10QSB 1 surg-10q_03312001.txt QUARTERLY REPORT U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: March 31, 2001 Commission file no. 0-24921 Surgical Safety Products, Inc. -------------------------------------------- (Name of small business issuer in its charter) New York 65-0565144 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2018 Oak Terrace Sarasota, Florida 34231 --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (941) 927-7874 Securities registered under Section 12(b) of the Exchange Act: Name of each exchange on Title of each class which registered None ----------------------------- ------------------------- Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value ----------------------------------- (Title of class) Copies of Communications Sent to: Mercedes Travis, Esq. Mintmire & Associates 265 Sunrise Avenue, Suite 204 Palm Beach, FL 33480 Tel: (561) 832-5696; Fax: (561) 659-5371 Indicate by Check whether the issuer (1) 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 March 31, 2001, there are 14,163,346 shares of voting stock of the registrant issued and outstanding, all of which have voting rights.. PART I Item 1. Financial Statements Condensed Consolidated Balance Sheets F-1 Condensed Consolidated Statements of Operations F-2 Condensed Consolidated Statements of Cash Flows F-3 Notes to the Financial Statements F-5
SURGICAL SAFETY PRODUCTS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2001 2000 ---------------- ------------------- Assets Current Assets Cash and cash equivalents $ - $ 52,247 Trade receivables 25,243 8,022 Employee advances 1,500 1,500 Certificates of deposit - 50,000 Prepaid expenses 9,039 26,409 Assets held for sale 29,372 27,600 ---------------- ------------------- Total current assets 65,154 165,778 Property and equipment, net - 71,973 ---------------- ------------------- Other Assets Deferred loan costs, net - - Intangible assets, net 43,384 44,278 Software development costs, net 25,240 26,629 Investments 9,750 9,750 Deposits 33,395 4,645 ---------------- ------------------- Total other assets 111,769 85,302 ---------------- ------------------- Total Assets $ 176,923 $ 323,053 ================ ===================
March 31, December 31, 2001 2000 --------------- ------------------- Liabilities and Stockholders' Equity Current Liabilities Bank overdraft $ 5,210 $ - Line of credit 45,945 100,000 Accounts payable 127,986 90,666 Accrued payroll 103,126 94,251 Accrued legal 264,015 264,015 Deferred revenue 104,239 177,875 Accrued interest - related parties 3,506 2,629 Notes payable - bridge loan 81,000 - Notes payable - related parties 35,063 35,063 --------------- ------------------- Total current liabilities 770,090 764,499 Long-Term Liabilities Note payable 607,451 842,795 --------------- ------------------- Total Liabilities 1,377,541 1,607,294 --------------- ------------------- Stockholders' Equity(Deficit) Common stock, $.001 par value, 20,000,000 shares authorized; 14,163,346 and 14,865,373 shares issued and outstanding in 2001 and 2000 respectively 14,163 14,866 Common stock held in escrow - (1,365) Additional paid-in capital 4,089,306 3,841,398 Accumulated deficit (5,304,087) (5,139,140) --------------- ------------------- Total stockholders' equity (deficit) (1,200,618) (1,284,241) --------------- ------------------- Total Liabilities and Stockholders' Equity $ 176,923 $ 323,053 =============== ===================
The accompanying notes are an integral part of these financial statements. F-1
SURGICAL SAFETY PRODUCTS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 2001 2000 ---------------- ----------------- Revenue $ 111,359 $ 135,656 Costs and expenses Cost of medical products sold 14,532 108 Operating expenses 177,296 376,633 Research and development expenses - 14,345 Interest expense 14,102 181,421 Loss on disposal/impairment of assets 70,376 - ---------------- ----------------- Total costs 276,306 572,507 ---------------- ----------------- Net loss before income taxes (164,947) (436,851) Provision for income taxes - - ---------------- ----------------- Net loss $ (164,947) $ (436,851) ================ ================= Net loss per share $ (0.012) $ (0.038) ================ =================
The accompanying notes are an integral part of these financial statements. F-2
SURGICAL SAFETY PRODUCTS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 2001 2000 ---------------- ---------------- Cash Flows From Operating Activities Net loss $ (164,947) $ (436,851) ---------------- ---------------- Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization 1,991 43,357 Common stock issued for services - 24,280 Accrued interest added to notes payable 14,286 Interest expense - issuance of convertible debt - 167,140 Loss on disposal/impairment of assets 70,376 Decrease (increase) in operating assets Receivables (17,221) (129,468) Prepaid expenses and deposits (11,380) 10,980 Increase (decrease) in operating liabilities Accounts payable and accrued expenses 47,074 (190,751) Deferred revenue (73,636) ---------------- ---------------- Total adjustments 31,490 (74,462) ---------------- ---------------- Net cash used in operating activities (133,457) (511,313) ---------------- ---------------- Cash Flows From Investing Activities Proceeds from bridge loan 81,000 - Software development additions - (15,618) Furniture and equipment purchased - (3,056) ---------------- ---------------- Net cash provided by (used in) investing activities 81,000 (18,674) ---------------- ---------------- Cash Flows From Financing Activities Payments on line of credit, net (5,000) - Financing and loan costs - (70,000) Proceeds from long-term debt - 650,000 ---------------- ---------------- Net cash provided by (used in) financing activities (5,000) 580,000 ---------------- ---------------- Net increase (decrease) in cash (57,457) 50,013 Cash and cash equivalents at beginning of year 52,247 516,799 ---------------- ---------------- Cash and cash equivalents at end of year $ (5,210) $ 566,812 ================ ================
2001 2000 -------------- --------------- Supplemental Cash Flow Information: Cash paid for interest $ - $ - ============== ===============
For purposes of the statement of cash flows, management considers all deposits and financial instruments with original maturities of less than three months to be cash and cash equivalents. Material non-cash transactions not reflected in the statement of cash flows include: Three Months Ended March 31, 2001 - Certificate of deposits pledged against the line of credit were used to pay down the line of credit in the amount of $50,000. - Common stock and additional paid in capital of $248,570 issued for the conversion of notes payable. - Equipment with a value of $1,772 transferred to assets held for sale. Three Months Ended March 31, 2000 - Common stock issued for $52,273 of prepaid investment services. - Deferred financing costs of $231,385 related to the issuance of warrants in conjunction with issuance of notes payable. The accompanying notes are an integral part of these financial statements. F-3 Note 1 - Accounting Policies Basis of Presentation The condensed financial statements of Surgical Safety Products, Inc. and Subsidiary (Company) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange omission. Certain information and footnote disclosures normally included in financial statements prepared in accordance wit generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunctions with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. The results of operations for the three month period ended March 31, 2001 are not necessarily indicative of the results to be expected for any other period or for the full year. In the opinion of Company's management, the accompanying unaudited financial statements contain all adjustments, consisting of only normally recurring adjustments, necessary to present fairly the financial positions of March 31, 2001, the results of operations and cash flows for the three months ended March 31, 2001 and March 31, 2000. Reclassifications Certain reclassifications have been made in the prior year's financial statements to conform to the current period presentation. Net Loss Per Share Net loss per share has been computed in accordance with Statement of Financial Accounting Standards (FASB) No. 128, "Earnings Per Share," by dividing net loss by the weighted average number of shares outstanding during the period. Common stock equivalents have not been included in the computation of weighted average number of shares outstanding since the effect would have been anti-dilutive. Note 2 - Assets Held for Sale During the first quarter of fiscal 2001, the Company transferred computer equipment with a fair market value of $1,772 from Property and Equipment to Assets Held for Sale. This transfer was completed after management's examination of all assets and their book values. Note 3 - Impairments During the first quarter of fiscal 2001, the Company's management examined the book value all of the assets held by the Company. As a result of the examination, all property and equipment not held for sale was written off. Accordingly, the Company recorded and impairment loss of $70,376 as of March 31, 2001. F-4 Note 4 - Long Term Debt On February 7, 2001, the investment banking firm which held the outstanding notes payable as of December 31, 2000, converted $230,000 of principal and $18,570 of accrued interest to 662,854 shares of the Company's common stock at a conversion price of $0.375 per share. This reduced long-term debt by $248,570. Note 5 - Subsequent Event On February 7, 2001 the Company executed a loan cancellation and settlement agreement effectively ending the line-of-credit agreement with the investment banking firm which held the notes payable as of December 31, 2001. Pursuant to the agreement, on April 3, 2001the lender converted an additional $243,665 of principal and $19,601 of accrued interest to 702,043 shares of the Company's common stock at a conversion price of $0.375. As of the March 31, 2001 the principal balance of the amount owed to the lender was $560,000, plus accrued interest of $247,451. Until fully converted, the remaining balance will accrue interest at 8%. In accordance with the agreement the lender has turned over all escrowed shares and has committed to convert the remaining principal and accrued interest as soon as possible. F-5 Item 2. Management's Discussion and Analysis of Results of Operations. General The Company's (OTC BB: SURG) overall mission is the research, development, production and distribution of innovative products and services for healthcare. Consisting of both traditional products and innovative business-to-business e-solutions, the common goal is a safer and more efficient environment for healthcare workers, manufacturers and patients. Originally formed as a medical device company, Surgical shifted focus to being an e-company when the Company's management recognized an untapped market niche: responding to the critical need for immediate communication and access to information in healthcare. Now, the Company operates two divisions providing products and services to the medical industry. The Information Systems Division, formerly referred to as Oasis@work, through its Oasis Information Exchange product line provides business-to-business on-demand safety and efficiency driven e-business and information for healthcare workers. The Medical Products and Services Division develops, manufactures and distributes medical devices. About Oasis Information Exchange The Oasis Information Exchange ("OIX") strategy is healthcare e-business content aggregation and applications integration through a virtual private network. It links the entire healthcare continuum, which includes healthcare workers, administration, patients, and healthcare and pharmaceutical manufacturers. Oasis Information Exchange is a true healthcare data center with multiple access points. It is an Internet-based virtual private network consisting of points-of-access via intranets, the Internet, internet appliances, and through TouchPorts located throughout healthcare facilities across the country. Although the Company is now focusing on providing its services through the Internet, TouchPorts remain available as an alternative and are user-friendly touch-access internet appliances which allow healthcare professionals access to high quality clinical reference and agency mandated information services. OIX consists of three lines of e-business. The primary product produced by OIX is a service that creates customized training applications for virtually any topic. These web browser-based educational modules are designed to provide the end-user with succinct, current information on any topic within practically any industry. As a second line of business, OIX builds on-line communities in specific target markets positioned as information exchanges. The third line of business, a natural by-product of the first two, is Internet application development and support services During the third quarter of 2000, the Company realized that they were focusing too much attention to the installation of hardware rather than focusing its attention on its real product - information. In July 2000, the Company signed an agreement with the Association of periOperative Registered Nurses ("AORN"), one of the largest nursing organizations in the United States, to license their content - AORN Journal Online, OR Product Directory, Standards Recommended Practices and Guidelines (SRPG) and other content. See "Corporate Developments". AORN has 43,000 members and other mailing lists comprising of an additional 100,000 people. As part of this initiative, the Company was to produce a CD-ROM for mailing in January 2001. This CD featured OASiS. The CD was mailed in the AORN Journal for members. Due to the increase and availability of PC's and Internet accessibility in the heathcare environment, the Company realizes that, while in some cases its OASiS network is needed in a particular environment, by an large, its larger market is for its content. Essentially the Company is changing from a hardware network supplier to an information broker which will create an information exchange network for a defined healthcare community that links the end-users to the industry while adding value to both parties. This is essentially what the Company was doing all along; however, it had focused on the delivery system for its product rather than the product itself. Under the AORN arrangement, the Company's product will be delivered through the Internet via its website or information exchange which will be called OasisOR.com. The data center will have the same type of content from device manufacturers, clinical associations and other relevant resources; however it will be for OR employees only, with the information relevant to them. Although AORN has ended the original agreement, negotiations are on-going to re-establish a joint working relationship. The Company has created a digital version of the AORN's Operating Room Product Directory and continues to host content on behalf of AORN. Although the Company pays AORN licensing fees, the Company expects to generate revenue from sponsorships of the CD and from user fees and advertising on its website. The Company negotiated its first sponsorship agreement with US Surgical in lieu of the previous agreement which required massive expenditures for hardware installations. A number of additional corporate content providers also have been added as clients, including Stryker, Storz, Haemacure and others. The Company plans to scale the concept for other niche markets by creating websites that cater to a particular speciality. The Company will focus on providing website and intranet development. SutureMate(R) SutureMate(R), a patented, disposable, surgical assist device, was initially introduced in 1993. Its unique design facilitates the highly recommended one-handed suturing technique which is advocated by occupational safety experts. When one-handed suturing is not used, extra steps are required by the surgeon or the assistant in cutting the needle free of the suture thread and extra time and hand movements are required of the surgeon in manually adjusting needles while using a needle holder in most suturing processes. SutureMate(R) allows the surgeon to use a safer, more efficient method of surgical stitching. The product has features which include a foam needle-cushion, and a suture cutting slot. SutureMate(R) was re-designed in late 1998 and has been re-released since demand has increased due to statutory changes relating to needlestick injuries. Legislation has been adopted at both the federal and state level. An overview of state needle safety legislation can be viewed at www.cdc.gov/niosh/ndl-law.html. This legislation essentially requires state agencies with employees at rist to implement needleless systems and sharps with engineered sharps injury protection in order to prevent the spread of bloodborn pathogens in the workplace. The product was re-engineered and updated after feedback from over 4,000 surgeons and surgical technologists who used or reviewed the product since its inception. As a result of the re- design, the Company believes that there are new clinical advantages and that the product can be produced at a significantly lower manufacturing cost. These beliefs are based on the fact that the re-design includes a tent-like configuration with a hidden cutting device contained between the adhesive base and the holding device. This allows the surgeon to separate the needle from the suture without a scrub nurse intervening with a scissor. The cost reduction will result from the fact that the original version cost approximately $6.00 per unit while the new version costs approximately $1.10 per unit including packaging and sterilization, allowing it to be marketed in the $5 to $6 range which is more in keeping with pricing for a disposable product. Due to its proven history, SutureMate(R) is a "proven" product that complies with current legislation. On Feb 13, 2001, the Company announced an agreement with DeRoyal Industries, Inc. ("DeRoyal")to distribute SutureMate(R) worldwide. DeRoyal is the largest privately held healthcare supplier of safety devices with over 250 sales representatives worldwide. Formed in 1973, DeRoyal is a international, vertically-integrated supplier of institutional and consumer healthcare products and services, with 27 subsidiaries and affiliates in seven states (California, Florida, Georgia, Oklahoma, South Carolina, Tennessee, and Virginia) and ten countries (Canada, Costa Rica, England, Estonia, Germany, Ireland, Italy, the Netherlands, Sweden and the United States). DeRoyal's four business units, Acute Care, Patient Care, Wound Care and OEM (original equipment manufacturer) produce more than 25,000 products, including: rehabilitation and therapy products, sports medicine supports, orthopedic bracing and supports, fiberglass and plaster casting; wound care dressings; unitized surgical delivery systems, including TracePak and custom procedural trays; surgical accessories; neonatal, labor and delivery products; angiographic, endoscopic, anesthesia and temperature monitoring products; as well as manufacturing services in plastics, textiles, electrical manufacturing, converting and sterilization. DeRoyal introduced the re-designated SutureMate(R) at AORN in March, placed an order for 8,000 units for which the Company was paid when it made delivery in May 2001. Currently, the re-designed SutureMate(R) is manufactured by the Hansen Plastic Division of Tuthill Corporation at their plant located in Clearwater, Florida ("Tuthill"). The Company is in the process of negotiating additional manufacturing sources and original equipment manufacturer sales. Corporate Developments The Company entered into an agreement with IBM Global Services effective January 3, 2000 which included an IBM Customer Agreement and a Statement of Work (the "IBM Global Agreement"). Under the terms of the IBM Global Agreement IBM agreed to provide complete implementation and support service solutions for 1,200 OASiS terminals in an estimated 400 end user locations during the 12 month period commencing December 1, 1999. On February 3, 2000, IBM Global Services and the Company finalized the Statement of Work. The services to be provided under the agreement included project planning, site surveys, product acquisition, network design, web-site hosting services, premises wiring, OASiS TouchPort Implementation, help desk support and consulting services. The estimated cost for erforming the work was approximately $10 million. In addition, IBM Global Services agreed to bill the Company a monthly service charge for pre and post installation support services, including 24-7 support, and for labor, travel and out of pocket expenses. The Company was to provide technical resources and oversee the IBM Global's activities. Due to the new Internet focus, the Company has chosen to pursue for the delivery of its product, there is no longer any need for the services to be provided by IBM. Effective July 14, 2000, this contract was terminated. In March 2001, IBM brought suit against the Company. See Part II, Item 1. "Legal Proceedings." Effective June 7, 2000, the Company's line of credit with SouthTrust in the amount of $100,000 was renewed through August 12, 2000, with an option to extend the maturity until October 15, 2000 if the Company pledged a certificate of deposit in the amount of $25,000. The interest rate is prime plus 1.5% and the line is secured by the Company's equipment, receivables and inventory. The line is guaranteed personally by Dr. Swor. The line of credit was renewed on October 15, 2000 and the maturity date is December 31, 2000. The outstanding balance at such time was $100,000. The Company pledged an additional $25,000 certificate of deposit to secure the line. As of December 31, 2000, the outstanding balance was $100,000. In January 2001, the Company paid down the line of credit with the two (2) pledged certificates of deposit. As of this date a balance of $50,945 remains outstanding and the Company is in default on the terms of the agreement. Effective July 1, 2000, the Company entered into an agreement with AORN under which AORN will provide certain of its proprietary content on a non-exclusive license basis to the Company. Under the agreement, AORN will deliver to the Company certain of its content for which it grants the Company a non-exclusive license to market and promote. The Company receives a substantial credit toward advertising in the AORN Journal and other AORN publications. The Company is required to provide the software and hardware to promote and market the AORN content. The Company is required to pay AORN $117,000 as the license fee and contact hours fee for the first year of the agreement. The Company is required to pay one-half of the license fee by December 15, 2000. To date, the Company has made payments related to the license fee in the amount of $25,0000. AORN will reimburse the Company for certain conversion costs and to pay the cost of web enabling Home Study Courses sponsored by AORN. The agreement is for a term of three (3) years and it may be terminated by either party on 180 day notice. If terminated without cause, the Company is entitled to a refund of any unused license and user fees. AORN retains ownership of its intellectual property while the Company retains the ownership of its OASiS intellectual property. As of December 31, 2000, the Company still owes AORN $33,000 related to the first payment of $58,500 that was paid as of December 15, 2000. In January 2001, AORN gave the Company notice of termination. The agreement requires 180 days notice and provides for refund, but the Company continues to negotiate with AORN on this and further business such as on- line products directories. In December 1999, the Company executed a Loan Agreement with Thomson Kernaghan & Co., Ltd. ("TK"), as Agent and Lender, whereby TK agreed to make loans to the Company of up to $5,000,000 in installments for a period commencing with the date of the agreement and ending on November 30, 2002 (the "TK Loan Commitment"). The Company may request additional draws of no less than $500,000 provided its Common Stock has traded for a minimum of $1.00 for 20 consecutive days and the stock has had an average trading volume of 25,000 shares for the same period. Due to the Company's current share price, it does not qualify for additional draws at this time. Under the terms of the TK Loan Commitment, each installment is supported by a convertible note and security agreement and the Agent and Lender are granted warrants to purchase shares of the Company's Common Stock. Further, 2,700,000 shares are held by TK in escrow for the potential conversion under the notes or exercise of the warrants. Under the terms of the TK Loan Agreement, an initial loan of $650,000 was made on December 30, 1999. On March 31, 2000 the Company received a second installment under the TK Commitment in the amount of $650,000. On April 28, 2000, TK elected to convert $100,000 of outstanding principal and $2,630 of the accrued interest into shares of Common Stock at a price of $0.5625 per share which represents 182,453 shares. On June 9, 2000, TK elected to convert $120,000 of outstanding principal and $4,129 of the accrued interest into shares of Common Stock at a price of $0.375 per share which represents 331,010 shares. On July 11, 2000, TK elected to convert $40,000 of outstanding principal and $1,683.13 of the accrued interest into shares of Common Stock at a price of $0.375 per share which represents 111,155 shares. On October 24, 2000, TK elected to convert $250,000 of outstanding principal and $16,219 of the accrued interest into shares of Common Stock at a price of $0.375 per share which represents 709,918 shares. The Company granted TK registration rights and was obligated to file a Form S-3 within sixty (60) days of the agreement. The Company filed a registration statement on Form S-3 on March 2, 2000 covering initially 20,038,097 shares of its Common Stock. The issuance of the securities was made pursuant to Regulation S of the Act. The Form S-3 registration statement was declared effective on April 11, 2000. Since the Company did not meet financial projections which were an integral part of the transaction, TK and the Company re-negotiated the arrangement which terminated the Loan Commitment and settled all matters between the parties. Pursuant to a loan cancellation and settlement agreement effective February 7, 2001 (the "Cancellation Agreement"), TK agreed to convert the balance of the December 1999 debt in the amount of $140,000 plus accrued and unpaid interest in the amount of $12,395 and to convert $90,000 on the installment given on March 31, 2000 under the Loan Commitment plus accrued and unpaid interest of $6,175 into a total of 662,854 shares of the Common Stock registered by the Form S-3 registration, thereby leaving an outstanding principal balance dating to March 31, 2000 of $560,000 plus accrued and unpaid interest (the "March Balance"). Interest on the March Balance shall continue to accrue at the rate of eight percent (8%) per annum; however, all future interest payments, at the option of the Company, may be made in cash or by delivery of registered shares at a conversion price equal per share equal to the amount of accrued and unpaid interest as of the conversion or repayment date divided by the five (5) day average closing bid price prior to the conversion or repayment date. Further, TK committed, subject to not exceeding ownership of 4.99%, to convert as soon as possible the March Balance. The Company may continue to repay all or any part of the March Balance in cash. TK agreed to return all shares held in escrow and agreed to a triangular merger contemplated by the Company. Provided such merger occurred before May 15, 2001, TK agreed not to sell, directly or indirectly, more than twenty-five percent (25%) of the Company's volume in any trading day. Such anticipated merger, to be discuss below, did not occur before May 15, 2001. In consideration of the Cancellation Agreement and the accelerated conversion into the Company's shares, the Company agreed to issue 682,108 shares of its restricted Common Stock in relation to the balance of the December 1999 debt which was converted and 3,109,487 shares of its restricted Common Stock in relation to the March 31, 2000 installment as bonus shares (the "Bonus Shares") Additionally, the Company granted, for a period of two years, both the Lender and the Agent each warrants to purchase 380,000 shares of the Company's restricted Common Stock at $0.1846 per share (the "Bonus Warrants"). Until fully converted, TK was given the option to place an independent third party on the Company's Board of Directors. Of the 20,038,097 shares registered on Form S-3, only those shares issued pursuant to the earlier conversions and pursuant to the agreement and original Lender and Agent Warrants would be registered with the balance deemed null and void. Accordingly, the registration of 13,255,946 potentially issuable registered shares would be null and void and such shares would not be issued . Following execution of the Cancellation Agreement, TK converted an additional $243,665 of principal on the March Balance and accrued and unpaid interest in the amount of $19,601 into a total of 702,043 shares. The certificate for shares held in escrow was cancelled and there are no longer any escrowed shares in relation to the arrangements between the parties. As of the date hereof, the principal indebtedness to TK is in the amount of $316,335 plus accrued and unpaid interest from March 31, 2000. Until fully converted, the TK Loan Commitment, as interest accrues, will increase the long term debt of the Company. The Company is currently seeking other potential funding. With the TK Loan Commitment and in the event additional debt is raised, the Company will incur future interest expense. The TK Loan Commitment, if fully converted and all warrants are exercised, will dilute the interest of existing shareholders and in the event additional equity is raised, management may be required to dilute the interest of existing shareholders further or forego a substantial interest in revenues, if any. In the event that the Company is successful in securing additional debt financing, the amount of such financing, depending upon its terms, would increase either the short or long term debt of the Company or both. In December 2000, the Company formed a Florida corporation, OIX Inc. as a wholly owned subsidiary. The Officers and Directors of Surgical serve in similar capacities with OIX Inc. In February 2001, the Company executed a Term Sheet with Emagisoft whereby Emagisoft will merge into OIX, Inc. The shareholders of Emagisoft will exchange their shares for share in Surgical on a 1 for 1 basis. In addition, Emagisoft's Preferred Shares will exchange their preferred shares in Surgical's Preferred Shares on a 1 for 1 basis. The reverse triangular merger was expected to be completed some time in May 2001; however, due to a shortage of funds on the part of both Emagisoft and Surgical the merger has not been completed as of this date. Surgical and Emagisoft decided to proceed with merger plans because there are certain synergies that will result from the merged companies. Currently, Surgical outsources a great deal of its CD production and computer design. Emagisoft provides such services. Further, both companies are within the same geographic region and share many of the same suppliers. Lastly, Emagisoft has existing management that can provide the stability in management Surgical has been seeking over the last few years. As a result of these features, management for these two companies believed that collectively they could achieve the goals of each of the companies at a faster rate. Emagisoft provides hosting and Web-based design solutions for clients in a variety of fields, from electronics manufacturing to healthcare services. Their software and technology offer the high levels of availability, scalability, and security required to ensure the success of corporate online presence. They are dedicated to exceeding client expectations with exceptional Web-based tools and e-commerce services. It is expected that the combination of OIX and Emagisoft will create exceptional synergies for developing and distributing web-based products and services in a variety of healthcare markets. At the time the merger is completed, Surgical will file on Form 8K a combined business plan. Between the date of the execution of the term sheet and the date hereof, Emagisoft arranged for loans totally approximately $81,000 to be made to the Company. It is anticipated that these loans will be converted into equity at the time of the merger. On March 16, 2001, the Company entered a staff leasing agreement with Selective HR Solutions ("Selective HR") as a replacement for comparable services previously provided by EPIX. Like the EPIX arrangement, the Selective HR arrangement creates a co-employment relationship between Selective HR and the Company relative to the employees who work at the Company Discussion and Analysis The Company was founded in 1992 to combat the potential spread of bloodborne pathogenic infections such as HIV and hepatitis. It has broadened its mission to research, develop, manufacturing, marketing and selling medical products and services to the healthcare community. The Company was in the development stage until 1993 when it began commercial shipments of SutureMate(R), its first product. From inception in June, 1992 through December 31, 2000, the Company generated revenues of approximately $1,876,000 from a limited number of customers. Since inception through December 31, 2000, the Company has generated cumulative losses of approximately $5,140,000. Although the Company has experienced a significant percentage growth in revenues from fiscal 1992 to fiscal 2000, the Company does not believe prior growth rates are indicative of future operating results, especially in light of the contract with AORN and its new Internet-based site, OASiSOR.com, and the revised contract with US Surgical. Due to the Company's operating history and limited resources, among other factors, there can be no assurance that profitability or significant revenues on a quarterly or annual basis will occur in the future. Moreover, the Company expects to continue to incur operating losses through at least through fiscal 2001, and there can be no assurance that losses will not continue after such date. As discussed in the independent auditors' report, the operating losses incurred by the Company raise doubt about its ability to continue as a going concern. In addition, with the implementation of its agreement with AORN, and its new arrangement with US Surgical and/or with the establishment of one or more strategic alliances in addition to AORN and US Surgical, the Company expects to experience a period of growth, which requires it to significantly increase the scale of its operations. This will result in significantly higher operating expenses. The increase in operating expenses is expected to be partially funded by an increase in revenues. However, the Company's net loss may continue to increase. Expansion of the Company's operations may cause a significant strain on the Company's management, financial and other resources. The Company's ability to manage recent and any possible future growth, should it occur, will depend upon a significant expansion of its sales and marketing, research and development, accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls. There can be no assurance that significant problems in these areas will not occur. Any failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with the Company's business could have a material adverse effect on the Company's business, financial condition and results of operations. As a result of such expected expansion and the anticipated increase in its operating expenses, as well as the difficulty in forecasting revenue levels, the Company expects to continue to experience significant fluctuations in its revenues, costs and gross margins, and therefore its results of operations. The Company's plan of operations for the next twelve months is to focus on building revenue from production of its web-enabled training applications called Trainlets that it is currently marketing to healthcare companies. In addition, it anticipates additional revenues from the development of its website and registered user base. The Company also is aggressively seeking strategic alliances with targeted industry partners such as manufacturers of devices, manufacturers of pharmaceuticals, professional organizations such as nursing associations and hospital group purchasing organizations and integrated health networks along the lines created with the AORN contract. In this regard, the Company executed a term sheet with Emagisoft Technologies Inc. under which Emagisoft will merge into the Company's wholly owned subsidiary OIX, Inc. Surgical and Emagisoft decided to proceed with merger plans because there are certain synergies that are expected to result from the merged companies. Currently, Surgical outsources a great deal of its CD production and computer design. Emagisoft provides such services. Further, both companies are within the same geographic region and share many of the same suppliers. Lastly, Emagisoft has existing management that can provide the stability in management Surgical has been seeking over the last few years. As a result of these features, management for these two companies believed that collectively they could achieve the goals of each of the companies at a faster rate and that the combined companies will be more attractive to outside financial sources.. The Company estimates that revenues will be sufficient to fund ongoing operations at the current level when the website is functional and its registered users base reach levels of 50,000 or more. The Company is also aggressively marketing its web-enabled Trainlets to healthcare companies for which it has already received contracts totaling approximately $323,000. In the short term, to fund operations through fiscal 2001, the Company will seek additional funds from strategic alliances with potential clients, its shareholders, from additional third party financing or seek third party debt or equity financing other than those planned by the current anticipated agreements. As of December 31, 2000, the Company has utilized its entire existing lines of credit. As of December 31, 2000, the Company had a staff of six (6) employees. The Company was able to meet its capital needs through year end. As discussed in Note 21 to the Financial Statements for the period ended December 31,2000, if the financing referred to above is not secured, the recoverability of the recorded asset amounts may be impaired. In 2001, the Company will require between $5 and $8 million in additional capital in the form of debt or equity to fund the continued expansion of the Oasis system and its development to meet increased demand and to implement its plans for increased marketing of its medical device products. These funding requirements are based upon the new initiative which is less hardware intensive and requires less maintenance. The Company is in the process of seeking funding from a number of different sources; however, it has accepted no definite offer at this time. There can be no assurance that such long-term financing will be available to the Company or that it will be on terms that the Company may seek. Results of Operations for the Three Months Ended March 31, 2001 and 2000 Overview From its inception, the Company has incurred losses from operations. As of March 31, 2001, the Company had cumulative net losses totaling approximately $5,304,087. During fiscal 2000, management shifted its focus to aggressively marketing its proprietary products, especially those associated with Oasis Information Exchange. Financial Position As of March 31, 2001, the Company had a deficit of working capital of $704,936, as compared to a deficit of working capital of $598,721 at December 31, 2000. This increase in deficit is primarily due to management examining the book value of assets and recording an impairment loss, combined with greater accounts payable balances and cash deficit. Revenues For the three months ended March 31, 2001 and 2000, the Company had total revenues of $111,359 and $135,656, respectively. Revenues for the three months ended March 31, 2001 consist of sales of SutureMate (TM) and recognition of prior deferred revenues. For the three months ended March 31, 2000, revenues were derived from payments received for Oasis unit rentals and inservice modules. Selling, General, and Administrative Expenses For the three months ended March 31, 2001, operating expenses decreased by $199,337 or 52% from $376,633 for the three months ended March 31, 2000. This decrease is primarily related to a down sizing of the Company in anticipation of the merger with Emagisoft. In the past, the Company has focused on the design and development of proprietary products. For fiscal 2000, the Company launched an aggressive marketing plan that is designed to increase worldwide sales of its products. Surgical believes that the increased operating expenses incurred during the three months ended March 31, 2001 will position the Company to generate increased revenue in the 2001 fiscal year. Liquidity and Capital Resources The financial condition, liquidity and capital resources of the Company should be assessed in context with the ability of the Company to continue as a going concern as discussed in the independent auditors' report. The Company's operations have been funded primarily from bridge loans arranged through Emagisoft of approximately $81,000. This allowed the Company to fund its downsized operations. The company has a line of credit with SouthTrust in the amount of $100,000 that was renewed through August 12, 2000, with an option to extend the maturity until October 15, 2000 if the Company pledged a certificate of deposit in the amount of $25,000. The interest rate is prime plus 1.5% and the line is secured by the Company's equipment, receivables and inventory. The line is guaranteed personally by Dr. Swor. The line of credit was renewed on October 15, 2000 and the maturity date is December 31, 2000. The outstanding balance at such time was $100,000. The Company pledged an additional $25,000 certificate of deposit to secure the line. As of December 31, 2000, the outstanding balance was $100,000. In January 2001, the Company paid down the line of credit with the two (2) pledged certificates of deposit. As of this date a balance of $45,945 remains outstanding and the Company is in default on the terms of the agreement. Net cash used for investing for the three months ended March 31, 2001 was approximately $81,000, representing primarily the bridge financing arranged by Emagisoft. In the short term, to fund operations through the balance of fiscal 2001, the Company will seek additional funds from strategic alliances with potential clients, its shareholders, from additional third party financing or seek third party debt or equity financing other than those planned by the current agreements. Additionally, the Company anticipates that revenues will continue to be generated from the sale of SutureMate(R) and that such revenues will help to fund operations. Provided that additional funding is secured, the Company believes that it can meet its capital needs through year end. There can be no assurance that the Company will be successful in these efforts. Forward-Looking Statements This Form 10-QSB includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-QSB which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), demand for the Company's products and services, expansion and growth of the Company's business and operations, and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, general economic market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this Form 10-QSB are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. PART II Item 1. Legal Proceedings. On March 13, 2001, the Company was served with a Summons and Complaint by IBM in an action entitled International Business Machines v. Surgical Safety Products Inc. (The "Action"). The Action was brought in the Circuit Court in Sarasota Florida. In the Action, IBM has brought four (4) causes of action, namely, breach of contract, implied contract, account stated and unjust enrichment. Each cause of action relates to the contract between Surgical and IBM relative to the delivery of services and equipment. Surgical had entered into the arrangement with IBM to meet its commitments to US Surgical. When US Surgical failed to perform as expected, Surgical sought termination of the arrangement with IBM. Effective July 14, 2000, this contract was terminated. Surgical has been working with IBM in an effort to settle this matter. Counsel for Surgical is reviewing the Complaint and determining the defenses Surgical will interpose. In addition consideration is being given to whether or not it should bring a third party action against US Surgical. IBM is seeking payment of in excess of $600,000 for invoices principally related to software and labor associated with implementing the US Surgical Agreement. Should IBM prevail in this Action, it would have a material adverse effect upon Surgical's financial condition. The Company brought a motion to dismiss three of the causes of action that was denied and now is required to file a defense by June 5, 2001.The Company intends to file a defense. The Company believes it has an absolute defense to the breach of contract claim since the agreement provided that the Company could terminate and provided the payments required for such termination. Further the agreement required that the Company approve all work prior to performance and the work for which it was invoiced was not approved. The implied contract and unjust enrichment claims can only go forward if the there is no valid contract since they are alternative pleadings. The Company believes that it has just and meritorious defenses to this action. The Company knows of no other legal proceedings to which it is a party or to which any of its property is the subject, which are pending, threatened or contemplated or any unsatisfied judgments against the Company. Item 2. Changes in Securities and Use of Proceeds There were no changes in the Company's securities in the quarter ended March 31, 2001. Item 3. Defaults in Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to the Security Holders for a vote during the quarter ended March 31, 2001. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) The exhibits required to be filed herewith by Item 601 of Regulation S-B, as described in the following index of exhibits, are incorporated herein by reference, as follows:
Item No. Description ----------------------------------- 3.(I).1 Articles of Incorporation of Surgical Safety Products, Inc., a Florida corporation filed May 15, 1992 [1] 3.(I).2 Articles of Amendment filed December 9, 1992 [1] 3.(I).3 Articles of Amendment filed July 19, 1994 [1] 3.(I).4 Articles of Amendment filed October 11, 1994 [1] 3.(I).5 Articles of Incorporation of Sheffeld Acres, Inc., a New York Corporation filed May 7, 1993 [1] 3.(I).6 Articles of Merger filed in the State of Florida October 12, 1994 [1] 3.(I).7 Certificate of Merger filed in the State of New York February 8, 1995 [1] 3.(I).8 Certificate to Do Business in the State of Florida filed April 11, 1995 [1] 3.(I).9 Certificate of Amendment filed May 1, 1998 [1] 3.(I).10 Certificate of Amendment filed February 28, 2000 [7] 3.(II).1 Bylaws of Sheffeld Acres, Inc., now known as Surgical Safety Products, Inc. [1] 3.(II).2 Amended Bylaws of Surgical Safety Products, Inc. [2] 10.1 Acquisition of Endex Systems, Inc. d/b/a/ InterActive PIE dated December 8, 1997 [1] 10.2 Prepaid Capital Lease Agreement with Community Health Corporation relative to Sarasota Medical Hospital OASiS Installation dated January 30, 1998 [1] 10.3 Letter of Intent with United States Surgical Corporation dated February 12, 1998 [1] 10.4 Form of Rockford Industries, Inc. Rental Agreement and Equipment Schedule to Master Lease Agreement [1] 10.5 Ad-Vantagenet Letter of Intent dated June 19, 1998 [1] 10.6 Distribution Agreement with Morrison International Inc. dated September 30, 1996 [1]
10.7 Distribution Agreement with Hospital News dated August 1, 1997 [1] 10.8 Clinical Products Testing Agreement with Sarasota Memorial Hospital dated January 30, 1998 [1] 10.9 Real Estate Lease for Executive Offices effective June 1, 1998 [1] 10.10 Employment Agreement with Donald K. Lawrence dated April 1, 1997 [1] 10.11 Employment Agreement with G. Michael Swor dated June 15, 1998 [1] 10.12 Employment Agreement with Frank M. Clark dated June 15, 1998 [1] 10.13 Agreement for Consulting Services with Stockstowatch.com Inc. dated March 30, 1988 [1] 10.14 Form of Employee Option Agreement dated July 1994 [1] 10.15 Form of Employee Option Agreement dated 1998 [1] 10.16 Form of Consultants Option Agreement dated July 1994 [1] 10.17 Form of Consultants Option Agreement dated 1998 [1] 10.18 Confidential Private Offering Memorandum dated May 30, 1995 [1] 10.19 Supplement to Private Offering Memorandum dated October 30, 1995 [1] 10.20 Stock Option Agreement with Bay Breeze Enterprises LLC dated April 9, 1998 [1] 10.21 Revolving Loan Agreement, Revolving Note, Security Agreement with SouthTrust Bank dated May 2, 1997 [1] 10.22 Agreement between the Company and T. T. Communications, Inc. dated October 15, 1998 [2] 10.23 Agreement between the Company and U.S. Surgical Corporation dated October 28, 1998. [2]
10.24 Collaborative Agreement between the Company and Dr. William B. Saye dated November 16, 1998. [2] 10.25 Kiosk Information System, Inc. Purchase Order dated November 3, 1998 [2] 10.26 Surgical Safety Products 1999 Stock Option Plan adopted January 1999 [2] 10.27 Form of the Employee Option Agreement under the Surgical Safety Products 1999 Stock Option Plan dated January 1999 [2] 10.28 Form of the Director, Consultant and Advisor Option Agreement under the Surgical Safety Products 1999 Stock Option Plan dated January 1999 [2] 10.29 Verio, Inc. Access Service Agreement dated February 16, 1999. [2] 10.30 Form of Investor Subscription Documents and Agreements relative to the April 1999 Self Directed Private Placement Offering under Rule 506 of Regulation D. [3] 10.31 Form of the Warrant issued pursuant to the April 1999 Self Directed Private Placement Offering under Rule 506 of Regulation D. [3] 10.32 Consulting Agreement dated April 1999 with Koritz Group, LLC. [3] 10.33 Agreement dated April 1999 with KJS Investment Corporation. [4] 10.34 Agreement dated May 1999 with Ten Peaks Capital Corp. [4] 10.35 Private Partner Network Agreement dated July 30, 1999 with US Surgical [5] 10.36 Staff/Client Leasing Agreement dated October 16, 1999, as amended September 15, 1999 [5] 10.37 Agreement dated July 15, 1999 with Triton Capital Inc.[6] 10.38 Effective December 30, 1999, Loan Agreement, Note, Security Agreement, Lender's Warrant, Agent's Warrant, Registration Rights Agreement and Escrow Agreement relative to the December 1999 transaction with Thomson Kernaghan & Co., Inc. and Amendment thereto. [7]
10.39 Effective January 3, 2000 IBM Customer Agreement and Statement of Work. [7] 10.40 Investment Banking Services Agreement dated February 2, 2000 with Dunwoody Brokerage Services Inc. [8] 10.41 Consulting Agreement dated February 15, 2000 with Global Development Advisors Inc. [8] 10.42 Surgical Safety Products 2000 Stock Option and Award Plan [8] 10.43 Agreement with Steel Beach Productions dated February 29, 2000 [9]. 10.44 Agreement with Horizon Marketing Group dated May 16, 2000 [10] 10.45 Agreement with EPIX dated May 25, 2000 [10] 10.46 Amendment to the Company's 2000 Stock Option and Awards Plan dated June 6, 2000 [10] 10.47 Revolving Loan Agreement, Revolving Note, Security Agreement with SouthTrust Bank dated June 7, 2000 [10] 10.48 Agreement with AORN effective July 1, 2000 [10] 10.49 Agreement with Carver Cross dated July 6, 2000 [10] 10.50 Agreement with U.S. Surgical effective June 28, 2000 [11] 10.51 Agreement with Imagyn dated September 18, 2000 [12] 10.52 Agreement with Haemacure dated September 19, 2000 [12] 10.53 Agreement with Storz dated September 29, 2000 [12] 10.54 Agreement with Quantum dated October 6, 2000 [12] 10.55 Agreement with Stryker dated October 9, 2000 [12]
10.56 Property Lease dated October 13, 2000 [12] 10.57 Agreement with GDA dated October 25, 2000 [12] 10.58 * Loan Cancellation and Settlement Agreement with Thomson Kernaghan & Co. Ltd. effective February 7, 2001 10.59 * Term Sheet for merger with Emagicsoft Technologies Inc. dated February, 2001 10.60 * Selective HR Solutions Agreement dated March 2001. 10.61 * DeRoyal Industries, Inc. Agreement dated 2001 13.1 Definitive Proxy Statement filed February 28, 2000 [8] ----------------
[1] Previously filed with the Company's Form 10SB [2] Previously filed with the Company's Amendment No. 1 to the Form 10SB [3] Previously filed with the Company's Form 10QSB for the Quarter ended March 30, 1999 [4] Previously filed with the Company's Form 10QSB for the Quarter ended June 30, 1999 [5] Previously filed with the Company's Amendment No. 2 to the Form 10SB [6] Previously filed with the Company's Form 10QSB for the Quarter ended September 30, 1999 [7] Previously filed with the Company's Form S-3 on March 2, 2000. [8] Previously filed with the Company's Form 10KSB for the fiscal year ended December 31, 1999. [9] Previously filed with the Company's Form 10QSB for the Quarter ended March 31, 2000. [10] Previously filed with the Company's Form 10QSB for the Quarter ended June 30, 2000. [11] Previously filed with the Company's Amendment 3 to the Form 10QSB for the Quarter ended June 30, 2000. [12] Previously filed with the Company's Form 10QSB for the Quarter ended September 30, 2000. [13] Previously filed with the Company's Form 10KSB for the fiscal year ended December 31, 2000. (b) No Reports on Form 8-K were filed during the quarter ended March 31, 2001. SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. Surgical Safety Products, Inc. (Registrant) Date: May 24, 2001 By:/s/Dr. G. Michael Swor --------------------------------------- Dr. G. Michael Swor, Chief Financial Officer