FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number 0-26694
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0945003
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
585 West 500 South, Bountiful, Utah 84010
(Address of principal executive offices, including zip code)
(801) 298-3360
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of April 28, 2000
----- --------------------------------
Common Stock, $.02 par value 12,356,440 shares
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
ASSETS March 31, December 31,
------ 2000 1999
------------------ -------------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 4,214 $ 180,425
Accounts receivable 1,572,340 135,374
Prepaid expenses and other 17,061 36,869
Amounts due from related parties 4,620 3,145
------------------ -------------------
Total current assets 1,598,235 355,813
------------------ -------------------
PROPERTY AND EQUIPMENT, at cost:
Manufacturing molds 474,633 474,633
Office furnishings and fixtures 552,882 552,882
Assembly and manufacturing equipment 317,391 317,391
Leasehold improvements 134,869 132,326
Automated assembly equipment 71,300 71,300
------------------ -------------------
1,551,075 1,548,532
Less accumulated depreciation and amortization (874,881) (811,041)
------------------ -------------------
Net property and equipment 676,194 737,491
------------------ -------------------
OTHER ASSETS 34,539 35,568
------------------ -------------------
$ 2,308,968 $ 1,128,872
================== ===================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Accounts payable $ 82,052 $ 4,692
Accrued liabilities 161,717 120,983
Advances received on development fees 65,028 -
------------------ -------------------
Total current liabilities 308,797 125,675
------------------ -------------------
1,500,000 -
------------------ -------------------
<CAPTION>
STOCKHOLDERS' EQUITY:
<S> <C> <C>
Preferred stock, $.001 par value; 5,000,000 shares authorized,
no shares outstanding - -
Common stock, $.02 par value; 50,000,000 shares authorized,
12,356,440 shares outstanding 247,129 247,129
Additional paid-in capital 14,865,399 14,865,399
Series D warrants to purchase common stock 1,954,452 1,954,452
Deficit accumulated during the development stage (16,566,809) (16,063,783)
------------------ -------------------
Total stockholders' equity 500,171 1,003,197
------------------ -------------------
$ 2,308,968 $ 1,128,872
================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Period from
----------------------------------------- Inception to
March 31, March 31, March 31,
2000 1999 2000
------------------ ------------------- -------------------
REVENUES:
<S> <C> <C> <C>
Net product sales $ - $ - $ 748,228
Development fees and related services 202,268 553,176 2,582,149
Technology and license fees - - 3,750,000
------------------ ------------------- -------------------
Total revenues 202,268 553,176 7,080,377
------------------ ------------------- -------------------
COST OF REVENUES:
Cost of product sales - - 536,002
Cost of development fees and related services 148,791 445,721 1,862,159
------------------ ------------------- -------------------
Total cost of revenues 148,791 445,721 2,398,161
------------------ ------------------- -------------------
Gross margin 53,477 107,455 4,682,216
------------------ ------------------- -------------------
OPERATING EXPENSES:
Selling, general and administrative 390,718 639,385 15,083,258
Research and development 167,158 253,942 5,408,263
Write-off of operating assets - - 1,280,557
------------------ ------------------- -------------------
Total operating expenses 557,876 893,327 21,772,078
------------------ ------------------- -------------------
LOSS FROM OPERATIONS (504,399) (785,872) (17,089,862)
------------------ ------------------- -------------------
OTHER INCOME (EXPENSE):
Interest income 727 26,973 520,877
Interest expense - - (23,658)
Other income 646 1,085 54,003
------------------ ------------------- -------------------
Total other income, net 1,373 28,058 551,222
------------------ ------------------- -------------------
LESS PREFERENCE STOCK DIVIDENDS - - (28,169)
------------------ ------------------- -------------------
NET LOSS APPLICABLE TO COMMON SHARES $ (503,026) $ (757,814) $ (16,566,809)
================== =================== ===================
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (.04) $ (.06)
================== ===================
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,356,440 12,356,440
================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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<TABLE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
<CAPTION>
Three Months Ended Period from
------------------------------------- Inception to
March 31, March 31, March 31,
2000 1999 2000
----------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (503,026) $ (757,814) $ (16,538,640)
Adjustments to reconcile net loss to net cash used in
Depreciation and amortization 64,869 68,133 1,405,439
Allowance for doubtful accounts receivable - - 125,800
Common stock issued for services - - 231,000
Noncash consulting expense - - 381,726
Loss on disposition of assets - - 1,281,848
Changes in operating assets and liabilities:
Accounts receivable (1,436,966) (225,426) (1,572,340)
Unbilled receivables on contracts - 142,414 -
Prepaid expenses and other 19,808 (28,073) (17,061)
Amounts due from related parties (1,475) 12,515 (4,620)
Other assets - - (27,000)
Accounts payable 77,360 14,121 82,052
Accrued liabilities 40,734 (64,251) 161,717
Advances received on development fees 65,028 - 65,028
Deferred revenues 1,500,000 - 1,500,000
----------------- ---------------- ----------------
Net cash used in operating activities (173,668) (838,381) (12,925,051)
----------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,543) (3,736) (2,921,391)
Purchase of short-term investments - - (356,146)
Proceeds from the sale of assets - - 6,517
----------------- ---------------- ----------------
Net cash used in investing activities (2,543) (3,736) (3,271,020)
----------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - - 12,487,801
Proceeds from issuance of common stock warrants - - 1,777,952
Proceeds from collection of stock subscriptions - - 413,700
Proceeds from issuance of preferred stock - - 1,164,001
Proceeds from issuance of redeemable
preference stock - - 240,000
Payments on redeemable preference stock
and dividends - - (268,169)
Net borrowings on stockholder loans - - 385,000
----------------- ---------------- ----------------
Net cash provided by financing activities - - 16,200,285
----------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH (176,211) (842,117) 4,214
CASH AT BEGINNING OF PERIOD 180,425 2,480,083 -
----------------- ---------------- ----------------
CASH AT END OF PERIOD $ 4,214 $ 1,637,966 $ 4,214
================= ================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SPECIALIZED HEALTH PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows as
of the dates and for the periods presented herein have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
December 31, 1999 Annual Report on Form 10-KSB/A. The results of operations for
the three months ended March 31, 2000, are not necessarily indicative of the
operating results that may result for the year ending December 31, 2000. The
accounting policies followed by the Company are set forth in Note 1 to the
Company's consolidated financial statements in its December 31, 1999 Annual
Report on Form 10-KSB/A.
(2) Basic and Diluted 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 of net loss per common share
because their inclusion would be antidilutive, thereby reducing the net loss per
common share. Therefore, there is no difference between basic and diluted net
loss per common share for the periods presented. The Company has common stock
options and warrants outstanding at March 31, 2000 that, if exercised, would
result in the issuance of an additional 6,349,287 shares of common stock.
(3) Reclassifications
Certain reclassifications have been made in the prior period's
condensed consolidated financial statements to conform to the current period's
presentation.
(4) Development and License Agreement
In November 1999, the Company and The Kendall Company, a division of
Tyco Healthcare Group LP ("Kendall") entered into a Development and License
Agreement (the "Kendall Agreement") relating to one application of the Company's
needle technology in the production of a line of safety medical needle products,
including six syringe products and five other safety needle products. The
effective date of the Kendall Agreement was subject to certain approvals that
were obtained on March 29, 2000. Accordingly, the $1,500,000 technology payment
specified in the Kendall Agreement has been recognized as a receivable as of
March 31, 2000 in the accompanying condensed consolidated financial statements.
On April 12, 2000, the Company received the $1,500,000 payment less $35,044
representing the Company's share of certain patent filing costs. The Company
will receive an additional $1,000,000 upon the sale of commercial quantities of
products (as defined in the agreement) or thirty months from the effective date
of the agreement, whichever comes first, in exchange for the Company assigning
to Kendall the FlexLoc(R) and ReLoc(TM) trademarks and two related patents. The
assignment of the patent rights to Kendall is subject to a preexisting license
agreement and the retention by the Company of an exclusive, royalty free
worldwide license in a number of strategic product areas. The Kendall Agreement
also provides for the Company to receive development fees and ongoing royalties,
including a $500,000 advance royalty payment upon the sale of commercial
quantities of products. It is anticipated that Kendall will manufacture all
products that are subject to the Kendall Agreement. In accordance with SAB No.
101 as issued by the Securities and Exchange Commission, the technology payments
provided for in the agreement will be recognized as revenue over the estimated
period for which the Company will receive economic benefit. Accordingly, at
March 31, 2000, the full amounts of the technology payments have been deferred
to be recognized as revenue in future periods as earned. Revenue recognition for
the $2,500,000 of technology payments will be based on the relative fair values
of the various products covered by the Kendall Agreement on a straight-line
basis over the estimated economic lives of those products. The $1,500,000
payment received by the Company on April 12, 2000, is non-refundable and the
additional $1,000,000 is receivable upon commercialization of the first product
subject to the Kendall Agreement or thirty months from the effective date of the
agreement, whichever comes first.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
5
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Item 2. Management's Discussion and Analysis or Plan of Operation.
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 condensed consolidated
financial statements and accompanying notes and Management's Discussion and
Analysis or Plan of Operation for the year ended December 31, 1999. Wherever in
this discussion the term "Company" is used, it should be understood to refer to
Specialized Health Products International, Inc. and its wholly and majority
owned subsidiaries, Specialized Health Products, Inc., Specialized Cooperative
Corporation, Safety Syringe Corporation, Iontophoretics Corporation and
MedInservice.com, Inc., on a consolidated basis, except where the context
clearly indicates otherwise.
Overview
From its inception, the Company has incurred losses from operations. As
of March 31, 2000, the Company had cumulative net losses applicable to common
shares totaling $16,566,809. To date, the Company's principal focus has been the
design, development, testing and evaluation of its sharps containers, safety
lancets, safety needle technologies, blood collection devices, and other safety
medical products, and the design and development of various molds and production
processes.
Financial Position
The Company had $4,214 in cash as of March 31, 2000. This represents a
decrease of $176,211 from December 31, 1999. The decrease in cash was largely
due to ongoing selling, general and administrative costs and research and
development expenditures with no product sales and minimal margins on
development fees. Working capital as of March 31, 2000, increased to $1,289,438
as compared to $230,138 at December 31, 1999. This increase in working capital
was primarily due to the recording of a receivable from Kendall for license and
technology rights acquired in an agreement effective on March 29, 2000. There
were no material proceeds from equity or other financing sources during the
quarter ended March 31, 2000.
Three Months Ended March 31, 2000 and 1999
During the three months ended March 31, 2000, the Company had total
revenues of $202,268 comprised of development fees under development and license
agreements with Johnson & Johnson Medical, Inc. ("JJM") and Kendall. Each of
these arrangements are discussed below. These revenues are compared to total
revenues of $553,176 for the comparable period of the prior year, comprised
totally of development fees under the Development and License Agreement with JJM
(the "JJM Agreement").
In November 1999, the Company and Kendall entered into the Kendall
Agreement relating to one application of the Company's needle technology in the
production of a line of safety medical needle products, including six syringe
products and five other safety needle products. The effective date of the
Kendall Agreement was subject to certain approvals that were obtained on March
29, 2000. On April 12, 2000, the Company received a $1,500,000 payment less
$35,044 representing the Company's share of certain patent filing costs. The
Company will receive an additional $1,000,000 upon the sale of commercial
quantities of products or thirty months from the effective date of the
agreement, whichever comes first, in exchange for the Company assigning to
Kendall the FlexLoc(R) and ReLoc(TM) trademarks and two related patents. The
assignment of the patent rights to Kendall is subject to a preexisting license
agreement and the retention by the Company of an exclusive, royalty free
worldwide license in a number of strategic product areas. The Kendall Agreement
also provides for the Company to receive development fees and ongoing royalties,
including a $500,000 advance royalty payment upon the sale of commercial
quantities of products. It is anticipated that Kendall will manufacture all
products that are subject to the Kendall Agreement. In accordance with SAB No.
101 as issued by the Securities and Exchange Commission, the technology payments
provided for in the agreement will be recognized as revenue over the estimated
period for which the Company will receive economic benefit. Accordingly, at
March 31, 2000, the full amounts of the technology payments have been deferred
to be recognized as revenue in future periods as earned. Revenue recognition for
the $2,500,000 of technology payments will be based on the relative fair values
of the various products covered by the Kendall Agreement on a straight-line
basis over the estimated economic lives of those products. The $1,500,000
payment received by the Company on April 12, 2000, is non-refundable and the
additional $1,000,000 is receivable upon commercialization of the first product
subject to the Kendall Agreement or thirty months from the effective date of the
agreement, whichever comes first. There can be no assurance that products will
be launched as anticipated.
6
<PAGE>
In December 1997, the Company entered into the JJM Agreement with JJM
to commercialize two applications of the safety needle technology. The JJM
Agreement provides that the Company and JJM will seek to commercialize two
products using safety medical needle technology. The JJM Agreement provides for
monthly development payments by JJM, sharing of field related patent costs, the
possibility of payments for initial periods of low volume manufacturing, an
ongoing royalty stream and a JJM investment in molds, assembly equipment and
other capital costs related to commercialization of each product. The JJM
Agreement also provides for an ongoing joint cooperative program between the
Company and JJM which derives future funding directly from sales of Company
created products, the possibility of low volume manufacturing revenue for the
Company and an ongoing royalty stream for additional safety products which are
jointly approved for development. The Company anticipates that JJM will perform
substantially all of the manufacturing under the JJM Agreement during 2000. The
Company and JJM also entered into arrangements whereby they are pursuing
development and commercialization of four additional products. The Company
anticipates that the sale of one product under the JJM Agreement will begin in
the year 2000 with additional products scheduled for introduction into the
market in 2001. There is no assurance that the Company will realize royalty
revenues under the JJM Agreement or that any of these products will be launched
as anticipated. All product introductions are scheduled and controlled by JJM.
In May 1997, the Company entered into an agreement (the "BDIT License
Agreement") with Becton Dickinson and Company Infusion Therapy Division ("BDIT")
relating to a single application of the Company's ExtreSafe(R) safety needle
technology (the "Technology"). Pursuant to the terms of the BDIT License
Agreement, BDIT made payments of $4,000,000 to the Company. Of these total
payments, $3,750,000 was for advanced royalties and $250,000 was for a product
development fee. In June 1999, BDIT and the Company amended the BDIT License
Agreement. The amendment provides that the $3,750,000 previously paid by BDIT to
the Company will not be credited against future earned royalties and the Company
will have no further obligation of any kind to BDIT with respect to these
payments. Accordingly, the $3,750,000 of deferred royalty revenue was recognized
as revenue during 1999. BDIT has exclusivity related minimum royalty obligations
to the Company beginning in 2004. The Company will not be manufacturing product
in connection with the BDIT License Agreement.
BDIT previously told the Company at various times that it expected to
begin selling the product that is the subject of the BDIT License Agreement.
BDIT has indicated that it is unsure if or when product will be introduced and
sold in the market under the BDIT License Agreement. BDIT has not provided the
Company with current information regarding the market introduction of the
product.
The Company has an ongoing program for developing products using its
fourteen medical needle technologies and expects to develop additional safety
medical needle technologies. These technologies allow a contaminated needle to
be protected without exposure of the healthcare worker to the contaminated
needle. Products under development that incorporate these safety medical needle
technologies include phlebotomy devices, catheter inserters, IV infusion, winged
needle sets, dental, specialty, lancets and several different syringe and
prefilled syringe applications. Prototypes of the phlebotomy devices, catheter
inserters and syringes have been completed. The Company is developing other
medical safety devices.
License and distribution arrangements, such as those discussed above,
create certain risks for the Company, including (i) reliance for sales of
products on other parties, and therefore reliance on the other parties'
marketing ability, marketing plans and credit-worthiness; (ii) if the Company's
products are marketed under other parties' labels, goodwill associated with use
of the products may inure to the benefit of the other parties rather than the
Company; (iii) the Company may have only limited protection from changes in
manufacturing costs and raw materials costs; and (iv) if the Company is reliant
on other parties for all or substantially all of its sales, the Company may be
limited in its ability to negotiate with such other parties upon any renewals of
their agreements. Further, because such arrangements are generally expected to
provide the Company's marketing partners with certain elements of exclusivity
with respect to the products to be marketed by those partners, the Company's
success will be highly dependent on the results obtained by its partners.
Research and development ("R&D") expenses were $167,158 for the three
months ended March 31, 2000, compared with $253,942 for the comparable period of
the prior year. The Company's R&D efforts during the three-month period ended
March 31, 2000, focused on development of several additional products utilizing
the Company's
7
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medical safety needle technologies. The Company's R&D efforts during the
three-month period ended March 31, 1999, focused on development of several
products utilizing the Company's medical safety needle technologies and
continued development work on a filmless digitized imaging technology (which was
performed by Quantum Imaging Corporation, but was funded by the Company). The
decreases in R&D expenses resulted primarily from (i) termination of the
development activities with respect to the filmless digitized imaging
technology, (ii) the termination of two development employees, and (iii) a
reduction in the use of outside consultants for development activities.
Selling, general and administrative expenses were $390,718 for the
three months ended March 31, 2000, compared with $639,385 for the comparable
period of the prior year. The decrease in the three-month period ended March 31,
2000, resulted mainly from (i) the officers of the Company taking a combined
thirty-three percent reduction in compensation and related benefits, (ii)
downsizing which resulted in the termination of two administrative employees,
(iii) reduction in financial advisory and general consulting fees, (iv)
elimination of costs associated with the Leerink Swann litigation and (v)
subleasing approximately 25% of the Company's facilities.
Interest and other income was $1,373 for the three months ended March
31, 2000, compared with $28,058 for the comparable period of the prior year. The
decrease resulted primarily from reductions in interest income earned on funds
on deposit and short-term interest bearing investments. As funds on deposit and
interest bearing short-term investments have decreased so has the related
interest income.
Liquidity and Capital Resources
To date, the Company has financed its operations principally through
private placements of equity securities, advanced royalties, development fees,
technology and license fees and proceeds from the exercise of common stock
options. The Company has generated $16,200,285 in net proceeds through private
placements of equity and exercise of common stock options from inception through
March 31, 2000. The Company used net cash of $173,668 for operating activities
during the quarter ended March 31, 2000. As of March 31, 2000, the Company's
current liabilities totaled $308,797. The Company had working capital as of
March 31, 2000 of $1,289,438.
The Company's working capital and other capital requirements for the
foreseeable future will vary based upon a number of factors, including the costs
to complete development and bring the safety medical needle technologies and
other products to commercial viability, and the level of sales of the new
phlebotomy product due to launch in the fourth quarter of 2000. At March 31,
2000, the Company had not committed to spend any funds on capital expenditures.
The Company believes that existing funds, including the $1,500,000 received from
Kendall, development fees from JJM and Kendall under the respective agreements,
license revenues and funds generated from the expected commencement of product
royalties under current agreements, will be sufficient to maintain operations
through December 31, 2000. The Company has no contractual arrangements that
guarantee that the Company will have adequate funding during 2000 and there can
be no assurance that additional funding, if needed, will be available on
commercially reasonable terms or at all. Any inability to obtain additional
funding if needed will have a material adverse effect on the Company, including
possibly requiring the Company to significantly curtail or cease its operations.
From time to time the Company is presented with new opportunities to
design, develop, acquire or manufacture safety medical devices. In the event
such opportunities arise, management and the Board of Directors could determine
that the pursuit of such opportunities is in the best interest of the Company
and its stockholders and may decide to raise additional funding through the sale
of securities. The Company will also continue to pursue new arrangements with
strategic partners which could generate additional development or licensing
fees. There are no contractual arrangements in place that would provide for
additional funding and there can be no assurance that the Company will be able
to obtain additional funding if appropriate on commercially reasonable terms or
at all.
At April 28, 2000, the Company had 3,609,787 Series D Warrants and
775,000 other warrants (the "SHPI Warrants") outstanding which are exercisable
for the same number of shares of Common Stock of the Company at $2.00 per share.
The Series D Warrants expire on the earlier of (a) two years from the date of
effectiveness of a registration statement under the Securities Act of 1933 (the
"Act") covering the sale of the shares of Common Stock underlying such warrants,
which period shall be extended day-for-day for any time that a prospectus
meeting the requirements of the Act is not available, or (b) the redemption date
if such warrants are redeemed (subject to the right of the holder to exercise
the warrants within 20 days of notice of such redemption). The SHPI Warrants
expire on December 31, 2002. The exercise of all the warrants would result in an
equity infusion to the Company of $8,769,574.
8
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As of the date hereof, all of the warrants are out of the money and there can be
no assurance that any warrants will ever be exercised.
The Company has granted stock options that are currently exercisable
for 1,964,500 shares of Common Stock at exercise prices ranging between $.39 and
$2.625 per share. The exercise of all of such stock options would result in an
equity infusion to the Company of $4,054,514. All but 18,000 of the stock
options are out of the money and there can be no assurance that any of the stock
options will be exercised.
In June 1998, the Company entered into an Option to Purchase Agreement
(the "Option Agreement") with the University of Texas System to purchase certain
patents and related technology, research and development for a total purchase
price of $2,400,000. In accordance with the Option Agreement, a $240,000
non-refundable payment was made in July 1998 with the balance of $2,160,000 to
be paid within 30 days of the exercise of the purchase option. The Company
retained the exclusive right to exercise the option and acquire the patents and
related technology for a period of one year from the date of the execution of
the Option Agreement or within 14 days of notification of successful completion
of animal toxicity studies. The Company received notice of successful completion
of the toxicity studies in February 1999 and subsequently entered into four
amendments to the Option Agreement resulting in extensions of the exercise
period through May 2000. The Company paid a total of $265,000 in extension fees.
The Company was reimbursed for the majority of these fees from a third party who
expressed an interest in acquiring the technology from the Company upon exercise
of the option. Subsequent to December 31, 1999, the third party determined that
it would not complete the acquisition. As the Company was not in a position to
exercise the option, the option was allowed to expire effective January 23,
2000. The Company has no obligation to make additional cash payments to the
University of Texas System.
Inflation
The Company does not expect the impact of inflation on its operations
to be significant for the next twelve months.
Year 2000
The Company developed plans which addressed the possible exposures
related to the impact on its computer systems of the Year 2000. Since entering
the Year 2000, the Company has not experienced any major disruptions to its
business nor is it aware of any significant Year 2000-related disruptions
impacting its customers and suppliers. The Company will continue to monitor its
critical systems over the next several months but does not anticipate any
significant impacts due to Year 2000 exposures from its internal systems as well
as from the activities of its suppliers and customers.
Forward-Looking Statements
When used in this Form 10-QSB, in other filings by the Company with the
SEC, in the Company's press releases or other public or stockholder
communications, or in oral statements made with the approval of an authorized
executive officer of the Company, the words or phrases "would be," "will allow,"
"intends to," "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, are based on
certain assumptions and expectations which may or may not be valid or actually
occur, and which involve various 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, changes in the regulation of safety health
care products, and other risks. Furthermore, manufacturing delays may result
from mold redesigns or delays may result from the failure to timely obtain FDA
approval to sell future products. In addition, sales and other revenues may not
commence as anticipated due to delays from the Company's licensing partners or
otherwise. If and when product sales commence, sales may not reach the levels
anticipated. As a result, the Company's actual results for future periods could
differ materially from those anticipated or projected. Please refer to
"Management's Discussion and Analysis or Plan of
9
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Operation" and specifically the discussion under "Other Factors" that is found
in the Company's Annual Report on Form 10-KSB/A for the year ended December 31,
1999, for more details.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
10
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securityholders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a)
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3(i).1 Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3(i).1 of the Company's
current report on Form 8-K, dated July 28, 1995)
3(i).2 Certificate of Amendment of Certificate of Incorporation of
the Company (Incorporated by reference to Exhibit 3(i).2 of
the Company's Form 10-K, dated December 31, 1996).
3(i).3 Articles of Incorporation of Specialized Health Products, Inc.
("SHP") (Incorporated by reference to Exhibit 3(i).2 of the
Company's Form 10-K, dated December 31, 1995)
3(i).4 Articles of Amendment of SHP (Incorporated by reference to
Exhibit 3(i).3 of the Company's Form 10-K, dated December 31,
1995)
3(ii).1 Second Amended and Restated Bylaws of the Company
(Incorporated by reference to Exhibit 3(ii).1 of the Company's
Annual Report on Form 10-K, dated December 31, 1997).
3(ii).2 Bylaws of SHP (Incorporated by reference to Exhibit 3(ii).2 of
the Company's Form 10-K, dated December 31, 1995)
4.1 Form of Series D Warrant Certificate (Incorporated by
reference to Exhibit 4.3 of the Company's Annual Report on
Form 10-K, dated December 31, 1997).
4.2 Form of SHPI Warrant Certificate (Incorporated by reference to
Exhibit 4.4 of the Company's Annual Report on Form 10-K, dated
December 31, 1997).
10.1 Form of Employment Agreement with Executive Officers
(Incorporated by reference to Exhibit 10.3 of the Company's
Form 10-K, dated December 31, 1995)
10.2 Form of Indemnity Agreement with Executive Officers and
Directors (Incorporated by reference to Exhibit 10.4 of the
Company's Form 10-K, dated December 31, 1995)
11
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.3 Form of Confidentiality Agreement (Incorporated by reference
to Exhibit 10.5 of the Company's Form 10-K, dated December 31,
1995)
10.4 License Agreement between SHP and Becton, Dickinson and
Company (Incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K, dated June 4, 1997)
10.5 Distribution and License Agreement between SHP and Johnson and
Johnson Medical, Inc. (Incorporated by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K/A, dated
December 22, 1997)
10.6 Development and License Agreement, effective date of March 29,
2000, by and among Safety Syringe Corporation, a wholly owned
subsidiary of the Company and The Kendall Company
(Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K, dated March 29, 2000)
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPECIALIZED HEALTH PRODUCTS
INTERNATIONAL, INC.
Date: 5/3/00 By /s/ David A. Robinson
------------------------------
David A. Robinson
President, Chief Executive Officer,
Director
Date: 5/3/00 By /s/ Charles D. Roe
------------------------------
Charles D. Roe
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
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<SECURITIES> 0
<RECEIVABLES> 1,572,340
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<CURRENT-ASSETS> 1,598,235
<PP&E> 1,551,075
<DEPRECIATION> 874,881
<TOTAL-ASSETS> 2,308,968
<CURRENT-LIABILITIES> 308,797
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0
0
<COMMON> 247,129
<OTHER-SE> 753,042
<TOTAL-LIABILITY-AND-EQUITY> 2,308,968
<SALES> 0
<TOTAL-REVENUES> 202,268
<CGS> 0
<TOTAL-COSTS> 706,667
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (503,026)
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<INCOME-CONTINUING> (503,026)
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