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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT OF 1934
For the transition period from____________________to___________________
COMMISSION FILE NUMBER: 33-27610-A
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-2954561
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17601
3125 NOLT ROAD, LANCASTER, PA (Zip Code)
(Address of principal executive offices)
(717) 892-6770
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. YES [X]
No [ ]
As of September 30, 1997 16,931,417 shares of Common Stock, no par
value, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's annual report filed with the Securities and
Exchange Commission on Form 10-KSB, filed December 2, 1997.
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<TABLE>
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MEDICAL TECHNOLOGY & INNOVATIONS, INC.
TABLE OF CONTENTS
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1997 and June 30, 1997 3
Condensed Consolidated Income Statements
For the Three Months ended September 30, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Stockholders'
Equity (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
For the Three Months ended September 30, 1997 and 1996 (Unaudited) 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis or
Plan of Operation 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 13
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2
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 AND JUNE 30, 1997
ASSETS
September 30, June 30,
(Unaudited) 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 15,329 $ 58,090
Accounts Receivable, less allowances of
$36,367, respectively 453,693 407,633
Inventory 542,101 692,273
Prepaid Expenses 18,078 36,477
----------- -----------
Total Current Assets 1,029,201 1,194,473
----------- -----------
FIXED ASSETS
Land 382,000 382,000
Equipment, less accumulated depreciation
of $258,005 and $223,881, respectively 926,523 956,388
----------- -----------
Fixed Assets, net 1,308,523 1,338,388
OTHER ASSETS
Intangible and Other Assets 2,660,083 2,716,280
----------- -----------
TOTAL ASSETS $ 4,997,807 $ 5,249,141
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 755,970 $ 418,341
Accrued Liabilities 307,697 384,995
Current Maturities of Long-Term Debt 760,052 732,997
----------- -----------
Total Current Liabilities 1,823,719 1,536,333
LONG-TERM DEBT, NET OF CURRENT MATURITIES 941,936 1,020,040
----------- -----------
TOTAL LIABILITIES 2,765,655 2,556,373
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, no par value, authorized
700,000,000 shares, outstanding 16,931,417
and 16,730,729 shares, respectively 6,789,147 6,755,260
Series A Convertible Preferred Stock, $100
par value, authorized 70,000 shares,
outstanding 495 and 496 shares,
respectively 4,398,923 4,407,810
Preferred Stock, authorized 100,000,000 shares
$1,000 par value, 12%, noncumulative,
Outstanding 22.5 shares 22,500 22,500
$100 par value, none issued
Treasury Stock, at cost (309,742) (309,742)
Accumulated Deficit (8,668,676) (8,183,060)
----------- -----------
Total Stockholders' Equity 2,232,152 2,692,768
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,997,807 $ 5,249,141
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
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<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
1997 1996
---------- ----------
<S> <C> <C>
Revenues $ 984,624 $ 832,092
Cost of Goods Sold 742,071 617,347
---------- ----------
Gross Profit 242,553 214,745
---------- ----------
Operating Expenses
Advertising 37,066 66,205
Selling, General and Administrative 641,695 779,060
---------- ----------
Total Operating Expenses 678,761 845,265
---------- ----------
Loss from Operations (436,208) (630,520)
Interest expense, net 49,408 48,628
Net Loss $ (485,616) $ (679,148)
========== ==========
Earnings (Loss) per common share
Net Loss $ (.032) $ (.055)
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
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<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SERIES A
CONVERTIBLE
COMMON COMMON PREFERRED PREFERRED
SHARES STOCK STOCK STOCK
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995 11,205,036 $ 1,435,407 $ 56,000
Issuance of Common Stock 1,306,409 1,147,076
Exercise of Stock Options 735,084 1,102,427
Stock Issued for Services 217,520 462,230
Purchase of Treasury Shares (1,316,750)
Net Loss
------------ ----------- ----------- ---------
BALANCE AT JUNE 30, 1996 12,147,299 4,147,140 56,000
Sale of 70,000 Series A
Convertible Preferred Stock,
net of issuance costs $6,220,700
Conversions of Preferred Stock
into Common Stock 3,697,576 1,846,390 (1,812,890) (33,500)
Exercise of Stock Options 194,737 292,105
Issuance of Common Stock 532,898 270,250
Stock Issued for Services 215,000 199,375
Purchase of Treasury Shares (56,781)
Net Loss
------------ ----------- ----------- ---------
BALANCE AT JUNE 30, 1997 16,730,729 $ 6,755,260 $ 4,407,810 $ 22,500
Net Loss
Issuance of Common Stock 144,509 25,000
Conversion of Preferred Stock into
Common Stock 56,179 8,887 (8,887)
------------ ----------- ----------- ---------
BALANCE AT SEPTEMBER 30, 1997 16,931,417 $ 6,789,147 $ 4,398,923 $ 22,520
============ =========== =========== =========
<CAPTION>
TOTAL
TREASURY ACCUMULATED STOCKHOLDERS'
STOCK DEFICIT EQUITY
---------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1995 $(2,781,730) $(1,290,323)
Issuance of Common Stock 1,147,076
Exercise of Stock Options 1,102,427
Stock Issued for Services 462,230
Purchase of Treasury Shares $ (250,000) (250,000)
Net Loss (1,893,771) (1,893,771)
---------- ----------- -----------
BALANCE AT JUNE 30, 1996 (250,000) (4,675,501) (722,361)
Sale of 70,000 Series A
Convertible Preferred Stock,
net of issuance costs 6,220,700
Conversions of Preferred Stock
into Common Stock 0
Exercise of Stock Options 292,105
Issuance of Common Stock 270,250
Stock Issued for Services 199,375
Purchase of Treasury Shares (59,742) (59,742)
Net Loss (3,507,559) (3,507,559)
---------- ----------- -----------
BALANCE AT JUNE 30, 1997 $ (309,742) $(8,183,060) $ 2,692,768
Net Loss (485,616) (485,616)
Issuance of Common Stock 25,000
Conversion of Preferred Stock into
Common Stock 0
---------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 $ (309,742) $(8,668,676) $ 2,232,152
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
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<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
THREE MONTHS ENDED SEPTEMBER 30,
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (485,616) $ (679,148)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and Amortization 86,062 60,840
(Increase) in Accounts Receivable (46,060) (46,412)
(Increase) Decrease in Inventory 150,172 (88,985)
Decrease in Prepaid Expenses 18,399 21,169
(Decrease) Increase in Accounts Payable 337,629 (156,466)
(Decrease) Increase in Accrued Liabilities (77,298) 139,516
Stock issued for services 0 112,500
----------- -----------
Net cash used in operating activities (16,712) (636,986)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Net Assets of Steridyne 0 (4,474,565)
Purchase of Fixed Assets 0 (64,311)
------------ ------------
Net cash used in investing activities 0 (4,538,876)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series A
preferred stock, net 0 6,220,700
Proceeds from issuance of stock, net 25,000 150,000
Proceeds from exercise of stock options, net 0 292,106
Acquisition of Treasury Stock 0 (18,367)
Proceeds from exercise of Stock options, net - 0 -
Repayment of notes payable (51,049) (564,644)
----------- -----------
Net cash from (used in) financing activities (26,049) 6,079,795
Net increase (decrease) in cash and cash equivalents (42,761) 903,933
Cash and cash equivalents at beginning of period 58,090 273,942
----------- -----------
Cash and cash equivalents at end of period $ 15,329 $ 1,177,875
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
6
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MEDICAL TECHNOLOGY & INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS. The unaudited condensed consolidated
financial information contained in this report reflects all adjustments
(consisting of normal recurring accruals) considered necessary, in the opinion
of management, for a fair presentation of results for the interim periods
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's June 30, 1997 Annual Report on Form 10-KSB. The results of
operations for periods ended September 30 are not necessarily indicative of
operations for the full year.
2. STOCK OPTION PLANS. In October of 1995 officers of the Company were granted
options to acquire up to 2.0 million shares of common stock at an exercise price
of $1.50 per share. The options are exercisable ratably over a three year period
commencing with the quarter ending June 30, 1996.
In April of 1996 the Company's shareholders approved the 1996 Stock Option Plan,
which allows the board of directors to grant up to 3.0 million options. During
fiscal 1996, 1,250,000 options have been granted.
The following is a summary of stock option transactions:
Outstanding, July 1, 1997 3,239,936
Options granted 0
Options exercised 0
Options cancelled (500,000)
----------
Outstanding, September 30, 1997 2,739,936
==========
Exercisable, end of period 939,231
==========
3. PREFERRED STOCK. The Company has two classes of preferred stock. The $1,000
par value convertible preferred stock is convertible into 14,985 shares of the
Company's common stock. The Series A convertible preferred stock has no
dividend, an 8% cumulative accretion, and may be redeemed as follows (per
share):
DATE OF REDEMPTION
FOLLOWING ISSUANCE % OF STATED VALUE
------------------ -----------------
12 - 18 months 130%
18 - 24 months 125%
24 - 30 months 120%
30 - 36 months 115%
The Series A convertible preferred stock is convertible into approximately 30
million shares of the Company's common stock as of September 30, 1997. The
Series A preferred stock conversion rate is lower of the approximate market rate
or $2.72. As of September 30, 1997, 495 shares of the Series A preferred stock
were
7
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convertible. All Series A preferred shares outstanding as of July 1999 must be
converted into the Company's common stock.
In September of 1997, the Company renegotiated terms with the Series A Preferred
Shareholders and as a result, all Series A Preferred Shares will be exchanged
for a combination of cash, common stock, a new Series B Preferred stock and an
amended warrant certificate with an exercise price of $1.00 per share in cash.
The common stock is subject to a lock up for one year. The new Series B
Preferred stock is redeemable by the Company at any time in cash at 110% of the
face value or in common stock at 120% of the face value, with mandatory
redemption required by September 30, 2000. Series B Preferred shares can be
converted into common stock of the Company at a fixed conversion price of $1.00
per share in cash beginning October 1, 1998.
4. WARRANTS. The Company has issued warrants to purchase 4.3 million shares of
common stock as of September 30, 1997. The warrants relate to grants made in
connection with an equity issuance and various services rendered. The warrants
can be exercised at prices ranging from $.25 to $2.72 per share. 3.1 million
warrants expire in July 2001. Pursuant to terms renegotiated in September of
1997 between the Company and holders of Series A Preferred Shares issued in July
of 1996, the exercise price of approximately 1.8 million warrants will be
reduced from $2.72 to $1.00.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This analysis should be read in conjunction with the condensed consolidated
financial statements, the notes thereto, and the financial statements and notes
thereto included in the Company's June 30, 1997 Annual Report on Form 10-KSB.
All nonhistorical information contained in this Form 10-QSB is a forward-looking
statement. The forward looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward looking statements. Factors that
might cause such differences include, but are not limited to the following, a
slower acceptance of the MTI PhotoscreenerTM in the marketplace, increased
foreign competition putting pricing pressures on Steridyne products, changes in
economic trends and other unforeseen situations or developments. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the first quarter of fiscal 1998 increased by $152,532 or an 18%
increase. This increase results because of increased demand for the MTI
PhotoScreener/Trademark/ and the inclusion of Steridyne in the consolidated
results. Gross profit for the first quarter of fiscal 1998 increased by 13%
versus the comparable quarter in fiscal 1997 mostly due to sales increases as
overall margins are comparable between the two periods. MTI products generally
have higher profit margins than Steridyne products.
Operating expense decreased by 20% from $845,265 in the first quarter of fiscal
1997 to $678,761 in the
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comparable quarter in fiscal 1998. This reduction is evident in most expense
categories with the greatest savings in the employment and public relations
areas. Exclusive of Steridyne, the number of full time employees has been cut
back by over one-third from the first quarter of fiscal 1998 versus 1997.
Management expects general and administrative costs to continue to reduce in the
second quarter of fiscal 1998 because of extra costs the Company incurred in
renegotiating the terms of the original Series A Preferred Stock issued in July
of 1996.
Management expects a lower net loss for the second fiscal quarter of 1998
because of increased sales and continued controls of costs.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had cash of $15,329 and working capital of
($794,518) as compared to $58,090 and ($341,860) at June 30, 1997. The increase
in the working capital deficit is partially due to the inclusion of $343,750 of
subordinated convertible notes in the current liabilities. Assuming the
subordinated notes are put to the Company for conversion, the Company intends to
honor the put by issuing common stock.
In September of 1997 the Company reached an agreement with the holders of the
Series A Preferred shares issued in July of 1996 to amend certain term and
conditions of the issue subject to the Company completing the required
financing. All Series A Preferred shareholders were given the option of electing
("Option 1") a cash payment of $3,800 per share or ("Option 2") 10,000 shares of
the Company's common stock and a new Series B Preferred share with a $6,000 face
in exchange for 1 share of the original Series A Preferred. All Series A
Preferred shareholders will also have the exercise price reduced on all warrants
applicable to tendered Series A Preferred Shares from $2.72 to $1.00. The new
Series B Preferred Stock is convertible into common stock of the Company from
October 1, 1998 at a fixed price of $1.00. Conversion is limited to 10% of the
holding for the first four months following October 1, 1998 then it is increased
to 20% per month thereafter. The Series B Preferred stock can be redeemed by the
Company at any time but is mandatory on September 30, 2000. Common stock issued
to Series A Preferred Stockholders electing Option 2 is subject to a lock-up for
next year or as follows:
%SHARES
DATE SALABLE
------------------ -------
December 1, 1997 2.5%
January 1, 1998 5.0%
February 1, 1998 7.5%
April 1, 1998 10.0%
July 1, 1998 30.0%
October 1, 1998 45.0%
-----
100.0%
As of October 1, 1997, shareholders owning 210 Series A Preferred shares elected
Option 1 and shareholders owning 274 Series A Preferred shares elected Option 2.
All funds required to satisfy the company's cash requirements of Option 1 were
in place as of the same date.
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In connection with securing financing for Option 1 of the Series A Preferred
restructuring, the Company raised an additional $719,000 for general working
capital purposes. The Company recruited new senior management who instituted
significant reductions in employees, inventory management programs and cutbacks
in operating expenses in all parts of the business. Management also broadened
its sales and marketing emphasis to target large retailers and national public
service organizations rather than individual healthcare professionals.
Management believes these actions will improve operating performance and cash
flow in the near term.
For the past several years the Company has financed its operations primarily
through private sales of securities and revenues from the sale of its products.
Since June of 1993 the company has received net proceeds of approximately $10.0
million from the private sale of securities and debt. The Company may raise
additional capital through private and/or public sales of securities in the
future.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.1 Amendment to the Articles of Incorporation for SouthStar Productions,
Inc., which changed its name to Medical Technology & Innovations, Inc.
Incorporated by reference to the Company's Current Report on Form 8-K
for an event on September 21, 1995]
3.2 Restated Articles of Incorporation for Medical Technology & Innovations,
Inc.[Incorporated by reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-KSB (File No. 33-27610-A), filed September 30, 1996]
3.3 By-laws [Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S- 18 (File No. 33-27610-A), filed March
17, 1989]
10.1 Share Exchange Plan between SouthStar Productions, Inc. and Medical
Technology, Inc. [Incorporated by reference to the Company's Current
Report on Form 8-K for an event on August 21, 1995]
10.2 Asset purchase agreement for the purchase and sale of certain assets of
Steridyne Corporation [Incorporated by reference to the Company's
Current Report on Form 8-K for an event on July 31, 1996]
10.3 Medical Technology & Innovations, Inc. 1996 Stock Option Plan.
[Incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-KSB (File No. 33-27610-A), filed September 30, 1996]
10.4 SouthStar Productions, Inc. Stock Purchase Plan 1995a (Financial Public
Relations Consulting Agreement) [Incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-8 (File No.
33-27610-A), filed August 23, 1995]
10.5 Medical Technology & Innovations, Inc. Stock Compensation Plan
[Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (File No. 33-27610-A), Filed January 17, 1996]
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10.6 Medical Technology & Innovations, Inc. 1996b Stock Purchase Plan
(Consulting Agreement) [Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (File No. 33-27610-A),
filed April 22, 1996]
10.7 Form of Employment Agreement, Covenant not to Compete, and Stock Option
Agreement between the Company and key employees. [Incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form 10-KSB
(File No. 33-27610-A), filed September 30, 1996]
10.8 Purchase Agreement dated January 31, 1996 between the Company and Glenn
and Ruth Schultz. [Incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-KSB (File No. 33-27610-A), filed
September 30, 1996]
16.1 Letter on change in certifying accountant [Incorporated by reference to
the Company's Current Report on Form 8-K for an event on April 26, 1996]
27.1 Financial Data Schedules
(b) Reports on Form 8-K.
On July 31, 1996, the Company filed a current report on Form 8-K for an
event of July 31, 1996, disclosing in item 2 thereof the acquisition of
the net assets of Steridyne Corporation, k/n/a Sumacar, Inc.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AND
BY: BY:
/S/ JEREMY P. FEAKINS /s/ ROBERT D. BRENNAN
- ------------------------------------------- ----------------------------
Jeremy P. Feakins, President and Chief Robert D. Brennan, President
Executive Officer Chief Operating Officer
Date: December 2, 1997.
13
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,329
<SECURITIES> 0
<RECEIVABLES> 490,060
<ALLOWANCES> 36,367
<INVENTORY> 542,101
<CURRENT-ASSETS> 1,029,201
<PP&E> 1,566,528
<DEPRECIATION> 258,005
<TOTAL-ASSETS> 4,997,807
<CURRENT-LIABILITIES> 1,823,719
<BONDS> 0
0
4,421,423
<COMMON> 6,789,147
<OTHER-SE> (309,742)
<TOTAL-LIABILITY-AND-EQUITY> 4,997,807
<SALES> 984,624
<TOTAL-REVENUES> 984,624
<CGS> 742,071
<TOTAL-COSTS> 678,761
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,408
<INCOME-PRETAX> (485,616)
<INCOME-TAX> 0
<INCOME-CONTINUING> (485,616)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (485,616)
<EPS-PRIMARY> (.032)
<EPS-DILUTED> 0
</TABLE>
