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, 1998
[ ] 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
615 Centerville 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, 1998 27,110,279 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 November 6, 1998.
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and June 30, 1998 4
Condensed Consolidated Income Statements
For the Three Months ended September 30, 1998 and 1997 (Unaudited) 5
Consolidated Statements of Stockholders' Equity (Unaudited) 6
Condensed Consolidated Statements of Cash Flows
For the Three Months ended September 30, 1998 and 1997 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or
Plan of Operation 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 14
<PAGE>
PART I - FINANCIAL INFORMATION
<PAGE>
Medical Technology & Innovations, Inc.
Condensed Consolidated Balance Sheets
September 30, 1998 and June 30, 1998
Assets
<TABLE>
<S> <C> <C>
September 30, 1998 June 30,
(Unaudited) 1998
Current Assets
Cash and cash equivalents $ 21,608 $38,247
Accounts Receivable, less allowances of
$36,367, respectively 433,729 287,114
Inventory 389,475 393,148
Prepaid Expenses 58,235 30,740
------------ -----------
Total Current Assets 903,047 749,249
----------- ----------
Fixed Assets
Land 182,000 382,000
Equipment, less accumulated depreciation
of $390,737 and $364,567, respectively 752,982 829,537
------------- ------------
Fixed Assets, net 934,982 1,211,537
Other Assets
Intangible and Other Assets 2,289,603 2,345,530
----------- -----------
Total Assets $4,127,632 $4,306,316
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $389,661 $505,824
Accrued Liabilities 422,709 370,558
Current Maturities of Long-Term Debt 1,017,759 1,035,872
--------- ---------
Total Current Liabilities 1,830,129 1,912,254
Long-Term Debt, Net of Current Maturities 705,696 1,117,545
------- ---------
Total Liabilities 2,535,825 3,029,749
--------- ---------
Stockholders' Equity
Common Stock, no par value, authorized
700,000,000 shares, outstanding 27,110,279
and 26,385,279 shares, respectively 10,008,933 9,632,183
Series A Convertible Preferred Stock, $100
par value, authorized 70,000 shares,
outstanding nil - 0 - - 0 -
Series B Convertible Preferred Stock,
$100 par value, authorized 1000 shares,
267 shares outstanding 1,602,000 1,602,000
Preferred Stock, authorized 100,000,000 shares
$1,000 par value, 12%, noncumulative,
Outstanding 22.5 shares 22,500 22,500
Treasury Stock, at cost (309,742) (309,742)
Accumulated Deficit (9,731,884) (9,670,424)
----------- -----------
Total Stockholders' Equity 1,591,807 1,276,517
------------ -----------
Total Liabilities and Stockholders' Equity $4,127,632 $4,306,316
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
<PAGE>
Medical Technology & Innovations, Inc.
Condensed Consolidated Income Statements
For the Three Months Ended September 30, 1998 and 1997 (Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended September 30,
1998 1997
-------------
Revenues $1,352,454 $984,624
Cost of Goods Sold 809,126 742,071
-----------
Gross Profit 543,328 242,553
-----------
Operating Expenses
Advertising 5,068 37,066
Selling, General,
and Administrative 562,752 641,695
----------
Total Operating Expenses 567,820 678,761
----------
(Loss) from Operations (24,492) (436,208)
Interest expense, net 36,968 49,408
-----------
Net (Loss) from Operations ($61,460) ($485,616)
=========
Net (Loss) per common share (basic and diluted) ($.003)* ($.032)
===========
Weighted Average Outstanding Shares 25,574,423 15,290,043
==========
</TABLE>
(*) Calculated including Series B Preferred Stock accretion of $32,040.
The accompanying notes are an integral part of the condensed financial
statements.
<PAGE>
Medical Technology & Innovations, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A Series B
Convertible Convertible Total
Common Common Preferred Preferred P'fd Treasury Accumulated Stockholders'
Shares Stock Stock Stock Stock Stock Deficit Equity
-----------
Balance at June 30, 1996 12,147,299 $ 4,147,140 $56,000 ($250,000) ($4,675,501) ($722,361)
Sale of 70,000 Series A
Convertible Preferred Stock,
Net of issuance costs $6,220,700 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 194,737 292,105 292,105
Issuance of Common Stock 532,898 270,250 270,250
Stock Issued for Services 215,000 199,375 199,375
Purchase of Treasury Shares (56,781) (59,742) (59,742)
Net Loss ________ _________ __________ ______ (3,507,559) (3,507,559)
Balance at June 30, 1997 16,730,729 $ 6,755,260 $4,407,810 $22,500 ($309,742) ($8,183,060) $2,692,768
Net Loss (1,487,364) (1,487,364)
Issuance of Common Stock 144,509 25,000 25,000
Stock Issued for Services 1,156,864 296,113 296,113
Conversion of Series A Preferred
Stock into common stock 7,853,177 1,531,647 (1,531,647)
Conversion of subscribed Series A 500,000 76,000 (76,000)
Preferred Stock into common stock
Gain on Restructuring of Series A
Preferred Stock 948,163 (1,198,163) (250,000)
Issuance of Series B Preferred
In exchange for Series A Preferred ________ ________ (1,602,000) 1,602,000 _______ _________ __________ __________
Balance at June 30, 1998 26,385,279 $ 9,632,183 - 0 - $1,602,000 $22,500 ($309,742) ($9,670,424) $1,276,517
----------
Net Loss (61,460) (61,460)
Conversion of Subordinated
Notes into common stock 725,000 376,750 _________ _______ ______ _________ 376,750
Balance at September 30, 1998 27,110,279 $10,008,933 - 0 - $1,602,000 $22,500 ($309,742) ($9,731,884) $1,591,807
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Medical Technology & Innovations, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended September 30, 1998 and 1997
<TABLE>
<S> <C> <C>
Three Months Ended September 30,
1998 1997
---- ----
Cash flows from operating activities:
Net Loss ($61,460) ($485,616)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and Amortization 72,483 86,062
(Increase) Decrease in Accounts Receivable (146,615) 46,060
Decrease in Inventory 3,673 150,172
(Increase) Decrease in Prepaid Expenses (27,495) 18,399
(Decrease) Increase in Accounts Payable (116,163) 337,629
Increase (Decrease) in Accrued Liabilities 128,151 (77,298)
Stock issued for services - 0 - - 0 -
-------- --------
Net cash used in operating activities (147,428) (16,712)
Cash flows from investing activities:
Sale of Headquarters Land and Building 260,000 - 0 -
Net cash from investing activities 260,000 - 0 -
Cash flows from financing activities:
Proceeds from issuance of stock, net - 0 - 25,000
Proceeds from exercise of stock options, net - 0 - - 0 -
Acquisition of Treasury Stock - 0 - - 0 -
Proceeds from issuance of notes payable 104,787 - 0 -
Repayment of notes payable, net (234,000) (51,049)
--------- --------
Net cash from (used in) financing activities (129,213) (26,049)
Net increase (decrease) in cash and cash equivalents 16,639 (42,761)
Cash and cash equivalents at beginning of period 38,247 58,090
-------- --------
Cash and cash equivalents at end of period $21,608 $15,329
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
<PAGE>
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, 1998 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 1997 and fiscal 1998, 1,250,000 and 500,000 options respectively, have
been granted.
In September of 1997 and February of 1998, the Board of Directors reduced the
exercise price on all options granted to Company Executives to $.25.
The following is a summary of stock option transactions:
Outstanding, July 1, 1998 3,239,936
Options granted 0
Options exercised 0
Options cancelled 0
Outstanding, September 30, 1998 3,239,936
Exercisable, end of period 2,164,104
3. Preferred Stock. The Company has three 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 was convertible into approximately 30
million shares of the Company's common stock as of September 30, 1997. The
Series A preferred stock conversion rate was the lower of the approximate market
rate or $2.72.
During September of 1997, the Company renegotiated terms with the Series A
Preferred Shareholders and as a result, Series A Preferred Shares were 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.
Series A Preferred shareholders owning 217 outstanding shares elected to receive
$3,800 in cash in exchange for their Series A Preferred shares with a face value
of $10,000. The Series A Preferred shares were eventually converted into
5,425,000 of the Company's Common Stock. Over 60% of the parties who ultimately
purchased the Series A Preferred shares and converted them into common shares of
the Company agreed not to sell any common shares before April 1, 1998 and limit
sales to 8% of the amount purchased per month thereafter with no limit on
salability once 360 days have lapsed since the closing. Series A Preferred
shareholders owning 267 outstanding shares agreed to exchange their Series A
Preferred shares for a new Series B Preferred share with a $100 par value, a
face value of $6000 with accretion at 8% from October 1, 1997 plus 10,000 shares
of the Company's common stock. The new Series B Preferred stock is convertible
into common stock beginning October 1, 1998 at a fixed conversion price of $1.00
per share. Conversion is limited to 10% per month of the shares held until
February 28, 1999 and 20% per month thereafter. The conversion feature doubles
provided the Company's common stock closing bid price for ten consecutive days
is greater than $2.00 per share.
Maximum
Date Tradeable
December 1, 1997 250 shares
January 1, 1998 750 shares
February 1, 1998 1,500 shares
April 1, 1998 2,500 shares
July 1, 1998 5,500 shares
October 1, 1998 10,000 shares
As a result of the restructuring of the Series A Preferred Stock, the common
stock holders have received a gain of approximately $948,000.
Warrants. The Company has issued warrants to purchase 3.0 million shares of
common stock as of September 30, 1998. 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. 2.4 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.
<PAGE>
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, 1998 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 Periods Ended September 30, 1998 and 1997
Revenues for the first three months of fiscal 1999 of $1,352,454 represent an
increase of $367,830 or a 37% increase compared to the prior year. This increase
results because of increased demand for the MTI PhotoScreener(TM) from retail
optical chains, service clubs and schools combined with good growth in the core
Steridyne business. Gross profit for the first quarter of fiscal 1999 of
$543,328 represents a increase of 124% versus the comparable period in fiscal
1998 and is mostly due to greater sales of the MTI PhotoScreener(TM) as overall
margins are comparable between the two periods.
MTI products generally have higher profit margins than Steridyne products.
Operating expenses decreased by 16% from $678,761 in the first three months of
fiscal 1998 to $567,820 in the comparable period in fiscal 1999. This reduction
is evident in almost all expense categories with the greatest savings in the
employment and public relations areas. Management expects ongoing general and
administrative costs to stabilize at present levels. Interest expense has
decreased 25% to $36,968 for the first three months of fiscal 1999 versus 1998
primarily as the result of the sale of the headquarter building and subsequent
mortgage payoff and the conversion of $376,750 of convertible notes into common
stock in July of 1998.
Management expects a profit for the second fiscal quarter of 1999 because of
increased sales and continued cost controls.
Liquidity and Capital Resources
At September 30, 1998, the Company had cash of $21,608 and working capital of
($927,082) as compared to $38,247 and ($1,163,005) at June 30, 1998. This
decrease in working capital deficit is mostly due to increased receivables as a
result of higher sales and a lower loss from operations. Included in current
maturities of long term debt at September 30 and June 30, 1998 is approximately
$798,000 of secured notes incurred to fund the Series A restructuring which are
repayable or convertible into Company Common Stock in March of 1999.
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 choice 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.
Over 60% of the parties who purchased the Series A Preferred shares and
converted them into shares of the Company's common stock agreed to a lock-up
which limited sales to 8% of the amount purchased per month with no limit on
salability after October 1, 1998. Common stock issued to Series A Preferred
Stockholders electing Option 2 is subject to a lock-up which ends on October 1,
1998.
<PAGE>
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.
In August of 1998, the Company received its largest order ever to deliver
approximately 700 PhotoScreeners during fiscal 1999. The order which
approximates $1.5 million places certain restrictions on the Company from
selling the PhotoScreener in certain markets. In connection with this order and
provided the customer spends several millions of dollars in national advertising
mentioning the PhotoScreener, the Company has provided the customer with
warrants to purchase 1.2 million shares of the Company's stock at an exercise
price of $0.88 per share.
The Chief Executive Officer and a director personally signed a guarantee with a
local bank to provide a $250,000 line of credit to the Company which terminates
in January of 1999.
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.
<PAGE>
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. 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
Exhibit 10.6 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 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]
21.0 Subsidiaries of the Company.
Medical Technology, Inc., an Iowa corporation
Steridyne Corporation, a Florida corporation
27.1 Financial Data Schedules
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarterly period covered by this
report.
<PAGE>
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/ Dennis A. Surovcik /s/ JEREMY P. PEAKINS
----------------------- ---------------------
Dennis A. Surovcik, Senior Vice President Jeremy P. Feakins, Chairman and
Chief Financial Officer Chief Executive Officer
Date: November 10, 1998.
Ref:d/Q02159801b
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Medical Technology & Innovations, Inc. for
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000847464
<NAME> Medical Technology & Innovations, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 21,608
<SECURITIES> 0
<RECEIVABLES> 470,096
<ALLOWANCES> 36,367
<INVENTORY> 389,475
<CURRENT-ASSETS> 903,047
<PP&E> 1,325,719
<DEPRECIATION> 390,637
<TOTAL-ASSETS> 4,127,632
<CURRENT-LIABILITIES> 1,830,129
<BONDS> 0
0
1,624,500
<COMMON> 10,008,933
<OTHER-SE> (10,041,626)
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<SALES> 1,352,454
<TOTAL-REVENUES> 1,352,454
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<INTEREST-EXPENSE> 36,968
<INCOME-PRETAX> (61,460)
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