SHP") through
the merger of a wholly-owned subsidiary of the Company with and into
SHP . As part of the Acquisition, the Company issued 3,602,403 shares
of its common stock, no par value (the "Common Stock"), to the former
shareholders of SHP in exchange for their common stock.
Upon the consummation of the Acquisition, each former shareholder of
SHP received one share of Common Stock of the Company in exchange for
each share of common stock of SHP (including shares of preferred stock
of SHP that had been converted to common stock immediately prior to
the Acquisition) held by each shareholder. In addition, all
outstanding warrants and options to purchase common stock of SHP were
converted pursuant to the terms thereof into warrants or options of
the Company to purchase an equal number of shares of Common Stock of
the Company on equivalent terms.
In connection with the Acquisition, the Company issued an aggregate
of 4,376,250 shares of Common Stock, 3,110,875 Series A Warrants and
1,290,375 Series B Warrants (the Common Stock and Series A and B
Warrants are collectively referred to as the "Securities") to one
hundred fifty six accredited investors in the United States and
overseas between July 28, 1995 and August 18, 1995 in a private
placement (the "Private Placement"). The Securities were sold as
Units. Each Unit was comprised of 5,000 shares of Common Stock and
Series A Warrants to purchase 3,000 shares of the Company's common
stock at $3.00 per share. Each Unit was sold for $10,000. In
addition, Capital Growth received 75,000 shares of Common Stock,
530,125 Series A Warrants and 1,290,375 Series B Warrants.
The sale of the Securities, which was completed in three separate
closings, was part of a single plan of financing, which raised
$8,602,500 in gross proceeds to the Company. The financing was
completed in three closings due to delays in the receipt of committed
funds. There was no public market for the Company's securities on the
date the Private Placement commenced.
The purpose of selling to foreign accredited investors was to raise
funds, which funds the Company did not seek to exclusively raise in
the United States. The Company's exclusive placement agent was
Capital Growth International, L.L.C. formerly U.S. Sachem Financial
Consultants, L.P. ("Capital Growth"), a broker-dealer registered with
the National Association of Securities Dealers, Inc. "NASD."
All offers and sales of the Securities were made pursuant to
Regulation D, specifically Rule 506, under the Securities Act of 1933,
as amended (the "Act") and a Form D was filed. The Company did not
rely specifically on Regulation S in connection with the sale of the
Securities nor did the Company attempt to comply with the provisions
of Regulation S.
<PAGE> II-3
The Company believes that the Private Placement complied with the
requirements of Regulation D under the Act. All of the purchasers of
the Securities provided written representations that they are
"accredited investors" as defined by Rule 501 under the Act. All
certificates evidencing the Securities purchased bore restrictive
legends stating that the Securities could not be resold without
registration under the Act or an exemption therefrom. The Company's
stock transfer agent has assured the Company that none of the
restrictive legends on the Securities have been removed and the
overseas shareholders have not resold Securities into the United
States. The Company's placement agent has given the Company
assurances that the manner of the offering did not use any form of
general solicitation or general advertising. All purchasers of the
Securities gave written representations that they were purchasing for
investment and not with a view to a distribution, and agreed based on
written disclosure in the Confidential Offering Memorandum that the
Securities would be subject to limitations on resale.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The following is a complete list of Exhibits filed or
incorporated by reference as part of this Registration Statement.
Exhibit No. Description Page*
3(i).1* Restated Certificate of Incorporation of the
Company
3(i).2* Articles of Incorporation of SHP
3(i).3* Articles of Amendment of SHP
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
3(ii).2* Bylaws of SHP
4.1* Form of Series A Warrant
4.2* Form of Series B Warrant
5.1** Opinion of Blackburn & Stoll, LC
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
10.3* Form of Employment Agreement with Executive
Officers
10.4* Form of Indemnity Agreement with Executive
Officers and
Directors
10.5* Form of Confidentiality Agreement
10.6* Joint Venture Agreement between SHP and
Zerbec, Inc., dated as of October 30, 1995
16.1* Letter re change in certifying accountants 83
21.1* Schedule of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP, 85
Independent Certified Public Accountants
<PAGE>II-4
23.2* Consent of Blackburn & Stoll, LC
(included in Exhibit 5.1 hereto)
24.1* Powers of Attorney (included in Part II
of this Registration Statement)
99.1* Consent of Theta Corporation 87
_______________
* Previously filed.
** To be filed by amendment.
*** Refers to sequentially numbered copy.
(b) Financial Statement Schedules.
None.
Item 17. Undertakings.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus
required by section 10(a)(3) of the Securities Act of 1933;
(ii)To reflect in the prospectus any
facts or events arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) (230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material
information with respect to the plan of distribution not
previously disclosed in the registration statement or any
material change to such information in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included
in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
<PAGE> II-5
(4) If the registrant is a foreign private issuer, to file
a post-effective amendment to the registration statement to
include any financial statements required by 210.3-19 of this
chapter at the start of any delayed offering or throughout a
continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the
prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial
statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3 (239.33 of this chapter), a
post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the
Act or 210.3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Form F-3.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue
<PAGE> II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city
of Bountiful, State of Utah, on June 17, 1996.
SPECIALIZED HEALTH PRODUCTS
INTERNATIONAL, INC.:
By /s/ David A.
Robinson
David A. Robinson, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
* Director and Vice President June 17,
1996
Bradley C. Robinson
* Director, Vice President, Chief June 17,
Financial Officer and Secretary 1996
J. Clark Robinson (Principal Financial and
Accounting Officer)
* Director and Vice President June 17,
1996
Gail H. Thorne
* Director June 17,
1996
Gary W. Farnes
* Director June 17,
1996
Robert W. Walker
*By /s/ David A. Robinson
David A. Robinson
Attorney-In-Fact
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
EXHIBITS
to
FORM S-1 REGISTRATION STATEMENT
Under the Securities Act of 1933
_______________
Specialized Health Products International, Inc.
Exhibits.
The following is a complete list of Exhibits filed or
incorporated by reference as part of this Registration Statement.
Exhibi Description Page*
t No. **
3(i).1 Restated Certificate of Incorporation of the
* Company
3(i).2 Articles of Incorporation of SHP
*
3(i).3 Articles of Amendment of SHP
*
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). Bylaws of the Company
1*
3(ii). Bylaws of SHP
2*
4.1* Form of Series A Warrant
4.2* Form of Series B Warrant
5.1** Opinion of Blackburn & Stoll, LC
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
10.3* Form of Employment Agreement with Executive
Officers
10.4* Form of Indemnity Agreement with Executive
Officers and
Directors
10.5* Form of Confidentiality Agreement
10.6* Joint Venture Agreement between SHP and
Zerbec, Inc., dated as of October 30, 1995
16.1* Letter re change in certifying accountants 83
21.1* Schedule of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP, 85
Independent Certified Public Accountants
23.2* Consent of Blackburn & Stoll, LC
(included in Exhibit 5.1 hereto)
24.1* Powers of Attorney (included in Part II
of this Registration Statement)
99.1* Consent of Theta Corporation 87
_______________
* Previously filed.
** To be filed by amendment.
*** Refers to sequentially numbered copy.
Exhibit 5.1
Opinion of Blackburn & Stoll, LC
BLACKBURN & STOLL, LC
Attorneys at Law
77 West 200 South, Suite 400
Salt Lake City, UT 84101-1609
June 11, 1996
Specialized Health Products International, Inc.
655 East Medical drive
Bountiful, Utah 84010
Re: Legality of Securities to be Registered under
Registration Statement on Form S-1 (No. 33-80247)
Gentlemen:
This opinion is delivered in our capacity as counsel to
Specialized Health Products International, Inc. (the
"Company") in connection with the Company's registration
statement on Form S-1 (the "Registration Statement") filed
with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to up to
13,682,213 shares of the Company's common stock, $.02 par
value per share (the "Common Stock"), consisting of
8,001,153 shares of the Company's Common Stock held by the
Company's stockholders (the "Outstanding Shares") and
5,681,060 shares of Common Stock issuable upon the exercise
of outstanding warrants and stock options (the "Warrant
Stock").
We have examined the Restated Certificate of
Incorporation of the Company on file with the Secretary of
State of the State of Delaware, the Bylaws of the Company,
such records of corporate proceedings of the Company and
certificates of corporate officers of the Company as we have
deemed appropriate for the purposes of this opinion, the
Registration Statement and the exhibits thereto.
Based upon the foregoing, we are of the opinion that:
(A) The Outstanding Shares have been authorized for
issuance and are validly issued and outstanding, fully
paid and nonassessable.
(B) The shares of Warrant Stock have been authorized for
issuance and reserved by the Company and will be, when issued and
delivered against the exercise price therefor in accordance with
the terms set forth in the Registration Statement and in the
warrant or option agreement, validly issued, fully paid and
nonassessable.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under
the caption "Legal Matters" and to the inclusion of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Blackburn & Stoll, LC
BLACKBURN & STOLL, LC
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP
Independent Certified Public Accountants
Consent of Independent Auditors
The Board of Directors and Stockholders
Specialized Health Products International, Inc.
We consent to the use of our report dated Febuary 2, 1996, on the
consolidated financial statements of Specialized Health Products
International, Inc. and subsidiary included herein and to the
reference to our Firm under the headings "Selected Financial Data" and
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick, LLP
Salt Lake City, Utah
June 12, 1996
