U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 2000
[ ] 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.
(Exact name of small business issuer as specified in its charter)
Florida 65-2954561
--------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3725 Investment Lane, Riviera Beach, FL 33404
----------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
(561) 844-3486
(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)
<PAGE>
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 $4,607,945.
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 September 20, 2000 was approximately
$3,997,027.
As of June 30, 2000 34,017,248 shares of Common Stock, no par value, of
the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
[GRAPHIC?OMITTED]
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PART I
Item 1. Description of Business
General
Medical Technology & Innovations, Inc., f/k/a SouthStar Productions, Inc. (the
"Company") was incorporated in the state of Florida in January 1989. The Company
operates through its wholly- owned subsidiary, Medical Technology, Inc. ("MTI").
MTI was incorporated in the state of Iowa in April 1993.
The Company acquired control of MTI in October of 1995 under the terms of a
Share Exchange Plan ("the Plan") with SouthStar Productions, Inc. ("SouthStar").
The Company manufactures and distributes the PhotoScreener, 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.
Effective April 1, 1999 the Company acquired certain key operating assets of the
thermometer business of Florida Medical Corporation ("Florida Medical"), a
former manufacturer of glass thermometers and distributor of digital
thermometers. Florida Medical has been in business for over twenty years and
brings a substantial customer base in the retail market. The purchase requires
that both Companies equally split the profit for the next several years. No up
front cash or stock was required to be issued as part of the purchase price.
Product Lines
The PhotoScreener 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 PhotoScreener 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 PhotoScreener 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
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includes Steritempa's own branded electronic thermometer and probe cover kits. A
non-sterile economy sheath/probe cover line, Value BrandO, 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- GO and SofSeatO, 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.
Marketing and Distribution
The Company markets the PhotoScreener domestically and internationally through a
combination of direct sales representatives and independent distributors. The
Company markets the PhotoScreener 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 PhotoScreener 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. The
business is split about 50 percent retail and 50 percent 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 PhotoScreener. 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
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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.
As part of the acquisition of Florida Medical, the Company obtained the right to
use the trademarks RECOVER and TEMCOM with devices for taking temperatures
including glass and digital thermometers.
Government Regulation
Certain aspects of the Company's business, principally the manufacture and sale
of the PhotoScreener 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 PhotoScreener and all of the Steridyne
products with the exception of the gel floatation cushions and sheaths which
only require listing with the FDA and that has been accomplished. The Company
believes that it has completed all necessary governmental processes to market
the PhotoScreener. 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, 2000 and 1999, the Company employed 29 and 38 full-time
employees, respectively. 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
Riviera Beach, Florida. The Company's manufacturing and distribution functions
for Steridyne Corporation and MTI are also conducted at this facility. The
facility is subject to a mortgage of approximately $219,000. 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 November 1997 the Company initiated a lawsuit 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 alleged 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 claimed damages
of $750,000 for the alleged failure of the Company to fulfill its obligations
under the original conversion rights and investment banking fees for alleged
services in connection with the restructuring.
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In December of 1998, the Company settled this action by agreeing to pay Faisal
an amount approximately equal to the amount they would have received had they
originally tendered their shares in October of 1997.
On February 15, 2000 the Company filed a lawsuit in the Common Pleas court of
Dauphin County, Pennsylvania against LensCrafters, Inc. (LensCrafters) and its
parent, Luxottica Group S.P.A. (Luxottica). The Company entered into a business
relationship with LensCrafters to provide more than 600 of its PhotoScreener
devices for use in the retail facilities of LensCrafters. In a written agreement
dated August 25, 1998, LensCrafters committed that it would conduct a national
marketing campaign in excess of $5 million to promote vision screening through
the PhotoScreener. As part of that transaction, LenCrafters insisted on
obtaining the right to purchase up to 1.2 million shares of the Company's stock
because both LensCrafters and the Company believed that the introduction of the
PhotoScreener in LensCrafters' retail facilities would greatly benefit the
Company. The Company's complaint provides that the Company delivered the
PhotoScreeners to LensCrafters, but LensCrafters has failed to meet its
promotional and marketing commitments. LensCrafters has not proceeded with the
national promotional campaign, nor has it distributed the PhotoScreener units to
its retail stores. The Complaint asserts that Luxottica, which owns
LensCrafters, has directed LensCrafters to break its agreement with the Company.
The complaint seeks substantial monetary damages from both Luxottica and
LensCrafters. It asserts legal claims for breach of contract by LensCrafters,
for misrepresentation and fraud by LensCrafters, and for intentional
interference with contract by Luxottica. LensCrafters has removed the case to
Federal Court, where it is now pending. LensCrafters also moved to refer the
case to arbitration. Luxottica has filed a challenge to the jurisdiction of the
Court. The Company vigorously contests both motions. A decision on these motions
is expected in the near future.
As of January 1, 2000 the Company entered into an Agreement with a company
affiliated with the Chairman and Chief Executive Officer to provide litigation
management services with regards to the proceedings against LensCrafters et al.
This company is paying or advancing all attorney's fees and other litigation
costs and expenses incurred by the Company to pursue this litigation against
Lenscrafters et al. Assuming that the Company is successful in receiving a
judgment or award or settlement from this litigation, all litigation cost and
expenses paid will be reimbursed and 10% of the gross judgment, award or
settlement will be paid to the company affiliated with the Chairman and Chief
Executive Officer. No costs or expenses will be due in the event the litigation
is unsuccessful.
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 1999 annual
meeting of stockholders which was held April 28, 2000:
1. The following directors were elected, along with his respective votes
received:
Director Term Votes For Votes Against Votes Abstain
------------------- ------- ---------- ------------- ---------------
Joseph Del Vecchio 3 yr. 16,794,941 0 306,710
Mathew Crimmins 3 yr. 16,794,941 0 306,710
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2. Simon Lever & Company was ratified as the independent certified public
accountants by a vote of 17,044,891 in favor, 49,700 votes against and
7,060 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>
<S> <C> <C> <C> <C> <C>
Quarter Ending High Low Quarter Ending High Low
September 30, 1999 $ .18 $ .06 September 30, 1998 $.27 $.25
December 31, 1999 .09 .03 December 31, 1998 .20 .08
March 31, 2000 .48 .04 March 31, 1999 .18 .15
June 30, 2000 .27 .09 June 30, 1999 .15 .15
</TABLE>
As of June 30, 2000, there were approximately 679 recordholders of common stock.
Such amounts do not include common stock held in "nominee" or "street" name.
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.
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.
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Results of Operations
Fiscal Year Ended June 30, 2000 as Compared to June 30, 1999
Revenues for the fiscal year 2000 were $4,607,945, compared to $5,443,604 for
the comparable period in fiscal 1999, or a decrease of $835,659 or 15%. Revenues
for Steridyne Corporation were $4,151,177 compared to $3,442,747 for an increase
of $708,430 or 21% mainly due to the inclusion of the Florida Medical
thermometers customers for a full twelve months. Revenues for Medical Technology
were $456,768 compared to $2,000,857 for a decrease of $1,544,089 or 77%. This
decline resulted because the Company shipped over $1,500,000 of PhotoScreeners
and accessories to LensCrafters in the fiscal year 1999 with no comparable sales
occurring in fiscal 2000. Management is currently completing negotiations on
several supply contracts which would effectively increase Photoscreener sales to
core levels achieved prior to the fulfillment of the Lenscrafter offer.
Gross profit for the fiscal year 2000 of $1,844,784, compared to $2,228,357 for
the comparable period in fiscal 1999, or a decrease of $383,573 or 17% and is
entirely due to the shortfall in sales of the PhotoScreener, offset by improved
margins in the Steridyne line of products. The Steridyne Product group has now
been profitable for the past several months and the Photoscreener Product group
is now profitable based upon the present level of business. The Company has
recently announced its acquisition of the manufacturing and distribution rights
to a state of the art urological device for female patients. It is expected that
this new product will further help to bolster revenues and profit margins for
the Company.
Operating expenses during the fiscal year 2000 were $2,591,342, compared to
$2,692,684 for fiscal 1999, or a decrease $101,342, or 4%. Management expects to
see further reductions in operating expenses as we see a full year effect of the
cutbacks made in corporate salaries, services and facility costs as part of the
recently completed reorganization. Interest expense of $236,306 for fiscal 2000
increased by $50,006 or 26% versus fiscal 1999.
Information about the Company's Industry Segments is included in Note 16 to the
Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
At June 30, 2000, the Company had cash of $161,018 and working capital of
($176,251) as compared to $90,581 and ($613,415) at June 30, 1999. The increase
in the working capital is mostly due to the decrease of $459,984 of accounts
payable, as a result of the $1,000,000 financing closed in January 2000.
During the quarter ending March 31, 2000, the Company borrowed over $1,000,000
from an affiliate of the Chief Executive Officer and Chairman of the Company to
support the working capital needs of the Company. This loan is secured by
substantially all of the assets of the Company and is guaranteed by the
Company's subsidiaries. At June 30, 2000, $1,090,999 was outstanding and
included in the balance sheet as of the same date. The interest rate for the
loan is a fixed rate of twelve percent (12%) per annum, however, interest may be
added to the loan principal at two times the interest payment due at the option
of the Company with the written consent of the lender. During the first eighteen
months of the loan the Company will pay only interest monthly. During the
remaining forty-two (42) months of the loan the Company will pay principal,
amortized over twenty years, and interest monthly, commencing on the first day
of the nineteenth month and continuing on
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for forty-two months thereafter. The balance of the loan is due in full at the
end of sixty months. At any time, at the option of the lender, the outstanding
principal plus accrued and unpaid interest and expenses due may be paid in an
amount of common stock of the Company at the rate of one share for every four
cents owed to the lender (the "Conversion Rate"). The Conversion Rate had been
determined at the time of the negotiations, based upon the previous sixty day
average closing price per share of the Company's common stock as quoted on the
Over-The-Counter Bulletin Board. The Conversion Rate will be adjusted for all
stock splits subsequent to the loan agreement. In the event the conversion
occurs it would change the ownership of the Company significantly.
The Chief Executive Officer and a former Director of the Company personally
signed a guarantee with a local bank to provide a $250,000 line of credit to the
Company, which terminated in February of 2000. Both individuals were granted
options to acquire 50,000 shares of the Company's common stock at an exercise
price of $0.50 per share. The Chief Executive Officer pledged a $235,000
Certificate of Deposit to the local bank who provided the line of credit to the
Company. As a result, the bank released the former Director as guarantor of the
borrowing facility. The Company continues to make interest payments on the line
of credit. In consideration the Chief Executive Officer was granted options to
acquire 100,000 shares of the Company's common stock at an exercise price of
$0.25 per share.
Management has completed the process of consolidating its operations into a
single location and cutting back on administrative staff in line with present
sales levels. The reorganization has been completed as of March 31, 2000.
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 also had 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 was 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.
Management is in the process of making a proposal to redeem all Series B
Preferred Stock with a new Series C Preferred Stock or cash in lieu of
converting the entire issue into shares of the Company's Common stock. The
Company believes that the issuance of additional common shares at this time is
not in the best interest of all shareholders. Management expects that the
provisions of this restructuring will be agreed between the parties within the
next few months.
For the past several years the Company has financed a portion of its operations
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 $11.0
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.
As of January 1, 2000 the Company entered into an Agreement with a company
affiliated with the Chairman and Chief Executive Officer to provide litigation
management services with regards to the proceedings against LensCrafters et al.
This company is paying or advancing all attorney's fees and
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other litigation costs and expenses incurred by the Company to pursue this
litigation against Lenscrafters et al. Assuming that the Company is successful
in receiving a judgment or award or settlement from this litigation, all
litigation cost and expenses paid will be reimbursed and 10% of the gross
judgment, award or settlement will be paid to the company affiliated with the
Chairman and Chief Executive Officer. No costs or expenses will be due in the
event the litigation is unsuccessful.
Year 2000 Compliance
The Company was aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approached. All software
used for the Company systems has been supplied by software vendors or outside
service providers. The Company has confirmed with such providers that its
present software is Year 2000 compliant.
The Company believes, after investigation, that all software and hardware
products that it is currently in the process of developing (directly or through
vendors) are Year 2000 compliant. The Company believes, after investigation,
that its own software operating systems are Year 2000 compliant and in fact, has
experienced no Year 2000 problems since January 1, 2000. Further the Company has
experienced no difficulties or adverse effects due to untimely conversion or
failure to convert by any other company upon which it relies.
The Company believes that it has disclosed all required information relative to
Year 2000 issues relating to its business and operations.
Item 7. Financial Statements
Index to Consolidated Financial Statements:
Page
Report of independent auditors for the years ended June 30, 2000 and 1999 F-1
Consolidated balance sheets as of June 30, 2000 and 1999 F-2
Consolidated income statements for the years ended
June 30, 2000 and 1999 F-3
Consolidated statements of stockholders' equity for the years ended
June 30, 2000 and 1999 F-4
Consolidated statements of cash flows for the years ended
June 30, 2000 and 1999 F-5
Notes to consolidated financial statements F-6
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Medical Technology & Innovations, Inc.
Riviera Beach, Florida
We have audited the accompanying consolidated balance sheets of Medical
Technology & Innovations, Inc. and subsidiaries as of June 30, 2000 and 1999,
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, 2000 and
1999, 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
September 25, 2000
F-1
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<TABLE>
<CAPTION>
Medical Technology & Innovations, Inc.
Consolidated Balance Sheets
June 30
Assets
2000 1999
------------ -----------
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 161,018 $ 90,581
Accounts Receivable, less allowances of
$30,030 and $21,174, respectively 572,160 438,207
Inventory 542,892 513,358
Prepaid Expenses 46,696 91,002
------------ ----------
Total Current Assets 1,322,766 1,133,148
---------- ----------
Fixed Assets:
Land 182,000 182,000
Property & Equipment 1,153,512 1,163,166
Less accumulated depreciation (623,897) (494,006)
--------- ---------
Fixed Assets, net 711,615 851,160
---------- ----------
Other Assets:
Intangible Assets 1,897,120 2,134,155
--------- ---------
Total Assets $3,931,501 $4,118,463
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 448,155 $908,139
Accrued Liabilities
Payroll and payroll taxes 189,303 180,472
Royalties 185,130 147,961
Other 188,678 94,155
Current Maturities of Long-Term Debt 487,751 415,836
---------- ---------
Total Current Liabilities 1,499,017 1,746,563
Long-Term Debt, Net of Current Maturities 1,432,681 1,321,158
--------- ---------
Total Liabilities 2,931,698 3,067,721
--------- ---------
Stockholders' Equity
Common Stock, no par value, authorized
700,000,000 shares, outstanding 34,017,248
and 27,548,334 shares, respectively 11,122,017 10,190,092
Series A Convertible Preferred Stock, $100
par value, authorized 70,000 shares,
outstanding nil shares - 0 - - 0 -
Series B Convertible Preferred Stock,
$100 par value, authorized 1000 shares,
outstanding 266 shares 1,596,000 1,596,000
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 (1,973,531 shares) (436,799) (436,799)
Accumulated Deficit (11,303,915) (10,321,051)
------------ ------------
Total Stockholders' Equity 999,803 1,050,742
-------------- -------------
Total Liabilities and Stockholders' Equity $ 3,931,501 $ 4,118,463
============== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
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<TABLE>
<CAPTION>
Medical Technology & Innovations, Inc.
Consolidated Income Statements
For the Years Ended June 30
2000 1999
------ ----
<S> <C> <C>
Revenues $4,607,945 $5,443,604
Cost of Goods Sold 2,763,161 3,215,247
----------- -----------
Gross Profit 1,844,784 2,228,357
-----------
Operating Expenses
Advertising 31,551 7,764
Selling, General,
and Administrative 2,559,791 2,684,920
----------
Total Operating Expenses 2,591,342 2,692,684
----------
(Loss) from Operations (746,558) (464,327)
Interest Expense, Net 236,306 186,300
-----------
Net (Loss) from Operations ($ 982,864) ($650,627)
=========== ==========
Net (Loss) per common share ($.035) ($.029)
===========
(basic and diluted)(*)
Weighted Average Outstanding Shares 31,795,545 27,087,143
========== ==========
</TABLE>
(*) Calculated including Series B Preferred Stock accretion of $127,680 and
$128,160 for the fiscal years ended June 30, 2000 and 1999; respectively.
The accompanying notes are an integral part of
the financial statements.
F-3
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<TABLE>
<CAPTION>
Medical Technology & Innovations, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended
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, 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
Purchase of Treasury Shares (600,000) (127,057) (127,057)
Net Loss (650,627) (650,627)
Stock Issued for Services 983,974 172,409 172,409
Conversion of Series B
Preferred Stock into common
stock 54,081 6,000 (6,000)
Conversion of Subordinated
Notes into common stock 725,000 379,500 379,500
---------- ----------- ------------- ---------- -------- ----------- ------------ ------------
Balance at June 30, 1999 27,548,334 $10,190,092 $ - 0 - $1,596,000 $22,500 ($436,799) ($10,321,051) $ 1,050,742
Conversion of Debentures
Into Common stock 5,436,773 822,601 822,601
========== =========== ============= ========== ======== ========== =========== ============
Stock Issued for Services 1,032,141 109,324 109,324
Net Loss (982,864) (982,864)
---------- ----------- ------------- ---------- -------- ---------- ----------- ------------
Balance at June 30, 2000 34,017,248 $11,122,017 $ - 0 - $1,596,000 $22,500 ($436,799) ($11,303,915) $ 999,803
========== =========== ============= ========== ======== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Medical Technology & Innovations, Inc.
Consolidated Statements of Cash Flows
For the Years Ended June 30
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Loss $982,864) ($650,627)
Adjustments to reconcile net loss to net cash (used)
provided in operating activities:
Depreciation and Amortization 376,580 368,085
(Increase) in Accounts Receivable (133,953) (151,093)
(Increase) in Inventory (29,534) (120,210)
Decrease (Increase) in Prepaid Expenses 44,306 (60,261)
(Decrease) Increase in Accounts Payable (459,984) 402,315
Increase in Accrued Liabilities 140,123 52,030
Stock issued for services 109,324 172,409
Conversion of interest to debt 90,999 -0-
---------- --------------
Net cash (used) provided in operating activities (845,003) 12,648
Cash flows from investing activities:
Sale of Headquarters Land and Building -0- 232,725
Purchase of Fixed Assets -0- (29,060)
[GRAPHIC?OMITTED]
[GRAPHIC?OMITTED]
Net cash provided (used) in investing activities -0- 203,665
Cash flows from financing activities:
Proceeds from revolving credit facility -0- 235,000
Acquisition of Treasury Stock -0- (127,057)
Proceeds from issuance of Notes Payable 1,000,000 -0-
Repayment of Notes Payable (84,560) (271,922)
---------- -----------
Net cash (used) provided from financing activities 915,440 (163,979)
---------- -----------
Net increase (decrease) in cash and equivalents 70,437 52,334
Cash and equivalents at beginning of year 90,581 38,247
---------- ------------
Cash and equivalents at end of year $ 161,018 $ 90,581
========== ===========
Supplemental Disclosure:
Cash paid during the year for interest $ 108,745 $ 159,915
========== ==========
Conversion of subordinated notes into common stock $ 822,601 $ 379,500
========== ==========
</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.
Revenue Recognition. Revenue from product sales are recognized at the time
product is shipped.
Cash and Equivalents. Cash and equivalents include cash, deposits and
marketable securities.
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 Assets. Intangible assets consist primarily of goodwill of
$2,262,708 associated with the acquisition of Steridyne which is being
amortized over fourteen years and patents which are amortized on a
straight-line basis over their estimated remaining lives. Accumulated
amortization on intangible assets totals $959,280 and $854,963 at June 30,
2000 and 1999, 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 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
F-6
<PAGE>
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 their discounted present value. Management believes that the
Company's projected results of future operations, the period of the
forecasts and the trend of the results over the forecast period are its
best estimate and are indicative that the carrying value of long-lived
assets is not impaired.
3. Inventories. Inventories consisted of the following at June 30, 2000 and
1999:
2000 1999
----------- -----------
Raw materials $503,726 $314,693
Work in process 0 39,712
Finished goods 39,166 158,953
----------- -----------
$542,892 $513,358
4. Fixed Assets. Fixed assets consisted of the following at June 30, 2000 and
1999:
2000 1999
--------- -----------
Plant & equipment $860,510 $865,525
Land 182,000 182,000
Computer equipment and software 177,414 179,714
Furniture and fixtures 115,588 117,927
----------- -----------
1,335,512 1,345,166
Less: Accumulated Depreciation (623,897) (494,006)
----------- -----------
$711,615 $851,160
In July of 1998, the Company sold its facility in Lancaster, PA and repaid
the $234,000 mortgage on the realty.
5. Long-Term Debt. Long-Term Debt consisted of the following at June 30, 2000
and 1999:
<TABLE>
<S> <C> <C>
2000 1999
------------ ------------
12% convertible note due to an affiliate of the Chief $ 1,090,999 $ -0-
Executive Officer and Chairman of the Company, due
January 21, 2005, interest payable monthly, principal
amortized over twenty years, commencing the nineteenth
month and continuing for forty-two months, balance to be
paid at the end of sixty months, secured by substantially all of
the assets of theCompany and is guaranteed by the
Company's subsidiaries.
8.0% convertible notes, due March 1999, interest payable -0- 822,601
quarterly, secured by certain assets of a subsidiary,
guaranteed by the Company
11.25% note, due September 1999, principal and interest 51,624 51,624
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 Chief Executive
Officer and major stockholder
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C>
11.25% note, due March 2001, principal and interest payable 82,808 82,808
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 Chief Executive Officer and major stockholder.
10.0% convertible note, due March 2001, interest 80,816 80,816
payable quarterly
10.0% convertible note, due March 2002, interest payable 80,816 80,816
quarterly
Revolving $235,000 credit line, due on demand, 235,000 235,000
interest payable monthly at 10.5%, facility
guaranteed by the Company's Chief Executive
Officer and major stockholder and secured by certain of his
personal assets.
9.5% note, due December 2011, principal and interest payable 218,766 228,725
monthly, secured by mortgage
Variable rate note payable, interest payable monthly at prime -0- 35,339
rate plus 7%, secured by Company's inventory
Unsecured notes payable, due various dates,interest payable
at various rates from 0% to 10% 79,603 119,265
------------ -----------
Total notes payable 1,920,432 1,736,994
Less: amounts due in one year (487,751) (415,836)
------------ ------------
$ 1,432,681 $1,321,158
============ ============
</TABLE>
The 12% note, due January 21, 2005 is convertible at any time at the option
of the lender, into shares of the Company's Common Stock at the rate of one
share for every four cents owed to the lender (the "Conversion Rate"). The
Conversion Rate had been determined at the time of negotiations, based upon
the previous sixty day average closing price per share of the Company's
common stock as quoted on the Over-The-Counter Bulletin Board. The
Conversion Rate will be adjusted for all stock splits subsequent to the
loan agreement. In the event the conversion occurs it would change the
ownership of the Company. During fiscal 2000, the Company opted not to make
certain interest payments then due and rolled $90,999 into the principal
amount due in accordance with the provisions of the Loan Agreement.
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 terms of the 11.25% notes originally due in September 1999 and March
2001 with principal amounts due at June 30, 2000 of $51,624 and $82,808,
respectively, are presently being discussed with the lender in an attempt
to extend the payment period and principal amortization. The Company
expects to have this resolved in the near term.
The 8% convertible notes due in March 1999 were converted at the Company's
election into 5,436,733 shares of common stock in October of 1999.
The amount of long-term debt maturing in each of the next five fiscal years
is $487,751 in 2001, $79,034 in 2002, $58,160 in 2003, $58,160 in 2004, and
$999,159 in 2005.
F-8
<PAGE>
6. Lease Expense. The Company leases various equipment and office space
under operating lease agreements. Rent expense for the fiscal years ended
June 30, 2000 and 1999 amounted to $58,911 and $81,396 respectively. Future
minimum annual rentals for subsequent fiscal years are as follows at June
30, 2000:
Fiscal Lease
Year Payments
------ --------
2001 $ 55,362
2002 48,183
2003 46,122
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 31,795,545 and
27,087,143 for the fiscal years ended June 30, 2000 and 1999 respectively.
The Dilutive potential common shares were anti-dilutive for the years
ending June 30, 2000 and 1999 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, 2000 and 1999, respectively. As of June 30,
2000 the Company has sustained in excess of $11 million in net operating
losses (NOLs) for tax purposes. These NOLs will expire in various amounts
if not utilized between 2004 and 2015 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 Company to pay a royalty to the
inventor of six percent (6.0%) of net PhotoScreener sales, up to December
31,1999 and seven percent (7%) there after. The amount of royalties accrued
by the Company were $35,471 and $111,996 for its fiscal years ending June
30, 2000 and 1999, respectively, under this agreement.
In accordance with the terms of the purchase agreement with Florida Medical
Corporation, the Company and the former owner of Florida Medical
Corporation agreed to equally share in the profits resulting from the
Company's thermometer sales to former Florida Medical customers.
Accordingly, the Company has accrued $165,548 of royalty expense at June
30, 2000 due to the former owner of Florida Medical Corporation.
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 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
F-9
<PAGE>
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.
Accretion as of June 30, 2000 and 1999 was $351,960 and $224,280,
respectively and is not reflected in the Company balance sheets. 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. Management is in the process of making a proposal to
redeem all Series B Preferred Stock with a new Series C Preferred Stock or
cash in lieu of converting the entire issue into shares of the Company's
Common stock. The Company believes that the issuance of additional common
shares at this time is not in the best interest of all shareholders.
Management expects that the provisions of this restructuring will be agreed
between the parties within the next few months.
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 were exercisable ratably over a
trading 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 2000 and fiscal 1999, 1,220,000 and 120,000 options
respectively, have been granted. All options granted in fiscal 2000 are
exercisable immediately at a strike price of $.25 per share. Of the 120,000
options granted in fiscal 1999, 20,000 are exercisable ratably over a
three-year period commencing with the grant date at an exercise price of
$.25 per share. The remaining options granted in fiscal 1999 were
exercisable immediately at an exercise price of $.50 per share.
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 for the years ended
June 30, 2000 and 1999:
2000 1999
---------- ----------
Outstanding, beginning of year 1,380,000 3,239,936
Options granted 1,220,000 120,000
Options exercised 0 0
Options cancelled (900,000) (1,979,936)
Outstanding, end of year 1,700,000 1,380,000
Exercisable, end of year 1,693,334 1,199,996
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 3.4
million shares of common stock as of June 30, 2000. 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 $1.00 to
$2.72 per share. Approximately 3 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, 1999 the Company borrowed $40,000
from an affiliate of the Chief Executive Officer and a Director of the
Company. On June 30, 1999, the amount was outstanding and included in the
balance sheet as of the same date. This amount was repaid in January 2000.
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, former Chief Operating Officer and a family member of
the former Executive Vice President loaned a subsidiary of the Company
approximately $411,000. These loans were repaid in the Company's Common
Stock in October 1999.
During fiscal 2000, the Company paid consulting fees to Mr. Feakins, the
Company's Chairman and Chief Executive Officer amounting to $118,500 and to
Mr. Surovcik, the Company's former Chief Financial Officer and Director
amounting to $51,250. Both individuals did not receive a salary from the
Company during fiscal 2000.
The Company paid consulting fees amounting to $20,000 during 2000 to an
affiliated company of the Chairman and Chief Executive Officer for
accounting and related financial services.
During the quarter ending March 31, 2000, the Company borrowed over
$1,000,000 from an affiliate of the Chief Executive Officer and Chairman of
the Company to support the working capital needs of the Company. This loan
is secured by substantially all of the assets of the Company and is
guaranteed by the Company's subsidiaries. At June 30, 2000 $1,090,999 was
outstanding and included in the balance sheet as of the same date. The
interest rate for the loan is a fixed rate of twelve percent (12%) per
annum, however, interest may be added to the loan principal at two times
the interest payment due at the option of the Company with the written
consent of the lender. During the first eighteen months of the loan the
Company will pay only interest monthly. During the remaining forty-two (42)
months of the loan the Company will pay principal, amortized over twenty
years, and interest monthly, commencing on the first day of the nineteenth
month and continuing on for forty- two months thereafter. The balance of
the loan is due in full at the end of sixty months. At any time, at the
option of the lender, the outstanding principal plus accrued and unpaid
interest and expenses due may be paid in an amount of common stock of the
Company at the rate of one share for every four cents owed to the lender
(the "Conversion Rate"). The Conversion Rate had been determined at the
time of the negotiations, based upon the previous sixty day average closing
price per share of the Company's common stock as quoted on the
Over-The-Counter Bulletin Board. The Conversion Rate will be adjusted for
all stock splits subsequent to the loan agreement. In the event the
conversion occurs it would change the ownership of the Company
significantly.
The Chief Executive Officer and a former Director of the Company personally
signed a guarantee with a local bank to provide a $250,000 line of credit
to the Company, which
F-10
<PAGE>
terminated in February of 2000. Both individuals were granted options to
acquire 50,000 shares of the Company's common stock at an exercise price of
$0.50 per share. The Chief Executive Officer pledged a $235,000 Certificate
of Deposit to the local bank who provided the line of credit to the
Company. As a result, the bank released the former Director as guarantor of
the borrowing facility. The Company continues to make interest payments on
the line of credit. In consideration the Chief Executive Officer was
granted options to acquire 100,000 shares of the Company's common stock at
an exercise price of $0.25 per share.
As of January 1, 2000 the Company entered into an Agreement with a company
affiliated with the Chairman and Chief Executive Officer to provide
litigation management services with regards to the proceedings against
LensCrafters et al. This company is paying or advancing all attorney's fees
and other litigation costs and expenses incurred by the Company to pursue
this litigation against Lenscrafters et al. Assuming that the Company is
successful in receiving a judgement or award or settlement from this
litigation, all litigation costs and expenses paid will be reimbursed and
10% of the gross judgement, award or settlement will be paid to the company
affiliated with the Chairman and Chief Executive Officer. No costs or
expenses will be due in the event the litigation is unsuccessful.
14. Fair Value of Financial Instruments. The estimated fair values of the
Company's financial instruments as of June 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------- ------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Accounts Receivable $ 572,160 $ 572,160 $ 438,207 $ 438,207
Accounts Payable 448,155 448,155 908,139 908,139
Accrued Expenses 563,111 563,111 422,588 422,588
Long-term Debt 1,920,432 1,920,432 1,736,994 1,736,994
</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 fiscal year ended June 30, 2000 the Company had no
major customer that accounted for more than 10% of sales. In fiscal 1999,
the Company had one major customer that accounted for more than 27% of
sales.
16. Industry Segments. Statements of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
requires the presentation of description information about reportable
segments which is consistent with that made available to the management of
the Company to assess performance. Since the Company subsidiaries operate
in separate distinct industry segments, management of the overall business
is conducted by separate subsidiaries. The Corporate segment includes
salary and fringe benefits of the Chairman and a portion of similar costs
related to the Chief Financial Officer, financial public relations costs
and other costs not directly related to the operations of the business
segments.
F-11
<PAGE>
<TABLE>
<CAPTION>
Medical Steridyne
Fiscal 2000 Technology, Inc. Corporation Corporate Total
----------- ---------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues $ 456,768 $4,151,177 - 0 - $4,607,945
Operating Income (Loss) (719,716) 184,853 ($211,695) (746,558)
Net Interest 157,448 78,858 - 0 - 236,306
Pre Tax Income (Loss) (877,164) 105,995 (211,695) (982,864)
Net Income (Loss) (877,164) 105,995 (211,695) (982,864)
Assets 251,238 3,680,263 - 0 - 3,931,501
Depreciation and amortization 35,466 331,460 - 0 - 366,926
Addition to long-lived assets - 0 - - 0 - - 0 - - 0 -
</TABLE>
<TABLE>
<CAPTION>
Medical Steridyne
Fiscal 1999 Technology, Inc. Corporation Corporate Total
----------- ---------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,000,857 $3,442,747 - 0 - $5,443,604
Operating Income (Loss) 166,117 (218,522) ($411,922) (464,327)
Net Interest 63,387 98,955 23,958 186,300
Pre Tax Income (Loss) 102,730 (317,477) (435,880) (650,627)
Net Income (Loss) 102,730 (317,477) (435,880) (650,627)
Assets 480,640 3,628,545 9,278 4,118,463
Depreciation and amortization 46,129 321,868 - 0 - 367,997
Additions to long-lived assets 19,782 - 0 - 9,278 29,060
</TABLE>
<TABLE>
<CAPTION>
United
Geographic Area Information States Europe Asia Total
----------- ---------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
2000 Sales $4,522,945 $22,500 $62,500 $4,607,945
Long-lived Assets 2,608,735 - 0 - - 0 - $2,608,735
1999 Sales $5,367,805 $23,791 $52,008 $5,443,604
Long-lived Assets $2,985,315 - 0 - - 0 - $2,985,315
</TABLE>
17. Subsequent Event. In September 2000, the Company obtained an assignment of
all rights, title and interests in four medical devices and related
technology. The Company will seek to obtain patent protection for these
devices and obtain approvals necessary to develop, produce and market the
products. As consideration for the assignment of this technology, the
Company is required to provide 5.5 million shares of the Company's
unrestricted common stock to the assignor over a three-year period ending
September 2002.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There were no disagreements between the Company and their independent
accountants
F-12
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
POSITION WITH DATE ELECTED
NAME COMPANY DIRECTOR TERM OF OFFICE AGE
---------------- ----------------- ------------- --------- -----
Jeremy Feakins Director, Chief April 1999 3 years 46
Executive Officer
Dennis Surovcik Director April 1999 3 years 53
Mathew Director April 2000 3 years 68
Crimmins
Joseph Director, Chief April 2000 3 years 59
DelVecchio Operating Officer
BUSINESS EXPERIENCE OF DIRECTORS
Mr. Feakins was originally 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 Secretarial and
Accounting College, Chatham, Great Britain.
Mr. Surovcik was employed by the Company from January 1998 to January 2000 as
Senior Vice President, Chief Financial Officer and Secretary and has since been
employed as Senior Vice president of Net2 Speak.Com. Inc., an internet
telecommunication start-up company. He was a senior accountant for Price
Waterhouse in New York from 1968 to 1973. From 1974 to 1993 he was employed as
Audit Director and Group Controller for Dentsply International, Inc.
("Dentsply") a worldwide manufacturer and distributor of dental and medical
products (NASDAQ: XRAY). Mr. Surovcik, a CPA, was President and Owner of DBK
Distributors, Inc., from 1994 to 1997, 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.
Mr. Crimmins has been a director since April 1996. From 1965 to 1995, he was
with Polaroid Corporation where he held a number of executive positions with
responsibility in many functional areas including, commercial, technical, and
manufacturing operations. He was a Senior Director of Polaroid at retirement.
Mr. Crimmins received a B.S. (Physics) degree from Holy Cross, a M.S.
(Electrical Engineering) degree from Northeastern, and a M.B.A. from Boston
College.
Mr. Joseph Del Vecchio joined the Company in November 1998 as Senior Vice
President and General Manager of Steridyne Corporation. Mr. Del Vecchio was
previously employed by Sulzer Oscar, Inc. He started as a technical, sales and
marketing consultant in 1988, was appointed Vice President/General Manager in
August 1991 and President in April 1998. He 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 also under his direction. Mr. Del Vecchio's
organization achieved ISO-9000 certification for the facility in 1996. Mr. Del
Vecchio 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,
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<PAGE>
and persons who own more than ten percent of its Common Stock, to file reports
of ownership and changes of ownership with the Securities and Exchange
Commission (SEC). Officers, directors, and greater than ten-percent stockholders
are required by SEC regulation to furnish the Company with copies of all
ownership forms they file.
Based solely on its review of the copies of such form received by it, or based
upon representations that no Form 5 was required, Messrs. Feakins and Joseph Del
Vecchio did not timely file Forms 3,4, or 5 for the fiscal year ending June 30,
2000 as follows:
Name No. of Late Reports
Jeremy Feakins 1
Joseph Del Vecchio 1
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, 2000 and 1999.
<TABLE>
<CAPTION>
Name and All Other
Principal Fiscal Compensation
Position(1) Year Annual Compensation Long-Term Compensation
Other
Annual
Salary Bonus Comp. Awards Payouts
Restricted Stock Options/SARs LTIP
Award(s) Payouts
------------ ---- -------- ----- ------- --------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Feakins, 2000 $0 0 0 500,000 0 118,500
Chief
Executive 1999 $152,528 0 0 50,000 0 0
Officer
D. Surovcik, 2000 $0 0 0 0 0 51,250
Chief
Financial 1999 $125,519 0 0 0 0 0
Officer
J. Del 2000 $136,260 0 0 0 0 0
Vecchio
Chief 1999 $124,730 0 0 0 0 0
Operating
Officer
</TABLE>
--------
1. Each executive is furnished with an automobile for business and personal use.
The compensation specified in the preceding table does not include the value of
non-business use, as the amount is not material.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<S> <C> <C> <C> <C>
No. of Shares Common % of Total Options Exercise of Base Expiration
Stock Underlying Options Granted to Employees in Price ($/share) Date
Name Granted Fiscal Year
J. Feakins 500,000 41% $0.25 (1)(2)
R.Ballheim 400,000 33% $0.25 (3)
G. Hartman 320,000 26% $0.25 (3)
</TABLE>
25
<PAGE>
-------------
.
The expiration dates for 400,000 stock options granted is five (5) years from
the date the options were granted. . The expiration date for 100,000 stock
options granted is eighteen (18) months after the $235,000 demand credit line
has been repaid by the Company.
.
The expiration date for the options granted are five (5) years from the date the
options become exercisable.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JUNE 30, 2000
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<S> <C> <C> <C> <C> <C>
No. of Shares of Value of
No. of Shares Common Stock Unexercised in-the-
Acquired on Value Underlying Unexercised Exercisable money Options
Name Exercise Realized Options @ Fiscal Year /Un-exercisable Exercisable/Un-
End exercisable
J. Feakins 0 0 690,000 690,000/0 0
R. Ballheim 0 0 540,000 540,000/0 0
G. Hartman 0 0 400,000 400,000/0 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, 2000.
AMOUNT AND
NATURE OF
NAME POSITION BENEFICIAL PERCENT OF
OWNERSHIP OWNERSHIP
---------------- ---------------- ---------- ----------
Jeremy Feakins Director, Chief 6,644,271 19.5%
Executive Officer
Joseph Del Vecchio Director, Chief 795,210 2.3%
Operating Officer
Dennis Surovcik Director 0 0
Mathew Crimmins Director 0 0
All Executive Directors
and Officers as a Group 7,439,481 21.8%
Item 12. Certain Relationships and Related Transactions
During the fiscal year ended June 30, 1999 the Company borrowed $40,000 from an
affiliate of the Chief Executive Officer and a Director of the Company. On June
30, 1999, the amount was outstanding and included in the balance sheet as of the
same date. The amount was repaid in January 2000.
During fiscal 2000, the Company paid consulting fees to Mr. Feakins, the
Company's Chairman and Chief Executive Officer amounting to $118,500 and to Mr.
Surovcik, the Company's former Chief Financial Officer and Director amounting to
$51,250. Both individuals did not receive a salary from the Company during
fiscal 2000.
The Company paid consulting fees amounting to $20,000 during fiscal 2000 to an
affiliated company of the Chairman and Chief Executive Officer for accounting
and related financial services.
26
<PAGE>
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
were repaid in the Company's common stock in October of 1999.
During the quarter ending March 31, 2000, the Company borrowed over $1,000,000
from an affiliate of the Chief Executive Officer and Chairman of the Company to
support the working capital needs of the Company. This loan is secured by
substantially all of the assets of the Company and is guaranteed by the
Company's subsidiaries. At June 30, 2000, $1,090,999 was outstanding and
included in the balance sheet as of the same date. The interest rate for the
loan is a fixed rate of twelve percent (12%) per annum, however, interest may be
added to the loan principal at two times the interest payment due at the option
of the Company with the written consent of the lender. During the first eighteen
months of the loan the Company will pay only interest monthly. During the
remaining forty-two (42) months of the loan, the Company will pay principal,
amortized over twenty years, and interest monthly, commencing on the first day
of the nineteenth month and continuing on for forty-two months thereafter. The
balance of the loan is due in full at the end of sixty months. At any time, at
the option of the lender, the outstanding principal plus accrued and unpaid
interest and expenses due may be paid in an amount of common stock of the
Company at the rate of one share for every four cents owed to the lender (the
"Conversion Rate"). The Conversion Rate had been determined at the time of the
negotiations, based upon the previous sixty day average closing price per share
of the Company's common stock as quoted on the Over-The-Counter Bulletin Board.
The Conversion Rate will be adjusted for all stock splits subsequent to the loan
agreement. In the event the conversion occurs it would change the ownership of
the Company.
The Chief Executive Officer and a former Director of the Company personally
signed a guarantee with a local bank to provide a $250,000 line of credit to the
Company, which terminated in February of 2000. Both individuals were granted
options to acquire 50,000 shares of the Company's common stock at an exercise
price of $0.50 per share. The Chief Executive Officer pledged a $235,000
Certificate of Deposit to the local bank who provided the line of credit to the
Company. As a result, the bank released the former Director as guarantor of the
borrowing facility. The Company continues to make interest payments on the line
of credit. In consideration the Chief Executive Officer was granted options to
acquire 100,000 shares of the Company's common stock at an exercise price of
$0.25 per share.
As of January 1, 2000 the Company entered into an Agreement with a company
affiliated with the Chairman and Chief Executive Officer to provide litigation
management services with regards to the proceedings against LensCrafters et al.
This company is paying or advancing all attorney's fees and other litigation
costs and expenses incurred by the Company to pursue this litigation against
Lenscrafters et al. Assuming that the Company is successful in receiving a
judgment or award or settlement from this litigation, all litigation cost and
expenses paid will be reimbursed and 10% of the gross judgment, award or
settlement will be paid to the company affiliated with the Chairman and Chief
Executive Officer. No costs or expenses will be due in the event the litigation
is unsuccessful.
27
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a)
Exhibits:
<TABLE>
<S> <C>
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]
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
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.]
10.8 Purchase Agreement dated March 8, 1999 between Medical Technology &
Innovations, Inc., Steridyne Corporation and Florida Medical Industries,
Inc. [Incorporated by reference to the Company's Annual Report on Form
10-KSB (File No. 33-27610-A), filed December 17, 1999]
10.9 Loan Agreement dated January 21, 2000 between the Company and International
Investment Partners, Ltd.
10.10 Consulting Agreement between the Company and International Investment
Partners, Ltd., effective January 1, 2000.
10.11 * Letter of substitution MTEN Loan dated June 6, 2000
10.12 * Lenscrafters Litigation Management Consulting Agreement dated January 1,
2000
10.13 Loan Agreement between Medical Technology, Inc. and International Investment
Partners, Ltd dated January 21, 2000
10.14 * Medical Technology, Inc. Note dated January 21, 2000
10.15 * PatentCollateral Assignment and Security Agreement between the Company and
International Investment Partners, Ltd., effective January 21, 2000.
10.16 * General Security Agreement between the Company and International Investment
Partners, Ltd., effective January 21, 2000.
10.17 * Guaranty and Surety Agreement between Steridyne and International Investment
Partners, Ltd., effective January 21, 2000.
10.18 * Guaranty and Surety Agreement between the Company and International
Investment Partners, Ltd., effective January 21, 2000.
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 27 of this Form 10-KSB.
27.1 * Financial data schedules.*
</TABLE>
*(filed herewith, all other exhibits previously filed)
(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.
29
<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/ ALBERT G. DUGAN
-------------------------------- ----------------------------
Jeremy P. Feakins, Chief Executive Officer Albert G. Dugan, Chief Accountant
Date: September 25, 2000
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
-----------------------------
Jeremy P. Feakins, Chief Executive Officer,
Chairman, and Director
/s/ JOSEPH DEL VECCHIO
-----------------------------
Joseph Del Vecchio, Chief Operating Officer
/s/ MATHEW CRIMMINS
-----------------------------
Matthew Crimmins, Director
/s/ DENNIS A. SUROVCIK
-----------------------------
Dennis A. Surovcik, Director
Date: September 25, 2000
30
