UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other that the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or item
22(a)(2) of Schedule 14A [ ] $500 per each party to the controversy pursuant to
Exchange Act rule 14a-6(i)(3) [ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total Fee Paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 12, 1999
---------------------------------
Notice is hereby given that the Annual Meeting of stockholders (the "Meeting")
of Medical Technology & Innovations, Inc., a Florida Corporation (the
"Company"), will be held at THE COMFORT INN, 500 CENTERVILLE ROAD, LANCASTER,
PENNSYLVANIA ON MONDAY, APRIL 12, 1999 AT 2:00 P.M., Eastern
Daylight Savings Time for the following purposes:
1. To elect two directors to serve for the following three years and
until a successor has been elected and qualified.
2. To act upon the ratification of the appointment of Simon Lever &
Company as the Company's independent auditors for the 1999 fiscal
year.
3. To act upon such other matters as may properly come before the
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 12, 1999 shall be
entitled to notice of and to vote at the Meeting or any adjournments thereof.
All stockholders are cordially invited to the Meeting in person.
By order of the Board of Directors
Dennis A. Surovcik
Secretary
March 17, 1999
Lancaster, Pennsylvannia
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WISH YOUR SHARES OF COMMON
STOCK TO BE VOTED, YOU ARE REQUESTED TO SIGN AND MAIL PROMPTLY THE ENCLOSED
PROXY WHICH IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. MAIL THE
SIGNED AND DATED PROXY TO:
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
615 Centerville Road
Lancaster, PA 17601
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
ANNUAL MEETING OF STOCKHOLDERS
APRIL 12, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of MEDICAL TECHNOLOGY & INNOVATIONS, INC., a Florida
Corporation (the "Company"), acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement dated March 17, 1999, and hereby
constitutes and appoints Mathew Crimmins the proxy(ies) of the undersigned to
vote all shares of Voting Stock of the Company which the undersigned would be
entitled to vote at the Annual Meeting of Stockholders, and at any adjournment
or adjournments thereof, hereby revoking any proxy or proxies heretofore given
and ratifying and confirming all that said proxies may do or cause to be done by
virtue thereof with respect to the following matters:
4. The election of two (2) directors nominated by the Board of Directors:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to
(except as indicated) vote for all nominees listed below
Jeremy P. Feakins
Dennis A. Surovcik
(Instruction: To withhold authority to vote for any individual nominee or
nominees, write such nominees' names in the space provided below)
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5. The ratification of the appointment of Simon Lever & Company as the
Company's independent auditors for the 1999 fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This Proxy, when properly executed, will be voted as directed. If no direction
is indicated, the Proxy will be voted FOR each of the above proposals.
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
April 12, 1999
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GENERAL
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THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH THE SOLICITATION BY THE
BOARD OF DIRECTORSAND MANAGEMENT OF MEDICAL TECHNOLOGY & INNOVATIONS, INC., A
FLORIDA CORPORATION (THE "COMPANY"), OF PROXIES FOR USE AT THE ANNUAL MEETING OF
STOCKHOLDERS OF THE COMPANY (THE "MEETING") TO BE HELD AT THE COMFORT INN,
LANCASTER, PENNSYLVANIA ON APRIL 12, 1999 AT 2:00 P.M., EASTERN DAYLIGHT SAVINGS
TIME, AND AT ANY AND ALL ADJOURNMENTS THEREOF, FOR THE PURPOSES SET FORTH IN THE
ACCOMPANYING NOTICE OF ANNUAL MEETING OF STOCKHOLDERS ("NOTICE OF MEETING").
The Proxy Statement, Notice of Meeting and accompanying Proxy are first being
mailed to stockholders on March 17, 1999.
VOTING SECURITIES AND VOTE REQUIRED
-------------------------------------------------------------
Only stockholders of record at the close of business on March 12, 1999 are
entitled to notice of and to vote the shares of common stock, no par value
("Common Stock"), of the Company held by them on such date at the Meeting or any
and all adjournments thereof. As of December 31, 1998, 27,110,279 shares of
common stock were outstanding. There was no other class of voting securities
outstanding at that date.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Voting Stock is necessary to constitute a quorum at the
Meeting. Assuming that a quorum is present, (1) a plurality of votes cast will
be required for the election of a director and (2) the affirmative vote of the
holders of a majority of the shares of Common Stock voting at the Meeting will
be required to approve the ratification of the appointment of auditors.
Each share of Voting Stock held by a stockholder entitles such stockholder to
one vote on each matter that is voted upon at the Meeting or any adjournments
thereof.
With regard to the election of a director, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect except that votes withheld will be counted toward
determining the presence of a quorum for the transaction of business.
Abstentions and broker "non-votes" will be counted toward determining the
presence of a quorum for the transaction of business. Abstentions may be
specified on all proposals except the election of directors. With respect to all
proposals other than the election of a director, abstentions will have the
effect of a negative vote. A broker "non-vote" will have no effect on the
outcome of any of the proposals.
<PAGE>
If the accompanying Proxy is properly signed and returned to the Company and not
revoked, it will be voted in accordance with the instructions contained therein.
Unless contrary instructions are given, the persons designated as proxy holders
in the accompanying Proxy will vote "FOR" the Board of Directors' nominees, and
"FOR" ratification of the appointment of Simon Lever & Company as the Company's
independent auditors for the 1999 fiscal year, and as recommended by the Board
of Directors with regard to any other matters or if no such recommendation is
given, in their own discretion. Each such proxy granted by a stockholder may be
revoked by such stockholder at any time before it is exercised by filing with
the Secretary of the Company a revoking instrument in the form of a duly
executed proxy bearing a later date. The powers of the proxy holders will be
suspended if the person executing the Proxy attends the Meeting in person and so
requests. Attendance at the Meeting will not, in itself, constitute revocation
of the Proxy.
The cost of soliciting these proxies, consisting of the printing, handling, and
mailing of the proxy and related material, and the actual expense incurred by
brokerage houses, custodians, nominees and fiduciaries in forwarding proxy
material to the beneficial owners of stock, will be paid by the Company.
In order to assure that there is a quorum, it may be necessary for certain
officers, directors, regular employees and other representatives of the Company
to solicit proxies by telephone or telegraph or in person. These persons will
receive no extra compensation for their services.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, two (2) directors will be elected to serve for three-year terms
and until a successor is elected and qualified. The Board of Directors will vote
all proxies received by them in the accompanying form for the nominee listed
below. The current size of the Board of Directors of the Company is two (2). All
of the directors were elected in April of 1996. In the event a nominee is unable
to or declines to serve at the time of the Meeting, the proxies will be voted
for an alternative nominee who shall be designated by the present Board of
Directors to fill the vacancy. As of the date of this Proxy statement, the Board
of Directors is not aware that any nominee is unable to or will decline to serve
as director.
The following nominees are for election as directors:
Nominees Position with Company Age
- ------------ ---------------------------- -----
Jeremy P. Feakins President and Chief
Executive Officer 46
Dennis A. Surovcik Senior Vice President,
Chief Financial Officer
and Secretary 52
BUSINESS EXPERIENCE OF DIRECTORS
<PAGE>
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 Britain.
MR. CRIMMINS has been a director since April 1996. From 1965 to 1995, he was
employed by 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 BS (Physics) degree from Holy Cross, a MS
(Electrical Engineering) degree from Northeastern, and a MBA from Boston
College.
MR. SUROVCIK joined the company in January 1998 as Senior Vice President, Chief
Financial Officer and Secretary. He formerly was a senior accountant for Price
Waterhouse in New York and later, Audit Director and Group Controller for
Dentsply International. Mr. Surovcik, a CPA, most recently was President and
Owner of DBK Distributors, Inc., a small distribution company serving over 1,000
grocery stores in the Mid Atlantic States. Mr. Surovcik received a BS in
accounting from Susquehanna University.
BUSINESS EXPERIENCE OF SIGNIFICANT OFFICER
MR. DEL VECCHIO Senior Vice President/General Manager of Steridyne. Mr. Del
Vecchio was employed by Sulzer Oscar, Inc. until joining the Company in
November, 1998. Mr. Del Vecchio progressed at Sulzer Oscar, Inc. from technical,
sales and marketing consultant in 1988 to Vice President/General Manager in
August 1991 then on to President in April, 1998. Mr. Del Vecchio had
responsibility for manufacturing, facility operation, and distribution of class
III and class II medical devices. Corporate marketing, administrative,
technical, regulatory and production personnel were under his direction.
Mr. DelVecchio's organization achieved ISO-9000 certification for the facility
in 1996. Mr. DelVecchio brings 30 years of medical sales and manufacturing
experience to Steridyne. Mr. DelVecchio is a CMR Graduate from the Certified
Medical Representative Institute, Roanoke, Virginia.
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 forms received by it, or based
upon representations that no Form 5 was required, Messrs. Feakins, Ballheim,
Behrmann, Brennan, Stefanick, and Surovcik did not timely file forms 3, 4, or 5
for the fiscal year ending June 30, 1998 as follows:
<PAGE>
Name No. of Late Reports
Jeremy Feakins 3
Robert Ballheim 1
John Behrmann 3
Robert Brennan 3
John Stefanick 3
Dennis Surovcik 3
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 and in full in May 1998.
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.
In connection with financing required to fund the restructuring of the terms of
the Series A Preferred shares in September 1997, the Chief Executive Officer,
Chief Operating Officer and family member, Executive Vice President and a
Director loaned a subsidiary of the Company approximately $411,000. These loans
are secured by certain assets of the subsidiary, bear interest at 8% payable
quarterly and are due to be repaid in cash or converted into shares of the
Company's common stock in March of 1999. If the Company elects to convert such
loans into common stock, the amount of shares to be issued would be determined
by dividing an amount equal to 115% of the outstanding principal then due and
payable plus accrued and unpaid interest by the average bid and asked quotes for
the Company's common stock for the previous thirty trading days.
During the fiscal year ended June 30, 1998, the Company issued common shares
with a value approximating $100,000, to a Company Director for performing
investment banking, consulting and financial advisory services.
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 terminated
in January 1999.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
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
years ending June 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Name and Fiscal Annual Compensation Long-Term Compensation All Other
Principal Year Compensation
Position(1)
- --------------- ------- ------------------------- ------------------------- -------- -------------
Salary Bonus Other Awards Payouts
Annual
Comp.
- --------------- ------- -------- ------- --------- ------------------------- --------- --------------
Restricted Options/SARS LTIP
Stock
Award (s) Payouts
- --------------- ------- -------- ------- --------- ------------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Feakins, 1998 $133,500 0 0 0 500,000 (2) 0 0
Chief
Executive
Officer 1997 $146,250 0 0 0 0 0
1996 $123,000 0 $212,500 0 500,000 0 0
- --------------- ------- -------- ------ ---------- ------------- ------------ ------- --------------
R. Brennan, 1998 $117,187 0 0 0 750,000 (2) 0 0
Chief
Operating
Officer
- --------------- ------- -------- ------ ---------- ------------- ------------ ------- --------------
J. Stefanick 1998 $135,186 0 0 0 500,000 (2) 0 0
Executive Vice
President
- --------------- ------- -------- ------ ---------- ------------- ------------ ------- --------------
</TABLE>
- -------------
1. Each executive 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. 2. In September of 1997 and
February 1998, the Board of Directors reduced the exercise price on all options
granted to company executives to $0.25, all other provisions remain unchanged.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
Name No. of Shares %of Total Option Exercise of Expiration Date
Common Stock Granted to Base Price
Underlying Employees in ($/share)
Options Granted Fiscal Year
<S> <C> <C> <C> <C>
- ----------------- ------------------ ---------------- ------------------ --------------------
D. Surovcik 500,000 (1) 100 % $0.25 (1) (2)
- ----------------- ------------------ ---------------- ------------------ --------------------
J. Feakins 500,000 (3) (3) $0.25 (3) (2)
- ----------------- ------------------ ---------------- ------------------ --------------------
R. Ballheim 500,000 (3) (3) $0.25 (3) (2)
- ----------------- ------------------ ---------------- ------------------ --------------------
G. Hartman 489,936 (3) (3) $0.25 (3) (2)
- ----------------- ------------------ ---------------- ------------------ --------------------
R. Brennan 750,000 (3) (3) $0.25 (3) (2)
- ----------------- ------------------ ---------------- ------------------ --------------------
J. Stefanick 500,000 (3) (3) $0.25 (3) (2)
- ----------------- ------------------ ---------------- ------------------ --------------------
</TABLE>
-------------
1. Options become exercisable at the rate of 8.33% of options granted per
calendar quarter for twelve quarters beginning July 1, 1997 for Mr. Surovcik.
Options not yet exercisable in all 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. 2.
The expiration dates for the options granted are two (2) years from the date the
options become exercisable. 3. In September of 1997 and February of 1998, the
Board of Directors reduced the exercise price on all options granted to company
executives to $0.25, all other provisions remain unchanged.
<PAGE>
AGGREGATED OPTION EXERCISES IN
THE FISCAL YEAR ENDED JUNE 30, 1998
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Name No. of Shares Value No. of Shares Exercisable Value of
Acquired on Realized Common Stock / Unexercised in-
Exercise Underlying Unexercisable the-money Options
Unexercised Exercisable/Un-
Options @ exercisable
Fiscal Year End
<S> <C> <C> <C> <C> <C>
- -------------- -------------- ---------- -------------- --------------- ----------------
J. Feakins 0 0 500,000 400,000/100,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
R. Ballheim 0 0 500,000 400,000/100,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
D. Surovcik 0 0 500,000 166,667/333,333 0
- -------------- -------------- ---------- -------------- --------------- ----------------
G. Hartman 0 0 489,936 389,936/100,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
R. Brennan 0 0 750,000 375,000/375,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
J. Stefanick 0 0 500,000 166,667/333,333 0
- -------------- -------------- ---------- -------------- --------------- ----------------
</TABLE>
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. The options are exercisable ratably over a three-year period
commencing with the grant date.
In September of 1997 and February of 1998, the Board of Directors reduced the
exercise price on all options granted to Company Executives to $0.25 per share.
The following is a summary of stock option transactions:
1998 1997
---- ----
Outstanding, beginning of year 3,239,936 2,754,980
Options granted 500,000 1,250,000
Options exercised 0 (194,737)
Options cancelled (500,000) (570,307)
---------
Outstanding, end of year 3,239,936 3,239,936
=========
Exercisable, end of year 1,898,270 915.064
=========
PRINCIPAL STOCKHOLDERS
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, 1998.
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP OWNERSHIP
- ---------------------- ------------------ -------------------------- -------------------
<S> <C> <C> <C>
Jeremy Feakins Director, Chief 5,685,278 21.55%
Executive Officer
- ---------------------- ------------------ -------------------------- -------------------
John Behrmann Director 1,501,618 5.69%
- ---------------------- ------------------ -------------------------- -------------------
Mathew Crimmins Director 0 0.00%
- ---------------------- ------------------ -------------------------- -------------------
Robert Brennan Director, Chief 426,962 1.62%
Operating Officer
- ---------------------- ------------------ -------------------------- -------------------
All Executive Directors and 8,022,304 30.4%
Officers as a Group
- ---------------------- ------------------ -------------------------- -------------------
</TABLE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company has appointed Simon Lever & Company as the Company's independent
auditors for the fiscal year ending June 30, 1999. Simon Lever & Company has
served as the Company's independent auditors since 1996.
A representative of Simon Lever & Company will be present at the Meeting to
respond to appropriate questions and to make such statements as they may desire.
Ratification of the appointment of Simon Lever & Company as the Company's
independent auditors for the 1999 fiscal year will require the affirmative vote
of a majority of the shares of Common Stock voting at the Meeting.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF SIMON LEVER AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE 1999 FISCAL YEAR.
FINANCIAL AND OTHER INFORMATION
All Stockholders of Record as of March 12, 1999 have or are currently being sent
a copy of the Company's Annual Report for the Fiscal Year Ended June 30, 1998
(The "Annual Report"), which contains audited financial statements of the
Company for the Fiscal Year Ended June 30, 1998, the Company's interim financial
reports for the Fiscal Quarters Ending September 30, 1998 and December 31, 1998,
which are unaudited. The above financial statements are deemed to be a part of
the material for the solicitation of proxies.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH BENEFICIAL HOLDER OF IT'S COMMON
STOCK ON MARCH 12, 1999 WHO DID NOT RECEIVE A COPY OF THE COMPANY'S ANNUAL
REPORT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1998 AS FILED
WITH THE SEC. ANY SUCH REQUEST SHOULD BE MADE IN WRITING TO THE SECRETARY,
MEDICAL TECHNOLOGY & INNOVATONS, INC., 615 CENTERVILLE ROAD, LANCASTER, PA 17601
<PAGE>
OTHER MATTERS
Stockholder proposals must be received by the Secretary of the Company, for
inclusion in the Company's proxy materials relating to the 2000 Annual Meeting
of Stockholders by April 15, 1999.
As of the date of this Proxy Statement, the Company knows of no business that
will be presented for consideration at the meeting, other than that which has
been referred to above. As to other business, if any, that may come before the
meeting, it is intended that Proxies in the enclosed form will be voted in
respect thereof, in accordance with the judgement of the person or persons
voting the Proxies.
By order of the Board of Directors
Dennis A. Surovcik, Secretary
March 17, 1999
STOCKHOLDERS ARE URGED TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY
TO MEDICAL TECHNOLOGY & INNOVATIONS, INC., 615 CENTERVILLE ROAD,
LANCASTER, PA 17601. PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION
WILL BE APPRECIATED.
<PAGE>
April 28, 1999
A LETTER TO OUR SHAREHOLDERS
[GRAPHIC OMITTED]
Last year I promised you that as your Company evolved from a development and
entrepreneurial mode we would become a more market focused, growth oriented
business. I am pleased to report that we have successfully accomplished those
objectives. As of December 31, 1998 your Company achieved profitability for the
first time in its history, and is now poised for significant growth and success.
In fiscal 1998, Medical Technology & Innovations, Inc. (MTEN) moved aggressively
towards its goal of demonstrated, recognized leadership as the only producer of
the first fully portable instant vision screener for the detection of serious
eye problems in very young children. Steridyne Corporation continues to operate
successfully within the MTEN Family. We are now reporting an increase in sales
and the addition of new exciting products. This past year witnessed several key
accomplishments:
1 Successful marketing and promotional activities aimed at
introducing the MTI PhotoScreener(TM) into retail optical chains,
resulted in a major purchase order for approximately 700 MTI
PhotoScreeners(TM) from a national retail optical chain.
2 More distributors for the MTI PhotoScreener(TM) were appointed
in various European and other foreign countries for the distribution of
the MTI PhotoScreener(TM). New trials of the MTI PhotoScreener(TM)
commenced with retail optical chains in Great Britain and Italy.
3 Additional products for Steridyne Corporation were added
including a new giant display thermometer.
There has never been a better time to capitalize on the unique features and
benefits of the MTI PhotoScreener(TM). During our extensive marketing efforts in
fiscal 1998, we have determined that the retail optical chains as well as
charitable organizations such as the Lions Clubs, offer tremendous potential for
MTI PhotoScreener(TM) sales. Much of this past year has been spent pursuing
these opportunities. These efforts have lead to a sound and solid base from
which to approach the future.
More than 1 in 20 children will suffer a serious eye disorder as a result of
certain eye problems not being detected within the first three years of life.
The MTI PhotoScreener(TM) offers a remarkable solution to this problem. There is
no other easy to use, portable instant photograph vision screener available in
the world today that can identify these problems in time for corrective
treatment to take place. This uniqueness has lead to a tremendous market
opportunity for your Company. The MTI PhotoScreener(TM) is the first to market
vision screener that will truly save the eyesight of literally thousands of
children worldwide.
Our success and ability to market and deliver the MTI PhotoScreener(TM) to our
markets provides enormous potential for your company. MTEN's expansion plans
together with related investment has created a firm financial position. Fiscal
1998 revenues were over $4.5 million resulting in higher levels of assets and
shareholder equity. Although our investment into the future continued to show a
loss in fiscal 1998, this investment has positioned MTEN for long-term growth,
the efforts of which we have reported recently. For example, the quarter ended
December 31, 1998 show earnings per share of .004c. We expect profitability will
be sustained.
Our sales for the fiscal year ended June 30, 1998 were $4,541,372 up from
$3,632,281 the year earlier. A net loss of ($539,201) or ($.065) cents per share
compared with a net loss of ($3,507,559) or ($.247) cents per share in fiscal
1997. Sales increased to record levels as a result of management's efforts to
properly focus the business to enhance the sales activity.
Last September the Company closed a sale to a major retail optical chain that
was valued at more than $1.4 million and included certain restrictions on the
Company from selling the MTI PhotoScreener(TM) to certain markets. Concurrently,
the chain agreed to a national, multi-media, multi-million dollar marketing
campaign that would focus on the benefits of vision care for children and would
mention the MTI PhotoScreener(TM). Based on that commitment, our Board agreed
that we would grant the chain 1.2 million warrants at $0.88 per share. Since
that decision, our business relationship has progressed and in fact, the
customer has ordered fifty (50) additional PhotoScreeners(TM).
<PAGE>
The customer anticipated that the national rollout and the marketing campaign
would launch early this calendar year. Although the commitment remains, the
introduction has been delayed. As a consequence, the issue of the grant of the
warrants is under discussion with our customer. Additionally, the negotiated
exclusivity has been waived and the Company is now able to present the
PhotoScreener(TM) program to any retail optical chain in the United States.
Our Steridyne division continues to grow and we recently announced the launch of
BathGuard, a protective plastic sleeve for use in covering a wound, cast or
catheter whilst showering. Early indications from the marketplace are very
positive and we are continuing to execute our marketing plan.
We have a number of projects before us at this time that include:
- The licensing of selected manufacturers and business partners
in Europe for the distribution of the MTI PhotoScreener(TM). We are
working with a major accounting firm in London, England as we seek to
close our first transaction.
- The development of Children's Vision Screening Network, a
wholly owned subsidiary, that will be dedicated exclusively to
providing screening services to the community, especially
HeadStart/Healthy Start programs by way of corporate sponsorship.
Several successful trials have already taken place, with more in
progress.
- The continued development of marketing alliances that will
strengthen our product offerings and enhance our revenue stream.
- The development and introduction of a new digitized MTI
PhotoScreener(TM) that will meet the needs of the market and build on
our market strengths.
- The acquisition of a very profitable company who is a
manufacturer and marketer in the ophthalmic industry. This company has
recorded $8.0 million in revenues for 1998 with over $1.0 million in
pretax.
We believe our commitment to creating a strong and profitable company for
our shareholders and customers alike is nearing completion. This has been
a very difficult eight years for your company as it developed the first
portable children's vision screening product of its kind in the world.
Nevertheless, we have weathered the storm and believe that our course is
set for a profitable and strong future.
On behalf of the Board of Directors, management and staff, I thank you for
your patience, support and encouragement.
Jeremy P. Feakins
Chairman of the Board of Directors
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[ ]
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, 1998
[ ]
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
incorporation or organization)
615 CENTERVILLE ROAD, LANCASTER, PA
(Address of principal executive offices)
65-2954561
(I.R.S. Employer Identification No.)
17601
(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 Section 12(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 $4,541,372.
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 31, 1998 was approximately
$9,100,000.
As of June 30, 1998 26,385,279 shares of Common Stock, no par value, of the
registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
[GRAPHIC OMITTED]
<PAGE>
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(TM), 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(TM) 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(TM) 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(TM) 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 Steritempa 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 Steritempa's
own branded electronic thermometer and probe cover kits. A non-sterile economy
sheath/probe cover line, Value Brand(TM), 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(TM) and SofSeat(TM), a range of gel flotation cushions
offering full support at economical price levels.
Certain geographic segment information is described in Note 16 to the Company's
financial statements included as Item 7 of this Form 10-KSB.
<PAGE>
MARKETING AND DISTRIBUTION
The Company markets the MTI PhotoScreener(TM) domestically and internationally
through a combination of direct sales representatives and independent
distributors. The Company markets the MTI PhotoScreener (TM) 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.
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 a sales executive 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(TM) 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(TM).
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, and
No. 4593699, 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(TM) 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(TM)
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
<PAGE>
governmental processes to market the MTI PhotoScreener(TM). 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, 1998, the Company employed 38 full-time employees. This compares
with the employment of 46 full-time employees at June 30, 1997. 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. In July of 1998, the Company sold the building and
moved its headquarters to a smaller leased facility in Lancaster, Pennsylvania.
In August of 1996, the Company moved its MTI PhotoScreener(TM) 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 $230,000. The Company 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(TM). This lawsuit was settled in March of 1998.
In November, 1997 the Company initiated a law suit against Faisal Finance
(Switzerland) S.A. to recover damages related to restructuring the conversion
rights of its Series A Preferred Convertible shares and associated financial
transactions. That action was filed in Pennsylvania and subsequently Faisal
Finance challenged the jurisdiction of the court and filed an action against the
Company in Florida. The Company then joined the two actions in Florida.
The Company alleges that Faisal Finance breached its agreement to provide
funding for, as well as to participate as an investor in, the restructuring,
purposefully delayed the transactions knowing the precarious financial condition
of the Company at the time and allowed conflicting interests to interfere with
their obligations as a financial advisor to the Company. Faisal is claiming
damages of $750,000 for the alleged failure of the Company to fulfil its
obligations under the original conversion rights and investment banking fees for
alleged services in connection with the restructuring.
Management believes that the Company's claim against Faisal Finance is well in
excess of Faisal's claim against the Company and that the facts, circumstances
and merits surrounding the Company's claim will prevail against any defense or
counter claim that Faisal Finance may attempt.
Special counsel advises that it is probable that the Company will prevail in its
claim against Faisal Finance and that the likelihood of Faisal Finance
recovering anything beyond the $76,000 that the Company attempted to pay them
for their shares in connection with the restructuring is remote.
<PAGE>
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 1998 annual
meeting of stockholders which was held February 23, 1998:
1. The following director was elected, along with his respective votes
received:
DIRECTOR TERM VOTES FOR VOTES AGAINST VOTES ABSTAIN
Robert Brennan 3 yr. 17,813,523 293 3,999
2. Simon Lever & Company was ratified as the independent certified public
accountants by a vote of 17,397,433 in favor, 1,953 votes against and
418,429 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.
<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW QUARTER ENDING HIGH LOW
<S> <C> <C> <C> <C> <C>
September 30, 1997 $ .25 $ .11 September 30, 1996 $1.44 $1.19
December 31, 1997 .69 .21 December 31, 1996 .81 .75
March 31, 1998 .35 .22 March 31, 1997 .50 .25
June 30, 1998 .40 .18 June 30, 199 .38 .19
</TABLE>
As of June 30, 1998, there were approximately 686 recordholders of common stock.
Such amounts do not include common stock held in "nominee" or "street" name.
In fiscal 1998, the Company sold 144,509 shares of common stock for total
consideration of $25,000 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.
<PAGE>
This form 10-KSB includes " forward looking statements" concerning the future
operations of the Company. It is management's intent to take advantage of the
"safe harbor" provision of the Private Securities Litigation Reform Act of 1995.
This statement is for the express purpose of availing the Company of the
protections of such safe harbor with respect to all "forward looking statements"
contained in this Form 10-KSB. We have used "forward looking statements" to
discuss future plans and strategies of the Company. Management's ability to
predict results or the effect of future plans is inherently uncertain. Factors
that could effect results include, without limitation, competitive factors,
general economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
distribution networks, product introductions, acceptance, technological change,
changes in industry practices and one-time events. These factors should be
considered when evaluating the "forward looking statements" and undue reliance
should not be placed on such statements. Should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1998 AS COMPARED TO 1997
Revenues for the fiscal year 1998 increased by $909,091 or a 25% increase. This
increase results because of increased demand for the MTI PhotoScreener(TM) from
retail optical chains, service clubs and schools combined with a 12% growth in
the core Steridyne business. Gross profit for the fiscal year 1998 increased by
84% versus the comparable period in fiscal 1997 mostly due to sales increases
and mix as overall margins are comparable between the two periods. MTI products
generally have higher profit margins than Steridyne products.
Operating expenses decreased by 36% from $4,125,498 in fiscal 1997 to $2,659,027
in fiscal 1998. 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 levels
experienced in the fourth quarter of fiscal 1998. Interest expense has increased
60% to $231,230 for fiscal 1998 versus 1997 because of the debt incurred to fund
the restructuring of the Series A Preferred shares and higher interest costs
associated with factoring the Company's receivables to increase cash flow.
Management expects a lower net loss for the first fiscal quarter 1999 because of
increased sales and continued cost controls.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash of $38,247 and working capital of
($1,163,005) as compared to $58,090 and ($341,860) at June 30, 1997. The
increase in the working capital deficit is mostly due to the inclusion of
$798,000 of secured notes incurred to fund the Series A Restructuring which are
payable or convertible into Company common stock in March of 1999. Included in
long-term debt at June 30, 1998 is a mortgage on the headquarters facility of
$234,000 which was satisfied in July of 1998 and $376,750 of subordinated
convertible notes were converted into 725,000 shares of common stock in July of
1998.
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
<PAGE>
("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.
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 in excess of the current market.
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.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. All software
used for the Company systems is supplied by software vendors or outside service
providers. The Company has confirmed with such providers that its present
software is Year 2000 compliant.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: PAGE
Report of independent auditors
for the years ended June 30, 1998 and 1997 F-1
Consolidated balance sheets as of
June 30, 1998 and 1997 F-2
Consolidated income statements for the years ended
June 30, 1998 and 1997 F-3
Consolidated statements of stockholders' equity for
the years ended June 30, 1998, 1997 and 1996 F-4
Consolidated statements of cash
flows for the years ended June 30, 1998 F-5
1997 Notes to consolidated financial
statements F-6
<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, 1998 and 1997,
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, 1998 and
1997, and consolidated results of their operations and their consolidated cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ SIMON LEVER & COMPANY
Lancaster, Pennsylvania
October 9, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30
ASSETS
<S> <C> <C>
1998 1997
---------- -----------
CURRENT ASSETS:
Cash $ 38,247 $ 58,090
Accounts Receivable, less allowances of
$36,367 287,114 407,633
Inventory 393,148 692,273
Prepaid Expenses 30,740 36,477
--------- ----------
Total Current Assets 749,249 1,194,473
--------- ----------
FIXED ASSETS:
Land 382,000 382,000
Property & Equipment 1,194,104 1,180,269
Less accumulated depreciation (364,567) (223,881)
--------- ---------
Fixed Assets, net 1,211,537 1,338,388
--------- ---------
OTHER ASSETS:
Intangible and Other Assets 2,345,530 2,716,280
--------- ---------
TOTAL ASSETS $4,306,316 $5,249,141
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $505,824 $418,341
Accrued Liabilities 370,558 384,995
Current Maturities of Long-Term Debt 1,035,872 732,997
--------- ----------
Total Current Liabilities 1,912,254 1,536,333
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,117,545 1,020,040
--------- ---------
TOTAL LIABILITIES 3,029,799 2,556,373
--------- ---------
STOCKHOLDERS' EQUITY
Common Stock, no par value, authorized
700,000,000 shares, outstanding 26,385,279
and 16,730,729 shares, respectively 9,632,183 6,755,260
Series A Convertible Preferred Stock, $100
par value, authorized 70,000 shares,
outstanding nil and 496 shares,
respectively - 0 - 4,407,810
Series B Convertible Preferred Stock,
$100 par value, authorized 1000 shares,
267 outstanding 1,602,000 - 0 -
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 (9,670,424) (8,183,060)
Total Stockholders' Equity 1,276,517 2,692,768
Total Liabilities and Stockholders' Equity $5,249,141 $4,306,316
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Revenues $4,541,372 $3,632,281
Cost of Goods Sold 3,138,479 2,870,196
----------- -----------
Gross Profit 1,402,893 762,085
-----------
Operating Expenses
Advertising 128,640 454,828
Selling, General,
and Administrative 2,530,387 3,670,670
-----------
Total Operating Expenses 2,659,027 4,125,498
-----------
(Loss) from Operations (1,256,134) (3,363,413)
Interest expense, net 231,230 144,146
------- -------
Net (Loss) from Operations ($1,487,364) ($3,507,559)
Add: Gain on Restructuring of Series A
Preferred Stock 948,163 - 0 -
--------- ----------
Net (Loss) Attributable to Common Stock ($539,201) ($3,507,559)
========= ===========
Net (Loss) per common share ($.065) ($.247)
====== ======
(basic and diluted)
Net (Loss) per common share after
Gain on Restructuring of Series A
Preferred Stock (basic and diluted) ($.024) ($.247)
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
Series A Series BA
Convertible Convertible Total
Common Common Preferred Preferreded Preferred Treasure Accumulated Stockholders'
Shares Stock Stock Stock Stock Stock Deficit Equity
------ ----- ----- ----- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 11,205,036 $1,435,407 $56,000 ($2,781,730) ($1,290,323)
Issuance of Common Stock 1,306,409 1,147,076 1,147,076
Exercise of Stock Options 735,084 1,102,427 1,102,427
Stock Issued for Services 217,520 462,230 462,230
Purchase of Treasury Shares (1,316,750) ($250,000) (250,000)
Net Loss __________ __________ _________ ___________ ________ ________ (1,893,771) (1,893,771)
---------- ----------
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 Preferred Stock
into common stock 500,000 76,000 (76,000)
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
=== ==== ========== ========== = ========== ======= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss ($1,487,364) ($3,507,559)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and Amortization 365,474 312,845
Decrease (Increase) in Accounts Receivable 120,519 299,800
Decrease (Increase) in Inventory 299,125 2,244
Decrease (Increase) in Prepaid Expenses 5,737 132,010
Increase (Decrease) in Accounts Payable 87,483 198,932
(Decrease) Increase in Accrued Liabilities (14,437) 259,929
Stock issued for services 296,113 199,375
------- -------
Net cash used in operating activities (327,350) (2,102,424)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Net Assets of Steridyne - 0 - (4,406,635)
Purchase of Fixed Assets (13,835) (244,986)
[GRAPHIC OMITTED]
Net cash used in investing activities (13,835) (4,651,621)
CASH FLOWS FROM FINANCING ACTIVITIES:
Costs incurred for restructuring of
Series A Preferred Stock, net (250,000) - 0 -
Proceeds from issuance of Series A
Preferred Stock, net 6,220,700 - 0 -
Proceeds from issuance of Stock, net 25,000 270,250
Proceeds from exercise of Stock option net -0- 292,105
Acquisition of Treasury Stock -0- (59,742)
Proceeds from issuance of Notes Payable 728,750 266,000
Repayment of Notes Payable (182,408) (451,120)
--------- ----------
Net cash from financing activity 321,342 6,538,193
--------- ---------
Net (decrease) in cash (215,852) (19,843)
Cash at beginning of year 58,090 273,942
--------- ---------
Cash at end of year $58,090 $38,247
======= =======
Supplemental Disclosure:
Cash paid during the year for interest $76,000 $118,337
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
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. Accumulated
amortization on intangibles and other assets total $643,589 and $272,841 at
June 30, 1998 and 1997, respectively.
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
F-6
<PAGE>
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. Impairment losses are recognized when the
aggregated future cash inflows (less outflows) to be generated by an asset,
are less than an asset's carrying value. Future cash inflows include an
estimate of the proceeds from eventual disposition of the assets. For
purposes of this comparison, future cash flows are determined without
reference to there discounted present value.
NEW FINANCIAL ACCOUNTING STANDARDS- In June 1997, the FASB issued Statement
No. 130, "Reporting Comprehensive Income" and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information". Both
statements are effective for periods beginning after December 15, 1997.
Statement No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial
statements and requires that all items that are required to be recognized
as components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
Statement No.131 establishes standards for the way public enterprises
report information about operating segments in annual financial statements
and requires them to report selected information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The impact of both statements will require
additional disclosures to the Company's 1999 financial statements.
3. INVENTORIES. Inventories consisted of the following at June 30, 1998 and
1997:
1998 1997
----------- -----------
Raw materials $271,878 $462,987
Work in process 50,305 71,509
Finished goods 70,965 157,777
---------- ----------
[GRAPHIC OMITTED]
$393,148 $692,273
========= ========
4. FIXED ASSETS. Fixed assets consisted of the following at June 30, 1998 and
1997:
1998 1997
---- ----
Plant & equipment $930,147 $916,647
Land 382,000 382,000
Computer equipment and software 163,618 163,618
Furniture and fixtures 100,339 100,004
-------- --------
1,576,104 1,562,269
Less: Accumulated Depreciation (364,567) (223,881)
--------- --------
$1,211,537 1,338,388
F-7
<PAGE>
In July of 1998, the Company sold its headquarters facility and repaid the
$234,000 mortgage on the realty.
5. LONG-TERM DEBT. Long-Term Debt consisted of the following at June 30, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
12% subordinated convertible notes,
due May 1998 $376,750 $343,750
08.5% 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 73,095 115,672
8% convertible notes, due March 1999,
interest payable quarterly, secured
by certain assets of a subsidiary;
guaranteed by the Company 798,643 - 0 -
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 87,139 106,584
10.0% convertible note, due March 2001,
interest payable quarterly 78,829 75,643
10.0% convertible note, due March 2002,
interest payable quarterly 79,486 76,329
Secured notes payable, due various dates,
interest payable various at 0% to 16% - 0 - 7,036
9.5% note, due December 2011, principal
and interest payable monthly,
secured by mortgage 238,551 238,660
Variable rate note payable, interest
payable monthly at prime rate plus 7%,
secured by Company's inventory 60,000 50,000
Unsecured notes payable, due various dates,
interest payable various at 0% to 10% 126,924 505,363
-------- ---------
Total notes payable 2,153,417 1,753,037
========= =========
Less: amounts due in one year (1,035,872) (732,997)
----------- ----------
$1,117,545 $1,020,040
</TABLE>
F-8
<PAGE>
The 12% subordinated convertible notes due May 1998 were converted into
725,000 shares of the Company's common stock in July of 1998.
The 10.0% convertible note due March 2001 and the 10.0% convertible note
due March 2002 are convertible, at the election of the note holder, 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 8% convertible notes due in March 1999 are convertible at the Company's
election into common stock in an amount equal to 115% of the outstanding
principal then due and payable plus accrued and unpaid interest, divided by
the average bid and asked quotes for the Company's common stock for the
previous thirty trading days.
The amount of long-term debt maturing in each of the next five fiscal years
is $1,035,872 in 1999, $35,557 in 2000, $118,298 in 2001, $83,185 in 2002,
and $8,185 in 2003.
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, 1998:
Fiscal Lease
YEAR PAYMENTS
1999 $53,021
2000 34,934
2001 16,501
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 dilutive potential common shares outstanding. The average number of
shares used to compute basic earnings per share was 23,041,184 and 14,
189,150 for the fiscal years ended June 30, 1998 and 1997 respectively. The
dilutive potential common shares were anti-dilutive for the years ending
June 30, 1998 and 1997 and, accordingly, basic and dilutive earnings (loss)
per share was approximately the same.
8. INCOME TAXES. The Company did not incur any income tax expense for its
fiscal years ending June 30, 1998 and 1997 respectively. As of June 30,
1998 the Company has sustained in excess of $9 million in net operating
losses (NOLs) for tax purposes. These NOLs will expire in various amounts
if not utilized between 2004 and 2013 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 MTI derives substantially all of its revenues. The terms
of the royalty agreement require the
F-9
<PAGE>
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
$68,644 and $56,952 for its fiscal years ending June 30, 1998 and 1997
respectively under this agreement.
10. 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.
The Company has the option of redeeming the Series B Preferred shares at
any time in cash, at 110% of the original face value of the Series B
Preferred shares including accretion, or in the Company's common stock
valued at the average closing bid price for the 30 days prior to the
redemption at 120% of the original face value of the Series B Preferred
shares including accretion. The Company is required to redeem the Series B
Preferred stock on September 30, 2000. The common stock issued to Series B
Preferred shareholders is subject to the following lockup schedule:
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
F-10
<PAGE>
As a result of the restructuring of the Series A Preferred Stock, the
common stock holders have received a gain of approximately $948,000.
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 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. The options are exercisable ratably over a
three year period commencing with the grant date.
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 per
share.
The following is a summary of stock option transactions:
1998
----
Outstanding, beginning of year 3,239,936
Options granted 500,000
Options exercised 0
Options cancelled (500,000)
----------
Outstanding, end of year 3,239,936
=========
Exercisable, end of year 1,898,270
=========
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 approximately 3.0
million shares of commonstock as of June 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 was reduced from $2.72 to $1.00.
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 a Director of the
Company. On June 30, 1997, both amounts were outstanding and were included
in the balance sheet as of the same date. Both loans were repaid during
fiscal 1998.
F-11
<PAGE>
In May of 1997, the Company borrowed $50,000 from a director of the
Company which was repaid by the Company in October of 1997.
In connection with financing required to fund the restructuring of the
terms of the Series A Preferred shares in September 1997, the Chief
Executive Officer, Chief Operating Officer and a family member, Executive
Vice President and a director loaned a subsidiary of the Company
approximately $411,000. These loans are secured by certain assets of the
subsidiary, bear interest at 8% payable quarterly and are due to be repaid
or converted into shares of the Company's common stock in March of 1999.
During the fiscal year ended June 30, 1998 the Company issued common
shares with a value approximating $100,000, to a company director for
performing investment banking, consulting and financial advisory services.
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 1999.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair values of the
Company's financial instruments as of June 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Accounts Receivable $287,114 $287,114 $407,633 $407,633
Accounts Payable 505,824 505,824 418,341 418,341
Accrued Expenses 370,588 370,588 384,995 384,995
Long-term Debt 2,153,417 2,153,417 1,753,037 1,753,037
</TABLE>
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.
15. MAJOR CUSTOMERS. For the years ended June 30, 1998 and 1997 the Company
had no major customers that accounted for more than 10% of sales.
16. 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:
F-12
<PAGE>
<TABLE>
<CAPTION>
United Asia/
STATES PACIFIC EUROPE CONSOLIDATED
<S> <C> <C> <C> <C>
June 30, 1998
Revenues $4,341,321 $22,070 $177,98 $4,541,372
Net Earnings (Loss) (1,342,619) (30,327) (114,418) (1,487,364)
Identifiable Asset 4,292,376 - 13,940 4,306,316
June 30, 1997
Revenues $3,349,691 $240,304 $42,286 $3,632,
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
</TABLE>
17. COMMITMENT. In August of 1998, the Company received its largest order ever
to deliver approximately 700 MTI PhotoScreeners(TM) during fiscal 1999.
The Company and the customer agreed, that in consideration of the customer
funding and executing a national vision screening marketing program
mentioning the PhotoScreeners, the cost of which will be several million
dollars, the Company shall grant the customer warrants to purchase
1,200,000 shares of common stock of the Company at an exercise price of
$0.88 per share.
F-13
<PAGE>
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
NAME POSITION WITH DATE ELECTED TERM OF OFFICE AGE
COMPANY DIRECTOR
Jeremy Feakins Director, Chief April 1996 3 years 45
Executive Officer
Robert Brennan Director, Chief February 1998 3 years 56
Operating Officer
John Behrmann Director January 1997 3 years 63
Mathew Crimmins Director January 1997 3 years 66
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 Britain.
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. 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.
<PAGE>
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.
BUSINESS EXPERIENCE OF SIGNIFICANT OFFICERS
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.
MR. SUROVCIK joined the company in January 1998 as Senior Vice President, Chief
Financial Officer and Secretary. He formerly was a staff accountant for Price
Waterhouse in New York and later, Audit Director and Group Controller for
Dentsply International. Mr. Surovcik, a CPA, most recently was President and
Owner of DBK Distributors, Inc., a small distribution company serving over 1,000
grocery stores in the Mid Atlantic States. Mr. Surovcik received a BS in
accounting from Susquehanna 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 tenpercent
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, Stefanick, and Surovcik did not timely file Forms 3,4, or 5
for the fiscal year ending June 30, 1998 as follows:
Name No. of Late Reports
Jeremy Feakins 3
Robert Ballheim 1
John Behrmann 3
Robert Brennan 3
John Stefanick 3
Dennis Surovcik 3
<PAGE>
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
years ending June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Name and Fiscal Annual Compensation Long-Term Compensation All Other
Principal Year Compensation
Position(1)
- --------------- ------- ------------------------- ------------------------- -------- -------------
Salary Bonus Other Awards Payouts
Annual
Comp.
- --------------- ------- -------- ------- --------- ------------------------- --------- --------------
Restricted Options/SARS LTIP
Stock
Award (s) Payouts
- --------------- ------- -------- ------- --------- ------------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Feakins, 1998 $133,500 0 0 0 0 0 0
Chief
Executive
Officer 1997 $146,250 0 0 0 0 0
1996 $123,000 0 0 0 0 0 0
- --------------- ------- -------- ------ ---------- ------------- ------------ ------- --------------
R. Brennan, 1998 $117,187 0 0 0 0 0 0
Chief
Operating
Officer
- --------------- ------- -------- ------ ---------- ------------- ------------ ------- --------------
J. Stefanick 1998 $135,186 0 0 0 0 0 0
Executive Vice
President
- --------------- ------- -------- ------ ---------- ------------- ------------ ------- --------------
</TABLE>
1. Each executive is furnished with an automobile for business and personal
use. The compensation specified in the preceding table does not include the
value of non-business use as the amount is not material.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Name No. of Shares % of Total Options Exercise of Base Expiration
Common Stock Granted to Price ($/share) Date
Underlying Employees in Fiscal
Options Granted Year
- ------------- ----------------- ------------------ -------------- ------------
D. Surovcik 500,000 (1) 100% $0.25 (2)
- ------------- ----------------- ------------------ -------------- ------------
- -------------
1. Options become exercisable at the rate of 8.33% of options granted per
calendar quarter for twelve quarters beginning July 1, 1997 for Mr.
Surovcik. 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. 2. The expiration dates for the options granted
are two (2) years from the date the options become exercisable.
2. The expiration dates for the option granted are (2) years from the date the
options become exercisable.
<PAGE>
AGGREGATED OPTION EXERCISES IN
THE FISCAL YEAR ENDED JUNE 30, 1998
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Name No. of Shares Value No. of Shares Exercisable Value of
Acquired on Realized Common Stock / Unexercised in-
Exercise Underlying Unexercisable the-money Options
Unexercised Exercisable/Un-
Options @ exercisable
Fiscal Year End
<S> <C> <C> <C> <C> <C>
- -------------- -------------- ---------- -------------- --------------- ----------------
J. Feakins 0 0 500,000 400,000/100,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
R. Ballheim 0 0 500,000 400,000/100,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
D. Surovcik 0 0 500,000 166,667/333,333 0
- -------------- -------------- ---------- -------------- --------------- ----------------
G. Hartman 0 0 489,936 389,936/100,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
R. Brennan 0 0 750,000 375,000/375,000 0
- -------------- -------------- ---------- -------------- --------------- ----------------
J. Stefanick 0 0 500,000 166,667/333,333 0
- -------------- -------------- ---------- -------------- --------------- ----------------
</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, 1998.
AMOUNT AND NATURE OF PERCENT OF
NAME POSITION BENEFICIAL OWNERSHIP OWNERSHIP
Jeremy Feakins Director, Chief Executive 5,685,278 21.55%
Officer
John Behrmann Director 1,501,618 5.69%
Mathew Crimmins Director 0 0.00%
Robert Brennan Director, Chief Operating 426,962 1.62%
Officer
All Executive Directors and
Officers as a Group 8,022,304 30.4%
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 and in full in May 1998.
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.
In connection with financing required to fund the restructuring of the terms of
the Series A Preferred shares in September 1997, the Chief Executive Officer,
Chief Operating Officer and family member, Executive Vice President and a
Director loaned a subsidiary of the Company approximately $411,000. These loans
are secured by certain assets of the subsidiary, bear interest at 8% payable
quarterly and are due to be repaid or converted into shares of the Company's
common stock in March of 1999.
<PAGE>
During the fiscal year ended June 30, 1998 the Company issued common shares with
a value approximating $100,000, to a Company director for performing investment
banking, consulting and financial advisory services.
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 1999.
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.]
<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]
21.1 Subsidiaries. Medical Technology, Inc. and Steridyne Corporation.
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.
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
<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/ DENNIS A. SUROVCIK
Jeremy P. Feakins Dennis A. Surovcik, Senior Vice
Chief Executive Officer President and Chief Financial
Officer and Secretary
Date: October 25, 1998
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 Robert D. Brennan, President
Executive Officer, Chairman, and Chief Operating Officer
and Director
/S/ JOHN BEHRMANN
John Behrmann, Director
/S/ MATHEW CRIMMINS*
Matthew Crimmins, Director
* Pursuant to Power of Attorney
Date: October 25, 1998
<PAGE>
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 DECEMBER 31, 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 December 31, 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.
[GRAPHIC OMITTED]
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1998 and June 30, 1998 4
Condensed Consolidated Income Statements
For the Three and Six Months ended
December 31, 1998 and 1997 (Unaudited) 5
Consolidated Statements of Stockholders' Equity (Unaudited) 6
Condensed Consolidated Statements of Cash Flows
For the Six Months ended December 31, 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
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31 AND JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
December 31, 1998 June 30,
(Unaudited) 1998
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 168,268 $38,247
Accounts Receivable, less allowances of
$36,367, respectively 519,046 287,114
Inventory 436,122 393,148
Prepaid Expenses 62,767 30,740
------------ -----------
Total Current Assets 1,186,203 749,249
---------- ----------
FIXED ASSETS
Land 182,000 382,000
Equipment, less accumulated depreciation
of $426,183 and $364,567, respectively 741,311 829,537
Fixed Assets, net 923,311 1,211,537
OTHER ASSETS
Intangible and Other Assets 2,233,676 2,345,530
----------- -----------
TOTAL ASSETS $4,343,190 $4,306,316
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts Payable $506,195 $505,824
Accrued Liabilities 436,648 370,558
Current Maturities of Long-Term Debt 1,155,211 1,035,872
--------- ---------
Total Current Liabilities 2,098,054 1,912,254
LONG-TERM DEBT, NET OF CURRENT MATURITIES 511,361 1,117,545
--------- ---------
TOTAL LIABILITIES 3,029,799 2,609,415
--------- ---------
STOCKHOLDERS' EQUITY
Common Stock, no par value, authorized
700,000,000 shares, outstanding 27,110,279
and 26,385,279 shares, respectiv 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 (9,670,424) (9,589,916)
Total Stockholders' Equity 1,733,775 1,276,517
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,343,190 $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 AND SIX MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,819,628 $1,425,376 $3,172,082 $2,410,000
Cost of Goods Sold 900,654 908,102 1,709,780 1,650,173
------- ------- --------- ---------
Gross Profit 918,974 517,274 1,462,302 759,827
------- ------- --------- -------
Operating Expenses
Advertising 11,095 33,680 16,163 70,746
Selling, General,
and Administrative 716,572 612,175 1,279,324 1,253,870
------- ------- --------- ---------
Total Operating Expenses 727,667 645,855 1,295,487 1,324,616
------- ------- --------- ---------
Income (Loss) from Operations 191,307 (128,581) 166,815 (564,789)
Interest expense, net 49,339 75,908 86,307 125,316
------ ------ ------ -------
Net Income (Loss) from Operations $141,968 ($204,489) $80,508 ($690,105)
======== ========= ======= =========
Add: Gain on Restructuring of Series A - 0 - 948,163 - 0 - 948,163
- ------- - -------
Preferred Stock
Net Income Attributable to $141,968 $743,674 $80,508 $258,058
Common Stock ======== ======== ======= ========
Net Operating Income (Loss) per common $.004(*) ($.011) $.001(*) ($.039)
share (basic and diluted
Net Income per common share after $.004 $.042 $.001 $.014
Gain on Restructuring of Series A
Preferred Stock
Weighted Average Outstanding Shares 26,435,089 17,843,521 26,435,089 17,843,521
========== ========== ========== ==========
</TABLE>
(*) Calculated including Series B Preferred Stock accretion of
$32,040 for the three months and $64,080 for the six months ended
December 31, 1998.
The accompanying notes are an integral part of
the condensed financial statements.
<PAGE>
MEDICAL TECHNOLOGY & INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE TOTAL
COMMON COMMON PREFERRED PREFERRED PREFERRED TREASURY ACCUMULATED STOCKHOLDERS'
SHARES Stock Stock Stock Stock Stock Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
CONV. OF SERIES A PREFERRED 1,156,864 296,113 296,113
STOCK INTO COMMON STOCK 7,853,177 1,531,647 (1,531,647)
CONVERSION OF SUBSCRIBED SERIES
A PREFERRED STOCK INTO
COMMON STOCK
GAIN ON RESTRUCTURING OF
SERIES A 500,000 76,000 (76,000)
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 Income 80,508 80,508
Conversion of Subordinated
Notes into common stock 725,000 376.750 _________ _________ ______ _________ __________ 376,750
-------- --------- ------------
BALANCE AT DECEMBER 31, 1998 127,110,279 $10,008,933 - 0 - $1,602,000 $22,500 ($309,742) ($9,589,916) $1,733,775
=========== =========== = ========== ======= ========= =========== ==========
</TABLE>
[GRAPHIC OMITTED]
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 SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Six Months Ended December 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $80,508 ($690,105)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and Amortization 180,135 140,080
(Increase) in Accounts Receivable (133,166) (231,932)
(Increase) Decrease in Inventory 70,726 (42,974)
(Increase) Decrease in Prepaid Expenses (32,027) 8,167
Increase in Accounts Payable 369 149,929
Increase in Accrued Liabilities 66,092 232,404
-------- ---------
Net cash (used in) operating activities (19,884) (181,910)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Headquarters Land and Building 260,000 - 0 -
Purchase of Fixed Assets - 0 - (4,590)
----- ------
Net cash from (used in)
investing activities 260,000 (4,590)
CASH FLOWS FROM FINANCING ACTIVITIES:
Costs incurred for restructuring of
Series A Preferred Stock - 0 - (275,900)
Proceeds from issuance of stock net - 0 - 25,000
Proceeds from issuance of notes payable 123,905 730,729
Repayment of notes payable (154,496) (234,000)
--------- ---------
Net cash from (used in) financing activities (110,095) 325,333
Net increase in cash and cash equiva 130,021 138,833
Cash and cash equivalents at beginning of period 38,247 58,090
---------- -------
Cash and cash equivalents at end of period $168,268 $196,923
======== ========
</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 December
31 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, the Board of Directors reduced the exercise price on
all options granted to the Chief Executive Officer, President and Executive
Vice President of the Company to $.25.
The following is a summary of stock option transactions:
Outstanding, July 1, 199 3,239,936
Options granted 0
Options exercised 0
Options cancelled (184,269)
Outstanding, December 31, 1998 3,055,667
=========
Exercisable, end of period 2,245,667
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
<PAGE>
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.
The Company has the option of redeeming the Series B Preferred shares at
any time in cash, at 110% of the original face value of the Series B
Preferred shares including accretion, or in the Company's common stock
valued at the average closing bid price for the 30 days prior to the
redemption at 120% of the original face value of the Series B Preferred
shares including accretion. The Company is required to redeem the Series B
Preferred stock on September 30, 2000. The common stock issued to Series B
Preferred shareholders is subject to the following lockup schedule:
Date Maximum
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, 199 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 at
December 31, 1997.
10. WARRANTS. The Company has issued warrants to purchase 3.0 million shares of
common stock as of December 31, 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.
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.
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
Revenues for the first half of fiscal 1999 increased by $762,082, from
$2,410,000 in fiscal 1998 to $3,172,082 in fiscal 1999, a 32% increase. This
sales increase results from 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 half of fiscal 1998
increased by 92% to $1,462,302 versus the comparable period in fiscal 1999
almost entirely due to sales of the MTI PhotoScreener(TM). MTI products
generally have higher profit margins than Steridyne products.
Operating expenses decreased by 2% from $1,324,616 in the first half of fiscal
1998 to $1,295,487 in the comparable period in fiscal 1999. Income from
operations for the six months ended December 31, 1998 was $166,815 compared to a
loss of ($564,789) in the comparable period in the prior fiscal year. This
dramatic improvement of $731,604 in operating income results from continued
increases in sales of the MTI PhotoScreener(TM) to retail optical chains in the
U.S. and international markets and marks the first time the Company has achieved
a profitable quarter. Interest expense decreased 31% to $86,307 for the first
six months of fiscal 1999 versus 1998 primarily as the result of the sale of the
headquarters 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 third quarter of fiscal 1999 because of
increased sales and continued cost controls.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash of $168,268 and working capital of
($911,851) as compared to $38,247 and ($1,163,005) at June 30, 1998. This
decrease in working capital deficit is mostly due to increased profitability of
the Company in fiscal 1999. Included in current maturities of long term debt at
December 31 and June 30, 1998 is approximately $800,000 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 was subject to a lock-up which ended on October
1, 1998.
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. As of December 31, 1998
substantially all of the MTI PhotoScreeners ordered were billed. The order which
approximates $1.5 million places certain restrictions on the Company from
selling the PhotoScreener in certain markets. In
<PAGE>
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 former 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.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. All software
used for the Company systems is supplied by software vendors or outside service
providers. The Company has confirmed with such providers that its present
software is Year 2000 compliant.
<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.
BY: /S/DENNIS A. SURVOCIK BY: /S/ JEREMY P. FEAKINS
---------------------- ----------------------
Dennis A. Survocik Jeremy P. Feakins
Senior Vice President and Chairman and Chief Executive
Chief Financial Officer Officer
