U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended JUNE 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ______________ to _____________
COMMISSION FILE NUMBER: 33-27610-A
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
(Name of small business issuer in its charter)
FLORIDA
(State or other jurisdiction of 65-2954561
incorporation or organization) (I.R.S. Employer Identification No.)
3125 NOLT ROAD, LANCASTER, PA 17601
(Address of principal executive offices) (Zip Code)
(717) 892-6770
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of each class)
Securities registered pursuant to Section12(g) of the Act:
NONE
(Title of Class)
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 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. YES [X]
No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $3,632,281.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold or the average
bid and asked prices of such stock as of August 29, 1997 was approximately $2.3
million.
As of June 30, 1997 16,730,729 shares of Common Stock, no par value, of the
registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Medical Technology & Innovations, Inc., f/k/a SouthStar Productions, Inc. (the
"Company") was incorporated in the state of Florida in January 1989. The Company
operates through its wholly-owned subsidiary, Medical Technology, Inc. ("MTI").
MTI was incorporated in the state of Iowa in April 1993.
The Company acquired control of MTI in October of 1995 under the terms of a
Share Exchange Plan ("the Plan") with SouthStar Productions, Inc. ("SouthStar").
The Company manufactures and distributes the MTI PhotoScreener/Trademark/, which
is a specialized Polaroid-type instant film camera designed to detect conditions
that lead to amblyopia ("lazy eye") and other eye disorders.
On August 1, 1996 the Company acquired the net assets of Steridyne Corporation,
a Florida Corporation ("Steridyne"). Steridyne is a manufacturer and distributor
of thermometer sheaths, probe covers, and anti-decubitus gel cushions. Steridyne
also distributes both glass and digital thermometers.
PRODUCT LINES
The MTI Photoscreener/Trademark/ is designed to take a photograph of a child's
eye and detect factors which can lead to amblyopia (lazy eye), including
strabismus (misalignment of the eye), cataracts (cloudy lenses), and asymmetric
or other abnormal refractive errors, including myopia (nearsightedness),
hyperopia (farsightedness), and astigmatism.
The MTI Photoscreener/Trademark/ consists of a single flash placed close to the
center of the lens of the subject's eye to accentuate the "red eye" appearance
of a subject for diagnostic purposes. By placing the flash close to the lens
aperture, abnormal refractive errors of the eye are imaged as white crescents in
the red eye reflex, a process scientifically known as "photo refraction".
The MTI PhotoScreener/Trademark/ consists of approximately 40 components, plus
screws and fasteners. Major components include molded plastic parts, optic
lenses, printed circuit boards, an instant film back, a strobe flash, optic
mirrors, a battery pack, a power supply, and a battery charger.
Steridyne's primary professional product line is the Steritemp/Registered
trademark/ sterile thermometer sheath and Steritemp II probe cover, a universal
probe cover for the small hand-held electronic thermometer. These clinical
products are packaged in over 30 distinct put-ups for the varied marketplace.
This includes Steritemp/Registered trademark/'s own branded electronic
thermometer and probe cover kits. A non-sterile economy sheath/probe cover line,
Value Brand/Trademark/, was recently introduced.
Steridyne's retail products include Glass thermometer kits, electronic
thermometer kits, sheath/probe covers, and forehead temperature indicators.
Steridyne has two extensive wound management product lines in the home
healthcare market: Zero-G/Trademark/ and SofSeat/Trademark/, a range of gel
flotation cushions offering full support at economical price levels.
MARKETING AND DISTRIBUTION
The Company markets the MTI PhotoScreener/Trademark/ domestically and
internationally through a combination of direct sales representatives and
independent distributors. The Company markets the MTI PhotoScreener/Trademark/
to pediatricians, public health and education departments, preschools, day care
centers, family and general physicians, eye doctors, hospitals, volunteer
organizations, managed care and health maintenance organizations, and national
eye care chains.
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Steridyne products are distributed through an authorized dealer network
utilizing sales representatives throughout the nation. There are three
divisions: professional (ethical), home healthcare and retail. The independent
sales representatives are directed by the national sales manager of Steridyne.
COMPETITION
The vision screening business has attracted several companies, both domestic and
foreign. Although other vision screening devices currently exist and are on the
market, the Company believes the MTI PhotoScreener/Trademark/ has competitive
advantages over all other such devices. These advantages include instant film
capability, relatively low cost, portability, and ease of interpretation and
use.
The Company's temperature taking and wound management products operate in a
highly competitive retail market in which the Company has a minor share. Most of
its business is in the clinical area where it is estimated that it has about 25%
of the U.S. market.
Although the Company believes its products have advantages over competing
products, no assurances can be made that current competitors or new entrants
into the market will not develop more competitive products. Such potential
competitors would most likely have considerably more financial resources than
the Company.
PATENTS AND TRADEMARKS
In 1993, the Company obtained rights to U.S. Patent No. 4,989,968 for a
photoscreening camera system, which is now known as the MTI
PhotoScreener/Trademark/. The above patent was initially granted to Dr. Howard
Freedman and subsequently assigned to the Company. The Company has filed patent
applications in Canada, Europe, and Japan.
As a result of the acquisition of Steridyne in August 1996, the Company has
obtained rights to patents No.4672700, No.4753705, No.4967758, No.4614442,
No.4136776, No. 4593699, No.4690457, and No.4165000 covering thermometer sheaths
and probe covers, decubitus cushions and disposable liners for blood pressure
cuffs. Steridyne's trademarks include Steritemp, Zero-G, Dr. T.Rex and Sofseat.
GOVERNMENT REGULATION
Certain aspects of the Company's business, principally the manufacture and sale
of the MTI PhotoScreener/Trademark/ and the Steridyne products are subject to
regulation by the U.S. Food and Drug Administration (FDA) as a medical device.
The Company has received a 510(k) clearance to market the MTI
PhotoScreener/Trademark/ and all of the Steridyne products with the exception of
the gel floatation cushions and sheaths which only require listing with the FDA
and that has been accomplished. The Company believes that it has completed all
necessary governmental processes to market the MTI PhotoScreener/Trademark/.
However, if the FDA should determine the Company has not complied with its
regulations, the FDA has the authority to order the Company to cease production
of its products and recall products already sold.
EMPLOYEES
As of June 30, 1997, the Company employed 46 full-time employees. This compares
with the employment of 17 full-time employees at June 30, 1996. None of the
Company's employees are represented by a labor union, and the Company considers
its employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal executive and administrative offices are located in
Lancaster, Pennsylvania. The Lancaster, Pennsylvania facility is owned by the
Company, and its acquisition was financed with approximately a $230,000
mortgage. In August of 1996, the Company moved its MTI PhotoScreener/Trademark/
manufacturing to leased facilities in Waterloo, Iowa. The Company also owns a
manufacturing facility in Riviera Beach, Florida where manufacturing,
distribution and administrative functions of Steridyne Corporation are
conducted. The facility is subject to a mortgage of approximately $239,000. The
Company
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believes that its properties are well maintained, and its manufacturing
equipment is in good operating condition and sufficient for current production.
ITEM 3. LEGAL PROCEEDINGS
In March, 1997, the Company was sued by Lehman Millet Incorporated ("LMI") in
Suffolk County Superior Court in Boston, Massachusetts concerning an alleged
agreement to provide public relations and promotional assistance with respect to
the MTI PhotoScreener/Trademark/. The suit alleges that monies are owed by the
Company to LMI for services provided. The Company answered the complaint and
vigorously contests the claims, and has asserted counterclaims for breach of
contract and deceit alleging damages, including lost revenues as a result of
LMI's failure to provide the appropriate professional services as represented.
The lawsuit is presently in the discovery phase and the parties anticipate
attempting to resolve this matter by mediation within the next several months.
On November 24, 1997, the Company filed suit against Faisal Finance
(Switzerland) SA in the United States District Court, Eastern District of
Pennsylvania, Case No. 97-CV-7191. The suit alleges that Faisal breached its
contract with the Company with respect to the Company's restructuring of the
Company's Series A Preferred Stock Regulation S offering. The complaint also
alleges that Faisal engaged in a scheme to defraud the Company and requests that
the court award it, as of this date, an unspecified amount of damages. Prior to
the filing of the complaint Faisal demanded conversion of its Series A stock.
The Company has refused to agree to that request.
MTI, the Company and Steridyne are also parties to other pending legal
proceedings in the ordinary course of their business. The Company does not
expect these legal proceedings to have a material adverse effect on the
Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following items were considered and acted upon at the Company's 1997 annual
meeting of stockholders which was held January 20, 1997:
1. The following directors were elected, along with their respective votes
received:
DIRECTOR TERM VOTES FOR VOTES AGAINST VOTES ABSTAIN
- -------- ---- --------- ------------- -------------
John Behrmann 3 yr. 10,839,050 1,000 53,393
Mathew Crimmins 3 yr. 10,839,050 1,000 53,393
2. Simon Lever & Company was ratified as the independent certified public
accountants by a vote of 10,864,820 in favor, 16,500 votes against and
12,123 abstain votes.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the Over the Counter Electronic Bulletin
Board under the symbol "MTEN." Prior to October 1995, the Company's common stock
was neither listed nor traded on any market. The following table sets forth the
range of the high and low bid prices for the common stock during the periods
indicated, and represents interdealer prices, which do not include retail
mark-ups and mark-downs, or any commission to the broker-dealer, and may not
necessarily represent actual transactions.
QUARTER ENDING HIGH LOW QUARTER ENDING HIGH LOW
September 30, 1996 $1.44 $1.19
December 31, 1995 $3.375 $1.125 December 31, 1996 .81 .75
March 31, 1996 3.125 1.688 March 31, 1997 .50 .25
June 30, 1996 4.000 2.625 June 30, 1997 .38 .19
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As of June 30, 1997, there were approximately 650 recordholders of common stock.
Such amounts do not include common stock held in "nominee" or "street" name.
In fiscal 1997, the Company sold 532,898 shares of common stock for total
consideration of $270,250 pursuant to Rule 506 of Regulation D as promulgated
under the Securities Act of 1933.
The Company has not paid cash dividends on its common stock since its inception.
At the present time, the Company's anticipated working capital requirements are
such that it intends to follow a policy of retaining any earnings in order to
finance the development of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This analysis should be read in conjunction with the consolidated financial
statements and notes thereto.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1997 AS COMPARED TO 1996.
Revenues for the fiscal year 1997 increased by approximately $2,936,000 over the
prior year almost entirely due to the inclusion of the Steridyne business in the
consolidated results. Sales of the MTI PhotoScreener/Trademark/ and accessories
increased in fiscal 1997 by over 10% versus the prior year. Gross Profit
increased in fiscal 1997 by over $600,000 versus fiscal 1996 because of higher
sales and profit margins attributable to the sales of MTI
PhotoScreener/Trademark/ and accessories and sales of Steridyne products, which
have a somewhat lower profit margins. Operating expenses increased by $2,182,000
in the fiscal year 1997. Approximately 65% of the increase is attributable to
the inclusion of the Steridyne business in the consolidated results with the
remainder due to increased selling, marketing and promotional costs associated
with promoting the MTI PhotoScreener/Trademark/ and increased general and
administrative costs related to restructuring the terms of the original Series A
Preferred stock issued in July of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash of $58,090 as compared to $273,942 at
June 30, 1996. At June 30, 1997, the ratio of current assets to current
liabilities was 0.78 to 1.0 as compared to 0.95 to 1.0 at June 30, 1996. The
Company is in the process of arranging a working capital facility in connection
with financing a portion of the Series A Preferred share restructuring. These
funds will be used primarily for increased marketing efforts and repayment of
certain debts.
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 terms 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 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.
Common stock issued to Series A Preferred Stockholders electing Option 2 is
subject to a lock-up for next year or as follows:
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%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.
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 control programs and cutbacks in
operating expenses in all parts of the business. Management also broadened 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 last few years, the Company has financed its operations primarily
through private sales of securities and revenues from the sale of its products.
Since June 1993, the Company has received net proceeds of approximately $9.8
million from private sale of equity securities. The Company may raise additional
capital through private and/or public sales of securities in the future.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
PAGE
----
Report of independent auditors for the years ended June 30, 1997 and 1996 8
Consolidated balance sheets as of June 30, 1997 and 1996 9
Consolidated income statements for the years ended
June 30, 1997 and 1996 10
Consolidated statements of stockholders' equity for the years ended
June 30, 1997 and 1996 11
Consolidated statements of cash flows for the years ended
June 30, 1997 and 1996 12
Notes to consolidated financial statements 13
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Medical Technology & Innovations, Inc.
Lancaster, Pennsylvania
We have audited the accompanying consolidated balance sheets of Medical
Technology & Innovations, Inc. and subsidiaries as of June 30, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. 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 consolidated financial position of
Medical Technology & Innovations, Inc. and subsidiaries as of June 30, 1997 and
1996, and consolidated results of their operations and their consolidated cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Companies will continue as a going concern. As discussed in
Note 18 to the consolidated financial statements, the Companies have suffered
recurring losses from operations and have a net working capital deficit that
raises substantial doubt about their ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 18. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ SIMON LEVER & COMPANY
Lancaster, Pennsylvania
November 25, 1997
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<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30
ASSETS
1997 1996
------------ ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 58,090 $273,942
Accounts Receivable, less allowances of
$36,367 and $30,000, respectively 407,633 330,439
Inventory 692,273 148,010
Prepaid Expenses 36,477 164,466
------------ ----------
Total Current Assets 1,194,473 916,857
------------ ----------
FIXED ASSETS:
Land 382,000 - 0 -
Property & Equipment 1,180,269 483,907
Less accumulated depreciation (223,881) (141,494)
------------ ----------
Fixed Assets, net 1,338,388 342,413
------------ ----------
OTHER ASSETS:
Intangible and Other Assets 2,716,280 7,970
------------ ----------
TOTAL ASSETS $5,249,141 $1,267,240
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $418,341 $188,979
Accrued Liabilities 384,995 98,625
Current Maturities of Long-Term Debt 732,997 680,000
------------ ----------
Total Current Liabilities 1,536,333 967,604
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,020,040 1,021,997
------------ ----------
TOTAL LIABILITIES 2,556,373 1,989,601
------------ ----------
STOCKHOLDERS' EQUITY
Common Stock, no par value, authorized
700,000,000 shares, outstanding 16,730,729
and 12,147,299 shares, respectively 6,755,260 4,147,140
Series A Convertible Preferred Stock, $100
par value, authorized 70,000 shares,
outstanding 496 shares and 514 shares,
respectively 4,407,810 - 0 -
Preferred Stock, authorized 100,000,000 shares
$1,000 par value, 12%, noncumulative,
outstanding 22.5 and 56 shares, respectively 22,500 56,000
$100 par value, none issued
Treasury Stock, at cost (309,742) (250,000)
Accumulated Deficit (8,183,060) (4,675,501)
------------ ----------
Total Stockholders' Equity 2,692,768 (722,361)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,249,141 $1,267,240
============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
---- ----
<S> <C> <C>
Revenues $3,632,281 $696,185
Cost of Goods Sold 2,870,196 535,148
------------ ------------
Gross profit 762,085 161,037
------------ ------------
Operating expenses
Advertising 454,828 224,029
Selling, General and Administrative 3,670,670 1,719,626
------------ ------------
Total Operating Expenses 4,125,498 1,943,655
------------ ------------
Loss From Operations (3,363,413) (1,782,618)
Interest expense, net 144,146 111,153
------------ ------------
Net Loss $(3,507,559) $(1,893,771)
============ ============
Earnings (Loss) per common share:
Net Loss $(.247) $(.159)
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
SERIES A
CONVERTIBLE
COMMON COMMON PREFERRED PREFERRED TREASURY
SHARES STOCK STOCK STOCK STOCK
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 10,564,256 $1,070,406 $56,000
Issuance of Common Stock 640,780 365,001
Net Loss
------------ ----------- ------------ ------------ ------------
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) $(250,000)
Net Loss
------------ ----------- ------------ ------------ ------------
BALANCE AT JUNE 30, 1996 12,147,299 4,147,140 56,000 (250,000)
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) (59,742)
Net Loss
------------ ----------- ------------ ------------ -----------
BALANCE AT JUNE 30, 1997 16,730,729 $6,755,260 $4,407,810 $22,500 $(309,742)
============ =========== ============ ============ ===========
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- ------------
BALANCE AT JUNE 30, 1994 $(2,088,651) $(962,245)
Issuance of Common Stock 365,001
Net Loss (693,079) (693,079)
------------- ------------
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)
Net Loss (1,893,771) (1,893,771)
------------- ------------
BALANCE AT JUNE 30, 1996 (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)
Net Loss (3,507,559) (3,507,559)
------------- ------------
BALANCE AT JUNE 30, 1997 $(8,183,060) $2,692,768
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,507,559) $(1,893,771)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and Amortization 312,845 60,522
(Increase) Decrease in Accounts Receivable 299,800 (214,410)
(Increase) in Inventory 2,244 (48,636)
(Increase) Decrease in Prepaid Expenses 132,010 (156,431)
Increase (Decrease) in Accounts Payable 198,932 (47,234)
Increase in Accrued Liabilities 259,929 2,156
Stock issued for services 199,375 462,230
---------- ----------
Net cash used in operating activities (2,102,424) (1,835,574)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Net Assets of Steridyne (4,406,635) - 0 -
Purchase of Fixed Assets (244,986) (278,011)
Other - 0 - (3,162)
---------- ----------
Net cash used in investing activities (4,651,621) (281,173)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series A
Preferred Stock, net 6,220,700 - 0 -
Proceeds from issuance of Stock, net 270,250 1,147,076
Proceeds from exercise of Stock options, net 292,105 1,102,427
Acquisition of Treasury Stock (59,742) (250,000)
Proceeds from issuance of Notes Payable 266,000 538,458
Repayment of Notes Payable (451,120) (213,105)
---------- ----------
Net cash from financing activities 6,538,193 2,324,856
---------- ----------
Net (decrease) in cash (215,852) (208,109)
Cash at beginning of year 273,942 65,833
---------- ----------
Cash at end of year $58,090 $273,942
========== ==========
Supplemental Disclosure:
Cost paid during the year for interest $76,000 $58,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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MEDICAL TECHNOLOGY & INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION. Medical Technology & Innovations, Inc. (the
Company), f/k/a SouthStar Productions, Inc., is a Florida corporation
engaged in the design, manufacture, and distribution of medical
screening devices for medical professionals primarily involved in
vision screening through its wholly-owned subsidiary, Medical
Technology, Inc. (MTI). The Company's other subsidiary, Steridyne
Corporation, distributes digital and glass thermometers, and
manufactures and distributes probe covers, sheaths, and
anti-decubitus devices for hospitals, medical offices, nursing homes
and retail outlets. The Company derives the majority of its revenues
from sales of Steridyne's products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the Company and its wholly owned subsidiaries. All
significant intercompany items have been eliminated.
RECLASSIFICATIONS. Certain amounts in the prior years' consolidated
financial statements have been reclassified to conform to the current
year presentation.
REVENUE RECOGNITION. Revenue from product sales are recognized at the
time product is shipped.
INVENTORIES. Inventories are stated at the lower of cost or market,
with cost determined under the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT. Property and equipment are stated on the
basis of cost less accumulated depreciation. The Company provides for
depreciation over the estimated useful lives of property and
equipment using the straight-line method.
INTANGIBLE AND OTHER ASSETS. Intangible and other assets consist
primarily of goodwill associated with the acquisition of Steridyne
and are amortized on a straight-line basis over their estimated
remaining lives.
INCOME TAXES. Deferred income taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards
and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
ADVERTISING. Advertising costs are expensed as incurred.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
LONG-LIVED ASSETS - Long-lived assets to be held and used are
reviewed for impairment whenever events or changes in circumstances
indicate that the related carrying amount may not be recoverable.
When required, impairment losses on assets to be held and used are
recognized based on the fair value of the asset and long-lived assets
to be disposed of are reported at the lower of carrying amount or
fair value less cost to sell.
-13-
<PAGE>
3. INVENTORIES. Inventories consisted of the following at June 30, 1997
and 1996:
Raw materials $462,987 $41,364
Work in process 71,509 62,929
Finished Goods 157,777 43,717
-------- --------
$692,273 $148,010
======== ========
4. FIXED ASSETS. Fixed assets consisted of the following at June 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Plant & equipment $916,647 $176,134
Land 382,000 200,000
Computer equipment and software 163,618 54,454
Furniture and fixtures 100,004 53,319
---------- --------
1,562,269 483,907
Less: Accumulated Depreciation (223,881) (141,494)
---------- --------
$1,338,388 $342,413
========== ========
</TABLE>
5. LONG-TERM DEBT. Long-Term Debt consisted of the following at June 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
12% subordinated convertible notes, due May 1998 $343,750 $310,750
8.5% note, due February 1, 1999, interest payable
monthly, secured by a mortgage 234,000 234,000
11.25% note, due February 1999, principal
and interest payable monthly, secured by
substantially all of the assets of a subsidiary
of the Company, except for the Company's patent,
and guaranteed by the Company's President and
major stockholder 115,672 170,982
7.0% notes, due 1998, principal and interest
payable monthly, secured by substantially all of the
assets of a subsidiary of the Company, except for the
Company's patent, and guaranteed by the Company's
President and major stockholder - 0 - 130,500
11.25% note, due March 2001, principal and
interest payable monthly, secured by substantially
all of the assets of a subsidiary of the Company, except
for the Company's patent and guaranteed by the
Company's President and major stockholder 106,584 126,862
10.0% convertible note, due March 2001, interest
payable quarterly 75,643 93,799
10.0% convertible note, due March 2002, interest
payable quarterly 76,329 86,814
-14-
<PAGE>
Secured notes payable, due various dates, interest
payable various at 0% to 16% 7,036 74,465
9.5% note, due December 2011, principal and
interest payable monthly, secured by mortgage 238,660 - 0 -
Variable rate note payable, interest payable monthly
At prime rate plus 7%, secured by Company's inventory 50,000 - 0 -
Unsecured notes payable, due various dates, interest
payable various at 0% to 10% 505,363 473,825
---------- ----------
Total notes payable 1,753,037 1,701,997
Less: amounts due in one year (732,997) (680,000)
---------- ----------
$1,020,040 $1,021,997
========== ==========
</TABLE>
The 12% subordinated convertible notes due May 1998 are convertible
into 582,600 shares of the Company's common stock adjusted for
certain antidilutive events upon the earlier of (1) May 1, 1998, (2)
an initial public offering of the Company's Common Stock, or (3) the
sale of all or substantially all of the assets of the Company.
The 10.0% convertible note, due March 2001, and the 10.0% convertible
note, due March 2002, are convertible into 158,010 shares and 131,675
shares respectively adjusted for certain antidilutive events upon the
earlier of (1) March 1, 1998, (2) an initial public offering of the
Company's Common Stock, or (3) the sale of all or substantially all
of the assets of the Company.
The amount of long-term debt maturing in each of the next five fiscal
years is $732,997 in 1998, $449,946 in 1999, $116,253 in 2000,
$115,800 in 2001, and $95,300 in 2002.
6. LEASE EXPENSE. The Company leases various equipment and office
space under operating lease agreements. Future minimum annual rentals
for subsequent fiscal years are as follows at June 30, 1997:
FISCAL LEASE
YEAR PAYMENTS
------ --------
1998 $59,838
1999 51,877
2000 14,423
7. EARNINGS(LOSS) PER SHARE. Earnings(loss) per common share is
computed by dividing net income(loss) by the weighted average number
of common shares and common share equivalents outstanding. The
average number of shares used to compute primary earnings per share
was 14,189,150 and 11,887,775 for the fiscal years ended June 30,
1997 and 1996 respectively. The difference between primary and fully
diluted earnings (loss) per share was not material in either year.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128 (SFAS 128),
"Earnings Per Share." SFAS 128 simplifies the standards for computing
earnings per share (EPS) by amending Accounting Principles Board
Opinion No. 15. SFAS 128 replaces the presentation of primary EPS
with a presentation of basic EPS and requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures. It also requires a
reconciliation of the numerator and denominator of basic and diluted
EPS. SFAS 128 is effective for periods ending after December 15, 1997
and requires restatement of all prior period EPS data presented. SFAS
128 will not have a significant impact on the earnings per share of
the Company.
-15-
<PAGE>
8. INCOME TAXES. The Company did not incur any income tax expense for
its fiscal years ending June 30, 1997 and 1996 respectively. As of
June 30, 1997 the Company has sustained in excess of $6.0 million in
net operating losses (NOLs) for tax purposes. These NOLs will expire
in various amounts if not utilized between 2004 and 2012 and are
subject to limitations should the ownership of the Company
significantly change. The deferred tax asset resulting from the above
NOL carryforwards has not been recorded in the accompanying financial
statements since management believes a valuation allowance is
necessary to reduce the deferred tax asset. Realization of deferred
tax assets is dependent upon sufficient future taxable income during
the period that deductible temporary differences and carryforwards
are expected to be available to reduce taxable income.
9. ROYALTY AGREEMENT. The Company is the owner of a patent on a
photoscreening device from which it derives substantially all of its
revenues. The terms of the royalty agreement require the Company to
pay a royalty to the inventor of six percent (6.0%) of net
PhotoScreener sales. The amount of royalties accrued by the Company
were $41,445 and $35,600 for its fiscal years ending June 30, 1997
and 1996 respectively under this agreement.
10. 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 30.6 million shares of the Company's common stock as of
June 30, 1997. The Series A preferred stock conversion rate is the
lower of the approximate market rate or $2.72. As of June 30, 1997,
496 shares of the Series A preferred stock were convertible. All
Series A preferred shares outstanding as of July 1999 must be
converted into the Company's common stock. (See Note 19)
11. 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 December of 1995 the Company granted options to a financial and
investor relations consultant to acquire 1.5 million shares of the
Company's common stock at an exercise price of $1.50 per share. The
options were exercisable over a one year period.
In April of 1996 the Company's shareholders approved the 1997 Stock
Option Plan, which allows the Board of Directors to grant up to 3.0
million options. During 1996, 1,250,000 options have been granted.
(750,000 at an exercise price of $.81 per share and 500,000 at an
exercise price of $1.00 per share)
-16-
<PAGE>
The following is a summary of stock option transactions:
1997 1996
---- ----
Outstanding, beginning of year 2,754,980 - 0 -
Options granted 1,250,000 3,500,000
Options exercised (194,737) (735,084)
Options cancelled (570,303) (9,936)
--------- ---------
Outstanding, end of year 3,239,936 2,754,980
========= =========
Exercisable, end of year 915,064 914,980
========= =========
The proforma disclosures required by SFAS 123 "Accounting for
Stock-based Compensation", is not applicable due to immateriality.
12. WARRANTS. The Company has issued warrants to purchase 4.3 million
shares of common stock as of June 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 $.30 to $2.72 per share. 3.1 million warrants expire in July
2001.
Included in warrants outstanding at June 30, 1997 are 950,000
conditional warrants, which expired because the Company's stock did
not reach targeted market prices in August and September 1997.
13. RELATED PARTY TRANSACTIONS. The Company and its wholly-owned
subsidiaries have had transactions with various entities, certain of
whose principals are also officers or directors of the Company or
MTI.
During the fiscal year ended June 30, 1997 the Company borrowed
$90,000 from an affiliate of the Chief Executive Officer and director
of the Company and $50,000 from another director. On June 30, 1997,
both amounts were outstanding and were included in the balance sheet
as of the same date.
During its fiscal year ending June 30, 1996 the Company borrowed
approximately $108,000 from its Chief Executive Officer and director,
which amount was included in the balance sheet at June 30, 1996.
14. BUSINESS COMBINATION. On October 2, 1995 the Company acquired all
the outstanding shares of MTI by exchanging 10,263,733 shares of the
Company's common stock for all of the outstanding stock of MTI. After
the acquisition, MTI shareholders owned 88% of the fully diluted
common stock of the Company. This acquisition, commonly referred to
as a reverse merger, was accounted for using the pooling of
interests' method of accounting. Therefore, the Company's
consolidated financial statements and information reported for
periods prior to the merger have been restated to include MTI for the
periods presented. Prior to the merger the Company was not actively
conducting business and had no net assets on October 2, 1995.
On August 1, 1996 the Company acquired the net assets of Steridyne
Corporation, a Florida Corporation for approximately $4.8 million,
which was accounted for by the purchase method of accounting. The
purchase price has been allocated to assets acquired and liabilities
assumed based upon their estimated fair values. The acquisition
resulted in goodwill of approximately $2.5 million, which will be
amortized over a period of 15 years. Steridyne's results of
operations have been included in the consolidated financial
statements from the date of acquisition.
The following unaudited proforma summary presents the results of
operations as if the acquisition had occurred July 1, 1996 and for a
comparable period in fiscal 1996. Prior to the acquisition, Steridyne
was a Subchapter S Corporation and its former owners declared bonuses
to themselves for the excess of revenues over expenses, including
their salaries. The Company has retained the former owners as
employees for one year to assist in the management of Steridyne.
Their present salaries
-17-
<PAGE>
approximate their salaries before bonuses from the S Corporation.
This summary does not purport to be indicative of what would have
occurred had the acquisition been made as of these dates or of
results which may occur in the future. This method of combining the
companies is for the presentation of unaudited proforma results of
operations for comparative purposes. Actual consolidated income
statements of the Company were combined from the effective date of
the acquisition forward with no retroactive restatement.
Year Ended June 30,
1997 1996
---- ----
Revenue $3,910,797 $4,038,382
Net Income (Loss) (3,533,130) (2,200,623)
(Loss) per common
share $(.25) $(.19)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair values of
the Company's financial instruments as of June 30, 1997 and 1996 are
as follows:
1997 1996
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Accounts Receivable $407,633 $407,633 $330,439 $330,439
Accounts Payable 418,341 418,341 188,979 188,979
Accrued Expenses 384,995 384,995 98,625 98,625
Long-term Debt 1,753,037 1,753,037 1,701,997 1,701,997
The estimated fair value of long-term debt approximates the carrying
amount based upon the borrowing rates currently available to the
Company for loans with similar terms and maturities. The fair value
of accounts receivable, accounts payable, and accrued expenses
approximates their carrying amount.
16. MAJOR CUSTOMERS. For the year ended June 30, 1997, the Company
had no major customers that accounted for more than 10% of sales.
17. GEOGRAPHIC AREA INFORMATION. The Company sells its products both
domestically and internationally. All international transactions are
conducted in U.S. currency. Information concerning operations by
principal geographic area was as follows:
UNITED ASIA/
STATES PACIFIC EUROPE CONSOLIDATED
June 30, 1997 ---------- --------- --------- ------------
Revenues $3,349,691 $240,304 $42,286 $3,632,281
Net Earnings (Loss) (3,169,081) (232,161) (106,317) (3,507,559)
Identifiable Assets 5,195,114 23,541 30,486 5,249,141
18. GOING CONCERN. The accompanying consolidated financial statements
have been prepared assuming that the Companies will continue as a
going concern. The Companies have suffered recurring losses from
operations and have a net working capital deficit that raise
substantial doubt about their ability to continue as a going concern.
The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In view of these matters, realization of a major portion of the
assets in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements and the success
of its future operations. Management believes that actions presently
being taken to revise the Company's operating and financial
requirements provide the opportunity for the company to continue as a
going concern.
-18-
<PAGE>
19. SUBSEQUENT EVENTS. 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.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements between the Company and their independent
accountants.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
<TABLE>
<CAPTION>
NAME POSITION WITH DATE ELECTED TERM OF OFFICE AGE
COMPANY DIRECTOR
<S> <C> <C> <C> <C>
Jeremy Feakins Director, Chief April 1996 3 years 44
Executive Officer
William Scott Director April 1996 3 years 65
John Behrmann Director January 1997 3 years 62
Mathew Crimmins Director January 1997 3 years 65
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
MR. FEAKINS was elected to the board in April of 1996. Since 1989, he has served
as President of Medical Technology, Inc. (MTI) and in October 1995, became the
President and Chief Executive Officer of Medical Technology & Innovations, Inc.
From 1980 to 1986, he was the managing Director of Craft Master, Limited, a
South African corporation, which was a manufacturer and exporter of point of
purchase display systems. Mr. Feakins received his degree in accounting and
computer studies from the Royal Naval College, Secretarial and Accounting
College, Chatham, Great Britian.
MR. BEHRMANN has been a director since April 1996. Mr. Behrmann is a Chairman of
First American Health Concepts, Inc., a public company in the optical insurance
business and owner and operator of Evergreen Industries, Inc., a company with
interests in commercial deer farming and real estate. He is also a stockholder
and Chairman of Preston Reynolds & Co., Inc., an investment banking firm with
special emphasis on the oil and gas industry and a stockholder and Chairman of
Redstone Resources, Inc., a company engaged in natural gas exploration. Mr.
Behrmann was formerly a Senior Vice President, Chief Financial Officer, and
director of Dentsply International, Inc., a health care company, is a C.P.A. and
holds a B.S. degree in Commerce and Finance from Bucknell University, Lewisburg,
Pennsylvania.
MR. CRIMMINS has been a director since April 1996. From 1965 to 1995, he was
with Polaroid Corporation where he held a number of executive positions with
responsibility in many functional areas including, commercial, technical, and
manufacturing operations. He was a Senior Director of Polaroid at retirement.
Mr. Crimmins received a B.S. (Physics) degree from Holy Cross, a M.S.
(Electrical Engineering) degree from Northeastern, and a M.B.A. from Boston
College.
MR. SCOTT was elected to the Board in April 1996. He is a Professor of
Ophthalmology at the Iowa College of Medicine. Mr. Scott is a graduate of the
University of Iowa.
-19-
<PAGE>
BUSINESS EXPERIENCE OF SIGNIFICANT OFFICERS
MR. BRENNAN joined the Company in February 1997 as President and Chief Operating
Officer. Prior to joining the Company, Mr. Brennan was Vice President-General
Manager of the Trubyte division of Dentsply International, Inc. ("Dentsply"), a
worldwide dental and medical product manufacturer and distributor (NASDAQ:XRAY).
His prior experience included Vice President-General Manager of Dentsply's F&F
Koenigkramer division, a fully integrated ophthalmologic equipment company, and
Vice President-Operations of the Deseret division of Warner Lambert Company, a
hospital product manufacturer of IV catheters and operating room supplies. Mr.
Brennan received a B.S. degree in Business Administration and an M.B.A. in
Management Development from Drexel University.
MR. STEFANICK joined the company in April 1997 as Executive Vice President of
Sales and Marketing. Prior to joining the Company, Mr. Stefanick was President
of Organizational Resources, Inc., a management consulting firm. His prior
experience included Vice President, Sales and Marketing for Dentsply's Ceramco
division, the world's leading supplier of dental ceramic products, and Director
of Sales and Marketing for Johnson & Johnson's Ceramco division. Mr. Stefanick
received a B.S. from West Chester University.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of its Common
Stock, to file reports of ownership and changes of ownership with Securities and
Exchange Commission (SEC). Officers, directors, and greater than ten-percent
stockholders are required by SEC regulation to furnish the Company with copies
of all ownership forms they file.
Based solely on its review of the copies of such form received by it, or based
upon representations that no Form 5 was required, Messrs. Feakins, Ballheim,
Behrmann, Brennan and Stefanick did not timely file Forms 3,4, or 5 for the
fiscal year ending June 30, 1997 as follows:
Name No. of Late Reports
Jeremy Feakins 5
Robert Ballheim 1
John Behrmann 3
Robert Brennan 2
John Stefanick 5
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of the
Company's Executive Officers whose compensation exceeded $100,000 for the fiscal
year ending June 30, 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME FISCAL ANNUAL COMPENSATION LONG-TERM ALL OTHER
AND YEAR COMPENSATION COMPENSATION
PRINCIPAL
POSITION
- ------------------------------------------------------------------------------------------------------------------------------------
SALARY BONUS OTHER AWARDS PAYOUTS
ANNUAL COMP.
- ------------------------------------------------------------------------------------------------------------------------------------
RESTRICTED OPTIONS/SARS LTIP
STOCK PAYOUTS
AWARD(S)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J.Feakins, 1997 $146,250 0 500,000 0 0
Chief
Executive
Officer
(1)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
1. Mr. Feakins is furnished with an automobile for business and personal
use. The compensation specified in the preceding table does not include the
value of non-business use as the amount is not material.
-20-
<PAGE>
<TABLE>
<CAPTION>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
- -------------------------------------------------------------------------------------------------------------------------------
NAME NO. OF SHARES % OF TOTAL EXERCISE OF EXPIRATION
COMMON STOCK OPTIONS BASE PRICE DATE
UNDERLYING GRANTED TO ($/SHARE)
OPTIONS EMPLOYEES IN
GRANTED FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Brennan 750,000 (1) 60% $0.81 (2)
J. Stefanick 500,000 (1) 40% $1.00 (2)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
1. Options become exercisable at the rate of 8.33% of options granted per
calendar quarter for twelve quarters commencing on March 31, 1997 for Mr.
Brennan and July 1, 1997 for Mr. Stefanick. Options not yet exercisable in
the event of cessation of employment are forfeited by the individual
participant unless there is a change of control in the Company. In which
event, all options granted are immediately exercisable. The number of
options granted to Mr. Stefanick is dependant upon certain sales targets
being met.
2. The expiration dates for the options granted are two (2) years from the
date the options become exercisable.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN
THE FISCAL YEAR ENDED JUNE 30, 1997
AND FISCAL YEAR END OPTION VALUES
- -----------------------------------------------------------------------------------------------------------------------------------
NAME NO. OF VALUE NO. OF EXERCISABLE/UNEXERCISABLE VALUE OF
SHARES REALIZED SHARES OF UNEXERCISED
ACQUIRED ON COMMON IN-THE-MONEY
EXERCISE STOCK OPTIONS
UNDERLYING EXERCISABLE/UNEXERCISABLE
UNEXERCISED
OPTIONS @
FISCAL YEAR
END
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. Feakins 0 0 500,000 240,000/260,000 360,000/390,000
R. Ballheim 0 0 500,000 240,000/260,000 360,000/390,000
S. Gill 0 0 500,000 240,000/260,000 360,000/390,000
G. Hartman 0 0 489,936 229,936/260,000 344,904/390,000
R. Brennan 0 0 750,000 125,000/625,000 101,250/506,250
J. Stefanick 0 0 500,000 0/500,000 0/500,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning all persons known to the
Company to be the beneficial owners of more than 5% of the Company's Common
Stock, (ii) the ownership interest of each director and nominee, and (iii) by
all directors and executive officers as a group calculated as of June 30, 1997.
<TABLE>
<CAPTION>
NAME POSITION AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP OWNERSHIP
<S> <C> <C> <C>
Jeremy Feakins Director, Chief 5,560,278 33.00%
Executive Officer
Robert Ballheim Executive Vice President 65,837 .39%
Engineering
John Behrmann Director 214,118 1.27%
Mathew Crimmins Director 0 0.00%
Robert Brennan President, Chief 245,712 1.46%
Operating Officer
John Stefanick Executive Vice President 90,000 .53%
William Scott Director 0 0.00%
All Executive Directors
and Officers as a Group 6,175,945 36.63%
</TABLE>
-21-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From November 1995 to May 1996, a Director loaned the Company approximately
$108,000. The above loan was an unsecured promissory note and was interest
bearing. The loan was repaid by the Company in July, 1996.
In March and April of 1997, a Company affiliated with the chief executive
officer and director of the Company made an unsecured demand loan to the Company
for $90,000 supported by a promissory note bearing interest at 9% per annum. The
loan was partially repaid in October 1997.
In May of 1997, a director of the Company made an unsecured loan to the Company
for $50,000 supported by a promissory note bearing interest at 9% per annum. The
loan was repaid by the Company in October of 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
3.1 Articles of Incorporation of SouthStar Productions, Inc., n/k/a
Medical Technology & Innovations, Inc. [Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-18 (File No. 33-27610-A), filed March 17,
1989]
3.2 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]
3.3 Restated Articles of Incorporation for Medical Technology &
Innovations, Inc. Incorporated by reference to the Company's
Annual Report on Form 10-KSB (File No. 33-27610-A), filed
September 30, 1996.
3.4 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 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. 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]
10.6 Form of Employment Agreement, Covenant not to Compete, and Stock
Option Agreement between the Company and key employees.
Incorporated by reference to the Company's Annual Report on
Form 10-KSB (File No. 33-27610-A), filed September 30, 1996.
10.7 Purchase Agreement dated January 31, 1996 between the Company and
Glenn and Ruth Schultz. Incorporated by reference to the
Company's Annual Report on Form 10-KSB (File No. 33-27610-A),
filed September 30, 1996.
-22-
<PAGE>
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]
23.1 Consent of Simon Lever & Company
24.1 Powers of Attorney as indicated on Page 24 of this Form 10-KSB.
27.1 Financial data schedules.
(b) Reports on Form 8-K.
On May 1, 1996, the Company filed a current report on Form 8-K
for an event of April 26, 1996, disclosing (1) in Item 4 thereof,
a change of the Company's certifying accountant, (2) in Item 5
disclosing the election of individuals who will serve as
directors of the Company, (3) disclosing in Item 8 a change of
the Company's fiscal year from January 31 to June 30.
-23-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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 Chief Executive Officer Robert D. Brennan, President and
Chief Operating Officer
Date: December 3, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/S/ JEREMY P. FEAKINS /S/ROBERT D. BRENNAN
- ------------------------------------------- --------------------------------
Jeremy P. Feakins, Chief Executive Officer, Robert D. Brennan, President and
Chairman, and Director Chief Operating Officer
/S/ JOHN BEHRMANN*
- ---------------------------
John Behrmann, Director
/S/ MATHEW CRIMMINS*
- ---------------------------
Matthew Crimmins, Director
/S/ WILLIAM SCOTT*
- ---------------------------
William Scott, Director
/bullet/ Pursuant to Power of Attorney
Date: December 3, 1997
-24-
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that John Behrmann has made constituted and
appointed, and by these presents does make, constitute and appoint Dennis
Surovcik, as his true and lawful attorney for me and in my name, place and stead
giving and granting unto said attorney above-named, full power and authority to
do and perform all and every act and thing whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and purposes, as I
might or could do if personally present, with full power of substitution and
revocation, hereby ratifying and confirming all that he my said attorney, or his
substitute shall lawfully do or cause to be done by virtue hereof as follows:
TO SIGN AND FILE WITH THE SECURITIES AND EXCHANGE COMMISSION ON MY
BEHALF, MEDICAL TECHNOLOGY AND INNOVATIONS, INC.'S FORM 10-KSB FOR THE
FISCAL YEAR ENDED JUNE 30, 1997.
IN WITNESS THEREOF, I have hereunto set my hand seal this _____ day of December,
1997.
__________________________________________
John Behrmann
STATE OF _________________________
COUNTY OF ________________________
Subscribed and sworn to before me by the said John Behrmann, this _____ day of
_________________, 1997.
__________________________________________
Notary Public in and for the
State of
25
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Mathew Crimmins has made constituted and
appointed, and by these presents does make, constitute and appoint Jeremy
Feakins, as his true and lawful attorney for me and in my name, place and stead
giving and granting unto said attorney above-named, full power and authority to
do and perform all and every act and thing whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and purposes, as I
might or could do if personally present, with full power of substitution and
revocation, hereby ratifying and confirming all that he my said attorney, or his
substitute shall lawfully do or cause to be done by virtue hereof as follows:
TO SIGN AND FILE WITH THE SECURITIES AND EXCHANGE COMMISSION ON MY
BEHALF, MEDICAL TECHNOLOGY AND INNOVATIONS, INC.'S FORM 10-KSB FOR THE
FISCAL YEAR ENDED JUNE 30, 1997.
IN WITNESS THEREOF, I have hereunto set my hand seal this _____ day of December,
1997.
__________________________________________
Mathew Crimmins
STATE OF _________________________
COUNTY OF ________________________
Subscribed and sworn to before me by the said Mathew Crimmins, this _____ day of
_________________, 1997.
__________________________________________
Notary Public in and for the
State of
26
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that William Scott has made constituted and
appointed, and by these presents does make, constitute and appoint Jeremy
Feakins, as his true and lawful attorney for me and in my name, place and stead
giving and granting unto said attorney above-named, full power and authority to
do and perform all and every act and thing whatsoever requisite and necessary to
be done in and about the premises as fully, to all intents and purposes, as I
might or could do if personally present, with full power of substitution and
revocation, hereby ratifying and confirming all that he my said attorney, or his
substitute shall lawfully do or cause to be done by virtue hereof as follows:
TO SIGN AND FILE WITH THE SECURITIES AND EXCHANGE COMMISSION ON MY
BEHALF, MEDICAL TECHNOLOGY AND INNOVATIONS, INC.'S FORM 10-KSB FOR THE
FISCAL YEAR ENDED JUNE 30, 1997.
IN WITNESS THEREOF, I have hereunto set my hand seal this _____ day of December,
1997.
__________________________________________
William Scott
STATE OF _________________________
COUNTY OF ________________________
Subscribed and sworn to before me by the said William Scott, this _____ day of
_________________, 1997.
__________________________________________
Notary Public in and for the
State of
27
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
23.1 Consent of Simon Lever & Company
27.1 Financial data schedules.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statement of Medical Technology & Innovations, Inc. on Form S-8 (No. 33-27610-A)
of our report dated November 25, 1997 on the consolidated financial statements
of Medical Technology & Innovations, Inc. and subsidiaries which expresses an
unqualified opinion and includes an explanatory paragraph relating to a going
concern uncertainty appearing in the Annual Report on Form 10-KSB of Medical
Technology & Innovations, Inc. for the year ended June 30, 1997.
/s/ SIMON LEVER & COMPANY
Lancaster, Pennsylvania
December 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 58,090
<SECURITIES> 0
<RECEIVABLES> 444,000
<ALLOWANCES> (36,367)
<INVENTORY> 692,273
<CURRENT-ASSETS> 1,194,473
<PP&E> 1,562,269
<DEPRECIATION> (223,881)
<TOTAL-ASSETS> 5,249,141
<CURRENT-LIABILITIES> 1,536,333
<BONDS> 0
0
4,430,310
<COMMON> 6,755,260
<OTHER-SE> (309,742)
<TOTAL-LIABILITY-AND-EQUITY> 5,249,141
<SALES> 3,632,281
<TOTAL-REVENUES> 3,632,281
<CGS> 2,870,196
<TOTAL-COSTS> 2,870,196
<OTHER-EXPENSES> 4,125,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,146
<INCOME-PRETAX> (3,507,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,507,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,507,559)
<EPS-PRIMARY> (.247)
<EPS-DILUTED> (.247)
</TABLE>
